IN THE ITAT LUCKNOW BENCH (THIRD MEMBER)
Dwarikadhish Sugar Industries
V/s.
Income-tax Officer
IT APPEAL NO. 115 (LUCK.) OF 2011
[ASSESSMENT YEAR 2005-06]
MAY 7, 2012
ORDER
Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the ld. CIT(A) on various grounds which are as under:-
1. The Ld. A.O. lower authorities have erred on facts in making/sustaining additions of Rs. 3,30,000/- to the appellant’s income u/s 68 of the IT. Act, 1961, being the amount deposited by under noted persons:-
| (i) | Sri Diwas Gupta | Rs. 2,00,000/- | |
| (ii) | Smt. Ruchira Gupta | Rs. 1,30,000/- |
2. On the undernoted facts & in the peculiar circumstances of the present case, the Ld. Lower authorities were not at all justified in making/sustaining addition of Rs. 2,00,000/- deposited by Sri Diwas Gupta as unexplained cash credit u/s 68 of the IT. Act, 1961 in the present case:-
(i) That Sri Diwas Gupta had submitted his confirmation that he had given a sum of Rs. 3,50,000/- as loan to the appellant vide cheque No.863263 from his Savings Bank A/c No. 10729 with Allahabad Bank, Lakhimpur Kheri.
(ii) That a copy of confirmation of statement of account of Sri Diwas Gupta duly signed by him was also placed before the Ld. A.O. in the course of assessment proceedings.
(ii) That Sri Diwas Gupta is regularly assessed to Income Tax at PAN: AGSPG3966H by A.O. Range 2, Lakhimpur Kheri.
(iii) That a copy of the bank statement of Allahabad Bank, Lakhimpur Kheri showing the debits aggregating to Rs. 3,50,000/- in his bank a/c was also submitted before the Ltd. A.O.
(iv) That Sri Diwas Gupta was also produced before the Ld. A.O. on 20/12/2007 who on statement on oath confirmed of giving loan to appellant by accounts payee cheque of Rs. 3,50,000/- detailed above PAN letter, copy of income tax return acknowledgement & income statements.
(v) That the said Sri Diwas Gupta who was produced before Ld A.O. has confirmed about his source of income and financial capacity.
(vi) That after submission of above documents and statement on oath no further proper opportunity was provided to the appellant to comply with the reason because of which the ‘Ld . A.O.’ proposed to make the said addition.
(vii) That the appellant had discharged its onus by proving the identity of the person, the genuineness of the transaction as well as the creditworthiness of the depositor.
(viii) On the facts stated above, the addition made by the Ld. A.O. is not justified & may kindly be ordered to be deleted.
3. On the under noted facts & in the peculiar circumstances of the present case, the Ld. A.O. was not at all justified in making addition of Rs. 1,30,000/- deposited by Smt. Ruchira Gupta as unexplained cash credit u/s 68 of the I.T. Act, 1961 in the present case:-
(i) That Smt. Ruchira Gupta had submitted his confirmation that he had given a sum of Rs.1,80,000/- as loan to the appellant vide cheque No. 216793 from his Savings Bank A/c No.213379 with Allahabad Bank, Lakhimpur Kheri.
(ii) That a copy of confirmation of statement of account of Sri Ruchira Gupta duly signed by him was also placed before the Ld. A.O. in the course of assessment proceedings.
(iii) That Sri Ruchira Gupta is regularly assessed to Income-tax at PAN: AGSPG3967G by A.O. Range 4, Lakhimpur Kheri.
(iv) That a copy of the bank statement of Allahabad Bank, Lakhimpur Kheri showing the debit of Rs. 1,80,000/- in her bank a/c was also submitted before the Ld. A.O.
(v) That Smt. Ruchira Gupta thru her spouse Sri Manoj Kumar Gupta was also produced before the Ld. A.O. on 20/12/2007 who on statement on oath confirmed of giving loan to appellant by accounts payee cheque of Rs. 1,80,000/- detailed above PAN letter, copy of income-tax return acknowledgement & income statements.
(vi) That the said Smt Ruchira Gupta thru her spouse Sri Manoj Kumar Gupta who was produced before Ld A.O. has confirmed about his source of income and financial capacity,
(vii) That after submission of above documents and statement on oath no further proper opportunity was provided to the appellant to comply with the reason because of which the ld . A.O.’ proposed to make the said addition.
(viii) That the appellant had discharged its onus by proving the identity of the person, the genuineness of the transaction as well as the credit worthiness of the depositor.
(ix) On the facts stated above, the addition made by the Ld. A.O. is not justified & may kindly be ordered to be deleted.
5. That the A.O. erred on facts and in law in not allowing the appellant proper and sufficient opportunity to have its say or make necessary compliance of the reasons relied by him in making various additions to the appellant’s income in the present case.
6. The income assessed and interest charged are highly excessive and contrary to the facts, law and principles of natural justice and fair play.
7. The appellant prays for permission to modify and / or add any other ground or grounds of appeal as the circumstances of the case might require or justify.
2. This appeal came up for hearing on 9.11,2011, but none appeared on behalf of the assessee. On perusal of record, it is noticed that on the last date of hearing i.e. on 10.10.2011 when the matter was adjourned to 9.11.2011, the Id. counsel for the assessee has taken note of the date of hearing. Despite having knowledge of the date of hearing, none appeared on behalf of the assessee. We, therefore, had no option but to hear the appeal ex parte qua the assessee. Accordingly, the Revenue was heard. The ld. D.R. emphatically placed reliance upon the order of the ld. CIT(A) on all the impugned issues.
3. We have carefully examined the order of the ld. CIT(A) and we find that the ld. CIT(A) has adjudicated all the impugned issues minutely and in detail in his order. Since we find no infirmity in the order of the ld. CIT(A), we confirm his order.
4. In the result, appeal of the assessee is dismissed.
B.R. Jain, Accountant Member – Unable to agree with the order proposed by learned Judicial Member, I proceed to write my own order as under.
2. Having heard learned D.R. ex parte qua assessee and upon perusal of entire material on record, I find that the appellant has taken argumentative grounds assailing the order dated 03/01/2011 passed by learned CIT(A)-I, Lucknow whereby he has sustained addition of unsecured loan amounting to Rs. 2,00,000/- out of Rs. 3,50,000/- raised as loan from Shri Diwas Gupta and sustenance of another addition of Rs. 1,30,000/- out of unsecured loan amount of Rs. 1,80,000/- raised from Smt. Ruchira Gupta. These loans were found credited in the books of account maintained by the appellant for his business of Khandsari Sugar Factory carried in the name of Dwarikadhish Sugar Industries and no defects have been found in the books of account maintained by the appellant. No disallowance is shown to have been made for the interest payable on the aforesaid loans taken by the assessee. The assessment has been completed on the basis of books of account maintained by the appellant.
3. In so far as sustenance of addition of Rs. 2,00,000/- out of the total amount of loan raised for Rs. 3,50,000/- from Shri Diwas Gupta, the appellant had placed on assessment record a confirmation of loan to the appellant given by cheque no. 863263 drawn on his Savings Bank account No.107229 with Allahabad Bank, Lakhimpur Kheri. A copy of statement of account as appearing in the books of the appellant was also confirmed by the loan creditor. The said creditor is shown to have been assessed to income tax at PA Number AGSPG 3964H by the Assessing Officer, Range-2, Lakhimpur Kheri. The copy of the bank statement of the creditor with Allahabad Bank, Lakhimpur Kheri from where the cheque for advancing loan to the appellant was issued, was also laid on assessment record. The appellant had also produced the said loan creditor Shri Diwas Gupta before Assessing Officer on 20/12/2007 who in his statement before the Assessing Authority made on oath had confirmed giving of loan of Rs. 3,50,000/- to the appellant by account payee cheque and had also furnished PAN letter, copy of acknowledgement of income tax returns and income statement etc. He is thus found to have given reasonable explanation about the source of income and financial capacity to establish creditworthiness of the amount so advanced as loan to the appellant. It is also not the case of Revenue that facts of source and availability of cash with the loan creditor are in the knowledge of the appellant In this view of the background and documentary information laid on record, the appellant can be said to have discharged the onus that lay upon him u/s 68 of the Act to prove nature and the source of the credit. The Assessing Officer, however, without bringing any contrary material on record and without requiring appellant to adduce further evidence, has failed to discharge the onus that had shifted on the Revenue and unilaterally accepted only part amount to the extent of Rs. 1,50,000/- and added the balance of Rs. 2,00,000/- taking the same to be assessee’s own income routed through the bank account of Shri Diwas Gupta stating that the creditor in his statement before the Assessing Officer did not substantiate the sufficiency of the cash availability out of receipts from freelancing activities and retirement benefits from Bhagwati Sugar Industry by bringing any documentary evidence in that respect. The Assessing Officer is thus found to be venturing into the source of source or origin of origin of the money available in the account of the loan creditor even though the bank account from which the money had come to the account of the appellant was in the name of the loan creditor and stood owned by him besides admitting that the loan made is real to the appellant. The transaction of loan of Rs. 3,50,000/- is a single and inseparable transaction and the loan so obtained is found genuinely raised by the appellant, whereas on the basis of suspicion only the Assessing Officer rejected only a part of such loan amount to the extent of Rs. 2,00,000/-. Furthermore an amount of interest of Rs. 2,014/- on the loan amount of Rs. 3,50,000/-shown as payable at assessee’s paper book page 25 stands allowed as deduction for computing income of the appellant from business. The Assessing Officer also did not have any material on record to show that the appellant had some other source of income which can be said to have not been disclosed to the Revenue or that could lead to any inference that the appellant has routed his own money through the bank account of Shri Diwas Gupta for obtaining loan and crediting the same in his books of account whose correctness has not been doubted by the Assessing Officer himself. Merely because there was cash deposit in the bank account of the loan creditor that by itself did not give jurisdiction to the Assessing Authority or the learned C1T(A) to draw any adverse inference. The learned CIT(A) also without appreciating the legal position in right perspective and putting blinkers to the glaring facts and documents that appellant had brought on record to substantiate identity, creditworthiness and genuineness of the transactions, proceeded to hold that the genuineness of the transaction or creditworthiness of the transaction in this case has not been established and thus erred in reaching findings contrary to facts and sustained the addition of Rs. 2,00,000/- without any justifiable reason or cause of such a genuinely raised loan by the appellant.
4. In the case of Smt. Ruchira Gupta also the appellant had submitted a confirmation stating that she has given a loan of Rs. 1,80,000/- vide cheque No. 216793 drawn on her Savings Bank Account No. 213379 with Allahabad Bank, Lakhimpur Kheri. She has also given a confirmed statement of account as appearing in the books of the assessee and the same was laid on the record of the Assessing Authority. The assessee has also brought on record that Smt. Ruchira Gupta has regularly been assessed to tax at PA Number AGSPG 3969G by the Assessing Officer, Range-4, Lakhimpur Kheri and copy of her bank account from where the aforesaid cheque was issued was also laid on assessment record. Her Husband Shri Manoj Gupta appeared on 20/12/2007 before the Assessing Authority and made a statement on oath that his wife has given loan to the appellant amounting to Rs. 80,000/- and also placed on record a copy of PAN letter, copy of acknowledgement of income-tax return and income statement etc. to substantiate the genuineness of the loan given to the assessee and established her source of income and financial capacity in that regard. The creditor also explained that the loan has been advanced out of realization of her old loans from Bhagwati Sugar Industries and Annapurna Bhandar. The creditor is thus found to have given reasonable explanation about the source of income and financial capacity to establish creditworthiness of the amount so advanced. It is also not the case of Revenue that the facts of source and availability of cash with the loan creditor are in the knowledge of the appellant. In this view of the background and documentary information laid on record, the appellant can be said to have discharged the onus that lay upon him u/s 68 of the Act to prove nature and the source of the credit. The Assessing Officer however, without bringing any contrary material on record and without requiring the appellant to adduce further evidence has failed to discharge the onus that had shifted to Revenue and unilaterally accepted only a part amount to the extent of Rs. 50,000/-and added the balance of Rs. 1,50,000/- taking the same to be assessee’s own income routed through bank account of Smt. Ruchira Gupta stating that the creditor could not furnish documentary evidence to substantiate cash deposit in her bank account that it was a recovery of loan from Bhatwati Sugar Industries and Annapurna Bhandar. The Assessing Officer is thus found to have ventured into the source of source or origin of origin of the money available in the account of the loan creditor even though the bank account from which the money had come to the account of the appellant was in the name of the loan creditor and stood owned by her besides confirming that the loan made to the appellant is real. Furthermore, the transaction of the loan of Rs. 1,80,000/- was a single and inseparable transaction and the loan so given is found given genuinely to the appellant whereas on the basis of suspicion only the Assessing Officer rejected only a part of such loan amount to the extent of Rs. 1,30,000/- despite the fact that the whole amount of Rs. 1,80,000/- was interest bearing loan on which interest of Rs. 1,213/-as is apparent from the assessee’s paper book page 35 was payable as on 31/03/2005 and stood allowed as deduction for computing business income of the assessee. The Assessing Officer thus had no material on record to show that the appellant had some other source of income which can be said to have not been disclosed to the Revenue or that could lead to inference that the appellant has routed his own money through the bank account of Smt. Ruchira Gupta for obtaining loan and crediting the same in his books of account whose correctness has not been doubted by the Assessing Officer himself. Merely because there were cash deposits in the account of loan creditor, that by itself could not give jurisdiction to the Assessing Authority or to the learned CIT(A) to draw any adverse inference. The learned CIT(A) also without appreciating the legal position in right perspective and putting blinkers to the glaring facts and documents that appellant had brought on record to substantiate identity, creditworthiness and genuineness of the transactions, proceeded to hold that the genuineness of the transaction or creditworthiness of the transaction in this case has not been established and thus erred in reaching findings contrary to facts and sustained the addition of Rs. 1,30,000/- without any justifiable reason or cause of such a genuinely raised loan by the appellant.
5. The aforesaid findings are supported by the legal position decided by various courts and the Tribunal as under:
5.1 Hon’ble Assam High Court in the case of Nabadwip Chandra Roy v. CIT [1962] 44 ITR 591 (Assam) and as also been followed in the case of Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam) at page 638 states as under:
“All that could be said to follow from this decision is that once the assessee explains the credit entry and brings in evidence to show that the entry related to a third party and that credit was that of that third party, the burden would shift to the Income-tax Officer to prove that this is not true. For instance it would be open to the Income-tax Officer in such a case to establish that the entry was not real but was pseudonymous.”
5.2 Hon’ble Assam High Court in the case of Tolaram Daga (supra) and relevant passage at page 635 as under clarifies this position:
“At the outset, we have to point out that there is no substance in the contention that the sources from which the money was realised by the third party are within the special knowledge of the petitioner as the depositor happens to be his wife. Whether he has knowledge at all of the source of the money deposited by the third-party is a matter which has to be decided on evidence. The mere fact that the third party making the deposit happens to be the wife of the assessee does not ipso facto make the assessee come into the knowledge of the sources from which the money was realised. Under law, in the absence of specific proof of that knowledge, it cannot be assumed that the assessee has the knowledge in question within the meaning of section 106 of the Evidence Act. In order to rely on this section, which lays down that when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him, it must be established first that the person has especial knowledge of that fact, having regard to the circumstances of the case. As illustration (b) to the section shows, when A is charged with travelling on a railway without a ticket, the burden of proving that he had a ticket is on him, obviously, because it is he alone that would have especial knowledge regarding the possession of the ticket. The instant case is by no means a parallel and, in our opinion, section 106 of the Evidence Act cannot, therefore, be invoked in aid.”
5.3 For the proposition that a Bank Account holder himself is the ‘owner’ of ‘credits’ appearing in his account (with the result that he himself is accountable to explain the source of such credits in whatever way and form, the same have emerged) support can be derived from section 4 of Bankers Book Evidence Act 1891 which reads as under:-
“4. Mode of proof of entries in bankers’ books
Subject to the provisions of this Act, a certified copy of any entry in a bankers’ book shall in all legal proceedings he received as prima facie evidence of the existence of such entry, and shall be admitted as evidence of the matters, transactions and accounts therein recorded in every cases where, and to the same extent as, the original entry itself is now by law admissible, but not further or otherwise.”
Following the said legislation, the coordinate bench of ITAT Allahabad vide its judgment and order dated 11.2.2008 in the case of Anand Prakash Agarwal v. ACIT [2008] 6 DTR (All) (Trib) 191 at page 207 & 208 has held as under:-
“The question that remains to be decided now is whether the subject matter of transfer was the asset belonging to the transferor/donors themselves. There is enough material on record which goes to show that there were various credits in the bank accounts of the donors, prior to the transaction of gifts, which undisputedly belonging to the respective donors themselves, in their own rights. No part of the credits in the said bank accounts was generated from the appellant and/or from its associates, in any manner. The certificates issued by the banks are construabte as evidence about the ownership of the transferors or their respective bank accounts, as per s. 4 of the Bankers’ Books evidence Act 1891, which read as under:
“4. Where an extract of account was duly signed by the agent of the bank and implicit in its was a certificate that it was a true copy of an entry contained in one of the ordinary books of the bank and was made in the usual and ordinary course of business and that such book was in the custody of the bank, it was held admissible in evidence. Radheshyam v. Safiyabai Ibrahim AIR 1988 Bom 361: 1987 Mah 725: 1987 Bank J 552.”
5.4 The Hon’ble Gujarat High Court, in the case of Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523, has held that onus of the assessee (in whose books of account credit appears) stands fully discharged if the identity of the creditor is established and actual receipt of money from such creditor is proved. In case, the Assessing Officer is dissatisfied about the source of ‘cash deposited in the bank accounts of the creditors’, the proper course would be to assess such credit in the hands of the creditor (after making due enquiries from such creditor). In arriving at this conclusion, the Hon’ble Court has further stressed the presence of word “may” in section 68. Relevant observations at pages 369 and 370 of this report are reproduced hereunder:-
“……….Merely because summons issued to some of the creditors could not be served or they failed to attend before the Assessing Officer, cannot be a ground to treat the loans taken by the assessee from those creditors as non-genuine in view of the principles laid down by the Supreme Court in the case of Orissa Corporation (1986) 159 ITR 78. In the said decision the Supreme Court has observed that when the assessee furnishes names and addresses of the alleged creditors and the GIR numbers, the burden shifts to the Department to establish the Revenue’s case and in order to sustain the addition the Revenue has to pursue the enquiry and to establish the lack of creditworthiness and mere non-compliance of summons issued by the Assessing Officer under section 131, by the alleged creditors will not be sufficient to draw and adverse inference against the assessee. In the case of six creditors who appeared before the Assessing Officer and whose statements were recorded by the Assessing Officer, they have admitted having advanced loans to the assessee by account payee cheques and in case the Assessing Officer was not satisfied with the cash amount deposited by those creditors in their bank accounts, the proper course would have been to make assessments in the cases of those creditors by treating the cash deposits in their bank accounts as unexplained investments of those creditors under section 69.
Further we may point out that section 68 under which the addition has been made by the Assessing Officer reads as under:
“68. 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 Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year. In this case the legislative mandate is not in terms of the words “shall be charged to income-tax as the income of the assessee of that previous year”. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word “may” and not “shall”. Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P.K. Noorjahan [1999] 237 ITR 570.”
Against the said decision of Hon’ble Gujarat High Court the special leave petition filed by the revenue has also been dismissed by the Hon’ble Apex Court.
5.5 In the case of Nemi Chand Kothari v. CIT [2003] 264 ITR 254/[2004] 136 Taxman 213 the Hon’ble Guahati High Court has given a further twist to the issue of onus on assessee under section 68, by holding that the same should be decided by taking into consideration the provision of section 106 of the Evidence Act which says that a person can be required to prove only such facts which are in his knowledge. The Hon’ble Court in the said case held that, once it is found that an assessee has actually taken money from depositor/lender who has been fully identified, the assessee/borrower cannot be called upon to explain, much less prove the affairs of such third party, which he is not even supposed to know or about which he cannot be held to be accredited with any knowledge. In this view, the Hon’ble Court has laid down that section 68 of Income tax Act, should be read alongwith section 106 of Evidence Act. The relevant observations at page 260 to 262, 264 and 265 of the report are reproduced herein below:-
“While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute Itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorize the Revenue Department to make inquiry into the source(s) of the credit and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an Inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is. under section 68, free to look Into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been Imposed by section 106 of the Evidence Act, which reads as follows:
“Burden of proving fact especially within knowledge.–When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.”
