The Income Tax Appellate Tribunal (ITAT), Cochin bench has held that mere production of the confirmation letter by the partners of the Firm is not sufficient to prove the genuineness of cash credits for the purpose of Section 68 of the Income Tax Act, 1961.
In the instant case, the department, on verification of the books of accounts, found that the assessee had made various cash credits into its books in the names of its partners. As the assessee failed to take any efforts to substantiate the sources of cash credits into its accounts, even after giving ample opportunities and time, the AO considered that the assessee had no valid source and hence, the total cash credits amounting to Rs.58,33,000/- was treated as assessee’s income under section 68 of the Income Tax Act.
The assessee- Firm contended that there cannot be any tax liability on the part of it as the above amount was contributed by the partners who were assessed to income tax with the same AO and all the partners confirmed the introduction of capital by them through confirmation letters.
The department, on the other hand, submitted that even it is considered that the assessee has discharged its onus to prove the identity of the partners, the genuineness of the transaction cannot be verifiable and the creditworthiness of the partners cannot be established. It is not known whether the capital has been introduced by the partners or someone else.
Rejecting the contentions of the Assessee-Firm, the Tribunal noted that it is the primary duty of the assessee to establish the identity of the parties, the capacity of the lenders and the genuineness of the transactions.
“If the assessee files only confirmation letters and offers no explanation regarding nature and source thereof, the explanation offered by the assessee cannot be considered as satisfactorily explained before the AO. Then the sum so credited is to be treated as unexplained credits. In the present case, though the amount was contributed by the partners as their capital introduction, only confirmation letters from the partners cannot prove all the ingredients of section 68 of the Act and it will only prove the identity of the lenders. In our opinion, the assessee has to place necessary evidence regarding the nature and source of credit by filing corresponding financial statements along with the income tax returns of the concerned partners before the AO,” the bench said.
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