Income Tax Appellate Tribunal - Chandigarh
Jindal Udyog vs Income Tax Officer on 28 February, 2002
Equivalent citations: [2002]83ITD248(CHD), (2003)78TTJ(CHD)820
ORDER
Vimal Gandhi, Vice-President
1. This appeal by the assessee for the asst. yr. 1983-84 is directed against the order of CIT(A) confirming addition of Rs. 50,000 on account of unproved cash credits.
2. The case has a chequered history. The first assessment in this case was completed under Section 143(3) vide order dt. 28th March, 1989, on total income of Rs. 6,18,990 which included addition of Rs. 5,55,465 with the following break up:
Rs.
(a) Trading additions 1,41,388
(b) Fresh credits along with interest 2,68,532
(c) Squared up accounts 94,000
(d) Interest not charged on advances 51,745 5,55,465
3. The above assessment order was set aside by the CIT(A) on all additions, except trading addition of Rs. 87,566, which was sustained. The CIT(A) decided the matter on 6th Feb., 1990. He directed that a fresh opportunity be granted to the assessee to prove its case. The CIT(A) noted that there was litigation going on and that the firm had suffered heavy losses, Wife/mother of partners had also expired and the assessee/partners had faced adverse circumstances.
4. In the second assessment, the following additions were repeated and income was taken at Rs. 4,52,420:
Rs.
(a) Cash credits 2,05,500
(b) Interest thereon 7,440
(c) Interest disallowed 24,394
(d) Trading addition as per order of the CIT(A) 87,556 4,52,420
5. The assessee again impugned above addition in appeal before the CIT(A), who vide his order dt. 31st March, 1992, again set aside the assessment with the following remarks :
"In the reassessment proceedings the ITO had observed that as far as the cash credits were concerned, there were many other creditors in respect of which the appellant had supplied no evidence regarding the ingenuineness at the time of first assessment. He, therefore, raised queries regarding these creditors from the appellant but the appellant had failed to put forward any evidence in this behalf. As far as the additions made at the time of first assessment on this account are concerned, the ITO had accepted some of the creditors but had again made an addition regarding the remainder. The learned authorised representative for the appellant had stated that adequate opportunity had not been given to furnish proof in respect of these creditors arid there was nothing on record to show that the matter had been confronted to the appellant. The ITO had stated in his order that the list of such creditors was shown to the appellant but he refused to sign on the order sheet in confirmation of having seen such a list. The fact of the matter is that the books of the appellant were impounded and lying with the ITO and a mere showing of such a list would not be considered to be an adequate opportunity given to furnish evidence. The ITO should have supplied a list of the creditors in writing with addresses and amounts so that the appellant could furnish supporting evidence regarding these. The authorised representative of the appellant has also pointed out that issue regarding these creditors was not open before the ITO as specific instructions have been given by the CIT(A) in his order to examine only the issue relating to the creditors in respect of which additions had been made in the first order. While this argument of the, appellant does contain some substance, the matter cannot be left at rest over here as the entire issue of fresh creditors was set aside to the file of the ITO who could examine the genuineness of all such creditors. Moreover, as the matter has come up in appeal before me, I can even go into matters which were not considered at the time of assessment and consequentially can include enhancement of income. Hence, I consider it to be entirely justified to again set aside the question relating to all new creditors to the file of the ITO so that the matter can be examined afresh by giving an adequate opportunity to the appellant. The ITO will give the names and addresses wherever available in the books of account of the appellant along with the funds introduced asking for supporting evidence to prove their genuineness. The appellant shall be allowed to inspect the books of account and make copies therefrom so that evidence in this behalf can be furnished. Hence, the assessment is set aside to the file of the ITO for reassessment on the lines indicated above."
6. On remand, the AO did not accept the following squared up credits:
Rs.
(1) Sh. Ram Sarup on 27-5-1982 by cash Rs. 5,000 squared up on 5-6-1982 5,000 (2) Sh. Lal Chand on 27-5-1982 Rs. 5,000 by cheque squared up by debiting Rs. 2,000 on 5-6-1982 and Rs. 3,000 on 11-6-1982 5,000 (3) Sh. Hari Kishan Chand on 27-5-1982 by cash Rs. 5,000 squared up by debiting Rs. 2,000 on 5-6-1982 and Rs. 3,000 on 11-6-1982 5,000 (4) Shri Harkishan Chand on 27-5-1982 by cash Rs. 10,000 squared-up on 5-6-1982 by debiting Rs. 5,000 and on 9-6-1982 Rs. 5,000 10,000 (5) Sh. Raj Paul & Co. on 3-6-1982 by pay order Rs. 25,000 squared-up by showing debits of Rs. 5,000 each on subsequent 5 dates 25,000 Total:
50,000
7. The assessee challenged the addition in appeal but remained unsuccessful, Hence, this appeal.
8. We have heard both the parties in this appeal and with their help have examined material available on record. It is correct that the assessee did not produce evidence to prove the squared-up cash credits. However, on the facts and in the circumstances of this case, in our opinion, no addition is required to be made under Section 68 of the IT Act. Normally, when there is a cash credit in the books of account maintained by the assessee for any previous year and no explanation, of the nature and source of credit, is offered by the assessee or explanation offered is not considered as satisfactory by the AO, the credits is to be charged as income of the assessee. The rule contained in Section 68 is not an absolute rule. The word used in Section 68 is "may" and, therefore, credit may not be charged to tax even if nature and source thereof is not explained. There are certain cases where an exception to the general rule contained in Section 68 is made. The AO has to use his discretion not to make any addition. The present, in our opinion, is such a case. No addition for unsatisfactory explanation of cash credits is required to be made. We record our reasons for adopting the above course.
9. The extract from the order of CIT(A), dt. 24th March, 1992, is a sad story. The books of account of the assessee stood impounded with the Revenue authorities. The assessee did not have details of cash credits. Even list of creditors with their addresses and amounts of credits was not supplied to the assessee during the course of second assessment. The matter was required to be remanded by the CIT twice to afford adequate opportunity to the assessee to prove his case. The learned CIT(A) in rejecting assessee's objection that the creditors could not be examined by the ITO as there were no specific instructions in the remand order of the CIT(A) and his finding that in appeal the CIT(A) could go into the matter, which was not considered at the time of assessment and, therefore, learned CIT(A) considered it justified to again set aside the question relating to all new creditors to the file of the ITO, is illegal being contrary to what their Lordships observed in the case of CIT v. Rai Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR 443 (SC). Their Lordships of Hon'ble Supreme Court have held as under:--
"It is not, therefore, open to the AAC to travel outside the record, i.e., the return made by the assessee or the assessment order of the ITO, with a view to finding out new sources of income and the power of enhancement under Section 31(3) is restricted to the sources of income which have been the subject-matter of consideration by the ITO from the point of view of taxability."
10. We are not for the illegality of the order but are concerned with the situation in which the assessee was placed on account of above directions to prove genuineness of new credits and the matter was remanded for re-examination. The assessee was, thus, placed on racks after more than 10 years.
11. The other adverse circumstances which the assessee had to face during the course of assessment proceedings have been separately noted. The assessee was, thus, asked to prove cash credits more than 10 years after they were introduced in the books of account and squared-up. The assessee was, therefore, made to suffer on account of illegality and irregularity not of assessee's making. The result was long-time gap which made the task of proving credits most difficult, if not impossible. The opportunity afforded, cannot thus, be said to be adequate and hearing fair in the circumstances of the case.
12. On examination of squared-up accounts, we find that Rs. 30,000 of credits were received by the assessee either through cheque or draft. This fact lends support to the genuineness of credits. Three credits are of Rs. 5,000 each which do not require demonstrative evidence to prove them. The assessee has been able to prove majority of cash credits treated as unexplained leading to an addition of Rs. 3,58,352 (Rs. 2,68,532 + Rs. 90,000) in the first assessment. The trading addition of Rs. 87,566 sustained by the Revenue authorities was deleted by the Tribunal vide order dt. 27th June, 1995. All other additions except Rs. 50,000 in dispute, have been deleted and the case and accounts have been shown to be correct. This was by no means an easy task for the assessee. He had to go in appeal to CIT(A) thrice and to Tribunal more than once. The assessee has been sufficiently taxed. In the above backgrounds, we are of view that squared-up credits would also have been proved if fair and timely opportunity was granted to the assessee as enjoined by law. In the circumstances of the case, we are not inclined to take these credits as income of the assessee from undisclosed sources. The entries are taken as correct in the same manner as trading results and other cash credit entries totalling Rs. 5,55,465.
13. In arriving at the above conclusion, we are guided by the view taken by the Hon'ble Supreme Court in the case of CIT v. Smt. P.K. Noorjahan (1999) 155 CTR (SC) 509 : (1999) 237 ITR 570 (SC), wherein their Lordships held that the AO is not obliged to treat source of investment as income, wherever explanation regarding it, is not satisfactory. The word "may" cannot be interpreted to mean, "shall". The principle laid down in the above case is held to be equally applicable in the case at hand. The addition made is, accordingly, deleted.
14. In the result, the assessee's appeal is allowed.