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C. Kant and Co. Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 192 of 1972
Judge
Reported in(1980)18CTR(Cal)164,[1980]126ITR63(Cal)
ActsIncome Tax Act, 1961 - Section 68, 256 and 259
AppellantC. Kant and Co.
RespondentCommissioner of Income-tax
Appellant AdvocateNirmal Mukherjee, Adv.
Respondent AdvocateSuhas Sen, Adv.
Excerpt:
- .....of the loans. the ito, further, observed that the capacity of the alleged creditors to advance the loans in question was not proved. hence, he held the sum of rs. 77,500 as the assessee's income from other sources and he also disallowed a sum of rs. 1,996 claimed as interest on the said deposits. the assessee made an appeal before the aac. the aac, in view of section 68 of the act, upheld the ito's order.2. there was a further appeal to the tribunal. before the tribunal, it was contended that section 68 had no application to the case of commercial loans. the tribunal was unable to accept the contention of the assessee and upheld the order of the ito.3. there was a reference application under section 256(1) of the i.t. act, 1961, and the tribunal refused to refer the question proposed by.....
Judgment:

Sabyasachi Mukharji, J.

1. The assessee, M/s. C. Kant & Co., is a partnership firm consisting of four partners. In the course of assessment proceedings, the ITO noticed cash credits in the assessee's books of account in the names of six parties totalling in all to Rs. 77,500. Enquired about the nature and source of these credits, the assessee explained that these were loans obtained from those parties and produced letters of confirmation in respect of this contention. The ITO found that the credits were not verifiable and that the letters of confirmation alone did not establish the genuineness of the loans. The ITO, further, observed that the capacity of the alleged creditors to advance the loans in question was not proved. Hence, he held the sum of Rs. 77,500 as the assessee's income from other sources and he also disallowed a sum of Rs. 1,996 claimed as interest on the said deposits. The assessee made an appeal before the AAC. The AAC, in view of Section 68 of the Act, upheld the ITO's order.

2. There was a further appeal to the Tribunal. Before the Tribunal, it was contended that Section 68 had no application to the case of commercial loans. The Tribunal was unable to accept the contention of the assessee and upheld the order of the ITO.

3. There was a reference application under Section 256(1) of the I.T. Act, 1961, and the Tribunal refused to refer the question proposed by the assessee. The assessee made an application to this court under Section 256(2) ofthe I.T. Act, 1961. At the appropriate time, when the reference application under Section 256(2) came up for hearing, Mr. Justice A. N. Sen (as the learned Chief Justice then was) along with Mr. Justice T. K. Basu was taking up income-tax matters and other reference applications. Their Lordships made the rule absolute and directed the Tribunal under Section 256(2) of the I.T. Act, 1961, to make a reference to this court on the following questions:

'1. Whether there was evidence before the Appellate Tribunal to hold that the sum of Rs. 77,500 appearing in the books of account as loan obtained from six parties and the sum of Rs. 1,996, being the interest paid thereon, did not represent loan or interest as explained by the assessee firm ?

2. Whether the Appellate Tribunal was right in holding that, in the circumstances of the case, the assessee-firm was under obligation to prove the creditworthiness of the lenders ?'

4. Before us Mr. Mukherjee appearing for the assessee made the following submissions : 'My humble submission is that the present Chief Justice and Mr. Justice T. K. Basu are in seisin of the matter and in view of that matter the present Bench hearing the income-tax reference matters has no jurisdiction and, therefore, I respectfully pray that the matter may be released and my objection may be heard by the Chief Justice and Mr. Justice T. K. Basu and since my submission is that this court has no jurisdiction I submit that I cannot argue on merits. It is cash credit. The question is that in the absence of the proof of creditworthiness of the creditors I take a different stand and approach so far as the questions are concerned.'

5. We are, however, unable to accept Mr. Mukherjee's submission. When a reference application is heard and ultimately a reference is made pursuant to a rule nisi being made absolute, the ultimate reference is not part-heard before the Bench hearing the reference application. A reference application is a different matter from the hearing of the reference when made. Therefore, the reference matter is not heard in part and this being the appropriate Bench, at this time, in our opinion, this Bench is competent to dispose of this reference. This has been the uniform and settled practice of this court. The analogy of the case where witnesses are examined, in part, by a particular learned judge and the rest of the evidence is heard by another judge will not apply in the facts and circumstances of this case.

7. On the merits of the questions, in view of the language used in Section 68 of the I. T. Act, 1961, as it does not make any distinction between commercial loans and non-commercial loans, in our opinion, the onus lies, inthe facts found on evidence in this case, on the assessee to prove the genuineness of the cash credits. For this reliance was placed on the observations of the Supreme Court in the case of Lakshmiratan Cotton Mills Co. Ltd. v. CIT : [1969]73ITR634(SC) . In the case of a cash credit entry it is necessary for the assessee to prove not only the identity of the creditors but also to prove the capacity of the creditors to advance the money and the genuineness of the transactions. This principle is well settled and has recently been reiterated by a Bench decision of this court in the case of Shankar Industries v. CIT : [1978]114ITR689(Cal) . On whom the onus of proof lies in a particular case is a question of law which, in our opinion, is clearly settled in the facts and circumstances of this case. In view of Section 68 of the Act, in this case, it lay upon the assessee. Whether that onus has been discharged in a particular case is a question of fact and the Tribunal, in our opinion, had materials on record and had come to the conclusion as it did.

8. In the premises, both the questions are answered in the affirmative and in favour of the revenue.

9. In the facts and circumstances of the case, the assessee must pay the costs of this reference.

10. Mr. Mukherjee orally prays for leave to appeal to the Supreme Court. We, however, fail to see any reason for the grant of such a certificate.

Sudhindra Mohan Guha J.

10. I agree.


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