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Facts
The assessee received a loan of Rs. 21,00,000/- through banking channel from her husband. The Assessing Officer (AO) made an addition on account of unexplained investment, as the source of funds deposited in the husband's account before the loan was not satisfactorily explained. The CIT(Appeals) confirmed the AO's action.
Held
The Tribunal found that the papers proving the creditworthiness of the lender were not presented before the lower authorities. Therefore, the case was remanded back to the CIT(A) for verification of these documents.
Key Issues
Whether the assessee has discharged the onus to prove the nature and source of the loan received from her husband, and if not, whether the addition made by the AO is justified.
Sections Cited
68, 69
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Income Tax Appellate Tribunal, DELHI BENCH “G” DELHI
Before: SHRI ANUBHAV SHARMA & SHRI KRINWANT SAHAY
The appeal in this case has been filed by the assessee against the order dated 21.08.2024 passed by the learned CIT(Appeals)/NFAC, Delhi, for A.Y.
2012-13. Grounds of appeal raised are as under:
“1. That the order of the Ld. CIT (A) is bad in law and against the facts and circumstance of the case
2. That having regard to the facts that the Loan of Rs.21,00,000/- received by the appellant through banking channel and the identity of lender was also proved, the Ld CIT (A) has erred in upholding the addition of the said loan as unexplained investment.
3. That having regard to the fact that the assessee has produced the Bank Statement of the lender showing the transaction of Rs. 21,00,000/- as kiab oaud jti tge aooekkabtm but to produce the source of the lender, proper opportunity was not allowed, as the lender has sold three plots for gross value of Rs. 20,91,000/- on 14.07.2011 and all the sale consideration was received in cash, but the copy of the sale deed from the purchaser of the said plots were provided because a period of 13 years were passed since then. Therefore the Ld. CIT (A) has erred in confirming the addition made by the AO u/s. 68 & 69 of the Income tax Act amounting to Rs21,00,000/-
4 That the appellant craves the leave to add, modify, amend or delete any of the grounds of the appeal at the time of hearing.”
The sole effective ground raised in this case is the addition of Rs. 21 lakh made by the AO as unexplained investment which in turn has been affirmed by the ld. CIT(Appeals) in lower appellate proceedings.
In assessment proceedings the Assessing Officer made addition of Rs. 21 lakhs to the income of the assessee, inter alia, by observing as under:
“It has been found that Sh. Jai Bhagwan Chauhan has given Rs. 21,00,000 as interest free loan. However from the perusal of Bank account statement of Sh. Jai Bhagwan Chauhan, it has been found that before giving loan of Rs. 21,00,000/- on 02/12/2011, Rs. 21,00,00/- was deposited in cash in the Bank account of Sh. Jai Bhagwan Chauhan Suman Lata v. ITO So the assessee was required to produce the cash book for verification of source of Cost of Rs 2100.000 deposited in the bank account of Sh. Jai Bhagwan Chauhan. The same has not been furnished by the assessee for verification. Therefore, source of investment of Rs 21,00,000/- remained unexplained by the zee, deposited in cash. In these circumstances, creditworthiness and genuineness of transaction has not been proved of the person from whom loan of Rs. 21,00,000/- was taken. Therefore, source of Rs 21,00,000/- among the loan taken to purchase the property remains un- explained by the assessee. Hence Rs 21,00,000/- has been added to the Income of the assessee as un-explained investment…”
In appeal the ld. CIT(Appeals) affirmed the action of the Assessing Officer, inter alia, by observing as under:
“6.3 With respect to the issue of addition of Rs.21 lakhs as unexplained investment made by the AO, the appellant has relied upon the bank statement and copy of ITR of Mr Jay B Chavan from whom the amount was taken to arrange funds for the purchase of lands. However, the appellant has not given any explanation regarding the source of impugned cash deposits received in the bank account of Mr Jay B Chavan immediately before advancing the same amount as loans to the appellant, as pointed out in the assessment order. Despite repeated opportunities, the appellant has merely claimed that she has discharged her onus in this regard and has claimed that she is not required to prove the source of source. However, it is noted that the appellant has received alleged loan from her husband Mr Jay B Chavan. Based on verification carried out by the AO unexplained cash deposits received in the bank account of her husband were detected and it was found that the said sum was immediately advanced as loan to the appellant through cheque and therefore the creditworthiness of Mr Jay B Chavan has been doubted by the AO and the genuineness of the impugned transaction has been also doubted based on the clear evidences highlighted by the AO. The bank statement of the appellant shows an unexplained cash deposit of Rs.21 lakhs in the bank account of Mr JB Chavan on 01.02.2011 which has been advanced to the appellant on the very next day through cheque. Therefore, appellant has failed to prove the creditworthiness of the loan giver and has also failed to establish the genuineness of the impugned Suman Lata v. ITO transaction. There is no similar entry / regular cash deposits in the bank account of Mr JB Chavan and hence in absence of any explanation submitted by the appellant, this transaction is clearly a non-genuine transaction and the creditworthiness of Mr JB Chavan is also not established. The provisions of section 69 of the Act are applicable in the instant case as the appellant has not explained the nature and source of impugned investment to the extent of Rs.21 lakhs satisfactorily. Further, the provisions of section 68 of the act are also applicable since the appellant had received an alleged loan of Rs 21 lakhs from Mr Jay B Chavan, whose nature and source has not been satisfactorily explained. The provisions of section 69 are similar as that of section 68 of the Act regarding onus of the appellant to establish nature and source details and are the same are discussed below:
6.3.1 Provisions of section 68:-
Even prior to the insertion of the said section or its predecessor, there were ample authorities to the same effect as section 68. In this regard, one may profitably refer to the judgment of the Apex Court in case of Kale Khan Mohammad Hanif vs. CIT -[1963] 50 ITR 1 (SC), wherein the Court has held as under: "It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income".
Similar finding was given by the Apex Court in case of A. Govindarajulu Mudaliar vs. CIT [1958] 34 ITR 807 (SC). It was only later that the above dictum of the Apex Court found embodiment in section 68 of the Act.
6.3.2 Background of section 68
Section 68 does not need any introduction. To summarise, it taxes any credit appearing in the books of an assessee, where the assessee is not able to or not satisfactorily able to explain the nature and source of such credit. It is a deeming fiction, which taxes a credit as income on unsatisfactory explanation about nature and source thereof and such fiction is applicable Suman Lata v. ITO whether or not the credit is otherwise income chargeable to tax. Initial onus is on the assessee to demonstrate the "nature and source of the credit and when the same is discharged, the burden shifts onto the Department to prove that the credit is income chargeable to tax. It is now settled by various judgments that the term "nature and source of a sum found credited would require an assessee to explain three things (ingredients) viz.. Identity of the creditor; capacity of the creditor to advance money and genuineness of the transaction. In this regard, reliance is further placed on the decisions of CIT vs. Nipun Builders and Developers P. Ltd.-350 ITR 407(Del); CIT vs. Nova Promoters and Finlease (P) Ltd. -342 ITR 169 (Del.); CIT vs. Oasis Hospitalities Pvt. Ltd. -333 ITR 119 (Del.): Rajmandir Estates Private Limited vs. PCIT-386 ITR 162 (Cal)]. Further, reliance is placed on the decision of Hon'ble Supreme Court in the case of Principal Commissioner of Income-tax (Central)-1 vs. NRA Iron & Steel (P) Ltd. reported in [2019] 103 taxmann.com 48/262 Taxman 74/412 ITR 161 (SC). The Court gave out its verdict on 05th March, 2019, laying down certain important ratio that initial onus is on the assessee to establish the identity of the person, creditworthiness of the person in the sense of financial capacity and the genuineness of the transaction, as the facts are within the exclusive knowledge of the assessee. If onus is not discharged to the satisfaction of the AO, then the amount of credit would be treated as income without anything further to be done. Thus, in this instant case, it is clear that the source of impugned cash deposits received in the bank account of her husband which was then advanced as cheque loan to the appellant and its nature has not been explained satisfactorily by the appellant, despite repeated opportunities provided by NFAC. Therefore, it is clear that the addition has been rightly made by the AO of an amount of Rs 21 lakhs as unexplained investment and the same stands confirmed. Accordingly, the ground of appeal disputing this addition is dismissed.”
Feeling aggrieved by the order of learned first appellate authority the assessee has come up in appeal before this Tribunal.
The learned counsel for the assessee submitted that before the lower authorities the assessee has duly explained the source of Rs. 21,00,000/- as interest the assessee has discharged onus that lay on her. He submitted that the lower authorities have made and sustained the addition on the ground that the assessee has not proved the source of the person from whom loan was taken. Ld. AR filed copy of bank statement of loan provider Mr. Jai Bhagwan and sale deeds executed by the lender. He also submitted that assessee is not under obligation to prove the source of source and prayed for deletion of the impugned addition.
Per contra ld. DR relied on the orders of authorities below.
We have heard rival submissions and perused the material available on record. We find that ateh Ld.CIT(A) has confirmed the addition made by the AO on the basis that Mr. Jai Bhagwan, husband of the assessee did not prove his creditworthiness of advancing loan of Rs.21 lacs to his wife. Even before the AO also, the assessee did not prove the creditworthiness of Mr. Jai Bhagwan. But during proceedings before us, the ld. Counsel of the assessee filed paper proving the source of fund available with the lender.
We are of this view paper proving the creditworthiness of the lender were not before either the AO or the Ld. CIT(A). Therefore, in the fitness of things, we of paper and passing an order accordingly.
In the result, the case remanded back to CIT(A).
Thus, assessee’s appeal is allowed for statistical purposes.
Order pronounced in open court on 30.09.2025.