Addition based on baseless estimated past savings unjustified

Surendra Nath Singh Vs ITO (ITAT Varanasi)

Held that estimating past savings as Rs. 6,00,000, without any basis, instead of Rs. 9,03,900 and also ignoring the evidences produced for the same. Addition of the same deleted.

Facts-

The assessee is an individual and derives income from the legal profession and agriculture. AO issued a notice u/s. 148 of the Income Tax Act on the basis of information received from Income Tax Officer regarding the cash deposit of Rs. 15,03,900/- in the saving bank account of his son.

The assessee explained the deposit in the bank account of his son to purchase an apartment in Lucknow and the source of deposit is to the extent of Rs. 8,03,900/- from past savings of the assessee from his professional income as well as agricultural income. The balance amount of Rs. 7,00,000/- was explained by the assessee as a loan taken from the relatives.

AO accepted the past savings of the assessee by estimating the same at Rs. 6,00,000/- instead of the claim of the assessee at Rs. 8,03,900/- and consequently addition of Rs. 2,03,900/- was made on account of unexplained and undisclosed income. Thus, total addition of Rs. 9,03,900/- was made by AO.

The addition was confirmed by CIT(A). Being aggrieved, the assessee preferred the present appeal.

Conclusion-

The Assessing Officer then observed that in the absence of any credible evidence, the past savings was accepted at Rs. 6,00,000/-. It is pertinent to note that the Assessing Officer has not given any basis for acceptance of past savings at Rs. 6,00,000/- when the assessee in in the legal profession for last more than 40 years as well as having the agricultural land holding and agricultural income. Therefore, the estimation of the Assessing Officer without any basis at Rs. 6,00,000/- as against the claim of Rs. 9,03,900/- is arbitrary and unjustified.

Held that ignoring the facts and circumstances of legal practice of the assessee for such a long period as well as evidence produced for agricultural land holding, the additions sustained by the CIT(A) on the ground that no evidence could be furnished, is not justified. Accordingly, the addition made by the AO and confirmed by the CIT(A) of Rs. 2,03,900/- is deleted.

Held that the assessee has given a plausible explanation by producing the details of the loan creditors who are non other than relatives of the assessee and the Assessing Officer could not conduct a proper enquiry due to the paucity of the time as the notice under section 133(6) were issued at the fag end and the same were not even served on the loan creditors before the assessment order was passed. Therefore, it is a case of no enquiry conducted by the Assessing Officer to contradict the explanation of the assessee. Even otherwise the assessee submitted the requisite information and evidence before the CIT(A) but instead of examining and verifying the correctness of the evidence produced by the assessee, the same was rejected out rightly. This conduct of the Assessing Officer as well as CIT(A) is not in accordance with the procedure ought to have been adopted by the quasi-judicial authority.

FULL TEXT OF THE ORDER OF ITAT VARANASI

This appeal by the assessee is directed against the order dated 07.08.2018 of CIT(A) for the assessment year 2010-11. The assessee has raised the following grounds:-

“1. Because the Order of the learned CIT(A) is erroneous in so far as it did not state point for determination, the decision thereon and the reason for decision.

2. Because the Order of learned CIT(A) is not a speaking Order and cannot be sustained being in violation of principles of natural justice.

3. Because the learned lower authorities are not justified in accepting past savings at Rs.6,00,000 only as against Rs. 8,03,900 and treating Rs.2,03,900 as unexplained / undisclosed income ignoring that the assessee had no bank account in the past and is a practicing advocate since 1976-77 and has also substantial income from agricultural land in support of which Khatauni of agricultural land at village Tanda and Bairakh were filed. The assessee had shown agricultural income at Rs.25,000 in the year under consideration which has been accepted by the A.O.

4. Because total deposit in the bank account of assessee son were 15,03,900 out of which Rs.7,00,000 were received as loan from relatives which has wrongly been treated by the learned A.O. as unexplained and also confirmed by learned CIT(A) ignoring evidence / documents filed before him.

5. Because the A.O. is grossly unjustified in stating in Para 4 of Assessment Order that the information called for u/s. 133(6) from all the six parties / relatives, who have given loan to assessee, no response were received from any one of them and in treating the loan amount of Rs. 70,000/- as unexplained and learned CIT(A) also erred in confirming the addition ignoring the facts and documents on record.

6. The observation of the learned A.O. in Para 4 of assessment Order dt.27.12.2017 is wrong and misleading that no reply was filed by any of the 6 parties, to whom notices u/s. 133(6) were issued, ignoring the vital fact that reply by Kalpnath Singh, Manish Singh and Samrath Singh admitting advance of loan to assessee were duly filed before the A.O on 27.12.2017, the date of Assessment Order. The learned CIT(A) also erred in not accepting the loan from these 3 parties relying upon the incorrect and misleading observation made by A.O. in Assessment Order – without verifying the fact on record that on 27.12.2017, the date of assessment order the replies filed in compliance to notice u/s. 133(6) by the aforesaid three parties were on assessment record the A.O.

7. Because the observation of the learned A.O. in Para 3 of the remand report that the assessee filed letter dated 17.11.2017 merely stating name of alleged lenders that too with incorrect address, is patiently not only wrong but also untrue as the notices issued under 133(6) by A.O. were duly complied with on 27.12.2017 by 3 parties and the other 3 parties alongwith aforesaid 3 parties also filed affidavit before the learned CIT(A) – on the basis of service of notice u/s. 133(6) on them, which prove that address given by assessee vide letter dt.17.11.2017 was complete and correct.

8. Because the allegation of A.O. in remand report that assessee failed to prove identity, genuineness of transaction and credit worthiness of the lenders and did not produce any evidence to prove ingredients of section 68 is wrong ignoring the document filed before the learned CIT(A) on which remand report was called for and the replies filed in compliance to notice u/s. 133(6) on 27.12.17 by three parties Kalanath, Manish, Samrath Singh before the A.O. The documents filed before learned CIT(A) are as under:-

(a) Surjeet Singh – Aadhaar Card, 3 Khatauni

(b) Samrath Singh – Aadhaar Card, 4 Khatauni

(c) Manish Singh – Voter ID

(d) Kalpnath Singh – Voter ID, 4 Khatauni

(e) Yogesh Singh -Aadhaar Card, 1 Khatauni

(f) Alok Singh – 1 Khatauni of father Jaiprakash

9. Because the learned CIT(A) has not adjudicated grounds of appeal as under:-

“Because regarding loan the appellant has filed the list containing name of six persons their address and borrowed amount but teamed A. O. has not given reasonable opportunity to the appellant to prove his version ignored the fact and passed the order in so hurry.

Because the version of learned A.O. explain in para 4 of the assessment order is totally against facts. The confirmation letter of three persons containing information as required by AO are already submitted.”

10. Because the time allowed u/s 133(6) to all the parties, who have given loan to assessee, was extremely short and it was not possible to furnish the information within the time allowed. The notices were send by registered post / speed post:

11. The assessee filed affidavit of notary public sworn by all the 6 persons who gave loan to assessee before the learned CIT(A). The issue for all the 6 parties were identical and a common format was prepared by the assessee himself being on advocate in which the following blank space / were left filled in by hand writing:

(1) Name and Address

(2) Whether PAN Card or not

(3) Source of income agriculture or service

(4) Amount of Advance

(5) Bank A/c available or not

(6) Agriculturist or Serviceman

The learned CIT(A), without examining the deponents or contents of the affidavit, is not correct in stating that same cannot be relied as valid evidence in view of the remand report of the learned A.O.

12. Assessee craves to leave / alter any grounds of appeal before or / on the date of hearing.”

2. The assessee is an individual and derives income from legal profession and agriculture. The Assessing Officer issued a notice under section 148 of the Income Tax Act on 30.3.2017on the basis of information received from Income Tax Officer 3(5), Lucknow, regarding the cash deposit of Rs. 15,03,900/- in the saving bank account of his son Sh. Brijesh Kumar Singh, during the year under consideration. In response to the notice issued under section 148, the assessee has filed a return of income declaring total income of Rs. 1,27,500/- with agriculture income of Rs. 25,000/- for rate purpose. The assessee explained the deposit in the bank account of his son for the purpose of purchasing of apartment in Lucknow and the source of deposit is to the extent of Rs. 8,03,900/- from past savings of the assessee from his professional income as well as agricultural income. The assessee also produced the land holding evidence in support of the agricultural income. The balance amount of Rs. 7,00,000/- was explained by the assessee as loan taken from the relatives. The assessee has submitted the details of six persons with their address and amount borrowed from each one. The Assessing Officer issued notice under section 133(6) of the Income Tax Act to the relatives of the assessee from whom the assessee claimed to have taken the loan. The Assessing Officer called the information regarding the amount, mode of payment of loan, bank account statement of the year under consideration. There was no response received by the Assessing Officer from these relatives and therefore, the Assessing Officer has declined to accept the source explained by the assessee to the extent of Rs. 7,00,000/- claimed as loan taken from the relatives and made the addition of the said amount as unexplained / undisclosed income of the assessee. As regards, the assessee’s past savings of Rs. 8,03,900/-, the Assessing Officer accepted the past savings of the assessee by estimating the same at Rs. 6,00,000/- instead of Rs. 8,03,900/- and consequently the addition of Rs. 2,03,900/- was made on account of unexplained and undisclosed income. Thus, the total addition of Rs. 9,03,900/-made by the Assessing Officer to the return of income of the assessee. The assessee challenged the action of the Assessing Officer before the CIT(A) and submitted that the Assessing Officer ignored the confirmation letters of three persons containing the information as required by the Assessing Officer submitted and the confirmation letter of the rest three persons were ready to file but the order was passed by the Assessing Officer before the said information was to be submitted. Thus, the assessee contended that the Assessing Officer has not given the sufficient time to the assessee or to the loan creditors to submit the information. The CIT(A) was not impressed with submissions of the assessee and confirmed the additions made by Assessing Officer.

3. Ground no. 3 is regarding the addition of Rs. 2,03,900/- on account of past savings of the assessee. The learned AR of the assessee has submitted that the assessee is in legal practice as an Advocate since 1976-77 and also having a substantial income from agricultural operations. He has pointed out that the assessee has submitted the proof of agricultural land holding and income therefrom during the assessment proceedings and the Assessing Officer accepted the agricultural income of the assessee. However, the Assessing Officer has estimated the past savings at Rs. 6,00,000/- instead of the claim of the assessee at Rs. 8,03,900/-. This estimation of the Assessing Officer is without any basis when the assessee has produced the evidence of agriculture land holding. Thus, the learned AR has submitted that having regard to the fact that the assessee is in legal profession for more than 40 years and also having the agricultural land in village Tanda and Bairakh for which the assessee has filed Khatauni / Revenue record which is accepted by the Assessing Officer the addition is not warranted. Thus, he has submitted that the addition made by the Assessing Officer by estimation of the past savings of the assessee is not justified and the same may be deleted.

4. On the other hand, the learned DR has submitted that he assessee has not produced any proof of income and therefore, the estimation of the past savings of the assessee from professional income and agricultural income is justified. He has relied upon the orders of the authorities below.

5. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has accepted the past savings from the professional income as well as agricultural income but estimated the same at Rs. 6,00,000/-, instead of Rs. 8,03,900/- claimed by the assessee. The relevant finding of the Assessing Officer in para 5 is as under:-

“5. Regarding assessee’s submission that he had past savings of Rs. 8,03,900/- from his profession and receipt of agricultural income. To substantiate his claim, assessee has submitted the Khatauni of the agricultural land holdings. Hence, in view of the fact that assessee is in the profession of law since last so many years and also has agricultural income, it cannot be denied that he will have no savings. Therefore, in absence of any credible evidence, I estimate that it will be reasonable if past saving is accepted; at Rs.6,00,000/-. Hence, remaining amount of Rs.2,03,900/-(Rs.8,03,900/ – Rs.6,00,000/-) is treated as unexplained/undisclosed income of the assessee and the same is added to the total income of the assessee.

It is evident from the order of the Assessing Officer that the Assessing Officer has accepted that the assessee is in the profession of law since last so many years and also has an agricultural income and therefore, it cannot be denied that he is having no savings. The Assessing Officer then observed that in the absence of any credible evidence, the past savings was accepted at Rs. 6,00,000/-. It is pertinent to note that the Assessing Officer has not given any basis for acceptance of past savings at Rs. 6,00,000/- when the assessee in in the legal profession for last more than 40 years as well as having the agricultural land holding and agricultural income. Therefore, the estimation of the Assessing Officer without any basis at Rs. 6,00,000/- as against the claim of Rs. 9,03,900/- is arbitrary and unjustified. Even otherwise the savings of Rs. 8,00,000/- in the legal profession of more than 40 years as well as the proof of agricultural land holding of the assessee is not an excessive claim and therefore, in the absence of any contrary material or fact brought by the Assessing Officer, the denial of this claim of past savings and restricting the same to Rs. 6,00,000/- as against Rs. 8,03,900/- is not justified. The CIT(A) has not given any finding except sustaining the addition summarily in para 6 as under:-

“As regards addition of Rs. 2,03,900/-, no evidence could be furnished during the course of appellate proceedings and accordingly, this addition is also sustained.”

Therefore, ignoring the facts and circumstances of legal practice of the assessee for such a long period as well as evidence produced for agricultural land holding, the additions sustained by the CIT(A) on the ground that no evidence could be furnished, is not justified. Accordingly, the addition made by the Assessing Officer and confirmed by the CIT(A) of Rs. 2,03,900/- is deleted.

6. Ground nos. 4 to 11 regarding the addition of Rs. 7,00,000/- made by the Assessing Officer by denying the claim of loan taken from the relatives as source of deposits in the bank account of the son. The learned AR of the assesse has submitted that the assessee filed affidavits of all six persons who have given loan to the assessee and also their agricultural land holding with voter ID, ration card as well as the details of source of income with PAN Card, wherever it was available. He has further contended that the CIT(A) called for a remand report from the Assessing Officer but the Assessing Officer in the remand report has summarily rejected the evidence produced by the assessee to prove the identity, the creditworthiness of the loan creditors as well as the confirmation to show the genuineness of the transaction. When the assessee discharged its onus to prove the identity, creditworthiness and genuineness of the transaction then without bringing any contrary evidence or material, the explanation of the assessee cannot be rejected. He has further submitted that the Assessing Officer instead of examining the evidence produced by the assessee or even to examine the loan creditors has declined to accept the said evidence. Based on the said remand report, the CIT(A) has confirmed the addition without considering the fact that these persons have explained the source of the loan given to the assessee. He has relied upon the judgment of Hon’ble jurisdiction High Court in the case of Sohan Lal Gupta vs. Commissioner of Income Tax (1958) 33 ITR 786 (Alld) and submitted that the Hon’ble High Court has observed that the affidavit filed by the assessee cannot be rejected without cross examination on that point or called upon the assessee to produce any documentary evidence in support of the contents in the affidavit. Thus, the learned AR has contended that assessee could not produce the evidence during the assessment proceedings because the Assessing Officer has not given the sufficient time to the loan creditors or to the assessee to produce the relevant details and information called by the Assessing Officer while issuing the notice under section 133(6) of the Act. He has pointed out that the Assessing Officer has issued the notice under section 133(6) at the fag end of the limitation period of framing the assessment leaving no time to comply with within the due date given by the Assessing Officer. Further, when these informations were ready to be submitted before the Assessing Officer, he passed the assessment order on 27th December, 2017. Some of the notices were issued on 21st December, 2017 and therefore, passing the order on 27th December, 2017 itself shows that the Assessing Officer has not given sufficient opportunity and time to furnish the requisite details and information called by the Assessing Officer vide notice issued under section 133(6) of the Act. Thus, he has submitted that when the assessee produced all these relevant evidence and details during the appeal proceedings before the CIT(A), the same ought to have been admitted and verified in the remand proceedings. Denial of the additional evidence is a gross violation of principles of natural justice.

7. On the other hand, learned DR has submitted that the assessee has failed to discharge its onus to prove the identity and creditworthiness of the creditors as well as genuineness of the transaction. The assessee has merely given the names of the loan creditors and the amount of the loan taken from the loan creditors. To verify the claim of the assessee, the Assessing Officer issued notices under section 133(6) of the Act to all the six loan creditors however, no response was received by the Assessing Officer from any of the loan creditors. Therefore, the Assessing Officer was justified to treat the said amount of Rs. 7,00,000/- as an unexplained income of the assessee or unexplained cash credit. He has further contended that when the assessee has not produced any evidence in support of his claim during the assessment proceedings, then the evidence produced by the assessee before the CIT(A) cannot be accepted until and unless the assessee established the case and satisfy the conditions, as prescribed under Rule 46A of the Income Tax Rules, 1962. He has relied upon the orders of the authorities below.

8. I have considered the rival submissions as well as relevant material on record. The Assessing Officer has made the addition of Rs. 7,00,000/- by rejecting the explanation of the assessee regarding the loan taken from six relatives of the assessee in para 4 as under:-

“4. Further, as mentioned in his aforesaid letter regarding loans from relatives, enquiry letters u/s 133(6) of the Income tax Act, 1961 were sent to the addresses of the persons as provided by the assessee, calling for information regarding the amount and mode of payment of loan, bank account statement of the year under consideration etc., but no response was received from any one of them. Therefore, it can be concluded that assessee’s version of receipt of loans cannot be accepted as assessee has failed to bring anything on record to prove the genuineness of receipt of loans and credentials of the persons. It is further proved by this fact also that assessee has no bank account during the period and no confirmation/information was received from anyone who has given him loan. Therefore, Rs.7,00,000/- is treated as an unexplained/undisclosed income of the assessee and the same is added into the total income of the assessee.”

9. The Assessing Officer has stated in the assessment order that enquiry letter under section 133(6) of the Income Tax Act were sent to the address of the persons as provided by the assessee calling for information regarding the amount and mode of payment, bank account etc,. The Assessing Officer further stated that no response was received from any of them and consequently the Assessing Officer rejected the explanation and made the addition. It is pertinent to note that the Assessing Officer issued the notices under section 133(6) dated 13.12.2017 and 20.12.2017. The details of the date of notices, dispatch of the notices and due date of compliance is given by the assessee in ground no. 10 itself which is again reproduced as under:-

10. I have gone through the notices issued by the Assessing Officer under section 133(6) and found that the details given by the assessee in the above said table is matching with the details of date of issuance of notice, dispatch of the notice, compliance date etc,. Thus, it is clear that the four notices were dispatched on 21st December, 2017 and the compliance date was given 26th December, 2017 and one notice was dispatched on 16t^h December, 2017 and another was dispatched on 14th December, 2017. The Assessing Officer has not mentioned in the assessment order that when these notices were served on the loan creditors. It is also pertinent to note that when the Assessing Officer himself has given the compliance date as on 26.12.2017, then the order passed by the Assessing Officer on the very next date shows that due to the time barring assessment, the Assessing Officer could not wait for the response of the loan creditors. Thus, it is apparent from the bare facts that the Assessing Officer has not given the sufficient and reasonable time to the loan creditors to furnish the requisite details as called for vide the notices issued under section 133(6). The assessee has even given the details of two service of notices as on 1.1.2018 which is much after the assessment order was passed. All these facts and circumstances shows that the Assessing Officer was in the haste due to time barring case and the notices under section 133(6) were issued at the fag end of the limitation period of the assessment and further the Assessing Officer has dispatched the notices on 21.12.2017 which could have been received by the loan creditors even beyond the date of compliance stated in those notices. Therefore, without ascertaining the service of notices before the due date of compliance or before passing the assessment order, the assessee cannot be blamed for non receipt of response by the Assessing Officer before the assessment order was passed on 27th December, 2017. In view of this fact that the Assessing Officer has not given sufficient time to the loan creditors to furnish the requisite details and information, the assessee furnished all those details alongwith confirmation in the shape of affidavits of the loan creditors during the appeal proceedings before the CIT(A). The CIT(A) though called for a remand report from the Assessing Officer however, the Assessing Officer has objected to the admission of the additional evidence in the remand report which is reproduced by the CIT(A) at pages 5 and 6 of the impugned order as under:-

1) Appeal memo/written submission, containing brief facts and grounds of appeal, on which comments are sought, is not signed by the appellant and therefore deserve to be rejected out rightly being a non-entertainable piece of document.

2) Two additions have been made by the AO and both are based on well recorded findings of the AO and deserve to be confirmed.

3) Since the assessee had failed to prove claim of loan before the AO as all ingredients of the section 68 were not proved by him, the addition of Rs. 7 lakhs was justified. Though, it was obligatory on the part of the assessee to prove identity, genuineness of transaction and creditworthiness of the lenders, but the assessee did not produce any evidence to prove those ingredients. He simply filed a letter dated 17/1 1/2017 merely stating names of the alleged lenders and that also with incorrect address, (copy of letters are enclosed).

4) After completion of assessment proceedings and passing the order on 27/12/2017 the assessee furnished three letters/ response of notice u/s 133(6) which states nothing except statement of cash loan of the assessee. Nothing else were filed in support of their identity, creditworthiness and genuineness of transaction. These could not be treated sufficient evidence in support of claim of loan.

5) The assesses had submitted unfair affidavits of alleged lenders in appeal proceedings, which were not before the AO and have never been subjected to examination, and in the nature of additional evidence and for entertaining such additional evidences, condition of Rule 46A are required to be satisfied. In the present case none of the Condition of Rule 46A is satisfied and hence it is requested to reject the additional evidence.

6) Moreover, said affidavits are of no evidentiary value as the same are apparently tempered documents which is evidential from the fact of various cutting/overwriting which have not been signed/initiated by the alleged deponents but by the assessee himself and for that purpose he must be reprimand for submitting tempered documents.

7) Though, the additional evidence in contravention of provision of Rule 46A are not entertainable, still if your good self want to admit these documents, the contents of the same are required to be verified by examination of deponents. It is requested that before arriving at any conclusion the deponents may be examined u/s 131 of the I-T Act, 1961.

8) The averments made by the appellant in various grounds of appeal are false, incorrect, unsubstantiated and deserve to be rejected. Specifically the submission made in ground no. 8 is totally false that the appellant had filed any agricultural land paper and ID of lenders before the AO. No such evidence were filed before the AO. Even the claim of lenders being agriculturist was never made before the Assessing Officer, neither in the reply dated 17/11/2017 nor in the response of alleged lenders dated 27/12/2017 in compliance of notice u/s 133(6) of the I-T Act.

9) The second addition of Rs. 2,03,900/- made by the AO after assuming past saving of assessee Rs. 6 lakhs was more than reasonable and assessee deserves no relief on this addition.

10) Before parting with the matter and in addition to the submission made above, it is further submitted that if your good self arrive at the conclusion of genuineness of the cash loans, after through examination of the alleged lenders, then the assessee may be proceeded for penalty u/s 271D of the I-T Act, as he had accepted cash loan in contravention of provisions of section 269SS of the I-T Act. The condition of both, lenders and borrower, being farmer and having no income other than agriculture income is not satisfied.”

In the remand report, the Assessing Officer instead of examining the evidence furnished by the assessee or examining the loan creditors has straightway objected to the admission of the additional evidence except in para 7 of the remand report the Assessing Officer stated that if the CIT(A) wants to admit these documents, the contents of the same are required to be verified by an examination of deponents. It was requested by Assessing Officer before arriving to any conclusion, the deponent may be examined under section 133(6) of the Act.

Thus, the Assessing Officer alternatively desired to verify and examine the deponents before the evidence is accepted. The learned CIT(A) instead of considering of evidence or examining the loan creditors has confirmed the addition in para 5 as under:-

“5. It is seen that appellant has claim to have received cash loan of Rs. 7 Lac from various persons whose confirmation in the form of affidavits filed for the first time during the course of appellate proceedings as an additional evidence and no reasons were submitted as to how the same could be admitted. Further the affidavit is in the same format with exactly the same language and handwritten notes on the affidavits at exactly the same places. Accordingly, the same cannot be relied as a valid evidence and in view of the report of the A.O. the cash loan cannot be accepted as genuine.”

11. The above finding of the CIT(A) is not based on merits but on the ground that the additional evidence cannot be admitted. Having regard to the facts and circumstances of the case, when the Assessing Officer has not granted sufficient opportunity to the assessee or to the creditors to submit a requisite details and evidence or information called for by the Assessing Officer vide notices issued under section 133(6) of the Act, the evidence produced by the assessee before the CIT(A) ought to have been examined and verified. Rejecting the said evidence without verifying and examining is highly arbitrary and unjustified. Once the assessee has filed the confirmation in the shape of affidavits, the format of affidavit is not so relevant but the contents of the affidavits are material therefore, it is not the form of the affidavit but the substance of the affidavit is material. It is settled proposition of law that the initial obligation is on the assessee to satisfactorily explain the credit entry in the books of accounts or the source of the loan. Once the assessee has explained the source of credit / loan and in consequence the source of deposit in the bank account then the onus is shifted to the Assessing Officer to dispute the correctness of the explanation of the assessee. The assessee has given a plausible explanation by producing the details of the loan creditors who are non other than relatives of the assessee and the Assessing Officer could not conduct a proper enquiry due to the paucity of the time as the notice under section 133(6) were issued at the fag end and the same were not even served on the loan creditors before the assessment order was passed. Therefore, it is a case of no enquiry conducted by the Assessing Officer to contradict the explanation of the assessee. Even otherwise the assessee submitted the requisite information and evidence before the CIT(A) but instead of examining and verifying the correctness of the evidence produced by the assessee, the same was rejected out rightly. This conduct of the Assessing Officer as well as CIT(A) is not in accordance with the procedure ought to have been adopted by the quasi-judicial authority. There is no dispute that the Assessing Officer can also bring the material to counter the evidence and explanation furnished by the assessee but in the absence of any such material brought on record by the Assessing Officer to prove that the cash credit is in fact the money belongs to the assessee, the addition made by the Assessing Officer is not justified. Thus, the explanation offered by the assessee cannot be rejected by the Assessing Officer without any cogent ground.

12. Further in the absence of any evidence or material to substantiate the rejection of the explanation a presumption against the assessee cannot be raised. An explanation prima facie being reasonable cannot be rejected on capricious or arbitrary ground. Once the assessee has produced all the relevant details as well as the confirmation in the shape of the affidavits of the loan creditors alongwith their identity and source of income, then the same cannot be rejected without a proper verification and examination. The Hon’ble jurisdictional High Court in the case of Sohan Lal Gupta vs. Commissioner of Income Tax (Supra) has observed on this point as under:-

“5. The most important point, on which the Tribunal relied, is that mentioned at No. 2, viz., that, according to the Tribunal, the assessee had not satisfactorily established that the shares had to be sola as the purchaser of the Jaswant Sugar Mills was not willing to purchase that mill unless the shares in the Straw Board Mills Ltd. held by the family were also transferred to him at the same time. On this point, the only material available on the record is the affidavit which was filed by the assessee before the Income-tax Officer. The assessee in his affidavit, had definitely stated that the purchaser wanted to purchase both the going concerns, the Jaswant Sugar Mills and the Straw Board Mills Ltd., together and one of his conditions of purchase was that all the shares of Lala Jaswant Rai, his sons and other relatives had to be transferred to the purchaser.

The Income-tax Appellate Tribunal rejected this affidavit of the assessee on the mere ground that there was no documentary evidence in corroboration in the form of any correspondence or otherwise on this point. Shri G.S. Pathak has contended rightly before us that the Tribunal was not entitled to reject the affidavit on this point on such a ground. After the assessee had filed the affidavit, he was neither cross-examined on that point, nor was he called upon to produce any documentary evidence. Consequently, the assessee was entitled to assume that the income-tax authorities were satisfied with the affidavit as sufficient proof on this point.

If it was not to be accepted as sufficient proof either by the Income-tax Officer or by the Appellate Assistant Commissioner of Income-tax or by the Income-tax Appellate Tribunal, the assessee should have been called upon to produce documentary evidence, or, at least he should have been cross-examined to find out now far his assertions in the affidavit were correct.

In this connection, Shri Pathak has drawn our attention to a decision of the Supreme Court of India in Parikh and Co. v. Commissioner of Income-tax, Bombay, 1956-30 ITR 181 : ((S) AIR 1956 SC 554) (A). In that case, their Lordships of the Supreme Court, in very similar circumstances, held that the rejection of an affidavit filed by an assessee was not justified unless the assessee had either been cross-examined or called upon to produce documentary evidence in support of the affidavit sworn by him. Their Lordships held:

“No further documents or vouchers in relation to those entries were called for, nor was the presence of the deponents of the three affidavits considered necessary by either party. The appellants took it that the affidavits of these parties were enough and neither the Appellate Assistant Commissioner, nor the Income-tax Officer, who was present at the hearing of the appeal before the Appellate Assistant Commissioner, considered it necessary to call for them in order to cross-examine them with reference to the statements made by them in their affidavits. Under these circumstances it was not open to the Revenue to challenge the correctness of the cash book entries or the statements made by those deponents in their affidavits”.

In the instant case, these remarks fully apply, so that we have to hold that it was not open to the Tribunal to reject the plea taken by the assessee in his affidavit merely on the ground that no documentary evidence had been filed in support of that plea.”

13. Accordingly, in the facts and circumstances of the case as well as the settled proposition of law, the addition sustained by the CIT(A) ignoring the evidence produced by the assessee to prove the identity, creditworthiness of the creditors and genuineness of the transaction by furnishing their identity proof, their source of income and confirmation is not justified and highly arbitrary. All these evidence produced by the assessee except the confirmation were independent evidences and cannot be fabricated or manufactured and consequently, the same cannot be doubted on the ground of afterthought. Accordingly, the impugned orders of the CIT(A) on this issue is set aside and the addition made on this account is deleted.

Ground No. 1 & 2

14. In view of findings on the merits of the additions these two grounds of appeal become infructuous and need no adjudication.

15. In the result, the appeal of the assessee is allowed.

Order pronounced on 25.07.2022 at Allahabad, U.P. in accordance with Rule 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.