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2022 (3) TMI 1281 - AT - Income TaxAddition u/s 68 - Unexplained cash credit - onus to prove -HELD THAT:- It is not just entry of cash credit in the books of accounts that would create liability of explanation from the assessee, but there should be an actual flow of funds. Once the flow of funds is established then the question of explanation from the assessee actually arises. Where the books of accounts on its own establish that the entry was fictitious and sham for window dressing , then as such the initial burden on the revenue is not discharged to shift onus on the assessee to explain further identity, capacity and genuineness of the source. It can be seen in present case that the Ld. AO had observed from the books of accounts that the entry was fictitious and was reversed immediately in next FY on 1/4/2014, without any actual cash flow. But Ld AO was carried away by morality of accounting practices by holding that there is no concept like notional entries in the preparation of books of accounts and to which more pragmatic view was taken by the Ld FAA by accepting the plea of assessee and observing in para 11 of its order that “ the entire story is one of series of entries passed with a view of shoring up its current ratio for showing the same to the bank for better interest on loans raised onus on the assessee was discharged with the explanation that there was no actual flow of funds and that explanation being factual could not have been rebutted on deemed fiction. Thus Ld. FAA was correct in following the ratio laid in Jatia Investment Co. Ltd. [1992 (8) TMI 16 - CALCUTTA HIGH COURT]that fictitious entry not backed up by funds may not be taxable as “Cash Credit”. FAA has also taken into consideration the fact that the entries were not from strangers but from the partners by way of introduction of capital so the correct course would have been to bring the capital introduced to tax in the hands of the partners as their unexplained income. - Decided against revenue.
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