Calcutta High Court ruled that additions under Section 68 of the Income Tax Act must be grounded in evidence about the nature and source of credits. Mere non-rebuttal by the assessee is insufficient without incriminating material.
Calcutta HC Cautions Against Mechanical Additions Under Section 68
The Calcutta High Court has held that tax authorities cannot make additions under Section 68 of the Income Tax Act mechanically, merely because the assessee fails to fully explain a credit. The court emphasised that the nature of the credit and the material available during the assessment year must be scrutinised before classifying it as unexplained.
In the case, the revenue alleged unexplained cash credits, but the court found no adverse evidence linking the amounts to undisclosed income. Quoting prior precedents, the bench noted:
“Section 68 does not permit a presumption of illegality solely from non-rebuttal; there must be some incriminating material pointing to a fiscally undesirable source.”The court directed the Assessing Officer to re-evaluate the credit in context with bank statements, business profile, and loan documentation.
This ruling is critical for tax practitioners challenging unexplained credit additions. It reaffirms that the burden of proof, though relaxed under Section 68, does not obliterate the requirement for a prima facie case. Assessments relying solely on silence without corroborative material may be vulnerable to judicial intervention.
Citations
- CIT v. Rajendra Prasad Agarwal (2018) 402 ITR 1 (SC)
- Shamim Ahmed v. CIT (2021) 128 taxmann.com 123 (Cal)
