DCIT, CENTRAL -4(3), KOLKATA, KOLKATA vs. RAJESH AUTO MERCHANDISE PRIVATE LIMITED, KOLKATA

“6.2. Discussion &decision:- 6.2.1. I have perused the assessment order as well as the submissions of the assessee and observed that during the year under consideration, the assessee has received unsecured loan to the tune of Rs. 7,57,50,000/- from the six loan creditor companies, details of which are as under :- Name of Loan Creditor Amount (in Rs.)

This provision of section 68 deals with cash credits. It states that where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. The crucial words in the said provision are 'assessee offers no explanation'. This would mean where the assessee offers no proper, reasonable and acceptable explanation as regard the amount credited in the books maintained by the assessee. No doubt the burden of proof is on the taxpayer. However, this is only the initial burden. In cases where the assessee offers an explanation to the credit by placing evidence regarding the identity of the investor or lender along with their conformations, it has been held that the assessee has discharged the initial burden and, therefore, the burden shifts on the Assessing Officer to examine the source of the credit so as to be justified in referring to section 68. After the Assessing Officer puts the assessee on notice and the assessee submits the explanation with regard to the cash credit, the Assessing Officer should consider the same objectively before he takes a decision to accept or reject it. If the explanation given by the assessee shows that the receipt is not of income nature, the department cannot convert good proof into no proof or otherwise unreasonably reject it. On the other hand, if the explanation is unconvincing, the same can be rejected and an inference shows that the amount represents undisclosed income either from a disclosed or an undisclosed source. The explanation given by the assessee cannot be rejected arbitrarily or capriciously, without sufficient ground on suspicion or on imaginary or irrelevant grounds. [Para 4] Further to be noted that where the assessee furnishes full details regarding the creditors, it is up to the department to pursue the matter further to locate those creditors and examine their creditworthiness. While drawing the inference, it cannot be assumed in the absence of any material that there has been some illegalities in the assessee's transaction. Thus, more importantly, the onus of proving that the appellant was not the real was on the party who claims it to be so. Bearing the above legal principles in mind, in the instant case, it is clear that the Assessing Officer issued show cause notice only in respect of one of the lender FGD. The assessee responded to the show cause notice and submitted the reply. The documents annexed to the reply were classified under 3 categories namely: to establish the identity of the lender, to prove the genuineness of the transactions and to establish the creditworthiness of the lender. The Assessing Officer has brushed aside these documents and in a very casual manner has stated that mere filing PAN details, balance sheet does not absolve the assessee from his responsibility of proving the nature of transaction. There is no discussion by the Assessing Officer on the correctness of the stand taken by the assessee. Thus, going by the records placed by the assessee, it could be safely held that the assessee has discharged his initial burden and the burden shifts on the Assessing Officer to enquire further into the matter which he failed to do. In more than one place the Assessing Officer used the expression 'money laundering.' Such usage is uncalled for as the allegations of money laundering is a very serious allegations and the effect of a case of money laundering under the relevant Act is markedly different. Therefore, the Assessing Officer should have desisted from using such expression when it was never the case that there was any allegations of money laundering. Much reliance was placed on the statement of AKA which statement has been extracted in full in the assessment order and it cannot be disputed that there is no allegation against the assesseecompany in the said statement. There is no evidence brought on record by the Assessing Officer to connect the said entry operator with the loan transaction done by the assessee. Therefore, the statement is of little avail and could not have been the basis for making allegations. The Assessing Officer ignored the settled legal principle and inspite of the assessee having offered the explanation with regard to the loan transaction, no finding has been recorded as regards the satisfaction on the In the absence of any such finding, it is held that the order passed by the Assessing Officer was utterly perverse and rightly interfered by the Commissioner (Appeals). The Tribunal re-appreciated the factual position and agreed with the Commissioner (Appeals). The tribunal apart from taking into consideration, the legal effect of the statement of AKA also took note of the fact that the notices which were issued by the Assessing Officer under section 133(6) to the lenders where duly acknowledged and all the lenders confirmed the loan transactions by filing the documents which were placed before the tribunal in the form of a paper book. These materials were available on the file of the Assessing Officer and there is no discussion on this aspect. Thus, the tribunal rightly dismissed the appeal filed by the revenue. [Para 5] b)Rohini Builders v. Dy. CIT [2002] 76 TTJ (Ahd.) 521/[2001] 117 Taxman 25 (Mag.)(Affirmed by Gujarat high court), “in respect of all the 21 creditors, the assessee had furnished their complete addresses along with GIR Nos./PAN as well as confirmations along with the copies of assessment orders passed in the cases of some creditors. In the remaining cases, where the assessment orders passed were not readily available, the assessee furnished the copies of returns filed by the creditors with the department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans had also been made by account payee cheques along with the interest in relation to those loans. It was rather strange that although the Assessing Officer had treated the cash credits as non-genuine, he had not made any addition on account of interest claimed/paid by the assessee in relation to those cash credits, which had been claimed as business expenditure and had been allowed by the Assessing Officer. It was also pertinent to note that in respect of some of the creditors, the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus, it was clear that the assessee had discharged the initial onus which lay on it in terms of section 68 of the Act by proving the identity of the creditors by giving their complete addresses, GIR Nos./PAN and the copies of assessment orders wherever readily available. It also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank account of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law, the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held in Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723 (Bom.). The genuineness of the transaction was proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors was made by account payee cheques and the interest was also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to appear before the Assessing Officer, same cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they admitted having advanced loans to the assessee by account payee cheques and in case the c). The Calcutta High Court in Shankar Industries v. CIT [1978] 114 ITR 689 (Cal.), the assessee has to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes (a) proof of the identity of his creditor(s), (b) the capacity of such creditor to advance the money, and (c) the genuineness of the transaction. If these things are proved prima facie by the assessee, the onus shifts to the Department. d)Similar views were expressed in CIT v. United Commercial & Industrial Co. (P.) Ltd. [1991] 187 ITR 596 (Cal.) and CIT v. Precision Finance (P.) Ltd. [1994] 121 CTR (Cal.) 20.

“ In this case, the assessee had discharged the initial onus by proving the identity of the creditors by giving their complete addresses. PAN/GIR numbers. It had also proved the capacity of the creditors by showing that the amounts were received by ‘account payee’ cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under the law, the assessee can be asked to prove the source of credits in its books of account but not the source of the source - Dy. CIT v. Rohini Builders [2002] 256 ITR 360 /[2003] 127 Taxman 523 (Guj.) If the assessee proves the identity and creditworthiness of the creditors as well as genuineness of the transaction, then there was no occasion to treat same as non-genuine - Asstt. CIT v. Mahavir Metals & Alloys [2002] 75 TTJ 256 (Asr.), Subhas Dal Mill v. Asstt. CIT [2002] 124 Taxman 169 (Agra)(Mag.); Mohar Singh v. Dy. CIT [2002] 77 TTJ (Agra) 218 .

6.2. The ld. CIT (A) allowed the appeal of the assessee by observing and holding as under:-

“8.2. Discussion and discussion: - 8.2.1. I have perused the assessment order as well as submission of the assessee. The AO disallowed credit balance of Rs. 2,47,77,631/- belongs to M/s International Enterprises and credit balance of Rs. 10,70,000/- belongs to M/s Global Traders. Credit balance Rs. 2,47,77,631/- belongs to M/s International Enterprises was pending from the year 2012. Credit balance of Rs. 10,70,000/- belongs to M/s Global Traders was pending from the year 2014. In this regard, the assessee was asked by AO to explain the reasons for long outstanding payment to these creditors company. Explanations submitted by the assessee were not accepted by the AO and invoked provisions of section 41(1) of the Act. The AO treated these outstanding payments as ‘ceased liability’ and added the amount of Rs.2,58,47,631/- to the total income of the assessee. 8.2.2. In the course of appellate proceeding, the assessee contended that merely because these amounts were outstanding since 2012 & 2014 and payments for those were not made till date, addition u/s 41(1) of the Act is not justified. The appellant also submitted that these trading liabilities of Rs. 2,58,47,631/- are payable to the said parties and reflected in Audited books of account, hence it is not correct to invoke the section 41(1) of the Act. 8.2.3. Further, it is observed that during the assessment proceedings, the assessee had submitted relevant audited ledger copies of the aforesaid parties viz. M/s International Enterprises and M/s Global Traders for the relevant periods. Only, confirmations from

Order pronounced in the open court on 26.02.2026.