In CIT v. Prem Anand, the Delhi bench of the ITAT held that the Assessing Officer has no power to examine the source of source in non-share capital cases since the amendment in section 68 of the Income Tax Act w.e.f 01.04.2013 empowers him only to verify the genuineness of share application money.
The bench further held that if the assessee has established the source, genuineness and creditworthiness of the money received by him, the Assessing Officer cannot ask for further details regarding the source of source of such money.
The assessee received loan from two persons. As the Assessing Officer asked him to prove the creditworthiness ad genuineness of the returns, the assessee submitted the documents including the IT returns and the bank account details of the two persons. On scrutiny of the documents, it was transpired that the two persons had sufficient balance in their bank accounts throughout the relevant years.
The AO, further enquired about the source of the source of fund given to the assessee. However, assessee failed to establish the same and accordingly, the amount was treated as the unexplained cash credit of the assessee. On first appeal, the CIT(A) allowed the appeal of the assessee holding that since the assessee has proved the genuineness and creditworthiness of the amount received by him, no addition can be made. Dissatisfied by the order, the Revenue approached the ITAT.
The division bench observed that the assessee has discharged her onus of proving identity, the source of loan and the genuineness of as required under section 68 of the Income Tax Act.
The bench noted that it is a settled law that the assessee is not answerable to explain source of source of the fund. It was held that the loans aggregating to Rs.38,50,000/- cannot be charged to tax in the Assessee’s hands u/s 68 particularly in absence of any contrary evidence brought on the record by the AO.
“Hence, we find that Ld. CIT(A) has rightly observed that the assessee is not required to explain source of source of the fund gets buttressed by the amendment made in section 68 with effect from 01.04.2013, which empowers the AO to examine source of source in case of share application money from 01.04.2013 and no other cases prior to that. This amendment further does not give power to the AO to examine source of source of non-share capital cases and that too prior to 01.04.2013. Undisputedly, the assessee has given complete addresses and credit worthiness of the persons from whom she has taken loans.”
Read the full text of the Order below.
