Law: Income Tax Act, 1961

Section: 256(2),131,68

Law: Evidence Act, (1 of 1872)

Section: 34

Income-tax--- ----Cash credits---Identity of creditors proved---Returns of creditors showing loans accepted and assessments made---Cash credits could not be assessed as income of assessee from undisclosed sources---Indian Income Tax Act, 1961, S.68. In order to establish the fact of receipt of a cash credit as required under section 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. The assessee carried on timber business. In the accounting year 1980-81, the assessee received a loan of Rs.1,50,000 from H, a partnership firm, Rs.35,000 from M and Rs.30,000 from R. While making the assessment for the said period, the Income-tax Officer disbelieved the cash credit received and directed the assessee to produce evidence to prove the genuineness of the transactions. Pursuant to that the assessee produced confirmatory letters from the cash creditors. The Income-tax Officer, while making the assessment in respect of the three creditors abovenamed, accepted the returns. However, he added the credits amounting to Rs.2,15,000 in the total income of the assessee. The Commissioner of Income-tax (Appeals) held that the assessee discharged the onus regarding receipt of cash credits. However, the Tribunal confirmed the order of the Income-tax Officer. On a reference: Held, that the Tribunal did not make any endeavour to give any cogent reason why the income-tax returns filed by the creditors and accepted by the Income-tax Officer should be ignored. The credits were prima facie genuine. The Tribunal was not justified in upholding the addition of Rs.2,15,000 in the income of the assessee and disallowing the interest on the amount. CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC); CIT v. Precision Finance P. Ltd.…

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