2013 (9) TMI 891 - HC - Income Tax

Addition u/s 68 as unexplained cash credit Held that - The Tribunal has not discussed and found whether repayments were made in cash or otherwise, or whether the entire amount were repaid. The test laid down by Supreme Court in CIT Vs. P. Mohanakala 2007 (5) TMI 192 - SUPREME Court does not appear to be satisfied. The assessee has not discharged the burden placed on him and did not prove the genuineness of transactions found to be circular transactions by the assessee Matter remanded to Commissioner(A) to decide afresh in the light of above observation Decided in favor of Revenue.

Summary

Issues:
Challenge to deletion of addition of unexplained cash credits under Section 68 of the Income Tax Act 1961 without proving identity and creditworthiness of creditors/donors and genuineness of transactions.
Interpretation of judgments by Hon'ble Punjab & Haryana High Court and Hon'ble Delhi High Court regarding similar cases.

Analysis:
The appellant raised substantial questions of law challenging the deletion of the addition of Rs.22,00,000 made by the Assessing Officer on account of unexplained cash credits under Section 68 of the Income Tax Act 1961. The appellant argued that the burden of proof lies upon the assessee to show that income is not taxable, as per the judgment in CIT Vs. P. Mohanakala. The Assessing Officer found circular transactions in all bank accounts, where money was deposited and cheques were issued shortly after. The AO concluded that the identity and creditworthiness of the lenders were not proven, leading to the addition of Rs.16,00,000 to the assessee's income.

The CIT (A) reviewed the case in light of the Supreme Court judgment in CIT Vs. Noorejhan, emphasizing the need for the assessee to provide sufficient evidence to satisfy the tests under Section 68 of the Act. The CIT (A) found that the appellant had furnished repayment details and bank certificates, leading to the deletion of the Rs.16 lacs addition. The ITAT upheld this decision.

The respondent's counsel argued that there was ample evidence of loan repayments on record, preventing the addition to the assessee's income. However, the Tribunal's observation regarding the repayment evidence was deemed insufficient. The burden of proof was not met, and the genuineness of circular transactions remained unproven. The Assessing Officer's opinion was considered objective, and the gifts were proven genuine by the assessee.

Ultimately, the High Court returned the questions in favor of the revenue and remanded the matter to the CIT (A) for a fresh decision considering the observations made and the judgment in CIT Vs. P. Mohanakala. The Income Tax Appeal was allowed, emphasizing the need for the assessee to prove the genuineness of transactions and repayments to avoid additions to their income.