Tax Case laws on Burden of Proof

Seetharamamma v/s CIT 57 ITR 532

Where however a receipt is of the nature of income, the burden of proving that it is not taxable because it falls within an exemption provided by the Act lies upon the assessee.

CIT VS Ramakrishnavdeo :35 ITR 312 -SC

The law is well settled that it is for a person who claims exemption to establish it, and therefore, it was for the assessee to prove that the income sought to be taxed was agricultural income exempt from taxation

CIT VS Sati oil udyog ltd: 372 Itr 746 SC

The burden of proving that the assessee has attempted to evade tax is on the revenue which it has to discharge by establishing facts and circumstances from which a reasonable inference can be drawn that, in fact, attempted to evade tax lawfully payable by it.

Burden to Prove Genuineness of Expenses

In the case of Pr. CIT versus Chawla Interbild Construction Company Private Limited (2019) 412 ITR 152 (Bom.), the hon’ble Bombay High Court has reiterated an important principle regarding burden of proof which lay on the assessee to prove the genuineness of the transaction. The Court has held that the assessing officer cannot compel the assessee to produce the payee if the assessee is unable to do so.

It is a matter of experience that the revenue authorities seek detailed information for the claims of expenses made by an assessee, while scrutinising the return of

income. Often these transactions have been incurred at least two years before the date when the scrutiny proceedings commence. The assessee has no option but to place reliance upon the documents in its possession to prove the genuineness of the transaction under scrutiny. Often these documents are in the nature of bills, details of payment made, details of TDS deducted, PAN number of the payee and his address. However, the assessing officers often insist the assessee to produce the payee for the purpose of recording his statement or making direct inquiry.

Mumbai High Court in CIT v. U M Shah 90 ITR 396 (Bom.) the Bombay High Court held that if in response to the summons issued by the Assessing Officer, the creditor did not appear, no adverse inference can be drawn against the assessee. Reiterating a similar position very recently the Bombay High Court in the case of Pr. CIT v. Chawla Interbild Construction Company Private Limited (Supra) held that the respondent assessee had done everything to produce necessary evidence which would indicate that the payments have been made to the parties concerned. The details furnished by the assessee were sufficient for the Assessing Officer to take further steps if he still doubted the genuineness of the payments to examine whether or not the payment was genuine. Further, the Assessing Officer did not carry out the necessary enquiries on the basis of the PANs which were available with him to find out the genuineness of the parties. The Commissioner of Income Tax (Appeals) as well as the Income Tax Appellate Tribunal correctly held that it is not possible for the assessee to compel the appearance of the parties before the Assessing Officer.

A similar view was earlier taken by Calcutta High Court in the case of CIT v. Carbo Industrial Holdings Ltd. (2000) 244 ITR 422 (Calcutta) where in the brokers who had carried out the share transaction did not respond to the summons issued by the Assessing Officer. The hon’ble High Court held that the assessee cannot be faulted with where a third party is not cooperating with the department.

The assessee do have an obligation to prove the genuineness of an expense. However, having furnished all possible documentary evidence in his possession, he is not expected to conclusively prove such transaction to the hilt until the Assessing Officer is satisfied. Merely because the payee did not appear before the Assessing Officer or did not respond to the summon issued by the Assessing Officer does not render otherwise good documentary evidence into a bad one. The fact remains that such documentary evidence remains unrebutted and reflect the best what an assessee can do in a given situation. Therefore, the courts have held that the burden on the assessee stood discharged once he has submitted all possible evidence in his control which are sufficient for AO to make inquiries if he doubts the genuineness of transaction on the basis of such documentary evidence.

In a very early decision of Allahbad HC in the case of Nathu Ram Premchand v. CIT (1963) 49 ITR 561 (All.), the Hon’ble High Court held that the power given to AO under S.131 for issuing summons is an enabling power and must be  used by an AO where the assessee makes a request to the AO to use it and collect details from the payee directly.

Where purchases are found to be genuine and suppliers not responding / available. Assessee submits all evidences in support of genuineness mainly quantitative details, Excise records, payment particulars by cheques, no addition.

‾ Adinath Industries 252 ITR 476 (Guj.)

‾ CIT Vs. Nikunj Exim Enterprises Pvt. Ltd. 372 ITR 615 (Bom.)

‾ CIT Vs. M. K. Bros 163 ITR 249 (Guj.)

‾  ITO V. B. Totaram  B. Sharma  - T.A. No. 1344  of 2008 dated 09.02.2010   (Guj.)