Issue before court:
- Whether AO can made addition u/s 68 if primary onus of proving identity, creditworthiness and genuineness was discharged by assessee.
- Whether AO should make proper and due enquiry before invoking provision of section 68.
- Assessee was engaged in the sale & purchase of property. During assessment proceedings show cause notice was issued to issue pertaining to two huge amount reflected in his bank statement.
- The assessee explained that these amounts were consideration received either fully or in part and in some cases paid back during the concerned period and that everything was backed by documentary evidence.
- In the course of the assessment proceedings, the concerned material in the form of extracts of ledger, other books of accounts, bank account statements and confirmation by the parties concerned and the conveyance/sale deeds or copies thereof were produced.
- AO brought to tax the entire amount stating that the credits had not been properly explained.
- On appeal CIT (A) deleted additions after examining the various documents in support of submission and various case laws relied upon by the assessee. ITAT also dismissed appeal filed by revenue and sustained the order of CIT (A).
Contention of the revenue:
- The Revenue argues that the order of the CIT (A) and the ITAT acknowledges that certain transactions or entries require a more intensive scrutiny which is the reason why liberty has been given to issue notice under Section 147/148.
- The explanation afforded during the assessment proceedings with respect to the entries in question, was not satisfactory and in the given circumstances of the case, the AO acted correctly in adding back the amounts.
Contention of the assessee:
- Assessee relied upon the decision of Hon’ble Supreme Court in matter of Lovely Export 216 ITR 195 that it was submitted that the identity and genuineness of the transaction and the creditworthiness of the concerned parties had been established and that in these circumstances, the AO could not have included these amounts under Section 68.
- All the relevant materials in the form of confirmation with respect to each transaction pertaining to the assessee’s business activities as well as the sale/purchase deeds was disclosed and given the fact that the amounts were reflected in the bank accounts, there was no question of dubious credit entries.
Held by the court:
- The AO appears to have given a short shrift to the obligation placed upon him once the identity of the party and the genuineness of the transaction was disclosed by the assessee.
- Decision of Lovely Exports 216 CTR 195 guides the authorities for the proper conduct of proceedings or adding amounts under Section 68.
- The initial onus to show the genuineness and identity of transaction and the credit worthiness of the party is no doubt upon the assessee. Once that is done in the form of prima facie credible material, the AO has to then exert himself/herself to quote relevant material to disprove that onus and discharge the burden placed upon the Revenue.
There are various case laws which conclude the facts that once the assesse discharged its primary onus by placing material and document on record before AO then it is assumed that the unexplained amount reflected in books of assessee stands explained. In order to make addition AO must enquire further and brought out contrary material to make addition u/s 68. He cannot take stand of time limit prescribed under act of complete the assessment in hasty manner. If any contrary or dubious fact brought out after completion of assessment as a result of his enquiry then he can proceed further under section 147.