2013 (9) TMI 433 - AT - Income Tax

Unexplained cash credit u/s 68 of the Income Tax Act - Amount of Rs. 2,28,50,000/- was received by the assessee from its shareholder M/s Prahlad Trading Pvt. Ltd. by cheques during the year under consideration - Confirmation letter of the said creditor was filed by the assessee during the course of assessment proceeding as called for by the A.O - All the relevant details such as complete name and address of the creditor, its Permanent Account Number and the details of mode of payment including the cheque Nos. were given therein - Source of amount in question paid to the assessee was explained by the said creditor as the application money received from M/s Kenex Exports Pvt. Ltd. towards OFCD Held that - Documentary evidence produced by the assessee was sufficient to discharge the initial onus that lay on the assessee in terms of section 68 of the Act to prove the identity and capacity of the creditor as well as genuineness of the transaction and there was no justification in the action of the A.O. in treating the amount in question received by the assessee from the concerned creditor M/s Prahlad Trading Pvt. Ltd. as unexplained cash credit u/s 68 of the Act without bringing any adverse material on record. What is relevant in the context of unexplained cash credit u/s 68 is the explanation of the assessee in respect of the source of relevant cash credit - The funds for giving the amount in question were generated by the concerned creditor M/s Prahlad Trading Pvt. Ltd. from an independent source which was not even part of circular transactions alleged by the A.O. and this being so, the genuineness of the relevant cash credit cannot even otherwise be doubted on the basis of circular transactions as alleged by the A.O. As already observed by us, sufficient evidence was produced by the assessee to establish the identity and capacity of the concerned creditor as well as the genuineness of the relevant transactions and the onus in terms of section 68 to explain the said cash credit having been duly discharged by the assessee - Treating the said cash credit as unexplained u/s 68 of the Act is not justified - Deleted the addition and allowed the appeal of the assessee Decided in favor of Assessee.

Issues Involved:
1. Addition of Rs. 2,18,50,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,18,50,000/- as unexplained cash credit under Section 68 of the Income Tax Act, 1961:

The primary issue in this case is the addition of Rs. 2,18,50,000/- made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)], which was treated as unexplained cash credit under Section 68 of the Income Tax Act, 1961. The assessee, a company engaged in project development, civil contracting, and building, had declared a loss of Rs. 43,590/- for the relevant year. During assessment, it was observed that the assessee deposited Rs. 2,19,50,000/- in its bank account through cheques from its shareholder, M/s Prahlad Trading Pvt. Ltd.

The A.O. required the assessee to prove the identity, creditworthiness of the creditor, and genuineness of the transaction. The assessee submitted a confirmation letter from M/s Prahlad Trading Pvt. Ltd., indicating that the funds were received from M/s Kenex Exports Pvt. Ltd. The A.O. found this insufficient and treated the amount as unexplained cash credit under Section 68, adding it to the assessee's total income.

Upon appeal, the assessee provided additional evidence, including bank statements, balance sheets, audit reports, and confirmations from the involved entities, to the CIT(A). The CIT(A) admitted this evidence and forwarded it to the A.O. for a remand report. The A.O. in his report noted that the transactions appeared circular and involved entities with common directors or shareholders, raising doubts about their genuineness and creditworthiness. The CIT(A) agreed with the A.O.'s findings and confirmed the addition.

The assessee further appealed to the Tribunal, arguing that it had provided sufficient evidence to establish the identity and capacity of the creditor and the genuineness of the transaction. The documentary evidence showed that the transactions were through banking channels without any cash deposits or overdrafts. The A.O. had conducted enquiries under Section 133(6) and received confirmations from the involved parties.

The Tribunal observed that the assessee had discharged its initial burden under Section 68 by providing relevant details and documentary evidence. The Tribunal emphasized that once the initial burden is discharged by the assessee, the onus shifts to the Revenue to bring adverse material on record. In this case, the A.O. and CIT(A) failed to provide sufficient adverse material to rebut the evidence provided by the assessee. The Tribunal noted that the A.O.'s reliance on circular transactions was not relevant to the issue of unexplained cash credit, as the source of funds from M/s Kenex Exports Pvt. Ltd. was independent and not part of any alleged circular transactions.

The Tribunal concluded that the assessee had satisfactorily explained the cash credit, and the addition made under Section 68 was not justified. Consequently, the Tribunal deleted the addition and allowed the appeal of the assessee.

Conclusion:

The Tribunal allowed the appeal of the assessee, deleting the addition of Rs. 2,18,50,000/- made under Section 68 of the Income Tax Act, 1961, as unexplained cash credit. The Tribunal held that the assessee had discharged its burden of proof by providing sufficient documentary evidence, and the Revenue failed to bring any adverse material to justify the addition.

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