Delhi High Court
Veer Metals vs Assistant Commissioner Of Income Tax. on 24 June, 1994
Equivalent citations: (1995)51TTJ(DEL)132
ORDER
N.D. RAGHAVAN, J.M. :
This is an appeal of the assessed challenging the order dt. 22nd July, 1993 of the CIT(A) as arbitrary, misconceived, illegal and erroneous on facts and in law.
2.1 The relevant facts of the case are briefly these : The assessed is a partnership constituted of Smt. Som Lata Jain and Shri Harsh Jain with 50% share each. The assessed is engaged in manufacture and sale of copper wire. The assessed is a quota-holder for obtaining copper from M.M.T.C. and H.C.L. which in turn is got converted into rods out of which the assessed manufactures copper wires of the required sizes. The assessed is maintaining cash book, ledger, purchases and sales invoices as also excise register for finished goods as prescribed by the excise authorities. The Assessing Officer noted squired up cash credits in the name of the following parties in the books of accounts of the assessed :
(i) A.K. Agarwal :
Rs. 55,000
(ii) S.K. Agarwal :
Rs. 55,000
(iii) A.K. Julka :
25,000
(iv) Roshan Lal (50,000 + 1652 intt.) :
Rs. 51,652
(v) Madan Trading Co. (1,00,000 + 3452 intt.) :
Rs. 1,03,432
(vi) Ved Prakash & Sons (1,25,000 + 4469 intt.) :
Rs. 1,29,469
(vii) Madan Lal & Sons (75,000 + 3298) :
Rs. 78,298
(viii) Dhiraj Raj Thakur Dass (1,50,000 + 13,500 intt.) :
Rs. 1,63,500
(ix) Ashok Kumar Singhal (1,00,000 + 9,000 intt.) :
Rs. 1,09,000
(x) Rajesh Kumar (1,00,000 + 9,000 intt.) :
Rs. 1,09,000
(xi) Ashok Kumar (1,00,000 + 9,000 intt.) :
Rs. 1,09,000 Rs. 9,88,351 The Assessing Officer called upon the assessed to explain the nature and source of these deposits and to establish genuineness thereof. He also required the assessed to furnish copies of bank account of these parties and also copies of balance-sheets of those who are assessed to income-tax and "even by producing such persons". In reply, the assessed filed copies of account of these parties and explained that all are assessed to income-tax and accordingly loans in their respective names should be accepted. The Assessing Officer did not find the explanation/evidence to his satisfaction more so when some of the parties were not even paid interest on their loans. He also noted that assessed holds the quota from M.M.T.C. and H.C.L. and "it was felt by the Revenue Intelligence Wing that the quota holders from M.M.T.C and H.C.L. are not the actual consumers of the goods being lifted by them from these concerns and they sell it in the open market on a large amount of premium."
The Assessing Officer, thus, held that the entries with regard to these loans as fake and inferred that the amounts represented assesseds own funds used in the names of the respective creditors through bank accounts. He also noted that the assessed has not shown any bank limit and was deliberately avoiding filing of the required details in support of the genuineness of the deposits. In these circumstances, the Assessing Officer invoked the provisions of S. 68 as also S. 69 of the Act and added the amounts and interest aggregating to Rs. 9,88,352 to the income of the assessed.
2.2 The assessed went in appeal before the CIT(A) and during the course of hearing, he submitted full details of the parties with supporting evidence as had been desired by the Assessing Officer during the assessment proceedings. The CIT(A) in turn forwarded the information furnished by the assessed to the Assessing Officer for his perusal and comments. The Assessing Officer, however, does not seem to have gone through the details at all for in his opinion, it constituted additional evidence. All the same, he insisted on physical presence of the parties. He also repelled the reliance placed by the assessed on the decision in the case of CIT vs. Orissa Corporation (1986) 159 ITR 78 (SC) in connection with the proving of cash credits as brought out in the written submissions of the assessed and instead referred to the decision in the case of CIT vs. Biju Patnaik (1986) 160 ITR 674 (SC) in support of the addition made by him. The comments of the Assessing Officer were in turn sent by the learned CIT(A) to the assessed who in reply filed a rejoinder dt. 9th June, 1993 stressing that the ratio in the case of Orissa Corporation (supra) was fully applicable while the ratio in Biju Patnaiks case (supra) was inapplicable to the facts of the case. The CIT(A), however, took the view that after individual analysis of each of the deposits by the Assessing Officer, his action deserves to be upheld and that the assessed has not discharged the onus cast on it by S. 68 of the Act by identifying the creditors, proving their creditworthiness and establishing the genuineness of their loans. He further held that there was no error or even irregularity in assessing the amounts simultaneously under the provisions of ss. 68 and 69 of the Act or even in the Assessing Officer insisting on the physical presence of the parties. Relying on Supreme Court judgment in the case of Biju Patnaik (supra) and Chuhar Mal vs. CIT (1988) 172 ITR 250 (SC) as also in the case of Sree Lakha Banerjee vs. CIT (1962) 49 ITR 112 (SC) at 117 and further Kale Khan Mohd. Hanif vs. CIT (1963) 50 ITR 1 (SC) as also judgment of various High Courts in CIT vs. R. Girdhar (1984) 145 ITR 246 (Kar), Swaran Kanta vs. CIT (1989) 176 ITR 29 (P&H), CIT vs. K. Saraswati Ammal (1984) 146 ITR 486 (Mad) and CIT vs. Krishna Mining Co. (1972) 83 ITR 860 (AP), the AAC confirmed the addition. Hence, the assessed is in second appeal before us.
3. The learned counsel for the assessed, assailing the action of the authorities below, submitted that the addition has been made with a biased mind, as manifest in the body of assessment order itself. (In this connection, the observations made by the Assessing Officer beginning with last para at page 2 and going up to page 6 of the order may be seen). While the assessed fully discharged the onus cast upon it to prove the nature and sources of the loans, the authorities below construed and consequently misapplied the basic principles governing the provisions of cash credits. All the loans are received through account payee cheques as also stood repaid accordingly. The assessed had duly filed before the Assessing Officer in the first instance confirmations from the respective parties along with their G.I.R. Nos., all being assesseds of the IT Department. Under these circumstances, the Assessing Officer should have got the credits verified from the concerned Assessing Officers of the parties. Instead of doing so, the Assessing Officer called upon the assessed to file copies of bank account of the parties, their balance-sheets and income-tax assessment order and even to produce the parties. This is wholly unnecessary and not required of the assessed to do so. Still, the assessed submitted such details before the AAC as time permitted during the assessment proceedings before the Assessing Officer was very short. The CIT(A) in turn forwarded the details and evidence so furnished to the Assessing Officer, who, however, omitted to go into the details, documents by document or case by case, since, in his opinion, the details constituted additional evidence and in turn insisted on physical presence of the parties before him. It is unnecessary on facts and impermissible in law to insist on the physical production of the creditors in utter disregard of evidence filed in support of the credits being genuine. The relevant pages of the paper book may be seen to demonstrate that the AAC was wrong in holding that the case of Ashok Kumar Agarwal (Singal) (Rs. 1,00,000), Ashok Kumar (Rs. 1,00,000), A.K. Agarwal (Rs. 53,000), S.K. Aggarwal (Rs. 55,000), A.K. Julka (Rs. 25,000) and Rajesh Kumar (Rs. 1,00,000), the documents asked for by the Assessing Officer had not at all been submitted. The letter of Assessing Officer dt. 16th Feb., 1993 (paper book page 23) may be seen. Through it the Assessing Officer has himself acknowledged to the CIT(A) the receipt of confirmation in all the 11 cases. In the case of Ved Prakash (Rs. 1,29,469), Roshan Lal (Rs. 51,652), Madan Trading Co. (Rs. 1,03,432) and Madan Lal & Sons (Rs. 78,298) copies of their respective assessment orders had been filed which was the best proof in support of the transaction. In all the cases where tax was deducted at source on interest paid on the loans by the assessed, the parties have been given adjustments thereof by their respective Assessing Officer against their tax liability. The authorities below had completely blacked out the vital information in the case of M/s. Dhraj Das Thakur Das of his being an income-tax assessed. Various steps in the verification of cash credits can be traced from the decisions following :
(a) Sarogi Credit Corporation vs. CIT (1976) 103 ITR 344 (Pat).
(b) Shankar Industries vs. CIT (1978) 114 ITR 689 (Cal).
(c) Addl. CIT vs. Hanuman Agarwal (1985) 151 ITR 150 (Pat).
(d) Addl. CIT vs. Bahri Bros. Pvt. Ltd. (1985) 154 ITR 244 (Pat).
(e) Jhaveribhai Biharilal & Company vs. CIT (1985) 154 ITR 591 (Pat).
(f) CIT vs. S.C. Ghosal (1977) 106 ITR 980 (Cal).
Reliance is heavily placed on the decision in the case of Orissa Corporation (supra). The ratio of the Hon'ble Supreme Court in Biju Patnaiks case (supra) on facts is distinguishable. The CIT(A) want astray in interpreting the ratio of Supreme Court in Chuhar Mals case (supra) as also in Kale Khan Mohd. Hanif, vs. CIT (supra) and Sree Lakha Banerjee vs. CIT (supra). Various High Courts decisions as relied on by the CIT(A) are not applicable to the facts of the case. The CIT(A) has chosen to ignore the material facts and arguments as advanced by the assessed in its letter dt. 14th May, 1993 and again dt. 10th June, 1993. It was a desperate attempt on the part of authorities below when they applied the provisions of both ss. 68 and 69 simultaneously to make the additions, when they are mutually exclusive. This also exposed the contradiction in the approach of the authorities below.
4. The learned Senior Departmental Representative, on the other hand, strongly relied on the orders of the authorities below and submitted that the assessed failed in its obligation to render the best evidence. Reliance is placed on Woodroff and Ameer Ali, Law of Evidence, 12th Ed. and also in the pages 4, 5, 2061-2061, 2138-2143 and also in the case of CIT vs. Krishnaveni Ammal (1986) 158 ITR 826 (Mad). Sec. 68 was a Rule of Evidence and the assessed has attempted to withhold the evidence. There was no difficulty in the assessed arranging the physical presence of the creditors. They advanced friendly loans to the assessed and in some cases without interest. The addresses of the creditors were different in their bank statements vis-a-vis their income-tax assessment orders. While affidavits are filed in some cases, they lacked evidentiary value unless the deponents had been examined. The Assessing Officer rightly held that the amounts were assesseds own funds coming out of disposal of quota in black market and introducing such sums in the guise of cash credits. The orders of the Assessing Officer as also of the CIT(A) are relied upon besides the decision following :
(a) CIT vs. Rameshwar Prasad Bagla (1968) 68 ITR 653 (All).
(b) Bharati Pvt. Ltd. vs. CIT (1978) 111 ITR 951 (Cal).
(c) CIT vs. W.J. Walker & Co. (1979) 117 ITR 690 (Cal).
(d) Nanak Chandra Laxman Das vs. CIT (1983) 140 ITR 151 (All).
(e) CIT vs. R. Girdhar (supra)
(f) Swaran Kanta vs. CIT (supra).
5.1 Rival submissions heard and relevant orders read besides the concerned pages of the paper book as well as the case law relied upon and also the relevant provisions of law in this regard. Sec. 68 of the IT Act governs treatment of cash credits and reads as under :
"68. Where any sum is found credited in the books of an assessed maintained for any previous year, and the assessed 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 assessed of that previous year."
5.2 The requirements of S. 68 are that there ought to be a sum which is found credited in the books of accounts of the assessed maintained for any previous year, wherein support of genuineness of the same the assessed offers no explanation or the same offered is not in the opinion of the Assessing Officer satisfactory, then the cash credits may be charged to income-tax as income of the assessed of the relevant previous year. This section has received repeated judicial attention of various High Courts and also of Hon'ble Supreme Court into the manner and import thereof.
5.3 In the case of Sreelekha Banerjee (supra) the Hon'ble Supreme Court observed that :
"If there is an entry in the account books of the assessed which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessed himself, it is necessary for the assessed to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The Department is not at this stage required to prove anything. It can ask the assessed to bring any books of account or other documents or evidence pertinent to the explanation, if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the Department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the Department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessed or from some undisclosed source. The Department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessed."
The Hon'ble Supreme Court further observed that before the Department rejects such evidence, it must either show an inherent weakness in the explanation or rebut it by putting to the assessed some information or evidence which it has in its possession. The Department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. In Orient Trading Co. Ltd. vs. CIT (1963) 49 ITR 723 (Bom) as also in Sarogi Credit Corporation vs. CIT (supra) the Hon'ble High Courts held that :
"Unlike credit entries appearing in the accounts of the assessed in his own name or in the name of his wife, children, relation or employee, the onus on the assessed in respect of the credits in the names of third parties stands discharged if he establishes the identity of that party and satisfies the ITO that the entry is real and not fictitious. Thereafter, it will not be for the assessed to explain how or in what circumstances the third party obtained money and how or why he came to make a deposit of the money with the assessed. The burden thereafter will shift on the Department to prove why the assesseds case cannot be accepted."
In Shankar Industries vs. CIT (supra), the Hon'ble Calcutta High Court observed that :
"It is necessary for the assessed to prove, prima facie, the transaction which results in a cash credit in his books of account. Such proof includes proof of identify of his creditor, the capacity of such creditor to advance the money and, lastly, the genuineness of the transaction. Only after the assessed has adduced evidence to establish prima facie the aforesaid, the onus shifts to the Department, where the assessed establishes only the identity of the creditor and nothing more, the cash credits can be treated as the income of the assessed from undisclosed sources."
5.4 The Hon'ble Patna High Court again had an occasion to consider the meaning and import of S. 68 in the case of Addl. CIT vs. Hanuman Aggarwal (supra) :
"Where an assessed gives the correct name, address and GIR number of the creditor, he has discharged his onus to prove the genuineness of credits in his accounts and unless a notice in due form under S. 131 of the Act is issued by the Revenue authority to test the genuineness of the transaction or the capacity of the creditor to pay, the amounts cannot be assessed in the hands of the assessed."
5.5 Once again the Hon'ble Patna High Court in Addl. CIT vs. Bahri Bros. (supra) observed that when the assessed disclosed the names of the creditors and the names of the bankers on which cheques were drawn, the assessed discharged the primary onus and the assessed not only disclosed the identity of the creditors but also the source of income. Thereafter, the onus shifted on the Department to carry out the verification. In such cases, the creditors were known not only to the bankers but having been introduced by a third party to the bank, their identity was established and, therefore, it could not be said that the creditors were fictitious persons.
5.6 The Hon'ble Supreme Court also had an occasion to consider once again the aspect of verification of cash credits in CIT vs. Orissa Corpn. (supra) at page 84 where the Hon'ble Supreme Court observed :
"In this case, the assessed had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assesseds. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under S. 131 at the instance of the assessed, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the assessed could not do anything further."
5.7 Within the framework of the above principles it is to be seen as to whether the assessed was right in submitting that on facts and in the circumstances it had discharged the onus placed on it by S. 68 of the Act or were it the authorities below who were right in holding that the onus placed on the assessed was not duly discharged. It is seen, as is also not in dispute that, all the amounts were received through account payee cheques drawn by respective creditors on their banks and the creditors also confirmed the loans. Again it is not in dispute that all are existing assesseds of the IT Department and that some of them have got refunds of tax deducted at source suffered on interest paid by the assessed when their tax liabilities were determined by their respective Assessing Officer. The Assessing Officer could not go through most of the evidence at the assessment stage since the assessed had only chosen to file at that stage confirmations along with G.I.R. numbers of the creditors. Later, however, when banks statements, balance-sheet and income-tax assessment orders were filed before the CIT(A), the Assessing Officer did not evidently go through the same even when specifically required by the AAC and instead insisted on physical presence of the creditors for examination.
5.8 The Revenue is right in submitting that the best evidence ought to have been adduced by the assessed. According to the assessed, it had, in fact, done so by providing the confirmations along with GIR numbers of the parties. In other words, the assessed produced the evidence it had and what it could. It, therefore, discharged the initial onus as cast under S. 68 of the Act. Thereafter, it was for the Assessing Officer to have carried out necessary verification and proving further, if warranted. The Assessing Officer did nothing of the sort and instead insisted on physical presence of the parties. This was permissible only where the parties were not assessed to income-tax or the documents furnished by them required further elucidation after proper application of mind thereon by the Assessing Officer. No such case has been made out by the Revenue. Even the material filed before the CIT(A) has not been gone into on the ground that it constituted additional evidence. The Assessing Officer was clearly on the wrong side as the material placed before CIT(A) was duly furnished to him by the CIT(A) himself and the Assessing Officer was duty bound to examine the documentary evidence on a case by case basis and report his finding to the CIT(A). On these facts and circumstances, the insistence on the physical presence of the parties, without even going through the documents/evidence, was unjustified. The assessed had duly discharged the initial onus placed on it by S. 68 of the Act. Thereafter, it was for the Assessing Officer to pursue the verification on his own. It was his duty to examine the materials furnished by the assessed in support of deposits carefully and objectively. The rigours of the onus as affirmed in Sreelekha Banerjees case (supra), may not apply with equal force in a case like the present one, for in that case it was a question of encashment of high denomination notes where ownership moved with possession. In the present case, the creditors have filed their confirmations and are also assesseds to Income-tax. The identity is, therefore, established as also accepted by the Department itself. Moneys having flown through bank channels, the credit worthiness of the creditors also stood established.
5.9 With regard to genuineness of the transaction, there is nothing to confirm, even to suggest anything dubious. In nutshell, therefore, the parties are identifiable moneys have been lent through their bank accounts, their accounts are credited with the amounts involved in the books of the assessed and where tax has been deducted at source on payment of interest, certificates have been issued by the assessed in favor of the parties and acted upon by the Revenue at the time of framing of individuals assessment by the respective Assessing Officer. All the ingredients, therefore, of proving the cash credits as visualised in the cases of Shankar Industries, cited supra, as also Bahri Brothers Pvt. Ltd. (supra) are ratified by the assessed. The additions made by the Assessing Officer as also sustained by the CIT(A) is a clear case where the authorities below rejected a good explanation of the assessed thereby converting good proof into no proof. The Assessing Officer was, therefore, in error in making the impugned addition under S. 68 of the Act. The ratio of the Supreme Court in Biju Patnaiks case, cited supra is not applicable to the facts of the case. In that case, the creditor was a Trust which was not an income-tax assessed and the deposit was made in cash. The donors to the Trust were anonymous and it was such moneys which were deposited by the Trust. On enquiry and probing, it was established that the Trust never existed. There was further evidence to show that the Trust was a cover and income of the Trust floated back to Biju Patnaik. As is clear, there is not even remote resemblance between facts of that case and those of the assessed herein. The Revenue has also relied upon a Supreme Court judgment in Chuhar Mals case cited supra, wherein the Principles of Law of Evidence applicable to income-tax proceedings were discussed. Possession of watches by Churhar Mal at the time of their seizure by Customs was deemed to be income of Chur Mal under S. 69A of the Act. The Hon'ble Supreme Court held that principles of Evidence Act would apply to income-tax proceedings and that only the rigours of the Rule of Evidence were alone not applicable. Manifestly, the said ratio is not applicable for the purposes of making addition under S. 68. The Revenue has also relied upon the ratio of Supreme Court in Kale Khan Mohd. Hanif, cited supra. In that case, the Hon'ble Supreme Court relying upon the decision in A. Govindarajulu Mudaliar vs. CIT (1958) 34 ITR 807 (SC) held that the onus of proving the source of a sum of money found to have been received by the assessed is on the assessed. If it disputes liability to tax, it is for him to show either that the receipt was not income or that even if it was exempt from tax under the provisions of IT Act. In the absence of such proof, Assessing Officer was entitled to treat it as a taxable income. In the given case, however, the assessed has brought on record two different types of evidences i.e. one before the Assessing Officer and the other before the CIT(A). Therefore, the ratio in the case of Kale Khan Mohd. Hanif (supra) is not applicable to the facts of the case.
5.10 The Revenue has also relied upon (1968) 68 ITR 653 (All) (supra). In this case, the Hon'ble High Court held that in a case of circumstantial evidence, the totality of the circumstances are to be taken into consideration and the combined effect of all these circumstances, is determinative of the question as to whether or not a particular fact is proved. On the other hand, in the case of the assessed herein, what the authorities below failed to appreciate was the totality of facts along with circumstances in which there arose the totality of facts and circumstances, the given case favors the assessed. The Revenue has also referred to certain observations from the decision of Delhi High Court (1978) 111 ITR 151 (SC). This relates to scope and extent of S. 147-148. Accordingly, the observations are hardly applicable to the facts of the present case. Again the reliance placed on Calcutta High Court judgment in W.J. Walker & Co. (supra) is misplaced since the ratio is not applicable to the facts of the case when it turned round the question of production of proof and the applicability of explanation to S. 271(1)(c). This is not the issue involved in the present case and, therefore, this ratio is not relevant.
5.11 As is detailed above, there is no justification on the part of the Revenue on facts and in the circumstances to make additions of Rs. 9,88,351 under S. 68 of the Act.
5.12 Now, we are left with the question of validity of the action of authorities below in adding the sums under S. 69 also. Sec. 69 of the IT Act reads as below :
"69. Where in the financial year immediately preceding the assessment year the assessed has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessed offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessed of such financial year."
5.13 As is seen, the ingredients of this section are that the assessed ought to have made investment which are not recorded in its books and the assessed offers no explanation to the nature and source thereof or the explanation offered is not satisfactory in the opinion of the Assessing Officer. In such circumstances, the value of investment is to be treated as deemed income of the assessed. In the case of the assessed, however, the amounts which stand in the names of 11 different parties have been construed as investment by the Revenue. But this has been inferred without proving with any evidence, much-less positive evidence. The Revenue has alleged that the amount involved is assesseds own funds but nothing has been done to substantiate the allegation. We find ourselves in the agreement with the stand of the assessed that the background as detailed in the body of assessment order very much prevailed with the Assessing Officer in making the impugned addition. Therefore, we are clearly of the view that no case is made out by the Revenue even for addition under S. 69.
5.14 We, therefore, on a careful analysis of all relevant facts and circumstances, delete the addition made by assessing the order impugned.
6. In the result, the appeal of the assessed is allowed hereby.