1991 (9) TMI 31 - HC - Income Tax

Unexplained cash credits under Section 68 upheld as assessee fails to prove creditor identity, creditworthiness and genuineness

The HC upheld the Appellate Tribunal's findings treating the impugned cash credits as unexplained income of the assessee. It held that the assessee bore ... Unexplained cash credits - Burden Of Proof - creditworthiness of the creditor and the genuineness of the transactions - HELD THAT:- The assessee had business connections with Shri Kunhaimu Haji, who advanced a sum in different names on a single day. The credits appeared in the books of account of the assessee. Smt. Pathukutty Umma is the wife of Shri Kunhaimu Haji and Shri Abdukutty is the son of Shri Kunhaimu Haji. The fact that the assessee and Shri Kunhaimu Haji had business transactions and that the two credits appeared in the names of near relations of Shri Haji are admitted. After considering the explanation offered by the assessee, the Appellate Tribunal held that Smt. Pathukutty Umma was putting forward different pleas regarding the availability of funds and so, what she stated in her confirmatory letter does not appear to be reliable, considered especially in the light of the fact that she had only three acres of land and the amount of Rs. 50,000 withdrawn by her from Vijaya Bank appears to be manipulation. The Appellate Tribunal found that Smt. Pathukutty Umma does not have any creditworthiness and there was every possibility that the story regarding the advance of loan was cooked up by the assessee with the help of Shri Kunhaimu Haji, husband of the creditor. It cannot be doubted that it is for the assessee to prove the identity of the creditor as also the creditworthiness. The genuineness of the transactions should be proved. The Appellate Tribunal has entered a definite finding that these vital aspects have not been proved. The above finding of fact is not assailed in the original petition by framing an appropriate question as to whether the above finding of fact is based on any material or otherwise vitiated or tainted. The above vital findings remain unchallenged. In so far as the findings of the Appellate Tribunal that the creditworthiness of the creditor has not been substantiated and the genuineness of the transactions have not been proved, no referable question of law can be said to arise out of the order passed by the Appellate Tribunal in the appeal dated January 27, 1988. What is more, the first question is really academic. This is not a case where the creditworthiness is established. The question proceeds on the basis that the creditworthiness of the creditor is established. Issues Involved: The judgment involves the following issues: 1. Whether the assessee has the burden to establish the source of a creditor when the creditor's identity and creditworthiness are established. 2. Whether the Tribunal was justified in ignoring the legal effect of the repayment of credit to the creditor. 3. Whether certain cash credits were genuine or constituted undisclosed income of the assessee. 4. Whether the findings of the Tribunal regarding the cash credits were sustainable.Issue 1: Burden of Proof for Creditor's Source The petitioner, an income tax assessee, sought a reference to the High Court regarding the burden of proof for establishing the source of a creditor when their identity and creditworthiness are confirmed. The Appellate Tribunal had found that the two cash credits in question were not satisfactorily explained by the assessee, leading to the petitioner's appeal.Issue 2: Legal Effect of Repayment of Credit The Tribunal's decision to sustain certain cash credits and ignore the legal effect of the repayment of credit to the creditor was challenged by the petitioner. The petitioner argued that the Tribunal did not consider its earlier order and directions, which led to the formulation of this issue.Issue 3: Genuine Cash Credits The controversy also revolved around whether two specific cash credits were genuine or constituted undisclosed income of the assessee. The Tribunal found that these credits were not adequately explained by the assessee, leading to the dispute over their authenticity.Issue 4: Sustainability of Tribunal's Findings The final issue pertained to the sustainability of the Tribunal's findings regarding the cash credits in question. The petitioner contended that essential matters, such as the repayment of the amount to the creditors, were ignored in arriving at these findings.The High Court, after considering the arguments presented by both parties, upheld the Tribunal's decision. It was established that the burden lies on the assessee to prove the identity and creditworthiness of a creditor, along with the genuineness of transactions. The Court found that the Tribunal's findings on the cash credits being unexplained were factual and not open to challenge as questions of law. The judgment emphasized that the petitioner failed to demonstrate any deviation from previous orders or any legal errors in the Tribunal's decision. Consequently, the original petition was dismissed for lacking merit.