ITAT Deletes Addition as AO Ignored “Genuineness” of Transaction Despite Clerical Error in Affidavit.

ITAT Deletes Addition as AO Ignored “Genuineness” of Transaction Despite Clerical Error in Affidavit.

Issue

Whether an addition for unexplained cash deposits can be sustained when the Assessing Officer (AO) rejects the assessee’s explanation solely due to a clerical error in an affidavit, while ignoring substantial documentary evidence (sale deed, bank statement) that proves the genuineness of the source, and failing to conduct any independent verification despite a specific request.

Facts

• The assessee deposited cash aggregating to ₹60,02,625 in his bank account.

• During the reassessment proceedings, the assessee explained the source of these deposits:

  1. ₹22,00,000 from the sale of his own agricultural land (Accepted by AO).

  2. ₹13,02,625 from cash withdrawals and re-deposits (Accepted by AO).

  3. ₹25,00,000 received from the sale proceeds of agricultural land belonging to his brother, Shri Bhag Singh, for the purpose of purchasing joint property.

• The AO rejected the explanation for the ₹25 lakh deposit. The sole ground for rejection was a clerical error in the affidavit filed by the brother, which stated he had “no bank account” (instead of “no other bank account”).

• The assessee requested the AO to verify the facts by summoning the brother under Section 133(6) or checking land records, but the AO did not do so.

• The CIT(A) confirmed the addition without considering the additional evidence (like the subsequent joint sale deed) submitted by the assessee.

Decision

• The Income Tax Appellate Tribunal (ITAT) ruled decisively in favour of the assessee.

• It held that the assessee had successfully discharged the initial onus by providing the identity, creditworthiness, and genuineness of the transaction through documentary evidence (sale deed, bank statement, affidavit).

• The Tribunal criticized the AO for rejecting the explanation on a “purely hyper-technical” ground (the clerical error in the affidavit) while ignoring the substantive evidence.

• The AO’s failure to conduct any independent inquiry or verification, despite the assessee’s request, meant the addition was based merely on suspicion, which cannot take the place of proof.

• Consequently, the addition of ₹25,00,000 was deleted.

Key Takeaways

• Substance Over Technicality: A minor clerical error in a document (like an affidavit) cannot be used to disregard the substantive genuineness of a transaction that is supported by other credible evidence (sale deed, bank records).

• Duty to Verify: When an assessee provides prima facie evidence and requests verification (e.g., summoning a witness), the AO cannot simply reject the claim without conducting that inquiry. Failure to verify shifts the benefit of the doubt to the assessee.

• Suspicion is Not Proof: An addition cannot be sustained on mere suspicion or conjecture. The revenue must bring adverse material on record to disprove the assessee’s documentary evidence.

• Family Arrangements: Financial transactions between close family members (like brothers) for joint property purposes are often viewed in the context of family arrangements, and their genuineness is accepted if the source of funds (land sale) is proven.