Section 68 — Unexplained Cash Credits

Section 68 of the Income-tax Act, 1961 deals with unexplained cash credits. It applies when any sum is found credited in the books of an assessee, and the assessee either does not offer any explanation about the nature and source of such credits or the explanation offered is not satisfactory in the opinion of the Assessing Officer. This section is significant as it places the burden of proof on the taxpayer to satisfactorily explain the source of any cash credits. If the taxpayer fails to do so, the amount is treated as income of the taxpayer and taxed accordingly. This provision is crucial in preventing tax evasion through the introduction of unaccounted money into the books of accounts.

Common Litigation Flashpoints

1. Dispute over the genuineness of the transaction
2. Sufficiency of evidence provided by the taxpayer
3. Interpretation of 'satisfactory explanation' by the Assessing Officer
4. Attribution of the burden of proof on the taxpayer

Judgments on Section 68 — Unexplained Cash Credits

• Dy. CIT Central Circle – 1(4), Kolkata vs Femina Stock Management Company Ltd. — ITAT,
  The assessee successfully discharged its burden of proof under Section 68 by providing sufficient evidence of the identity, creditworthiness, and genuineness of the share applicants.
• M/s Dilsa Distributers Combines vs ITO-11(1)(1) — ITAT, 2013
  The statement of a third party cannot be used against the assessee without providing an opportunity for cross-examination.
• Sumati Dayal vs Commissioner of Income-Tax, Bangalore — SC,
  The apparent must be considered real until it is shown that there are reasons to believe that the apparent is not the real, and the taxing authorities are entitled to look into the surrounding circums
• DCIT, CC-1(2), Kolkata vs M/s Chaman Metallics Ltd — ITAT,
  Once the assessee has submitted documents relating to identity, genuineness of the transaction, and credit-worthiness, the AO must conduct an inquiry before invoking Section 68.
• Sri Mangilal Jain vs The Income Tax Officer — HC,
  The assessee must prove not only the identity of the creditor but also their creditworthiness and the genuineness of the transaction beyond any reasonable doubt.
• DCIT (Central Circle-1) vs Shree Ganesh Edibles Pvt. Ltd. — ITAT,
  Once the assessee furnishes identity, creditworthiness, and genuineness of the lender, the onus shifts to the AO to prove otherwise.
• Assistant Commissioner of Income-tax vs M/s Chiripal Poly Films Ltd. — ITAT,
  The DCF method is an acceptable method for share valuation under Rule 11UA, and the onus under Section 68 is discharged if the assessee provides sufficient documentation to prove identity, creditworth
• Smt Gloria Eugenia Rynjah Banerji vs Income Tax Officer — ITAT,
  The assessee successfully explained the source of cash deposits as proceeds from the sale of inherited land, supported by credible evidence.
• Smt. Gloria Eugenia Rynjah Banerji vs ITO — ITAT,
  Additions cannot be deleted merely on technical grounds if the factual matrix is not commensurate with human probability.
• Vijay Kumar Ahuja vs ACIT — ITAT,
  Outstanding trade creditors cannot be added to income if they are genuine and relate to past transactions.
• Commissioner of Income Tax vs P. Mohanakala — SC,
  The opinion of the Assessing Officer that the explanation offered by the assessee is not satisfactory constitutes prima facie evidence against the assessee.
• Principal Commissioner of Income Tax (Central) - 1 vs NRA Iron & Steel Pvt. Ltd. — SC,
  The assessee is under a legal obligation to prove the genuineness of the transaction, the identity of the creditors, and credit-worthiness of the investors to the satisfaction of the AO under Section
• Abhijeet Enterprise Ltd vs Income-tax Officer, Wd-2(2), Kolkata — ITAT,
  Section 68 cannot be invoked for liabilities arising from credit purchases where no actual cash is received.
• ACIT vs Double Plus Software P. Ltd. — ITAT,
  Section 68 applies when a sum is credited in the books of an assessee, and the assessee fails to prove the genuineness and creditworthiness of the transaction.
• ITO, Ward 13 (1) vs M/s. Navodaya Castles Pvt. Ltd. — ITAT,
  The AO must independently apply his mind to the information received before initiating proceedings under Section 147/148.