Jindal International Vs. Ito, Panipet - Court Judgment

1. This appeal filed by the assessee is directed against the order of ld. CIT(A) dated 13/12/2011 for A.Y. 2007-08.

2. The assesee firm in the relevant assessment year derived income from manufacturing and trading of shoddy yarn and rags etc. It had filed its return of income declaring total income at Rs. 60,740/-. The gross profit shown was at Rs. 39,65,499/- against the total sales of Rs. 3,39,57,092/-. The Assessing Officer, after considering the assessees explanation, made a lump-sum addition of Rs. 1 lakh to the income of the assessee firm to cover any possible leakage towards revenue on account of fall in the rate of GP in the current year. This addition was made after discussions with the counsel of the assessees firm. The AO further noticed that the assessee firm had shown fresh unsecured loans amounting to Rs. 1,00,000/- and Rs. 1,50,000/- from Mrs. Sonika Jindal and Mrs. Parul Jindal, respectively. Both these ladies were the members of the family of the partners of the assessee firm. The AO noticed that both the lenders had issued cheques after cash was deposited in their respective accounts. After examining the copies of acknowledgement in respect of ITRs of respective lenders, the AO issued notice to assessee as under: -

“Please refer to the reply filed by you on 26/11/09 vide which you have made attempt to prove the creditworthiness of Ms. Sonika Jindal and Mrs. Parul Jindal by furnishing the copies of acknowledgement in respect of the ITRs filed by them along with the copies of Capital Accounts. It has been claimed that one of the above ladies earned income under the head ‘Misc. Income and the other one earned income from ‘Retail Business. No specific source of income has been mentioned in their ITRs. The above said detail has been perused but the same nowhere suggests the sources of cash availability with both the above ladies for depositing the same in their bank accounts for the only purpose of making advance to you through cheques on the same day or some day after. Further perusal of copy of bank statements of both the ladies also reveals that the same were maintained only for the above purpose. From the above, it is well established that you have failed to prove the creditworthiness of both the ladies which is a necessary ingredient for treating any transaction as a valid transaction. In view of the above fact and circumstances, you are required to explain as to why the amount of Rs. 1,00,000/- and Rs. 1,50,000/- claimed to be advanced by Ms. Sonika Jindal and Mrs. Parul Jindal respsectively be not treated as your own income for the year under consideration.”

3. In reply to this notice, the assessee firm submitted cash flow charts in respect of both these ladies stating that they had sufficient capital as on 31/03/2006 and 31/03/2007. The relevant parts of the assessees letters have been reproduced by AO in his order at page 2 which read as under: -

“Smt. Sonika Jindal: -

Cash flow chart is hereby enclosed. As regards her creditworthiness, it is submitted that her capital as on 31/03/2006 and 31/03/2007 was at Rs. 13,53,538.10 and Rs. 10,03,010.10, respectively, copy of her capital account is already on record, whereas the amount of loan received from her during the year is just Rs. 1,05,000/-. Thus, creditworthiness of the lender is self-explanatory. She is a regular income tax assessee, photocopy of the acknowledgement of her return of income for the A.Y. 2007-08 is on record.

Smt. Parul Jindal:

Cash flow chart is hereby enclosed. As regards her creditworthiness, it is submitted that her capital as on 31.03.2006 and 31.03.2007 was at Rs. 29,26,515.00 and Rs. 31,62,715.00, respectively, copy of her capital account is already on record, whereas the amount of loan received from her during the year is just Rs. 1,50,000/-. Thus, creditworthiness of the lender is self-explanatory. She is a regular income tax assessee, photocopy of the acknowledgement of her return of income for the A.Y. 2007-08 is on record. She has even paid income tax of Rs. 20,012/- during the year, photocopy of intimation u/s 143(1) is also on record.”

4. As regards Ms. Sonika Jindal, the AO observed that in the letter, assessee had shown opening availability of cash at Rs. 61,860/- and a sum of Rs. 65,500/- was shown as cash surrendered in the computation of income. He further noticed that in A.Y. 2008-09 also, in the computation of income, she had shown Rs. 72,500/- as cash surrendered.

5. As regards Ms. Parul Jindal, the AO observed that she had shown cash availability of Rs. 2,519/- as on 01/04/2006 and her income from retail business was shown at Rs. 2,22,000/- along-with agricultural income of Rs. 50,200/-. He observed that since the income from the retail business was for whole year, it was not possible for Ms. Parul Jindal to deposit cash of Rs.1,50,000/- in her saving account in the starting days of the financial year i.e. on 5th April, 2006 with cash availability of Rs. 2,519/- only. The AO further noticed that in the computation filed with the ITR of Ms. Parul Jindal, income from retail business was shown at Rs. 1,72,000/- as against Rs. 2,22,000/-.

6. In view of all these facts, the AO concluded that assessee had failed to prove the credit worthiness of Ms. Sonika Jindal and Ms. Parul Jindal in respect of unsecured loans raised in their name. He, accordingly, made an addition of Rs. 2,50,000/-.

7. Ld. CIT(A) confirmed the AOs action.

8. Ld. Counsel for the assessee referred to page 34 and 42, wherein the copy of bank account of Ms. Sonika Jindal and Ms. Parul Jindal is contained. He further referred to page 38 and 45, wherein the confirmed copy of acknowledgment of Income-tax Return is contained. Ld. Counsel further referred to page 49, wherein the intimation u/s 143(1) in the case of Ms. Parul Jindal is contained.

9. With reference to these documents, ld. Counsel submitted that assesee had discharged its prima-facie onus of establishing the identity and credit worthiness of lenders as it had furnished all the details including PAN No. of lenders. Ld. Counsel further referred to computation of income in the case of Ms. Sonika Jindal contained at page 39 of paper book to demonstrate that she had surrendered cash of Rs. 65,500/- and had filed return of income declaring total income of Rs. 67,882/- which included interest from firm of Rs. 2,382/-. He pointed out that Ms. Sonika Jindal is sister of one of the partner and department has accepted the return filed by her. Ld. Counsel further referred to page 41 of paper book, wherein the capital account of Ms. Sonika Jindal is contained to demonstrate that she had sufficient opening balance of Rs. 13,53,538/- to give advance.

10. As regards Ms. Parul Jindal, ld. Counsel submitted that she is assessed to tax and had paid Income tax of Rs. 23,813/- on her income. The cash deposit of Rs. 1,50,000/- on 05/04/2006 by the lender, Ms. Parul Jindal, in her saving account comprised of i) sale proceeds of wheat which as per narration given was not profit but sale proceeds since no expenditure on agricultural operations could have been incurred from 01/04/2006 to 05/04/2006 because this was the time of reaping wheat and not sowing anything, ii) part of miscellaneous income shown at Rs. 50,000/- and iii) sale proceeds of retail business from 01/04/06 to 05/04/06. He, therefore, submitted that both the lenders had discharged their primary onus. Ld. Counsel relied on the decision in the case of Subhash Dall Mill vs. ACIT, Agra Bench, 257 ITR (AT) 115, wherein it has been, inter-alia, held that source of the assessees credits cannot be inquired by the department. He further relied on the case of P.K. Sethi vs. CIT, 286 ITR 318, 322, 323 for the proposition that if the transactions have been held to be genuine on the part of the creditors then different view cannot be taken in the case of assessee-debtor. Ld. Counsel further submitted that AO had made lump sum addition of Rs. 1 lakh on account of low GP rate and, therefore, the same should have been reduced from the total addition. In this regard he relied on following decisions: -

i) CIT vs. Ram Sanehi Gian Chand (1972) 86 ITR 724 (PandH);

ii) Anantharam Veerasinghaiah and Company vs. CIT (1980) 123 ITR 457(SC);

iii) CIT vs. KSM Guruswami Nadar and Sons (1984) 149 ITR 127 (Mad.).

11. Ld. DR submitted that as far as Ms. Sonika Jindal is concerned, cash surrendered by her in her return could not treated as explained source of income. Therefore, the same was rightly not taken into consideration by AO. She referred to the decision of ITAT, Delhi Bench in the case of Harsh W. Chandh vs. Direct of Income-tax 43 SOT 544, wherein it has been, inter-alia, observed as under: -

“Rules of evidence do not govern the income-tax proceedings, as the proceedings under the Income-tax Act are not judicial proceedings in the sense in which the phrase ‘judicial proceedings is ordinarily used. The Assessing Officer is not fettered or bound by technical rules about evidence contained in the Indian Evidence Act, and he is entitled to act on material which may not be accepted as evidence in a Court of law.”

12. As regards Ms. Parul Jindal, ld. DR submitted that she had not sufficient cash to deposit on 05/04/06. She submitted that assessee had failed to explain the availability of cash with her on 05/04/06. As regards the plea of ld. Counsel for the assessee regarding set off of Rs. 1 lakh against the total addition of Rs. 2,50,000/- ld. DR submitted that these two are separate additions and one cannot be adjusted against the other.

13. I have considered the submissions of both the parties and have perused the record of the case. It is well settled law that if an amount is found credited in the books of assessee then the burden is on the assessee to establish the identity and credit worthiness of lender and also genuineness of transaction. There are plethora of rulings on this issue where on one set off facts, the assessees explanation is accepted and on other set off facts, the assessees explanation is rejected though in both the cases amounts might have been received through account payee cheques. It is primarily a question of fact and there is no thumb rule or law to decide these issues. Ld. Counsel has submitted that if the return of income of lender has been accepted then a contrary view cannot be taken in the case of assessee. In this regard, ld. Counsel has relied on the decision of Gauhati High Court in the case of P.K. Sethi vs. CIT (2006) 286 ITR 318, 322, 323 (Gauhati). The Honble High Court at page 322, inter-alia, observed that out of the three requirements, the first two questions, namely, the identity of the assessee and credit worthiness of the creditors have been established and even the Tribunal had no doubt about the same. Therefore, the entire question before the Honble High Court was regarding genuineness of the transaction. However, in the present case, the AO is disputing the credit worthiness of the lenders per se and, therefore, this decision is not applicable to the facts of the case.

14. Ld. Counsel has also referred to the decision in Sarjan Corporation vs. Asst. CIT [2012] 14 ITR (Trib.) 140, 148, 149 (Ahmedabad), wherein Tribunal relying on Supreme Court judgment in CIT vs. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC), wherein it was held that where revenue had not made any attempts to verify the creditworthiness of the loan creditors, no adverse inference could be drawn against the assessee. The contention of ld. Counsel is that since assessee had filed confirmed copies of accounts and photocopies of acknowledgements of returns of income (which contained PAN and address) of both the loan creditors, therefore, since revenue did not pursue against the loan creditors, no adverse inference can be drawn against the assessee. In my opinion, this decision is not of much help to assessee because AO had examined the details furnished by assessee and there was no dispute about the facts or about the identity of creditor. Under such circumstances, the AO was well within his powers to draw inference on facts available before him. As pointed out earlier, the facts of each case have to be primarily examined and then only one can arrive at a conclusion. In the present case, it is true that Ms. Sonika Jindal had filed her return of income and included the amount in computation of income as cash surrendered to be treated as income from other sources. It is true that once lender has declared some income in her return then the same can be questioned only in the case of lender and not in the case of assessee. However, if the Department has not scrutinized the Return of Income of lender then it cannot be held that in case of loanee the AO is precluded from considering the veracity of income disclosed by lender while examining creditworthiness of lender. Primarily the AO in case of loanee is examining the creditworthiness of lender and, therefore, he has to take a judicious view on the evidence placed before him by loanee to explain the creditworthiness of lender. As rightly pointed out by ld. DR, the cash surrendered cannot be considered as a source of income. Therefore, the addition could be made in the hands of assessee. As far as availability of opening cash in the hand of lender is concerned, apart from bald plea of assessee, there is nothing on record to substantiate the same. Therefore, ld. CIT(A) was justified in sustaining this addition.

15. As regards the loan from Ms. Parul Jindal, I am in agreement with ld. CIT(A) that she has miserably failed to substantiate her claim of availability of cash on 05/04/2006. As far as ld. Counsels plea regarding availability of amount on the basis of capital amount of both the lenders is concerned, I am unable to agree with the same because in the capital account even the loans given by the lenders are not reflected. Ld. Counsel admitted that the balance sheet of the lenders is not available. Therefore, the availability of cash with the lenders is not explained. However, I am in agreement with the alternate argument of ld. Counsel that in view of the decision of Honble Punjab and Haryana High Court in 86 ITR 724, the sum of Rs. 1 lakh is to be teliscoped against the total addition of Rs. 2,50,000/- because assessee firm had only income from business and department has not brought on record any evidence to establish that assessee firm had some other source of income also. Therefore, the addition u/s 68 was only in respect of business income.

16. In the result, the assessees appeal is partly allowed.