INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Assessee failed to establish genuineness of transactions and creditworthiness of creditors - Treatment as unexplained credit

AO noticed that assessee claimed an unsecured loan in his balance sheet and disallowed the same treating it to be unexplained credit under section 68. Assessee submitted that the said unsecured loan was in the form of advances given by 40 agriculturists towards a proposed housing scheme. Further, it was submitted that upon notices issued under section 133(6), all the 40 creditors responded giving the relevant particulars, which included copies of their voter identity cards and affidavits and in absence of any further enquiry, it was submitted that the said addition would not sustain. Held: It is well settled that with respect to credits, especially cash deposits, etc., the initial burden lies upon the assessee to establish by way of three prong test that the advances or credits claimed are genuine, first the identity of the creditor; second, the genuineness of the transactions, and third, creditworthiness of the creditor. In the subject case, while the first element, i.e., the identities of the creditors were proved but the other two elements were not established at all. In that regard, the assessee's contentions that the agriculturists were not asked to produce any material to supplement their statement was inconsequential as the onus of the initial burden lied upon the assessee. Hence, the addition made under section 68 would be sustainable.

Relied:CIT v. M/s Lovely Exports (Pvt) Ltd. (2010) 14 SCC 761: 2009 TaxPub(DT) 0261 (SC)

REFERRED :

FAVOUR : Against the assessee

A.Y. : 2010-11

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