9911796707
TMI Blog2004 (6) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... is or was any evidence or legal warrant to support the conclusion that there was any cash credits introduced in the business of the assessee between 5-12-1984 to 29-1-1985. (ii) Alternatively whether there was any evidence to support the allegation of the Income-tax Department that the assessee failed to explain the entries in the Register found and impounded at the time of survey in the face of books of account, which have been audited by the Chartered Accountant and which have been accepted as correct when original assessment was framed under section 143(3) of the Act. (iii) Again alternatively, whether it could be said that the assessee failed to explain the entries in the Stock Arrival Register and/or the entries in the said Register could not be co-related with the books of account. (iv) Whether there was any evidence to support the conclusion that the expenditure alleged to have had been incurred between 5th December, 1984 to 29th January, 1985 i.e., for 55 days was liable to be assessed under section 68 and/or under section 69B and or section 69C of the Act. 3. At the outset, Shri G.C. Sharma, Sr. Advocate, submitted that though the addition of Rs. 4,38,284 was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e nature and controversy, the accounting period involved, the constitution of the firm and that the Forests had come to be nationalised in the J. K. State in 1984, it is considered expedient to notice the relevant portion of the first para of the original assessment order:- "The assessee is a forest lessee. It has maintained the accounts which are closed and duly audited by the Chartered Accountant. The accounts are supported by balance sheet and profit and loss account. After discussion total income of the assessee is computed as overleaf." 8. We need not go to minor additions, which were in Charity Account amounting to Rs. 1,500, 1/4th of the car expenses and related depreciation, and some other petty expenses disallowances. In other words books after scrutiny were found in to be in order and this aspect is important because the reassessment no entries are found to be wrong in the books which formed the basis of fresh assessment also. 9. On 12-10-1988, there was a Survey Operation under section 133 A of the Act on the business premises and one Register marked as "Arrival of Timber for 1984-85 Accounting year" hereinafter referred as the Register, was taken away by the Surve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 7-12-1988. Additionally the Department has again annexed copies of the said two partners' statements at pages 41 onwards statement of Hazi Nazir Hussain dated21-10-1988(pages 47 to 48), statement of Shri Baldev Raj of25-11-1988(pages 43 to 46) and statement of Hazi Nazir Hussain dated7-12-1988(pages 41 to 42). Page 50 is copy of the statement of Shri Baldev Raj taken on12-10-1988, which is the date of Survey. Page 51 is a photocopy of authorisation under section 133(1)(b) of the Act issued by the Competent Authority. 12. For the assessee, paper book was submitted vide covering note dated18-12-1991consisting of 76 pages. In addition, the assessee filed copies of the assessment orders for the earlier and the later years and particularly our attention was invited to the order for the assessment year 1986-87 to show that books of account came to be accepted though the date of assessment for 1986-87 is 22/27-2-1989 when the re-assessment under consideration was framed on 7-2-1989, and the Register contained entries for a substantial part of the accounting year relevant for the assessment year 1987-88. There is a substantial duplication in the parties' paper books except that in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for filing the final reply on this issue? Ans. Please grant me 15 days time and fix the hearing on14th Nov., 1988. In the meantime please supply me photostat copies of the register. Q. What do you want to say about the arrival of timber entries in this book? Ans. According to me they must be genuine but I have to check up with the Accountant because it was he who entered the transactions in this book. Whatever has been stated above is true and correct to the best of my knowledge and nothing has been concealed. Sd/- (Hazi Mir Nazir Hussain) 21-10-1988." 15. Next Hazi Nazir Hussain was again examined under section 131 of the Act on7-12-1988and such statement also must be closely looked into and therefore reproduced below because whereas for the Revenue, it was very strongly contended that there were contradictions. For the assessee, it was asserted that consistently it was stated that entries were made by Shri M.R. Sharma, erstwhile Accountant, who had left the service and that the assessee was not aware of the present address and that there was no question of there having been introduced any cash by him:- "I, Hj. Nazir Hussain, S/o Shri Ghulam Din (late) R/o Talak Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period from1-4-1988. Naturally, when the business had been closed there could be none. Shri Baldev Raj appeared on13-10-1988when notices under section 131 of the Act were issued Hazi Nazir Hussain for21-10-1988when he complied. It seems that Hazi Nazir Hussain was asked to appear on25-11-1988but since he was out of station, Shri Baldev Raj attended and submitted that he was not aware of the contents of the Register nor he could explain the same because the entries were written by the Accountant. On persistent questioning he stated that if there was any wrong entry it must be done by the Accountant. Some vouchers were required which he submitted that he would bring on6-12-1988. On7-12-1988, Shri Hazi Nazir Hussain appeared. 17. We are detailing the above to show that at the relevant time Hazi Nazir Hussain was only being questioned and it is in this context that the constitution of the firm has been noticed and is considered important. 18. The Revenue though took several dates to produce the seized records but only filed photocopies of the Register, statements of the two partners as other partners were not examined, copies of the order sheets, copies of the reasons recorded unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stationery for Depot. 151-00 40000 Freight paid 1859-60 Manzoor Ali 20-00 Bashir Ahmed 20-00 --------- 23167-40 Balance 16832-60 --------- 40000-00" --------- From the above, we notice Rs. 40,000 drawn by cheques against which there is total of expenses amounting to Rs. 23,167-40. This was explained to us, and we have accepted the same, that entries regarding freight (Rs. 7750-40 + Rs. 12089-40) were only to project expenses incurred but which were to be paid later. It is correct that there are entries also mentioning freight paid, but the plausible point made by Shri G.C. Sharma, Sr. Advocate, was that it was not a case where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d have withdrawn earlier also. In fact this aspect was gone into by the Assessing Officer in original assessment as also in other years and it was found that this was the regular system followed by the firm year after year. The position of Bank balance with Hindustan Commercial Bank during the relevant period i.e., from5-12-1984to29-1-1985was as under:- Date Bank balance 30-11-1984 Rs. 573,062 12-12-1984 Rs. 266,592 30-12-1984 Rs. 282,200 15-1-1985 Rs. 528,210 21-1-1985 Rs. 694,763 29-1-1985 Rs. 714,665 In view of availability of finances in the Bank at the relevant period substantially much more than actual expenditure due for payment, it could by no stretch of imagination be inferred by any prudent person that payment of expenses had been made earlier than actual dates of payment, as the firm could not derive any benefit by such manipulation. The allegation of the Assessing Officer that black money had been introduced for a short period was without any basis or logic. After all the actual amount of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vouchers for example, the sundry expenses like tea, coffee, fruits etc., and also payments to various parties." 29. The assessee's grievance regarding interest under section 217 of the Act is also accepted, since the additions are vacated. 30. In view of the above answers to all the issues framed are given in the negative. 31. In the result, the assessee's appeal is allowed. Per R.K. Bali.- I have gone through the proposed order dated24th August, 1992 passed by my learned brother, JM, in ITA No. 716 (Asr.)/1990, but I have not been able to pursuade myself to agree with the conclusion relating to the deletion of addition of Rs. 4,38,284 made by the Assessing Officer and confirmed by the learned first Appellate Authority on account of cash credits introduced by the assessee firm in its Rough Cash Book as found recorded on the pages of "National Long Exercise Note Book" superimposed with the remarks arrival of Timber, 84-85. 33. At page 10, para 22 of my learned Brother's proposed order, the entries of 5th and 7th December, 1984, in the disputed register, have been reproduced which indicates that a sum of Rs. 16,832.60 was to be carried forward on the next date. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansi Lal for Cash received 10000.00 Tea etc. 50.00 (It should be 23030) out of -------- B/Commission DD 8.00 28030 30502.40 Freight paid 11151.00 -------- 19286.40 Tea expense 5.00 With Haji Ji 13030.00 Photostat 2.00 -------- -------- 6256,40 11216.00 -------- Cash balance 19286.40 Cash 19286.40 14-12-1984 Freight paid 4 trucks 3717.10 Tea expenses 3.00 Three wheeler exp. 7.00 15-12-1984 Freight 3 trucks 2789.00 Stationery purchased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 570.50 --------- 19/12 Cash 1230.00 19-12-1984 C.C. Forest 5000.00 Cash Reed. 10000.00 R.L. Kotwal 4000.00 Cash Reed. 5000.00 through Subash Moulvi Mohtab Cash Reed. 4000.00 Din 500.00 -------- 20230.00 Mohd. Yusuf Chowkidar 15.00 Freight paid 9 trucks 8511.20 -------- 18526.20 Cash balance 1703.80 -------- 20230.00 -------- Cash balance 1703.80 20-12-1984 Fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- 12724.00 Cash balance 6226.00 -------- 18950.00 -------- 27-12-1984 Cash 6226.00 28-12-1984 Freight paid 28-121984 Cash 10000.00 16 trucks 14869.80 Medicine Exp. 47 00 -------- -------- 16226.00 14916.80 Cash 1309.20 --------- 16226.00 --------- 29-12-1984 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- 5-1-1985 Cash 12446.70 7-1-1985 Freight paid 8078.00 Cash balance 4368.70 -------- 12446.70 Purchased Coat etc. 340.00 -------- 4028.70 8-1-1985 Cash balance 4368.70 8-1-1985 Freight paid 5578.00 Cash Recd. 5000.00 Six trucks ------- 9368.70 Misc. exp. 26.00 -------- 5604.00 Recd.cash 7000.00 Cash 10764.70 ------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20.00 Misc.exp. 22.00 T.A. Bill Bashir 15.00 -do- 19.00 -do- 19.00 -do- 20.00 T.P.O 500.00 Mushtaq Hussain Mir 110.00 Manzoor Hussain 300.00 Freight 12 trucks 11146.00 Freight 1 truck 929.20 Total expenses upto 13-1-1985 320361.00 --------- 13223.20 Cash balance 18749.80 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -------- 8819.30 Cash balance 6317.10 -------- 15136.40 -------- 17-1-1985 Cash balance 6317.10 17-1-1985 Kishan Chand Cash Recd. 5000.00 Sharma Forest A/c 100.00 -------- 11317.10 Cash Recd. 5000.00 Telephone Bill 5869 8.00 -------- 16317.10 Medicine 16.00 One Coat for Depot. 90.00 -------- Freight 9 trucks 8264.00 8578.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- 17688.50 Cash 3717.90 --------- 21406.40 --------- 23-1-1985 Cash balance 3717.90 24-1-1985 Freight paid 11146.80 Cash Recd. 5000.00 12 trucks -------- Tea Expenses 6.50 -------- 11153.30 Cash balance 3593.60 --------- 14746.90 --------- 24-1-1985 Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- 29-1-1985 Cash balance 8208.40 29-1-1985 Jamit Singh 10000.00 Cash Recd. 22000.00 Ramban --------- 30208.40 Freight paid 17801.00 --------- Misc.Exp. 7.50 --------- 27808.50 Cash balance 2399.90 --------- 30208.40 --------- 34. The above entries have been taken from the Paper Book furnished by the assessee at pages 16 to 24. ThepeakofRs.4,38,284 was accepted to be correct by Sh. A.N. Raina, Accountant who was present along with Haji Nazir Hussain, partner of the assessee firm at the time of hearing on2-2-1989, before the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consolidated amount debited in the consolidated a/c in Cash Book. Sh. Haji Nazir Hussain Sh. A.N. Raina Acctt. thus agreed that all these entries of expenses are properly accounted for in the regular Cash Book in the consolidated manner and the Vrs. for all these entries are properly maintained by the assessee. Thus the peak credit works out to Rs. 4,38,284. This amount being introduced in Dec, 1984 January, 1985. Assessment year concerned is 1985-86. Sd/-AO Sd/- Haji Nazir Hussain 2-2-1989 I have checked the calculations mentioned in this Annexure regarding the computation of the credit (peak) and I have found it correct. Sd/- A.N. Raina Accountant M/s. Hans Raj Bharat Bhushan Shri Haji Nazir Hussain was once again asked the source of cash introduced for Dec. Jan. to which again he explained his inability to explain the sources. After the first peak credit of Rs. 438284 he stated that the cash introduced is out of the cheques shown in the cash book for office expenses. The case is refixed for hearing on7-2-1989at10 A.M. Sd/- Hazi Nazir Hussain 2-2-1989" Thus a combined reading of the statements of Hazi Nazir Hussain recorded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... G.C. Sharma, Advocate, learned representative for the assessee, that the payment in respect of freight were in tact made on 29-1-1985. 39. The observations made by my learned brother in para 26 of his proposed order that the Assessing Officer has not made any addition on account of similar cash credit entries and similar disbursement of expenditure in the above Register beyond the period of 29-1-1985, but made only addition for the period between 5-12-1984 and 29-1-1985, is rather strange, and has been made without appreciating the fact that the cash credits introduced beyond 29-1-1985 could be reasonably explained out of the withdrawals of Rs. 3,70,401.40, which was available with the assessee on account of encashment of cheque on the relevant date and which is also the explanation given by the assessee and accepted by the Assessing Officer as is clear from the order sheet entry dated 2-2-1989 reproduced in para 33 above and marked 'X'. 40. The Assessing Officer has in a very well reasoned and lucid order discussed the facts relating to the addition of Rs. 4,38,284 by invoking the provisions of section 68 and it will be useful to reproduce para 2 of the assessment order to pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their sources and the largest peak was arrived at on29-1-1985which was amounting to Rs. 4,38,285 as mentioned in the Annexure. As regards, the explanation put up by the assessee regarding the sources of the cash credits noted in the note book as per the details recorded by me, it is quite clear that there is hardly any explanation submitted by the assessee except throwing the entire burden on the accountant who is not produced before me. As the hand-writing in the note book could not tally with that of the partners Shri Haji Nazir Hussain, or Shri Baldev Raj or the present Accountant Sh. A.N. Raina could not say with full certainty that the assessee only has written the note book. But the fact remains that it might be to the assessee's advantage in the background of this particular case not to produce the real person who has made these entries. But in any case that does not help the partners as regards the liability of tax, penalty or prosecution because the note book was found at the business premises of the assessee. No body could anticipate the survey operation which was conducted by me and hence it cannot be said that bogus book was deliberately placed at the business premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to explain the credit entries introducing cash receipts in the rough cash book/note book. Since the assessee could not think of any explanation, whatsoever, to explain the credits, he went on throwing blame for making the entries on the Accountant Sh. M.R. Sharma, who was never produced either before the Assessing Officer or before the learned first Appellate Authority or even before us. Thus it has to be held that the Assessing Officer as well as the learned first Appellate Authority were perfectly justified in holding that the Note Book "National Long Exercise Note Book" superimposed t\s 'Arrival of Timber-34-85' reflected the true and correct state of affairs of the assessee's business and since the assessee has not given any explanation with regard to the cash credits, the peak of which worked out to Rs. 4,38,284, the same has to be treated as the income of the assessee under section 68 of the Income-tax Act, 1961. 43. Before concluding, I would like to meet the argument of Sh. G.C. Sharma, Advocate, learned representative of the assessee that in the disputed period 10-12-1984 to 29-1-1985 the assessee was having substantial deposits in its banks and as such the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... late Authority in this regard is reversed. 48. With regard to ground of appeal relating to the charging of interest under section 217, it is of consequential nature and the Assessing Officer is directed to recalculate the interest chargeable if any, after giving effect to the order passed by the Tribunal. 49. In the result, the appeal filed by the assessee is partly allowed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 1. There were three issues for consideration before the Tribunal (i) with regard to the addition of Rs. 4,38,284 added in the assessment under section 68 of the Income-tax Act, 1961, hereinafter referred as the Act; (ii) addition of Rs. 20,000 out of expenses made on the ground that there were lack of details and vouchers and (iii) levy of interest under section 217 of the Act. 2. For the reasons recorded in the proposed order by the Judicial Member addition of Rs. 4,38,284 has been held to be wrong arid unjustified both on factual and legal ground. The addition of Rs. 20,000 also came to be vacated. The assessee's contention in relation to levy of interest was also accepted because the additions were held to be bad. 3. On the other hand, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Act, 1961 (in short Act) was carried out at the premises of assessee on12-10-1988in the course of which a note-book was found containing certain cash transactions. The complete details of the transactions contained in the note-book are given by the Accountant Member of the Tribunal in para 33 of his order and, therefore, need not to be repeated. The period of these transactions is from10-12-1984to29-1-1985. It starts with cash balance of Rs. 16,832.60 on10-12-1984. On the right hand side, cash payments are recorded while on left hand side cash receipts are recorded. There are certain entries by cheques also. On the basis of such note-book, the assessment was reopened under section 147. Since, according to Assessing Officer, assessee could not explain the source of various cash receipts in the note-book, the peak amount was worked out at Rs. 4,38,284 and accordingly, an addition of Rs. 4,38,284 under section 68 was made vide order of assessment dated7-2-1989. While completing the assessment, the Assessing Officer also charged interest under section 217. The CIT(A) confirmed the order of assessment vide order dated28-3-1990. Aggrieved by the same, the assessee filed second appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be treated as consequential. On the other hand, the ld. DR has completely relied on the order of ld. Accountant Member. 8. After considering the rival submissions I am not inclined to accept the arguments of Mr. Sharma. There is no dispute that the provisions of section 68 are applicable only when any sum is found credited in the books of an assessee maintained by him. However, books of account to do not mean cash book only. It would mean complete record which a businessman is required to maintain to record his day to day transactions. According to the well settled principles of accountancy, each transaction is required to be treated under two heads - under one head, debit entry is made while under the other hand, credit entry is to be made. For example, if money is received from 'K' then cash account is to be debited and account of 'K' is to be credited by the same amount. For the same reason if any sum is introduced in the books by the assessee from his own sources then cash account is debited while assessee's own account has to be credited. Cash book is nothing but the cash account which is debited if money is received and is credited if money is spent or invested by the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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