1984 (4) TMI 19 - HC - Income Tax

Taxpayer shifts burden with account-payee cheques and bank evidence; revenue's failure to verify creditors makes income addition unjustified

HC held that the taxpayer discharged the primary onus by producing account-payee cheques, bank certificate confirming encashment, disclosure of creditors ... Addition - Cash Credits - Income From Undisclosed Sources - genuineness of the creditors and the sources of income and the assessee - HELD THAT:- In the instant case, the transactions were completed through account payee cheques. The creditors gave the amount in question to the assessee by account payee cheques which were encashed by the assessee through his own bank. Not only this, the assessee has also submitted the copy of a certificate of the bank to the effect that the cheques in question, given by the creditors, were honoured in favour of the assessee. Even the brokerage amount on the transaction was also paid through cheques. When the assessee disclosed the names of the creditors and the names of the banks on which the cheques were drawn, the assessee discharged the primary onus and the assessee not only disclosed the identity of the creditors but also the sources of income. Then the onus shifted on the Department to verify. The creditors were having bank accounts. Hence, not that they were known only to the bank but they were introduced by a third person to the bank. In view of these facts, it could not be said that the creditors were fictitious persons. As I have already held above that the assessee discharged his primary onus and the onus shifted upon the Department, the Department, on getting materials in hand could proceed to verify whether the creditors were genuine or not. They could also examine the other transactions of the creditors in their respective bank accounts and could have also examined the person who introduced them to the bank and such an examination/verification would have given a correct picture and then if any adverse material was available, the same could have been passed on to the assessee. In my opinion, the assessee having discharged the primary onus, the Department without resorting to verification, could not add the amount as income from undisclosed sources. The question referred for our opinion is, thus answered against the Revenue and in favour of the assessee. Issues involved: The issue involves the deletion of an addition of Rs. 20,000 as the assessee's income from undisclosed sources and the allowance of interest of Rs. 1,318 on the same for the assessment year 1964-65.Summary:The Income Tax Officer (ITO) added Rs. 20,000 as the assessee's income from undisclosed sources due to two deposits of Rs. 10,000 each in the names of individuals from Calcutta. The assessee claimed these were genuine loans repaid through account payee cheques, with interest and brokerage also paid through cheques. The ITO's decision was upheld by the Appellate Authority Commissioner (AAC). However, the Tribunal found that the assessee had proven the loans were genuine, as the cheques were encashed through a bank and the creditors were not fictitious persons. Therefore, the Tribunal deleted the addition of Rs. 20,000 and allowed the interest of Rs. 1,318.The Revenue argued that the assessee did not disclose the identity of the creditors and sources of income, failing to discharge the primary onus. However, the assessee provided details of the transactions, including account payee cheques, which were verified by the bank. The Tribunal held that the assessee had disclosed the identity of the creditors and sources of income, shifting the onus to the Department for verification. As the creditors had bank accounts and were introduced by a third party to the bank, they were not fictitious persons. Therefore, the Department could not add the amount as income from undisclosed sources without verification.The Court agreed with the Tribunal's decision, stating that the assessee had discharged the primary onus by disclosing the identity of the creditors and sources of income. As the Department did not verify the genuineness of the creditors, the addition of Rs. 20,000 as income from undisclosed sources was not justified. The Tribunal's decision to delete the addition and allow the interest was upheld, ruling in favor of the assessee.In a separate observation, another Judge concurred with the decision, emphasizing that all transactions were conducted through account payee cheques, rendering the identity of the creditors irrelevant in this case.