INCOME TAX ACT, 1961

Section 68

Income from undisclosed sources - Addition under section 68 - Alleged unexplained cash credit - Assessee discharged primary onus of proving identity and creditworthiness of creditors along with genuineness of transaction

Assessee-company disclosed funds from three companies as share application money. AO noticed that the whereabouts of the said companies were doubtful and their identities could not be authenticated and they were mere entities on paper without proper addresses. Further, the AO alleged that the said companies had no funds of their own and that they had not responded to the letters written to them, which could have established their creditworthiness. Accordingly, the AO treated the share application money as unexplained cash credit in the hands of the assessee under section 68. Held: Assessee furnished PANs, copies of income tax returns as well as copies of bank accounts of all the three creditors in which the share application money was deposited in order to prove genuineness of the transactions. Further, in so far credit worthiness of the creditors was concerned, the bank accounts of the creditors showed that the creditors had enough funds to make payments for share application money and in that regard, resolutions were also passed by the BOD of the three creditor-companies. Further, non-responding to notice would not ipso facto mean that the creditors had no creditworthiness. Accordingly, it was concluded that the assessee discharged its onus of proving identity and creditworthiness of creditors along with genuineness of transaction and hence, the addition made under section 68 was deleted.

Distinguished:Pr. CIT v. NRA Iron & Steel (P) Ltd. (2019) 103 taxmann.com 48 (SC) : 2019 TaxPub(DT) 1628 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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