Income Tax Appellate Tribunal - Jodhpur
Income Tax Officer vs Rajendra Kumar Taparia on 17 November, 2006
Equivalent citations: (2007)106TTJ(JODH)712
ORDER
Hari Om Maratha, J.M.
1. The appeal of the Revenue and the cross-objection of the assessee, are directed against the order of CIT(A) dt. 28th Oct., 2004 pertaining to asst. yr. 2001-02.
2. The assessee is doing business of cloth trading at Jodhpur. On total sales of Rs. 39,48,545 the assessee has declared GP of Rs. 6,66,732 which gave a GP rate of 16.90 per cent as against the GP rate of 11.72 per cent declared as total sales of Rs. 26,85,121 in the last year. On verification of P&L a/c it was noticed that the assessee had claimed a salary of Rs. 2,10,170 as against salary payment of Rs. 80,533 in the last year. The assessee had paid the following salary:
Name of the person Last year This year.
salary paid salary paid
Rakesh Taparia 15,000 60,000
Anil Taparia 36,000 60,000
Surendra Taparia 15,000 60,000
Bankat Lal Nil 24,270
Pram Ram Rao Nil 4,800
Kuldeep Nil 1,100
Hariram 14,533 Nil
Total 80,533 2,10,170
Noticing increase in the salary of Shri Rakesh Kumar and Surendra Kumar, the AO show caused the assessee. It was explained that in the last year salary was paid only for three months, whereas in this year it is paid for twelve months. The AO wanted the records of last year to verify this fact. When records were not produced on the pretext that these were not traceable, the AO held that the salary paid was excessive and thus disallowed a sum of Rs. 60,000 out of total salary payments. The learned CIT(A), on the contrary, deleted this addition. The Department has raised ground No. 1 in this regard.
3. We have heard the rival submissions and perused the relevant material on record.
4. It has been submitted by learned Departmental Representative in support of this ground that since the assessee was not able to establish the increase in salary to be justified, the AO has correctly made disallowance of Rs. 60,000 holding it to be unreasonable and excessive particularly when the same was paid to brothers. On the other hand after relying on the order of CIT(A) learned Authorised Representative has further submitted that in the last year the salary was paid for only 3 months. In support of this contention he has referred to paper book 28, 29, 30 and 31. The learned Authorised Representative has relied on the computation of total income filed for asst. yr. 2001-02, by Shri Surendra Kumar and Shri Rakesh Kumar the payees, which was filed along with their returns of income. From these it is revealed that they have shown the same salary as has been shown by this assessee. Their returns of income have also been accepted by the Department.
5. Having considered the rival submissions, we are of the opinion that there is no infirmity in the finding of learned CIT(A). The assessee has shown better GP rate and has explained the payment of salary. The suspicion of AO that higher salary has been paid on account of relations is not founded on rational reasons. Both these payees are income-tax assessees and have declared the same. Salaries having received by them, which have been accepted by the AO. Both of them were engaged in touring for obtaining orders and the sales have definitely increased. Thus salary of Rs. 5,000 per month to each of them cannot be stated to be on the higher side. In the earlier year, the salary was paid only for 3 months and the salary was Rs. 15,000 for these months to each of them. Anil Kumar has also done similar work for the assessee. Therefore, deletion of disallowance of salary is hereby confirmed.
6. Ground No. 2 of Revenue's appeal relates to, the deletion of Rs. 32,000 added by AO on account of low household withdrawals. The facts of this ground are that in the capital account, the assessee had shown household expenditure of Rs. 17,000 for a family of four members. But the assessee explained vide letter dt. 12th March, 2004 that the assessee had drawn Rs. 32,000 for household expenses (Rs. 17,000 self and Rs. 15,000 by his wife). There are five members in the family and all the children are getting education in primary and middle schools. Therefore, by considering the size of the family and the living standard, the AO estimated the household expenditure at Rs. 5,000 per month, which resulted into an addition of Rs. 28,000. The learned CIT(A), on the other hand deleted this addition.
7. We have heard the rival submissions and perused the relevant material on record.
8. We are totally in agreement with the finding of learned CIT(A). The assessee has explained the total withdrawals at Rs. 32,000 for the entire year. The size of the family and the so-called living standard cannot be made (basis) for such additions. Consequently, we affirm the impugned finding after looking into the evidences placed at pp. 39, 40, 42 of assessee's paper book, where computation of income and capital accounts etc. are placed. This ground of appeal also cannot be allowed.
9. In ground No. 3, the Revenue has challenged the deletion of an addition of Rs. 5,99,585 made by the AO on account of unexplained cash credits and of Rs. 71,950 representing interest thereon. The facts of this ground are that on verification of balance sheet filed along with return of income it was noticed that the assessee had made deposits in the name of Smt. Sunita Devi, Rekha Devi, Uma Devi and Surendra Taparia during the relevant year. The assessee explained that these were trade credits. The copies of accounts of creditors were filed by the assessee, but the AO noted that they were not received by him. All these creditors are income-tax assessees and the AO has accepted the trading results and has also accepted the purchases and sales. All of them have filed their affidavits in which the contention raised by the assessee has been affirmed and confirmed by all of them. But still the AO was not satisfied and came to the conclusion that the assessee has not been able to prove the genuineness of credits made in the names of Smt. Uma Devi, Sunita Devi and Rekha Devi amounting to Rs. 5,99,585. He disallowed this amount of credit and' also an amount of Rs. 71,850 being interest allegedly paid @ 12 per cent, and added the same in the income declared by the assessee. The learned CIT(A) deleted this addition.
10. We have heard the rival submissions and perused the relevant material on record.
11. Having gone through the available records in the light of the oral agreements, we are convinced that the action of learned CIT(A) in deleting the impugned addition is correct as per law. We have gone through the relevant evidences placed in assessee's paper book in the form of affidavits, proof of income-tax assessees of creditors along with their PAN numbers.
12. We would now like to discuss the law relating to such cash credits in the light of the numerous judicial pronouncements rendered by various Courts including the Hon'ble apex Court. To understand the requirements of the law to prove the genuinenity of a cash credit, we would reproduce the Section 68 of the IT Act, 1961 (hereinafter referred to as 'the Act' for short).
Sec. 68 : "Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
13. The subject of cash credit has assumed ominous overtures over the years. This subject has been one of the major areas of litigation in taxation. To understand this subject one needs to know about the alpha and the omega of the law relating to cash credits, starting with its legislative history upto its development in this cyber era, step by step, in order to understand this subject threadbare.
14. The provision relating to cash credit was brought on the statute book for the first time in the IT Act, 1961 by Act No. 43 of 1961, as Section 68. There was no such provision corresponding to the above in the IT Act, 1922. It would be pertinent to mention that Section 68 is a new section, which is a culmination of a series of judicial pronouncements under the provisions of the old Act of 1922, on the issues relating to cash credit.
15. This section can be comprehended in a better way by dividing it into the following ingredients [parts]:
(a) Where any sum is found credited in the books of the assessee;
(b) Maintained for any previous year;
(c) And the assessee offers no explanation about its nature and source; or
(d) The explanation offered by the assessee, is not, in the opinion of the AO satisfactory; then
(e) The sum so credited may be charged to income-tax, as the income of the assessee of that previous year, in relation to which it is so found to have been credited.
16. Thus, it is clear from the above that the initial catchwords of this section are:
(a) where any sum is found credited;
(b) in the books of accounts of the assessee.
17. Section 68 comes into play immediately when an entry relating to a sum is found to have been credited in the books kept by the assessee. Meaning thereby, that the condition precedent to apply this section is the existence of books and the recording of a sum, as cash credit therein. Thereafter, the satisfaction of the AO with regard to genuinenity of the cash credit in question arises. In case, he doubts the relevant entry, after making possible enquiry (ies), the AO is satisfied that the entries are not genuine, he is vested with the power to add the said sum in the total income of the assessee represented by such cash credit entries, as the income of the assessee from other sources. Thus, the satisfaction of the AO is the basis of invocation of his powers under Section 68. However, such satisfaction must not be illusory and imaginative but must be based on valid and legitimate reason(s). The AO is required to make a proper enquiry of all materials, which are placed before him or over which he has a command. Thus, the inquiry envisaged under Section 68 is an enquiry, which is reasonable and just. This is a quasi judicial enquiry and not an arbitrary one. This enquiry should not be based on terrorem but should be based on reasons. The enquiry must be based on logic and not on magic. In a nutshell, the enquiry should be objective and not a subjective one.
18. Regarding the books of accounts, much has been said by various authorities, forums and the Courts. But, the 'books', as ordinarily understood to mean is a collection of sheets of papers or other material, which may be blank, written or printed, fastened or bound together as to form a material whole. Therefore, loose sheets or scraps of papers cannot be termed as "book" because they can easily be detached and replaced. Section 34 of the Evidence Act, 1872 provides that entries in books of accounts, which are regularly kept and maintained in the ordinary course of business, are relevant, whenever they refer to a matter into which the Court has to enquire, but such statements shall not be sufficient evidence to charge any person with liability unless established as per law.
19. It was a well-settled principle of law that when a person (litigant) claims a fact to be true, this is he who has to prove that fact. In other words, when a person wants the Court to believe that a fact is true, a preliminary onus is cast upon him to prima facie, prove that fact. This onus is said to have been discharged in case, he (the assessee) establishes his claim prima facie. Thereafter, the onus may or may not shift on the other party depending upon various factors, which we will be discussing in later paras. It follows from the above, as a natural corollary that even correct and authentic entry in the books of accounts cannot without independent evidence of their trustworthiness can be, ipso facto, accepted as correct.
20. Therefore, a pass book of a bank cannot be treated as books of accounts of the assessee because this is provided by the banker, which is given to its customer and is only a copy of the customer's account in the books maintained by the bank. The bank does not act as an agent of the customer nor can it be said that the banker maintains the pass book under the instructions of the customer [the assessee]. Therefore, a cash credit shown in assessee's pass book relevant to a particular previous year, but not represented in the cash book maintained by the assessee, does not attract the provisions of the Section 68. However, it may be a subject-matter of Section 69, which pertains to unexplained investment.
21. Likewise, the books of a firm cannot be said to be the books of the partner of the firm. In case of a firm, if cash credits are found in the partner's account, in the books of a firm and if no evidence or material is produced to indicate that they are the profits of the firm, then, such sum cannot be assessed in the hands of the firm but shall be assessed in the hands of individual partners of the said firm.
22. The Section 68 is a charging section and it applies when the assessee's explanation with regard to cash credit is rejected as being unsatisfactory and also where the assessee does not tender any explanation in that respect. The AO has to state as to how he has formed his opinion that the explanation is unsatisfactory.
23. As has been stated in the beginning that Section 68 has gained great importance over the years, the reason(s) for the same are that some unscrupulous assessee(s) use this method i.e., of cash credit, as a device to channelise black money into white money. The Government needs funds for various purposes like maintenance of law and order, defence, social/health services, etc., and it raises funds from various sources including taxation. Justice Holmes of US Supreme Court, has long ago rightly said that tax is the price, which we pay for a civilized society. It is the 'capacity of the taxpayer and the stupidity of the tax collector', which results in either the loss of taxes or harassment of the tax payer. But all the cash credits cannot be christened as dubious because the assessee(s) have to take deposits in the regular course of their business(es) and such cash credits can definitely be genuine one. Therefore, when this method is mis(used), it becomes the duty of the legislature to nip these types of activities by enacting a provision of law. This provision was brought on the statute in the form of Section 68. By this provision, a thin line has been drawn between the genuine and non-genuine transactions. Over the years various Courts have drawn their receptive 'lines' in the given facts of their respective cases. But, it would not be out of place to mention that there cannot be straightjacket formula, which can fit into the facts of a given case and whereby it can be decided whether a credit is genuine or not. It depends on the facts and circumstances of a given case and the Court(s) dealing with the same has to find out the true colour of the impugned transaction.
24. The various Courts have given their verdicts with regard to the genuinenity or ingenuinenity of the cash credits involved in the cases they were dealing with, in their own way. The gist of most of such decisions is that the onus to establish the identity and the creditworthiness of the creditor(s) and the genuinenity of the transaction(s) of a cash credit in question is cast upon the assessee. The case of CIT v. Precision Finance (P) Ltd. (1994) 121 CTR (Cal) 20 : (1994) 208 WR 465 (Cal), in which it has been held that by now it is a trite law that the onus to prove the above three ingredients is cast upon the assessee and again the decision of the Hon'ble Calcutta High Court in the case of Shanker Industries v. CIT , which is leading decision on this subject and invariably relied by the Department also requires the assessee to prove the above three ingredients.
25. The case of Roshan Di Hatti v. CIT is also often relied by the Revenue to plead that it is the assessee who wants the Department to accept a claim with regard to the genuinenity of a cash credit, has to prove the same in all conditions. But again this decision is misread in the sense as if the Hon'ble apex Court has held in this case that the onus to prove the creditworthiness of the creditor is to be proved to the hilt and the Department is never required to prove the ingenuinenity of such cash credit even in case the assessee has established it prima facie.
26. These decisions are most of the times than not are misread to mean that a very hard and never shifting and never dischargeable onus is cast upon the assessees to prove their cash credits. It has been pleaded by the Department, in cases where the deposit is through account payee cheque and the particulars of the creditor are furnished even then the impugned credit does not stand proved. For that matter, reliance is placed on the decision of the Hon'ble Calcutta High Court in the case of Precision Finance (P) Ltd. (supra) wherein it has been held that mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction as genuine. Many a times, this limited ratio of the above decision is applied to rebut the argument of the assessee that the deposit has been received through account payee cheque. But they lose sight of fact that the above decision was rendered under entirely distinguishable facts. In the above case, the identity of the cash creditors was not at all established. Unfortunately, the ratio of various decisions is used to suit their requirements in piecemeal. It is well-settled law to apply a decision on a given fact of a particular case; it has to be applied in its entirety and without tearing it out of context. Likewise, the decision of the Hon'ble Supreme Court in the case of Roshan Di Hatti (supra) where it has been held as under:
The law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Revenue is entitled to treat it as taxable income. To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is the income of the assessee and no further burden lies on the Revenue to show that the income is from any particular source.
27. The Hon'ble Supreme Court has not given a verdict that the burden, which is initially cast on the assessee to piima facie establish the relevant cash credit by establishing the identity, the creditworthiness of the creditor and genuinenity of the transaction, never shifts on the Department. The Hon'ble apex Court m the above decision has held that in case the above three requirements are not established by the assessee, in that case no further burden lies on the Revenue to show that the income is from any particular source. Otherwise also the facts of that case are very peculiar.
28. The various other decisions shall be discussed hereinafter but before that it can be safely stated that the decisions of the Court rendered in the context of Section 68 are only guidelines, which can be properly applied to the given facts of a particular case and these do help to some extent to arrive at a just decision. But, none of the above decisions can completely help in deciding a particular transaction of deposit because the facts of two cases are never exactly identical. It is only that Court who is dealing with the given facts of a case, who has to winnow the chaff from the grain after taking guidance from the available precedents.
29. More often than not, the decisions including the above are interpreted in the sense that the assessee is duty-bound to prove the source of the deposit. When the source of the source is demanded by the Courts, invariably the counsel appearing for the assessee exclaims that, can a begger be a chooser and can an assessee who has to take loan from a creditor can ask for the source of his amount which is being given as a loan. This query of the counsel sounds sensible. No Court, ever has given a decision that source of the source has to be proved by the assessee, in that way. But sometimes, in order to demand proof of creditworthiness of the creditor, the intensity of the required proof is stretched too far to mean that the creditworthiness of the creditor can be established only and only when the source of the source is also proved. With due respect, it is observed that this can never be the intention of any piece of legislation nor of any precedent for that matter. What is required is the proof of creditworthiness of the creditor which can be done by various other methods and not directly by demanding the proof of the source of the source directly. This is a reality of life that no loanee can ever ask the loaner to explain the source of his source before he gives a loan to him. Therefore, to demand the proof of the genuinenity of the source of the source will be like demanding the proof of impossible.
30. Let it be mentioned that a deposit through account payee cheque is a very good piece of the evidence towards establishing the genuinity of a transaction. But, in case the identity of the depositor itself is not proved on record, how the claim of the assessee can be accepted as genuine. But at the same time, the assessee can prove the cash credit only by proving that the payment has been received through account payee cheque, when the identity of the depositor is very much established or is obvious and as such not doubted by the Department. In that eventuality, a payment having been received through account payee cheque becomes sacrosanct. This is what exactly has been stated by the Hon'ble Calcutta High Court.
31. Unfortunately, the decisions are read in a hurry and in isolation because we are living in a fast moving society. Only the head-notes of a decision which are usually drafted by publishers etc., according to their understanding of the matter are perused by concerned persons, which many a times carry wrong meaning of a decision. The decision has to be read in its entirety to arrive at a correct ratio decidendi.
32. The decision in the Precision Finance (P) Ltd. (supra) is always relied to deny the claim of the assessee that the payment through account payee cheque has been held as not sacrosanct and it cannot establish the transaction as genuine.
33. With due respect, it is stated that this is not the gist of the above decision. The decision has to be read in its entirety, along with the facts of the given case.
34. It is in the background of the above facts, it was held by the Hon'ble Calcutta High Court as above.
35. This decision is very much in the line of various other decisions on the subject and does not give any different finding from the others.
36. For a cash credit, two parties are required. The one is the assessee and the other is the cash creditor. No one can deposit his own money with himself in order to get benefit of Section 68 of the Act. Another person should have deposited a sum of money with the assessee. This 'another person' cannot be a fictitious person but he should be a real person, who can be also a legal juristic person, which is permitted under the IT Act. The other person should have deposited his 'own money' and not the money of the assessee. Therefore, a maxim is created that if the real person deposits his own money with the assessee, the deposit is genuine and nothing else. In a sense, all the three ingredients which have been overall accepted generally i.e., the identity, the creditworthiness and the genuinenity-are different parts of only one ingredient i.e., the genuinenity of a cash credit. If the money is deposited by the self in the name of others, it cannot be said to be a cash credit at all. If the money is stated to be deposited in the name of a person, who does not exist at all, it cannot be a cash credit. If no money is deposited but only entry is passed in the books of accounts, it is not a cash credit at all. Therefore, what is necessary to establish to prove a cash credit under Section 68 of the Act is that any other person other than the assessee must have given or deposited money(s) worth with assessee out of his own money.
37. In the light of above discussion, it can easily be stated that a prudent man can quickly find out from the given facts of the case as to whether the cash credit in question is genuine or not.
38. As has been stated above, the cupidity of the taxpayer and the stupidity of the tax collector is the main source of tax evasion. To understand cupidity, the following story would help a lot. There was a person in the ancient times who lived in a hutment of shepherds nearby a sea. He was very cupid and would cheat his fellow by one way or the other. All the inhabitants, at last got fed up with his nefarious activities. Ultimately, a Panchayat was called and the Panchayat condemned him to death. In their clan, the mode of condemning is very naval. The condemned person was stated during the day with drink and dine and was tied with a tree nearby a seashore covering his face with some canvass cloths. After the dawn, the villagers would come in inebriated condition and beating the drums and singing the songs in a procession. Thereafter, some young men would untie his hands and throw him in the sea after tying a heavy stone with his legs.
39. During the day time, a young shepherd came around along with his big herd of sheep. He was not aware of what was happening with the condemned man. The young shepherd enquired from the condemned person as to what has happened with him. After inquiring something from the young shepherd the prisoner replied that the villagers want to give him a lot of money after the sunset, but he is not greedy. He thereafter enquired from the young shepherd in case you want money you can come in my place. The young shepherd without thinking much readily agreed to swap. The prisoner went away with the herd of sheep and the villagers threw the poor young shepherd after attaching a big boulder with his legs in the deep sea. The next morning, the naughty man came towards the village plying on the flute along with the big herd of sheep. When the villagers enquired from him he narrated that the God of Sea has given him all this fortune and has also asked me to tell my fellow villagers that he is waiting to give whatever they demanded from him. Without thinking even for a spur of moment all the young villagers ran towards sea and jumped into the deep sea. Obviously, all of them were dead and the cupid person played the trick which could befool the whole society and ended up in gain to himself and loss to society in general.
40. This is how an unscrupulous taxpayer can play a trick as were played by the above naughty man.
41. Now, the stupidity of tax collector can be explained by the following little short story.
42. In the campus of University of Paris, the capital of France, Mr. T was giving a lecture to the students of Philosophy. Mr. X was the head of the Department of Philosophy. All of a sudden, Mr. X posed a question, 'can you tell as to who is the greatest man in this world ?' The students named someone or the other according to as they thought of them. But, Mr. X replied quickly that none of them was correct because "Mr. X" is that man. When the students exclaimed, he started proving this fact then and there.
43. Mr. X invited the attention of the students at the globe of the universe which was placed in the classroom. He said in this map of the world, which country was the best. The students replied, naturally, the France, because they all belonged to that country. Mr. X told them forget about all other parts of the world and tell what city is the best in France. All replied in one voice that it was Paris. Thereafter, he asked them to tell the best place in Paris. The place where a person resides most of the time and has chosen himself to live there would naturally like the best. Therefore, all of them yelled, it was the campus. Thereafter, he inquired about the Department, which was best in the whole campus. For the same reason, all of them screamed to tell, the Department of Philosophy. Thereafter, the last question was who is the head of the Department. Mr. X was the head of the Department and like this he proved himself to be the best in the world.
44. This is a very short story but contains volumes of knowledge, which is being imparted through it. If the taxman behaves in the above manner, he can prove whatever he wants to prove and it would on the very face of it would seem as if it is the best solution. But this type of reasoning is not required while dealing with certain important questions of facts.
45. A combined gist of above story is that there cannot be any fixed rule or a straightjacket or a chemical formula, which can be said to be a sure shot test to judge the genuinenity of cash credit. This story tells that an unscrupulous or dishonest assessee who has no respect for law can play any tricks to evade payment of tax and can relate concocted stories which seems to be plausible and reasonable on the face of its. Therefore, it is for the taxman to discern the truth in the given facts and circumstances of that case. At the same time, the taxman has to act as ordinary prudent man instead of posing as a super human being and trying to prove himself as a numero-uno. He has to strike a balance while conducting himself with the taxpayers, by remembering the taxpayer is a respectable citizen and he contributes a lot towards the coffers of the Government, who in turn utilize this fund for the benefit and the welfare of the people at large. Therefore, the task of a taxman is very important because he has to walk on an edge of a razor and at the same time he has to maintain a balance between what is right and what is wrong. He has to follow the laws of the land before he can preach the taxpayer to abide by the law. The taxman has to conduct himself in a way which is friendly to the taxpayer by showing that he is not an enemy but a friend. This friendly manner, if adopted by the taxman should also be shown to be so overtly as well as covertly. All the precedents simply guide the decision-maker in given facts of a particular case and it is he who has to apply his judicial mind with all the prudence at his command to decide that case. More often than not the ratio of a decision is followed only by adopting its letters. The decision has to be followed both in its letter as well as the spirit. The spirit of a decision is its soul. Yes, to follow the letter only is not that harmful, but the unfortunate part of it is, that the letters are torn out of context from a given judgment and the same are put where it does not fit. In this melee, the real meaning of a decision is lost. The most useful precedents are usually lost when only from an excerpt of a decision, entirely different meanings are drawn by different people. In this regard, the examples of the famous decisions in the cases of CIT v. Steller Investment Ltd. and CIT v. Sophia Finance Ltd. , the ratios of which were considered for a long time to be divergent but when these were meticulously examined, it was found that the ratios were identical in both these cases. This confusion arose because of wrong inferences having been drawn from the headnotes of these cases. In the case of Sophia Finance (supra), the Full Bench of the Hon'ble Delhi High Court had given the finding that the existence of shareholders is must and to that extent enquiry could be made in the beginning. In case, the shareholders do not found to exist at all, that sum can be added under Section 68 of the Act. In the case of Steller Investment (supra), the facts regarding the existence of the shareholders stood explained in the very beginning and the Hon'ble Judges constituting the Division Bench gave a finding only thereafter. Therefore, the decisions of both the above cases are exactly identical but the headnotes of both these decisions created havoc for quite long time.
46. When the Hon'ble Judges of Patna High Court in the case of Addl. CIT v. Hanuman Agarwal held that it can never be within the exclusive knowledge of debtor to know the sources of income of the creditor. Once he is supplied the credits that he wants, he is satisfied. Once he has furnished the true identity, the correct address and the correct GIR number of the creditor, he fulfils his obligations under the Act. The assessee is not supposed to know the capacity of the money-lender or the cash creditor. This fact is within the exclusive domain of the creditor. It is for that specific purpose that Section 131 of the Act has been introduced so that in case of any suspicion, the ITO or the authorities concerned may exercise the power of Civil Court under that provision and call upon the creditor concerned to prove his capacity to pay and the genuineness of the transaction. Once the ITO is satisfied that the creditor is not telling the truth, it has been left open to the assessee to discharge his subsequent onus of proving the genuineness of the transaction and capacity of the creditor to pay, by cross-examining him.
47. Hon'ble Judges of the Calcutta High Court in the case of C. Kant & Co. v. CIT have held that in the case of cash credit entry it is necessary for the assessee to prove not only the identity of the creditors but also to prove the capacity of the creditors to advance the money and the genuineness of the transaction. If this case is read in its entirety it would be clearly revealed that the Judges did not want the assessee to do an impossible act. In the light of the given facts of that case it was held that it was a question of fact whether the onus to prove the capacity has been discharged in a particular case or not. In that case, the assessee was not able to discharge even the preliminary onus cast on him, in this regard. But, if one goes by the headnote or a limited finding of the above Calcutta case, he would be misled. Therefore, both the decisions have almost the identical ratio but the misreading of the two creates confusion. Thus, it is always a factual matrix of a given case, which has to decide the fate of given cash credit. The onus to prove that the apparent is not the real is on the person who claims it to be so, it was mandated by the Hon'ble apex Court as back as in the year 1973 by deciding a case of CIT v. Daulatram Rawatmull . The query of the legal practitioner that is it possible to ask the proof of the capacity of the lender is very much real and apparent and the answer to it is only and only big 'no'. Any or every decision which ordains the proof the capacity of the depositor, lender or the creditor, can never mean to ask for their direct capacity to advance, as has been sometime taken to mean.
48. In the light of all these observations, let it be stated that there may be cases where all the abovestated ingredients of Section 68 as established by the plethora of judicial pronouncements, are proved by the assessee, nevertheless the credit may not be genuine. For example, if the assessee has created a genuine firm with different identity with the help of certain strangers, but this fact was obscured from the Department or it remained overlooked anyhow, and the assessee has proved that he received deposit/cash credit through account payee cheque. That other firm or assessee is assessed to tax and also had paying capacity and transaction is also established to be genuine, can it be a valid cash credit. The answer is 'no'. What follows from the above, is that it is the overall commonsense and average prudence of the taxman, who is dealing with the facts of a particular case, which can decide the genuinenity of the transaction, of course, which includes all the above three ingredients. In the same manner, there may be cases, where the deposit was not through account payee cheque, no confirmation was even filed, but the entries are found recorded both in the books of the creditor and the assessee, and both of them are assessed with the same AO, who is having command over the records of both of them, he can immediately accept the cash credit as genuine. There is no need to even ask for any evidence, in this regard, any further, for that matter. That is why unlimited powers have been given by the precincts of this section and other sections of this Act to ascertain the veracity of a fact.
49. In a nutshell, it can be stated that the AO has to find out as to whether the deposit/gift/cash credit is a result of any collusion, is a result of any dubious device employed by the assessee, is a result of any subterfuge, which is aimed at evasion of tax. Therefore, even the cash credits by near and dear relatives and the partners of the firm can be genuine. These are to be doubted to a certain limit and thereafter the doubts should not be perennial.
50. Keeping in view, the above legal position, when the assessee has amply established on record that all the creditors in question, whose position is depicted in the following chart, stand proved on record;
Name Op. bal. Cr. during year Interest Withdrawal Balance
Uma Devi 84445 160400 29381 -- 274226
Rekha Devi -- 289679 32421 19500 302600
Sunita Devi 105731 149506 24000 -- 279237
190176 599585 85802 19500 856063
51. All the above three creditors are trade creditors. All of them are income-tax assessees and they have confirmed this fact by filing their affidavits. All the three have been examined by the AO. In their statements recorded by AO, they have categorically deposed that they had received goods from other concerns against deposits in those concerns and the goods so received have been given to the assessee. We have also gone through their statements, copies of which are placed on the record. In the face of such evidences, we are of the opinion that the rejection of the explanation of assessee by learned AO is unjustified. There is force in the submission of learned Authorised Representative that the trading result has been accepted by the AO and the purchases and sales have also been accepted and that no sales can be made without any purchase and these three parties have deposited the ground (sic) which have been sold by the assessee and in case the amount of Rs. 5,90,579 (cash credits) is added in the income of the assessee, the GP will give a rate of percentage of 31.86 per cent which is never possible in the business of cloth. This contention of the assessee seems to be logical. In our opinion, nothing more is required in proof from the assessee. Therefore, we confirm the impugned findings and dismiss this ground of appeal. Both the amounts have been correctly deleted.
Cross-objection
52. The only ground taken in the cross-objection by the assessee relates to small disallowances made by the AO and out of which some have been sustained by learned CIT(A). The ground of cross-objection reads as under:
1. That the learned authorities below has grossly erred in making and confirming the disallowance amounting to Rs. 20,520 (out of shop expenses Rs. 2000, travelling expenses Rs. 4,000 and shop rent Rs. 14,520). And the disallowance may kindly be allowed.
2. That the respondent reserves its right to add, amend or alter the grounds of cross-objection on or before the date of its hearing.
53. The assessee incurred an expenditure of Rs. 21,167 under the head office expenses as against last year's Rs. 9,207. These expenses related mostly to tea, coffee etc. for which no vouchers were produced. The AO disallowed Rs. 5,000 and learned CIT(A) reduced it to Rs. 2,000.
54. The assessee showed an expenditure of Rs. 42,675 under the head travelling expenses as against Rs. 20,634 in the last year. Vouchers for an expenditure of Rs. 33,290 were available. The AO disallowed Rs. 8,000, the learned CIT(A) reduced the same to Rs. 4,000.
55. As regards shop rent, the assessee claimed the same at Rs. 26,920. The AO disallowed Rs. 14,520 considering it to be not belonging to the assessee. The learned CIT(A) also confirmed the same.
56. After hearing rival submissions, we are of the considered opinion that there is no fallacy in the findings of learned CIT(A) in confirming additions of Rs. 2,000 out of shop expenses and Rs. 4,000 out of travelling expenses, for want of proper vouchers. These disallowances (of) expenses are not on higher side.
57. Insofar the payment of rent is concerned, it has been argued by learned Authorised Representative that the rent claimed in respect of shop Nos. B-1 and B-2 have been utilized by the assessee during this year as M/s Taparia Enterprises had not performed any business in this year. It is claimed that the rent was paid by the assessee for these because the assessee used these shops during this year. The learned Departmental Representative has referred to the vouchers for payment of rent in which the name of M/s Taparia Enterprises has been mentioned as a tenant.
58. After hearing both the sides, and after perusing the evidence on record, we are of the considered opinion that the sales of the assessee have increased considerably in this year and the shops were utilized by the assessee. M/s Taparia Enterprises has not done the business during this year. Although in the previous year M/s Taparia Enterprises had used these shops. The AO did not investigate into this claim of the assessee that these shops were used and utilized exclusively for his business although the vouchers were issued in M/s Taparia Enterprises' name. Keeping in view the entire facts of enormous increase in assessee's business and that the AO did not make further enquiries despite the clear stand taken by the assessee with regard to use of these shops for his business, we are of the considered opinion that this expenditure which related wholly and exclusively to the business of the assessee has to be allowed. Therefore, we delete the addition of Rs. 14,520 and partly allow the cross-objection.
59. In the result, the appeal of the Revenue is dismissed and the cross-objection is partly allowed.