IN THE ITAT LUCKNOW BENCH (THIRD MEMBER)
Vishnu Jaiswal
V/s.
Commissioner of Income-tax (Appeals)
IT APPEAL NO. 336 (LKW.) OF 2011
[ASSESSMENT YEAR 2006-07]
MAY 1, 2012
ORDER
Sunil Kumar Yadav, Judicial Member
This appeal is preferred by the assessee against the order of the ld. CIT(A) mainly on two grounds. One ground is with regard to the addition of Rs. 3.50 lakhs under section 68 of the Income-tax Act, 1961 (hereinafter in short “the Act”) and the other is with regard to the disallowance of telephone expenses of Rs. 5,000 on estimate basis.
2. The farts in brief are that with regard to the addition of Rs. 3.50 lakhs, it is noticed by the Assessing Officer that the assessee has alleged to have received Rs. 3.50 lakhs as unsecured loan from three creditors namely Shri Sant Lal Jaiswal, Smt. Kiran Jaiswal and Shri Dheeraj Jaiswal. The assessee has claimed to have received a loan of Rs. 2.50 lakhs from Shri Sant Lal Jaiswal and Rs. 50,000 each from Smt. Kiran Jaiswal and Shri Dheeraj Jaiswal. The Assessing Officer has noted from the bank accounts of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal that before issuing cheques of the aforesaid loan amount, equivalent amount of cash were deposited in their respective accounts ostensibly to build up a credit balance and to ensure that the cheques are honoured. The source of these cash deposits were not properly explained to the Assessing Officer. Though two loan creditors namely Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal were stated to be assessed to tax, the quantum of income returned by them and after deducting the probable amounts required for their own personal expenses, they were not found to be capable of making such cash savings which could constitute a satisfactory source for cash deposits in their respective bank accounts immediately before issuing cheque purportedly for loan to the assessee. As regards the loan from Smt. Kiran Jaiswal, no detail of bank account was furnished. Being not convinced with the explanation of the assessee, the Assessing Officer has treated the entire unsecured loan of Rs. 3.50 lakhs as unexplained cash credit and made addition of the same under section 68 of the Act.
3. Before the ld. CIT(A), the assessee reiterated his contention that he has placed the relevant evidence on record to prove the identity and creditworthiness of the cash creditors and genuineness of the transaction. From the details of annual income of the three creditors shown in the returns filed before the Department, the ld. CIT(A) has observed that all the three cash creditors have shown very meagre amounts of drawings for household expenses and this attempt seems to project higher cash balances in order to explain the cash deposits in the bank account preceding the alleged advancing of loan. The ld. CIT(A) was not convinced with the financial status of the cash creditors and he formed a view that the alleged cash creditors are non-genuine and accordingly he treated the entire cash credit of Rs. 3.50 lakhs as unexplained and confirmed the addition. The relevant observations of the ld. CIT(A) are extracted hereunder:-
“3. As regards the addition of Rs. 3,50,000/- comprising three unsecured loan credits of Rs. 2,50,000/- in the name of Shri Sant Lal Jaiswal, Rs. 50,000/- in the name of Smt. Kiran Jaiswal and Rs. 50,000/- in the name of Shri Dheeraj Jaiswal, the AO is seen to have examined the creditworthiness of each alleged creditor. The AO noted that while the bank account of Smt. Kiran Jaiswal was never produced for examination the cheques purportedly issued by Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal for the alleged loan by them were preceded by an equivalent amount of cash deposits in their respective bank accounts ostensibly to build-up a credit balance and to ensure that the cheques were honoured. The source of these cash deposits in the bank accounts of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal were not held satisfactorily explained though the source was sought to be attributed to past savings of the respective alleged loan creditors. Though the two loan creditors namely Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal were stated to be assessed to tax, the quantum of income returned by them and after deducting the probable amounts required for their own personal expenses they were not found to be capable of making such cash savings which could constitute a satisfactory source for cash deposits in their respective bank accounts immediately before issuing a cheque purportedly for loan to the appellant. As regards the alleged loan credit from Smt. Kiran Jaiswal no details of bank account were furnished. However the copies of acknowledgments of her returns furnished in the course of these proceedings show an income too meagre to explain any substantial savings which could possibly constitute the source of loan.
3.1 The particulars of income during the last several years for all the three alleged loan creditors indicate nominal income which could not have been sufficient even for the personal expenses of the alleged loan creditors themselves. All of them have at the same time shown very meagre amounts of drawings for household expenses further restricting the scope for savings out of these drawings. The attempt seems to be project higher cash balances retained in order to explain the cash deposits in bank account preceding the alleged advancing of loan. Besides, the incomes claimed to have returned in the past do not substantiate the extent of cash savings inasmuch as no balance sheets showing the actual drawings and cash in hand at the end of the accounting years were ever filed with the returns of income for any accounting year. All the alleged loan creditors are seen to be in regular banking habits and the statements of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal clearly indicate that these two persons operated their respective bank accounts quite frequently.
3.2 In view of the facts discussed above the very capacity of the alleged loan creditors to meet their personal expenses and still make sizable savings is not believable and the possibility of cash accumulation for years together, despite being in the regular banking habits, is too improbable to be accepted. The contention of the appellant that the loan creditors were assessed to tax does not, ipso facto, substantiate their creditworthiness especially in view of meagre amounts of income disclosed by them. The returns claimed to have been filed by them also do not substantiate the accumulation of cash savings as claimed. In the statements prepared and furnished for the alleged loan creditors the drawings have been deliberately kept low in order to project higher savings, even out of nominal incomes, so that the cash deposits in their bank accounts prior to alleged loans, could look credible and explained. These statements are tailor-made only to suit the appellant’s explanation and these statements never formed part of the returns of income for the respective assessment years. A facade of loan transactions through banking channels has thus been created only to make these transactions look genuine.
3.3 The appellant’s contention that the source of deposit in the hands of the loan creditors could not be questioned seems to suggest that funds introduced in the bank accounts of the alleged creditors were beyond the scope of examination of their creditworthiness. The onus to substantiate the creditworthiness of the creditors was on the appellant and this could not be avoided or shifted by taking refuge behind a distorted logic and by relying, out of context, on judicial decisions rendered in different set of circumstances.
3.4 In view of the discussion above the AO was justified in holding the three alleged loan credits as non-genuine and treating the cumulative amount of Rs. 3,50,000/- of these credits as income of the appellant in terms of the provisions of section 68. The addition is therefore confirmed and the appellant’s ground against this addition is dismissed.”
4. The assessee has preferred an appeal before the Tribunal. None was present on behalf of the assessee. The assessee, however, filed written submission. The assessee has also filed copy of bank accounts of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal along with their confirmations. The assessee has filed copy of cash flow statements of the cash creditors to justify the availability of cash. The copy of acknowledgment of return of income is also placed on record. The assessee has also placed reliance upon the following judgments in support of his contention that the assessee is only required to prove the genuineness of the transaction and identity of the cash creditors:-
1. Anand Prakash Agarwal v. Asstt. CIT [2008] 6 DTR 191 (All.)
2. CIT v. Jauharimal Goel [2005] 147 Taxman 448 (All.)
3. S. Hastimal v. CIT [1963] 49 ITR 273 (Mad.)
4. Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam)
5. CIT v. Daulat Ram Rawatmull [1973] 87 ITR 349 (SC)
6. Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344 (Pat.)
7. CIT v. Orissa Corpn. (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80F (SC)
8. Asstt. CIT (Investigation) v. Shree Ram Hard Coke & Allied Industries [2003] 1 MTC 780
9. ITO v. M.S. Advance (P.) Ltd. [2005] 188 Taxation 181 (Trib.)
10. Vinod Kumar Bhandari v. Asstt. CIT [2003] 174 Taxation 49 (Trib.)
11. Orissa Corpn. (P.) Ltd.’s case (supra)
12. Nemi Chand Kothari v. CIT [2004] 136 Taxman 213 (Gau.)
13. Addl. CIT v. Bahri Bros. (P.) Ltd. [1985] 154 ITR 244/22 Taxman 3 (Pat.)
5. The submission of the assessee was that once the assessee has received unsecured loan through cheque and the creditors have confirmed advancement of loan, the initial onus which lay upon the assessee to prove the genuineness of the transaction and identity and creditworthiness of the creditors is discharged. The assessee is not required to prove the source of deposits in the accounts of the cash creditors. Since the assessee has discharged his primary onus, the addition on account of unexplained cash credit is not called for.
6. The ld. D.R., on the other hand, contended that in the case of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal, the cash was deposited in their respective accounts just before few days from the date of issuance of cheques by them. He has also invited our attention to the return of income of Smt. Kiran Jaiswal with the submission that in the relevant assessment year she has declared annual income of Rs. 16,200 only. She has not filed copy of bank account to explain the source of deposits. Out of this total income of Rs. 1,16,200, she is required to make drawings to meet out the household expenses. Once the household expenses are allowed, nothing is left out for the creditor to advance the loan to the assessee. The ld. D.R. also drawn our attention to the cash flow statements filed in the cases of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal with the submission that in these cash flow statements, the household drawings were shown at Rs. 24,800 during assessment year 2006-07 which could not be sufficient to meet the household expenses even for a poor person. Since the assessee could not prove the creditworthiness of the creditors, the Revenue has rightly treated the unsecured loan as unexplained cash credit and made addition in the hands of the assessee.
7. Having given thoughtful consideration to the rival submissions and from the careful perusal of the orders of the lower authorities, we find that in the case of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal the assessee has filed bank statements before the Assessing Officer wherefrom it was noticed that the cash equivalent to the amount of loan was deposited in the bank account before issuing the cheques to the assessee. Source of deposits were not properly explained by the assessee. With regard to Smt. Kiran Jaiswal, she has declared annual income at Rs. 1,16,200 in the return filed in the relevant assessment year. Except this acknowledgment of return of income, no other evidence was filed before the Assessing Officer to prove the creditworthiness of the creditor. We have also carefully examined the cash flow statements of Shri Sant Lal Jaiswal and Shri Dheeraj Jaiswal wherefrom it is noticed that the household drawings were shown nominal only with an intention to generate capital. In the impugned assessment year the household expenses in the case of Shri Sant Lal Jaiswal was shown at Rs. 24,800 and in the case of Smt. Kiran Jaiswal it was shown at Rs. 28,300. From the details available on record, we are of the view that the creditors are not financially sound to give advances or loan to the assessee. Since the creditworthiness of the creditors are not proved, we find ourselves in agreement with the order of the ld. CIT(A) who confirmed the addition made by the Assessing Officer under section 68 of the Act. We have also carefully examined various judgments referred to by the assessee and we find that nowhere it has been held that the assessee is only required to prove the identity of the creditors and genuineness of the transaction. The basic ingredients which are required to be proved by the assessee in order to justify the receipt of unsecured loan are three. One is genuineness of the transaction, second is identity of the cash creditor and the third is creditworthiness of the creditor. Since, in the instant case, the loan transactions are undertaken through banking channel, its genuineness cannot be doubted and since the cash creditors were produced before the Assessing Officer along with their identity proof, the identity can also not be doubted. Besides proving these ingredients, the assessee is also required to place relevant evidence to prove the creditworthiness of the creditors. While examining the creditworthiness of the creditor, the Assessing Officer is also required to examine the surrounding circumstances about the fund movements in the account of the cash creditors. In the instant case, no doubt the assessee has proved the genuineness of the transactions and identity of the creditors, but so far as creditworthiness of the creditors are concerned, the assessee is required to place some evidence on record to establish that the cash creditors were having sufficient funds to advance loan to the assessee. In the instant case, prior to advancing the loan to the assessee, equivalent amounts were deposited in their bank accounts and nothing has been brought on record from where cash creditors have got substantial amount for deposit, as their annual income were very meagre. In the light of these facts, we agree with the findings of the ld. CIT(A) in this regard and accordingly we confirm the addition.
8. The next ground is with regard to the disallowance of Rs. 5,000 which was made by the Assessing Officer on account of telephone expenses on adhoc basis for possible personal usage of telephone. In this regard, the Assessing Officer noted that the assessee has claimed a total sum of Rs. 72,128 under the head “telephone expenses” which is very excessive in comparison to the preceding year’s expenses of Rs. 33,571 under this head. The Assessing Officer formed a view that there may be personal usage of telephone and he accordingly disallowed Rs. 5,000 on adhoc basis.
9. In appeal, the ld. CIT(A) confirmed the same finding no force in the submissions of the assessee.
10. Now the assessee is before the Tribunal with the submission that the telephone was installed in the business premises of the assessee and therefore there is no personal use.
11. Having given thoughtful consideration to the rival submissions and from a careful perusal of the orders of the lower authorities, we are of the view that though the telephone was installed at the business premises, but its personal usage cannot be ruled out. We are, however, of the view that the disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) is on higher side. We accordingly restrict the disallowance to Rs. 2,000. Accordingly the disallowance is reduced from Rs. 5,000 to Rs. 2,000.
12. In the result, appeal of the assessee is partly allowed.
B.R. Jain, Accountant Member – Unable to agree with the order proposed by learned Judicial Member, on sustenance of addition u/s 68 for three cash credits, I proceed to write my own order.
2. In this case the appellant has taken an argumentative ground as under:
“The learned CIT (Appeals) has confirmed the additions made by the learned Assessing officer (AO) to the income of the appellant the Rs. 3,50,000/- being the amount of unsecured loans taken by the appellant i.e. Rs. 50,000/- from Smt. Kiran Jaiswal wife of the brother of the appellant, Rs. 2,50,000/- from Sri Sant Lal Jaiswal the father of the appellant & Rs. 50,000/- from Dheeraj Jaiswal the cousin brother of the appellant. The above additions have been made on the ground that the loan gives creditworthiness was in doubt in the opinion of the learned AO as well as CIT(A). The appellant neither asked to produce the loan givers nor he examined on oath by issuing notice individually. The appellant on his part fully co-operated in the case/proceedings and produced the confirmations from all of them, bank accounts of Sri Sant Lal Jaiswal & Sri Dheeraj Jaiswal while the third Smt. Kiran Jaiswal bank account could not be produced due to computerisation in the bank old ledgers has been removed and inspite of several requests to bank it could not furnish the account copy to the appellant. However, Smt. Kiran Jaiswal filed return of income every year. All the three loans cheques had been deposited in bank account of the appellant. Thus, transactions were through account payee cheque and through bank transactions.
Also, it has been held by the Allahabad High Court in CIT v. Jauharimal Goel [2006] 192 Taxation 68 (All.); 147 Taxman 448 (All.) that the assessee cannot be asked to prove source of source or the origin of origin money. It has been held in Nemi Ghana Kothah v. CIT 264 ITR 254 (Gau.) which has also been relied by Hon’ble CIT Appeals-I in the Appeal No. CIT(A)-I/Lko/06-07/01 that once the assessee discloses the sources from which he had received the loans the burden under section 106 of the Evidence Act is discharged it is not the burden of the assessee to prove the creditworthiness of the sources of the creditors or to find out the source of money of his creditor. Similarly in Tola Ram Daga v. CIT [1966] 59 ITR 632 (Assam) the court has held that “In the account of the firm deposit made by the party the genuineness and regularity of the account has not been challenged the account are relevant any prima facie proof of entry and correctness thereof under section 34 of the Evidence Act to require the firm to adduce the source of depositors from where the deposit was made not required under the law.” The Supreme Court in CIT v. Orissa Corporation (P) Ltd. [1986] 159 ITR 78 (SC) has held that if the assessee has given names and addresses of the creditors and it was in the knowledge of the revenue that the said creditors were being assessed to tax, the onus on the revenue to pursue the matter with the creditors. The ITAT Delhi in Vinod Kumar Bhandari v. ACIT [2008] 174 Taxation 49 (Trib) has held that non-presence of the creditors before Assessing Officer should not be the sole reason for invoking section 68.
The I.T.A.T, Allahabad has held in Anand Prakash Agarwal v. Asstt. CIT [2008] 6 DTP (All. – Trib) 191 that where donors were having sufficient funds in their bank and gifts were made through banking channel as well as confirmation of donors was received by Assessing Officer, the gifts received by assessee from non-relatives could not be added under any provisions of I.T. Act, 1961.”
3. Briefly, the facts are that the appellant derives income from trading of battery, its parts and invertors etc. The return of income was filed declaring an income of Rs. 1,45,1207-. During the course of assessment proceedings, the Assessing Officer noticed assessee to have received unsecured loans aggregating to Rs. 3,50,000/- as under:
