CIT vs. Dataware Pvt Ltd (Calcutta High Court)

DATE: (Date of pronouncement)
DATE: November 3, 2011 (Date of publication)

Click here to download the judgement (dataware_kinetic_68_cash_credits.pdf)

S. 68 Cash Credit: Assessee’s AO cannot question Creditor’s I. T. Return

The assessee received share application money of Rs.1 crore from a company (‘creditor’) and submitted the creditor’s confirmation letter, details of the transaction, PAN etc to the AO. The AO made enquiries from the creditor who confirmed the transaction. However, the AO, instead of making enquiry from the creditor’s AO as to whether the creditor’s return had been accepted, arrived at the finding after looking at the creditor’s P&L A/c that the procurement of money by the creditor was not genuine and added the amount to the assessee’s income. This was reversed by the CIT (A) and the Tribunal. On appeal by the department, HELD dismissing the appeal:

If the creditor discloses his PAN and claims to be an assessee, the AO cannot himself examine the return and P&L A/c of the creditor and brand the same as unworthy of credence. Instead, he should enquire from the creditor’s AO as to the genuineness of the transaction and whether such transaction has been accepted by the creditor’s AO. So long it is not established that the return submitted by the creditor has been rejected by the creditor’s AO, the assessee’s AO is bound to accept the same as genuine when the identity of the creditor and the genuineness of transaction through account payee cheque has been established.

See also CIT vs. Oasis Hospitalities 333 ITR 119 (Del) where the entire law on s. 68 was reviewed & CIT vs. Kinetic Capital Finance (included in file) where it was held that the “source-of-source” could not be inquired

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