Section 68 cash credits require proof of creditor capacity and genuineness; opening balances cannot be taxed under that provision.
Section 68 requires the assessee to prove the identity, creditworthiness and genuineness of an unsecured loan creditor with credible supporting material; here, identity was shown but the creditor's financial capacity and source of funds were not satisfactorily established, so the cash credit on that basis was not fully explained. The provision applies only to sums credited in the relevant previous year, so opening balances cannot be taxed under section 68. The Tribunal therefore confined the enquiry for assessment year 2013-14 to fresh credits after verification and restored that aspect to the Assessing Officer, while sustaining the addition for assessment year 2014-15 as a fresh credit of the year.
Issues: (i) whether the assessee discharged the burden of proving the identity, creditworthiness and genuineness of the alleged unsecured loan creditor for the year 2013-14 and 2014-15; (ii) whether an addition under section 68 could be sustained in respect of opening balances as well as fresh credits, and to what extent the matter required verification.
Issue (i): Whether the assessee discharged the burden of proving the identity, creditworthiness and genuineness of the alleged unsecured loan creditor for the year 2013-14 and 2014-15.
Analysis: The assessee relied on confirmation, passport details, bank statements and PAN particulars to support the unsecured loans. The material showed the identity of the creditor, but the confirmation was not a signed and reliable confirmation from the creditor and no satisfactory material was produced to establish the source of funds or the creditor's income base. The bank account details did not explain the source from which the credit entered the lender's account. On this record, the requirements of identity, creditworthiness and genuineness were not fully established.
Conclusion: The assessee failed to discharge the onus in respect of the cash credits.
Issue (ii): Whether an addition under section 68 could be sustained in respect of opening balances as well as fresh credits, and to what extent the matter required verification.
Analysis: Section 68 applies to sums credited during the relevant previous year. The Tribunal held that addition can be made only with respect to fresh credits of the year under consideration and not against opening balances carried forward from earlier years. Since the record required factual verification to segregate fresh loans from opening balances for assessment year 2013-14, that part of the matter was restored to the Assessing Officer. For assessment year 2014-15, the amount was accepted to be fresh credit of the year, so the addition was sustained.
Conclusion: The addition for assessment year 2013-14 was restricted to fresh credits after verification and the matter was remanded for that purpose, while the addition for assessment year 2014-15 was upheld.
Final Conclusion: The assessee succeeded only to the limited extent that the addition for the earlier year had to be confined to fresh credits and not opening balances, but the addition for the later year remained undisturbed.
Ratio Decidendi: For an addition under section 68, the Revenue must focus on credits actually received during the relevant previous year, and opening balances cannot be brought to tax under that provision; at the same time, the assessee must establish the identity, creditworthiness and genuineness of the creditor with credible supporting material.
TaxTMI 
AI Drafter ✕
TaxTMI 
