Landmark Cases on Cash Credits and Unexplained Money

Additions under Section 68 for share capital received from companies managed by one person are justified when the Assessing Officer establishes this fact. The Supreme Court has upheld this view.

Once an assessee successfully proves the source of money, they cannot be compelled to provide proof of how that money was acquired in specific denominations of currency notes.

The assessee must prove the identity of the creditor, the creditor's capacity to advance money, and the genuineness of the transaction to rebut additions under Section 68. Mere proof of identity or payment by cheque is insufficient.

A loan or advance received by an assessee cannot be treated as such for the relevant previous year if it was not advanced by the lender during that year, even if there was an opening credit balance.

An unexplained cash credit found in the business accounts of an assessee, where the explanation for its origin is rejected and it's treated as income from an undisclosed source, can be considered business income if the assessee has no other source of income.

The assessee's burden to explain the nature and source of credits is not discharged merely by providing confirmatory letters, banking transaction proof, or assessment particulars; the revenue must then prove the funds belonged to the assessee.

The mere filing of income tax file numbers of creditors is insufficient to establish the genuineness of credits. The assessee must prove both the genuineness of the transactions and the creditworthiness of the creditors.

Section 68 of the Income-tax Act, 1961, does not permit additions in a subsequent assessment year for sums that were credited in earlier years and brought forward as liabilities in the balance sheet.

When an assessee provides evidence of genuine shareholders and their income tax returns, the Revenue must prove that the investment did not originate from the shareholder, rather than inferring the assessee's lack of creditworthiness.

If an assessee proves the source of cash withdrawals and the department fails to demonstrate that the amount was used elsewhere, no addition can be made to income solely because the amount was retained for a long period.

Deemed income under sections 69, 69A, 69B, and 69C is treated separately from other heads of income due to special provisions, overriding general provisions and allowing taxation irrespective of the year of earning.

An addition under Section 68 for share application money cannot be made solely on the basis that the money deposited in the bank account of a third party was the assessee's money, if there is no material to link the assessee with the deposit.

An addition under section 68 or 69 of the Income Tax Act, 1961, is not permissible if the Assessing Officer has already accepted the sales realization as the income of the assessee, as this would amount to double taxation of the same income. Whether a receipt is to be treated as income depends largely on the facts and circumstances of each case, and the assessee's explanation must be considered.

Additions made on account of alleged on-money payments for property purchases are invalid if not supported by adequate material, especially when based on seized electronic data without corroboration.

The Assessing Officer is justified in adding back amounts under section 68 when the directors of the assessee company do not appear for examination and the company's financials are weak. The onus required under section 68 is not discharged in such circumstances.

A firm is not required to explain the source of income of its partners concerning their capital contribution to the firm. Such contributions form the substratum of the firm's business and cannot be added to the firm's income.

Where additions were made under Section 68 of the Income Tax Act concerning unexplained sundry creditors, and the Assessing Officer estimated the income without appreciating this, the assessee's case is covered by the ratio laid down in CIT Vs. M/s G.S.Tiwari and Co.

If an assessee provides evidence of the identity, creditworthiness, and genuineness of share applicants, including bank details and IT returns, then additions under Section 68 for cash credits are to be deleted as the initial burden has been discharged.

Where the Assessing Officer rejects the books of accounts under section 145(3) and makes an addition on an estimated basis, no separate addition can be made for unexplained cash credits under section 68. However, it is incumbent upon the assessee to prove that any cash credit, even if it represents income, is from a source that has already been taxed.

When an assessee claims to have advanced money to a third party, and the Assessing Officer makes an addition based on bank deposits, the assessee must substantiate these advances. The 'source of source' principle applies, requiring proof of the genuineness and creditworthiness of the creditors.

Where an assessee provides names, addresses, and PAN of investors, and other documents to establish genuineness, additions cannot be made solely based on an investigation report or the absence of a live link with the investor.

Share applicants' ability to invest in a company is not solely determined by the income they declare or taxes they pay; the Assessing Officer must conduct a deeper analysis of their substantial means.

Taxation of credit as income is justified, even if the loan transaction is squared off in the next financial year. Repayment of a loan does not necessarily establish the genuineness of the transaction for the purpose of addition under section 68.

Section 68 of the Income Tax Act does not apply to amounts representing purchases made on credit, including trade and sundry creditors, as these represent liabilities, not unexplained cash credits.

Merely routing a gift through a banking channel does not, by itself, establish the genuineness of the gift; other evidence is required to prove its genuineness.

When the purchase of shares has been accepted as genuine in earlier assessment years, the sale of such shares in subsequent years cannot be subjected to addition under Section 68 by treating the transaction as bogus.

If the identity of the creditor is established, the creditor has confirmed the loan, and the creditor is assessed to tax, the assessee is not required to prove the source of the source for the purpose of section 68 additions.

Where the Assessing Officer estimates business income after rejecting books of account, and unexplained sundry creditors are not referable to that estimated business income, the AO can treat such sundry creditors as income from other sources.

Decisions relied upon by the revenue may not be followed if the facts and circumstances of the assessee's case are factually distinguishable, especially when the earlier decision concerned a failure to prove the genuineness of transactions and creditworthiness for share capital and premium receipts.

Cash deposits made post-demonetization out of cash sales, when supported by stock availability and previous year's sales patterns, cannot be treated as undisclosed income under Section 68.

The High Court affirms that additions under Section 68 require the Revenue to establish that the assessee failed to prove the existence and creditworthiness of the subscriber and the genuineness of the transaction, including the source of funds. Failure to do so justifies additions.

When the nature and source of a sum of money received by an assessee cannot be explained satisfactorily, the revenue can treat it as the assessee's income. Merely providing the identity of the creditor is insufficient if their creditworthiness is not proven.

Sums reflected in the assessee's books as loans from a company are not to be treated as deemed dividend in the assessee's hands if they are taxable in the hands of the common shareholder under Section 2(22)(e).

An addition made under Section 2(22)(e) can be deleted if the facts and circumstances are similar to previous favorable rulings, such as CIT vs. Subba Reddy and Sunil Kapoor vs. CIT.

In the case of an 'entry provider,' the taxable income is limited to the premium, brokerage, or commission received, not the total cash deposited.

The distinction between a loan and a deposit lies in the duty of repayment: in a loan, the debtor must seek out the creditor, while in a deposit, the depositor must demand the return of funds.

An assessee fails to establish the genuineness of transactions and the creditworthiness of creditors when directors who advanced huge unsecured loans are not men of means and the transaction involves no interest, supporting addition under Section 68.

When an assessee fails to discharge the burden of proving the source of an investment, the investment in property is considered unexplained and can be added to the assessee's income.

The peak credit theory can be applied to determine unexplained income arising from a series of transactions, even when exact quantum is difficult to ascertain. However, it may not be applicable to singular unexplained credits.

The entire receipts on account of on-money or premium charged by an assessee on booking of flats are not to be treated as undisclosed income for the block period; only a net profit rate can be applied on unaccounted sales/receipts for making additions.

Unexplained cash credits, accommodation entries, and share application monies from shell companies can be added to income under Section 68 if the assessee fails to prove the genuineness and bonafides of the transactions. The genuineness of a transaction is a matter of perception based on facts and ground realities.

Transactions that are blatantly suspicious are subject to the rules of suspicious transactions, especially when they involve cash credits under section 68 or unexplained expenditure under section 69C.

Additions under section 68 of the Income Tax Act are uncalled for when the assessee provides sufficient evidence to prove the identity, creditworthiness, and genuineness of transactions with the creditor.

Addition under Section 68 of the Income Tax Act is not sustainable if the assessee establishes the identity of lenders, provides evidence like loan confirmations and bank statements, and has repaid the loan through account payee cheques.

Addition of share application money under section 68 is warranted when the assessee fails to establish the identity, creditworthiness, and genuineness of the transaction by providing a live link between the investor and the source of funds.

Only the profit element embedded in cash or on-money receipts can be brought to tax in the hands of the assessee.

An assessee can discharge their initial burden to establish the identity, creditworthiness, and genuineness of share allotment transactions by providing requisite documentary evidence. If the assessee discharges this initial burden, additions made under Section 68 may not be sustainable.

Section 68 of the Income Tax Act, 1961, concerning cash credits, can be invoked when there is a credit of a sum. The case enumerates legal principles regarding cash credits under Section 68.

The genuineness of a transaction involving share capital and share premium must be established, especially when it involves share application money.

Section 68 applies to all credit entries, regardless of who they are in the name of, and the assessing officer can add such sums as income if they are found to be not genuine after inquiry.