2008 (4) TMI 731 - HC - Income Tax

Assessee wins appeal by proving creditor identity and genuineness; no need to prove source of funds under precedent

The HC allowed the appeal, ruling in favor of the assessee and against the revenue. It held that the assessee discharged the burden to prove the identity, ... Addition u/s 69 - Cash credits - identity of the creditors - onus to prove source of credit - burden to prove the identity, capacity and genuineness - whether the assessee appellant had not sufficiently discharged the primary onus casted upon him? - HELD THAT:- It was noticed, that the Tribunal itself doubted about the correctness of its own conclusions, thus, this judgment is no authority for the proposition, that source of the source is required to be established by the assessee. Then, so far as judgment in Kishorilal's case [1995 (2) TMI 14 - RAJASTHAN HIGH COURT] is concerned, six requirements noticed by this Court. Examining the present case even on these parameters, so far as 6th requirement is concerned, it is very much there in existence, inasmuch as the amount has been advanced by Account Payee Cheques, through bank, and is duly supported by documentary evidence, as well as the evidence of the two lenders, and that satisfies the 2nd requirement also, about the discharge of burden on the part of the assessee, to prove identity and genuineness of the transaction. So far as capacity of the lender is concerned, in our view, on the face of the judgment in Daulat Ram's case [1972 (9) TMI 9 - SUPREME COURT], and other judgments, capacity of the lender to advance money to the assessee, was not a matter which could be required of the assessee to be established, as that would amount to calling upon him to establish source of the source. In that view of the matter, since this part of the judgment runs contrary to the judgment of Daulat Ram's case, while this Court in a subsequent judgment in Mangilal's case [2006 (10) TMI 100 - RAJASTHAN HIGH COURT], relying upon Daulat Ram's case, has taken a contrary view, we stand better advised to follow the view, which has been taken in Mangilal's case. The net result is that all the three questions are answered in favour of the assessee, and against the revenue. The appeal is accordingly allowed, and the additions with respect to the entries of Vijay Kumar and Dharm Singh, for the amounts of ₹ 50,000 each, respectively made in the income of assessee, are ordered to be deleted. Issues Involved:1. Identity and genuineness of cash credits in the names of Dharm Sudhir and Vijay Kumar.2. Onus to prove the source of credit.3. Validity of the Tribunal's finding on the non-genuineness of credits.Issue-wise Detailed Analysis:1. Identity and Genuineness of Cash Credits:The Tribunal affirmed the addition of Rs. 1 lac in respect of cash credits in the names of Dharm Sudhir and Vijay Kumar, despite their identity being established, their confirmation of the credits, and the transactions occurring through bank accounts and cheques. The Tribunal considered additional circumstances, such as the sequence of dates of depositing amounts and the issuance of cheques, and the meagre income of the creditors, to conclude that the transactions were not genuine.2. Onus to Prove Source of Credit:The assessee contended that once the identity of the creditor and the genuineness of the transaction are established, the assessee should not be required to prove the source of the source. The Tribunal's confirmation of the additions was challenged on the grounds that it required the assessee to prove the creditworthiness of the lender, which is beyond the scope of Section 68 of the IT Act.3. Validity of the Tribunal's Finding on Non-Genuineness:The Tribunal's finding was argued to be based on whims, assumptions, and conjectures rather than relevant or cogent evidence. The assessee relied on precedents, including the Supreme Court's judgment in Daulat Ram's case, which held that the inability of the lender to explain the source of funds does not necessarily imply that the money belongs to the assessee.Judgment Analysis:Identity and Genuineness of Cash Credits:The High Court noted that the Tribunal had acknowledged the identity of the creditors and the confirmation of the credits through statements on oath and bank transactions. Despite this, the Tribunal's additional considerations led to the conclusion of non-genuineness. The High Court found this approach to be incorrect, emphasizing that once the identity and genuineness are established, the assessee should not be required to prove the source of the source.Onus to Prove Source of Credit:The High Court referred to the judgment in Daulat Ram's case, which clarified that the assessee is not required to prove the source of the source. The Court held that the Tribunal's requirement for the assessee to establish the lender's capacity to advance money was contrary to the Supreme Court's judgment and the subsequent judgment of the Rajasthan High Court in Mangilal's case.Validity of the Tribunal's Finding on Non-Genuineness:The High Court found that the Tribunal's finding was vitiated by a wrong approach. The Tribunal's reliance on additional circumstances without relevant or cogent evidence was deemed improper. The High Court reiterated that the burden on the assessee is limited to proving the identity and genuineness of the transaction, not the source of the source.Conclusion:The High Court answered all three questions in favor of the assessee and against the Revenue. The appeal was allowed, and the additions of Rs. 50,000 each in the names of Vijay Kumar and Dharm Singh were ordered to be deleted. The parties were directed to bear their own costs.