Judgment:
ORDER
B.S. SALUM, J.M.:
The assessed is aggrieved against the order of the CIT(A)-IV, New Delhi, dt. 1st June, 1993, pertaining to asst. yr. 1988-89 mainly on the ground of initiation of reassessment proceedings under s. 147(a) and making an addition of Rs. 2,50,000.
2. In this case the original assessment was completed at total income of Rs. 2,57,821 as against total income of Rs. 2,40,420 declared by the assessee. The 147(a) and making an addition of Rs. return declaring the said income was filed along with the audit report under s. 44AB.
In response to notice issued under s. 143(2) the learned counsel for the assessed had appeared from time to time and filed details and had discussed the case with the AO. The AO had observed that the receipts from that were better in this year and he completed the assessment, as aforesaid.
2.1. The AO issued a letter dt. 21st Feb., 1991 along with the notice under s. 148 intimating the assessed that the loan of Rs. 2,50,000 taken from Shri Murlidhar was not genuine and that the assessed had introduced his own money in the guise of loan from Shri Murlidhar. The AO also intimated the assessed that Shri Murlidhar was a Havala broker having no capacity to advance the loan in question. The assessed filed a written reply on 22nd May, 1991 challenging, the validity of notice under s. 148 and stating that there were no omission or failure on the part of the assessed in disclosing any material facts, which were the same as at the time when the assessment was originally completed. The assessed also urged in the reply that in case the creditor had taken loans from sources not considered as plausible, action should have been taken in his hands and not in the case of the assessed under s. 148. The assessed relied on the decisions in Bibi Guru Darshan Kaur vs . CIT and E.M. Muthappa Chefflar vs . CIT : [1964]53ITR642(Mad) . The AO, however, did not accept the above Explanationn by observing that the assessed had failed to disclose the capacity of Shri Murlidhar, proprietor of M/s M.D. Enterprises.
2.2. On first appeal, the learned counsel for the assessed challenged the initiation of proceedings under s. 147(a). He submitted that the assessed had taken due care at the time of taking the loan to ensure that the creditor was a genuine person, that he was an existing assessed and had credibility in the market. He further submitted that at the time of original assessment complete particulars of all the creditors were furnished before the AO who completed the assessment after making necessary enquiries.
He further referred to the letter dt. 21st Feb., 1991, issued by the AO, wherein it was stated that on the basis of information received from the Asstt. CIT Invigoration Circular 4(1), New Delhi, Shri Murlidhar was examined and his statement was recorded. It was held by the Asstt. CIT that Shri Murlidhar was only a name lender particularly since heavy cash deposits were found before the issue of cheque, in particular, before giving loan of Rs. 2,50,000 to the assessee. The learned counsel, thereforee, emphasized that the belief was not of the AO' but that of the Asstt. CIT (Invigilation). He, thereforee, stressed that the initiation of proceedings under s. 147(a) was bad in law. He relied in this connection on the decision in ITO & Ors. vs . Lakhmani Mewaldas : [1976]103ITR437(SC) and CIT vs . T.R. Rija Kumari : [1974]96ITR78(Mad) . He further reiterated that there was neither any omission nor failure on the part of the assessed in furnishing accurate particulars of his income as all the primary facts necessary for the completion of the assessment were duly disclosed by the assessed during the course of the original assessment. The learned counsel further pointed out that no materials were made available to the assessed on the basis of which the belief for issuing of notice under s. 148 was formed. The learned CIT(A) considered the submissions and observed that the reasons recorded for initiating proceedings under s. 148 were duly communicated by the AO vide letter dt. 21st Feb., 1991, and it was also held on the basis of the materials made available by the Asstt. CIT, who was assessing Shri Murlidhar that all material facts were not disclosed by the assessed at the time of the original assessment. He, thereforee, held that the proceedings were validly initiated under s. 147(a).
2.3. With reference to the addition of Rs. 2,50,000 on account of loan appearing in the name of M.D. Enterprise the learned CIT(A) noted that the assessor's counsel had produced Shri Murlidhar, whose statement was recorded. In the cross-examination it was revealed that he was a broker assessed to tax in Ward No. 4(7), New Delhi. Shri Murlidhar had stated that for advancing loan of Rs. 2,50,000 he had taken loan from Shri Krishan Dass of Rs.1.10,000 from Miss Esha Gupta of Rs. 50,000 from Miss Cheena Gupta of Rs. 8,000 and that the said loans were by cheque. He further noted that the AO had observed that Shri Murlidhar was assessed at a meagre income just marginally above the taxable limit . The AO had also observed that Shri Krishan Dass was being assessed up to the asst. yr. 1985-86 on share income and was assessed to income-tax from asst. yr. 1978-79 to 1988-89 at nominal income not exceeding Rs. 31,000. The AO has also observed that Shri Krishan Dass was assessed on income marginally higher than the exemption limit and whatever he had accumulated was lying in deposits with Shilp Spinners (P) ITD. and M/s Nathu Lal Syam Sunder. The AO had further observed that there was a deposit of Rs. 95,000 in the account of Shri Krishan Dass, the source of which was not explained. The AO had thus held that the amount advance by Shri Krishan Dass was nothing but the assessor's own money. With reference to the loans from three other parties, who were Shri Murlidhar wife and daughters, the AO noted that they-were only house ladies. He also observed that no doubt the ladies were assessed to tax but that did not prove their capacity to advance loans to the extent of Rs. 82,000 and Rs. 50,000 and Rs. 8,000 respectively to Shri Murlidhar. The AO also did not accept the assessor's Explanationn that these ladies were assessed under the Amnesty Scheme. He observed that it was responsibility of the assessed in whose books the credits were found to prove their genuineness. He also observed that no nexus was established between the income accumulated and the deposits made by the said ladies. He also observed that the ladies had made cash deposits in their bank accounts before giving cheque to Shri Murlidhar, who is turn gave loan to the assessee. The AO thus concluded that Shri Murlidhar was a Havala broker, who manipulated the siphoning off of the assessor's income earned from other sources by manipulating the deposits in the bank accounts of Shri Krishan Dass, Smt. Uma Gupta, Miss Esha Gupta and Mrs. Cheena Gupta and thereafter siphoning the same through his bank account in the garb of loan to the assessee. He, thereforee, held that the creditworthiness of Shri Murlidhar was not established and made the addition of Rs. 2,50,000 as income from other sources.
2.4. The learned counsel for the assessed submitted before the learned CIT(A) that Shri Krishan Dass had advanced loan of Rs. 1,10,000 to Shri Murlidhar by account payee cheque and was also an existing assessed for over 15 years. He further submitted that the loan of Rs. 50,000 was transferred from UBI account standing in the names of Miss Esha Gupta and a copy of the assessment order for asst. yr. 1988-89 was filed in evidence. The learned counsel further reiterated that Shri Krishan Dass was not a family member of the creditor and was regularly assessed at Ward No. 4(7), New Delhi. He further submitted that Miss Esha Gupta, daughter of Shri Murlidhar was also an existing assessed and that M/s Cheena Gupta had made a disclosure under the Amnesty Scheme and the same had been accepted and similarly disclosure made by Miss Esha Gupta under the Amnesty Scheme had been accepted and that the amounts were deposited in the bank accounts, which represented gifts received on various occasions. He also pointed out that Smt. Uma Gupta had also advanced an amount of Rs. 8,000 from her bank account and that she drew a salary of Rs. 10,400 from Gupta Enterprises and had income of Rs. 8,590 from interest. The learned counsel further reiterated that the sources of loan obtained by Shri Murlidhar from the above parties were thus fully proved. He also pointed out that Shri Murlidhar was not related to the assessed directly or indirectly or the partners of the assessee-firm. He also pointed out that the examination of bank account of Shri Murlidhar would rule out the concept of Havala business since bulk of the money introduced in the bank remained invested throughout the year which was contrary to the nature of Havala entries. The learned CIT(A) considered these submissions and observed that though Shri Murlidhar had filed a confirmation letter and had accepted the advancement of loan to the assessee, the same was not sufficient for discharge of onus under s. 68. He further observed that the sources of deposit in his accounts were not proved particularly it was seen that he had been assessed at an income marginally above the exemption limit. The learned CIT(A) ultimately concluded that the capacity of Shri Murlidhar to advance the loan of Rs. 2,50,000 was not proved, he thereforee, sustained the addition of Rs. 2,50,000.
3. The learned counsel for the assessee, Shri C.S. Aggarwal attacked the initiation of reassessment proceedings and submitted that the information in this case was received from the Asstt. CIT (Invigoration), Circle 4(1), New Delhi and that on the said basis the AO issued the notice. He referred to the letter dt. 21st Feb., 1991, issued by the AO to the assessed (p. 1 of the paper book), wherein it is mentioned that on the basis of information received from the Asstt. CIT, where Shri Murlidhar, proprietor of M/s M.D. Enterprises, Naya Bans, Delhi was examined and his statement was recorded, and that on the basis of the books of accounts and pass books, it was held that he is only a name lender, as heavy cash deposits had been found before issuing of cheques in particular, before giving loan of Rs. 2,50,000 to the assessed and there were cash deposits in the accounts of the minor daughters, mother and brothers, etc., which were transferred to M/s M.D. Enterprises and then to the assessee.
It is further mentioned in the said letter that Shri Murlidhar was a Havala broker and the assessed was called upon to show cause as to why the loan of Rs. 2,50,000 be not treated as in genuine and be considered as a Havala entry and the amount of Rs. 2,50,000 be added to the income. It was also mentioned that the notice under s. 148 of the IT Act is enclosed with the said letter. The learned counsel further referred to the reply filed by the assessed wherein it was mentioned that there was no failure on the part of the assessed to disclose the facts truly and that the loan of Rs. 2,50,000 had been admitted by Shri Murlidhar. In this connection, the learned counsel referred to the decision of the Hon'ble Supreme Court in the case of Mool Chand Balrang Lal & Anr. vs . ITO & Anr. : [1993]203ITR456(SC) , wherein the Honble Supreme Court observed that 'acquiring fresh information, specific in nature and reliable in character, relating to a concluded assessment which went to expose the falsity of the statement made by the assessed at the time of original assessment was different from drawing a fresh inference from the same facts and material available with the ITO at the time of original assessment proceedings. The two situations were distinct and different'. The learned counsel submitted that in the said case it was subsequently found that the managing director of the company, from whom loan was supposed to have been taken, had made a confession to the effect that the company was only a name lender and had never advanced any loans to any person and this was accepted in the assessments of the company. In the circumstances, the Honble Supreme Court had held that the subsequent information was definite, specific and reliable and notice for reassessment was valid. The learned counsel submitted that in the instant case this situation was entirely different as the assessed had disclosed all the primary facts and Shri Murlidhar had filed affidavit and confirmed the loan of Rs. 2,50,000. The learned counsel further referred to the decision of the Honble Delhi High Court in the case of Nawabganj Sugar Mills ITD. & Ors. vs . CIT : [1980]123ITR287(Delhi) for the proposition that there is distinction between falsity of information and non-furnishing of the information. In the said case the ITO had allowed the deduction claimed by the assessed in relation to the commissions paid to Gokul Nagar Co. and he had accepted the disclosure by the assessed that the said payments were towards services rendered as sole-selling agents. The material fact which had been ex facie accepted was later on found to be false, and it was held that the reassessment proceedings were validly initiated. The learned counsel further referred to the decision of the Hon'ble Delhi Court in the case of Basti Sugar Mills Co. ITD. vs . CIT 0065/1982 : [1983]142ITR487(Delhi) , wherein the Hon'ble High Court have observed at p. 491 ITR 142 that 'a distinction has to be made between the falsity of the material facts disclosed by the assessed and the erroneous inference which an ITO may draw from the material facts which are otherwise full and true. ' The learned counsel further referred to the decision of the Honble Allahabad High Court in the case of CIT vs . Hindusthan Metal Works : [1993]202ITR978(All) , where it was observed that failure to disclose material facts necessary for assessment was a condition precedent for initiating the reassessment. proceedings. In the said case the loans were accepted as genuine in the original assessment and subsequently the AO discovered that some of the creditors were only name lenders and he sent a proposal for reopening of assessment to the CIT. In the said case, the Tribunal had held that the proposal sent by the ITO to the CIT was wholly vague and ambiguous and on the basis of the reasons recorded by the ITO, no reasonable belief could be held that the income of the assessed had escaped assessment. The Hon'ble High Court upheld the orders of the Tribunal, and observed that the proceedings initiated under s. 147/148 were rightly cancelled by the Tribunal. The learned counsel further referred to the decision of the Hon'ble Supreme Court in the case of Calcutta Discount Co. ITD. vs . ITO : [1961]41ITR191(SC) for the proposition that it was for the assessed to disclose fully and truly all material facts necessary for his assessment and that it was for the AO to draw proper legal inferences from the said material. The learned counsel further referred to the decision of the Hon'ble Supreme Court in the case of Assam Forest Products (P) ITD. vs . CIT : [1995]211ITR447(SC) , wherein it was held that the notice for reassessment was valid where the proprietor of the concern in whose name cash credits were shown as loan made a statement to the effect that he was a name lender.
The learned counsel submitted that in the present case the proprietor of M/s M.D. Enterprises, i.e., Shri Murlidhar had confirmed the loan and had not denied the making of the loan.
3.1. The learned counsel, thereafter invited our attention to p. 5 of the paper book, wherein it is mentioned in the reply that confirmation from Shri Murlidhar as also the GIR number and the ward where his assessment is regularly made, was obtained and furnished before the AO before completing the original assessment, He further invited our attention to p. 62 of the paper book, where a copy of the account with CBI Bank is placed. He submitted that the loan was taken on 26th Sept-, 1987 and that the accounting period of the assessed ended on 10th Nov., 1987 and that if at all the addition was to be made on this account it should be in the year in which the loan has surfaced. He further, submitted that it was not the duty of the assessed to establish creditworthiness of the creditors of the deposits. He also submitted that the creditors of the deposit i.e., Shri Murlidhar had not been examined. In view of the foregoing the learned counsel submitted that the reopening of the assessment is bad, as the primary material had been furnished and the same was not found false and that it was a case of change of opinion. He again referred to the decision in : [1993]203ITR456(SC) (supra), wherein the Honble Supreme Court had observed at 469 ITR 203 that 'the information based on the confession of the creditor, was vague, indefinite, remote and far-fetched and could not justify the formation of any belief that the income of the assessed had escaped assessment.' the said observations were made by that Hon'ble Supreme Court with reference to Mewal Das's case, (supra). The Hon'ble Supreme Court further held that in the instant case of Mool Chand Baftang Lal the facts were entirely different and from the communication of the jurisdictional AO at Calcutta, it came to light that the managing director of the Calcutta Co. made a confession to the effect that he did not lend money to any party whatsoever. The said information was, thereforee, specific and the period during which the Calcutta company had only lent its name was specified, which corresponded to the period during which the assessed had claimed to have received a cash loan of Rs. 50,000 from. the Calcutta company. The apex Court, thereforee, held that the facts in the instant case were different as compared to the facts in the case of Mewal Das (supra). The learned counsel reiterated that in the present case also Shri Murlidhar had confirmed the giving of the loan and, thereforee, the ITO was not correct in initiating reassessment proceedings in the case of the present assessed as the information furnished at the time of the original assessment was not found to be false. In this connection, the learned counsel further referred to the decision of the Hon'ble Delhi High Court in the case of CIT vs . Ram Lal Manohar Lal : [1986]158ITR9(Delhi) , wherein it was held that omission to disclose material facts were necessary for reassessment proceeding on the ground that there was no evidence to show that the credits in the assessor's accounts were not genuine, no question of law arose. The learned counsel further submitted that there was no action by the Department in the case of Shri Krishan Das and the ladies with reference to loans given by them to Shri Murlidhar.
3.2. The learned counsel further advanced arguments on merits and invited our attention to various pages of the paper book where the statement of income in respect of Smt. Bhagwati Devi, who had advanced loans to M/s M.D. Enterprises of Rs. 1,52,200 (pp. 13-15 of the paper book) the pay-in-ship in the case of M/s H.D. Enterprises showing deposits by cheque of Rs. 2,50,000 (p. 63 of the paper book), the affidavit of Shri Murlidhar confirming the receipt of loan of Rs. 2,50,000 from Shri Krishan Dass, Miss. Esha Gupta, Miss Chhena Gupta and Smt. Uma Gupta and advancing the loan of Rs. 2,50,000 to the assessed are placed at pp. 64-65 of the paper book) are placed. He further invited our attention to the reply filed by the assessed before the learned CIT(A) (pp. 79102 of the paper book). He submitted that the tax authorities have not brought anything on record to show that the taking of loan was a colourable device adopted by the assessed to conceal its income. He submitted that the tax authorities have proceeded on assumptions and conjectures on the basis of information received from Asstt. CIT (Invigilation) and have treated the amount of loan advanced by Shri Murlidhar to the assessed as income of the assessed without bringing any material on record to establish that the income really belongs to the assessee.
4. The learned Departmental Representative relied heavily on the orders of the tax authorities and submitted that the reassessment proceedings were properly initiated and that the addition of Rs. 2,50,000 was correctly made in the hands of the assessed as the capacity of Shri Murlidhar or for that matter the other persons who advanced the money to Shri Murlidhar to enable him to make the loan to the assessee, was never proved. The learned Departmental Representative further submitted that the decision in : [1993]203ITR456(SC) (supra) was rather favourable to the Department as there was a specific finding given by the investigation officer that Shri Murlidhar was a Havala broker. He further relied on the decision of the Hon'ble Rajasthan High Court in the case of M.D. Jewellers vs. CIT (1993) 115 CTR (Raj) 497 : (1994) 208 ITR 196 as also on the decision of the Hon'ble Supreme Court case of CIT vs . Bilu Patnaik : [1986]160ITR674(SC) for the proposition that even the source of source can be enquired into by the AO. He further referred to the statement of Shri Murlidhar (question No. 4) and submitted that the income of Shri Murlidhar and the annual expenditure were almost the same and that Shri Murlidhar was not in a position to advance the loan. The learned Departmental Representative further referred to the decision of the Hon'ble Supreme Court in : [1995]211ITR447(SC) (supra) and submitted that in case the Tribunal feels that there were certain lapses in the matter of reopening of assessment on making the addition of Rs. 2,50,00Che Tribunal could remand the case to the AO for further enquiries.
5. The learned counsel in his rejoinder opposed the remanding of the case and submitted that the remand could only be in a situation if M/s M.D. Enterprises had ever denied the advancing of loan to the assessee.
6. We have carefully considered the rival submissions on the issue involved in this case and have also perused the orders of the tax authorities and other relevant records to which our attended was invited during the course of hearing. We have also seen the case law relied upon by both the parties. It is observed that the AO had initiated reassessment proceedings in this case on the basis of information received from Asstt. CIT (Invigilation), who found that Shri Murlidhar was advancing money to various parties, which was not his money and that he was only a name lender and doing Havala transactions. The tax authorities have not held that the material facts relating to the loan advanced by Shri Murlidhar, proprietor of M/s M.D. Enterprises and other evidence furnished by the assessed in relation to said loan were false, so as to attract reopening of assessment. We feel that plea of the learned counsel that reopening of assessment in such circumstances is bad in law has merit in view of the decisions in : [1993]202ITR978(All) and : [1993]203ITR456(SC) (supra). The plea of learned counsel gets further support from the decision in 0065/1982 : [1983]142ITR487(Delhi) , wherein a distinction has been drawn between the falsity of material facts disclosed by the assessed and erroneous inferences which may be drawn by the AO from those facts which are otherwise full and true. We may also refer to the observations made in the decision in 41 ITR . 220 that once all primary facts are before the AO, he requires no further assistance by way of disclosure and that it is for him to decide what inferences of facts or legal inferences are to be reasonably drawn. It is further observed from the assessment order that at p. 6 the AO has observed with reference to amounts advanced by Shri Krishan Dass that 'in the absence of any evidence (or source of Rs. 95,000), it was considered that the amount advanced by Shri Krishan Dass is nothing but assessor's money. However, the AO has not given any basis for this assumption and has not brought anything on record to establish that the money advanced by Shri Krishan Dass to Shri Murlidhar was actually the assessor's money. It is further observed from p. 3 of the assessment order that the AO has mentioned about clear evidence that the assessed got his own money introduced in the garb of loan from M/s U.D. Enterprises, which was taken by the assessed subsequently as a loan. The AO also mentions about the lack of capacity of Shri Murlidhar and others to advance the said loan. However, the AO has not brought anything on record with reference to 'clear evidence' as mentioned by him for coming to the conclusion that the assessed introduced its own money. It is further observed that the AO has mentioned that Shri Krishan Dass and the three ladies had made cash deposits in the bank account of M/s M.D. Enterprises. However, it is found from p. 63 of the paper book that the total amount of Rs. 2,50,000 has been deposited in account No. 3187 of M/s M.D. Enterprises on 26th Sept., 1987 by means of cheques. Further the AO has not examined the said four parties who had advanced the money to Shri Murlidhar, proprietor of M/s M.D. Enterprises. The AO has also not confronted the assessed with the results of enquiries otherwise made by him with reference to the sources of the said four parties for advancing loan to Shri Murlidhar. In view of the foregoing we feel that the assessed succeeds on both the counts, i.e., the reopening of assessment is bad in view of the case law discussed above and on merits also, as the tax authorities have proceeded more on conjectures and surmises in order to come to the conclusion that the assessed has introduced his own money through the said four parties, who advanced the money to Shri Murlidhar, who in turn, gave the loan to the assessee. The addition made on the said basis without examination of the parties in question, giving a right of cross-examination to the assessee, cannot, thereforee, be sustained. The said addition of Rs. 2,50,000 is, thereforee, deleted.
7. In the result, the appeal is allowed.