Addition u/s 68 of the Act by the Ld Assessing officer; deleted by the Ld. CIT (A), on seen that the assessee has full filled the requirement as per section 68 of the Act regarding cash credits Credits.
The AO has written that after going to reply it can not be opined that the creditors are genuine creditors. Who are these persons? The full capability of the creditors has been established. It is only the presumption of the AO that he introduced cash whenever he needed it . . . The contention of the AO can not be accepted since the initial onus of establishing the identity, creditworthiness and genuineness of the transaction had been discharged by the appellant and further enquiries should have been made by the AO before arriving at a conclusion to make the addition u/s 68 of the Income Tax Act,1961 . The appellant has clearly discharged the onus of establishing the identity, genuineness and creditworthiness of the transaction. No summons were issued by the AO to the creditors and no enquiries were made by the AO invoking the provision of section 133 (6) of the income tax Act ,1961.
The assessee was asked to produce the persons who have rendered cash credits to the assessee. The assessee could not produce these persons before the AO circumstantially as he was hesitant to disturb the persons/relatives to come to the Income tax Department for explaining source of loans etc etc. But assessee was never unable to produce theses persons. These persons are genuine, identified, close to the assessee. Initial onus was discharges by the assessee by submitting copy of confirmation of the loan duly signed, copy of income tax returns of those persons, copy of TDS certificates, copy of PAN, copy of Bank Statement etc,etc. Whatever the material could be produced by the assessee before the AO in order to discharge the burden to prove identity of the creditor, capacity/creditworthiness to advance the money and genuineness of the transaction. Now it was open to the income tax officer to issue summons u/s 131(1) of the Income Tax Act, 1961 or issue notice u/s 133(6) of the same act which was not done by the AO before making the addition u/s 68 of the Income Tax Act, 1961 which is contrary to the principle of natural justice and law. Affidavits from the creditors were also furnished by the assessee before the AO which has not been considered by the AO. The Hon’ble Court is prayed to give one more chance to produce the creditors in order to meet with the sufficiency to prove the genuineness of the creditors. Thus no addition can be made merely on the basis of rough jottings or scribblings unless these are supported with some cogent evidences that the assessee introduced cash in his books of accounts and no other creditors.
Assessee’s explanation is required with regard to the following points
Nature and its source
Law explained through judicial developments.
Identity: Best evidence is Copy of PAN Card/letter of the creditor. Other useful evidences can be voters I-card, Ration Card, Driving license, Copy of acknowledgement of Return, certificates from sarpanch of village panchayats and so on.
Credit worthiness: Copy of ITR, Balance Sheet and Profit and Loss Account, Bank Statement, evidences of holding of land and agricultural income, other evidences of availability of funds with creditor e.g. sale deed of properties etc.
Genuineness: The objective is to ensure that the transaction is not camouflaged. Once identity and creditworthiness of the creditor are established, the burden would normally be upon the A.O. to prove that the transaction is not genuine.
There is one thing more, which may be required for the satisfaction of the A.O. i.e. confirmation of the transaction by the creditor. Primarily it is duty of the assessee to arrange for confirmation of the transaction which can be filed in one or more of the following ways:
1. Duly signed confirmation by the creditor containing at least following information:
2. Duly sworn and notarized affidavit from the creditor deposing on oath all these facts as stated in the confirmation.
Mehta Parekh 30 ITR 181 (SC): The contents of the affidavit can not be disbelieved without rejecting the same.
Law in this regard was laid down by a celebrated judgment of the Supreme Court in the case of CIT vs. Orissa Corporation (P) Ltd. 159 ITR 78. Under these circumstances it is not the responsibility of the assessee to enforce the attendance of these persons. Non appearance of the creditors in response to summons of the A.O. issued u/s 131 which were duly served or inaction on the part of the A.O. to issue the summons would not lead to the inference that assessee had failed to discharge the onus on his part as held in the following cases:-
Tolaram Daga V/s Commissioner of Income Tax 59 ITR 632 (Assam)
“But the position is different in regard to a sum which is shown in the assessee’s books in the name of a third party. In such a case, the onus of proof is not upon the assessee to show the source or nature of amount of the cash credit; on the other hand, the onus shifts to the department to show by some material that the amount standing in the name of the third party does not belong to that third party but belongs to the assessee. That is the principle laid down by the division Bench of this court in S. N. Ganguly’s case. There is a decision to a similar effect in an earlier case, Ramkinkar Banerji vs Commissioner of Income Tax.
All that could be said to follow from this decision is that once the assessee explains the credit entry and brings in evidence to show that the entry related to a third party and that credit was that of that third party, the burden would shift to the Income Tax Officer in such a case to establish that the entry was not real but was pseudonymous.”
CIT vs Shri Ram Narain Goel 224 ITR 180 (Pun. & Har.)
“The finding of fact given by the Tribunal is based on the material on record. The Tribunal correctly took the view that the assessee was not supposed to prove the source of the loans. Suspicion, howsoever strong, cannot take the place of evidence or proof.”
Jalan Timbers vs CIT 223 ITR 11 (Gauhati)
In order to establish the fact of receipt of a cash credit as required u/s 68 of the Income Tax Act, 1961 the assessee must prove three important conditions, namely, (1) the identity of the person, (2) the genuineness of the transaction, and (3) the capability of the person giving the cash credit.
Section 68 of the Act makes it clear that in respect of a cash credit entry the explanation offered by the assessee can be rejected by the Income Tax Officer on cogent grounds. When such grounds themselves are based on no evidence, the question of presumption against the assessee does not arise.
Sona Electric Co. vs CIT 152 ITR 507(Delhi)
Section 68 of the Income Tax Act, 1961 makes it abundantly clear that a cash credit entry in the assessee’s books of accounts can be rejected by the Income Tax Officer on cogent grounds. When such grounds are themselves based on no evidence, the question of raising a presumption against the assessee does not arise.
M/s Essan Remedies Ltd. vs DCIT ITA No. 256/Del/04
In this case, all the creditors and the share contributors were assessed to income tax and their PAN numbers were also filed in their confirmations. They had also filed their statement of affairs or Balance Sheet and evidence for having filed the return of income. Moreover, there is no suggestion in the impugned order that the assets and income position exhibited in the records of the creditors / share contributors is false. Merely because they did not appear before the assessing officer in response to the summons, it cannot be concluded that the amount have to be added as the assessee’s income. The assessee had no power to enforce their attendance.
Hence the Hon’ble court is prayed to delete the entire addition of Rs.74000.00 on account of cash credit in the books of the assessee.
The observations made by the Ld. CIT (A) , Faridabad were as under
During the course of appellate proceedings, the appellant not only provided evidence in support of the identity of the creditors but more importantly submitted documents to substantiate the creditworthiness of all the 4 creditors by way of copy of PAN and income tax return. By submitting these evidences, the appellant has been able to discharge his onus regarding the creditworthiness of these 4 lenders. Thus the addition made by the AO on this issue is deleted and hence this ground of appeal is allowed.
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