Jharkhand High Court Upholds Income Tax Addition On Failure To Prove Genuineness Of Creditors Who Gave Cash Loan

The Jharkhand High Court has upheld the income tax addition as the assessees have failed to prove the identity, creditworthiness, or genuineness of the creditors, who have given cash loans.

The bench of Justice Rongon Mukhopadhyay and Justice Deepak Roshan has observed that usually the matter would have been remitted to the AO for mentioning the correct provision and proceeding in accordance with law, but in the instant matter, the source of income in the case of both the assessees has not been proved, inasmuch as both the assessees have failed to prove the identity, creditworthiness, or genuineness of the creditors, who have given cash loans as claimed by them, thus we are of the view that remitting the cases to the AO will be a futile exercise.

The appellant/assessee, Rajmeet Singh, derives income from commission and miscellaneous jobs and filed his return of income, declaring a total income of Rs. 1,98,690. Similarly, the assessee/appellant, Harmeet Singh, derives income from running a restaurant and filed his return of income, disclosing total income of Rs. 1,98,640.

Both the assessees were selected for scrutiny, and statutory notices were issued during the course of the assessment proceeding. In the case of Harmeet Singh, the assessee filed a copy of the deed, profit and loss account, capital account, balance sheet, and computation of income for the assessment years 2012–13 and 2013–14. The assessee also produced a copy of the bank account. The Assessing Officer observed in the case of Harmeet Singh that the assessee has deposited cash on different dates in the Corporation Bank totaling Rs. 19 lakhs. The Assessing Officer noticed that in the Corporation Bank, the receipt from the builders, M/s. Singh Estate and Singh Construction, is only to the tune of Rs. 14 lakhs but not Rs. 33 lakhs as claimed by the assessee. The assessee was unable to explain the balance of Rs. 19 lakhs, and the assessing officer had made an addition of Rs. 19 lakhs under Section 68 of the Income Tax Act, 1961.

The assessee contended that the amount appearing in the bank account was received from Builder M/s. Singh Estate and Singh Construction as an advance signing amount for the purchase of land and the total amount received by the assessee.

In the case of Rajmeet Singh, the assessing officer verified a copy of the income tax return, sale deed, bank account, and other details filed during the course of the assessment. The assessing officer concluded that the appellant was not able to satisfactorily explain entries of Rs. 10 lakh and Rs. 6,50,000, respectively. The AO added a sum of Rs. 16,50,000 to the total income of the assessee on account of cash credit under Section 68.

The Assessing Officer has categorically mentioned that the assessee, Rajmeet Singh, could not explain the cash deposit of Rs. 10 lakh and Rs. 6,50,000 to the satisfaction of the Assessing Officer.

Both the assessees filed their respective appeals before the Commissioner of Income Tax (Appeal). The CIT held that the assessee, neither at the time of the assessment proceeding nor at the appellate proceeding, was able to identify the source of cash deposits in the bank account, and he could not establish the source of balance cash. Though the assessee claims that the cash of Rs. 48 lakhs was arranged by friends and relatives, no identity, creditworthiness, or genuineness was proved by the assessee, who thus sustained the assessment order.

Being aggrieved by the order passed by the CIT (A), both the assessees filed an appeal before the ITAT. The ITAT sustained the addition made by the AO and dismissed the respective appeals.

The assessees contended that Section 68 has no application to the facts of the present case as the assessee in both cases is not maintaining any books of account; as such, Section 68 does not apply in the case for the simple reason that the balance sheet and statement of affairs cannot be equated to the books of account.

The department, while supporting the orders, stated that no error has been committed by the tax authorities or by the tribunal.

The court noted that the assessee has not proved the source of income or the identity, creditworthiness, or genuineness of the transaction. The assessees have rather taken only one ground: since the pass book cannot be treated as a book of account, the addition made by the assessing officer under Section 68 is not sustainable.

“Even assuming the contention of the petitioner that the passbook cannot be treated as part of the books of accounts to be true, admittedly, the source of income in the case of both the assessees has not been proved, inasmuch as both the assessees have failed to prove the identity, creditworthiness, or genuineness of the creditors who have given cash loans as claimed by them. Further, the assessee has submitted the balance sheet, profit and loss account, bank account, computation of income, and other details to the assessing officer. Thus, definitely, those amounts have escaped taxation,” the court noted.

The court dismissed both of these appeals and decided the questions of law in favor of the Revenue.

Counsel For Appellant: Biren Poddar

Counsel For Respondent: Ratnesh Nandan Sahay

Case Title: Rajmeet Singh Versus Income Tax Officer, Ward-2(3), Ranchi

LL Citation: 2024 LiveLaw (Jha) 24

Case No.: Tax Appeal No. 01 of 2020

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