2011 (3) TMI 143 - HC - Income Tax

Unexplained cash credit - Gift - The assessee is a firm running a petrol pump and in its account credited a sum of Rs. 2 lacs as loan from one Dinesh Goyal - Held that - It is settled law that for proving the credit u/s 68 of the Income-tax Act, identity and creditworthiness of the lender as well as genuineness of the transaction are needed to be established by the assessee - The creditor of the assessee had received a gift from his maternal uncle and in any case, the addition should be in the hands of the creditor - Explanation by Dinesh Goyal was false as he did not have any source of money - The said findings are based on appreciation of material on record and are not shown to be unreasonable or perverse - Accordingly, the appeal is dismissed

Issues:
1. Assessment of unexplained cash credit under section 68 of the Income Tax Act, 1961.
2. Burden of proof on the appellant under section 68 of the IT Act, 1961.
3. Attribution of gift amount as income of the appellant firm.
4. Proof of identity of the loaner, genuineness of transaction, and capacity of the person advancing the loan.

Analysis:

Issue 1: Assessment of unexplained cash credit under section 68 of the Income Tax Act, 1961
The appellant, a firm running a petrol pump, credited a sum of Rs. 2 lakhs as a loan from an individual named Dinesh Goyal. The Assessing Officer questioned the genuineness of this cash credit, leading to an examination of Dinesh Goyal. It was revealed that Goyal had no personal sources of income and claimed to have received a gift of Rs. 2 lakhs from a relative, a claim found to be unsubstantiated. Consequently, the amount was treated as undisclosed income of the appellant firm. This decision was upheld by the CIT(A) and the Tribunal. The Tribunal emphasized the requirement to establish the identity and creditworthiness of the lender, as well as the genuineness of the transaction, to prove a credit under section 68 of the Income Tax Act. It concluded that the circumstances indicated the credited amount was the appellant's own money disguised as a loan.

Issue 2: Burden of proof on the appellant under section 68 of the IT Act, 1961
The Tribunal referred to the judgment in CIT v. P. Mohanakala 291 ITR 278, highlighting that the explanation provided by the assessee must be proper and acceptable. Since the explanation put forth by the appellant was deemed unacceptable, the burden of proving the genuineness of the credit entry was not discharged. The appellant failed to provide a satisfactory explanation for the credit entry, leading to the conclusion that it represented undisclosed income.

Issue 3: Attribution of gift amount as income of the appellant firm
The appellant argued that the addition should be in the hands of the creditor, Dinesh Goyal, who claimed to have received the amount as a gift. However, the courts rejected this argument, emphasizing that the appellant failed to explain the credit entry adequately, and Goyal's explanation was found to be false. The courts maintained that the appellant's undisclosed income was rightly assessed based on the evidence and explanations provided.

Issue 4: Proof of identity of the loaner, genuineness of transaction, and capacity of the person advancing the loan
The appellant contended that the addition made by the authorities was unwarranted. However, the courts upheld the concurrent findings that the appellant could not explain the credit entry satisfactorily, and Goyal's explanation was deemed false. The courts found the assessments based on the available evidence to be reasonable and not arbitrary. Consequently, the appeal was dismissed, and costs were imposed on the appellant.

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