TMI Blog1994 (6) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner (Assessment). Income-tax Appeal No. 3147/(Bom) of 1986 : (1) The Commissioner of Income-tax (Appeals) erred in allowing relief to the extent of Rs. 10,220 under the head "Sales promotion". (2) The Commissioner of Income-tax (Appeals) erred in allowing interest of Rs. 10,125 on the alleged loans from Sudhir Mehra, Hindu undivided family, and Ranbhir Mehra, Hindu undivided family. (3) The Commissioner of Income-tax (Appeals) erred in directing that the assessee should be allowed deduction of 55 per cent. as profit and bargain margin as against deduction of 45 per cent. given by the Inspecting Assistant Commissioner (Assessment). Income-tax Appeal No. 3146/(Bom) of 1986 : In this appeal, the first ground is regarding the relief granted by the learned Commissioner of Income-tax (Appeals) to the extent of Rs. 6,990 under the head "Sales promotion". The amount represented commission paid on the spot to various persons for bringing customers. The Inspecting Assistant Commissioner found that all these payments made in cash were unverifiable and hence disallowed the claim. The learned Commissioner of Income-tax (Appeals) although held that the payments were not verifiable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. The learned Commissioner of Income-tax (Appeals) while discussing this issue in detail, deleted the addition of the said amounts. The Revenue being aggrieved, has come up in appeal before the Tribunal. The learned Departmental representative has very vehemently stressed that this deletion was not proper as the statements recorded of the kartas of the Hindu undivided families clearly showed that they did not possess the amounts which stand to the credit in the account of the assessee. He has further pointed that no regular accounts of the Hindu undivided family were produced and the fact that the amounts in the bank accounts were deposited within a short span of a week and thereafter transferred to the account of the assessee through bank drafts, itself suggests that the very transaction was fishy and should not be believed. He has further pointed that the filing of the returns by the Hindu undivided families was also after the raid conducted on the premises of the assessee and was just to create an evidence to support the credit entries in their accounts. He has relied on the order of the Inspecting Assistant Commissioner which he has discussed in paragraph 3 of his order. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat much income or not. That fact could be ascertained and verified only in the case of Hindu undivided families who had otherwise filed the returns, but as far as the assessee is concerned, in our opinion, he has proved all the three factors, i.e., identity of the creditor, credibility and the genuineness of the transfer of the amount through the bank account of the assessee. Taking all these facts into consideration we are of the opinion that the order passed by the learned Commissioner of Income-tax (Appeals) does not call for any interference and if at all the Revenue has to challenge, then it should challenge the amounts in the hands of the Hindu undivided families, who have confirmed to have paid the said amounts to the assessee and who are also being regularly paid the interest on the said amount through cheques. The issue is therefore decided accordingly. The last ground is that the Commissioner of Income-tax (Appeals) has erred in directing that the value of closing stock should be arrived at by allowing deduction of 55 per cent. as profit and bargain margin as against deduction of 45 per cent. given by the Inspecting Assistant Commissioner. At the time of scrutiny of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the value of the stock. Whatever price is shown on the tag attached to the items is the selling price. If we reduce the same by 45 per cent., that will be the closing stock. Despite this statement, Sri Sudhir Mehra, in his subsequent statement, has clarified that in his earlier statement he had only given out the profit margin and the tag price was not a selling price. He indirectly meant that the selling price meant, minus bargaining margin. The assessee had examined Mr. Masood Ahmed Zaroo who was also a dealer who has stated that though there is no fixed margin of bargain, but it may be in the vicinity of 40 to 45 per cent. The assessee has also filed an extract of a travel survival kit at page 9 of his compilation in which it is mentioned that the cardinal rule of purchasing handicrafts is to bargain and bargain hard. In fact the Inspecting Assistant Commissioner too in his order has mentioned that Sri Shyamchand Roy had deposed before him that this business was similar to that of the assessee and the tag price was 3 to 3 times of the cost price while profit was 20 to 50 per cent. He had also deposed that the bargain was very heavy and it ranged from 30 to 40 per cent. In fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anted by the learned Commissioner of Income-tax (Appeals) in our opinion was not on the higher side. The issue is therefore decided accordingly. The next ground is that the learned Commissioner of Income-tax (Appeals) has erred in allowing interest of Rs. 10,125 on the alleged loans from Sudhir Mehra and Ranbhir Mehra, Hindu undivided families. This interest was paid in respect of the credit entries of Rs. 45,000 each in the name of the respective Hindu undivided families. As we have already held while deciding the appeal for the assessment year 1983-84, that the cash credit entries were genuine and the loans were also genuine ; in view of the finding of the loans, the payment of interest has to be allowed and we therefore hold that the order passed by the learned Commissioner of Income-tax (Appeals) allowing the said interest does not call for interference. The issue is decided accordingly. The last ground is that the learned Commissioner of Income-tax (Appeals) has erred in directing that the assessee should be allowed deduction of 55 per cent. as profit and bargain margin as against deduction of 45 per cent. given by the Inspecting Assistant Commissioner (Assessment). This i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esponse to such enquiry show the position as under. Shri Sudhir Shadilal Mehra, karta of the smaller Hindu undivided family, had filed returns for the assessment years 198283, 1983-84 and 1984-85 showing agricultural income of Rs. 35,000 for the assessment years 1982-83 and 1983-84 and Rs. 30,000 for the assessment year 1984-85. No taxable income has been shown in any of these three returns. All such returns were apparently filed on one day, i.e., July 4, 1985. On the same day, Ranbir Shadilal Mehra, karta of the smaller Hindu undivided family, had filed identical returns for the assessment years 1982-83 to 1984-85 showing agricultural income of Rs. 35,000 for the assessment years 1982-83 and 1983-84 and Rs. 30,000 for the assessment year 1984-85. If these assessees had no taxable income, there was no need to file voluntary returns of income. It is not known why these returns were filed for and from the assessment years 1982-83 to 1984-85 in these two cases showing substantial agricultural income only for these years. Copies of the bank accounts of Sudhir Mehra and Sons and Ranbir Mehra and Sons with the Bank of India, Aurangabad Branch, have also been filed at our instance. These ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore him : " These returns, however, as has been brought out in the assessment order, have been filed after the raid and search and seizure operations in the case of the appellant-firm and have thus been considered to be an afterthought by the Inspecting Assistant Commissioner (Assessment). However, as the Hindu undivided families were not having taxable income, it was not necessary to submit returns. Be that as it may, the other evidence produced in the assessment proceedings relating to ownership of these lands, earning of income from these lands by the Hindu undivided families and the amount having been drawn from their respective bank accounts, is sufficient to come to the conclusion that these Hindu undivided families could have earned the income and could have been in a position to accumulate such income deposited by them in their respective bank accounts and to that extent, therefore, these Hindu undivided families could be said to have the capacity and the capability to advance the aforesaid loans of Rs. 45,000 each, totalling Rs. 90,000, to the appellant-firm." With great respect, I cannot persuade myself to sustain the above finding of the Commissioner of Income-tax (App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low the second ground of the Revenue for the assessment year 1983-84. For the same reason, I would allow the second ground by the Revenue for the assessment year 198485 because, in my opinion, the losses shown in the name of Sudhir Mehra (Hindu undivided family) and Ranbir Mehra (Hindu undivided family) are not properly explained and the interest paid thereon cannot be allowed as a business expenditure. On all other issues, I agree with the learned Judicial Member. Order of reference to Third Member Since there is a difference of opinion between the learned Judicial and the learned Accountant Member on the admissibility of ground No. (2) raised by the Department in the appeal against the order of the Commissioner of Income-tax (Appeals), we hereby frame the point of difference for the opinion of the President under section 255(4) of the Act as under : " Whether there is adequate evidence on record to support the findings of the Commissioner of Income-tax (Appeals) that the source of the cash credits of Rs. 90,000 found in the books of the assessee-firm is adequately explained ? " ORDER OF THIRD MEMBER Ch. G. Krishnamurthy ( President ). This appeal has been referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the deposits, the Inspecting Assistant Commissioner (Assessment) required the assessee to produce the kartas of those joint families. They appeared before the Income-tax Officer and their statements were recorded. Shri Sudhir Mehra deposed that his Hindu undivided family purchased lands in 1980 and 1983 amounting to 22 acres and that the total cost was Rs. 23,000 of which half was borne by the Hindu undivided family and the other half by the Hindu undivided family of Ranbir Mehra. These lands were used for growing sugarcane, wheat, grapes and cotton, etc. After providing for irrigation facilities at a cost of Rs. 8,000, they were able to produce an annual income of Rs. 60,000 to Rs. 70,000 of which his half share came to about Rs. 35,000. It was ascertained that those joint families did not have any other income. Since agricultural income was not liable to tax, a question was asked as to why those joint families had to file returns at all. The reply was "just like that". In response to a specific question, he said that prior to the deposit of the money in the bank account of the Hindu undivided families on the abovementioned dates, that money was not kept in any bank account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reached by the Commissioner of Income-tax for deleting the sums. The learned Judicial Member concluded from the evidence brought on record that the assessee had established identity of the creditor and the receipt of money through bank cheques on the genuineness of the transactions and, therefore, nothing more survived for the assessee to prove the genuineness of the loans. He further held that since the Hindu undivided families were on the record of the Income-tax Department if the Department had doubted the capability of those Hindu undivided families who advanced the money, their capability could have been verified and ascertained by the Incometax Officer assessing the joint families but so far as the assessee was concerned, he established the three factors which were necessary to prove the genuineness of the loans, namely, the identity of the creditor, credibility and the genuineness of the transfer of the amount to the bank accounts. But the learned Accountant Member differed from this view. Relying very heavily upon the facts found by the Inspecting Assistant Commissioner (Assessment) he came to the conclusion that the assessee had not discharged the onus that lay upon it to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lies in this case, who are the creditors might have the worth to advance moneys of Rs. 45,000 each but the question was did they have the cash, did they have the resources to produce so much of cash. The creditors have miserably failed to establish the availability of cash on the dates of deposit in the bank. The evidence produced by them before the Commissioner of Income-tax (Appeals) only went to prove that agricultural operations were being carried on but that was not sufficient to show that the agricultural produce so obtained was so much as to produce income which could enable the creditors to save Rs. 90,000. There was no proof of sale proceeds, nor the nature of the crops which was sold, for how much and that too to whom. The investment made in this agricultural land was admittedly too small. The period available to the creditors between the date of purchase of agricultural land and the carrying out agricultural operations was too small to allow even one decent agricultural crop to be raised and to yield sale proceeds of about Rs. 90,000. He, therefore, commended for acceptance the order passed by the learned Accountant Member which was consistent with the evidence collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable with them. I do not see any other purpose but it was certainly not in discharge of any statutory obligation. If it is under the Agricultural Income-tax Act then the assessments made by those authorities, if any, should have been produced. Mere disclosure of income in a return filed before the Department does not prove the existence of so much of income in cash either on the date the return was filed or at the end of the previous year or on the last day of the previous year in respect of which that return was filed. Those returns can provide only prima facie evidence but not conclusive evidence. Therefore, nothing can be read into the filing of the returns by the Hindu undivided families in favour of the assessee. On the other hand, a motive to file the returns namely to provide evidence can be attributed to the assessee because the kartas of those two Hindu undivided families happened to be the partners here, the other partner being their father. On account of the intimate connection and the deep involvement brought about by the raid and the fastening of huge tax liability by order passed under section 132(5), a need arose to bring money into the books to pay that tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not referred to either by the Income-tax Officer, the Commissioner of Income-tax or by my learned brothers. I am of the opinion that the filing of the returns and the possession of agricultural lands did not prove the possession of cash with the creditors on the respective dates. It is also to be noted that the evidence collected and relied upon by the Commissioner of Income tax only showed that agricultural operations were carried on may be on an extensive scale. That would not lend credence to the view that the agricultural produce obtained was so huge as to yield an income of Rs. 90,000. Another important factor which influenced my thinking is that if the agricultural lands were so fertile as to fetch annual income of Rs. 90,000, the same should have been the position subsequently also and no effort was made to find out the subsequent position and more so to relate the deposits in the bank account to this income. This is very pertinent to come to conclusion one way or the other about the capability of the creditors. I am also inclined to agree with the view expressed by the learned Accountant Member that the facts of the present case viewed in the light of the other fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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