Assessee/Appellant/S v. Commissioner Of Income Tax-Ii, Patna

IN THE HIGH COURT OF JUDICATURE AT PATNAMiscellaneous Appeal No.125 of 2011 ====================================================== M/s R.B. Electronics, Harsh Vardhan Arcade, Fraser Road, P.O. GPO, P.S.Kotwali, Patna through partner Amit Bahri. ... ... Assessee/Appellant/s Versus 1. Commissioner of Income Tax-II, Patna 2. Addl. Commissioner of Income-tax, Range-5, Patna. ... ... Respondent/s ====================================================== Appearance :For the Appellant/s: Mr. Ajay Kumar Rastogi, Senior Advocate Ms. Smriti Singh, AdvocateFor the Respondent/s: Mrs. Archana Shahi, Senior Standing Counsel====================================================== CORAM: HONOURABLE THE CHIEF JUSTICE and and HONOURABLE MR. JUSTICE PARTHA SARTHY ORAL JUDGMENT (Per: HONOURABLE THE CHIEF JUSTICE) Date : 01-08-2023 The assessment year is 2005-06 and the appeal isfrom the order of the Tribunal which confirmed the additionsmade by the Assessing Officer, affirmed in the first appeal. Theadditions made were on account of the unsecured loans returnedby the assessee, having not been proved with substantiatingevidence. 2. The questions of law coming forth from the order of the Tribunal are re-framed as follows :- (i) Whether the order of the Tribunal confirming theaddition of Rs.9,00,000/- representing unsecuredloans taken from three individuals was passed inaddition of Rs.9,00,000/- representing unsecuredloans taken from three individuals was passed in total disregard of the evidence produced on thisaccount and in contravention of the provisions ofthe Income Tax Act, 1961 as also the decisionson this aspect? (ii) Whether the Tribunal was justified in notadjudicating the ground nos. 13 and 14 of thememo of appeal which challenged dis-allowanceof proportionate interest paid against the twounsecured loans?adjudicating the ground nos. 13 and 14 of thememo of appeal which challenged dis-allowanceof proportionate interest paid against the twounsecured loans? 3. Definitely, the second question would depend upon the answer to the first question. 4. On facts, suffice it to notice that the return ofincome for the assessment year 2005-06 was furnished on31.10.2006 showing total income of Rs.13,40,380/-. A noticewas issued under Section 143(2) of the Income Tax Act, 1961(for brevity, ‘the Act’) and the assessee was directed to furnishthe details of the unsecured loans reflected in the balance sheetof the relevant assessment year. The assessee by communicationdated 08.10.2007 took up a new contention that the partnershipfirm has introduced unsecured loans from two new persons,namely Smt. Rachna Bahri and Shri Syed Alam. The copy ofthe ledger account of two lenders and incomplete list of theparties as appearing in the balance sheet along with addresseswere enclosed. With respect to the two loans of Rs.5,00,000/-and Rs.3,00,000/- appearing in the name of Ms. Gunmala Devi and Mr. A.P.N. Singh, a notice under Section 133(6) of the Act,dated 10.10.2006 was issued to all the parties appearing in thebalance sheet. There was no effective response to the aforesaidnotice and hence the assessee was asked to produce the partiesfor examination. The Assessing Officer after examining theentire records and also the evidence proffered by the assesseemade an addition of Rs.9,00,000/- being the alleged unsecuredloan; Rs.5,00,000/- from Ms. Gunmala Devi; Rs.3,00,000/- fromMr. A.P.N.Singh and Rs.1,00,000/- from Mr. Syed Aijaz Alam. and Mr. A.P.N. Singh, a notice under Section 133(6) of the Act,dated 10.10.2006 was issued to all the parties appearing in thebalance sheet. There was no effective response to the aforesaidnotice and hence the assessee was asked to produce the partiesfor examination. The Assessing Officer after examining theentire records and also the evidence proffered by the assesseemade an addition of Rs.9,00,000/- being the alleged unsecuredloan; Rs.5,00,000/- from Ms. Gunmala Devi; Rs.3,00,000/- fromMr. A.P.N.Singh and Rs.1,00,000/- from Mr. Syed Aijaz Alam. 5. Learned Senior Counsel for the assessee Shri AjayKumar Rastogi from the records pointed out that there wassufficient evidence before the Assessing Officer, which shouldhave restrained him from making the additions. Ms. GunmalaDevi though not appeared in person; from her account statement,it is evident that the unsecured loan of Rs.5,00,000/- was fromthe said person to the assessee. The account books of both theothers were also produced and they had sufficient explanationfor the source of income. When the parties from whom theunsecured loans were produced and they affirmed the loans asalso substantiated it by the transactions carried out through abank; there is no scope for an addition. The learned SeniorCounsel relied on a number of decisions of different Division Benches of this Court in Saraogi Credit Corporation v.Commissioner of Income Tax, (1976) 103 ITR 344 (Pat);Additional Commissioner of Income Tax v. Bahri BrothersPvt. Ltd, (1985) 154 ITR 244 (Pat); Additional Commissionerof Income Tax, Bihar v. Hanuman Agarwal, (1985) 151 ITR150 (Pat); of the Gujarat High Court in Deputy Commissionerof Income Tax v. Rohini Builders, (2002) 256 ITR 360 (Guj);of the Gauhati High Court in Nemichand Kothari v.Commissioner of Income Tax, (2003) 264 ITR 254 (Gauhati);of the Jharkhand High Court in Prayag Tendu LeavesProcessing Co. v. Commissioner of Income Tax, (2018) 400ITR 120 (Jhar) as also the decision of the Hon’ble SupremeCourt in Commissioner of Income Tax v. Chunni Lal, (1995)211 ITR 11 (ST) SC. 6. Learned Senior Standing Counsel appearing for theRevenue Smt. Archana Shahi opposed the appeal and placedbefore us the judgment of the Hon’ble Supreme Court inPrincipal Commissioner of Income Tax (Central)-1 v. NRAIron & Steel Pvt. Ltd. (2019) 412 ITR 161: (2019) 15 SCC 529.The essential ingredients for proving the unsecured loans, in theinstant case, were not available according to the Revenue andheavy reliance was placed on the decision of the Hon’ble Supreme Court in Kale Khan Mohammad Hanif v. CIT, (1963)50 ITR 1 (SC) to rubbish the contention raised by the assesseeand uphold the additions made by the Assessing Officer. 7. In the context of the binding precedents of theHon’ble Supreme Court, we respectfully notice the decisioncited on behalf of the Revenue. In Kale Khan MohammadHanif (supra), it was declared that the onus of proving thesource of a sum of money found to have been received by anassessee, is on the assessee. Once the assessee has submitted thedocuments relating to the identity of the creditor with his credit-worthiness and the genuineness of transaction, the AssessingOfficer must conduct an enquiry and the addition can be made ifthe assessee is not able to provide a suitable explanation of thenature and source. It was categorically held that there is nofurther burden on the Revenue to show that the income is fromany particular source and if the source has not been establishedby the assessee, it could be added on to determine the taxableincome. 8. NRA Iron & Steel Pvt. Ltd. (supra) also held thatthe assessee is expected to establish to the satisfaction of theAssessing Officer: (i) proof of the identity of the creditor; (ii)capacity of the creditor to advance money; and (iii) genuineness 8. NRA Iron & Steel Pvt. Ltd. (supra) also held thatthe assessee is expected to establish to the satisfaction of theAssessing Officer: (i) proof of the identity of the creditor; (ii)capacity of the creditor to advance money; and (iii) genuineness of the transactions. Hence, merely by providing the identity ofthe investors, the onus of the assessee to prove the loan is notdischarged. The capacity of the creditor to make the loan, i.e: hiscredit-worthiness, has to be proved along with the genuinenessof the transaction. We also think it appropriate to extracthereunder the relevant portion of the decision in CIT v. P.Mohankala, (2007) 291 ITR 278: (2007) 6 SCC 21,which has been extracted in the cited decision :- “A bare reading of Section 68 of the Income- tax Act,1961, suggests that (i) there has to be credit of amountsin the books maintained by the assessee; (ii) such credithas to be a sum of money during the previous year; and(iii) either (a) the assessee offers no explanation aboutthe nature and source of such credits found in the booksor (b) the explanation offered by the assessee, in theopinion of the assessing officer, is not satisfactory. It isonly then that the sum so credited may be charged toincome tax as the income of the assessee of that previousyear. T he expression “the assessee offers noexplanation” means the assessee offers no proper,reasonable and acceptable explanation as regards thesums found credited in the books maintained by theassessee.… The burden is on the assessee to take the plea that,even if the explanation is not acceptable, the materialand attending circumstances available on record do notjustify the sum found credited in the books being treatedas a receipt of income nature. (emphasis supplied)” 9. It is with these principles in mind, the specific facts of the instant appeal have to be examined to answer the questions of law raised. 10. The loan from Ms. Gunmala Devi, as has beenasserted by the assessee, was Rs.5,00,000/-. It was also seenfrom the passbook produced of the said person that a chequewas issued in the name of the assessee-firm. The creditor wasnot produced since she was said to be a 72 years old person andhence infirm and unable to present herself before the AssessingOfficer. However, there was absolutely nothing produced toprove that the said creditor had the capacity to make a loan ofRs.5,00,000/-. It is also pertinent that the assessee furnished acopy of the creditor’s return of income and balance sheet for theassessment year 2005-06; which was contrary to that obtainedfrom the Assessing Officer of the said creditor. The balancesheet for the relevant year of the creditor, procured from herAssessing Officer did not reflect the loan of Rs.5,00,000/-. Theassessee was asked to proffer explanation as to the source of thecredit entry, in response to which a cash flow statement wasfiled by the alleged representatives of the creditor, but withoutany vakalatnama or authorisation. The cash flow statement filedwithout due authorization and the confirmation regardinggenuineness of transaction was found to be lacking incredibility. But for the production of a passbook which also was not authenticated, there is no reliable evidence produced for theunsecured loan of Rs.5,00,000/-. The assessee also does notproduce the firm’s passbook through which the loan wasreceived; especially the loan being an amount of Rs.5,00,000/-.We find that none of the ingredients, neither the identity, nor thecredit-worthiness of the alleged creditor and not at all thegenuineness of the transaction was proved by the assessee. not authenticated, there is no reliable evidence produced for theunsecured loan of Rs.5,00,000/-. The assessee also does notproduce the firm’s passbook through which the loan wasreceived; especially the loan being an amount of Rs.5,00,000/-.We find that none of the ingredients, neither the identity, nor thecredit-worthiness of the alleged creditor and not at all thegenuineness of the transaction was proved by the assessee. 11. As far as Mr. A. P. N. Singh is concerned, the loanreceived was an amount of Rs.3,00,000/- and the notice issuedunder Section 133(6) to the creditor was not complied with. Onthe assessee being informed of the non-compliance, a return ofincome and bank statement of the creditor was producedwherein there was a credit entry of Rs.3,00,000/-, immediatelypreceding the withdrawal of the loan. Mr. A. P. N. Singh alsoappeared before the Assessing Officer and submitted that thedeposit was out of a sale consideration received, on sale of landat Muzaffarpur. The creditor had no answer when he wasconfronted with the fact that the sale transaction is not reflectedin his return of income, submitted by the assessee herein, whichmerely reflected a rental income of Rs.2.71 lakhs. The return ofincome also did not have the balance sheet to substantiate hiscredit-worthiness. Several opportunities were given to bring forth evidence, establishing the sale of land or the credit-worthiness otherwise, so as to establish a nexus to the loangranted to the assessee. A document submitted from theStandard Chartered Bank enclosing copies of deposit slips ofRs.3,00,000/- to Mr. A. P. N. Singh was found to be not relatableto the loan. In the present case also, the creditor’s bankstatement was produced which disclosed a credit of the verysame amount just prior to the alleged loan. The source of suchcredit was not proved before the authority. Hence, though theidentity of the creditor was proved, neither was the credit-worthiness of the creditor nor the genuineness of the transactionestablished. 12. Mr. Syed Aijaz Alam was said to have given aloan of Rs.1,00,000/- to the assessee-firm. The creditor appearedand also contended that the source of the income was arepayment of loan he had given to one Mr. Madan MohanSharma. The bank statement of Mr. Alam was produced whichindicated a credit of Rs.1,00,000/- on 17.07.2004 and thewithdrawal of the very same amount on 26.07.2004. Otherwise,the bank account had frugal transactions with an averagebalance of less than Rs.5,000/-. Mr. Madan Mohan Sharma, whowas alleged to have repaid a loan, was also summoned; who could not appear due to old age, but produced bank statementand return of income. He also had a credit entry of Rs.1,00,000/-immediately preceding the debit entry which denotes the loanrepayment; source of which could not be explained by him. Mr.Alam was also the Accountant of the assessee’s firm, receiving asalary of Rs.3,000/- per month. In the case of Mr. Alam also,though the identity of the creditor is established, proof of sourceof income and the genuineness of the transaction is wanting. 13. We find no reason to interfere with the orders ofthe Tribunal and we find no questions of law arising from theorder. The factual aspects have been dealt with elaborately andconcurrently by the Assessing Officer, the first AppellateAuthority and the Tribunal. There is no perversity on theanalysis of evidence produced and the same is also not incontravention of the binding precedents. In fact, the bindingprecedents support the order of the Tribunal affirming those ofthe lower authorities. In the context of our answering the firstquestion against the assessee and in favour of the Revenue, wefeel no compulsion to answer the second question. The secondquestion is on the allowance of interest paid on the unsecuredloans; which does not arise when the unsecured loans standdisproved. 14. The Miscellaneous Appeal stands dismissed,leaving the parties to suffer their costs.