2007 (9) TMI 226 - HC - Income Tax

Whether, on the facts and circumstances of the case, the burden cast on the assessee by Explanation (1B) to section 271(1)(c) stands discharged by the assessee providing basic information without substantiating the same? Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the onus of proving the source for the share application money is not entirely on the assessee but largely on the Assessing Officer? Whether, on the facts and circumstances of the case, the Assessing Officer has to prove that the cash credit is unexplained or that the explanation given is not true, to make an addition under section 68 of the Income-tax Act? Held that - The ultimate fact finding authority- the Tribunal in its order, which is impugned in these appeals, has recorded a clear finding to the effect that in the instant case, the Assessing Officer had listed the shareholders and found some of them were retired employees of the bank, some of them were working employees of the bank and rest of them were agriculturists. The Assessing Officer did not dispute that those persons did not exist. Though the Assessing Officer directed the assessee-company to produce the persons, he did not take the minimum pain of issuing notice to anyone of the persons when the details about them were very much available with him. Thus the Assessing Officer failed in his duty and obligation to disprove the claim of the assessee to the effect that the depositors were not genuine persons. The Tribunal further recorded a finding that the action of the Assessing Officer in arriving at a conclusion that the persons with low salary income would not have mobilised the fund was based on wild guess and doubting the capacity of the persons on surmises. It further held that the Assessing Officer failed to prove that the shareholders were not possessing money to pay the share application money. According to the Tribunal, the assessee discharged the onus cast upon it by providing the basic materials and it was the Assessing Officer who failed to prove the contrary. Appeal dismissed.

Summary

Issues involved:
1. Burden of proof under Explanation (1B) to section 271(1)(c)
2. Onus of proving source for share application money under section 68 of the Income-tax Act
3. Assessment of unexplained cash credit under section 68 of the Income-tax Act

Issue 1: Burden of proof under Explanation (1B) to section 271(1)(c):
The case involved the assessment year 1996-97 where the appeal raised questions regarding the burden cast on the assessee by Explanation (1B) to section 271(1)(c). The Assessing Officer found unexplained cash credit of Rs. 56,47,470 while processing the assessment. The assessee claimed to have received Rs. 72.90 lakhs as share application money, out of which Rs. 53,88,100 was from non-Income-tax assessees. The Assessing Officer treated this amount as unexplained cash credit under section 68. The Tribunal held that the assessee had provided basic information and the Assessing Officer failed to disprove the genuineness of the transactions. The Tribunal's decision was based on the Assessing Officer's failure to issue notices or conduct proper verification, leading to the dismissal of the penalty imposed under section 271(1)(c).

Issue 2: Onus of proving source for share application money under section 68 of the Income-tax Act:
Regarding the source of share application money under section 68, the Assessing Officer required the assessee to prove the genuineness of transactions involving Rs. 53,88,100 received from non-Income-tax assessees. The assessee provided salary certificates and land holding papers but did not produce the depositors. The Tribunal found that the Assessing Officer failed to disprove the genuineness of the depositors, as he did not take necessary steps to verify their existence or financial capacity. The Tribunal held that the assessee had fulfilled its obligation by providing basic information, shifting the burden largely on the Assessing Officer to prove otherwise.

Issue 3: Assessment of unexplained cash credit under section 68 of the Income-tax Act:
The case addressed the assessment of unexplained cash credit under section 68 for the share application money received. The Assessing Officer added Rs. 53,88,100 as unexplained cash credit to the assessee's income, which was upheld by the Commissioner of Income-tax (Appeals). However, the Tribunal overturned this decision, emphasizing that the Assessing Officer failed to disprove the genuineness of the depositors and their capacity to invest. The Tribunal highlighted the lack of proper verification and reliance on assumptions rather than concrete evidence. The court referred to relevant case laws emphasizing the necessity of conducting thorough inquiries before treating cash credits as income, ultimately dismissing the appeal and upholding the Tribunal's decision.

This detailed analysis of the judgment provides insights into the legal complexities surrounding the burden of proof, assessment of unexplained cash credit, and the obligations of both the assessee and the Assessing Officer under the Income-tax Act.