Income Tax Appellate Tribunal - Ahmedabad
Champaklal C. Dhamanwala (Huf) vs Income-Tax Officer on 23 April, 1990
Equivalent citations: [1990]34ITD209(AHD)
ORDER
K.R. Dixit, Judicial Member
1. This is an appeal in which the assessments have gone on for a long period involving examination of considerable evidence and correspondence between the assessee and the revenue authorities. The matter is actually quite simple inasmuch as the only issue is whether the assessee could be expected to prove his case after about 20 years.
2. The assessee is in appeal regarding the balance addition sustained by the Commissioner after deleting Rs. 71,071 from the addition of Rs. 6,17,500 made by the Income-tax Officer in respect of hundi loans allegedly unexplained.
3. The present assessment was made 20 years after the accounting period and so the assessee had contended before the IAC that for proving the genuineness of the loans as an impossible burden was cast on the assessee. The IAC, however, rejected this contention and approved the addition proposed by the Income-tax Officer. It is therefore, necessary to go into the past
4. This case has a chequered history. It is stated in the Commissioner's order and is not in dispute. The material part of it is from the period relevant to the asst. year 1956-57 there were hundi loans in the assessee's books and the peak thereof amounting to Rs. 17,66,500 was reached in the period relevant to the asst. year 1962-63. Out of this the dispute before the Income-tax Officer related only to Rs. 10 lakhs for the asst. years 1960-61 and 1961-62. The assessee made disclosures of this amount under the Schemes of 1965 and 1975 and paid the tax thereon.
5. The first assessment was made in 1966 and the fourth and last in 1982 three earlier assessments having been set aside by the Commissioner for various reasons which explains the long time gap between the relevant assessment period and the last assessment order. The addition was made on the basis of difference between the peak of the present year and that of the preceding year.
6. The learned Commissioner has correctly framed the questions: (a) whether the Income-tax Officer has properly taken into account the disclosures, and (b) whether the additions in respect of the unproved hundi loans were called for over and above the disclosures. Regarding (a) he has held that the Income-tax Officer had not taken into account the disclosure and the Commissioner has accordingly granted relief. However, regarding (b) he has agreed with the Income-tax Officer. This, therefore, is the only question before us.
7. It was argued before the Commissioner that the ITO was not justified in insisting upon the lenders being present before him particularly because of the delay for which the assessee was not responsible. The Commissioner however held that the assessee not having objected to the matter being sent back to the Income-tax Officer after twenty years, has accepted the challenge of proving the loans if one more opportunity was given.
8. The operative part of the Commissioner's earlier order dated 7-3-1972 on which the Income-tax Officer passing the last order was supposed to act is:- "I direct the ITO to make fresh assessments after (i) issuing summons/commission to the parties who according to the ITO are not genuine; (ii) allow the appellant to cross-examine such parties, and (iii) make addition only of these loans which after examination are found to be not genuine".
9. This shows that whatever was to be done was to be done by the ITO (issue summons, afford opportunity to the assessee) and it was not for the assessee to prove anything. Therefore, there is no basis for the above conclusion of the Commissioner that the assessee agreed to prove the genuineness of the loans after twenty years.
10. After taking into account the disclosures made by the assessee the Commissioner has confirmed the addition on the ground that it is reasonable because the ITO had excluded all hundies discounted through banks and those which were received and repaid by cheque. We have therefore, to consider the Income-tax Officer's order.
11. The Income-tax Officer has stated that summons were issued "to all hundiwalas" and that for 80 parties they were returned by the postal department with the remark "not known". He has noted that at the original stage also summons were issued to all the lenders and they were not available at the addresses given by the assessee. He has worked out the difference between the peak of the preceding year and that of this year at Rs. 6,17,500, noted that no evidence was available regarding loans totalling this amount and made that addition. According to him, (i) although all hundi khokhas were available, the genuineness of the transaction was not proved until the signatory was produced before him and admitted the signature, and (ii) production of copies of confirmatory letters was not sufficient because originals were not produced and in any case signatures on the originals were not proved.
12. The IAC has observed:-
There is no denial of the fact that over two decades have elapsed since the events took place and the assessee has found it virtually impossible at this stage to discharge the burden enjoined on it. However, it has to be remembered that the assessments were originally made well within the time limits and even at that stage the assessee had failed to avail itself of the opportunities for establishing the genuineness of the impugned loans transactions. The assessments were no doubt set aside twice on account of certain infirmities, but it is not the Income-tax Officer who was responsible for such infirmities. It is significant to note that the assessee had accepted the finding of the Income-tax Officer for four earlier assessment years (1956-57 to 1959-60), that similar loan transactions were not genuine and, therefore, it is very likely that the assessee had not pressed the Income-tax Officer at the initial stages for verification of each loan transaction. Nevertheless, each time the assessment was set aside, the Income-tax Officer had given a reasonable opportunity to the assessee to produce the Bankers for examination.
It all therefore, comes to this that while the ITO was of the view that the genuineness of the loans was not proved because the lenders were not traceable, the assessee took the stand that it was unreasonable to expect it after such a long time.
13. The assessee's counsel drew our attention first of all to the conduct of the assessee as shown from his letters to the departmental authorities and relied upon the following authorities:-
1. Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC)
2. 5. Hastimal v. CIT [1963] 49 ITR 273 (Mad.)
3. CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC)
4. CIT v. Gani Silk Palace [1988] 171 ITR 373 (Mad.)
5. CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78 (SC) The learned Departmental Representative on the other hand submitted that it was the assessee who had benefited by the delay inasmuch as it had enabled the assesses to take advantage of the two voluntary disclosure schemes. He submitted that since for the earlier assessment years 1956-57 to 1959-60 similar additions had been accepted by the assessee it must be said that the basis had been accepted by the assessee and the assessee could now object only to the quantum of the addition. He also pointed out that the assessee had offered a much larger amount of Rs. 9 lakhs by his letter dated 12-3-1974.
14. The assessee's counsel rejoined that the disclosures had been made and the above amount was offered for taxation in 1974 only to buy peace and that in any case this was not the Income-tax Officer's case for making the addition. He also pointed out that the Revenue had not preferred any appeal on the Commissioner's orders for 1971 and 1979.
15. This leads to the questions what happened at the earlier stage? What did the Income-tax Officer find? In the first assessment order the Income-tax Officer has stated as follows:-
During the year there are borrowings from 106 parties as per Annexure-A. Out of these 19 parties as mentioned Annexure-B have admitted that they were merely passing Havala entries and no monies have actually passed through them. From the remaining 87 parties as per Annexure 'C there are some borrowings which are discounted through Bank. A show-cause notice was issued to the assessee on 5-2-66 explaining the position regarding the borrowings from such persons and to adduce conclusive evidence in support of the borrowings. The assessee was also informed that persons in Annexure-B have given clean admission and as regards the persons in Annexure C the assessee was informed that these parties have no financial capacity and, therefore, they were only doing name lending, business for nominal commission. The assessee was also informed that most of the parties are not available at the addresses furnished by the assessee and probably as their bogus game is out, they have completely vanished from the scene. In this connection, the assessee vide his letter dated 8-2-66 replied that these parties may be summoned Under Section 131 so as to allow him an opportunity of cross examining them. It was explained to the assessee that their confirmatory letters given to parties on earlier occasions are immaterial as they were only name lenders and they have clearly admitted that they were doing only Havala business. As for example Shri Bhajandas Doomal (doing business in the name of Bhajandas Trikamdas) when examined by the 2nd Addl. ITO Hundi Circle, Bombay has stated that he was merely lending his name. In actual fact, no money was advanced by him to any party at any time. He (Bhajandas) was asked as to how much capital was invested in the business. He replied that no capital investment is required in havala business. It was also stated by him that his entire business was of hawala nature and that all the accounts in the books of various borrowers in different years is only a fictitious one. Same is the case with some 18 parties in whose accounts, there are credits in the books of the assessee.
5. In view of what has been stated above, the assessee's argument that the Hundi loans are genuine one cannot be accepted. So far as the credits in the books of accounts are concerned, it is the assessee who is in the best know of the facts narrated therein. The assessee has been given enough opportunity to prove the genuineness of the loans, on Hundies. Excepting confirmatory letter no documentary evidence is produced. If the assessee wanted to prove the genuineness of the loans, it was up to him to produce the parties. This the assessee has not done. It was also explained to the assessee that all sort of co-operation as provided in the Act will be given to the assessee if he undertake to produce the various Bankers. The assessee simply states that the Department should summon these parties. As already stated above, it is no use summoning the parties when the parties themselves have vanished from the scene and their present whereabouts not known to the Department. It is the assessee who should prove the credits in the books.
The ITO has made a vague statement that most of the parties were not available at the addresses given by the assessee. He should have indicated which of them. He has concluded that some of them had no financial capacity without stating the basis thereof. The assessee was denied the opportunity to cross examine the lenders. In one case the ITO has relied upon the lender's statement before another ITO. The Commissioner while setting aside this assessment has observed:-
The Income-tax Officer also relied upon the statement of certain parties before the Income-tax Officer at Bombay, but neither the statements were offered to the appellant for his comments nor any opportunity for examining these parties was granted to the appellant.
Thus the assessment order was unsatisfactory. This state of affairs continued till the last assessment when it was too late to ascertain which of the parties was not available at the addresses given and which had no financial capacity and on what basis.
16. The second assessment was made Under Section 144 on the ground that the assessee was absent because of a religious function and the Income-tax Officer could not wait any longer since it was pending for a very long time. The Income-tax Officer observed that the assessee had not established the genuineness of the Hundi loans in question. The assessment was reopened Under Section 146 and the third assessment order was passed on 19-10-1977. The Income-tax Officer mentioned therein the two disclosures made by the assessee and also that an amount of Rs. 9,98,000 had been offered for assessment. The Income-tax Officer has stated that although opportunities were given to the assessee to explain the loan the assessee has not availed of them but had preferred to approach the C.B.D.T. and the Commissioner. He has tried to show the conduct of the assessee as accepting the amount representing Hundi loans belonging to his family and made it clear that the hundi loans merely represented his funds. The Income-tax Officer's order is based on the facts of two disclosures and the settlement petition to the CIT vide letter dated 12-3-1974 disclosing an amount of Rs. 9,98,000. Ultimately he made an addition of Rs. 5,10,868 as representing unexplained hundi loans and treated as amount belonging to the assessee introduced in the names of Bombay parties and interest thereon. The Commissioner set aside that order on the ground that the Income-tax Officer should not have decided the issue on the basis of the voluntary disclosure and the settlement petition. According to him, the issue should have been decided definitely by examination of the evidence.
17. Thus the IAC here is not right in saying that it was not the ITO who was responsible for the infirmities in the ITO's orders. The assessment orders and the Commissioner's reasons for setting them aside clearly show the fault of the ITOs. They could not be set aside except for the ITO's mistake. Moreover, the IAC has been influenced by the fact that for the asst. years 1956-57 to 1959-60 the assessee did not prefer any appeal over the ITO's finding that similar transactions were not genuine. This, in our view, is not a correct approach. When additions for these years are separate and based on separate evidence, they have to be judged independently on the separate evidence. Nor is it proper to take into account the settlement petition of 12-3-1974 as urged by the learned Departmental Representative at this stage because the Revenue has not filed any appeal over the Commissioner's order and the Income-tax Officer has merely proceeded on the basis of difference in peak credits and asked the assessee to prove the genuineness of the loans equal to that difference. The above narration shows that a long period of time has gone because of the persistently erroneous approach of the ITOs; last but not the least blessed by the I.A.C.
18. The Assessing Officers instead of giving clear finding regarding each and every loan separately have based their decisions on irrelevant considerations, grouping the loans together leaving such gaps, making generalisations and not following the normal route of procedure and of natural justice giving the assessee reasonable opportunity of meeting the Department's case and examining the evidence on which the Revenue proposed to rely. The assessee has in his letters repeatedly pointed out that he had given the addresses of the lenders and has also indicated the evidence which was supplied at the initial stage itself. The assessee vide its letter dated 6th February, 1965 pointed out that the shroffs from whom the family had borrowed the moneys were not cooperating with the Department and some of the shroffs were reluctant to produce their books of accounts to prove the genuineness of the transactions. In this letter also the assessee stated that address of the lenders had been given but since the lenders were not cooperating, which may involve long litigation, the assessee had requested settlement. This indicates the possible difficulty experienced from the very beginning and seems to be probable. In his letter dated 25-8-1977 he has inter alia stated as follows:-
In this connection we have produced at the time of assessment proceedings original hundi khokhas, interest payment slips, proofs regarding discounted hundies, confirmatory letters from most of the shroffs from whom we have borrowed money as primary evidence which is the legal duty of the borrower according to law. We have also produced in support of these transactions in form of letter from the lender, bank pay-in-slips regarding payment of interest whose payment had been made by cheques". The assessee also requested the Income-tax Officer to issue summons to the lenders and offered to pay the cost thereof. He also requested that he may be given opportunities to cross-examine the hundi shroffs who according to the Income-tax Officer had denied having given the loan and whose statements are being obtained by the Revenue behind the back of the assessee. The assessee vide its letter dated 2-3-1981, to the Income-tax Officer have again stated that detailed addresses were given to the ITO at the time of original assessment but the ITO neither at the time of original assessment nor at the second round of assessment cared to call the parties for the cross examination even though specifically directed to do so by the Commissioner. In this state of affairs, one can only conclude that the Income-tax Officers by not processing the case properly have caused a long delay which has resulted in the assessee having a good answer that at this stage now the lenders cannot be expected to prove the genuineness of the loans. We, therefore, hold that there is no justification now for retaining the addition which the Commissioner has done. Consequently, the interest amounting to Rs. 8949 added is also deleted. An amount of Rs. 2000 for stamp expenses on the hundi loans had been disallowed by the Commissioner as a consequence of his order. That is also deleted.
19. In the result, the appeal is allowed.