Landmark Cases on Cash Credits and Unexplained Money

In cash credit additions under Section 68, the assessee must establish the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor. Merely filing documentary evidence like bank statements or confirmations is insufficient to discharge this onus; explanations must be considered in light of human probabilities.

Interest on enhanced compensation, though arising from a road accident, is taxable as income under Section 56(2)(viii) of the Income-tax Act, 1961, if it is received after the amendment by the Finance (No. 2) Act, 2009. Cases deciding the issue before the amendment are not applicable.

The assessee bears the onus to link and prove the source of funds when unexplained cash is found, particularly when seized in circumstances suggesting it relates to election-related activities. Failure to discharge this onus can lead to the addition of such cash as undisclosed income.

Addition of unexplained cash credits under Section 68 of the Income Tax Act, 1961, cannot be sustained if the assessee has provided sufficient evidence, including the identity, capacity, and genuineness of the creditors, and the creditors have affirmed the transaction. Mere deposit of cash in the creditor's account just before the loan is advanced does not automatically establish that the assessee made the deposit.

Amounts recorded in seized diaries containing records of cash transactions of finance brokers are not per se assessee income and cannot be taxed under Section 69.

An addition under Section 68 for unexplained cash credit is not sustainable if the assessee discharges their onus by providing loan confirmations and the transaction is routed through banking channels. The department can pursue the creditor but the receipt itself cannot be treated as the assessee's undisclosed income.

When an assessee is solely engaged in providing accommodation entries, the entire deposits received cannot be assessed as unexplained cash credits. Instead, only the commission earned for providing such entries is taxable as income.

An addition under section 68 is not sustainable where the Assessing Officer draws an adverse conclusion solely on account of non-verifiability of sundry creditors, but there is no dispute regarding the purchases and the trading results have been accepted.

Where an assessee provides documentary evidence of share capital, and creditors are identified and verifiable (even if they don't have PAN cards, e.g., agriculturists), the onus shifts to the Revenue to prove the money is from the assessee's own undisclosed sources before an addition can be made under section 68.

An addition under section 68 cannot be made if the revenue fails to prove that the alleged money taxed is unexplained.

If an Assessing Officer has not identified any unexplained credit, investment, money, bullion, jewellery, expenditure, or loan repayment, then a surrender made by an assessee during a search action cannot be taxed under section 115BBE, even if it relates to excess stock or cash found.

Income already disclosed by an assessee can be used to explain other investments or additions.

The Income Tax Appellate Tribunal (ITAT) decision in Prism Cement Ltd. v. JCIT (2006) is cited for the proposition that the nature of a transaction involving non-convertible debentures (NCDs) may be distinguished from the forfeiture of a loan when determining tax implications, and that a CIT(A) might err in deleting additions without further inquiry if the apparent is not the real.

The peak credit theory can be applied to determine undisclosed income. Incremental peak credit should be allowed to the assessee if found correct.

The Tribunal's deletion of an addition for unexplained share application money is upheld when share applicants are identified, allowing the revenue to reopen the assessment of those shareholders.

The decision in ITO v. Rajeev Suresh Ghai supports the principle that provisions related to unexplained cash credits under Section 68 of the Income Tax Act may not be applicable to non-resident Indians, particularly when funds are withdrawn for specific purposes like parental medical treatment.

Addition under section 68 for share application money is invalid if there is no live link or proximate nexus to alleged dubious transactions, especially when transactions are through banking channels and loans are repaid.

The theory of peak credit can be applied for making additions to income. This allows for additions based on the highest credit balance in an account during a period, rather than the total sum of credits.

The addition in respect of deemed dividend under section 2(22)(e) should be restricted to the extent of the appellant's shareholding.

Demonetisation deposits, even if claimed as advances for gold bullion purchase, can be treated as unexplained cash credits under Section 68 if the assessee's conduct is deemed incomprehensible and abnormal, particularly when the deposits appear to be a means to convert ill-gotten money.

Addition under section 68 cannot be made for cash deposits if the assessee maintains regular books of account, bills, vouchers, and stock registers with complete quantitative details of cash sales, especially if such sales are accounted for.

The onus to prove the identity, creditworthiness, and genuineness of a transaction under Section 68 lies with the assessee.

Section 68 of the Income Tax Act, 1961 does not apply to credit balances brought forward from previous years, as it pertains to fresh credits received during the relevant financial year.

Unexplained investments brought to tax by the AO must be sustained if the assessee fails to prove the source of investment.

Gifts received in India from strangers abroad will not be considered the assessee's income unless there is tangible evidence beyond suspicion to prove the contrary, even if the amounts are large.

The availability of undisclosed income from earlier years can be considered a fund from which subsequent expenses or credits may be drawn. However, this availability does not automatically imply that such a fund is the source of all unexplained expenditures or cash credits in later years.

Sums credited in the books of account of an assessee are presumed to be business profits unless proven otherwise.

The onus is on the assessee to explain the source of jewellery, and instructions regarding non-seizure of jewellery do not absolve this responsibility.

The Assessing Officer must be satisfied about the existence of books of account before invoking Section 68. If books of account are rejected, no additions can be made based on entries therein.

Merely producing a PAN number or assessment particulars does not establish the identity and creditworthiness of a person or company. The genuineness of a transaction requires proof of the business undertaken by the subscriber and that bank accounts reflect more than just rotation of money.

Where the Assessing Officer has accepted the identity and creditworthiness of loan creditors and their assessments are on record, the genuineness of the transaction is established if the amount was received by account payee cheques.

Where an assessee establishes the genuineness of deposits and the identity of depositors with affidavits and bank statements, and the Tribunal upholds the deletion of additions under Section 68, no substantial question of law arises.

A case is cited for the proposition that if an assessee is aware of undisclosed bank accounts and cash deposits therein, this fact is relevant to the assessment.

Amounts received from partners or sister concerns may be treated as loans or deposits, and cannot be presumed otherwise without supporting documentation. The decisions in CIT v. T.Perumal and CIT v. Muthoot Financiers were based on the specific documents before the courts.

When an assessee is unable to link cash withdrawn from a bank to subsequent cash deposits, and the withdrawals were not required for business purposes, such deposits will be considered unexplained income.

An assessee is not required to establish the 'source of source' for funds, especially when the primary entity's creditworthiness is established through its own accounts and bank statements.

Sums reflected in an assessee's books as a loan from a company are not deemed dividend in the assessee's hands if they are taxable in the hands of a common shareholder under section 2(22)(e). The revenue is not justified in treating such sums as deemed dividend in the assessee's hands.

Additions under Section 68 for cash credits are not sustainable where transactions are routed through the bank and the assessee has explained the source of income.

No addition can be made under Section 68 or 69A for cash in hand found if it is less than the cash shown in the books of accounts.

The amendments made by the Taxation Laws (Second Amendment) Act, 2016, to Section 115BBE of the Income Tax Act, 1961, enhancing the tax rate to 60% for specified unexplained incomes, are prospective and apply from April 1, 2017.

An addition under section 69A can be made when purchase transactions are found to be not genuine, even if export transactions are later determined to be genuine. Failure to submit Form No. 10CCAC may disentitle an assessee to deduction under section 80HHC(4).

An addition under section 69A is confirmed when the assessee fails to provide documentary proof for the source of cash deposits, such as from business or trading activities.

Amounts received by an assessee may not always be classified as 'loans' or 'deposits' as commonly understood, especially when they represent a diversion of funds due to business exigencies. The terms 'loan' and 'deposit' are not mutually exclusive and have common features.

Amounts received from group companies are not deemed dividends under Section 2(22)(e) if they are part of current, inter-banking account transactions with both receipts and payments.

If an assessee fails to prove the genuineness of transactions and creditworthiness of donors, the onus cast upon them under section 68 of the Income Tax Act, 1961, is not discharged. When sums are credited in an assessee's books, and no satisfactory explanation is provided for their nature and source, such sums can be charged to income tax as the income of that previous year.

A gift is not considered genuine and is therefore taxable if the assessee fails to establish that the donor had the financial capacity to make the gift and that the gift was given out of natural love and affection.

An addition under section 69B of the Act for purchases made out of undisclosed income is unjustified if the assessee demonstrates that the stock statement was inflated to secure higher credit facilities and the bank did not conduct physical verification of the stock.

Once 'on money' is treated as revenue receipt and added to income, any expenditure incurred out of such 'on money' cannot be treated as unexplained expenditure as doing so would amount to double addition.