2012 (4) TMI 700 - HC - Income Tax

Dismissal of Appeal on Section 68 Addition: Cement company fails burden of proof in tax case

Sri Chakra Cements Ltd. Versus Income-tax Officer, Ward-3 (1), Hyderabad

The High Court dismissed the appeal concerning the addition of Rs. 50 lakhs under Section 68 of the Income Tax Act. The appellant, a cement company, ... - Issues involved:The judgment involves the consideration of substantial questions of law u/s 260A of the Income Tax Act, 1961 regarding the addition of Rs. 50 lakhs u/s 68 of the Act, and the burden of proof on the appellant to establish the identity of the party and the genuineness of the transaction.Issue 1: Addition of Rs. 50 lakhs under Section 68 of the Income Tax Act, 1961The appellant, a company engaged in the manufacture and sale of cement, filed a return of income for the assessment year 1996-97. The Assessing Officer added Rs. 3,19,50,000 as an increase in share capital, out of which Rs. 50,00,000 was treated as cash credit from Gold Crest Finance (India) Limited. Despite furnishing details about the investment through Demand Drafts, the whereabouts and identity of Gold Crest Finance (India) Limited could not be established. The Commissioner of Income Tax (Appeals) held that the appellant failed to prove the genuineness of the transaction and dismissed the appeal, upholding the addition of Rs. 50 lakhs as unexplained credit u/s 68 of the Act.Issue 2: Burden of proof on the appellant under Section 68 of the ActThe appellant failed to establish the identity and creditworthiness of Gold Crest Finance (India) Limited, the alleged creditor of the Rs. 50 lakhs. The Commissioner noted the lack of evidence regarding the creditor's financial standing, such as P & L Account or balance sheet. The appellant's claim that the amount was received through Demand Drafts via banking channels was not sufficient to prove the genuineness of the transaction. The Tribunal upheld the dismissal of the appeal, stating that the appellant did not discharge the burden of explaining the nature and source of the cash credit. The onus was on the appellant to establish the identity of the creditor, and the Tribunal rightly rejected the contention that further inquiry was necessary when the primary burden was not met.Conclusion:The High Court dismissed the appeal, emphasizing that the appellant failed to prove the identity of the party and the genuineness of the transaction regarding the Rs. 50 lakhs addition under Section 68 of the Income Tax Act. The Court held that the appellant did not discharge the primary burden under Section 68, and therefore, no substantial questions of law arose for consideration.