2011 (5) TMI 229 - HC - Income Tax

Unexplained cash credit - Summon under section 131 - standing credited in the name of Banwarilal Khetan in the regular books of account - The transaction for which the finding has been recorded by the authorities below is based on the evidence available on record as stated by non else than the witness suggested by the assessee himself and the said witness was called and it was found that his statement in his proof of the entry made in the books of account of the assessee and therefore the creditworthiness and the credibility of the witness was in doubt - Held that the Revenue has rightly held that a sum of ₹ 1,33,000, standing credited in the name of Banwarilal Khetan in the regular books of account can be credited in the total income of the appellant as unexplained cash credit under section 68 of the Income-tax Act, 1961 - Appeal is dismissed

Summary

Issues:
Addition of amount under section 68 of the Income-tax Act, 1961 as unexplained cash credit.

Analysis:
The appellant-assessee challenged the order passed by the Income-tax Appellate Tribunal regarding the addition of Rs. 1,33,000 under section 68 of the Income-tax Act, 1961. The appellant contended that the amount was trade credit, not cash credit, and all necessary information had been provided to the authorities. The appellant argued that the burden was on the Revenue to prove otherwise, especially after summoning the creditor under section 131 of the Act. The High Court considered the submissions of both parties and reviewed relevant judgments cited by the appellant.

The High Court examined the judgments referred to by the appellant, including Sarogi Credit Corpn. v. CIT and CIT v. Orissa Corpn. (P.) Ltd. In these cases, the courts emphasized the importance of assessing the creditworthiness of creditors and the need for the Revenue to pursue investigations beyond issuing notices under section 131. The High Court acknowledged the appellant's efforts to discharge the burden of proof and rebut the Revenue's allegations.

However, the core issue was whether the amount in question constituted cash credit or trade credit. The appellant argued that the amount was a trade credit advanced for the purchase of a tractor, which was later returned due to a price increase. The High Court noted that the alleged creditor's credibility and creditworthiness were questionable, as revealed during the investigation. The court highlighted discrepancies in the alleged creditor's statements regarding income sources and loan arrangements, casting doubt on the legitimacy of the transaction.

Based on the evidence presented and the credibility of the alleged creditor, the High Court upheld the Revenue's decision to treat the amount as unexplained cash credit under section 68 of the Income-tax Act, 1961. The court emphasized that the facts of this case differed from previous judgments where creditor credibility was not in doubt. Consequently, the appeal was dismissed, and no costs were awarded.

In conclusion, the High Court's judgment focused on the distinction between cash credit and trade credit, considering the credibility of the alleged creditor and the evidence presented during the investigation. The decision reinforced the importance of establishing the legitimacy of financial transactions and the burden of proof in such cases under the Income-tax Act, 1961.