Landmark Cases on Cash Credits and Unexplained Money

An addition treating share capital as unaccounted money cannot be sustained if it relies solely on a third-party statement, like that of a dummy director recorded during a survey, without confronting the assessee with the said statement.

The proviso added to Section 68 of the Income Tax Act, 1961, which deals with unexplained cash credits, does not have retrospective effect and cannot be invoked for assessment years prior to its introduction.

An amount already credited in the books of account in an earlier assessment year cannot be added again as an unexplained cash credit under Section 68 of the Income-tax Act in a subsequent assessment year.

For an addition under Section 68 concerning capital introduction by a partner, the assessee is not required to prove the source of funds of the immediate creditor or lender. The Supreme Court affirmed this principle, limiting the assessee's onus to establishing identity, genuineness, and the creditor's immediate creditworthiness.

The Supreme Court's dismissal of the revenue's Special Leave Petition confirms that an addition under Section 68 for cash credits (like share capital) is not sustainable if the assessee has discharged its initial onus of proof and the Assessing Officer has failed to conduct further independent inquiries to verify the genuineness and creditworthiness.

The assessee must discharge the onus under Section 68 to prove the genuineness, identity, and creditworthiness of subscribers for share application money or share capital, and additions are valid if funds are mere book adjustments or their source of source is unexplained.

Where an amount surrendered during a survey is not reflected in the assessee's books of account and the source of the income is not declared, it is assessable as deemed income under section 69A, not as business income.

For any cash credit under Section 68, the assessee must discharge their primary onus by proving the identity of the creditor, their creditworthiness to advance the money, and the genuineness of the transaction. Only after this primary onus is discharged does the burden of proof shift to the Revenue.

An addition under Section 68 for cash credits is not justified if the assessee establishes the identity and creditworthiness of the creditor and the genuineness of the transaction.

Under Sections 69 and 69B of the Income-tax Act, the burden of proof to establish that an assessee has made investments not recorded in the books of account lies with the Revenue. The Assessing Officer must first prove that such investments were made before requiring the assessee to explain their source; unsubstantiated material from third parties is not conclusive.

For an addition under Section 68, there must be a credit entry in the assessee's "books of accounts". A bank passbook is not considered the assessee's books of accounts for this purpose.

Once an assessee discharges the initial onus under Section 68 by furnishing complete particulars and supporting documentary evidence for a cash credit, the burden shifts to the Revenue to prove otherwise.

An addition under Section 68 for unexplained cash credits is justified when the assessee fails to establish the identity and creditworthiness of the investors and the genuineness of share application money or share premium, especially when 'paper companies' or 'entry operators' are involved.

When assessing cash credits under Section 68, the Assessing Officer cannot make an addition without conducting proper inquiries into the genuineness of the transaction and the creditworthiness of the creditor.

Excess stock of regularly traded items or excess cash, when found during a survey and properly explained as arising from business, constitutes business income, thereby avoiding assessment under sections 69, 69A, 69B and the higher tax rate prescribed by section 115BBE.

When an assessee fails to establish the genuineness of long-term capital gain from share transactions, especially when share prices are artificially inflated, the sale proceeds can be added as unexplained cash credit under section 68. The 'human probability test' is a valid tool to assess the veracity of such transactions.

When an assessee establishes the identity of creditors who have confirmed credits advanced by account payee cheques, the initial onus under Section 68 for cash credits is discharged. The assessee is not required to establish the 'source of the source,' meaning the capacity of the lender to advance money, nor can an addition be sustained solely because a creditor fails to respond to a Section 133(6) notice.

Once an assessee discharges the initial burden of proving the identity of the depositor/lender and the genuineness of the transaction under Section 68, the Assessing Officer generally cannot delve into the 'source of source' of those funds.

The Assessing Officer must accept purchases and sales recorded in the books if the profit has been offered to tax and there is no contrary evidence. Partial acceptance of entries by the AO implies there is no basis for making additions.

No addition for unexplained expenditure under Section 69C can be made when books of account are maintained and expenditure is recorded with full details and supported by vouchers.

Under Section 68 of the Income-tax Act, the assessee discharges the onus by establishing the identity of the creditor, their creditworthiness, and the genuineness of the transaction, and is not required to exhaustively prove the "source of the source" beyond furnishing primary evidence.

An addition under Section 68 for cash credits cannot be made if the assessee has not commenced its business operations.

When a partner admits to undisclosed income during a survey, and that income is linked to future sale deed registrations, it can be considered as income received for the purpose of assessment under Section 145 of the Income-tax Act, 1961, even if it is subject to conditions.

Where an assessee company furnishes complete details of share application money, including share application forms, names, addresses, PAN, and other relevant particulars of the share applicants, the amount cannot be added as cash credit under section 68 of the Act.

For an addition under Section 68, the assessee must satisfactorily explain the source of depositors and their creditworthiness; mere receipt of funds via banking channels or furnishing particulars is not conclusive proof of genuineness.

Cash deposits made into a bank account can be telescoped into prior cash withdrawals from the same account, meaning no adverse inference or addition can be drawn if the deposits are adequately explained by those previous withdrawals.

Share premium and share application money cannot be added as unexplained cash credits under Section 68 if the genuineness of the transaction and the creditworthiness and identity of the investors are established. The onus is on the revenue authorities to prove that the apparent nature of the receipt is not real.

Section 115BBE does not apply to genuine business receipts, business turnover, or 'on-money' from sales, which should be assessed under normal provisions allowing for loss set-off; furthermore, there is no concept of "partial application of mind" by the Assessing Officer in an assessment.

When the Assessing Officer estimates a higher profit rate on contract receipts after rejecting books of account under section 145(3), no separate addition can be made for unexplained cash credits under section 68 of the Act.

For cash credits under Section 68, the assessee must separately explain each entry, proving the identity of the creditor, the genuineness of the transaction, and the creditworthiness of the creditor, as mere mention of a file number is insufficient.

A bank passbook alone does not constitute the books of account of an assessee for the purpose of the Income Tax Act.

An addition under Section 68 for unexplained cash credits like share capital or share application money is not sustainable if the assessee proves the identity of the shareholders and the genuineness of the transaction, often by providing particulars, bank accounts, PAN details, and proof of receipt by cheque. The assessee is generally not required to prove the source of the source of funds.

In an inquiry under Section 68, the rule of audi alteram partem must be observed, requiring the assessee to be given a fair hearing to discharge the initial onus of proving the genuineness of a cash credit transaction, including the identity and creditworthiness of the lender. If the assessee discharges this initial onus, the burden shifts to the Assessing Officer to prove the credit is unexplained.

Authorities are entitled to pierce the corporate veil to examine the reality of a transaction and to look into surrounding circumstances to determine if it is sham, illusory, a device, or a ruse.

An amount received by an assessee in the guise of share application money from accommodation entry providers is liable to be added to its taxable income under Section 68, provided the genuineness of the transaction and the creditworthiness of the subscriber are not established.

For share application money, proof of identity alone is insufficient; the assessee must also establish the genuineness and creditworthiness of the subscriber. The onus is on the assessee to prove these three aspects.

When an assessee fails to establish the genuineness of shareholders or entities providing share application money, the Assessing Officer is justified in treating such unexplained amounts as the assessee's income under Section 68.

A loan transaction is not genuine and can be added to the assessee's income under section 68 if the lender companies are shell entities, evidenced by bank statements showing high daily transactions and minimal closing balances.

When there is nothing on record to establish the financial capacity, creditworthiness, or relationship of a donor with the assessee, an addition to income can be justified.

The ITAT Agra Bench held that cash deposits into the creditor's bank account shortly before the loan was advanced to the assessee, coupled with a meagre bank balance, indicates a non-genuine transaction, justifying an addition under Section 68.

The intention behind Section 2(22)(e) relates to deemed dividends in the context of closely held companies.

The higher tax rate under Section 115BBE, increased to 60% effective from April 1, 2017, is not applicable to transactions that occurred prior to this date.

Once the assessee proves the existence of the creditors and that they own the credits, the assessee is not required to prove the source of the creditors' funds. The Assessing Officer cannot assume deposits are the assessee's money merely because the depositors' explanation of their sources is not accepted.

The assessee discharges its initial onus under section 68 by providing identity and creditworthiness of the creditor; the assessee is not thereafter required to prove the genuineness of transactions between its creditors and the creditors' source of income.

An assessee must prove not only the identity of a creditor but also their capacity and creditworthiness to discharge the onus of proving the genuineness of a transaction. Merely filing a confirmation letter from one's own books is insufficient.

A bank passbook alone is not considered 'books of account' maintained by the assessee. Therefore, additions under Section 68 for unexplained cash credits cannot be sustained solely on the basis of a bank passbook.

Section 68 of the Income Tax Act can be invoked when there are credits in the assessee's books, representing sums of money during the previous year, and either no explanation or an unsatisfactory explanation is provided regarding their nature and source.

The addition of cash deposits to an assessee's income is justified under Section 68 if the assessee fails to explain the nature and source of these deposits. The onus is on the assessee to provide such an explanation.

The Assessing Officer cannot treat sales as unexplained cash credits under Section 68 solely on suspicion, especially when debtors are realized and sales are duly accounted for.