Deputy Commissioner of Income-tax Vs. Rohini Builders - Court Judgment

Excerpt:
- - this cannot be believed that an educated young man would like to keep a big amount of rs. 60,000 was deposited in cash and a cheque of like amount was issued to the assessee. the commissioner of income-tax (appeals), however, did not find any merit in the submissions of the assessee and he upheld the action of the assessing officer for the reasons given in the impugned order on the ground that the assessee is required to prove the identity and capacity of the creditors/depositors as well as the genuineness of the loan transactions. according to the commissioner of income-tax (appeals) in this case although the assessee has proved the identity of the creditors/depositors, it has failed to prove the capacity of the creditors and genuineness of the credits because according to the learned first appellate authority the creditors were having very meagre source of income and as such they were not having capacity to advance the disputed amounts claimed to have been received by the assessee from the creditors. it was submitted that if the departmental authorities were not satisfied with the explanation given by the creditors with regard to the cash deposits in their bank accounts, the proper course could have been to tax the unexplained investments of those creditors under section 69 in the cases of those depositors who are regular income-tax payers. 6. the learned departmental representative strongly relied on the order of the assessing officer as well as that of the commissioner of income-tax (appeals). it was pleaded that since the disputed credits were appearing in the books of account of the assessee, introduced in its books of account and that the onus was on the assessee to prove (i) the identity of the creditors, (ii) the capacity of the creditors, and (iii) the genuineness of the transactions. accordingly, it was submitted that the departmental authorities were perfectly justified in treating the amount of rs. 1, 2, 3, 4, 6, and 7. however, in respect of all the 21 creditors the assessee has furnished their complete addresses along with gir numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial nos. cit .the genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. merely because summons issued to some of the creditors could not be served or they failed to attend before the assessing officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the supreme court in the case of orissa corporation .in the said decision the supreme court has observed that when the assessee furnishes names and addresses of the alleged creditors and the gir numbers, the burden shifts to the department to establish the revenue's case and in order to sustain the addition the revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the assessing officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. in the case of six creditors who appeared before the assessing officer and whose statements were recorded by the assessing officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the assessing officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 8. further, we may point out that section 68 under which the addition has been made by the assessing officer reads as under :68. where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about thenature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax asorder1. this is an appeal by the assessee against the order dated august 12, 1992, passed by the learned commissioner of income-tax (appeals), surat. 2. the only ground taken by the assessee in this appeal is that the learned commissioner of income-tax (appeals) has erred in confirming the addition of rs. 12,85,000 to the returned income of the appellant on the ground of the alleged unexplained cash credits. 3. briefly the facts are that the assessee is a partnership firm engaged in the business of dealings in land. during the assessment year under consideration, the assessee has taken loans from various parties and during the course of assessment proceedings, the assessee has furnished the loan confirmations giving full addresses, gir numbers/permanent account numbers, etc., of all the depositors. the assessing officer, however, issued summons to some of the creditors and also conducted inquiries about the genuineness or otherwise of the loans taken by the assessee. the details of the creditors along with their permanent account numbers, ward, etc., amount advanced to the assessee in the assessment year under consideration, repayment of the loan by the assessee in the year and whether the statement of the creditor was recorded or not and what happened to the summons issued by the assessing officer, are given in a tabular form as under : nameamountp. a. no. and wardrepayment in year endingwhether statementrecordedwhether summons issued1234561. s. d. desai60,000s-824/wd. 3(3)31-3-1993yesna2. r. p. dalai70,000wd. 2(8)srt31-3-1993yesna3. c. s. dalai50,000wd. 2(8)srt31-3-1993yesna4. f. n. shah50,000p.830.wd. 1(9)31-3-1990yesna5. i. s. patel85,000i-769/wd. 231-3-1989nono6.smt.s.b. shah50,000s.971/wd.2(l)31-1-1990yesna7. mr. acharya60,000m-849avd.231-3-1993yesna8. n. k. shah60,000736-n/wd. 2(3)31-3-1990nono9. n. k. prajapali70,000n. 425/wd.l(4)31-3-1990noback10. suit l. j. modi60,000707-l/wd.l(9)31-3-1990nono11, c. d. prajapati50,000c-703/wd.l (66)31-3-1990nono12. smt. dholakiya60,000b. 865/wd. 1(5)31-3-1990nono13. b. v. prajapati80,000b. 865/wd. 1(5)31-3-1991noback14. p. n. kapadia35,000wd. 2(8)s31-3-1989noback15. bhavana text.25,000m. 95931-3-1989noback16. a. b. dalal75,000wd. 2(4)srt31-3-1993noback17. d. m. gandhi1,50,000wd. 2(4)srt31-3-1993noback18. a. a. breganza60,000wd. 1(9)31-3-1989noback19. karshanbhai80,000k. 826.wd.l(9)31-3-1989noback20. n. m. palel35,000n. 769/wd.l(4)31-3-1989noback21. smt. m. k. shah15,000n. 1090/wd.l(2)31-3-1989noback4. the assessing officer has discussed the various credits before making the addition in para. 3 at pages 1 to 5 of the assessment order as under : '(1) credit of rs. 60,000 shri suketu d. desai, surat, accepted on august 2, 1988. creditor was examined on oath on august 28, 1991. he is presently working with surat district co-operative bank. prior to this he was employee with the assessee-firm on a salary of rs. 1,000 per month only. it is not believable that 3 person earning meagre salary of rs. 1,000 per month could save a big sum of rs. 60,000 even before he joins the firm. when specifically asked regarding the sources of deposit, the depositor replied that the amount was in his hands. this cannot be believed that an educated young man would like to keep a big amount of rs. 60,000 in his hands for nothing. since the capacity to advance money is not proved hence it is treated as unexplained credit. (2) smt. raginiben pareshkumar dalai : this depositor has deposited rs. 60,000 on june 21, 1988, and rs. 10,000 on january 3, 1989, aggregating rs. 70,000. she explained that she was doing typing since 1980 and earning money. she was married in december, 1988, and it was submitted that she got money in kanyadan, all were deposited in the bank on june 20, 1988, and then loan was given to rohini builders. it cannot be believed that the depositor would keep money at home for an amount up to rs. 60,000 and then suddenly deposit in the bank to give loan to rohini builders. as per the statement she was married in december, 1988, and the money had come in kanyadan, but deposit was made in june, 1988 only. therefore, her statement cannot be believed. this is therefore taken as unexplained credit. (3) shri chintan dalai, surat, had deposited with the assessee rs. 50,000 on june 21, 1988, was examined on oath. he submitted that he received gift from two parties and loan from one party, and with this amount he had advanced money to the assessee, but he could not furnish any proof of gift/ loan hence his capacity is not proved, therefore, this is treated as unexplained credit. (4) shri praful manilal shah, surat : this depositor has deposited with the assessee rs. 50,000 on september 2, 1988. on examination he submitted that the deposit was given out of his savings. he could not submit anything as to where the amount was lying immediately before deposited with the assessee. the depositor had old bank account since long and cannot be believed that he would keep money in hand for nothing despite having bank account. therefore, this credit is not treated as genuine. (5) shri ishwarlal shankerlal patel ; surat : had deposited rs. 85,000 on march 29, 1988. he explained that the deposit money had come out of savings and he is doing business of diamond brokerage and out of cash in hand. immediate source was however not explained. he has bank account with the bank of baroda, kajimaidan, surat. he deposited rs. 85,000 in cash on the same date on which the cheque was issued to the assessee. if he had savings rs. 85,000 then it should have accumulated in the bank account. therefore, the theory of savings cannot be accepted and this amount is treated as unexplained credit and added in the total income of the assessee. (6) smt. subhadraben babulal shah, surat : she has deposited rs. 50,000 on september 2, 1988. she was examined on oath and she stated that she has income from preparing khakhra, papad, etc., she is the assessee to income-tax also. regarding immediate source it was submitted that it was out of savings. the depositor had bank account since february, 1986, and it does not reflecting savings accumulated from day to day or month to month. rs. 50,000 deposit in cash and a cheque was issued to the assessee, therefore, the capacity to advance money is not proved hence the credit is treated as unexplained. (7) shri manoj kumar r. acharya had deposited a sum of rs. 60,000 on september 6, 1988. he stated on oath that he has been doing diamond assorting since last 10 years. he is assessed to tax also. immediate source stated to be savings and cash on hand. he has bank account since 1987 and it does not reflect his savings a sum of rs. 60,000 was deposited in cash and a cheque of like amount was issued to the assessee. this cannot be believed that the depositor would keep rs. 60,000 in hand for nothing despite having bank account. therefore, the deposit is not considered as genuine. (8) smt. neelam kantilal shah, surat : had deposited rs. 60,000 on september 2, 1988. she stated that she is assessed to tax and does sewing and embroidery work. she has bank account and she has stated that the deposit was out of her savings. her capital account does not show sufficient cash in hand no immediate source of rs. 60,000 was provided. she had received bank rs. 15,000 from one party and was deposited to the extent of rs. 15,000 is treated as explained. the receipt of rs. 45,000 is treated as unexplained and the capacity to advance money was not proved. (9) shri n. k. prajapati, surat, had deposited rs. 70,000 on september 30, 1988, with the assessee. notice under section 131 was issued to the depositor which came back from the postal authority with the remark 'not known'. therefore, this is treated as unexplained credit. (10) smt. lilavati jayantilal modi, surat, had deposited a sum of rs. 60,000 to the assessee on september 6, 1988. she stated that she has income from embroidery. she is assessed to tax. the deposit was out of her savings. no immediate source was explained as to where from sum of rs. 60,000 came suddenly. if it was accumulated over a period of time, then nothing was submitted as to where the amount was lying earlier. therefore, this is treated as unexplained. (11) prajapati chhaganlal, devsheri, surat, has deposited sum of rs. 50,000 on september 2, 1988, with the assessee. he is assessed to tax and having income from diamond brokerage. a draft was purchased in cash and deposited with the assessee but immediate source of such big money was not explained wherefrom it has come. therefore, this is treated as unexplained. (12) smt. anjna anil kumar dholakia had deposited sum of money rs. 60,000 with the assessee on september 2,1988. she is assessed to tax. she stated that her income from beauty parlour. it was explained that the deposit was made out of cash in hand. this cannot be believed that she keeps cash of rs. 60,000 in hand for depositing with the assessee on september 5, 1988, though she had bank account since 1986. therefore, the capacity to advance money is not proved and the credit is treated as unexplained. (13) in the following cases summons were issued under section 131 but the creditors did not turn up to ratify the confirmation filed by them. therefore, their confirmations are not treated as genuine and, therefore, the amount deposited by them is treated as unexplained. name of depositordate of depositamount deposited1. sh. bhikhabhai v.prajapati, surat2-9-198880,0002. sh. purav m. kapadia,surat1-7-198835,0003. m/s. bhavna textiles,surat1-7-198825,0004. sh. ashok b. dalai,bombay4-7-198875,0005. sh. deepak m. gandhi2-7-1988 to 31-3-19891,50,0006. sh. a. a. bragenza2-9-198880,0007. sh. karsanbhaimahadevbhai26-8-1988 to 29-8-198880,0008. sh. nagjibhai m.patel29-8-198835,0009. smt. madhuben k. shah29-8-198815,000total5,75,000 the above credits are added in the total income of the assessee'. 5. the assessee appealed and pleaded before the commissioner of income-tax (appeals) that all the loans which have been treated by the assessing officer as undisclosed income of the assessee were received by the assessee from the creditors by account payee cheques and the assessee has filed the confirmations of loans duly confirmed by the creditors. it was pleaded that the amounts received by the assessee were by account payee cheques issued from the bank accounts of the creditors with which the assessee has no connection and it is not for the assessee to explain as to how the cash was deposited in the bank accounts of the creditors who have given loans to the assessee by account payee cheques. it was submitted that the assessee has paid the interest to these creditors also by account payee cheques and the repayments have also been made to some of the depositors even in the accounting year under consideration and to other depositors in the subsequent years. it was submitted that the repayments were also made by account payee cheques. it was pleaded that merely because the summons issued by the assessing officer to the creditors were received back unserved, the credits introduced in the booksof account of the assessee cannot be considered as bogus and treated as the income of the assessee-firm. the commissioner of income-tax (appeals), however, did not find any merit in the submissions of the assessee and he upheld the action of the assessing officer for the reasons given in the impugned order on the ground that the assessee is required to prove the identity and capacity of the creditors/depositors as well as the genuineness of the loan transactions. according to the commissioner of income-tax (appeals) in this case although the assessee has proved the identity of the creditors/depositors, it has failed to prove the capacity of the creditors and genuineness of the credits because according to the learned first appellate authority the creditors were having very meagre source of income and as such they were not having capacity to advance the disputed amounts claimed to have been received by the assessee from the creditors. the commissioner of income-tax (appeals) also took note of the fact that in some of the cases although the creditors were having bank accounts for the last several years, a cash equivalent to the cheque issued in favour of the assessee was deposited in the bank account of the creditor only a few days before the issuance of cheque by the creditor favouring the assessee. for the aforesaid reasons, the commissioner of income-tax (appeals) confirmed the addition made by the assessing officer. the assessee is aggrieved and has filed this appeal before the tribunal. the learned authorised representative of the assessee pleaded that all the 21 credits which were treated by the departmental authorities as bogus were received by the assessee from the creditors by account payee cheques. out of 21 creditors, in cases of creditors at serial nos. 6, 14, 15, 18, 19, 20 and 21 (seven creditors) the amounts received as loan on interest were returned back by the assessee in the accounting year ending march 31, 1989, relevant to the assessment year 1989-90 itself along with the interest and as such these were only squared up accounts not appearing in the balance-sheet of the assessee but these were indicated in the tax audit report. it was submitted that even in respect of these creditors, the assessee has furnished the necessary confirmations along with the complete addresses with gir numbers/permanent account numbers. the repayments in cases of serial nos. 4, 5, 7, 8, 9, 10, 11 and 12 were made in the accounting year ending march, 1990. in respect of serial no. 13 the repayment was made in the accounting year ending on march 31, 1991, and this fact was duly communicated to the assessing officer who framed the assessment on march 16, 1992. only in cases of serial nos. 1, 2, 3, 16 and 17 the repayments were made in the year ending march 31, 1993. it was submitted that in the cases of all the creditors the interest payment was made by account payee cheques and although the assessing officer has treated the cash credits as non-genuine, he has not made any addition on account of interest paid by the assessee in respect of these credits in its books of account which have been duly allowed by the assessing officer as a normalbusiness expenditure. it was further submitted that in respect of credits at serial nos. 5, 7, 8, 14, 15, 16 and 17, tax deducted at source was deducted out of the interest paid/credited to the accounts of the creditors and this fact was given in the accounts confirmation filed before the assessing officer, copies of which have been furnished to us at pages 67, 88, 94, 151, 153 and 170 of the paper book. in respect of credit at serial no. 9 in the case of n. k. prajapati copy of form no. 15h by the creditor for not deducting the tax at source as the total income of the creditor was likely to be less than the minimum liable to tax, was also filed a copy of which is given to us at page 112 of the paper book. accordingly, it was submitted that there was absolutely no justification for treating particularly when the interest in relation to these credits has been allowed by the assessing officer as a business expenditure. it was submitted that the main basis for making the addition by the assessing officer and confirmation of the same by the commissioner of income-tax (appeals) is that the depositors who have advanced the loans to the assessee, could not explain the source of cash deposits in their respective bank accounts. it was submitted that the assessee can be asked to prove only the source of the credits in its books of account but it cannot be required to explain the source of the source of cash credits. it was submitted that if the departmental authorities were not satisfied with the explanation given by the creditors with regard to the cash deposits in their bank accounts, the proper course could have been to tax the unexplained investments of those creditors under section 69 in the cases of those depositors who are regular income-tax payers. it was submitted that merely because the creditor's explanation with regard to the cash deposits in their bank accounts is considered by the assessing officer as not satisfactory, no addition could be made in the hands of the assessee by treating the credits as non-genuine. reliance was placed on the decision of the supreme court in the case of cit v. orissa corporation p. ltd. ; cit v. daulat ram rawatmull ; sarogi credit corporation v. cit ; ito v. suresh kalmadi [1988] 32 ttj 300 ; cit v. u. m. shah, proprietor, shrenik trading co. . accordingly, it was submitted that the addition of rs. 12,85,000 made by the departmental authorities is required to be deleted. 6. the learned departmental representative strongly relied on the order of the assessing officer as well as that of the commissioner of income-tax (appeals). it was pleaded that since the disputed credits were appearing in the books of account of the assessee, introduced in its books of account and that the onus was on the assessee to prove (i) the identity of the creditors, (ii) the capacity of the creditors, and (iii) the genuineness of the transactions. the learned departmental representative filed written submissions and pleaded that the total credits in the books of the assessee in the names of 21 creditors were to the extent of rs. 12,85,000. these can be classified in three broad categories : (i) incases of nine persons aggregating to rs. 5,75,000 although the summons were issued and served by the assessing officer, none turned up for giving evidence before the assessing officer and hence these were added as the income of the assessee. (ii) in one case of n. k. prajapati where the credit was of rs. 70,000 the summons issued by the assessing officer were returned by the postal authorities with the remark 'not known', (iii) in the remaining 11 cases although the identity of the creditors was established, the capacity of the creditors and the genuineness of the transactions relating to the total cash credits of rs. 6,40,000 was not established because it was seen that the cash was deposited in their respective bank accounts prior to the issue of cheques by those creditors favouring the assessee. it was submitted that it was a circumstantial evidence to indicate that the cash belonging to the assessee was introduced as deposit in the bank account of the creditor for taking an equivalent amount by cheque by way of an accommodation entry. it was submitted that the so called income-tax returns in some of the cases of the creditors were filed under the amnesty scheme and were intended only to create evidence that the creditors were income-tax assessees. accordingly, it was submitted that the departmental authorities were perfectly justified in treating the amount of rs. 12,85,000 as the income of the assessee. reliance was placed on the decisions of the calcutta high court in the cases of shankar industries v. cit and prakash textile agency v. c1t and the decision of the punjab and haryana high court in the case of hari chand virender paul v. cit . 7. we have considered the rival submissions and have also gone through the order passed by the assessing officer, the relevant portion of which we have also extracted in para. 2 above. the commissioner of income-tax (appeals) more or less confirmed the addition on the reasoning given by the assessing officer in the assessment order. a perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the assessing officer has recorded the statements of only six creditors, viz., creditors at serial nos. 1, 2, 3, 4, 6, and 7. however, in respect of all the 21 creditors the assessee has furnished their complete addresses along with gir numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. in the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the department along with their statement of income. all the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. it is rather strange that although the assessing officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to thosecash credits, which has been claimed as business expenditure and has been allowed by the assessing officer. it is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the assessing officer. thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, gir numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. it has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the bombay high court in the case of orient trading co. ltd. v. cit . the genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. merely because summons issued to some of the creditors could not be served or they failed to attend before the assessing officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the supreme court in the case of orissa corporation . in the said decision the supreme court has observed that when the assessee furnishes names and addresses of the alleged creditors and the gir numbers, the burden shifts to the department to establish the revenue's case and in order to sustain the addition the revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the assessing officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. in the case of six creditors who appeared before the assessing officer and whose statements were recorded by the assessing officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the assessing officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69. 8. further, we may point out that section 68 under which the addition has been made by the assessing officer reads as under : '68. where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about thenature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.' 9. the phraseology of section 68 is clear. the legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. in this, case the legislative mandate is not in terms of the words 'shall be charged to income-tax as the income of the assessee of that previous year'. the supreme court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word 'may' and not 'shall'. thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the supreme court in the case of cit v. smt. p. k. noorjahan . 10. thus taking into consideration the totality of the facts and circumstances of the case, and, in particular, the fact, that the assessing officer has not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax deducted at source has been deducted out of the interest paid/credited to the creditors, we are of the opinion that the departmental authorities were not justified in making the addition of rs. 12,85,000 which is directed to be deleted. 11. in the result, the appeal is allowed. 1. considering the facts and circumstances of the case narrated by the tribunal in para. 7 of the judgment (page 368 supra) and the law explained in paras. 8 and 8.1 (page 369 supra). we find no substance in the appeal. the appeal is, therefore, dismissed as no substantial question of law arises.

Judgment:
ORDER

1. This is an appeal by the assessee against the order dated August 12, 1992, passed by the learned Commissioner of Income-tax (Appeals), Surat.

2. The only ground taken by the assessee in this appeal is that the learned Commissioner of Income-tax (Appeals) has erred in confirming the addition of Rs. 12,85,000 to the returned income of the appellant on the ground of the alleged unexplained cash credits.

3. Briefly the facts are that the assessee is a partnership firm engaged in the business of dealings in land. During the assessment year under consideration, the assessee has taken loans from various parties and during the course of assessment proceedings, the assessee has furnished the loan confirmations giving full addresses, GIR numbers/permanent account numbers, etc., of all the depositors. The Assessing Officer, however, issued summons to some of the creditors and also conducted inquiries about the genuineness or otherwise of the loans taken by the assessee. The details of the creditors along with their permanent account numbers, ward, etc., amount advanced to the assessee in the assessment year under consideration, repayment of the loan by the assessee in the year and whether the statement of the creditor was recorded or not and what happened to the summons issued by the Assessing Officer, are given in a tabular form as under :

Name

Amount

P. A. No. and Ward

Repayment in year ending

Whether statementrecorded

Whether summons issued

1

2

3

4

5

6

1. S. D. Desai

60,000

S-824/Wd. 3(3)

31-3-1993

Yes

NA

2. R. P. Dalai

70,000

Wd. 2(8)SRT

31-3-1993

Yes

NA

3. C. S. Dalai

50,000

Wd. 2(8)SRT

31-3-1993

Yes

NA

4. f. N. Shah

50,000

P.830.Wd. 1(9)

31-3-1990

Yes

NA

5. I. S. Patel

85,000

I-769/Wd. 2

31-3-1989

No

No

6.Smt.S.B. Shah

50,000

S.971/Wd.2(l)

31-1-1990

Yes

NA

7. Mr. Acharya

60,000

M-849AVd.2

31-3-1993

Yes

NA

8. N. K. Shah

60,000

736-N/Wd. 2(3)

31-3-1990

No

No

9. N. K. Prajapali

70,000

N. 425/Wd.l(4)

31-3-1990

No

Back

10. Suit L. J. Modi

60,000

707-l/Wd.l(9)

31-3-1990

No

No

11, C. D. Prajapati

50,000

C-703/Wd.l (66)

31-3-1990

No

No

12. Smt. Dholakiya

60,000

B. 865/Wd. 1(5)

31-3-1990

No

No

13. B. V. Prajapati

80,000

B. 865/Wd. 1(5)

31-3-1991

No

Back

14. P. N. Kapadia

35,000

Wd. 2(8)S

31-3-1989

No

Back

15. Bhavana Text.

25,000

M. 959

31-3-1989

No

Back

16. A. B. Dalal

75,000

Wd. 2(4)SRT

31-3-1993

No

Back

17. D. M. Gandhi

1,50,000

Wd. 2(4)SRT

31-3-1993

No

Back

18. A. A. Breganza

60,000

Wd. 1(9)

31-3-1989

No

Back

19. Karshanbhai

80,000

K. 826.Wd.l(9)

31-3-1989

No

Back

20. N. M. Palel

35,000

N. 769/Wd.l(4)

31-3-1989

No

Back

21. Smt. M. K. Shah

15,000

N. 1090/Wd.l(2)

31-3-1989

No

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4. The Assessing Officer has discussed the various credits before making the addition in para. 3 at pages 1 to 5 of the assessment order as under :

'(1) Credit of Rs. 60,000 Shri Suketu D. Desai, Surat, accepted on August 2, 1988. Creditor was examined on oath on August 28, 1991. He is presently working with Surat District Co-operative Bank. Prior to this he was employee with the assessee-firm on a salary of Rs. 1,000 per month only. It is not believable that 3 person earning meagre salary of Rs. 1,000 per month could save a big sum of Rs. 60,000 even before he joins the firm. When specifically asked regarding the sources of deposit, the depositor replied that the amount was in his hands. This cannot be believed that an educated young man would like to keep a big amount of Rs. 60,000 in his hands for nothing. Since the capacity to advance money is not proved hence it is treated as unexplained credit.

(2) Smt. Raginiben Pareshkumar Dalai : This depositor has deposited Rs. 60,000 on June 21, 1988, and Rs. 10,000 on January 3, 1989, aggregating Rs. 70,000. She explained that she was doing typing since 1980 and earning money. She was married in December, 1988, and it was submitted that she got money in Kanyadan, all were deposited in the bank on June 20, 1988, and then loan was given to Rohini Builders. It cannot be believed that the depositor would keep money at home for an amount up to Rs. 60,000 and then suddenly deposit in the bank to give loan to Rohini Builders. As per the statement she was married in December, 1988, and the money had come in Kanyadan, but deposit was made in June, 1988 only. Therefore, her statement cannot be believed. This is therefore taken as unexplained credit.

(3) Shri Chintan Dalai, Surat, had deposited with the assessee Rs. 50,000 on June 21, 1988, was examined on oath. He submitted that he received gift from two parties and loan from one party, and with this amount he had advanced money to the assessee, but he could not furnish any proof of gift/ loan hence his capacity is not proved, therefore, this is treated as unexplained credit.

(4) Shri Praful Manilal Shah, Surat : This depositor has deposited with the assessee Rs. 50,000 on September 2, 1988. On examination he submitted that the deposit was given out of his savings. He could not submit anything as to where the amount was lying immediately before deposited with the assessee. The depositor had old bank account since long and cannot be believed that he would keep money in hand for nothing despite having bank account. Therefore, this credit is not treated as genuine.

(5) Shri Ishwarlal Shankerlal Patel ; Surat : Had deposited Rs. 85,000 on March 29, 1988. He explained that the deposit money had come out of savings and he is doing business of diamond brokerage and out of cash in hand. Immediate source was however not explained. He has bank account with the Bank of Baroda, Kajimaidan, Surat. He deposited Rs. 85,000 in cash on the same date on which the cheque was issued to the assessee. If he had savings Rs. 85,000 then it should have accumulated in the bank account. Therefore, the theory of savings cannot be accepted and this amount is treated as unexplained credit and added in the total income of the assessee.

(6) Smt. Subhadraben Babulal Shah, Surat : She has deposited Rs. 50,000 on September 2, 1988. She was examined on oath and she stated that she has income from preparing Khakhra, Papad, etc., she is the assessee to income-tax also. Regarding immediate source it was submitted that it was out of savings. The depositor had bank account since February, 1986, and it does not reflecting savings accumulated from day to day or month to month. Rs. 50,000 deposit in cash and a cheque was issued to the assessee, Therefore, the capacity to advance money is not proved hence the credit is treated as unexplained.

(7) Shri Manoj Kumar R. Acharya had deposited a sum of Rs. 60,000 on September 6, 1988. He stated on oath that he has been doing diamond assorting since last 10 years. He is assessed to tax also. Immediate source stated to be savings and cash on hand. He has bank account since 1987 and it does not reflect his savings a sum of Rs. 60,000 was deposited in cash and a cheque of like amount was issued to the assessee. This cannot be believed that the depositor would keep Rs. 60,000 in hand for nothing despite having bank account. Therefore, the deposit is not considered as genuine.

(8) Smt. Neelam Kantilal Shah, Surat : Had deposited Rs. 60,000 on September 2, 1988. She stated that she is assessed to tax and does sewing and embroidery work. She has bank account and she has stated that the deposit was out of her savings. Her capital account does not show sufficient cash in hand no immediate source of Rs. 60,000 was provided. She had received bank Rs. 15,000 from one party and was deposited to the extent of Rs. 15,000 is treated as explained. The receipt of Rs. 45,000 is treated as unexplained and the capacity to advance money was not proved.

(9) Shri N. K. Prajapati, Surat, had deposited Rs. 70,000 on September 30, 1988, with the assessee. Notice under section 131 was issued to the depositor which came back from the postal authority with the remark 'not known'. Therefore, this is treated as unexplained credit.

(10) Smt. Lilavati Jayantilal Modi, Surat, had deposited a sum of Rs. 60,000 to the assessee on September 6, 1988. She stated that she has income from embroidery. She is assessed to tax. The deposit was out of her savings. No immediate source was explained as to where from sum of Rs. 60,000 came suddenly. If it was accumulated over a period of time, then nothing was submitted as to where the amount was lying earlier. Therefore, this is treated as unexplained.

(11) Prajapati Chhaganlal, Devsheri, Surat, has deposited sum of Rs. 50,000 on September 2, 1988, with the assessee. He is assessed to tax and having income from diamond brokerage. A draft was purchased in cash and deposited with the assessee but immediate source of such big money was not explained wherefrom it has come. Therefore, this is treated as unexplained.

(12) Smt. Anjna Anil Kumar Dholakia had deposited sum of money Rs. 60,000 with the assessee on September 2,1988. She is assessed to tax. She stated that her income from beauty parlour. It was explained that the deposit was made out of cash in hand. This cannot be believed that she keeps cash of Rs. 60,000 in hand for depositing with the assessee on September 5, 1988, though she had bank account since 1986. Therefore, the capacity to advance money is not proved and the credit is treated as unexplained.

(13) In the following cases summons were issued under section 131 but the creditors did not turn up to ratify the confirmation filed by them. Therefore, their confirmations are not treated as genuine and, therefore, the amount deposited by them is treated as unexplained.

Name of depositor

Date of deposit

Amount deposited

1. Sh. Bhikhabhai V.Prajapati, Surat

2-9-1988

80,000

2. Sh. Purav M. Kapadia,Surat

1-7-1988

35,000

3. M/s. Bhavna Textiles,Surat

1-7-1988

25,000

4. Sh. Ashok B. Dalai,Bombay

4-7-1988

75,000

5. Sh. Deepak M. Gandhi

2-7-1988 to 31-3-1989

1,50,000

6. Sh. A. A. Bragenza

2-9-1988

80,000

7. Sh. KarsanbhaiMahadevbhai

26-8-1988 to 29-8-1988

80,000

8. Sh. Nagjibhai M.Patel

29-8-1988

35,000

9. Smt. Madhuben K. Shah

29-8-1988

15,000

Total

5,75,000

The above credits are added in the total income of the assessee'.

5. The assessee appealed and pleaded before the Commissioner of Income-tax (Appeals) that all the loans which have been treated by the Assessing Officer as undisclosed income of the assessee were received by the assessee from the creditors by account payee cheques and the assessee has filed the confirmations of loans duly confirmed by the creditors. It was pleaded that the amounts received by the assessee were by account payee cheques issued from the bank accounts of the creditors with which the assessee has no connection and it is not for the assessee to explain as to how the cash was deposited in the bank accounts of the creditors who have given loans to the assessee by account payee cheques. It was submitted that the assessee has paid the interest to these creditors also by account payee cheques and the repayments have also been made to some of the depositors even in the accounting year under consideration and to other depositors in the subsequent years. It was submitted that the repayments were also made by account payee cheques. It was pleaded that merely because the summons issued by the Assessing Officer to the creditors were received back unserved, the credits introduced in the booksof account of the assessee cannot be considered as bogus and treated as the income of the assessee-firm. The Commissioner of Income-tax (Appeals), however, did not find any merit in the submissions of the assessee and he upheld the action of the Assessing Officer for the reasons given in the impugned order on the ground that the assessee is required to prove the identity and capacity of the creditors/depositors as well as the genuineness of the loan transactions. According to the Commissioner of Income-tax (Appeals) in this case although the assessee has proved the identity of the creditors/depositors, it has failed to prove the capacity of the creditors and genuineness of the credits because according to the learned first appellate authority the creditors were having very meagre source of income and as such they were not having capacity to advance the disputed amounts claimed to have been received by the assessee from the creditors. The Commissioner of Income-tax (Appeals) also took note of the fact that in some of the cases although the creditors were having bank accounts for the last several years, a cash equivalent to the cheque issued in favour of the assessee was deposited in the bank account of the creditor only a few days before the issuance of cheque by the creditor favouring the assessee. For the aforesaid reasons, the Commissioner of Income-tax (Appeals) confirmed the addition made by the Assessing Officer. The assessee is aggrieved and has filed this appeal before the Tribunal. The learned authorised representative of the assessee pleaded that all the 21 credits which were treated by the Departmental authorities as bogus were received by the assessee from the creditors by account payee cheques. Out of 21 creditors, in cases of creditors at serial Nos. 6, 14, 15, 18, 19, 20 and 21 (seven creditors) the amounts received as loan on interest were returned back by the assessee in the accounting year ending March 31, 1989, relevant to the assessment year 1989-90 itself along with the interest and as such these were only squared up accounts not appearing in the balance-sheet of the assessee but these were indicated in the tax audit report. It was submitted that even in respect of these creditors, the assessee has furnished the necessary confirmations along with the complete addresses with GIR numbers/permanent account numbers. The repayments in cases of serial Nos. 4, 5, 7, 8, 9, 10, 11 and 12 were made in the accounting year ending March, 1990. In respect of serial No. 13 the repayment was made in the accounting year ending on March 31, 1991, and this fact was duly communicated to the Assessing Officer who framed the assessment on March 16, 1992. Only in cases of serial Nos. 1, 2, 3, 16 and 17 the repayments were made in the year ending March 31, 1993. It was submitted that in the cases of all the creditors the interest payment was made by account payee cheques and although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest paid by the assessee in respect of these credits in its books of account which have been duly allowed by the Assessing Officer as a normalbusiness expenditure. It was further submitted that in respect of credits at serial Nos. 5, 7, 8, 14, 15, 16 and 17, tax deducted at source was deducted out of the interest paid/credited to the accounts of the creditors and this fact was given in the accounts confirmation filed before the Assessing Officer, copies of which have been furnished to us at pages 67, 88, 94, 151, 153 and 170 of the paper book. In respect of credit at serial No. 9 in the case of N. K. Prajapati copy of Form No. 15H by the creditor for not deducting the tax at source as the total income of the creditor was likely to be less than the minimum liable to tax, was also filed a copy of which is given to us at page 112 of the paper book. Accordingly, it was submitted that there was absolutely no justification for treating particularly when the interest in relation to these credits has been allowed by the Assessing Officer as a business expenditure. It was submitted that the main basis for making the addition by the Assessing Officer and confirmation of the same by the Commissioner of Income-tax (Appeals) is that the depositors who have advanced the loans to the assessee, could not explain the source of cash deposits in their respective bank accounts. It was submitted that the assessee can be asked to prove only the source of the credits in its books of account but it cannot be required to explain the source of the source of cash credits. It was submitted that if the Departmental authorities were not satisfied with the explanation given by the creditors with regard to the cash deposits in their bank accounts, the proper course could have been to tax the unexplained investments of those creditors under section 69 in the cases of those depositors who are regular income-tax payers. It was submitted that merely because the creditor's explanation with regard to the cash deposits in their bank accounts is considered by the Assessing Officer as not satisfactory, no addition could be made in the hands of the assessee by treating the credits as non-genuine. Reliance was placed on the decision of the Supreme Court in the case of CIT v. Orissa Corporation P. Ltd. ; CIT v. Daulat Ram Rawatmull ; Sarogi Credit Corporation v. CIT ; ITO v. Suresh Kalmadi [1988] 32 TTJ 300 ; CIT v. U. M. Shah, Proprietor, Shrenik Trading Co. . Accordingly, it was submitted that the addition of Rs. 12,85,000 made by the Departmental authorities is required to be deleted.

6. The learned departmental representative strongly relied on the order of the Assessing Officer as well as that of the Commissioner of Income-tax (Appeals). It was pleaded that since the disputed credits were appearing in the books of account of the assessee, introduced in its books of account and that the onus was on the assessee to prove (i) the identity of the creditors, (ii) the capacity of the creditors, and (iii) the genuineness of the transactions. The learned departmental representative filed written submissions and pleaded that the total credits in the books of the assessee in the names of 21 creditors were to the extent of Rs. 12,85,000. These can be classified in three broad categories : (i) Incases of nine persons aggregating to Rs. 5,75,000 although the summons were issued and served by the Assessing Officer, none turned up for giving evidence before the Assessing Officer and hence these were added as the income of the assessee. (ii) In one case of N. K. Prajapati where the credit was of Rs. 70,000 the summons issued by the Assessing Officer were returned by the postal authorities with the remark 'not known', (iii) In the remaining 11 cases although the identity of the creditors was established, the capacity of the creditors and the genuineness of the transactions relating to the total cash credits of Rs. 6,40,000 was not established because it was seen that the cash was deposited in their respective bank accounts prior to the issue of cheques by those creditors favouring the assessee. It was submitted that it was a circumstantial evidence to indicate that the cash belonging to the assessee was introduced as deposit in the bank account of the creditor for taking an equivalent amount by cheque by way of an accommodation entry. It was submitted that the so called income-tax returns in some of the cases of the creditors were filed under the amnesty scheme and were intended only to create evidence that the creditors were income-tax assessees. Accordingly, it was submitted that the departmental authorities were perfectly justified in treating the amount of Rs. 12,85,000 as the income of the assessee. Reliance was placed on the decisions of the Calcutta High Court in the cases of Shankar Industries v. CIT and Prakash Textile Agency v. C1T and the decision of the Punjab and Haryana High Court in the case of Hari Chand Virender Paul v. CIT .

7. We have considered the rival submissions and have also gone through the order passed by the Assessing Officer, the relevant portion of which we have also extracted in para. 2 above. The Commissioner of Income-tax (Appeals) more or less confirmed the addition on the reasoning given by the Assessing Officer in the assessment order. A perusal of the chart given by us in para. 3 above indicates that out of 21 creditors the Assessing Officer has recorded the statements of only six creditors, viz., creditors at serial Nos. 1, 2, 3, 4, 6, and 7. However, in respect of all the 21 creditors the assessee has furnished their complete addresses along with GIR numbers/permanent account numbers as well as confirmations along with the copies of assessment orders passed in the cases of creditors at serial Nos. 1, 2, 4, 5, 6, 7, 9, 10, 11, 12 and 16. In the remaining cases where the assessment orders passed were not readily available, the assessee has furnished the copies of returns filed by the creditors with the Department along with their statement of income. All the loans were received by the assessee by account payee cheques and the repayments of loans have also been made by account payee cheques along with the interest in relation to those loans. It is rather strange that although the Assessing Officer has treated the cash credits as non-genuine, he has not made any addition on account of interest claimed/paid by the assessee in relation to thosecash credits, which has been claimed as business expenditure and has been allowed by the Assessing Officer. It is also pertinent to note that in respect of some of the creditors the interest was credited to their accounts/paid to them after deduction of tax at source and information to this effect was given in the loan confirmation statements by those creditors filed by the assessee before the Assessing Officer. Thus it is clear that the assessee had discharged the initial onus which lays on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/permanent accounts numbers and the copies of assessment orders wherever readily available. It has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source as held by the Bombay High Court in the case of Orient Trading Co. Ltd. v. CIT . The genuineness of the transaction is proved by the fact that the payment to the assessee as well as repayment of the loan by the assessee to the depositors is made by account payee cheques and the interest is also paid by the assessee to the creditors by account payee cheques. Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee -from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation . In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue's case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw an adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.

8. Further, we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under :

'68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about thenature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.'

9. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words 'shall be charged to income-tax as the income of the assessee of that previous year'. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word 'may' and not 'shall'. Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan .

10. Thus taking into consideration the totality of the facts and circumstances of the case, and, in particular, the fact, that the Assessing Officer has not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax deducted at source has been deducted out of the interest paid/credited to the creditors, we are of the opinion that the Departmental authorities were not justified in making the addition of Rs. 12,85,000 which is directed to be deleted.

11. In the result, the appeal is allowed.

1. Considering the facts and circumstances of the case narrated by the Tribunal in para. 7 of the judgment (page 368 supra) and the law explained in paras. 8 and 8.1 (page 369 supra). We find no substance in the appeal. The appeal is, therefore, dismissed as no substantial question of law arises.