Facts of the Case

The assessee, Ajay Singh of Allahabad, was subjected to scrutiny assessment by the Assessing Officer for the relevant assessment year. During the assessment proceedings, certain amounts reflected in the assessee’s financial records were questioned regarding their nature and source.

The Assessing Officer treated the disputed amounts as unexplained income on the ground that the assessee failed to furnish satisfactory evidence to substantiate the source. Accordingly, additions were made to the returned income.

The Commissioner of Income Tax (Appeals) upheld the additions made by the Assessing Officer. Aggrieved by the appellate order, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Allahabad Bench.

Issues Involved

  1. Whether the additions made by the Assessing Officer were legally sustainable.
  2. Whether the assessee had discharged the burden of proof regarding the nature and source of the disputed amounts.
  3. Whether the CIT(A) properly appreciated the evidence and explanations furnished.
  4. Whether additions could be sustained when explanations remained unsubstantiated.

Petitioner’s Arguments (Assessee)

  • The additions were made without proper appreciation of the evidence produced.
  • The amounts in question were claimed to have identifiable sources.
  • Relevant explanations were furnished during assessment proceedings.
  • The lower authorities allegedly failed to consider the material in its proper perspective.

Respondent’s Arguments (Department)

  • The assessee failed to satisfactorily establish the source and genuineness of the disputed amounts.
  • Supporting documentary evidence was insufficient or unreliable.
  • The additions were made strictly in accordance with statutory provisions.
  • The CIT(A) rightly confirmed the assessment order.

Court Order / FINDINGS (ITAT)

  • The burden of proving the nature and source of disputed credits or amounts lies on the assessee.
  • Mere explanations without credible supporting evidence cannot be accepted.
  • Where the assessee fails to substantiate the explanation, additions under the relevant provisions of the Act are justified.
  • The lower authorities acted within their jurisdiction in sustaining the additions.

Important Clarification by the Tribunal

  • In cases involving unexplained income, the assessee must establish:
    • Identity of the source
    • Creditworthiness or financial capacity
    • Genuineness of the transaction
  • Failure to satisfy these conditions permits the tax authorities to treat the amounts as taxable income.

Link to download the order –

https://itat.gov.in/public/files/upload/1615971859-ITA%20%20118%20of%202019%20Ajay%20Singh.pdf 

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