2010 (11) TMI 771 - HC - Income Tax

Cash credits - Addition on the ground of lack of explanation for the source funds - assessee received loans from eight persons - Held that - Tribunal on appreciation of evidence had concluded that the cash credits amounting to Rs. 65, 000 in the names of Smt. Shanti Diwan ; Smt.Renu Diwan and Yogesh Kumar were not proved to be genuine whereas Rs. 30, 000 which was an income from commission received by Yogesh Kumar and converted into loan account stood proved and could not be added under section 68 of the Act. Learned counsel for the appellant has not been able to show any perversity or error of law in the findings recorded by the Tribunal so as to persuade this court to interfere therewith - no merit in the appeal and the same is dismissed

Summary

Issues:
1. Interpretation of section 68 of the Income-tax Act, 1961 regarding cash credits.
2. Justification of addition on the ground of lack of explanation for the source of cash credits.
3. Verification of genuineness of cash transactions and identity of creditors.
4. Burden of proof on the assessee to establish creditworthiness of parties under section 68.

Interpretation of Section 68:
The appeal under section 260A of the Income-tax Act, 1961 was filed against the order passed by the Income-tax Appellate Tribunal regarding the assessment year 1994-95. The primary question raised was whether the Tribunal was justified in upholding the addition of cash credits under section 68 despite the genuineness of the transactions and the identity of the creditors being established by the assessee. The Tribunal concluded that the addition of Rs. 65,000 as cash credits was not genuine, based on the evidence available on record.

Justification of Addition:
The Assessing Officer made an addition of Rs. 95,000 in cash credits received by the assessee, despite the claim that the credits were received through account payee's drafts. The Commissioner of Income-tax (Appeals) initially deleted the addition of Rs. 95,000, but the Tribunal reversed this decision. The Tribunal upheld the addition of Rs. 65,000, except for Rs. 30,000, which was deemed genuine. The Tribunal found that the genuineness of the transactions was not established by the assessee, leading to the addition of Rs. 65,000.

Verification of Genuineness and Identity:
The Tribunal scrutinized the cash credits received from Shanti Diwan, Renu Diwan, and Yogesh Kumar, and found discrepancies in the evidence provided by the assessee. The Tribunal noted that the ownership of the land did not align with the parties providing the loans, and there was a lack of evidence proving the creditworthiness of the creditors. The Tribunal emphasized that each individual entity must comply with the requirements of section 68, and the burden of proof lies on the assessee to establish the creditworthiness of the parties.

Burden of Proof on the Assessee:
The Tribunal's decision was based on the lack of direct evidence supporting the genuineness of the cash transactions. It was highlighted that circumstantial evidence should be considered when direct evidence is unavailable. The Tribunal concluded that the assessee failed to prove the creditworthiness of the parties, as no evidence indicated previous investments or bank transactions. The Tribunal dismissed the appeal, stating that there was no error in its findings regarding the genuineness of the cash credits, and upheld the addition of Rs. 65,000 while allowing the deletion of Rs. 30,000.

In summary, the judgment focused on the interpretation of section 68 of the Income-tax Act, 1961, and the justification for adding cash credits due to a lack of explanation for the sources of income. The Tribunal emphasized the importance of verifying the genuineness of cash transactions and the identity of creditors, placing the burden of proof on the assessee to establish the creditworthiness of the parties involved. Ultimately, the Tribunal's decision was upheld, dismissing the appeal and confirming the addition of Rs. 65,000 as cash credits.