12/25/2019 Bhutoria Electricals Pvt. Ltd.,, ...

vs Ito, Ward - 7(4), Kolkata, Kolkata on 12 December, 2018

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Showing the contexts in which section 68, income tax act appears in the document

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2. Though the assessee has raised six grounds of appeal but the main grievance of the assessee is
against the action of Ld. CIT(A) in upholding the addition of Rs.4,14,80,478/- on account of
unexplained cash credit u/s. 68 of the Income-tax Act, 1961 (hereinafter referred to as the "Act").

3. Briefly stated the facts are that the assessee company filed its return of income for AY 2012-13 on
28.09.2012 declaring total income of Rs.37,850/-. The return was processed u/s. 143(1) of the Act and
subsequently the case was selected for scrutiny under CASS. During the course of assessment
proceedings, the AO found that the assessee had received share application money of Rs.4,14,80,500/-
by way of issue of 4,14,805 shares of Rs.10/- each at a premium of Rs.90/- per share. According to
AO, even though opportunity of being heard was provided to the assessee to produce its own directors
and the directors ITA No. 2024/Kol/2017 Bhutoria Electricals Pvt. Ltd., AY 2012-13 of the share
subscribers, there was non-compliance to the said 131 notice. Therefore, according to AO, the assessee
failed to produce evidences required to substantiate the transactions along with the source of funding
of such shares/premium/applications. According to AO, the assessee company and the directors of the
assessee failed to discharge the onus to prove that the transaction was genuine and thus failed to
discharge its duties. Hence, the AO, added Rs.4,14,80,805/- u/s. 68 of the Act as unexplained cash
credit. Aggrieved, assessee preferred an appeal before the Ld. CIT(A) who relying on the decision of
Hon'ble Calcutta High Court in M/s. Rajmandir Estates Pvt. Ltd. Vs. PCIT held that all the
shareholders are mere name lenders and the creditworthiness of the shareholders were not proved.
Hence, relying on the judgment of Hon'ble jurisdictional High Court, supra, the Ld. CIT(A) confirmed
the action of AO in making the addition of Rs.4,14,80,805/- as unexplained cash credit u/s. 68 of the
Act. Aggrieved, assessee is before us.

ITA No. 2024/Kol/2017 Bhutoria Electricals Pvt. Ltd., AY 2012-13

10. In the case of Nemi Chand Kothari 136 Taxman 213, (supra), the Hon'ble Guahati High Court has
thrown light on another aspect touching the issue of onus on assessee under section 68, by holding that
the same should be decided by taking into consideration the provision of section 106 of the Evidence
Act which says that a person can be required to prove only such facts which are in his knowledge. The
Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money
from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to
explain, much less prove the affairs of such third party, which he is not even supposed to know or
about which he cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court
has laid down that section 68 of Income-tax Act, should be read along with section 106 of Evidence
Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein
below:-

"Burden of proving fact especially within knowledge.-When any fact is especially within
the knowledge of any person, the burden) of proving that fact is upon him. "

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******** What, thus, transpires from the above discussion is that white section 106 of the Evidence
Act limits the onus of the assessee to the extent of his proving the source from which he has received
the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into
the source(s)of the creditor but also of his (creditor's) sub-creditors and prove, as a result, of such
inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed
through ITA No. 2024/Kol/2017 Bhutoria Electricals Pvt. Ltd., AY 2012-13 the sub-creditors, actually
belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the
Assessing Officer to enquire into the source/source from where the creditor has received the money,
section 106 makes the assessee liable to disclose only the source(s) from where he has himself
received the credit and IT is not the burden of the assessee to prove the creditworthiness of the
source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must,
then, the interpretation of section 68 are to stand together, which they must, then the interpretation of
section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious
construction of section 106 of the Evidence Act and section 68 of the Income- tax Act will be that
though apart from establishing the identity of the creditor, the assessee must establish the genuineness
of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the
genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to
the transactions, which have taken place between the assessee and the creditor. What follows, as a
corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions
between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub- creditor
had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been.
eventually, received by the assessee. It, therefore, further logically follows that the creditor's
creditworthiness has to be Judged vis-a-vis the transactions, which have taken place between the
assessee and the creditor, and it is not the business of the assessee to find out the source of money of
his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor
and/or creditworthiness of the sub- creditors, for, these aspects may not be within the special
knowledge of the assessee. "

"The Assessing Officer was of the view that the increase in share capital by RS.52,03,500/-
was nothing but the introduction of the assessee's own undisclosed funds/income into the
books of accounts of the assessee company. The Assessing Officer accordingly treated the
investment as unexplained credit under Section 68 of the Income Tax Act and added the
same to the income of the assessee.

Being aggrieved, the assessee filed an appeal before the Commissioner of Income Tax
(Appeals) being the First Appellate Authority and contended that the Assessing Officer had
no material to show that the share capital was the income of the assessee company and as
such the addition made by the Assessing Officer under Section 68 of the Act was wrong.

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