The onus to prove the genuineness of transactions is upon the assessee

The ITAT, Chandigarh in the case of ITO, Ward-2, Panchkula vs. M/s C. Max Healthcare, 2016 (2) TMI 156 has held that in the absence of confirmations the onus to prove the genuineness of transactions is upon the assessee. It was further held that the Assessing officer was justified in considering the alleged amount as unexplained cash credits. The onus is always upon the assessee to prove the genuineness of the said transactions in the absence of confirmations.

The said judgment was passed by the bench on 5.2.2016.

Significance of Section 68 of the Income Tax Act:

Section 68 of the Income Tax Act is one of the most vital but debated provisions of the Act.

In the case of some companies, investments are made by persons known to them. In such cases, a higher onus is cast upon such companies besides the general onus to prove the creditworthiness of the creditor and authenticity of the transactions.

This extra onus should be placed on such companies to explain even source of funds in the hands of the shareholders or persons paying for issue of shares before the amount are accepted as genuine credit.

If the company fails to discharge this onus, the amount shall be considered as income of the company and shall be added to its income.

Provisions of Section 68 of Income Tax Act 1961:

Section 68 of the Income Tax Act provides that where any sum is found credited in the books of an assessee maintained for any previous year and the assessee fails to offer an explanation regarding the source of such funds or the explanation provided by him is not satisfactory according to the opinion of the Assessing Officer, the sum so credited may be treated as the income of the assessee in the previous year.

The essence of Section 68 of the Act is that the assessee should establish a justified confirmation. Such confirmation has no specific format but it should state the name and full address of the lender.

If PAN of the lender is available, the same should be stated. If no PAN is given, doubt remains in the mind of the Assessing Officer.

With the confirmation the Assessing Officer should insist on some identity proof such as driving license, passport, ration card, election ID card, etc.

The confirmation should also state details of transactions with bank details. The Assessing Officer is entitled to demand the copy of bank account of the lender proving such transactions which should be filed.
If the transaction is in cash, the Assessing Officer must demand cash flow statement of the lender and its source thereof.

Consequences of rejection of cash credit:

If cash credit is disallowed due to absence of creditworthiness, some discussion must be reflected in the assessment order which would reveal that inquiries were conducted which helped the Assessing Officer to conclude that the lender was not creditworthy. Such inquiries must be confronted to the assessee in the interest of natural justice.