TMI Blog2012 (8) TMI 387X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent. ORDER Sunil Kumar Yadav, Judicial Member This appeal is preferred by the assessee against the order of the ld. CIT(A) on various grounds which are as under:- 1. The Ld. A.O. lower authorities have erred on facts in making/sustaining additions of Rs. 3,30,000/- to the appellant's income u/s 68 of the IT. Act, 1961, being the amount deposited by under noted persons:- ( i ) Sri Diwas Gupta Rs. 2,00,000/- ( ii ) Smt. Ruchira Gupta Rs. 1,30,000/- 2. On the undernoted facts in the peculiar circumstances of the present case, the Ld. Lower authorities were not at all justified in making/sustaining addition of Rs. 2,00,000/- deposited by Sri Diwas Gupta as unexplained cash credit u/s 68 of the IT. Act, 1961 in the present case:- ( i ) That Sri Diwas Gupta had submitted his confirmation that he had given a sum of Rs. 3,50,000/- as loan to the appellant vide cheque No.863263 from his Savings Bank A/c No. 10729 with Allahabad Bank, Lakhimpur Kheri. ( ii ) That a copy of confirmation of statement of account of Sri Diwas Gupta duly signed by him was also placed before the Ld. A.O. in the course ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... confirmed of giving loan to appellant by accounts payee cheque of Rs. 1,80,000/- detailed above PAN letter, copy of income-tax return acknowledgement income statements. ( vi ) That the said Smt Ruchira Gupta thru her spouse Sri Manoj Kumar Gupta who was produced before Ld A.O. has confirmed about his source of income and financial capacity, ( vii ) That after submission of above documents and statement on oath no further proper opportunity was provided to the appellant to comply with the reason because of which the ld . A.O.' proposed to make the said addition. ( viii ) That the appellant had discharged its onus by proving the identity of the person, the genuineness of the transaction as well as the credit worthiness of the depositor. ( ix ) On the facts stated above, the addition made by the Ld. A.O. is not justified may kindly be ordered to be deleted. 5. That the A.O. erred on facts and in law in not allowing the appellant proper and sufficient opportunity to have its say or make necessary compliance of the reasons relied by him in making various additions to the appellant's income in the present case. 6. The income assessed and interest charged are highl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for Rs. 3,50,000/- from Shri Diwas Gupta, the appellant had placed on assessment record a confirmation of loan to the appellant given by cheque no. 863263 drawn on his Savings Bank account No.107229 with Allahabad Bank, Lakhimpur Kheri. A copy of statement of account as appearing in the books of the appellant was also confirmed by the loan creditor. The said creditor is shown to have been assessed to income tax at PA Number AGSPG 3964H by the Assessing Officer, Range-2, Lakhimpur Kheri. The copy of the bank statement of the creditor with Allahabad Bank, Lakhimpur Kheri from where the cheque for advancing loan to the appellant was issued, was also laid on assessment record. The appellant had also produced the said loan creditor Shri Diwas Gupta before Assessing Officer on 20/12/2007 who in his statement before the Assessing Authority made on oath had confirmed giving of loan of Rs. 3,50,000/- to the appellant by account payee cheque and had also furnished PAN letter, copy of acknowledgement of income tax returns and income statement etc. He is thus found to have given reasonable explanation about the source of income and financial capacity to establish creditworthiness of the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer himself. Merely because there was cash deposit in the bank account of the loan creditor that by itself did not give jurisdiction to the Assessing Authority or the learned C1T(A) to draw any adverse inference. The learned CIT(A) also without appreciating the legal position in right perspective and putting blinkers to the glaring facts and documents that appellant had brought on record to substantiate identity, creditworthiness and genuineness of the transactions, proceeded to hold that the genuineness of the transaction or creditworthiness of the transaction in this case has not been established and thus erred in reaching findings contrary to facts and sustained the addition of Rs. 2,00,000/- without any justifiable reason or cause of such a genuinely raised loan by the appellant. 4. In the case of Smt. Ruchira Gupta also the appellant had submitted a confirmation stating that she has given a loan of Rs. 1,80,000/- vide cheque No. 216793 drawn on her Savings Bank Account No. 213379 with Allahabad Bank, Lakhimpur Kheri. She has also given a confirmed statement of account as appearing in the books of the assessee and the same was laid on the record of the Assessing Authority. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the transaction of the loan of Rs. 1,80,000/- was a single and inseparable transaction and the loan so given is found given genuinely to the appellant whereas on the basis of suspicion only the Assessing Officer rejected only a part of such loan amount to the extent of Rs. 1,30,000/- despite the fact that the whole amount of Rs. 1,80,000/- was interest bearing loan on which interest of Rs. 1,213/-as is apparent from the assessee's paper book page 35 was payable as on 31/03/2005 and stood allowed as deduction for computing business income of the assessee. The Assessing Officer thus had no material on record to show that the appellant had some other source of income which can be said to have not been disclosed to the Revenue or that could lead to inference that the appellant has routed his own money through the bank account of Smt. Ruchira Gupta for obtaining loan and crediting the same in his books of account whose correctness has not been doubted by the Assessing Officer himself. Merely because there were cash deposits in the account of loan creditor, that by itself could not give jurisdiction to the Assessing Authority or to the learned CIT(A) to draw any adverse inference. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the burden of proving that fact is upon him, it must be established first that the person has especial knowledge of that fact, having regard to the circumstances of the case. As illustration (b) to the section shows, when A is charged with travelling on a railway without a ticket, the burden of proving that he had a ticket is on him, obviously, because it is he alone that would have especial knowledge regarding the possession of the ticket. The instant case is by no means a parallel and, in our opinion, section 106 of the Evidence Act cannot, therefore, be invoked in aid." 5.3 For the proposition that a Bank Account holder himself is the 'owner' of 'credits' appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:- "4. Mode of proof of entries in bankers' books Subject to the provisions of this Act, a certified copy of any entry in a bankers' book shall in all legal proceedings he received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation (1986) 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper cours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be held to be accredited with any knowledge. In this view, the Hon'ble Court has laid down that section 68 of Income tax Act, should be read alongwith section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:- "While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute Itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is It the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. it. therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee." ** ** ** "...if a creditor has, by any undisclosed source, a particular amount of money in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalia. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact, the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee. such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment and order dated 28.4.2008 in the case of Labh Chand Bohra v. ITO [2010] 189 Taxman 141 has taken the following view in this respect :- "Examining the present case even on these parameters, first requirement is not relevant. So far as second requirement is concerned, there is no doubt about initial burden being on the assessee. So far as third requirement is concerned, obviously if the explanation is not satisfactory, then it is added. Then fourth requirement is, that the firm has to establish that the amount was actually given by the lender. Fifth requirement is about genuineness and regularity in maintenance of the accounts, obviously of the assessee, and it is not the finding, that the accounts were not regularly maintained. Then sixth requirement is that if the explanation is not supported by any documentary or other evidence, then the deeming fiction created by s.68 can be invoked, in the present case, so far as 6th requirement is concerned, it is very much there in existence, inasmuch as the amount has been advanced by account payee cheques, through bank, and is duly supported by documentary evidence, as well as the evidence of the two lenders, and that satisfies th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion made u/s 68 of the Act. 5.12 In view of the findings that the appellant has proved the identity, creditworthiness and genuineness of both the loan credit transactions and had discharged the onus to prove nature and source as envisaged by Section 68 of the Act and having regard to the consistent view taken by various High Court and the Tribunal thereon, I do not find any justification in the order of learned CIT(A) in sustaining the additions. Setting aside his findings and decision, I allow the grounds raised in appeal. 5.13 In the result the appeal by assessee stands allowed. Third Member Order D. Manmohan, Vice-President (As a Third Member) - Addition of Rs. 3,30,000 made by the AO under section 68 of the : Act having been confirmed by the learned CIT(A), assessee preferred an appeal before the Appellate Tribunal. The learned Judicial Member upheld the order of the learned CIT(A) whereas the learned Accountant Member dissented from the order passed by the learned Judicial Member and they have also framed separate questions for opinion of the Third Member. 2. When the questions were placed before the Hon'ble President he was pleased to nominate me as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as Gupta did not have the capacity to advance a sum of 3,50,000/-. However, capacity of Shri Diwas Gupta was accepted to the extent of 1,50,000/- and the balance was sought to be added under section 68 of the Act on the ground that it is assessee's own income routed through the bank account of Shri Diwas Gupta. 6. Similarly he disbelieved the statement of Smt. Ruchira Gupta with regard to the loan of Rs. 1,80,000/- though provisions of section 68 were invoked to make an addition of Rs. 1,30,000/- only on the ground that assessee's own income was routed though the bank account of Smt. Ruchira Gupta. 7. The learned CIT(A) affirmed the order of the AO without considering the contention of the assessee that the creditors are regularly assessed to income tax and the amount was advanced by them through cheque and hence no case was made out by the AO to make the impugned addition. 8. Further aggrieved, assessee preferred an appeal before the Tribunal. None appeared on behalf of the assessee during the course of hearing and hence the Tribunal chose to dispose of the appeal ex parte, qua assessee, though on merits. The learned Judicial Member observed that the assessee raised ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the expression "may", used in section 68 of the Act, gives discretion to AO to make an addition only in deserving cases; even in an unlikely event of non-acceptance of the explanation with regard to creditworthiness, the impugned amount need not automatically be treated as, deemed income of the assessee unless there is some material on record to show that assessee has earned some other income which could have been routed through the bank accounts of the third parties. In his opinion the impugned addition made under section 68 of the Act deserves to be set aside and thus he has dissented from the view taken by the learned Judicial Member. 11. Therefore a reference was made to the Hon'ble President under section 255(4) of the Income-tax Act, 1961 to nominate a Third Member to resolve the difference of opinion. Thus the matter was listed before me. 12. I have heard the learned counsel, appeared on behalf of the assessee, as well as the learned D.R. in this regard and carefully perused the record. The learned counsel adverted my attention to pages 25 and 35 of the paper book to submit that the assessee paid interest on the loan advanced by the aforementioned two persons a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttention to page 2 of the assessment order to highlight that the AO examined the books of account and found the trade results to be correct and there is nothing on record to suggest that the assessee had any other source of income which could have been routed through the creditors in the form of loan. Such being the case the learned Judicial Member was not justified in holding that provisions of section 68 of the Act can be invoked. He thus strongly relied upon the order passed by the learned Accountant Member. He has also referred to a separate paper book filed by the assessee which contains detailed arguments which were taken note of by the learned Accountant Member. 14. On the other hand, the learned D.R. submitted that the assessee had at no point of time submitted that it had paid interest on the loans. At any rate the assessment order is silent on the issue. Therefore, when the AO has not specifically considered availability of interest, mere non-disallowance, if any, cannot be made the basis to highlight that the loans are genuine. He also submitted that section 68 of the Act is a deeming provision and the Legislature in its wisdom deems cash credits in the books as unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The creditors have explained the source of their deposits which in effect means that the sources were explained by the creditors. The AO has not pointed out how the explanation is not convincing and merely proceeded to invoke provisions of section 68 of the Act, that too for a part of the loan. Since the assessment was made in hurry it is not specifically mentioned as to whether the interest on the loan was allowed or not but the fact remains that the relevant material placed before the Bench indicates that the assessee claimed interest payable on their loans and there was no specific disallowance in the assessment order which implies that the interest was allowed by the AO. Thus. considering the overall circumstances of the case, I am of the view that the learned Accountant Member was justified in holding that the initial onus placed upon the assessee stood discharged in the instant case and in the absence of any material to prove that the source explained by the creditors is not genuine the AO was not justified in calling upon the assessee to prove the source of source. I therefore agree with the view taken by the learned Accountant Member and answer the question accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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