2010 (11) TMI 460 - HC - Income Tax

Addition - Cash credit - Genuineness of the transaction - The assessee could not prove the creditworthiness of the creditors and genuineness of transaction because the creditor has deposited the money on the same day in cash when the money on the same day was advanced to the assessee firm. The creditor was not in a position to pinpoint the exact source of money which was deposited nor did any evidence or circumstantial filed before the tax authorities - it is a fit case where the AO has rightly rejected the genuineness of the transaction and added the cash credit - The Tribunal on appreciation of material on record had observed that the cash credit was not proved to be genuine and was, therefore, liable to be added u/S 68 of the Act and reversing the order of CIT(A).

Summary

Issues:
Interpretation of Section 68 of the Income Tax Act, 1961 regarding cash credit source explanation.

Analysis:
The appellant filed an appeal under Section 260A of the Income-Tax Act, 1961 against the order of the Income Tax Appellate Tribunal relating to the assessment year 1995-96. The substantial question of law raised was whether the Tribunal was justified in upholding the addition on the ground of lack of explanation for the source of income when the genuineness of the transaction and the identity of the creditors were established. The appellant, engaged in the business of manufacturing agricultural implements, received a cash credit of Rs. 50,000 through a cheque from a bank account. The assessing authority was not satisfied with the explanation provided by the appellant and made the addition. The CIT(A) deleted the addition, but the Tribunal restored the assessing authority's decision.

The Tribunal found that the cash credit was not proven to be genuine and was therefore liable to be added under Section 68 of the Act. The Tribunal emphasized the importance of proving the creditworthiness of the creditors and the genuineness of the transaction. The Tribunal's decision was based on the evidence on record, and it relied on the decision in the case of Sumati Dayal Vs. CIT. The Tribunal's view was considered plausible, and the finding was upheld based on the evidence presented.

The appellant's counsel attempted to challenge the Tribunal's finding by seeking a re-appreciation of the evidence. However, the counsel failed to pinpoint any illegality or perversity in the evidence. As a result, the appeal was dismissed due to the lack of merit. The judgment highlighted the significance of complying with Section 68 requirements, including proving the genuineness of borrowings or credits in the books, as the relevant facts are within the assessee's knowledge. The judgment underscored the need to understand the nature and source of credits together to infer their genuineness or otherwise, as per the legal principles embodied in Section 68.