2010 (5) TMI 898 - AT - Income Tax

Summary

Issues Involved:
The judgment involves the issue of sustaining the addition of Rs. 2 lakhs as unexplained cash credit in the assessment year 2005-06.

Assessment of Unexplained Cash Credit:
The Assessing Officer observed that a partnership firm had raised an unsecured loan of Rs. 2,00,000 from a creditor. The creditor, Shri Dinesh Goyal, claimed to have received a gift of the same amount from relatives and then advanced it as a loan to the firm. However, the creditor could not produce supporting documents like a gift deed or bank passbook. The Assessing Officer concluded that the loan was the firm's unaccounted money routed through the creditor's bank account. Consequently, the addition of Rs. 2,00,000 was made under section 68 of the Income-tax Act.

Confirmation by CIT(A):
The CIT(A) upheld the Assessing Officer's decision, emphasizing that creditworthiness is not solely about having cash but the overall financial capability. Citing legal precedents, the CIT(A) highlighted the need to establish trustworthiness in repaying debts. The appellant's appeal against this decision was brought before the tribunal.

Arguments and Decision:
The appellant argued that they had proven the identity, creditworthiness, and genuineness of the loan, as it was received through banking channels. However, the Departmental Representative contended that the creditor's creditworthiness and the transaction's genuineness were not adequately proven. The tribunal noted that for a loan under section 68, the lender's identity, creditworthiness, and transaction genuineness must be established. In this case, the creditor's financial situation, lack of corroborative evidence, and immediate transfer of funds to the firm raised doubts. Referring to legal precedents, the tribunal concluded that the appellant failed to discharge the burden of proof required by section 68. Therefore, the CIT(A)'s decision was upheld, and the appeal was dismissed.

Conclusion:
The tribunal affirmed the CIT(A)'s decision to sustain the addition of Rs. 2 lakhs as unexplained cash credit, as the appellant could not sufficiently prove the creditworthiness and genuineness of the loan transaction. The appeal was dismissed on 14.5.2010.