Income Tax Appellate Tribunal - Nagpur
Gopal Bindraban Agrawal vs Assistant Commissioner Of Income-Tax. on 17 February, 1997
Equivalent citations: (1997)59TTJ(NAG)450
ORDER
R. SWARUP, J.M. : February, 1995.
This appeal by the assessee is directed against the CIT (A)s order dt. 27th August, 1992, relating to the asst. yr. 1982-83.
2. The assessee has taken the following ground in this appeal :
"The learned CIT(A), Nagpur, erred in confirming the addition of Rs. 1,00,000 as income from undisclosed sources."
3. Briefly stated the facts of the case are that the assessee is an individual and his main source of income is share income from the firm Rajesh Steel Industries and Lalchand Gajanan, Nagpur. In the accounts of the firm Lalchand Gajanan, the assessees capital account was found credited with sum of Rs. 1,00,000 on 15th April, 1981. The AO asked the assessee to explain the identity, credit-worthiness of the creditor and the genuineness of the transaction and also to prove the financial status of K. P. Rai and also to explain the change of name of Shri K. P. Rai to that of Shri K. Prahlad Rai Agrawal.
Later on it was explained by the assessee that Shri K. P. Rai is the father-in-law and Shri Prahladrai Agrawal and Shri K. P. Rai is the name of the same person. The assessee further explained that it was an interest-free loan and the sum of Rs. 1,00,000 was remitted by demand draft payable on the SBI, Nagpur, from the SBI, Hyderabad, on 11th April, 1981. The assessee was asked by the AO to produce Shri K. P. Rai personally but he failed to do so. The AO found that the signatures on the confirmatory letters were not of Shri K. P. Rai/Prahladrai Agrawal. The AO after scrutiny of the evidence came to the conclusion that the onus which lay on the assessee to prove the genuineness of the credit was not discharged. Hence he added the same under s. 68 of the IT Act. On appeal before the CIT(A), the assessee has taken the following arguments :
"(a) K. Prahladrai is a firm in Hyderabad.
(b) The appellants father Shri K. Prahlad Rai is a partner in the said firm.
(c) The firm advanced Rs. 1,00,000 to the appellant through an account payee demand draft on the SBI Nagpur, on 11th April, 1981.
(d) The firm K. Prahlad Rai is assessed by the ITO, H-2 Ward, Hyderabad at GIR No. K-313.
(e) Shri K. Prahlad Rai alias K. P. Rai father-in-law of the appellant signs his name as P. R. Gupta, short-form for Prahlad Rai Gupta."
On the basis of this argument, as mentioned above, the CIT(A) restored the matter back to the file of the AO to decide it afresh after admitting affidavit of Shri K. Prahlad Rai/Shri P. R. Gupta, as well as a copy of the balance sheet of K. Prahladrai as on Diwali, 1981. The case was fixed for hearing as on 19th March, 1987, an the authorised representative for the assessee was directed to the file confirmatory letter in regard to loan in dispute and also to specifically mentioned the correct name of the lender along with his fathers name, surname, address, etc. together with he correct Income-tax and wealth-tax GIR No. On 25th March, 1987 the assessee attended and filed a xerox copy of the affidavit sworn by Shri P. R. Gupta, confirming the transaction, with the averments that K. Prahlad Rai was assessed with ITO, H-2 Ward, Hyderabad at GIR No. K-313. The ITO conducted enquiries from his counterpart at Hyderabad which revealed that there was no such case on the said GIR number and he could not thus verify the veracity of the averments made in the affidavit. So as per the enquiry, AO found that incorrect GIR number was given. This fact was brought to the notice of the counsel for the assessee and he was asked to file the copies of the past assessment orders with a view to ascertain the veracity of the statement of the assessee. But he failed to do so. The AO further found that search took place at the residential premises of Shri K. Prahlad Rai/Shri P. R. Gupta and several books of account were seized. On the basis of the above facts the AO disbelieved the averments of the affidavit as it did not inspire confidence because the GIR number mentioned in para 4 of the affidavit (GIR No. K-313) as assessed by the ITO, H-2 Ward, Hyderabad, was found to be incorrect. The AO, therefore, wanted to examine the deponent that is, P. R. Gupta/K. Prahladrai and accordingly issued summons under s. 131 dt. 18th November., 1987, which was personally served on Shri K. R. Gupta/K. Prahlad Rai on 3rd December, 1987, requiring his personal attendance on 7th December, 1987, at 11 a.m. in the office of the IAC, Assessment I, Third Floor, Aayakar Bhawan, Basheerbagh, Hyderabad. The assessee was also directed to remain present on the said date, time and place. The AO on 7th December, 1987, personally visited Hyderabad and Shri P. R. Gupta/K. Prahlad Rai did not attend the office in spite of personal service of the summons. However, his son Shri Rajendra Kumar Gupta attended and stated that Shri K. P. Gupta/K. Prahlad Rai was sick and was bed-ridden due to paralysis and was not in a position to comply with the summons to give any statement. On medical certificate was filed in support by (sic-of) it. At that time Shri Vijaykumar Kabra. C.A., showed acknowledgment No. 3401, dt. 24th July, 1982, of the ITO, H-2 Ward, Hyderabad, showing that return of income for asst. yr. 1982-83 was filed and it was the last assessment as the firm was closed thereafter. A commission was issued to Income-tax Inspector and a questionnaire was given to him and the counsel of the assessee accompanied him and after executing the commission, the report in the shape of replies was filed on 9th December, 1987 duly signed by P. R. Gupta/K. Prahlad Rai. The Income-tax Inspector as Commissioner reported that he was normal and not bed-ridden. Accordingly, on 9th December, 1987, when Rajendrakumar son of P. R. Gupta/K. Prahlad Rai attended, he was informed about these facts and it was also informed that the statement of Shri P. R. Gupta would be recorded at his residence on the same day by the AO. At this juncture Shri Rajendra Kumar agreed to bring Shri P. R. Gupta at 11 a.m. on 11th December, 1987, but on 11th December, 1987, none attended. The assessee, however, appeared at 3.30 p.m. and was informed that his witness, namely, Shri P. R. Gupta/K. Prahlad Rai had not appeared as per the time taken by him. By letter dt. 14th December, 1987, the assessee was informed as under :
(i) The firm K. Prahlad Rai is said to have been assessed by the ITO, H-II Ward, at GIR No. K-313, as per your statement. Enquiries from the said ITO reveal that there is no such case on his GIR No. K-313.
(ii) During my camp at Hyderabad Shri Rajendra Kumar, son of Shri Prahlad Rai attended along with Shri Vijay Kumar Kabra, C.A. They could not produce any assessment orders passed in the name of the said firm by any ITO. They only filed a copy of balance sheet and partners accounts and P&L a/c. relevant to the asst. yr. 1982-83, according to which the said firms net profit was only Rs. 6,151 distributed amongst Shri Prahlad Rai, 60 per cent and Smt. Pramiladevi (daughter-in-law of Shri Prahlad Rai) 40 per cent. They could not produce similar balance sheets for any of the earlier years or subsequent years. It was admitted that for years prior to 1982-83, this firm was having meagre income and in fact, for the period ending Diwali 1981, no business was done at all. It was also admitted that Shri Prahlad Rai was a partner in the said firm in his individual capacity, and was not assessed to income-tax or wealth-tax as the income was petty. The firm was also closed with no business after Diwali 1981, and no books of account were maintained subsequently. From the books of account seized from the residence of Shri Prahlad Rai, one cash book and ledger were found in which some entries were interpolated incorporating the advance of Rs. 1 lakh made to you on 11th April, 1981. On scrutiny of the cash book of Prahlad Rai, it was found that it was not a book which was written from day-to-day but in the nature of noting of certain transactions as brought to their notice. As admitted by them, the business was not going on well, and there was never adequate cash balance to make available amount to the tune of Rs. 1 lakh. After enquiries, it is also found that Shri Prahlad Rai has not adequate financial resources as he was not assessed to income-tax as individual, and his only source of income was of the HUF consisting of rental income of about Rs. 10,000 per annum which is just adequate to meet the expenses of the family. Summons were issued in his name, with copy to you, requiring his attendance at Aayakar Bhawan, Hyderabad, on 7th December, 1987, when his son appeared and pleaded that Shri Prahlad Rai was sick and bed-ridden due to paralysis. He was given a questionnaire calling for certain details. On 9th December, 1987, Shri Rajendrakumar, son of Shri Prahlad Rai attended and filed replies to the questions duly signed by Shri Prahlad Rai. It was brought to his notice that enquiries reveal that Shri Prahlad Rai was not actually bed-ridden and he could attend the office in compliance with the summons. Alternatively, it was suggested that the statement will be recorded at his residence. Shri Rajendrakumar agreed to bring Shri Prahlad Rai to the office on 11th December, 1987, at 11 a.m. positively. On the said date and time, none attended and it was also brought to your notice when you appeared before me at 3 p.m. on 11th December, 1987.
You are hereby given a final opportunity to produce the witness Shri Prahlad Rai, for detailed examination on the various points discussed about before finalising the assessment. The case is finally fixed on 29th December, 1987, at 11.00 a.m. in Room No. 213, Aayakar Bhawan, Nagpur. Your presence also will be necessary on the said date. If you fail to avail this opportunity, the assessment will be completed on the merits of the information available on record."
However, on 11th December, 1987, no reason was shown for not appearing before AO. On 29th December, 1987, Shri Challani, C.A. appeared and filed a written reply to the following effect :
"On enquiry from Shri Vijay Kumar Kabra, CA, it was informed that Shri Kabra along with Shri Rajendra Kumar and Shri Prahlad Rai attended the office on 11th December, 1987, at about 11.00 a.m. at Hyderabad. They waited for sufficiently long time but could not meet you.
Due to non-availability of Shri Kabra at Hyderabad, it has not been possible to contact him and produce Shri Prahlad Rai today for examination, Shri Kabra is supposed to return to Hyderabad by 5th of January, 1988.
The undersigned shall contract him and find out as to when he along with Shri Prahlad Rai can appear before you honour at Nagpur.
You are, under the circumstances requested to kindly give further time of about 15 days so as to enable the assessee to produce Shri Prahlad Rai for examination."
Again he requested to issue fresh summons to Shri K. P. Gupta/Shri K. Prahlad Rai and volunteered that the assessee will make arrangement to pay the travelling expenses at Hyderabad to this witness to appear at Nagpur. However, the AO accepted the request and issued fresh summons on 30th December, 1987 with a copy to the assessee and a covering letter fixing the case for 18th January, 1988. On 18th January, 1988, Shri Challani, C.A. appeared and requested for issue of commission to examine Shri Prahlad Rai at Hyderabad, as Shri Prahlad Rai had not complied with the summons issued earlier. So the request of issue of commission was accordingly rejected. The assessee had given a reply dt. 20th January, 1988, as mentioned on p. 6 of the assessment order. The AO, under the above facts and circumstances, examined the entire material on record and found that the assessee failed to discharge the onus which lay on him and had adopted dilatory tactics and deliberately failed to produce the said creditor and ultimately when he failed in his mission then on advice arrested the further proceedings of the case by making a request for issue of commission. The AO after considering the entire matter and conduct of the assessee and his father-in-law concluded that the material witness was being withheld for ulterior motive so he rejected his request and framed the assessment and thereby added the same as income of the assessee from undisclosed sources under s. 68 of the IT Act.
4. On appeal before the CIT(A), the authorised representative for the assessee almost repeated the same submissions which were advanced before the AO. He contended that the assessee had discharged the onus which lay on him by showing that the amount in question had been received by account payee draft by filing confirmatory letter from the creditor, namely R. P. Gupta/Shri Prahlad Rai Agrawal in the shape of an affidavit and the AO was not justified in rejecting the averments in the affidavit as false merely because the GIR number quoted for asst. yr. 1982-83 was not found entered in the register relevant for the purpose concerning the AO, Hyderabad, in 1987, in view of the fact that the assessee had filed a copy of the acknowledgment allegedly obtained from the ITO, Hyderabad, in respect of the return filed before him. He also contended that the amount in question had since been returned back to the creditor by account payee cheque and the creditor had confirmed the same in writing and the said amount was credited in the bank account of the assessee. So the AO was not justified in resorting to the provisions of s. 68 of the IT Act. He, therefore, urged that the addition made by the AO may be deleted and in support of his contention he relied upon the decision in the case of Kishenchand Chellaram vs. CIT (1980) 125 ITR 713 (SC). The CIT(A) from part 3 onwards held that the creditor was none other than the father-in-law of the assessee and he at his convenience used different names at different times and in spite of several opportunities given to the assessee to produce the creditor for examination by the AO but he was not produced and proceedings were arrested by him on one pretext or the other. It was also clarified that the said creditor did not appear before the AO when he went to Hyderabad (his home-town) and deliberately avoided his appearance before the AO for fear of cross-examination. The CIT(A) on the facts of the case also came to the conclusion that the firm K. P. Rai in which the alleged creditor and his daughter-in-law were partners had a share ratio of 60% and 40%, respectively and the firm was doing business in cut-pieces cloth till the asst. yr. 1982-83 and thereafter it was closed. He also found that the firm never had income exceeding Rs. 10,000 during its existence and in the asst. yr. 1982-83 the income was only of Rs. 6,451 and K. P. Rai/Shri Prahlad Rai Agrawal, as an individual, had no other income except share income from the firm and as Karta of the HUF styled as "K. Prahlad Rai", he had only property income around Rs. 18,500 per annum. The CIT(A) has also considered the statement of K. P. Rai whereby he admitted that his household expenses were around Rs. 3,000 per month and his sons also contributed towards those expenses. According to the CIT(A), the creditor had no capacity to advance the loan and the transaction was not genuine. Having considered the entire facts, the CIT(A) confirmed the order of the AO holding that the assessee failed to discharge the onus and the addition was rightly made by the AO.
He has examined the legal point and he observed that addition is sustained under s. 69 of the IT Act as unexplained investment and thereafter he dismissed the appeal of the assessee.
5. Being aggrieved by the order of the CIT(A), the assessee has come up in second appeal before the Tribunal.
6. The authorised representative for the assessee has reiterated the same arguments which were advanced before the authorities below. He contended that the firm M/s K. Prahlad Rai was assessed by ITO, H-2 Ward, Hyderabad, at GIR No. K-313 and this firm advanced Rs. 1,00,000 to Shri K. Prahlad Rai/K. P. Rai, father-in-law of the assessee and the lent this money to the assessee by way of demand draft. Proceeding further he contended that neither the AO nor the CIT(A) has examined the entire evidence in its right perspective and, therefore, the said amount of Rs. 1,00,000 cannot be added in the hands of the assessee as the said loan had been repaid and deposited in the bank by the creditor and later lent to someone else. The authorised representative for the assessee has taken us through the affidavit, a copy of which appears at p. 7 of the assessees paper-book and contended that no counter-affidavit had been filed nor the deponent had been cross-examined. Therefore, the contents of the affidavit go unrebutted. Proceeding further he has taken us through partners accounts, copies of which appear at pp. 9 and 10 of the assessees paper-book. On the basis of these documents he contended that the firm paid Rs. 1,00,000 to K. Prahlad Rai. He had also referred to the reply given to the questionnaire prepared by the AO, a copy of which appears at pp. 11 and 12 of the assessees paper-book. He emphasised that neither the AO nor the CIT(A) was justified in holding that the firm K. P. Rai was not assessed to tax and the GIR No. K-313 shown was incorrect. In support of this contention, he placed reliance on the copy of acknowledgment, a xerox of which appears at p. 13 of the assessees paper-book. Relying on the copies, he laid emphasis on the fact that on 29th December, 1987, the AO was informed that Shri Rajendra Kumar, son of K. Prahlad Rai, along with Shri K. P. Rai and Shri Vijay Kumar Kabra, C.A., attended the office on 11th December, 1987, at 11 a.m. at Hyderabad and they waited for quite sometime but they could not meet the AO. In the end he relied upon the contents of letter dt. 29th December, 1987, whereby it was requested that the statement of Shri K. Prahlad Rai may be recorded on commission at Hyderabad which is beyond the prescribed limit and as such he cannot be forced at Nagpur for recording his statement. In support of his case the authorised representative also asserted that the relations of the assessee were strained with his father-in-law (creditor). He, therefore, contended that the AO failed to allow the application and as such an adequate opportunity of hearing was not given and thus the reassessment order passed by the AO is illegal, invalid and against the provisions of law. He, therefore, contended that the orders of the authorities below may be quashed. He further laid emphasis on the fact that no addition can be made either under s. 68 or under s. 69 because s. 68 of the IT Act does not apply to the facts of this case as this amount was not credited in the books of account maintained by the assessee for the previous year. He also contended that s. 69 of the Act also does not apply as, under that section the value of the investment made by the assessee in a financial year cannot be deemed to be the income of the assessee, if such an investment is not recorded in the books of account, if any, maintained by him and the assessee does not offer any explanation and the disputed amount was repaid by demand draft and Shri K. Prahlad Rai on receipt of the same amount has deposited the same in the bank.
7. On the other hand, the Departmental Representative, strongly relied upon the orders of the authorities below and submitted that the AO had allowed sufficient opportunity to the assessee to produce the creditor, namely, Shri Prahlad Rai Gupta and when he failed to produce him before him at Nagpur, the AO camped for 5 days at Hyderabad and after personal service of this summons, Shri Prahlad Rai failed to appear on the date fixed on 7th December, 1987, before the AO at his home-town. He also emphasised that the AO informed Shri Rajendra Kumar, son of K. Prahlad Rai Gupta, and the assessee that he would record the statement of K. P. Rai at his residence on the same day i.e., 11th December, 1987, since he was in perfectly a sound condition. At this juncture Shri Rajendra Kumar readily agreed to bring Shri P. R. Gupta on 11th December, 1987, at 11 a.m. with a view to avoid his exposition, but in fact on the given date, that is, on 11th December, 1987, none attended. In this way it is clear that the assessee failed to produce the creditor before the AO and also Shri P. R. Gupta avoided to appear before the AO for fear of cross-examination and deliberately material witness was withheld and so the adverse inference may be drawn against the assessee. He further contended that when all efforts of the AO failed to examine Shri P. R. Gupta, the fact was informed to the counsel for the assessee and in despair and with a view to prepare a false evidence, he moved an application on 29th December, 1987, contending that Shri Prahlad Rai Gupta appeared in office in person on 11th December, 1987, at 11 a.m. at Hyderabad along with Shri Vijaykumar Kabra, C.A. and his son namely, Rajendra Kumar. Had it been so an application would have been filed on 11th December, 1987, itself and not on 29th December, 1987, and in the end on legal advice plea of issue of commission was taken with a view to delay the proceedings and also to create intentional hurdles in framing the assessment. The AO in view of the facts of the case had rightly rejected the request of issue of commission as it was mala fide and was taken to arrest the proceedings of the case. He also refuted the contention of authorised representative for the assessee that the assessee and his father-in-law are not keeping good relations but they are in league with each other. In this way the assessee failed to produce the material evidence and also failed to prove his case as required under the law. Thus, the addition was rightly made by the AO and confirmed by the CIT(A) under s. 69, IT Act. In this regard he placed reliance on the decision of the Tribunal, Nagpur Bench, Nagpur, in ITA No. 307/Nag/91 for asst. yr. 1989-90 in the case of Shri Prabhakar Bhaiyaji Ghode vs. ITO dt. 1st December, 1993. In this case the Tribunal, Nagpur Bench, Nagpur, held that even if it is conceded for argument sake that none of the ss. 68 to 69D are applicable to the facts of this case, the Tribunal held that once the assessee fails to explain the source of money satisfactorily in his possession, the value of that money will have to be added back to the total income of the assessee as income from undisclosed sources. As mentioned above, such additions were made under the 1922 Act and were sustained though no such provisions existed at the relevant time. The case law relied upon by the assessee did not help him in view of the facts of the case. He further placed reliance on the ratio of the decision in the case of CIT vs. United Commercial & Industrial Co. (P) Ltd. (1991) 187 ITR 596 (Cal), CIT vs. S. K. Pandian, (1984) 150 ITR 703 (Mad), Nanakchandra Laxmandas vs. CIT (1983) 140 ITR 151 (All) and Harichand Virendra Paul vs. CIT (1983) 140 ITR 148 (P&H).
8. We have considered the submissions of the parties and have gone through the orders of the authorities below and the entire material placed on record including the paper-book filed by the assessee and the ratio of the decision relied upon by the parties. In this case the following facts were not disputed :
(a) K. P. Rai was a firm as Hyderabad.
(b) The assessees father-in-law, namely, Shri K. Prahlad Rai was a partner in the said firm having 60 per cent share along with his daughter-in-law with 40 per cent share.
(c) The firm advanced Rs. 1,00,000 to the assessee through an account payee demand draft on SBI, Nagpur, on 11th April, 1981.
(d) The assessee filed affidavit of Shri K. Prahlad Rai along with a copy of the balance sheet of K. P. Rai firm as on Diwali 1981 before the CIT(A). The CIT(A) after admitting the same restored the matter back to the file of the AO for re-adjudication.
The AO required the assessee to produce K. Prahlad Rai for cross-examination with the view to verify the correctness of the averments made in the affidavit etc. but he was not produced in spite of several directions.
The AO went to Hyderabad where Shri K. Prahlad Rai was residing and he issued summons under s. 131 dt. 18th November, 1987, directing Shri K. Prahlad Rai to attend on 7th December, 1987, in the office of IAC (Asst.), Aayakar Bhawan, Basheerbagh, Hyderabad, Shri K. P. Rai did not appear in spite of service of the notice.
On 3rd December, 1987, the son of Shri K. P. Rai, namely, Shri Rajendra Kumar Gupta attended along with Shri Vijaykumar Kabra, C.A., and orally stated that Shri K. P. Rai was bed-ridden. No medical certificate or any affidavit in support of this contention was filed.
On the assertion of Shri Rajendrakumar Gupta the AO prima facie was convinced by the said illness and he handed over a questionnaire for recording answers of Shri K. Prahlad Rai to the Income-tax Inspector and the son of Shri K. Prahlad Rai and his C.A. went on the spot. The Income-tax Inspector recorded the answers to the questions but he reported to the AO that Shri K. Prahlad Rai was not bed-ridden and he was normal.
The AO after receipt of the report of the Income-tax Inspector informed the son of Shri K. Prahlad Rai on 9th December, 1987, namely, Shri Rajendrakumar that he would go to his residence and would record the statement of Shri Prahlad Rai Gupta at his residence on 9th December, 1987, so that the assessee and his counsel may remain present there, for watching their interest. At this juncture Shri Rajendrakumar son of K. Prahlad Rai immediately agreed to bring Shri K. Prahlad Rai in office at Hyderabad on 11th December, 1987, at 11 a.m. but on 11th December, 1987, none attended and this fact was intimated to the assessee who appeared at 3.30 p.m. on 11th December, 1987.
The AO communicated the entire position which has emerged out till then to the assessee vide his letter dt. 14th December, 1987, as mentioned in pre-paragraphs.
The AO was informed by the assessee that K. P. Rai was assessed by the ITO, H-2 Ward, at GIR K-313. After enquiries the AO found that there was no such case on his GIR No. K-313 in the relevant year. This fact was brought to the notice of Rajendra Kumar son of K. Prahlad Rai who appeared before the ITO during his camp at Hyderabad along with Shri Vijaykumar Kabra, C.A. The authorised representative for the assessee filed a copy of the acknowledgment slip contending that the firm K. P. Rai filed return. The acknowledgment slip did not bear that stamp of the ITO and when the original slip was demanded, the same was not produced. It is notable that search and seizure operations had taken place and the Department has taken certain books and record of the assessee, but it was not asserted that the present and past assessments were taken away at any stage by the assessee.
No clinching evidence worth the name was produced before the AO to establish that the firm K. P. Rai was assessed to tax nor any explanation to that effect was given. The copies of present and past assessments were not produced before the ITO in spite of repeated requests.
No application was given on 11th December, 1987, asserting that he appeared along with his counsel before the AO on 11th December, 1987.
The AO left Hyderabad to his headquarters at Nagpur and an application on 29th December, 1987, was moved contending that Shri Prahlad Rai Gupta appeared in office in person on 11th December, 1987, at 11 a.m. at Hyderabad along with Shri Vijaykumar Kabra, C.A., and his son namely, Rajendrakumar. No reason has been given as to why this application was not given as on 11th December, 1987, itself before the AO who was camping at Hyderabad and no delay has been explained as to why this application was moved after 18 days.
In the end on 18th January, 1988, assessees counsel requested the AO for issue of commission for Hyderabad with a view to examine Shri K. Prahlad Rai. It is evident that at the directions of the CIT(A) the AO had to reframe assessment after cross-examining K. Prahlad Rai with a view to verify the veracity of the averments of the affidavit so the issue of commission was not the proper course. Hence, he rejected the same and on 20th January, 1988, he informed the assessee that no commission could be issued and the case was fixed for hearing on 28th January, 1988. None attended on that date.
The creditor namely, Shri K. Prahlad Rai is the father-in-law of the assessee and there was no proof about the strained relations.
No legal action was taken within a period of 3 years when the alleged loan was not repaid. The firm namely, K. P. Rai was engaged in cut-pieces of cloth business till asst. yr. 1982-83 after which the business was closed.
The firm never had income exceeding Rs. 10,000 during its existence. For asst. yr. 1982-83 the income was only Rs. 6,451.
Shri Prahlad Rai as an individual had no other source of income except share income and as Karta of the HUF he had only property income around Rs. 18,500.
As per the statement of Shri K. Prahlad Rai the household expenses were around Rs. 3,300 per month and his sons also contributed towards it.
9. In view of the aforesaid background, it is to be seen as to whether the assessee has discharged the onus which lay on him. It is settled principle of law that the assessee has to establish the identity of the creditor, capacity of the creditor to advance the loan and the genuineness of the transaction. After going through the entire evidence as discussed in pre-paragraphs, it is established that the identity of the creditor was established because the summon under s. 131 was served on the creditor on the address given. Therefore, by first ingredient it is evidenced that the identity of the creditor was established. The other ingredient which the assessee is requested to establish is whether the creditor had capacity to advance the said loan. In this regard, heave burden lay on the assessee to prove it. The AO again asked the assessee to produce the creditor but he failed to do so. The AO was however, aware of the fact that the assessee had filed affidavit of creditor before the CIT(A) and he was to be cross-examined with a view to verify the veracity of the averment. Therefore, he visited the place of residence of the creditor at Hyderabad and in the summons, date, time and place was mentioned and it was made known to the assessee as well as to the creditor, but none appeared in spite of personal service of notice by the AO. The reason for non-appearance before the AO was not convincing. The AO intended to go to record the statement of the creditor at his residence and the assessee and the counsel for the assessee and the son of the creditor were all informed and the son of the creditor promised to produce his father, namely, Shri K. Prahlad Rai for cross-examination in the office of the income-tax at Hyderabad at appointed date and time, but on the appointed date, time and place he was not produced. The AO brought all these facts to the notice of the assessee. It is after deliberations and consultations an application was moved on 29th December, 1987, contending that Shri Prahlad Rai Gupta appeared in the office in person on 11th December, 1987, at 11 a.m. at Hyderabad along with Shri Prahlad Rai Gupta appeared in the office in person on 11th December, 1987, at 11 a.m. at Hyderabad along with Shri Vijaykumar Kabra, C.A., and his son, namely, Rajendra Kumar after lapse of 18 days. This plea taken in the application dt. 29th December, 1987, on the face of its is false, incorrect and unconvincing for the reason that had it been so, he would have given this application on 11th December 1987, itself before the AO who was camping at Hyderabad. Non-filing of application on that day is indicative of the fact that it is nothing but an afterthought and a got story and this application has been moved with a view to create false evidence and also to delay the matter. It is, therefore, established that the assessee failed to produce the creditor and when the AO made streneous efforts to cross-examine the assessee on the affidavit filed by the creditor, his efforts were forestalled and the cross-examination could not take place. In view of the decision of their Lordship of the Supreme Court in the case of Mehta Parikh & Co. vs. CIT (1956) 30 ITR 181 (SC), the affidavit cannot be relied upon because the AO was foreclosed by the assessee and the creditor (by cross-examining the creditor). In this way, the said affidavit has no evidentiary value as the averments made in the affidavit were not tested by cross-examination, and thus it is to be rejected. Moreover, the contents of the affidavit (p. 7 of the assessees paper-book), on the fact of it, do not inspire confidence as it is a self-serving document. Reliance is placed on the ratio of the decision in the case of Shri Krishna vs. CIT (1983) 142 ITR 618 (All). Much stress was laid on the answers to the questionnaire, but in view of the aforesaid facts, the replies to the questions were not recorded on oath and it required corroborative evidence which had not been produced. The replies of questions Nos. 19 and 20 by Shri P. R. Gupta were rightly rejected by the AO for the reasons mentioned therein. It is further seen that the assessee had filed copy of the account of K. Prahlad Rai (copy appears on p. 9 of the assessees paper-book). It is notable that no reliance can be placed on it for two reasons that there are over-writings in the balance sheet of K. Prahlad Rai and the amount had been changed and nobody had initialed it or explained it. Therefore, this paper had been rendered an illegal document and as such, it cannot be relied upon though for valid reasons the AO had rejected it. After going through the entire material on record, we find that there is no other material on record to established that Shri Prahlad Rai Gupta had capacity to advance money to the tune of Rs. 1,00,000. It is not established by cogent evidence as to where from the money of Rs. 1,00,000 was brought into the cash. The AO wanted to record a detailed statement of the creditor to examine the capacity but deliberately the creditor was withheld. So the authorities below are perfectly justified in rejecting the contention of the assessee that he had capacity to advance the loan of Rs. 1,00,000 to the assessee. It is to be seen whether the assessee had proved the genuineness of the transaction. In this connection, it would be sufficient to refer the facts mentioned in pre-paragraphs. The assessee was asked at different times to give detailed address, GIR number, etc. of the creditor. But the assessee gave wrong GIR number and he gave different names at different places. The assessee did not produce the creditor for fear of cross-examination. The AO camped at Hyderabad and the creditor did not appear at Hyderabad on the date, time and place given to him at Hyderabad on one pretext or other for fear of cross-examination. This all go to show that the genuineness of the transaction had not been established because at different times, different versions had been given and the assessee failed to produce the creditor and the creditor also did not appear in spite of service of summons on the date fixed by the AO at Hyderabad itself where he was residing. This act of the assessee and the creditor is highly condemnable for the reason that they have misused the process of law. There is no proof that the relation of the assessee were strained with his father-in-law namely, K. Prahlad Rai as no legal action was taken before three years and it all go to show that the relations were normal and they were colluding with each other. It is fully established by the facts and circumstances mentioned above that the assessee did not produce the creditor deliberately and when the AO made streneous efforts to cross-examine the assessee at his home town, he deliberately did not appear for the fear of examination. This all goes to show that the assessee had withheld material evidence and thus an adverse inference has to be drawn against him. By taking into account the entire evidence into consideration, it is established that the assessee failed to prove the genuineness of the transaction.
It is notable that the on 29th December, 1987, an attempt was made by requesting the AO to issue commission for recording the statement of Shri K. Prahlad Rai at Hyderabad was premeditated design to arrest the proceedings and it was not genuine request at all in view of the conduct of the assessee and the creditor as mentioned above. Therefore, the request for issue of commission was rightly rejected and we on the basis of the material on record hold that adequate opportunity was given to the assessee and the creditor but the assessee knowingly withheld the material evidence and did not allow the AO to take advantage of the cross-examination and the demeanour of the witness. Therefore, we hold that the assessee failed to discharge the burden which lay on it.
10. In the alternative the authorised representative for the assessee contended that since the amount was received by bank draft, the transaction could not be treated as a cash credit within the scope of s. 68 of the Act. This argument was considered by the CIT(A) and he held that this submission has some force. He, however, held that the said amount will legally be assessed as unexplained investment within the scope of s. 69 of the Act when the assessee failed to prove this source of the same. He also held that the parameter of proving the source of investment will not be any less than those cash credits and he thereby sustained the addition of Rs. 1,00,000. In this regard, our attention was drawn to the decision of the Tribunal, Nagpur Bench, Nagpur in ITA No. 307/Nag/91 for asst. yr. 1989-90 dt. 1st December, 1993 in the case of Prabhakar Bhaiyaji Ghode vs. ITO, and the Tribunal considered similar arguments raised by the same authorised representative and passed a detailed order. The Tribunal held that even if it is conceded for argument sake that none of the ss. 60 to 69D were applicable to the facts of that case still the assessee was required to explain the source of money in his possession and in case he failed to do so, the value of that money was to be added back to the total income of the assessee. In this case the Tribunal further held that such additions were made and sustained under the 1922 Act though no such provisions existed at the relevant time. In view of the finding of the Tribunal in the case of Prabhakar Bhaiyaji Ghode vs. ITO (supra), this plea of the authorised representative for the assessee is untenable. After considering the entire facts, circumstances and submissions of the parties, the alternative plea, taken by the assessee is untenable in view of the decision of the Tribunal dt. 1st December, 1993, as referred to above. In view of the facts of this case, the CIT(A) was justified in invoking s. 69 of the IT Act.
11. After considering the entire facts and circumstances of the case, we are of the opinion that there was no reliable and cogent evidence on record to establish that Shri K. Prahlad Rai advanced Rs. 1 lakh to the assessee keeping in view the financial condition and his stands and those of the firm in which he and his daughter-in-law were partners. In view of these facts, we are of the opinion that the CIT(A) was perfectly justified in sustaining the addition of Rs. 1 lakh as an unexplained investment within the scope of s. 69. The theory of returning Rs. 1 lakhs taken by A is untenable in view of the facts of the case because the assessee is in collusion with creditor. The order of the CIT(A), in our opinion, is perfectly valid and legal and accordingly the same should be sustained (sic-and) upheld. Order accordingly.
12. In the result, the appeal is dismissed.
H. C. SHRIVASTAVA, A.M. : 23rd February, 1995.
I have the benefit of going through the order of my learned colleague, Judicial Member in this case. I regret that I am unable to agree with him.
2. The facts are as below :
(1) An account payee draft No. 224216, dt. 11th April, 1981, was purchased from SBI, City branch, Hyderabad, drawn on SBI, Nagpur, for Rs. 1 lakh. The same was deposited in the Wardhaman Nagar Bench of Bank of Maharashtra on 14th April, 1981, in the assessees account.
(2) After the assessees account was credited in the bank Maharashtra a cheque was issued by the assessee to Lalchand Gajanan, a firm in which the assessee is a partner on 15th April, 1981. This amount was credited in the capital account of the assessee in the books of the firm Lalchand Gajanan on the same day i.e., on 15th April, 1981.
(3) The return of income for the asst. yr. 1982-83 was filed on 28th April, 1984, showing an income of Rs. 62,632.
(4) On 17th November, 1984, the assessee failed confirmation letter from K. P. Rai along with the copy of account in the books of the firm. This was signed by Shri P. R. Gupta.
(5) The AO held that the assessee had failed to prove the genuineness of the deposit of Rs. 1 lakh in the capital account. Hence he added the same as income from undisclosed sources under s. 68 of the Act. The assessment was then completed on 25th of February, 1985 (p. 2 of the assessees paper-book).
(6) The assessee contended before the CIT(A) that
(a) K. P. Rai is a firm in Hyderabad.
(b) The appellants father-in-law Shri K. Prahlad Rai was a partner in the said firm.
(c) That the firm advanced Rs. 1 lakh to the assessee through account payee demand draft on SBI Nagpur.
(d) That K. P. Rai was assessed by the ITO at Hyderabad under GIR No. K 313/H2.
(e) That Shri K. Prahlad Rai, father-in-law of the assessee, signs his name as P. R. Gupta, short-form for Prahlad Rai Gupta.
As per pp. 7, 8 and 9 of the assessees paper-book, an affidavit to this effect from Shri K. Prahlad Rai as well as a copy of the balance sheet of K. P. Rai firm as on Diwali 1981, was sought to be filed. The CIT(A) admitted the evidence and restored the assessment order to the file of the AO with a direction to him to make fresh enquiries in the light of evidence and pass a fresh assessment order in accordance with law.
3. A summon under s. 131 dt. 18th November, 1987, was issued to Shri Prahlad Rai directing him to attend on 7th December, 1987, in the office of IAC (Asst.), Aaykar Bhavan, Hyderabad. It seems that the summons was served on 3rd December, 1987.
4. On 3rd December, 1987, Shri P. R. Gupta did not attend. His son Shri Rajendrakumar Gupta attended with Shri Vijaykumar Kabra, C.A., and submitted that Shri K. Prahlad Rai was not well and was bed-ridden. As per p. No. 13 of the assessees paper-book Shri Kabra produced acknowledgment No. 3401, dt. 24th July, 1982, of ITO, H2 Ward, Hyderabad, for the return of income for asst. Yr. 1982-83 filed by K. P. Rai. A questionnaire was given by the AO to him to get replies from Shri P. R. Gupta by 9th December, 1987.
5. On 9th December, 1987, as per pp. 11 and 12 of the assessees paper book Shri Rajendrakumar attended and filed replies to the questionnaire duly signed by Shri P. R. Gupta who stated as below :
(a) That he advanced the money free of interest to his son-in-law (assessee) by account payee demand draft drawn on 11th April, 1981 (answers to question Nos. 8 and 9).
(b) The amount was received back by him through a demand draft dt. 17th October, 1987, SBI, Hyderabad (answer to question No. 13).
(c) The amount was credited in his account in Dena Bank, Hyderabad, and later on the same was advanced as loan to K. K. Steel. Trading Co., Secunderabad (answer to question No. 4).
(d) He affirmed that the contents of the affidavit were correct.
The AO, however, insisted that Shri P. R. Gupta should attend and Shri Guptas son promised to bring him on 11th December, 1987.
6. On 11th December, 1987, according to the AO none attended. The assessee who attended at 3.30 p.m. was told that Shri P. R. Gupta had not attended. However, according to Shri Vijaykumar Kabra, C.A., Shri Gupta had attended along with Shri Rajendrakumar and P. R. Gupta on 11 p.m. on that date. It was submitted that they waited for quite some time but could not meet the AO as he was not available.
7. On 14th December, 1987, the AO wrote to the assessee to produce Shri K. Prahlad Rai on 29th December, 1987, at Nagpur for his examination. However, on 29th December, 1987, the assessee attended before the officer and submitted that Shri Kabra, C.A., of Shri K. P. Rai could not be contacted. He, however, requested the AO to issue fresh summons to Shri Rai and undertook to pay the travelling expenses of Shri Rais journey from Hyderabad to Nagpur and Nagpur to Hyderabad. It is notable that Hyderabad is more than 300 kms. from Nagpur. However, this was not done and fresh summons were issued by the AO fixing the case for hearing on 18th January, 1988. On 18th January, 1988, the assessees counsel again requested the AO for issue of commission to Hyderabad AO with a view to examine Shri Prahlad Rai. However, on 20th of January, 1988, the AO wrote to the assessee that no commission could be issued and the case was fixed for hearing on 28th January, 1988. None attended on that day.
8. Though the limitation for passing the assessment order was to expire only by 31st March, 1988, the AO passed the assessment order on 29th January, 1988.
9. The AO in paras 4,5,6,7,8 and 9 held as below :
(i) That it was found that no such assessee as K. Prahlad Rai who is assessable to tax under GIR No. K-313/H2, Hyderabad, was there.
(ii) On being asked to produce the copies of the past assessment orders the assessee could file only xerox copies of statement as on Diwali, 1981. He, however, could not substantiate the claim that the firm was assessed to income-tax.
(iii) It was found that search and seizure proceedings had taken place at the residence of Shri P. R. Gupta and books of accounts and documents were seized and were in custody of the IAC (Asst.), Hyderabad.
(iv) The affidavit sworn by Shri P. R. Gupta was prima facie false inasmuch as no assessee was found assessable under GIR No. K-313/H2.
(v) Shri Rajendrakumar, son of Shri P. R. Gupta, agreed to bring him on 11th December, 1987, but none was brought on that date. It was only on 7th December, 1987, that a questionnaire was given and the reply to the same was filed on 9th December, 1987.
(vi) Fresh summons were issued to Shri P. R. Gupta with a copy to the assessee and along with a covering letter fixing the case for hearing on 18th January, 1988. On 18th January, 1988, the C.A. attended and requested for issue of commission to the AO Hyderabad to examine Shri Gupta as he had not attended in response to summons. The AO however. Informed that no commission could be issued as this was only a delaying tactics on part of the assessee.
(vii) As affidavit of Shri P. R. Gupta was prima facie false and as in spite of several opportunities he did not appear, the affidavit has no evidentiary value.
(viii) As already brought to the notice of the assessee by letter dt. 14th December, 1987, it was clear that Shri K. Prahlad Rai alias P. R. Gupta had no capacity to advance money. The AO further held that the answers to question Nos. 19 and 20 given by Shri P. R. Gupta clearly show that he was evasive.
(ix) The examination of Shri Prahlad Rais cash book shows an entry of Rs. 1 lakh representing two self cheques on 11th April, 1981, for the purposes of sending demand draft of Rs. 1 lakh to Nagpur. In the so-called rough ledger on p. No. 10 the account of Shri Gopal Agrawal is shown with a debit balance of Rs. 1 lakh. According to the AO it was an evidence created in support of the claim of the assessee of having borrowed Rs. 1 lakh by Shri Prahlad Rai.
(x) The AO further held that the sum of Rs. 1 lakh was not actually borrowed by the assessee but represented unaccounted money invested by him. He added the same under s. 68 of the Act.
10. When the matter was taken to the CIT(A) he agreed with the AO on the following grounds :
(1) That the assessee failed to prove the credit worthiness of Shri Pralhad alias K. P. Rai.
(2) The capacity of the creditor to advance loan was to be proved by the assessee and not by the Department.
(3) He further held that even if provisions of s. 68 are not applicable to the facts of the case provisions of s. 69 will clearly apply.
11. The counsel for the assessee invited our attention to pp. 9 and 13 of the assessees paper-book to submit that the assessee had filed acknowledgment of the return filed by the firm K. Prahlad Rai along with the balance sheet. The assessee and his father-in-law were not on good terms and, therefore, at the time of the assessment proceedings be could not obtain and furnish copies of the assessment orders. As during the search and seizure proceedings the Department took away the records of the assessee which included record of the present and past assessments the assessee could not produce the same. It was submitted that it was for the AO to examine the case records seized in this regard. Regarding non-existence of the firm on the GIR it was submitted that as the firm had closed down the business, the same may have (sic-might have been) removed from the GIR. He proceeded to refute the contention of the Department that Shri Prahlad Rai did not attend before the AO at Hyderabad. He submitted that the AO in his order has no-where rebutted the contention of the assessee that Shri Prahlad Rai did attend on 10th January, 1988, but the AO was not available. The counsel proceeded to submit that as the AO during his stay at Hyderabad issued a questionnaire and the questionnaire was properly replied upon it should be considered that Shri K. Prahlad Rai attended before him. It was submitted that the contents of the affidavit were confirmed before the CIT(A) as well. It was submitted that as the assessee and his father-in-law were not pulling on well as the assessees father-in-law could not meet the ITO when he attended in the Income-tax office at Hyderabad he refused to co-operate with the assessee any further. It was then that the assessee offered that he may be examined on commission at Hyderabad. But the ITO refused to do so. Our attention was invited to p. 2275 of IInd Vol., 4th Edn. of the learned Authors Chaturvedi & Pithisaria to submit that the AO should exercise all his powers to collect all evidence and collate all material before coming to any proper conclusion. It was submitted that it was as failure to exercise the jurisdiction of issuing of commission particularly when a party to the proceedings requested for summering evidence from a particularly when a party to the proceedings requested for summoning evidence from a particular person. It was submitted that it was not Shri Prahlad Rai who had advanced money, it was the firm which had advanced money. Our attention was invited to answers to question Nos. 9 to 14 of the questionnaire contained in pp. 11 and 12 of the paper book where the creditor confirmed the factum of loan, mode of payment and when and how it was written and where money was invested after returned by the assessee. If was submitted that once the books of account of K. Prahlad Rai, Hyderabad firm were seized from the residence of Shri Prahlad Rai during the search how could be the assessee manipulated the books which were seized from him. It was also submitted that the very fact that the self cheques were drawn by Shri Prahlad Rai on 11th April, 1981, confirms his capacity to advance the money.
11.1. It was further submitted that the Department does not deny that the loan was received by account payee draft drawn on SBI, Hyderabad, and the facts mentioned in the affidavit of Shri Prahlad Rai alias P. R. Gupta have not been controverted by the Department. It was submitted that in any case it was the duty of the AO to endorse the attendance of the creditor which he failed to do.
12. The arguments of the Department Representative have been brought out by my learned brought in his order.
13. After going through the facts of the case, the arguments of the assessees counsel and the order of my learned colleague, I am of the opinion that the Department has failed to prove that the sum of Rs. 1 lakh was assessable to tax as assessees income from undisclosed sources.
14. It is seen that a copy of the acknowledgment of the return filed by the firm M/s K. P. Rai for 1982-83 on 20th of July, 1982, was filed before the AO. A copy of the same has been filed before us also. This proves that a return of income was filed on 20th of July, 1982, but the AO made no attempts to trace the same. It is notable that a search was conducted in the premises of the firm by the IT Department. All the books, etc., were seized and said to be in possession of the IT Department. In the answer to a question in the questionnaire Shri P. R. Gupta mentioned that 1982-83 was the last year of the firm and it was closed thereafter. I am of the opinion that the finding of the AO that the affidavit is false is not correct. The AO in his order has nowhere challenged the statement of the assessee that on 11th December, 1987, the creditor did not appear in his office. When it was already on record that the relationship between the assessee and his father-in-law were not good then the assessees request to issue commission to ITO, Hyderabad, to examine Shri K. P. Rai at Hyderabad should have been accepted. It is notable that the assessment order in this case could have been passed upto 31st March, 1988. The AO however, passed the order without acceding to the request of the assessee two months before the assessment order could become barred by limitation. The Honble Supreme Court in the case of Food Corpn. of India vs. Provident Fund Commissioner 1 SCC 68 and the Honble High Court of Nagpur in the case of Niranjanlal Ramballabh vs. CIT (1956) 29 ITR 459 (Nag) held that the ITO should not have refused to issue a commission for examination of parties who were more than 200 miles away from the place of assessment as only they could have explained the sources of the drafts and the circumstances in which they were remitted to the assessee. I am of the opinion that taking into consideration all the aspects of the case, the failure of the AO to exercise his legal jurisdiction resulted in failure of justice and as such his order cannot be sustained in this regard. The assessee filed an affidavit of the creditor who accepted that he had advanced loan by a draft. He also confirmed the grant of loan. He also confirmed that he had received money back and also indicated the person to whom he had given that money later on. I am of the opinion that the extent of the onus of proof placed under s. 69 is not absolute but is based on preponderance of probabilities. In my view the assessee has discharged the burden cast on him.
15. It is notable that the Department has nowhere disputed that the money was received by account payee draft purchased by the creditor from the State Bank of Hyderabad. As held by the Supreme Court in the case of CIT vs. Daulat Ram Rawatmull (1972) 87 ITR 349 (SC), the onus of proving that the apparent was not the real was on the party who claimed it to be so. The Department in my opinion has done nothing in this regard.
16. The reliance of the CIT(A) on Harichand Virendra Pal vs. CIT (1983) 140 ITR 148 (P&H) is not on all fours with the facts of this case. There it was found that the creditor was in a position to advance only a part of the amount. In (1984) 148 ITR 151 (sic) the assessee did not make any efforts to produce the creditors before the AO during the setaside assessment. In this case the assessee not only got the affidavit, he produced the creditor who could not be examined but when the creditor was given a questionnaire he confirmed the fact of advancement of loan. In CIT vs. S. Kamaraja Pandian (1984) 150 ITR 703 (Mad) the summons came back unserved and banker had denied advancing any loan. In CIT vs. Biju Patnaik (1986) 160 ITR 674 (SC) no evidence was produced to prove as to who were the persons who made huge donations. In CIT vs. United Commercial Co. (P) Ltd. (1991) 187 ITR 596 (Cal) notices of summons under s. 131 were either returned unserved or even in the cases where they were served, none attended.
17. Even if the contention of the CIT(A) is accepted that if the provisions of s. 68 do not apply then the provisions of s. 69 shall be held to be applicable as the assessee showed introduction of cash in his capital accounts in the books of the firm is accepted, it cannot be said that the assessee has failed to prove his investment in the books of the firm. I am, therefore, of the opinion that the Department has failed to prove that the facts apparent from the record are not true. As a matter of fact, the Department failed in its duty to issue commission and examine the creditor under the facts and in the circumstances of the case. I am, therefore, of the opinion that the addition of Rs. 1 lakh made by the AO and sustained by the CIT(A) should be deleted.
18. In the result, the appeal is allowed.
8th March, 1995.
REFERENCE UNDER S. 255(4) OF THE IT ACT, 1961 Since there is a difference of opinion amongst us on the point at issue, the following questions on which there is a difference are referred to the Honble President for reference to a Third Member as laid down under s. 255(4) of the IT Act, 1961 :
1. Whether on the facts and in the circumstances and evidence on record, the addition was legally sustainable or not ?
2. Whether the assessee has discharged his onus of proof placed under s. 69 of the Act ?
3. Whether adequate opportunity of hearing and leading evidence was provided to the assessee ?
J. KATHURIA, A.M. :
A difference of opinion having arisen between the Members who originally heard this appeal, the matter has come to be referred to me by the President under s. 255(4) of the IT Act. The points of difference are as under :
"1. Whether, on the facts and in the circumstances and evidence on record, the addition was legally sustainable or not ?
2. Whether, the assessee has discharged his onus of proof placed under s. 69 of the Act ?
3. Whether adequate opportunity of hearing and leading evidence was provided to the assessee ?"
2. The assessee is an individual. For the asst. yr. 1982-83 (year ending Diwali 1981), the assessee had share income from two firms including M/s Lalchand Gajanan, Nagpur. The assessee had received draft No. 224216 dt. 11th April, 1981, which was purchased from SBI, City Bench, Hyderabad, from Rs. 1,00,000. The same was deposited by the assessee in the Wardhaman Nagar branch of the Bank of Maharashtra on 14th April, 1981, in the assessees account. On 15th April, 1981, the assessee issued a cheque of Rs. 1,00,000 in favour of the aforesaid firm Lalchand Gajanan. The amount of Rs. 1,00,000 was credited in the capital account of the assessee in the books of the aforesaid firm M/s Lalchand Gajanan on 15th April, 1981. This capital account was the starting point for the AO to go into the genuineness of the credit of Rs. 1,00,000. In the original assessment order dt. 25th February, 1985, the AO held that the assessee had failed to prove the genuineness of the deposit of Rs. 1,00,000 appearing in his capital account in the books of the firm Lalchand Gajanan. He accordingly assessed a sum of Rs. 1,00,000 as income of the assessee under s. 68 of the IT Act.
3. The assessee contended from the CIT(A) that the draft of Rs. 1,00,000 was received from K. P. Rai which was a firm in Hyderabad. It was also contended that the assessees father-in-law Shri K. Prahlad Rai was a partner in the said firm and that K. P. Rai firm was assessed by ITO at Hyderabad under GIR No. K. 313/H. It was also explained that Shri K. Prahlad Rai signed his name as P. R. Gupta also, An affidavit of Shri K. Prahlad Rai was also filed along with a copy of the balance sheet of K. P. Rai as on Diwali, 1981. The CIT(A) admitted the additional evidence and vide order dt. 31st January, 1986, directed the AO to make necessary further enquiries in the light of the evidence now furnished by the counsel and frame a fresh assessment after giving the assessee adequate opportunity for explaining his case.
4. The AO fixed up the assessees case on 19th March, 1987, 25th March, 1987, 12th November, 1987, 25th November, 1987, 7th December, 1987, 9th December, 1987, 11th December, 1987, 29th December, 1987, 18th January, 1988 and 28th January, 1988. The AO also went to Hyderabad to record the statement of Shri K. Prahlad Rai and make other enquiries. He also issued summons under s. 131 of the Act dt. 18th November, 1987, which were served on Shri K. Prahlad Rai on 3rd December, 1987, requiring his personal attendance on 7th December, 1987, at 11 a.m. in the office of the IAC (Asst.), Third Floor, Aaykar Bhavan, Hyderabad. Shri K. Prahlad Rai, however, did not attend on 7th December, 1987, and instead his son Shri Rajendrakumar Gupta attended and stated that his father was bed-ridden due to paralysis and unable to comply with the summons. The AO thereafter asked an Income-tax Inspector to go to the residence of Shri R. Prahlad Rai and obtain answers to the questions given by the AO. This was done and the copy of the questions and answers is placed on record. The Income-tax Inspector, however, reported that Shri K. Prahlad Rai was quite alright and was in a position to comply with the summons. Shri Rajendrakumar, the son of Shri R. Prahlad Rai, agreed to bring his father to the office at Hyderabad on 11th December, 1987. According to the AO K. Prahlad Rai did not attend his office on that day though it was later disputed from the assessees side that Shri K. Prahlad Rai had attended the office at 3.30 p.m. The AO vide order dt. 29th January, 1988, again held that the amount of Rs. 1,00,000 was not actually borrowed by the assessee but represented the unaccounted money invested by him and addition of Rs. 1,00,000 was accordingly made under s. 68 of the Act.
5. The assessee preferred an appeal and the CIT(A), Nagpur, vide order dt. 27th August, 1992, in the second round of litigation confirmed the addition through under s. 69.
6. The assessee preferred an appeal before the Tribunal. The learned Judicial Member who wrote the leading order accepted that the identity of the creditor stood established. He, however, repelled the contention that Shri Prahlad Rai Gupta had appeared in the office in person on 11th December, 1987, at Hyderabad along with Shri Vijaykumar Kabra. The reason for this was that such a plea was taken in the application dt. 29th December, 1987, whereas it pertained to 11th December, 1987. He also did not attach much importance to the replies to the questions given by Shri K. Prahlad Rai to the Income-tax Inspector because such replies were not recorded on oath. The learned Judicial Member was also influenced by the fact that after enquiries, the AO found that there was no such case in the name of K. P. Rai bearing GIR No. K/313 in the relevant year. It was also noted by him that the acknowledgement slip evidencing the filing of return for the asst. yr. 1982-83 by the firm K. P. Rai did not bear the stamp of the Income-tax office and the original slip had not been produced. He also gave weight to the fact that the copies of present and past assessments of K. P. Rai firm had not been produced before the AO. That no legal action had been taken within a period of three years or the repayment of the loan of Rs. 1,00,000 was also an important factor considered by the learned Judicial Member. It was also noted that K. P. Rai firm never had annual income exceeding Rs. 10,000 during its existence. He did not accept the theory of strained relations between the assessee (son-in-law) and Shri K. Prahlad Rai (father-in-law) and came to the conclusion that it was a case of collusion and that the request for issuing summons made towards the fag end of the assessment proceedings was a premeditated design to arrest the proceedings. He, therefore, held that there was no reliable and cogent evidence on record to establish that Shri K. Prahlad Rai had advanced a sum of Rs. 1,00,000 to the assessee keeping in view the financial condition and his status and that of the firm K. P. Rai. He, therefore, held that adequate opportunity had been allowed to the assessee and hence the addition of Rs. 1,00,000 was justified under s. 69 of the Act.
7. The learned Accountant Member, however, disagreed. According to him the Department had failed to prove that the sum of Rs. 1,00,000 was assessable to tax as assessees income from undisclosed sources. It was noted by him that as per the acknowledgment slip, return of income for the asst. yr. 1982-83 had been filed by the firm K. P. Rai on 20th July, 1982, but the AO made no attempts to trace the same. It was also noted that there was search at the premises of R. P. Rai and its partners on 26th June, 1986, when all the books of account had been seized by the IT authorities. He gave credence to the theory of strained relationship between the assessee and his father-in-law. He further opined that the AO should have accepted the assessees request to issue commission to the ITO Hyderabad, to examine Shri K. P. Rai at Hyderabad particularly when there was still time for passing the assessment order upon 31st March, 1988, and that there was no hurry in passing the order on 29th January, 1988. According to him, the Department had nowhere disputed that the money was received by Account payee Draft purchased by the creditor for the State Bank of Hyderabad. He thus came to the conclusion that the Department failed in its duty to issue commission and examine the creditor and hence the addition of Rs. 1,00,000 made by the AO and sustained by the CIT(A) should be deleted.
8. M. Mani, the learned counsel for the assessee, submitted that there was no doubt about the identity of the creditor which stood established. It was submitted that in the first round of litigation a confirmation letter by Shri K. Prahlad Rai, on behalf of the firm, K. P. Rai, had been furnished and thereafter before the CIT(A) an affidavit of Shri K. Prahlad Rai and copy of the balance sheet of the firm M/s K. P. Rai as on Diwali, 1981, was also furnished and this additional evidence was admitted by that authority. It was submitted that K. P. Rai was assessed under GIR No. K/313 and that when the AO made enquiries, it is quite possible that the said GIR No. may have been allotted to some other assessee because asst. yr. 1982-83 was the last year of assessment of the said firm. It was submitted that the lower authorities had not disputed the filing of the return by K. P. Rai for asst. yr. 1982-83. It was submitted that a mountain had been made of some cuttings in the balance-sheet of K. P. Rai as on Diwali, 1981. Drawing my attention to p. 9 of the assessees compilation which contains a copy of the balance sheet, it was submitted that the cutting was only in the total on the liability side and the number "4" had been changed to number "5" in the figure of Rs. 2,49,367.58. It was submitted that the total on the asset side was Rs. 2,59,367.58 and that the figure "4" mentioned was incorrect and was rightly corrected. It was submitted that in cash at bank on the asset side was clearly shown at Rs. 1,05,847.85 and that there was no cutting, etc. with regard to the same. It was submitted that this balance sheet was filed along with the return and there was no charge of fabrication. It was submitted that the return for the asst. yr. 1982-83 by K. P. Rai firm had been filed as per copy of the acknowledgment slip at p. 13 of the assessees compilation and the serial number at which it was received was 3401. It was submitted that there was no claim that at serial number 3401 such a return had not been received from K. P. Rai.
9. The learned counsel also submitted that because of the strained relationship between the assessee and the father-in-law, the father-in-law could not be produced in person. It was, however, submitted that Shri K. Prahlad Rai had answered the questions put to him by the Income-tax Inspector and had owned up the deposit of Rs. 1,00,000 by firm K. P. Rai and other relevant facts. It was submitted that the assessee had no power to enforce the attendance of a witness and that the AO had all the powers to enforce the attendance of the witness. It was submitted that in this background of the case, the request made by the assessee when there was still ample time for completing the assessment that commission be issued to the ITO, Hyderabad, for recording the statement of Shri K. Prahlad Rai was absolutely reasonable and justified, because Hyderabad was situated about 500 kms away from Nagpur. This opportunity was, however, denied to the assessee.
10. It was submitted that K. P. Rai did not take any legal proceedings against the assessee for recovery of Rs. 1,00,000 because the assessee always acknowledged that it would repay the amount and never repudiated the same. It was also pointed out that the loan of Rs. 1,00,000 was ultimately returned by account payee draft on 17th October, 1987, and was further utilised by K. P. Rai by advancing it to another concern. It was also submitted that the AO in the assessment order had relied on some seized record, but the assessee was not confronted with the same and such reliance, therefore, was illegal and unwarranted. It was submitted that K. P. Rai was an existing assessee, that it had sent a sum of Rs. 1,00,000 by account payee draft, that the amount of Rs. 1,00,000 was accounted for in the books or account of R. K. Rai and that the firm was in a position to have advanced the amount of Rs. 1,00,000. It was submitted that it is not for the assessee to prove the source of source or the origin of the origin and that the law only requires that the source be proved. It was submitted that the source had been amply proved by the assessee and hence there was no question of making an addition of Rs. 1,00,000 in the hands of the assessee.
11. The learned counsel placed reliance on the decision of the Supreme Court in Kishinchand Chellaram vs. CIT (1980) 125 ITR 713 (SC), for the proposition that before the IT authorities could rely upon a piece of evidence, they were bound to produce it before the assessee so that the assessee could controvert the same. It was submitted that the seized record of K. P. Rai had been commented upon by the AO without giving an opportunity to the assessee of rebutting the same because no such evidence was confronted to the assessee. Shri Mani also relied on the Bombay High Courts decision in CIT vs. U. M. Shah (1973) 90 ITR 396 (Bom) for the proposition that where the money had been received and that fact had been acknowledged by the creditor, and nothing to the contrary had been found, there was no question of law involved.
12. Reliance was also placed on the decision of the Madhya Pradesh High Court in Ashokpal Daga (HUF) vs. (1996) 220 ITR 452 (MP) for the proposition that where the assessee satisfied the authority as to the identity of the third parties and also supplied relevant evidence showing prima facie that the entries were not fictitious the initial burden that lay on the assessee stood discharged. It was, therefore, submitted that the addition of Rs. 1,00,000 was not legally sustainable, that the assessee had discharged his onus of proof placed under s. 69 of the Act and that adequate opportunity of hearing and leading evidence had been denied to the assessee inasmuch as the commission was not issued to ITO, Hyderabad, for examining Shri K. Prahlad Rai.
13. The learned Departmental Representative submitted that in this case more than adequate opportunity had been allowed to the assessee to lead the necessary evidence and discharge the onus. It was submitted that the AO not only fixed the matter a number of times but also visited Hyderabad to record the statement of Shri K. Prahlad Rai to ferret out the truth. It was submitted that the assessee had agreed that Shri K. Prahlad Rai be summoned from Hyderabad and that he would pay the diet money. It was submitted that later on the assessee took a position that instead of summoning him, a commission be issued to ITO, Hyderabad, for recording the statement of Shri K. Prahlad Rai. It was submitted that looking to the conduct of the creditor, the AO could very well infer that this was a case of abusing the process of law by procrastinating and prolonging the matter. It was pointed out that the AO gave further opportunities on 29th December, 1987, 18th January, 1988, and 28th January, 1988, and only thereafter completed the assessment on 29th January, 1988. It was, therefore, submitted that an adequate opportunity had been allowed to the assessee.
14. As regards the acknowledgment slip, it was submitted that the original had never been produced, that the acknowledgment did not carry the stamp of the Income-tax office and that it was inconceivable that K. P. Rai would be keeping a sum of Rs. 1,00,000 without interest for such a long time without insisting on its repayment. It was submitted that the theory of strained relationship between the assessee and Shri K. Prahlad Rai did not stand substantiated and since Shri K. Prahlad Rai had not been produced, the contents of the affidavit filed before the CIT(A) had to be rejected as false. IT was also submitted that there was no proof that the assessee along with Shri K. Prahlad Rai had attended the office at Hyderabad on 11th December, 1987, as claimed later. It was also submitted that the assessees first request for issue of summons was accepted and only when the request for issue of commission was made, the same was not entertained. It was submitted that the law nowhere provided that the AO must wait upto the eleventh hour before completing the assessment. The learned Departmental Representative pointed out that the affidavit filed before the CIT(A) was dt. 28th January, 1986, whereas the same was filed before that authority on 25th March, 1987. Relying on the Calcutta High Court decision in Shankar Industries vs. CIT (1978) 114 ITR 689 (Cal), the learned Departmental Representative submitted that the assessee has not only to prove the identity of the creditor and his capacity to advance the money, but also the genuineness of the transaction. It was submitted that the testimony of Shri K. Prahlad Rai was of vital importance and the witness was not produced by the assessee for fear of truth being found out. It was, therefore, submitted that the addition of Rs. 1,00,000 was legally sustainable, that the assessee had not discharged the onus of proof placed upon him under s. 69 of the Act and that adequate opportunity of hearing and leading evidence had been provided to the assessee.
15. I have carefully considered the submissions of both the sides and carefully gone through the material and amended orders of the learned Judicial Member and the learned Accountant Member. It is not the case of the Revenue that the amount of Rs. 1,00,000 received by way of draft dt. 11th April, 1981 was manipulated or sent by the assessee from Hyderabad to Nagpur. The factum of receipt of money has not been questioned. The draft was received at Nagpur and was deposited in the assessees bank account and from that account the assessee issued a cheque to M/s Lalchand Gajanan and that is how Lalchand Gajanan gave credit of Rs. 1,00,000 in the capital account of the assessee in its books of account of 15th April, 1981.
16. It is true that the assessees case was fixed a number of times. There is, however, no evidence on record to show that the case was fixed more than once because of the assessees default. The AO was justified in recording the statement of Shri K. Prahlad Rai with a view to determining the veracity of his affidavit. It was commendable that he even went to Hyderabad and stayed there for five days to make the necessary enquiries and to record the statement of Shri K. Prahlad Rai. He was quite fair in sending his Inspector to the residence of Shri K. Prahlad Rai to elicit the answers to certain questions when it was brought to his notice that Shri K. Prahlad Rai was bed-ridden. If Shri K. Prahlad Rai did not turn up on 11th December, 1987, as per the AOs version, it could not be said to be on account of the assessees failure. Under the law the assessee has no power to enforce the attendance of a witness. That power is vested in the authorities including the AO. If the AO was of the opinion the recording of statement of Shri K. Prahlad Rai was so very essential then nothing prevented him from exercising his powers of enforcing the attendance of Shri K. Prahlad Rai. Instead of exercising such powers, he again called upon the assessee to produce Shri K. Prahlad Rai at Nagpur. In the first instance, the assessee did offer to pay the diet money but later on made a request to the ITO for issuing a commission to ITO Hyderabad for recording the statement of Shri K. Prahlad Rai as the distance involved between Hyderabad and Nagpur was more than 300 kms. This according to me was a legitimate request. If the AO was so keen that the statement of Shri K. Prahlad Rai must be recorded then there would have been no hesitation in issuing the commission to the ITO Hyderabad. There was still time left before the completion of assessment and no heavens would have fallen if the AO had issued the commission to ITO, Hyderabad. When such a request was not accepted and the assessment was completed, it has to be held that adequate opportunity of hearing and leading evidence to that extent and in that sense was not provided to the assessee. I hold accordingly.
17. As regards the discharge of onus by the assessee, the facts clearly indicate that the initial onus had been duly discharged by him. The money had been received by way of bank draft. It was not the Departments case that it was the assessee who had sent the money from Hyderabad to Nagpur. K. P. Rai was an existing assessee. Evidence had been produced to show that it had been assessed under GIR No. K/313. The acknowledgment slip evidenced the filing of return by K. P. Rai for the asst. yr. 1982-83 carried serial No. 3401. Even if the said acknowledgement did not carry the stamp of the Income-tax office, it could have been very well found out from the receipt register whether such a return had been received from K. P. Rai against serial No. 3401 or not. The orders of the lower authorities are silent on this point. It is also not clear whether the AO even called upon the assessee to produce the original acknowledgment slip. It seems everybody when by the later enquiry that GIR No. K/313 was assigned to some other assessee and not to K. P. Rai. M/s K. P. Rai firm had closed down its business and asst. yr. 1982-83 was the last year. When the AO went to make enquiries in 1987 it is quite possible that the same GIR No. might have been allotted to some other assessee.
18. The balance sheet on K. P. Rai also showed that a sum of Rs. 1,00,000 had been advanced to the assessee as the name of the assessee appeared in the asset side of the balance sheet and the amount of Rs. 1,00,000 was clearly indicated against his name. There is no cutting in the balance sheet because the cutting, if any, is in the figure of "4" in the total of Rs. 2,49,367.58 which is the total of the liability side and the figure "4" has been changed to "5". There is no cutting in the total of the asset side.
19. The premises of K. P. Rai had been searched by the IT authorities on 26th June, 1986, when books of account, etc. had been taken into possession by the Department. In such a situation it was very easy for the Department to have looked into the seized record of K. P. Rai and found out the truth. It seems that the AO did go into some of the seized records of the said firm but this evidence was not confronted to the assessee and hence the assessee was denied the opportunity to rebut the evidence. Moreover, the AO went into the source of the source which was not permissible. The assessee clearly established the identity of the creditor. The creditor was an income-tax assessee and it would have been possible for the Revenue to collect assessment orders from the income-tax office. The transaction was recorded in the books of K. P. Rai Shri K. Prahlad Rai had filed a confirmation letter and subsequently an affidavit. The Inspector of Income-tax who was deputed to elicit replies to the questions had contacted Shri K. Prahlad Rai and obtained his replies. These replies clearly indicated that K. P. Rai had advanced a sum of Rs. 1,00,000 to the assessee by way of a draft and that the same was accounted for in the books of account of K. P. Rai. The substance of the transaction was unequivocally and clearly admitted by Shri K. Prahlad Rai. Some of the replies given by Shri K. Prahlad Rai may be vague, but his replies do not lead to the conclusion that the confirmation or the affidavit filed earlier was in anyway incorrect or false. In view of the above I am of the considered opinion that the initial onus that lay on the assessee stood discharged. The Revenue authorities did not have any evidence to the contrary except lurking doubts in their mind which can be no substitute for hard evidence. I, therefore, hold that the assessee in the present case has discharged his onus of proof placed under s. 69 of the Act.
20. As regards the question whether the addition was legally sustainable or not, in my opinion, it was not legally sustainable because the assessee had discharged the onus and the case of the Department rested only on suspicion.
21. I would, therefore, agree with the view expressed by the learned Accountant Member and hold that adequate opportunity of hearing and leading evidence was not provided to the assessee; that the assessee had discharged his onus of proof placed under s. 69 of the Act and that the addition of Rs. 1,00,000 was not legally sustainable.
22. The matter will now go back to the Bench which originally heard the appeal for disposal in accordance with law.