TaxTMI 
TaxTMI 
2004 (6) TMI 268
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....djudication, which are summarised as follows:- (i) Whether there is or was any evidence or legal warrant to support the conclusion that there was any cash credits introduced in the business of the assessee between 5-12-1984 to 29-1-1985. (ii) Alternatively whether there was any evidence to support the allegation of the Income-tax Department that the assessee failed to explain the entries in the Register found and impounded at the time of survey in the face of books of account, which have been audited by the Chartered Accountant and which have been accepted as correct when original assessment was framed under section 143(3) of the Act. (iii) Again alternatively, whether it could be said that the assessee failed to explain the entries in the Stock Arrival Register and/or the entries in the said Register could not be co-related with the books of account. (iv) Whether there was any evidence to support the conclusion that the expenditure alleged to have had been incurred between 5th December, 1984 to 29th January, 1985 i.e., for 55 days was liable to be assessed under section 68 and/or under section 69B and or section 69C of the Act. 3. At the outset, Shri G.C. Sharma, Sr....
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....ime) declaring income of Rs. 3,80,660 against which taxable income was computed at Rs. 3,92,912 and after adjustment of registered firm tax of Rs. 90,340 balance income of Rs. 3,02,570 was allocated between the partners on 30-11-1987. Date of filing the return as also the date of framing of the assessment were particularly referred to for the assessee. 7. Keeping in view of the nature and controversy, the accounting period involved, the constitution of the firm and that the Forests had come to be nationalised in the J.&K. State in 1984, it is considered expedient to notice the relevant portion of the first para of the original assessment order:- "The assessee is a forest lessee. It has maintained the accounts which are closed and duly audited by the Chartered Accountant. The accounts are supported by balance sheet and profit and loss account. After discussion total income of the assessee is computed as overleaf." 8. We need not go to minor additions, which were in Charity Account amounting to Rs. 1,500, 1/4th of the car expenses and related depreciation, and some other petty expenses disallowances. In other words books after scrutiny were found in to be in order and this a....
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....Photocopies of their statements have been given to us by the Department through its Sr. D.R. Shri J.S. Arora, vide paper book dated17-3-1992containing 51 pages. At pages 28 to 31, photocopy of statement of Shri Baldev Raj dated 25-11-1988 is available, pages 32 & 33 contain statement of Hazi Nazir Hussain dated 21-10-1988 and pages 26 to 27 again statement of Hazi Nazir Hussain recorded on 7-12-1988. Additionally the Department has again annexed copies of the said two partners' statements at pages 41 onwards statement of Hazi Nazir Hussain dated21-10-1988(pages 47 to 48), statement of Shri Baldev Raj of25-11-1988(pages 43 to 46) and statement of Hazi Nazir Hussain dated7-12-1988(pages 41 to 42). Page 50 is copy of the statement of Shri Baldev Raj taken on12-10-1988, which is the date of Survey. Page 51 is a photocopy of authorisation under section 133(1)(b) of the Act issued by the Competent Authority. 12. For the assessee, paper book was submitted vide covering note dated18-12-1991consisting of 76 pages. In addition, the assessee filed copies of the assessment orders for the earlier and the later years and particularly our attention was invited to the order for the assessment y....
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....d by me under section 131 after Survey Operation. Do you agree that they are correct books of a/c on the basis of which you have filed the I.T. returns for the Assessment years 1985-86 & 1986-87? Ans. Yes, I agree that these are correct books of a/c reflecting the genuine transactions for these years and the returns of income have been filed on the basis of these books. Q. How much time you want for filing the final reply on this issue? Ans. Please grant me 15 days time and fix the hearing on14th Nov., 1988. In the meantime please supply me photostat copies of the register. Q. What do you want to say about the arrival of timber entries in this book? Ans. According to me they must be genuine but I have to check up with the Accountant because it was he who entered the transactions in this book. Whatever has been stated above is true and correct to the best of my knowledge and nothing has been concealed. Sd/- (Hazi Mir Nazir Hussain) 21-10-1988." 15. Next Hazi Nazir Hussain was again examined under section 131 of the Act on7-12-1988and such statement also must be closely looked into and therefore reproduced below because whereas for the Revenue, it was very ....
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....ted above is true to the best of my information and knowledge. Sd/7-12-1988 (Hazi Nazir Hussain)." 16. Coming to the statement of Shri Baldev Raj, which, was recorded on25-11-1988, it transpired that he was present when survey was conducted and his statement recorded and at that time regular cash book of1-4-1987to31-3-1988was being mentioned and it was emphasised that there were no accounts maintained for the period from1-4-1988. Naturally, when the business had been closed there could be none. Shri Baldev Raj appeared on13-10-1988when notices under section 131 of the Act were issued Hazi Nazir Hussain for21-10-1988when he complied. It seems that Hazi Nazir Hussain was asked to appear on25-11-1988but since he was out of station, Shri Baldev Raj attended and submitted that he was not aware of the contents of the Register nor he could explain the same because the entries were written by the Accountant. On persistent questioning he stated that if there was any wrong entry it must be done by the Accountant. Some vouchers were required which he submitted that he would bring on6-12-1988. On7-12-1988, Shri Hazi Nazir Hussain appeared. 17. We are detailing the above to show tha....
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.... Freight 12089-40 Telegram 15-00 Taxi Exp. 15-00 Yousaf: Gouri 25 25 50-00 ....
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....nbsp; Bashir Ahmed 20-00 --------- 23167-40 Balance &nb....
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....f number of trucks etc. 23. For the Revenue, naturally, Shri Arora emphasised and relied on the reassessment order as also the impugned CIT(A)'s decision and submitted that the assessee had utilised unaccounted for money between 5-12-1984 to 29-1-1985 and withdrew money from its bank to show as to nothing was wrong and that the business activities and related entries in the books were normal transactions. 24. The assessee's submissions on merits of the entries in the Register before the CIT(A) in a summary manner, were that the provisions of section 68 of the Act were not attracted as no sums were found credited in any one's account in the books of account maintained regularly and which formed the basis of original and reassessments. The system of expenditure followed by the appellant from year to year had been that liabilities on account of expenses especially at the Head Office Jammu were paid after a fortnight or a month or so when required amount was withdrawn from Bank and disbursements made. The expenditure such as freight of timber etc., was normally paid periodically when representatives of the Transport Companies with whom individual operators were attached, used to ....
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....t period was without any basis or logic. After all the actual amount of expenditure had been withdrawn from the Bank. To verify the contention of the appellant the system followed in earlier year and subsequent years need be gone into. 25. We are inclined to accept the above stated arguments and we do so because factual aspects were not denied and a copy of the entry of 29-1-1985 in the Register which was provided by the Revenue is in the following term and according to us clinches the issue in favour of the assessee:- "Cheque of Expenses Rs. 3,70,401-40 encashed on 29-1-1985. Total expenses 4,30,401.40 already cheques encashed. 60,000-00 ------------....
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....s framed are given in the negative. 31. In the result, the assessee's appeal is allowed. Per R.K. Bali.- I have gone through the proposed order dated24th August, 1992 passed by my learned brother, JM, in ITA No. 716 (Asr.)/1990, but I have not been able to pursuade myself to agree with the conclusion relating to the deletion of addition of Rs. 4,38,284 made by the Assessing Officer and confirmed by the learned first Appellate Authority on account of cash credits introduced by the assessee firm in its Rough Cash Book as found recorded on the pages of "National Long Exercise Note Book" superimposed with the remarks arrival of Timber, 84-85. 33. At page 10, para 22 of my learned Brother's proposed order, the entries of 5th and 7th December, 1984, in the disputed register, have been reproduced which indicates that a sum of Rs. 16,832.60 was to be carried forward on the next date. The next entries in the "National Long Exercise Note Book", disputed Register will clearly indicate that it was actually a Rough Cash Book where receipts in the form of cash, Dasti were shown on the Receipt side an disbursement on accounts of freight paid, other expenses were shown on the Expenditure ....
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....nbsp; 21298.00 Freight Depot 20463.80 Freight Depot 2790.20 &....
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....nbsp; 78869.20 Cash at office 502.40 -------- &nb....
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....sp; 19286.40 Tea expense 5.00 With Haji Ji 13030.00 Photostat 2.00 -------- -------- 6256,40 &....
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....; Stationery purchased 249.50 Tea exp. office 7.00 -------- &....
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.... Telegram Doda 5.00 Three-wheeler exp. for Depot. 10.00  ....
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.... -------- 13570.50 Purchase Bulb etc. 70.10 Purchased Stationery for Depot. 12.00 ....
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....; --------- 19/12 Cash 1230.00 19-12-1984 C.C. Forest 5000.00 Cash Reed. 10000.00 R.L. Kotwal 4000.00 Cash Reed. 5000.00 through Subash ....
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....p; 1703.80 -------- 20230.00 &n....
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....; --------- 26703.80 --------- 22-12-1....
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....nbsp; --------- 19619.60 &nb....
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....p; 18950.00 Mushtaq Rather 500.00 -------- 12724.00 &nb....
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....; -------- -------- 16226.00 14916.80 Cash 1309.20 ....
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....nbsp; 31309.20 Freight paid 27 trucks 25092.10 -------- -------- &....
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....sp; 10470.60 -------- 15116.60  ....
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....sp; -------- Jamit Singh 10000.00 32108.80 Ramban -------- 19662.10  ....
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....sp; Purchased Coat etc. 340.00 -------- 4028.70 8-1-1985 Cash balance 4368.70 8-1-1985 Freight paid &nbs....
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....bsp; 16368.70 16368.70 -------- -------- 9-1-1985 Cash balance 10764.70 9-1-1985 Freight 4 3720.80 Recd. 5000.00 trucks &nbs....
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....p; 7536.10 Balance 19007.80 --------- -------- 26543.90  ....
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....; Cash balance 16813.00 -------- 13-1-1985 Cash 16813.00 13-1-1985 Bill Travelling 50.00 Cash Recd. 10000.00 Nazir &nbs....
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....bsp; -do- 19.00 -do- 19.00 -do- &nb....
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....nbsp; 13223.20 Cash balance 18749.80 --------- &n....
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....nbsp; 13019.60 Cash balance 15730.20 -------- &nb....
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....; 2.00 -------- 5593.80 &....
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....p; 15136.40 Mushtaq Rather 100.00 for Doda TA Freight paid 9 trucks 8561.40 &nbs....
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....nbsp; Sharma Forest A/c 100.00 -------- 11317.10 Cash Recd. 5000.00 Telephone Bill 5869 8.00 -------- 16317.10 Medicine 16.00 &nb....
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....nbsp; Clerk Forest Bhagad 100.00 Telephone Deptt. 50.00 Freight 4 trucks 3712.40 &nbs....
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.... Cash Recd. 10000.00 Mushtaq Hussain 1000.00 Cash Recd. 10000.00 Rather -------- Bashir 100.00 25026.90 Tea Exp. 7.50 ....
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....; 25026.90 -------- 22-1-1985 Cash balance 1406.40 22-1-1985 Optician for TTO 270.00 Cash Recd. 10000.00 Cash Recd. 10000.00 Coal 51.30 &n....
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.... --------- 21406.40 --------- 23-1-1985 Cash balance 3717.90 24-1-1985 Freight paid 11146.80 Cash Recd. 5....
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....; 14746.90 --------- 24-1-1985 Cash balance 3593.60 24-1-1985 Freight paid 929.00 Cash Reed. 10000.00 Nazir Hussain Mir 1000.00 &n....
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.... 3339.20 --------- Cash balance 12354.40 27-1-1985 Cash balance 12354.40 27-1-1....
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....sp; --------- Balance 370401.40 --------....
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....sp; --------- 30208.40 Freight paid 17801.00 --------- Misc.Exp. 7.50 &nb....
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....ji Nazir Hussain, partner of the assessee firm at the time of hearing on2-2-1989, before the Assessing Officer, which is quite evident from the Order Sheet Entry of that date. 35. The conclusion of my learned brother, J.M., in para 13 of his order that the statements given by Hazi Nazir Hussain partner favours the assessee's version is not correct, because in answer to question No. 2 of statement dated 7-12-1988, reproduced at page 8 of the proposed order of my learned brother, Hazi Nazir Hussain has stated as under:- "On a cursery verification, I have found that after30-1-1985, the entries regarding the cash credit can be co-related with my books of account. As already stated above all expenditure entertain can also be co-related with my books. But I cannot tell you exactly about the entries regarding the cash credits before30-1-1985as I am still unable to trace out my Accountant." 36. The above statement clearly proves that the entries made in the 'National Long Exercise Note Book', actually relate to the business transactions of the assessee firm and it is conclusively proved, if we make a reference to the order sheet entry dated 2-2-1989, furnished at pages 22 to 24 of....
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....rned is 1985-86. Sd/-AO Sd/- Haji Nazir Hussain 2-2-1989 I have checked the calculations mentioned in this Annexure regarding the computation of the credit (peak) and I have found it correct. Sd/- A.N. Raina Accountant M/s. Hans Raj Bharat Bhushan Shri Haji Nazir Hussain was once again asked the source of cash introduced for Dec. & Jan. to which again he explained his inability to explain the sources. After the first peak credit of Rs. 438284 he stated that the cash introduced is out of the cheques shown in the cash book for office expenses. The case is refixed for hearing on7-2-1989at10 A.M. Sd/- Hazi Nazir Hussain 2-2-1989" Thus a combined reading of the statements of Hazi Nazir Hussain recorded on 21-10-1988, 7-12-1988 and the Order Sheet Entry dated 2-2-1989 clearly indicates that the various entries of expenses in the 'Long National Exercise Note Book were made vis-a-vis vouchers as well as the regular Cash Book. However, in the regular cash book the assessee has debited the consolidated entries relating to the expenses. In the regular cash book only receipt on account of cheques were shown while the cash receipts shown in the disputed No....
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....n 5-12-1984 and 29-1-1985, is rather strange, and has been made without appreciating the fact that the cash credits introduced beyond 29-1-1985 could be reasonably explained out of the withdrawals of Rs. 3,70,401.40, which was available with the assessee on account of encashment of cheque on the relevant date and which is also the explanation given by the assessee and accepted by the Assessing Officer as is clear from the order sheet entry dated 2-2-1989 reproduced in para 33 above and marked 'X'. 40. The Assessing Officer has in a very well reasoned and lucid order discussed the facts relating to the addition of Rs. 4,38,284 by invoking the provisions of section 68 and it will be useful to reproduce para 2 of the assessment order to project the reasoning and the basis of addition of Rs. 4,38,284. "2. At the time of hearing I had examined all the entries in the note book vis-a-vis those in the cash book. Some of the entries recorded in the note book as receipts from cheques withdrawn from the bank were tallying with those in the regular cash book but the other cash entries in December 1984 and January, 1985 which are shown as receipts in the note book and the details of which....
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....hand-writing in the note book could not tally with that of the partners Shri Haji Nazir Hussain, or Shri Baldev Raj or the present Accountant Sh. A.N. Raina could not say with full certainty that the assessee only has written the note book. But the fact remains that it might be to the assessee's advantage in the background of this particular case not to produce the real person who has made these entries. But in any case that does not help the partners as regards the liability of tax, penalty or prosecution because the note book was found at the business premises of the assessee. No body could anticipate the survey operation which was conducted by me and hence it cannot be said that bogus book was deliberately placed at the business premises of the assessee. Secondly the note book does contain the real facts as regards the business transactions of the assessee. Otherwise as contended by Shri Haji Nazir Hussain himself entries relating the expenses could not have tallied with those recorded in the regular cash book. There are certain receipts by way of cheques shown in the note book which also tally properly with those recorded in the cash book. The only entries which do not tally wi....
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....s well as the learned first Appellate Authority were perfectly justified in holding that the Note Book "National Long Exercise Note Book" superimposed t\s 'Arrival of Timber-34-85' reflected the true and correct state of affairs of the assessee's business and since the assessee has not given any explanation with regard to the cash credits, the peak of which worked out to Rs. 4,38,284, the same has to be treated as the income of the assessee under section 68 of the Income-tax Act, 1961. 43. Before concluding, I would like to meet the argument of Sh. G.C. Sharma, Advocate, learned representative of the assessee that in the disputed period 10-12-1984 to 29-1-1985 the assessee was having substantial deposits in its banks and as such the assessee has no need to introduce its black money or a short period to meet the expenditure as reflected in the rough Note Book, which argument appears to have influenced the decision of my learned brother, JM. 44. The nature of impulsions that push men to the paths of avoidance and evasion is not very complex. Love of money is basic human trait, and money is the root of the evil of evasion, and of avoidance to the higher the income, the steeper t....
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....961 1. There were three issues for consideration before the Tribunal (i) with regard to the addition of Rs. 4,38,284 added in the assessment under section 68 of the Income-tax Act, 1961, hereinafter referred as the Act; (ii) addition of Rs. 20,000 out of expenses made on the ground that there were lack of details and vouchers and (iii) levy of interest under section 217 of the Act. 2. For the reasons recorded in the proposed order by the Judicial Member addition of Rs. 4,38,284 has been held to be wrong arid unjustified both on factual and legal ground. The addition of Rs. 20,000 also came to be vacated. The assessee's contention in relation to levy of interest was also accepted because the additions were held to be bad. 3. On the other hand, one of us i.e., the Accountant Member has held that addition of Rs. 4,38,284 rightly came to be made and confirmed under section 68 of the Act. On the question of deletion of addition of Rs. 20,000 the Accountant Member has agreed with the decision of the Judicial Member. In respect of charging of interest, according to the Accountant Member, the assessee would be entitled to consequential relief after giving effect to the order final....
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.... balance of Rs. 16,832.60 on10-12-1984. On the right hand side, cash payments are recorded while on left hand side cash receipts are recorded. There are certain entries by cheques also. On the basis of such note-book, the assessment was reopened under section 147. Since, according to Assessing Officer, assessee could not explain the source of various cash receipts in the note-book, the peak amount was worked out at Rs. 4,38,284 and accordingly, an addition of Rs. 4,38,284 under section 68 was made vide order of assessment dated7-2-1989. While completing the assessment, the Assessing Officer also charged interest under section 217. The CIT(A) confirmed the order of assessment vide order dated28-3-1990. Aggrieved by the same, the assessee filed second appeal before the Tribunal. 3. Before the Tribunal, the learned counsel for assessee, Mr. G.C. Sharma, submitted that he had no objection if the revenue was to suggest that addition should be supported by the provisions of section 69B/69C of the Act. However, the learned DR maintained that addition was to be made only under section 68. Apart from the factual submissions (which are not relevant in this reference), the legal contention....
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....only. It would mean complete record which a businessman is required to maintain to record his day to day transactions. According to the well settled principles of accountancy, each transaction is required to be treated under two heads - under one head, debit entry is made while under the other hand, credit entry is to be made. For example, if money is received from 'K' then cash account is to be debited and account of 'K' is to be credited by the same amount. For the same reason if any sum is introduced in the books by the assessee from his own sources then cash account is debited while assessee's own account has to be credited. Cash book is nothing but the cash account which is debited if money is received and is credited if money is spent or invested by the assessee. In such cases, corresponding credit or debit entries are to be made by assessee in respect accounts. If such entries are not made, the accounts of assessee would not tally. Therefore, failure on the part of assessee to make credit entry in the respective account would not entitle the assessee to claim that no account is credited (sic). The assessee cannot be allowed to take undue advantage of his own lapses/mistakes.....