Introduction
Section 68 of the Income Tax Act, 1961 deals with cash credits in the books of accounts of an assessee. It provides that if any sum is found credited in the books of an assessee for any previous year and the assessee offers no explanation about the nature and source of the same or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, then such sum shall be charged to income-tax as the income of the assessee of that previous year. In this blog, we will discuss some of the case laws on Section 68 of the Income Tax Act, 1961 in favor of the assessee.
- CIT v. Lovely Exports Pvt. Ltd.
In the case of CIT v. Lovely Exports Pvt. Ltd., the Hon’ble Supreme Court held that if the assessee provides the necessary details such as the names and addresses of the creditors, their PAN numbers, the mode of payment, and the bank account details, then the onus shifts to the Assessing Officer to prove that the credits are unexplained. If the Assessing Officer fails to do so, then the addition made by him under Section 68 cannot be sustained.
- CIT v. Oasis Hospitalities Pvt. Ltd.
In the case of CIT v. Oasis Hospitalities Pvt. Ltd., the Hon’ble Delhi High Court held that if the assessee provides the necessary details regarding the identity of the creditors, their financial capacity, and the genuineness of the transactions, then the burden of proof shifts to the Assessing Officer. The Assessing Officer has to prove that the transactions are not genuine or that the creditors do not have the financial capacity to lend the amounts.
- Jai Shree Radheyshyam Enterprises v. CIT
In the case of Jai Shree Radheyshyam Enterprises v. CIT, the Hon’ble Delhi High Court held that if the assessee has discharged the primary onus of proving the identity and creditworthiness of the creditors and the genuineness of the transactions, then the Assessing Officer cannot make an addition under Section 68 merely on the basis of suspicion or conjecture.
- CIT v. Nipun Builders & Developers Pvt. Ltd.
In the case of CIT v. Nipun Builders & Developers Pvt. Ltd., the Hon’ble Bombay High Court held that if the assessee has provided the necessary details such as the names and addresses of the creditors, their PAN numbers, the mode of payment, and the bank account details, then the onus shifts to the Assessing Officer to prove that the transactions are not genuine. If the Assessing Officer fails to do so, then the addition made by him under Section 68 cannot be sustained.
Section 68 of the Income Tax Act, 1961 is often invoked by the tax authorities when they come across cash credits in the books of an assessee which are not explained satisfactorily. This section is often used as a tool to bring to tax unaccounted income. However, it is important to note that the burden of proof is on the tax authorities to prove that the cash credits are not genuine.
- CIT v. Simit P. Sheth
In the case of CIT v. Simit P. Sheth, the Hon’ble Bombay High Court held that the burden of proving that the cash credits are not genuine is on the Revenue. The assessee had provided the necessary details such as the names and addresses of the creditors, their PAN numbers, and the bank account details. The Court held that in the absence of any evidence to suggest that the transactions were not genuine, the addition made by the Assessing Officer under Section 68 could not be sustained.
- CIT v. Suresh Chand Mittal
In the case of CIT v. Suresh Chand Mittal, the Hon’ble Rajasthan High Court held that if the assessee has provided the necessary details such as the names and addresses of the creditors, their PAN numbers, and the bank account details, then the onus shifts to the Revenue to prove that the transactions are not genuine. The Court also held that mere suspicion or conjecture is not enough to sustain an addition under Section 68.
- CIT v. Steller Investment Ltd.
In the case of CIT v. Steller Investment Ltd., the Hon’ble Delhi High Court held that if the assessee has provided the necessary details regarding the identity of the creditors, their financial capacity, and the genuineness of the transactions, then the onus shifts to the Revenue to prove that the transactions are not genuine. The Court also held that if the assessee has discharged the initial burden of proof, then the addition made by the Assessing Officer under Section 68 cannot be sustained merely on the basis of suspicion or conjecture.
- CIT v. Durga Prasad More
In the case of CIT v. Durga Prasad More, the Hon’ble Supreme Court held that Section 68 casts the initial burden of proof on the assessee to prove the identity of the creditor, the creditworthiness of the creditor, and the genuineness of the transaction. However, the Court also held that once the assessee has discharged this initial burden, the onus shifts to the Revenue to prove that the cash credits are not genuine. The Court further held that the Assessing Officer cannot draw an adverse inference merely because the creditor is unable to produce evidence to show the source of the cash.
Conclusion
In conclusion, Section 68 of the Income Tax Act, 1961 is a provision that deals with cash credits in the books of accounts of an assessee. The burden of proof is on the assessee to explain the nature and source of such cash credits. However, if the assessee provides the necessary details regarding the identity of the creditors, their financial capacity, and the genuineness of the transactions, then the burden of proof shifts to the Assessing Officer. The case laws discussed above show that if the assessee has discharged the primary onus of proving the identity and creditworthiness of the creditors and the genuineness of the transactions, then the addition made by the Assessing Officer under Section 68 cannot be sustained merely on the basis of suspicion or conjecture.
Read more useful content:
- section 145 of income tax act
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Frequently Asked Questions (FAQs)
What is Section 68 of the Income Tax Act, 1961?
Section 68 of the Income Tax Act, 1961 deals with the treatment of unexplained cash credits in the books of an assessee. It empowers the tax authorities to tax the cash credits as income of the assessee if they are not explained satisfactorily.
What is the burden of proof under Section 68 of the Income Tax Act, 1961?
Under Section 68, the initial burden of proof is on the assessee to prove the identity of the creditor, the creditworthiness of the creditor, and the genuineness of the transaction. Once the assessee has discharged this initial burden, the burden of proof shifts to the Revenue to prove that the cash credits are not genuine.
Can the Assessing Officer make an addition under Section 68 on the basis of suspicion or conjecture?
No, the Assessing Officer cannot make an addition under Section 68 merely on the basis of suspicion or conjecture. The Revenue must carry out a thorough investigation and provide concrete evidence to prove that the transactions are not genuine.
What are the necessary details that an assessee needs to provide to prove the genuineness of the cash credits?
The necessary details that an assessee needs to provide to prove the genuineness of the cash credits include the names and addresses of the creditors, their PAN numbers, and the bank account details.
Can the Revenue make an addition under Section 68 if the creditors are not traceable?
No, the mere fact that the creditors are not traceable does not necessarily mean that the transactions are not genuine. The Revenue must carry out a thorough investigation and provide concrete evidence to prove that the transactions are not genuine.
Can the Revenue make an addition under Section 68 if the creditor is unable to produce evidence to show the source of the cash?
No, the Assessing Officer cannot draw an adverse inference merely because the creditor is unable to produce evidence to show the source of the cash.
What is the role of the courts in deciding cases related to Section 68 of the Income Tax Act, 1961?
The courts play an important role in deciding cases related to Section 68. They interpret the law and lay down principles that guide the tax authorities in applying the law.
Can the addition made under Section 68 be challenged in appeal?
Yes, the addition made under Section 68 can be challenged in appeal. The assessee can appeal against the addition before the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal, and the higher courts.
What are the consequences of not explaining cash credits satisfactorily under Section 68?
If the cash credits are not explained satisfactorily, they may be treated as income of the assessee and taxed accordingly. The assessee may also be liable to pay interest and penalty.
How can an assessee avoid unnecessary additions under Section 68?
An assessee can avoid unnecessary additions under Section 68 by maintaining proper books of accounts and providing all the necessary details regarding the cash credits. It is important to keep documentary evidence and maintain a paper trail to explain the source of the cash credits.
