TaxTMI 
TaxTMI 
2008 (1) TMI 442
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....Centre, Sector 8, Rohini and had taken loans from nine persons to finance these investments. The details of the loans are as follows: (i) Hari Chand Rs. 2,00,000 (ii) Hari Singh Rs. 2,00,000 (iii) Mahasukh Rs. 50,000 (iv) Nirmala Devi Rs. 1,00,000 (v) Rajpal Singh Rs. 2,00,000 (vi) Sushil Kumar Rs. 50,000 (vii) Balraj Singh Rs. 2,00,000 (viii) S.S. Mann Rs. 7,25,000 (ix) Nirmala Mann Rs. 2,00,000 ------------- Total Rs. 19,25,000 ------------- Out of the above creditors, the last two were found to be income-tax assessees, while the ot....
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....report. The AO submitted a remand report dt. 29th Nov., 2004 in which he held that he was not satisfied with the creditworthiness of the creditors. After taking note of the remand report and the submissions of the assessee, the CIT(A) held that the assessee has proved the identity and creditworthiness of the creditors as well as the genuineness of the transactions and accordingly deleted the addition of Rs. 10 lacs. The gist of his findings is as below: (i) All the loans are confirmed by affidavits of the lenders. Their identity is also proved. (ii) The assessee has submitted evidence for the agricultural land holdings of all the lenders as also the Khasra Girdawari showing the produce grown. (iii) Since the lenders were agriculturists they were not liable to pay income-tax. (iv) All the loans were through bank drafts as shown by the bank statements of the creditors. (v) Summons were issued by the AO to five creditors out of which three attended and since the remaining two were above 80 years of age, they were represented by their sons. (vi) Agriculturists in India, as is well known, do not have the banking habit and, therefore, the fact that they were not regular....
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....see strongly defended the order of the CIT(A). He submitted that the identity of the creditors was proved as also their creditworthiness and the genuineness of the transactions. He contended that all the creditors had filed affidavits before the AO confirming the loans. They had also adduced evidence to prove their land holdings and bills to prove sale of agricultural produce which were not doubted by the AO. With regard to the loan from Hari Chand, he pointed out that he had received a compensation of Rs. 32 lacs from the Haryana Government for acquisition of his land and the order showing the grant of the compensation had also been filed with the AO. As regards the non-payment of the interest, the learned representative for the assessee submitted that since all the creditors were related to the assessee they did not insist on payment of interest. He further pointed out that the assessee was in need of the monies for investment in the agricultural land and shop and hence approached his relatives for loans and they also obliged her. He pointed out that the amounts were all repaid on 10th Aug., 2004 by demand drafts issued by State Bank of Travancore which was accepted by tile AO. H....
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....ed affidavits in confirmation of the loans given to the assessee. Keeping these common features in the background, we proceed to notice each of the seven loans. 7. Hari Chand-Rs. 2,00,000: He is about 80 years old and was represented by his son Rajpal Singh, before the AO. The AO had called for information from the Union Bank, Panipat, which issued the demand draft. The bank replied that the draft was made by Rajpal Singh. However, the bank stated that Rajpal Singh was the son of late Hari Singh. The AO, therefore, inferred that Rajpal Singh was not the son of Hari Chand, as claimed by the assessee. The AO has acknowledged that the assessee has filed a copy of the land acquisition order showing compensation received by Hari Chand in the financial years 1997-98 and 1998-99. He has further observed that his bank statement was not submitted. The AO, therefore, held that the identity of Hari Chand and his creditworthiness were not established. In the remand report, the AO has however stated that the assessee has not been able to prove the creditworthiness or the genuineness of the transaction. A perusal of the bank account of Hari Chand in Union Bank of India, Nangal Kheri Branch, P....
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....There was no proof for sale of agricultural produce. 11. Raipal Singh-Rs. 2,00,000: He appeared before the AO in response to the summons. On perusal of the bank statement, it is seen that there is a cash deposit of Rs. 2 lacs on 18th Jan., 2001 and the next entry is on 21st Jan., 2001, being the issue of the draft in favour of the assessee. The AO further found that there were periodic cash deposits and withdrawals in the account prior to the aforesaid dates. The assessee explained the cash deposit as sale proceeds of agriculture produce and supported the explanation by producing bills aggregating to Rs. 1,61,024. These bills are in the months of October and November. 2000 and the details are given in the assessment order itself. The AO discounted this claim by saying that no prudent person would keep the cash idle in his house for two months before depositing the same in his bank account. There was also no evidence to show that the creditor was regularly banking the sale proceeds. The only other cash deposit in the account was on 27th June, 2000 i.e., almost seven months before the deposit of Rs. 2 lacs. The AO, therefore, doubted the capacity of Rajpal Singh, to advance the mo....
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....onfirm the loans. However, there are certain features of the case which belie the documentary evidence. Firstly, the loans did not carry any interest. This is sought to be explained by the assessee by saying that since the creditors were all related to her they did not charge interest. It is rather difficult to accept the explanation considering the fact that the loans were used by the assessee till August, 2004 when they were allegedly repaid. For a period of three and half years, the monies were with the assessee and still no interest was paid. Even granting that the creditors were the assessee's relatives, they were agriculturists and it is well known that agriculturists in India can hardly afford to spare such huge amounts for considerably long periods of time and that too without interest. Secondly, in all the cases, the issue of draft in favour of the assessee from the bank accounts of the creditors is preceded by an equivalent or almost equivalent amount of cash deposit in the bank accounts of the creditors. This is too much of a coincidence to be believed or taken at face value. Apparently, the assessee had attempted to give a colour of genuineness to the loans by routing t....
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.... the paying-in slips. The fact is a neutral fact and nothing can be gainsaid from the same. In the course of the argument. the learned representative had also submitted that the AO had not doubted the evidence adduced by the creditors to prove their land holdings. In fact. even if the land holdings are accepted to be true, that does not prove that the monies deposited by the creditors in their bank accounts belonged to them. It was for the creditors to explain, which they or the assessee did not do, why they had kept the cash representing the sale proceeds of agriculture produce for a long time and thought of depositing the same in the bank only when they wanted to issue a draft in favour of the assessee by way of a loan. There is no link established between the bills showing sale proceeds and the bank deposits in cash. The learned representative for the assessee was specifically asked by us as to why the creditors should wait till the date of issue of drafts to the assessee to deposit the cash in the bank. The learned representative of the assessee could not give us any plausible reason. Similarly, in the case of Hari Chand, he was stated to be a man of means as he had received a ....
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....e on the record. In that case, the majority opinion of the settlement Commission was approved as it was taken after considering the surrounding circumstances and applying the test of human probabilities. These principles apply to the present case where the documentary evidence prima facie supports the assessee's case but a closer look at the same in the light of the surrounding circumstances and applying the test of human probabilities reveal that the documentary evidence cannot be accepted. The learned CIT(A), with respect, did not approach the case from this angle and seems to have been guided merely by the documentary evidence. In this, he fell into an error. He ought to have given a wholesome treatment to the case taking into account the principles laid down by the Supreme Court in the judgments cited above. We are unable to agree with him that the AO was wrong in adding the loans aggregating to Rs. 10 lacs as the assessee's income. 17. The learned representative for the assessee strongly relied on the judgment of the Bombay High Court in CIT vs. Bhaichand Gandhi to contend that s. 68 is not applicable since the assessee is not maintaining books of account and no addition ca....