TMI Blog2003 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant carries on the business of supply of bamboo in the name of Bamboo Bagicha as its proprietor. For the assessment year 1992-93, the appellant filed his return of income and the same was processed under section 143(2) of the Income-tax Act, 1961. During the course of the assessment, the Assessing Officer examined the relevant books of account and various other particulars and completed the assessment vide order, dated March 30, 1995. In the course of the assessment so made, the Assessing Officer found that the assessee had taken loans from Nemichand Nahata and Sons (HUF) amounting to Rs. 4,35,000 and from one Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000 during the previous year ending on March 31, 1992. The Assessing Officer declined to treat the loan of Rs. 4,35,000 claimed to have been taken by the appellant from Nemichand Nahata and Sons (HUF) and added the entire amount of Rs. 4,35,000 in the assessee's total income from undisclosed sources under section 68 of the Income-tax Act, 1961. As regards the loan from Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000, the Assessing Officer declined to treat the loan amount to the extent of Rs. 4,25,000 as genuine and add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of the assessee as his income from undisclosed sources under section 68 of the Income-tax Act. As regards the loan claimed to have been taken by the assessee from the creditor, namely, Sri P.K. Agarwalla, the Assessing Officer found that the said P.K. Agarwalla had taken loan of Rs. 4,25,000 from five different parties by account payee cheques for advancing the loan to the appellant. The said sub-creditors were also examined and they confirmed that they had advanced the loans to the creditor, namely, Sri P.K. Agarwalla. It was also found by the Assessing Officer that the creditor as well as the sub-creditors aforementioned were all income-tax assessees. On examining the creditor and the sub-creditors aforementioned and also the assessment records of the sub-creditors, the Assessing Officer concluded that their income files were nothing, but capital building exercise aimed at accommodating others without support from any documentary evidence regarding their own business activities. The Assessing Officer, therefore, accepted as genuine the loan said to have been advanced by Sri P.K. Agarwalla to the assessee from his own source, but so far as the amount of Rs. 4,25,000 was concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, contends Dr. Saraf, to prove how the creditor of an assessee happened to obtain the amount, which the creditor had advanced, as loan, to the assessee. In the case at hand, however, points out Dr. Saraf, the appellant had not only established the identity of the creditor, but had also established the genuineness of the transactions and credit worthiness of the creditors aforementioned by showing that the creditors had received the amounts aforementioned by way of cheque from the sub-creditors. To prove the creditworthiness of a sub-creditor is not, according to Dr. Saraf, the onus of the assessee inasmuch as it is immaterial so far as the assessee is concerned as to how and from what source(s), the creditor happens to receive the amount, which the creditor advances to the assessee as loan. Support for the submission is sought to be derived by Dr. Saraf, from the decision in Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam). It is also submitted by Dr. Saraf that in the present case, the creditors as well as the sub-creditors were income-tax assessees and, hence, the genuineness of the transactions and creditworthiness of the creditors had been clearly established by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and his sub-creditors. If the sub-creditor, according to Mr. Bhuyan, does not have the means to give the funds, in question, to the creditor, the same can be reflected to mean that the creditworthiness of the creditor has not been established and in such a case, failure of the creditor to prove his creditworthiness can be extended to mean that there was no genuine transaction between the creditor and the assessee and that the creditor had no creditworthiness to advance the loan to the assessee. Viewed from this angle, contends Mr. Bhuyan, section 68 of the Income-tax Act cannot be limited to mean that the scope of the enquiry under section 68 by an Assessing Officer shall remain confined to the determination of the question as to whether the money had passed hands from the creditor to the assessee or not. Such interpretation, according to Mr. Bhuyan, will introduce a limitation on the powers of the Assessing Officer, which has not been envisaged by section 68 of the Income-tax Act. It is further submitted by Mr. Bhuyan that in the present case, merely because the transactions had taken place between the assessee and the creditor as well as the sub-creditors by means of cheque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act, which reads as follows: "Burden of proving fact especially within knowledge.--When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him. Illustrations: (a) When a person does an act, with some intention other than that which the character and circumstances of the act suggest, the burden of proving that intention is upon him. (b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him." On a careful reading of section 106, we notice that what is the source from which an assessee has obtained the loan can be safely held to be a fact, which is actually within the special knowledge of the assessee; hence, it is the burden of the assessee to show the source(s) from which he has received the loans. Once the assessee discloses the source(s) from which he has received the loans, his burden under section 106 stands discharged and the onus, then, shifts to the Assessing Officer to show, if he wants to treat t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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. A person may have funds from any source and an assessee, on such information received, may take loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undiscl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itor cannot, in the absence of any clinching evidence, be treated as the income of the assessee derived from undisclosed source. Since it is not the business of the assessee to find out the source(s) from where the creditor has accumulated the amount, which he has advanced, in form of the loan, to the assessee, section 68 cannot be read to show that in the case of failure of the sub-creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be read, as a corollary, as the income from undisclosed source of the assessee himself. If sections 106 and 68 have to survive together, the logical interpretation will be that while the assessee has to prove only his special knowledge, i.e., the source from where he has received the credit and once he discloses the source from which he has received the money, he must also establish that so far as his transaction with his creditor is concerned, the same is genuine and his creditor had the creditworthiness to advance the loan, which the assessee had received. When the assessee discharges the burden so placed on him, the onus, then, shifts to the Assessing Officer if the Assessing Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditor was received by the sub-creditor from none other than the assessee himself. In other words, though under section 68, an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount, which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. We are fortified' in adopting this view from the following observations made in Tolaram Daga's case [1966] 59 ITR 632 (Assam): "At the outset, we have to point out that there is no substance in the contention that the sources from which the money was realised by the third party are within the special knowledge of the petitioner as the depositor happens to be his wife. Whether he has knowledge at all of the source of the money deposited by the thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w 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 assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. It is, no doubt, true that in the present case, the findings arrived at by the Assessing Officer as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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