TaxTMI 
TaxTMI 
2020 (12) TMI 1198
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....r (TK) and Shri Jetha Nand Khatri (JK), his father, at Rs. 117.60 lacs and Rs. 252.50 lacs respectively. The income tax returns of the two creditors for the last few years were tabulated by him (at pg.2 of the assessment order) to find the income returned by them to be varying from Rs. 1.50 lacs to 10 lacs (average: Rs. 5.45 lacs) and from Rs. 5 lacs to 15 lacs (average: Rs. 13 lacs) for TK and JK respectively (from AY 2010-11 to AY 2014-15), which did not agree with the credits under reference, required to be proved by the assessee on the parameters of identity, capacity and genuineness. The assessee was accordingly required by him to produce the said creditors, which it failed to. He, accordingly, relying on Roshan Di Hatti vs. CIT [1977] 107 ITR 938 (SC); CIT vs. Korlay Trading Co. Ltd. [1998] 232 ITR 820 (Cal); and CIT v. Precision Finance P. Ltd. [1994] 208 ITR 465 (Cal), assessed the said credits as the assessee's income on account of unexplained credit u/s. 68 for want of necessary satisfaction toward the creditworthiness of the creditors. 2.2 In appeal, the assessee furnished the source of each of the several sums comprising the impugned credits in a tabular form, stat....
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....ior to the relevant previous year. The AO, therefore, doubting the capacity, or stating the same to have been not proved, cannot be faulted with. That the assessee may though, on the basis of the material on record, establish the source, which he has to separately qua each sum credited in its' books of account, is another matter. This is particularly so as the assessee, despite being called for, did not produce the creditors. In this regard, ld. CIT(A) stating that the creditors were the Department's witnesses is an incorrect appreciation of facts and of law. The calling of the creditors by the AO is only in support of the confirmations filed by them, or an enquiry about any of the entries in their bank accounts. 3.2 The matter, therefore, boils down to proving the creditworthiness of the creditors toward explaining satisfactorily the source of the sums found credited in it's books by the assessee, which, therefore, has to be proved w.r.t. the total sum credited. The matter, as would be apparent, is purely factual, to be decided upon examining the stated source, by issuing definite finding/s of fact. No such exercise was done by the AO, who merely went by the income-ta....
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....the annexure to the creditors' Balance-sheet (PB pg. 94A), reflecting the loan to the assessee as on 31/3/2015 at Rs. 117.60 lacs, furnished during hearing, the entire credit of Rs. 92.60 lacs stands satisfactorily explained as by way of an unsecured loan from TK, and the assessee can be said to have discharged the onus cast on it in its respect. (ii) Jetha Nand Khatri: (a) The creditors' receipt and payment (as per his bank statement insofar as it relates to the credits in the assessee's accounts during the relevant year) is at Rs. 241.68 lacs and Rs. 252.50 lacs respectively. A perusal of the bank statement of the creditor (PB pg. 43), however, shows an omission to record the deposit of Rs. 19,70,536 on 13.3.2015, stated to be by way of (tax-free) capital gain, as also Rs. 28,91,159, stated as, again, on sale of shares, tax-exempt u/s. 10(38), in the receipt/payment chart (reproduced at pgs. 11-12 of the IO). Considering these two receipts, the receipt side of the creditor shall be at Rs. 261.39 lacs, fully covering the credits for Rs. 252.50 lacs in the assessee's accounts ascribed to this creditor. (b) Toward the sale of shares afore-stated, the ld. counse....
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....act, even the amount credited to one of the creditors (TK) has not been correctly noted. 3.4 We may also advert to the abundant case law cited by the parties. The matter as, afore-noted, is purely factual, i.e., whether the material adduced by the assessee, together with explanation/s furnished, leads to a satisfactory explanation of the nature and source of the credits in its' books of account in terms of identity, creditworthiness (of the creditor/s) and the genuineness of the credit/s, of which only the capacity was doubted by the AO in the instant case. Inasmuch as the capacity is to be for the entire sum credited, i.e., including that already credited to a creditors' account, the same shall therefore have to be with reference to the entire sum found credited. This represents trite law, and for which, beginning with Kale Khan Mohammad Hanif [1963] 50 ITR 1 (SC), affirming the decision by the Hon'ble jurisdictional High Court (reported at [1958] 34 ITR 669 (MP)), the case law by the Apex Court is legion. A perusal of the material on record shows that the entire sum credited stands explained with reference the creditor's existing capital and/or current income. No....