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Cash Credit & Addition under Section 68 of Income Tax Act

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ITO v Laxman Das Makhija : Appeal No. ITA No. 145/Agra/2005 Dated: October 23, 2008

RELEVANT EXTRACTS:

9. I have seen proposed orders of both the learned Members. The difference is very clear. Whereas the learned A.M. in his proposed order has upheld order of learned CIT (A) deleting the addition of Rs 4,76,500/- u/s 68 of the IT. Act. The learned Judicial Member on the other hand is of the view that the matter should be restored to the file of the learned CIT (Appeals) for re-examination of certain facts recorded by her and already noted in this order. I shall proceed to resolve the difference u/s 255(4) of Income-tax Act.

10. The Third Member case was fixed for hearing on 13.10.2008 at Agra and Stnt Shafali Juneja, learned Sr. D.R. for the revenue and Shri Raj Rayan Bansal, Advocate for the assessee have been heard. I have also considered facts and circumstances of the case and the material on record.

11. The relevant observations of the A.0 in the assessment order have already been noted. The assessee is dealing in Kirloskar pumps. The case of the assessee is that a sum of Rs 4,76,500/- was deposited by farmers for booking pumps which were subsequently sold to them. The A.0 wanted the assessee to produce these fanners for cross-examination. The fanners were produced and their statement was recorded on oath. There is no dispute that these farmers confirmed on oath that they had given advance to the assessee. Now when assessee had produced fanners for examination or cross examination of the A.O, it was necessary for the A.O to put his doubts to them, ask for their explanation and then decide the matter on the basis of material available on record. Instead of discussing the statements and the principles applicable u/s 68 of the Act, the A.O recorded a finding that money introduced in books belonged to the assessee and farmers were trying to accommodate the assessee. This finding, as rightly observed by learned AM, is not based on any material available on record. The A.0 in the impugned assessment order, has not referred to any material which will support such a finding. In fact there is plenty of confusion in the assessment order written in Hindi. It is also full of contradictions. The final conclusion of the A.0 has been reproduced above in Hindi with its English translation. The A.0 has recorded that assessee had used his own money in the name of agriculturists in shop (books) when depositors (name lenders) needed to take pump, then goods were delivered to them after taking full consideration. From this the A.0 said that it was clear that assessee did not trust even the reliable agriculturists. This is the conclusion of the A.O. The important words from the assessment order have been highlighted by underlining them. These are “Jab Jamakarta (Kewal Naam Ke) needed to take pump, then full amount was taken and pumps delivered. There is thus a clear rinding that the depositors (name lenders) were given the pump after receipt of foil amount. In other words these very fanners lifted the pumps in whose names earlier deposits were made (the depositors). It is a different thing whether believe or disbelieve the statement But there is no dispute that pumps were shown as sold to the same persons the depositors (name lenders).

12. In my humble opinion, facts have not been properly noted by the learned Judicial Member from record or A.O’s order nor the finding recorded by the learned CIT (A) has been properly appreciated. It is no doubt true that case law is to be applied to the facts and circumstances of the case. However, in the impugned order, in my humble opinion, the learned CIT (A) did exactly the same and I do not see any error in his approach. The finding of the A.O that funds were needed by the assessee for purposes of business is not very material. If there is cash credit, creditworthiness of the creditor, genuineness of the entry, identity of the creditor, the source of money etc is required to be considered u/s 68 of the Act. The A.0 inspite of recording statement of the fanners, in which without a doubt, they had confirmed having advanced money to the assessee for purchase of pumps, did not consider their statement or raise any doubt on the capacity or identity of the depositor or source of deposit made by them. Without discussing this relevant material, the A.O came to the conclusion that it was assessee’s money deposited in the name of the farmers. This conclusion, as noted earlier, is not based on any material, nor the learned Judicial Member has pointed to any material, except stating some facts which as per material on record, are not correct.

12.1 Regarding availability of stock and delivery of pumps to farmers, the learned A.M. has rightly considered the order of the C.I.T.(Appeals) . The A.O., as noted earlier, had admitted that pumps were delivered after taking full amount from the same farmers. Who has raised the question that pumps were delivered to a person different from the farmers who deposited the amount? How the above question is arising in this case is absolutely not clear from record? It is no doubt true that the Tribunal has very wide powers. But such powers are to be exercised judicially and on the basis of material available on record. It is not permissible to misread facts and then order a remand for the sake of remand. The A.0 cannot be permitted to take advantage of his own wrong by not recording a clear finding with reference to material on record. His finding should have been based on the statement of the fanners who appeared as A.O’s witnesses. It was unnecessary to enter into realm of imagination. There is no need to allow any other inning to the revenue. The learned A.M has passed an. elaborate order that amounts were advanced by the fanners for purchase of pumps. Identity or capacity of the farmers to advance loan had not been doubted. Ultimately pumps were sold to these farmers, after receipt of full consideration. The A.O. did doubt the genuineness of the credit entries but having regard to the criteria laid down by High Courts and Supreme Court to prove cash credit, it is without justification. The finding of the A.0 was not based on any material, much less the statement of the farmers produced at his instance and recorded by him on oath. The learned Judicial Member, in the proposed order, raised question which did not arise on the material on record. I have reproduced ground No. 5 raised by the Revenue before I.T.A.T on the issue in dispute. Ground No.6 on some other issue relating to deletion of Rs. 46,000/- has been reproduced to show that, in that ground the Revenue has raised that CIT (Appeals) considered such explanation of the assessee which was not made before the A.O. However, the plea taken in ground No.6 has also been mixed up in ground No. 5. Otherwise facts and finding, as for as learned CIT (Appeals) are concerned, are quite clear. The remand of the matter, on the facts and circumstances of the case, is not necessary. For the aforesaid reasons, I agree with the order proposed by the learned Accountant Member.


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