Trilochan Singh Vs. Income Tax Officer - Court Judgment

Excerpt:
1. this appeal by the assessee for asst. yr. 2002-03 is directed against the order of cit(a), dehradun dt. 21st sept., 2007.2. in the first ground of appeal, the assessee has challenged addition of rs. 57,000 on account of three cash credits. these cash credits were confirmed by the ao with the following observations: he is intermediate by qualification and admitted income of rs. 2,000 per month from tuition to children of small classes, maintains no bank account, not assessed to income-tax. there are four members in his family including his brother who drives auto. the following facts are concluded from the above points: (a) the loanee has no sufficient income and even the earning is not sufficient to meet his day-to-day expenses and not assessed to income-tax as such the amount of loan.....

Judgment:
1. This appeal by the assessee for asst. yr. 2002-03 is directed against the order of CIT(A), Dehradun dt. 21st Sept., 2007.

2. In the first ground of appeal, the assessee has challenged addition of Rs. 57,000 on account of three cash credits. These cash credits were confirmed by the AO with the following observations: He is intermediate by qualification and admitted income of Rs. 2,000 per month from tuition to children of small classes, maintains no bank account, not assessed to income-tax. There are four members in his family including his brother who drives auto. The following facts are concluded from the above points: (a) the loanee has no sufficient income and even the earning is not sufficient to meet his day-to-day expenses and not assessed to income-tax as such the amount of loan is out of untaxed income, cannot be treated as explained.

Admitted that he has not his own agricultural land but he drives tractor of his neighbours in cultivating process of the agricultural land of other persons, no evidence could be produced of the agricultural activities done by him. He has no bank account, money was stated to be advanced as cash. From these facts it is concluded that: (a) He has no capacity to advance the money to the assessee, basically he has no source of income.

(b) The loanee is not assessed to income-tax. Hence, the stated amount was advanced out of untaxed income. The loanee has no capacity to advance the amount.

He has admitted that he does the business of sale of chappal etc. on 'phard' and admitted income of Rs. 20,000 (approximately) per annum and has no bank account. He is not assessed to income-tax. There are two members in his family including his wife. From the above facts it is concluded that: (a) The concerned person has no capacity to save money from his petty business for giving loan. The income earned by him is not sufficient to meet his day-to-day expenses.

(b) The depositor has no bank account and is not assessed to income-tax.

(c) The stated amount has been advanced out of untaxed income and cannot be treated as explained in the absence of any evidence.

Keeping in view above points a show cause notice dt. 16th Aug., 2004 was issued to the assessee, that all three persons as stated above have no capacity to advance the amount to him in the absence of any evidence produced by them regarding their capability and so why the amount may not be added in his income as unexplained investment under Section 69 of IT Act.

The assessee in his reply dt. 20th Aug., 2004 has stated that loans taken are genuine, no evidence regarding creditworthiness and genuineness of loans raised has been produced by the assessee in any of the three cases.

In view of the above discussion it is clear that loans advanced by all the three persons as above are not genuine, as much as all the persons did not have the capacity to advance the loan. Mere filing of confirmation letter does not discharge the onus that lies on assessee, in view of CAT v. Precision Finance (P) Ltd. (1994) 121 CTR (Cal) 20 : (1994) 208 1TR 465 (Cal). CAT v. W.J. Walker & Co.

and CAT v. United Commercial & Industrial Co. (P) Ltd. , Shankar Industries v. CAT .

Jalan Timbers v. CAT have not been proved. Since these loans have not been proved genuine, the investment made by the assessee to the same extent is taken as unexplained. Therefore, the total amount of Rs. 57,000 as discussed in paras 4(i) to 4(iii) is added as unexplained investment under Section 69 of the IT Act to the total income of assessee. Penalty proceedings under Section 271(l)(c) are initiated for furnishing inaccurate particulars of income.

3. The assessee impugned above addition in appeal before the CIT(A) and argued before him that Shri Vinod Kumar Maindola was a bachelor and residing in joint family with parents and brothers. His mother was getting pension and he was earning from tuition and auto driving. His brother was also driving the auto to emphasise that all the members of the family were earning.

4. In respect of Shri Anil Dabral, it was explained that he was cultivating ancestral/agricultural land by tractor and the family was growing vegetable and rice on the said land. He was also supplying 'Bajri' by using his tractor trolley.

5. In respect of Shri Jitendra Kurnar Bhatia, it was pointed out that his wife was also dealing in soft toys. Both the family members were earning members.

6. The assessee in support of his contention further relied upon the decision of Tribunal in the case of Prakash Chand Jain v. ITO andITO v. Meghjibhai Virjibhai Patel (1981) 11 TTJ (And) 367. Copies of above decisions were enclosed.

Reliance was also placed on the decision of Supreme Court in the case of Swadeshi Cotton Mills v. Union of India 7. Learned CIT(A) did not find force in the appeal and confirmed the addition.

8. The assessee is aggrieved and has brought the issue in appeal before the Tribunal. We have heard both the parties. Learned Counsel for the assessee Shri Ashwani Taneja read out orders of lower authorities and pointed out that on the other hand, cash creditors had confirmed credits and genuineness of entry was proved. Sufficient evidence was placed on record to show that cash creditors had sufficient income to advance meagre loan of Rs. 19,000. Shri Ashwani Taneja also brought to my notice following observation from the decision of CIT v. Metachem Industries : Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income-tax payer or not and where he had brought his money from, is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit entry cannot be treated to be the income of the firm for the purposes of income-tax.

9. He also brought to my notice following observation of Hon'ble Assam High Court in the case of Tolaram Daga v. CIT : But the position is different in regard to a sum which is shown in the assessee's books in the name of a third party. In such a case, the onus of proof is not upon the assessee to show the source or nature of amount of the cash credit; on the other hand, the onus shifts to the Department to show by some material that the amount standing in the name of the third party does not belong to that third party but belongs to the assessee. That is the principle laid down by the Division Bench of this Court in S.N. Ganguly's case.

There is a decision to a similar effect in an earlier case, Ramklnkar Banerji v. CIT. All that could be said to follow from this decision is that once the assessee explains the credit entry and brings in evidence to show that the entry related to a third party and that credit was that of that third party, the burden would shift to the ITO in such a case to establish that the entry was not real but was pseudonymous.

10. He accordingly submitted that cash credits were proved in accordance with law. It was further pointed out that AO at no stage provided copies of statement of the cash creditors to the assessee nor provided them any opportunity to cross-examine them or file any evidence in rebuttal. Therefore, either the cash credit should be accepted as genuine or alternatively the matter should be remitted back to the file of the AO for supply of copies of statement of creditors as also opportunity to cross-examine them.

11. Learned Departmental Representative, on the other hand, supported the impugned order of Revenue authorities.

12. I have given careful thought to the rival submissions of the parties. The genuineness of entries of cash credit has been doubted on the ground that creditor did not have capacity to advance loan. This inference has mainly been derived on account of the fact that creditors had no bank account and were not assessed to tax. If creditors are assessed to tax and have bank account, it is a little easy to prove cash credit. Otherwise, more evidence is needed to prove cash credits.

In this case, cash creditors were produced before the AO for his examination. These creditors confirmed the genuineness of loans.

Creditors also gave details of their earning. Now, what exactly were the questions and what were their answers, on the basis of which inference has been drawn that creditors did not have capacity to advance loan is not made clear in the assessment order. This is evident from the portion of assessment order extracted above. A man may not have bank account yet have reasonable earning and savings to advance petty amount of Rs. 19,000. Such credit can also be an accommodation entry. Whether it is genuine or not would depend upon the facts and circumstances of the case. Minimum limit of taxable income has also been raised to Rs. 50,000 and more. Therefore it is not possible to accept that those not filing IT return cannot give even small loan to their friends or relations. In the present case, the AO has not shown as to on what basis and on what answers of creditors, the conclusion was being drawn that creditor did not have capacity to advance loan.

Further, information given and case pleaded before the CIT(A) has not been dealt with or refuted in accordance with law. The Revenue authorities are not justified in not furnishing copies of statement of the creditors on which they had relied to draw adverse inference against the assessee. Thus, principle of natural justice was clearly violated in this case. The explanation of the assessee has not been considered in accordance with law. The amounts involved are quite small and, therefore, on peculiar facts and circumstances of the case, it is to be held that assessee discharged its onus to prove the cash credits by putting creditors before the AO for examination. The cash credits on facts should have been accepted. I accept them and delete the addition of Rs. 57,000 in this case. This ground of appeal is allowed.

13. In the other ground, the assessee has challenged addition of Rs. 50,000. This has been done on account of brought forward balance from earlier years amounting to Rs. 3,68,530 but entire amount has not been added and sum of Rs. 50,000 has been added out of above balance and for making some investment. Although assessee did not maintain any books of account, but he filed return for earlier years for which some sort of balance sheet and closing balance were given. The return filed for immediately preceding assessment year showed closing balance as on 31st March, 2001 at Rs. 3,68,530, the balance which was brought forward as opening balance in the year under consideration. The addition was made on the basis of some agreement which being unclear has not been accepted by the learned CIT(A). He sustained the addition for some investment of Rs. 3 lakhs in M/s Sant Properties. At any rate, there is no clear admission or acceptance of addition by the assessee. There is no clear basis for making ad hoc addition of Rs. 50,000 when opening balance was Rs. 3,68,530 and investment in M/s Sant Properties was Rs. 3 lakhs. How remaining balance and investment have been treated as explained is not discussed in any order. This ad hoc addition without any legal basis is not sustainable. It is directed to be deleted. This ground of appeal is also allowed.