Income Tax Appellate Tribunal - Allahabad
Assistant Commissioner Of Income Tax vs Smt. Meera Devi on 9 January, 2007
Equivalent citations: (2007)108TTJ(ALL)88
ORDER
D.C. Agrawal, A.M.
1. This is an appeal filed by the Revenue against the order of learned CIT(A) in deleting the addition of Rs. 69,95,000 added under Section 68 of IT Act.
2. The facts of the case are that the assessee had taken a petrol pump in auction. For this purpose it raised loans mainly from two relatives namely Smt. Meena Jaiswal, from whom a sum of Rs. 36,25,000 was raised and Smt. Anita Jaiswal who gave a loan of Rs. 33,70,000. The auction of petrol pump was conducted by Bharat Petroleum. The assessee invested a sum of Rs. 70,47,100 in purchasing the pump. A sum of Rs. 52,100 was claimed to be her own investment from past savings. In order to verify the genuineness of the loan transactions and creditworthiness of the two creditors, the AO issued commission under Section 131(1)(d) to Asstt. CIT, Faizabad, who recorded the statement of both the ladies. The two ladies admitted to have advanced the aforesaid loan to the assessee. In her statement, Smt. Meena Jaiswal stated that she received loan from 79 persons amounting to Rs. 32 lakhs. The list of those 79 persons were filed. Smt. Anita Jaiswal stated to have received loan from 92 persons. A list of these persons were furnished. The loans were stated to be raised through drafts and cheques. Since AO did not believe the explanation satisfactory as raising of loans by the two creditors was not proved, he added a sum of Rs. 69,95,000 as unexplained investment under Section 69. According to him, this sum was invested in the auction in Bharat Petroleum.
3. The learned AO, in addition to treating the sum of Rs. 69,95,000 as unexplained investment in the hands of the assessee, initiated proceedings under Section 148 in both the cases of the creditors.
4. The learned CIT(A) deleted the addition mainly on the ground that proceedings under Section 148 have been taken in the hands of the creditors. Hence no addition is called for in the case of the assessee. In this regard, his observations in paras 3.7, 3.8, 3.9, 4.0 and 4.1 in his appellate order are relevant.
5. Before us, learned Departmental Representative submitted that merely because reassessment proceedings have been initiated in the hands of the creditors it does not mean that the creditworthiness of the creditors is established. The two persons, namely, the creditors and the assessee are different for income-tax purposes and, therefore, provisions of IT Act would apply to them independently. He relied on the decision of Hon'ble Allahabad High Court in Jagmohan Ram Ramchandra v. CIT . According to the learned Departmental Representative same amount can be added in the hands of two persons to give full effect to the provisions of the Act. Addition under Section 69 can be made in the hands of the creditors as an investment in another concern. If that concern is not able to establish genuineness of the transaction and creditworthiness of the creditor, then addition under Section 68 can also be made in its hands. Sees. 68 and 69 are deeming provisions and if any assessee is unable to explain the cash credit or investment or the explanation is unsatisfactory, addition can be made in the hands of person concerned, even if the amount invoked (sic) is the same.
6. Against this, learned Authorised Representative submitted that assessments of the creditors have been separately made by the AO and addition of the alleged loan raised by them has been made in their hands. Further, AO has made the addition under Section 69 in the hands of assessee and not under Section 68. Learned Authorised Representative referred to Section 69 and submitted that it would not be applicable in the present case because assessee has maintained the books of account. Learned Authorised Representative also submitted that Revenue has raised grounds in its appeal with respect of two reasons on which learned CIT(A) has deleted the addition. They are, (1) action under Section 148 has been taken in the hands of the creditors and (2) creditworthiness of the creditors has not been established. In fact, learned CIT(A) has deleted the addition on two more grounds which seem to have been accepted by the Revenue as they have not challenged them. These two additional reasons relied on by learned CIT(A) are that the assessee has not carried out any business before auction of the petrol pump and the money was credited before auction of the pump and, secondly, that the addition has been made by the AO under Section 69 and not under Section 68.
7. Learned Authorised Representative relied on the decision of Hon'ble Supreme Court in CIT v. Bhaiat Engineering & Construction Co. for the proposition that cash credits entry made in the first year of business could not represent assessee's income as assessee company could not make profit soon after it commenced activities. He also relied on the decision in Dy. CIT v. Rohini Builders for the proposition that once identity of creditor is proved and the amount is received by account payee cheque then initial burden of proving the credit is discharged and, therefore, source of credit need not be proved. The fact that the explanation was not satisfactory would not automatically result in deeming the amount as income of the assessee. He further relied on the decision of Hon'ble Allahabad High Court in India Rice Mills v. CIT for the proposition that where the partners have contributed capital before the firm commenced business, then onus lies on the partners to explain the source of deposits and where he failed to explain, then addition can be made in their hands. However, it cannot be treated as income of the firm. Learned Authorised Representative submitted that the assessee is a 24 years old lady and she had ventured to start petrol pump on her own. For this purpose she had raised loans from the relatives who had also managed loans for this purpose as they had credit in the market and transferred the same to the assessee. In fact, AO does not have any material to show that the assessee could have earned so much of income just in couple of days before investment into auction of the petrol pump. In fact provision of Section 69 would not be applicable because assessee is maintaining books of account and for applying Section 69 one of the conditions is that investment is not recorded in the books of account. Therefore, basic premise of the AO, on which addition is made, is incorrect. Regarding the reliance of the learned Departmental Representative on the decision of Hon'ble Allahabad High Court in the case of Jagmohan Ramchandra (supra), learned Authorised Representative submitted that the same is distinguishable on facts. In that case, partners had surrendered their money and, therefore, Hon'ble High Court considered the same as unexplained in the hands of the firm.
8. Learned Authorised Representative also submitted that it is not necessary if explanation is not substantiated then addition should necessarily be made. The legislature has used the word 'may' and not 'shall'. It provides discretion to the AO to consider overall probability and decide whether addition is required to be made. Section 68 or Section 69 confers discretion to the AO to make addition or not to make addition. For this proposition learned Authorised Representative relied on the decision of Hon'ble Supreme Court in CIT v. Smt. P.K. Noorjahan .
9. In the alternative, learned Authorised Representative submitted that there are two decisions of Hon'ble Allahabad High Court favouring the assessee, they are (supra) and of CIT v. Jauharimal Goel (2006) 201 CTR (All) 54 : (2005) 147 Taxman 448 (All). There is one decision of Hon'ble Allahabad High Court against the assessee relied on by the learned Departmental Representative in Jagmohan Ram Ramchandra's case (supra). Thus, the one favourable to the assessee should be followed as held in CIT v. Vegetable Products Ltd. . Learned Authorised Representative also relied on the decision of Hon'ble Allahabad High Court in CIT v. Pyareylal Radhey Raman and other decisions reported in CIT v. S.M. Omer (supra) and Banshidhai Aggarwal v. CIT . Learned Authorised Representative finally submitted that once the amount has been added in the hands of the creditors, then it should be treated as explained in the hands of the assessee.
10. In rejoinder, learned Departmental Representative submitted that the decision of Hon'ble Supreme Court in P.K. Nooijahan's case (supra) was on peculiar facts. It does not make any difference whether Section 68 is quoted or Section 69 is quoted by the AO. On the facts Section 68 will be applicable and Section 292B will take care of the errors in quoting the section. Further, Section 68 creates a fiction and, therefore, credits should be deemed as assessee's income.
11. We have considered the rival submissions and perused the material on record. The facts that are culled out from the orders of the authorities below and paper book filed by the assessee are that the assessee is a 24 years old lady who participated in the auction organised by M/s Bharat Petroleum for a petrol pump. She, for that purpose, borrowed loan from Smt. Meena Jaiswal and Anita Jaiswal for a sum of Rs. 36,25,000 and of Rs. 33,70,000 respectively. The two creditors were produced before the Asstt. CIT to whom commissions'under Section 131(1)(d) were issued. Their statements were recorded. They have admitted to have given the loan to the assessee and for this purpose they claimed that they have raised loans from various other parties. The assessments of the two creditors were reopened under Section 148 and additions were also made in their hands for the amount of loan raised by them. They are regularly assessed to income-tax. They are clearly identifiable. The money is transferred through banking channels. Thus, the money came into the account of the two creditors and thereafter it was transferred to the account of the assessee. The assessee is maintaining the books of account in which these credits are appearing. The assessee did not carry out any business prior to allotment of petrol pump. The money came into her account before she started any business. On these facts, the question is whether Section 69 or Section 68 will be applicable. Clearly, Section 69 would not be applicable because assessee is maintaining books of account. Section 69 reads as under:
69. Unexplained investments. - Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the AO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.
An analysis of Section 69 reveals following attributes:
(1) The assessee has made an investment, (2) The investment should be in the financial year immediately preceding the assessment year.
(3) The investments were not recorded in the books of account.
(4) Assessee offers no explanation.
(5) If explanation is offered, then the same is not found satisfactory and (6) AO may treat such investment as income of the assessee. In the present case, admitted facts are that the assessee has maintained the books of account. Therefore, the investment made by her in auction of petrol pump cannot be considered under Section 69.
12. Presuming that provision of Section 292B takes care of incorrect reference to Section 69 and in its place Section 68 would be applicable, then one has to see whether assessee has discharged the onus. The well known attributes of Section 68 are that identity of the creditors, creditworthiness of the creditors and genuineness of the transaction should be established by the assessee. In the present case, there is no dispute about the identity of the creditors. They are assessed to income-tax and they were produced before the Asstt. CIT and their statements were recorded by him. The other attribute is creditworthiness of the creditors. The learned AO has held that the creditors did not have any creditworthiness because they themselves had raised loans and transferred it to the assessee. According to the learned Departmental Representative, creditworthiness means creditworthiness of his own and not artificially created by borrowing loans. The creditors did not have any creditworthiness and for that reason alone they had been shown to have borrowed loans. We, however, do not subscribe to the view of the learned Departmental Representative that creditworthiness would stand to lose if a creditor borrowed loan from the market and passes on to the assessee. It is very much possible in the business world that assessee himself may not have any standing in the market to borrow loan but his close relatives and acquaintances may have better creditworthiness to whom the parties can give loans which can be passed on to the assessee. Such loan borrowed from the market would be at the guarantee of the creditors. In fact, it is the creditworthiness of the creditors that he/she is able to raise loans from the market. Therefore, merely on the ground that creditors have raised loans from the market the creditworthiness of the creditors cannot be doubted. One has to see while applying Section 68 as to upon whom the initial onus would lie to prove credits and what is the degree or extent of evidence an assessee is required to submit to discharge initial onus. According to the learned Authorised Representative, once the assessee has produced various documents in proof of credits, she has discharged the onus. Section 68 reads as under:
68. Cash credits. - Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.
It refers to an explanation furnished by the assessee about the nature and source of such credits. Before charging the credits as income of the assessee, the AO has to form an opinion. This opinion is subjective but is has to be judicious and based on material on record. An opinion is an inference of facts from observed facts. It is not an impression. It is a conviction based on appraisal of evidence on record. In VLS. Finance Ltd. v. CIT (2000) 163 CTR (Del) 343 : (2000) 246 ITR 707 (Del), Hon'ble Madras High Court observed as under:
'Opinion' means something more than mere retailing of gossip or hearsay; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question. It means : judgment or belief based on grounds short of proof. If a man is to form an opinion and his opinion is to govern, he must form it himself on such reasons and grounds as seem good to him.
13. Thus, before AO forms an opinion, he must consider the material before him. He has before him the material submitted by the assessee while giving an explanation, then he must collect his own material as an enquiry officer, weigh the two materials and as a quasi-judicial authority form an opinion as to whether explanation furnished by the assessee is satisfactory or not. If the AO does not apply his mind in examining the documents furnished by the assessee and does not find any substantive error in them nor he collects any material by exercising powers under IT Act, then the claim of the assessee cannot be straightway rejected. If he does, it would be a violation of principles of natural justice and provisions of Section 68.
14. Under Section 68, there is no doubt that initial onus lies on the assessee to establish the identity of the creditors and their creditworthiness and genuineness of the transaction. But this onus is not fixed. It is vacillating. It would shift to the AO if the assessee has produced evidence which reasonably explains his case. Onus will again shift to the assessee if on the basis of material on record the AO finds the explanation not convincing. In the present case, the AO has issued commission to another officer who himself summoned the creditors and recorded their statements who admitted to have advanced the money to the assessee by borrowing loans from the market. The AO had initiated proceedings under Section 148 against the creditors. In those proceedings necessary evidence of loan raised by the creditors were filed. But the AO did not issue any summon or collect any material on his own from the creditors of the creditors so as to show that the claim of the loan made by the two lady creditors is false or not satisfactory. An outright rejection of an explanation is not a quasi-judicial act. There is no material with the AO to come to the conclusion that the creditors had not raised the loans from the market or that story put forward by them is fake. On the other hand, the assessee is a 24 years old lady who has just entered into the business. It is not expected that she would have unaccounted money which would go to creditors and siphoned back to the assessee in the form of loan. Under a similar set of facts, Hon'ble Supreme Court in P.K. Noorjahan's case (supra) held that one has to see in the light of the facts whether explanation furnished by the assessee would be satisfactory or not. Hon'ble Supreme Court in P.K. Noorjahan's case (supra) observed as under:
In the corresponding clause of the Bill which was introduced in Parliament, while inserting Section 69 in the IT Act, 1961, the word 'shall' had been used but during the course of consideration of the Bill and on the recommendation of the select committee, the said word was substituted by the word 'may'. This clearly indicates that the intention of Parliament in enacting Section 69 was to confer a discretion on the ITO in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the ITO is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under Section 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the ITO under Section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case.
15. The word 'may' used in Section 68 provides discretion to the AO. In general the word 'may' is an auxiliary verb clarifying the meaning of another verb of expressing an ability, contingency, possibility or probability. When used in a statute in its ordinary sense the word is permissive and not mandatory. But where certain conditions are provided in the statute and on the fulfilment thereof a duty is cast on the authority concerned to take an action, then on fulfilment of those conditions the word 'may' take the character of 'shall' and then it becomes mandatory. But in Section 68, there are no such conditions on the fulfilment of which the AO is duty-bound to make the addition. In Sections 68 and 69, the word 'may' used is only discretionary. We are supported in our view from the decision of Hon'ble Supreme Court in P.K. Noorjahan's case (supra) as referred above. Thus, in the present case we hold that the assessee has discharged the initial onus and the AO has not done anything or collected any material to shift back the onus to the assessee.
16. There are many authorities cited by the two parties but for our purposes the decision given by Hon'ble Allahabad High Court would be relevant as well as sufficient. There are three authorities from Allahabad High Court two cited by the assessee and one cited by the Revenue. In Jagmohan Ram Ramchandra v. CIT (supra), the facts were that the assessee firm had six partners. For the asst. yr. 1977-78, the ITO required the firm to explain the nature and source of two cash credits standing in the names of two parties; Rs. 10,000 in the name of one Mr. U and Rs. 7,500 in the name of Mr. G. The explanation offered by the firm was that these two partners had surrendered the amount in question in their individual return and they are being assessed thereon. The ITO rejected the explanation and treated the sum of Rs. 17,500 as its income by invoking the provisions of Section 68. In the individual assessment of the partners surrendered sums were assessed, which were the amount deposited by them in the firm. From these facts, Hon'ble Allahabad High Court held that if entry of cash credit is found in the books of account of the firm, it is for the firm to give an explanation regarding the identity and source of such deposits and if the explanation is disbelieved, then it is to be added as income under Section 68 of the IT Act, 1961 in the hands of the firm. Similarly, if an assessee, who is partner of the firm, has made investment which is not recorded in the books of account maintained by him for any source of income, then the explanation given by the partner or individual regarding the source of deposit is disbelieved, then such deposits, which are envisaged, can be brought to tax as income from undisclosed sources under Section 69. Hon'ble Allahabad High Court held that there is no question of any double taxation. Full effect of the deeming provision in the presumption provided under Sections 68 and 69 of the Act has to be given. The firm and the partners are treated as separate assessee under the Act. The addition in the hands of different assessees under different provisions of Act is permissible. Thus, Hon'ble High Court confirmed the addition in the hands of the firm.
17. In India Rice Mills v. CIT (supra), relied on by the learned Authorised Representative, the facts were that the assessee firm was constituted on 12th Aug., 1977 and became operative from 2nd Feb., 1978. During the period from 1977 to February, 1978, 10 partners of the firm made capital contribution credited in the books of the firm. The firm was called upon by the AO to explain the source of deposit. Since all the partners were not assessed earlier, the AO treated the said deposit as cash credit in the hands of the firm. Hon'ble Allahabad High Court held that all the deposits had come into the books of the assessee firm before it started its business and the deposit represented the capital contribution of the partners. It was for the partners to explain the source of deposits and if they failed to discharge the onus, then such deposits could be added in the hands of the partners only. These deposits could in no case be the income of the assessee firm because the firm started its business after the credits had been made in its books.
18. In another decision, relied upon by the learned Authorised Representative in CFT v. Jauhaiimal Goel (supra), the facts were that in the books of account of the assessee certain deposits were found credited in the names of the two daughters of the assessee. It was explained that money was deposited by his daughters after withdrawing the same from their bank accounts and that they are assessed to tax under Amnesty Scheme. The AO added the said amount as income of the assessee under Section 68 holding that he had introduced black money by filing voluntary return of his daughters. The Tribunal had deleted the addition on finding that the assessee had discharged the burden in proving the source of money. Hon'ble Allahabad High Court held that in the instant case the assessee offered the explanation both about the nature and source of money. It was explained that the money was deposited by the two ladies after withdrawing from their bank account. The CIT(A) and the Tribunal had found that the assessee had discharged his burden in proving the source of the money, which had flown from their bank account and was as a result of their disclosure under the Amnesty Scheme. The Tribunal had given a finding that the explanation offered by the assessee was satisfactory and it was not shown that finding of the Tribunal was perverse.
19. Thus, out of the three decisions, one is in favour of the Revenue and the other two are in favour of the assessee and all the three are from the jurisdictional High Court. However, there is slight difference in the facts. In India Rice Mills' case (supra) assessee had not commenced the business and so it is in the present case. In Jagmohan Ram Ramchandia's case (supra), assessee was in the midst of its business. Therefore, the facts of the case in India Rice Mill (supra) are closer to the facts of the assessee's case. Similarly, the facts in Jauhaiimal Goel's case (supra) are also closer to the facts of the present case in the sense that the two ladies in the present case are also assessed to tax and they have borrowed the loans from the market and shown them in their return of income. Thus, in our view, the decisions of Hon'ble Allahabad High Court in India Rice Mills' case (supra) and in Jauhaiimal case (supra) would apply and, therefore, no addition is called for in the case of the assessee.
20. Even otherwise, presuming that there are two decisions of Hon'ble Allahabad High Court, one in favour of the assessee and the other in favour of the Revenue, then the one in favour of the assessee would prevail as held by Hon'ble Supreme Court in Vegetable Products' case (supra). When there are two contrary views, then the one in favour of the assessee is to be preferred. In any case, we are of the considered view that the assessee has discharged initial onus by showing that the two creditors had borrowed the loans from the market and gave loans to the assessee. The AO has not been able to find out any error in this explanation so as to hold it unsatisfactory. If the two creditors are not able to give any satisfactory explanation about the loans raised by them, then the same can be considered in their hands under Section 68 which had actually been considered by making additions in their assessments.
21. The other decisions relied upon by the learned Authorised Representative support the view we have already taken. In Bhaiat Engineering Co.'s case (supra), the cash credit entries appearing in the first year of business could not represent the income of the assessee as it cannot make profit soon after it commenced activities. In Rohini Builder's case (supra), Hon'ble Gujarat High Court held once identity of the creditor is proved and amounts are received by account payee cheques, then the assessee has discharged the initial burden. In Sunder Lal Jain v. CIT , the issue was whether addition in the hands of the partner could be done under Sections 68 and 69 as the partner was not maintaining books of account and he has made unexplained investment in the firm, the addition was liable to be made under Section 69 and not under Section 68. In CIT v. S.M. Omer (supra), it was held that entire amount received by the assessee from different Departments could not be treated as assessee's net income. It was held that provisions of Section 69 are not applicable on the facts of that case. In Banshidhar Agrawal v. CIT (supra), the issue was whether Section 68 would apply or not. An amount was found credited in the capital account in the books of the assessee on 3rd April, 1972 in the previous year relevant to the asst. yr. 1973-74, it was held that provisions of Section 68 would apply and amount would be assessable as income in the asst. yr. 1973-74. This decision clarified distinction between Section 68 and Section 69.
22. In CIT v. Orissa Corporation (P) Ltd. , the Hon'ble Supreme Court had observed as under:
Held, that in this case the respondent 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 assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion was based on some evidence on which the conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.
23. In Addl. CIT v. Hanuman Agarwal , Hon'ble Patna High Court had observed as under (headnote):
Thus, after the assessee filed the confirmatory letter with the correct name and address of the creditor and the GIR number as well, the onus immediately shifted on the Department which was not discharged by the Department in this case. The deletion of the addition of Rs. 41,500 and allowance of interest on it by the Tribunal was, therefore, proper.
Per Hon'ble Sushil Kumar Jha, J. : Where an assessee gives the correct name, address and GIR number of the creditor, he has discharged his onus to prove the genuineness of credits in his accounts and unless a notice in due form under Section 131 of the Act is issued by the Revenue authority to test the genuineness of the transaction or the capacity of the creditor to pay, the amounts cannot be assessed in the hands of the assessee.
24. Thus, after discussing the facts and authorities relied on by the parties, we hold that the assessee has discharged its initial onus and there is no material on record collected by the AO to shift back the onus to the assessee. The explanation offered by the assessee that she has raised loans from the two creditors, who have admitted to have given the loan by raising loans in turn is satisfactory and hence no addition under Section 68 is called for in the case of the assessee. The Department has already initiated proceedings in the hands of the creditors and assessed the impugned sums in their hands. No addition is called for in the hands of the assessee.
25. As a result, appeal filed by the Revenue is dismissed.