9911796707
TMI Blog1991 (10) TMI 87X X X X Extracts X X X X X X X X Extracts X X X X ..... otice under section 139(2) of the Income-tax Act, 1961, the assessee filed his return of income for the assessment year 1987-88 showing a gross total income of Rs. 1,69,208. Subsequently, by communication dated 14-2-1990, the total income was revised to Rs. 1,85,690 rectifying an inadvertent omission in the quantum of interest originally returned under other sources, The assessee was asked to file a total statement of wealth as on 31-3-1986 and accordingly a statement was filed on 19-2-1990. The wealth statement showed a cash balance of Rs. 5,17,600. In the books of account of the assessee the Income-tax Officer found credits in his current account with Manacaud Enterprises totalling Rs. 5,00,000. The assessee explained that the credits in his current account in a sum of Rs. 5,00,000 had come out of the cash balance of Rs. 5,17,600 shown in the wealth-tax statement as on 31-3-1986. It was also contended that a sum of Rs. 10,36,040 was declared as income of the assessee on 8-9-1986 and was assessed to tax and the cash balance had come out of such income which in turn was brought into the books as credit in his current account with Manacaud Enterprises. There were credits in the name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the exact amount that was given to T.P. George. George was also not examined at the time of the search, but the accounts of Geo Motors clearly showed that George had received only Rs. 5,00,000 from the assessee and not Rs. 10,00,000 as alleged by the revenue. The receipt is witnessed by one K. Sukumaran Nair of Vanchiyoor, Trivandrum. He has stated that the sum of Rs. 10,00,000 was paid to T.P. George of Geo Motors on the strength of the guarantee of Krishnan Nair and he stood as a witness because of his close relationship with the advocate. Sri C.K. Nair and Sri Shivarajan assailed this statement on the ground that Sukumaran Nair has signed as a witness only for the receipt given by Krishnan Nair, the advocate, for a sum of Rs. 10,00,000 and it is not even the case of the department that Krishnan Nair had given or received Rs. 10,00,000 from the assessee. Therefore, the statement of the witness that the amount was paid to T.P. George of Goo Motors in a sum of Rs. 10,00,000 should not be accepted because normally a witness can only attest the signature of the person executing a document and he is not supposed to know about the contents of the document. Even if it is assumed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount in the books of Manacaud Enterprises. The revenue has accepted the interest income returned by the assessee on all its advances even though such advances have not been recorded in the books and, therefore, it is rather unreasonable to suggest that the assessee should identify the parties with whom the sum of Rs. 5,00,000 was lying from time to time. Thus, the credit appearing in the current account of the assessee in the books of Manacaud Enterprises between 18-9-1986 and 24-9-1986 should be held to have come out of the circulating capital of Rs. 5,00,000, which was assessed in the earlier assessment year. The revenue is clinging to the fact that such an inference cannot be made because the assessee had at the time of search admitted having given Rs. 10,00,000 to T.P. George. There was no such clear admission. Further, such admission is not corroborated by evidence on record. Even assuming without admitting that the assessee had made a clear admission that he had given Rs. 10,00,000 to T.P. George of Geo Motors, inasmuch as, T.P. George had only recorded a sum of Rs. 5,00,000 in his account, though according to the revenue he had received Rs. 10,00,000 from the assessee it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the appearance of credits in his current account with Manacaud Enterprises. This has not been established. Therefore, the addition was justified. 6. Having thus heard rival submissions and perused the materials on record, we delete the addition of Rs. 5,00,000. The Income-tax Officer has made an addition of Rs. 5,00,000 found in the current account of the appellant with M/s. Manacaud Enterprises as follows :-- 18-9-1986 Parur Central Bank Ltd. Rs. 3,00,000 23-9-1986 -do- Rs. 1,00,000 24-9-1986 -do- Rs. 1,00,000 It is the defence of the assessee that the above sum of Rs. 5,00,000 had come out of his assessed income of Rs. 10,00,000 for the assessment year 1986-87, which was reflected in the cash balance of Rs. 5,00,000 in his wealth-tax statement as on 31-3-1986. It is the case of the revenue that Rs. 10,00,000 was added to the income of the assessee on the footing that the assessee had made an advance of Rs. 10,00,000 to one T.P. George as evidenced by the guarantee given by an advocate known as G. Krishnan Nair. The revenue relies on the statement of Krishnan Nair dated 22-8-1986, the statement of Sri K. Sukumaran Nair dated 22-8-1986 and the alleged admission made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned on these two documents, though in the examination the receipt extracted above was described as " pronote " and the learned advocate did not care to correct the misdescription. The following questions and answers (page 15 of paper Book-II) are relevant : Q.3. " I am showing you a pronote given by you for Ten Lakhs dated 7-1-1986 of IOB, Trivandrum. Have you received this amount from Sri B. Rajasekharan Nair ? A.3. They were executed by me by way of guarantee to help Sri T.P. George of Geo Motors, Ernakulam, in order to help him to tide over the financial circumstances he was facing at that time. Sri Rajasekharan insisted for such guarantee being furnished by me personally. I, being Sri T.P. George's advocate for quite a long time and even at present, Sri T.P. George is having decrees for more than 50 to 60 lakhs being routed through me. I agreed for the same. Q.4. Has Mr. George of Geo Motors furnished any other security ? A.4. At that time not to my knowledge. Q.5. What is the interest charged by Sri B. Rajasekharan Nair ? A.5. 24%. Q.6. When was this amount given to Sri George T.P. ? A.6. This amount was given one or two months prior to the date of cheque or ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in reply has stated that " what Mr. Krishnan Nair stated is correct " the obvious inference is that the guarantee in a sum of Rs. 10,00,000 was given by Krishnan Nair on the insistence of the assessee It cannot be extended to mean that the assessee had admitted before the authorities that he had paid Rs. 10,00,000 to T.P. George against the guarantee given by Krishnan Nair. 8. Another statement relied on by the revenue is that of K. Sukumaran Nair, whose name is borne as a witness on the receipt issued by Krishnan Nair. The statement is found in pages 12 and 13 of the paper book. The following questions and the answers thereto are relevant : Q.6. Have you stood as a witness for the loan of Rs. 10 lakhs availed by Sri T.P. George of Geo Motors, Ernakulam, from Sri Rajasekharan Nair. Sri G. Krishnan Nair stood as a surety for this transaction. I am showing you the pronote signed by Sri G. Krishnan Nair, advocate with you as the witness. Do you own your name and signature ? A.6. Yes, I own my name and signature. Q.7. Do you know if the loan of Rs. 10 lakhs has been paid to Sri T.P. George, Geo Motors, Ernakulam ? A.7. Yes, I know that the amount of Rupees Ten lakhs has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " This stand of the assessee has been accepted by the revenue in the assessment order dated 20-3-1987 for the assessment year 1986-87, as will be evident from the following passage : " A search under section 132 of the Income-tax Act, 1961 was conducted in this case on 22-8-1986. In addition to the books of account relating to M/s. Manacaud Enterprises, one pronote from Sri G. Krishnan Nair, Advocate and notary was seized. A Fixed Deposit receipt for Rs. 1 lakh and a cheque for Rs. 2 lakhs issued by Kerala Travels were also seized. Sri Krishnan Nair in his sworn statement stated that he was standing as guarantee for a loan given by the assessee to Sri T.P. George of M/s. Geo Motors, Cochin. Sri K. Sukumaran Nair admitted in his sworn statement that he witnessed the above transaction. The assessee and his authorised representative had discussion with the Commissioner of Income-tax, Trivandrum after search. During the discussion it was submitted by the assessee that the actual loan was for Rs. 5 lakhs only and as a business practice double the actual loan is stated in the pronote. After detailed discussion, the assessee agreed to offer a sum of Rs. 10 lakhs for assessment under o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the premises of the assessee pointing out to the existence of money lending business being carried on outside the books of account. Thus, this is not a stray case of a person having to explain how he had kept his cash balance with him over a period of time. Admittedly, this is a case of a money-lender making advances now and then, all outside the books and, therefore, his explanation that the amount of Rs. 5,00,000 was in circulation before being brought as credits in the books of Manacaud Enterprises would appear to be reasonable. From the statements recorded at the time of search it is seen that the assessee is in the habit of lending money not only for long periods but also even for a duration of few hours extending not more than a day. The following questions and answers thereto are relevant :-- Q. Please tell me the names and addresses of the parties to whom you have lent money ? A. Money has been lent to persons. I do not remember the parties. No list of borrowers has been maintained. Q. What was the manner in which you were lending money ? A. A party who requires upto Rs 10,000 will be given Rs. 9,000 on condition that Rs. 10,000 should be repaid at Rs. 100 in 100 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of the matter, he made the addition under section 68 of the Income-tax Act, 1961. The additions were sustained by the first appellate authority. The assessee is aggrieved. 13. We have heard rival submissions at great length. We proceed to discuss each of the impugned credits in the following paragraph : before so doing, we would first like to deal with the rival submissions made before us on the modus operandi adopted in almost all the loan transactions. Sri Abraham vehemently contented that the assessee was following certain set pattern in all his dealings with the alleged creditors, viz., depositing the money into their bank accounts for subsequent or immediate withdrawal by cheques in favour of the assessee. Sometimes, the pay-in-slips are filled in by the employee of the assessee. This peculiar pattern in the transactions should be borne in mind while testing the genuineness of the transactions. Sri C.K. Nair submitted that the assessee had recourse to this arrangement in view of section 269SS read with section 276DD of the Income-tax Act, 1961, which enables the Income-tax Officer to prosecute a person if the borrowing in excess of Rs. 10,000 or the repayment thereof is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The source of the advance was stated to be the sale proceeds of property. Enquiries were made by the Assessing Officer on 6-3-1990. In his letter dated 6-3-1990 addressed to the Assessing Officer, Sri Jayaraman had stated that he was not having any source to make such a large deposit and the amount was given by Rajasekharan Nair and that he was not aware of the contents of the earlier letter dated 19-1-1990. However, in the sworn statement recorded on 26-3-1990, Jayaraman had explained that out of Rs. 50,000, Rs. 39,000 belonged to his wife and the balance only belonged to him. His wife had mortgaged her agricultural lands in support of which he had produced the mortgage deeds. The mortgages were made in 1985 but the amount was kept in cash anticipating investment in agricultural lands. That did not materialise and when Rajasekharan Nair needed funds the same was given. He himself had obtained a loan of Rs. 6,000 from his P.F. Account, though for purpose of taking the loan he might have mentioned medical expenses as the reason. He had stated that Rs. 5,000 had come from the pledge of jewels, but the date of pledging was not known. Thus, he explained that the sum of Rs. 50,000 was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the mortgages of lands by his wife and copies of the deeds were produced before the Income-tax Officer. He had also explained that the proceeds of mortgages were kept by his wife anticipating investment in lands and when it did not fructify it was utilised for making the advance to the assessee. The total of the mortgages amounted to Rs. 39,000, out of which Rs. 9,000 was adjusted towards an earlier loan. Therefore, the net proceeds of mortgages came to Rs. 30,000. Thus, as far as Rs. 30,000 is concerned, the creditor has explained the source adducing proof. Regarding the balance amount, he had explained that he had taken a loan of Rs. 6,000 from the P.F. Account and had pledged some jewellery for Rs. 5,000 etc., for which he had not furnished any supporting materials. So we come to the conclusion that out of Rs. 50,000 standing in the name of Jayaraman he was able to explain with proof the source to the extent of Rs. 30,000. All the same, he has owned the transaction. Sri Nair's contention in this regard is that once the identity of the creditor is established and the creditor owned the transaction, no addition can be made in the hands of the assessee merely because the credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same day Ramamoorthy had withdrawn Rs. 51,920 from his bank account through a cash cheque and the amount was collected by one K. Sasikumaran Nair. Sasikumaran Nair was an employee of the appellant. Therefore, on a consideration of the above details, the Income-tax Officer concluded that the amounts standing in the name of Ramamoorthy really represented the income of the appellant. The CIT(Appeals) sustained the addition concurring with the findings of the Income-tax Officer. The assessee is on second appeal. 17. We have carefully perused the statements given by Ramamoorthy. That he was able to borrow from different persons at different points of time, that he had an ancestral property which was subsequently sold out and that he was in business (though the said business was stated to be suffering loss for some years) are all on record. He has business dealings with Malayala Monorama, Mathrubumi, Indian Express and Kerala Kaumudi. He derived income from the newspapers/journals for advertisements canvassed by him. He had stated that he met his business liabilities from the collections he made from his clientele and also from the sale proceeds of the ancestral property. On occasions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heque issued by Balagurunathan Chit Fund. The chit fund proprietor or anyone in its behalf was not examined. No nexus is established between the appellant and the chit fund. Thus there is no justification for treating the sum of Rs. 44,000 as income of the appellant. In the result, the addition of Rs. 1,94,000 is deleted. 19. Credit of Rs. 35,000 in the name of Sadanandan : In his confirmation letter dated 12-1-1990 he stated that he had given Rs. 35,000 on 8-8-1986 by cheque No. 539216 on State Bank of Travancore from out of his bank balances. But on 1-3-1990 in his letter to the Investigation Circle, he denied having lent any money to the assessee. However, on 27-3-1990 when he was summoned for examination, he admitted that he was conducting Hotel Savoy and he had also an account with Dena Bank, Trivandrum Branch and that he paid the amount from out of his income from property and business. He had also stated that the amount was returned to him with interest. In the course of examination he submitted that the amount of Rs. 35,000 given to the appellant was from out of his own money. The Income-tax Officer had examined the repayment in this case. He found that the amount was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of Sadanandan, later withdrew it in the guise of a loan and still later returned it by means of a cheque to be eventually withdrawn for retrieving the amount. Suspicion however great cannot take the place of proof. In the result, the addition is deleted. 21. Rs. 1,20,000 in the name of Sasidharan proprietor Chellam Petroleum Company : In his letter dated 15-12-1989, Sasidharan had admitted having given Rs. 1,20,000 to the assessee from out of his business funds as follows : Cheque No. 527485 dated 12-8-1986 Rs. 40,000 Cheque No. 527486 dated 20-8-1986 Rs. 40,000 Cheque No. 527489 dated 2-9-1986 Rs. 40,000 ------------------------ Rs. 1,20,000 ------------------------ However, in his deposition on 1-3-1990 before the Income-tax Officer he resiled from his earlier statement stating that Rajasekharan Nair had put the funds in his bank account without his knowledge. To a particular question as to why the above sums are found recorded in his books of account, he replied that as the amount was found credited in his bank account, he had to record the same in his account books. Still later, the creditor was examined by the Income-tax Officer and cross-examined by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n his books. This version of the creditor cannot be believed. If the assessee wanted to put his own funds in another's account and draw money therefrom in the guise of loans it would have been done with the connivance and collusion of the creditor. In other words, a prior knowledge on the part of the creditor and his concurrence for the transaction must be there before the transaction is put through. But, here the creditor is stating that money was put in his bank account by the assessee without his knowledge - one wonders whether any person, just for the sake of some tax advantage, will risk his capital itself by depositing it in another's account without the prior consent or the knowledge of that other person. Assuming that this was done without his knowledge, and when it came to his knowledge, the normal conduct of any reasonable person would be to record the name of the person from whom the money has come. In other words, if the version of the creditor as found in his statement dated 1-3-1990 is to be believed his books must have shown the credit in favour of the assessee and not in favour of Babu, Prasad and Chandran, For these reasons, we dismiss the statement of the creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es : Dawood is no more. It was claimed by the assessee that the amount advanced by Dawood was subsequently returned when he was alive. Because there was no information before the Income-tax Officer as to whether the creditor was assessed to income-tax and as to how the amount was repaid to him, he made the addition of Rs. 25,000 under section 68 of the IT Act. For the same reasons, the addition was sustained by the first appellate authority. 26. Sri Nair submitted that as the creditor expired the assessee could not produce him. The loan was received from Dawood when he was alive by cheque dated 9-9-1986 and it was repaid on 11-2-1988 by cheque No. 038568. He was also an income-tax assessee. In the circumstances Sri Nair pleaded that the credit should be accepted as genuine. 27. Sri Abraham, the learned senior departmental representative objected to the plea of Sri Nair. 28. Having considered rival submissions, we uphold the addition of Rs. 25,000. The details now furnished before us were not before the authorities and in the circumstances the addition is justified. 29. Rs. 75,100 credit in the name of Uma Thanu Pillai : In the confirmation letter the creditor has claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o disputes and differences I did not invest the amount anywhere and kept it in personal possession. Q.9. Why did you open a bank account in 1986 September ? A.9. Since Shri Rajasekharan Nair wanted the amount to be paid by cheque, I opened a bank account and issued the cheque. " From the above it will be clear that the creditor was not asked to produce the sale deed. No material is placed before us by the revenue to show that such a specific request was made to the creditor. No doubt, his bank account showed that moneys were deposited on 8-8-1986 in a sum of Rs. 75,105 and Rs. 75,100 was withdrawn the next day leaving a balance of Rs. 5 in the bank account. The opening of the account with the bank and the deposits made therein are explained by the creditor as due to the insistence of the appellant to have the amount paid by cheque. The reason for not depositing the amount immediately after the sale of the property is stated to be due to the rival claims among his children and that he wanted to keep the money for himself. Being an old man at the advanced age of 67 the explanation for keeping such a large sum with him due to family problems can be considered as plausible. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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