2012 (7) TMI 493 - HC - Income Tax

Challenging Tribunal s Order in confirming the addition of cash credits u/s 68 - assessee contested that such deposits could have been proceeded against as unexplained investments in terms of section 69 - Held that - Even in the bank deposits on the security of which amount had been borrowed and the assessee had shown as a credit taken from several persons was a deposit jointly held by the assessee and the persons who were shown as creditors were close relatives such as kith and kin of the assessee. The circumstances weighed with the assessing authority to infer that the explanation is not satisfactory that they were not genuine cash credits, but so indicated in the books of accounts of the assessee - as three authorities below have found that the explanation offered by the assessee to claim that the amount was genuine cash credit was not acceptable find scope for reversing this finding in an appeal under section 260-A - The possibility that the amount would also attract the provisions of section 69 of the Act is not a ground for excluding the applicability of section 68 - against assessee.

Issues:
1. Confirmation of cash credits under section 68 of the Income Tax Act
2. Appreciation of evidence in the form of statements by creditors confirming loans
3. Telescoping effect to be given to the addition income offered for the assessment year

Issue 1: Confirmation of Cash Credits under Section 68
The judgment addresses the appeal by the assessee challenging the addition of cash credits under section 68 of the Income Tax Act. The assessing officer found multiple cash credit entries in the books of accounts totaling Rs.10,77,171, from individuals related to the assessee. Despite the creditors confirming the loans, the assessing officer considered the explanation unsatisfactory and taxed the amount as the assessee's income under section 68. The appellant argued that the Supreme Court precedents supported accepting the cash credits as genuine when confirmed by creditors. However, the court upheld the authorities' findings that the explanation offered by the assessee was not acceptable, and the cash credits were not genuine, leading to the dismissal of the appeal.

Issue 2: Appreciation of Evidence from Creditors
The appellant contended that the creditors' confirmation should have been sufficient to validate the cash credits. The court noted that the authorities had found the explanation unsatisfactory based on the close relationship between the creditors and the assessee, leading to the rejection of the claim of genuine cash credits. The court held that the authorities' decision was reasonable and not contrary to statutory provisions, emphasizing that the Supreme Court precedent cited by the appellant did not apply to the case due to the rejection of the explanation by the authorities.

Issue 3: Telescoping Effect for Addition Income
The appellant argued that the assessing authority should have proceeded under section 69 regarding fixed deposits in the bank instead of taxing the amount under section 68. The court clarified that while the deposits could be examined under section 69 separately, it did not negate the applicability of section 68 for unexplained cash credits. The court rejected the argument, highlighting that the possibility of invoking section 69 did not exclude the operation of section 68. Ultimately, the court found no error of law in the Tribunal's decision and dismissed the appeal.

In conclusion, the judgment upholds the authorities' decision to tax the cash credits as the assessee's income under section 68, emphasizing the importance of providing a satisfactory explanation for such entries and rejecting claims solely based on creditor confirmations. The court clarified the distinct applicability of sections 68 and 69 in assessing income sources, ensuring compliance with statutory provisions and legal precedents.

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