TMI Blog1993 (11) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... ose cash credits were followed while passing the separate assessment order dt. 30th Dec, 1985 for asst. yr. 1983-84. Therefore, since the issue involved in both these appeals are intimately connected with each other and since some of the findings which may be given for asst. yr. 1982-83 will have an automatic bearing on some of the issues involved for asst. yr. 1983-84 and since the assessee is common in both these appeals, this Tribunal felt that it would be convenient to take up both these appeals together and dispose them of by a common order. 3. The appellant is represented by Shri A. Satyanarayana and Shri G.V.V.S. Murthy, learned advocates for the assessee while the revenue is represented by the Sr. Departmental Representative Shri S.C. Jaini. Written arguments are filed both for the assessee as well as for the Department and they are made part of the records of these appeals. The assessee was a resident of House No. 3-4-876, Barkatpura, Hyderabad. There was a search in the residential premises of the assessee on 22nd Sept., 1982 when cash of Rs. 75,000 was seized besides some papers showing accounts. A panchanama in which particulars of the seized material was drawn up. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee's uncle, Shri Rama Mohan Rao. Before actually producing such accounts, the assessee had flied his letter dt. 6th Dec., 1987. In the said letter it is stated that he does not maintain any books of account himself and all his accounts are maintained by his uncle Shri Rama Mohan Rao at Gudivada. He periodically sends information to him on the basis of which the accounts are drawn up under his uncle's (Rama Mohan Rao's) supervision since the assessee used to be on tours very often due to his excise business and that was the reason why he was sending the information to his uncle so that all information and books are available at one place. The books have been written up in the relevant years. He had requested his uncle Shri Rama Mohan Rao to send the books. Shri Rama Mohan Rao was bed-ridden and down with cancer. He would be in a position to get the books within four or five days time and he will produce the books after they are received from Gudivada. The Assessing Officer states that no books of accounts were seized at the time of search. He further states that the books produced later on 17th Dec., 1985 before him cannot entirely be relied upon for the following reasons : ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authenticity to the correctness of the accounts can be vouchsafed. Thus we hold that no great importance can be attached to such accounts except to serve as weak corroborative evidence. It is argued that the assessee had borrowed from the following five persons the amounts shown against each of them as cash credits for carrying on his arrack business : (1) Sri Ravi Ammayya, Tenali Rs. 2,00,000 (2) Sri Kadiyala Koteswara Rao, Siripuram, Guntur Rs. 60,000 (3) Sri Kadiyala Parasuramaiah, Sripuram, Guntur Rs. 50,000 (4) Sri Adusumilli Sambasiva Rao, Sripuram Rs. 30,000 (5) Sri Walluri Seshagiri Rao, Bandarupally, Guntur Rs. 40,000 ------------------------ Total Rs. 3,80,000 ------------------------ These borrowals were said to have made in September 1981, and therefore, since the first year after the borrowal ended on 30th Sept., 1981 relevant to asst. yr. 1982-83, the question of either claiming interest or disallowing the same did not arise for asst. yr. 1982-83. It was also claimed by the assessee that he had borrowed a sum of Rs. 1,81,000 for his own business in the month of September 1981 from the following six parties against whom the borrowed amounts were resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 14 persons and the assessee's case was that he had collected a total sum of Rs. 42 lakhs from all the persons in his group and supplied the money of Rs. 42 lakhs to M/s Jangam Rao Co. The list of 14 persons from whom the amounts were collected or who constituted the group of four-teen is provided at Annexure-A to the assessment order. The said annexure gives details of both the payment as well as the amounts collected from persons of his group. The said list of 14 persons also contained in a part of the statement of the assessee given on 19th Dec., 1982, a copy of which is provided at pages 1 to 9 of the paper book. The credits at serial Nos. 2, 5, 7, 8 9 mentioned in the Annexure-A were not accepted and the total of the credits borrowed from all of them amounted to Rs. 3,80,000. According to the assessee, these five creditors had actually invested their monies against promised share in the business profits. The assessee did not maintain any books of account but Jangam Rao Co. had maintained the books of account for the arrack business carried on by it. However, in the books of Jangam Rao/ Co., the investments made were all entered in a consolidated figure. Page No. 20 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n on 11 th Dec., 1985 and 12th Dec., 1985 and failed to produce the other three creditors. Opportunities were granted to the assessee to produce the creditors on 11th Dece., 1985, 12th Dec., 1985 and 30th Dec., 1985. However, the assessee failed to produce any of them but only produced the affidavits dt. 23rd Dec., 1985. One of the affidavits is from Sri Ravi Ravindranath son of Ammaiah. It is unnecessary to extract the whole deposition of Shri Ravi Ammaiah which is already extracted by the Assessing Officer. It is enough if we pronounce upon the genuineness of the cash credit. There are certain pieces of evidence on record which go to prove the genuineness of this cash credit. The first piece of evidence is the fact that in the earliest of the statements given by the assessee in the search proceedings which is dt. 10th Dec., 1982 and 13th Dec., 1982, a copy of which is provided at pages 1 to 9 of the paper book, answering to question about the source of investment of Rs. 41 lakhs, the assessee replied, inter alia, that he had borrowed from 14 persons and he raised a total loan of Rs. 42 lakhs from them. He gave the names of the creditors as well as the amounts borrowed from them. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... table position he held in public life, his affidavit surely carries weight. The demand draft mentioned in his affidavit and the number given in the certificate given by the Tamil Nadu Mercantile Bank tallied with each other. The third piece of evidence which goes to support the truth of the cash credit was the cash book and ledger obtaining at pages 21 to 35 of the paper book. They were for the period from 29th Aug., 1981 to 1st Sept., 1982. It is already stated that it is prepared from the seized material now with the Department and in the cash book at page 21 it is clearly mentioned that a sum of Rs. 2 lakhs was borrowed on 14th Sept., 1981 from Shri Ravi Ammaiah Garu. Corresponding ledger account of Shri Ravi Ammaiah was provided at page 30 and in that it is clearly stated that the amount of cash credit together with interest was repaid on 5th April, 1982. The total amount came to Rs. 2,18,000. This version of repayment was corroborated with the statement of the assessee recorded on 13th Dec., 1982. The question asked as well as the answer given are the following : " Q. You have stated that you have collected 42 lakhs from various people and paid Rs. 41 lakhs to M/s Sri Venkat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hri Ravi Ammaiah cannot be taken against he assessee since it would be in violation of principles of natural justice. By the time Shri Ravi Ammaiah made the statement, he had realised all the monies which he had already advanced to the assessee. He was also an income-tax assessee. One does not know whether the interest income of Rs. 18,000 earned by him was revealed in his own assessment and any admission on his part of having lent Rs. 2 lakhs or realising it back together with interest at 18% would certainly land him in trouble and that may be one of the reasons why he might have denied having lent the sum of Rs. 2 lakhs or having given a confirmatory letter or having passed the receipt at the time of repayment of Rs. 2,18,000. It is significant that his statements were recorded on 3rd May, 1985 and 22nd May, 1985 and during the course of giving the statement at the request of the revenue, he had furnished specimen signatures both in English and Telugu. Having obtained those signatures, the Revenue did not choose to send those signatures for the purpose of comparison with the signature obtaining on the confirmatory letter to conclusively prove that they are not of the same person. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some lands prior to giving the loan. He sold two acres of land at Sripuram which was in his mother's name. He does not remember the purchaser's name but the registered document was executed at Sattenapalli. Sri Nalluri Seshagiri Rao had deposed that he does not know the assessee and that he did not give any loan to him also. He denied having signed any confirmatory letter. However, when he was confronted with a Telugu typewritten letter in which receipt of Rs. 40,000 was acknowledged and interest of Rs. 4,100 was acknowledged from the assessee, the following answer was given by him : " The particulars in para 1 such as the name and the date, etc., appear to have been filled in by me. I do not remember under what circumstances I have signed this paper. The amount figures noted in para 2 have not been written by me. I have not given any loan or received back with interest. " He had a Savings Bank Account in Syndicate Bank, Guntur. This has been opened to facilitate encashment of small demand drafts sent by his sons now and then. When he was examined next time he stated that earlier he had 17 acres of land at Bandarupalli and he sold in 1980 and 1985. At present he is not having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise business. He collected money from others in Sept., 1981 to do business. He collected amounts from the following persons : Rs. 1. Shri K. Koteswara Rao 60,000 2. Shri K. Parasuramaiah 50,000 3. Shri A. Samba Siva Rao 30,000 4. Shri N. Seshagiri Rao 40,000 He knows them because they come to his shop since long time and he had contacts with the relatives of those persons. When the moneys were given to him no pronotes or security were taken for the amounts. The moneys were given to do business and after collecting the money from the above persons he had given the same to the assessee. Initially the assessee told him that the contract was taken by him and others but later he told him that the business was taken over by others and he got back the money which he had returned to the persons from whom he had earlier taken. He had not done any business jointly with the persons from whom he had taken the moneys. He had no marriage alliances with any of the four persons and Shri Seshagiri Rao also knows him since a long time. Except taking a loan of Rs. 2,70,000 from bank in 1982, he had not borrowed from any other person. He had not raised loans from similar sources for his p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3th Dec., 1982 had stated the names of these two persons together with the amounts borrowed from each of them, correctly, as the two out of 14 persons from whom he borrowed Rs. 42 lakhs. Further the cash book and ledger at pages 21 to 35 of the paper book which still remains with the Department as part of the seized material disclose the amount borrowed from these two persons. At page 21 it is stated that the amount borrowed from Shri A. Samba Siva Rao, Sripuram on 15th Sept., 1981 was Rs. 30,000. Similarly the amount borrowed from N. Seshagiri Pao of Bandarupalli on 15th Sept., 1981 was Rs. 40,000. Similarly at page 33 of the paper book it is stated in the ledger accounts of each of these persons that on 5th April, 1982, the interest amounts of Rs. 3,100 and Rs. 4,100 were respectively paid and the original amounts of Rs. 30,000 and Rs. 40,000 were returned to them on 6th Sept., 1982. Thus this Tribunal is completely satisfied with the evidence on record to hold that these two cash credits in favour of these two persons, namely, Samba Siva Rao and Seshagiri Rao are true credits and, hence, the amounts of Rs. 30,000 and Rs. 40,000 respectively should not be included in the hands of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad furnished his specimen signatures in his deposition. He had not given any loan for interest and he had sold 12 acres of land to discharge his debts about 4 years back. The ginning factory commenced in May 1985. Both Shri K. Koteswara Rao and Shri K. Parasuramaiah were examined behind the back and in the absence of the assessee. Though the assessee promised to produce them, he was not able to do so and ultimately he had flied their affidavits dt. 19th Dec., 1985. Accounts copy of Shri Koteswara Rao was provided at pages 70 and 71 of the paper book and copy of the accounts of Shri Parasuramaiah was provided at pages 75 and 76 of the paper book. The confirmatory letter of Shri K. Koteswara Rao was provided at page 68 and that of Shri Parasuramaiah was provided at page 73 of the paper book. The account copy of Shri Koteswara Rao was provided at page 72 and the account copy of Shri K. Parasuramaiah was provided at page 77 of the paper book filed by the assessee. The names of these two creditors were mentioned in the list of 14 persons from whom the assessee borrowed Rs. 42 lakhs. In his statement recorded from the assessee which is the earliest of the statements recorded from the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments on affidavit should not be accepted as true, the absence of denial by the other side, would not by itself be sufficient to clothe the statements on affidavit with truthfulness and reliability. " In this case, the very fact that these alleged cash creditors had already been examined on 19th June, 1985 and 20th June, 1985 and they had given completely different versions than those now found in their affidavit dt. 23rd Dec., 1985 would show that their affidavits cannot be relied upon simply because they went uncontroverted by the Revenue. In our opinion, there are sufficient facts and circumstances which would justify us in not taking the contents of the affidavits of these two alleged cash creditors at their face value. However, it cannot be denied that there are two complete divergent versions coming from these two cash creditors which makes the task of any Tribunal difficult to come to a just conclusion about the truth or otherwise of the cash credit. However, these two persons had given their specimen signatures in their respective statements given to the ITO who had recorded their statement. A comparison of their specimen signature with the signatures obtaining on the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the list of 6 creditors given above, the last three creditors namely, Sri K. Venkateswara Rao, Shri K.V. Subramanyeswara Rao and Maganti Gopalakrishnaiah are the relatives of the assessee. The assessee is the son-in-law of the mother-in-law's sister of Shri K. Venkateswara Rao. Shri K.V. Subramanyeswara Rao is the son of Shri K. Venkateswara Rao. Shri M. Gopalakrishnaiah is also related to the assessee inasmuch as the assessee is the son-in-law of the mother's sister of Sri M. Gopalakrishnaiah. Out of these six persons mentioned above Shri K.V. Subramaneyeswara Rao was not at all examined. His father Shri K. Venkateswara Rao claimed to have lent an amount of Rs. 30,000 in the name of his son. Firstly let us examine one whether the substratum of the truth of the assessee's version is able to withstand the test of scrutiny. The assessment proceedings started in 1985. The assessee filed his return of income on 2nd Jan., 1985. During the course of the assessment proceedings, the trial balance drawn on 15th July, 1982 and the capital account of the assessee drawn on 18th Oct., 1981 which are respectively marked as Bundle No. II item 72 and Bundle II page 63 were found at the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0th Dec., 1982. We had not come across any of these names in any of the statements recorded from the assessee either on 10th Dec., 1982 or 13th Dec., 1982. These cash creditors were examined on the following dates : (1) Sri Aretal Viplav Kumar 17-7-1985 (2) Sri V. Gyaneswar 11-8-1985 (3) Sri V. Seetharama Reddy 9-7-1985 (4) Sri K. Vankateswara Rao 18-6-1985 (5) Sri K.V. Subramanyeswara Rao not examined (6) Sri M. Gopalakrishnaiah 17-6-1985 The case of the assessee as set out in his written arguments on this aspect is that from out of Rs. 42 lakhs borrowed for investment in arrack business, Rs. 41 lakhs were invested in arrack business and Rs. 1 lakh was utilised by the assessee for his own business for which he had kept separate books. These books of account were scrutinised by the Assessing Officer during the assessment proceedings and the genuineness of the books or entries made therein were never doubted. 9. We are unable to accept all these arguments. The so-called account books in which the credit of Rs. 1 lakh was entered into according to the assessee were never produced before the Assessing Officer or in 132(5) proceedings. A clear question was put and answe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this letter in the earlier part of this order to which a reference can be made now and in pursuance of that letter the assessee produced his accounts on 17th Dec. 1985. The question is whether the accounts thus produced on 17th Dec., 1985 are maintained by the assessee or by his uncle Shri Ram Mohan Rao. In the assessment order, the point is made very clear as follows : " Assessee has, however, also produced some books of accounts on 17th Dec., 1985 in support of his various claims. These books of accounts were not seized from assessee's residence during search as according to him they were maintained at Gudivada by his uncle Sri Rama Mohan Rao. In his order under s. 132(5), ITO has stated that though such a claim was made during proceedings, no books of accounts were ever produced. " So we have no hesitation to come to the conclusion that the only books of accounts produced before the ITO on 17th Dec., 1985 are the books maintained by Shri Rama Mohan Rao and it was never the claim of the assessee that he maintained separate books of accounts either for Rs. 1 lakh borrowed or for any other amount himself. Taking advantage of the fact that the books produced were not impounded b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross-examine these persons and in the absence of any cross-examination, he wanted to nullify their statements on the grounds that principles of natural justice was denied to him. The argument of the assessee that since chance of cross-examination of these creditors was given to him, the principles of natural justice were violated is fraught with mischief or constitutes a mischievous argument. Ordinarily he should have produced these persons. However, the Assessing Officer examined them, no doubt, in the absence of the assessee, though no burden to prove the cash credit lay upon the Revenue to any extent whatsoever. If the assessee is interested to establish his case, nothing prevented him to get these persons on summons and examine them. That means these persons should always be treated as witnesses for the assessee and under no circumstances they should be permitted to be cross-examined by him. However, having failed to secure them as his witnesses the assessee wanted to take advantage of his own failure to set at naught the effect of their statements given to the ITO depicting or contending that the principles of natural justice were denied to him. The assessee did not either bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural justice. He was, in the circumstances of the case, entitled to draw an inference that the receipts were of an assessable nature... The only reason given by the Tribunal for accepting the assessee's version concerning the two loans was, that, unlike in the case of Biharilal who was examined by the officer in the presence of the assessee, Newandram and Harising, although examined by the officer had not been produced by him for cross-examination by the assessee. As stated by us earlier, the officer had not denied any reasonable opportunity to the assessee to adduce evidence. " Thus they have reversed the Tribunal's decision and upheld the finding of the ITO whereby the addition of cash credits with regard to M K was upheld. In this case also since the assessee's primary duty of producing these persons was never attempted or discharged and since the ITO is entitled to secure his own evidence and he need not disclose the said evidence to the assessee, no principles of natural justice were violated by not summoning these witnesses for cross-examination of the assessee. Out of the three persons, Shri Aretla Viplav Kumar is stated to have lent Rs. 98,000 in total. Out of it Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3-84. Apart from the above discrepancies and circumstances which destroys the credibility of this cash credit, Shri Viplav Kumar was examined and he denied having lent the money. In his statement which was extracted in the assessment order for 1982-83, he stated that he had 18 acres of land at Kolanupaka, Aleru Tq., Nalgonda Dist. out of which 8 acres are wet and balance dry. The land stands in his father's name. He is the only son. It is a double crop net land. No crops are grown on dry lands. He lives along with his father. They get about Rs. 3,000 to Rs. 4,000 per annum from out of agriculture. There are seven members in their family, himself, his wife, father and mother, his two sons who are studying in schools and colleges and one daughter aged 11 years. He knows the assessee. His elder brother Jaya Prakash was his classmate. He explained the circumstances under which he gave an affidavit which is now produced by the assessee. He says that about 1 1/2 years ago the assessee met and told him that there was some family dispute between himself and his other brothers wherein his finances are involved. The assessee requested him to sign an affidavit to show it to his brothers for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h actually he did not give any loan. He did not have even a house at Hyderabad either in his name or in his wife's name and they are living in a rented house bearing Door No. 1-8-7/1. His account copy is provided at page 91. It would show that both principal and interest were returned to him on 31st Oct., 1983. However, interest was not claimed as deductible expenditure in asst. yr. 1983-84 though it is substantial amount of Rs. 6,075. In the argument before the CIT(A), Hyderabad in the appellate proceedings against 132(5) order, inter alia, it is stated that under this cash credit as follows : " The amounts were taken actually for the purpose of arrack business and if the assessee had succeeded in the auction this party would have been taken as a partner. That was the understanding. These amounts were repaid subsequently in 1984 as the assessee utilised the funds for his Peacock Restaurant business which he started in partnership with others. " Thus where as his accounts show that he was repaid fully by 3lst Oct., 1983 in the arguments it is clearly argued that he was paid only in 1984. The same findings which were adopted while discussing the cash credit of Shri A. Viplav Kum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g. The amount was repaid subsequently in 1984 as the assessee utilised the funds for his Peacock Restaurant business which he started in partnership with others. He could not take this creditor as partner in that firm due to various reasons. " This version in his arguments adverted to above was quite different from the version spelled out as per account copy as to the year of repayment. Further if really this cash credit is genuine, there is no reason why the aggregate interest at 18% per annum was not claimed as a deduction for asst. yr. 1983-84. This is a strong indication to doubt the genuineness of the cash credit itself. Further if this cash credit is genuine and real, it would have formed part of Rs. 42 lakhs but the name of this cash creditor was not found as one of the 14 persons from whom Rs. 42 lakhs was borrowed. It is the version of the assessee even before the CIT(A), Hyderabad, which was filed as late as on 18th Feb., 1987 that this credit was borrowed for purpose of arrack business. The reasoning which we have adopted while appreciating the cash credits of A. Viplav Kumar and V. Gyaneswar would equally apply here. The assessee admitted in his written arguments that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lised by him in his business under the name and style of M/s Peacock Restaurant and the loan was repaid in May 1985. Similar is the case with the payment of loan due to Maganti Gopalakrishnaiah. The account copy of K. Venkateswara Rao as per the accounts of the assessee was furnished at page 96, the account copy of his son Sri K.V. Subramanyeswara Rao as per the accounts of the assessee was furnished at page 99 and the account copy of Shri Maganti Gopalakrishnaiah was furnished at page 101. According to those account copies, the debt due to Kolipara Venkateswara Rao and his son Subramanyeswara Rao were recorded to have been repaid on 10th June, 1985 and 18th June, 1985 respectively whereas the account of Shri M. Gopalakrishnaiah shows that repayment of his loan was made on 17th May, 1985. None of these amounts carried any interest or any interest was debited in any of their accounts. Shri Kollipara Venkateswara Rao is stated to have given the loan on 30th June, 1981. So also another sum of Rs. 30,000 was given by him only on 30th June, 1981 in his son's name. The day book or cash book and ledger where their accounts were entered into were never produced before either the IAC (Assts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral income. If really these cash credits in the name of Shri K. Venkateswara Rao and his son Shri Subramanyeswara Rao were correct and if a total amount of Rs. 60,000 was repaid on 10th June, 1985 and 18th June, 1985, which is the date of examination of Shri K. Venkateswara Rao itself, it would be easier for him to state that on the date of examination he received Rs. 30,000 whereas after a week from the date of examination, he received Rs. 30,000 from the assessee. However, the version of Shri K. Venkateswara Rao that he lent Rs. 40,000 and that he does not remember when the amount was returned to him speak volumes about the genuineness of the cash credits. Further, these persons being near relatives of the assessee, in the opinion of this Tribunal, the assessee is bound to prove the source of source also. These three witnesses were not brought by the assessee but they were examined by the ITO on his own during the course of the assessment proceedings. That does not absolve the assessee to bring them as his witnesses, and to prove all the ingredients of cash credits. Shri M. Gopalakrishnaiah was examined on 17th June, 1985. He says that his only source of income is agricultural in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that income is from any particular source. " Our attention is also drawn to the decision of the Kerala High Court in M.A. Unneeri Kutty v. CIT [1992] 198 ITR 147. In the headnote the following proposition is laid down : " It is for the assessee to prove the identity of the creditor as also his creditworthiness. The genuineness of the transactions should be proved. Held, that the Tribunal had found that the assessee had established only the identity of the creditor but the creditworthiness and the genuineness of the transactions had not been proved. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Next let us take up the cash credit of Smt. D. Premkumari. In the confirmatory letter received by her, the date and the amounts borrowed are mentioned as under : Date Amount Rs. 1-10-1981 20,000 18-1-1982 20,000 She is no other than the mother-in-law of the assessee and widow of Shri D. Rajendra Rao. A statement was obtained from her on 29th Nov., 1985. She stated that she is a widow of Shri D. Rajendra Rao who used to carry on business in purchase and sale of cars, motor cycles and scooters at Madras. They were in Madras for 18 to 20 years. Her husband also used to run a chit at Madras. She does not know his earnings from business. Her husband had no landed property but she had 4 1/2 acres of agricultural land in Rachapatnam village. Her sister's son Srimannarayana is looking after the lands. There is no fixed lease between them and she was taking money from him as and when she needed it. She does not remember which are the amounts she had received from him for the last 15 years. They have no house at Madras and they used to stay in a rented house paying Rs. 450 per month. Her family consisted of herself, her husband, 4 daughters and one son. Three daughters were marr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a question she had got any bank account at Madras or Hyderabad and if so whether any transactions were routed through bank, she had clearly stated that in regard to the money given to R. Sobhanadri Chowdary she remember to have sent draft for Rs. 50,000 from Madras. She used to have saving bank account in Andhra Bank, Madras which was closed by her while being shifted to Hyderabad in 1982. She has now an account with M/s Indian Bank, Barkatpura. She had not drawn any amounts from the bank for payment to the assessee or the balance of Rs. 30,000 to Shri R. Sobhanadri Chowdary. The marriage of her second daughter Nirmala had taken place in the year 1976. Smt. Nirmala is no other than the wife of the assessee. She was questioned whether any cash or jewellery were given at the time of marriage to Nirmala. She answered that she had given jewellery weighing 20 sovereigns and she does not remember whether she was given any cash by her husband. On her part she did not give any cash to her. After marriage, her second daughter did not sell any jewellery through her. When questioned what are her present sources of income, she categorically answered that her son is working-partner in Hotel Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that by no means he can lend Rs. 1,90,000 in 1982 as claimed by her. The ITO came to the conclusion that false statement falsify her entire deposition and renders it unsafe to rely upon. He also came to the conclusion that the assessee had evidently introduced his own unaccounted money in the name of his mother-in-law. In this appeal, we are only concerned with the cash credit of Rs. 40, 000 said to have been lent by Smt. D. Prema Kumari to the assessee in 1981. At page 108 of the paper book her account copies were provided. As per these, she lent Rs. 20,000 on 19th Dec., 1981 and same amount on 18th Jan., 1982. The question is whether her cash credit is true. There are strong indications available on record to hold that this cash credit must be true. Sec. 132(5) proceedings which culminated in the orders dt. 20th Dec., 1982 were provided at pages 36 to 48. We have already stated earlier that item No. 72 Bundle 11 represents the trial balance as on 15th July, 1982. The contents of that trial balance which formed the seized material was given in the orders passed under s. 132(5) of the Act dt. 20th Dec., 1982. Pages 39 40 of the paper book which form part of the order clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, as well as her son Sri D.V.S. Prasad were men/woman of no means and they were only benamies of the assessee herein (Shri Hari Prasad). That contention was negatived and both Smt. Prema Kumari and her son D.V.S. Prasad were held to be genuine partners of the said firm. The following was held by the learned CIT(A) allowing the appeal for registration of the said firm : " Apart from the above submissions, it is also explained that Sri Hari Prasad and Shri Gandhi Babu were the two main persons who started the venture with the assistance of one Shri Prakash H. Manglani who since retired. At some stage Sri Hari Prasad introduced his mother-in-law Smt. Prema Kumari and her son Sri D.V. S. Prasad and her daughter Sheela as partners because he was in need of funds. The husband of Smt. Prema Kumari left some properties in Madras and after his death, Smt. Prema Kumari joined the appellant-firm as a partner and shifted to Hyderabad. Sri D.V.S. Prasad was a partner and because he was young, he was also put in the firm as supervisor, more as a matter of training to him. As he was drawing a salary, he mentioned only about his salary but he did not deny, at any stage, that he was a partner an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... support can be taken by the assessee from the appellate order ; (vi) The records do not indicate that the assessee is a person of substantial means. Hence even on probability the availability of cash and its being advanced cannot be accepted ; (vi) The transaction is both ways by cash without any documentary evidence to support. 17. The assessee, as already stated, was assessed to income-tax for assessment year 1977-78. In the assessment order also a sum of Rs. 20,000 said to have been borrowed from his father-in-law Shri Rajendra Rao was added in the hands of the assessee under the head 'Other sources'. The assessee went in appeal before the CIT(A), Hyderabad. The CIT(A) in her order dt. 31st March, 1987 deleted the addition. In that appellate order, a reference was made to the affidavit given by Smt. D. Prema Kumari before the ITO, stating that her husband was carrying on business in purchase and sale of old cars, that her husband gave interestfree loan of Rs. 20,000 to their son-in-law, Shri Hari Prasad as he wanted to do some business in excise. Her husband died in the year 1980, the learned CIT(A) also adverted to a portion of the swom statement recorded from the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 lent to Sri R. Sobhanadri Chowdary she had given Rs. 50, 000 by D.D. drawn on Andhra Bank, Madras. Therefore, from the available material on record, we believe the sale of three cars and one motor-cycle particularly after the death of her husband and realisation of Rs. 30,000 cash therefrom. We hold further that it is not at all impossible for her to lend the amount of Rs. 40,000 in all to her son-in-law especially while it was their practice to lend to him for carrying on business even earlier also, i.e., from her husband's time. The genuineness of the cash credit, in our opinion, was sufficiently strengthened by the fact that the cash credit was found mentioned in the seized papers and that was the very reason why we uphold the cash credit even though Smt. Prema Kumari is the mother-in-law of the assessee and even though she is interested in the assessee. 18. Now let us take the cash credit of Shri A. Viplava Kumar amounting to Rs. 76,000. We have already discussed part of the cash credit said to have been received from this very creditor in our orders for asst. yr. 1982-83. The same reasoning which we have set out in the said order holds good here and in pursuance of that r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing or not. The confirmatory letter says that it is interest bearing. Thus there is conflict between the confirmatory letter on the one hand and his statement on the other. One gets doubt whether it is really intended to be a cash credit or whether it is only a deposit from out of which he expected the assessee to give funds to the boy at Hyderabad as and when he needs money. These are the additional reasons why the cash credit in the name of Shri M. Raghavendra Rao is held to be not a genuine cash credit. Thus we hold that the cash credit in the names of these three persons are not proved to be genuine cash credits and their names as well as the cash credits, in our considered opinion, was inserted or invented only at the fag end of 1985 while explaining the trial balance as well as the capital account of the assessee. Therefore, we hold that these amounts were correctly considered as income of the assessee. 20. Now let us take up the case of Smt. B. Anahta Bai. There is a pronote bundle found in the assessee's premises market No. 13 Bundle No. 1. This pronote stands in the name of the mother-in-law of the assessee. This amount was not mentioned in the trial balance as on 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pronote was found in the assessee's premises during the search. The Assessing Officer should have examined Shrimati Anantabai or her son who stood as guarantor as per the endorsement on the pronote. Without such examination, he was not justified in inferring that the amount lent to Anantabai belonged to the assessee and came out of his unaccounted funds. " Having gone through the above argument, we hold that it is entirely in variance with the present argument of the assessee put forward in the assessment proceedings. The plea that the monies lent under the pronote belongs to his mother-in-law cannot be accepted as true, in view of her clear admission that she did not lend to any body except her third daughter, the assessee and Shri A. Sobhanadri Chowdary. It is also the present version of the assessee that the amount due under the pronote was discharged on 30th June, 1983. Therefore, the promissory note is intended to be a negotiable instrument and it is intended to be acted upon. It is not known to whom the monies under the pronote were paid. If really they were paid why the pronote was still remaining in the custody of the assessee. Suffice it to say that inasmuch as the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the explanation of Smt. D. Prema Kumari and for the same reason for which we held while discussing the pronote of Anantabai, we have to hold even in this case also that the ITO correctly treated the amount under the pronote executed by Shri Komaraiah as having been advanced by the assessee only. This amount also was correctly considered as unexplained investment in the hands of the assessee under s. 69 of the IT Act. 22. Now let us consider the legality of the addition of Rs. 80,000 towards unexplained cash found in the possession of the assessee at the time of search. As already stated, the assessee's premises were searched under s. 132 on 22nd Sept., 1982 and at that time, cash of Rs. 80,000 was found with him. The explanation of the assessee in his letter dt. 6th Dec., 1985 was found to be the same as the one which he had offered in the proceedings under s. 132(5). The seized money of Rs. 80,000 is said to belong to the following four persons : (1) Shri Gyaneswar Rs. 18,400 (2) Shri P. Krishna Reddy Rs. 10,000 (3) Shri P.S. Jagdish Rs. 2,100 (4) Shrimati V. Sailaja Rs. 50,000 -------------------- Rs. 80,500 -------------------- Out of the four persons, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rstly she was not examined. Secondly the particulars of the draft or the bank from which the draft was obtained, certificate as to the particulars of the draft obtained from the bank and the date of the draft were never furnished. Clearly this amount of Rs. 50,000 was borrowed from Smt. Sailaja for purposes of investing the same in the business of arrack. Then obviously it must have formed part of Rs. 42 lakhs borrowed by the assessee. If it is correct then her name must be found as one among the 14 persons whose names were given specifically in the examination of the assessee on 13th Dec., 1982 from whom a total of Rs. 42 lakhs was borrowed. Even according to the version of the assessee, out of that Rs. 42 lakhs, Rs. 41 lakhs was invested in partnership with Shri Jangam Rao and Rs. 1 takh was set apart for conducting assessee's own business. For that Rs. 1 lakh separate account was said to have been maintained. However, it is not the case of the assessee that the name of Smt. Sailaja was found recorded even in his account books maintained for Rs. 1 lakh worth of borrowings from out of Rs. 42 lakhs. If really her name is found as one of the persons from whom borrowal was made, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... They thought of carrying on arrack business in districts and not in the city, like Patancharu, Sangareddy and other nearby places. He himself signed application forms for obtaining bank drafts. They were not able to get the contract. He does not remember the date or month when they got back the amount. He and his friends took back the D.Ds from the assessee and thus got back the amounts. They have cancelled the D.Ds in the S.B.H. and got back the amount. To the question whether he was the sole person who cancelled all the D.Ds worth Rs. 2,10,000 he said that he does not remember. To the question whether he had received back the whole of Rs. 1,04,000 paid in cash, in lump sum from the assessee, he answered that except for some amount he had taken cash from the assessee to the question as to how much amount he had taken back and how much he left with the assessee, he answered that a sum of Rs. 1,60,000 was retained by the assessee which was in the shape of D.Ds. By the date of examination he got back the whole amount. He could not tell how much he got back in each instalment. They have deposited the amount they got back in Indian Bank, Barkatpura, Hyderabad. The bank account is open ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lth. Afterwards, he came to know that IT authorities had searched the residence of the assessee and the assessee asked to wait for the return of money. He knows the assessee for the last eight years. He was able to save money from out of his agricultural income. He had no bank account. He is at present residing in a rented house. After reading his evidence, there is nothing to indicate that he is a man of no means who was not in a position to advance Rs. 10,000 to the assessee. Though his affidavit was bald, at the same time he asserted that an amount of Rs. 10,000 belonging to him was lying with the assessee by the date of the raid. Shri P.S. Jagdish also claimed that a sum of Rs. 2,000 belonging to him was left with the assessee by the date of the raid. 24. Having regard to the statements given and also the affidavits, we are inclined to hold that the amounts of Rs. 10,000 belonging to Shri P. Krishna Reddy and Rs. 2,000 belonging to Shri P.S. Jagdish should be excluded from being considered as unexplained money possessed by the assessee on 22nd Sept., 1982 which is the date of search and seizure. Thus from out of Rs. 80,000, Rs. 26,000 should be deleted from the unexplained mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined by the assessee. In answer to that, the assessee stated that himself, Jagdish and some others, the names of whom he does not remember, thought of running a canteen in Bhagyangar Club, Ameerpet. The club people required Rs. 1,20,000 interest payable. When the assessee and others wanted security for their deposit if paid, the club people said they got Rs. 50,000 deposit with the house owner and they will give a promissory note for Rs. 70,000. The assessee and others started the canteen from 2nd Oct., 1982 after paying Rs. 1,20,000. To a specific question how the assessee made the deposit and when he had paid the amount, the answer is that his personal contribution is Rs. 20,000, the balance Shri Jagdish, Amarnath and he does not remember the other names and the amounts invested. Now he remembers his brother Shri K. Gandhibabu is also a partner and he does not know how much he had invested. It is in Sep. or Oct. 1982. So admittedly, the investment of Rs. 1,20,000 was made. The assessee admitted that out of the said amount of Rs. 1,20,000, Rs. 20,000 belongs to him and the rest to Sri Jagdish, Amarnath and some others whose names he does not remember. He does not remember who inve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jagdish, Gyaneswar and others on the one hand and the owner of Bhagyanagar Club on the other. So the case of the assessee is that in fact the deposit was made only by Jagdish and Gyaneswar etc., and he has nothing to do with the deposit. The deposit of security, of Rs. 50,000 as well as the pronote for Rs. 70,000 were executed by the owner of the house in which the club is situated in his favour nominally in the status of a mediator. The assessee in fact wanted to say that apparent is not real. The onus is on him to prove. We hold that Sri Jagdish and Gyaneswar have to be examined by the assessee in order to prove his contention. However, the assessee without producing them himself in discharge of his onus tried to explain away the statements of Jagdish and Gyaneswar by contending that because the opportunity was not given for cross-examination, the absence of any statement from either of the two parties about anything relating to this deposit of Rs. 1,20,000 cannot be read against the assessee, since the principles of natural justice were violated and they were not permitted to be cross-examined. The assessee though under a duty to examine Jagdish and Gyaneswar etc. to substantiat ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
