2011 (9) TMI 289 - HC - Income Tax

Unexplained cash credit - unknown depositors - held that - The Tribunal has correctly appreciated the position in law which is that when an unexplained credit is found in the books of account of an assessee the initial onus is placed on the assessee. The assessee is required to discharge this initial onus. Once that onus is discharged, it is for the revenue to prove that the credit found in the books of accounts of the assessee is the undisclosed income of the assessee. In the circumstances obtaining in the present case, in our view, the assessee has discharged that initial onus. The assessee is not required thereafter to prove the genuineness of the transactions as between its creditors and that of the creditors source of income, i.e., the sub-creditors See Nemi Chand Kothari vs CIT & Anr. (2003 (9) TMI 62 - GAUHATI High Court) . - Decided against revenue.

Summary

Issues Involved:
1. Confirmation of Tribunal's order for the assessment year 1997-98.
2. Service of notice to the assessee.
3. Examination of substantial question of law for the assessment year 1998-99.
4. Credibility of deposits received by the assessee.
5. Additions made by the Assessing Officer (A.O.).
6. Findings and conclusions of the Commissioner of Income Tax (Appeals) [CIT(A)].
7. Tribunal's findings and conclusions.
8. Revenue's arguments in support of the appeal.
9. Legal principles regarding unexplained credits under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Confirmation of Tribunal's order for the assessment year 1997-98:
The Division Bench directed the revenue to confirm if the Tribunal's order for the assessment year 1997-98 had been accepted. The revenue informed that the Tribunal's order was challenged but dismissed by the court on 05.10.2005, as no substantial question of law arose for consideration.

2. Service of notice to the assessee:
Despite several opportunities, the revenue failed to serve notice to the assessee. The assessee had not filed returns for the past six-seven years, and the revenue lacked the assessee's current address.

3. Examination of substantial question of law for the assessment year 1998-99:
Given the circumstances, the court examined if any substantial question of law arose for the assessment year 1998-99.

4. Credibility of deposits received by the assessee:
The A.O. discovered that the assessee received deposits from 86 persons. Summons were issued, and 16 persons acknowledged the deposits. However, the A.O. was not satisfied with the remaining 70 depositors and cited discrepancies such as clumsy fixed deposit forms and fictitious addresses provided by some depositors.

5. Additions made by the Assessing Officer (A.O.):
The A.O. made an addition of Rs. 46,40,978/- as unaccounted income, considering only fresh deposits during the current year and not renewals.

6. Findings and conclusions of the Commissioner of Income Tax (Appeals) [CIT(A)]:
The CIT(A) identified errors by the A.O.:
- Inclusion of deposits from 16 persons deemed genuine by the A.O.
- Repayment of deposits and interest to Ms. Pamela Manmohan Singh, establishing depositor identity.
- Renewals of earlier deposits not warranting additions.
- The assessee being a registered NBFC with deposits invited from the public.
- Only 10 entities were questioned by the A.O., with 4 making deposits during the relevant year and acknowledged by the entities.
- Deposits were through account payee cheques with tax deducted at source.
The CIT(A) concluded that the assessee discharged its primary onus, and the addition was unsustainable.

7. Tribunal's findings and conclusions:
The Tribunal noted the assessee provided necessary documentation and that the non-response of some investors did not justify adverse findings. It acknowledged the assessee's status as a public limited company registered with the RBI. The Tribunal concluded the A.O. erred in his findings.

8. Revenue's arguments in support of the appeal:
The revenue argued that the Tribunal's findings were perverse, as some summons were returned. They contended that additions for the remaining 70 persons should be sustained.

9. Legal principles regarding unexplained credits under Section 68 of the Income Tax Act, 1961:
The court emphasized that the initial onus is on the assessee to explain credits in its books. Once discharged, the revenue must prove the credits as undisclosed income. The assessee is not required to prove the genuineness of transactions between creditors and sub-creditors.

Conclusion:
The court dismissed the appeal, finding no substantial question of law. The CIT(A) and Tribunal's findings were upheld, recognizing the assesse's discharge of onus and the lack of supportive material for the A.O.'s additions. The Tribunal's role as the final fact-finding authority was affirmed, and no perversity was found in its conclusions.