Onus of establishing source of source u/s 68 does not fall on the assessee

The facts in brief are that return of Nil income was filed by the assessee on 30.11.2006 and the case was selected for scrutiny. As there was no response from assessee summons u/s 131 of the Act was issued to the Principle Officer of the assessee on 05.12.2008 for his personal deposition and to furnish the copy of returns for the assessment year 2005-06 and 2006- 07, copy of bank statement for the period 01.04.2005 to 31.03.2006 and to produce complete books of accounts. However, no response was received accordingly notice u/s 142(1) along with questionnaire was issued but still as there was no response so the unsecured loan of Rs. 2,20,00,000/- reflected in the balance sheet was considered to be unexplained credits u/s 68 of the Act and assessed to income. In appeal, the ld. CIT(A) called for remand report from the Ld. AO who after conducting inquiries from the creditors Shri Jawahar Lal Jaiswal submitted report but the ld. First Appellate Authority being not satisfied with the explanation of source dismissed the appeal.

Aggrieved, assessee preferred an appeal before the tribunal questioning the impugned order of CIT(A) in not considering the remand report given by Ld. AO and the relevant evidence of the assessee explaining the source.

ITAT observed that the Ld. Tax Authorities below have not disputed the financial standing and worthiness of Sh. Jawahar Lal Jaiswal, as a matter of fact, who as per the counsel for assessee is a former Member of Parliament. But questioning his transactions with other companies has found the money in the hands of Assessee to be unexplained. Thus, it can be concluded that the ld. Tax Authorities have tried to strip bare transactions of the creditor, Sh. Jawahar Lal Jaiswal, but there being no conclusive finding on evidence that the assessee company may have received its own unaccounted money through these transactions of it’s source, Sh. Jawahar Lal Jaiswal. ITAT in its order held that the settled proposition of law so far is that when identity of creditor is established then the assessee is not under obligation to establish the source of source of the creditor. It is for this reason that now an amendment has been brought in Section 68 of the Act and which is to take effect from 1st April, 2023 to apply in relation to the assessment year 2023-24 and subsequent assessment years, where by it is provided that the nature and source of any sum, whether in form of loan or borrowing, or any other liability credited in the books of an assessee, shall be treated as explained only if the source of funds is also explained in the hands of the creditor or entry provider. In this case even the source of source was explained or to say discovered by the Ld. AO during the remand proceedings but then by putting suspicion on the transactions of the source of source, the amounts in the hands of assessee have been considered to be unexplained credits u/s 68 of the Act. Thus, the grounds raised are sustained. The appeal is allowed and the impugned order of Ld CIT(A) and the addition made u/s 68 of the Act are set aside.

To Read Judgment Download PDF Given Below: