Landmark Cases on Cash Credits and Unexplained Money

When an assessee states they are running a sole proprietorship business and provides documentation, the revenue cannot invoke Section 69A for unexplained cash credits. Instead, such income should be treated as business income.

In cases involving unexplained cash credits or household expenditure, the Tribunal may infer the involvement of cash sale consideration, which could include on-money payments, forming the source of such expenditure.

An Assessing Officer cannot solely rely on a report from an investigation wing, especially regarding shell companies, without conducting independent inquiries or considering the documents submitted by the assessee to prove the identity, capacity, and creditworthiness of creditors for additions under Section 68.

Where cash deposited in a bank account is explained as being out of cash previously withdrawn, and there is no contrary evidence, such explanation cannot be disregarded.

When assessing a partnership firm, the Assessing Officer can inquire into the source of credits introduced by partners, but cannot be compelled to investigate the 'source of the source' of those partners' funds under Section 68.

Deposits made into a bank account, which are duly recorded in the books of account and can be traced to the cash balance available in those books, cannot be treated as unexplained cash credits under section 68.

Section 115BBE does not apply to the taxation of unexplained cash credits or other unexplained assets under sections 68, 69, 69A, 69B, and 69D when such amounts are treated as business income.

Cash deposits in bank accounts during demonetization, even if abnormal compared to previous years, cannot be automatically taxed under Section 68 of the Income-tax Act, 1961, if the assessee maintains regular books of account.

An addition under Section 68 of the Income Tax Act, 1961, cannot be made solely on the basis of entries in a bank pass book or bank statement if the assessee does not maintain books of account. A bank pass book is not considered a book maintained by the assessee for the purpose of Section 68.

The addition of unexplained cash credits under section 68 requires the assessee to prove the genuineness of transactions beyond the banking channel. Incriminating material found during search or survey actions, such as admissions of providing accommodation entries, can be used to support such additions.

Where the identity of creditors is accepted and transactions are found to be genuine by appellate authorities, additions under Section 68 may not be justified.

The Supreme Court upholds the addition of share capital and share premium under Section 68 when the assessee fails to establish the genuineness of the transaction and the creditworthiness of the creditor, even if a preliminary inquiry under Section 133(6) was made.

An assessee is not required to prove the source of source of funds when the genuineness of the transaction is otherwise established and the assessing officer has not brought on record any material to the contrary. The assessing officer cannot discard the evidence adduced by the assessee without proper enquiry.

Share application money received by a company, even if the subscribers are found to be not genuine, cannot be treated as the undisclosed income of the company under Section 68.

When an assessee provides documents like share application forms, bank accounts of applicants, income tax returns of allottees, balance sheets, and PAN cards, the identity and genuineness of share application money transactions are considered established. Subsequent transmission of funds through banking channels further solidifies the genuineness.

Where an assessee-company receives share application money with a high and unjustified share premium from corporate entities, the Assessing Officer is not justified in accepting the transactions as genuine solely because the amounts were received through banking channels, without conducting proper inquiries.

Where the assessee establishes the identity of share subscribers, additions under section 68 cannot be made solely on the ground that the assessee failed to explain the source of the creditor's funds. The department may, however, proceed to reopen the individual assessments of the depositors.

Unexplained investments in property, particularly 'on-money' payments, can be added to income under Section 69B if supported by evidence like sale agreements showing a higher price than documented and admissions from sellers of receiving extra payments.

The assessee must link cash withdrawals to subsequent cash deposits to prove the source of the deposited funds; otherwise, such deposits are considered unexplained income.

An addition made to income for unexplained share capital is unsustainable if the assessee fails to produce the share applicants, as the assessee cannot be tasked with finding those individuals.

The Assessing Officer must establish the source of a deposit in the assessee's bank account; if the AO cannot establish the source or provide evidence for their claims about the deposit, the addition to income will not stand.

Bank passbooks alone do not constitute 'books of account' for the purpose of Section 68, and cash deposits in bank accounts are not the same as entries in the assessee's books.

An abnormal increase in cash sales and subsequent bank deposits during the demonetization period (Financial Year 2017-18) cannot, on its own, justify the rejection of books of account or additions under Section 68 of the Income Tax Act.

The addition of cash deposits as income from undisclosed sources is not justified if the assessee has sufficient cash balance in their books, and sales realization already offered and accepted by the Assessing Officer cannot be taxed again under section 68.

Share application money can be considered a deposit for the purpose of Section 269SS, even if not a loan, as it is repayable if shares are not allotted or if recalled before contract conclusion.

No addition can be made on account of cash credits once the genuineness, creditworthiness, and identity of the investors are established by the assessee. Relying solely on third-party statements without supporting evidence to prove accommodation entries is insufficient for making an addition.

The peak credit theory, as defined in Sampath Iyengar's Law of Income-tax, can be applied to consider peak credit in bank accounts as unexplained money under Section 69A, especially when withdrawals are in cash.

Where an assessee provides a detailed cash summary showing inflow and outflow for the relevant year, cash deposited in the bank cannot be treated as unexplained money under section 69A if the authorities fail to establish that the withdrawn cash was utilized for other purposes. The assessee is not required to prove a negative (that the cash was not used elsewhere).

An addition under section 68 of the Income Tax Act, 1961, based solely on a bank passbook or a ledger account obtained from a third party, which are not the assessee's own books of account, is not sustainable.

A revenue authority may examine the source of cash credits, including the source of the lenders' funds, to ascertain the genuineness of a transaction. Addition of the credit is justified if it is not genuine.

Additions made by the Assessing Officer in respect of undisclosed investments in stock are upheld when the stock shown to the bank significantly exceeds the stock reported in the audit, and the explanation provided is not believable.

Commercial transactions are generally excluded from the scope of deemed dividends. However, this exclusion may not apply if the assessee is not engaged in the business of buying and selling property, suggesting the transaction might be for other purposes.

CBDT Instruction No. 1916, which provides guidelines for the seizure of jewellery, is applicable to additions made under sections 69A and 69B. The instruction allows for specific quantities of jewellery to be considered as explained, based on the status of the assessee's family.

Unexplained investments, undisclosed income, and cash credits are subject to scrutiny based on established High Court judgments.

The Tribunal is justified in deleting additions under section 69C if the assessee has discharged the initial burden of providing details of purchase transactions, including payments through banking channels and supporting evidence like delivery challans and purchase bills.

The assessing officer cannot arbitrarily reject the explanation and documents furnished by the assessee regarding the identity and creditworthiness of creditors without sufficient material. The onus lies on the revenue to prove that the transaction was not genuine.

Cash credits received as share capital and share premium are considered unexplained under Section 68 if the assessee fails to prove the identity, creditworthiness, and genuineness of the transaction. The Assessing Officer can make an addition on this basis.

The Tribunal may delete additions made on the basis of statements if the assessee discharges the initial onus placed upon them regarding the genuineness of the transactions.

Income can be taxed in the hands of the person to whom it actually belongs, even if it is shown by someone else and assessed, and there is nothing in law to prevent the revenue from doing so. The return of capital gains by two sellers has no consequence if it is to give effect to benami transactions.

Trade advances or cash received against which goods are subsequently supplied are not considered cash credits under Section 68 of the Income Tax Act.

An Assessing Officer is not justified in treating unsecured loans as fake and unexplained cash credits if the loans are repaid through banking channels, creditors are assessed to tax, confirmations are filed, and the loans are returned before the close of the subsequent financial year. The Tribunal may rightly allow an opportunity to the assessee to prove the identity of lenders.

Income surrendered during a survey under section 133A as business income, sourced from business operations, cannot be taxed under the deeming provisions of sections 69 and 69A if the Assessing Officer treats it as unexplained investment.

Where cash sales have already been offered as income, the resulting bank deposits cannot be taxed as unexplained income under Section 69A or 68 of the Act. Deposits arising from cash sales that have been accounted for in the books cannot be treated as unexplained.

Once an assessee provides evidence of the identity and address of shareholders or loan creditors, the sum received cannot be treated as undisclosed income under Section 68, even if the revenue suspects a circular transaction without proof. The revenue must then proceed against the creditors.

Addition under section 68 for share application money is justified when the assessee fails to prove the creditworthiness and genuineness of transactions, even if creditors respond to summons under section 131.

For additions under Section 69B, the Assessing Officer bears the initial burden to prove an understatement of consideration in the assessee's books. Once undervaluation is established, the AO may use a reliable yardstick to measure the undisclosed investment if the assessee offers no satisfactory explanation.