2010 (9) TMI 201 - HC - Income Tax

Genuineness of the cash credits (under Section 68 of the Act) - five persons from whom the loans are allegedly raised nowhere come into the picture - five persons have not come forward to say that they had deposited the money or advanced loans to the assessee - Held that - no evidence worthy enough on the basis of which the assessee could claim that it has satisfactorily proved the source of the said entries or the nature of cash received - moneys shown as deposits/loans in five different names in fact belonged to the assessee and the assessee has not been able to discharge the onus that it belonged to some third party - answer in favour of the Revenue and against the assessee

Issues Involved:
1. Genuineness of cash credits under Section 68 of the Income Tax Act.
2. Onus of proving the source of cash credits.
3. Evaluation of evidence by CIT(A) and the Tribunal.
4. Admissibility of additional evidence without a remand report.
5. Legal principles for discharging the onus of proof as per Supreme Court precedents.

Detailed Analysis:

1. Genuineness of Cash Credits under Section 68:
The Assessing Officer (AO) scrutinized loans amounting to Rs. 17,10,000 raised by the assessee from five different parties and required evidence to prove the genuineness of these cash credits. Despite the assessee's submission that loans were raised via cheques or bank drafts and depositors had subscribed to the company's shares, the AO was not satisfied. Summons issued under Section 131 of the Income Tax Act were returned unserved, leading the AO to propose additions under Section 68. The Income Tax Appellate Tribunal (ITAT) and CIT(A) later examined the evidence and concluded that the funds did not belong to the assessee company, thus deleting the additions made under Section 68.

2. Onus of Proving the Source of Cash Credits:
The AO emphasized that the assessee must explain the source of the cash credits. The assessee claimed that the amounts were received from Mr. B.S. Patel, who had received payments from M/s. Sehgal Papers Ltd. However, the AO found the explanation insufficient as Mr. Patel was not produced for examination, and the identity of the creditors was not established. The CIT(A) and the Tribunal, however, accepted the evidence provided by Mr. Patel and concluded that the funds did not belong to the assessee.

3. Evaluation of Evidence by CIT(A) and the Tribunal:
The CIT(A) considered additional evidence, including statements from Mr. Patel recorded by the Intelligence Wing, which indicated that funds were received from M/s. Sehgal Papers Ltd. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had discharged its burden under Section 68. However, the High Court found this approach flawed, as the CIT(A) and Tribunal did not adequately address the onus of proving the identity of the creditors and the genuineness of the transactions.

4. Admissibility of Additional Evidence without a Remand Report:
The Revenue argued that the CIT(A) and Tribunal considered fresh evidence without seeking a remand report from the AO. The High Court noted that this contention was not raised in the application seeking reference under Section 256(1) of the Act and thus could not be entertained at this stage. The focus was on whether the assessee had discharged its burden under Section 68 based on the material considered.

5. Legal Principles for Discharging the Onus of Proof:
The High Court referred to the Supreme Court's principle in Roshan Di Hatti Vs. Commissioner of Income Tax, which states that the onus of proving the source of a sum of money lies with the assessee. If the assessee fails to provide satisfactory evidence, the Revenue can treat it as taxable income. The High Court found that the assessee failed to discharge this onus, as the identity of the five persons who allegedly provided the loans was not established, and Mr. Patel's statements were contradictory and insufficient.

Conclusion:
The High Court concluded that the assessee did not satisfactorily prove the source and nature of the cash credits. The CIT(A) and Tribunal's approach was incorrect as they did not adhere to the required parameters for discharging the onus of proof. The High Court answered the reference in favor of the Revenue, holding that the assessee failed to discharge its burden under Section 68 of the Income Tax Act.

← Previous Next →