Landmark Cases on Cash Credits and Unexplained Money

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.

The identity and creditworthiness of creditors must be established for share application money or loans to be accepted. If not, additions under Section 68 are justified.

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 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.

Additions under section 68 are justified when the assessee fails to produce the controlling persons of share applicant companies, the companies are found to be non-existent, and the transaction is deemed to be the assessee's own money routed through fictitious entities.

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.

If the Assessing Officer does not dispute that an investor company is the holding company of the assessee, then share application money transactions warrant further consideration regarding their genuineness.

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.

Where an assessee fails to discharge its onus under Section 68, the income can be added as cash credit. The assessee must establish the source and transaction.

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.

Share application money cannot be treated as unexplained income in the hands of the recipient company if the identity, capacity, and genuineness of the transaction are established by the assessee. The onus is on the revenue to prove otherwise.

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.

The Assessing Officer can invoke Section 68 for share capital and share premium where the investor companies have not replied or where replies are received from only some parties, and the assessment has been completed under Section 143(3).

No addition can be made on account of unexplained cash credit if the identity and genuineness of the transactions are established.

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.

Addition under section 68 is deleted if the assessee repays the loan in the succeeding assessment year and this is supported by decisions of the jurisdictional High Court.

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 Assessing Officer's addition under section 68 is deleted if the Commissioner (Appeals) has thoroughly examined the facts and material on record and judicial pronouncements.

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.

The CIT(A) can delete an addition made by the Assessing Officer, even if it involves a large sum and a complex financial mechanism, if the evidence supports the deletion.

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.

An Assessing Officer cannot add unexplained cash credits to income under Section 68 if they are attributable to business profits, especially when the books of account have been rejected.

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 court considers whether share application money can be added under Section 68 if the initial investor is not verifiable, focusing on the "source of source" and "creditworthiness of the creditor".

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.

Sums credited in the books of an assessee can be added as unexplained cash credits under Section 68 of the Income Tax Act if the explanation offered regarding their nature and source is not satisfactory.

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.

When the peak credit theory is applied, no separate addition for alleged unaccounted receipts is necessary, as the peak investment has already been brought to tax.

The onus is on the assessee company to prove the genuineness of share capital/information when a Section 68 addition is made.

Where an assessee fails to discharge the burden of proving the source of unexplained investments, the Assessing Officer is justified in adding such investments to the assessee's total income, especially when the assessee provides vague replies without supporting evidence.

An assessee is not required to establish the capacity of a lender to advance money, as this would amount to proving the 'source of source' of a cash credit, which is beyond the assessee's burden.

Section 68 additions can be made based on impounded papers, even if sums are not credited in books, to prevent assessees from benefiting from their own lapses.

Books of account do not include 'dumb documents' like diaries or notebooks, and additions under Section 68 cannot be made if regular books of account are not maintained by the assessee.

When a large sum of cash is found during a search, and the assessee fails to substantiate their claim that it belongs to an organization, the cash is treated as the assessee's own and added to their income under section 69A.

Section 69C of the Income Tax Act, 1961, which deals with unexplained expenditure, is not applicable when the expenditure is recorded in the assessee's regular books of account, as this explains the source of the expenditure.