Landmark Cases on Cash Credits and Unexplained Money

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.

The addition of share application money to the income of the assessee under Section 68 is not justified if the assessee has discharged the initial onus by providing complete particulars and documentary evidence of the creditor, and the Revenue has failed to prove otherwise. The Supreme Court has also dismissed the Revenue's SLP in this matter.

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.

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.

An addition under section 68 is not sustainable if the purchase and sale are recorded in the books of account and the profit has been offered to tax.

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.

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.

The genuineness of transactions, particularly the creditworthiness of creditors for share capital, is a key factor in the addition under section 68. The assessee must provide sufficient evidence to prove the genuineness of such transactions.

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.

Section 2(22)(e) of the Income Tax Act, 1961, aims to prevent tax evasion by treating certain payments made by closely held companies to shareholders or their concerns as dividends.

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.

When an assessee proves the identity and creditworthiness of investor companies by providing their PAN, confirmation letters, bank statements, and audited balance sheets, the assessee is not required to prove the 'source of source'.

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.

The assessee must prove not only the identity of the creditor but also their capacity or creditworthiness to discharge the initial onus for unexplained cash credits.

Additions under Section 68 for cash credits are not sustainable if all relevant information was already available to the Assessing Officer.

Section 68 of the Income Tax Act can be invoked when there are credits in an assessee's books and either no explanation is offered or the explanation provided is unsatisfactory. However, the mere identity of a creditor cannot be the sole basis for rejecting the genuineness of a transaction if other supporting evidence is not disproven.

The addition of cash deposits to an assessee's income under Section 68 is justified when the Assessment Officer notices huge cash deposits, as the onus is on the assessee to explain their nature and source.

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.

Where an assessee provides the receipt of share application money, names and addresses of share applicants, their confirmatory letters, bank statements, and other documents, the requirements of Section 68 are fulfilled to establish the genuineness of investors.

The peak credit theory is applicable only when the source and corresponding outgo of a deposit are unexplained, and it does not apply to issues concerning purchases.

The theory of telescoping can be applied when the Assessing Officer seeks to make additions for unexplained investments after an addition for undisclosed income has already been made, allowing the assessee to argue that the investment is sourced from the previously taxed undisclosed income.

When cash is deposited in an assessee's bank account, the onus is on the assessee to explain the nature and source of that cash deposit.

Transactions between a HUF and its Karta, characterized as temporary adjustments or accommodations through journal entries rather than loans or deposits, do not constitute a lender-lendee or depositor-depositee relationship. Such transactions, prior to June 12, 2012, are not grounds for the Assessing Officer to deem money as actually received by the appellant when made by an associate concern on their behalf.

Addition as cash credits is not justified if the assessee discloses cash credits, produces confirmatory letters from creditors, and the creditors have declared these amounts in their accepted income-tax returns.

An addition under section 68 cannot be sustained if the assessee has produced documents like PAN, confirmation, and bank statements to establish the identity, creditworthiness, and genuineness of a loan creditor.

When partners make capital contributions to a firm, it is the partners' responsibility to explain the source of these funds. If they fail to do so, these contributions cannot be treated as the firm's income, even if recorded in the firm's books.