TMI Blog1989 (3) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... ew regarding the evidence including the asst. yr. 1984-85. 3. The CIT examined for the records and came to the conclusion that the acceptance of the explanation offered for the cash credits provisionally shows clearly or suggested that the ITO was not satisfied about the explanation and the evidence produced by the assessee and in terms of s. 68 of the IT Act, 1961 the amounts should have been assessed to tax as income of the assessee of the respective previous years. According to him, the provisions of s. 68 were mandatory in nature and, therefore, ought to have been assessed as income and the action of the ITO accepting the explanation provisionally has no legal sanctity because the explanation offered was to be accepted or rejected outright and there was no question of accepting the explanation provisionally subject to verification subsequently. The ITO has also not even cared to verify the original statement of the assessee regarding ownership of the property belonging to his father and receipt of the sale proceeds in 1980. In the circumstances, accepting the explanation of the assessee and completing assessment without adding the cash credits as income of the assessee made t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 986, determining the total income at Rs. 75,000 for the asst. yr. 1982-83 and at Rs. 2,03,100 for the asst. yr. 1983-84, that total income was determined proceeding from income as per the assessee s computation and making disallowance out of car expenses, donation, interest and sundry expenses, as detailed in the assessment orders, which are routine in nature. 6. The CIT found on examination of records that the assessments made by the ITO for these years to be incorrect and therefore prejudicial to the interest of Revenue within the meaning of s. 263 of the IT Act, 1961. Therefore, he issued a show cause notice dt. 12th Aug., 1987 to the assessee stating that the action of the ITO in completing the assessments provisionally was wrong and erroneous. It is proposed in the show cause notice that he intended to set aside the assessment for these years with a direction to the ITO to make fresh assessments after thorough scrutiny. After taking into account the submission made by the assessee s representative and also the written submission dt. 15th Sept., 1987, the CIT was of the opinion that the ITO was not satisfied with the explanation and evidence produced before him by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails of creditors as on 31st Dec., 1981 at page 3 and as on 31st Dec., 1982 at page 6 of the appear book. He referred to the affidavit of the assessee dt. 6th March, 1986 wherein the amounts utilised in the business for various years were admitted as having come out of sale proceeds of land and house property of his father and also the confirmation letter given by him on 21st Dec., 1980 and again further confirmation letters dt. 16th Dec., 1984 for utilisation of money for these years is explained. In this affidavit, the assessee has undertaken to produce documentary evidence failing production of which within a period of 3 to 4 months, he would not agitate reopening of assessments made by the ITO. He referred to the Note written by the ITO on the assessment order for 1982-83 stating that a letter to the ITO, Guragaon, Haryana should be sent for verification of sale transactions and particulars of the father of the assessee. He referred to the Note written by the ITO on the Return form filed for the asst. yr. 1984-85 stating that the assessment should not be completed unless the conditions mentioned in the asst. yr. 1982-83 and 1983-84 were fulfilled. Reference was made to the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also the deposition given by the assessee s father on 27th Nov., 1986 that the ITO completed the assessment for 1984-85 on 1st Jan., 1987 after completely satisfying that the loan taken by the assessee from his father was satisfactorily explained. In these circumstances, he contended that explanation offered by the assessee was rightly accepted by the ITO and, therefore, the CIT was not right in cancelling the assessments made for the yrs. 1982-83 1983-84. Reliance was also placed on the decision of the Tribunal, Pune Bench, in the case of ITO vs. Suresh Kalmadi (1988) 73 CTR (Trib)(Pune)(TM) 80. Therefore, it was urged that the order of the CIT should be set aside and that of the ITO be restored. 8. The learned Deptl. Res., on the other hand, strongly supported the orders of the CIT. According to him, the amounts involved are cash credits and, therefore the ITO ought to have made enquiry regarding the nature and source of the credits and having failed to do so, the order passed by the ITO was erroneous and prejudicial to the interest of Revenue. Therefore, the CIT could intervene and set aside the assessments. He further submitted that the lack of enquiry at the pre-assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be utilised in his business. Another confirmation letter dt. 16th Feb., 1984 was filed by the said Shri Chandanlal Seti confirming that he has allowed the assessee, his son, to use Rs. 1,00,000 out of the amount of Rs. 3,00,000 kept with him for business purposes during the year 1981, Rs. 1,00,000 during the year 1982 and Rs. 55,000 during the year 1983, relevant for the asst. yrs. 1982-83,1983-84 and 1984-85. The assessee also filed an affidavit dt. 6th March, 1986 stating inter alia, that his father sold house property at Meerut and plot of land in New Delhi for about Rs. 7,00,000 and out of which Rs. 3,00,000 was entrusted in the year 1980 and he had undertaken to produce all the documentary evidence regarding the sale transactions within a period of three to four months failing which he would not object to the assessments for 1982-83 and 1983-84 being reopened. In view of these statement and evidence adduced, the ITO has completed the assessments, inter alia, stating in para 4 of the assessment orders for 1982-83 and 1983-84 that the explanation of the assessee regarding cash was provisionally accepted, but the assessment for 1984-85 was not completed so that if the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ouse properties and final receipts in respect of the sale of land in 4 parts was filed and he also agreed to appear before the ITO for examination by the ITO. The ITO has examined the said Shri Chandanlal Sethi and recorded his statement on 27th Nov., 1986 which is enclosed at page 24 of the paper book filed. In this statement, he admitted that the amount of Rs. 3,00,000 was given to his son, but considering his age it was not meant to be returned at all. He has also admitted that he always kept the sale proceeds with him in cash but never kept in the bank account. After examination, the ITO concluded as follows: "All in all it appears that the money of about Rs. 2.5 lakhs might have been given to his son Shri J.P. Sethi and although the assessee knows that it is his money, he wants to show it as a loan". The very same ITO has completed the assessment for 1984-85 on 1st Jan., 1987 accepting the income returned under s. 143(1) of the IT Act, 1961, inspite of the Note left on the return of income on 24th March, 1986 that assessment would not be completed unless and until the conditions in the assessment order for 1982-83 and 1983-84 are fulfilled. Therefore, it is crystal clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dependent enquiries regarding the genuineness of the explanation given by the assessee before accepting the same. Having not made such enquiries, it was further wrong on the part of the ITO to accept this cash transaction provisionally and complete the assessments". In para 3 of the show cause notice, he has directed the ITO to make fresh assessments after thorough scrutiny. Para 3 reads as under: "I therefore intend to set aside the assessments for asst. yrs. 1982-83 and 1983-84 with directions to the ITO to make fresh assessments after thorough scrutiny". Thus the gravamen to show cause notice issued by the CIT or the conclusion of the CIT that the assessments made by ITO were erroneous and prejudicial to the interest of Revenue was based on the failure of the ITO to make independent enquiries regarding the genuineness of the credits. As pointed out earlier, the ITO could not have made independent enquiry as he had to complete the assessments within the time limits prescribed for completion of assessment, i.e., before 31st March, 1986 and the ITO could complete the assessments only on 24th March, 1986. Therefore, the CIT was not correct in stating in those circumstances tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders passed were prejudicial to the interest of Revenue. Sec. 263 of the IT Act, 1961 empowers the CIT to revise the orders passed by the assessing officer, if the order passed by the officer is erroneous insofar as it is prejudicial to the interest of Revenue. Therefore, it is obligatory on the part of the CIT to show that the orders passed by the ITO were not only erroneous but also prejudicial to the interest of Revenue. In this case, except relying on s. 68 of the IT Act, 1961 no other material has been brought on record by the CIT or by the ITO on behalf to the CIT. Sec. 68 of the IT Act, 1961 reads as under: "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the ITO satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year". Interpreting s. 68 the CIT in para 4.3, of his revisional order has stated that it was mandatory on the part of the ITO to apply the provisions of s. 68 of the IT Act, 1961 and make necessary additions at the time of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the record could be such that which were available at the time of making assessments and not thereafter. Consequently, the Explanation now substituted explains the records to include all records relating to any proceedings under this Act at the time of examination by the Commissioner. Though this Explanation is w.e.f. 1st June, 1988, it is clarificatory in nature because the Explanation states that for removal of doubts the Explanation has been introduced. Thus there is no doubt now that the record includes all the records available at the time of examination by the CIT. The record that existed at the time of examination by the CIT included the material brought on record by investigation made by the ITO and the documentary evidence in support of the sale proceeds of house property and land. Therefore, the CIT was not justified in ignoring the material already available on record. In the case of Homi Jehangir Gheesta vs. CIT (1960) 41 ITR 135 (SC), the Supreme Court reiterated that, it was not in all cases that by mere rejection of the explanation of the assessee, the character of a particular receipt as income could be said to have been established. In the case of Sreelakha Baner ..... X X X X Extracts X X X X X X X X Extracts X X X X
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