Sec. 68 Unexplained Credit can only be added to taxable income of AY in which it occurs

In a recent ruling, the ITAT Jabalpur, decided the case in favour of the assesse, deleting the additions made by the Assessing Officer towards sundry creditors amounting to Rs. 5.07 lacs. The court held that under Section 68 of the Income-Tax Act, 1961, only the amounts found credited during the impugned assessment year can be added and be deemed to be the income of the impugned assessment year if the Assessing Officer is not satisfied about the nature and source of such cash credit.

The issue of cash credit has always been a matter of vexatious litigation. Section 68, lays down a golden rule of evidence which is not indisputable, i.e., if any sum is found credited in the books of account of an assessee, the onus is on him to provide an explanation for the said entry.

Under Section 68, the burden of proof lies on the assessee to submit explanations with relevant evidences, with respect to any credit entries made in the books of account maintained for any previous year, to the satisfaction of the Assessing Officer, regarding the source and nature of the amount of cash credits. If the assessee fails to establish the genuineness of the credit entries during the enquiry, the Assessing Officer has the power to add those amounts to the income of the Assessee for the relevant previous year.Section 68, also penalises concealment of income.

In the instant case, the assessee, had filed an appeal against the order of the CIT(A)-2 of Jabalpur on 31.3.2016 relating to the Assessment Year 2007-08, raising the issue of addition of Rs. 5,06,500/- made by the Assessing Officer towards sundry creditors of the year. The ITAT after hearing the submissions allowed the appeal and laid down that since the amount does not represent the cash credit arising during the impugned Assessment Year, the amount represented the opening balance in the account of the sundry creditors.

Similar stand was taken by the bench of High Court (Jabalpur) in CIT v. Pukhraj Telecom Pvt. Ltd. [2016]. The High Court has taken the view that it is a settled legal position that credits introduced in any Assessment Year cannot be taxed in subsequent Assessment Years.

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