TaxTMI 
TaxTMI 
2012 (8) TMI 384
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....ch from Smt. Kiran Jaiswal and Shri Dheeraj Jaiswal. The Assessing Officer has noted from the bank accounts of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal that before issuing cheques of the aforesaid loan amount, equivalent amount of cash were deposited in their respective accounts ostensibly to build up a credit balance and to ensure that the cheques are honoured. The source of these cash deposits were not properly explained to the Assessing Officer. Though two loan creditors namely Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal were stated to be assessed to tax, the quantum of income returned by them and after deducting the probable amounts required for their own personal expenses, they were not found to be capable of making such cash savings which could constitute a satisfactory source for cash deposits in their respective bank accounts immediately before issuing cheque purportedly for loan to the assessee. As regards the loan from Smt. Kiran Jaiswal, no detail of bank account was furnished. Being not convinced with the explanation of the assessee, the Assessing Officer has treated the entire unsecured loan of Rs. 3.50 lakhs as unexplained cash credit and made addition of the....
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....ant. As regards the alleged loan credit from Smt. Kiran Jaiswal no details of bank account were furnished. However the copies of acknowledgments of her returns furnished in the course of these proceedings show an income too meagre to explain any substantial savings which could possibly constitute the source of loan. 3.1 The particulars of income during the last several years for all the three alleged loan creditors indicate nominal income which could not have been sufficient even for the personal expenses of the alleged loan creditors themselves. All of them have at the same time shown very meagre amounts of drawings for household expenses further restricting the scope for savings out of these drawings. The attempt seems to be project higher cash balances retained in order to explain the cash deposits in bank account preceding the alleged advancing of loan. Besides, the incomes claimed to have returned in the past do not substantiate the extent of cash savings inasmuch as no balance sheets showing the actual drawings and cash in hand at the end of the accounting years were ever filed with the returns of income for any accounting year. All the alleged loan creditors are seen to b....
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....e assessee. The assessee, however, filed written submission. The assessee has also filed copy of bank accounts of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal along with their confirmations. The assessee has filed copy of cash flow statements of the cash creditors to justify the availability of cash. The copy of acknowledgment of return of income is also placed on record. The assessee has also placed reliance upon the following judgments in support of his contention that the assessee is only required to prove the genuineness of the transaction and identity of the cash creditors:- 1. Anand Prakash Agarwal v. Asstt. CIT [2008] 6 DTR 191 (All.) 2. CIT v. Jauharimal Goel [2005] 147 Taxman 448 (All.) 3. S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.) 4. Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam) 5. CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC) 6. Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.) 7. CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80F (SC) 8. Asstt. CIT (Investigation) v. Shree Ram Hard Coke & Allied Industries [2003] 1 MTC 780 &n....
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....ents before the Assessing Officer wherefrom it was noticed that the cash equivalent to the amount of loan was deposited in the bank account before issuing the cheques to the assessee. Source of deposits were not properly explained by the assessee. With regard to Smt. Kiran Jaiswal, she has declared annual income at Rs. 1,16,200 in the return filed in the relevant assessment year. Except this acknowledgment of return of income, no other evidence was filed before the Assessing Officer to prove the creditworthiness of the creditor. We have also carefully examined the cash flow statements of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal wherefrom it is noticed that the household drawings were shown nominal only with an intention to generate capital. In the impugned assessment year the household expenses in the case of Shri Sant Lal Jaiswal was shown at Rs. 24,800 and in the case of Smt. Kiran Jaiswal it was shown at Rs. 28,300. From the details available on record, we are of the view that the creditors are not financially sound to give advances or loan to the assessee. Since the creditworthiness of the creditors are not proved, we find ourselves in agreement with the order of the ld. ....
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....ew that there may be personal usage of telephone and he accordingly disallowed Rs. 5,000 on adhoc basis. 9. In appeal, the ld. CIT(A) confirmed the same finding no force in the submissions of the assessee. 10. Now the assessee is before the Tribunal with the submission that the telephone was installed in the business premises of the assessee and therefore there is no personal use. 11. Having given thoughtful consideration to the rival submissions and from a careful perusal of the orders of the lower authorities, we are of the view that though the telephone was installed at the business premises, but its personal usage cannot be ruled out. We are, however, of the view that the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) is on higher side. We accordingly restrict the disallowance to Rs. 2,000. Accordingly the disallowance is reduced from Rs. 5,000 to Rs. 2,000. 12. In the result, appeal of the assessee is partly allowed. B.R. Jain, Accountant Member - Unable to agree with the order proposed by learned Judicial Member, on sustenance of addition u/s 68 for three cash credits, I proceed to write my own order. 2. In this case the appellant....
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....duce the source of depositors from where the deposit was made not required under the law." The Supreme Court in CIT v. Orissa Corporation (P) Ltd. [1986] 159 ITR 78 (SC) has held that if the assessee has given names and addresses of the creditors and it was in the knowledge of the revenue that the said creditors were being assessed to tax, the onus on the revenue to pursue the matter with the creditors. The ITAT Delhi in Vinod Kumar Bhandari v. ACIT [2008] 174 Taxation 49 (Trib) has held that non-presence of the creditors before Assessing Officer should not be the sole reason for invoking section 68. The I.T.A.T, Allahabad has held in Anand Prakash Agarwal v. Asstt. CIT [2008] 6 DTP (All. - Trib) 191 that where donors were having sufficient funds in their bank and gifts were made through banking channel as well as confirmation of donors was received by Assessing Officer, the gifts received by assessee from non-relatives could not be added under any provisions of I.T. Act, 1961." 3. Briefly, the facts are that the appellant derives income from trading of battery, its parts and invertors etc. The return of income was filed declaring an income of Rs. 1,45,1207-. During the cours....
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....me u/s 68 of the I.T. Act, 1961. 3.2 As regards Shri Dheeraj Jaiswal, the cash deposit of Rs. 50,000/- in his bank account on 06/06/2005 i.e. just one day before giving loan, the assessee explained that the said deposit was made by the creditor in his account of his own past savings. As the assessee failed to substantiate the source of cash deposit of Rs. 50,000/- in the bank account of Shri Dheeraj Jaiswal, the Assessing Officer took that the creditworthiness of Shri Dheeraj Jaiswal is not proved. 3.3 As regards loan of Rs. 50,000/- from Smt. Kiran Jaiswal, the assessee furnished only a declaration from her claiming the immediate source of loan as deposit in her saving bank account No. 1042 with Bank of Baroda, Niyawan Branch, Faizabad. As the assessee did not furnish any evidence regarding the deposit made in the bank account of the creditor, the Assessing Officer took that the creditworthiness of Smt. Kiran Jaiswal is also not proved. 3.4 Vide internal para 6 of his order, the Assessing Officer formed opinion that the creditworthiness of the loans aggregating to Rs. 3,50,000/- from the above named three persons is not found to be genuine as their creditworthiness is not....
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....he assessee in his written submissions, laid on record, has submitted as under: "That the leaned CIT(A) has made addition of the unsecured loan credits of the appellant amounting to Rs. 3,50,000/- which is contested before your honour as per grounds of appeals as well as the following judicial decisions: (i) That the Hon'ble ITAT, Allahabad has held in Anand Prakash Agarwal v. Asstt. CIT [2008] 6 DTR (All. - Trib.) 191 that where donors were having sufficient funds in their bank and gifts were made through banking channel as well as confirmation of donors was received by Assessing Officer, the gifts received by assessee from non-relatives could not be added under any provisions of IT Act, 1961. (ii) That the Hon'ble Allahabad High Court in CIT v. Jauharimal Goel [2006] 192 Taxation 68 (All.) has observed that at page 75 it has been held by the various High Courts that the assessee cannot be asked to prove source of source or the origin of origin (vide S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.), Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam), CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC); Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.). (iii)....
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..... [1986] 159 ITR 78 (SC), has also considered the similar issue wherein it was held that if the assessee has given news and addresses of the creditor and it was in the knowledge of Revenue that the said creditor were being assessed to tax, the onus is on the Revenue to pursue matter with the creditor. Also the Delhi ITAT observed at (page 54) the decision of the Patna HC in the case of Sarogi Credit Corporation reported in 103 ITR 344 (Pat.) had observed as under: "Once the identity of the third party is established before the ITO and other such evidence are prima facie placed before him pointing to the fact that the party is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money or how or why he came to make an advance of the money as a loan to the assessee. Once such identity is established and the creditors as in the present case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts onto the department to show as to why the assess....
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.... submissions on record, it is found that the learned CIT(A) in operative para 3.4 of the impugned order has recorded a finding that the three loan creditors are non-genuine. The Assessing Authority also in the operating paragraph 6 of the assessment order, took these three unsecured loans as non-genuine as the creditworthiness of the loans was not proved. It thus is apparent that both the authorities considered the three loans aggregating to Rs. 3,50,000/- as non-genuine. There, however, is no material on record with the authorities below that there was any other source of income not disclosed to the department by the appellant from which there could be any undisclosed income enabling him to divert the same to the bank account of Shri Sant Lal Jaiswal in cash and taking the same as loan from him through cheque. Likewise there is no such material of making deposit of assessee's own money in bank account of other two creditors as well. The appellant has laid on record the confirmation from all the three creditors namely Shri Sant Lal Jaiswal, Shri Dheeraj Jaiswal and Smt. Kiran Jaiswal. Their assessment particulars as well as copies of acknowledgment for filing income tax return of e....
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....present case in appeal, however, has not been discharged by the Assessing Authority before making addition u/s 68 of the Act nor he has established that the entry was not real but was pseudonymous. This finds support from the judgment by Hon'ble Assam High Court in the case of Nabadwip Chandra Roy v. CIT [1962] 44 ITR 591 and has also been followed in the case of Tolaram Daga (supra) at page 638 as under: "All that could be said to follow from this decision is that once the assessee explains the credit entry and brings in evidence to show that the entry related to a third party and that credit was that of that third party, the burden would shift to the Income-tax Officer to prove that this is not true. For instance it would be open to the Income-tax Officer in such a case to establish that the entry was not real but was pseudonymous." 8.1 The appellant as pointed out earlier, has explained that the immediate source of loan to him is from the savings of the aforesaid three creditors coming from their respective bank accounts, yet the revenue's case is not that the appellant had knowledge of the source from which the deposit was made by the said three creditors in their respect....
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.... the principle embodied u/s 68 of the Act is only a statutory recognition of what was always considered to be the law based on Rule of Evidence that it is for the tax payer to prove the genuineness of the borrowings or other credits in his books, since the relevant facts are exclusively in his knowledge. Section 68 of the I.T. Act, 1961 incorporates only a Rule of Evidence placing the onus to prove on the assessee. The Expression "nature & source" has to be understood together as a requirement of identification of source and the nature of the source so that the genuineness or otherwise can be inferred. In Kale Khan Mohammad Hanif v. Commissioner of Income-tax [1963] 50 ITR 1 (SC), it was pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. The law after 68 is not different. If the prima facie inference on the fact is that assessee's explanation is probable, as I also find in the present case, that the amount of borrowings in real terms had come from the aforesaid three loan creditors and are genuine receipts as loans, the onus can be said to have shifted on Revenue. 8.3 Undisputedly the....
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.... law as discussed above, it is always open for a borrower to contend, that even the "creditworthiness" of the lender stands proved to the extent of credits appearing in his Bank Account and he should be held to be successful in this contention. 9. Keeping with the principle referred to above and by specifically relying on the decision of Hon'ble Apex Court in the case of Orissa Corpn. (P) Ltd. (supra) the Hon'ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523, has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of 'cash deposited in the bank accounts of the creditors', the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon'ble Court has further stressed the presence of word "may" in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:- "Merely because su....
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....phraseology employs the word "may" and not "shall". Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570." Against the said decision of Hon'ble Gujarat High Court the special leave petition filed by the revenue has also been dismissed by the Hon'ble Apex Court. 10. In the case of Nemi Chand Kothari (supra), the Hon'ble Guahati High Court has given a further twist to the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon'ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any k....
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.... result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/source from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and IT is not the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 are to stand together, which they must, then the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transact....
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....ct may very well remain confined only to the transactions, which he had with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor. ....." ** ** ** "In other words, though under section 68. an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. ....." ** ** ** "Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The a....
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....s burden stood discharged and so, no addition to his total income on account of cash credit was called for. In view of this finding, we find that the Tribunal was right in reversing the order of the AAC, setting aside the assessment order." 12. Furthermore in the matter of discharge of 'onus', an assessee (in whose books of account credit appears) is not required to prove source of the 'source'. Reference can usefully be made to the following case laws:- "(i) The Hon'ble Allahabad High Court vide its judgment and order dated 15.4.2005 in the case of CIT v. Jauhari Mal Goel reported in [2006] 201 CTR (All.) 54 has held as under:- 11. It has been held by the various High Courts that the assessee cannot be asked to prove source of source or the origin of origin vide S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.), Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam), CIT v. Daulat Ram Rawatmull [1972] CTR 411 : [1973] 87 ITR 349 (SC), Sarogi Credit Corpn. v. CIT 1975 CTR (Pat.) 1 : [1976] 103 ITR 344 (Pat)." (ii) In a later decision, the Hon'ble Rajasthan High Court vide its judgment and order dated 28.4.2008 in the case of Labhchand Vohra v. ITO reported in [2008] 219 CT....
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....lender. Reference may also be had to the judgment by Hon'ble M.P. High Court in the case of CIT v. Metachem Industries [2000] 245 ITR 160/2001] 116 Taxman 572. Furthermore, the Hon'ble Punjab & Haryana High Court also in CIT v. Ram Narain Goel [1997] 224 ITR 180/92 Taxman 259 has entertained the view that the assessee was not supposed to prove the source of the loans. This is so apparent from the following passage: "..........The Tribunal correctly took the view that the assessee was not supposed to prove the source of the loans. Suspicion, howsoever strong, cannot take the place of evidence or proof. On these facts, the question, as sought to be referred, is declined." 14. The Hon'ble Gujarat High Court in recent judgment in the case of CIT v. Micro Melt (P.) Ltd. [2010] 327 ITR 70/[2009] 177 Taxman 35 has entertained the view that the genuineness of the transaction and the identity of the depositor having been established, deletion of addition made by learned CIT(A) u/s 68 of the Act was justified. Besides the view entertained by Jurisdictional High Court in the case of S. Kamaljeet Singh (supra) and Jauharimal Goel (supra), even this Bench of the Tribunal in the case of Dr....
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....in favour of the assessee in order to prove his creditworthiness?" Ld. Accountant Member, on the other hand, framed the following question with a request to the Hon'ble President to nominate the Third Member to resolve the issue of difference: "Whether on the peculiar facts and circumstances and in law the appellant has discharged the onus that lay upon him about the creditworthiness of the transaction of loan credits aggregating to Rs.3.50 lacs and deletion of additions u/s 68 of the I.T. Act. justified?" 2. The Hon'ble President has directed me to resolve the difference by reframing the question, if necessary. Accordingly, at the time of hearing, the parties were directed to suggest a comprehensive question which covers the issue arising out of the orders passed by the ld, Judicial Member as well as the ld. Accountant Member. The following revised question was agreed to by both the parties: "Whether on the facts and in the circumstances of the case the addition made by the AO and confirmed by CIT(A), u/s 68 of the Act, referable to unexplained cash credits, deserves to be upheld or deleted?" 3. Facts necessary for disposal of the issue are set out briefly: Asses....
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.... bank account. The AO therefore concluded that the creditworthiness of Shri Sant Lal Jaiswal is not proved. Thereupon he inferred that it is diversion of assessee's undisclosed income to Shri Sant Lal Jaiswal in cash in taking the same as loan from him through cheque. 6. With regard to the cash deposit in the name of Shri Dheeraj Jaiswal, the AO noticed that a sum of Rs. 50,000/-was deposited in his bank account on 6.6.2005 i.e. just one day before the date of loan. Though it was stated by the assessee that past savings of Shri Dhreeraj Jaiswal was deposited in his bank account, since assessee failed to furnish any evidence and could not substantiate the source of cash deposit of Rs. 50,000/- in the bank account of Shri Dhreeraj Jaiswal, the creditworthiness of Shri Dhreeraj Jaiswal was held to be not proved. Similarly, with regard to the loan of Rs. 50,000/- by Smt. Kiran Jaiswal, the AO stated that the immediate source of loan was deposit in her bank account but it was not supported by any evidence and hence creditworthiness of Smt. Kiran Jaiswal cannot be said to have been proved. The AO thus concluded that the creditworthiness of loan, totalling to Rs. 3,50,000/-, from the a....
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....n the assessee's bank account. Since the parties are identified, transactions were through account payee cheques and having furnished declaration that amount was advanced by them all the three ingredients provided u/s 68 of the Act are satisfied add the assessee cannot be asked to prove the source of source or origin of origin. In other words, the initial onus that is placed upon the assessee stands proved and no addition can be made in the absence of proper inquiry by the AO. 9. When the case was listed for hearing none appeared on behalf of the assessee. However, written submissions were placed on record. Therefore, the ITAT "B:" Bench Lucknow disposed of the matter ex parte, qua the assessee by taking into consideration the submissions made in writing on behalf of the assessee and also the oral arguments advanced by the ld. DR. The ld. Judicial Member observed that in the case of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal, the assessee has filed bank statements before the AO but source of deposits in their respective bank account were not properly explained by the assessee. With regard to Smt. Kiran Jaiswal though she had declared annual income of Rs. 1,16,200/- for the y....
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....which is within the personal knowledge of the cash creditors cannot be asked to be provided by the assessee. In other words, the AO is under obligation to bring on record some material to show that the lenders are not creditworthy. The ld. Accountant Member has passed a detailed order by taking into consideration several case law. He observed that unless the AO makes out a case that the assessee might have earned undisclosed income in the year under consideration, merely because the three ingredients listed in section 68 are not satisfied addition cannot be made automatically, in view of the expression 'may' used in section 68 of the Act. Even otherwise, the ld, Accountant Member was of the opinion that the assessee has proved the creditworthiness of the creditors and it is not for the assessee to prove the source of source. He thus concluded that the addition made by the AO u/s 68 is not in accordance with law. 11. When the matter was listed before me, the ld. Counsel appearing on behalf of the assessee submitted that the assessee was running a proprietary concern engaged in the business of purchase and sale of invertors, batteries etc. During the course of assessment proceedin....
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.... strongly relied upon the decision of the Tribunal, Lucknow Bench in Shree Ram Hard Cock & Allied Industries (supra), wherein the Lucknow Bench observed that upon proving the identity of depositors and genuineness of the transaction by furnishing affidavits, GIR numbers etc., the initial onus placed upon the assessee stood discharged and if the AO has any doubt with regard to the creditworthiness/capacity of the creditors he has to examine the creditors and in the absence of any documentary evidence brought on record it cannot be concluded that the assessee has not proved the creditworthiness. The fact that all the transactions were entered into between the parties through account payee cheques makes the question of the identity fall into oblivion and it is not upon the assessee to prove that the creditor had creditworthiness since money, reflected in the bank account of third party cannot be called into question; as per Section 4 of Bankers Book Evidence Act, 1891, amount credited in the bank account of the third party has to be taken as a sufficient evidence to prove the ownership of the amount in the hands of the third party and even though the section 68 of the Act is a deeming....
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....ls etc. to come to a conclusion that they had no creditworthiness to advance the loan to the assessee. 14. On the other hand, the ld. Accountant Member observed that going by the so-called surrounding circumstances would amount to widening the jurisdiction of the AO in the matter of invoking the deeming provisions, which is not permissible under the Act, 15. The AO should not have come to any conclusion without examining the cash creditors; The assessee cannot be aware of the source of creditors, which would be within the personal knowledge of the creditors, Mere doubt with regard to the creditworthiness should not automatically reflect in disbelieving the case of the assessee to make addition u/s 68 of the Act without showing that the assessee would have earned more income from any specific source, in the light of the expression "May" used in section 68 of the Act. In the instant case, the AO examined the books of account but did not make any comment on possibility of earning of any additional income from trading business or from any other source and thus addition cannot be made in a routine manner. 16. Few facts are necessary to be born in mind to appreciate this issue. ....