Case summary, Income Tax

Is it incumbent on the assessee to prove genuineness and creditworthiness of investors in investments received in cash?

Case Name: Deepak Petrochem Ltd. V. DCIT

See Similar case: CIT v. Ajay Kumar Gupta


  • The assessee filed its income tax return for the AY 2002-03, declaring total loss of INR 29,31,379.
  • Authorities scrutinized the aforementioned return and it was revealed that the authorized share capital of the assessee had been increased to INR 3 crores as against INR 1 crore and that the assessee had taken share application money from 273 applicants out of whom 272 had paid in cash.
  • AO asked the assessee to furnish details regarding the identity of the creditors, their credit-worthiness and the genuineness of the transactions.
  • The assessee failed to furnish satisfactory details, AO consequently, sent notices but they were returned un-served.
  • AO added a sum of INR 1,46,98,600 to the taxable income after setting off losses of previous years.
  • In the absence of a satisfactory reply from the assessee, the AO initiated penalty proceedings under section 271(1)(c) against the assessee and levied a penalty of INR 52,48,000 for furnishing inaccurate particulars of income.
  • Assesse appealed to the CIT(A), but CIT(A) confirmed the AO’s order.
  • Hence, Assessee has filed an appeal before the ITAT.

Revenue’s Arguments

  • The assessee failed to provide any explanation, as to the inquiries made by the AO.
  • Revenue relied on explanation 1 to section 271(1)(c). This is a deeming fiction, wherein with respect to any facts material to the computation of the total income, if the assessee fails to offer an explanation or gives a false explanation and where the assessee is not able to substantiate the explanation and fails to prove that the explanation is bona fide, it is deemed that the amount which is disallowed or added in computing the total income, represents the income whose particulars have been concealed.

Assessee’s Arguments

  • The assessee had shared the addresses and details of the share applicants and it was the AO’s duty to verify the same.
  • AO failed to prove that the share application was false.
  • AO relied on six judgements to substantiate their case.

Tribunal’s Judgement

  • The Tribunal relied on Explanation I to Section 271(1)(c) for its judgement.
  • The assessee did not give any explanation. It just submitted that it received share application money in cash from 272 applicants but their names and addresses were not furnished correctly, as the notices served were returned.
  • No details regarding the money were furnished. Money was taken in cash and not through banking channels.
  • Neither the genuineness of the transaction nor the creditworthiness of the creditors or their identities was satisfactorily proved by the assessee.
  • The tribunal, hence concluded that in such a situation, it can be construed that the AO has proved the explanation tendered by the assessee as false.
  • The six judgements relied upon by the assessee were held to be not applicable to the current fact situation.
  • Consequently, the tribunal dismissed the assessee’s appeal.

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