2012 (12) TMI 696 - HC - Income Tax

Unaccounted Cash Credit - the assessee is a HUF which claims that Rs.2.15 lakhs was given as loan by the wife of the Kartha to the HUF. She claimed that she was given Rs.1.00 lakh each by her father and mother, that her father has Ac.3.30 cts. of agricultural land and her mother Ac.2.20 cts. of agricultural land which had allegedly been converted into fish ponds and granted on lease and therefore she was in a position to give a loan of Rs.2.00 lakhs to the HUF Held that - Admittedly she was a government servant and under the applicable Conduct Rules, receipt of any gifts beyond a particular limit have to be intimated to the State Government and can be received only after obtaining permission from the State Government. There is no evidence that the wife of the Kartha of the HUF had sought permission or intimated to the State Government about the alleged gifts. Although the assessee was able to prove the identity of the creditor i.e the wife of the Kartha, it cannot be said that the assessee was able to prove the creditworthiness of the creditor or the genuineness of the transaction of loan. - Addition confirmed - Decided against the assessee.

Issues Involved:
1. Legitimacy of the loan transaction under Section 68 of the Income Tax Act.
2. Creditworthiness of the creditor.
3. Compliance with Conduct Rules by the government employee (creditor).

Detailed Analysis:

1. Legitimacy of the Loan Transaction under Section 68 of the Income Tax Act:
The primary issue revolves around whether the loan transaction of Rs.2.15 lakhs, allegedly given by the wife of the Kartha of the assessee HUF, is legitimate under Section 68 of the Income Tax Act. Section 68 states that if any sum is found credited in the books of an assessee and the explanation about the nature and source of such credit is not satisfactory to the assessing officer, the sum may be charged to income tax as the income of the assessee of that previous year. The Supreme Court in CIT Vs. P. Mohanakala emphasized that the opinion of the assessing officer must be based on proper appreciation of material and other attending circumstances available on record. In this case, the assessing officer doubted the legitimacy of the loan as it was in cash and not by cheque or demand draft, and added Rs.2.00 lakhs to the assessee's income under Section 68.

2. Creditworthiness of the Creditor:
The creditworthiness of the creditor, the wife of the Kartha, was questioned. She claimed to have received Rs.1.00 lakh each from her parents and added Rs.15,000/- from her savings to give a loan of Rs.2.15 lakhs. However, she failed to provide evidence that her parents had sufficient cash balances or that they had leased their agricultural lands for fish ponds. The CIT (Appeals) and the Tribunal upheld the assessing officer's view that the creditworthiness was not established beyond Rs.15,000/-. The Tribunal noted the lack of lease receipts or agreements and the absence of substantial income from the alleged fish ponds, thus confirming the addition of Rs.2.00 lakhs to the assessee's income.

3. Compliance with Conduct Rules by the Government Employee (Creditor):
The creditor, being a government employee, was bound by Conduct Rules requiring intimation or permission for receiving gifts beyond a certain limit. There was no evidence that she had complied with these rules regarding the alleged gifts from her parents. This non-compliance further cast doubt on the genuineness of the transaction. The Tribunal and the assessing officer found that the lack of evidence of compliance with Conduct Rules supported the decision to add the amount to the assessee's income.

Conclusion:
The High Court upheld the findings of the assessing officer, CIT (Appeals), and the Tribunal, concluding that the assessee failed to provide a satisfactory explanation for the cash credit of Rs.2.00 lakhs. The court emphasized that the assessee must prove the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor. The concurrent findings of fact by the authorities were based on proper appreciation of the evidence, and no substantial question of law arose for consideration. Consequently, the appeal was dismissed.

Judgment:
The appeal was dismissed, affirming the addition of Rs.2.00 lakhs to the assessee's income under Section 68 of the Income Tax Act. The court found no substantial question of law warranting interference with the orders of the lower authorities.

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