1990 (6) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Cash credits of Rs. 48,000 treated as income from other sources.
2. Creditworthiness and genuineness of transactions involving Smt. Bilkishbai and Smt. Jubedabai.
3. Creditworthiness and genuineness of the transaction involving Smt. Hussainabai.

Issue-wise Detailed Analysis:

1. Cash Credits of Rs. 48,000 Treated as Income from Other Sources:
The Income Tax Officer (ITO) treated cash credits of Rs. 48,000 in the names of three persons as income from other sources for the assessment year 1981-82. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed this addition. The assessee, therefore, filed a second appeal.

2. Creditworthiness and Genuineness of Transactions Involving Smt. Bilkishbai and Smt. Jubedabai:
The assessee, Shri Ali Hussain, was related to the cash creditors, Smt. Bilkishbai and Smt. Jubedabai. The assessee lent Rs. 20,000 to each of these two ladies, which they repaid on 7th Nov., 1980. The ITO questioned the source of the Rs. 20,000 each lady used to repay the assessee. The assessee explained that the husbands of these ladies had business ventures in Kuwait and maintained Non-resident (External) Accounts with the Bank of Baroda, from which the funds were withdrawn. The ITO and CIT(A) rejected this explanation, doubting the nexus between the withdrawals and the credits, as well as the creditworthiness of the ladies.

3. Creditworthiness and Genuineness of the Transaction Involving Smt. Hussainabai:
The ITO also questioned the credit of Rs. 5,000 in the name of Smt. Hussainabai, which was repaid to the assessee on 7th April, 1980. The assessee explained that Smt. Hussainabai's husband was a partner in M/s Ibrahim Kala Bhai, and the Rs. 5,000 was given out of her capital. The ITO was not satisfied with this explanation and proposed an addition of Rs. 48,000, which was approved by the Inspecting Assistant Commissioner (IAC).

Judgment Analysis:

On the Issue of Cash Credits:
The Tribunal noted that the tax authorities misapprehended the credits as cash credits under Section 68 of the Income Tax Act, 1961. The Tribunal emphasized that Section 68 applies to sums credited in the books of an assessee that are capable of being treated as capital or income. In this case, the assessee lent Rs. 40,000 and received the same amount back, which does not constitute a cash credit. The Tribunal concluded that the assessee could not be called upon to explain the creditworthiness of the ladies in this context.

On Creditworthiness and Genuineness of Transactions Involving Smt. Bilkishbai and Smt. Jubedabai:
The Tribunal found that the withdrawals from the Non-resident (External) Accounts sufficiently explained the creditworthiness of Smt. Bilkishbai and Smt. Jubedabai. The tax authorities had not doubted the identity of the ladies or the existence of the NR(E) accounts. The Tribunal held that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the transactions. The Tribunal noted that the tax authorities' suspicion that the withdrawals were spent otherwise was not supported by sufficient evidence.

On Creditworthiness and Genuineness of the Transaction Involving Smt. Hussainabai:
The Tribunal found that the ITO had distorted the explanation provided by the assessee. The explanation was that the Rs. 5,000 was given out of Smt. Hussainabai's capital, not withdrawn from her husband's firm. The Tribunal observed that the IAC and CIT(A) had erred in their interpretation. Although Smt. Hussainabai was not produced for cross-examination due to illness, the Tribunal found that the assessee should not have been condemned without considering the possibility of examining her on commission.

Conclusion:
The Tribunal deleted the addition of Rs. 48,000 and allowed the appeal, concluding that the assessee had established the genuineness and creditworthiness of the transactions.