2009 (7) TMI 874 - AT - Income Tax

Undisclosed income - Cash Credit - satisfactory explanation - additions under section 68 - the explanation of the assessee in the present case is that all these creditors are income-tax assessees and their PANs have been given along with their copy of bank account as well as proof of filing returns of income for the year, under consideration as well as preceding years, Whether by filing these evidences, it can be said that the assessee had discharged the initial burden laid upon him under section 68 - Held that - ample evidences were produced by the assessee to discharge the initial burden. The AO has not brought any material on record to show that the explanation filed by the assessee was, in any manner, unsatisfactory. The evidences filed by the assessee remain unnrebutted. Therefore, addition could not be made under s. 68 of the Act .

Issues Involved:
1. Sustained addition of Rs. 17,00,000 under Section 68 of the IT Act, 1961, due to unexplained cash creditors.

Issue-wise Detailed Analysis:

1. Sustained Addition of Rs. 17,00,000 Under Section 68 of the IT Act, 1961, Due to Unexplained Cash Creditors:

Facts and Proceedings:
The assessee's appeal for the assessment year 2002-03 challenges the addition of Rs. 17,00,000 made under Section 68 of the Income Tax Act, 1961, due to unexplained cash credits. The balance sheet filed by the assessee showed unsecured loans amounting to Rs. 60,07,400. The assessing officer (AO) requested explanations and confirmatory letters for these loans. Summons issued to the creditors were not served, and the AO concluded that while the identity of the creditors was established, their creditworthiness and the genuineness of the transactions were not. Consequently, Rs. 17,00,000 was added as unexplained income under Section 68, a decision upheld by the Commissioner of Income Tax (Appeals) [CIT(A)].

Assessee's Arguments:
The assessee argued that sufficient evidence, including confirmations, bank statements, and income tax returns of the creditors, was provided. It was contended that the AO did not specifically request the production of the creditors and that the transactions were genuine as the deposits were made through banking channels.

Revenue's Arguments:
The Revenue maintained that the deposits in the creditors' bank accounts before issuing cheques to the assessee raised doubts about the genuineness of the transactions. The Revenue emphasized that the assessee needed to prove the creditworthiness and genuineness of the transactions.

Tribunal's Analysis:
The Tribunal examined the evidences, including confirmations, bank statements, and income tax returns of the creditors. It found that the AO's conclusion was based on the inability to serve summons and the unexplained source of deposits in the creditors' bank accounts. The Tribunal noted that the AO did not provide substantial evidence to disprove the assessee's claims.

Judicial Precedents:
The Tribunal referred to various judicial precedents, including the Supreme Court's decision in CIT vs. Orissa Corporation (P) Ltd., which held that if the AO fails to pursue further verification after issuing summons, no adverse inference can be drawn against the assessee. The Tribunal also cited decisions from the High Courts of Madhya Pradesh, Gujarat, and Allahabad, supporting the assessee's position that once the initial burden of proving the identity and creditworthiness of the creditors is discharged, the onus shifts to the Revenue.

Conclusion by Tribunal:
The Tribunal concluded that the assessee had provided ample evidence to prove the identity, creditworthiness, and genuineness of the transactions. The AO's reliance on the non-service of summons and the unexplained source of deposits was insufficient to justify the addition under Section 68. The Tribunal set aside the CIT(A)'s order and deleted the addition of Rs. 17,00,000.

Separate Judgment by the Accountant Member:
The Accountant Member (AM) dissented, emphasizing the need for a holistic view of the evidence. The AM argued that the creditworthiness and genuineness of the transactions were not satisfactorily established, as the creditors were persons of small means and the source of funds in their bank accounts was unexplained. The AM upheld the CIT(A)'s decision, supporting the addition under Section 68.

Third Member's Opinion:
Due to the difference of opinion, the matter was referred to a Third Member. The Third Member concurred with the Judicial Member (JM), agreeing that the assessee had discharged its burden under Section 68 by providing sufficient evidence. The Third Member emphasized that the AO failed to bring any material evidence to disprove the assessee's claims. Consequently, the addition under Section 68 was deleted.

Final Decision:
In light of the majority view, the appeal by the assessee was allowed, and the addition of Rs. 17,00,000 under Section 68 was deleted.

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