2008 (3) TMI 249 - HC - Income Tax

AO framed the assessment u/s 143 (3) by making an addition on the ground that the appellant has failed to prove the credit worthiness of the creditors & the genuineness of the transactions of loan & investments assessee has though established the identity of creditors by producing their affidavits but not proved capacity of the creditor to advance the money & also the genuineness of the transaction - Since the authorities have recorded a pure finding of fact, assessee s appeal is dismissed

Summary

Issues:
1. Appeal against order of Income Tax Appellate Tribunal sustaining unexplained cash credit.
2. Failure to prove credit worthiness of creditors and genuineness of transactions.
3. Dismissal of appeal by Commissioner of Income Tax (Appeals).
4. Partial allowance of appeal by ITAT and deletion of certain additions.
5. Failure to establish capacity of creditors to advance money and genuineness of transactions.
6. Lack of material to establish credit worthiness of creditors.

Analysis:
1. The appeal was filed under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal (ITAT) sustaining an aggregate addition of Rs. 2,50,000 as unexplained cash credit for the Assessment Year 1993-94.
2. The Assessing Officer made an addition of Rs. 2,85,000 due to failure in proving the credit worthiness of creditors and genuineness of transactions. The Commissioner of Income Tax (Appeals) dismissed the appeal confirming the addition.
3. The assessee challenged the order, leading to a partial allowance by the ITAT which deleted an addition of Rs. 35,000 on account of unsecured loan but confirmed the finding regarding failure to establish the source of income and credit worthiness of certain creditors.
4. The court noted that although the identity of creditors was established through affidavits, the capacity of the creditors to advance money and the genuineness of transactions were not proven. The affidavits lacked specific details about the source of money, such as savings account numbers or other material.
5. It was emphasized that the burden is on the assessee to prove not only the identity but also the capacity and genuineness of the creditors. The court found that the authorities' findings were factual and not illegal, leading to the dismissal of the appeal as no substantial question of law was identified.
6. Ultimately, the appeal was dismissed due to the lack of material to establish the credit worthiness of the creditors, as the affidavits provided by the creditors did not sufficiently prove the capacity to advance the money or the genuineness of the transactions.