Validity of additions u/s 68 on the basis of suspicion if the assessee discharges initial onus of establishing creditworthiness of donors & genuineness of transactions

The issue of Validity of additions u/s 68 on the basis of suspicion if the assessee discharges initial onus of establishing creditworthiness of donors & genuineness of transactions was there before the Kolkata ITAT in the following case:

Tapasi Singh Vs ITO

ITA No. 491/Kol/2020

Short Overview of the case:

Assessee was a person engaged in the business trading of sugar, atta and maida. The return of income for the year under consideration was filed declaring a total income of Rs. 2,15,870/-.

During the year under consideration, the assessee had introduced a fresh capital of Rs. 4,00,000/- and the source of the same was explained as gift of Rs. 1,00,000/- each received from four persons namely Mana Das, Mohanlal Sau, Nemai Chandra Dey s/o Bhudhar Chandra Dey and Nemai Ch. Dey s/o Bhupati Charan Dey.

In support of her claim of having received the said gifts, tax particulars of the donors were furnished by the assessee along with the copies of relevant cheques as well as the declarations of the donors confirming the gifts.

In order to verify the assessee’s claim, summons u/s 131 of the Act were issued by the AO to all the donors enquiring their personal attendance.

However, none of the donors appeared before the AO for their examination.

Even the assessee failed to produce the donors for the examination before the AO. Keeping in view this failure as well as the fact that none of the donors had blood relations with the assessee, the AO held that the identity and creditworthiness of the donors as well as the genuineness of the transactions involving gifts was not established.

 He, therefore, treated all the four gifts aggregating to Rs. 4,00,000/- as unexplained cash credit and addition to that extent was made by him to the total income of the assessee u/s 68 in the assessment completed u/s 143(3).

On appeal, the issue beforeTribunal was whether additions u/s 68 on account of unexplained cash credits can be framed solely on the basis of suspicions, where the assessee discharges initial onus of establishing creditworthiness of donors & genuineness of transactions?

ITAT observed as under:

It is observed that all the four donors who had given the gifts in question to the assessee during the year under consideration were engaged in the business and in the returns of income filed regularly for the year under consideration, the business income earned by them was duly declared as is evident from the photocopies of their IT return acknowledgement placed at page no. 32 & 33 of the Paper Book.

Moreover all the gifts in question were given to the assessee by the four donors by account payee cheques and their declarations confirming the gifts given to the assessee were also furnished on record giving all the relevant particulars including the Permanent Account Number of the donors.

As rightly contended by the counsel for the assessee, the primary onus to establish the identity and creditworthiness of the concerned donors as well as the genuineness of the relevant transactions involving gifts thus was duly discharged by the assessee by producing the relevant documentary evidence and without bringing on record any material or evidence to disprove or dislodge the claim of the assessee, the authorities below, in my opinion, were not justified in treating the gifts received by the assessee as unexplained cash credit u/s 68 merely on the basis of doubts and suspicion.

I, therefore, delete the addition of Rs. 4,00,000/- made by the AO and confirmed by the CIT (A) u/s 68 and allow this appeal of the assessee.