TMI Blog1997 (5) TMI 106X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Appellate Commissioner in first appeal that the two out of three creditors were summoned by the Assessing Officer and their oath statements recorded under section 131 of the Act wherein they had accepted having advanced loan to the assessee. These pleadings and arguments were abortive before both the lower tax authorities. The matter, therefore, rests before us by way of second appeal. 4. The assessee's counsel Shri Saboo made personal appearance as well as submitted certain relevant points in writing which have been duly considered in arriving at a decision. The Departmental Representative Smt. Lekha Kumar was also heard who relied upon the reasons given by both the lower tax-authorities. 5. Upon due consideration of the submissions and the examination of the case record, we are of the view that the addition of Rs.39,000 plus interest thereon ought to have been deleted by the Appellate Commissioner (A.C.) as the assessee has discharged the burden which lay upon it as per section 68 of the Act. The loans by the three persons admittedly are by account payee cheques. The Hon'ble Patna High Court in the case of Adex. CIT v. Bahri Bros. (P.) Ltd [1985] 154 ITR 244, had held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have recorded above, clearly go to the aid of the assessee and which persuade us to reverse the order of the AC in confirming the addition of Rs.39,000 plus interest thereon. We, therefore, reverse the finding and conclusion of the A.C. and direct the Assessing Officer to delete the addition of Rs.39,000 plus interest of Rs.12,845 thereon. We order and direct accordingly. 6. Appeal is allowed. Per Shri V.K. Sinha, Accountant Member: 7. I have gone through carefully the proposed order of my learned brother but, with respect, find that I am unable to agree with the conclusion. 8. The facts require to be stated in some greater detail. The matter concerns cash credits in three names as given in para 2 of the proposed order of my learned brother. It is necessary to notice the peculiar circumstances of each case. 9. Notices under section 131 of the Act were issued to all the three creditors. Shri Gokul Prasad Sahu is the nephew of Shri Nirarjan Prasad. Partners of the assessee-firm are wife and son of Shri Niranjan Prasad. Shri Gokul Prasad Sahu is, therefore, a close relative. He appeared before the Assessing Officer and stated that he was doing business in 'lac'. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Gokul Prasad Sahu and Shri Pradeep Kumar Jain, who were examined on oath, could not be proved. Shri Govind Prasad Sahu was not produced. Pay-in-slips were found in possession of Shri Niranjan Prasad who admitted having deposited the amount in the bank a/c of the loan creditors. He came to the conclusion that the cash credits were far from genuine. Accordingly, the addition of Rs.39,000 under section 68 and disallowance of interest of Rs.12,845 were confirmed. 12A. From the above facts, it is seen that the case of Bahri Bros. (P.) Ltd. relied upon in the proposed order of my learned brother, is distinguishable on facts. In that case, the loans were advanced by account payee cheques. To that extent, facts are similar, but only to that extent. In the case of Bahri Brothers, the loans were repaid by cheque and interest and brokerage was also paid by account payee cheque. Such material is not available here. in the case of Bahri Brothers, there were no further enquiries. However, there were further enquiries here, as stated above. It cannot be said that a proposition was laid down in the case of Bahri Brothers that simply because a payment was made by cheque, the assessee's onus was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act by the Finance Act of 1972, whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc., was withdrawn. Similarly, the observation by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about such a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the appellant as disclosed in her sowrn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering the surrounding circumstances and applying the test of human probabilities has rightly concluded that the appellant's claim about the amount being her winning from races is not genuine. It cannot be said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remained unexplained. The addition is, therefore-confirmed and the disallowance of corresponding interest is also confirmed. 18. In the result, the assessee's appeal is dismissed. REFERENCE FOR THIRD MEMBER CASE UNDER SECTION 255(4) OF THE FACT, 1961, IN THE ABOVE MATTER: As we differ in our views in the above case, we request the Hon'ble President to Kindly refer the matter to the 3rd member on the following point: "Whether, in the facts and circumstances of the case and in law, cash credits totalling Rs.39,000 added under section 68 of the Act and disallowance of interest totalling Rs.12,545 on the cash credit should be confirmed or deleted?" THIRD MEMBER ORDER Per Shri T.V. Rajagopala Rao (Third Member): The following point of difference arose between the Members while deciding ITA No. 584/Pat./92 and, therefore, it is referred to me for appointment of a Third Member: "Whether, in the facts and circumstances of the case and in law, cash credits totalling Rs.39,000 added under section 68 of the Act and disallowance of interest totalling Rs.12,545 on the cash credit should be confirmed or deleted?" 2. I have heard the case on reference. The facts of the case briefl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his evidence that Smt. Leela Devi is his aunt. He had lent Rs.6,000 in 1983 and Rs.13,000 in 1985 to the assessee firm. He had given Rs.6,000 in cash and Rs.13,000 in cheque. The amounts which he had lent came from his business. He did business in Lahia and Khalli-Bhoosi (Mustard) and he had been doing this business from 1980-81 at Haat Bazar. The turnover of his business is approximately Rs.3 lakhs for the year. Shanti Surya of Chauka and Kali Babu of Burdhu are also carrying on business along with him. He has been an income-tax assessee since 1981-82. He has a bank account in Allahabad Bank, Hinoo, and also an account in a village Bank, Kanchi. He opened account in Allahabad Bank in 1983 and village Bank 4 or 5 years before his deposition. Nobody introduced him to open the account in his village Bank. However, his maternal uncle Niranjan Prasad introduced him while be opened the account in Allahabad Bank. He does not remember the details of Rs.13,170 which entry appeared in his pass book as the amount deposited on 25-10-1983. He charges interest at 12%. After seeing his pass book, it is apparent that before giving cheque of Rs.13,000 in the name of the assessee-firm he had deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the husband of the first partner and father of the second partner of the assessee firm, in his examination, admitted that he introduced this creditor to the Bank and he had deposited the amount in the bank account of Gokul Prasad Sahu. Though Gokul Prasad Sahu claims that the yearly income derived by him would be about Rs.30,000, in his income-tax return, he showed Rs.18,900 for the year 1986-87. He was unable to explain the transfer entry on 25-10-1983 amounting to Rs.13,170. On the above evidence, the Assessing Officer came to the conclusion that the credit was bogus; in fact, the money was that of the firm; it was deposited in the bank account and brought back in the account through the bank account of Gokul Prasad Sahu. 6. Next, the examination of the evidence of Praveen Kumar Jain was taken up by the Assessing Officer. The total credits introduced in his name in the firm amounted to Rs.64,000 although during the previous year only Rs.15,000 was introduced. When this creditor was asked about the source, it was stated that the same had come out of salary plus hosiery commission. He further stated that his salary was Rs.800 in 1980 with an annual increment of Rs.200. He was ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees as is evident from the observation made by the Assessing Officer. The Assessing Officer merely disbelieved the version of the cash creditors and came to the conclusions that they have no creditworthiness or means to advance loans to the assessee. Mere falsity of an explanation or not believing an explanation cannot make the loans as income of the assessee from undisclosed sources. In Orient Trading Co. Ltd's case the Bombay High Court held that where the entry stands in the name of a third party and the assessee satisfies the ITO as to the identity of the third party and furnishes such other evidence which prima facie establishes that the cash credit entry is not fictitious, the initial burden which lies on the assessee can be said to have been discharged and it will not thereafter be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to deposit the money with the assessee. The ld. Judicial Member felt that this decision along with the Patna High Court decision in Bahri Bros. (P.) Ltd.'s case applies to the facts of the present case. The ld. Judicial Member also states that in Daulat Ram Rawatmal's case the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CBI at the residence of Niranjan Prasad. Shri Niranjan Prasad even admitted that he had deposited the amount in the bank account of Gokul Prasad Sahu. Shri Gokul Prasad Sahu has not been able to explain the source of deposit in his bank account. As far as Govind Prasad Sahu is concerned, since he did not appear, the source of his deposit in the bank account remains unexplained. in the case of Praveen Kumar Jain, the source of Rs.15,000 remains unexplained. He held that his salary income was too meagre and there was no evidence regarding income from commission. Pay-in-slip was found with Shri Niranjan Prasad. Applying the test of human probabilities and surrounding circumstances, he held that here also the credit has remained unexplained. Ultimately, he held that the appeal is worthy to be dismissed and the cash credit amounts as well as the interest amounts are worthy to be confirmed in the hands of the assessee. 11. Thus, in view of the diametrically opposite appreciation of facts, the learned Members referred the matter to the Third Member and thus the matter stands before me. After having heard both sides at length and after going through the records of the case as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h pay-in-slips, there would have been an opportunity for them to explain all the circumstances about the pay-in-slip or about the truth or otherwise of the version of Niranjan Prasad. Now, the question is without putting any such material to the cash creditors, whether the so-called evidence of Niranjan Prasad can be used against them in order to discredit their testimony that they are capable of lending the amounts. In this connection, the Allahabad High Court decision (Gargi Din Jwala Prasad v. CIT[1974] 96 ITR 97) is worthy to be noticed. Just like in this case, the revenue wants to very much rely upon the testimony of Niranjan Prasad as well as the pay-in-slips kept in custody by him. In that case also, the case of the revenue wholly relied on the statements of Chimman Lal Phool Chandra and Nagar Das Dayal Bhai and the account books of their firms. In fact, that formed the basis on which the authorities came to the conclusion that the suppressed profits of the assessee were Rs.85,000 and odd. In that case, the statements were not supplied and the books of account were also not supplied. The question before the Allahabad High Court was whether the principles of natural justice w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to serious violation of principles of natural justice and, to my mind, it would appear that such of the material which is sought to be used as evidence without observing the principles of natural justice should be excluded from evidence. Therefore, the alleged statement of Niranjan Prasad either before the CBI or the ITO under section 131 or the pay-in-slips, the custody of which is said to have been kept by Niranjan Prasad, should excluded from evidence. 13. Secondly, in my opinion, the bulk of documentary evidence on record supporting the case of the assessee was not duly appreciated. Now, let me go into the documents filed on behalf of the assessee. I have already stated that the assessee filed a 20-page paper book. At pages 3 4, the account of Gokul Prasad Sahu, one of the cash creditors out of the three, whom I have been considering, is given. This account is found in the accounts of the assessee firm. The account of Gokul Prasad Sahu in the books of account of the assessee firm began on 31-3-1984. On 9-4-1985, the amount of Rs.13,000 advanced by Gokul Prasad Sahu was narrated to be by issuance of a cheque. Upto 31-3-1985, an amount of Rs.6,720 was due by the assessee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnished at page-8 of the paper compilation. The profit loss account shows that he had derived for the accounting year 1985-86 relevant to assessment year 1986-87 a sum of Rs.22,109.58 as net profit. The balance-sheet prepared by him as on 31-3-1986 discloses clearly the amount due from Girdhar Agency (assessee-firm) at Rs.21,020.81, for which the account copy was filed. Shri Gokul Prasad Sahu had shown the profit of Rs.22,110 in his computation of total income and his taxable total income was shown at Rs.18,900 for assessment year 1986-87. Similarly, the profit loss account with balance-sheet as well as computation of income relating to Govind Prasad Sahu for assessment year 1986-87, for which the accounting year is upto 31-3-1986, is duly shown at page-9. The profit loss account shows net profit at Rs.18,875. His balance-sheet as on 31-3-1986 clearly discloses a sum of Rs.22,575 as due from the assessee-firm, for which he had filed the account. For assessment year 1986-87, he returned a total income of Rs.18,700. The profit loss account as well as balance-sheet of Praveen Kumar Jain was furnished at page-10 of the paper compilation for assessment year 1986-87, for which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at a sum of Rs.15,000 was deposited on 8-4-1985 and the said amount was withdrawn on 9-4-1985. However, these are not the sole entries in his account with Allahabad Bank. Apart from these entries, there are other entries disclosing deposits as well as withdrawals in heavy amounts. Everybody knows that Bank interest is only 4% in Savings Bank Account, whereas if an amount is given in a commercial market, it would fetch at least 12% p.a. further, a depositor would prefer to give the amount to his own near relative who is more trustworthy and in whose hands he feels his deposit safe as well as interest fetching. So, simply because the cash creditors being near relatives, unless accompanied by other surrounding circumstances, cannot be taken to be a suspicious circumstance by itself. In this case, out of the three cash creditors, two cash creditors appeared before the Assessing Officer and also gave statements under section 131 wherein they have categorically stated to have lent the amounts to the assessee-firm. Their evidence was already provided in the earlier paragraphs of this order. Thus, the bulk of documentary evidence on record would strongly support the case of the assessee or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor company's name did not appear. The ITO treated the sum of Rs.1,50,000 as unexplained and the IAC also imposed penalty of Rs.50,000 under section 271(1)(c). The Tribunal held that simply because the debtor company could not produce the parties, it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the debtor company. Thus, the Tribunal had deleted the addition of cash credits and also deleted the imposition of penalty. The High Court, on reference, upheld the order of the Tribunal. In the appeal to the Supreme Court, the following is what is held: "Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The revenue, apart from issuing notices under section 131 at the instance of the respondent, did not pursue the matter further. The revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rces of income. Then the onus shifted on the Department to verify. The creditors were having bank accounts. Hence, they were known not only to the bank but they were introduced by a third person to the bank. It could not be said that the creditors were fictitious persons. The Tribunal was, therefore, right in deleting the addition of Rs.20,000 and also allowing the interest of Rs.1,318." In this case also, the amounts were lent on cheque. Ultimately, the repayment of all the credits was made in cheque. The drawal of the amounts under the cheques by the assessee-firm was proved by virtue of the entries found in the Bank pass book of Allahabad Bank. in the case of Praveen Yumar Jain, a sum of Rs.10,000 on 31-3-1987 and a sum of Rs.8,736.14 were paid towards interest by cheques. Therefore, these papers go to prove that the cash credits were adequately explained. It is significant that this decision was relied upon by the ld. Judicial Member in his order. 16. In Sarogi Credit Corpn.'s case the Hon'ble Patna High Court, in my opinion, drew a distinction between two types of cash creditors -- one being near relatives like wife, children, close relations or employees etc. and a cash c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver much the evidence which is let in, it should still be viewed with suspicion. How to appreciate evidence on record depends upon the facts and circumstances of each case and I hardly come across decisions describing the way in which evidence is to be appreciated. 17. The next decision is CIT v. Satya Ranjan Sen [1990] 181 ITR 374 (Cal.). In that case, cash creditor was the sister-in-law of the debtor. She had filed a declaration before the ITO for consideration of the advances to be assessed. However, the ITO did not accept the explanation of the lady and the loan amounts were added back to the income of the assessee. The lady was examined and she specifically stated that the amounts were advanced out of the sale proceeds of her gold ornaments and personal funds. In reference before the Hon'ble High Court, it held that there was no evidence to rebut the statements of the cash creditor and the Tribunal was justified in deleting the addition of the sum credited in the books of the assessee in the name-of the cash creditor. 18. The next decision sought to be relied on by the assessee was Jalan Timbers v. CIT [1996] 135 Taxation 258 (Gauhati). In that case, the assessee carried o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, it was not necessary to produce the creditor and it was for the department to,take help from the documents and the file of the creditor. 20. The last of the decisions relied on by the assessee was again a Gauhati High Court decision in the case of Raichand Kothari (HUF) v. CIT [1996] 135 Taxation 442. In that case, the assessee, in order to meet its business requirement, took loans from various persons during the assessment year 1982-83 and in preceding assessment year the same were reflected in the balance-sheet. Confirmation of loans and statement of account by the creditors had been furnished to the Assessing Officer. The assessee had also furnished the income-tax file numbers of the creditors and some of the creditors were produced before the Assessing Officer for examination. However, the Assessing Officer was not satisfied with the explanation given by the assessee and the creditors and accordingly the Assessing Officer added the said loans given by the creditors as income from other sources. The Assessing Officer also disallowed the interest paid to all the creditors. The CIT(A) allowed the appeal. The Tribunal reversed the order of the CIT(A). The Hon'ble High Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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