Landmark Cases on Cash Credits and Unexplained Money

The onus is on the assessee to explain the nature and source of cash credits in their books, failing which such sums can be added to their income under Section 68 of the Income Tax Act.

The identity of share applicants is not established merely by filing PAN, IT returns, certificates of incorporation, or balance sheets. If the identity of subscribers is not proven, additions can be made under Section 68.

The assessee must prove the identity of the creditor, their capacity to advance money, and the genuineness of the transaction to discharge the primary onus. Merely proving the creditor's identity or that the transaction was by cheque is insufficient for discharge of onus, and the addition under Section 68 will be upheld.

Once an assessee provides necessary information and evidence regarding transactions, the onus shifts to the department to rebut it; an addition under section 69C is unjustified if the department fails to do so.

Loan transactions cannot be treated as unexplained cash credit under section 68 if the assessee proves the identity, creditworthiness, and genuineness of the creditors by submitting their PAN, address, income tax returns, audited financial statements, and bank statements, and also proves the source of source.

Where an assessee claims exemption under section 10(38) on account of long-term capital gains from share transactions, and the Assessing Officer makes an addition under section 68 believing the transactions were artificial, the addition must be deleted and the exemption allowed if the assessee discharges the burden to prove the purchase and sale of shares.

The addition of unexplained jewellery found during a search is not warranted if the excess amount is nominal and reasonable considering the assessee's family background, status, and customary practices, in line with CBDT Instruction No. 1916.

Addition under Section 68 cannot be made if no books of accounts are maintained. The assessee's contention that no addition under Section 68 of the Act can be made based solely on a bank statement is unacceptable, especially when facts are covered by other judgments.

Where partners introduce capital into a firm, any addition for unexplained investment can only be made in the individual hands of the partners, not the firm.

A loan or advance given by a company to a concern where a shareholder holding at least 10% voting power has a substantial interest may be deemed a dividend under Section 2(22)(e) of the Income Tax Act, 1961.

An addition made by the Assessing Officer on the basis of an assessee's admission during a search operation is justified. The Assessing Officer can apply Section 69 for unexplained investments when the source of funds cannot be substantiated.

Section 68 of the Income Tax Act, 1961, does not apply to opening balances of unsecured loans that originated in previous financial years and were not credited anew in the current year.

Income declared under section 132(4) with explanations of business nature that are not rebutted cannot be subjected to tax under section 69B as unexplained investment.

The assessee is entitled to the benefit of peak credit, meaning that amounts paid and later withdrawn are available for recycling and rotation, unless the Revenue establishes otherwise. Additions to income should not be made for the entire amount withdrawn if the peak credit principle applies.

Section 69 of the Income Tax Act is not applicable for a firm's assessment when there is a credit entry in the firm's books in a partner's name for which a satisfactory explanation is provided.

Additions to income under Section 68 cannot be made solely on suspicion or surmises; the Assessing Officer must have a clear basis beyond mere conjecture.

The High Court of Madras cited Madathi Brothers v. DCIT in the context of shares purchased at a premium. The case was relied upon when the Assessing Officer observed that the assessee denied knowing individuals or entities involved in share transactions where the assessee's group concerns had acquired shares at a huge premium and advanced significant sums to paper concerns controlled by those individuals.

When shareholders are produced, their books and bank statements are examined, and their share certificates are filed, the assessing officer's satisfaction regarding share application money is established. The department cannot assume the contrary without any evidence to the contrary.

Where an assessee does not plead that cash credits arose from past intangible additions, the Tribunal cannot assume they are covered by such additions. If an alternate plea that tangible additions in the past covered current cash credits is not raised earlier and not substantiated, its rejection is justified.

The failure of creditors to respond to revenue inquiries or provide accounts does not automatically deem them bogus or lead to additions, especially if the assessee provides uncontroverted facts and particulars about the transactions. The revenue must demonstrate that the amounts rightfully belonged to the assessee.

Share application money and unsecured loans cannot be added as income under Section 68 if the assessee establishes the identity of the creditor, their creditworthiness, and the genuineness of the transaction, even if the creditor is a shell company.

In cases of financial businesses with recycled cash and inadequate books of account, the peak credit in a cash flow statement is treated as unexplained income. This approach is an established method for computing income under such circumstances.

Share application money pending for an extended period can be re-characterized as a loan, with interest chargeable thereon. This re-characterization hinges on the substance of the transaction, not merely the initial form.

An addition made under section 69A is legally correct when the Assessing Officer had wrongly made the addition under section 68.

Section 68 of the Income Tax Act, concerning cash credits, is prospective in nature. The Tribunal must examine the genuineness, identity, and capacity of the investor.

Only the profit element embedded in 'on money' receipts, or a reasonable percentage of such 'on money', can be taxed. This principle applies even when expenditure is incurred outside the books of accounts, as evidenced by seized papers.

The Supreme Court's dismissal of the revenue's Special Leave Petition signifies that the Delhi High Court's decision in Pr. CIT v. Himachal Fibers Ltd. regarding issues related to share capital and share premium, and additions under section 68, has been upheld.

Where an assessee provides confirmation from lenders to establish the creditworthiness, genuineness, and identities of lenders in unsecured loan transactions, additions under section 68 for cash credits cannot be made.

Addition under section 68 of the Income Tax Act, 1961 cannot be made if no new amount has been credited to the assessee's accounts during the assessment year.

The assessee bears the burden of proving the source of cash deposited in their bank account. Failure to discharge this burden allows the revenue to treat the deposit as unexplained income under Section 69A.

The assessee discharges the onus of proving the genuineness of share application money transactions by furnishing documents like PANs, confirmations, and bank statements, even if the applicants do not appear before the Assessing Officer.

Section 68 of the Income Tax Act can be invoked to add to the income of the assessee any amount shown as a liability in the books of account if it is found to be bogus and the assessee offers no plausible explanation.

The appellate authorities must consider and appreciate the principles laid down by the Supreme Court, particularly when assessing the genuineness of transactions and unexplained cash credits.

Deposits made during demonetization cannot be presumed to be from undisclosed sources if the assessee has no other source of income apart from regular income, and sufficient cash was available through withdrawals even after meeting household expenses, without any adverse material from the revenue.

An investor company being a holding company of the assessee is not disputed by the AO and supports the genuineness of the transaction.

Section 56(2)(viib) is inapplicable to transactions between a holding company and its subsidiary, as no income accrues to the ultimate beneficiary. Similarly, it does not apply to existing shareholders as it essentially taxes their own money without benefit.

An addition under section 68 for unexplained cash credit cannot be made merely because the creditor did not respond to a notice issued under section 133(6), provided the assessee has discharged its primary onus of proving the identity, capacity, and genuineness of the transaction.

Income surrendered during a survey which is from business operations cannot be treated as unexplained income under Section 69A and taxed at the special rate under Section 115BBE.

Loans received by a company are treated as deemed dividends in the hands of shareholders in proportion to their shareholdings under section 2(22)(e) of the Income Tax Act.

Filing confirmation letters and bank transaction details alone is insufficient to prove the genuineness of cash credits; the Assessing Officer can still assess such credits.

Deemed dividend under section 2(22)(e) is to be assessed in the hands of the borrower, not the lender. Accumulated profits can be adjusted against additions made under section 2(22)(e).

Additions under Section 68 for share application money are bad in law if the Assessing Officer merely holds credits to be not genuine without contrary facts, especially when creditors are unrelated to the assessee and their genuineness is supported by documentation.

The assessee bears the burden of satisfactorily explaining the source and nature of cash receipts, even if credited in a third party's name. The Income-tax Officer can infer receipts are assessable if this burden is not discharged.

The genuineness of a gift can be questioned if the donor has no connection with the assessee, making it unusual and unnatural for a stranger to gift a large sum. Surrounding circumstances are crucial in determining the authenticity of a gift.

This case addresses the tax treatment of a loan written off by a creditor as income of the debtor, particularly when the debtor is a Non-Banking Financial Company (NBFC). The judgment explores whether such a write-off constitutes income for the assessee in the absence of proper inquiry by the Assessing Officer.

Addition for share application money cannot be made under section 68 if the assessee provides substantial evidence proving the creditworthiness and genuineness of the transaction, even if the creditor is not produced.

Credit entries in the books of a partnership firm, whether in the names of partners or third parties, are indistinguishable and require a satisfactory explanation. In the absence of such explanation, the Income Tax Department can infer that these monies represent suppressed income of the assessee.

Receipts from partners or sister concerns are not necessarily loans or deposits if there is no material to infer otherwise, and the decision depends on the available documentation.

An addition under section 68 of the Income Tax Act, 1961, cannot be made on the basis of mere suspicion.

If an investment is explained with proper documents, no addition can be made to income, as suspicion alone is not proof. Provisions of Section 69B apply only when investments are not recorded in books of account.