2012 (8) TMI 384 - AT - Income Tax

Undisclosed cash credit - Assessee received unsecured loans from three parties through account payee cheques Held that - Assessee has discharged the initial burden of proving identity, genuineness of transactions and also creditworthiness of the three creditors by producing their respective bank accounts. Entry in the pass book of a third party can be taken as a primary evidence in proof of the fact that loan was advanced by third party - initial onus shifts onto the Revenue to prove that the creditors lack creditworthiness and to come to such conclusion, the assessee cannot be asked to produce any evidence which is within the personal knowledge of the third party - AO did not examine the parties and proceeded on the assumption that creditors would not have saved any money to advance the loan - it is not a fit case to make addition u/s 68 of the Act

Issues Involved:
1. Addition of Rs. 3.50 lakhs under section 68 of the Income-tax Act, 1961.
2. Disallowance of telephone expenses of Rs. 5,000 on an estimate basis.

Issue-wise Detailed Analysis:

1. Addition of Rs. 3.50 lakhs under section 68 of the Income-tax Act, 1961

Facts and Proceedings:
The assessee received Rs. 3.50 lakhs as unsecured loans from three creditors: Rs. 2.50 lakhs from Shri Sant Lal Jaiswal, and Rs. 50,000 each from Smt. Kiran Jaiswal and Shri Dheeraj Jaiswal. The Assessing Officer (AO) noted that cash deposits equivalent to the loan amounts were made in the bank accounts of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal just before issuing the cheques. The source of these cash deposits was not satisfactorily explained. For Smt. Kiran Jaiswal, no bank account details were provided, and her declared income was too meager to justify the loan. Consequently, the AO treated the entire loan amount as unexplained cash credit under section 68.

CIT(A) Findings:
The CIT(A) confirmed the AO's addition, noting that the creditors' financial status and low household expenses did not support their ability to save such amounts. The CIT(A) concluded that the transactions were non-genuine and a facade to project higher cash balances.

Tribunal's Consideration:
The Tribunal noted that the assessee had provided bank statements and confirmations from the creditors, along with their income tax returns. The assessee argued that once the identity and genuineness of the transaction are proved, the onus to prove the source of the creditors' deposits should not be on the assessee.

Arguments by the Revenue:
The Revenue contended that the creditors' cash deposits just before issuing the cheques and their low declared incomes did not support their creditworthiness. The Revenue maintained that the AO was justified in treating the loans as unexplained cash credits.

Judicial Member's View:
The Judicial Member upheld the addition, emphasizing the need to prove not only the identity and genuineness of the transaction but also the creditworthiness of the creditors. The Judicial Member found that the creditors' financial status did not support their ability to advance the loans.

Accountant Member's View:
The Accountant Member disagreed, stating that the assessee had discharged the initial onus by providing bank statements and confirmations. The Accountant Member emphasized that the AO should have examined the creditors directly if there were doubts about their creditworthiness.

Third Member's Decision:
The Third Member concurred with the Accountant Member, holding that the assessee had discharged the initial burden of proof. The Third Member noted that the AO did not examine the creditors and that the surrounding circumstances alone could not justify the addition. The Third Member concluded that the addition under section 68 was not warranted.

Final Order:
Pursuant to the majority view, the addition of Rs. 3.50 lakhs under section 68 was deleted.

2. Disallowance of Telephone Expenses of Rs. 5,000

Facts and Proceedings:
The AO disallowed Rs. 5,000 out of the total claimed telephone expenses of Rs. 72,128, suspecting personal usage. The AO noted that the telephone expenses had significantly increased from the previous year's Rs. 33,571.

CIT(A) Findings:
The CIT(A) confirmed the disallowance, finding no force in the assessee's submission that the telephone was installed at the business premises and was not used for personal purposes.

Tribunal's Consideration:
The Tribunal acknowledged the possibility of personal usage despite the telephone being installed at the business premises. However, it found the disallowance of Rs. 5,000 to be on the higher side and reduced it to Rs. 2,000.

Final Order:
The disallowance of telephone expenses was reduced from Rs. 5,000 to Rs. 2,000.

Conclusion:
The appeal of the assessee was partly allowed, with the addition of Rs. 3.50 lakhs under section 68 deleted and the disallowance of telephone expenses reduced to Rs. 2,000.

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