2017 (11) TMI 740 - HC - Income Tax

Addition under Section 68 - proof of creditworthiness and the genuineness of the transaction - Held that - We find that in the present case, the appellant assessee has not proved any of the aforesaid conditions of Section 68 of Act. It is noticed by the Tribunal that though the confirmation letters from the creditors are placed but no supportive evidence to prove the identity of the creditors or their creditworthiness and genuineness of the transaction is placed. The Tribunal therefore, has held that since the assessee has failed to prove the primary condition of provisions of Section 68 merely confirmation letters can not substantiate the genuineness and creditworthiness as well as the identity of the creditors. The decisions which are cited by the appellant before the Tribunal are duly considered and the Tribunal has found that the cited decisions are not applicable to the facts of the case of the appellant. It is further noticed by us that neither before the CIT (Appeals) nor before the Tribunal the appellant has furnished any evidence to prove the identity of the creditors, their creditworthiness and the genuineness of the transaction in the matter. In our opinion, the Tribunal had taken all the relevant facts into consideration and the conclusion arrived by the Tribunal that the loans represented the assessee s income from undisclosed sources was not perverse or unreasonable. - Decided against assessee.

Summary

Issues:
1. Addition of cash credits under Section 68 of the Income Tax Act.
2. Burden of proof on the assessee regarding the nature and source of cash credits.
3. Verification of identity, creditworthiness, and genuineness of creditors.

Analysis:

Issue 1: Addition of cash credits under Section 68 of the Income Tax Act
The case involved the appellant, engaged in a money lending business and a proprietorship dealing in silver and gold ornaments. The assessing authority observed numerous cash credit entries from about 20 persons in the appellant's books. Despite confirmatory letters submitted by the appellant, the assessing authority doubted the genuineness of the transactions due to lack of proof of identification of creditors and unverifiable cash transactions. Consequently, an addition of ?3,71,000 under Section 68 of the Act was made to the appellant's income.

Issue 2: Burden of proof on the assessee regarding the nature and source of cash credits
The appellant contended that the cash advances were received for purchasing silver ornaments, with amounts below ?20,000 per creditor. However, the assessing authority found the explanation unsubstantiated, as the creditors were not identified, and the cash transactions lacked credibility. The burden of proof under Section 68 requires the assessee to explain the nature and source of any sum credited in their books, failing which it may be charged as income.

Issue 3: Verification of identity, creditworthiness, and genuineness of creditors
The CIT (Appeals) and ITAT upheld the assessing authority's decision, emphasizing the appellant's failure to establish the identity, creditworthiness, and genuineness of the creditors. Despite submitting confirmation letters, the appellant could not provide additional evidence supporting the legitimacy of the transactions. The Tribunal concluded that the appellant did not fulfill the requirements of Section 68, as the primary conditions regarding creditors' details were not proven. Consequently, the loans were treated as income from undisclosed sources.

In the final judgment, the High Court dismissed the appeal, noting that the Tribunal's decision was based on relevant facts, and the conclusion that the loans represented undisclosed income was reasonable. The appellant's failure to substantiate the identity and creditworthiness of creditors led to the addition of cash credits under Section 68 of the Income Tax Act.