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Assistant Commissioner of Vs. Govind Commissioner of - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT West Bengal
Decided On
Judge
AppellantAssistant Commissioner of
RespondentGovind Commissioner of
Excerpt:
1. all these appeals are filed by the revenue against the separate orders of the cit(a) dated 10-3-1988 for the assessment years 1974-75 and 1975-76. there are common grounds in i.t.a. nos. 1722 and 1723 (cal.) of 1988. those common grounds relate to the deletion of addition of rs. 35,18,000 on account of unexplained loan received from m/s.jethmull bhojraj and interest of rs. 3,38,334 on the said alleged unexplained loan. in i.t.a. no. 1723 (cal.) of 1988 the deletion of addition of rs. 3,60,000 on account of unexplained loan received from m/s. jethmull bhojraj and the interest of rs. 3,81,144 on the said alleged unexplained loan is involved.2. the assessee is an individual and was carrying on business of money-lending. he was also having income from director's remuneration.the assessee.....
Judgment:
1. All these appeals are filed by the revenue against the separate orders of the CIT(A) dated 10-3-1988 for the assessment years 1974-75 and 1975-76. There are common grounds in I.T.A. Nos. 1722 and 1723 (Cal.) of 1988. Those common grounds relate to the deletion of addition of Rs. 35,18,000 on account of unexplained loan received from M/s.

Jethmull Bhojraj and interest of Rs. 3,38,334 on the said alleged unexplained loan. In I.T.A. No. 1723 (Cal.) of 1988 the deletion of addition of Rs. 3,60,000 on account of unexplained loan received from M/s. Jethmull Bhojraj and the interest of Rs. 3,81,144 on the said alleged unexplained loan is involved.

2. The assessee is an individual and was carrying on business of money-lending. He was also having income from director's remuneration.

The assessee filed the returns of income for the assessment years 1974-75 and 1975-76. He showed total income of Rs. 30,055 and Rs. 27,852 for the assessment years under appeal in its returns of income.

The ITO completed the original assessments under section 143(3) on Rs. 37,905 for the assessment year 1974-75 on 30-7-1976 and on Rs. 31,989 for the assessment year 1975-76 also on 30-7-1976. The ITO held a view that there was failure on the part of the assessee to disclose whole and true income for the previous years relevant to the assessment years under appeal and, therefore, he issued notices to the assessee under section 148 of the Income-tax Act. He completed the reassessments under section 147(a) of the Income-tax Act on 18-3-1987 and determined the total income of Rs. 38,88,240 for the assessment year 1974-75 and Rs. 7,73,130 for the assessment year 1975-76. He made additions of Rs. 38,56,334 and Rs. 7,41,144 respectively for the assessment years under appeal by way of income from other sources. The ITO gave reasons in his re-assessment orders to make these additions that the loan creditor M/s. Jethmull Bhojraj denied the portion of the loan transaction as shown by the assessee in its books of account. He also have a reason that Shri D.D. Sukhani, proprietor of M/s. Jethmull Bhojraj filed an affidavit dated 6-12-1976 and declared that out of opening balance of Rs. 16,09,089.33 paise, a sum of Rs. 15 lacs was received by him from the assessee. According to Shri D.D. Sukhani, there was no further transaction thereafter and he did not charge any interest for the accounting year ending 2030 S.Y. The assessee showed in its books of account that the loan amounting to Rs. 20,12,000 was taken from M/s.

Jethmull Bhojraj between 13-4-1973 to 6-3-1974 and interest amounting to Rs. 3,38,334 was credited. Further, the payment of loan of Rs. 15 lacs was found in the books of account of the assessee. However, according to the ITO, in the confirmation letter filed at the time of original assessment it was found that the total amount of Rs. 10,30,000 was repaid during the period from 4-4-1973 to 28-9-1973.

3. During the re-assessment proceedings, the assessee appeared before the ITO and filed a confirmation letter, photocopy of repayment of Rs. 10,000 on 28-3-1976 and Rs. 25,000 on 19-1-1976. The ITO found that the assessee did not explain the repayment of loan of Rs. 15 lacs on 18-4-1973 and a further loan of Rs. 20,18,000 taken during the period from 13-4-1973 to 6-4-1974 including interest of Rs. 3,38,334.

Therefore, the TTO held that this should be treated as income from undisclosed sources? According to him, the assessee failed to established the repayment of loan of Rs. 15 lacs and taking loan of Rs. 20,18,000 was not proved. One more ground which weighed in the mind of the ITO to make these additions as income from undisclosed sources was that the proprietor of M/s. Jethmull Bhojraj, Shri D.D. Sukhani denied to have either received the repayment of loan of Rs. 15 lacs on 18-4-1973 or advanced loan of Rs. 20,18,000. He also held that there was no evidence for payment of interest. He relied on the affidavit filed by Shri D.D. Sukhani.

4. Shri D.D. Sukhani made a statement on 10-2-1982 and agreed to produce his account books on further date of hearing before the ITO.However, Shri D.D. Sukhani, the proprietor of M/s. Jethmull Bhojraj, did not produce his account books before the ITO to clarify the doubts that neither he received the repayment of loan of Rs. 15 lacs nor he advanced the sum of Rs. 20,18,000 to the assessee during the particular period as stated above. The assessee could not cross-examine fully Shri D.D. Sukhani. The ITO completed his assessment on the basis of the statement recorded by him but without producing books of account maintained by Shri D.D. Sukhani regarding the transactions at Gangtok.

From the evidence recorded by him the ITO concluded that the oral evidence of Shri D.D. Sukhani was more preferable than books of account of the assessee produced before him and the assessee's statement. He held that Shri D.D. Sukhani did not advance a sum of Rs. 20,18,000 after 11-4-1973 and the assessee's did not mentioned about a sum of Rs. 15 lacs in his books of account. The ITO noted in the reassessment that from the books of account produced before him it was very much clear that a further loan of Rs. 20,18,000 was received from Shri D.D.Sukhani on different dates and the repayment of Rs. 15 lacs was noted in the account books. The said documents were maintained in the regular course of business and in fact, the same were accepted during the course of original assessment. From the certificate issued by the Bank of Baroda to M/s. Jethmull Bhojraj, the ITO concluded that the said firm maintained a bank account in which cheques were encashed. He refused to accept that Shri D.D. Sukhani's statement was not supported by any evidence.

5. He held that the proceedings initialed by him under section 147(a) were proper and the assessee has failed to disclose repayment of loan of Rs. 15 lacs and the receipt of advance of Rs. 20,18,000 totalling Rs. 35,18,000 and interest of Rs. 3,38,334. Therefore, he added the said sum to the assessee's total income. He took similar view for the assessment year 1975-76 on identical facts.

6. The assessee being aggrieved by the orders of the ITO preferred the appeals and disputed the additions made by the ITO as income from undisclosed sources before him. The assessee disputed that the finding of the ITO was misconceived and based on incomplete and extraneous evidence in total disregard of material facts and documents admissible under the law. He has contended that the ITO disregarded the books of account and other documents which were absolutely relevant to and having document bearing upon conclusion. The assessee further contended that the inferences were not reasonably drawn by the ITO and, therefore, re-assessment was bad in law. The CIT(A) accepted the submissions made on behalf of the assessee and did not agree with the action adopted by the ITO. He gave his own reasons and arrived to a conclusion that the additions as made by the ITO as income from undisclosed sources were not warranted. Therefore, he deleted the said additions. These are the orders of the CIT(A) which are challenged before the Tribunal. The ITO recorded the assessee's statement also on 11-3-1982. A copy of the said statement is on record. The assessee stated that he had monetary transaction with M/s. Jethmull Bhojraj.

There was a running account of raising loan and making repayments.

Confirmation letter from M/s. Jethmull Bhojraj was also filed. The assessee stated that the payments were made in cash in its office at P 3, New CIT Rd. to the representative of M/s. Jethmull Bhojraj and the said representative was identified by one Shri S. Misra. The representative gave his confirmatory letter. The office of M/s.

Jethmull Bhojraj also was at Calcutta at Gorcha Road. He met Ajoy Sukhani, son of Shri B.D. Sukhani at Calcutta office. He stated that there was no reason to disbelieve the confirmatory letter. M/s.

Jethmull Bhojraj used to give a statement of account to the assessee in a particular form. He has stated that payment of Rs. 15 lacs was made to M/s. Jethmull Bhojraj on 18-4-1973. He did not agree with the statement of Shri D.D. Sukhani. He stated that he had no choice for making payment by cheque when the demand was made to make in cash. He also made the payments earlier by cheque. Mr. Misra has arranged loans for him. Thus the assessee's account books in which the entries of repayment of loan of Rs. 15 lacs and the entries of raising loan, his own statement and confirmatory letter is the evidence on record on the assessee's side. There is a statement of Shri D.D. Sukhani on the other hand which made the ITO to disbelieve the repayment of loan of Rs. 15 lacs and raising another loan of Rs. 20,18,000 from M/s. Jethmull Bhojraj. However, the pertinent fact which can be noted here is that Shri D.D. Sukhani promised to produce his account books to clarify the disputed point of repayment of loan of Rs. 15 lacs and raising another loan of Rs. 20,18,000, but he did not produce the account books before the ITO. The ITO merely believed the statement of Shri D.D. Sukhani on the one hand and disbelieved the account books, confirmatory letter and the statement of the assessee on the other hand. This is how the additions were made and the CIT(A) considered them as unwarranted and deleted the same.

7. At the time of argument we were informed that Shri D.D. Sukhani expired some years ago. The statements of Shri D.D. Sukhani and the assessee were recorded on 10-2-1982 and 11-3-1982. Mr. D.D. Sukhani was not able to produce his account books in February, 1982. Therefore, it cannot be proper probable now that anybody on behalf of Shri D.D.Sukhani would be in a position to produce account books before the ITO regarding the loan transactions in question. In this view of the matter we are unable to accept the contention of the learned departmental representative Shri S.C. Sen that the matter may be remitted back to the file of the ITO to enable him to make further enquiry or investigation and to decide the dispute on merits for the assessment year 1974-75.

8. The learned departmental representative Shri S.C. Sen firstly argued on the legal aspect of the matter. His contention is that the assessee had not challenged the re-opening of the assessment under section 147(a) of the Income-tax Act and, therefore, the re-opening should be held as correct. Copy of the grounds of appeal before the CIT(A) is filed on record. Ground No. 7 of the appeal before the CIT(A) is in respect of initiation of proceedings under section 147(a) and the contention is that the re-opening was made without adequate grounds and material before the ITO and such initiation of proceedings were void ab initio, illegal and untenable in the eye of law. It is true that the CIT(A) has not dealt with this ground specifically but he has dealt with the merits of the disputed additions. Therefore, it would not be correct to say that the assessee had not challenged the re-opening of the assessment under section 147(a) of the Income-lax Act. It is a different point that the CIT(A) has not dealt with this point specifically but when he has deleted the additions it would amount that he was not satisfied with the re-opening of assessment. These are the department's appeals and if the department argues on a legal point of initiation of proceedings under section 147(a) the assessee has right to reply and it would be incorrect to say that the assessee cannot reply or cannot argue on the said point before the Tribunal. Shri Sen argued at length on merits. It is not in dispute that Shri D.D. Sukhani did not produce books of account before the ITO. Shri D.D. Sukhani was, of course, cross-examined to a great extent, but his oral cross-examination could not be done by the assessee regarding his books of account because the books of account were not produced. In this view of the matter, it can be said that Shri D.D Sukhani's cross-examination remained inconclusive. Production of bank statement and his affidavit were the secondary piece of evidence. The primary piece of evidence was the books of account. When the primary piece of evidence was not made available for cross-examination, the secondary piece of evidence cannot lake place of primary piece of evidence. It would be more so because the additions were made on the basis of oral evidence of Shri D.D.Sukhani.

9. Shri Sen also contended that the ITO has discharged the onus cast on him and the appraisal of the evidence on record would prove that the ITO did his best. About 20 questions were put to Shri D.D. Sukhani in his cross-examination and from the said cross-examination Shri Sen contended that the ITO has fulfilled his duties and there is no scope to blame him that he did not fulfil his duties. If this is to be taken as correct then Shri Sen's second contention that the matter may be remitted back to the file of the ITO cannot hold goods to remit back the matter. If the ITO has fulfilled his duties by making detailed investigation then there is no scope to remit back the matter to his file. We have to see whether the books of account have assumed importance or not. In view of the denial by Shri D.D. Sukhani that he did not lend money between 13-4-1973 and 6-3-1974, the production of the books of account has assumed importance.

10. There is no doubt in the ordinary course the assessee would have made the repayment by cheques. Making repayment by cheques depends on the terms and conditions agreed upon by the creditors and the debtors.

There is a statement of the assessee that Shri D.D. Sukhani insisted making repayment in cash and, therefore, the assessee was compelled to make. If the oral evidence of Shri D.D. Sukhani is to be accepted then the question arises why not oral evidence of the assessee should not be accepted. Shri Sen's contention is that if any procedural defect is there then such a defect cannot be taken to give benefit to the assessee. He has also argued that adjudicating authority should correct if any defect is found. He has cited the judgment of the Supreme Court in, support of this contention Kapurchand Shrimal v. CIT [1981] 131 ITR 451/7 Taxman 6. He has rightly argued that the correct inference should be drawn from the statement and evidence on record in view of the human probability. There is no doubt that there is no scientific measurement to test the human evidence except the human probability. According to him, the surrounding circumstances must be taken into account. There is no doubt regarding this proposition also.

11. The Supreme Court has held in the case of Kapurchand Shrimal (supra) that it is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute. As it is mentioned above that it is the contention of the learned departmental representative that the ITO has fulfilled his duties and discharged the onus cast upon it and that is reflected in his order. When he has fulfilled his duties then nothing remained to be corrected. He has also pointed out the commentary from 'Income Tax Law' by Chaturvedi & Pithisaria, Vol. 2, 3rd edition, page 1899 on the point of ingredients of the assessee's onus. Me has urged that it is necessary for the assessee to prove the transaction which results in a cash in its books of account. Such proof includes proof of identity of the creditors, the capacity of such creditors lo advance money and lastly the genuineness of the transaction. These things must be proved prima facie by the assessee and only after the assessee has adduced to establish the prima facie case the aforesaid onus lies on the department. Merely establishing the identity of the creditor is not enough. Mere filing of confirmatory letter also does not discharge the onus that lies on the assessee.

12. In the instant appeals, the assessee was having monetary transactions with M/s. Jethmull Bhojraj since long. There was a running account between them. The assessee was making repayment of the old loans and raising new loans from M/s. Jethmull Bhojraj. Shri D.D.Sukhani was a proprietor of M/s. Jethmull Bhojraj. The firm of M/s.

Jethmull Bhojraj was advancing huge loans to different parties. The said Shri D.D. Sukhani, proprietor of M/s. Jethmull Bhojraj has admitted in his affidavit that there was an outstanding balance of Rs. 16,09,039.33 paise and the assessee repaid a sum of Rs. 15 lacs out of the same. The assessee made this payment in cash. It can also become clear from the affidavit of Shri D.D. Sukhani that the assessee was making repayment in cash. Therefore, there is no doubt about the identification of the creditor and his capacity of advancing huge loans.

13. The only dispute between the department and the assessee is regarding the genuineness of raising loan of Rs. 20,18,000 between 13-4-1973 and 6-3-1974 and repayment of the interest thereon. The ITO added Rs. 15 lacs to the assessee's income because of making cash payment of Rs. 15 lacs to M/s. Jethmull Bhojraj and because of the assessee's admission that he has raised a loan of Rs. 20,18,000 from M/s. Jethmull Bhojraj from the abovesaid party. Interest was credited and accordingly paid. The CIT(A) has discussed all the aspects of repayment of loan of Rs. 15 lacs and raising fresh loan of Rs. 20,18,000 in detail in his order. It would be a different point that he might not have discussed the facts as considered to have been discussed by the department but non-discussion of the facts according to the line of thinking of the department would not amount that the CIT(A) has arrived to a wrong conclusion. Confirmatory letter is disputed but no grounds, are given by the ITO to reject the assessee's account books.

In the absence of production of the account books of M/s. Jethmull Bhojraj, mere denial cannot take place of fact. Shri Sen has cited the judgment of Calcutta High Court in the case of CIT v. W.J. Walker & Co.

[1979] 117 ITR 690. But this judgment is regarding the Explanation to section 271(1)(c) of the I.T. Act. The department was required to prove in that case that the assessee was guilty of concealment of income or furnishing inaccurate particulars of his income. The ratio of the said judgment does not apply here.

14. Shri Sen has tried to distinguish between the onus of proof and burden of proof. He has again pointed out the commentary from Income-tax Law by Chaturvedi and Pithisaria, Vol. 2, 3rd Edition, at pages 1218-1219. Those commentaries are pertaining to bad debt.

However, it cannot be disputed that the onus of proof is a different aspect than the burden of proof. Shri Sen also has drawn our attention that the creditor Shri D.D. Sukhani had stated that the interest was not charged and, therefore, the CIT(A) was not correct to allow the deduction of interest. The creditor had stated that he did not advance the loan itself, but the CIT(A) deleted the addition. On finding of the facts that the assessee's version of raising a loan from the creditor M/s. Jethmull Bhojraj and repayment of the same with interest was found to be correct. Therefore, it would be incorrect to say that the CIT(A) has allowed interest because the creditor did not charge the same.

15. The learned representative for the assessee Shri Samir Chakraborty in his reply has pointed out that the assessee had challenged before the CIT(A) the re-opening of the assessment under section 147(a) of the Income-tax Act. According to him, if the CIT(A) has not given a specific finding on the said point and the assessee should not be blamed for the same. He has further pointed out that the ITO did not discuss the entire evidence of both the sides but the CIT(A) has discussed the same. Shri D.D. Sukhani admitted that he used to go to Darjeeling and Gangtok where his branch offices were situated about 4/5 months in a year. There were running accounts and the same is not in dispute. He has contended that the CIT(A) discussed the entire evidence in detail and arrived to a correct finding and accordingly deleted the additions. The additions were made only on the basis of oral evidence of Shri D.D. Sukhani. Shri Chakraborty has relied on several judgments of High Courts and decisions of the Tribunal. While replying to the arguments of Shri Sen, Shri Chakraborty pointed out the decision of Ahmedabad Bench 'A' of ITAT in the case of Champaklal C. Dhamanwala (HUF) v. ITO [1990] 34 ITD 209 and contended that the ITO had caused a long delay which had resulted in the assessee having a good answer that at this stage now the lenders could not be expected to prove the genuineness of the loans. Therefore, the Tribunal held that there was no justification for retaining the addition and the addition was deleted. The learned representative for the assessee has pointed out that this decision supports the assessee's case and in fact it was in respect of discounted hundies. The learned representative for the assessee, from the judgment of Supreme Court in the case of Kishinchand Chellaram v. CIT [1980] 125 ITR 713/14 Taxman 29, has pointed out that the evidence adduced by the assessee is sufficient to discharge the onus cast upon it. He has also relied on the judgment of the Allahabad High Court in the case of Nathu Ram Premchand v. CIT [1963] 49 ITR 561 wherein it is held that no inference can be drawn against an assessee merely because the assessee had taken a dasti summons for production of a witness and had not produced him. It is the duty of the ITO to enforce the attendance of the witness if his evidence is material, in exercise of his powers under section 37(1) of the Income-tax Act read with Order XVI rule 10 of the Civil Procedure Code. Shri Chakraborty has contended that the ITO did not discharge the onus cast upon him to make Shri D.D. Sukhani to produce the account books maintained by him.

16. He has also cited the judgment of Delhi High Court in the case of Sana Electric Co. v. CIT [1984] 19 Taxman 160/[1985] 152 ITR 507 wherein it is held that section 68 of the Income-tax Act, 1961, makes it clear that a cash credit entry in the assessee's books of account can be rejected by the ITO on cogent grounds. When such grounds are themselves based on no evidence, the question of raising a presumption against the assessee does not arise. He has cited the judgment of the Supreme Court in the case of CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78/25 Taxman 80F wherein it is held that it was in the knowledge of the ITO that the creditor was an income-tax assessee. Shri Chakraborty pointed out that the account books were in his possession and control. The assessee could do nothing unless he produced them for cross-examination. He has also cited the judgment of the Allahabad High Court in the case of Addl. CIT v. Radhey Shyam Jagdish Prasad [1979] 117 ITR 186/1 Taxman 31 wherein the Allahabad High Court has held that the Tribunal was right in holding that the assessee was denied an opportunity to justify the cash payment.

17. According to Shri Chakraborty, the learned representative for the assessee, procedural error is a substantial error. According to him, the ITO should not have rejected the evidence of the assessee on one hand and accepted the oral evidence of the creditor on the other without production of the books of account.

18. We have examined the facts. We have considered the arguments advanced on behalf of both the parties. We have also carefully considered the legal aspects of the matter, particularly the re-opening of assessment under section 147(a) of the Income-tax Act, 1961. It cannot be ruled out that the re-opening of assessment may be legal and proper but at the same time the addition made may not be warranted. It is a different matter that the CIT(A) has not specifically decided the re-opening of the assessment under section 147(a) of the Act, but at the same time his order reflects that he has considered the additions made by the ITO to be deleted. That means, he has considered merits and demerits of additions made. Shri D.D. Sukhani, the proprietor of M/s.

Jettynull Bhojraj, received the amount of Rs. 15 lacs from the assessee in cash out of outstanding balance. He did not make any efforts to recover balance of Rs. 1 lac and odd amount from the assessee and that point may not go against the department. Shri D.D. Sukhani is not making any efforts to recover a sum of Rs. 1,09,089 and interest also would not become a good ground to make other additions to the income of the assessee.

19. We are unable to reject the assessee's books of account in which he has made entries of receiving a loan of Rs. 20,18,000 from M/s.

Jethmull Bhojraj and payment of interest thereon. The assessee made the payment of Rs. 15 lacs in each is not in dispute when the assessee was making the repayment in cash and also raising loans then it would be incorrect to disbelieve the story of raising of Rs. 20,18,000 from M/s.

Jethmull Bhojraj. Non-production of books of account by Shri D.D.Sukhani has not only created the doubt but also it gave rise to the point to consider whether his oral evidence should have a prevalence over the documentary evidence. Shri D.D. Sukhani's oral evidence cannot be held creditable in the absence of books of account.

20. It is not in dispute that the assessee was having running account with M/s. Jethmull Bhojraj. The account books were produced by the assessee before the ITO even at the time of making original assessment.

Therefore, the denial of part of the transaction by Shri D.D. Sukhani, proprietor of M/s. Jetmull Bhojraj, would not create confidence. The interest was credited by the assessee. Therefore, it is difficult to come to the conclusion that the assessee had the income in question from undisclosed sources. The examination of the evidence on record would go to prove that there are two versions on record--one by Shri D.D. Sukhani and the other by the assessee. The version of the assessee is supported by his books of account and the version of Shri D.D.Sukhani is supported by bank certificate which is filed on record that the cash transactions were going on between M/s. Jethmull Bhojraj and the assessee. Therefore, the bank certificate was not expected to reflect all the transactions between the parties. Cumulative effect of the evidence would go to prove that the ITO has forcibly made the additions by re-opening the assessment. The additions require to be deleted on merits with the additions on account of interest.

21. In the result, the assessee succeeds. The revenue fails and the I.T. appeals are dismissed.

22. The W.T. Appeals are consequential because of making additions on account of income from undisclosed sources and rejection of payment of interest. The said additions are added as an asset. If the additions are deleted then the net wealth for the assessment years under appeal has to be reduced, However, Shri Sen has pointed out section 2(m) of the W.T. Act on the point of debt owed and, therefore, it is to be included in the wealth-tax. He has pointed out a commentary from page 1219 of Vol. 2, 3rd Edition by Chaturvedi & Pithisaria. He has cited a judgment of the Supreme Court in the case of Kesoram Industries & Cotton Mills Ltd v. CWT [1966] 59 ITR 767 on the point that the valuation or owed amount to be under obligation to pay and it did not really add to the meaning of the word 'debt'. We are of the opinion that when the additions are deleted because of the debt, the same cannot be added in the wealth of the assessee.

24. I have perused the order of my learned brother, Shri T.A. Bukte, Judicial Member. With great respect I regret my inability to agree with his conclusion for the reasons stated hereinafter : 25. The relevant facts in brief are these : The assessee is an individual carrying on business of money lending. For the assessment years 1974-75 and 1975-76, he filed the return of income at Rs. 30,055 and Rs. 27,852 respectively. The regular assessments for both the years were completed on 30-7-1976. Subsequently, an information came in possession of Assessing Officer from the I.T.O., Darjceling regarding the transactions which the assessee had with one Shri D.D. Sukhani, proprietor of M/s. Jethmull Bhojraj. Therefore, the proceedings were initiated under section 148 which resulted in an addition of Rs. 38,56,334 for the assessment year 1974-75 and Rs. 7,41,144 for the assessment year 1975-76. The ITO gave detailed reasons in his re-assessment orders.

26. Shri D.D. Sukhani confirmed that out of opening balance of Rs. 16,09,089 due from the assessee, a sum of Rs. 15 lakhs was received by him and there was no further transactions. He did not charged any interest in the accounting year ending 2030 S.Y. But in the books of the assessee, a loan amounting to Rs. 20,18,000 has been shown as taken from M/s. Jethmull Bhojraj between 13-4-1973 to 6-3-1974 and interest amounting to Rs. 3,38,334 was found to have been credited. From this, the ITO concluded that the assessee did not explain the repayment of loan of Rs. 15 lakhs on 18-4-1973 and a loan of Rs. 20,18,000 shown to have been taken during the period from 13-4-1973 to 6-3-1974 stood unexplained and the interest of Rs. 3,38,334 found to have been credited was similarly treated. In all the ITO held that the entire debit and credit entries amounting to Rs. 38,56,334 were not proved.

This came to be added as income from undisclosed source for the assessment year 1974-75..The ITO relied on the affidavit filed by Shri D.D. Sukhani wherein the transaction as recorded in the books of account of the assessee was denied. Shri D.D. Sukhani was examined by the ITO on 10-2-1982 and during the course of cross-examination, he confirmed the affidavit filed by him before the ITO, Darjeeling. He confirmed the statement mentioned in his affidavit that out of opening balance of Rs. 16,09,089 due from the assessee, only a sum of Rs. 15,00,000 was received by him from the assessee and there was no further transactions thereafter and he did not charge any interest. He agreed to produce the books of account kept by him at Gangtok.

Thereafter, we find that the creditor neither produced the books of account nor the assessee insisted upon the production of the same as material evidence of the cash credit. On these facts, the ITO concluded that the cash credits recorded in the books of account of the assessee remained unexplained. The CIT(A) deleted the addition for the assessment year 1974-75. Similarly, for the assessment year 1975-76, the ITO did not accept the assessee's transaction with M/s. Jethmull Bhojraj. From the record, it appeared to the ITO that the assessee carried forward opening balance of Rs. 39,65,424 and shown a number of transactions with the said creditor. The peak credit for this year was Rs. 43,25,424 on 13-2-1975. The difference between the balance carried forward and the peak credit along with the interest both amounting to Rs. 7,41,144 was added.

27. It has been now well established that the initial onus is on the assessee to offer an explanation and that explanation has to be to the satisfaction of the ITO. If the explanation is not found satisfactory or reasonable, the ITO can treat such money as the assessee's income from the undisclosed source. The assessee has to prove that the credit entry is genuine and that fact can be proved by establishing from some plausible evidence, identity of the creditor and his credit worthiness.

The assessee in this case has established the identity of the creditor.

In the background of denial by Shri. D.D. Sukhani, the assessee's explanation about the genuineness of the transaction and the extent of the transaction remains questionable. A mere entry in account books of the assessee is no proof of either identity of the creditor or his capacity to advance the loan or even genuineness of the loan. So were the observations of the Hon'ble Madras High Court in CIT v. S.Katnaraja Pandian [1984] 150 ITR 703/18 Taxman 187. In Northern Bengal Jute Trading Co. Ltd. v. CIT [1968] 70 ITR 407 it has been held by the Calcutta High Court that mere production of a confirmatory letter would not amount to discharge of onus of proving the cash credit or identity.

On the identical facts as are before us in the present case the Calcutta High Court in Sikri & Co. (P.) Ltd. v. CIT [1977] 106 ITR 682, held that where the assessee did not give information about the whereabouts of the lenders, nor did it contradict the confessional statement made by the lenders before their respective ITOs that they had never advanced moneys to the assessee, it was held that the additions were rightly made by the ITO. Following these principles, I am of the opinion that the assessee had not proved the genuineness of the cash credit as appearing in his books of account. In the facts and circumstances of the case and in the context of the affidavit filed by the creditor, the assessee should be given a chance to establish the genuineness of the cash credit by other circumstantial evidence. For these reasons, I am of the opinion that the matter should go back to the file of the ITO with a direction to reframe the issue in accordance with law with advertence to the observations made above. The assessee shall be given adequate opportunity to bring material and other corroborated evidence in support of the transaction. All the transactions appear to have been taken place in cash and the transaction to this extent cannot go unnoticed by the department merely relying on the books of account of the assessee.

28. All the assessments framed are, therefore, set aside for framing the issue afresh. The assessments in the Wealth-tax Appeal Nos. 351 and 352 (Cal.) of 1988 would also be set aside to be framed in the light of the assessments to be framed under the Income-tax Act.

1. As a result of difference of opinion between the two Members constituting the Bench, the following two questions have been referred to me for decision, by the Hon'ble President, ITAT in accordance with the provisions of section 255(4) of the Income-tax Act, 1961 for both these years :-- (i) "Whether in the facts, circumstances and evidence on record, the deletion of loan of Rs. 35,18,000 and interest thereon of Rs. 3,38,334 of M/s. Jethmull Bhojraj for the assessment year 1974-75 and the deletion of addition of Rs. 3,60,000 with interest thereon of Rs. 3,81,144 for the assessment year 1975-76 are proper or not (ii) Whether the I.T. assessments for the assessment years 1974-75 and 1975-76 and the W.T. assessments for the same years to be set aside now to make fresh assessments in view of death of D.D. Sukhani who could not produce the documentary evidence while agreeing to do so".

2. The loss shown in the books of account of the assessee were accepted on the basis of confirmation certificates, etc. in the original assessments. However, the assessments for both the years were re-opened under section 147(a) and fresh orders were passed on 18-3-1987. As per the books of the assessee, the assessee claimed that in respect of the loans taken by him in earlier years, from M/s. Jethmull Bhojraj, Proprietor, Shri D.D. Sukhani, he re-paid a total amount of Rs. 10,30,000 during the period from 4-4-1973 to 28-9-1973 corresponding to assessment year 1974-75 and furthermore that a fresh loan of Rs. 20,18,000 had been taken by the assessee from the same concern, ie., M/s. Jethmull Bhojraj during the period from 13-4-1973 to 6-3-1974.

Interest amount of Rs. 3,38,334.45 to M/s. Jethmull Bhojraj was also recorded in the books of the assessee. The versions of the assessee in this regard had been accepted as the original assessment stage as mentioned above.

However, during the course of the assessment proceedings (most probably in the case of Shri D.D. Sukhani himself), Shri Sukhani denied the portion of the above-mentioned transaction as claimed by the assessee.

Shri Sukhani staled in a deposition given by him before the Income Tax Authorities that there was a credit balance in his favour of Rs. 16,09,089.33 as at the end of the accounting year corresponding to assessment year 1973-74. This figure is actually found to be tallying with the figure as per the books of the assessee also. Shri Sukhani, however, claimed and also filed an affidavit in this regard on 6-12-1976 to the effect that as against the aforesaid opening balance of Rs. 16,09,089.33, he had received an amount of Rs. 15,00,000 from the assessee and that thereafter there was no further transaction between him and the assessee. On the basis of the above submissions of Shri D.D. Sukhani accompanied with his affidavit as mentioned above, the assessments in the case of the assessee was re-opened.

3. At the stage of the re-assessment proceedings the assessee strongly contended that the entries as per his own books were correct ones. In support of the same, he also filed copies of loan confirmation certificates and also photocopies of receipts regarding re-payments of Rs. 10,000 on 28-1-1976 and of Rs. 25,000 on 29-1-1976. A copy of the deposition given by Shri Sukhani at the stage of the original examination as well as cross-examination was also filed. It was the Departmental contention that the re-payment of Rs. 15,00,000 on 18-4-1973 to M/s. Jethmull Bhojraj did not stand recorded in the books of account of the assessee and hence, this amount represented the undisclosed income of the assessee. Furthermore, the genuineness of the fresh loan of Rs. 20,18,000 as claimed by the assessee to have been taken from M/s. Jethmull Bhojraj and subsequently denied by M/s.

Jethmull Bhojraj on the strength of the affidavit filed by Shri Sukhani, was also challenged by the Assessing Officer along with the genuineness of the interest payment of the amount of Rs. 3,38,334.45.

The Assessing Officer discusses in the impugned re-assessment order that Shri Sukhani was originally reluctant to appear before the ITO inspite issue of several notices requiring his appearance for the purpose of giving depositions and also for cross-examination, It is stated that ultimately Shri Sukhani appeared and gave his deposition and that while the cross-examination proceeded to certain extent (twenty questions had been answered by Shri Sukhani), he thereafter certainly fell ill. The cross-examination was thereafter adjourned by the Assessing Officer for the next day and the cross-examination could not be continued thereafter at all. It is also discussed in the assessment order that Shri Sukhani was asked by the Assessing Officer to produce his books of account in support of his contentions as stated before the Assessing Officer and as also sworn in the affidavit.

However, the said books of account are found to have never been produced by Shri Sukhani before the Assessing Officer. The Assessing Officer discusses in this connection that the contentions of Shri Sukhani could not be supported by him by production of his books of account and that Shri Sukhani merely relied on his memory for the purpose of supporting his alleged claim that a sum of Rs. 15,00,000 had been received by him and furthermore that he had not made a further advance of Rs. 20.18 lakhs to the assessee. The Assessing Officer furthermore discusses that on the other hand, the assessee produced his books of account which were duly examined by the Assessing Officer and were found to tally with the claims of the assessee. It is also stated that certificates issued by Bank of Baroda were produced by the assessee before the Assessing Officer which clearly showed that transactions between the two parties took place even after the date, which, according to Shri Sukhani, was the last dale of such transactions.

The Assessing Officer, however, did not accept the contentions of the assessee. He discusses in this connection that the assessee himself had shown re-payment of loan to the extent of Rs. 10,13,000 in the confirmation filed during the course of the original assessment, whereas, Shri Sukhani had alleged that he had received a total amount of Rs. 15,00,000 during the year. The Assessing Officer thus finally held that the entries passed in the books of account of the assessee could not be relied upon, inasmuch as, the same were contradictory in nature. The Assessing Officer place strong reliance on the denial of Shri Sukhani about further transactions. The Assessing Officer also states that Shri Sukhani had also denied having charged any interest after 31-3-1973. Considering all the above facts and circumstances, the Assessing Officer inferred that the assessee had not disclosed the re-payment of loan of Rs. 15,00,000 and that the receipt of loan of Rs. 20,18,000 was not established. Accordingly, he held both these amounts to represent undisclosed income of the assessee and added back an amount of Rs. 35,18,000. The claim of interest payment to the extent of Rs. 3,38,334 was also disallowed by the Assessing Officer.

4. So far as the assessment year 1975-76 is concerned, in the reassessment, the Assessing Officer disallowed the claim of interest payment on the above-mentioned loan to the extent of Rs. 3,81,144.

5. When the matters were taken up before the CIT(A), he made a thorough examination of the facts and also the issues under consideration. The ld. CIT(A) pointed out that the cross-examination could not be continued and completed due to successive non-compliance on the part of Shri Sukhani. He also discusses in this connection that the statement of Shri Sukhani, about no further transaction having been continued between the two parties, was found to be false by production of copies of certificates issued by the Bank which clearly showed that there were transactions between Jethmull Bhojraj and the assessee in respect of an amount of Rs. 25,000 on 30-12-1975 and of Rs. 10,000 on 24-1-1976. The ld. CIT(A) also discusses about the disallowance of claims of interest 011 the same loans for assessment year 1976-77 and refers to the order of the ld. CIT(A) dated 19-12-1984 for assessment year 1976-77, in which the ld. CIT(A) after considering the detailed facts, fully deleted the entire addition in that regard. The CIT(A) also discusses the facts of the case in a nutshell. At para-11 of his order for assessment year 1974-75, he states that the assessee had claimed about having taken loans from different parties, including M/s. Jethmull Bhojraj of Gangtok, Sikkim and that such loans amounted to Rs. 50,16,503.00. The CIT(A) furthermore discusses that the assessee also used to advance loans to different parties. The total amount of loans thus advanced was Rs. 52,29,600. The CIT(A) furthermore discusses that confirmation letters in respect of all the transactions, wherever required, had been filed by the assessee and books of account had also been produced and examined by the ITO at the original assessment stage.

The CIT(A) states in this connection that the ITO had accepted the genuineness of the loans and also the transactions recorded in the books of the assessee after examining all the relevant evidences as well as the hooks of account of the assessee.

The CIT(A), thereafter refers to the details of the depositions made by Shri Sukhani before the Assessing Officer under section 131 of the Act CIT(A) points out that in reply to question No. 4, Shri Sukhani staled that his younger son Shri Dhanesh Sukhani used to look after his business at Gangtok and that Shri D.D. Sukhani himself used to visit Gangtok and Darjeeling only for about 3/4 months in a year. The CIT(A) has inferred that this fact shows that Shri D.D. Sukhani could not possibly have been very familiar with the entire details of the business activities being carried on at Gangtok. The CIT(A) also refers to the statement made by Shri D.D. Sukhani that he had received back an amount of Rs. 15,00,000 in cash on 18-4-1973 and that a balance amount of Rs. 1,09,089 plus interest still remained outstanding. Shri Sukhani admitted at that stage that no steps had been taken to recover the dues because his banking business had been taken over by Government of Sikkim in 1977, and that all his properties had been attached. The CIT(A) expresses wonder in this connection as to while the business of Shri Sukhani was taken over by the Government of Sikkim in 1977, he could not take any steps to recover the balance amount of Rs. 1,09,089 plus interest during the long period of about four years from 18-4-1973 onwards. The CIT(A) also discusses in this connection that when Shri Sukhani was asked to state the names of some important employees, he gave the names of three only of such persons, out of whom again one had already expired and another was not with his business anymore. When Shri Sukhani was required to produce the attendance register, he said that he would send the same later. The CIT(A) points out that, however, this was never done, nor did the ITO try to ensure compliance of this requirement. The CIT(A) furthermore discusses that Shri Sukhani was not even able to remember whether any books of account were being maintained and whether they were available for verification of the transactions with the assessee. The CIT(A) expresses further wonder that white Shri Sukhani was not able to remember even such ordinary details of his business at Sikkim, he could remember the exact figures of loans re-paid and outstanding to the paise, including even the exact dates so far as the assessee was concerned. The CIT(A) also lakes an adverse view of the fact that the ITO did not make any attempt at all to obtain the books of account of M/s. Jethmull Bhojraj, for the purpose of verifying the denial of Shri Sukhani in respect of the transactions with the assessee. The CIT(A) thus comes to the conclusion that apart from the verbal evidence of Shri Sukhani, there is no other evidence to support his claim that he had received back an amount of Rs. 15,00,000 from the assessee on 18-4-1973. On the basis of the above facts, the CIT(A) came to the conclusion that the assessee had not been able to cross-examine the witness viz. Shri D.D. Sukhani properly.

The CIT(A) also placed strong reliance on the certificates produced by the assessee from Bank of Baroda India Exchange Place, Calcutta showing clear evidences of transaction between M/s. Jethmull Bhojraj, Ganglok and the assessee, on 19-1-1976 and 28-1-1976. The CIT(A) has thus been of the opinion that as against the documentary evidences produced by the assessee like his books of account, confirmatory letters and also the Bank statements as mentioned above, the verbal evidence of Shri D.D. Sukhani, and that too not fully subjected to cross-examination and totally from his memory without reference to any written document cannot at all be accepted. In that view, the ld. CIT(A) deleted the entire additions for assessment year 1974-75. In this connection, he also relied on the order passed by his predecessor for assessment year 1976-77 in favour of the assessee. So far as the assessment year 1975-76 is again concerned, the CIT(A) deleted the disallowance in respect of the claim of interest payment.

6. When the matter came up before the Tribunal, arguments, as discussed by us above, were put forward by both the sides. The brother Judicial Member was of the opinion that the CIT(A) has been correct in relying on the documentary evidences produced by the assessee in preference to the verbal denial of Shri D.D. Sukhani alone. In that view, the brother Judicial Member upheld the order of the ld. CIT(A) in deleting the additions and disallowances for both the years under consideration. So far as the Departmental W.T. Appeals are concerned, he found out that the additions in the Wealth-tax assessments had been made consequent to the additions made in the Income-tax assessments. Since he deleted the additions in the Income-tax assessments, the deletions of the additions in the Wealth-tax assessments were also upheld by him. In short, the brother Judicial Member dismissed all the Departmental appeals whether in Income-tax or Wealth-tax.

7. However, the brother Accountant Member has placed strong reliance on the denial made by Shri D.D. Sukhani both in his verbal deposition as well as in the affidavit filed by him. He discusses in this connection that the initial onus is on the assessee to offer an explanation as to the entries recorded in his books of account. He is of the opinion that it is necessary for the assessee to prove that the credit entries are genuine and that such proof can be established from plausible evidences like identity of the creditor and his creditworthiness. The brother Accountant Member admits that so far as the instant case is concerned, the identity of the creditor has been established by the assessee, though, however, in the background of denial by Shri D.D. Sukhani, the explanation of the assessee about the genuineness of the transactions and the extent of the transactions remain questionable. He remarks that a mere entry in account books of the assessee is not proof of either identity of the creditor or his capacity to advance the loan or even genuineness of the loan. He has discussed the decisions of certain Courts in this regard. Following the principles laid down therein, the brother Accountant Member has been of the opinion that the assessee has not proved the genuineness of the cash credit as appearing in his books of account. He feels that the assessee should be given a chance to establish the genuineness of the cash credit by other consequential evidences. He thus feels that the matter should go back to the file of the ITO with a direction to reframe the issue in accordance with law.

The brother Accountant Member has thus been of the mind to set aside the impugned assessments for the purpose of being reframed.

8. At the stage of the bearing of the appeals before me, the ld. D.R.contends that the assessee has not explained as to what happened to the credits in the subsequent years and how they were shown in the books of account of the assessee. He also points out the express denial by the creditor himself and argues that the genuineness of the transactions does not stand proved.

On the other hand, the ld. counsel for the assessee points out that the entire matter was thoroughly argued during the course of the Departmental appeal for assessment year 1976-77. He has relied on a judgment of the Gauhali High Court in the case of Khandelwal Constructions v. CIT [1997] 227 ITR 900 at page 904 to the effect that where no proper enquiry had been made by the Assessing Officer to ascertain whether the explanation submitted by the assessee was genuine, the amounts represented by credits are not assessable under section 68. Reliance has furthermore been placed by the ld. counsel for the assessee on a judgment of the Calcutta High Court in the case of Northern Bengal Jute Trading Ltd. (supra). The different aspects of discharge of the burden on the assessee and the Department regarding establishment of the genuineness of credit entries have been discussed therein.

9. On a thorough consideration of the facts of the case, I am of the opinion that so far as the assessee is concerned, he has discharged his primary onus by not only producing his books of account but also filing relevant evidences by the confirmation certificates from all the parties concerned. The denial of Shri D.D. Sukhani is certainly of great importance. However, it is required to be noted that Shri Sukhani has not been able to establish his contentions by producing any documentary evidence at all and even the hooks of account also, as promised by him to be produced before the Assessing Officer, were ultimately not done so. The CIT(A) has clearly discussed that the verbal statements made by Shri Sukhani are not at all fully reliable, inasmuch as, Shri Sukhani had merely quoted from his memory and has not been able to come up with even basic information regarding his business being conducted at Gangtok by his younger son. I feel that the remarks made by the ld. CIT(A) that it is not possible to understand as to how Shri Sukhani was able to remember the full details of the transactions with the assessee and also the dates thereof, is quite an important factor and has got to be taken into consideration very strongly. A part of the statements made by Shri Sukhani that no transaction was carried on by him with the assessee after a certain date, has been found to be false on production of the relevant certificates from the Bank as discussed above. Again, the cross-examination of Shri D.D. Sukhani could not be completed and in absence of a full cross-examination, the versions of Shri Sukhani cannot at all be accepted. It is really now known how the Assessing Officer allowed the matters to stray on and did not complete the proceedings of cross-examination of Shri Sukhani and did not also insist on production of his books of account. Even in spite of such lacunae on his part, the Assessing Officer has made the disallowances and additions simply on the basis of the denial of Shri D.D. Sukhani. Hence, in my view, whereas the assessee has discharged his primary onus, the Assessing Officer has not been able to do so and has taken reliance on unfounded evidence like the depositions of Shri Sukhani merely supported by an affidavit. The documentary evidences supporting the case of the assessee have certainly got to be considered as more reliable than the above-mentioned verbal evidences of Shri D.D.Sukhani, in support of which, there does not exist any documentary evidence and Shri Sukhani also could not perform his promise of gelling his cross-examination completed and producing his books of account before the Assessing Officer.

10. Finally, the point at issue before me is whether the reliefs allowed by the CIT(A) should be upheld or the matter should be sent back to the Assessing Officer for the purpose of re-examination. There is no option for me to confirm the additions and disallowances, thereby reversing the orders of the ld. CIT(A) fully. Although the brother, Accountant Member has made discussions to the effect that in absence of discharge of the onus resting with the assessee in a proper manner, the credit entries in his books are liable to be added back, ultimately, he has not ordered in that line. He has merely wanted to send the matters back to the file of the Assessing Officer for re-examination. It is known that not only Shri D.D. Sukhani but his son, who was looking after his business, have both expired. There appears to be nothing left of the business being carried on by M/s. Jethmull Bhojraj at Sikkim.

Hence, in my opinion, very little purpose will be served by sending the matter back to the file of the Assessing Officer for re-examination, inasmuch as, no such re-examination seems to be possible after the gap of more than two decades. The ld. counsel for the assessee has rightly placed reliance on the judgment of the Madras High Court in the case of S. Hastimal v. CIT [1963] 49 ITR 273, in which case, it was observed that "after the lapse of a decade, an assessee should not be placed on the rack and called upon to explain not merely the origin and source of a capital contribution but the origin of origin and source of source as well". So far as the instant case is concerned, more than 25 years have passed since the relevant accounting years. The assessee will not be in a position to come up with any further evidence in support of the entries in his books of account. On the other hand, on account of death of both Shri Sukhani and his son and the discontinuance of his business totally, there is hardly any possibility of the versions of Shri Sukhani to be supported by any documentary evidence. When the Assessing Officer has failed to examine the books of account of M/s. Jethmull Bhojraj during the course of such a long period, it cannot be expected that he will be able to do so in future. In absence of examination of the said books, the versions of Shri Sukhani cannot be established.

Hence, in my view, the entire matter is required to be proceeded with by neglecting the verbal denial of Shri Sukhani, unsupported by any documentary evidence and even his own books of account.

I, therefore, agree with the views of the brother Judicial Member and uphold the orders of the ld. CIT(A) deleting the addition of the loan of Rs. 35,18,000 and interest thereon payable to M/s. Jethmull Bhojraj for the assessment year 1974-75 and also the addition of Rs. 3,60,000 in respect of interest payment for the same year and Rs. 3,81,144 for the assessment year 1975-76. So far as the W.T. assessments for these two years are concerned, I uphold the orders of the ld. CIT(A). I am also of the opinion that neither the Income-tax assessments nor the Wealth-lax assessments are required to be set aside for the purpose of reframing the assessments.

11. The matters should, hereafter, go back to the Division Bench for the purpose for taking into consideration my opinion as above.


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