TMI Blog1991 (1) TMI 208X X X X Extracts X X X X X X X X Extracts X X X X ..... 68. There we twelve such cash credits but the ITO considered the main credit in the assessment order for which explanation was not accepted and the same was treated as income of the assessee from undisclosed sources. 3. The assessee took up the matter before the CIT(A) who noted that the assessee has filed confirmatory letters for all the seven cash credits which were disbelieved by the ITO. The assessee had also filed affidavits from those creditors who were examined by the ITO. It was the case of the assessee before the CIT(A) that the creditors admitted such cash credits and they are also income-tax assessees and their assessment for the asst. yr. 1982-83 had been completed. It was pointed out to the CIT(A) that in income-tax assessment of the creditors, it has been admitted by them of having advanced the loans to the assessee which had been accepted by the Assessing Officer. According to the assessee, the onus which lay on the assessee had been discharged and the ITO was not justified in rejecting the same and to make the additions as income from other sources. 4. The CIT(A) noted certain facts in respect of this point that the identity of the cash creditors has been establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and no adverse inference against the assessee can be made. 6. Thereafter, the CIT(A) concluded that in view of the decision in the case of Tolaram Daga and in the case of Sarogi Credit Corpn and in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation (1986) 52 CTR (SC) 138 : (1986) 159 ITR 78 (SC), he was of the opinion that the ITO was not justified in making the addition of Rs. 5,95,000 in respect of six cash creditors in the hands of the assessee. The CIT(A) observed that proper course for the ITO would have been to send necessary intimation to the ITO assessing the cash creditors for necessary action at his end. The CIT(A) in his short order deleted the addition. Hence, this appeal by the Revenue. 7. It is vehemently urged by the learned counsel for the Revenue that there was no justification at all for the CIT(A) to delete the addition in the face of the materials brought out by the ITO in the assessment order. It is also argued that the CIT(A) failed to take note of the various findings of fact by the ITO which had a bearing on the issue in respect of the different creditors. According to the Revenue, other various finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he loan and genuineness of credit was also shown by the assessee. It is submitted that the ITO disputed the capacity of the creditors but the entries in the assessee's accounts are not disputed which are prima facie proof that the money standing in the credits of these persons came from those parties concerned. It is, therefore, urged vehemently that in such a situation, the accounts are acceptable as correct. It is also pointed out that in support the various submissions made before the ITO, affidavits have been filed. It is stressed that in the balance sheet and other accounts, loans taken from the creditors were shown and that in their respective assessments, credits were not doubted by the concerned Assessing Officer. It is further pointed out that hose persons who have appeared before the ITO were examined and their statements were not challenged. It is submitted, therefore, that the decision in the case of Orissa Corporation (P) Ltd. relied on by the assessee before the CIT(A) was correctly applied by the CIT(A) and, therefore, there is no case for the Revenue in the circumstances and facts of the present case. It is urged, therefore, that the appeal by the Revenue may be dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accept the credit to the genuine in view of the glaring facts. He pointed out that this creditor filed his first income-tax return for the asst. yr. 1981-82 on 6th Aug, 1982 showing income from brokerage in galla goods and salary from M/s. Mahalchand Motilal Kothari. He noted that the return was filed after the loan was supposed to have been given to the assessee. The assessee stressed the point that the money was repaid by the assessee to the creditor who in his turn had made further payments for giving loan by cheque to another party M/s. Mahalchand Motilal Kothari, from which it was withdrawn later on for the purpose of sending a draft of Rs. 60,000 sometime in 1986 to M/s. Mangilal Hemant Kumar at Calcutta. 14. The ITO noted that the books of accounts was supposed to relate to the period from 1st April to 31st March, 1982 which consisted only a single exercise book, on which the assessee's representative had laid much stress. According to the ITO, the books of accounts had not been maintained on regular basis and details regarding dalali income had not been recorded in the said books. In view of the circumstances narrated by him in the assessment order, the ITO found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bserved that this would not operate retrospectively to make the loan transaction in the case of the assessee as genuine. He, therefore, treated this amount as income of the assessee under s. 68 of the Act. 17. There is a cash credit of Rs. 1 lakh in the name of Tarachand Sethia who was produced before the ITO alongwith the affidavit sworn in. This creditor stated that he came to Assam in the middle of 1977 from Bhuttan and started supari business from which he had advanced a cash loan of Rs. 1 lakh to the assessee on 14th April, 1981. It was claimed that the source of the loan was from the income from supari business and the loan taken from other parties. The ITO noted that Shri Tarachand Sethia claimed to have carried on the supari business in the hut bazar in and around Kharupetia and had gone to Kharupetia several times by bus. The ITO asked this party from which place at Gauhati, this person got into the bus and how long it took to reach Kharupetia from Gauhati. But this party stated that he cannot remember all these. The ITO pointed out that this party could not tell the approximate location of Kharupetia as he did not remember. This party stated to have carried on the supar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back from the assessee, the same was utilised by the creditor in his own way. Here also, the ITO noticed that the accounts were started to be maintained only from 1st April, 1981, i.e., a few days before the cash loan of Rs. 2 lakhs was claimed to have been made to the assessee. In the circumstances of the case, the ITO found the explanation to be not satisfactory and added the income under s. 68. 20. In the case of Dharamchand Jain, Rs. 1,50,000 was shown as credit. This party was also produced by the assessee and an affidavit was also furnished in which, it was stated that Shri Jain had given the cash loan from his individual funds and also from the loan taken from others and that he had been doing dalali business in trucks from 1976 to 1985. They party claimed that after he had passed his B.Com., in 1976, he used to earn dalali from drivers of trucks coming from outside Assam. The creditor claimed that he used to contact the drivers at M.C. Road, Gauhati, and arrange for the carriage of coal. In his reply, this party stated that the trucks picked up coal from Beltola and he used to tell the location of that place to the drivers. In his other replies, it was stated that he did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri. The ITO found that this was inconsistent with what Shri Shantilal Kothari had stated earlier, i.e., prior to 1978 he was mainly in Rajasthan and came to Gauhati only occasionally. The ITO inferred that the statement of accounts of the said HUF did not reflect the reality. He found that Shri Kothari had filed his first income-tax return for the asst., yr 1981-82 only on 30th July, 1982, after the date on which the loan was supposed to have been given to Shri Raichand Kothari, HUF. He noted that the return of income was submitted showing income from betelnuts business, interest income from the HUF M/s Mangilal Kothari and salary from M/s K.C. Jain co. IT was stated that Shri Kothari joined as an employee of K.C. Jain Co., for the sake of experience during the first part of 1981. 22. As in the case of other parties mentioned earlier, the assessee's representative emphasised the point that the cash book and ledger was maintained by Shri Kothari for the period from 1st April, 1981 to 31st March, 1982 in which these transactions were recorded and necessary entries made. Here also, the ITO found that the accounts were consisted of a single exercise books which was not maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... armull (Kalimpong) Ltd., there was cash credit in the name of an illiterate and simple Tibetan, whose statements were found to be false. In the case of Oriental Wire Industries (P) Ltd., there was no evidence to show that the loan was actually given and the amount was lying invested with the lady. 27. The CIT(A) referred to the decision of the Hon'ble Gauhati High Court in the case of Tolaram Daga and has reproduced the relevant part of the judgment, in his order. In the observation, it has been noted that the accounts of the firm had been produced in the case and had been accepted and acted upon by the Department and no serious challenge had been made to their genuineness or that they were kept regularly in the course of business and, therefore, the accounts were relevant and afford prima facie proof of the entries and the correctness thereof under s. 34 of the Evidence Act. It was further observed that to require the firm or the individual partners to go further and adduce proof of the sources from which the deposits in question appearing in the accounts in the name of third parties were derived by them, would be placing a burden on the firm as well as the partners, which was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso has been established. It is urged that the capacity of the creditors were only disputed but the entries in the assessee's accounts had not been disputed which are prima facie proof supported by the affidavits filed by different parties. It is also urged that the balance sheet has shown that the advances has been taken from the creditor which has not been doubted but accepted by the concerned Assessing Officer of the creditors. According to the assessee, the ratio of the decision in the case of Orissa Corporation applied to the case of the assessee. Therefore, the CIT(A) has validly deleted the addition. 31. After taking into account, the rival contentions of both the sides, we find that there is force in the submissions made on behalf of the Revenue. It is seen that the decision in the case of Tolaram Daga was rendered under the provisions of the IT Act, 1922, in which there is no provision corresponding to s. 68 of the IT Act, 1961. In fact, s. 68 of the IT Act, 1961, did not come into consideration in the case of Tolaram Daga. The addition in the present case was made under the said section, in which amongst other things, it is provided that such credit, is not explained or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ITO did not rest content with the confirmatory letters of statement of the creditors themselves. He asked the assessee to produce them which was done and gave his findings in respect of those creditors as narrated in the assessment order. He also looked into those accounts as produced before him and in certain cases, he found that the entries of the dalali business done at Silchar by the concerned creditor, were not recorded. Similar findings have been given in respect of the claim of another creditor regarding the income from sewing and knitting. In other words, the ITO did try to ascertain the credit worthiness of the creditors. In the case of Orissa Corporation, as relied on by the CIT(A), it has been observed by the Hon'ble Supreme Court on the facts of that case that the assessee had given the names and addresses of the alleged creditors and it was in the knowledge of the Revenue that the said parties were Income-tax assessee with their index numbers which were filed with the Revenue. But apart from issuing summons under s. 131, the Revenue did not pursue the matter further and the Revenue did not examine the source of income of the said alleged creditors to find out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, there was non- consideration of the relevant factors. In the circumstances, there is force in the submissions made on behalf of the Revenue that the creditworthiness of the creditors would have to be examined which the ITO had done in this case and found that there was no such material to support the claim of the assessee in respect of the credits. 34. Amongst other things, the assessee's learned counsel has also placed reliance on the decision in the case as reported as Hanuman Agarwal in order to stress that the burden of proof had been discharged by the assessee and that the cash credit cannot be assessed as income of the assessee. Further reliance is made on the decision of the Hon'ble Calcutta High Court in the case of Shyam Sunder Co. in which amounts other things, it was observed that findings by the Tribunal that some of the credits were genuine, is a finding of fact. The Tribunal had taken notice of the confirmatory letters and the income-tax file Nos. of the creditors but the Revenue did not summon any of the money lenders for examination. According to the assessee's learned counsel when the Assessing Officer had accepted the accounts of the creditors in their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ramma as reported in AIR 1988 SC, 1987, in which it was held amongst other things, that statement in affidavit as to statement of fact being based on personal knowledge and failure to indicate statements so based, such affidavit is liable to be rejected. It may be helpful in this case to refer to another decision of the Hon'ble Supreme Court as reported in AIR 1988 S.C. 1382, at para-4, in which on the facts of that case, it was observed that affidavits are not included in items of "evidence" s. 3 of the Evidence Act, which can be used only if for sufficient reasons Court passed an order under 0. XIX, r. 1 or 2 of CPC. 37. As mentioned earlier, the CIT(A) has deleted the addition made by the ITO as observed by him that in view of the decisions referred to by him in the impugned order, the addition made by the ITO was not justified. Having regard to the decisions of the different Courts discussed by us in the preceding paragraphs and after considering the rival submissions made by both the sides as well as the findings of facts as available from the orders of the authorities below, we are of the opinion that although the assessee has identified the creditors, the ITO has establish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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