Income Tax Appellate Tribunal - Agra
Satya Narain Jain, Agra vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL,
AGRA BENCH, AGRA
BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND
SHRI H.S. SIDHU, JUDICIAL MEMBER
ITA No. 215, 313 & 216 /Agra/2009
Asstt. Year : 2005-06, 2005-06 & 2006-07 respectively
Dy. Commissioner of Income-tax, vs. Shri Satya Narain Jain,
Central Circle, Agra. 17-18, Gopal Kunj, New Agra.
(PAN - ABPPJ 6188 E)
C.O. No. 29 & 27/Agr./2009
(in ITA No. 215 & 216 /Agra/2009)
Asstt. Year : 2005-06 & 2006-07
Shri Satya Narain Jain, vs. Dy. Commissioner of Income-tax,
17-18, Gopal Kunj, New Agra. Central Circle, Agra.
(Appellant) (Respondent)
For Revenue : Shri Homi Rajvansh, CIT, DR.
For Assessee : Shri K.C. Agarwal, Advocate.
ORDER
Per Bench:
ITA No.215/Agra/2009 by Revenue and cross-objection No. 29/Agra/2009
by assessee relating to assessment year 2005-06 have been filed against the order of CIT(A) dated 23.01.2009 while the Revenue's appeal No. 313/Agra/2009 for the same assessment year has been filed against the order of CIT(A) dated 08.04.2009. Similarly, ITA No. 216/Agra/2009 by Revenue and cross objection No. 27/Agra/2009 by assessee relating to assessment year 2006-07 have been filed 2 against another order of CIT(A) dated 23.01.2009. For the sake of convenience, all these appeals and cross objections are decided by this common order.ITA No. 215/Agra/2009 (A.Y. 2005-06):
2. The Revenue has taken following effective grounds of appeal :
"1. That the Ld. Commissioner of Income-tax (Appeals)-II, Agra has erred in law and on the facts in deleting the addition of Rs.85,41,000/- made on account of unexplained loans shown from 60 persons and disallowance of interest amounting to Rs.12,33,467/- on such loans, without appreciating the facts brought on record by the A.O. 1(i). That in doing so the ld. CIT(A)-II, Agra has not appreciated the fact the burden of proof lay on the assessee to prove the identity of the lenders, their creditworthiness and genuineness of the loans received from them, which the assessee failed to discharge in spite of being especially required by the A.O. to do so.
2. That the ld. CIT(A)-II, Agra has erred in law and on the facts in deleting the addition of Rs.54,18,000/- being undisclosed investment made in property at Tohra Village jointly with Shri Rama Shanker Agarwal and Shri Anil Agarwal without appreciating the facts brought on record by the AO, particularly the documents marked at LP-7, page no. 48 & 52 seized from the residence of Sri Anil Agarwal, Mainpuri who is closely associated with the assessee in the various property transactions.
3. That the ld. CIT(A)-II, Agra has erred in law and on the facts in deleting the addition of Rs.60,00,000/- being undisclosed investment made in property at Parinay Kunj, Agra jointly with Shri Rama Shanker Agarwal and Shri Anil Agarwal without appreciating the facts brought on record by the AO.
4. That the ld. CIT(A)-II, Agra has erred in law and on the facts in deleting the addition of Rs.29,47,867/- being undisclosed 3 investment made in property at Khata No. 102 and Khasra No. 168 Rakba 2,0053 hectare at Mayapur, Fatehabad Road, Agra jointly with Shri Rama Shanker Agarwal and Shri Anil Agarwal without appreciating the facts brought on record by the AO particularly the documents marked as Ann. O-2 page no. 48 & 554-38 seized from the residence.
5. That the ld. CIT(A)-II, Agra has erred in law and on the facts in deleting the addition of Rs.32,50,000/- being undisclosed investment made in property of Vinod Khad Land I without appreciating the facts brought on record by the AO, particularly the documents marked as Ann LP-6, page No. 112 & x-53 page 10 of LP- 10 seized from the resident.
6. That the ld. CIT(A)-II, Agra has erred in law and on the facts in deleting the addition of Rs.1,68,55,525/- being undisclosed investment made in property purchased from Seth Hari Ram without appreciating the facts brought on record by the AO particularly the documents marked as Ann-LP-13, page no. 22, LP-6 at page 14, LP-8 page-7 & LP-13 page 8 seized from the residence."
3. Ground No. 1 relates to the deletion of addition of Rs.85,41,000/- made u/s. 68 in respect of loans received from 60 persons and disallowance of interest on said loans. The brief facts relating to this ground are that the Assessing Officer noted that the assessee has received loan amounting to Rs.82,25,000/- from 40 persons, the list of which is given in para 3 of the assessment order. It was also noted that the assessee has taken loan below Rs.20,000/- from several persons in cash which were repaid by 31.03.2005. The total of said loan was Rs.3,16,000/-, the details of which are given under para 3 of the assessment order. The Assessing Officer required the assessee to furnish complete address of the persons from 4 whom the uns4cured loans have been taken along with copy of account, date and mode of receipt of loan, confirmation and asked to justify the loan in terms of identity of the creditors, their creditworthiness and genuineness of the transactions. The assessee furnished copy of account of the depositors along with their Permanent Account numbers and addresses. The Assessing Officer, therefore, took the view that the assessee has not furnished any evidence to explain, prove and justify the identity of the creditors, name and address of the trustees of the lender trust, terms of loan and its repayment and copy of bank account, constant availability of money so as to prove capacity of making loan and source of income and funds in the hands of the creditors, copies of computation of income, balance sheet and acknowledgement for filing of returns for the relevant assessment year. The Assessing Officer also disallowed the interest claimed by the assessee on these loans.
4. The assessee went in appeal before the CIT(A) and before the CIT(A), the assessee contended that the assessee had submitted that each and every party is the Income-tax assessee, their complete addresses, permanent account numbers, confirmatory copy of accounts, their copies of bank passbooks were filed before the Assessing Officer. All the amounts were received through account payee cheques. The observation of the Assessing Officer that identity of the creditors, 5 their creditworthiness and genuineness of the transaction, have not been proved, is without any basis and is unjustified. Again all these evidences were filed before the CIT(A). It was contended that the Assessing Officer, if had any doubt about the genuineness of any loan, should have very well summoned the concerned party u/s. 131, for which the assessee had specifically requested. The CIT(A) called for the remand report . In response thereto, the rejoinder was filed by the assessee. After considering the submissions of the assessee, remand report and the rejoinder, the CIT(A) deleted the addition by observing as under :-
"3(vii). From the perusal of the records I find that the appellant has furnished complete details of lenders, their complete names and addresses, acknowledgement for filing of return, their permanent account numbers, which show that are assessed to Income- tax and to substantiate the identity, creditworthiness, genuineness the appellant ahs placed on record the copies of bank accounts of the lenders, their confirmations of having given loan to the appellant as well as also proved the source of the source. The decision of CIT vs. Durga Prasad More-82 ITR 540 cited by the A.O. does not apply to this case as it has been rendered on different facts. From the records, I find that the appellant has filed affidavits of the lenders and has also produced 22 persons before the Assessing Officer for examination and their statements were recorded wherein they have confirmed to have given loans to the appellant and the source of the fund has also been illustrated therein. They have also confirmed that they are assessed to Income-tax. In the case of non assessee, they have specified their sources of income and also substantiated the land holding and agricultural income. As regards Assessing Officer's observation that all the affidavits are notarized on one single date, I am of the opinion that since the proceedings were continuously going on and the appellant was required to prove the genuineness of the loan credits, as such, to substantiate his submission, he may have called all the loan creditors to give proof of deposit and who may have deposed their affirmation in the affidavits. However, since the Assessing 6 Officer has summoned and examined the loan creditor and all the lenders have confirmed to have given loan to the appellant including their source of income then what more evidence in this regard should be placed on record by an appellant for proving the genuineness of the loans has not been pointed out by the Assessing Officer. In this case, the appellant has submitted all the papers and documents, regarding the genuineness of the loans, creditworthiness and identity of each lender which has not been contested by the AO in any manner.
3(viii). Keeping in view the material and evidences placed on record, I hold that the assessing officer is not justified in making addition of Rs.82,25,000/- + Rs.3,16,000/- in respect of loan creditors and squared up loans. Therefore, I hereby delete the entire addition of Rs.82,25,000/- + 3,16,000 = Rs.85,41,000/-."
5. Similarly, the disallowance of interest on these loans have also been deleted by observing under para 3(ix) of the appellate order as under :
"3(ix). Further since the addition of loan crdits has been deleted as above, as such, the payment of interest thereon amounting to Rs.12,33,467/- is also allowable. From the perusal of the details of interest given in the assessment order, I find the Assessing Officer has committed totaling mistake of Rs.3,06,124/-. This should have been Rs.9,27,343/-, which is also visible in the copy of interest account placed on record by the appellant. Therefore, the addition of Rs.12,33,467/- in respect of the payment of interest on the aforesaid loan is hereby deleted."
6. The learned DR before us vehemently contended that the assessee could not prove the creditworthiness of the parties from whom the money has been received by him. According to him, some of the creditors have deposited cash in their accounts prior to issue of cheques to the assessee. The onus is on the assessee to prove the cash credit to the satisfaction of the Assessing Officer. He relied on the 7 order of the Assessing Officer and also relied on the submissions made in the case of M/s. Padamshree Developers Pvt. Ltd.
7. The learned AR, on the other hand, reiterated the submissions made before the CIT(A) and vehemently contended that the assessee has submitted evidence in respect of each of the creditors giving his name, complete address, Permanent Account Number, confirmations, proof of filing of Income-tax Return in the shape of acknowledgement, copy of bank account and other evidences to prove the identity and creditworthiness of creditors and genuineness of the transactions. The assessee has deducted TDS on the interest paid to these depositors in accordance with the provisions of section 194A of the Act. The assessee has, thus, duly discharged his onus. The assessee had requested the Assessing Officer that in case he is not satisfied, he may summon the parties u/s. 131 for verification. Reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Limited, 159 ITR 78 (SC). It was also pointed out that the assessee is not supposed to prove the source of sources. In this regard reliance was placed on the decision of DCIT vs. Rohini Builders, 256 ITR 360 (Guj). Our attention was drawn towards the papers filed before the Assessing Officer along with chart appearing at pages 32 & 33 of the paper book as well as the statement of various depositors recorded by the department appearing from page 144 to 173 of 8 the paper book pointing out that the depositors in the statements recorded by the department have duly confirmed the deposit being given to the assessee. The statements were recorded in the case of all the squared up cash credits. Attention was also drawn at page 174, 175 to 211 which contained the photocopies of the affidavits of the lenders filed before the Assessing Officer. Reliance was also placed on the decision of Hon'ble Allahabad High Court in the case of CIT vs. Johri Mal Goyal, 147 Taxman 448 (All.) and it was vehemently contended that the case of the assessee is duly covered by the decision of jurisdictional High Court. In this case, the jurisdictional High Court has held that when the amount is found deposited in the books of account of the assessee only then section 68 applies and not when the amount is found deposited in the books of third party. The assessee cannot be asked to prove the source of sources or the origin of the deposits. Referring to the decisions relied by the learned DR, it was pointed out that the decision in the case of Samati Dayal, 214 ITR 801 is not applicable to the fats of the case as it does not relate to the addition made u/s. 68, but it relates to the income shown by the assessee. Relating to the decision of Delhi High Court in the case of CIT vs. Divine Leasing and Finance Ltd. 299 ITR 268, it was pointed out that this decision relates to the applicability of section 68 in case of share capital received by the company. In this case, the Hon'ble High Court has laid down that no adverse inference is to be drawn if the share holder failed to respond the notice 9 issued by the Assessing Officer. It is the duty of the Assessing Officer to investigate the creditworthiness of the share holder. Thus, it was contended that this decision, in fact, supports the case of the assessee. Referring to the decision in the case of CIT vs. P. Mohankala 291 ITR 278, it was pointed out that the Hon'ble Supreme Court in that case clearly laid down that on the explanation of the assessee the assessing officer should form the opinion objectively on proper appreciation of the material. Even if the explanation of the assessee is not satisfactory, the material cannot lead to conclusion that the receipt is of the income nature. The burden is on the assessee to prove the cash credit. The assessee has duly discharged his burden by adducing all the evidences. Out attention was also drawn towards the fact that the assessee specifically asked the Assessing Officer that in case the Assessing Officer has any doubt, he may summon the depositors u/s. 131 of the Income-tax Act. If the Assessing Officer failed to summon the creditors, addition cannot be made in the hands of the assessee. The CIT(A) has duly asked for the remand report from the Assessing Officer and in the remand report, the Assessing Officer has not disputed that the assessee has not filed all the evidences as were filed before the CIT(A) and no fresh material was filed. Reliance was also placed on the following decisions :
i) Kalyan Memorial & Charitable Trust vs. ACIT 124 TTJ 883
ii) CIT vs. Daya Chand Jain Vaidya (1975) 98 ITR 280 (All.)
iii) DCIT vs. Rohini Bulders 256 ITR 360 (Guj.)
iv) Nemi Chand Kothari vs. CIT, 264 ITR 254 10
v) CIT vs. Daulat Ram Rawatmull, 87 ITR 349 (SC)
vi) CIT vs. Real Time Marketing P. Ltd., 306 ITR 35 (Del.)
vii) CIT vs. Laul Transport Corporation, 180 Taxman 185 (P&H)
viii) CIT vs. Johri Mal Goyal, 147 Taxman 448 (All.)
ix) CIT vs. Ashok Kumar Kakkar HUF 171 Taxman 354 (Del.)
x) Nathu Ram Prem Chand vs. CIT, 49 ITR 561 (Del.).
8. An identical ground challenging the deletion of addition of Rs.1,12,00,188/- made on account of unexplained loans received from 19 persons and disallowance of interest on such loans has also been taken by Revenue in appeal No. 216/Agra/2009 for assessment year 2006-07. Both the parties agree that the facts and circumstances under which the additions and disallowance of loans and interest were made are same and, therefore, their arguments made in ground No. 1 in appeal for A.Y. 2005-06 should also be considered for deciding ground No. 1 in A.Y. 2006-07 and whatever view this tribunal may take in the case of assessee for assessment year 2005-06, the same view may be taken for the assessment year 2006-07.
09. We have carefully considered the rival submissions and perused the material on record alongwith the orders of the tax authorities below. We have also gone through various case laws cited before us from both the sides. This is the fact on record that the assessee has submitted the names, addresses, permanent account numbers, confirmations, proof for filing of return along with copy of bank 11 accounts of various parties from whom the loan has been received by the assessee during the year. The assessee has also paid interest, on which the TDS has been deducted in accordance with the provisions of section 194A of the Income Tax Act. When the Assessing Officer asked the assessee to prove the cash credit, the assessee has submitted all these evidences. Even the assessee has specifically requested the Assessing Officer to issue summons u/s. 131 in case the Assessing Officer is not satisfied with the explanation of the assessee. Even though, the depositors were examined by the department, i.e., ADI (Inv.) immediately after the search and the depositors have confirmed and owned the deposits made with the assessee. The Assessing Officer was not satisfied with the explanation of the assessee, who made the addition merely on the basis that the assessee could not prove the source of the depositors. Now, the question arises whether under the facts and circumstances of this case, the addition can be sustained in the case of the assessee merely on the basis that the assessee could not prove the source of sources. In order to appreciate the controversy, it would be appropriate to reproduce the provisions of section 68 of the Act herein below:
"68. Cash Credits Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature 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."12
10. Before charging the credit as the income of the assessee, the AO has to form an opinion. This opinion is subjective, but it has to be judicious and based on material on record. An opinion is an inference of facts from observed facts. It is not an impression. It is a conviction based on appraisal of evidence on record. In V.L.S. Finance Ltd. v CIT (2000) 246 ITR 707, the Hon'ble Delhi High Court observed as under:
" 'Opinion' means something more than more retailing of gossip or hearsay; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question. It means:
judgment or belief based on grounds short of proof. If a man is to form an opinion and his opinion is to govern, he must form it himself on such reasons and grounds as seem good to him."
Thus, before the AO forms an opinion, he must consider the material before him. He has before him the material submitted by the assessee while giving an explanation, then he must collect his own material as an enquiry officer, weigh the two materials and as a quasi-judicial authority form an opinion as to whether explanation furnished by the assessee is satisfactory or not. If the AO does not apply his mind in examining the documents furnished by the assessee and does not find any substantive error in them nor he collects any material by exercising powers under Income-tax Act, then the claim of the assessee can not be straightway rejected. If he does, it would be a violation of principles of natural justice and provisions of section 68.
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11. The expression "the assessee offers no explanation" means where the assessee offers no proper, reasonable and acceptable explanation as regards the sum found credited in the books of account maintained by the assessee. The opinion of the AO for not accepting the explanation offered by the assessee as not satisfactory must be based on proper appreciation of the material and other surrounding circumstances available on record. The opinion of the AO is to be based on appreciation of the material on record.
12. The word "may" used in section 68 provides discretion to the AO. In general the word "may" is an auxiliary verb clarifying the meaning of another verb of expressing an ability, contingency, possibility or probability. When used in a statute in its ordinary sense the word is permissive and not mandatory. But where certain conditions are provided in the statute and on the fulfillment thereof a duty is cast on the authority concerned to take an action, then on fulfillment of those conditions the word "may" take the character of "shall" and then it becomes mandatory. In section 68, we find that there are no such conditions on the fulfillment of which the AO is duty bound to make the addition. The word "may" denotes the discretion of the AO that he can make an addition or cannot make an addition. The Hon'ble Supreme Court in the case of CIT v Smt. P K Noorjahan 237 ITR 570 (SC) while dealing with the word "may" in section 69 observed, as under: 14
"In the corresponding clause of the Bill which was introduced in Parliament, while inserting section 69 in the Income-tax Act, 1961, the word "shall" had been used but during the course of consideration of the Bill and on the recommendation of the Select Committee, the said word was substituted by the word "may". This clearly indicates that the intention of Parliament in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under section 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the Income-tax Officer under section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case."
13. In the instant case, we noted that the assessee has submitted the names, addresses, confirmations, Permanent Account numbers and proof of filing the return by each of the creditors as well as Xerox copy of the bank account of the lenders. The Assessing Officer noted that in most of the cases, the lender has deposited the cash in their respective accounts before advancing money to the assessee and on that basis, he took the view that the assessee could not prove the cash credits and for that the reliance was placed by the ld. DR mainly on the decision of Hon'ble Supreme Court in the case of Sumati Dayal vs. CIT (supra). We have gone through this decision and we noted that in this case, the Hon'ble 15 Supreme Court has held that in view of section 68 of the Income-tax Act, 1961, where any sum is found credited in the books of the assessee for any previous year it may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee, the Department cannot, however, act unreasonably. In this case, during the assessment year 1971-72, the assessee claimed that she received a total amount of Rs.3,11,831/- by way of race winnings in jackpots and treble events in races at turf clubs in Bangalore, Madras and Hyderabad. The said amount was shown by the assessee in the capital account in her books. For the assessment year 1972-73, she claimed receipts of Rs.93500/- as race winnings in two jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The Assessing Officer included these amounts as income from other sources and assessed them. The AAC confirmed the addition. The matter went to Settlement Commission who by a majority held that the explanation of the assessee was not genuine due to the reasons (i) that the assessee's knowledge of racing was very meager, (ii) that a jackpot is a stake of five events in a single day and one can 16 believe a regular and experienced punter clearing a jackpot occasionally but the claim of the assessee of having won a number of jackpots in three or four seasons not merely at one place but at three different centres, namely Madras, Bangalore and Hyderabad appeared, prim facie, to be wild and contrary to statistical theories and experience of frequencies and probabilities, (iii) The assessee's books did not show any drawings on race days or on the immediately receding days for the purchase of jackpot combination tickets, which entailed sizable amounts varying generally between Rs.2,000/- and Rs.3,000/-, (iv) the assessee's capital account was credited with the gross amount without showing any expenses and purchases of tickets or for losses, (v) in view of the exceptional luck claimed to have been enjoyed by the assessee, her loss of interest in races from 1972 was very significant. The Settlement Commission took the view that one would not lose interest in race from 1972 and income yielding activities merely because the income from that source becomes chargeable to tax. When the matter went before the Supreme Court, it dismissed the appeal of the assessee. From the facts of this case, it is apparent that this case does not relate to the case where the assessee has taken loan from any parties but it is a case where the assessee himself has shown the income from a particular source and income shown by the assessee was not found to be genuine. This case, in our opinion, will not assist the Revenue. 17
14. The learned DR also relied on the decision of the Supreme Court in the case of CIT vs. P. Mohankala (supra). We have gone through this decision. We noted from this decision that this decision speaks of that in the case of section 68, the burden is on the assessee to prove the cash credits. This fact, in our opinion, is not denied. The burden is on the assessee to prove the cash credit by adducing the evidence about the nature and sources of the cash credit. This judgment also states that once the assessee offered the explanation, the opinion of the Assessing Officer of not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the material on record. The application of mind is sine qua non for forming the opinion. The assessee in the case before us has submitted all the evidences what can be expected from the person under these facts. Therefore, on the facts, this decision, in our opinion, will not assist the Revenue.
15. We have also gone through the decision in the case of CIT vs. Divine Leasing and Finance Ltd. and others (supra). This decision, in our opinion, will also not be applicable to the facts of the case before us, rather, we are of the opinion that this decision will help the assessee. This decision clearly states that it 18 is the duty of the Assessing Officer to investigate the creditworthiness of the share holders and in case share holders fail to respond to the notice issued by the Assessing Officer, the Assessing Officer should not take an adverse inference on the basis of the non-response of the notice. The facts of the case before us are similar to the decision of the Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Limited (supra). In this case, the Income-tax Officer did not accept the assessee's accounts showing cash credits which were shown to have been received by way of loans from three individual creditors. The Income-tax Officer treated the entire amount as unproved cash credit and added the same to the income of the assessee. On appeal, the Tribunal took the view that the assessee could not produce those persons alleged to be creditors, but it did not follow automatically that an adverse inference should be drawn that the amount represented undisclosed income of the assessee. The creditors themselves were income-tax assessees. In these circumstances, the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him. In these circumstances, the Hon'ble Court held that the Tribunal's conclusion was not unreasonable or perverse. This decision of Hon'ble Supreme Court is found applicable to the case before us.
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16. In the case of DCIT vs. Rohini Builders 256 ITR 360 (Guj.), the facts are that during the assessment year under consideration, the assessee had taken loans from various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, GIR numbers/permanent account numbers etc. of all the depositors. The Assessing Officer issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee. Ultimately, the Assessing Officer made an addition of Rs.12,85,000/- to the returned income of the assessee, which was confirmed by the CIT(A). On further appeal, the Tribunal held that the phraseology of section 68 of the Act was clear that 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, that 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 years", that the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/Permanent Account Numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity 20 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 was 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. Thus, taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had 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 had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs.12,85,000/-. The Hon'ble High Court dismissed the appeal of the Department. Hon'ble Supreme Court also dismissed the Special Leave Petition. This decision clearly lays down the proposition that the assessee is not required to prove the source of source. The assessee can be asked only to prove the source of the credit. This decision, in our opinion, is clearly applicable to the facts of the case before us. The assessee in the case before us has duly discharged his onus by filing the confirmation, address, permanent account number and the copy of bank account of the creditor, copies of acknowledgement for filing the returns of income etc. 21
17. We have also gone through the decision in the case of CIT vs. Johrimal Goel, 147 Taxman 448 (All.) In this case, the Assessing Officer found two deposits in the books of account of assessee in the name of his daughters. The Assessing Officer asked the assessee to explain these deposits. The assessee explained that the amounts were paid by the two ladies through cheque and that both of them had been assessed to tax under the Amnesty Scheme. The Assessing Officer was of the view that the assessee had introduced his black money by filing voluntary returns of his daughters and, therefore, added the amounts as his income under section 68. The CIT(A) took the view that the two ladies credited the amount in their bank account in March, 1986. Therefore, if the Assessing Officer was of the view that the ladies did not have any independent source of income and the two bank accounts actually belonged to the assessee then proper course for the Assessing Officer was to add entire amounts of deposits in their bank accounts in the hands of the assessee and the provisions of section 69 would have been attracted and the correct assessment year would have been 1986-87 and not the relevant assessment year 1987-88. The Tribunal confirmed the order of CIT(A). When the matter went before the High Court, the High Court held as under :-
"Under section 68 if any sum is found credited in the books of account of the assessee and the assessee offers no explanation about the nature 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 22 of that previous year. Therefore, what has to be enquired into by the assessing authority is about the nature and source of the deposit. If the explanation with regard to nature and source is found unsatisfactory, only then the amount so credited may be treated as income. In the instant case, the assessee offered the explanation both about the nature and source of the money. It was explained that the money was deposited by the two ladies, which they had deposited after withdrawing from their bank account. The Commissioner (Appeals) and the Tribunal had found that the assessee had discharged his burden in proving the source of the money, which had flew from the bank account. It was further held that in addition to the source of money from the bank account, both the ladies were the income-tax assessees and assessed to tax under the Amnesty Scheme and the amount deposited in their bank account was as a result of their disclosure of income under the Amnesty Scheme. The Commissioner (Appeals) AND THE Tribunal found the explanation satisfactory and, accordingly, deleted the addition. It was not a case where the assessee claimed any immunity from tax on account of the disclosure of income by the two ladies. It was a case where the assessee was asked to explain the deposits in his books of account about the nature and source, which the assessee had explained. The assessing Authority had not accepted the explanation but the Commissioner(appeals) and the Tribunal had accepted the explanation. The finding of the Tribunal was a finding of fact in that regard and it was not shown that the finding recorded by the Tribunal was perverse.
Various courts have held that the assessee has to prove three conditions : (1) identity of the creditor (2)capacity of such creditor to advance money, and (3) genuineness of the transactions. If all the aforesaid three conditions are proved, the burden would shift on the revenue to prove that the amount belonged to the assessee. It has been held by the various High Courts that the assessee cannot be asked to prove the source of source or the origin of deposit.
Under the Amnesty scheme, the new tax payers were allowed to declare their income for various years and their returns were allowed to be accepted without any charge of penalty and interest. It appeared that both the ladies had filed returns under the Amnesty Scheme declaring certain income and as a result of such declaration, savings had been deposited in the bank account which had been subsequently 23 paid to the assessee. There was no dispute that the income-tax returns under the Amnesty Scheme in the case of both the ladies had been accepted.
Further, there was no error in the order of the Tribunal where the Tribunal held that in case the amount deposited in the bank account of those two ladies were to be treated as the amount belonging to the assessee and the deposits made by the assessee, then it would be a case of investment made by the assessee in the name of those two ladies and the provision of section 69 would apply and not section 68 and for that purpose the financial year would be relevant and then such investment might be deemed to be the income of the assessee of such financial year which would fall in the assessment year 1986-87 and not 1987-88. Section 68 applies when the amount is found deposited in the books of account of an assessee and not in third party. Deposit in the account of bank would amount to investment and section 69 would apply and not section 68."
18. In our opinion, the case of the assessee is duly covered by the decision of Jurisdictional High Court which we are bound to follow and on the basis of this decision itself, we are of the view that no interference is called for in the order of the CIT(A) deleting the addition made in respect of cash credit by the Assessing Officer in each of the assessment year 2005-06 and 2006-07 and similarly, no interference is called for in deletion of disallowance made out of the interest paid on these deposits. The decision given by the CIT(A) is duly supported by the decision of Jurisdictional High Court, decision in the case of Rohini Builders (supra) as well as that of Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. (supra). We accordingly, dismiss ground No. 1 taken by the Revenue in both the years.
24
19. Ground No. 2 relates to the deletion of addition of Rs.54,18,000/- being undisclosed investment in property at Tohra Village jointly with Sri Rama Shankar Agarwal and Shri Anil Agarwal. The brief facts relating to this ground are that this addition has been made by the Assessing Officer on the basis of paper found during the course of search from the premises of Shri Anil Agarwal, Mainpuri in respect of investment made in the properties outside the books of account along with Shri Rama Shankar Agarwal and Anil Agarwal jointly in a village Tohra near J.P. hotel. He was of the view that complete details of the investment including commission, stamp duty etc. and share of each co-owner were mentioned at page 48 of LP-7 and on that basis, the share of the assessee was Rs.54,18,000/-. He accordingly, treated the said amount as unexplained and added to the income of the assessee.
20. The assessee went in appeal before the CIT(A). It was contended that the assessee was not associated with Shri Anil Agarwal and the presumptions u/s. 132(4A) on the basis of addition made are not applicable in the case of assessee. They are applicable only on the person from whose custody the papers/documents are recovered. The Annexure LP-7 page 52 was found from the possession and control of Shri Anil Kumar Agarwal. The copy of this paper was never supplied to 25 the assessee even though the assessee had made specific request. It was pointed out that it is the settled law that loose papers cannot be made basis for any addition until and unless they are supported by corroborative evidence and for this reliance was placed on the following decisions :
(i). Poornute Bery vs. ITO, 264 ITR 54 (ii). S.P. Goyal vs. DCIT, 82 ITD 85 (Mum.)(TM)
(iii). Uma Charan Shaw & Bros. Co. vs. CIT, 37 ITR 271 (SC).
(iv). 183 ITR 388 (All.) (v). ACIT vs. Shailesh S. Shah, 63 ITD 153 (Bom.) (vi). 69 ITD 336 (vii). Usha Kant N. Patel vs. CIT, 282 ITR 533.
21. The CIT(A) called for the remand report and after considering the remand report and reply of assessee, the CIT(A) deleted the addition by observing as under :-
"10(iv). I have perused and considered the assessment records, assessment order, remand report of the Assessing Officer, reply and rejoinder and other supporting papers filed by the appellant, which are placed on record. From the perusal of the records, I find that all the additions have been made on the basis of loose papers found and seized from the premises of a third person viz. Anil Kumar Agarwal, 233, Narain Nagar, Mainpuri. As such, the presumption u/s. 132(4A) does not apply. I agree with the appellant that the said presumption is applicable to money bullion, jewellery or other article or thing or books of account and other documents found from the possession or control of any person then it will be presumed that these things belong to such person and contents of such books of documents are true. Neither these loose papers are found from the custody of appellant or loose papers as per case law cited can be treated as books of accounts or documents. Hence, provisions of section 132(4A) are not applicable.
26
"10(v). I have gone through the various decisions of the higher Courts, viz., Supreme Court, Allahabad High Court and other High Courts cited wherein it has been held that loose papers are not the account books and base of those papers cannot be taken for making addition without any corroborated evidence or material to substantiate and in support of the additions made by him nor the Assessing Officer has found any tangible investment as narrated in loose papers so as to attract the provisions of section 69. Since the papers were found from the premises of one Shri Anil Kumar Agarwal, he must disprove the notings of papers and, involvement of the appellant with the said papers found from his premises and if any addition was to be made on the basis of those papers, it could have been made in the hands of Anil Kumar Agarwal on the basis of presumption u/s. 132(4A) of the I.T. Act. Thus, the relation of the appellant with those papers is not justified.
10(vi). The Assessing Officer's contention with regard to paper LP-7 referred to in ground No. 6 and paper No. 42-43 in ground No.9 is negatived by the fact that sale deed of the same already stands made in the name of Padam Shree Builders for Rs.32 lakh instead of lower amount of Rs.29,47,867/- in LP-7.
10(vii). No other evidence has been placed on record by Assessing Officer to link any loose paper with any sale or purchase transaction of that land/property made by the appellant or passing of any money in respect of any transaction.
10(viii). Looking at the totality of facts and legal position of the case and after consideration of all the evidence placed on record, I am of the view that the Assessing Officer is not justified in making total additions of Rs.3,44,71,392 (i.e. Rs.54,18,000 + 60,00,000 +29,47,867 +32,50,000 + 1,68,55,525). I hereby delete the entire additions of Rs.3,44,71,392/- as detailed in foregoing lines."
22. The learned DR relied on the order of Assessing Officer while the learned AR relied on the order of CIT(A). We have carefully considered the rival submissions and have perused the orders of the tax authorities below. This is a fact 27 that this addition has been made on the basis of loose papers found from the possession of one Shri Anil Kumar Agarwal. The presumption u/s. 132(4A) is available only against the person against whom the proceedings u/s. 132 have been carried out. Similar is the position in respect to the presumption available u/s. 292C which is also available against the person searched or surveyed and not against the third party. In the case before us, the allegation of the Revenue is that certain papers were found during the course of search carried out at the premises of Shri Anil Kumar Agarwal. Therefore, on the basis of the papers found during the course of search at the premises of Shri Anil Kumar Agarwal, the presumption will not be available to the Revenue against the assessee. The copies of these loose papers, even though, the Revenue is in appeal, were not filed before us to ascertain the correct facts available on loose papers. The addition has been made merely on the basis of loose papers found from the possession of the third party. The burden to prove in respect of these papers is on the Revenue that the papers belong to the undisclosed investment being made by the assessee outside the books of account. Not only this, the assessment in this case has been made u/s. 153A read with section 143(3). The assessment has not been completed complying with the provision of section 153C on the basis of which the addition claimed to have been made were found during the course of search carried out at the premises of Shri Anil Kumar Agarwal. The assessment in the case of assessee has been made u/s. 28 153A. The assessment of Shri Anil Kumar Agarwal would have been made by his Assessing Officer u/s. 153A on the basis of these materials and in case the Assessing Officer of Shri Anil Kumar Agarwal was satisfied that these papers belong to assessee, he should have handed over these papers to the Assessing Officer of the assessee. No satisfaction note etc. being recorded or made up by the Assessing Officer of Shri Anil Kumar Agarwal was brought on record so that the addition on the basis of this material could have been made on the assessee after complying with the provisions of section 153C. We do not find any such material being brought to our record. Under these facts, we are of the opinion that this is not a fit case which warrants our interference in the order of the CIT(A) and CIT(A) has rightly deleted the addition of Rs.54,18,000/-.
23. In respect of ground No. 3, 4, 5 and 6, both the learned DR and AR pointed out that additions made in these grounds and deleted by the CIT(A) were based on the material found during the course of search carried at the premises of Shri Anil Kimar Agarwal, Mainpuri. The Assessing Officer made additions by invoking presumption u/s. 132(4A). Against all these additions, the assessee went in appeal before the CIT(A). The CIT(A) deleted all these additions along with the additions of Rs.54,18,000/- which has been dealt with in ground No. 2 by giving common finding by us as can be seen in the preceding paragraph of this order. 29
24. Both the learned AR and DR agreed that the facts relating to these additions are the same and whatever view this tribunal will take in respect of ground No. 2, the same may be taken in respect of ground No. 3 to 6.
25. We have carefully considered the rival submissions and perused the material on record. We have already confirmed the order of CIT(A) deleting the addition of Rs.54,18,000/-. Both the parties agreed that the facts relating to the additions which have been taken by the department in ground No. 3, 4 5 & 6 are the same and all the additions have been made on the basis of the documents found from the possession of Shri Anil Kumar Agarwal. The copy of the documents so seized, even though revenue is in appeal, have not been filed before us either by the Revenue or by assessee. We have already confirmed the order of the CIT(A) deleting the addition of Rs.54,18,000/- on the basis of the finding given in para 22 hereinabove. Since the facts involved in the additions given in ground No. 3 to 6 are same, therefore, respectfully endorsing our reasoning given in the said paragraph hereinabove while disposing of the ground No.2, we confirm the order of CIT(A) in respect of ground No. 3 to 6 and hold that it is not a fit case which warrants our interference.
30
26. In the result, the appeal filed by the Revenue stands dismissed.
C.O. No. 29/Agra/2009 (A.Y. 2005-06):
27. Ground No.1 since not pressed, stands dismissed as not pressed..
28. Ground No.2 relates to disallowance of Rs.20,936/- being 1/5th of total claim of the vehicle maintenance, car insurance, depreciation and telephone expenses made by the Assessing Officer and confirmed by the CIT(A).
29. After hearing the rival submissions and carefully considering the same, we are of the view that the Assessing Officer was very reasonable in disallowing 1/5th of the expenditure incurred for vehicle and telephone. The personal user of the vehicle and telephone has not been denied by the learned AR. The Assessing Officer u/s. 38(2) can disallow such expenditure. Hence, this ground of cross objection stands dismissed. As a result, the C.O. filed by assessee stands dismissed. ITA No. 313/Agra/2009 (A.Y. 2005-06) :
30. The only issue involved in this appeal relates to the rectification of the mistake apparent on record. After passing of the order by the CIT(A), the assessee moved application u/s. 154/250, pointing out that ground No. 9 in the said order, though has been fully discussed and decided in favour of the assessee alongwith 31 the other ground in para 10 of the said appellate order, but while giving final relief in para 10(viii) for quantifying the relief and the deletion of total additions, this amount of Rs.1,99,608/- was included. Thus, he contended that a mistake apparent on record has erupted in the order of CIT(A). The CIT(A) rectified the order passed allowing the application of the assessee.
31. We have heard the rival submissions and carefully considered the same. We noted that the CIT(A) has allowed the relief to the assessee in respect of Rs.1,99,608/- under para 10 of the impugned order, but while quantifying the relief under para 10(viii), the sum of Rs.1,99,608/- was left out. Thus, there was a mistake apparent on record and the CIT(A) has rightly rectified its order. In view of this, we are of the view that no interference is called for in the order of CIT(A) and we confirm the same.
32. In the result, the appeal filed by the revenue stands dismissed. ITA No. 216/Agra/2009 (2006-07):
33. Ground No.1, we have already dismissed while disposing of ground No. 1 in the appeal for the assessment year 2005-06 in ITA No. 215/Agra/2009. 32
34. Ground NO. 2 relate to deletion of addition of Rs.5,80,500/-. The facts relating to this addition are that the assessee was allotted land at Taj Nagari, Agra by ADA on 06.03.2006 in lieu of his land acquired by the ADA. No cost was paid by the assessee except the cost incurred for stamp duty and other charges amounting to Rs.58,050 + 2551. On the basis of Stamp Duty, the value of the land was worked out at Rs.5,80,500/-. The land was allotted against the land acquired by ADA for which the compensation was given to the assessee and taxed in the earlier years also. According to the Assessing Officer, this sum represents the extra consideration received by the assessee during the year in respect of acquisition of the land. The assessee went in appeal before the CIT(A). The CIT(A) deleted the addition on the basis that the assessee sold the land in assessment year 2007-08 and shown full capital gain on the sale of land taking sale price minus cost of the stamp only.
35. We have heard the rival submissions and have carefully considered the same. This is un-controverted fact on the basis of the submissions made by both the parties that the assessee was allotted land by Agra Development Authority in consequence of the acquisition of land by Agra Development Authority in the earlier year. The nature of this land allotted by the assessee, in our opinion, represents the enhanced compensation. In view of provisions of section 45(5)(b), 33 the enhanced compensation has to be deemed to be the income chargeable under the head capital gain of the previous year in which such amount is received by the assessee. Therefore, in our opinion, the CIT(A) was not correct in law in deleting the addition merely on the basis that the assessee has shown the capital gain on the sale of this plot in the succeeding assessment year taking the cost of acquisition of this plot only at Rs.60,565/-, which represents the expenses incurred by the assessee in respect of stamp duty and other charges for registration in his favour. Under the Income-tax Act, the income accruing in one assessment year has to be assessed in the assessment year in which it has accrued or received in accordance with the provisions of the Income-tax Act. Merely that the assessee has returned the income in other assessment year, the income cannot escape assessment in the assessment year in which it was chargeable to tax. We accordingly, set aside the order of CIT(A) on this issue and restore the order of the Assessing Officer. This ground No. 2 taken by the Revenue is allowed.
36. Ground No. 3 relates to deletion of addition of Rs.81,00,000/- being undisclosed investment in purchase of property at Budera Basai, Agra. The brief facts of the issue are that the assessee had purchased a land at Budhera, Basai on 25.08.2005 from one Shri Mangelal, showing the cost of land at Rs.25,00,000/-.. According to the Assessing Officer, the seller of the land Shri Mangelal was 34 summoned during the investigation, who stated that he had sold the land to the assessee for a sale consideration of Rs.1,16,00,000/-. On being asked, the assessee denied to have made any payment over and above Rs.25,00,000/-. The Assessing Officer, finding the reply of assessee unsatisfactory, added the difference of Rs.81,00,000/- to the income of assessee as unexplained investment in property u/s. 69A of the Act. The learned CIT(A) after considering the submissions of the assessee, remand report sought from the Assessing Officer and the supporting evidences laid on record on behalf of the assessee, deleted the addition.
37. Before us, the ld. DR submitted that the CIT(A) has committed an error in deleting the addition without appreciating the facts that the seller of the land had stated to have sold his land to the assessee for a consideration of Rs.1,16,00,000/- as against Rs.25,00,000/- declared to have been paid by the assessee towards the purchase of impugned land. He, therefore, relied on the order of the Assessing Officer.
38. The learned AR, on the other hand, submitted before us as also before the CIT(A) that the seller of the land sold his land to two parties. Half of the share was purchased by assessee against which the assessee made payment of Rs.25,00,000/- by pay order No.111503 dated 24.08.2005 drawn on ICICI bank. The other half 35 share was purchased by Shri Madhusudan Nirman Pvt. Ltd. who also made the payment of Rs.25,00,000/- through banking channel. The sale deeds of both the portions of land were executed on 25.08.2005 in favour of both the prospective buyers and the same consideration of Rs.25 lakhs each was received by the seller and deposited by him in his bank account No.1019933997 with State Bank of India, Tajganj, Fatehabad Road, Agra. Copy of bank account of Shri Mange Lal was also filed. The ld. Counsel further submitted that the stand of Assessing Officer is based merely on the alleged statement of the seller, which has been challenged by assessee stating that copy of such statement of seller allegedly recorded at the back of assessee, was neither supplied to the assessee nor the statement maker was allowed to be interrogated by the assessee, nor the department bothered to intimate the assessee about the alleged statement for cross examination with the person making statement. There is no mention in the assessment order as to which authority recorded the said statement. Inviting our attention to page 104 of the paper book containing affidavit of the seller Shri Mangelal, he submitted that the seller of the land has confirmed having received only Rs.25,00,000/- as sale consideration of land from the assessee and has categorically denied to have given any such statement before any of the authorities as alleged by the department. He, therefore, relied on the order of CIT(A). 36
39. We have heard the rival submissions and have carefully considered the same. We find considerable substance in the contentions of the learned AR. It is notable that payment of Rs.25,00,000/- as cost of the land made by the assessee stands proved by documentary evidence in the shape of registered sale deed of property, the payment having been made through banking channel, bank statement of the seller, who deposited the sale consideration of Rs.25,00,000/- received from the assessee in his bank account No. 1019933997 with State Bank of India, Tajganj, Fatehabad Road, Agra. The investment of Rs.25,00,000/- in the purchase of property further stands supported by the fact that half of the land was sold by the same seller to other party Shri Madhusudan Nirman Pvt. Ltd. for a sale consideration of Rs.25,00,000/- on the same day and the payment from this buyer was also deposited by the seller in his same bank account. The allegation of the Revenue that the assessee made investment in purchase of said land of Rs.1,16,00,000/- is not found supported by any corroborating evidence except the alleged statement of the seller, which too has been denied to have been given by seller before any of the tax authorities by filing affidavit before the CIT(A). In the remand report sought by the CIT(A), no adverse comments have been given by Assessing Officer. It is not in dispute that the department has not supplied the copy of any such statement to the assessee nor got the assessee cross examined with the statement maker before applying the alleged statement against the assessee. 37 Therefore, such statement, in our opinion, would not ipso facto make out a case against the assessee. The express denial of giving any such statement by the statement maker in his affidavit and lack of corroborating evidence with the Revenue to support the alleged statement, lead us to place credence on the contention of assessee that he made no investment in this property over and above Rs.25,00,000/- and for want of any evidence, the onus that lay on the Revenue does not stand discharged. In presence of these facts, we find no justification to interfere with the order of CIT(A) on this count. This ground of Revenue is, therefore, rejected.
40. In the result, the appeal of the Revenue is partly allowed.
C.O. No.27/Agra/2009 (A.Y. 2006-07) :
41. Ground No.1 since not pressed, stands dismissed as not pressed.
42. Ground No.2 relates to disallowance of Rs.10,467/- being 1/5th of total claim of the vehicle maintenance, car insurance, depreciation and telephone expenses made by the Assessing Officer and confirmed by the CIT(A).
43. After hearing the rival submissions and carefully considering the same, we are of the view that the Assessing Officer was very reasonable in disallowing 1/5th 38 of the expenditure incurred for vehicle and telephone. The personal user of the vehicle and telephone has not been denied by the learned AR. The Assessing Officer u/s. 38(2) can disallow such expenditure. Hence, this ground of cross objection stands dismissed. As a result, the cross objection of assessee is dismissed.
44. In the result, ITA No. 215 & 213/Agra/2009 filed by Revenue are dismissed. ITA No. 216/Agra/2009 filed by Revenue is partly allowed. The Cross-objections Nos. 29 & 27/Agra/2009 filed by assessee are dismissed.
Order pronounced in the open court on 18.3.11.
Sd/- Sd/-
(H.S. SIDHU) (P.K. BANSAL)
Judicial Member Accountant Member
Dated: 18th March, 2011
*aks/-
Copy of the order forwarded to :
1. Appellant
2. Respondent
3. CIT(A) By order
4. CIT, concerned
5. DR, ITAT, Agra
6. Guard file Assistant Registrar
True copy