2003 (7) TMI 268 - AT - Income Tax

Summary

Issues:
Appeal against deletion of addition of cash credits in books of account.

Analysis:
1. The AO found cash credits in the assessee's return for the assessment year 1993-94 and asked for details. The assessee provided confirmation from unsecured creditors but failed to produce supporting evidence initially. Later, affidavits were filed by some persons supporting the unsecured loans. The AO did not accept the affidavits and treated the cash credits as income from undisclosed sources, adding Rs. 95,000 to the assessee's income.

2. The AO's observations included the lack of interest charged by creditors, absence of evidence on the source of income of the persons, loans taken in cash, lack of exact source of the amount, and the creditors' occupations not being indicative of lending capacity. The AO held that the cash credits were not genuine, and the onus was on the assessee to prove their genuineness, which was not done adequately.

3. The CIT(A) noted the date of loan receipt and return, stating that the assessee filed affidavits of creditors, except for one, and argued that the onus to prove cash credits was discharged. Referring to legal precedents, the CIT(A) held that the assessee established the identity, capacity, and genuineness of the cash credit transactions, deleting Rs. 80,000 out of the Rs. 95,000 added by the AO.

4. The Revenue appealed, arguing that the cash credits were not proven as per law, and the creditors' capacity was not demonstrated. The assessee contended that all requirements to establish the genuineness of cash credits were met. The ITAT considered the affidavits filed by the assessee and observed that the creditworthiness of the alleged creditors was not established. The affidavits did not sufficiently support the assessee's case, as the creditors were uneducated laborers without demonstrated lending capacity. The ITAT concluded that the cash credits were not proved as per law and were correctly added to the assessee's income under section 68 of the IT Act, setting aside the CIT(A)'s decision and restoring the AO's order.

5. The ITAT allowed the Revenue's appeal, emphasizing the importance of establishing the creditworthiness of creditors to prove cash credits under the IT Act.