2018 (12) TMI 290 - HC - Income Tax

Addition of cash credit u/s 68 - advance towards allotment of shares - Held that - By the time the assessment was taken up, the investor died. The daughter-in-law of the deceased submitted that her mother-in-law would have made such investment out of cash in hand. In fact, the specific submission made by the daughter-in-law before the AO was that her husband, the son of the investor, died in the year 1965 and her father-in-law died in 1975. The mother-in-law is said to have been carrying on small chitty and financing business. It is very unlikely that a person carrying on small chitty and financing business could raise ₹ 2, 00, 000/- as advance for investment in a Company in the year 1992. We, hence, find that the essential question raised is on facts as to the satisfactory nature of the explanation offered. We do not think that the reliance placed on the decision of the Delhi High Court can be sustained especially in view of the fact that Section 68 was not noticed by the STELLAR INVESTMENT LIMITED 1991 (4) TMI 100 - DELHI HIGH COURT . We, hence, refuse to answer the questions of law, on the ground that there was no positive evidence tendered by the assessee as to the source of the amounts shown in the accounts and the explanation offered was also found to be not satisfactory.

Summary

Issues:
1. Whether the Tribunal erred in concluding the genuineness and capacity of the creditor had not been proved.
2. Whether the Tribunal should have considered the amount of share capital as undisclosed income based on a Supreme Court decision.
3. Whether the Department can draw inferences based on surmises and conjunctures.
4. Whether the sum of Rs. 2 lakhs can be treated as undisclosed income of the Appellant.

Analysis:

Issue 1:
The appeal involved a dispute regarding the treatment of an amount credited to the assessee's accounts as "advance" towards share allotment. The Assessing Officer treated it as "cash credit" under Section 68 of the Income Tax Act, 1961. The assessee submitted explanations, but the AO was not satisfied with the source of income, leading to the amount being treated as cash credit. The first appellate authority relied on legal precedents but the Tribunal reversed the decision, finding the amounts liable to be treated as cash credit under Section 68.

Issue 2:
The Court examined Section 68 of the Income Tax Act, which requires an explanation from the assessee about the nature and source of any sum credited in their accounts. Despite an explanation being offered by the assessee, it was found unsatisfactory. The Court noted that the explanation provided by the daughter-in-law of the deceased investor, who was the alleged source of the amount, was unlikely and raised doubts about the satisfactory nature of the explanation offered.

Issue 3:
The Court rejected the reliance on a Delhi High Court decision, emphasizing that the decision did not consider Section 68 of the Act. The Court refused to answer the questions of law framed in the appeal due to the lack of positive evidence tendered by the assessee regarding the source of the credited amounts and the unsatisfactory nature of the explanation provided. The decision was based on the absence of conclusive evidence and the failure to establish the credibility of the explanations offered.

Conclusion:
The Court dismissed the appeal, upholding the Tribunal's decision to treat the amounts as cash credit under Section 68. The judgment emphasized the importance of providing satisfactory explanations for credited sums and highlighted the need for concrete evidence to support claims regarding the nature and source of income. The parties were directed to bear their respective costs, concluding the legal proceedings in the matter.