2013 (10) TMI 13 - HC - Income Tax

Cash Credit - Addition u/s 68 - creditor s creditworthiness - genuineness of transactions Held that - The existence of the creditor s creditworthiness is one of the most important factors - After analyzing the materials produced by the assessee, found that the so-called two creditors had no creditworthiness and this is reflected from the accounts as well as from the tax returns - It is impossible to accept that this transaction is genuine when the income tax returns show a meager amount of Rs.1.00 lakh and odd and how the creditors could advance huge sums of Rs. 5.00 lakhs each; and wherefrom these huge amounts have come is not clear - Materials produced before the revenue officials by the assessee were not sufficient to adjudge that the assessee has discharged his burden - When the material produced before the revenue officials are good enough to come to conclusion that there is no genuine transaction of lending and borrowing of money, no further or other material is required Decided in favor of Revenue.

Summary

Issues:
1) Justification of the Income Tax Appellate Tribunal's decision to set aside the order of the 1st appellate authority and sustain additions to the income of the assessee.

Analysis:
The case involved an appeal challenging the decision of the Income Tax Appellate Tribunal to uphold additions to the income of the assessee. The Assessing Officer had added a sum of Rs. 10,00,000/- to the income of the assessee, which was not reflected in the income tax returns. The Commissioner of Income Tax (Appeals) disagreed with the Assessing Officer and concluded that the income was received by way of a loan from two creditors. The Commissioner believed the transaction to be genuine based on bank account details and income tax returns. However, the Appellate Tribunal overturned these findings, raising doubts about the creditworthiness of the creditors and the genuineness of the transactions.

The appellant argued that the Tribunal erred in reversing the Commissioner's findings, asserting that the burden to prove the transaction's genuineness had been met by providing sufficient evidence. The appellant contended that the Revenue failed to disprove the genuineness of the transaction. The Tribunal, however, found discrepancies in the cash deposits made by the creditors before issuing the cheques to the assessee, questioning their creditworthiness and the authenticity of the transactions.

The High Court emphasized that in such cases, the burden initially lies with the assessee to establish the identity, genuineness, and creditworthiness of the creditor. Once the assessee meets this burden, the onus shifts to the Revenue to disprove the transaction with substantial evidence. The Court referred to relevant judgments to support this principle. In this instance, the Court agreed with the Tribunal's findings that the assessee failed to prove the creditworthiness of the creditors, as reflected in their meager incomes and lack of clear transaction details in bank records. The Court concluded that the materials provided were insufficient to discharge the burden of proof, leading to the dismissal of the appeal.

The Court also addressed a similar case involving another creditor, where similar doubts were raised about the creditworthiness of the creditor and the authenticity of the transactions. Despite the creditors filing income tax returns and the repayment of loans by cheque, the Court found these factors alone did not establish the genuineness of the transactions or the creditworthiness of the creditors. Consequently, the Court dismissed the appeal in this case as well, affirming the Tribunal's decision based on the lack of substantial evidence to prove the genuineness of the transactions.