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s. 68. cash credit

Started by rajul5234, April 03, 2012, 09:31:22 AM

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Gujarat high court. tax appeal 50/ 2011. dt. 20/3/12. Ranchhod Jivabhai Nakhava. Held that even if cash is deposited in account of lender by assessee and lender has issued cheque for loan to assessee, unless investigation is done by assessing officer of assessee with assessing officer of lender, s. 68 cannot be invoked in case of assessee.

R. K. Patel.


please forward a copy of the order of the GUJ High Court and oblige


i am trying to forward, but website is not taking attacment.

please mail your id at rajul4234@gmail.com

i shall forward you a copy.




sorry, correct id is rajul5234@gmail.com

typing error on my part.



dear sir
pl send copy of judgment to me also at gm2104@gmail.com

ashutosh majumdar


TAX APPEAL No. 50 of 2011





Appearance :
MRS MAUNA M BHATT for Appellant(s) : 1,
None for Opponent(s) : 1,





Date : 20/03/2012



This Appeal under Section 260A of the Income Tax Act, 1961 is at the instance of the Revenue and is directed against the order dated 25th August 2010 passed by the Income Tax Appellate Tribunal, Rajkot Bench, Rajkot in I.T.A.No.710/RJT/2010 for the Assessment Year 2006-07, by which the Tribunal has dismissed the appeal preferred by the Revenue and has affirmed the order passed by the Commissioner of Income Tax (Appeals).

Being dissatisfied, the Revenue has come up with the present Appeal.

The only question that arise for determination in this Appeal is, whether the Tribunal below committed substantial error of law in confirming the decision of the Commissioner of Income Tax (Appeals), by which the said appellate authority deleted addition of Rs.15 lac made on account of alleged unexplained income under Section 68 of the Income Tax Act by the Assessing Officer.

The following facts are not in dispute :

The assessee is an individual and is engaged in the business of trading of iron scrap. In the Accounting Year in question, the assessee claimed to have taken the following loans :

      (1) Smt. Manjula J. Shah Rs.4 lac

      (2) Shri Mital J. Shah Rs.3 lac

      (3) Shri Vaibhav J. Shah Rs.8 lac

During the course of proceeding, the assessee had produced confirmation letters from these depositors and the photocopy of their PAN card. It further appears that the assessee had received loans by Accounts Payee Cheque from these three persons.

The Assessing Officer, without verifying whether those three creditors in their respective income tax return had shown those transactions, decided to examine those three persons under Section 131 of the Income Tax Act. Those persons stated that before receiving the cheques, the assessee had given cash to them which was deposited in the account of M/s.Vaibhav Enterprises on different dates, and against that, they had received cheque and out of that balance they had deposited the money with the assessee.

The assessee was given opportunity to cross-examine two of the lenders. In the cross-examination, both the lenders had confirmed giving loan to the assessee, and in response to the question of the assessee about the source of the money, it was stated that they had received cash from the assessee which they had deposited in M/s.Vaibhav Enterprises and from that account cheques were issued in favour of the lenders, and in turn, the lenders issued cheques and deposited with the assessee. They, however, confirmed that signature and address on the confirmation letters were theirs. They further stated that they did not know the assessee but the father of Mital J.Shah & Vaibhav J.Shah and the husband of Manjula Shah knows the assessee.

The Assessing Officer issued a show-cause notice, which was replied by the assessee stating that the assessee had produced confirmation letters of the lenders who are assessed to tax and had given their passbooks and it was also stated that they had received loan from M/s.Vaibhav Enterprises and the source of money deposited by them is a loan from M/s.Vaibhav Enterprises. He further stated that as all those persons, the lenders as well as the persons who had deposited the money in his bank account and issued cheques in favour of the assessee are all assessed to income tax, therefore, the assessee cannot be asked to prove the source of money.

The Assessing Officer, however, on consideration of the above facts, added Rs.15 lac in the hand of the assessee under Section 68 of the Act.

Being dissatisfied, the assessee preferred appeal before the Commissioner of Income Tax (Appeals) and the said appellate authority, on consideration of the above materials, came to the conclusion that all the three lenders and other entity, namely, M/s.Vaibhav Enterprises, of which Jayendra Kanji Shah was the proprietor, are assessed to income tax regularly and the Assessing Officer did not examine the books of account of M/s.Vaibhav Enterprises. The appellate authority further came to the conclusion that suddenly the lenders made confessional statement to the Assessing Officer that the appellant had given them money and the same were deposited in the bank account; however, later on, they had stated that the money was given by some other person whom they did not know. According to the Commissioner of Income Tax (Appeals), the statement of the lenders were full of inconsistency and incongruity and thus it was not a fit case of believing those persons.

The Commissioner of Income Tax (Appeals), thus, deleted the said amount.

Being dissatisfied, the Revenue preferred appeal before the Commissioner of Income Tax (Appeals) and by the order impugned, the Tribunal has affirmed the order passed by the Commissioner of Income Tax (Appeals).

Being dissatisfied, the Revenue has come up before us.

After hearing Mrs.Bhatt, the learned advocate appearing on behalf of the appellant and after going through the materials on record, we are unable to accept her contention that in this case the Revenue has discharged its onus and it was for the assessee to further prove the genuineness and creditworthiness of the creditors.

In our view, once the assessee has established that he has taken money by way of accounts payee cheques from the lenders who are all income tax assessees whose PAN have been disclosed, the initial burden under Section 68 of the Act was discharged. It further appears that the assessee had also produced confirmation letters given by those lenders.

Once the Assessing Officer gets hold of the PAN of the lenders, it was his duty to ascertain from the Assessing Officer of those lenders, whether in their respective return they had shown existence of such amount of money and had further shown that those amount of money had been lent to the assessee. If before verifying of such fact from the Assessing Officer of the lenders of the assessee, the Assessing Officer decides to examine the lenders and asks the assessee to further prove the genuineness and creditworthiness of the transaction, in our opinion, the Assessing Officer did not follow the principle laid down under Section 68 of the Income Tax Act.

If on verification, it was found that those lenders did not disclose in their income tax return the transaction or that they had not disclosed the aforesaid amount, the Assessing Officer could call for further explanation from the assessee to prove the genuineness of the transaction or creditworthiness of the same. However, without verifying such fact from the income tax return of the creditors, the action taken by the Assessing Officer in examining the lenders of the assessee was a wrong approach. Moreover, we find that those lenders have made inconsistent statement as pointed out by the Commissioner of Income Tax (Appeals) and in such circumstances, we find that both the Commissioner of Income Tax (Appeals) and the Tribunal were justified in setting aside the deletion as the Assessing Officer, without taking step for verification of the Income Tax Return of the creditors, took unnecessary step of further examining those creditors. If the Assessing Officers of those creditors are satisfied with the explanation given by the creditors as regards those transactions, the Assessing Officer in question has no justification to disbelieve the transactions reflected in the account of the creditors. In other words, the Assessing Officer had no authority to dispute the correctness of assessments of the creditors of the assessee when a co-ordinate Assessing Officer is satisfied with the transaction.

We, thus, find that in the case before us the Tribunal below rightly set-aside the deletion made by the Assessing Officer, based on erroneous approach by wrongly shifting the burden again upon the assessee without verifying the Income Tax return of the creditors. The position, however, would have been different if those creditors were not income tax assessees or if they had not disclosed those transactions in their income tax returns or if such returns were not accepted by their Assessing Officers.

No substantial question of law is, thus, involved. We find no merit in this Appeal and the same is dismissed.

(Bhaskar Bhattacharya, Acting C.J.)

(J.B.Pardiwala, J.)