TMI Blog2006 (11) TMI 266X X X X Extracts X X X X X X X X Extracts X X X X ..... cash credits - genuineness of credits made in three creditors not proved - HELD THAT:- All the three creditors are trade creditors. All of them are income-tax assessees and they have confirmed this fact by filing their affidavits. All the three have been examined by the AO. In their statements recorded by AO, they have categorically deposed that they had received goods from other concerns against deposits in those concerns and the goods so received have been given to the assessee. We have also gone through their statements, copies of which are placed on the record. In the face of such evidences, we are of the opinion that the rejection of the explanation of assessee by learned AO is unjustified. There is force in the submission of ld AR that the trading result has been accepted by the AO and the purchases and sales have also been accepted and that no sales can be made without any purchase and these three parties have deposited the ground (sic) which have been sold by the assessee and in case the amount of Rs. 5,90,579 (cash credits) is added in the income of the assessee, the GP will give a rate of percentage of 31.86 per cent which is never possible in the business of cloth. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15,000 60,000 Anil Taparia 36,000 60,000 Surendra Taparia 15,000 60,000 Bankat Lal Nil 24,270 Pram Ram Rao Nil 4,800 Kuldeep Nil 1,100 Hariram 14,533 Nil Total 80,533 2,10,170 Noticing increase in the salary of Shri Rakesh Kumar and Surendra Kumar, the AO show caused the assessee. It was explained that in the last year salary was paid only for three months, whereas in this year it is paid for twelve months. The AO wanted the records of last year to verify this fact. When records were not produced on the pretext that these were not traceable, the AO held that the salary paid was excessive and thus disallowed a sum of Rs. 60,000 out of total salary payments. The learned CIT(A), on the contrary, deleted this addition. The Department has raised ground No. 1 in this regard. 3. We h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re are five members in the family and all the children are getting education in primary and middle schools. Therefore, by considering the size of the family and the living standard, the AO estimated the household expenditure at Rs. 5,000 per month, which resulted into an addition of Rs. 28,000. The learned CIT(A), on the other hand deleted this addition. 7. We have heard the rival submissions and perused the relevant material on record. 8. We are totally in agreement with the finding of learned CIT(A). The assessee has explained the total withdrawals at Rs. 32,000 for the entire year. The size of the family and the so-called living standard cannot be made (basis) for such additions. Consequently, we affirm the impugned finding after looking into the evidences placed at pp. 39, 40, 42 of assessee's paper book, where computation of income and capital accounts etc. are placed. This ground of appeal also cannot be allowed. 9. In ground No. 3, the Revenue has challenged the deletion of an addition of Rs. 5,99,585 made by the AO on account of unexplained cash credits and of Rs. 71,950 representing interest thereon. The facts of this ground are that on verification of balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one of the major areas of litigation in taxation. To understand this subject one needs to know about the alpha and the omega of the law relating to cash credits, starting with its legislative history upto its development in this cyber era, step by step, in order to understand this subject threadbare. 14. The provision relating to cash credit was brought on the statute book for the first time in the IT Act, 1961 by Act No. 43 of 1961, as Section 68. There was no such provision corresponding to the above in the IT Act, 1922. It would be pertinent to mention that Section 68 is a new section, which is a culmination of a series of judicial pronouncements under the provisions of the old Act of 1922, on the issues relating to cash credit. 15. This section can be comprehended in a better way by dividing it into the following ingredients [parts]: (a) Where any sum is found credited in the books of the assessee; (b) Maintained for any previous year; (c) And the assessee offers no explanation about its nature and source; or (d) The explanation offered by the assessee, is not, in the opinion of the AO satisfactory; then (e) The sum so credited may be charged to income-tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to charge any person with liability unless established as per law. 19. It was a well-settled principle of law that when a person (litigant) claims a fact to be true, this is he who has to prove that fact. In other words, when a person wants the Court to believe that a fact is true, a preliminary onus is cast upon him to prima facie, prove that fact. This onus is said to have been discharged in case, he (the assessee) establishes his claim prima facie. Thereafter, the onus may or may not shift on the other party depending upon various factors, which we will be discussing in later paras. It follows from the above, as a natural corollary that even correct and authentic entry in the books of accounts cannot without independent evidence of their trustworthiness can be, ipso facto, accepted as correct. 20. Therefore, a pass book of a bank cannot be treated as books of accounts of the assessee because this is provided by the banker, which is given to its customer and is only a copy of the customer's account in the books maintained by the bank. The bank does not act as an agent of the customer nor can it be said that the banker maintains the pass book under the instructions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; in the given facts of their respective cases. But, it would not be out of place to mention that there cannot be straightjacket formula, which can fit into the facts of a given case and whereby it can be decided whether a credit is genuine or not. It depends on the facts and circumstances of a given case and the Court(s) dealing with the same has to find out the true colour of the impugned transaction. 24. The various Courts have given their verdicts with regard to the genuinenity or ingenuinenity of the cash credits involved in the cases they were dealing with, in their own way. The gist of most of such decisions is that the onus to establish the identity and the creditworthiness of the creditor(s) and the genuinenity of the transaction(s) of a cash credit in question is cast upon the assessee. The case of CIT v. Precision Finance (P) Ltd. (1994) 121 CTR (Cal) 20 : (1994) 208 WR 465 (Cal), in which it has been held that by now it is a trite law that the onus to prove the above three ingredients is cast upon the assessee and again the decision of the Hon'ble Calcutta High Court in the case of Shanker Industries v. CIT (1978) 114 ITR 689 (Cal), which is leading decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as, 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 the income is from any particular source. 27. The Hon'ble Supreme Court has not given a verdict that the burden, which is initially cast on the assessee to prima facie establish the relevant cash credit by establishing the identity, the creditworthiness of the creditor and genuineness of the transaction, never shifts on the Department. The Hon'ble apex Court m the above decision has held that in case the above three requirements are not established by the assessee, in that case no further burden lies on the Revenue to show that the income is from any particular source. Otherwise also the facts of that case are very peculiar. 28. The various other decisions shall be discussed hereinafter but before that it can be safely stated that the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, when the identity of the depositor is very much established or is obvious and as such not doubted by the Department. In that eventuality, a payment having been received through account payee cheque becomes sacrosanct. This is what exactly has been stated by the Hon'ble Calcutta High Court. 31. Unfortunately, the decisions are read in a hurry and in isolation because we are living in a fast moving society. Only the head-notes of a decision which are usually drafted by publishers etc., according to their understanding of the matter are perused by concerned persons, which many a times carry wrong meaning of a decision. The decision has to be read in its entirety to arrive at a correct ratio decidendi. 32. The decision in the Precision Finance (P) Ltd. (supra) is always relied to deny the claim of the assessee that the payment through account payee cheque has been held as not sacrosanct and it cannot establish the transaction as genuine. 33. With due respect, it is stated that this is not the gist of the above decision. The decision has to be read in its entirety, along with the facts of the given case. 34. It is in the background of the above facts, it was held by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s very naval. The condemned person was stated during the day with drink and dine and was tied with a tree nearby a seashore covering his face with some canvass cloths. After the dawn, the villagers would come in inebriated condition and beating the drums and singing the songs in a procession. Thereafter, some young men would untie his hands and throw him in the sea after tying a heavy stone with his legs. 39. During the day time, a young shepherd came around along with his big herd of sheep. He was not aware of what was happening with the condemned man. The young shepherd enquired from the condemned person as to what has happened with him. After inquiring something from the young shepherd the prisoner replied that the villagers want to give him a lot of money after the sunset, but he is not greedy. He thereafter enquired from the young shepherd in case you want money you can come in my place. The young shepherd without thinking much readily agreed to swap. The prisoner went away with the herd of sheep and the villagers threw the poor young shepherd after attaching a big boulder with his legs in the deep sea. The next morning, the naughty man came towards the village plying on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wants to prove and it would on the very face of it would seem as if it is the best solution. But this type of reasoning is not required while dealing with certain important questions of facts. 45. A combined gist of above story is that there cannot be any fixed rule or a straightjacket or a chemical formula, which can be said to be a sure shot test to judge the genuinenity of cash credit. This story tells that an unscrupulous or dishonest assessee who has no respect for law can play any tricks to evade payment of tax and can relate concocted stories which seems to be plausible and reasonable on the face of its. Therefore, it is for the taxman to discern the truth in the given facts and circumstances of that case. At the same time, the taxman has to act as ordinary prudent man instead of posing as a super human being and trying to prove himself as a numero-uno. He has to strike a balance while conducting himself with the taxpayers, by remembering the taxpayer is a respectable citizen and he contributes a lot towards the coffers of the Government, who in turn utilize this fund for the benefit and the welfare of the people at large. Therefore, the task of a taxman is very importan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes of both these decisions created havoc for quite long time. 46. When the Hon'ble Judges of Patna High Court in the case of Addl. CIT v. Hanuman Agarwal (1984) 40 CTR (Pat) 15 : (1985) 151 ITR 150 (Pat) held that it can never be within the exclusive knowledge of debtor to know the sources of income of the creditor. Once he is supplied the credits that he wants, he is satisfied. Once he has furnished the true identity, the correct address and the correct GIR number of the creditor, he fulfils his obligations under the Act. The assessee is not supposed to know the capacity of the money-lender or the cash creditor. This fact is within the exclusive domain of the creditor. It is for that specific purpose that Section 131 of the Act has been introduced so that in case of any suspicion, the ITO or the authorities concerned may exercise the power of Civil Court under that provision and call upon the creditor concerned to prove his capacity to pay and the genuineness of the transaction. Once the ITO is satisfied that the creditor is not telling the truth, it has been left open to the assessee to discharge his subsequent onus of proving the genuineness of the transaction and capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessed to tax and also had paying capacity and transaction is also established to be genuine, can it be a valid cash credit. The answer is 'no'. What follows from the above, is that it is the overall commonsense and average prudence of the taxman, who is dealing with the facts of a particular case, which can decide the genuinenity of the transaction, of course, which includes all the above three ingredients. In the same manner, there may be cases, where the deposit was not through account payee cheque, no confirmation was even filed, but the entries are found recorded both in the books of the creditor and the assessee, and both of them are assessed with the same AO, who is having command over the records of both of them, he can immediately accept the cash credit as genuine. There is no need to even ask for any evidence, in this regard, any further, for that matter. That is why unlimited powers have been given by the precincts of this section and other sections of this Act to ascertain the veracity of a fact. 49. In a nutshell, it can be stated that the AO has to find out as to whether the deposit/gift/cash credit is a result of any collusion, is a result of any dubi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contention of the assessee seems to be logical. In our opinion, nothing more is required in proof from the assessee. Therefore, we confirm the impugned findings and dismiss this ground of appeal. Both the amounts have been correctly deleted. Cross-objection 52. The only ground taken in the cross-objection by the assessee relates to small disallowances made by the AO and out of which some have been sustained by learned CIT(A). The ground of cross-objection reads as under: 1. That the learned authorities below has grossly erred in making and confirming the disallowance amounting to Rs. 20,520 (out of shop expenses Rs. 2000, travelling expenses Rs. 4,000 and shop rent Rs. 14,520). And the disallowance may kindly be allowed. 2. That the respondent reserves its right to add, amend or alter the grounds of cross-objection on or before the date of its hearing. 53. The assessee incurred an expenditure of Rs. 21,167 under the head office expenses as against last year's Rs. 9,207. These expenses related mostly to tea, coffee etc. for which no vouchers were produced. The AO disallowed Rs. 5,000 and learned CIT(A) reduced it to Rs. 2,000. 54. The assessee showed an expen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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