2018 (3) TMI 1401 - AT - Income Tax

Addition u/s 69/69A - receipt in the bank account - AO observed that the sum was not accounted in the books of account - onus to prove the nature and the source of deposit in his bank account - Held that - The controversy raised however is without any substance in law, as the impugned sum stands admittedly received by the assessee, duly credited to his bank account, so that even if not credited in his books of account - which in fact he has shown to, the assessee is yet obliged u/s. 69/69A to furnish a satisfactory explanation as to the nature and the source of deposit in his bank account. Additions u/s 68 - genuineness of the credit transaction - Held that - The creditor at the time of the impugned credit, in fact already extended ₹ 3.95 lacs to the assessee during the relevant year itself. Though it is only the credit of ₹ 9 lacs that is under examination, the creditors who is also maintaining books of account, capacity has to be shown with reference to the entire sum. A credit may not necessarily arise from the creditors current year income, and may well be from his capital, hereinbefore employed in some other asset/s, since realized. At the same time, it may be that a creditor may be merely a conduit for funds, the source of which is thus located in another person/s, so that the creditor is only an ostensibly source, and does not have the capacity to lend or assume (financial) risk. We have already stated that the identity is proved, and there is nothing on record to doubt the genuineness of the transaction. The matter, therefore, for examination of the capacity shall have to necessarily travel back to the file of the AO. To the extent the aspect of capacity is linked to genuineness, which may have some overlap, our finding as to genuineness may be regarded as reserved. The primary burden toward establishing the credit would be on the assessee. The AO shall decide issuing definite finding/s of fact, based on the material on record.- Assessee s appeal is allowed for statistical purposes.

Summary

Issues:
Appeal against CIT(A)'s order dismissing assessee's appeal contesting assessment u/s. 143(3) for AY 2013-14 - Addition of ?9 lacs u/s. 68 of the Act.

Analysis:

1. Application of Section 68:
The appeal concerns the addition of ?9 lacs under section 68 of the Income Tax Act. The assessee received this amount but did not credit it in his books of account. The AO brought it to tax, and the CIT(A) confirmed it. The Tribunal held that section 68 applied as the sum was received by the assessee and credited to his bank account, even though not reflected in his books. The assessee was required to explain the nature and source of the deposit. The Tribunal cited case law to support the application of section 68 in this scenario.

2. Burden of Proof under Section 68:
The Tribunal examined if the assessee discharged the burden of proof under section 68. The identity and capacity of the creditor, and the genuineness of the credit transaction, are crucial. The bank account and confirmation of the creditor established her identity. The genuineness of the transaction, an interest-free loan from the spouse, was accepted. However, there was no evidence of the creditor's creditworthiness. The Tribunal found the tax returns filed by the creditor insufficient to prove her financial capacity. The matter of capacity was remanded to the AO for further examination based on the material on record.

3. Rejection of Books of Account:
The Tribunal addressed the argument that the addition was not sustainable as the AO did not 'reject' the assessee's books of account during assessment. It clarified that section 68 mandates the assessee to prove the genuineness of the credit appearing in the books. The burden is on the assessee to explain the nature and source of the credit. The Tribunal emphasized that the provisions of section 68 and related sections are rules of evidence. It concluded that the appeal was allowed for statistical purposes.

In conclusion, the Tribunal upheld the addition under section 68, emphasized the burden of proof on the assessee, and clarified the requirements regarding the rejection of books of account. The matter of the creditor's creditworthiness was remanded for further examination by the AO.