Ajit K. Sengupta, J.
1. In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1978-79 and 1979-80, the following question has been referred to this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 5,64,631 and Rs. 4,84,205 as unexplained credits and interest thereon for the assessment years 1978-79/1979-80, respectively ?'
Shortly stated the facts leading to this reference are that the assessee is Messrs. Precision Finance Pvt. Ltd. and the assessment years involved are 1978-79 and 1979-80 for which the accounting periods ended on June 30, 1977, and June 30, 1978, respectively. The business of the assessee-company is loan financing. In the assessment for the assessment year 1978-79, there were two assessments under Section 144 due to non-compliance by the assessee but both the ex parte assessments were reopened under Section 146 of the Income-tax Act, 1961. The present assessment was a third assessment made under Section 143(3)/146 on March 11, 1986. In the course of assessment proceedings for the year 1978-79, the Assessing Officer found that the following cash credits appeared in the books of account of the assessee for which the income-tax file numbers of the creditors as furnished by the assessee were as under :
Sl. No.Name of the creditorsCash creditI.T. file Nos.
Rs. 1.Mohanla) Golcha80,00011-018-FX-5414
Cal/IV0/H2.Assam Jute Supply Company10,000Not furnished3.Associated Syndicate Company50,00011-082-FD-4270
Cal/I(1)/G4.Sun Enterprises75,00011-014-PX-2155
Cal/V(2)/F5.Rajasthan Jute Supply Company50,00011-015-PN-4659
Cal/VI/M6.Probhat Trading Company80.00011-045-PX-2648
Cal/II(2)/L7.Mahalakshmi Bastralaya50,00011-051-PY-7837
Cal/VI/C8.Sohanlal Suresh Kumar25,000V(1)/734-S/G9.Mulchand Chabra25,00011-011-PX-9410
Cal/IV(2)/M10.Somani Supply Syndicate Company1,00,000
11-054-FQ-0953 Total5,45,000
The Assessing Officer deputed his inspector to make investigation about the above loan creditors. On enquiry, it was found that the income-tax file numbers given in respect of Mohanlal Golcha (Sl. No. 1) was not available and the said party was not also available at the given address at 161/1, M.G. Road, Calcutta. In respect of Assam Jute Supply Company (Sl. No. 2), the assessee neither filed the confirmatory letter nor the address was fully given which could be verified by the inspector. In respect of Associated Syndicate Co. (Sl. No. 3), the inspector could not find the file in District (1), C-Ward, Calcutta. Moreover, the creditor, Messrs. Associated Syndicate Company, was not traceable at the given address at 2, Nawab Badruddin Street, Calcutta. In respect of Sun Enterprises (Sl. No. 4), on enquiry the file could not be found in District V(2), F-Ward. The said party was also not traceable at the given address at 4, Wood Street, Calcutta. In respect of Rajasthan Jute Supply Company (Sl. No. 5), the file could not be found in District VI also. The party was not traceable at the given address at 11, Pollock Street, Calcutta. Subsequently, the assessee in respect of this party had furnished a file number of District 7(1) but the file also could not be found out. In respect of Probhat Trading Company (Sl. No. 6), the file could not be found out in District II(2), B-Ward. In respect of Mahalakshmi Bastralaya (Sl. No. 7), the file number given by the assessee could not be found out in C-Ward, District VI. In respect of Sohanlal Suresh Kumar (Sl. No. 8), the file number given could not be found out in District V(1), Calcutta. Moreover, the party was not traceable at the given address. In respect of Mulchand Chabra it was found on examination of the income-tax assessment records that the party had income from commission and interest. His balance-sheet for the relevant year did not reflect the alleged loan given to the assessee-company. In respect of Somani Supply Syndicate Company (Sl. No. 10), it was found on enquiry that the loan given to the assessee-company was not reflected in the balance-sheet. For the aforesaid reasons, the Assessing Officer made an addition of Rs. 4,45,000 as cash credits and also disallowed interest relatable to those loans amounting to Rs. 19,631 for the assessment year 1978-79. Similarly, for the assessment year 1979-80, the Assessing Officer made an addition of Rs. 4,50,000 as income from other sources as he found similar defects in respect of cash credits from the following parties :
1. Mohanlal Chola.
2. Rajasthan Jute Supply Company.
3. Assam Jute Supply Company.
4. Rajendra Kumar Gupta.
5. Hemraj Sagarmal.
6. Lakshmi Narayan Botanlal.
7. Sitaram Khaitan.
8. Kedarnath Ramratan.
The Assessing Officer also added interest relatable to the fictitious loans amounting to Rs. 37,512 for the assessment year 1979-80.
2. Aggrieved by the orders of the Assessing Officer, the assessee filed appeals before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), considering the facts and circumstances of the case, confirmed the additions.
3. Being aggrieved, the assessee came up in appeal before the Tribunal. The Tribunal found that all the parties were old parties. It also found that the Assessing Officer made enquiries in the old districts of the Department but did not try his hand in the survey circles of the Department to find out the creditors. Therefore, the Tribunal held that it could not be said that efforts were made by the Assessing Officer to trace the income-tax files of the cash creditors. The Tribunal also held that the Assessing Officer was expected to find out the truth from all districts. In this case all the transactions were made by account payee cheques. The assessee urged the Assessing Officer to verify the bank accounts of the parties to find out the truth of the transactions which he did not do. The Tribunal further found that since the Assessing Officer did not verify the bank accounts of the creditors, it should be held that the creditworthiness and genuineness of the transactions have been established. By so holding the Tribunal deleted the additions made by the Assessing Officer for the two years under reference.
4. On going through the order of the Tribunal, it appears to us that the Tribunal did not apply its mind to the facts and circumstances of this case. The Tribunal disposed of the appeal in the following terms :
'We have examined the assessment order as well as the order of the Commissioner of Income-tax (Appeals). We have taken into consideration the arguments advanced by learned counsel for the assessee and the learned departmental representative, Sri K.L. Bhowmick. We do find substance in the assessee-company's appeals to allow relief. The assessee-company has proved the identity of the creditors and their creditworthinessand the genuineness of the transactions should have been found out by the Income-tax Officer by making investigation from their bank accounts because of the account payee cheques being issued and other related evidence. The additions on account of these credits cannot stand. Therefore, we are unable to confirm the order of the Commissioner of Income-tax (Appeals).'
The following facts are undisputed in respect of the alleged cash credits :
(a)Mohanlal GolchaNo such file was available in the above number nor the party is available at address 161/1, M. G. Road, Calcutta
Rs. 80,000F. No.11-018-FX-5414/
Cal/(IV(I)/H(b)Assam Jute Supply Co.For want of loan confirmation and the address given could not be verified
10,000(c)Associated Syndicate Co.There is no such file in District I(I)/G-Ward, moreover the assessee is not traceable at 2, Nawab Baddruddin Street
50,000 11-082-FT-4270
Cal/I(I)/G(d)Sun EnterprisesNo such file in District V(2), F-Ward, moreover the assessee is not traceable at the given address at 4, Wood Street, Calcutta
75,000 11-014-PX-2155
Cal/V(2)/F(e)Rajasthan Jute Supply Co.There is no such file in District VI and moreoverthe assessee is not traceable at 11, Pollock Street, Calcutta. Out ofabundant precaution enquiry was made at District V(I) also, but there is nosuch file
50,000 11-013-PN-4659
Cal/VI(M)(f)Probhat Trading Co.There was no such file in District II(2)/ L-Ward80,000 11-043-PX-2648
Cal/2(2)/L(g)Mahalakshmi BastralayaThere is no such file in District VI/G-Ward, and moreover in District V(I)/G-Ward also
50,000 11-051-PY-7837
Cal/VI(C)/L(h)Sohanlal Suresh KumarThere is no such file in District V(I)/G-Ward, and moreover the assessee is not available at 203/1, M. G. Road, Calcutta
25,000 V(I)/734/8/G(i)Moolchand ChabraHe has shown commission on interest for bogusname-lending business. His balance-sheet for the relevant year does notreflect the loans given to the assessee
25,000 11-011-PX-9410
Cal/IV(2)/M(j)Somani Supply Syndicate Co.The loans advanced to the assessee to the tune ofRs. 50,000 were not reflected in the balance-sheet of the firm as on March 31,1977. But the party filed photostat copy of the balance-sheet where loanswere reflected. The loans were not reflected in the balance-sheet filed bythe party with Income-tax Officer, District V(I). Hence, the loan of Rs. 1,00,000could not be regarded as genuine and is added back1,00,000 11-054-FQ-0953
Cal/C/VI(C)
It appears from the order of the Commissioner of Income-tax (Appeals) that the Income-tax Officer allowed opportunity to the assessee for about 7 1/2 years starting from September 16, and ending on February 24, 1986, to produce the relevant documents in support of the contentions that the loans were genuine. Those opportunities were not availed of. Nothing was produced before the Commissioner of Income-tax (Appeals). Enquiries were conducted through the inspector on different dates and it was found that either the files do not exist as per details given by the assessee or the records do not tally with the facts mentioned by the assessee, except in two cases where the records were available in respect of Moolchand Chhabra and Somani Supply Syndicate Company and in all other cases creditors were not even found at the addresses given by the appellant. Apart from having enquiries made by the inspectors several letters were also issued to the assessee between January 16, 1982, and February 24, 1986, bringing to its notice that the loans could not be verified and adequate proof is required. At no stage have the appellant's representatives responded properly. Nowhere was the question of checking up the bank account raised.
5. It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the Income-tax Officer revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to he presumed that the transactions were genuine. It was not for the Income-tax Officer to find out by making investigation from the bank accounts unless the assessee proves the identity of the creditors and their creditworthiness. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. In that view of the matter, the question before us is answered in the negative and in favour of the Revenue.
6. There will be no order as to costs.
Nure Alam Chowdhury, J.
7. I agree.