2020 (1) TMI 1153 - HC - Income Tax

Addition u/s 68 - unsecured loan - whether initial onus laid down on the Appellant was duly discharged ? - HELD THAT - In view of discharge of burden by the assessee, burden shifted to the revenue; but revenue could not prove or bring any material to impeach the source of the credit. Though Mr. Walve, learned standing counsel, has pointed out that the creditor had no regular source of income to justify the advancement of the credit to the assessee, we are of the view that the assessee had discharged the onus which was on him to explain the three requirements, as noted above. It was not required for the assessee to explain the sources of the source. In other words, he was not required to explain the sources of the money provided by the creditor Smt. Savitri Thakur i.e. Shri Rajendra Bahadur Singh and Smt. Sarojini Thakur. We are of the view that the Tribunal was not justified in sustaining the addition to the total income of the assessee as undisclosed cash credit under section 68 of the Act. - Decided in favour of assessee.

Summary

Issues:
Addition of unsecured loan under section 68 of the Income Tax Act, 1961.

Analysis:
The appeal challenged the legality and correctness of the order passed by the Income Tax Appellate Tribunal regarding the addition of a sum of ?14 lakhs to the income of the assessee under section 68 of the Income Tax Act, 1961. The Assessing Officer added back the amount of ?17 lakhs to the total income of the assessee as unexplained cash credit, as the genuineness of the loan taken by the assessee was not established, and the creditworthiness of the creditor was in doubt. The Commissioner of Income Tax (Appeals) upheld this order. However, the Tribunal later held that out of the ?17 lakhs loan, ?3 lakhs were properly explained, but the source of the remaining ?14 lakhs was dubious, leading to the addition of ?14 lakhs to the income of the assessee.

The main question for consideration was whether the Tribunal was justified in upholding the addition of ?14,00,000/- under section 68 of the Act, despite the initial onus being discharged by the appellant. The court examined the transactions involving the creditor, Smt. Savitri Thakur, who claimed to have received gifts from her brother and sister, which she then loaned to the assessee. The court referred to section 68 of the Act, which requires the assessee to explain the nature and source of any sum found credited in their books. The court highlighted the three conditions the assessee must satisfy: identity of the creditor, genuineness of the transaction, and creditworthiness of the creditor.

In a previous case, the court held that the assessee only needs to explain the source of the credit and not the source of the source. The court noted that the assessee had established the identity of the creditor, the genuineness of the transaction, and how the credit was given. The Assessing Officer's suspicion regarding the sources of the source was not sufficient to uphold the addition. The burden shifted to the revenue to prove any discrepancies, but they failed to do so. The court concluded that the assessee had discharged the onus required by section 68, and the Tribunal was not justified in sustaining the addition of ?14 lakhs as undisclosed cash credit.

Therefore, the court set aside the Tribunal's finding, answered the question in favor of the assessee, and allowed the appeal without any order as to costs.