Gauhati High Court
Asstt. Cit vs India Tyre House on 25 June, 2001
Equivalent citations: (2001)72TTJ(GAU)316
ORDER
R.C. Sharma, A.M. This appeal by the revenue is filed against the order of Commissioner (Appeals), dated 16-11-1994, for the assessment year 1989-90.
2. The facts of the case are that the original return of income was processed under section 143(1)(a) on 22-2-1990. Search and seizure operations under section 132 was conducted at the business premises of assessee-firm and at the residence of the partners on 27-11-1990. Notices under section 142(1)(b) and 143(2) were issued. The authorised representative of the assessee-firm submitted that the books of account are misplaced and hence same could not be produced. During the year the assessee undertook the retreading of tyres for army also. Seized materials pertaining to work done for the army, were verified with the bank statement, as there were no books of account. Total expenses debited to trading and profit & loss account comes to Rs. 18.03 lakhs, none of which could be verified as the books of account were not produced.
3. During the course of assessment, the assessing officer found single entry of loan creditor for Rs. 2,00,000, though the loans were taken from four different persons of Rs. 50,000 each. The assessing officer added this amount as unaccounted income of the assessee-firm on the ground that loan creditors were not produced for examinations even after asking the assessee to produce them. The assessing officer came to the conclusion that the onus cast on the assessee to prove the genuineness of these loan creditors, were not discharged. Therefore, the same along with interest thereon was disallowed from expenses. As the books of account were not produced, an amount of Rs. 50,000 was added back to the income of the assessee on estimated basis out of expenditure debited to profit & loss account.
4. By the impugned order the Commissioner (Appeals) deleted the addition of Rs. 2,00,000 on account of cash credit and Rs. 16,362, interest thereon. The Commissioner (Appeals) also deleted the addition of Rs. 30,000 out of addition of Rs. 50,000 done by the assessing officer on account of verifiable expenses, by observing that the books of accounts could not be produced, the trading results cannot be fully accepted.
5. Against the above order of Commissioner (Appeals), dated 16-11-1994, the revenue came in appeal before us and the assessee also filed cross-objection for not quashing the proceedings under section 147 and sustaining the addition of Rs. 20,000 by the Commissioner (Appeals) out of Rs. 50,000 added by the assessing officer. The other grounds of cross-objection support the order of the Commissioner (Appeals) deleting the addition on account of loan creditors and interest thereon.
6. The learned departmental Representative vehemently argued that by not producing the cash creditors for examinations, before the assessing officer, the assessee has grossly failed the discharge the onus of proving the genuineness of the loan creditors. Therefore, he supported the action of the assessing officer in treating the non-genuine loans as the concealed income of the assessee. On the other hand, the authorised representative, strongly assailed the order of the assessing officer as inappropriate to the facts and circumstances of the case and as based on unsustainable legal propositions. Learned counsel took us through the developments leading to this litigation. The learned authorised representative submitted that the loans were taken from four different persons by four different cheques of Rs. 50,000 each, but they were deposited to the assessees bank account through single pay-in-slip as per normal banking procedure and a bank certificate in this regard was also produced. It was also submitted that this was a normal banking procedure where a number of cheques can be deposited on the same day by a single entry through single pay-in-slip.
7. Regarding non-production of the loan creditors, the learned authorised representative submitted that the assessee had furnished names and full addresses of all the creditors, their G.I.R. Nos., confirmations, copy of balance-sheet, copy of acknowledgment of returns filed by the respective creditors for the year under considerations, copy of assessment orders, explanatory letters from each creditors in which they have admitted the fact of advancing the loan and explained the sources thereof. Affidavits of creditors were also submitted. It was vehemently argued that on these facts, only because the creditors were not produced in person, an inference cannot be drawn that initial burden on the assessee has not been discharged, and reliance was placed on various judgments of courts and Tribunal.
8. We have heard the rival contentions, gone through the orders of authorities below; perused the paper-book filed before us. We find much force in the arguments of the learned authorised representative that the assessee cannot be asked to do something which is beyond its control. Assessee has got no legal power to enforce the attendance of his creditors before the assessing officer. As such making the addition on the ground that he has not produced the creditors cannot be sustained. We have found that the assessee vide its letter, dated 15-3-1994, in reply of assessing officers letter No. 4625, dated 3-3-1994, asking to produce, all the loan creditors, submitted as follows :
"Kindly note that we had sent necessary intimation by registered. post to all the creditors. We understand the creditors have not appeared in spite of communication from our side. Of course, we have already filed with your honour details of each creditors, including confirmations, copy of income-tax returns, xerox of bank account, their income-tax file No. (GIR No.), etc. In spite of the aforesaid in case you still feel their personal appearance before you is necessary, we would request you to exercise your power under section 131 to summon for making inquiry as you deem fit as per law. You will appreciate that we can just intimate the creditors about your requisition, since we do not have any legal power to compel them to appear before your goodself, which as per law is your prerogative."
9. From the facts of the case we are of the considered opinion that the assessee had taken sufficient steps to discharge the initial burden cast on him to prove the genuineness of the loans. Therefore, the department has brought no adequate materials to prove that the loans are not genuine. Under such circumstances the addition is liable to be deleted.
10. It has been held by the Honble Supreme Court in CIT v. Orissa Corporation (P) Ltd. (1986) 159 ITR 78 (SC) Justice Sri Sabyasachi Mukherjee held as follows :
"In the case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income-tax assessee. Their index numbers were in the file of the revenue. The revenue apart from issuing notices under section 131 at the instances of the assessee, did not persue the matter further. The revenue did not examine the sources of income of the said alleged creditors to find out whether they were creditworthy, or were such who could advance the alleged loans. There was no effort to pursue the so-called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such conclusion was unreasonable or perverse or based on no evidence."
11. Moreover, Cochin Bench of Tribunal in C.G. Films v. ITO (1993) 45 TTJ (Coch-Trib) 644 observed that :
"Assessee having furnished confirmatory letter and PAN of creditor as also the wealth-tax returns of creditor which showed the amount having been advanced to assessee and accounts of assessee showing receipt of amount through banks draft and repayment through cheques, non-appearance of creditor in response to summons under section 131 would not entail the inference that the assessee had failed to discharge the onus on his part."
12. In the instant case the. Assessee had gone one step further by requesting the assessing officer to issue summons under section 131 to all the creditors requiring their personal presence for cross-examinations. Even after, if the department does not come forward, it is not the fault of the assessee.
13. Gauhati High Court observed in Jalan Timber v. CIT (1997) 223 ITR 11 (Gau) that "In the instant case, the amounts were shown in the income-tax return of the assessee. Besides, the creditors had also shown in the returns about giving of the loan to the assessee. Strangely the Income Tax Officer while making the assessment in respect of three creditors above named accepted the returns. This itself will go to show that the amount received by the assessee was at least prima facie genuine. As the Income Tax Officer had accepted the returns of the three creditors it should go to mean that the amounts given by those creditors were also genuine."
14. In the instant case also all the creditors have submitted their copy of bank statement filed along with the income-tax returns in which alleged loan was duly reflected. The so-called returns of creditors were also supported by the acknowledgment of receipt by the income-tax department and their assessment orders.
15. Honble Patna High Court in the case of Saraogi Credit Corporation v. CIT (1976) 103 ITR 344 (Pat) : held that :
"Once the identity of third party is established before the Income Tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious the initial burden lying on the assessee can be said to have been duly discharged by him."
"Income Tax Officers rejection not of the explanation of the assessee, but of the explanation regarding the source of the income of the depositors, could not by itself lead to any inference regarding the non-genuine or fictitious character of the entries in the assessees books of accounts."
16. In the instant case the creditors have pledged their oath that they have advanced the amounts in question to the assessee the burden immediately shifts on to the department to show as to why the assessees case could not be accepted and as to why it must be held that the entry though purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And in order to arrive at such conclusion the department has to be in possession of sufficient and adequate materials, in which the revenue has grossly failed.
17. All the loan creditors, in the instant case are independent persons and they are assessed to income-tax since past. All the loans have been given by account payee cheques, their balance-sheet in the past also shows investment and loans, furthermore their assessments for the relevant assessment year, i.e., 1989-90 had been completed. All the loan creditors have filed confirmation letters and affidavit of the loan transactions. The explanatory letters addressed to assessing officer by the loan creditors clearly stipulated the source of funds and their entry in their respective balance-sheets and income-tax returns filed with concerning wards. Moreover since the loan creditors were assessed to income-tax since past and all were assessed at Gauhati, verifications of their assessment records could have easily proved the sources and genuineness of the creditors in addition to respective creditworthiness of individual creditors. The assessee had furnished all the necessary details on the basis of which loans could have been very easily verifiable even without requiring the personal appearances or presence of the loan creditors. The assessing officer failed to make any such efforts to verify the loans nor she has brought any materials on record to hold that the loan transactions were not genuine.
18. Therefore, the addition made by the assessing officer solely on the ground that the loan creditors were not produced before her, and thus the onus of proving the genuineness of the loan was not proved, is not legally tenable. One more reasons for doubting the loans was that in the bank statement their loans appear as a single credit entry of Rs. 2,00,000 on 6-9-1988, whereas the loans were taken from four different persons of Rs. 50,000 each. In the instant case the loan taken from four different persons through account payee cheques and deposited in assessees account through a singly pay-in-slip as per normal banking procedure, and a bank certificate to this effect was very much there on the record. We are very much satisfied that as per normal banking procedure a number of cheques can be deposited on the same day in a single entry through a single pay-in-slip and all these will appear in the bank statement as single entry. Therefore, the assessing officer was not justified in doubting their four loans of Rs. 50,000 each on the ground that all the four loans appeared as a single entry of Rs. 2,00,000 in the bank statement. The assessing officer did not summon the parties also for examinations in spite of furnishing the full addresses of the loan creditors, all of whom were residing at Gauhati itself.
19. Considering the facts and circumstances of the case and relying on the judicial pronouncement as discussed above, we do not find any justification in the action of the assessing officer. The Commissioner (Appeals) was, therefore, well justified in deleting the addition of Rs. 2,00,000 and interest thereon amounting to Rs. 16,362.
20. The second ground of revenues appeal for restoring the matter back to the file of the assessing officer for issuance of summons under section 131 for detailed verification of the facts of the case, is also rejected on the facts and circumstances of the case as discussed above.
C.O. No. 10(Gau)/1995
21. The first ground of the cross-objection was not pressed by the authorised representative, therefore, the same is dismissed in limine.
22. So far as the second ground is concerned, the learned authorised representative has challenged the order of the Commissioner (Appeals) in sustaining the addition of Rs. 20,000 out of addition of Rs. 50,000 added by the assessing officer on estimated basis.
23. During the course of assessment under section 143(3) the assessing officer made addition of Rs. 50,000 on the ground that none of the expenses debited to trading and profit & loss account could be verified as the books were not produced. The Commissioner (Appeals) observed that assessing officer has not brought any material on record to justify the lump sum addition made. Moreover, the sales of the assessee were fully verifiable and the sales made to M/s. Poddar Tyres amounting to Rs. 16.62 lakhs out of total sales of Rs. 18.57 lakhs during the relevant year were verifiable as the books of M/s. Poddar Tyres were in the possession of the assessing officer. On the basis of his finding the Commissioner (Appeals) held that as the books of account could not be produced the trading results cannot be fully accepted.
24. It was argued by the learned authorised representative that in spite of increase in the sales during the year under consideration as compared to earlier years sales, the net profit rate of assessee has increased to 2.10 per cent as compared to net profit rate of 1.74 per cent in the earlier year. It was contended that in view of increase in net profit rate, further addition of income of Rs. 20,000 is without any basis and is liable to be deleted. It was further argued that if the assessing officer thinks that the profit shown by the assessee is not acceptable, it is for the taxing authority to prove that the assessee made more profits. As the assessing officer did not bring any material on record to justify the estimated addition, the Commissioner (Appeals) was not right in sustaining the part of addition made by the assessing officer. Reliance was placed by the learned authorised representative on various judicial pronouncements, but all are distinguishable on facts.
25. We have heard the rival submissions, gone through the orders of the authorities below and the paper-book filed by learned authorised representative. We are of the considered opinion that in spite of addition being made on estimated basis, the fact remains the same that books of account were not produced by the assessee considering the facts and circumstances of the case, Commissioner (Appeals) sustained addition of Rs. 20,000 in respect of unverifiable expenses. We do not find any infirmity in the order of the Commissioner (Appeals). Therefore, assessees ground is rejected and the Commissioner (Appeals)s order is sustained.
26. In the result, both the revenues appeal and the assessees cross-objection are dismissed.