One of the well known principles of law for the establishment of a credit shown in the accounts is that the beginner onus is on the assessee in order to prove such credit only by the establishment of the creditor’s identity, the genuineness or reality of the transaction and the worthiness of the creditor for the credit.
KLR Industries Ltd vs. DCIT (ITAT Hyderabad).
There are some facts of the current case, all that matters is the record that are produced by assessee in the form of confirmation letters for all the creditors with not only the creditor’s identity with their address but income tax (IT) information including PAN details. In this way, the creditor’s identity remains established.
The second element which needs fulfillment is that the transaction should be genuine. As is evident, complete transaction is done through proper banking channel. Thus, when assessee is concerned, the transaction should be genuine in order to be established not only through banking channel but also the source of credit should be proved by the assessee.
The third element which needs fulfillment is the creditor’s creditworthiness, it should be noted that all the creditors must be confirmed of having advanced the cash/money to the assessee but also stated that the amount is out of sources.
(ii) The very first reason for not receiving the explanation of assessee is creditworthiness has not yet been proved. If the Assessing officer or CIT (A) were having any doubt regarding the creditor’s creditworthiness, an enquiry must be triggered by the A.O. in order to find out the actual facts. In the case, the creditor’s identity with their income tax information including PAN number and assessment information was available with the Assessing officer. It is not a difficult for the Assessing officer to verify or check their bank accounts details to ascertain if the advances are from explained sources.
(iii) Though, the primary onus has been discharged by the assessee by establishing the creditor’s identity, the genuineness of transaction through proper bank channel and the actual source from which the amount or credit has come, but the Income Tax department has failed miserably to prove this fact that the creditors are not having the creditworthiness or/and the genuineness of the transaction is false.
Just because the amount/credits have been actually shown or mentioned as share application money in the book of assessee’s accounts, it is not automatically going to lead to the conclusion regarding amount accepted is unexplained credit because the assessee has not successful to establish its claim (that the credit advanced is share application money).