2019 (5) TMI 31 - HC - Income Tax

Addition u/s 68 - unsecured cash credit - assessee urges that the amounts added u/s 68 and brought to tax reflected advances given by 40 agriculturists towards a proposed housing scheme who upon notices issued u/s 133(6) had responded giving the relevant particulars which included copies of their voter identity cards and affidavits - HELD THAT - This Court is of the opinion that the findings of AO as well as the lower appellate authorities are concurrent, as such the Court circumspects in holding against these findings. That apart, the Court notices that the ruling of the Supreme Court in Commissioner of Income Tax vs. Lovely Exports Private Limited 2008 (1) TMI 575 - SUPREME COURT OF INDIA affirms the position that with respect to the credits, especially cash deposits etc., the initial burden lies upon the assessee to establish by way of the three prong test, that the advances or credits claimed are genuine, first the identity of the creditor; second, the genuineness of the transactions, and third, creditworthiness of the creditor. The Court is satisfied that while the first element i.e. the identity of the creditors was proved by some material, the other two elements were not established at all. In this regard, the assessee s contentions that the agriculturists were not asked to produce any material to supplement their statement is inconsequential. The law in this regard is and always has been that the onus of the initial burden lies upon the assessee, who has to make the necessary efforts to produce the material - no substantial question of law arises.

Summary

Issues: Addition under Section 68 of the Income Tax Act based on unexplained credit, burden of proof on the assessee to establish genuineness of credits, adequacy of material provided by the assessee's creditors, application of the three-prong test for establishing genuineness of transactions.

Analysis:

The judgment pertains to an appeal filed by the assessee against the addition of &8377;1,01,62,085/- under Section 68 of the Income Tax Act. The primary issue revolves around the genuineness of the unsecured loan claimed by the assessee from various persons, which was disallowed by the Assessing Officer as unexplained credit. The CIT(A) and ITAT upheld the addition, leading to the present appeal.

The assessee contended that the amounts added under Section 68 represented advances given by 40 agriculturists towards a housing scheme. It was argued that the creditors had responded to notices under Section 133(6) of the Act, providing relevant particulars such as voter identity cards and affidavits. However, the Court noted that while the identity of the creditors was established, the genuineness of the transactions and creditworthiness of the creditors were not adequately proven. The Court emphasized the assessee's initial burden to establish the genuineness of the credits through the three-prong test, as laid down by the Supreme Court in Commissioner of Income Tax vs. Lovely Exports Private Limited.

Furthermore, the Court observed that the creditors listed in the assessee's balance sheet were not asked to provide additional material to support their claims. Despite the contention that the agriculturists were not required to furnish supplementary evidence, the Court reiterated that the onus of proof lies on the assessee to substantiate the genuineness of the transactions. As a result, the Court found that the assessee failed to meet the burden of proof required to establish the legitimacy of the credits claimed.

Ultimately, the Court concluded that no substantial question of law arose from the case, leading to the dismissal of the appeal. The judgment underscores the importance of the assessee fulfilling the evidentiary requirements to demonstrate the genuineness of transactions, especially in cases involving unexplained credits under Section 68 of the Income Tax Act.