2014 (7) TMI 295 - AT - Income Tax

Nature of additions made u/s 68 - Business income or income from other sources Unexplained income - Held that - The applicability of section 68 is on account of the assessee s inability to substantiate the same as having been derived or realized by the assessee in the course of its business - the contention that the income, though brought to tax u/s. 68, is assessable as business income, is contrary to the facts & circumstances of the case - both the nature and source of the credit/s are unexplained - the only head of income under which the income is liable to be considered for assessment is the residuary head, i.e., income from other sources - Revenue while assessing an income u/s 68 is under no further obligation to exhibit the source Relying upon CIT vs. Manick Sons 1969 (2) TMI 14 - SUPREME Court - even the assessment of the income brought to tax u/s 68, as business income u/s 28, would be of no consequence inasmuch as it would stand to be assessed for the current year - the value of the work-in-progress as at the year-end shall stand to be increased by the income - thus, the invocation of section 68 is confirmed in relation to the credit/s, assessing them under the residuary head of income, i.e., income from other sources Decided against Assessee.

Summary

Issues Involved:
- Maintainability of section 68 of the Income Tax Act in the case
- Burden of proof regarding cash credit in the assessee's books of account

Analysis:

Issue 1: Maintainability of Section 68 of the Income Tax Act
The judgment dealt with the appeal against the Commissioner of Income Tax (Appeals) order dismissing the assessee's appeal contesting its assessment under section 143(3) of the Income Tax Act, 1961. The primary issue was the applicability of section 68, which deems unexplained income if the nature and source of a cash credit are not proved. The burden of proof lies on the assessee to establish the identity and creditworthiness of the creditor, as well as the genuineness of the credit transaction. The tribunal emphasized that each credit must be independently verified based on the facts and circumstances of the case.

Issue 2: Burden of Proof Regarding Cash Credit
The case involved a builder-developer who claimed to have realized a sum in cash by selling dismantled plant and machinery as scrap. However, the assessee failed to provide primary details such as the items sold, names of scrap dealers, or confirmations of the transactions. Despite submitting affidavits, the claim remained unsubstantiated. The tribunal noted discrepancies in the explanations provided, including the absence of expenditure records related to dismantling and shifting machinery. The lack of receipts, delivery proofs, or confirmations raised doubts about the existence and sale of the machinery.

Conclusion:
The tribunal upheld the invocation of section 68 by the Revenue, assessing the unexplained credit under the head of 'income from other sources.' The judgment emphasized the importance of substantiating cash credits in the books of account and rejected the assessee's argument that the income should be treated as business income. The decision highlighted the need for concrete evidence to support claims and the consequences of failing to meet the burden of proof.