Calcutta High Court
Commissioner Of Income-Tax vs Sahibganj Electric Cables Pvt. Ltd. on 27 February, 1978
Equivalent citations: [1978]115ITR408(CAL)
Author: Sabyasachi Mukharji
Bench: Sabyasachi Mukharji
JUDGMENT Sabyasachi Mukharji, J.
1. In this reference, we are concerned with the assessment year 1961-62. The relevant accounting period is the year ending 31st March, 1961. The assessee is a private limited company carrying on business of purchase of aluminium rods and manufacture of conductors. The trading results, as shown by the assessee, were more or less accepted by the ITO. In the course of the assessment proceedings, the ITO found the following loans in the assessee's account books :
Rs.
1.
Sri Kartar Singh 20,000
2. Bhagwandas Khemchand 20,000
3. ,, Narain Singh Amarlal 35,000
4. Jethanand Madhavdas 5,000 80,000
2. The assessee offered an explanation by its letter dated 18th February, 1966. In the said letter, the assessee stated, inter alia, as follows:
"Regarding hundi bankers we are to inform you that we have all the vouchers regarding the same and they are genuine parties. The matter was gone into in detail previously also. They are assessed to tax and all payments to them have been made by cheques. They have their bank accounts and income-tax files and they are not related to any shareholder or director of the company. Obviously they are genuine parties and the transactions cannot be treated as income from undisclosed sources. All the papers will be produced if you so desire. In this connection we would like to draw your kind attention to our letter Nos. SEC/28/5 and SEC/28/6 both dated 20th July, 1965.
The file number of Shri V. L. Chandi has already been given. Mrs. Rodrigues appeared before you and explained the position regarding her credit.
We hope you will kindly complete the assessment. The delay in making the assessment has caused unnecessary troubles, which could have been avoided had the assessments been completed at an early date. The managing director is out of station and we are experiencing further difficulties for the same.
We believe you will appreciate the position."
3. The sums were said to be representing genuine hundi loans from hundi bankers taken in the ordinary course of business. It was submitted that the assessee was in possession of vouchers evidencing the said transactions and the parties were assessed to income-tax. All payments to them were made by cheques. It was urged that the lenders had bank accounts and income-tax files and they were not in any way connected with any shareholder or director of the assessee-company. The ITO did not, however, accept the said explanation and observed, inter alia, as follows :
"Narainsingh Amarlal: From this party the assessee has taken hundi loans. The notice of summons issued on this party came back unserved.
The assessee was informed of this position by my letter dated 28th January, 1966. The hundi papers of this assessee were examined. It is seen that all the loans have been advanced by Shri Lalla who had admitted in connection with certain other cases that he has been doing bogus name-lending business under the name and style of 'Narainsingh Amarlal'. The assessee's plea is that the money has come by cheque. It is a well-known fact in hundi racket that cheques received were preceded by money being given in cash by the party concerned. In these circumstances I treat the money introduced in his name as the assessee's own income from undisclosed sources. The peak credit in this account comes to Rs. 35,000.
Jethanand Madhavdas: In this case the hundi papers itself were missing. The assessee obtained from this party a confirmation letter, IV-B which is significant: 'Please try to send us the above mentioned discharged hundi papers, which has not been returned by you '. The summons issued on this party came back unserved. On being informed by others the assessee has not produced this party before me. This party is known to be lending name for bogus loans. As such I am constrained to treat the money introduced in the name of this party as the assessee's own income from undisclosed sources."
4. The ITO, therefore, added back the entire amount of Rs, 80,000 as the assessee's income from undisclosed sources. In appeal, the AAC confirmed the same. The AAC held, inter alia, as follows :
"4. As regards the assessee's dealings with Mr. Narainsingh Amarlal, it is stated that the borrowings and repayments were made by cheques. While this is good as far as it goes it does not necessarily establish that Mr. Narayan Singh Amarlal had the resources to advance that loan. There have been instances of assessees bringing in their own moneys through a broker's bank a/c. I have come across cases in which this gentleman has admitted having accommodated his clients. His failure to produce his books and satisfy the Income-tax Officer of his capacity to do business in this scale would naturally evoke suspicion. I am of the opinion that the Income-tax Officer was justified in treating this loan of Rs. 35,000 as the assessee's own income.
5. One significant feature of the assessee's dealings with Mr. Jethanand Madhavdas is that the hundi purja has been lost. The assessee had produced a confirmatory letter from the broker in which he has asked for return of the discharged hundi. If the borrowing was genuine, I do not see why the broker should ask for the return of the purja. For, the hundi is normally in the custody of the broker during the subsistence of the loan and it is returned to the borrower when the lean is discharged. The request for the return of the hundi paper shows that this is fictitious."
5. The assessee thereafter went up in further appeal to the Tribunal. Before the Tribunal, however, the assessee did not challenge the first two items of Rs. 20,000 each with the result that the Tribunal confirmed the addition of the same. We are not concerned in this reference with the same also. With regard to the remaining two loans, that is, Rs. 35,000 and Rs. 5,000 in the names of Sri Narainsingh Amarlal and Sri Jethanand Madhavadas, respectively, the assessee's contentions were reiterated and reliance was placed on the reply dated 18th February, 1966, sent to the ITO which we have mentioned before. The Tribunal after considering the facts and circumstances of the case came to the conclusion that the loans were genuine. The Tribunal observed, inter alia, as follows :
"6. The learned counsel for the assessee has challenged the addition made by the Income-tax Officer and confirmed by the Appellate Assistant Commissioner in the second appeal before us and has reiterated the submissions made in his reply dated 18th February, 1966. Besides that, the assessee has also filed before us copies of confirmation letters dated 25th February, 1965, in the case of Jethanand Madhavdas. It was urged that in the said letter the proprietor of the said firm has also given his G.I.R. No. wherein he was assessed. The fact that the loan was received by cheque and the payments were also made by cheques was also urged. It was further shown that the cheque issued in repayment of the loan was also cleared through the assessee's banker. Certain photostat copies of the letter of Narainsingh Amarlal and of the bankers were also filed before us. The departmental representative, however, raised an objection to the admission of some of them on the ground that the same were not filed before the authorities below. The learned counsel then produced the original letter out of which photostat copies were made and urged that the same be compared and the genuineness be verified. The objections raised by the D. R. related to the letters of the bank sent to the assessee-company showing clearance of cheques, etc. However, even ignoring these letters to which the departmental representative has raised objection and considering the fact on the basis of the evidence already on record and considered by the authorities below, we do not see any reason to disbelieve the assessee that the said amounts were received as loans from the two parties aforesaid. The learned counsel for the assessee has also filed before us copies of the orders of the Tribunal in I.T.A. No. 5377 of 1965-66 and I.T.A. No.,3687 of 1966-67, in respect of assessment years 1960-61 and 1961-62, in the case of Advani Private Ltd, v. ITO, dated 15th June, 1966, and 18th August, 1966, respectively, wherein the matter regarding two hundi loans by the said two parties, viz., Narainsingh Amarlal and Jethanand Madhavdas had come up for consideration. In that case the Income-tax Officer did not accept the submission of the assessee and had added back the loans as the assessee's income from undisclosed sources. In those cases, the Tribunal, after considering the facts and circumstances of the case, came to the conclusion that the loans were genuine and the said additions were not maintainable. As a matter of fact, the argument advanced by the departmental representative before us that it has not been established that the creditor was not in a position to advance the loan and in the absence of the assessee's failure to show that the creditor was a real person and that the credit represented a loan from such person, the addition was justified, was repelled by the said Benches of the Tribunal in the aforesaid orders. As a matter of fact, the creditors were the same as in the instant case and in view of the orders aforesaid, we do not see any reason to hold that they were not genuine persons."
6. After further discussing the facts and the rival contentions the Tribunal deleted the additions of these two loans. It appears that the Tribunal has relied on the following :
(1) The confirmation letters of the respective parties giving the respective income-tax file numbers of the creditors, (2) the facts that all the amounts were received by cheques and the payments were also made by cheques, (3) cheques issued for repayment of the loans were "cleared through assessee's bankers, and (4) various other evidence produced before the Tribunal in confirmation of payment. The Tribunal, therefore, came to the conclusion that these loans were genuine and/or at least the assessee has discharged the onus that these loans were genuine and, therefore, these amounts cannot be added. The Tribunal having declined to refer any question of law to this court, after an order was made under Section 66(2) of the I.T. Act, 1922, the Tribunal has referred the following question to this court:
"Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the sum of Rs. 40,000 was not assessee's income from undisclosed sources on the basis of which it deleted the addition of the said sum as the assessee's income was perverse in the sense that no reasonable man could come to it on the materials on record ?"
7. We have noted the limited scope of challenge to the findings of the Tribunal. It was observed by Lord Normand in the judgment of the 1st Division of the Court of Session in IRC v. Fraser [1942] 24 TC 498 (C Sess) at page 501 :
"In cases where it is competent for a Tribunal to make findings in fact which are excluded from review, the appeal court has always jurisdiction to intervene if it appears either that the Tribunal has misunderstood the statutory language--because a proper construction of the statutory language is a matter of law--or that the Tribunal has made a finding for which there is no evidence or which is inconsistent with the evidence and contradictory of it."
8. Some of the decisions about the scope of the questions of perversity of the findings of the lower Tribunals were referred to by the House of Lords in the case of Edwards (Inspector of Taxes) v. Bairstow [1955] 3 WLR 410 ; [1955] 28 ITR 579. In the case of Mehta Parikh & Co. v. CIT [1956] 30 ITR 181 the Supreme Court observed that facts proved or admitted might provide evidence to support further conclusion to be deduced from them which conclusions might themselves be conclusions of facts and such inference from facts proved or admitted could be matters of law. The court would be entitled to intervene if it appeared that the fact-finding authority had acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have come to the determination in question. Bearing the aforesaid principles in mind, we have, in the instant case, to examine the question posed before us.
9. On behalf of the revenue it was contended that the assessee has not discharged the onus. In considering this contention, it may be relevant to remind ourselves of the observations of Lord Hansworth M.R. in the case of Stoney v. Eastbourne R. D. Council [1927] 1 Ch 367 at page 397 as follows :
"It appears to me that there can only be sufficient evidence to shift the onus from one side to the other if the evidence is sufficiently prima facie to establish the case of the party on whom the onus lies. It is not merely a question of weighing feathers on the one side or the other, and on saying that if there were two feathers on one side and one on the other that would be sufficient to shift the onus. What is meant is, that in the first instance, the party on whom the onus lies must prove his case sufficiently to justify a judgment in his favour if there is no other evidence."
10. Section 68 of the I.T. Act, 1961, will not be applicable in the instant case because this reference has to be disposed of in the light of the provision of the I.T. Act, 1922. But by Section 68 of the I.T. Act, 1961, statutory recognition to what was the state of law established by judicial decisions on similar matters under the I.T. Act, 1922, has been given. That principle is that where certain sums of money are claimed by the assessee to have been borrowed from certain persons, it is for the assessee to prove by cogent and proper evidence that these are genuine borrowings. What evidence, however, will in a particular case be sufficient to establish that the borrowings are genuine borrowings or to establish that the assessee has discharged the onus that prima facie lies on him, would depend upon the facts and circumstances of each particular case. In the instant case, the transactions in question were by cheques. The Tribunal has noted that the amounts were received by cheques and the repayments were also made by cheques. There were the confirmation letters of the respective parties and in the confirmation letters the income-tax file numbers of the alleged creditors were given. It further appears that the cheques for repayment of the loans were cleared through the assessee's banker. In this background, on the question that calls for determination, the Tribunal has taken the view that the assessee has discharged the onus prima facie that lay on him. Can it be said that the Tribunal has acted in a manner in which no reasonable man judicially trained could have possibly acted. We must also bear in mind that though the income-tax file numbers of the creditors were given, the revenue did not endeavour or at least there is no evidence of any such endeavour on the part of the revenue before the authorities below, to verify from the said income-tax records of the creditors or from the assessment records of the creditors as to whether the financial status of the creditors were such that it was not possible for them to lend the amounts in question, a fact which must be borne in mind in considering the weight of the evidence adduced. Counsel for the revenue contended before us that the Tribunal has acted perversly because the Tribunal has admitted irrelevant materials and rejected the relevant materials and has thrown the onus wrongly on the revenue. What material is relevant or not relevant would again depend upon the facts and circumstances of each case. The Evidence Act embodies the principles of relevancy in Section 5 to Section 16 which, however, are not applicable to the proceedings with which we are concerned. But the principles that emerge from these sections is that anything which has a bearing on the question at issue before the judicial tribunal would be a relevant fact. Judged by that yardstick, we are unable to accept the position that in relying on the materials, mentioned or enumerated before, the Tribunal has admitted irrelevant materials, irrelevant in the sense that the materials which have no bearing on the question as to whether the loans in question were genuine or not or the parties were capable of lending the money as they have alleged to have done. It was, then, submitted that the Tribunal has refused to admit the relevant materials. In any event, it was urged that the ITO as well as the AAC have referred to the fact that there was a hundi racket. It was further referred that one Sri Lalla had admitted in connection with certain other cases that he had been doing bogus name-lending business under the name and style of Narainsingh Amarlal. Further, the AAC has noted that the assessee had produced a confirmatory letter from the broker in which he had asked for return of the discharged hundi. The AAC has observed that if the borrowing was genuine, then there was no reason why the broker should ask for the return of the purja. According to the AAC that hundi would normally be in the custody of the broker during the subsistence of the loan and was to be returned to the borrower when the loan would be discharged. The request for the return of the hundi paper, according to the AAC, showed that this was a fictitious one. The Tribunal has exhaustively set out the relevant orders of the AAC; The Tribunal has referred at page 28 of the paper book to the fact that, in connection with another case, Sri Lalla had admitted that he was doing bogus name-lending racket. The Tribunal has also observed about the hundi racket. It is true that the Tribunal has not placed much weight on the facts emphasised by the ITO or the AAC. In the context of certain facts to appreciate, the evidentiary value of certain events is not to reject the relevant materials. Comments had been made that the Tribunal has referred in its order to the case of Advani Pvt. Ltd, But that was not material as such but the decision of the Tribunal (sic). It was not even that such a fact was taken into consideration by the Tribunal behind the back of the revenue. The revenue had full knowledge that such facts were being placed before the Tribunal and they did not seek any opportunity to place any material to contradict the same. In this background, in our opinion, the Tribunal cannot be condemned to have acted improperly in relying on the said material referred to in the order of the Tribunal. In this background, we will have to examine some of the decisions referred to on behalf of the revenue.
11. Reliance was placed on the observations of the Supreme Court in the case of Dhirajlal Girdharilal v. CIT [1954] 26 ITR 736, where the Supreme Court observed that when a court of fact acted on material partly relevant and partly irrelevant it was impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its finding. Such a finding of the court, the Supreme Court observed, was vitiated because of the use of inadmissible material and thereby an issue of law arose. With that principle, with respect, there cannot be any dispute. But, as we have noted before, in the facts and circumstances of the case, no infraction of that principle arises.
12. Reliance was also placed on the observations of the Madras High Court in the case of A. D. Jayaveerapandia Nadar v. CIT [1964] 54 ITR 401. There also the court dealt with the facts in that case and it is not necessary, in the background of the present facts with which we are concerned, to deal with the said decision in detail. Our attention was also drawn to the observations of this court in the case of Sriram Jhabarmull (Kalimpong) Ltd. v. CIT [1967] 64 ITR 314 (Cal), where the court observed that the onus of proving that the cash credit entry appearing in the assessee's account books did not represent income of the assessee was on the assessee and, though the burden might shift to the department in some circumstances, it was not correct to say that the ITO was not entitled to reject an explanation of the assessee without some other positive evidence falsifying the assessee's case. The true view was that while the ITO was not bound to accept as true any doubtful explanation which the assessee might put forth he could not also arbitrarily reject the assessee's explanation. In the instant case before us it appears that the Tribunal has found that there was no reasonable ground for rejection of the assessee's explanation by the ITO. We cannot find that such a view of the Tribunal is perverse or .unreasonable.
13. Our attention was also drawn to the decision in the case of Lata Mangeshkar v. CIT [1973] 88 ITR 336 (Bom), where an amount of Rs. 95,000 was found in the accounts of the assessee. The assessee claimed that the amount represented the loans taken from some persons. She was, however, not able to prove that the loan transactions were really with the persons from whom the loans had ostensibly been taken and the persons were not mere benamidars. The Tribunal came to the conclusion after detailed examination of evidence and witnesses that the transactions of loans were fictitious. As noted before, whether in a particular case, the evidence adduced by the assessee in explanation of the loan transaction should be accepted or not or would be sufficient to discharge the onus for the assessee or not, would depend on the facts and circumstances of the case.
14. Our attention was also drawn to the decision of this court in the case of Sikri & Co. Pvt. Ltd. v. CIT , where it was reiterated that Section 68 of the I.T. Act, 1961, was the statutory recognition that was previously established by the judicial decisions under the I.T. Act, 1922, and it was for the assessee to prove with cogent and proper evidence that the alleged loan transactions were genuine borrowings because the facts were exclusively within the knowledge of the assessee. In that case, summons under Section 131 of the Act were issued by the ITO to nine creditors to appear with their books but the summons could not be served as the alleged lenders were not traceable at the addresses given by the assessee. The assessee did not give any further information whether those lenders could be traced anywhere else. There was no other evidence adduced by the assessee showing the position of the alleged creditors and their financial ability. The alleged creditors had made confessions before, the respective ITOs who were assessing them that they had never lent these moneys though these allegations were not made in any proceedings in which the assessee was a party. But these statements were brought to the notice of the assessee who was given an opportunity to contradict or bring evidence contrary thereto. In those circumstances, the Tribunal took the view that the assessee had not discharged the onus. This court held that such a view of the Tribunal could not be said to be perverse or an impossible view. It may be mentioned here that unlike the case referred to hereinbefore, in this case the assessee did give further evidence of the financial position of the alleged lenders and had given the income-tax file numbers which would prove prima facie the financial ability and the strength of the alleged lenders. In this case before us, there was no confession as such that the transactions in question with the assesses were fictitious and there was no question of such confession or statements being brought to the notice of the assessee and the assessee being given an opportunity to adduce or contradict any such statement. In any event, as mentioned hereinbefore, if on these facts a court of fact finding comes to the conclusions that the assessee has discharged the onus that lay on him, it is not possible to say that such a view is perverse in the sense that no reasonable man could come to such a finding.
15. In the aforesaid view of the matter, the question referred to this court must, therefore, be answered in the negative and in favour of the assessee.
16. The parties will pay and bear their own costs.
Guha, J.
17. I agree.