This is an assessees appeal relating to asst. yr. 1982-83. It is directed against the order of the CIT(A)-IV, Hyderabad, dt. 7th Feb., 1989.
2. The only point involved is whether the addition of Rs. 32,000 made under S. 68 of the IT Act, 1961 (hereinafter called "the Act") in the hands of the assessee company is justifiable. Few facts relating to this addition are the following.
3. Smt. Samanthakala and Smt. Sashirekha are daughters of Shri K.Venkatramireddy, resident of Rangapuram village, Kodakandla Mandal, Warangal district. Smt. Sashirekha was married to Sri R. S. Ravula and she has been residing along with her husband in U.S.A. since 1968. She was having agricultural land of 19 acres 28 guntas at Devnoor village, Warangal district, and that land was being managed by her brother Shri Kamalakarreddy. She was getting yearly income of about Rs. 30,000 as agricultural income from her lands. The said income was all managed by Shri K. Kamalakarreddy on her behalf. It is the case of the assessee that from July, 1980 to June, 1981 Shri Kamalakarreddy had advanced a total sum of Rs. 1,17,000 to the assessee-company and he also received back an amount aggregating to Rs. 1,07,000 out of it. It is also the case of the assessee that Smt. Sashirekha came down and stayed in India from 10th June, 1980 to 11th Sept., 1980 and during her stay she had kept an amount of Rs. 38,000 with her sister Smt. Samanthakala for purposes of purchasing a flat to her, that Smt. Samanthakala deposited that amount of Rs. 38,000 in her Savings Bank Account in Andhra Bank, Narayanguda branch at Hyderabad. Smt. Samanthakala is the wife of Shri P. K. Reddy. Smt. Samanthakala is a director whereas her husband Shri P. K. Reddy, is the managing director of the assessee-company which is a private limited company. For asst. yr. 1982-83, on the ground that the assessee was not able to establish the identity or the capacity of the creditor and also the genuineness of the cash credit appearing in favour of Smt. Sashirekha, the ITO added a sum of Rs. 32,000 which represents the peak credit in her account maintained by the assessee-company. The ITO in his assessment order dt. 30th March, 1985 admitted that Smt. Sashirekha is no other than the sister of Smt.
Samanthakala, one of the directors of the assessee-company. He found that the ledger account appearing in the name of Smt. Sashirekha was found written at a streteh and did not seem to have been written in ordinary course of business. By letter dt. 4th March, 1985, the ITO requested the assessee to produce Smt. Sashirekha for cross-examination. Since she was residing in USA she was not able to be produced. Justifying the addition made, the ITO had the following to say : "The assessee-company has not established the identity, capacity of the creditor and genuineness of the transaction. The managing director has informed that Smt. Sashirekha is outside India. The burden is on the assessee-company to prove the genuiness of the cash credits. As Smt.
Sashirekha happens to be a close relative and she was not produced for the cross-examination makes me to believe that it is the money of the company introduced in the name of Smt. Sashirekha." It is not out of place to mention here that a sum of Rs. 31,931 was also added to the income of the assessee-company as unexplained investment under S. 69A. Inter alia, against these two additions, the assessee went in appeal before the CIT(A)-IV, Hyderabad. The addition of Rs. 31,931 was made on the following grounds. As already stated Smt.
Samanthakala was having an Savings Bank Account in Andhra Bank, Narayanguda branch. In that account, a sum of Rs. 38,000 was credited on 8th July, 1980. It is the case of the assessee that the sum of Rs. 38,000 was given by Smt. Sashirekha to her sister Smt. Samanthakala for purposes of purchasing a flat to her. It is the further case of the assessee that on 30th July, 1980, for a sum of Rs. 31,747.05 a demand draft was purchased favouring Premier Engineering Corporation to which the assessee-company was due. The ITO made the addition of Rs. 31,931 in the hands of the assessee-company under S. 69A of the Act, however, disbelieving the version of the assessee. In appeal, the learned CIT(A) found that the amount of Rs. 31,931 was borrowed by the assessee-company from Smt. Samanthakala and with the said amount a demand draft was furnished in favour of Premier Engineering Corporation to which the assessee was due. Thus, the learned CIT(A) held agreeing with the assessee-company that the amount in fact represents the amount drawn from the Saving Bank Account of Smt. Samanthakala. On 4th March, 1985, the ITO issued a letter calling upon the assessee to explain the genuineness of the cash credits, inter alia, standing in the name of Smt. Sashirekha in an amount of Rs. 1,17,000. A reply was sent to that letter on 11th March, 1985, copy of which is furnished at pages 2 and 3 of the paper compilation filed before us. In the said letter it is informed that Smt. Sashirekha was residing in USA and her address was provided as follows : Smt. Samanthakala was examined by the ITO under S. 131 of the Act on 15th March, 1985. Sworn statement recorded from her is found at page 4 of the paper compilation filed before us. In that examination it is stated that her parents gifted her 3 acres of wet land and 8 acres of dry land, out of which she receives Rs. 10,000 as yearly agricultural income and from those realisations she had lent to her sister Smt.
Shakuntala, invested Rs. 30,000 in the assessee-company and also invested another Rs. 30,000 in Best Abbressive Company. She further stated that she had got a bank account, inter alia, in Andhra Bank, Narayanguda. With reference to the entries made in the Savings Bank Account, she was cross-examined. On 28th July, 1980, an amount of Rs. 38,300 appeared to have been deposited in her account in Andhra Bank, Narayanguda branch. Explaining the source to that amount, she stated that her sister Smt. Sashirekha who was residing in USA at that time gave the said amount to her for purchasing a flat and she also stated that the amount was personally delivered to her by her sister, viz., Smt. Sashirekha. On 13th Nov., 1981, another sum of Rs. 72,926 was found to have been credited in her Savings Bank Account. Explaining about the said remittance she stated that she received a cheque from her sister who was residing in USA. A confirmatory letter was sent from Smt. Sashirekha herself from USA, a copy of which is furnished at page 6 of the paper compilation furnished before us. In the said confirmatory letter, she confirmed that she was having an extent of 19 acres 20 guntas of agricultural land at Devnoor village, Warangal district, out of which she was getting agricultural income of Rs. 25,000 per year, that the lands as well as the income derived therefrom were being managed by her brother Shri Kamalakarreddy, that she authorised him to deal with her money and as per her authorisation he had been temporarily advancing the money to the assessee-company and also had been receiving back monies on her behalf. Further, she stated in her confirmatory letter that she had been visiting India occasionally especially between 10th June, 1980 to 11th Aug., 1980 she was in India and during her stay she used to advance monies to her sister Smt. Samanthakala as well as her brother-in-law Shri P. K. Reddy and was also receiving back money from them personally. Shri Kamalakarreddy, the brother of Smt. Sashirekha also gave an affidavit in support of the contentions of the assessee. Copy of the said affidavit is furnished at page 7 of the paper compilation. It was duly notarised. In the said affidavit he had corroborated the version given by Smt. Sashirekha in her confirmatory letter given above. More particularly, he had affirmed that from out of the accumulated agricultural income belonging to his sister Smt. Sashirekha, he used to advance monies to the assessee-company to which Shri P. K. Reddy, his brother-in-law was the managing director. He had advanced a total sum of Rs. 1,17,000 on various dates between July, 1980 to June, 1981, and also received back a sum aggregating to Rs. 1,07,000. He further affirmed that he had been giving certain amounts to Smt. Sashirekha whenever she wanted during her stay in India on her visit. The ledger copy of the account of Smt. Sashirekha maintained by the assessee-company was furnished at pages 8 and 9. It discloses that the total amount borrowed was Rs. 1,17,000 and the amount repaid was Rs. 1,07,000.
4. In appeal, though the learned CIT(A) partly allowed the appeal filed, gave relief to the assessee only by deleting the addition of Rs. 31,931. However, he confirmed the addition of Rs. 32,000 which represents the peak of the cash credits standing in the name of Smt.
Sashirekha. The learned CIT(A) held that the explanation furnished by the assessee to account for cash credits suffers from serious infirmities and gaps which makes him difficult to acquiesce in the version of the assessee. Assuming that Smt. Sashirekha had agricultural land fetching Rs. 30,000 yearly it does not necessarily follow, according to the learned CIT(A), that the money was invested with the assessee-company and was not spent otherwise. The learned CIT(A) holds that there should be an immediate nexus between the receipt of the alleged agricultural income and the subsequent investment. However, the learned CIT(A) observes that what is on record was only uncorroborated version of different parties concerned to explain the cash credit and the gaps in those self-serving statements have not adequately been bridged by material particulars having a bearing on them. The learned CIT(A) finds that it would be very difficult for him to give credence to the patch work of defence as clobbered out by the assessee without a modicum of acceptable evidence. According to the CIT(A), the nexus between agricultural income and the cash credit has to be established not by bland statements but in terms of date linking the two both in point of time and the quantum of credit involved. He ultimately finds that the onus to establish the truth of the cash credits exclusively lies on the assessee which the assessee, according to him did not discharge to the satisfaction of the ITO or to his satisfaction in appeal. Therefore, he refused to interfere with the ITOs finding and confirmed the addition.
5. As against this order of the CIT(A), the present second appeal is brought and thus the matter stands for our consideration. We have heard Shri S. Ramarao, learned counsel for the assessee and Shri S. C. Jaini, learned Senior Departmental Representative for the Department. The learned counsel for the assessee wants to rely upon the following case law : The learned Senior Departmental Representative heavily relied upon the correctness of the orders of the lower authorities and also wanted to supplement the case of the Department by relying upon the following authorities.
He argued that the finding of the lower authorities that under law, the entire onus to prove the genuineness of the loan, the identity of the creditor and his capacity to lend the amount exclusively lay on the assessee and in this case, the onus is not discharged is perfectly a valid finding which is not liable to be disturbed by the Tribunal.
6. Thus, we have heard the arguments advanced on both sides and we have also gone deep into the records of the case. We are of the view that the assessee is able to establish both the identity and capacity of the creditor beyond reasonable doubt. Both the lower authorities never seemed to have doubted the identity of the creditor. The identity was established by the direct evidence of Smt. Samanthakala, the affidavit evidence of Shri Kamalakarreddy, who later died on 2nd Sept., 1988 due to heart attack, the circumstantial evidence provided by the entries made in the Savings Bank Account of Smt. Samanthakala in Andhra Bank, Narayanguda branch and also by the confirmatory letter given by Smt.
Sashirekha herself, and last but not the least, the ledger account copy maintained by the assessee-company in the name of Smt. Sashirekha. In civil matters, it is not proof beyond reasonable doubt which is required, but it is only preponderance of probabilities which establish the case. Whether the volume of evidence let in is acceptable or not would depend upon proper appreciation of such evidence, according to law. The learned CIT(A) demands that there should be an immediate nexus between receipt of agricultural income on the one hand and the subsequent investment made. However, he never doubted the affidavit evidence of Shri Kamalakarreddy. No reasons were assigned in his order as to why that affidavit should not be believed. If the ITO had got any doubts about the genuineness of the version found in the affidavit, then he could have examined Shri Kamalakarreddy during his life time.
So also no reasons were assigned as to why the sworn statement of Smt.
Sashikala should also be disbelieved. In the absence of any finding about the veracity of Smt. Sashikalas sworn statement and the affidavit evidence of Shri Kamalakarreddy we have to hold that the identity of the creditor as well as her capacity to lend the amounts should be held to have been adequately proved. We hold that the expectation that there should be immediate nexus between the receipt of agricultural income and the subsequent investment is not absolutely essential and in the absence of such nexus having been established by direct evidence, the case of the assessee need not be thrown out. In our humble opinion, it is enough if the capacity of the creditor is established and there is reasonable evidence to accept the version that she must have enough property to lend money from out of the amounts derived by her from the agricultural income. It is not necessary that as soon as agricultural income is derived it should be invested. The investment can as well be spread over a period of time. In this regard, the Mandal Revenue Officer gave a certificate, found at page 11 of the paper compilation that Smt. R. Sashirekha would derive annual agricultural income of about Rs. 30,000. Smt. Sashirekha herself gave out the Survey Nos. of the extents of her lands in Devnoor village, Dharmasagar Mandal, Warangal district. A copy of the said certificate is filed at page 10 of the paper compilation. The brother of Smt. Sashirekha in a solemn affirmation had come out that he used to manage the lands of his sister Smt. Sashirekha and used to derive income therefrom. He used to invest the amounts in the assessee-company as per the directions received from his sister. To reject this evidence as interested evidence does not appear to be correct to us according to law. In CIT vs. Orissa Corporation P. Ltd. (supra), the question was whether the finding of the Tribunal that simply because the assessee could not produce the cash creditors, it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the assessee and that the Revenue was not justified in drawing the adverse inference and adding the amounts of the cash credits to the income of the assessee. The facts in that case were that there were three cash credits aggregating to Rs. 1,50,000 appearing in the books of the assessee private limited company. The amounts were shown to have been received by way of loan from three individual creditors of Calcutta under Hundies. Letters of confirmation and discharged Hundies were produced before the ITO. Particulars of the creditors who were also income-tax assessees along with Central Index Numbers were furnished to the Department. The assessee-company after making attempts could not produce the cash creditors, but got summons issued through ITO under S. 131 of the IT Act to the cash creditors.
However, those summons were returned unserved with remark "left". The cash creditors in their individual assessment proceedings no doubt admitted that they allowed their names to be lent without giving loans and also gave a list of the persons (debtors) to whom they lent their names without actually lending any monies. However, the assessee-company was not one of the persons which was mentioned in that list. The ITO treated Rs. 1,50,000 as unexplained income of the assessee-company and the IAC also imposed a penalty of Rs. 50,000 under S. 271(1)(c). The Tribunal held that simply because the assessee-company could not produce the cash creditors it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the assessee-company and that the Revenue was not justified in drawing an adverse inference and adding the amounts of cash credits to the income of the assessee-company. The Tribunal as well as the High Court rejected reference and when the matter came up before the Supreme Court the question was whether it was a fit case for giving reference or not. Ultimately, the Supreme Court refused to give reference and in that connection it held as follows : "Held, that in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under S. 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In these circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case." In this case also the assessee furnished the overseas address of the cash creditor. It was not able to produce her before the ITO for the reason that she is now residing in America. If really the ITO wants to verify the truth of the transaction there is no reason why he did not examine her through embassy channels. Even in the absence of Smt.
Sashirekha being examined there is believable evidence to establish her identity, her creditworthiness as well as the truth of the transaction.
Thus, according to us, the ratio of the Supreme Court clearly applies to the facts of the case. Onus of proof has got two meanings - onus to establish the case, in which case the burden never shifts and the second meaning is that after letting some evidence, the onus shifts from one party to the other. It is no doubt true that the onus to establish the genuineness of the cash credit is on the assessee. It does not mean that one onus always remain with the assessee despite adducing considerable evidence which is trustworthy and believable. In such a case, the burden shifts to the Department. In fact this position in law is explained by the Calcutta High Court CIT vs. S. C. Ghosal (supra). In that case while holding that no part of the cash credit amount added to the income of the assessee-company should be treated as undisclosed income of the assessee, the Tribunal took into consideration the positive evidence adduced by the assessee regarding (1) the existence of the creditors (2) the assessment file numbers of the creditors (3) the confirmatory letters of the creditors in support of the assessees claim and the books of account in the case of at least one of the creditors. Further, the Tribunal also took into account, the fact that there was no contrary evidence forthcoming from the Revenue.
The question in those circumstances was whether the Tribunals finding can be said to be perverse. Holding that the Tribunal was justified in deleting the whole amount of the Hundi loan from the assessment of the assessee, the Calcutta High Court held as per the headnote as follows : "Held, that the Tribunal had not decided the matter only on the basis of onus but had accepted the positive evidence which had been adduced by the assessee. The positive evidence was : (1) the existence of the creditors, (2) the assessment file numbers of the creditors, (3) the confirmation letters of the creditors in support of the assessees claim and (4) books of account at least in the case of one creditor. The Tribunal had also taken due note of the fact that there was no contrary evidence forthcoming from the Revenue. The Revenue only relied on the prevalent practice of utilising fictitious hundis through bogus persons. In the absence of any evidence to the contrary, the contentions of the assessee stood proved. The decision of the Tribunal had not been challenged on the ground of perversity. In the circumstances, the Tribunal was justified in deleting the whole of the amount of the hundi loans from the assessment of the assessee." In this case also believable evidence was adduced to establish the existence of the creditor, her permanent address in USA was given. Her confirmatory letter was produced and the books of account maintained by the assessee-company was also produced. The Revenue did not adduce any evidence whatsoever in order to prove that any of the entries made in the ledger account standing in the name of Smt. Sashirekha was false.
Simply because she happens to be the sister-in-law of the managing director and the sister of one of the directors of the assessee-company, the credit in her name was treated to be bogus and the peak of the credit was considered to be undisclosed income of the assessee under S. 68 of the IT Act. Therefore, in our opinion the decision of the Calcutta High Court also directly applies to the facts of the case.
7. In R. B. N. J. Naidu vs. CIT (supra), the wife of the assessee was the creditor. Evidence to establish a prima facie case about the genuineness of the credit was already adduced. However, the Department did not adduce any evidence to disprove it. In those circumstances, the question was when the explanation of the assessee was rejected would it automatically follow that the cash credit should be treated as income of the assessee. The then Nagpur High Court held that it cannot be treated automatically as the assessees income and it held as follows as per its headnote at page 195.
"Held, that as the amount was not credited in the assessees books and was presumably advanced by his wife to be deposited in her own bank account, even if his explanation were rejected it would not ipso facto be traced to the assessee as his own income; that as the assessee had made out a prima facie case and the department had no material or information to rebut it, the source of the receipt should be deemed to be established and the amount could not be treated as the assessees income merely because he could not explain satisfactorily how his wife made the savings and why she did not deposit them in the bank earlier." It is noteworthy that in this case, the Department did not produce any evidence whatsoever to establish that there was any scope for the assessee to earn any undisclosed income from its business. On the other hand there is believable evidence to establish the genuiness of the cash credit.
8. The Delhi decision cited in Soma Electric Co. vs. CIT (supra) does not appear to be applicable to the facts of the case.
9. The learned Senior Departmental Representative cited the Supreme Court decision A. Govindarajulu Mudaliar vs. CIT (supra) in which it is held that whether a receipt is to be treated as income or not must depend very largely on the facts and circumstances of each case and where an assessee fails to prove satisfactorily the sources and nature of certain amounts of cash received during the accounting year, the ITO is entitled to draw the inference that the receipts are of assessable nature. This proposition having been laid down by the apex Court of the land is unassailable but it would clearly show when the source and nature of certain amounts of cash received during the accounting year were not proved satisfactorily it does not automatically follow that it should be considered only as income of the assessee. Whether that finding is justifiable or not would depend on the facts and circumstances of each case. That means there may be cases where on consideration of facts and circumstances it can be still held that the cash credit amount does not form part of the income of the assessee.
This principle was always kept in mind while deciding the issue before us.
10. Oriental Wire Industries Pvt. Ltd. vs. CIT (1981) 131 ITR 688 (Cal) is distinguishable and it is a decision rendered on its own facts and, therefore, does not advance the Revenues contentions in this case.
11. In Roshan Di Hatti vs. CIT (supra) following ratio is laid down by the Honble Supreme Court as per headnote at page 940.
"The law is well-settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Revenue is entitled to treat is as taxable income. To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that income is from any particular source." This ratio is exactly similar to the ratio laid down in A.Govindarajulu Mudaliar vs. CIT (supra) which we have already discussed in the prior paras and, hence, it need not be separately taken up.
12. Having regard to the facts as well as the legal position, we hold that there is believable evidence on record to establish the identity of the cash creditor, her capacity to lend the amount of Rs. 32,000 and also the transactions entered in the account books of the company.
Therefore, we hold that the finding of the lower authorities that Rs. 32,000 should be treated as undisclosed income of the assessee under S.68 of IT Act in our opinion cannot be held to be sound either in law or on facts. We, therefore, reverse their finding and allow the appeal.
The assessee succeeds.