Case Laws Related to Income Tax on Unexplained Credits

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Vaanya Bhatia (Querist)
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22 December 2009 Sir,
Please refer some case laws related to income tax on unexplained credits, such as a party has credited Rs.9,00,000/- to his capital a/c. This amount has been received by various Demand Drafts through his brother which were credited in capital a/c of the assessee on a/c of deposit of his brother. The assessee's brother has given an affidavit that the proceeds deposited in the a/c of the assessee is on a/c of sale of potatoes throgh one Arahatiya. The sale has been made to Arahatiya who has deposited the drafts to the party's brother a/c. But the ITO is claiming after confirming from the bank that the originator of the Bank Draft is not the same person the assessee mentioned (Arahatiya). ITO by treating this deposits as unexplained credits added the same to the income of the assessee as cash credits u/s 68. Penal proceedings u/s 271(1)(C) are being initiated against the assessee on this count for furnishing inaccurate particulars of income. Is the ITO's order is justified.

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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22 December 2009 Pl go through the following case law.
If the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory, there is prima facie evidence against the assessee, viz., the receipt of money, and if he fails to rebut the same, the said evidence being unrebutted can be used against him by holding that it is a receipt of an income nature. While considering the explanation of the assessee, the department cannot, however, act unreasonably - Sumati Dayal v. CIT [1995] 80 Taxman 89/214 ITR 801 (SC).
In view of the above the ITO's stand seems to be correct. If the additions sustains, penalty under section 271(1)(c)is certain since mens rea is not required vide decision in UOI Vs. Dharamendra Textile Processors (2008) 306ITR 277(SC).

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