Kerala High Court
Commissioner Of Income-Tax vs Kerala Road Lines Corporation on 28 October, 1985
Equivalent citations: [1986]162ITR669(KER)
Author: T. Kochu Thommen
Bench: T. Kochu Thommen
JUDGMENT Kochu Thommen, J.
1. Pursuant to the direction of this court in O.P. Nos. 2548 to 2551 of 1977, the following questions have been referred to us by the Income-tax Appellate Tribunal, Cochin Bench :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law and also proper in interfering with the order of the Appellate Assistant Commissioner, directing the Income-tax Officer to redo the assessment according to law ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in deleting Rs. 50,000 (2 items of Rs. 25,000 each) in the name of Seth Krishnadas Ramdas relying on discharged hundis and cheques showing interest payment when the creditor has stated (in general) that his genuine transactions were all for amounts less than Rs. 2,500 except in the case of City Auto Services...and that except with this one party, all transactions where the loan was for Rs. 2,500 or more were only hawala transactions ?
3. Whether the Tribunal is right in law in holding that the assessee has discharged the burden of proof with reference to Rs. 50,000 in the name of Seth Krishnadas Ramdas and is not the above finding wrong and unreasonable especially in view of 'the transactions admitted to be hawala by the creditor of the assessee examined by the Income-tax Officer' ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in allowing deduction of interest on hundi loans in the assessment year 1963-64 ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in allowing deduction of interest on hundi loans in the assessment year 1965-66 ?
6. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in allowing deduction of interest on hundi loans in the assessment year 1964-65 ?"
2. In respect of the assessment year 1962-63, the relevant previous year ending on March 31, 1962, the Income-tax Officer noticed two credit entries among others for Rs. 25,000 each as loans taken by the assessee from one Seth Krishnadas Ramdas on January 19, 3962, and January 25, 1962. In the absence of supporting evidence, the Income-tax Officer refused to accept these two entries as genuine transactions and added them as the income of the assessee under other sources. On appeal by the assessee, the Appellate Assistant Commissioner by his order dated March 1, 1966 (annexure E), held:
" ...I think further enquiry will be necessary in respect of both these additions. The case is, therefore, remanded to the Income-tax Officer for examination of evidence that will be produced by the assessee. The Income-tax Officer may also make such further enquiry as is necessary in order to rebut the evidence produced. The report must be submitted within three months of the receipt of this order. "
3. One of the additions referred to by the Appellate Assistant Commissioner is that which related to the aforesaid Rs. 50,000. Since the report of the Income-tax Officer, consequent upon the remand, did not reach the Appellate Assistant Commissioner, he by his order dated March 15, 1967 (annexure G), held ;
"...Considerable enquiries have to be made in this respect and it is seen that the same cannot be effectively made by merely remanding the case. In fact, the Appellate Assistant Commissioner is not expected to undertake such a wide enquiry. In these circumstances, I am of the opinion that the best course to follow will be to set aside the assessment and direct the Income-tax Officer to redo the assessment after proper enquiries.
The assessment is set aside and the Income-tax Officer is directed to redo the assessment according to law."
4. This order was challenged by the assessee before the Appellate Tribunal. The Tribunal by its order dated November 8, 1968 (annexure H), held:
" .........The facts stated above would also show that, in the circumstances of this case, the second remand order is not justified on merits. The assessee had no objection to any further time being granted to the Income-tax Officer for submission of the remand report. The entire evidence which the assessee wanted had been already placed on record and it is clear that there was nothing further to be done except to receive the remand report from the Income-tax Officer. On merits also, we are satisfied that there was no case for setting aside the assessment order, as has been done by the Appellate Assistant Commissioner.
In the result, we set aside the second order of remand made by the Appellate Assistant Commissioner and direct him to dispose of the appeal after receiving the remand report from the Income-tax Officer."
5. Subsequently, the report of the Income-tax Officer, consequent upon the original order of remand (annexure E), was received by the Appellate Assistant Commissioner. On consideration of that report and after hearing the parties, the Appellate Assistant Commissioner by his order dated February 26, 1974 (annexure J), held as follows :
" 4. In my opinion, the procedure regarding taking of evidence in this case has not been correctly done. The Income-tax Officer should call upon the appellant to produce the evidence in support of the entries made in the books of account of the appellant. The Income-tax Officer should also call upon the appellant to call his witnesses to prove the entries and after allowing the appellant to examine his own witness in accordance with the rules for examination of witness-in-chief as contained in sections 137 and 138 of the Indian Evidence Act should thereafter proceed to cross-examine such witnesses in accordance with the provisions of the said sections. Thereafter, he should decide the issue of genuineness of the loans on the basis of the available evidence as produced by the appellant. If the Income-tax Officer gathers any evidence other than what is produced by the appellant, such evidence should be put to the appellant and if evidence of any person is recorded by the Income-tax Officer as his witness, then the appellant should be allowed an opportunity to cross-examine such witness in accordance with the provisions of the Evidence Act. Thereafter, on the basis of the available evidence, the Income-tax Officer should determine whether the entries in the books pertaining to the loans are genuine or not. For this purpose, the assessment for the year 1962-63 is set aside and the Income-tax Officer is directed to make a fresh assessment in accordance with the law."
6. Thus, the assessment for the year 1962-63 was set aside and the Income-tax Officer was directed to make a fresh assessment according to law. This order was challenged by the assessee before the Tribunal. The Tribunal by its order dated September 18, 1976 (annexure O), held:
".........After remand, the creditor passed away before the assessee could reasonably take any steps to procure his evidence. So we are inclined to hold that the Department has not rebutted the presumption created by the initial discharge of the burden of the assessee. This position can in no way be improved by referring the case back to the Income-tax Officer because the principal figure is dead and gone. So the credit has been, on the available facts and circumstances of the case, satisfactorily explained. The addition is, therefore, deleted."
7. In the earlier part of that order, the Tribunal stated :
" ......There is a deposition of the creditor taken in 1965 before his death by a Madras Income-tax Officer in certain other proceedings where the creditor has said that he did both genuine and havala business, that his genuine transactions were all for amounts less than Rs. 2,500 except in the case of City Auto Stores, that there were no havala transactions with City Auto Stores and that except with this one party, all transactions where the loan was for Rs. 2,500 or more were only havala transactions. It is on this trump card that the Department mainly relies. There is no reference to the loan given to the assessee because that creditor was examined in some other proceedings and the case of the assessee's loan was not in the mind of that Income-tax Officer. What the creditor says may be true or not. If it is true, the loan to the assessee is havala. But this material of deposit cannot be made use of. It is against the principles of natural justice. The assessee had no opportunity to cross-examine the creditor. Of course, under the principles of the Indian Evidence Act, his statement is now admissible in evidence because of his death. But then it is very weak evidence. So we do not attach any weight to the statement. The position cannot be now improved by remanding the case to the Income-tax Officer."
8. The Tribunal has, in our view, cast the burden wrongly. It overlooked Section 68 of the Income-tax Act, 1961. It erroneously ignored the importance and significance of the statement of the deceased, Ramdas.
9. The returns submitted by the assessee in regard to the two entries in question had not been accepted by the Income-tax Officer. The burden was on the assessee to produce reliable evidence in support of the entries in his books of account. The entries showed that the total sum of Rs. 50,000 was received by him as loan from Seth Krishnadas Ramdas. He was not in a position to support these two entries by producing the relevant documents. Apart from the two entries and his own statement, there was no other evidence to show that he had received these two sums from Seth Krishnadas Ramdas. On the other hand, Ramdas had made a statement, albeit in another proceeding under the Income-tax Act, to the effect that he did not have the source to make the aforesaid payment and that it was not his habit to make any payment in excess of Rs. 2,500. All entries showing payment of amounts in excess of Rs. 2,500 were fictitious entries in the nature of hawala transactions. He used to receive commission at the rate of 7 np to 9 np per Rs. 100 per month for accommodating hawala loans. He himself calls the hawala business as a bogus business. His exact words are :
" Hawala business is bogus business where I only lend my trade name as banker to a hundi or P. N. transaction without actually advancing any money." (See annexure N of the paper book)
10. It was in the light of this evidence and in view of the total absence of any supporting evidence that the Income-tax Officer refused to accept the claim of the assessee for deduction. The assessee's contention that the hundi amounts were received in cash and that the interest thereon was duly paid by cheque was not accepted. The contention relating to discharge of hundis and repayment of the loans taken in respect of various transactions, including the two transactions in question, were not accepted by the Revenue because of the explanation given by Ramdas in regard to hawala transactions.
11. It is because of such evidence against the case set forth by the assessee that the Appellate Assistant Commissioner decided to remand the case for fresh disposal after affording the assessee a proper opportunity of being heard and adducing such evidence as he wished to adduce in support of his contentions. The assessee would have thus had an opportunity to attempt to disprove the statement made by Ramdas in regard to hawala transactions in excess of Rs. 2,500.
12. The Tribunal, in our view, wrongly held that the burden was on the Revenue to rebut the evidence adduced by the assessee. The burden, on the other hand, is on the assessee to support the entries made in his books of account, and the Revenue has no onus to disprove until the assessee has submitted satisfactory explanation for the credit entries. In Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1, the Supreme Court states in answer to the question whether the burden of proving the source of cash credit is on the assessee (at p. 4) :
" It seems to us that the answer to this question must be in the affirmative and that is how it was answered by the High Court. It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income-tax Officer is entitled to treat it as taxable income : see Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC)."
13. In Oriental Wire Industries (P.) Ltd. v. CIT [1981] 131 ITR 688, the Calcutta High Court says (at p. 691):
" In a case like this where the alleged loan appeared in the books of account of the assessee, it is for him to prove that the transaction was genuine and that would entail production of evidence as to the, (i) source of the loan, (ii) capacity of the person who is supposed to have given the loan, and (in) also the evidence about the fact that the loan was in fact given by the person concerned on the date mentioned."
14. See also CIT v. W.J. Walker & Co. [1979] 117 ITR 690 (Cal). In Sreelekha Banerjee v. CIT [1963] 49 ITR (SC) 112, 120, the Supreme Court states:
" It seems to us that the correct approach to questions of this kind is this. If there is an entry in the account books of the assessee which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The department is not at this stage required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessee. There is thus, prima facie, evidence against the assessee which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature. The very words 'an undisclosed source' show that the disclosure must come from the assessee and not from the department."
15. In view of the total absence of any supporting evidence and in the light of the statement made by Ramdas, the Appellate Assistant Commissioner was, in our view, perfectly justified in remanding the matter for fresh consideration in the light of such further evidence as the parties may wish to adduce. The fact that Ramdas is no longer alive is not an obstacle to let in available evidence. In the absence of any evidence to the contrary, the statement of Ramdas assumes importance. It is open to the assessee to call for the relevant books of account maintained by Ramdas or by his successors or partners or associates, as the case may be. He can examine or cross-examine the persons who maintained the books of account of Ramdas. It is open to him to avail of whatever evidence there is. It was for this purpose that a fresh opportunity was given to him by the Appellate Assistant Commissioner. The Tribunal has, in our view, erroneously cast the burden of proof on the Revenue.
16. In the light of what is stated by us, we must now answer question No. 1 after recasting the same in the following words :
" Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in setting aside the order of remand of the Appellate Assistant Commissioner whereby he directed the Income-tax Officer to make a fresh assessment in accordance with law and after affording the assessee a reasonable opportunity to examine and cross-examine witnesses in respect of the two entries of Rs. 25,000 each,"
17. We answer question No, 1, as so recast, in the negative, that is, in favour of the Revenue and against the assessee. In the light of our answer to question No. 1, we do not answer questions Nos. 2 to 6 as answers to these questions would depend upon the final order which the Income-tax Officer shall make pursuant to the direction of the Appellate Assistant Commissioner in his order dated February 26, 1974 (annexure J).
18. We direct the parties to bear their respective costs in these tax referred cases.
19. A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.