1. The only question in this appeal by the assessee is whether the addition of the credits in the names of certain minors is justified or not.
2. While completing the assessment under Section 143(3) of the Act, the ITO noticed credits in the following names :(1) Babita Kumari Agarwal Rs. 19,684 (minor, aged 13)(2) Chanda Kumari Agarwal Rs. 19,667 (minor, aged 11)(3) Sangita Kumari Agarwal Rs. 19,717 (minor, aged 9)(4) Nandita Kumari Agarwal Rs. 19,667 (minor, aged 7) On 6-11-1987, as per the order sheet of the assessment record, a copy of which was made available to us, the ITO asked the assessee to explain the aforesaid credits. It was stated by the assessee that the minors had received petty gifts and that they had filed returns of income under the amnesty scheme. No comments are found to have been made by the ITO on the explanation. The assessment was completed on the same day. In the assessment, the credits were added as income under Section 68. Obviously, the explanation of the assessee was not accepted.
3. The assessee took up the addition in appeal before the CIT(A).
Before him the assessee filed confirmation letters from the persons who made gifts to the minors which according to the assessee constituted the source for the credits. The CIT(A) found that the letters were similarly worded, carried the same address and merely stated that the gifts were made on the birthday during the year. From this, he inferred that no credence could be attached to them and that the capacity of the minors to advance the amounts did not stand proved. The addition was, therefore, confirmed.
The correctness of the conclusion of the CIT(A) is challenged before us. Shri Jain, learned Counsel for the assessee says that first of all the amounts are not cash credits and cannot be dealt with as such. That is true. The amounts were paid to the firm by means of "Account payee" cheques. That means that the provisions of Section 68, strictly speaking, do not apply. But even on general principles of income-tax law, it is incumbent on the assessee, when called upon, to establish satisfactorily the nature and source of the credit whether it be in cash or by cheque. Mr. Jain next complains that no enquiry was made by the ITO into the credits and the assessee was not called upon to adduce evidence in support of them. There is force in this contention. As can be seen from the entry in the order sheet on 6-11-1987, except a passing reference to the assessee's explanation no enquiry worth the name has been carried out. But before the CIT(A), who has jurisdiction over the entire assessment and whose powers are coterminous with that of the ITO, the assessee has adduced evidence in support of the credits. It is not the case of the Revenue that the evidence was fresh evidence and Rule 46A would apply. We have to, therefore, proceed to a consideration of the evidence in this case.
4. The credits are by means of "Account Payee" cheques. No doubt they are from minors, the first three being daughters of one of the partners and the fourth being the daughter of one M.P. Agarwal who is not connected with the firm. But their sources have been furnished by the assessee. It has been pointed out that they received gifts and such gifts were also brought to in their hands as per returns filed under the amnesty scheme. The donors have confirmed the gifts. In this state of the evidence it is not possible to resist the point taken by Mr.
Jain that the primary onus that lay upon the assessee-firm stood discharged. No enquiry was made by the ITO either by examining the bank accounts from where cheques were issued in an attempt to link the funds therein with the assessee-firm or by issuing summons under Section 131 to the donors in an attempt to test the truth of the assessee's explanation. The CIT(A), who had the same power, did not also do so.
The effect or consequence of not issuing summons under Section 131 in cases where the primary facts have been placed by the assessee with regard to the credits has been brought out by the separate but concurring judgment of his Lordship Justice S.K. Jha at page 154 in the case of Addl. CIT v. Hanuman Agarwal [1985] 151 ITR 150 [1984] 17 Taxman 19. (Pat.). The failure to issue summons under Section 131 in such cases, according to the judgment, absolves the assessee from any further judgment, absolves the assessee from any further duty, with this consequence that his application stands uncontroverted and thereby the credits stand proved. The same view has been expressed later by the Patna High Court in the case of Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244 22 Taxman 3. In the case of CIT v. Orissa Corpn.
(P.) Ltd. [1986] 159 ITR 783 the Supreme Court held (at page 83) that the department could not be taken to have discharged the burden even in a case where notice under Section 131 Issued to the creditor was returned unserved. The assessee's case is "a fortiori", as notice under Section 131 was not even issued.
5. Mr. Das relies on the case of Dr. (Mrs.) K.D. Arora v. CIT 11986] 162 ITR 481 (at page 484) (Pat.). That case is distinguishable on facts. The evidence of the nature adduced by the assessee in the present case had not been adduced by the assessee in the aforesaid decision. Mr. Das next relies on the case of Jamnaprasad Kanhaiyalal v.CIT [1981] 130 ITR 244 6 Taxman 61. (SC) and the case of ITO v. Rattan Lai [1984] 145 ITR 183 16 Taxman 25. (SC). In these cases, the only contention raised was that in view of the declaration made by the creditor under Section 24 of the Finance (No. 2) Act, 1965, no enquiry into the genuineness of the credit in his name in the assessce's books was even permissible. But that is not the position here. In fact, Mr.
Jain more than once complained against the lack of any attempt by the ITO to investigate into the genuineness of the credits. The assessee throughout the proceedings never demurred to the furnishing of any evidence in support of the credits. Further, no such argument as was raised before the Supreme Court was raised either before the CIT(A) or before us. The judgments are, therefore, not applicable.
6. Mr. Das next drew our attention to the case of Sarogi Credit Corpn.
v. CIT [1976] 103ITR 344, 349 (Pat.). In that case it was inter alia laid down that the assessee is bound to explain the credits in the names of third parties and show that the entries are not fictitious.
This burden has been discharged by the assessee in the present case.
The three requirements (i) identity of the creditors, (ii)-their creditworthiness, and (iii) the genuineness of the transactions, laid down by the Calcutta High Court in the case of Shankar Industries v.CIT [1978] 114 ITR 689 have also been satisfied.
7. Turning now to the order of the CIT(A), it must be said that he has merely dwelt upon superfluous consideration such as similarity in the language of the confirmation letters of the donors, the fact they carried the same address, etc. It was within his powers to have the donors examined in order to elicit the truth, instead of pointing out to the defects in the form in which the evidence was adduced. He should have, with respect, focussed his attention on the substance of the matter. Not having made any attempt to disprove the sources of the minors - petty gifts - it was not justified on his part to confirm the addition. It is not expected of the income-tax authorities to sit back with folded hands till the assessee exhausts all the evidence in his control and possession and then merely reject the same, thereby converting "good proof into no proof.
8. For these reasons, we hold that the assessee has established the identity of the creditors, their capacity to advance the money, and the genuineness of the transactions. On the other hand, the income-tax authorities have not discharged the burden that lay upon them to show that the credits were not properly explained. The credits shall, therefore, have to be treated as properly explained.