Law: Income Tax Act, 1961

Section: 68

Income-tax---Cash credits---Genuineness of cash credits---Income-tax Officer adding credit in names of two minor girls to income of assessee-firm---Creditors genuine persons and identity of creditors -proved---Creditworthiness of creditors proved as amount of loan was accumulation of income on account of customary gifts in Hindu society received by minor girls ---Assessee-firm belonged to maternal uncle of creditors---Cash credits genuine and amount cannot be added to income of assessee---Indian Income Tax Act, 1961, S.68. In the course of the assessment proceedings for the assessment year 1987-88, 'the Income-tax Officer found two cash credit entries in the names of two minor girls of Rs.9,000 each in the books of the assessee-firm and called upon the assessee to produce the two creditors. The Income-tax Officer being dissatisfied with the statement of the guardian of the minors added the amounts to the income of the assessee. The Commissioner of Income-tax (Appeals) affirmed the order of the Income-tax Officer. The Tribunal affirmed the order of the Commissioner of Income-tax (Appeals). On a reference: Held, that the two creditors were genuine persons and the identity of the creditors had been proved. In Hindu society generous gifts in cash and kind are given to young children on the occasion of Dipawali, Dussera, Raksha Bandhan, etc. As regards the creditworthiness of the creditors, the guardian of the minors had stated that the amount of loan was accumulation of income on account of customary gifts received by the two young ladies, who lost their father at an early age. Since the amount involved in the loan advanced to the assessee by the minors was only a small amount of Rs.9,000 each, it could not be said that the creditors would not have accumulated that much amount during the period in question. The gifts were received by the minors on various occasions each year and for 12/14 years. Therefore, it could not be said that the creditworthiness of the creditors had not been established. The assessee-firm belonged to the maternal uncle of the creditors and hence the investment of the amount by the assessee in its own firm and paying them interest was a…

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