2011 (1) TMI 740 - AT - Income Tax

Disallowance - Whether, in the given facts and circumstances of the case, the impugned cash credit of Rs. 1.5 lakhs is genuine or not - When the Assessing Officer asked to prove the genuineness of the cash credit, the assessee submitted the confirmation of Om Prakash Haresh Chand & Co. along with their Permanent Account Number, copy of the bank statement of M/s. Om Prakash Haresh Chand in Canara Bank as well as copy of cash book - The opinion of the Assessing Officer for not accepting the explanation offered by the assessee as not satisfactory must be based on proper appreciation of the material and other surrounding circumstances available on record - Held that Assessing Officer without looking into the facts and bringing any evidence to the contrary rejected the explanation of the assessee. Section 68 nowhere empowers the Assessing Officer to reject each and every explanation of the assessee - Decided in favor of the assessee

Issues Involved:
1. Disallowance of loan and interest.
2. Identity, creditworthiness, and genuineness of the transaction.
3. Applicability of section 68 of the Income-tax Act.
4. Onus of proof and evidence required.
5. Precedents and legal principles applied.

Detailed Analysis:

1. Disallowance of Loan and Interest:
The primary issue in the appeal was the disallowance of a loan amounting to Rs. 1,50,000 and the interest of Rs. 11,700 credited on this loan, allegedly raised from M/s. Om Prakash Haresh Chand. The assessee argued that the loan was genuine, supported by bank statements and cash-book entries. However, the Revenue contended that the cash deposited in the creditor's bank account immediately before issuing the draft indicated that the transaction was not genuine.

2. Identity, Creditworthiness, and Genuineness of the Transaction:
The assessee provided evidence, including the creditor's cash-book and bank statements, to establish the loan's genuineness. The Revenue, however, argued that the creditor's capacity to lend the money was not satisfactorily established, as the source of the cash deposited in the creditor's bank account was unexplained. The Tribunal noted that the identity of the creditor was established, but the creditworthiness and genuineness of the transaction were in doubt due to the lack of satisfactory evidence regarding the source of the funds.

3. Applicability of Section 68 of the Income-tax Act:
The Tribunal discussed the applicability of section 68, which requires the assessee to satisfactorily explain the nature and source of any sum credited in the books of accounts. The Tribunal emphasized that merely recording a transaction in the books does not prove its genuineness. The onus is on the assessee to provide satisfactory evidence regarding the identity, creditworthiness, and genuineness of the transaction.

4. Onus of Proof and Evidence Required:
The Tribunal highlighted that the onus under section 68 is on the assessee to satisfactorily explain the nature and source of the credit. The evidence provided by the assessee, such as the cash-book and bank statements, was deemed insufficient to prove the transaction's genuineness. The Tribunal noted that the creditor's inability to explain the source of the cash deposited in the bank account further weakened the assessee's case.

5. Precedents and Legal Principles Applied:
The Tribunal referred to several legal precedents, including the decisions of the Hon'ble Supreme Court in the cases of Sumati Dayal v. CIT and CIT v. P. Mohanakala, to support its conclusion that the assessee failed to discharge the onus of proving the genuineness of the transaction. The Tribunal also noted that the mere fact that the creditor was part of a larger group of concerns (Ganga Ram Agarwal group) did not automatically establish the genuineness of the transaction.

Separate Judgments by the Judges:

Majority Judgment:
The majority judgment, delivered by the Accountant Member, upheld the Revenue's findings and dismissed the assessee's appeal. The Tribunal concluded that the assessee failed to satisfactorily explain the nature and source of the credit, and thus, the addition under section 68 was justified.

Dissenting Judgment:
The dissenting judgment by the Judicial Member argued that the loan was genuine, supported by sufficient evidence, including the creditor's confirmation, bank statements, and cash-book entries. The Judicial Member emphasized that the mere deposit of cash in the creditor's bank account before issuing the draft did not automatically render the transaction non-genuine. The Judicial Member allowed the assessee's appeal, stating that the loan amount and related interest should not be treated as unexplained.

Third Member's Decision:
The Third Member, agreeing with the Judicial Member, concluded that the impugned cash credit of Rs. 1,50,000 was genuine. The Third Member emphasized that the assessee had provided sufficient evidence to establish the identity and creditworthiness of the creditor and the genuineness of the transaction. Consequently, the assessee's appeal was allowed in view of the majority decision.

Final Outcome:
In the result, the appeal of the assessee was allowed, and the disallowance of the loan amount and related interest was deleted.

This detailed and comprehensive summary preserves the original legal terminology and significant phrases from the judgment, providing a thorough analysis of each issue involved.

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