In the wake of demonetization and ongoing assessments, we have made an effort to compile and bring to our readers, latest case laws by various Courts including the Supreme Court on issues covering unexplained credit, unexplained expenditure, unexplained investments and topics alike.  

1. [TS-5215-SC-2016-O]:Bogus company - unexplained Investment - Transaction of sale of shares of a company listed in BSE not genuine as the company was a ‘shell company’; incorporated for purpose of providing accommodation entries – SC dismisses assessee’s SLP; Upholds HC order reported in  [TS-5375-HC-2016(GUJARAT)-O] wherein HC had upheld re-assessment proceedings; The AO had reopened the case on the ground that the company of which assessee sold shares was a bogus company and hence, the LTCG claimed on sale of the said shares as exempt, had escaped tax

2. [TS-5195-SC-2016-O]:Share capital - unexplained Credit - Share capital bogus absent evidence to prove genuineness of share-holders - SC dismisses assessee's SLP against HC order; HC upheld addition u/s.68 on account of alleged share capital treating it as undisclosed Income of the company; HC had upheld AO's order who held that the assessee company had introduced its own money in the guise of share capital; HC observed that assessee company had failed to prove genuineness of the shareholders and source of fund; It had distinguished coordinate bench ruling relied on by assessee in the case of Hindusthan Tea Trading Co Ltd [TS-5219-HC-2003(Calcutta)-O]

3. [TS-6716-ITAT-2016(HYDERABAD)-O]:Peak credit &unexplained Credit - Only peak credit to be taxed u/s. 68, huge cash deposits in the savings bank account of assessee cannot be taxed - ITAT rules in favour of assessee; Holds that assessee having furnished the bank statement, AO could have verified and noticed that there were credits and corresponding debits which would give an indication that some amount has been recycled and that in such cases ordinarily, peak credit is to be taken into consideration for making an addition; Observes that AO made assessment as per Sec. 144 because assessee did not appear despite repeated reminders, however AO should keep in mind the normal turnover of the assessee, the expected profit in each year, based on the earlier year's income declared and accepted and the material available to make the addition;

4. [TS-6684-ITAT-2016(Mumbai)-O]:Profit vs Cash deposits - Unexplained Credit - Only profit earned on sales constitutes income of assessee and not the amount of cash and cheques deposited in the bank account – ITAT holds partly in assessee'sfavour; Notes that assessee (a retail trader covered under presumptive taxation scheme u/s. 44AF) is required to declare its profit at 5% on gross sales; Thereby, restricts addition made u/s. 68 to 5% on total cash and cheque deposits including opening and closing balances (assuming them all to be on account of sales);

5. [TS-6726-ITAT-2016(MUMBAI)-O]:Share capital - Unexplained Credit - Taxpayer admits before ITAT of manipulating the accounts and making fictitious entries to inflate share capital; ITAT clarifies that only real income can be brought to tax and remits the matter for de-novo assessment and reconsider additions made u/s. 68 on account of unexplained credit in the form of increased share capital - ITAT rules in favour of assessee; AO had made additions u/s. 68 of increased share capital and share application money as unexplained credits in view of lack of credible explanation of source of introduction of such fresh share capital/share application; Assessee produced additional evidences before the ITAT conceding fictitious entries made to inflate share capital in order to avail bank loans; ITAT considers the additional evidences in the form of Affidavit of Promoter-Director, copies of revised audited accounts etc and remands the issue for de-novo assessment in order to identify and assess the real income of the assessee;

6. [TS-6730-ITAT-2016(KOLKATA)-O]:Cash Deposits - Unexplained Credits - Deposits in bank account received from clients towards making investment in shares, not unexplained, cannot be added to income; Cash deposits in bank account cannot be added to income when cash withdrawals are higher than the deposits; Addition of credit card payments towards reimbursement of official expenses sustained as assessee could not justify the same; Credit in bank account by way of housing loan cannot be added to assessee’s income as unexplained credit; Addition on account of investment from undisclosed sources deleted as investment was made by assessee out of its disclosed bank account; Revised return filed after issuance of intimation u/s 143(1) but before completion of assessment cannot be treated as invalid; - ITAT rules partly in favour of assessee (Associate VP of Religare Securities Ltd.); Deletes addition of cash received against sale of shares as the same was received from M/s Navratan Capital & Securities Ltd. and a certificate was provided by them to the effect that such payments were effected out of available cash balance with them; Further, deletes addition of cash deposits in bank account as withdrawals of cash were more than the amount of cash deposits, hence it is not unexplained cash deposits;

7. [TS-6729-ITAT-2016(JAIPUR)-O]:Cost of building, DVO report vs. Actual - Unexplained Investment - Addition u/s. 69 on adhoc basis of undisclosed investment in construction of building, based on DVO report, not valid when the assessee has produced supporting bills and vouchers; Statement made during the course of search cannot be made the sole basis for making addition; Repayment by company to assessee shareholder of amounts advanced earlier cannot be termed as deemed dividend u/s. 2(22)(e); Profit from sale of land held as investment by assessee, a real estate developer, can be taxed as capital gains; - ITAT rules in favour of assessee; Holds addition of undisclosed expenditure in construction is purely adhoc, to cover up for any possible leakages on surmises and conjectures and difference in value shown by assessee and that shown by the DVO;

8. [TS-6731-ITAT-2016(AHMEDABAD)-O]: Payers’ Identities - Unexplained Credit - No addition can be made as unexplained cash credit u/s 68 when assessee has proved the identities of people beyond doubt merely because the AO did not receive any confirmations from those people u/s 133 (6); Interest expenses allowable when interest free advances were made out of interest free funds available with the assessee - ITAT rules in favour of assessee; Holds that if the transaction is done by account payee cheque then the identity of the payer goes into oblivion because the money has flown from one identified bank account to another identified bank account; Deletes addition of unexplained cash credit u/s 68 made by AO

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