2022 (6) TMI 600 - AT - Income Tax

Addition u/s 68 - Assessee failure to identity and creditworthiness of the person from whom credit is shown to have been received and also to establish genuineness of the transaction - HELD THAT - The assessee in its books of accounts has shown receipt of ₹2.00 crores from M/s Innovative Spinning and Knitting Private Limited. Further the assessee has shown this amount as transferred in the name of another two entities. All these three entities were not found at the addresses provided by the assessee, during verification by the Assessing Officer invoking section 133(6) of the Act. On being asked, the assessee also failed to produce the director of M/s innovative spinning and knitting Private Limited. Even during appellate proceedings, the assessee failed to produce him before the lower authorities. In our opinion, by way of merely stating that said person was absconding and therefore he could not be produced before the AO is not sufficient to discharge onus under section 68 of the Act. It is the onus on the assessee to explain the identity and creditworthiness of the person from whom credit is shown to have been received and also to establish genuineness of the transaction. In the facts and circumstances of the case, the assessee has failed to substantiate with evidences to explain all the three ingredients of section 68 therefore the CIT(A) is not justified in deleting the addition. Accordingly, we set aside the order of the Ld. CIT(A) on the issue in dispute and uphold the order of the Ld. Assessing Officer - Decided in favour of revenue.

Summary

Issues:
1. Whether the Ld. CIT(A) erred in allowing the appeal of the assessee without considering the provisions of section 68 of the I.T. Act and onus to prove the genuineness of the transaction.
2. Whether the Ld. CIT(A) erred in allowing relief to the assessee despite the failure to prove the genuineness of the transaction, identity of the cash creditor, and creditworthiness of the creditor.

Analysis:
1. The case involved a dispute regarding a sum of ?2,00,00,000 received by the assessee company from M/s Innovative Spinning and Knitting Private Limited, which was then transferred to another entity. The Assessing Officer added this sum as unexplained cash credit due to the failure of the assessee to establish the identity, creditworthiness, and genuineness of the transaction, as required under section 68 of the Income Tax Act, relying on legal precedents.

2. On appeal, the assessee argued that the director of M/s Innovative Spinning and Knitting Private Limited was absconding, making it impossible to produce him. The Ld. CIT(A) deleted the addition, stating that the transactions were supported by internal directions and adjustments in accounts, thereby establishing the genuineness of the transactions and the creditworthiness of the parties involved.

3. The Revenue contended that the identity of the entity from which the payment was received was not verifiable, as the director was not produced during the appellate proceedings, and relevant documents were not submitted. The Revenue argued that the Ld. CIT(A) erred in deleting the addition without proper verification.

4. The Appellate Tribunal noted that the assessee failed to substantiate the identity, creditworthiness, and genuineness of the transaction with sufficient evidence, as required by section 68 of the Act. Merely stating that the director was absconding was deemed insufficient to discharge the onus of proof. Consequently, the Tribunal set aside the Ld. CIT(A)'s order and upheld the Assessing Officer's decision to treat the sum as unexplained cash credit.

5. Ultimately, the appeal of the Revenue was allowed, and the Tribunal pronounced the order on 10/06/2022, emphasizing the importance of fulfilling the onus of proof in cases involving cash credits under section 68 of the Income Tax Act.