TMI Blog1993 (8) TMI 123X X X X Extracts X X X X X X X X Extracts X X X X ..... uine and that the assessee had introduced his own money in its books of accounts. He accordingly assessed the entire sum of Rs. 2,74,600 as income of the firm from undisclosed sources. The first appellate authority held that under section 68 of the Act, the genuineness of the cash credits in the books of accounts of the assessee had to be determined with reference to the identity of the creditors, capacity of such creditor to advance money and genuineness of the transaction. Whereas assessee had established the identity of the creditors and latter had also confirmed having advanced the amounts to the assessee and copy of the assessment orders passed under section 143(1) had also been furnished, the capacity of the creditors to advance such amounts had not been established. The learned appellate authority has also referred to the fact of necessity of the firm to introduce cash in the form of deposits from the close family members with reference to payment of Rs. 4,50,000 to M/s. Hindustan Aluminium Corporation soon after the deposit of money in the name of creditors. Reference is also made to the debit balance in the bank account of Rs. 6,68,607 as on21st February, 1986. To support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and they having been assessed to tax, it was for the revenue to establish that the claim of the assessee was bogus and alternatively, the credits had to be accepted as genuine. It was accordingly urged that the addition of Rs. 2,74,600 may be deleted. 11. The learned D.R., on the other hand, relied upon the orders of the revenue authorities and in particular upon the decisions referred to by the CIT (A) in his order at page 19. Reliance was placed on the decision of the Patna High Court in the case of Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344. The learned D. R. pointed out that all the four creditors had deposited the amounts in question in their respective bank accounts in February 1986 so as to give the colour of genuineness to the credits. There is a contradiction in the statement of the creditors in respect of the income earned. None of the creditors had been able to substantiate the claim that they were carrying on any business or profession on the basis of which returns had been filed before the Assessing Officer. No convincing replies had been given about the bank accounts having been opened only in the year under appeal. The learned D.R. also pointed out that the cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at such a conclusion, even the department has to be in possession of sufficient and adequate materials." It is evident from the aforemention decision of the Patna High Court that in the case of close relatives, the burden lies on the assessee to explain satisfactorily the nature and source of the credit. Mere confirmation by the party and the fact of receipt of money by cheque in such cases is not sufficient to shift burden to the revenue. 13. In the case of Shankar Industries, their Lordships of the Calcutta High Court have held that it is necessary for the assessee to prove prima facie identity of the creditor, the capacity of such creditor to advance the money and the genuineness of the transactions. The onus will shift to the department only after the assessee had adduced evidence to establish prima facie the identity, capacity and the genuineness of the creditor. 14. In the case of Om Prakash Mahajan Sons, assessee's wife had disclosed on30th March, 1966a sum of Rs. 10,000 as her income under the voluntary disclosure scheme of the Finance No. 2 Act of 1965. Credit for this amount was made in the assessee's account books on4th April, 1966. The assessee's explanation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not make any enquiry about the veracity or the genuineness of the transaction or the capacity of the creditor to pay, the addition cannot be made. However, where the Assessing Officer makes enquiries and tests the veracity or the genuineness of the transactions or the capacity of the creditor to pay and the Assessing Officer is satisfied that the creditor is not telling the truth, the assessee shall have to discharge his subsequent onus proving the genuineness of the transaction. 16. In the case of Prakash Textile Agency, Assessing Officer had issued a summon under section 131 of the Income-tax Act on a creditor from whom a loan of Rs. 1 lakh was shown by the assessee--a registered firm. By a letter dated26th March, 1970the creditor expressed his inability to produce the relevant books of accounts. The Income-tax Officer, therefore, added the sum as income of the assessee from undisclosed sources. The AAC confirmed the addition. At the instance of the assessee, the Tribunal called for the books of accounts of the creditor in the custody of the Income-tax Department to be produced and examined the proprietary of the creditor company. The Tribunal disbelieved the evidence of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue. It would then be for the Assessing Officer to verify the veracity and genuineness of the evidence. If on making enquiry the Assessing Officer is not satisfied about the correctness or the genuineness of the evidence the burden shifts back to the assessee. 19. However, where assessee has furnished prima facie evidence and the Assessing Officer does not pursue to examine the veracity or the genuineness of the evidence furnished as indicated above, the addition cannot be made in respect of cash credits, in such circumstances. 19A. In the case of relatives, the degree of proof to be furnished by the assessee is heavy and mere furnishing of identity, confirmation etc. would not be sufficient. It is necessary for the assessee to establish the source of the credit to the satisfaction of the Assessing Officer. 20. Now let us consider the issue involved in this case in the light of aforementioned principles of law. It is not disputed before us by the revenue that in respect of four credits in the names of Sh. Sahil Chawla, Smt. Meera Chawla, Smt. Seema Chawla and Ms. Reetika Chawla, the amount of Rs. 84,900, Rs. 49,400, Rs. 49,400 and Rs. 89,900 respectively had been rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the last 8 years. He had filed the income-tax returns for assessment years 1983-84, 1984-85, 1985-86 declaring income of Rs. 14,480, Rs. 15,010, Rs. 15,020 and for the year under appeal the return filed disclosed the income at Rs. 17,085. 23. As per his statement his annual income varied between Rs. 25,000 to Rs. 30,000 p.a. He was asked by the Assessing Officer as to whether he could give name of some parties to whom cars had been sold. In reply Shri Sahil Chawla stated that he had nothing to do with the names. He was interested in commission which ranged between Rs. 500 to Rs. 1500 per car. Another factor that assumes importance is that he had not any bank account upto14th February, 1986when Account No. 29590 was opened with Punjab National Bank, Shahdara. A sum of Rs. 25,000 was deposited on14-2-1986and Rs. 40,000 on19-2-1986. A cheque for Rs. 64,900 had been issued on22nd February, 1986in the name of the assessee-firm i.e., soon after depositing the aforementioned amounts. On22nd February, 1986a cheque of Rs. 20,000 was issued in the name of the firm by depositing cash of Rs. 20,000 simultaneously on the same date with the Punjab National Bank, Shahdara. After the withdr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 3,000 to Rs. 4,000 p. a., Whereas she had filed the return of income for assessment years 1983-84, 1984-85 and 1985-86 declaring income of Rs. 15,020, Rs. 14,870, Rs. 15,020 respectively. Though she claimed to be in business for more than a decade she had no bank account till13th February, 1986when she opened an account by depositing a sum of Rs. 15,000. On19th February, 1986another sum of Rs. 35,000, had been deposited. A cheque for a sum of Rs. 49,900 had been issued in the name of the firm on 22nd of February i.e., soon after the making of the two deposits. There was no other substantial deposit in the bank account after19th February, 1986, though she claimed to have continued the business. She could not name any tailor whom she had engaged for doing the work though she had stated that all the dresses she sold were stitched by tailors. She had stated that a sum of Rs. 12,000 was available with her in the year 1982. As per her own statement she was having income between Rs. 3.000 to Rs. 4,000 p.a. She had also stated that she had spent whatever she earned and there was no surplus. It was, therefore, concluded by the revenue authorities that the creditworthiness of Smt. Meena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been claimed to have been carried on from the residence. Income of Rs. 14,000 to Rs. 15,000 has been claimed to have been earned from the profession. She has studied upto 10th class and left education in the year 1979. She did not have any diploma in the textile designing. She claims to have attended some crash courses at Kamla Nagar. Exact address was claimed as not remembered. She also claimed to have attended some course at Karol Bagh and having learned batik during school days. These courses of 1 month to 2 months duration were claimed to have been attended during the year 1980-81. She claimed to have received orders at her residence but no bulk orders as such were received from any firm or company. No accounts had been maintained. She claimed to have earned between Rs. 14,000 to Rs. 15,000 p.a. She did not open any bank account till14th February, 1986when she deposited a sum of Rs. 25,000. Another sum of Rs. 40,000 was deposited on15-2-1986. A cheque for a sum of Rs. 64,900 was issued on22nd February, 1986in the name of the firm i.e. soon after the depositing of money with the bank. Another cheque of Rs. 20,000 was issued in the name of the firm after depositing a sum of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure scheme where there is a promise to accept the declaration without scrutiny. In the latter case, their Lordships of the Supreme Court in the case of Jamnaprasad Kanhaiyalal held that the immunity of not making any enquiries was available only in the hands of the declarant and where the credit appears in the third party account, the revenue would be entitled to make enquiries and record a conclusion on the basis of the evidence. Keeping these principles of law in mind, we are of the view, that making of assessment under section 143(1) in the case of creditors is not a factor that precludes the Assessing Officer from examining the veracity and genuineness of the claim of having earned the income. 29. Another aspect that requires consideration is as to whether in a case where the Assessing Officer finds any sum credited in the books of accounts of the assessee and explanation of the assessee regarding its source is found unsatisfactory, the Assessing Officer is bound to find out the exact source or the possibility of the money belonging to any other person. In our view, under section 68, any amount found to be credited in the books of accounts of the assessee and explanation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enses, depreciation and telephone expenses. Assessing Officer had made disallowance at 1/3rd out of car expenses and depreciation on account of personal use by partners. The claim of the assessee was that the disallowance was excessive. The CIT (A) has restricted the disallowance to 1/5th of the expenses. In our view, disallowance at 1/6th out of the expenditure of car and its depreciation would be justified. Assessing Officer is directed to allow relief accordingly. 32. A disallowance of Rs. 300 out of telephone expenses is reasonable and we accordingly decline to interfere. 33. The next ground of appeal is relating to levy of interest under sections 216 and 217. 34. Assessee had raised following ground of appeal before the CIT (A) : " That, the learned Income-tax Officer has further erred in charging interest from the assessee-firm under sections 216 and 217 of the Income-tax Act. Before charging such an interest the Income-tax Officer did not provide any opportunity to the assessee-firm. His order, levying such a charge is thus unsustainable and invalid. In any case the charge being made not in accordance with law requires to be modified. " 35. The CIT (A) has not reco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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