2006 (2) TMI 71 - HC - Income Tax

Unexplained and ingenuine cash credit - Amount credited in capital accounts of partners were proved by them before AO, showing copies of their saving accounts - tribunal deleted the additions and concluded that assessee has discharged the onus to prove the identity & creditworthiness of the two creditors finding that the onus had been discharged by the assessee was one of fact no question of law arise in the reference application

Summary

Issues:
1. Addition of unexplained credits in the capital accounts of partners.
2. Dismissal of Revenue's application under Section 256(1) of the Income Tax Act.

Analysis:

Issue 1: Addition of unexplained credits in the capital accounts of partners
The case involved a petition under Section 256(2) of the Income Tax Act, where the Revenue sought a direction to the Income Tax Appellate Tribunal to state a case regarding the deletion of an addition of Rs 2,60,000 made by the Assessing Officer on account of unexplained credits in the capital accounts of partners. During the assessment proceedings, it was noted that amounts had been credited to the partners' capital accounts, and the Assessing Officer added the amount as unexplained and ingenuine cash credits. The assessee provided evidence, including wealth tax statements and bank drafts obtained from savings bank accounts, to prove the genuineness of the credits. The Tribunal, after considering the evidence, concluded that the initial onus under Section 68 of the Act regarding identity and financial capacity had been discharged by the assessee, leading to the deletion of the additions. The Tribunal's decision was based on the fact that the amounts came from savings bank accounts of the partners, and their financial standing was sound, supported by bank confirmations.

Issue 2: Dismissal of Revenue's application under Section 256(1) of the Income Tax Act
The Revenue, dissatisfied with the Tribunal's decision, filed an application under Section 256(1) of the Act, which was dismissed. The Revenue contended that the Tribunal's finding on the credit worthiness and genuineness of the loan was perverse, as the evidence provided was insufficient to prove the capacity of the parties. The Revenue argued that mere production of wealth tax statements was not enough to establish the genuineness of the transaction, and therefore, the addition under Section 68 of the Act was warranted. However, the Court disagreed with the Revenue's arguments, stating that the Tribunal had correctly found that the assessee had discharged the onus to prove the identity and credit worthiness of the creditors. The Court emphasized that the Tribunal's findings were factual and not a question of law. Additionally, the Court rejected the Revenue's contention that the Tribunal had ignored relevant material, as no specific question was raised in this regard during the reference application.

In conclusion, the Court upheld the Tribunal's decision, stating that the findings were factual and did not give rise to any question of law. Consequently, the petition was dismissed.