In Sunil Thomas v. ITO & Anr, the division bench of the Kerala High Court ruled that mere establishing identity of creditors would not validates that the assessee had discharged burden of proof under section 68 of the Income Tax Act, 1961.
Dismissing an appeal filed by the assessee, against the order of the ITAT, Kochi, the benchsaid that it is the duty of the assessee to prove the genuineness of the transaction under section 68.
The assessee, an individual, received cash from his brother. The AO completed assessment against the assessee on ground that he failed to prove the genuineness of the transaction and the capacity of the donor, to advance the money as required under Section 68 of the Income Tax Act. During the course of proceedings, assessee produced bank details showing that the cash was transferred from the bank account of his brother. However, he could not produce any evidence to prove that his brother had capacity to gift the amounts gifted to his brother or that the transaction was genuine.
The assessee contended that since the identity of the donor has been revealed to the Department,the Assessing Officer ought to have accepted the explanation offered by the assessee and exempted the amount from the assessment under Section 56(2) of the Income Tax Act.
The bench noted that the identity of the donor,was not a matter of dispute in the present case. The authorities confirmed the assessment against the assessee mainly for the reason that he has failed to prove these requirements of section 68.The bench pointed out that as per section 68, where any sum is found credited in the books of the assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee 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. “Therefore, it is the duty of the assessee to offer explanation about the nature and source of any sum found credited in the books maintained by him for the previous year or if the explanation offered by him is not found satisfactory to the Assessing Officer, the sum credited in the books of accounts of the assessee may be charged to income tax as the income of the assessee of that previous year.”
The bench clarified that in order to escape from tax liability, the assessee have to prove the genuineness of the transaction and the creditworthiness of the creditor ought to have been proved by the assessee by producing necessary documents with respect to the monetary ability of the creditor to make such substantial gifts to the assessee.
Read the full text of the Judgment below.