Income Tax Addition on Failure to Prove Genuineness of Creditors Who Gave Cash Loan Upheld by Jharkhand High Court

Income Tax Addition on Failure to Prove Genuineness of Creditors Who Gave Cash Loan Upheld by Jharkhand High Court

The bench comprising of Justices Rongon Mukhopadhyay and Deepak Roshan has noted that ordinarily, the matter would have been sent back to the Assessing Officer (AO) for clarification on the correct provision and adherence to legal procedures. However, in the present case, the origin of income for both the assesses remains unraveled. This is due to the failure of both assesses to establish the identity, creditworthiness, or authenticity of the creditors who allegedly provided cash loans. Consequently, the bench concluded that sending the cases back to the AO would serve no purpose.

Rajmeet Singh, the appellant/assessee, derives income from commissions and various miscellaneous jobs and reported a total income of Rs. 1,98,690 in his income tax return. Similarly, Harmeet Singh, the assessee/appellant, earns income from operating a restaurant and declared a total income of Rs. 1,98,640 in his return. Both individuals were subjected to scrutiny, and statutory notices were issued during the assessment proceedings.

In the case of Harmeet Singh, the assessee provided documentation including a deed, profit and loss account, capital account, balance sheet, and income computation for the assessment years 2012–13 and 2013–14. Additionally, the assessee furnished a copy of their bank account. However, the Assessing Officer noted discrepancies concerning cash deposits totaling Rs. 19 lakhs made on various dates into Corporation Bank. Despite claims by the assessee of receiving Rs. 33 lakhs from builders M/s. Singh Estate and Singh Construction, the Assessing Officer found receipts only amounting to Rs. 14 lakhs. The assessee was unable to explain the balance of Rs. 19 lakhs, and the assessing officer had made an addition of Rs. 19 lakhs under Section 68 of the Income Tax Act, 1961.

The assessee contended that the funds in the bank account constituted an advance signing amount from Builder M/s. Singh Estate and Singh Construction for land purchase, representing the total amount he received.

In the case of Rajmeet Singh, the assessing officer examined documents including the income tax return, sale deed, bank account statements, and other relevant details submitted during the assessment process. However, the assessing officer found the explanations provided by the appellant regarding entries of Rs. 10 lakh and Rs. 6,50,000 to be unsatisfactory. Consequently, the Assessing Officer added a sum of Rs. 16,50,000 to the total income of the assessee as a cash credit under Section 68 of the Income Tax Act.

The Assessing Officer noted that the assessee, Rajmeet Singh, failed to provide satisfactory explanations for the cash deposits totaling Rs. 16,50,000.

Subsequently, both assessees appealed to the Commissioner of Income Tax. However, the Commissioner held that neither during the assessment proceedings nor during the appellate proceedings were the assesses able to pinpoint the source of the cash deposits in the bank account, nor could they establish the source of the remaining cash balance. Despite the claim by the assessee that the cash amounting to Rs. 48 lakhs was arranged by friends and relatives, they were unable to prove the identity, creditworthiness, or genuineness of these sources. Consequently, the assessment order against the assesses was upheld.

Both assessees, dissatisfied with the Commissioner of Income Tax decision, proceeded to appeal before the Income Tax Appellate Tribunal (ITAT), which upheld the Assessing Officer's addition and dismissed their appeals.

The assessees argued that Section 68 shouldn't apply to their cases since they didn't maintain formal books of account, contending that balance sheets and statements of affairs couldn't be equated to books of account.

The department, while supporting the orders, stated that no error had been committed by the tax authorities or by the tribunal.

The court noted that even if it were to accept the petitioner's argument that passbooks cannot be considered part of formal books of accounts, the crucial fact remains that the source of income for both the assesses has not been established. It was evident that both assesses failed to substantiate the identity, creditworthiness, or genuineness of the creditors who purportedly provided cash loans, as claimed by them. Thus, no error has been committed by the tax authorities or the tribunal in adding the amount not disclosed to the total income of the respective assessee.

The Court dismissed both appeals and decided the questions of law in favour of the Revenue.

Case Title: Rajmeet Singh Versus Income Tax Officer, Ward-2(3), Ranchi