Facts of the Case

During assessment proceedings, the Assessing Officer (AO) made additions to the assessee’s income on the ground that certain transactions or receipts were not satisfactorily explained. The AO treated these amounts as undisclosed or unexplained income and assessed them accordingly.

The assessee challenged the additions before the Commissioner of Income-tax (Appeals) [CIT(A)], contending that the additions were based on presumptions rather than evidence. After examining the material on record, the CIT(A) granted relief by deleting the additions.

  Issues Involved

  1. Whether the AO was justified in making additions without sufficient evidentiary support.
  2. Whether the CIT(A) was correct in deleting the additions.
  3. Whether the impugned amounts could be treated as undisclosed income under the Act.

Petitioner’s Arguments (Revenue)

  • The assessee failed to satisfactorily explain the transactions in question.
  • The AO was justified in drawing adverse inference based on available information.
  • The CIT(A) erred in granting relief despite deficiencies in the assessee’s explanation.

 Respondent’s Arguments (Assessee)

  • The additions were arbitrary and unsupported by reliable evidence.
  • Relevant explanations and documents had been provided during assessment.
  • The AO relied on suspicion rather than proof.
  • The CIT(A) correctly evaluated the facts and law.

 Court Order / Findings (ITAT)

  • Additions under the Income-tax Act must be supported by credible evidence.
  • Mere suspicion, conjecture, or inadequate inquiry cannot form the basis of taxation.
  • The AO failed to conclusively establish that the impugned amounts represented undisclosed income.
  • The CIT(A) had properly appreciated the facts while granting relief.

 Important Clarification

  • Burden lies on the Revenue to justify additions with cogent material.
  • Assessment cannot be based solely on assumptions or doubts.
  • Appellate authorities are empowered to delete unsustainable additions.
  • Proper investigation is essential before treating income as unexplained.

Link to download the order – https://itat.gov.in/public/files/upload/1574670474-BHARAT-57(MP).pdf

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