1. This is a departmental appeal against the order of the Commissioner (Appeals), wherein he has deleted the following additions made by the ITO on account of certain cash credits appearing in the books of the assessee: (i) Shri Laljibhai Manga Rs. 10,000 (ii) Shri Masri Jivabhai Rs. 40,000 2. At the outset, the learned Counsel for the assessee was fair enough to state that he cannot possibly support the order of the Commissioner (Appeals) deleting Rs. 10,000. In this view of the matter, we have no hesitation in reversing the order of the Commissioner (Appeals) on this point.
6. The assessee was asked to produce the cash creditors, Shri Bhaichandbhai, the accountant of the assessee, produced Shri Masri Jivabhai, whose statement on oath was recorded in the presence of Shri Bhaichandbhai. It was stated by him that he had 38.25 acres of land at village Raval and there were seven members in his family. It was stated that his net income from agricultural land was approximately at Rs. 20,000 per annum and his household expenses were Rs. 12,000. It was stated by him that he had no bills for sale of crops, etc. It was stated that there was a branch of Bank of India at Raval since 15 years but he used to keep cash with him. It was stated that before 8 years, he had obtained loan of Rs. 12,000 from Bank of India for installing pipeline to his field. It was contended by him that he had advanced loan of Rs. 40,000 to Shri Abhalbhai Makwana in cash, which represented his past savings. It was further stated by him that Shri Makwana wanted to be partner in Amber Cinema, so he had given him loan. It was also stated by him that his younger brother was studying with Shri Makwana and, thus, he knew him. It was stated by him that no receipt was obtained by him. It was stated that except that his brother was studying with him, he was in no other way connected with him.
7. It would be pertinent to note that the cash credit appears in the books of account of M/s Badiani Enterprises and not in the books of Shri Makwana, who is only a partner. Further, in view of the fact that Shri Masri Jivabhai had to obtain loan for installation of pipeline, the story of availability of Rs. 40,000 during the relevant year cannot be accepted and the same was proposed to be added to the total income of the assessee in the draft order of assessment. The assessee objected to the addition of the cash credits of Rs. 40,000 in the name of Shri Masri Jivabhai. After hearing the assessee, the IAC directed that the addition of the unexplained cash credit should be added as it was highly improbable that any normal person would advance Rs. 40,000 to the stranger without bothering to obtain even a receipt. I am, therefore, adding the amount of Rs. 40,000 as unexplained cash credit in the hands of the assessee.
4. In appeal, the assessee submitted that since the ITO had failed to appreciate its case in proper perspective, the addition of Rs. 40,000 made by him is unwarranted. Accepting the submissions made on behalf of the assessee, the Commissioner (Appeals) deleted the addition of Rs. 40,000 from the total income of the assessee.
5. The learned representative for the department strongly relied on the order of the ITO and submitted that on the material gathered by him, the Commissioner (Appeals) ought to have confirmed the addition of Rs. 40,000 made in the assessment. He also relied on the decision of the Hon'ble Bombay High Court in the case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708. The learned counsel for the assessee, on the other hand, supported the action of the Commissioner (Appeals). Placing before us a copy of the statement made by Shri Masri Jivabhai before the ITO, the learned Counsel for the assessee submitted that since the assessee had not only produced evidence about the genuineness of the loan and credit-worthiness of the party who advanced such loan but had also produced Shri Masri Jivabhai before the ITO for the latter's examination, the Commissioner (Appeals) had rightly deleted the addition of Rs. 40,000 made by the ITO. Once the creditor had accepted the fact that he had advanced loan of Rs. 40,000 to the assessee, the learned Counsel for the assessee submitted that the assessee had successfully discharged the onus which laid upon it. At this stage, he also emphasised the fact that the said creditor was not related to any of the partners of the firm. In support of his submission, the learned counsel for the assessee relied on the decision of the Hon'ble Patna High Court in the case of Sarogi Credit Corpn. v. CIT [1976] 103 ITR 6. On due consideration of the rival submissions of the parties as well as the material placed before us, we do not find any justification to interfere with the order of the Commissioner (Appeals) on this point.
It would appear from the order of the ITO itself that the assessee had successfully discharged the initial onus, which laid upon it, by not only establishing the credit-worthiness and the genuineness of the loan of Rs. 40,000, but also had produced the creditor before the ITO who had confirmed the fact about advancing loan of Rs. 40,000 to the assessee. Under these circumstances, we are of the view that the ITO was not justified in considering the irrelevant material of obtaining loan of Rs. 12,000 by the creditor some 8 years back. Since, in our opinion, the assessee has discharged the initial onus, which lay upon it, to explain the nature and source of credit of Rs. 40,000 the Commissioner (Appeals) was fully justified in deleting the said amount from the total income of the assessee. As we are deciding the appeal on the appreciation of the facts already brought on record, it is not necessary to refer to the aforesaid two decisions cited by the parties.
1. I have gone through the order of my learned brother and have also discussed the same. I have not been able to convince myself about the decision taken in respect of the cash credit of Rs. 40,000 from Shri Masri Jivabhai and, therefore, I disagree, In my opinion, the order of the Commissioner (Appeals), deleting the amount of Rs. 40,000, requires to be set aside and that of the ITO restored. The reasons are as follows: 1.1. The provisions contained in Section 68 of the Income-tax Act, 1961 ('the Act'), are new ones as compared to the Indian Income-tax Act, 1922 ('the 1922 Act'). However, under the 1922 Act, unexplained cash credits used to be added under the general law of income-tax.
Section 68 essentially contains a deeming provision and phraseology of the section is very clear. The law has laid down that in the absence of satisfactory explanation, the unexplained cash credit may be charged to income-tax as deemed income. The explanation about the nature and source of cash credit should be satisfactory in the opinion of the ITO. So the test to be applied is whether the assessee has been able to adduce necessary evidence so that it can be called a satisfactory explanation. In this case, out of the four cash credits, two cash credits were added by the ITO, as directed by the IAC, as unproved cash credits and the cash credit of Rs. 40,000 from Shri Masri Jivabhai, with which we are concerned, is in respect of loan obtained by cash. On going through the statement of the lender taken by the ITO on 18-1-1979, the information gathered supports more the case of the revenue rather than that of the assessee. Following attendant aspects are noteworthy: 1. The lender is not assessed to tax and is having only agricultural income. According to the version of the lender, he was having yearly agricultural income of Rs. 20,000, out of which his household expenses were Rs. 12,000 approximately and balance of Rs. 8,000 was accumulated in cash from year to year. He was accumulating those savings in cash since 1969, approximately 10 years before the statement.
2. In 1971, he had taken loan of Rs. 12,000 from Bank of India and only Rs. 4,000 was paid towards the amount of the loan by 1979 (Question No. 15). (This aspect is clearly against the version that he was saving Rs. 8,000 yearly in cash).
3. He was not in the habit of advancing any loan to any person but this was only one instance (no convincing reasons given).
4. In question No. 28, it is replied stating that he did not know in what denomination of notes the amount of Rs. 40,000 was paid (this is unbelievable because number of currency notes of each denomination was not asked).
5. Though loan (with interest) was outstanding to be paid to Bank of India, he had not received any interest on advance of Rs. 40,000 during the period of 4 years between 1975 and 1979--Question Nos. 28 and 29 (why this was so ?).
6. Neither receipt nor promissory note was taken for such a big sum paid to Mr. Makwana (this raises doubt rather than removing it).
1.2 From the above the inference drawn by the IAC that the claim like this one had to be viewed in the light of normal human conduct, was the correct inference.
1.3 The Commissioner (Appeals) has deleted the amount of cash credit on the ground that the assessee had discharged the initial burden; nothing was proved by the ITO to show that lender was not a man of means or that transaction was not genuine. In my opinion, it is necessary for the assessee to prove, prima facie, the transaction which results in a cash credit by good material especially when it is by cash. Such proof includes not only the identity of the lender but also capacity of the lender to advance the money (not only his worth because of immovable property but also he must be able to spare and advance liquid cash) and genuineness of the transaction.
Unless this is done, it cannot be said that the assessee has adduced evidence so as to shift the burden on the revenue. Here, in this case, the only thing that is proved is that the depositor had 38.25 acres of land. But nothing is proved regarding whether the depositor could have saved and was in possession of necessary amount of cash.
It cannot be said that the transaction is accepted by the ITO as genuine one and not doubted.
1.4 The case relied upon by the learned Counsel for the assessee in the case of Sarogi Credit Corpn. (supra), cannot be applied to the facts of the case. Out of many, the two distinct features of the case are that depositors were on the records of the income-tax department and the depositors were doing some business. Besides, the decision heavily relied upon the decision of the Bombay High Court in Orient Trading Co. Ltd. v. CIT [1963] 49 ITR 723, which pertained to the provisions under the 1922 Act. As stated earlier, Section 68 is a deeming provision introduced only in the 1961 Act. Besides, there cannot be one general or universal proposition of law which could be guiding yardstick in the matter under consideration. Each case has to be decided on the facts and in the circumstances of a particular case. The surrounding circumstances to be considered must be objective facts, evidence adduced before the taxing authorities and acceptance of facts based on common human experience in life.
Order under Section 255(4) of the income-tax act, 1961 - Because of difference of opinion between two members, the following question is referred to for the opinion of Third Member: Whether, on the facts and in the circumstances of the case, the amount of Rs. 40,000 represented by cash credit in books of the assessee is required to be added to the income of the assessee 1. The assessee is a registered firm, carrying on among other things the running of Cinema House. While making the assessment for the assessment year under appeal, the ITO included a sum of Rs. 40,000 as income from other sources. This represented an alleged loan of Rs. 40,000 taken on 15-4-1975 from one Shri Masri Jivabhai. The addition made by the ITO was deleted by the Commissioner (Appeals). It is, thus, that the matter came before the Tribunal. The two members who heard the appeal having differed, the following point of difference is referred to me as the Third Member for resolution: Whether, on the facts and in the circumstances of the case, the amount of Rs. 40,000 represented by cash credit in books of the assessee is required to be added to the income of the assessee 2. The learned Counsel for the department, relying on the order of the ITO and the instructions of the IAC, has pointed out that the assessee has not brought on record any evidence to support the genuineness of the loan. In matters of this type, especially in the context of the newly introduced section in the 1961 Act, namely, Section 68, which was not present in the 1922 Act, it was entirely for the assessee to establish the genuineness of any alleged loan. It is not enough that the assessee points out to the alleged creditor in flesh and blood. He should also point out that the party is capable of making the advance.
While the learned Counsel would leave the manner of satisfying this point to the assessee, the normal conduct of persons would certainly be of importance in this context. In the present case that the creditor has not behaved in a normal fashion, is clear from his statement. This has been highlighted by the order of the learned Accountant Member, where he has pointed out at least six discrepancies enabling the assessee's claim to be thrown out.
3. Repeating the points to stress them, the learned Counsel has pointed out that the creditor claims to have substantial agricultural income and also having purchased a pump set, etc., with borrowed money. There is no proof, however, for the extent of agricultural income stated to be earned, the details of household expenses, etc. The alleged estimate made by the creditor in this regard is not corroborated by any other details. The creditor has a bank account. He is supposed to be saving a substantial amount from agriculture from year to year. Even so, he claims to keep substantial cash at home. No part of the alleged income is put into the bank. The creditor borrowed a sum of Rs. 12,000 from the bank as an agricultural loan. Out of this, only Rs. 4,000 has been paid. If a person has got substantial income as claimed, asked the learned Counsel, would he not pay back the loan outstanding for a long time The creditor has not advanced any loan to any other party. He has not taken any receipt for the loan even though it is a large amount of Rs. 40,000. He has not received any interest on the loan. What his other activities are, is also not known. In short, it is the claim of the learned Counsel that there is a complete blank as regards the details of activities of the creditor going to show that he was merely a name lender. Apparently, the assessee has taken advantage of the fact that the creditor has some agricultural lands.
4. Laying stress on the decision of the Bombay High Court in Velji Deoraj & Co.'s case (supra), especially at pages 717 and 719 of the report, the learned Counsel has pointed out that a mere identification of the creditor only has been done in the present case. The assessee has not proved with any evidence that the creditor is in a position to lend the amount. More than that as the decision lays down, it has not been shown that the creditor did give the amount to the assessee. The decision in Sarogi Credit Corpn.'s case (supra), referred to by the learned Judicial Member, has no application to the case. In fact, this decision has not taken note of the other important decision in Velji Deoraj & Co.'s case (supra).
5. For the assessee, stress is laid on the orders of the Commissioner (Appeals) and the learned Judicial Member. Referring to the assessment order and the directions issued by the IAC, it is pointed out that the ITO wanted to make an addition of more than Rs. 1 lakh but the IAC restricted the same to only a portion thereof. Even out of this, the Commissioner (Appeals) deleted a substantial amount. Ultimately, it is only this addition of Rs. 40,000, which is now for consideration before the Tribunal. The assessee has produced the creditor. The deposition of the creditor has been taken. No part of the deposition casts doubt on the genuineness of the loan or the assessee's explanation. When the assessee has done all he can to substantiate the loan, there was no justification for making the addition.
6. The matter lies in a small compass. The assessee claims to have received a sum of Rs. 40,000 by way of loan from a creditor, Shri Masri Jivabhai, on 15-4-1975. Since neither the ITO nor the Commissioner (Appeals) or even the learned members of the Tribunal, who heard the case, have gone into the financial position of the assessee himself and the particular context in which this loan was allegedly taken by the assessee, I am not in a position to appreciate the context in which the loan was said to have been taken. What I want to mention is the urgency with which the assessee wanted finance or the purpose for which it was needed might have added strength to the arguments on either side but there is no information on this point. Be that as it may, the assessee's case is that he took a loan from a party whose whereabouts were given. The party is not related to the assessee. The alleged creditor is not under the control of the assessee, so that he could force him to give a false statement or manipulate evidence.
The creditor has been not only identified but also examined by the ITO.The statement given by him does not cast any doubt on the alleged loan.
According to the learned Counsel for the department, there are certain aspects of the deposition which are not in consonance with normal human behaviour. It is pointed out that with substantial agricultural income and having a bank account, the creditor has not banked the money. The absence of a document or receipt is also referred to. Reference also is made to the fact that the loan is taken from the bank and has not been completely returned. It is true that these incidents do speak of a peculiar behaviour on the part of the creditor different from the normal. It, however, requires to be noted that these are facts which concerned the creditor. There may be a hundred and one reasons why the creditor behaved in this peculiar fashion. This may not affect the assessee at all. The position would be, however, different if the creditor is a relative or the creditor is under the control of the assessee and the latter could force him to do as he liked. Certainly such an allegation is not made in the present case. The mere fact, therefore, that the creditor's behaviour does not confirm to what one would regard as normal human behaviour, should not be a reason to cast an extraordinary burden on the assessee. The fact remains that the alleged creditor has substantial agricultural lands, nearly 40 acres.
He has taken a loan and purchased a pump set for about Rs. 12,000. He would not have done this unless he has some income. "What he has done with his income, why he did not put the money in the bank, etc., are relevant in his case but certainly, the assessee cannot explain or be responsible for these. The decisions are clear that in the case of a person who is not under the control of the assessee so as to manipulate things, the assessee cannot be held responsible for whatever oddities the creditor can be invested with. I have, therefore, no hesitation in holding that the assessee has done all in his power to prove the genuineness of the credit. The order of the learned Judicial Member should be upheld.7. The two decisions referred to by the parties in Velji Deoraj & Co.'s case (supra) and Sarogi Credit Corpn.'s case (supra), in my opinion, cannot settle the issue. The circumstances of Velji Deoraj & Co.'s case (supra) are entirely different. In fact, it refers to an assessee who had long standing relations with the creditor and in whose case manipulations are possible. The decision in Sarogi Credit Corpn.'s case (supra), on the contrary, confirms the normal fact that a person who genuinely takes money from another can, at best, have the necessary identity of the person and other details but certainly cannot be responsible for the financial prudence, behaviour, etc., of the other.
Perhaps the department's case would have been worth considering if the creditor were a pawn in the hands of the assessee, which certainly is not the case here. I, therefore, agree with the view of the learned Judicial Member. The matter will go back to the Bench which heard the case for proper disposal.