D.b.income Tax Appeal v. I.t.o

D.B.INCOME TAX APPEAL NO. 32/2003(Aravali Trading Co. Merta City Vs. I.T.O) DATE OF JUDGMENT: 25.1.2007 HON'BLE MR. RAJESH BALIA,J.HON'BLE MR. CHATRA RAM JAT,J. Mr.Gunjan Pathak, for the appellant.Mr. Sangeet Lodha} Mr. Viveek Shrimali for the respondent. This appeal is filed against the order of theIncome Appellate Tribunal Jodhpur Bench, Jodhpur dated8.11.02. The following substantial questions of law wereframed while admitting the appeal. 1.Whether in the facts and circumstances of thecase; once the assessee has established theidentity of the creditors in whose name cashcredit is found in the books of accounts namelySmt. Ramkanwari Devi, Smt. Santosh Sharma,Shri Dinesh Sharma and Atul Kumar Patel and thesaid creditors have admitted having advanced theaforesaid sum to the appellant assessee and thesaid creditors have also been assessed toincome tax; the Income Tax Tribunal was justifiedin holding that the assessee has failed todischarge his onus under Section 68 of theIncome Tax Act, 1961? 2.Whether in the facts and circumstances of thecase the rejection of explanation furnished by theappellant, explaining the cash credits of personsnamed in question No.1, for the reasons areperverse by ignoring the objective materialavailable to the assessee? 3. Whether in the facts and circumstances ofthe case the editions made by the AssessingOfficer, on account of the aforesaid cash creditswhile relying upon the statement of personsexamined at the back of appellant and withoutgiving him any opportunity to cross-examinethem and sustained by the Income TaxTribunal, are justified in law?the case the editions made by the AssessingOfficer, on account of the aforesaid cash creditswhile relying upon the statement of personsexamined at the back of appellant and withoutgiving him any opportunity to cross-examinethem and sustained by the Income TaxTribunal, are justified in law? The substratum of the facts appear from the questions. If we go into details which relates to additionsmade in the income returned by the assessee forAssessment Year 1993-94 in respect of cash credits found inthe name of Smt. Ramkanwari Devi, Smt. Santosh Sharma,Sh. Dinesh Sharma & Sh. Atul Kumar Patel totaling Rs.3,15,000/-. the assessee had filed affidavits from all the fourcreditors before the Assessing Officer. In the affidavits thedeponents have owned deposits made by them. All thedepositors are assessed to tax. Thus, existence of depositorsas real persons is not in dispute. Each one has owned tohave deposited the respective sums found in the book of theassessee firm and each one is an assessee are not the facts indispute. Sh. Dinesh Agarwal and Sh. Atul Paliwal wereexamined on being produced before the Assessing Officer inwhich also they have admitted that they advanced amount as per the account stated in the books of the assessee. Smt.Ram Kanwari and Smt. Santosh Sharma could not beproduced by the assessee but as per the findings of theAssessing Officer he has made his own inquires by referringto certain parts of the statement concerning the sourcesfrom where the respective creditors have accquired themoney which they claimed to have deposited with theassessee respectively, and found that the creditors have notbeen able to explain the sources where from each of themhad acquired the amount deposited with the assessee. Onthe failure of the depositor to explain sources of his/herinvestment with assessee, the explanation furnished by theassessee about the deposits received from all the four personswere rejected and in terms of the Section 68 of Income TaxAct of 1961 the amount stated to have been received fromthe aforesaid four persons were added as assessee's incomefrom undisclosed sources. These additions were affirmed successively bythe CIT Appeals and the Tribunal. These additions were affirmed successively bythe CIT Appeals and the Tribunal. It is pointed out by the assessee that even fromthe statement recorded by the two ladies in the absence ofthe assessee at his back are taken into account, Smt. Ramkanwari has stated that main source of her income isannual sale of fodder of Rs. 2.5 lacs to 3 lacs and she hasstated that her accounts are kept by her husband and he onlyknows about all her financial matters and that she is lendingmoney for last four to five years and earning interestthereon. She admitted to have lent Rs. 60,000/- to someMerta Party also, details of which she could not divulgebecause her husband looks after her money matters.However, while alluding the statement of Smt. Ramkanwari,all these matters have not at all been noticed but only thestatement out of context have been noticed where she haspleaded ignorance about the details. The Assessing Officer has clearly ignored thatlady had repeatedly stated that her financial matters arelooked after by her husband. Similarly, in her statement Smt. Santosh Sharmahas stated that she earns income from tuitions but from last2 and 3 years she is not earning from tuitions. She isassessed to tax. She has lent sum of Rs. 1,20,000/- , sheadmitted to have opened the bank account and admits thatwhile money was deposited the assessee had accompaniedfrom the bank and that money was earned by savings from tuitions and commissions. The said money earlier was givento other parties and was deposited in the bank account aftertaking back from those parties . She further stated thatshe also does stitching work. On the occasion of her ownmarriage, she received Rs. 5 to 6 thousand rupees andannually she gets about two to three thousand as gifts fromher parents house. She further accepted that she haddeposited 60,000/- also with M/s Merta Oil Mills(P) Ltd. onwhich she did not get any interest. Her husband Sh. DineshSharma, Manages her affairs and he keeps all details. However, likewise in the case of Ramkanwari,these facts were not noticed by the Assessing Officer butonly truncated portions about the statement of the ladypleading ignorance about details, have only beenconsidered. All the money have been received by theassessee through account payee cheques or account payeepay orders. In other words the existence of each of thedepositors was proved beyond doubt. Each of the depositoraccepted and owned to have deposited the money with the assessee. Money was received through bank. Thus beforeassessee firm received money, it was already with the Bankdeposited by the depositors. Only basis on which theexplanation of assessee has been rejected is that thedepositors have not been able to explain the sources wherefrom the money deposited with the assessee came to thedepositors. This is apart from the fact that the statementsreferred to above have been made by the respectivedepositors is not in dispute. Therefore, central issue arising from the threequestions framed above, is whether it is incumbent uponthe assessee before his explanation can be accepted, toprove the sources of income or to say source where fromthe depositor could have acquired the money or once theassessee establishes the existence of the real person whohad deposited the money in question with the assessee andthose persons owned to have been deposited such moneywith the assessee, assessee's burden does not extend isfurther to establish the source of the depositors from wherethey could have acquired the money. This is apart from the fact that the statementsreferred to above have been made by the respectivedepositors is not in dispute. Therefore, central issue arising from the threequestions framed above, is whether it is incumbent uponthe assessee before his explanation can be accepted, toprove the sources of income or to say source where fromthe depositor could have acquired the money or once theassessee establishes the existence of the real person whohad deposited the money in question with the assessee andthose persons owned to have been deposited such moneywith the assessee, assessee's burden does not extend isfurther to establish the source of the depositors from wherethey could have acquired the money. The answer to us appears to be no more resintegra. Neither the provisions of Section 68 of the I.T. Actnor on general principle, it can be said that once theexistence of persons in whose name credits are found in thebooks of the assessee is proved and such persons own suchcredits with the assessee's still the assessee is to furtherprove the source from which the creditors could haveacquired money to be deposited with him. The fact that the depositors explanation aboutthe sources where-from they acquired the money is notacceptable to the Assessing Officer, it cannot be presumedthat the deposit made by the such creditors is the money ofthe assessee himself. There is no warrant for suchpresumption. In such event if the creditors explanation isfound to be not acceptable about such depositors, theinvestment owned by such persons may be subjected to theproceedings for inclusion of such investment as theirincome from undisclosed sources or if they have been foundBenami, the real owner can be brought to the tax net. But inorder to fasten liability on the assessee by including suchsuch credits as his income from unexplained sources anexus has to be established that the sources of creditors deposit flew from the assessee. In the absence of any suchlink, additions of cash credits found in the books of accountof the assessee cannot be considered to be unexplainedincome of the assessee, where existence of depositors ofsuch credits is established and such deposits/ advance/loanis owned by such existing person. On such proof theassessee's onus is discharged. Some what like question arose in Commissionerof Income-Tax (Central), Calcutta Vs. Daulat RamRawatmull 87 ITR, 349, before Supreme Court. In that casepartner of the assessee-firm, had obtained a fixed depositreceipt of Rs. 5,00,000/- issued by the Central Bank,Jamnagar branch against the like sum tendered at Calcuttabranch.. The said receipt along with letters of guarantee andletter of continuity about over draft facility obtained by thefirm. After the partners' death the fixed deposit receipt of Bwas adjusted by the over draft of the respondent-firm. Thereceipt of fixed deposit of Rs. 5,00,000/- was treated asundisclosed sources because the explanation furnished by Babout the source where from he could have obtained a fixeddeposit of Rs. 5,00,000/- on the date of which the receiptwas found to be false. Addition were made for Rs. 5,00,000/-in the income of the firm. The CIT (Appeals) in appeal had deleted theamount from the assessment but the Tribunal restored theadditions by holding that the explanation furnished by B aboutthe sources where from he obtained receipt of Rs. 5,00,000/-was false. On the reference being made to the High Courtfound the conclusion reached by the Tribunal to be perverseand deleted the additions in the income of the firm. The CIT (Appeals) in appeal had deleted theamount from the assessment but the Tribunal restored theadditions by holding that the explanation furnished by B aboutthe sources where from he obtained receipt of Rs. 5,00,000/-was false. On the reference being made to the High Courtfound the conclusion reached by the Tribunal to be perverseand deleted the additions in the income of the firm. In these circumstances the appeal was beforethe Supreme Court. The High Court found the explanationfurnished by B to be false and to that extent findings of therevenue was held to be justified but yet about the liability ofthe firm to be assessed to such amount on account of thefalsity account of the creditors was not accepted. SupremeCourt referred to the decision of the High Court and foundno cogent reason to take a different view the court said :- “the falsity of the above explanationof the Biswanath, in the opinion of the HighCourt, did not warrant the conclusion flaw orinfirmity in the above reasoning of the High Court.The question which arose for determination inthis case was not whether the amount of Rs.5,00,000/- belonged to Biswanath, but whether itbelonged to the respondent-firm. The fact thatBiswanath has not been able to give asatisfactory explanation regarding the source ofRs. 5,00,000/- would not be decisive even of thematter as to whether Biswanath was or was not the owner of that amount. A person can still beheld to be the owner of a sum of money eventhough the explanation furnished by himregarding the source of that money is found tobe not correct. From the simple fact that theexplanation regarding the source of moneyfurnished by A , in whose name the money islying in deposit, has been found to be false, itwould be a remote and far-fetched conclusion tohold that the money belongs to B. There wouldbe in such a case no direct nexus between thefacts and the conclusion drawn therefrom.” .................. “We also see no cogent ground to take a differentview from that of the High Court that the othercircumstances, namely, the transfer of theamount of Rs. 5,00,000/- from Calcutta toJamnagar for fixed deposit in the name ofBiswanath and the use soon thereafter of the saidfixed deposit receipt as security for the overdraftfacility to the respondent-firm.” The aforesaid principle was applied by this courtin LRs of Late Shri Mangilal Agarwal Vs. AssistantCommissioner of Income Tax, Jodhpur in D.B.Income TaxAppeal No.9/2001 decided on 18.10.2006:- It was a caseabout the primary gold found in possession of A in which heexplained that primary gold found in his possession wasbelonging to certain other persons who had deposited withhim old ornaments for remaking them. The said ornamentswere melted and primary gold was delivered to petitioner byrespective goldsmiths for further processing. The Assessing Officer relying upon Section 69A has made additions ofvalue of such bullion in the income of assessee by rejectinghis explanation by resorting to Section 69 A which reads asunder:- “69A. Where in any financial year the assessee isfound to be the owner of any bullion, jewellery orvaluable articles is not recorded in the books ofaccount, if any, maintained by him for any sourceof income, and the assessee offers noexplanation about the nature and source ofacquisition of the money, bullion, jewellery orother valuable article, or the explanation offeredby him is not, in the opinion of the AssessingOfficer, satisfactory, the money and the value ofthe bullion, jewellery or other valuable article maybe deemed to be the income of the assessee forsuch financial year.” Officer relying upon Section 69A has made additions ofvalue of such bullion in the income of assessee by rejectinghis explanation by resorting to Section 69 A which reads asunder:- “69A. Where in any financial year the assessee isfound to be the owner of any bullion, jewellery orvaluable articles is not recorded in the books ofaccount, if any, maintained by him for any sourceof income, and the assessee offers noexplanation about the nature and source ofacquisition of the money, bullion, jewellery orother valuable article, or the explanation offeredby him is not, in the opinion of the AssessingOfficer, satisfactory, the money and the value ofthe bullion, jewellery or other valuable article maybe deemed to be the income of the assessee forsuch financial year.” Section 69 A in like terms, as under Section 68,permits the Assessing Officer, where assessee's explanationabout the bullion and other valuable articles found inpossession of the assessee is not found satisfactory, toinclude its value in the income of assessee from undisclosedsources in the Assessment Year during the relevant previousyear of which assessee was found in possession of suchbullion of other valuables. The assessee has produced the persons whohad delivered ornaments to him, the goldsmiths who havemelted such ornaments and delivered primary gold so obtained from ornaments to the assessee for furtherprocessing. The assessing officer considered the value ofsuch bullion to be assessee's investments from undisclosedsources and made additions of such value as income of theassessee from undisclosed source of the income of theassessee. The scope or ambit of the assessee's liability andthe burden under Section 69 A to prove source of acquisitionis identical as in the case of Section 68 which relates to thecash credits found in the books of the account of theassessee. Section 69 relates to the assets, investment orBullion or other valuable found to be owned by theassessee. The real question before the authority inMangilal's case was whether the primary gold and the goldornaments found in possession of the assessee on 14.10.87were owned by the assessee. The assessee has explainedthe transactions through which the primary gold and the goldornaments came in his possession when the search of thecustoms took place at his residence and the same wereseized. In support of said explanation, he has produced saidthree persons, who had brought the ornaments to him andhave furnished their affidavits admitting such fact. After findingthat the explanation furnished by thee persons furnished their affidavit admitting the ownership of gold found in possessionof assessee were asked about the sources about acquisitionof said gold by the respective persons asserting him to beowner of gold found in possession of the assessee but theexplanation furnished by each of them was not accepted assatisfactory by the Assessing Officer. On such premisevalue of the primary gold found in possession of the assesseeduring the search of the custom was added in the income ofthe assessee as income from undisclosed sources. This court held by the parity of reasonings whichprevailed in Daulat Ram Rawatmull's case (supra) that it canwell be said that merely because the explanation furnished byShri Bhopal Singh, Om Prakash Gupta and Shri GauriShanker Singhal, about the purpose for which the goldornaments were delivered for making new ornaments and thatthe ornaments were belonging to their family was found to benot acceptable, could not have provided any nexus fordrawing inference therefrom that the primary gold and goldornaments belonged to the assessee. This principle is fully appliable to the presentcase. The fact that the explanation furnished by theaforementioned four creditors about the sources where from This court held by the parity of reasonings whichprevailed in Daulat Ram Rawatmull's case (supra) that it canwell be said that merely because the explanation furnished byShri Bhopal Singh, Om Prakash Gupta and Shri GauriShanker Singhal, about the purpose for which the goldornaments were delivered for making new ornaments and thatthe ornaments were belonging to their family was found to benot acceptable, could not have provided any nexus fordrawing inference therefrom that the primary gold and goldornaments belonged to the assessee. This principle is fully appliable to the presentcase. The fact that the explanation furnished by theaforementioned four creditors about the sources where from they acquired the money was not acceptable by the Revenuecould not provide necessary nexus for drawing inference thatthe amount admitted to be deposited by these four personsbelonged to the assessee. The assessee having dischargedhis burden by proving the existence of the depositors andthe depositors owing their deposits, he was not furtherrequired to prove source of source. Accordingly the Tribunal, and the AssessingOfficer had seriously erred and misdirected themselves inlaw by not correctly appreciating the legal principle aboutnecessity of establishing such nexus once the assessee hasdischarged his onus by proving the existing of the depositorsand the depositors having accepted their deposits with theassessee. Once this onus is discharged the presumptionraised under Section 68 stands rebutted and it becomesburden of Revenue to prove that source of such deposits istraceable to assessee before the same can be treated asundisclosed income of the assessee concerned. In view of the aforesaid discussion, this appealmust succeed. Accordingly, the appeal is allowed. Theorders passed by the Tribunal, the CIT (Appeals) and theAssessing Officer are set aside to the extent additions of Rs. ARTI 3,15,000/- in respect of the aforesaid cash credit found in thebooks of the account of assessee were added in the incomeof the assessee. The additions made in the income of theassessee of the aforesaid account are directed to be deletedand demand notice to be accordingly modified. There shall be no order as to costs. (CHATRA RAM JAT),J. (RAJESH BALIA),J.