2015 (6) TMI 595 - AT - Income Tax

Unexplained cash credits u/s.68 - AO disputes the creditor s version on the issue of capacity/genuineness/creditworthiness - Held that - This creditor had duly filed written confirmation and also placed on record his land ownership documents to depose in the assessee s favour. A perusal of his statement demonstrates that one of his son studies in USA as well. He quotes the assessee to be his school friend. The document reveal the creditor and his family income from various sugar co-operatives as perennial and on routine basis. For instance, this creditor has derived sugarcane profits from assessment year 2000-01 to 2004-05. The same factual position is in respect of his other family members. In these circumstances, we do not agree with the lower authorities that this creditor has failed to satisfy all necessary conditions explaining capacity/genuiness/creditworthiness of the deposits in question. We also quote case law Muralidhar Lahorimal Vs. CIT 2005 (11) TMI 32 - GUJARAT High Court holding that an assessee can be asked to prove the source of credit and not to prove the source of the source. Be that as it may, we have already held that the assessee s creditor and his family had sufficient means from agricultural income so as to lend the impugned sums amounting to ₹ 3.3 lac deposited in the assessee s account through cheque payments. The assessee s arguments are accepted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of unexplained cash credits under Section 68 of the Income Tax Act.
2. Verification of identity, genuineness, and creditworthiness of the creditor.
3. Evaluation of documentary evidence and statements provided by the creditor.
4. Assessment of the appellant's books of accounts and alleged suppression of income.

Issue-wise Detailed Analysis:

1. Addition of Unexplained Cash Credits under Section 68 of the Income Tax Act:
The primary issue in this case revolves around the addition of Rs. 3.30 lakh as unexplained cash credits under Section 68 of the Income Tax Act. The Assessing Officer (AO) identified three separate cheques of Rs. 1.10 lakh each deposited in the assessee's account, originating from the savings account of Shri Mukesh Patel. Despite the confirmation from Shri Mukesh Patel, the AO rejected the explanations and invoked Section 68 to make the impugned addition. The CIT(A) upheld the AO's decision, leading to the assessee's appeal.

2. Verification of Identity, Genuineness, and Creditworthiness of the Creditor:
The AO questioned the identity, genuineness, and creditworthiness of Shri Mukesh Patel, the creditor. Despite Shri Mukesh Patel's appearance, written confirmation, and statement, the AO found discrepancies. The AO noted that the cheques were issued from joint accounts and that cash deposits were made in these accounts shortly before the cheques were issued. The AO also highlighted that Shri Mukesh Patel could not produce bills or expenditure details for his claimed agricultural income, raising doubts about the source of the funds.

3. Evaluation of Documentary Evidence and Statements Provided by the Creditor:
The assessee provided several documents to support the genuineness of the loan transaction, including copies of the election card, bank passbook, landholding documents, and certificates of agricultural income. Shri Mukesh Patel also confirmed the loan through a letter and during a recorded statement. However, the AO remained unconvinced, pointing out that the creditor failed to provide concrete evidence of agricultural income and suggested that the assessee might have used undisclosed income to receive the loan.

4. Assessment of the Appellant's Books of Accounts and Alleged Suppression of Income:
The AO found defects in the assessee's books of accounts, including discrepancies in the sonography register and unaccounted operation/surgery income. The AO also noted the absence of a daily case register and fee receipts, leading to the conclusion that the assessee had suppressed income. Consequently, the AO treated the loan from Shri Mukesh Patel as non-genuine and added it back to the assessee's total income, initiating penalty proceedings for concealment of income and furnishing inaccurate particulars.

Decision:
The Tribunal considered the arguments from both sides. The core issue was the addition under Section 68 amounting to Rs. 3.30 lakh. The Tribunal noted that the deposits were made through banking channels, and the identity of the creditor was not in dispute. The creditor had provided written confirmation and land ownership documents, and his statement revealed a consistent source of agricultural income. The Tribunal disagreed with the lower authorities, stating that the creditor had sufficient means from agricultural income to lend the amount in question. Citing the jurisdictional High Court's decision in Muralidhar Lahorimal Vs. CIT, the Tribunal held that the assessee is only required to prove the source of credit, not the source of the source. Consequently, the Tribunal accepted the assessee's arguments and allowed the appeal, overturning the addition made by the AO and upheld by the CIT(A).

Conclusion:
The Tribunal concluded that the assessee successfully demonstrated the identity, genuineness, and creditworthiness of the creditor, Shri Mukesh Patel. The addition of Rs. 3.30 lakh under Section 68 was not justified, and the assessee's appeal was allowed. The order was pronounced on 9th June 2015 at Ahmedabad.