2022 (9) TMI 721 - AT - Income Tax

Unexplained Cash Credit u/s. 68 - cash deposits in the bank as unexplained - as about the source of cash deposit assessee failed to offer any explanation - HELD THAT - The provisions of Section 68 of the Act fastens the liability on the assessee to provide the identity of the lenders, establish the genuineness of the transactions and creditworthiness of the parties. These liabilities on the assessee were imposed to justify the cash credit entries u/s 68 in the case of CIT Vs. Precision Finance (P) Ltd 1993 (6) TMI 17 - CALCUTTA HIGH COURT . Undoubtedly, there were cash deposits in the bank account of the assessee and the onus lies upon the assessee to justify the source of such cash deposits in her bank account. From the preceding discussion, we find that the assessee during the appellate proceedings has justified the source of cash deposits in her bank account. Pattern of withdrawing the cash from the bank from the accounts of different companies as well as from her own account and re-deposit the same in the bank appears to be very of unusual/ abnormal and the same is not free from the doubts. But no adverse inference can be drawn based on the doubts and surmise. The inference of the AO, how strong it is, but is of no consequence until and unless it is based on some concrete materials. In the present case, the necessary bank statements and explanation were furnished by the assessee to justify the source of cash and no iota of doubt was pointed out in such documents. To our understanding, such documents are primary documents which cannot be ignored while deciding the issue on hand. Thus, the assessee cannot be penalized if he was prevented from filing the secondary documents due to unavoidable reason such as cash book and other details. Thus as assessee has duly discharged her onus imposed under the provisions of Section 68 of the Act by furnishing the necessary details with respect to the identity, creditworthiness of the parties and genuineness of the transactions. Accordingly, we hold that no addition is warranted in the given facts and circumstances - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition under section 68 of the Income Tax Act regarding unexplained cash credit.

Detailed Analysis:

Issue 1: Addition under Section 68 of the Act
The assessee contested the addition of Rs. 72,96,000 under section 68 of the Income Tax Act, treating cash deposits in the bank as unexplained cash credit. The Assessing Officer (AO) found cash deposits in the assessee's bank account during the assessment year, but the assessee failed to provide a satisfactory explanation for the source of these deposits. Consequently, the AO treated it as unexplained cash credit under section 68 of the Act and added the amount to the total income of the assessee.

Issue 2: CIT(A) Confirmation
The Commissioner of Income Tax (Appeals) affirmed the AO's decision, stating that the assessee's contentions lacked merit. The CIT(A) highlighted that the assessee failed to demonstrate the need to withdraw cash from one account and deposit it into another, especially when fund transfers between accounts were feasible. Additionally, the creditworthiness of a company from which cash was withdrawn was unproven, and no nexus was established between the withdrawals and deposits. The CIT(A) emphasized the absence of supporting cash or account books to substantiate the transactions, leading to the rejection of the assessee's contentions and the confirmation of the addition under section 68.

Issue 3: Appellate Tribunal Decision
The Appellate Tribunal considered the submissions of both parties and examined the evidence on record. Referring to the provisions of section 68 of the Act, the Tribunal emphasized the assessee's obligation to establish the identity of lenders, genuineness of transactions, and creditworthiness of parties. Citing a precedent from the Calcutta High Court, the Tribunal reiterated the burden on the assessee to prove these elements for cash credit entries. The Tribunal acknowledged the cash deposits in the assessee's bank account and assessed the justifications provided by the assessee during the appellate proceedings.

Issue 4: Assessee's Justifications
The assessee presented various justifications for the cash deposits, including withdrawals from company accounts and personal accounts, as well as cash available with the assessee. The Tribunal noted the detailed explanations and supporting documents provided by the assessee, such as bank statements, financial statements, and audit reports. The Tribunal recognized the pattern of transactions involving withdrawals and deposits but emphasized that doubts alone could not lead to adverse inferences without concrete evidence.

Issue 5: Tribunal Decision and Legal Provisions
Considering the evidence presented and the legal framework, the Tribunal concluded that the assessee had discharged the onus imposed under section 68 by providing necessary details regarding the transactions' genuineness and parties' creditworthiness. The Tribunal highlighted that the amendment to section 68, requiring the source of source justification, was not applicable for the relevant assessment year. Consequently, the Tribunal set aside the CIT(A)'s decision, directing the AO to delete the addition. The Tribunal allowed the assessee's appeal, ruling in favor of the assessee.

In conclusion, the Appellate Tribunal ruled in favor of the assessee, highlighting the importance of substantiating cash transactions under section 68 of the Income Tax Act and emphasizing the burden of proof on the assessee to justify cash credits.