Per Shri R. L. Sangani, Judicial Member - These three departmental appeals which arise out of the assessments of the assessee, Smt. Devi Narendra, for the assessment years 1968-69 to 1970-71 have been heard together and are being decided by this common order. We shall first deal with the appeals relating to the assessment years 1969-70 and 1970-71, as the points arising therein are interconnected. During the course of the assessment of the assessee for the assessment year 1969-70, the ITO found that the assessee had invested Rs. 1 lakh in the relevant accounting year for the purchase of property Devi Sadan at Matunga. The assessee was asked to disclose the source of investment. The explanation of the assessee was that she had taken loans from two parties, viz., Indian Carbon Co. (Rs. 25,000) and Keshavji Naik Trust (Rs. 60,000) and had withdrawn Rs. 15,000 from Eastern Engineers, in which the assessee was a partner. The assessee was asked to produce the pass book with a view to verify whether these loans were actually routed through the pass book and further to show that the amount withdrawn from the firm Eastern Engineers was actually invested in the purchase of this property. The assessee filed a copy of the suits filed by Indian Carbon Co. and Keshavji Naik Trust against the assessee (Suit Nos. 606 of 1974 and 853 of 1974). The ITO insisted that the assessee whether the loans taken from the above parties had been invested in the purchase of the said immovable property and not for any other presupposes and further the amount of Rs. 15,000 withdrawn from the capital account of the firm had not been withdrawn for domestic expenses. It was submitted on behalf of the assessee that the pass book was missing and, hence, could not be produced. The ITO observed that in the absence of pass book, it was not conclusively proved by the assessee that those amounts which had been obtained from those parties had actually been invested in the purchase of the said property. He further found that there was some difference in the amount of borrowing from Indian Carbon Co. and Keshavji Naik Trust as disclosed in their letter to the ITO and as disclosed by the assessee. In these circumstances, the ITO inferred that there was uncertainly about the quantum of loan. He, therefore, presumed that Rs. 1 lakh invested by the assessee in the said property was income from undisclosed sources as a protective measure. He, accordingly, added the said amount to the returned income.
2. In the appeal filed by the assessee, the Commissioner (Appeals) observed that the very fact that the said property was mortgaged to Indian Carbon co. and Keshavji Naik Trust for the loans received by the assessee indicated that the loans received from those parties had been invested by the assesee in the purchase of the said property and, as such, inability of the assessee to produce the pass book would not give rise to any adverse inference. Similarly, according to the Commissioner (Appeals), the explanation of the assessee regarding withdrawal of Rs. 15,000 from the firm was acceptable. As regards household expenses, the Commissioner (Appeals) observed that since the assessee was residing with her husband, who is an advocate the household expenses would normally be met by the assessees husband an as such, there was no justification for drawing any adverse inference. He, accordingly, deleted the addition of Rs. 1 lakh. The department has now come in appeal before us and the only ground raised in the appeal for the assessment year 1969-70 is that the Commissioner (Appeals) had erred in not upholding the addition of Rs. 1 lakh made by the ITO on account of unexplained investment in the immovable property.
3. The learned departmental representative has relied on the reasons contained in the assessment order. We have, accordingly, considered those reasons. We find that there was no justification for drawing an inference that the assessee had derived income from undisclosed sources. It is an admitted position that those two parties, namely, Indian Carbon Co. and Keshavji Naik Trust have filed suits against the assessee for recovery of loans advanced by them. Copies of written statements filed by the assessee in those suits have been produced before us. It is obvious that there was mortgage of the said property against the loans received. In the circumstances, the inference would be that the loans received had been invested in the purchase of the said property. According to the assessee, she had received loans of Rs. 25,000 and Rs. 60,000 from those parties, respectively making in all Rs. 85,000. According to those two parties, the loans advanced were Rs. 55,000 and Rs. 60,000 making in all Rs. 1,15,000. The difference has arisen because the assessee claims to have paid Rs. 30,000 while this payment is not accepted by the creditor. Consequently, the fact that there was dispute about the actual amount would not, in the circumstances, render the explanation of the assessee regarding investment unbelievable. There can be no doubt that amount of Rs. 85,000 obtained from those two creditors had been invested in the purchase of the property. The absence of pass book in the circumstances of the present case would not give rise to any adverse inference. As regards balance amount of Rs. 15,000, the amount has been withdrawn from the firm of Eastern Engineers. This fact is supported from the copy of the account filed. The assesee was residing with her husband, who was an advocate, and as such, there is no ground to presume that Rs. 15,000 has been withdrawn for household expenses. There is no reason to reject the observation of the assessee that the said amount of Rs. 15,000 had been invested for the purchase of the said property. The learned Commissioner (Appeals) has examined these materials and his conclusion that investment of Rs. 1 lakh has been satisfactorily explained is correct. In the circumstances, he was justified in deleting the addition of Rs. 1 lakh. We confirm his order on this point.
4. In the appeal filed for the assessment year 1970-71 the only ground raised in the memo of appeal is that the leaned AAC had erred in holding that the loan amount had been utilised for acquisition of immovable property and, therefore, the assessee was entitled to claim interest of Rs. 10,200 as expenses incurred from the income under the head Income from house property. We have already held that the investment in the house has been duly explained. It follows that the interest paid or payable by the assessee relates to the two loans aggregating Rs. 85,000 taken by the assessee for acquiring the said property, that interest was liable to be deducted in accordance with the provisions of section 24 of the Income-tax Act, 1961 (the Act). The AAC was, therefore, justified in directing the ITO to allow the interest of Rs. 10,200 as expenses incurred from the income under the head Income from house property. We confirm the order of the AAC on this point.
5. We shall now deal with the departmental appeal for the assessment year 1968-69. In the relevant accounting year, the assessee was a partner in the firm had sent a copy of the account of the assessee to the ITO assessing the said firm had sent a copy of the account of the assessee to the ITO assessing the assessee. In that account, there was a cash credit of Rs. 1,15,000 dated 23-5-1967 with the said firm. The assessee is alleged to have deposited this amount in cash on 23-5-1967 with this firm. The assessee was asked to explain as to how she deposited in cash the said amount. The explanation of the assesse was that she had received the loan in cash from her father Shri Markhi Ganga was Mul Mahavpur, a village in Gujarat. The said Shri Markhi Ganga was residing within the jurisdiction of the ITO, Porebunder. The ITO, Bombay, who was assessing the assessee sent communication to the ITO, Porebunder, regarding this loan. In the assessees from the ITO, Porebunder that the said Shri Markhi Ganga was not cooperating with the ITO, Porebunder in the enquiry for that loan. Consequently, summons under section 131 of the Act dated 15-11-1979 was issued by the ITO, Bombay, calling upon the assessee to produce all documentary evidence in that connection. A notice under section 142(l) of the Act was also issued calling upon the assessee to produce evidence in support of the loan received. Opportunity was given to produce profit and loss account and balance sheet and pass book. However, the representative of the assesee expressed inability of the assessee to produce the said documents. About the pass book, the explanation was that it was missing. The representative of the assessee pleased before the ITO that only evidence on which he relied was the affidavit of Shri Markhi Ganga, which is said to have been sworn at Porebunder. The ITO observed that the real documentary evidence was the pass book of the assessee for the relevant period and that affidavit alone would not be sufficient to prove the receipt of the said amount from Shri Markhi Ganga. The assessee was also asked to copy of the accounts of the assessee in the books of account of Shri Markhi Ganga. This was also not produced. In the books of any evidence on record, the ITO inferred that Rs. 1 lakh was the income of the assessee from undisclosed sources. He, accordingly, added this amount to the returned income.
6. In the appeal filed by the assessee before the Commissioner (Appeals), it was submitted on behalf of the assessee that the said Shri Markhi Ganga, who was the father of the assessee, was a well to do agriculturist and that since there was no bank in the village he had kept the amount in cash with him and that amount had been given to the assessee as loan without charging any interest. Before the Commissioner (Appeals) certificate of Gram Panchayat regarding the land owned by Shri Markhi Ganga was produced. The assessee also relied on the affidavit filed by Shri Markhi Ganga before the ITO, Porebunder. The Commissioner (Appeals) observed that on scrutiny of case records he came across a letter sent by the ITO, Porebunder confirming that Shri Markhi Ganga had filed wealth-tax returns for the assessment year in question in which the amount of loan by him had been reflected and that since the total wealth was below taxable limit, no subsequent returns had been filed by him. From that letter the Commissioner (Appeals) inferred that the ITO, Porebunder, had investigated and had accepted the loan advanced by shri Markhi Ganga as genuine. On the basis, he accepted the loan as genuine and deleted the addition. The department has now come in appeal before us and the only ground raised is that the learned Commissioner (Appeals) had erred in deleting the addition of Rs. 1,15,000 as income from undisclosed sources.
7. The learned departmental representative has relied on the reasons given in the assessment order, which we have reproduced above. He has submitted that the story put forth by the assessee was wholly unbelievable. According to him, it could not be believed that such a large amount would be kept by Shri Markhi Ganga in cash in his house and would be handed over to the assessee. The learned counsel for the assessee has relied on the reasons given in the appellate order. He has relied on the fact that Shri Markhi Ganga was a rich agriculturist and as such there was nothing unnatural in his possessing such large amount in cash particularly when there was no bank in the village where he resided. We have considered the rival submissions and also the facts on record. Before the Commissioner (Appeals), the assessee had produced certificate from Gram Panchayat of Mul Madhavpur in which it was stated that Shri Markhi Ganga owned 40 acres of land and that the average annual income was Rs. 35,000. This document was not produced before the ITO. The learned departmental representative has objected that the said document should not have been relied on by the Commissioner (Appeals) since it was produced for the first time before him. We may ignore this objection and consider this document. However, what all this document indicates is that Shri Markhi Ganga was in possession in cash amount of Rs. 1,15,000 on 23-5-1967 and that the said amount had been given in cash by the said Shri Markhi Ganga, to the assessee as loan. For this purpose, the best evidence would have been that of Shri Markhi Ganga. The assessee should have produced Shri Markhi Ganga before the ITO, Bombay so that the ITO, Bombay, would have cross-examined Shri Markhi Ganga and found out that this assertion was believable. The submission of Shri Harish, the learned counsel for the assessee, was that since the assessee had filed the copy of the affidavit of said Shri Markhi Ganga, it was for the ITO to cross-examine him. The contention, in the circumstances of the present case, cannot be accepted. The person from whom the assessee claims to have received the case amount is not an independent person. He is the father of the assessee. There is no corroborative evidence about the existence of such big amount with the assessees father in cash. The only evidence in his assertion in the affidavit. It is true that there was no bank in the village. However, it is not possible to believe that such a big amount would be kept in cash in the house. The ITO had called upon the assessee to produce the necessary evidence. From the circumstances, the best evidence would have been that Shri Markhi Ganga. The assessee should have produced him before the ITO, Bombay. It was not for the ITO to call upon the assessee to produce Shri Markhi Ganga. The burden lay heavy on the assessee looking to the nature of the plea that was being raised by her, viz., cash amount of Rs. 1 lakh have been given to her by her father.
8. It is not correct to say that the ITO, Porebunder, was satisfied about the genuineness of the loan. The Commissioner (Appeals) has observed that on going through the records, he found that the ITO, Porebunder had mentioned that Shri Markhi Ganga had filed wealth-tax return for the year in question. The Commissioner (Appeals) has not stated that the said return was filed long before this dispute arose. The assessee before us has not asserted that any return was filed by Shri Markhi Ganga prior to the eruption of the present controversy. Consequently, filing of wealth-tax return by Shri Markhi Ganga for only one year after the controversy arose cannot constitute proof lending assurance to the truthfulness of the version. The Commissioner (Appeals) has relied strongly on this fact, we are of the opinion that this fact is not significant. The assessee has filed copies of correspondences between the ITO, Porebunder and the assessee Smt. Devi Narendra. By letter dated 3-4-1979, the ITO, Porebunder, had informed the assessee that Shri Markhi Ganga had in the wealth-tax return shown Rs. 1,15,000 as loan given to the assessee and the assessee should confirm whether the said loan had been given. A lengthy reply to this letter was sent on 7-4-1979 by the husband of the assessee in the capacity of husband of the assessee was well as son-in-law of Shri Markhi Ganga. It is mentioned in that reply that it was difficult for Shri Markhi Ganga to appear at Porebunder because he was an old man and as such necessary enquiry should be made from the assessee and further and Shri Markhi Ganga should not be harassed. We do nor find any material to indicate that the ITO, Porebunder had accepted the loan as genuine. In fact when Shri Markhi Ganga showed that loan as asset the ITO, Porebunder had to assessee him. It was expressly stated before us that any part of the loan amount has not been paid by the assessee to Shri Markhi Ganga till the date of arguments before us. Considering all the circumstances, we hold that the assessee had failed to prove that Shri Markhi Ganga had given loan to the assessee on 23-5-1967 in cash and that it was that cash amount which she had deposited in the firm. The assessee has failed to prove the real source of this amount and in the circumstances of the present case, the ITO was fully justified in inferring the said amount represented income from undisclosed sources. The reasons given by the Commissioner (Appeals) for setting aside the order of the ITO are not at all convincing. The learned Commissioner (Appeals) have not taken into account of the natural probabilities inherent in these circumstances. We, therefore, set aside the order of the Commissioner (Appeals) on this point and restore that of the ITO.
9. In the result, the appeal for the assessment year 1968-69 is allowed, while the appeals for the assessment years 1969-70 and 1970-71 are dismissed.