HIGH COURT OF ANDHRA PRADESH
Dr. D. Siva Sankara Rao
I.T.T.A.NO. 6 OF 2012
NOVEMBER 27, 2012
M.S. Ramachandra Rao, J. – This appeal is filed under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) by the assessee challenging the order dated 16-03-2007 in I.T.A.No.8/Vizag/2006 of the Income Tax Appellate Tribunal, “SMC”, Visakhapatnam relating to the assessment year 2002-2003.
2. The Kartha of the appellant/assessee HUF by name Dr. D. Siva Sankara Rao is a medical practitioner running a hospital by name Siva Speciality Hospital at Jangareddygudem. On 22-10-2002, a survey was conducted under Section 133-A of the Act. Pursuant to the same, the assessee filed on 24-12-2002 his returns in the status of HUF for the assessment year 2001-2002 and 2002-2003 (besides returns in the status of individual). In the return for the assessment year 2002-2003, the assessee admitted taxable income of Rs. 82,000/- and agricultural income of Rs. 1.00 lakh. The assessee showed that the said income was from house property, money lending and other sources.
3. Notice under Section 143(2) of the Act was issued to the assessee in response to which the Kartha of the HUF, Dr. D. Siva Sankara Rao and his authorized representative appeared before the assessing officer. The assessee contended that an amount of Rs. 2.15 lakhs was liable to be paid by the assessee to Dr. Vani Subrahmanyeswari, wife of D. Siva Sankara Rao; that she had received gifts of Rs. 1.00 lakh each in cash from her father and mother totaling Rs. 2.00 lakhs during the previous year; that she added another amount of Rs. 15,000/- out of her own savings and had given the above amount of Rs. 2.15 lakhs as loan to the assessee.
4. She was summoned under Section 131 of the Act by the assessing officer and examined on oath. She stated that she was a Civil Assistant Surgeon in the State Government service and had worked at the Government Hospital, Ramachandrapuram, the District Hospital, Rajahmundry and the Government Hospital, Jangareddygudem. She stated that her parents had got the above amounts on leasing their agricultural lands for being used as fish ponds. She was not able to produce any evidence that her parents had given their agricultural lands on lease or that her parents were really in a sound position to gift the amount of Rs. 2.00 lakhs to her. She did not file any evidence before the assessing officer to the effect that she had taken permission of the State Government, as per the applicable Conduct Rules before accepting the gift from her parents.
5. By order dated 31-03-2005, the assessing officer held that it was doubtful that she could advance and actually had advanced any loan to her husband’s HUF, particularly when the alleged loan was in the form of cash and not by way of crossed cheque or crossed demand draft. He disbelieved the claim of the assessee that he received loan from his wife and added the unexplained cash credit of Rs. 2.00 lakhs out of Rs. 2.15 lakhs to the income returned under Section 68 of the Act and assessed the assessee to tax of Rs. 1,04,003/- with surcharge and interest under Section 234-A and 234-B of the Act.
6. Aggrieved thereby, the assessee filed I.T.A.No.81/W2,ELR/CIT(A),RJY/05-06 before the Commissioner of Income Tax (Appeals), Rajahmundry. The said appeal was dismissed by order dated 17-11-2005 confirming the findings of the assessing officer. The CIT (Appeals) held that under Section 68, the assessee has to establish the identity and the creditworthiness of the creditor and the genuineness of the transaction in order to avoid any addition of cash credit to his income. He held that although the identity of the alleged creditor is known (being the wife of the Kartha of the assessee), her creditworthiness has not been established beyond a sum of Rs. 15,000/-; that although she claimed that the amount of Rs. 2.00 lakhs was gifted to her by her parents, there is nothing to show that her parents had indeed cash credit balances aggregating to Rs. 2.00 lakhs as on a particular date, to gift such sums to their daughter (the creditor); and that the claim of having owned agricultural lands for leasing in connection with the fish ponds/tanks does not of itself establish that agricultural income, if any, had been accumulated over and above the expenditure for various purposes, so as to donate such sums as gift to the Kartha of the assessee HUF, who is her husband. He also held that the assessee’s wife being a Government employee is bound by the Conduct Rules governing her service which mandate giving of intimation of cash transactions exceeding a certain amount, to the employer and there is no evidence that she had obtained any permission or given any intimation to the State Government. He also held that the alleged loan by the wife of the assessee to the HUF of the husband, not being by way of a crossed cheque or demand draft, and being in cash, the said transaction of loan is questionable.
7. Aggrieved thereby the assessee filed I.T.A.No.8/Vizag/2006 to the Income Tax Appellate Tribunal, “SMC” Visakhapatnam Bench, Visakhapatnam. The said appeal was also dismissed by the Tribunal confirming the orders of the CIT (Appeals). The Tribunal held that the creditworthiness of the creditor i.e. the wife of the assessee was not proved by the assessee; that she had not intimated the Government as per Conduct Rules with regard to the cash receipt; that although she claimed that her parents earned the above sum of Rs. 2.00 lakhs by lease of fish ponds, no lease receipt or lease agreement was furnished at any stage; and there is nothing on record to suggest that they have earned substantial income from Ac.3.30 cts. held by her father and Ac.2.20 cts. held by her mother which are alleged to have been converted into fish ponds.
8. Aggrieved thereby, the assessee has filed this appeal under Section 260-A of the Act.
9. Heard Sri A.V.A. Siva Kartikeya, learned counsel for the appellant and the learned Standing Counsel for the Income Tax Department.
10. The counsel for the appellant contended that the order of the I.T.A.T. is contrary to law, that it erred in confirming the order of the CIT (Appeals), that it erred in observing that the assessee had not proved the creditworthiness of the wife of the Kartha of assessee with regard to the sum of Rs. 2.00 lakhs, and that the assessee cannot be compelled to prove the creditworthiness of the source of his creditor. He cited the decisions in Tolaram Daga v. CIT  59 ITR 632 (Assam) Dy. CIT v. Rohini Builders  127 Taxman 523/ 256 ITR 360 (Guj.) and Namichand Kothari v. CIT  264 ITR 254/ 136 Taxman 213 (Gau.) and contended that the assessee can be asked to establish only the identity of the creditor, genuineness of the transaction and creditworthiness of the creditor but he cannot be asked to prove the source of funds for the creditor and that if he could not do so, under the law, the amount in question cannot be treated as the income from undisclosed sources of the assessee.
11. The learned counsel for the Revenue refuted the above contentions and contended that the concurrent findings of fact about the lack of creditworthiness of the wife of the assessee by the assessing officer, the CIT (Appeals) and the I.T.A.T. are based on appreciation of evidence and cannot be said to be perverse warranting interference under Section 260-A of the Act.
12. We have considered the submissions of the parties.
13. Section 68 of the Act states as follows: “Section 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 assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year.”
14. In CIT v. P. Mohanakala  161 Taxman 169 (SC) at para 16, page 28, the Supreme Court while interpreting Section 68 of the Act observed as under:
“16. The question is what is the true nature and scope of Section 68 of the Act? When and in what circumstances Section 68 of the Act would come into play? That a bare reading of Section 68 suggests that there has to be credit of amounts in the books maintained by an assessee; such credit has to be of a sum during the previous year; and the assessees offer no explanation about the nature and source of such credit found in the books; or the explanation offered by the assessees in the opinion of the assessing officer is not satisfactory, it is only then the sum so credited may be charged to income tax as the income of the assessees of that previous year. The expression “the assessee offers no explanation” means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. It is true the opinion of the assessing officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the assessing officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion.” At para 24, page 31, the Supreme Court also observed as under: “24. It is true that even after rejecting the explanation given by the assessees if found unacceptable, the crucial aspect whether on the facts and circumstances of the case it should be inferred that the sums credited in the books of the assessees constituted income of the previous year must receive the consideration of the authorities provided the assessees rebut the evidence and the inference drawn to reject the explanation offered as unsatisfactory. We are required to notice that Section 68 of the Act itself provides, where any sum is found credited in the books of the assessees for any previous year the same may be charged to income tax as the income of the assessees of the previous year if the explanation offered by the assessees about the nature and source of such sums found credited in the books of the assessees is in the opinion of the assessing officer not satisfactory. Such opinion found (sic formed) itself constitutes a prima facie evidence against the assessees viz. the receipt of money, and if the assessees fail to rebut the said evidence the same can be used against the assessees by holding that it was a receipt of an income nature. In the case in hand the authorities concurrently found the explanation offered by the assessees unacceptable. The authorities upheld the opinion formed by the assessing officer that the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation is not acceptable the material and attending circumstances available on record do not justify the sum found credited in the books to be treated as a receipt of an income nature. The burden in this regard was on the assessees. No such attempt has been made before any authority. All the decisions cited and referred to hereinabove are required to be appreciated and understood in the light of the law declared by this Court in Sumati Dayal (1995 Supp (2) SCC 453).”
15. In Tolaram Daga’s case (supra) cited by the counsel for the appellant, a deposit was made in the accounts of a firm by a third party who was the wife of a partner of the firm (the assessee), it was held that the assessee firm or its partners cannot be compelled to prove the sources from which the deposit was made and that once the accounts of the firm had been accepted and acted upon by the department, they would be prima facie proof of the entries and the correctness thereof under Section 34 of the Evidence Act. Therefore where the deposit was made by a third party in the accounts of the firm, that entry is prima facie proof that the amount in question was deposited by the person in whose name the deposit stands.
16. In Rohini Builders, case (supra), the assessee was a real estate firm and had taken loans from various parties. During the course of assessment proceedings, the assessee furnished loan confirmations giving full addresses, GIR Nos./PAN nos. etc. of all the depositors. The assessing officer however issued summons to some of the creditors and also conducted enquiries into the genuineness or otherwise of the loans taken by the assessee. After considering the evidence, he made an addition of Rs. 12,85,000/- to the returned income of the assessee and this was confirmed by the CIT (Appeals) and the ITAT. The High Court held that all the loans were received by the assessee by account payee cheques and the repayment of loans have also been made by account payee cheques along with interest in relation to those loans and that the assessing officer having allowed the interest claimed/paid by the assessee in relation to the cash credits cannot treat the cash credits as not genuine. It held that the assessee had discharged the initial onus which lay on it in terms of Section 68 by proving the identity of the creditors by giving their complete addresses, GIR nos./PAN nos. and copies of assessment orders wherever readily available and that it has also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from the bank accounts of the creditors. It held that the assessee is not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of accounts but not the source of the source as held by the Bombay High Court in Orient Trading Co. Ltd. v. CIT  49 ITR 723.
17. In Nemichand Kothari’s case (supra), the High Court held as follows:
“The assessee who carried on the business of supply of bamboo had taken loans amounting to Rs. 4,35,000 and Rs. 5 lakhs during the previous year relevant to the assessment year 1992-93. The amounts were paid by cheques by the creditors to the assessee. The creditors received the said amount by way of loans from their sub-creditors by means of cheques. The Assessing Officer declined to treat the loan amount of Rs. 4,35,000 as genuine. As regards Rs. 5 lakhs he declined to teat the loan amount to the extent of Rs. 4,25,000 as genuine. The Assessing Officer added the two amounts to the total income of assessee as income from undisclosed sources. The Tribunal set aside the order passed by the Commissioner (Appeals) and upheld the order of the Assessing Officer on the ground that neither the sub-creditors nor the creditors in question had creditworthiness to advance the said loans. On appeal, the High Court held that the assessee had established the identity of the creditors. The assessee had also shown, in accordance with the burden, which rested on him under Section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors which was not in dispute. Once the assessee had established these, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter, the burden had shifted to the Assessing Officer to prove the contrary. The failure on the part of the creditors to show that their sub- creditors had creditworthiness to advance the said loan amounts to the assessee, could not, under the law be treated as the income from undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. The Assessing Officer failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. Therefore, the Assessing Officer could not have treated the said amounts as income derived y the assessee from undisclosed sources.”
18. In our view, the decisions in Tolaram Daga’s case (supra), Rohini Builders’ case (supra) and Nemichand Kothari’s case (supra) only emphasise the principle that the assessee has to prove the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor in order to discharge the burden cast on him, that a particular cash credit found in his books is genuine having regard to the nature and the source thereof and therefore cannot be added to his income under Section 68. It is a question of fact in each case whether the assessee had discharged the above burden by giving a satisfactory explanation to the assessing officer. As held in P. Mohanakala’s case (supra), the opinion of the assessing officer for not accepting the explanation offered by the assessee as not satisfactory is required to be based on proper appreciation of the material and other attending circumstances available on record. The opinion of the assessing officer is required to be formed objectively with reference to the material on record. Such opinion formed by the assessing officer itself constitutes a prima facie evidence against the assessees i.e. the receipt of money, and if the assessee fails to rebut the said evidence the same can be used against the assessee by holding that it was a receipt of an income nature.
19. In the present case admittedly the assessee is a HUF which claims that Rs. 2.15 lakhs was given as loan by the wife of the Kartha to the HUF. She claimed that she was given Rs. 1.00 lakh each by her father and mother, that her father has Ac.3.30 cts. of agricultural land and her mother Ac.2.20 cts. of agricultural land which had allegedly been converted into fish ponds and granted on lease and therefore she was in a position to give a loan of Rs. 2.00 lakhs to the HUF. Admittedly she was a government servant and under the applicable Conduct Rules, receipt of any gifts beyond a particular limit have to be intimated to the State Government and can be received only after obtaining permission from the State Government. There is no evidence that the wife of the Kartha of the HUF had sought permission or intimated to the State Government about the alleged gifts. There is no evidence adduced by the assessee or by her that her parents had granted on lease the agricultural lands possessed by them and no rent receipts or lease deeds were produced before any of the authorities under the Act. The loan by the wife to the Kartha of the HUF (the assessee) is not by way of cheque or demand draft and is claimed to be in cash. In this view of the matter, although the assessee was able to prove the identity of the creditor i.e the wife of the Kartha, it cannot be said that the assessee was able to prove the creditworthiness of the creditor or the genuineness of the transaction of loan. Therefore the assessing officer had rightly added the sum of Rs. 2.00 lakhs to the assessee’s income and held it to be subject to tax.
20. Unlike in Rohini Builders’ case and Nemichand Kothari’s case, in the present case, the loan was alleged to have been received by the assessee by cash and not by account payee cheques. The accounts of the assessee had not been accepted by the department to the extent of Rs. 2.00 lakhs unlike in the case of Tolaram Daga (supra). The fact that the creditor happened to be the wife of the Kartha of the HUF, the loan having been alleged to have been given in cash by her to the HUF, she being a government servant bound to take permission before accepting a gift of Rs. 2.00 lakhs from her parents and there being no evidence of either the lease of the small extent of agricultural lands held by her parents or their conversion into fish ponds or proof of rental income therefrom, the assessee cannot be said to have given a satisfactory explanation to the assessing officer for the sum of Rs. 2.00 lakhs. In our view, therefore, it was rightly added to the assessee’s income.
21. For the above reasons, we feel that the finding of the assessing officer as confirmed by the CIT (Appeals) and the Tribunal cannot be said to be based on no evidence or perverse or that relevant admissible evidence was not taken into account or inadmissible evidence was taken into account.
22. In Vijay Kumar Talwar v. CIT  196 Taxman 136 the Supreme Court considered the scope of interference with the orders of the I.T.A.T. under Section 260-A of the Act and held as under:
“23. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See Madan Lal v. Gopi  4 S.C.C. 255) Narendra Gopal Vidyarthi v. Rajat Vidyarthi  3 S.C.C. 287, Commr. of Customs v. Vijay Dasharath Patel  4 S.C.C. 118, Metroark Ltd. v. CCE  12 S.C.C. 105) and W.B. Electricity Regulatory Commission v. CESC Ltd.  8 S.C.C. 715)
24. Examined on the touchstone of the aforenoted legal principles, we are of the opinion that in the instant case the High Court has correctly concluded that no substantial question of law arises from the order of the Tribunal. All the authorities below, in particular the Tribunal, have observed in unison that the assessee did not produce any evidence to rebut the presumption drawn against him under Section 68 of the Act, by producing the parties in whose name the amounts in question had been credited by the assessee in his books of account. In the absence of any cogent evidence, a bald explanation furnished by the assessee about the source of the credits in question viz. realisation from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year, if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory. (See Sumati Dayal v. CIT (1995 Supp (2) SCC 453), SCC p. 456, para 4 and CIT v. P. Mohanakala  6 S.C.C. 21)”
23. Therefore no question of law much less any substantial question of law arises for consideration in this appeal. The appeal fails and is therefore dismissed. No costs.