Cash credit additions fail where opening balances are taxed again and lender documents prove identity, creditworthiness and genuineness.

A cash credit cannot be taxed under section 68 unless it pertains to the relevant previous year, and an opening balance carried forward from earlier years is not a fresh credit in the year under review. On the facts, the carried-forward amount was deleted because it had already been reflected in earlier years and had not arisen again in the assessment year. Where the assessee produced loan confirmations, income-tax acknowledgements and bank statements of the lenders, those documents discharged the initial burden of proving identity, creditworthiness and genuineness, and the addition was deleted because no independent adverse material was brought to rebut them.

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Issues: (i) Whether the addition of Rs. 6,45,300 as unexplained cash credit under section 68 was sustainable when the amount represented an opening balance carried forward from earlier years and not a fresh credit in the relevant year; (ii) Whether the addition of Rs. 16,00,000 as unexplained cash credit under section 68 could be sustained despite the assessee having produced loan confirmations, income-tax acknowledgements and bank statements of the lenders.

Issue (i): Whether the addition of Rs. 6,45,300 as unexplained cash credit under section 68 was sustainable when the amount represented an opening balance carried forward from earlier years and not a fresh credit in the relevant year.

Analysis: The relevant ledger accounts showed that there was no discrepancy in the transactions for the assessment year under appeal and the impugned amount had already been reflected as a carried-forward balance from preceding assessment years. Identical additions had been made in earlier years and were deleted in appeal. In these circumstances, the amount did not pertain to the relevant previous year and could not be taxed again as a fresh credit in the year under appeal.

Conclusion: The addition of Rs. 6,45,300 was deleted and the issue was decided in favour of the assessee.

Issue (ii): Whether the addition of Rs. 16,00,000 as unexplained cash credit under section 68 could be sustained despite the assessee having produced loan confirmations, income-tax acknowledgements and bank statements of the lenders.

Analysis: The assessee furnished additional evidence in the form of loan confirmations, income-tax return acknowledgements and bank statements of the three lenders. The remand report did not point out any discrepancy in those documents or bring any material of independent inquiry to discredit them. The assessee thereby discharged the primary burden under section 68 to establish identity, creditworthiness and genuineness of the loan transactions, and the contrary material required to sustain the addition was absent.

Conclusion: The addition of Rs. 16,00,000 was deleted and the issue was decided in favour of the assessee.

Final Conclusion: The additions made under section 68 did not survive judicial scrutiny, the relief granted by the first appellate authority was substantially expanded, and the assessee succeeded in the appeal.

Ratio Decidendi: A cash credit cannot be sustained under section 68 unless it represents a credit in the relevant year and the revenue can rebut the assessee's documentary evidence on identity, creditworthiness and genuineness by independent material or inquiry.

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