Landmark Cases on Cash Credits and Unexplained Money

An addition under section 69A is justified when an assessee fails to discharge the burden of proving the source of funds, even if the Assessing Officer initially mentioned section 68.

Transactions between group companies that are current and involve inter-banking activity with both receipts and payments cannot be considered loans or advances under section 2(22)(e), and therefore, no addition can be made as deemed dividend.

Where an assessee fails to cooperate with inquiries or provide satisfactory explanations regarding the source of funds, share application money may be added as undisclosed income under Section 68.

Merely filing confirmatory letters from creditors does not discharge the assessee's onus to prove the genuineness of loans or share application money credited in their books under Section 68. The assessee must also establish the creditworthiness of the creditor.

An Assessing Officer is not justified in making an addition under section 68 when an unsecured loan has been repaid within a short span of time, especially when interest has been paid and tax deducted thereon.

Addition under section 68 for loans is not warranted if the assessee discloses creditor names, establishes payment through banking channels, and the existence of deposits is undisputed, especially when loans arise from the sale of jewellery.

The Assessing Officer cannot examine the source of the source of funds when the assessee has established the genuineness, identity, and creditworthiness of creditors.

This case is authority for the principle that when assessing income, the onus is on the revenue to prove that the credits are not genuine. The Assessing Officer must conduct inquiries to establish the genuineness of the transaction and the creditworthiness of the creditor.

An addition cannot be made in the hands of the assessee if the purchase consideration was paid by the directors, even if cash was deposited before issuing cheques, provided the assessee has explained the source.

Where an assessee provides complete details of the shareholder, along with bank statements and confirmations, these constitute an acceptable explanation under Section 68, and no adverse inference can be drawn in the absence of contrary evidence.

The Assessing Officer is justified in making additions under Section 68 for unexplained cash credits if the identity, creditworthiness of creditors, and genuineness of the transaction are not sufficiently proven. Deleting such additions by the CIT(A) may be erroneous if evidence is lacking.

The ITAT held that invoking Section 68 for unexplained cash credits is not legally sustainable if the assessee has not maintained proper books of accounts. Bank passbooks alone do not constitute books of account.

Additions under section 68 for loans are justified when the assessee fails to produce confirmation from the creditor, establish the creditor's identity, or prove the genuineness of the loan transaction.

An addition under section 69A is justified when cash deposits in a bank account significantly exceed reported sales and the assessee fails to provide a satisfactory explanation for the source of these deposits.

Where an assessee fails to discharge the onus of providing cogent evidence and explanation for cash deposits, the Assessing Officer is justified in making additions to the income under Section 68.

Where an assessee receives share application money and claims it was invested by a director taking an advance from another company, but fails to establish the creditworthiness of the share applicant or the genuineness of the transaction, the Assessing Officer is justified in making additions under Section 68 and concluding that the assessee routed its own money through conduit companies.

Only the profit embedded in on-money receipts, not the entire receipts, can be brought to tax.

Share capital and share premium cannot be treated as unexplained cash credits under section 68 of the Income Tax Act, especially when cash did not pass at any stage and entries made a complete round. The Supreme Court dismissed the Revenue's appeal against this view.

The Supreme Court upholds additions under Section 68 for share capital if the assessee fails to produce directors of shareholder companies, even if confirmations were filed and directors were in touch.

Undisclosed income earned in an earlier assessment year can form a concealed fund from which an assessee can subsequently draw to acquire assets.

Addition under section 68 is not warranted when the assessee receives unsecured interest-bearing loans and furnishes documents like acknowledgments, balance sheets, and profit and loss accounts to establish the identity, creditworthiness, and genuineness of the transaction.

When an assessee fails to discharge the onus of establishing the source and transaction for share capital/share application money, the addition under Section 68 is justified.

Establishing the identity of a creditor is insufficient to prove the genuineness and creditworthiness of a loan under Section 68 of the Income Tax Act. The assessee must prove both aspects to discharge their onus.

An addition under section 69B solely based on a statement or admission of receiving money in cash without further corroborating material is not justified.

The addition of unexplained share application money under Section 68 of the Income Tax Act is deleted if the assessee discharges the initial onus by furnishing full information, and the assessing officer fails to prove the contrary.

When considering share application money, the assessee must establish the identity and creditworthiness of the investors and the genuineness of the transaction. The onus then shifts to the Department to investigate the investors' capacity to invest.

An assessee discharges its onus under section 68 by providing investors' subscription forms with identity details (name, address, PAN), bankers' confirmations, and bank statements, thereby disproving additions by the AO.

Section 68 of the Income Tax Act, 1961, concerns the addition of unexplained cash credits to the income of an assessee. The assessment proceedings under section 143(3) are completed even if no reply is received from investor companies regarding share capital and share premium.

Jewellery found in excess of wealth tax declarations needs specific sourcing. The principle laid down in VGP Ravidas v. ACIT, concerning unexplained jewellery, is applied in wealth tax contexts where excess jewellery over declared weights requires explanation.

The case concerns the treatment of share application money and the addition of such amounts under Section 68 of the Income Tax Act, 1961, where the creditworthiness of the creditor and the existence of a live link are crucial.

Once an assessee provides confirmations, bank statements, and financials of lenders to discharge the initial burden, the Revenue cannot make additions under Section 68 without conducting further inquiry.

The Assessing Officer has the legitimate right to make additions when an assessee fails to offer a satisfactory explanation for sums credited in their books, as per Section 68 of the Income Tax Act, 1961.

The Income Tax Appellate Tribunal (ITAT) decision in Mani Square Ltd. v. ACIT, Kolkata (06-08-2020) is cited, indicating a ruling on issues related to the Income Tax Act, 1961, particularly concerning reassessment and cash credits.

Additions made to an assessee's trading results are not applicable when the facts of the case are different, and the assessee has provided explanations for credits.

The assessee discharges its burden of proof under section 68 when it provides the names and addresses of creditors who are income-tax assessees, and the onus then shifts to the Revenue to further investigate. The assessee is not required to prove the source of the source from which the creditors advanced funds.

Jewellery to the extent of prescribed limits in CBDT Instruction No. 1916 is not to be treated as acquired from unexplained sources.

The Assessing Officer must investigate further if share applicants provide documentary proof of their share capital and income, such as assessment orders and income-tax returns. The court noted that there were sufficient clues for the AO to have proceeded, such as obtaining bank statements from the share applicants.

A CIT(A) may delete additions made by the Assessing Officer where transactions were found to be part of a fluid mechanism of routing funds between companies, suggesting that such complex financial flows require careful scrutiny beyond mere addition.

An assessee must produce requisite original documents, including confirmation of ITR, balance sheet, and bank accounts, to satisfy the ingredients of Section 68 of the Income Tax Act and discharge their burden.

Additions under Section 68 for unexplained cash credits are not limited to the computation of business profits and can be made even when books of account are rejected. An assessee cannot claim an advantage from their own fault in having their books rejected, thereby seeking exemption from other applicable provisions of the Act.

Where an assessee proves the genuineness of a transaction, the identity and credit-worthiness of the creditor, and the repayment of a loan, it cannot be disallowed merely because the creditor deposited money on the same day the loan was advanced, especially if there's no evidence the creditor was providing accommodation entries.

Addition under section 68 or 69 cannot be made if cash deposited in bank account is explained by cash sales supported by invoices and accepted by VAT authorities, especially during demonetisation.

The case establishes that when assessing income under Section 68, the Assessing Officer (AO) must demonstrate a "live link" between the assessee and the source of funds, and the creditworthiness of the creditor must be established.

Merely making payments by account payee cheques does not automatically validate a transaction or discharge the assessee's onus to prove the genuineness of cash credits under Section 68.

The Assessing Officer (AO) is not required to prove that share money originated from the assessee's own funds; Section 68 of the Income Tax Act does not place such a burden on the AO.

The case supports the assessee's claim regarding the receipt of funds from different persons when adequate explanations are provided. It also touches upon the allowability of depreciation on certain equipment necessary for production.

Surrendered income found during a survey that is otherwise considered 'valuable' or 'ordinary articles' should be treated as deemed income under Section 69 of the Income-tax Act, 1961, even if a different provision was initially applied in the assessment order.

The peak credit theory is an accepted method of accounting principles for quantifying undisclosed income and computing real profit. Where a lower authority correctly applies this theory, and the method is not contrary to the Act, it should be accepted.

Unsecured loans appearing as an opening balance in the assessee's books, brought forward from previous financial years, cannot be added under Section 68 in the current assessment year. The addition is only permissible for amounts actually received in the year under consideration.

Where an assessee company fails to discharge its onus to prove the genuineness of share capital, the Assessing Officer can make an addition under section 68.