As per section 68 of the Income Tax Act, 1961 “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 Income Tax Officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year.
Where certain sums of money were claimed by the assessee to have been borrowed from certain persons, it was for the assessee to prove that there were genuine loans.
The scope of sec. 68 is wide enough to cover all credits, including cash receipts, loans and credits of any such nature found in the books of assessee. There is no requirement that books of accounts must be rejected before making an addition u/s 68 of the Income Tax Act, 1961.
Section 68 does not make any distinction between commercial loans and non-commercial loans and in both types of loan explanations, the onus lies on the assessee to prove the genuineness.
Books or books of account includes ledgers, day books, cash books, account books and other books whether kept in written form or as print outs of data stored in floppy, disc, tape or any other form of electro magnetic date storage device. Loose sheets or scraps of paper cannot be termed as book for they can be easily detached and replaced. Bank Pass Books can’t be considered as books of accounts for the purpose of sec. 68. Similarly, the financial statements such as profit & loss account and balance sheet are not books of accounts.
For the purpose of sec. 68, the assessee must prove before the assessing officer (a) the identity (b) genuineness and (c) credit worthiness of the person whose credit is in books of accounts.
An addition u/s 68 is not justified when all the depositors had filed confirmations letters and the assessing officer dit not make any further investigation to ascertain the genuineness of the deposits.
In an enquiry u/s 68 of the Income Tax Act, the assessee must be given a reasonable and fair hearing to discharge the burden cast on him.
In case where share application money was received by the asssesse company and assessee had provided identity of parties, genuineness of transactions and credit worthiness of share applicant, the Hon’ble Gujrat High Court had held that Tribunal was right in deleting additions make u/s 68 after appreciating, evidence on record as it was a case of finding of facts and there is no substantial question of law.
(Ref. :- CIT vs Ujala Dyeing & Printing Mills Pvt. Ltd. ITR Vol. 328/2010)
Similary Hon’ble Delhi High Court in the case of CIT vs Orbital Communications (P) Ltd. / ITR Vol. 327/2010 had held that when substantial evidence were produced by the assessee to prove credit worthiness of creditors and genuineness of share application thatn failure to produce creditor is not material.