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Where assessee has substantiated with evidence of credit entry same will not be covered under Sec 68

Last updated: 22 September 2022

Court :
Delhi High Court

Brief :
It is a well settled fact that unexplained credit or expenses will be considered as Cash Credits. Where assessee has corroborative and substantial proof of payment received and also have proof of credit worthiness of creditor then presumption of AO that receipt has not been properly explained will not subsist. 

Citation :
ITA 989/2010


Provisions: Section 68 and 260A of the Income Tax Act, 1961

Section 68 is subjected to apply and is applicable when the taxpayer used to maintain the books of account and there is any sum which revealed credited in the books of the taxpayers maintained for the former year and the taxpayer provides no elaboration for these cash credits or elaboration given by taxpayer was not agreeable, then the taxpayer would found guilty beneath the same section and thus the provision of this section will start. All credit entries prompt in the books of accounts of the taxpayer comes beneath this section.

“Reliance can be placed Smt. Shanta Devi Vs. CIT [ 1988] 171 ITR 532 (Punjab &Harayana High Court ). In the abovementioned Case Law, it was held that on perusal of section 68 of the act shows that in relation to the expression ‘Books’ the emphasis is on the word ‘ assessee meaning thereby that such books have to be the books of the taxpayer himself and not of any other taxpayer.”

PLEASE NOTE THAT: The unexplained cash credits are chargeable to tax u/s 115BBE of the Income Tax Act, 1961 at the rate of 60% plus surcharge plus Cess which comes to a comprehensive 78% that too without deduction of any expenses. The real and the major intention of beginning the same provision is to impose the tax at higher rates than the normal rates so that the taxpayer will prevent hiding its income. 

The concern under rising tax rate from 30% to 60% was to ensure the taxpayer who is concealing its income would not be seen as per the other assessee that both disclosed and undisclosed income will be taxed at roughly 30%, to penalize the tax evaders, the tax rate was raised.


Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing] Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year:

Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless

(a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited.
(b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory

Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB)of section 10.


To limit these malpractices and tax evasion, section 68 arrived with timely change in it. The Income Tax Appellate Tribunal (ITAT) of Chennai has ruled in the case Smt. Rita Agarwal Vs DCIT. The addition of Income tax section 68 through dismissing all proofs filed via taxpayer is unsustainable.


The taxpayers conceal their income by diverting the cash receipts and showing the same to unsecured loans or in any additional form in the books of accounts, hence preventing the payment of the tax on the business receipts. The same is the tax theft and hence its outcome is the tax revenue loss of the Indian Government.


1. The present appeal has been filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as "Act, 1961") challenging the order dated 29th July, 2009 passed by the Income Tax Appellate Tribunal (for brevity "Tribunal") in ITA No. 14/Del/2007 for the Assessment Year 2001-2002.

2. Ms. Prem Lata Bansal, learned counsel for the Revenue submitted that the Tribunal had erred in deleting the addition of Rs. 1,70,00,000/- made by the Assessing Officer on account of share application money received by the respondent-assessee during the period under consideration. She pointed out that the Assessing Officer had reached the said conclusion as the assessee had deliberately failed to produce Mrs. Shakuntala Devi and, therefore, the deposits in her account remained unconfronted.

3. However, upon a perusal of the file, we find that the said addition was deleted by the Commissioner of Income Tax (Appeals) [for short "CIT(A)] and the Tribunal on the ground that the assessee had produced substantial evidence to establish the identity and creditworthiness of Mrs. Shakuntala Devi. 


Following the decision of the Supreme Court in CIT v. Lovely Exports (P) Limited15, the Delhi HighCourt held that in the case of share application money, where the persons are identified, theassessing officer cannot come to the conclusion that the moneys belonged to the company withoutmaking any enquiries against the members. The fact that some of the persons did not respond tothe letters of enquiry under section 133(6) does not render the contributors non-genuine. It wasfurther stated that it was for the revenue to pursue the matter in the hands of the share holders.

Reference may also be made to the Andhra Pradesh High Court in the case of CIT v. Lanco
Industries Limited16 at page 360 the Andhra Pradesh High Court held as under:-

"If the ostensible shareholders failed to explain the means of investment, that should have beentreated as unexplained income in their hands. In order to add it to the income of the assessee theremust be a further finding that in fact the shareholders were name lenders and the money allegedlyinvested by them really belonged to the directors of the assessee-company. In the absence of afinding that the persons to whom share certificates were issued on receipt of consideration as per thebook entries were in fact dummies or stooges of the directors of the assessee company, the samecannot be treated as unaccounted income of the assessee."


It is a well settled fact that unexplained credit or expenses will be considered as Cash Credits. Where assessee has corroborative and substantial proof of payment received and also have proof of credit worthiness of creditor then presumption of AO that receipt has not been properly explained will not subsist. 

DISCLAIMER:  The case law presented here is only for sharing information with the readers. In case of necessity do consult with tax professionals.

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