1997 (5) TMI 100 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition of Rs. 1,25,000 as cash credit under section 68 of the Income-tax Act.
2. Burden of proof on the assessee to explain the cash credits.
3. Examination of the genuineness of the cash credits and the sources of income of the creditors.
4. Whether the matter should be remanded to the Assessing Officer for further enquiry.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of Rs. 1,25,000 as Cash Credit Under Section 68 of the Act:

The departmental appeal challenged the CIT(A)'s order deleting the addition of Rs. 1,25,000 as cash credit under section 68. The Assessing Officer (A.O.) had observed that the assessee furnished confirmations of all creditors, who were being assessed to income-tax at Calcutta. However, the A.O. found that the deposits were unaccounted money of the partners. The creditors had a common address at 10, Ezra Street, Calcutta, which was the office address of the Chartered Accountant of the group. The A.O. presumed that the gifts and commission income were not verifiable and were shown for capital formation only. He treated the credits as unexplained and made an addition of Rs. 1,25,000 under section 68.

2. Burden of Proof on the Assessee to Explain the Cash Credits:

The CIT(A) found that the assessee had furnished adequate evidence regarding the genuineness of the cash credits, which were rejected merely on presumption. The CIT(A) noted that the first return and assessments of the loan creditors were completed long before the accounting year under consideration. The CIT(A) accepted the explanation regarding the source of deposits and deleted the addition of Rs. 1,25,000. The Departmental Representative (D.R.) argued that the burden of proof on the assessee was higher because the creditors were relatives of the partners. However, the D.R. admitted that the assessee was not confronted with the doubts and suspicions of the A.O.

3. Examination of the Genuineness of the Cash Credits and the Sources of Income of the Creditors:

The Tribunal considered that all creditors were related to the partners of the firm, and the burden of proof extended to proving the nature and source of entries. Confirmatory letters were filed from all creditors, and they were assessed to income-tax. The CIT(A) verified that the assessments were completed under section 143(3) and not summarily under section 143(1). The Tribunal distinguished the facts from the case of Indian Art Emporium, where the returns had been filed but the assessments had not yet been made. The Tribunal found that the A.O. proceeded on conjectures and surmises only without verifying doubts by examining the creditors or looking at their assessment records.

4. Whether the Matter Should be Remanded to the Assessing Officer for Further Enquiry:

The Judicial Member disagreed with the Accountant Member, stating that the A.O. failed to conduct valid and proper enquiry regarding the loan transactions. The Judicial Member emphasized that the A.O. should have investigated how minors and ladies filed income-tax returns at Calcutta while being permanent residents of Gaya. The Judicial Member found that mere filing of returns and confirmation letters did not establish the genuineness of loans. He suggested remanding the case to the A.O. for thorough enquiry and reframing the assessment.

Third Member Decision:

The Third Member agreed with the Accountant Member, holding that the assessee had discharged the burden of proof under section 68. The Third Member noted that the minors were assessed at Calcutta from assessment year 1981-82 onwards, and there was no motive found for filing returns at Calcutta. The Third Member found that the A.O. did not find any dearth of evidence or insufficiency of material. The Third Member concluded that the evidence produced was sufficient to establish the genuineness of the cash credits, and the burden shifted to the revenue to prove otherwise. The Third Member held that the remand order sought by the Judicial Member was unwarranted and opposed to law.

Conclusion:

The Tribunal, by majority view, held that the assessee had discharged the burden of proof under section 68, and the CIT(A) rightly deleted the addition of Rs. 1,25,000. The Departmental appeal was dismissed, and the Cross Objection supporting the CIT(A)'s order was allowed.