Facts of the Case

The assessee, M/s Chaudhrana Steel (P) Ltd., Allahabad, was subjected to assessment proceedings wherein certain amounts credited in its books of account were treated by the Assessing Officer as unexplained cash credits. The assessee claimed that the impugned sums represented genuine transactions supported by documentary evidence. However, the Assessing Officer was not satisfied with the explanation furnished and made additions under Section 68 of the Income-tax Act, 1961.

Issues Involved

Whether the amounts credited in the books of the assessee were satisfactorily explained so as to escape addition under Section 68, particularly with respect to establishing:

  • Identity of the creditors
  • Creditworthiness of the creditors
  • Genuineness of the transactions

Petitioner’s (Assessee’s) Arguments

The assessee contended that the impugned credits were genuine and duly recorded in the books of account. It was submitted that supporting documents had been furnished to demonstrate the identity of the parties and the legitimacy of the transactions. The assessee argued that the Assessing Officer had erred in disregarding the evidence without adequate justification and in making additions solely on suspicion.

 

Respondent’s (Revenue’s) Arguments

The Revenue argued that the assessee had failed to discharge the statutory burden cast upon it under Section 68. According to the department, mere furnishing of documents was insufficient where the assessee could not conclusively establish the financial capacity of the creditors or the genuineness of the transactions. The Assessing Officer was therefore justified in treating the credits as unexplained income.

Court Order / Findings (ITAT)

The Tribunal examined the material on record and the explanations offered by the assessee. It reiterated the settled legal position that under Section 68, the initial onus lies on the assessee to satisfactorily establish:

  1. Identity of the creditor
  2. Creditworthiness of the creditor
  3. Genuineness of the transaction

Where the assessee fails to substantiate any of these essential elements, the Assessing Officer is justified in treating the credited amount as unexplained income. The Tribunal upheld the addition to the extent it found the explanation inadequate or unsupported by reliable evidence.

Important Clarification

The ruling reinforces that documentary submissions alone do not automatically discharge the burden under Section 68. The evidence must be credible, verifiable, and sufficient to establish real financial capacity and genuine transaction flow. The decision aligns with consistent judicial principles governing unexplained cash credits in income-tax law.

 

Link to download the order –https://itat.gov.in/public/files/upload/1589349202-CHAUDHARANA-362.pdf

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