Law: Income Tax Act, 1961

Section: 68

Income-tax---Cash credits---Additions of amounts under S.68---Condition precedent--¬Proper inquiry---No proper inquiry to ascertain whether explanation was genuine---Amount represented by credits were not assessable under S.68--¬Indian Income Tax Act, 1961, S.68. Section 68 of the Income Tax Act, 1961 empowers the Assessing Officer to make enquiry regarding cash credits. If he is satisfied that these entries are not genuine he has every right to add these as an income from other sources. The satisfaction of the Assessing Officer is the basis of invocation of the power under section 68 of the Act and the satisfaction must be derived from the relevant factors on the basis of proper inquiry. The enquiry must be reasonable and just. The assessee-firm carried on contract work. In the assessment year 1981-82, an amount of Rs.1, 70,000 had been shown as cash credit received from seven creditors. The Assessing Officer doubted the genuineness of the transactions. Accordingly, notice was issued to the assessee to satisfy the Assessing Officer about the transactions invoking the power under section 68 of the Act. Pursuant to that, confirmation letters had been produced by the assessee. The assessee also gave the G.I.R. numbers of the creditors inasmuch as they were also assessees under the Income-tax Department. Yet, the Income-tax Officer did not believe the explanation and, therefore, issued notice under section 131 in respect of all the seven creditors. Out of the above, only four creditors appeared before the Assessing Officer and. explained the transaction satisfactorily, and, accordingly, the Assessing Officer accepted these transactions to be genuine. However, notices in respect of the remaining three creditors, namely, F, R and M were returned un-served. In the previous assessment year, the address of these creditors had been shown as R & Co., another firm, R & Co. was also an assessee. The Assessing Officer deputed an Inspector of Income-tax to make enquiry from R & Co. The Inspector, however, met only the accountant of the firm who informed the Income-tax Inspector, that there were no such persons. The Inspector of Income-tax, however, did not…

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