2016 (6) TMI 92 - AT - Income Tax

Addition u/s 68 towards unexplained credits - proof of creditworthiness - Held that - On verification of the bank statement filed by the assessee, we noticed that the parties have deposited cash on the same day when the money has been transferred to the assessee bank acount. The parties have not explained how a person working in abroad has deposited cash in to the normal savings Bank account maintained in India, when he is not permitted to operate normal bank account in India. Similarly, his wife Smt. G. Vijaya Lakshmi stated to have advanced the loan out of her husband s savings. On verification of her bank statement, we find that the same day she had deposited cash and transferred the money to the assessee bank account. Except these two transactions, she had not made any substantial transactions in her bank account. We further observed that she has not assessed to income tax and she does not have any source of income to advance loan to the assessee. When she does not have any source of income to justify the loan of ₹ 5 lakhs, the assessee has failed to discharge his initial burden of proving creditworthiness of the parties. The creditors have deposited cash and transferred the same to the assessee bank accounts. Except these two transactions, they are not having any considerable bank transactions in their bank account. Under these circumstances, we are of the opinion that the assessee has not discharged its burden by proving the creditworthiness of the parties. We further observed that although the parties have filed the confirmation letters, the other ingredients of the section i.e. the genuineness of the transactions and creditworthiness of the parties remain in doubtful. The assessee has failed to prove the transaction to be genuine and also failed to establish the capacity of the creditors to advance loan to the assessee. Therefore, we are of the opinion that the CIT(A) has rightly upheld the additions made by the A.O.- Decided against assessee

Summary

Issues:
Assessment of unexplained cash credits under section 68 of the Income Tax Act, 1961.

Analysis:
The appeal was filed by a partnership firm engaged in transport business against the order of the CIT(A), Visakhapatnam for the assessment year 2008-09. The firm had declared total income of ?47,91,250 and had shown loan creditors of ?15 lakhs. The Assessing Officer (A.O.) issued a show cause notice regarding the loan creditors, and after considering the details, made additions of ?15 lakhs under section 68 of the Act. The CIT(A) upheld the additions, stating that the firm failed to prove the identity, genuineness, and creditworthiness of the creditors. The firm contended that it had submitted confirmation letters and proofs of income, but the CIT(A) found discrepancies in the transactions. The Tribunal observed that the burden was on the assessee to prove the transactions, and in this case, the genuineness and creditworthiness of the parties were doubtful.

The Tribunal noted that the firm had accepted loans from four parties, out of which two parties were a husband and wife. The husband was claimed to be working abroad and had given the loan from past savings. However, discrepancies were found in the bank statements, raising doubts about the transactions. Similarly, the other two creditors, claimed to be agriculturists, also had discrepancies in their bank transactions. Despite filing confirmation letters, the genuineness and creditworthiness of the parties were not established. The Tribunal agreed with the CIT(A) that the firm had not discharged its burden of proof, and therefore upheld the additions made by the A.O. under section 68 of the Act.

Section 68 of the Act requires the assessee to prove the genuineness of transactions and creditworthiness of parties when any sum is found credited in the books of accounts. The burden of proof lies with the assessee to establish the identity, genuineness, and creditworthiness. Mere filing of confirmation letters is not sufficient to discharge this burden. Once the initial burden is met, the onus shifts to the revenue. In this case, the Tribunal found that the firm had not satisfactorily proven the transactions, leading to the confirmation of the additions made by the A.O. and upheld by the CIT(A).

In conclusion, the Tribunal dismissed the appeal filed by the assessee, as it failed to prove the genuineness and creditworthiness of the loan transactions, as required under section 68 of the Income Tax Act, 1961. The order of the CIT(A) upholding the additions made by the A.O. was deemed appropriate, and no error was found in the decision.