TaxTMI 
TaxTMI 
1997 (5) TMI 106
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....; Rs. 15,000 3. The assessee's case was that the loans were obtained from those three persons through account payee cheques and all the three creditors were income-tax assessees. As such, the identity and the creditworthiness of those three lenders remained established. The assessee also submitted before the Appellate Commissioner in first appeal that the two out of three creditors were summoned by the Assessing Officer and their oath statements recorded under section 131 of the Act wherein they had accepted having advanced loan to the assessee. These pleadings and arguments were abortive before both the lower tax authorities. The matter, therefore, rests before us by way of second appeal. 4. The assessee's counsel Shri Saboo made personal appearance as well as submitted certain relevant points in writing which have been duly considered in arriving at a decision. The Departmental Representative Smt. Lekha Kumar was also heard who relied upon the reasons given by both the lower tax-authorities. 5. Upon due consideration of the submissions and the examination of the case record, we are of the view that the addition ....
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....Court in the case of CIT v. Daulat Ram Rewatmal [1973] 87 ITR 349 at page 359 has also reiterated that mere falsity of explanation, either of the lender or of the borrower, cannot lead to a conclusion that the borrowed amount is the income of the assessee (borrower) from some undisclosed sources and, therefore, subjected to tax. The judicial pronouncements which we have recorded above, clearly go to the aid of the assessee and which persuade us to reverse the order of the AC in confirming the addition of Rs.39,000 plus interest thereon. We, therefore, reverse the finding and conclusion of the A.C. and direct the Assessing Officer to delete the addition of Rs.39,000 plus interest of Rs.12,845 thereon. We order and direct accordingly. 6. Appeal is allowed. Per Shri V.K. Sinha, Accountant Member: 7. I have gone through carefully the proposed order of my learned brother but, with respect, find that I am unable to agree with the conclusion. 8. The facts require to be stated in some greater detail. The matter concerns cash credits in three names as given in para 2 of the proposed order of my learned brother. It is necessary to notice the peculiar circumstances of each case. ....
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....er stated that the entire business of commission was kept out of books of account. The CBI seized a pay-in-slip of Rs.5,000 for his bank a/c. In view of this, the explanation was rejected an addition was made. 12. The CIT(A) observed that a cash credit cannot be accepted as genuine simply because the loan creditor was an income-tax assessee. The credit worthiness of Shri Gokul Prasad Sahu and Shri Pradeep Kumar Jain, who were examined on oath, could not be proved. Shri Govind Prasad Sahu was not produced. Pay-in-slips were found in possession of Shri Niranjan Prasad who admitted having deposited the amount in the bank a/c of the loan creditors. He came to the conclusion that the cash credits were far from genuine. Accordingly, the addition of Rs.39,000 under section 68 and disallowance of interest of Rs.12,845 were confirmed. 12A. From the above facts, it is seen that the case of Bahri Bros. (P.) Ltd. relied upon in the proposed order of my learned brother, is distinguishable on facts. In that case, the loans were advanced by account payee cheques. To that extent, facts are similar, but only to that extent. In the case of Bahri Brothers, the loans were repaid by cheque and in....
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....hich she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that 'fraudulent sale of winning tickets is not an usual practice but is very much of an unusual practice' ignores the prevalent malpractice that was noticed by the Direct Taxes Enquiry Committee and the recommendation made by the said Committee which led to the amendment of the Act by the Finance Act of 1972, whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc., was withdrawn. Similarly, the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sowrn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the ....
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....ans. These additions are hereby confirmed. 17. In the case of Shri Praveen Kumar Jain, the source of Rs.15,000 remaining unexplained. His salary income was too meagre and there was no evidence regarding income from commission. Pay-in-slip was found with Shri Niranjan Prasad. Applying the test of human probabilities and surrounding circumstances, I hold that here also credit has remained unexplained. The addition is, therefore-confirmed and the disallowance of corresponding interest is also confirmed. 18. In the result, the assessee's appeal is dismissed. REFERENCE FOR THIRD MEMBER CASE UNDER SECTION 255(4) OF THE FACT, 1961, IN THE ABOVE MATTER: As we differ in our views in the above case, we request the Hon'ble President to Kindly refer the matter to the 3rd member on the following point: "Whether, in the facts and circumstances of the case and in law, cash credits totalling Rs.39,000 added under section 68 of the Act and disallowance of interest totalling Rs.12,545 on the cash credit should be confirmed or deleted?" THIRD MEMBER ORDER Per Shri T.V. Rajagopala Rao (Third Member): The following point of difference arose between the Members while deciding ITA No....
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....bsp; Rs. 13,000 Gokul Prasad Sahu 9-4-1985 Rs. 15,000 Praveen Kumar Jain 30-10-1985 Rs. 11,000 Govind Prasad Sahu ---------------------------------------------------------------------------- Out of the above three cash creditors, Gokul Prasad Sahu and Praveen Kumar Jain were examined under section 131 and their statements were recorded. Gokul Prasad Sahu stated in his evidence that Smt. Leela Devi is his aunt. He had lent Rs.6,000 in 1983 and Rs.13,000 in 1985 to the assessee firm. He had given Rs.6,000 in cash and Rs.13,000 in cheque. The amounts which he had lent came from his business. He did business in Lahia and Khalli-Bhoosi (Mustard) and he had been doing this business from 1980-81 at Haat Bazar. The turnover of his business is approximately Rs.3 lakhs for ....
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....was doing business and after resigning from service he joined with him. From joint family, his brother used to give him family expenses. He does not know whether he had any share in the profits of the business. He receives interest @ 12% which is credited in his account. He is an income-tax assessee. He is assessed at Gaya. He handed over his income-tax file to his advocate, Shri T.N. Nitish Jain. 4. The third creditor, Shri Govind Prasad Sahu, was not examined under section 131 since the assessee did not produce him for examination. 5. The Assessing Officer found that the advance of Rs.13,000 was made to the assessee-firm by Gokul Prasad Sahu through a cheque issued on 9-4-1985. However, he found that the same amount was deposited by him on 9-4-1985 in the bank. Niranjan Prasad, the husband of the first partner and father of the second partner of the assessee firm, in his examination, admitted that he introduced this creditor to the Bank and he had deposited the amount in the bank account of Gokul Prasad Sahu. Though Gokul Prasad Sahu claims that the yearly income derived by him would be about Rs.30,000, in his income-tax return, he showed Rs.18,900 for the year 1986-87. He ....
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....e Tribunal. 9. In the second appeal, on behalf of the assessee, 20 page paper book was filed. After hearing the arguments advanced before them, the ld. Judicial Member, Shri Abdul Razack, felt that the appeal should be allowed for the reasons listed out below. The three persons admittedly advanced the loans by account payee cheques. In Bahri Bros. (P.) Ltd.'s case Patna High Court held that if loans are given by account payee cheques, it amounts to identification of the parties and discharge of burden by the borrower. The two creditors were also summoned and examined on oath under section 131 of the IT Act. One of the creditors, though did not appear, evidence on record points out that his loan was also advanced through account payee cheque. All the three creditors are income-tax assessees as is evident from the observation made by the Assessing Officer. The Assessing Officer merely disbelieved the version of the cash creditors and came to the conclusions that they have no creditworthiness or means to advance loans to the assessee. Mere falsity of an explanation or not believing an explanation cannot make the loans as income of the assessee from undisclosed sources. In Orient Tr....
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....s held that if a credit entry in the books of account stands in the name of the assessee or the assessee's wife and children or in the name of any other close relation or an employee of the assessee, the burden lies on the assessee to explain satisfactorily the nature and source of the entry. In this case, Shri Gokul Prasad Sahu and Govind Prasad Sahu were close relations and, therefore, the burden of proof on the assessee is greater. Applying the above tests and guidelines given in the above decided cases, the ld. Accountant Member began commenting upon the facts of the case. He held that it is very strange coincidence that cash was deposited in the bank account of Gokul Prasad Sahu and Govind Prasad Sahu one day before advancing of the loan and pay-in-slips were found during the search by the CBI at the residence of Niranjan Prasad. Shri Niranjan Prasad even admitted that he had deposited the amount in the bank account of Gokul Prasad Sahu. Shri Gokul Prasad Sahu has not been able to explain the source of deposit in his bank account. As far as Govind Prasad Sahu is concerned, since he did not appear, the source of his deposit in the bank account remains unexplained. in the case o....
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....statement given by Niranjan Prasad. Therefore, it is my primary duty to consider how far it is admissible. It is very clear from the facts of the case that the Assessing Officer did not draw the attention of the assessee to the statement given by Niranjan Prasad. So also he did not draw the attention of the cash creditors when they were examined on oath under section 131. Either the whole of the evidence or any portion of the evidence of Niranjan Prasad was put to the two cash creditors when they were examined under section 131. So also the pay-in-slips said to have been secured or preserved by Niranjan Prasad showing that he had deposited the moneys on behalf of the cash creditors into the bank account were also not confronted to the cash creditors. If they were confronted with or showed such pay-in-slips, there would have been an opportunity for them to explain all the circumstances about the pay-in-slip or about the truth or otherwise of the version of Niranjan Prasad. Now, the question is without putting any such material to the cash creditors, whether the so-called evidence of Niranjan Prasad can be used against them in order to discredit their testimony that they are capable ....
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.... for the sake of argument, that in law the requirements of natural justice are satisfied by supplying the substance of the statement sought to be relied upon, even that was not done in this case. The Income-tax Officer had refused to give copies of the statements of the witnesses on the view that they formed part of the record. Even so, he refused permission to the assessee to inspect the record. It is evident that the proceedings were vitiated by violation of the principles of natural justice." Therefore, not supplying the statements of Niranjan Prasad and copies of the pay-in-slips said to have been retained by him, which show that he had deposited the amounts on behalf of the cash creditors, and not tendering Niranjan Prasad for cross-examination of the cash creditors or the assessee amount to serious violation of principles of natural justice and, to my mind, it would appear that such of the material which is sought to be used as evidence without observing the principles of natural justice should be excluded from evidence. Therefore, the alleged statement of Niranjan Prasad either before the CBI or the ITO under section 131 or the pay-in-slips, the custody of which is said t....
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....ed 9-4-1985. By 31-3-1986, i.e., at the close of assessment year 1986-87, the principal and interest due in the account of this creditor stood at Rs.82,917.83. In assessment year 1987-88, i.e., on 31-3-1987, an amount of Rs.10,000 was paid by the firm under cheque No. 4849161. Similarly, an amount of Rs.8,836.14 was paid by the firm under cheque No. 00504. By 31-3-1991, the principal and interest due to the creditor stood at Rs.1,16,846.87. In assessment year 1992-93, a sum of Rs. 1 lakh was repaid to Shri Praveen Kumar Jain by the firm by virtue of issuing cheque No. 141875 dated 14-6-1991. Similarly, on 30-3-1992, another sum of Rs.20,004.60 was also paid by cheque No. 003018. The balance-sheet and profit and loss account of Gokul Prasad Sahu together with computation of his total income was furnished at page-8 of the paper compilation. The profit & loss account shows that he had derived for the accounting year 1985-86 relevant to assessment year 1986-87 a sum of Rs.22,109.58 as net profit. The balance-sheet prepared by him as on 31-3-1986 discloses clearly the amount due from Girdhar Agency (assessee-firm) at Rs.21,020.81, for which the account copy was filed. Shri Gokul Prasad ....
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....relatives to borrow from each other as soon as they come to know that one of the relatives got a considerable sum of money. Therefore, it is not strange when, after knowing that Gokul Prasad Sahu had got a sum of Rs.13,000 and deposited in the Bank, the next day that amount was requested for and granted as loan to the assessee-firm. Similarly, in the case of Govind Prasad Sahu, a sum of Rs.11,000 was deposited on 29-10-1985 and on 30-10-1985 the same amount was withdrawn and given to the assessee-firm. However, it is not as if that Govind Prasad Sahu has no other credit entries in his account with Allahabad Bank. On the deposit side as well as withdrawal side, there are heavy amounts. Similarly, the account of Praveen Kumar Jain with Allahabad Bank was also furnished at page-13. It also shows that a sum of Rs.15,000 was deposited on 8-4-1985 and the said amount was withdrawn on 9-4-1985. However, these are not the sole entries in his account with Allahabad Bank. Apart from these entries, there are other entries disclosing deposits as well as withdrawals in heavy amounts. Everybody knows that Bank interest is only 4% in Savings Bank Account, whereas if an amount is given in a commer....
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....ggregating to Rs.1,50,000 were the subject matter of the decision. The amounts were shown to have been received by loans from three individual creditors of Calcutta under hundis. The borrower produced before the ITO the letters of confirmation, the discharged hundis and gave particulars of those creditors who were assessees and whose general index numbers were with the department. However, the borrower company was not able to produce the creditors before the ITO and, therefore, on its request the ITO issued summons under section 131 to the creditors. All the summons were returned unserved with the remark 'left'. The Tribunal found that the creditors, while being assessed, had admitted that they had allowed their names to be lent without giving loans and also gave a list of assessees where the debtor company's name did not appear. The ITO treated the sum of Rs.1,50,000 as unexplained and the IAC also imposed penalty of Rs.50,000 under section 271(1)(c). The Tribunal held that simply because the debtor company could not produce the parties, it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the debtor company. T....
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....enue to the High Court. The Hon'ble Patna High Court held in the facts of that case as follows: "Held, that the assessee filed details of loans stating the nature and the mode of transactions. The creditors gave the amount in question to the assessee by account payee cheques which were encashed by the assessee through its own bank. The assessee had also submitted a copy of the 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 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, they were known not only to the bank but they were introduced by a third person to the bank. It could not be said that the creditors were fictitious persons. The Tribunal was, therefore, right in deleting the addition of Rs.20,000 and also allowing the interest of Rs.1,318.....
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....isbelief however acceptable the evidence let in may be. It was never said that in the case of a near relative the burden always lies on the assessee and never shifts to the department. Further, the burden of proof has no meaning when both the sides lead evidence in the case which should be decided only on the evidence on record and there is no need to fall back upon the question of burden of proof any longer. Nobody can have any quarrel with the proposition laid down so authoritatively by the Patna High Court, but all that the Patna High Court says is that in a case of cash creditor who is a near relative, something more convincing evidence to show the creditworthiness and the source of the entry should be let in than in the case of a third party cash creditor. It did not lay down the principle that however much the evidence which is let in, it should still be viewed with suspicion. How to appreciate evidence on record depends upon the facts and circumstances of each case and I hardly come across decisions describing the way in which evidence is to be appreciated. 17. The next decision is CIT v. Satya Ranjan Sen [1990] 181 ITR 374 (Cal.). In that case, cash creditor was the sist....
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....sessee had at least proved its case." 19. The next decision relied upon by the assessee was CIT v. Barjatya Children Trust [1996] 135 Taxation 383 (MP). In that case, assessment year involved was 1985-86. The books of the assessee showed cash credits in four names totalling Rs.85,000. The CIT(A) set aside the order of assessment and directed verification of cash credits amounting to Rs.65,000 relating to three creditors and deleted the addition of Rs.20,000 as one of the cash creditors was assessed to tax and the amount was shown by her as having been given on loan to the assessee. The Tribunal confirmed the order. Reference was taken by the revenue to the High Court and the Hon'ble High Court held that since the creditor was assessed to tax and the cash credit was shown in the balance-sheet of the creditor, it was not necessary to produce the creditor and it was for the department to,take help from the documents and the file of the creditor. 20. The last of the decisions relied on by the assessee was again a Gauhati High Court decision in the case of Raichand Kothari (HUF) v. CIT [1996] 135 Taxation 442. In that case, the assessee, in order to meet its business requirement, ....