Income Tax Appellate Tribunal - Delhi
Haji Nazir Hussain vs Income-Tax Officer on 30 June, 2004
Equivalent citations: [2004]91ITD42(DELHI), [2004]271ITR14(DELHI)
ORDER
K.C. Singhal, Judicial Member
1. The Hon'ble President, Income-tax Appellate Tribunal, vide order dated 17.2.2004, has nominated me as Third Member to express my opinion in this case on the following questions as been referred to him by the then Members Under Section 255(4) of the Income-tax Act, 1961:
"(1) Whether, on the facts and in the circumstances of the case, the Judicial Member's decision that addition of Rs. 4,38,284/- was unsustainable both on legal and factual ground i s correct or the view taken by the Accountant Member that the said addition rightly came to be made and confirmed under Section 68 of the Act is justified?
(2) Whether the Judicial Member has been right in holding that interest Under Section 217 of the Act was not leviable or the Accountant member's view has been correct that the assessee is entitled to only consequential relief after giving effect to the final order passed by the Tribunal?"
2. Brief facts giving rise to this reference are in short compass. The assessee was a forest contractor and thus dealing in timber. A survey operation Under Section 133A of the Income-tax Act, 1961 (in short Act) was carried out at the premises of assessee on 12.10.88 in the course of which a note-book was found containing certain cash transactions. The complete details of the transactions contained in the note-book are given by the Accountant Member of the Tribunal in para 33 of his order and, therefore, need not to be repeated. The period of these transactions is from 10.12.84 to 29.1.85. It starts with cash balance of Rs. 16,832.60 on 10.12.84. On the right hand side, cash payments are recorded while on left hand side, cash receipts are recorded. There are certain entries by cheques also. On the basis of such note-book, the assessment was re-opened Under Section 147. Since, according to AO, the assessee could not explain the source of various cash receipts in the note-book, the peak amount was worked out at Rs. 4,38,284/- and accordingly, an addition of Rs. 4,38,284/- Under Section 68 was made vide order of assessment dated 7.2.89. While completing the assessment, the AO also charged interest Under Section 217. The CIT(A) confirmed the order of assessment vide order dated 28.3.90. Aggrieved by the same, the assessee filed second appeal before the Tribunal.
3. Before the Tribunal, the learned counsel for assessee, Mr. G.C. Sharma, submitted that he had no objection if the revenue was to suggest that addition should be supported by the provisions of Section 69B/69C of the Act. However, the learned DR maintained that addition was to be made only Under Section 68. apart from the factual submissions (which are not relevant in this reference), the legal contention of the learned counsel for assessee was that provisions of Section 68 were not attracted as to sums were found credited in any one's account in the books of accounts maintained by it. On the other hand, the learned DR relied on the orders of the lower authorities and submitted that assessee had utilized its unaccounted money between 5.12.84 to 29.1.85.
4. The Judicial Member, considering the nature of entries, accepted the contention of assessee's counsel and held that no addition could be made Under Section 68. On the other hand, the learned Accountant member noticed that there was concurrent finding of fact that entries in regular cash books as well as rough cash book (note-book) related to the business of assessee. Since, such note-book was found from the premises of assessee, it was further held by him that onus was on the assessee to explain the entries introducing cash receipts. In the absence of any proper explanation, he upheld the addition made by AO and sustained by CIT(A).
5. Regarding charging of interest Under Section 217, the learned Judicial member deleted the interest charged by AO while the ld. Accountant Member held that it was consequential.
6. In view of the above difference of opinion, the learned Members referred the points of difference (already mentioned by me in the first para itself) to the Hon'ble President, ITAT, Under Section 255(4).
7. Both the parties have been heard in the light of material placed on record. The learned counsel for assessee has reiterated the contention that provisions of Section 68 are not attracted in this case as no sum is credited in any account. According to him, mere entry of cash received in the cash book does not amount to crediting in any amount as it amounts to debiting of cash account only. No other argument was advanced by him on this issue. Regarding interest Under Section 217, he did not advance any argument as we agreed that the same is to be treated as consequential. On the other hand, the ld. DR has completely relied on the order of ld. Accountant Member.
8. After considering the rival submissions, I am not inclined to accept the arguments of Mr. Sharma. There is no dispute that the provisions of Section 68 are applicable only when any sum is found credited in the books of an assessee maintained by him. However, books of account do not mean cash book only. It would mean complete record which a businessman is required to maintain to record his day to day transactions. According to the well settled principles of accountancy, each transaction is required to be treated under two heads - under one head, debit entry is made while under the other hand, credit entry is to be made. For example, if money is received from 'K' then cash account is to be debited and account of 'K' is to be credited by the same amount. For the same reason, if any sum is introduced in the books by the assessee from his own sources then cash account is debited while assessee's own account has to be credited. Cash book is nothing but the cash account which is debited if money is received and is credited if money is spent or invested by the assessee. In such cases, corresponding credit or debit entries are to be made by assessee in respective accounts. If such entries are not made, the accounts of assessee would not tally. Therefore, failure on the part of assessee to make credit entry in the respective account would not entitle the assessee to claim that no account is credited. The assessee cannot be allowed to take undue advantage of his own lapses/mistakes. Therefore, in my humble opinion, whenever any money is received by assessee and is entered in cash book, it can be said that sum is credited in the books of assessee even though corresponding credit entry in the ledger account may be made subsequently. If the contention of assessee is accepted then it would amount to circumvent the provisions of Section 68 which would further amount to allow the dishonest assesses to bring the unaccounted money in the books without paying any tax. Such construction of the provisions, in my considered opinion, is not permitted.
9. In the present case, there is no dispute that the note book/rough cash book relates to the business of assessee. There is also no dispute that cash receipts are recorded in this book on various dates. Hence, for the reasons given above, the provisions of Section 68 would squarely apply to the entries made in this book. Therefore, I am in agreement with the view expressed by the learned Accountant Member that provisions of Section 68 were applicable to the facts of the case.
10. Regarding the levy of interest Under Section 217, the counsel for assessee has not advanced any argument and has also agreed that interest is consequential. Accordingly, I agree with learned Accountant Member holding the interest Under Section 217 as consequential.
11. The matter would now go to the regular bench for necessary orders.
1. There were three issues for consideration before the Tribunal, (i) with regard to the addition of Rs. 4,38,284/- added in the assessment under Section 68 of the Income-tax Act, 1961, hereinafter referred as the Act; (ii) addition of Rs. 20,000/- out of expenses made on the ground that there were lack of details and vouchers and (iii) levy of interest under Section 217 of the Act.
2. For the reasons recorded in the proposed order (SIC) the Judicial Member addition of Rs. 4,38,284/- has been held to be wrong and unjustified both on factual and legal ground. The addition of Rs. 20,000/- also came to be vacated. The assessee's contention in relation to levy of interest was also accepted because the additions were held to be bad.
3. On the other hand, one of us i.e. the Accountant Member has held that addition of Rs. 4,38,284/- rightly came to be made and confirmed under Section 68 of the Act. On the question of deletion of addition of Rs. 20,000/- the Accountant Member has agreed with the decision of the Judicial Member. In respect of charging of interest, according to the Accountant Member, the assessee would be entitled to consequential relief after giving effect to the order finally passed by the Tribunal.
4. Accordingly, there has been difference of opinion and the following issues are referred to the Hon'ble President as provided under Section 255(4) of the Act:-
"(1) Whether on the facts and in the circumstances of the case, the Judicial Member's decision that addition of Rs. 4,38,284/- was unsustainable both on legal and factual grounds is correct or the view taken by the Accountant Member that the said addition rightly came to be made and confirmed under Section 68 of the Act is justified?
(2) Whether the Judicial Member has been right in holding that interest under Section 217 of the Act was not leviable or the Accountant Member's view has been correct that the assessee is entitled to only consequential relief after giving effect to the final order passed by the Tribunal?"
ORDER S. Grover, Judicial Member
1. This second appeal is directed against the Order dated 28-3-1990 passed by the Commissioner of Income-tax (Appeals), Jammu, hereinafter referred as the CIT(A), in relation to assessment year 1985-86 in respect of re-assessment framed on 7-2-1989 under Section 147(a) read with Section 143(3) of the Income-tax Act, 1961, hereinafter referred as the Act. Though there are as many as nine grounds enumerated in the Memorandum, the agitations are against confirmation of additions of Rs. 4,38,284/- under Section 68 of the Act, Rs. 20,000/- on the ground that there was lack of details and vouchers and that interest under Section 217 of the Act came to be illegally charged and such decision upheld.
2. Shri G.C. Sharma, Sr. Advocate, appearing for the assessee with Shri R.K. Dogra, Advocate made submissions and framed issues and propositions for our consideration and adjudication, which are summarised as follows:-
(i) Whether there is or was any evidence or legal warrant to support the conclusion that there was any cash credits introduced in the business of the assessee between 5-12-1984 to 29-1-1985.
(ii) Alternatively whether there was any evidence to support the allegation of the Income-tax Department that the assessee failed to explain the entries in the Register found and impounded at the time of survey in the face of books of accounts, which have been audited by the Chartered Accountant and which have been accepted as correct when original assessment was framed under Section 143(3) of the Act.
(iii) Again alternatively whether it could be said that the assessee failed to explain the entries in the Stock Arrival Register and/or the entries in the said Register could not be co-related with the books of accounts.
(iv) Whether there was any evidence to support the conclusion that the expenditure alleged to have had been incurred between 5th December, 1984 to 29th January, 1985 i.e. for 55 days was liable to be assessed under Section 68 and/or under Section 69B and/or 69C of the Act.
3. at the outset, Shri G.C. Sharma, Sr. Advocate, submitted that though the addition of Rs. 4,38,284/- was made under Section 68 of the Act but the assessee would have no objection if the Revenue was to suggest that the addition should be supported by the provisions of Sections 69B and for 69C of the Act. He submitted that clarification on this score was necessary because addition under Section 68 of the Act was liable to be knocked out on the short ground that the said provision related to addition on account of unproved cash credits and not for taxing alleged or proved unexplained investment on/or expenditure of which source was not known. However, Shri J.S. Arora, Sr. D.R., Deputy Commissioner of Income-tax, asserted and made it very clear that the Revenue was not going back on its stand, as far as the applicability of Section 68 was concerned and he was not making any suggestion as suggested by the appellant's Advocate that the addition should be viewed considering the provisions of Section 69B and/or Section 69C of the Act.
4. Since for the assessee, great stress was laid on the constitution of the Partnership because not only mostly unrelated but different communities were involved and the fact that it had been dissolved much before even the alleged cause of action for making the addition arose, history of the case must be brought in close focus before dealing with the issues framed and the related arguments.
5. The assessee was a partnership concern consisting of nine partners doing business as Forest Lessees for several years. Names and their profit & Loss sharing ratio are noted below:-
Name of the Partners. Ratio. ------------------------- ------- 1. N. Nazir Hussain. 25% 2. Smt. Mahajhabeen 15% 3. Smt. Vidya Rani 15% 4. Smt. Sugra Begum 10% 5. Smt. Suneeta Gupta 5% 6. Shri Baldev Raj gupta 5% 7. Shri Raghbir Singh 5% 8. Shri Bharat Bhushan 10% 9. Smt. Sharishta Gupta. 10%
The Accounting Period as per assessment order was the financial year ending on 31-3-1985.
6. Original return of income was furnished on 29-7-1985 (i.e. within the stipulated time) declared income of Rs. 3,80,660/- against which taxable income was computed at Rs. 3,92,912/- and after adjustment of registered firm tax of Rs. 90,340/- balance income of Rs. 3,02,570/- was allocated between the partners on 30-11-1987. Date of filing the return as also the date of framing of the assessment were particularly referred to for the assessee.
7. Keeping in view the nature and controversy, the accounting period involved, the constitution of the firm and that the Forest had come to be nationalised in the J.& K. State in 1984, it is considered expedient to notice the relevant portion of the first para of the original assessment order:-
"The assessee is a forest lessee. It has maintained the accounts which are closed and duly audited by the Chartered Accountant. The accounts are supported by balance sheet and profit and loss account. After discussion total income of the assessee is computed as overleaf."
8. We need not go to the minor additions, which were in Charity Account amounting to Rs. 1500/-, 1/4th of the car expenses and related depreciation, and some other petty expenses disallowances. In other words books after scrutiny were found to be in order and this aspect is important because in the reassessment no entries are found to be wrong in the books which formed the basis of fresh assessment also.
9. On 12-10-1988, there was a Survey Operation under Section 133A of the Act on the business premises and one Register marked as "Arrival of Timber for 1984-85 Accounting year" hereinafter referred as the Register, was taken away by the Survey Party, which, however, as per the Department, was impounded under Section 131(3) of the Act on 13-10-1988. Before proceeding further, this aspect is touched briefly because of the submission made by Shri G.C. Sharma, Sr. Advocate, that the assessee did not want to take any technical and legal advantage though concession cannot be there, inasmuch as, in a survey under Section 133A of the Act no document can be taken away whereas as a fact the Register was taken away by the Survey Party and it was only next day i.e. on 13-10-1988 that the impounding was done under Section 131(3) of the Act. The submission was that the taking away of Register in itself being invalid the assessee could have made a grievance of very grave injustice having been done and, therefore, the proceedings which followed were vitiated.
10. It may be stated here as a fact that in the Re-assessment Order which is dated 7-2-1989 the projection has been that the Survey Party having noticed certain documents on 12-10-1988 the assessee produced the same in the office on 13-10-1988 under Section 131 of the Act, but we have perused the Original Receipt dated 12-10-1988 given by Inspector of the Income-tax department in acknowledgment of having taken the Register by the Survey party on 12-10-1986 though formal impounding order was passed on 13-10-1988. Contents of the Receipt are as follows:-
"Received one register marked as arrival of timber for 1984-85 a/c year containing written & blank pages 56. Written pages 1 to 14, 16 to 18, 19 & 20, 22 & 23, 24, 29 to 30, 38 to 53.
Sd/- I.A. 12/10/88."
11. On the basis of certain entries in the said register (from 5-12-1984 to 29-1-1985) reassessment proceedings were initiated by taking recourse to the provisions of Section 147(a) of the Act by recording reassess Under Section 148(2) on 18-12-1988 but before that, statements of Hazi Nazir Hussain were recorded on 21-10-1988 and 7-12-1988 and statement of Shri Baldev Raj, partner, was also taken on 25-11-1988. Photocopies of their statements have been given to us by the Department through its Sr.D.R., Shri J.S. Arora, vide paper book dated 17-3-1992 containing 51 pages. At pages 28 to 31, photocopy of statement of Shri Baldev Raj dated 25-11-1988 is available, pages 32 & 33 contain statement of Hazi Nazir Hussain dated 21-10-1988 and pages 26 to 27 again statement of Hazi Nazir Hussain recorded on 7-12-1988. Additionally the Department has again annexed copies of the said two partners' statements at pages 41 onwards statement of Hazi Nazir Hussain dated 21-10-1988 (pages 47 to 48), statement of Shri Baldev Raj of 25-11-1988 (pages 43 to 46) and statement of Hazi Nazir Hussain dated 7-12-1988 (pages 41 to 42). Page 50 is copy of the statement of Shri Baldev Raj taken on 15-10-1988, which is the date of Survey. Page 51 is a photocopy of authorisation under Section 133(1)(b) of the Act issued by the Competent Authority.
12. For the assessee, paper book was submitted vide covering note dated 18-12-1991 consisting of 76 pages. In addition, the assessee filed copies of the assessment orders for the earlier and the later years and particularly on (SIC) was invited to the order for the assessment year 1986-87 to show that books of accounts came to be accepted though the date of assessment for 1986-87 is 22/27-2-1989 when the re-assessment under consideration was framed on 7-2-1989, and the Register contained entries for a substantial part of the accounting year relevant for the assessment year 1987-88. There is substantial duplication in the parts paper books except that in the assessee's paper book, past history and chart of Sale & Profit is also given.
13. Complying with the notice under Section 147(a) of the Act, the return was submitted on 19-1-1989 and the re-assessment, as already mentioned above, was framed on 7-2-1989.
14. We would like to notice the first statement of Hazi Nazir Hussain (supra) from the Revenue's paper book at pages 47 & 48 because of the insistence of the Sr.D.R. that in point of time such statement being the nearest to the Survey Operation should be considered as relevant. We are in full agreement that the two statements of Hazi Nazir Hussain to a great extent has the effect of resolving the controversy. But the statement go to favour the assessee's version because at no stage any discrepancy was accepted by the deponent or proved by the Assessing Officer:-
"Statement on oath of Sh. Nazir Hussain S/o Sh. Late Kh. Gulam Din R/o Rajinder Bazar, Jammu.
In compliance to the summons Under Section 131 issued on 13.10.1988.
In Nazir Hussain age 40 years give the following information on oath:-
Q. Are you a partner in the firm M/s. Hazi Nazir Hussain & Co.?
Ans. I am partner in the said firm at 25% share.
Q. Are you a working partner or not?
Ans. Yes, I am a working partner.
Q. On 12th Oct., 1988, I had conducted a survey on the business premises of your firm where were you at that time?
Ans. I was in Poonch.
Q. During the Survey operation, we have found a register marked as "Arrival of Timber 1984-85. In this register we have found certain transactions of receipts & payments which are recorded from 5-12-1984 to 29-7-1985. Can you give me knowledge about these transactions. I am showing this register to you?
Ans. I cannot say anything about the transactions in register unless I meet the Acctt. Sh. M.R. Sharma. But it is to be stated that he is no longer in service with me and I will have to trace him out.
Q. Now I will show you the ledger and cash books for the a/c period 1984-85 & 1985-86 which are impounded by me Under Section 131 after survey operation. Do you agree that they are correct books of a/c on the basis of which you have filed the I.T. returns for the Asstt. year 1985-86 & 1986-87?
Ans. Yes, I agree that these are correct books of a/c reflecting the genuine transaction for these years and the returns of income have been filed on the basis of these books.
Q. How much time you want for filing the final reply on this issue?
Ans. Please grant me 15 days time and fix the hearing on 14th Nov. 1988. In the meantime please supply me photostat copies the register.
Q. What do you want to say about the arrival of timber entries in this book?
Ans. According to me they must be genuine but I have to check up with the Accountant because it was he who entered the transactions in this book.
Whatever has been stated above is true and correct to the best of my knowledge and nothing has been concealed.
Sd/-
(HAZI MIR NAZIR HUSSAIN) 21-10-1988."
15. Next Hazi Nazir Hussain was again examined under Section 131 of the Act on 7-12-1988 and such statement also must be closely looked and, therefore, reproduced below because whereas for the Revenue, it was very strongly contended that there were contradictions. For the assessee, it was asserted that consistently it was stated that entries were made by Shri M.R. Sharma, erstwhile Accountant, who had left the service and that the assessee was not aware of the present address and that there was no question of there having been introduced any cash by him:-
"I, Hj. Nazir Hussain, s/o Shri Ghulam Din (late) R/o Talak Khatikan, Jammu, aged 40 years do hereby solemnly declare and confirm as under:-
Q.1 In your last hearing you had promised to give me the details of transactions recorded in the Note Book which is marked 'Arrival of Timber' for the year 1984-85. What you wish to state now? about the transactions regarding the cash receipts and the expenses shown in this note book?
Ans. The transactions are recorded by my Accountant Shri M.R. Sharma who has left the service and hence, I was not able to find him. In view of this fact, I am not able to give you the details of transactions recorded in this note book. However, the expenses recorded here tally with my regular books of accounts which are impounded by you. This is found out by me after scrutiny of the various registers. But as regards the cash credits in this note book, I am unable to throw any light because I am unable to trace the Accountant. I also wish to state that whatever entries are passed in the note book regarding the cheques received do tally with my regular books.
Q. 2 In case I wish to rely upon these entries in the note book for determining your income and if I consider that the cash credited in this note book is out of your black money and accordingly I want to tax it in your hands, what would you like to submit in your defence.
Ans. On a cursory verification, I have found that after 30-1-1985 the entries regarding the cash credited can be co-related with my books of accounts. As already stated above all the expenditure entries can also be co-related with my books. But I cannot tell you exactly about the entries regarding the cash credited before 30-1-1985 as I am still unable to trace out my Accountant.
A. 3 What efforts did you make to trace out the Accountant?
Ans. All that I know was that he belonged to Himachal Pradesh. I do not have his address. All that I did was to contact a few persons known to him in Jammu and asked them about his whereabouts.
I again state that whatever is stated above is true to the best of my information and knowledge.
Sd/- 7-12-88.
(HAZI NAZIR HUSSAIN)"
16. Coming to the statement of Shri Baldev Raj, which was recorded on 25-11-1988, it transpired that he was present when survey was conducted and his statement recorded (page 50 of the Revenue's paper book) and at that time regular cash book of 1-4-1987 to 31-3-1988 was being mentioned and it was emphasised that there were no accounts maintained for the period from 1-4-1988. Naturally, when the business had been closed, there could be none. Shri Baldev Raj appeared on 13-10-1988 when Notices under Section 131 of the Act were issued for Hazi Nazir Hussain for 21-10-1988 when he complied. It seems that Hazi Nazir Hussain was asked to appear on 25-11-1988 but since he was out of station, Shri Baldev Raj attended and submitted that he was not aware of the contents of the Register nor he could explain the same because the entries were written by the Accountant. On persistent questioning he stated that if there was any wrong entry it must be done by the Accountant. Some vouchers were required which he submitted that he would bring on 6-12-1988. On 7-12-1988, Shri Hazi Nazir Hussain appeared.
17. We detailing the above to show that at the relevant time Hazi Nazir Hussain was only being questioned and it is in this context that the constitution of the firm has been noticed and is considered important.
18. The revenue though took several dates to produce the seized records but only filed photocopies of the Register, statements of the two partners (supra) as other partners were not examined, copies of the order sheets, copies of the reasons recorded under Section 148(2) of the Act, examination of cash withdrawals not only for the accounting year under appeal but upto 2-8-1985 (page 19 of the Revenue's paper book).
19. For the assessee, Shri G.C. Sharma, Sr. Advocate, very assertively and emphatically submitted that there was no discrepancy in the Register and the regular account books which formed the basis of not only the original assessment but the re-assessment also. He argued that the assessee's Accountant's way of making entries in the Register which on the fact of it were sort of keeping tract of expenses incurred, most of which were to be paid and actually disbursed later on 29-1-1985, could not be made the basis of any addition much less of the extent of Rs. 4,38,284/-.
20. For the Revenue, Shri J.S. Arora, Sr.D.R., contended that the assessee having initially denied that the nature of the entries were not known to him, Shri Sharma arguments were wholly wrong and not worth taking any serious notice.
21. We, however, are not inclined to get involved into any deep controversy on the said score because the Register having been found at the business premises of the assessee and having been written by the same person who wrote regular books had to be explained by the assessee and if one or two partners who were examined could not explain it properly at that time it cannot justify shutting out the assessee's or its representative even at this stage from explaining the entries of the Register that too on the basis of entries in the books of accounts, taken into possession by the Department on 13-10-1988.
22. the entries of 5th & 7th December, 1984 in the Register (page 2 of the Revenue's supplied photocopy) which are the first one are reproduced below:-
"5.12.84 Cheque 20000/- 5/12 Freight 7750-40 7.12.84 Cheque 20000/- 6/12 Freight 12089-40 Telegram 15-00 Taxi Exp. 15-00 Yousaf: Gouri 25/- 25/-50-00 7/12 Telephone 5854 125-00 " 5869 1009-00 Printing Vouchers. 63-00 Purchased Stationery for Depot. 151-00
------
400000/-
Freight paid 1859-60
Manzoor Ali 20-00
Bashir Ahmed 20-00
-------
23167-40
Balance 16832-60
-------
40000-00"
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From the above, we notice Rs. 40,000/- drawn by cheques against which there is total of expenses amounting to Rs. 23,167-40. This was explained to us, and we have accepted the same, that entries regarding freight (Rs. 7750-40 + Rs. 12089-40) were only to project expenses incurred but which were to be paid later. It is correct that there are entries also mentioning freight paid, but the plausible point made by Shri G.C. Sharma, Sr.Advocate, was that it was not a case where the assessee lacked funds and could secure any benefit, because the period involved was only of less than 60 years. Again he emphasised that on 29-1-1985 in the regular books it was clearly mentioned that freight was paid to various transporters on challans though narration came to wrongly written by cheques. The learned Advocate laid great emphasis and submitted that if the Revenue had proved even in one instance that payment of freight was not made on 29-1-1985 as stated in the regular cash book and related debit entry in the ledger, but earlier, things would have been different. The point made out by him was that payments of freight were recorded as made on challans which gave the necessary details of number of trucks etc.
23. For the Revenue, naturally, Shri Arora emphasised and relied on the re-assessment order as also the impugned CIT(A)'s decision and submitted that the assessee had utilised unaccounted for money between 5-12-1984 to 29-1-1985 and withdrew money from its bank to show as to nothing was wrong and that the business activities and related entries in the books were normal transactions.
24. The assessee submissions on merits of the entries in the Register before the CIT(A), in a summary manner, were that the provisions of Section 68 of the Act were not attracted as no sums were found credited in any one's account in the books of accounts maintained regularly and which formed the basis of original and re-assessments. The system of expenditure followed by the appellant from year to year had been that liabilities on account of expenses especially at the Head Office Jammu were paid after a fortnight or a month or so when required amount was withdrawn from Bank and disbursements made. The expenditure such as freight of timber etc. was normally paid periodically when representatives of the Transport Companies with whom individual operators were attached used to come and collect payment and there was nothing unusual or abnormal in such like payments. In the period mentioned in the assessment order i.e. 5.12.1984 to 29-1-1985 the major expenditure was on account of freight only and which has been duly recorded in the regular books of accounts on 29-1-1985. That the assessee could have no motive by incurring an expenditure earlier and showing it at a later date when substantial funds were available in the Bank account throughout the year which it could have withdrawn earlier also. In fact this aspect was gone into by the Assessing Officer in original assessment as also in other years and it was found that this was the regular system followed by the firm year after year. The position of Bank balance with Hindustan Commercial Bank during the relevant period i.e. from 5-12-1984 to 29-1-1985 was as under:-
Date Bank balance. ----- ------------- 30.11.1984 Rs. 573,062/- 12.12.1984 Rs. 266,592/- 30.12.1984 Rs. 282,200/- 15.1.1985 Rs. 528,210/- 21.1.1985 Rs. 694,763/- 29.1.1985 Rs. 714,665/-
In view of availability of finances in the Bank at the relevant period substantially much more than actual expenditure due for payment, it could by no stretch of imagination be inferred by any prudent person that payment of expenses had been made earlier than actual dates of payment, as the firm could not derive any benefit by such manipulation. The allegation of the Assessing Officer that black money had been introduced for a short period was without any basis or logic. After all the Actual amounts of expenditure had been withdrawn from the Bank. To verify the contention of the appellant the system followed in earlier year and subsequent years need be gone into.
25. we are inclined to accept the above stated arguments and does because factual aspects were not denied and a copy of the entry of 29-1-1985 in the Register which was provided by the Revenue is in the following term and according to us clinches the issue in favour of the assessee:-
"Cheque of Expenses Rs. 3,70,401-40
encashed on 29-1-1985.
Total expenses 4,30,401.40
60,000-00 already cheques
encashed.
---------------
3,70,401-40."
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If the Register or any part of it was to be taken into consideration for framing the reassessment, one can only wonder as to how the above entries could be ignored.
26. The Assessing Officer has stated in the order that the assessee could not anticipate survey. Certainly such observations are worthy of appreciation but at the same time, it must not be overlooked that the assessee's accountant's above noted entries in the Register clearly corroborated the assessee's assertion and further proved by the entries in the regular books dated 29-1-1985. Further similar type entries and similar disbursements of expenditure in the Register and Account books have been accepted (but for the period between 5-12-1984 to 29-1-1985) rather a strange approach.
27. The figure of freight expenses appearing on the debit side totalled upto Rs. 3,70,401-40 and, therefore, there was no case for making any addition much less any justification for the CIT(A) to have upheld the same.
28. In face of the clear findings and observations in the original assessment and the type of reasons recorded for justifying the additions as also that the firm had ceased its business operations we delete the addition of Rs. 20,000/- also. To complete the picture, para 3 of the ITO's order is reproduced below:-
"3. Rs. 20,000/- are added in the income of the assessee for want of vouchers and details because on scrutiny of these expenses, I have found that certain vouchers were not available with the assessee. However, certain expenses are recorded in the note book and the assessee was expressing its inability to submit the vouchers, for example, the sundry expenses like tea, coffee, fruits etc., and also payments to various parties."
29. The assessee's grievance regarding interest under Section 217 of the Act is also accepted, since the additions are vacated.
30. In view of the above, answers to all the issues framed are given in the negative.
31. In the result, the assessee's appeal is allowed.
R.K. Bali
32. I have gone through the proposed order dated 24th August, 1992 passed by my learned brother, JM, in ITA No. 716 (ASR)/1990, but I have not been able to persuade myself to agree with the conclusion relating to the deletion of addition of Rs. 4,38,284/- made by the Assessing Officer and confirmed by the learned first Appellate Authority on account of cash credits introduced by the assessee firm in its Rough Cash Book as found recorded on the pages of "National Long Exercise Note Book" superimposed with the remarks arrival of Timber, 84-85".
33. At page 10, para 22 of my learned Brother's proposed order, the entries of 5th and 7th December, 1984, in the disputed register, have been reproduced, which indicates that a sum of Rs. 16,832.60 was to be carried forward on the next date. The next entries in the "National Long Exercise Note Book", disputed register will clearly indicate that it was actually a Rough Cash Book where receipts in the form of cash, Dasti were shown on the Receipt side an disbursement on account of freight paid, other expenses were shown on the Expenditure side. To project the controversy, it is considered desirable to reproduce the disputed entries from 10.12.1984 to 29.1.1985, upto which date the peak of the cash credits was worked out by the Assessing Officer at Rs. 4,38,254/- as mentioned in Annexure 'I' of the Assessment Order:-
10-12-84 Cash balance 16832.60
Dasti Recd. 62539.00
----------
79371.60
----------
paid freights 4648.00
Expenses 16650.00
----------
21298.00
Freight Depot 20463.80
Freight Depot. 2790.20
Opening Ceremony 100.00
Freight paid at
office 11187.20
----------
55839.20
Cash Haji 23030.00
----------
78869.20
Cash at office 502.40
----------
79371.60
11.12.84
Balance 502.40 Advance I/tax. 30000.00
Cheque HCB 50000.00 DD Jamit Singh 10000.00
Cheque HCB 10000.00 DD RL Kotwal 10000.00
Cheque 10000.00 Bansi Lal for
Cash received 10000.00 Tea etc. 50.00
----------
Out of 28030/- 30502.40 B/Commission DD 8.00
(it should be 23030)
19286.40 Freight paid 11151.00
with Haji Tea expense 5.00
ji 13030.00 Photostat 2.00
---------- ----------
6256.40 11216.00
----------
Cash balance 19286.40
Cash 19286.40 14.12.84 Freight
paid 4 trucks 3717.10
Tea expenses 3.00
Three-wheeler exp. 7.00
15.12.84 Freight 3 trucks 2789.00
Stationery purchased 249.50
Tea exp. office 7.00
----------
6772.10
Cash 12514.30
----------
Total 19286.40
----------
17.12.84 Cash 12514.30
17.12.84 Freight 20 Trucks 18758.80
(it should be 23030)
Recd. out of 28030 10000.00 Cost of one Tarpal 350.00
----------
22514.30 Telegram Doda 5.00
Three-wheeler exp.
3570.50 for Depot. 10.00
With Haji ----------
ji 3030.00 Total 18943.80
----------
540.50 Cash 3570.50
----------
22514.30
18.12.84 Cash 3570.50 18.12.84 cash paid freight
Recd. cash 10000.00 13 trucks 12228.40
----------
13570.50 Purchase Bulb etc. 70.10
purchased Stationery
for Depot. 12.00
Purchased Dibas 30.00
----------
12340.50
Cash balance 1230.00
----------
G. Total 13570.50
----------
19/12 Cash 1230.00 19.12.84 C.C. Forest 5000.00
Cash Recd. 10000.00 R.L. Kotwal 4000.00
Cash Recd. 5000.00 through Subash
-do- Moulvi Mohtab
Cash Recd. 4000.00 Din 500.00
----------
20230.00 Mohd. Yusuf Chowki-
dar. 15.00
Freight paid 9
trucks. 8511.20
----------
18526.20
Cash balance 1703.80
----------
20230.00
----------
Cash balance 1703.80 20.12.84 Freight paid
20.12.84 Cash Recd. 10000.00 10 trucks 9289.40
2.12.84 Cash Recd. 10000.00 Freight 17 trucks 15795.80
" " -do- 5000.00
---------- ----------
26703.80 25084.80
Cash balance 1619.60
----------
26703.80
----------
22.12.84 Cash balance 1619.60
Freight paid 16 trucks 14964.80
24.12.84 Cash recd. 18000.00 purchased Coat 140.00
----------
19619.60 Purchased Cell etc. 47.60
---------- Change of 2 Notes of
Rs. 100 each. 10.00
----------
15162.40
Cash balance 4457.20
----------
19619.60
----------
23.12.84 Cash balance 4457.20 25.12.84 Freight paid
25.12.84 Cash Recd. 10000.00 7 trucks 6507.20
---------- Cash balance 7950.00
14457.20 ----------
---------- 14457.20
----------
26.12.84 Cash balance 7950.00 26.12.84 Freight paid
Cash 10000.00 13 trucks 12084.40
Cash 10000.00 Purchased Carbon,
---------- chalk colour 139.60
18950.00 Mushtaq Rather 500.00
----------
12724.00
Cash balance 6226.00
----------
18950.00
----------
27.12.84 Cash 6226.00 28.12.84 Freight paid
28.12.84 Cash 1000.00 16 trucks 14869.80
Medicine Exp. 47.00
---------- ----------
16226.00 14916.80
----------
Cash 1309.20
----------
16226.00
----------
29.12.84 Cash 1309.20 31.12.84 J.N. Dhar 400.00
29.12.84 Cash Recd. 10000.00 Electric Bill 469.00
31.12.84 Cash 10000.00 Local conveyance 110.00
Cash 10000.00 Tea Exp. Office 121.50
----------
31309.20 Freight paid
27 truck. 2592.10
----------
261921.60
Cash balance 5116.60
----------
31309.20
----------
1.1.85 Cash balance 5116.60 2.1.85 Freight 5
2.1.85 Cash Recd. 10000.00 trucks. 4646.00
----------
15116.60 Cash balance 10470.60
---------- ----------
15116.60
----------
3.1.85 Cash balance 10470.60 3.1.85 Freight 9 Trucks 8361.80
Cash Recd. 10000.00 Cash balance 12160.80
---------- ----------
20470.60 20470.60
---------- ----------
4.1.85 Cash balance 12108.00 4.1.85 Forest A/c
Cash recd. 10000.00 Jahangir Hussain 300.00
Cash recd. 10000.00 Freight 10 trucks 9362.10
---------- Jamit Singh
32108.80 Ramban 10000.00
---------- ----------
19662.10
12446.70
----------
5.1.85 Cash 12446.70 7.1.85 Freight paid 8078.00
Cash balance 4368.70
----------
12446.70
purchased Coat
etc. 340.00
----------
4028.70
8.1.85 Cash balance 4368.70 8.1.85 Freight paid
Cash Recd. 5000.00 six trucks 5578.00
---------- Misc. exp. 26.00
9368.70 ----------
5604.00
Recd. cash 7000.00 Cash 10764.70
---------- ----------
16368.70
----------
9.1.85 Cash balance 10764.70 9/1 Freight 4
Recd. 5000.00 trucks. 3720.80
---------- Balance 12043.90
15764.70
----------
10.1.85 Cash 12043.90 10.1.85 Freight 8
Cash Recd. 14500.00 trucks 7434.60
---------- purchased Coat 44.50
26543.90 purchased Station-
ery. 57.00
----------
7536.10
Balance 19007.80
----------
26543.90
----------
11.1.85 Cash 19007.80 Telephone Bill 2828 206.60
Purchased Stationery Depot 131.00
Freight 2 Trucks. 1857.20
----------
2194.80
Cash balance 16813.00
----------
13.1.85 Cash 16813.00 13.1.85 Bill Travelling
Cash Recd. 10000.00 Nazir 50.00
Cash Recd. 5500.00 Bill Bashir Hussain 35.00
----------
Total 32313.00
Misc. ex. sweets 26.00
Bill Travelling Nazir 140.00
-do- 20.00
Misc. exp. 22.00
T.A. Bill Bashir 15.00
-do- 19.00
-do- 19.00
-do- 20.00
T.P.O. 500.00
Mushtaq Hussain
Mir. 110.00
Manzoor Hussain 300.00
Freight 12 trucks 11146.00
Freight 1 truck 929.20
----------
Total expenses upto
13.1.85 = 32361.00 13223.20
Cash balance 18749.80
----------
Total 32313.00
----------
14.1.85 Cash balance 18749.80 14.1.85 Freight paid
cash Recd. 10000.00 14 trucks 13006.60
---------- T.A. Bill of the
28749.80 Check post 13.00
----------
130019.60
Cash balance 15730.20
----------
G. Total 28749.80
----------
15.1.85 Cash balance 15730.20 15.1.85 Freight paid
6 trucks 5573.80
Telegram 8/-
Stamp 5/- 13.00
Local conveyance
Yousaf 5.00
Photostat 2.00
----------
5593.80
Cash balance 10136.40
----------
15730.20
----------
16.1.85 Cash balance 10136.40 15.1.85 Medical Exp.
Bashir Hussain 157.90
Cash Recd. 5000.00
--------- Mushtaq Rather
15136.40 for Doda TA 100.00
Freight paid
9 trucks 8561.40
----------
8819.30
Cash balance 6317.10
----------
15136.40
----------
17.1.85 Cash balance 6317.10 17.1.85 Kishan Chand
Cash Recd. 5000.00 Sharma Forest
---------- A/c. 100.00
11317.10
Cash Recd. 5000.00 Telephone Bill
---------- 5869 8.00
16317.10 Medicine 16.00
One coat for
Depot. 90.00
Freight 9 trucks 8264.00
----------
8578.00
Cash balance 7739.10
18.1.85 Cash 7739.10 18.1.85 Tourch Repair 8.00
Clerk Forest
Bhagad 100.00
Telephone Deptt. 50.00
Freight 4 trucks 3712.40
----------
3870.40
Cash 3868.70
----------
19.1.85 Cash balance 3868.70 19.1.85 Truck freight 3841.80
Cash Recd. 5000.00 Cash 5026.90
----------
Total: 8868.70
21.1.85 Cash balance 5026.90 21.1.85 Ab. Subhan 3000.00
Cash Recd. 10000.00 Mushtaq Hussain
Cash Recd. 10000.00 Rather 1000.00
---------- Bashir 100.00
25026.90
---------- Tea Exp. 7.50
Freight 21 trucks 19513.00
----------
23620.50
Cash 1406.40
----------
25026.90
----------
22.1.85 Cash balance 1406.40 22.1.85 optician for
Cash Recd. 10000.00 TO 270.00
Cash Recd. 10000.00 Coal 51.30
---------- Freight paid 17309.70
21406.40 Medicine Exp. 57.50
----------
17688.50
Cash 3717.90
----------
21406.40
----------
23.1.85 Cash balance 3717.90 23.1.85 Freight 4
cash Recd. 5000.00 trucks 3968.00
---------- Type letter 3.00
6717.90 ----------
---------- 3971.00
Cash balance 47446.90
----------
8717.90
----------
24.1.85 Cash balance 4746.90 24.1.85 Freight paid
Cash Recd. from 12 trucks 11146.80
Hazi Personal 10000.00 Tea Expenses 6.50
---------- ----------
14746.90 11153.30
---------- cash balance 3593.60
----------
14746.90
----------
25.1.85 Cash balance 3593.60 25.1.85 Freight paid 929.00
Cash Recd. 10000.00 Nazir Hussain Mir 1000.00
---------- Mushtaq Hussain
13593.60 Mir. 1100.00
25.1.85 Cash 2100.00 Vijahat Hussan
---------- on 12.1.85 300.00
15693.60
---------- Travelling Exp.
for Depot Exp. 10.00
----------
3339.20
Cash balance 12354.40
27.1.85 Cash balance 12354.40 27.1.85 Gh.Ahmed Wati Cont. 2000.00
Cash Recd. 2000.00 Freight paid 4645.00
Cash Recd. 4645.00 ----------
---------- Total 6645.00
18999.40 Cash balance 12343.40
----------
Cheque of Expenses 370401.40 total exp. 430401.40
cashed on 29.1.85 already cheque
cashed. 60000.00
----------
Balance 370401.40
----------
28.1.85 Cash balance 1354.40 28.1.85 Freight paid 15791.60
Cash Diff. 1645.60 Cash balance 8208.40
Cash Recd. 10000.00 ----------
---------
24000.00 24000.00
----------
29.1.85 Cash balance 8208.40 29.1.85 Jamit Singh 10000.00
Cash Recd. 22000.00 Ramban
----------
30208.40 Freight paid 17801.00
---------- Misc. Exp. 7.50
----------
27808.50
Cash balance 2399.90
----------
30208.40
----------
34. The above entries have been taken from the Paper Book furnished by the assessee at pages 16 to 24. The peak of Rs. 4,38,284/- was accepted to be correct by Sh. A.N. Raina, Accountant, who was present alongwith Haji Nazir Hussain, partner of the assessee firm at the time of hearing on 2.2.1989, before the Assessing Officer, which is quite evident from the order sheet Entry of that date.
35. The conclusion of my learned brother, J.M., in para 13 of his order that the statements given by Hazi Nazir Hussain partner favours the assessee's version is not correct, because in answer to question No. 2 of statement dated 7.12.1988, reproduced at page 8 of the proposed order of my learned brother, Hazi Nazir Hussain has stated as under:-
"On a cursery verification, I have found that after 30.1.1985, the entries regarding the cash credit can be co-related with my books of accounts. As already stated above all expenditure entries can also be co-related with my books. But I cannot tell you exactly about the entries regarding the cash credits before 30.1.1985 as I am still unable to trace out my Accountant."
36. The above statement clearly proves that the entries made in the 'National Long Exercise Note Book', actually relate to the business transactions of the assessee firm and it is conclusively proved, if we make a reference to the Order Sheet Entry dated 2.2.1989, furnished at pages 22 to 24 of the Paper Book filed by the Revenue, which is reproduced as under:-
"2.2.89 Sh. Haji Nazir Hussain attended, with Sh. A.N. Raina Acctt. and Sh. R.K. Dogra, Advocate. The test check of various entries of Exp. in the Note Book was made viz. -a- viz. the vouchers and the cash book. The assessee has debited mostly the consolidated entries in the Cash Book. Thus from the Vrs. maintained by the assessee, the details were verified viz-a-viz the Note Book & Cash Book. For example in the Note Book, the following expenses entries were verified:-
1. 7.12.84 Telephone expenses Vr. No. 5869 for Rs. 1009.00 as per Note Book.
Voucher verified & consolidated entry in the cash book 1397.00
2. "Telephone No. 5854 for Rs. 12500 as per Note Book included in the Consolidated amount of Rs. 1397.00
3. 21.1.85 Freight Exp. Rs. 19513 as per Note Book. Verified viz-a-viz-the Vouchers. There are number of vouchers for this amount.
4. 22.1.85 Freight paid Rs. 17309. The vouchers verified. The above payment is for number of trucks with consolidated amount.
5. 23.1.85 Freight paid 3968 as per Note Book included in the consolidated amount.
5. 24.1.85 -do- 11146 included in consolidated amount debited in the consolidated a/c in Cash Book.
Sh. Haji Nazir Hussain & Sh. A.N. Raina Acctt. thus agreed that all these entries of expenses are properly accounted for in the regular Cash Book in the consolidated manner and the Vrs. for all these entries are properly maintained by the assessee.
Thus the peak credit works out to Rs. 4,38,284/-. This amount being introduced in Dec., 1984 & January, 1985. Asstt. year concerned is 1985-86.
Sd/-10 Sd/-
Haji Nazir Hussain
2.02.89
I have checked the calculations mentioned in this Annexure regarding the computation of the credit (peak) and I have fund it correct.
Sd/-
A.N. Raina Accountant M/S Hans Raj Bharat Bhushan Shri Haji Nazir Hussain was once again asked the source of cash introduced for Dec. & Jan. to which again he explained his inability to explain the sources. After the first peak credit of Rs. 438284/- he stated that the cash introduced is out of the cheques shown in the Cash book for office expenses. The case is refixed for hearing on 7/2/89 at 10 AM.
Sd/-
Hazi Nazir Hussain 2.02.89"
Thus a combined reading of the statements of Hazi Nazir Hussain recorded on 21.10.1988, 7.12.1988 and the Order Sheet Entry dated 2.2.1989 clearly indicates that the various entries of expenses in the 'Long National Exercise Note Book' were made viz-a-viz-vouchers as well as the regular Cash Book. However, in the regular cash book the assessee has debited the consolidated entries relating to the expenses. In the regular Cash Book only receipt on account of cheques were shown while the cash receipts shown in the disputed Note Book were out of income of the assessee from undisclosed Sources.
35. It is pertinent to note that the assessee, before the Assessing Officer, initially denied any knowledge (sic) the entries in the "National Long Exercise Note Book" marked' Arrival of Timber which were made by Sh. M.S. Sharma Accountant of the assessee firm, who has left the service and as such the assessee was not able to explain the entries. During the course of proceedings before us, attempt was made by Sh. G.C. Sharma, Advocate, learned representative of the assessee, that the entries relating to freight were meant to project the expenses which were to be paid later and in fact these were paid subsequent to 29.1.1985 when the assessee withdrew a sum of Rs. 3,70,401.40 from its Bank by encashing a cheque. However, this argument of Sh. Sharma, learned counsel of the assessee cannot be accepted in view of the fact that in most of the entries relating to freight the narration given on the expenditure side of the Pohgh Cash Book - "National Long Exercise Note Book" is "paid freight", which clearly indicates that this represents the actual cash payment of freight for the trucks. Besides the freight, there are other payments on account of Telephone Bills, Commission for Demand Drafts, purchase of Stationery, purchase of Bulbs, purchase of Cells, purchase of coat, Electric Bill etc. which are contemporaneous expenses and for which the corresponding vouchers of respective dates are also available. Therefore, it stands to reason that the expenditure on account of freight was also paid in cash on the dates mentioned in the Rough Cash Book" National Long Exercise Note Book".
36. In the light of the above discussion, it has to be held that all the payments recorded in this Rough Cash Book" National Long Exercise Note Bllk" were made on the dates as mentioned in the said Note Book and it will be not at all proper to accept the submissions made by Sh. G.C. Sharma, Advocate, learned representative for the assessee, that the payments in respect of freight were in fact made on 29.1.1985.
37. The observations made by my learned brother in para 26 of his proposed order, that the Assessing Officer has not made any addition on account of similar cash credit entries and similar disbursement of expenditure in the above Register beyond the period of 29.1.1985, but made only addition (sic) for the period between 5.12.1985 and 29.1.1985, is rather strange, and has been made without appreciating the fact that the cash credits introduced beyond 29.1.1985 could be reasonably explained out of the withdrawls of Rs. 3,70,401.40, which was available with the assessee on account of encashment of cheque on the relevant date and which is also the explanation given by the assessee and accepted by the Assessing Officer as is clear from the Order Sheet Entry dated 2.2.19898 reproduced in para 33 above and marked 'X'.
38. The Assessing Officer has in a very well reasoned and lucid order discussed the facts relating to the addition of Rs. 4,38,284/- by invoking the provisions of Section 68 and it will be useful to reproduce para 2 of the Assessment Order to project the reasoning and the basis of addition of Rs. 4,38,284/-:-
"2. At the time of hearing I had examined all the entries in the note book viz-a-viz those in the cash book. Some of the entries recorded in the note book as receipts from cheques withdrawn from the bank were tallying with those in the regular cash book but the other cash entries in December, 1984 and January, 85 which are shown as receipts in the note book and the details of which are noted in the Annexure which are noted in the Annexure which is accompanied herewith, are not found recorded in the cash book. The cash receipts recorded till 29.1.85 amount to Rs. 4,38,284/-. Later on on 29.1.85 the assessee has withdrawn Rs. 3,70,201.40 from the bank for office expenses and as the consolidated entry for all those expenses recorded in the note book for this period i.e. Dec. 84 to Jan., 85 is made in the Cash Book on 29.1.85, the assessee has tried to explain the expenses in the regular cash book out of the cheque withdrawn as mentioned above. But in reality the fact remains that for meeting these expenses, the assessee has utilized its cash which was different from the cash withdrawn from the bank on 29.1.85. This argument was not controverted by the assessee or his counsel. In fact, in the note book after 30.1.85 also there are certain cash receipts shown but naturally, the assessee could explain them out of the amount withdrawn on 29.1.85 and also after that on various dates as recorded in cash book. This was on the ground that if the deptt. has taken stand that the expenses for December, 1984 and January, 1985 were out of the cash receipts shown in the note book, naturally, the cash withdrawn thereafter as recorded in the regular cash book on 29.1.1985 and also thereafter on various dates would be available with the assessee and the expenses, thereafter could be met out of such cash available. This argument of the assessee is acceptable because the expenses recorded in the note book afterwards are also found to be recorded in the cash book and the cash receipts after 30.1.1985 and recorded in the note book do not exceed the amount available with the assessee from time to time after 29.1.1985 and they could be easily reconciled by the assessee out of such cash available as recorded in the cash book. In short, the peak credit was determined for all the cash receipts shown in the note book and which were unexplained as regards their sources and the largest peak was arrived at on 29.1.1985 which was amounting to Rs. 4,38,285/- as mentioned in the Annexture. As regards, the explanation put up by the assessee regarding the sources of the cash credits noted in the note book as per the details recorded by me, it is quite clear that there is hardly any explanation submitted by the assessee except throwing the entire burden on the accountant who is not produced before me. As the hand-writing in the note book could not tally with that of the partners Shri Haji Nazir Hussain, or Shri Baldev Raj or the present Accountant Sh. A.N. Raina could not say with full certainity that the assessee only has written the note book. But the fact remains that it might be to the assessee's advantage in the background of this particular case not to produce the real person who has made these entries. But in any case that does not help the partners as regards the liability of tax, penalty or prosecution because the note book was found at the business premises of the assessee. No body could anticipate the survey operation which was conducted by me and hence it cannot be said that bogus book was deliberately placed at the business premises of the assessee. Secondly the note book does (sic) contain the real facts as regards the business transactions of the assessee. Otherwise as contended by Shri Haji Nazir Hussain himself entries relating the expenses could not have tallied with those recorded in the regular cash book. There are certain receipts by way of cheques shown in the note book which also tally properly with those recorded in the cash book. The only entries which do not tally with the cash book are the cash entries and as the assessee has introduced its black money and maniuplated the entries in the regular cash book by debiting the monthly expenses for all the items in a consolidated manner and to cover up the same by showing a bank entry on 29.1.1985, it was clear that there was no plausible explanation which the assessee could not think of and therefore, the partners of the firm went or throwing the blame on some accountant by creating a story that he only knew the nature of these entries. Thus, the story put by Shri Hj. Nazir Hussain and Shri Baldev Raj that only the accountant could know the nature of the entries is just to submit certain explanation in order to get away from the difficult burden of explaining the sources of the cash receipts which are from the black money generated by the firm. Accordingly, the note book is considered as reflecting the true and correct state of affairs of the assessee's business. Secondly, as no explanation has been given as regards the cash credits recorded till 29.1.1985 the entire amount of Rs. 4,38,284/- is added in the hands of the assessee as unexplained cash credits Under Section 68 of the Income-tax Act and the same is taxed as income from undisclosed sources."
39. The learned first Appellate Authority, has upheld the addition after recording in para 3 of the impugned order that the assessee was unable to explain the introduction of peak credit of Rs. 4,38,284/- in the rough cash book "National Long Exercise Note Book" between the period 10.12.1984 to 29.1.1985.
40. Thus it is seen that the Assessing Officer as well as the learned first Appellate Authority have given a concurrent finding of fact that the entries in the regular cash book as well as in the rough cash book/Note Book "National Long Exercise Note Book" related to the business of the assessee and since the note book was found from the premises of the assessee, it was for the assessee to explain the credit entries introducing cash receipts in the rough cash book/note book. Since the assessee could not think of any explanation, whatsoever, to explain the credits, he went on throwing blame for making the entries on the Accountant Sh. M.R. Sharma, who was never produced either before the Assessing Officer of before the learned first Appellate Authority or even before us. Thus it has to be held that the Assessing Officer as well as the learned first Appellate Authority were perfectly justified in holding that the Note Book "National Long Exercise Note Book" superimposed as 'Arrival of Timber-84-85' reflected the true and correct state of affairs of the assessee's business and since the assessee has not given any explanation with regard to the cash credits, the peak of which worked out to Rs. 4,38,284/-, the same has to be treated as the income of the assessee under Section 68 of the Income-tax Act, 1961.
41. Before concluding, I would like to meet the argument of Sh. C.C. sharma, Advocate, learned representative of the assessee that in the disputed period 10.12.1984 to 29.1.1985 the assessee was having substantial deposits in its banks and as such the assessee has no need to introduce its black money for a short period to meet the expenditure as reflected in the rough Note Book, which argument appears to have influenced the decision of my learned brother, JM.
42. The nature of impulsions that push men to the paths of avoidance and evasion is not very complex. Love of money is a basic human trait, and money is the root of the evil of evasion, and of avoidance too. The higher the income, the steeper the rate and tax evasion/avoidance, especially to those in the top income bracket, can promise to be an extremely attractive path. More so, when avoidance is not considered illegal by courts and chances of detection are remote.
43. If the argument of the assessee with regard to the available of funds in the bank is to be accepted to exclude the possibility of introduction of black money as cash receipts in the Note Book, then it has to be held that whosoever is having sufficient cash available in the bank, which is more than necessary to meet his worldly needs then that person will note indulge into tax evasion or avoidance. The above proposition has to be rejected because the more money the man possess, the greater is the thirst to acquire more money. Had it not been so then we would not have scandals like the Security Scan involving Sh. Harshad Mehta or Sh. V. Krishnamurthy, who having been possessed of crores of rupees were still engaged in acquiring more money through dubious methods.
44. Be that as it may, in the present case the undisputed facts are that the assessee had introduced cash as credited in "National Long Exercise Note Book"-/rough cash book, to meet the expenditure in relation to payment of electricity bills, telephone bills as well as freight of trucks for transportation of Timber and the assessee has no explanation for the cash credits introduced in the Note Book" National Long Exercise Note Book". Accordingly, the Income-tax Authorities were fully justified in treating the amount of Rs. 4,38,284/- as the income of the assessee firm from undisclosed sources under Section 68 of the Income-tax Act, 1961 and I have no hesitation in confirming the action of the Income-tax Authorities in this regard.
45. As regards deletion of Rs. 20000/-, I am in agreement with my learned brother, JM, that the adhoc disallowance of Rs. 20,000/- out of expenses is not at all justified and the order of the learned first Appellate Authority in this regard is reversed.
46. with regard to ground of appeal relating to the charging of interest Under Section 217, it is of consequential nature and the Assessing Officer is directed to recalculate the interest chargeable, if any, after giving effect to the order passed by the Tribunal.
47. In the result, the appeal filed by the assessee is partly allowed.