The revenue has filed this appeal against the order of Commissioner (Appeals) in appeal No. ROT/184/IT/1998-99, dated 2-9-1999 against the deletion of addition of Rs. 8 lacs made by the assessing officer on account of unexplained cash credits.
The relevant and material facts for the disposal of this appeal filed by the revenue are that the assessee introduced cash credits amounting to Rs. 8 lacs in the names of six persons, namely S/Sh. Inderpal Singh, Om Prakash Goel, Vijay Kumar, Ravinder Pal, Devinder Sandhu & Co. and B.S. Sandhu Hosiery Factory.
The assessing officer found that the assessee claimed to have borrowed a sum of Rs. 1 lac from Sh. Inderpal Singh. This amount was received through cheque on 23-4-1994, and was returned on 15-2-1997, without any payment of interest. Thereafter, the assessing officer examined the creditor and on further verification, he noticed that the creditor has not filed his income-tax return for assessment year 1995-96 and also observed that the creditor was not a man of good financial standing, nor he has charged any interest from the assessee and hence, on taking into consideration all these facts, the assessing officer concluded that the assessee had introduced his own money in the guise of collusive loan and added the credit of Rs. 1 lac as income of the assessee earned from other sources.
The next creditor in this case is Sh. Om Prakash Goyal. From the order of the assessing officer, it appears that the assessee has raised a loan of Rs. 2 lakhs from him which was advanced through account payee cheque. The assessing officer examined this creditor and observed that immediately before the loan of Rs. 2 lakhs was advanced to the assessee-firm, this creditor had deposited a sum of Rs. 2,00,500 in his Bank account and has also not charged any interest on the loan and has also not produced his books of account for verification. Hence, this led the assessing officer to believe that the loan transaction was not genuine and called for an addition to the return income of the assessee-firm and accordingly, this amount was also added to the income of the assessee.
The third creditor in this case is Sh. Vijay Kumar. The assessee raised a loan of Rs. 1 lac from him. The creditor was examined by the assessing officer, who confirmed having advanced a loan of Rs. 1 lac to the assessee-firm. The assessing officer asked this creditor as to why he had not charged any interest from the firm. In response thereto, this creditor explained that he had friendly relation with the partner of the firm. But in spite of the confirmation by the creditor, the assessing officer disbelieved the genuineness of this loan transaction and held that the assessee had introduced its undisclosed money by using this creditor as a conduit and made addition accordingly.
The next creditor in this case is Sh. Ravinder Pal, who also confirmed having advanced Rs. 1 lac as loan to the assessee. He also informed the assessing officer that he was assessed to tax with Income Tax Officer, Ward II(4) at Ludhiana. This creditor was also examined by the assessing officer who informed the assessing officer that he had filed his return for assessment year 1995-96 with Income Tax Officer, Ward II (4), Ludhiana and was assessed at a total income of Rs. 1,39,032. He also confirmed that the loan was advanced through cheque but he did not charge any interest as he had friendly relation with the partners of the firm. This creditor has also deposited amount in his Bank account by withdrawing cash from cash book. Though the assessing officer admitted all these facts but he doubted the genuineness of the cash credit on ly on the reasoning that this creditor has not charged any interest from the assessee-firm.
The next two creditors in this case are M/s Devinder Sandhu & Co. and M/s B.S. Sandhu Hosiery Factory. The assessee has raised a loan of Rs. 1 lac from M/s Devinder Sandhu & Co. and Rs. 2 lacs from M/s B.S.Sandhu Hosiery Factory. Both these concerns are admittedly assessees and have been declaring substantial income in their income-tax returns.
Again, the assessing officer doubted the genuineness of these two credit entries, mainly on the reasoning that these creditors have not charged any interest. In this manner, the assessing officer made total addition of Rs. 8 lacs to the income of the assessee relating to these credit entries in the books of account of the assessee.
Aggrieved with these additions made by the assessing officer, the assessee filed an appeal before the Commissioner (Appeals) and in respect of the cash credit in the name of Sh. Inderpal Singh amounting to Rs. 1 lac, the learned counsel for the assessee submitted that the amount received from Sh. Inderpal Singh was not a loan. In fact, it was an advance for the purchase of wood. It was claimed that Sh. Inderpal Singh was dealing in the purchase and sale of wood. To carry out his business, he was to make purchases of wood from the market and was regularly making such purchases from a sister concern of the assessee-firm. It was further submitted that Sh. Inderpal Singh had confirmed the advance given by him. The advance so made was through Banking channels. As regards the non-payment of interest, the learned counsel for the appellant contended that such non-payment was not very material and in fact, there was no agreement for payment of interest as Sh. Inderpal Singh had advanced the impugned amount for purchase of wood. There were certain problem in supplying the wood required by him as such there was a delay in the return of the deposit. It was maintained that the impugned addition has been made under section 68 of the Income Tax Act. As per this section, the assessee is required to identify the creditor, prove his creditworthiness and establish the credit transaction. According to the learned counsel for the assessee, the identity or the fact of transaction is not disputed. The only issue in dispute is the creditworthiness of Sh. Inderpal Singh. In this connection, the learned counsel for the assessee had drawn my attention to the copy of Bank account maintained by Sh. Inderpal Singh in the name of his proprietary concern Kaval Agency. It was pointed out that in addition to small deposits ranging between Rs. 10,000 to Rs. 60,000, Sh. Inderpal Singh had made larger deposits of Rs. 3,26,016 and Rs. 2,47,500 before the cash deposit of'Rs. 1,00,000 which was utilised for making the advance to the assessee-firm. The deposit of Rs. 1,00,000 was followed by another cash deposit of Rs. 2,00,000. These credits in the Bank account clearly establish the creditworthiness of Sh. Inderpal Singh. These huge deposits were ignored by the assessing officer in holding that the creditor had no capacity to advance the impugned loan of R.s. 1 lac. Once, the creditworthiness is proved, there would not be a case for disbelieving the claim and making an addition on this account.
The learned Commissioner (Appeals), after taking into consideration the facts of this case, deleted this addition of Rs. 1 lac by making following observations in his order: "It is seen that there is some inconsistency in the stand taken in respect of this credit at the time of assessment proceedings and before me. It was claimed before the assessing officer that Sh. Inderpal Singh had advanced a loan to the firm and the stand taken. now is that it was not a loan but an advance for purchase of wood. However, this change in the stand is not very material as the only aspect required to be seen is whether the amount had been received from Sh. Inderpal Singh and further whether Sh. Inderpal Singh had the financial capacity to advance such amount to the appellant-firm. The assessing officer disbelieved the claim on the ground that the creditor had not filed his income-tax return for the year under consideration and further that he had not charged any interest from the firm. The source of the loan was claimed to be the capital accumulation of Sh. Inderpal Singh but there was no evidence to substantiate such a claim. On his part, Sh. Sehgal had pointed out that the creditor had furnished his return upto the assessment year 1991-92. No return was filed thereafter. it is for the department to ensure that returns are filed by the assessee having taxable income. The appellant has no role to play. It was claimed that the material evidence in this case is the Bank account of Sh. Inderpal Singh and not the filing of the return. A perusal of the Bank account shows that Sh. Inderpal Singh has been making substantial deposits inclusive of the amounts of Rs. 3,26,016, Rs. 2,47,500, Rs. 2,00,000 and Rs. 1,00,000 in addition to the other deposits ranging between Rs. 10,000 to Rs. 60,000. Whatever may be the source of income of this person, atleast the deposits in the Bank account clearly indicate that he had a sound financial position. Of course, the deposit of equivalent amount, immediately before the loan was advanced to the appellant-firm, does create a suspicion but no addition can be made merely on the basis of such suspicion. In this case, the suspicion becomes baseless, in view of the fact that there are other huge deposits in the account of the creditor. The assessing officer has not disputed the identity or the genuineness of the actual transaction and has only doubted the financial position. The financial position, as explained above, is good enough to make advance of Rs. 1,00,000. In the circumstance, I hold that there was no justification for making the addition of Rs. 1,00,000." Before us, the learned Departmental Representative for the revenue placed reliance on the reasoning given in the order of the assessing officer and submitted that the assessing officer has rightly made the impugned addition of Rs. 1 lac. On the other hand, the learned authorised representative for the assessee reiterated the same submissions which he made before the Commissioner (Appeals). However, he could not give a satisfactory answer to the query of the Bench that in case Sh. Inderpal Singh, Proprietor of Kaval Agency had advanced this amount for the purchase of wood for running business on 23-4-1994, why the same was not taken back by him till 15-2-1997, when the assessee concern had refused to supply him the wood. He also could not give a satisfactory answer to the query of the Bench that in case Sh.
Inderpal Singh was doing a wood business, then why he did not demand any interest from the assessee when the assessee returned his money on 16-2-1997, i.e., after a gap of just less than 3 years when Sh.
Inderpal Singh was simply having business dealings with the assessee.
We are of the opinion that this genuineness of the transaction as narrated by the assessee as well as the creditor, Sh. Inderpal Singh, becomes doubtful because a business person would never like to advance his money for purchasing the material for such a long time without charging any interest and more so, when he wants to do some business with that wood and the same he could not do because of non-supply of that wood by the assessee. Hence, we are of the opinion that though in this case of Sh. Inderpal Singh, his identity is not in dispute and his capacity to advance this money to the assessee could not be doubted but the genuineness of the transaction in the manner in which it has been narrated by Sh. Inderpal Singh, does not stand established because of this peculiar circumstance as discussed by us hereinabove.
We are of the opinion that keeping in view this aspect of the matter, the Commissioner (Appeals) was not justified in dealing this impugned addition of Rs. 1 lac pertaining to the amount received by the assessee from Sh. Inderpal Singh because the genuineness of the transaction does not stand established.
Challenging the second addition relating to the loan of Rs. 2 lacs raised from Sh. Om Prakash Goel made by the assessing officer, the authorised representative for the assessee submitted before the Commissioner (Appeals) that this loan was raised only for a short period of three months only. The partners of the firm knew the creditor and asked him for a temporary loan. The creditor was carrying on the business of brick kiln since 1976. The loan was advanced out of his income form his source. It was furtjaer pointed out that the assessing officer had called for a copy of the Bank account of the creditor. The learned counsel for the assessee inviting our attention to the entries made in the Bank account of the creditor, submitted that the creditor has all along being depositing money in cash in the Bank account. The reason for the deposit in cash is that the bricks are sold on cash basis. The learned counsel for the assessee contended that the assessing officer had doubted the deposit of Rs. 2,00,500 ignoring the fact that the creditor had also deposited Rs. 3,20,000 in cash which would show that the creditor has all along been depositing cash in his Bank. If the deposit in the Bank account through cash is a normal routine with the creditor, the cash deposit immediately before the advancing of loan to the assessee firm should not have created any doubt in the mind of the assessing officer. The assessing officer was only required-to look into the financial position of the creditor, his identity and the actual loan transaction. The soundness of the financial position was substantiated by the huge amount of deposits made in the Bank. The creditor was running a business for more than 20 years. He has confirmed the credit and the loan had been advanced through account payee cheque.
The learned Commissioner (Appeals), after considering entire facts of the case, deleted this addition of Rs. 1 lacs made by the assessing officer by making following observations in his order : "The assessing officer has made the impugned addition under section 68 of the Income Tax Act. This section requires the assessee to identify the creditor, establish his creditworthiness and prove the genuineness of the credit transaction. The identity and genuineness of the credit transactions are not disputed by the assessing officer. He has only disputed the financial position which according to him is further strengthened by the fact that no interest was charged. A perusal of the Bank account of the creditor shows that he has been depositing substantial amounts upto the extent of Rs. 3,20,000 in cash in his Bank account. The assessing officer has not suspected any of the other deposit entries made in this account of the creditor. If the creditor had a capacity to deposit Rs. 3,20,000 in its account in addition to the other various substantial deposits, it would not be proper to doubt the genuineness of the cash deposit of Rs. 2,00,000 which was utilised for advancing the loan to the appellant-firm. The fact that cash was deposited only a day before the loan was advanced to the appellant-firm does create a suspicion but such suspicion cannot be made the basis for making any addition, unless some other evidence is brought on record to make out a case against the assessee. As is clear from the above, the appellant satisfied the additions (sic-conditions) laid down in section 68. Once, these conditions are satisfied, no addition would be called for." Before us, the learned Departmental Representative for the revenue placed reliance on the reasoning given in the order of the assessing officer and submitted that the assessing officer has rightly made the impugned addition of Rs. 2 lacs. On the other hand, the learned authorised representative for the assessee reiterated the submissions made before the Commissioner (Appeals) and further drew our attention towards p. 16 of the paper book in which Sh. Om Prakash Goel has confirmed having advanced a sum of Rs. 2 lakhs by draft to the assessee on 29-4-1994, and having taken back the same amount on 28-7-1994. He also drew our attention towards p. 20 of the paper book relating to the Bank account of the assessee in Punjab National Bank indicating that Sh. Om Prakash Goel was a man of means and was in a sound financial capacity to advance loan to the assessee.
On considering the arguments of both the parties, we are of the opinion that the learned Commissioner (Appeals) has rightly concluded in his order that the identity of the creditor was not in dispute. He was in a sound financial position and transaction was also genuine and hence, the impugned deletion made by the Commissioner (Appeals) in his well-reasoned and well-discussed order does not call for any interference from our side and accordingly, the same is upheld.The assessee challenging the 3rd addition made by the assessing officer relating to the loan of Rs. 1 lac claimed to have been raised from Sh.
Vijay Kumar, the counsel for the assessee submitted before the Commissioner (Appeals) that the assessee had raised this loan for a few months only. The creditor is a regular income-tax assessee and filed his returns for assessment year 1995-96 and 1996-97 declaring net incomes at. Rs. 1,39,837 and Rs. 1,44,823 respectively. The transaction of loan was confirmed and even the sources were explained. Nothing more was required. In the absence of any evidence against the assessee, no addition could justifiably be made in this case.
The learned Commissioner (Appeals) deleted this impugned addition by making following observations in his order : "(i) I have carefully examined the facts of the case and find no justification for the impugned addition. In this case, the creditor is a regular income-tax, assessee at Ludhiana. He had confirmed the advancing of loan which was made through cheque. Even as per the assessment order the creditor had a cash balance of Rs. 1,58,491.35 in the cash book. A sum of Rs. 1,00,000 was deposited in the Bank account by making the withdrawals from the cash book, The identity or genuineness of the loan transaction are not disputed. I have not been able to understand as to how the assessing officer has doubted the creditworthiness particularly when the cash credit is related to the cash availability in the books of account. These books of account were produced before the assessing officer and it was clarified that a sum of Rs. 1,00,000 was withdrawn out of such cash of Rs. 1,58,491.35. It is difficult to comprehend as to what more was required by the assessing officer to justify the genuineness of the loan transaction.
The only conclusion which I could draw is that the addition has just been made for the sake of addition and not because an addition was called for." The learned Departmental Representative for the revenue simply placed reliance on the reasoning given by the assessing officer but was not able to controvert the observations made by the Commissioner (Appeals) in his order. On the other hand, the learned authorised representative for the assessee submitted that in this case since the identity of the creditor and genuineness of the loan transaction were not disputed, the assessing officer was not justified in making the impugned addition merely because according to the assessing officer, the deposit of Rs. 1 lac in the Bank account on 3-5-1994, was out of cash in hand available with the creditor at Rs. 1,58,491 but there was no reason for not charging any interest from the assessee when in this case, the credit related to cash availability in the books of account of the creditor.
On considering the submissions, we are of the opinion that the wellreasoned and well-discussed order of learned Commissioner (Appeals) in deleting the impugned addition of Rs. 1 lac relating to the creditor, Sh. Vijay Kumar, does not call for any interference from our side. Thereafter, the assessee challenging the addition made by the assessing officer in respect of Sh. Ravinder Pal, submitted before the Commissioner (Appeals) that the case of Sh. Ravinder Pal was almost similar to the case of Sh. Vijay Kumar and so, the assessing officer was not justified in making the impugned addition of Rs. 1 lac. He further submitted that this creditor was an existing assessee and has been filing his return regularly. He was assessed to tax with Income Tax Officer, Ward II (4) at Ludhiana. The creditor had withdrawn Rs. 1 lac from his cash book and deposited the same in the Bank account. The loan was advanced out of such deposit. It was further submitted that no interest was charged as it was a friendly loan raised by the firm for a short period. It was maintained that since all the conditions of a genuine cash credit are satisfied, no addition was called for and the addition made deserves to be deleted.
The learned Commissioner (Appeals) agreeing with the submissions of learned counsel for the assessee deleted the impugned addition by making following observations in his order : "The creditor is a regular income-tax assessee. He had advanced the impugned loan out of the cash available with him in the books of account. Necessary evidence was furnished to the assessing officer. The transaction of loan was also confirmed. If the assessing officer had any doubt, he could only refer the case to the assessing officer of the creditor. Once the creditor confirms the loan transaction and proves the credit-worthiness, no further evidence would be required in the case of an existing assessee. The noncharging of interest is no ground for making any addition. It can only lead to a suspicion which has further to be strengthened by bringing some evidence on record. The assessing officer has not brought any evidence to support his addition." Again before us, the learned Departmental Representative for the revenue simply placed reliance on the reasoning given by the assessing officer but was not able to controvert the observations made in the order of Commissioner (Appeals), whereas, on the other hand, the learned counsel for the assessee reiterated the submissions made before the Commissioner (Appeals) and placing reliance on the reasoning given in the order of Commissioner (Appeals), submitted that he has rightly deleted the impugned addition.
On considering the arguments advanced by both the parties and on carefully going through the order of the Commissioner (Appeals), we are of the opinion that the well-reasoned and well-discussed order of the Commissioner (Appeals) does not call for any interference from our side and accordingly, his order in respect of impugned addition of Rs. 1 lac relating to creditor, Sh. Ravinder Pal is upheld.The last two additions relating to the credits amounting to Rs. 1 lac and Rs. 2 lacs raised from M/s Devinder Sandhu & Co. and M/s B.S.Sandhu Hosiery Factory have been challenged by the assessee before the Commissioner (Appeals).
Before the Commissioner (Appeals), the learned counsel for the assessee submitted that both these concerns are existing assessees and have been declaring substantial income in their income-tax returns. The assessing officer disputed both the credit entries on the ground that the creditors have not charged any interest.
The learned Commissioner (Appeals), after considering submissions, deleted the impugned additions totalling to Rs. 3 lacs by making following observations in his order: "I have already mentioned above that non-charging of interest is no ground for making any addition on account of cash credit. Both these concerns are income tax assessees, and have confirmed the advancing of loan to the appellant-firm, Their Bank account shows credit balance running into crores of rupees. In addition they have enjoyed over-draft facility which in the case of M/s Devinder Sandhu & Co. is Rs. 25,00,000 and in the case of M/s B.S. Sandhu Hosiery Rs, 30,00,000.
Even in these cases, the additions have been made only on the ground that no interest was charged. It was explained to the assessing officer that the loans were advanced for temporary period and no interest was charged due to friendly relations. The financial position of the concerns is not in dispute. The loan transactions were confirmed. In such circumstances, the assessing officer could only refer the case to the assessing officer assessing these concerns and had no justification for making impugned additions without making out a proper case." Before us, the learned Departmental Representative for the revenue except placing reliance on the reasoning given in the order of the assessing officer was not able to controvert the observations made in the order of the Commissioner (Appeals). Whereas, on the other hand, the learned authorised representative for the assessee reiterated the submissions before us which he made before the Commissioner (Appeals) and contended that the Commissioner (Appeals) in his well-reasoned and well-discussed order has rightly deleted the impugned addition.
We have considered the rival submissions of both the parties, perused the record and carefully gone through the orders of tax authorities below. We are of the opinion that in his well-reasoned and well-discussed order, the learned Commissioner (Appeals) has rightly deleted the impugned additions of Rs. 1 lac and Rs. 2 lacs relating to loans raised by the assessee from M/s Devinder Sandhu & Co. and M/s B.S. Sandhu Hosiery Factory. Accordingly, the order of Commissioner (Appeals)'s in this regard is upheld.