Income Tax Appellate Tribunal - Amritsar
Asstt. Cit vs Mahavir Metals & Alloys on 18 October, 2001
Equivalent citations: (2002)75TTJ(ASR)256
ORDER
N.K. Saini, A.M. This appeal by the department is directed against the order of the Commissioner (Appeals), dated 15-3-1994, relating to assessment year 1992-93.
2. In this appeal, the department has raised following grounds :
"1. On the facts and in the circumstances of the case, the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 2,50,000 + Rs. 12,500 (Intt.) made by the Income Tax Officer on account of unsecured loans raised by the assessee from Master Gagan Jain and Master Kartik Jain.
2. It is prayed that the order of the learned Commissioner (Appeals) may be vacated and that of the assessing officer be restored.
3. That the appellant craves leave to add or amend the grounds of appeal before the appeal is heard and disposed of."
3. The relevant facts related to the issue involved in brief are that during the assessment proceedings, the assessing officer noticed that the assessee during the year under consideration had shown to have received Rs. 80,000 from Master Gagan Jain and Rs. 1,70,000 from Master Kartik Jain, who are minor son and nephew respectively, of Shri Narinder Kumar Jain, one of the partners of the assessee firm. The assessing officer asked the assessee to explain the source of income of the minors. In response to that the assessee vide letter dated 9-12-1993, had contended that the minors received the gifts from Dr. Mrs. S.S. Sameyal in U.S. dollars cCopies of the pay orders of the dollars received from the above-mentioned person had been furnished before the assessing officer. The assessing officer came to the conclusion that the assessee could neither, establish any relation of Sh. Narinder Kumar Jain and his brother Sh. Kimti Lal with the donors nor could furnish any copy of the gifts deed as a token of proof. However, a simple confirmation letter in plan, paper from Dr. Mrs. S.S. Sameyal was given. Accordingly the assessing officer considered a sum of Rs. 2,50,000 as the income of the assessee and also disallowed a sum) of Rs. 12,500 being the interest on the aforesaid amount.
4. In the first appeal before the learned Commissioner (Appeals), the following arguments taken :
"(1) That the addition of Rs. 2,50,000 had been wrongly made in respect of those entries which were made in the books of the assessee-firm in the name of Master Gagan Jain & Master Kartik Jain, who had received gifts from a family friend living in Clinton Township in U.S.A., the complete evidence in regard to the same was furnished before the assessing officer.
(2) We have furnished proof of receipt of dollars by minor and thereafter out of such sum in Indian currency was lent as loan to the assessee-firm by the minors through their saving accounts.
Complete confirmation by the donar, who are residing abroad has been furnished earlier and also herewith along with copy of DD/transfer voucher in dollar through which the money has been gifted to minors, by having received the gift the minor became absolute owner of that sum and thereafter, they have lent Rs. 1,70,000 and Rs. 80,000 totalling Rs. 2,50,000 to M/s Mahavir Metal & Alloys from where they have been earning interest at the rate of 24 per cent till date.
The amount of interest so earned has been fully shown in the income return by the minors in assessment year 1992-93 in their individual return (copy of individual return of minor is enclosed herewith). Furthermore, in next year, i.e., assessment year 1993-94 after the introduction of provisions of clubbing of income of minor with parents, the amount of interest earned by minors has been again shown in individual return of father and tax has accordingly been paid on it (copy of fathers income statement showing clubbing of minors income is attached herewith). And furthermore the assessee-firm has deducted tax at source of amount of interest so paid to minors on amount borrowed from them.
Thus, in view of the above it is clear that the sum of money of minors in no way be linked as income of the firm. The only link between this sum of money with the firm is that the sum is loan received by the firm and the confirmation from lender has been placed on record and also the lender is showing income on account of interest therefrom in his individual return of income.
It is, therefore, requested/prayed that the addition of Rs. 2,50,000 kindly be deleted as the same is based on surmises and arbitrary and unjust."
It was further argued that no addition in the hands of the assessee could be made in respect of the two deposits as section 68 was not applicable because the assessee discharged the burden casted upon it to prove the identity of the creditor, his creditworthiness and the genuineness of the transaction. It was further submitted that the assessee could not be presumed to prove the source of source and the origin of origin. The loan givers of the assessee-firm were identified, they had also explained the source of funds available with them and there was absolutely no material to doubt the genuineness of the transaction.
The learned Commissioner (Appeals) accepted the arguments of the assessee and came to the, conclusion that the assessee had discharged the initial burden to prove the, identity of the creditors, their creditworthiness and genuineness of the, transaction. So there was no material to come to an adverse conclusion. Accordingly, he deleted the addition of Rs. 2,50,000 and consequential disallowance of interest of Rs. 12,500.
5. Being aggrieved, the department is in appeal. The learned Departmental Representative strongly supported the order of the assessing officer and also submitted that the assessee could not prove the source from where the creditor acquired the money deposited with the assessee. It was, therefore, argued that the assessing officer was justified in making the addition because the creditworthiness of the creditor was not proved.
6. In his rival submissions, the learned authorised representative reiterated the arguments placed before the authorities below and also submitted that the, assessee discharged the onus casted upon it, as far as the identity of the creditor, genuineness of the transaction and creditworthiness of the creditor was concerned, so there was no occasion to make the addition. He strongly supported the order of the learned Commissioner (Appeals) and also relied upon the decision of the Honble Madras High Court in the case of S. Hastimal v. CIT (1963) 49 ITR 273 (Mad) and the decision of the Honble Bombay High Court in the case of CIT v. Bhaichand N. Gandhi (1983) 141 ITR 67 (Bom).
7. We have heard both the parties and also gone through the material available on the record. In the instant case, it appears that the assessing officer made the additions by disbelieving the source of the sources, i.e., the source of the creditors namely Master Gagan Jain and Master Kartik Jain. It is not in dispute that the loanees were related to one of the partners namely, Sh. Narinder Kumar Jain. It is also not in dispute that the loans were given out of foreign gifts receipt. It is also noticed that during the year under consideration, the minors (from whom the assessee received the loans) have shown the interest income in their individual return and also in subsequent years. The income, i.e., the interest received from the assessee was clubbed in the hands of the parents of the minors. This contention of the assessee was not controverted by the assessing officer. Even at the time of hearing of this appeal, the learned Departmental Representative could not controvert this fact.
From the above, it is clear that there was no dispute regarding identification As far as the genuineness of the transaction is concerned, the assessing officer never doubted that, the only reason for making the addition was that the assessing officer disbelieved the creditworthiness of the creditor, although, the source was duly explained to him. It appears that the assessing officer doubted the source of the source. The Honble Madras High Court in the case of S. Hastimal v. CIT (supra) held that :
"After the lapse of a decade, an assessee should not be placed upon the rack and called upon to explain not merely the origin and source of a capital contribution but the origin of origin and source of source as well. The difficulty on the part of any assessee to explain a transaction which took place before a decade has to be borne in mind by the department and should under no circumstances be underestimated or taken advantage of by them."
Keeping in view the ratio laid down by the Honble Madras High Court in the aforesaid case, we are of the view that the learned Commissioner (Appeals) was justified in deleting the additions. We are also fortified for this view by the decision of the Honble Madras Pradesh High Court in the case of CIT v. Metachem Industries (2000) 245 ITR 160 (MP), wherein it has been held that :
"Once it is established that the amount has been invested by a particular person, be he a partner or an individual, then the responsibility of the assessee is over. Whether that person is an income-tax-payer or not and where he had brought this money from, is not the responsibility of the firm. The moment the firm gives a satisfactory explanation and produces the person who has deposited the amount, then the burden of the firm is discharged and in that case that credit cannot be treated to be the income of the firm for the purposes of income-tax".
8. In the result, the appeal of the department is dismissed.