TMI Blog2007 (1) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 131(1)( d ) to ACIT, Faizabad, who recorded the statement of both the ladies. The two ladies admitted to have advanced the aforesaid loan to the assessee. In her statement, Smt. Meena Jaiswal stated that she received loan from 79 persons amounting to Rs. 32 lakhs. The list of those 79 persons were filed. Smt. Anita Jaiswal stated to have received loan from 92 persons. A list of these persons were furnished. The loans were stated to be raised through drafts and cheques. Since Assessing Officer did not believe the explanation satisfactory as raising of loans by the two creditors was not proved, he added a sum of Rs. 69,95,000 as unexplained investment under section 69. According to him, this sum was invested in the auction in Bharat Petroleum. 3. The ld. Assessing Officer, in addition to treating the sum of Rs. 69,95,000 as unexplained investment in the hands of the assessee, initiated proceedings under section 148 in both the cases of the creditors. 4. The ld. CIT(A) deleted the addition mainly on the ground that proceedings under section 148 have been taken in the hands of the creditors. Hence no addition is called for in the case of the assessee. In this regard, his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer under section 69 and not under section 68. 7. Ld. A.R. relied on the decision of Hon ble Supreme Court in CIT v. Bharat Engg. Construction Co. [1972] 83 ITR 187 for the proposition that cash credit entry made in the first year of business could not represent assessee s income as assessee-company could not make profit soon after it commenced activities. He also relied on the decision in Dy. CIT v. Rohini Builders [2002] 256 ITR 360 2 (Guj.) for the proposition that once identity of creditor is proved and the amount is received by account payee cheque then initial burden of proving the credit is discharged and, therefore, source of credit need not be proved. The fact that the explanation was not satisfactory would not automatically result in deeming the amount as income of the assessee. He further relied on the decision of Hon ble Allahabad High Court in India Rice Mills v. CIT [1996] 218 ITR 508 for the proposition that where the partners have contributed capital before the firm commenced business, then onus lies on the partners to explain the source of deposits and where he failed to explain, then addition can be made in their hands. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cisions in CIT v. S.M. Omer [1993] 201 ITR 608 2 (Cal.), Smt. P.K. Noor Jahan s case ( supra ) and 148 ITR 583 ( sic ). Ld. A.R. finally submitted that once the amount has been added in the hands of the creditors, then it should be treated as explained in the hands of the assessee. 10. In rejoinder, ld. D.R. submitted that the decision of Hon ble Supreme Court in P.K. Noor Jahan s case ( supra ) was on peculiar facts. It does not make any difference whether section 68 is quoted or section 69 is quoted by the Assessing Officer. On the facts section 68 will be applicable and section 292B will take care of the errors in quoting the section. Further, section 68 creates a fiction and, therefore, credits should be deemed as assessee s income. 11. We have considered the rival submissions and perused the material on record. The facts that are culled out from the orders of the authorities below and Paper Book filed by the assessee are that the assessee is a 24 years old lady who participated in the auction organised by M/s. Bharat Petroleum for a petrol pump. She, for that purpose, borrowed loan from Smt. Meena Jaiswal and Anita Jaiswal for a sum of Rs. 36,25,000 and of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to section 69 and in its place section 68 would be applicable, then one has to see whether assessee has discharged the onus. The well known attributes of section 68 are that identity of the creditors, creditworthiness of the creditors and genuineness of the transaction should be established by the assessee. In the present case, there is no dispute about the identity of the creditors. They are assessed to income-tax and they were produced before the ACIT and their statements were recorded by him. The others attribute is creditworthiness of the creditors. The ld. Assessing Officer has held that the creditors did not have any creditworthiness because they themselves had raised loans and transferred it to the assessee. According to the ld. D.R., creditworthiness means creditworthiness of his own and not artificially created by borrowing loans. The creditors did not have any creditworthiness and for that reasons alone they had been shown to have borrowed loans. We, however, do not subscribe to the view of the ld. D.R. that creditworthiness would stand to loss if a creditor borrowed loan from the market and passes on to the assessee. It is very much possible in the business world ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n explanation, then he must collect his own material as an enquiry officer, weigh the two materials and as a quasi-judicial authority form an opinion as to whether explanation furnished by the assessee is satisfactory or not. If the Assessing Officer does not apply his mind in examining the documents furnished by the assessee and does not find any substantive error in them nor he collects any material by exercising powers under Income-tax Act, then the claim of the assessee cannot be straightway rejected. If he does, it would be a violation of principles of natural justice and provisions of section 68. 14. Under section 68, there is no doubt that initial onus lies on the assessee to establish the identity of the creditors and their creditworthiness and genuineness of the transaction. But this onus is not fixed. It is vacillating. It would shift to the Assessing Officer if the assessee has produced evidence which reasonably explains his case. Onus will again shift to the assessee if on the basis of material on record the Assessing Officer finds the explanation not convincing. In the present case, the Assessing Officer has issued commission to another officer who himself summoned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case." 15. The word may used in section 68 provides discretion to the Assessing Officer. In general the word may is an auxiliary verb clarifying the meaning of another verb of expressing an ability, contingency, possibility or probability. When used in a statute in its ordinary sense the word is permissive and not mandatory. But where certain conditions are provided in the statute and on the fulfilment thereof a duty is cast on the authority concerned to take an action, then on fulfilment of those conditions the word may take the character of shall and then it becomes mandatory. But in section 68, there are no such conditions on the fulfilment of which the Assessing Officer is duty bound to make the addition. In sections 68 and 69, the word may used is only discretionary. We are supported in our view from the decision of Hon ble Supreme Court in P.K. Noor Jahan s case ( supra ). Thus, in the present case we hold that the assessee has discharged the initial onus and the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., the facts were that the assessee firm was constituted on August 12, 1977 and became operative from February 2, 1978. During a period from 1977 to February 1978, 10 partners of the firm made capital contribution credited in the books of the firm. The firm was called upon by the Assessing Officer to explain the source of deposit. Since all the partners were not assessed earlier, the Assessing Officer treated the said deposit as cash credit in the hands of the firm. Hon ble Allahabad High Court held that all the deposits had come into the books of the assessee-firm before it started its business and the deposit represented the capital contribution of the partners. It was for the partners to explain the source of deposits and if they failed to discharge the onus, then such deposits could be added in the hands of the partners only. These deposits could in no case be the income of the assessee firm because the firm started its business after the credits had been made in its books. 18. In another decision, relied upon by the ld. A.R. in Jauharimal Goel s case ( supra ), the facts were that in the books of the account of the assessee certain deposits were found credited in the nam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Vegetable Products Ltd. s case ( supra ). When there are two contrary views, then the one in favour of the assessee is to be preferred. In any case, we are of the considered view that the assessee has discharged initial onus by showing that the two creditors had borrowed the loans from the market and gave loans to the assessee. The Assessing Officer has not been able to find out any error in this explanation so as to hold it unsatisfactory. If the two creditors are not able to give any satisfactory explanation about the loans raised by them, then the same can be considered in their hands under section 68 which had actually been considered by making additions in their assessments. 21. The other decisions relied upon by the ld. A.R. support the view we have already taken. In Bharat Engg. Co. s case ( supra ), the cash credit entries appearing in the first year of business could not represent the income of the assessee as it cannot make profit soon after if commenced activities. In Rohini Builder s case ( supra ), Hon ble Gujarat High Court held once identity of the creditor is proved and amount are received by account payee cheques, then the assessee has discharged th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter with the correct name and address of the creditor and the GIR number as well, the onus immediately shifted on the Department which was not discharged by the Department in this case. The deletion of the addition of Rs. 41,500 and allowance of interest on it by the Tribunal was, therefore, proper. Per Hon ble Sushil Kumar Jha, J : Where an assessee gives the correct name, address and GIR number of the creditor, he has discharged his onus to prove the genuineness of credits in his accounts and unless a notice in due form under section 131 of the Act is issued by the Revenue authority to test the genuineness of the transaction or the capacity of the creditor to pay, the amounts cannot be assessed in the hands of the assessee." 24. Thus, after discussing the facts and authorities relied on by the parties, we hold that the assessee has discharged its initial onus and there is no material on record collected by the Assessing Officer to shift back the onus to the assessee. The explanation offered by the assessee that she has raised loans from the two creditors, who have admitted to have given the loan by raising loans in tern is satisfactory and hence no addition under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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