9911796707
TMI Blog2005 (7) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... o shown commission of Rs. 1,06,758. After claiming various expenses, the assessee had shown net loss of Rs. 31,837. On examination of trading account, it was noticed by the Assessing Officer that in respect of some of the commodities, the assessee had shown G.P. of Rs. 1,150 and in respect of some other commodities, the assessee had shown loss of Rs. 8,306 and thereby showed a net trading loss of Rs. 7,154 the items in which the losses were shown were Guwar, Jeera, Moongfali and cottonseeds. 3. On examination of profit and loss account it was noticed that the assessee had claimed shop general expenses at Rs. 20,697. The Assessing Officer concluded that these expenses were not fully vouched. On examination of capital account, it was noticed that during the year the assessee had introduced Rs. 17 lakhs as his capital. The assessee explained the source of this amount as from assessee's own funds, namely, from sale of tractor as on 8-6-1999 of Rs. 1,69,000, sale of tractor as on 25-8-1999 of Rs. 1,31,000, loan received back from Shri Ram Niwas of Rs. 60,000 loan received back from Shri Baksharam of Rs. 40,000 loan received back from Shri Bhikaram of Rs. 50,000 totalling to Rs. 4,50,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the ld. CIT(A) has erred in confirming addition of Rs. 1,50,000 on account of alleged unexplained realization of debtors as source for investment in shop. 2. Under the facts and circumstances of the case the ld. CIT(A) has erred in comfirming following additions made by applying provision of section 68 of the Income-tax Act, 1961: (i) Narayan Ram Chhaba HUF - Rs. 2,00,000 (ii) Smt. Patasi Devi W/o assessee - Rs. 1,00,000 -------------- Rs. 3,00,000" &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.R. has further submitted that it is not a case of borrowing from any third party, the money available with the appellant himself has been appropriated for the purpose of investment other than agricultural income, there is nothing on record to show any other income except what is declared in the return. The ld. A.R. has submitted that out of total investment, an investment of Rs. 7,50,000 was made from sale of tractors purchased 10 years back and sale of land purchased in 1964 at Rs. 95,829. Rs. 8,15,650 was invested from recovery from advance made in the past and Rs. 87,303 received from sale of agricultural produce. It is true that the department has accepted to the extent of Rs. 12,98,772 to be the source of the assessee for investment and the source of Rs. 4.5 lakhs only has been treated as unexplained investment under section 68 of the Act. The source of Rs. 7.5 lakhs is not in dispute which was from sale of old tractors and agricultural land. The only amount of Rs. 10 lakhs was to be explained by the assessee and out of which the department agreed for Rs. 5.5 lakhs. The ld. A.R's contention is that the additions have been made and sustained on surmises and presumptions only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given careful thought to the above submissions and evidence on record. The fact of possession of 208 bighas of agricultural land and its cultivation is proved on record. This has not been rebutted by the department by way of any proof. The sale of agricultural produce for various years have been placed on record. The appellant also owned tractors and tubewells for agricultural activities. It is also not disputed that the land in Merta City is fertile one. The assertion of the ld. A.R. that even the unirrigated land also gives yield and the evidence for the same are on record. The production may, however, be less, in case of insufficient and delayed rains. It is a fact that 77 bighas of land is irrigated. Looking to the overall facts and circumstances of the case and the material on record it is established that the assessee has been engaged in agricultural activities on a fairly large scale. There is nothing on record to suggest any income other than agricultural income, the details of which are placed on record. In this case the sources of unexplained money of Rs. 1.5 lakhs was disputed and doubted by the department. The assessee claims that this money belonged to him only. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reasonable cause by submitting that the transactions being genuine and are not doubted by the department under section 271D cannot be levied. 16. On the other hand, the ld. D.R. has relied on the orders of the authorities below. He has also made reference to para 14 of the penalty order where the averments in the affidavits of Smt. Patasi Devi and Shri Narayan Ram Chhaba as Karta of HUF have been mentioned. He also submitted that the assessee, his wife and HUF were also earning interest income and consequently, provisions of section 269SS were not attracted for levying penalty under section 271D of the Act. 17. After giving careful thought to the facts and circumstances of the case, we are of the considered opinion that the genuineness of the transaction to the extent of penalty is levied was never in doubt and the additions made under section 68 had been deleted by our above order. This is a fact that the appellant-assessee was holding the possession of the entire resources of the family and used it for the business purposes in the common interest of the family. Relying on the decisions cited above, we are of the considered opinion that the penalty under section 271D cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... armer earning annual income of Rs. 20,000, owned 22 'Bighas' of agricultural land half of which was irrigated and remaining half was unirrigated, his household expenses were Rs. 10,000 to Rs. 12,000, the assessee was his wife's brother, he had taken loan of Rs. 60,000 about 4 to 5 years before and the loan alongwith interest was returned about 2 to 3 years before. He also admitted that loan was taken and returned in cash as he did not have any bank account. 4. Similarly, a copy of the statement of Sh. Baxa Ram (assessee's father) recorded on 9-12-2002 is at pages 64 to 66 of the paper book. He also stated that he was an agriculturist, owned 16 bighas of land in his own name and 35 bighas in the name of his son, his household expenses were about Rs. 15,000 to Rs. 20,000, his agricultural income was about Rs. 20,000 to Rs. 30,000, he borrowed Rs. 40,000 from the assessee about 5 years before, the amount was returned to the assessee and loan was taken and returned in cash. He also stated that there was no written proof for taking or returning the loan. 5. A copy of the statement of Sh. Bhikha Ram, maternal uncle of the assessee recorded on 9-12-2002 is at pages 67 and 68 of the pape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e CIT(A) that all the three persons were close relations of the assessee i.e. sister's husband, father and maternal uncle. Therefore, there was no written agreement or proof for advancing and returning of the loan. It was submitted that these persons were produced and confirmed having taken loans from the assessee about 5 years before and also return of such loans in the accounting year under reference, the Assessing Officer should have accepted the same as genuine. However, these submissions did not find favour with the learned CIT(A), who held that the assessee has not produced any evidence regarding loans given to Sh. Ram Niwas, Sh. Baxa Ram and Sh. Bhikha Ram either during the course of assessment proceedings or even during the appellate proceedings. Therefore, the addition made was upheld by recording the following finding in para 4.3 of the impugned order: "4.3 I have considered the submissions of the ld. A.R. of the appellant as well as the reasons given by the Assessing Officer for making the addition. After due consideration, I find that the assessee has not produced any evidence regarding loans given to Sh. Ramniwas, Sh. Baxaram and Sh. Bhikha Ram. It is also seen that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn of the loans advanced in the earlier years. This loan has also been accepted. Therefore, no further credit about the agricultural income of the HUF could be allowed to the assessee for the purpose of explaining the source of Rs. 1,50,000. Similarly, similar claim was also made by Smt. Patasi Devi wife of the assessee who also advanced an amount of Rs. 7 lakhs to the assessee for purchase of shop. The source of loan of Rs. 7 lakhs has been accepted and addition made in this regard has been deleted. But no further credit about the extent of income earned by Smt. Patasi Devi could be allowed to the assessee. 10. As regards the case of the assessee, the facts placed on record show that the assessee owned agricultural land of 4 bighas in 1980. He was examined by the Assessing Officer on 9-12-2002. He owned 4 bighas and 3 biswas in 1988. He purchased the land measuring 15 bighas in 1990 and purchase further land measuring 44 bighas 11 biswas during the period from 1990 to 1999. Statement of the assessee was recorded by the Assessing Officer and a copy of the same is placed at pages 86 to 94 of the paper book. In his statement Sh. Narayan Dass had stated that his annual agricultural ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en stereo-typed reply of earning agricultural income of Rs. 20,000 to Rs. 25,000 irrespective of the fact whether someone owned agricultural land 22 Bighas or 50 Bighas and also whether the land was irrigated or not. These facts do not inspire much confidence about the genuineness of these transactions. Be that as it may, both the persons have stated that the amounts in question were taken on interest. In his statement Sh. Narayan Ram has admitted that he was being assessed to Income-tax. However, copies of returns filed in his individual capacity are not on record. Therefore, the point whether such interest income received from Sh. Sri Niwas and Sh. Bhikha Ram was reflected in the income-tax return filed by the assessee for the earlier assessment year or in the assessment year under reference requires verification. In case the assessee has shown such interest income in the returns of income for the earlier years on accrual basis or in the return filed for the assessment year under reference on receipt basis, it would be reasonable to believe that the assessee had indeed given such loans in the past and the source thereof would stand proved. However, if such income is not disclosed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (HUF) and Rs. 7 lakhs from Smt. Patasi Devi wife of the assessee in violation of provisions of section 269SS of the Income-tax Act. In reply to the show-cause notice, the assessee submitted that the HUF and his wife had only agricultural income and, therefore, the acceptance of such cash loans did not amount to violation of the provisions of section 269SS. This submission of the assessee was found to be incorrect as the Assessing Officer observed that for the earlier years both the HUF and assessee's wife had shown income from interest in addition to agricultural income. The next submission of the assessee that he started earning business income only after purchase of shop was again found to be factually incorrect for the reason that even for the earlier years, the assessee was being assessed to tax and income had been shown from interest. The assessee had, then, contended that the HUF and his wife had collectively purchased the shop. This submission was also rejected on the ground that the shop was purchased by the assessee in his individual capacity and amounts in question were shown as loans in the balance sheet. It was also contended that the assessee had to take these loans b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and both Doctors contributed to the construction of Nursing Home. In that case, the Tribunal held that since both the persons who contributed for the construction of a Nursing Home, were immediate beneficiaries, there was a reasonable cause in accepting such cash loans, but no such facts exist in the present case as the person who advanced the loans had no common interest in the purchase of property. (iv) The other decisions relied upon by the assessee were also not applicable to the facts of the present case. The assessee has now brought this issue in appeal before the Tribunal. 15. The learned counsel for the assessee has reiterated the submissions which were made before the authorities below. These have already been summarized by my Ld. Brother in his order. These submissions are that the assessee belonged to an agriculturists family, the loans were taken from HUF and Smt. Patasi Devi who were also having agricultural income, genuineness of the loan is not in doubt, there was a reasonable cause for accepting the cash loans because the assessee was required to make payments urgently to Krishi Upaj Mandi for the purchase of shop. It was also submitted that both the HUF and Smt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The same shows interest income of Rs. 25,650 and agricultural income of Rs. 40,000. A copy of return for the assessment year 2000-01 is at page 88 of the paper book. A copy of the statement of income is at page 84 of the paper book. The same shows interest income of Rs. 54,480. Thus, the claim of the assessee that the loans had been taken from the parties who were having agricultural income is factually wrong. It is also not denied that even the assessee was being assessed to tax even in the earlier assessment years and he also earned income by way of interest. 18. The various papers placed on record show that the assessee, his wife and HUF had advanced amounts on interest in the earlier assessment years and they were earning regular income by way of interest. In fact even the close relations of the assessee admitted having borrowed amounts on interest. Therefore, the submission is without any merit. The other submissions of the assessee that there was a reasonable cause for accepting the loans in cash for meeting emergent needs is again not correct. It is no doubt true that the property in question was purchased in auction i.e. on 6-4-1999 where the assessee was required to make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of provisions of section 269SS. Therefore, the issue whether there was a reasonable cause or not is to be seen in the light of reasons given by the assessee which have been found factually incorrect. As regards the various decisions relied upon by the assessee, the same are on their own facts. Ratio of a particular decision has to be seen in the light of submissions made and facts of the case. In this case no attempt has been made by the ld. counsel as to how the ratio of those decisions is applicable to the facts of present case. 21. Thus, in the light of discussion in the preceding paragraphs^ I consider it fair and reasonable to set aside the order of the CIT(A) and restore the issue to the file of the CIT(A) for deciding the matter afresh in accordance with law and after allowing a reasonable opportunity to both the parties. While deciding the case, the CIT(A) shall also keep in mind the observations made hereinabove. The ground of appeal are also treated as allowed for statistical purposes. 22. In the result the appeal in ITA No. 339/JU/2004 is partly allowed for statistical purposes and appeal in ITA No. 340/JU/2004 is allowed for statistical purposes. STATEMENT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 49,350 and interest income of Rs. 26,250. In the previous year relevant to the assessment year under consideration, the assessee purchased a plot in the Krishi Mandi, Merta City, in an open auction conducted by the State Government Body. The purchase was registered in the name of M/s. Chhaba Traders, Prop. Shri Narayanram Chhaba. The assessee had reflected Rs. 17 lakhs as his capital in the return of income. He submitted the break up of the source of this investment as amount invested by himself at Rs. 4.50 lakhs; a loan of Rs. 7 lakhs from his wife, Smt. Patasi Devi; and a loan of Rs. 5,50,000 from Shri Narayanram Chhaba (HUF). The source of assessee's own funds was shown as sale consideration of two trucks amounting to Rs. 3 lakhs and recoveries of loans, viz., Rs. 60,000 from Shri Ramniwas (sister's husband); Rs. 40,000 from Shri Baksharam (father) and Rs. 50,000 from Shri Bhikaram (maternal uncle). It was stated before the Assessing Officer that he had recovered the loans from these three persons in this year, which were advanced in earlier years out of his agricultural income and sale consideration of agricultural land on 28-4-1998 for Rs. 53,133. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sp; 63,250 11-6-1999 Agricultural income earned during the year 26,800 12-6-1999 Agricultural income earned during the year 30,223 25-6-1999 Agricultural income earned during the year 30,270 28-10-1999 Recovery of loan from Mohanram, Badgaon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69,000 17-5-1999 Recovery of loan from Madan Lal Jat, Badgoan 57,500 20-5-1999 Recovery of loan from Bagsaram Jat, Badgoan 73,150 ---------------------------------------------------------------- Total 7,00,000 ---------------------------------------------------------------- The Assessing Officer accepted the genuineness of this credit to the tune of Rs. 6 lakhs and made addition for the balance amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ency and dealing in agricultural produce, both totaling Rs. 17,48,772. The net loss from business was shown at Rs. 31,837. It is an admitted position that the assessee had never carried on any business in the past. It was only for the immediately preceding year that the return was filed by the assessee for the first time showing interest income of Rs. 26,250 alongwith the agricultural income of Rs. 49,350. This return was filed on 2-3-2000. Return for the assessment year under consideration was filed on 3-4-2001 showing agricultural income at Rs. 80,000 and business loss of Rs. 31,837. Out of the total amount invested by the assessee in the shop/business of M/s. Chhaba Traders, insofar as the receipt of loans by the assessee from Smt. Patasi Devi to the tune of Rs. 7 lakhs and Shri Narayanram Chhaba (HUF) to the extent of Rs. 5,50,000 are concerned, both stand fully accepted up to the Tribunal. The only dispute is regarding the recovery of loans by the assessee from his three relatives, which were stated to be advanced in earlier years. There is no quarrel about the fact that the assessee was engaged only in the agricultural activities ab initio and had never maintained his books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced, namely, father, sister's husband and maternal uncle and the further fact, being the set up in which the assessee was living, namely, the rural background and having only the agricultural income as his source, it becomes palpable that the non-execution of agreement in this regard, per se, cannot disturb the genuineness or otherwise of character of the loans. It cannot be conceived that a normal person in these circumstances would insist on executing legal documents before the advancement of the loans to such close relatives. 5. As regards the availability of funds with the assessee at that time, it is austere that his stand point from the beginning was that he looked after the financial affairs of his wife, Smt. Patasi Devi along with that of his HUF. The total agricultural land holding of the assessee at the relevant point of time was 69 bighas and 4 biswas and that of his HUF was at 108 bighas. Similarly, the agricultural land holding of Smt. Patasi Devi was at 31 bighas and 11 biswas. Meaning thereby that he was looking after the total agricultural land of 208 bighas and 15 biswas, which pertained to the three different taxable entities. The assessee led evidence befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have refunded the loans to the assessee in the year under consideration. The statements of these three persons, recorded by the Assessing Officer, go to show that not even a single question was raised regarding the source from which money was refunded by them to the assessee. No obligation is cast upon the assessee to make good the misfeasance of the Assessing Officer and prove which he is not called upon to prove. When all the three persons categorically admitted the fact of having received the loan from the assessee in the past and returned in the year in question, in the absence of any material or evidence to controvert their version, there was no question of treating the amount as unexplained income of the assessee. 7. At this juncture, it would be relevant to note another factor which has an important bearing on the dispute. While explaining the source of loan Rs. 5,50,000 from Shri Narayan Ram Chhaba (HUF), there has been shown recovery of loans from seven different persons in this year totalling to Rs. 4,20,000, (agricultural land holding of 108 bighas) which has been eventually accepted in entirety. Similarly, Smt. Patasi Devi had also advanced the loans in the past, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge such interest to tax, rather than not accepting the source of the amount. Be that as it may, it is seen that the assessee had offered interest income of Rs. 26,250 for taxation in the assessment year 1999-2000. It has been stated by the ld. A.R. that this interest represents the interest charged by the assessee at the rate of 17.5 per cent, on three loans totalling Rs. 1,50,000. The ld. A.R. has drawn my attention towards the disclosure of interest income of Rs. 26,250 in the return for assessment year 1999-2000, from the material already on record in the shape of synopsis of submissions in these appeals, which were made available at the time of original hearing by the Division Bench. Since the said loans were received back by the assessee on 2-4-1999, 10-4-1999 and 11-4-1999 respectively for making investment in the shop, it was stated that no interest was charged for the few days of this financial year. 9. In view of the foregoing reasons, I am of the considered opinion that the addition of Rs. 1,50,000 was uncalled for. I, therefore, agree with the view taken by the J.M. in deleting the addition. ITA NO. 340/JDPR/2004 The ld. Members after passing dissenting orders ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outset, the ld. counsel for the assessee vehemently argued that having concluded the transactions of loans to be genuine, the question of imposition of penalty was not maintainable. It was further stated that an incorrect finding has been recorded with regard to the opening of bank account by HUF prior to the date of loan. By referring to point No. 3 of the Synopsis of submissions furnished during the course of hearing before the Division Bench, it was stated that he had specifically mentioned that at the time when the transactions of loan took place, the assessee's wife as well as his HUF did not have any bank accounts. He referred to pages 127 and 128 of the PB, being the copy of pass book of UCO bank account in the name of Smt. Patasi Devi, to show that the bank account was opened by her for the first time on 15-3-2000 by depositing cash of Rs. 500. He further referred to pages 125 and 126 of the PB, being the copy of outer cover of the UCO Bank Pass Book favouring Shri Narayan Ram Chhaba (HUF) giving a note that the bank account was opened on 27-3-2000. It was argued with vehemence that the assessee in question No. 5 of his statement recorded by the Assessing Officer at page 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... addition under section 68, leading to the upholding the genuineness of the transaction of loan, justifies the obliteration of penalty under section 271D as well. In my opinion, the position appears to be rather converse. When an addition is made under section 68 by not accepting the genuineness of the credit, the conclusion that follows is that, that the amount allegedly shown as loan is, in fact, the income of the assessee and the name of the borrower is used only to give the colour of genuineness to the assessee's own undisclosed investment in the business. Addition under section 68 presupposes that no genuine transaction of loan actually took place. On the contrary, section 269SS is attracted where the loan is genuinely taken and there is violation of the provisions by accepting it in cash beyond the specified limit. It is only in respect of genuine loans that the provisions of section 269SS can be considered. If, on the other hand, the loan shown by the assessee in his books of account turns out to be ingenuine, that calls for addition under section 68 and hence the false nomenclature of loan given to that transaction sheds its character. It is, ergo clear that only when the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the manner prescribed by the statute. This decision has been applied by the Hon'ble Jurisdictional High Court in the case of CIT v. Superintending Engineer, P.W.D. [2003] 260 ITR 641 (Raj.). 14. It has been argued on behalf of the assessee that there was a reasonable cause in accepting the loans in cash, being the ignorance of law by the assessee who is basically an agriculturist. At this stage it is important to note that what is a reasonable cause may differ from person to person and situation to situation. Their Lordships of the Hon'ble Delhi High Court in the case of Woodward Governor India (P.) Ltd v. CIT [2002] 253 ITR 745 have explained the expression 'Reasonable cause' as applied to human action is that which would constrain a person of average intelligence and ordinary prudence. It has been explained to mean an honest belief founded upon reasonable grounds, of the existence of a state of circumstances, which assuming them to be true, would reasonably lead any ordinarily prudent and cautious man, placed in the position of the person concerned, to come to the conclusion that the same was the right thing to do. The assessee in the present case has pleaded the ignorance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in any manner in the past and had no knowledge of the provisions of the I.T. Act when he took the loans from his wife and his HUF at the time of start of his business. In my considered opinion the ratio decidendi of Motilal Padampat Sugar Mills Co. Ltd.'s case squarely applies to the facts of this case. In the case of Dr. Deepak Muchala the assessee, a dentist by profession, took loan in violation of provisions of section 269SS for which penalty under section 271D was imposed. When the matter travelled to the Tribunal, it was held that the assessee was not expected to be well verse with fast changing laws and resultantly the penalty was deleted. The facts of the instant case are on much stronger footing when compared with Dr. Deepak Muchala's case. In view of the above discussion, I am satisfied that there existed a reasonable cause in terms of section 273B in accepting the loans in violation of the provisions of section 269SS and, as such, the penalty was wrongly imposed. 16. Be that as it may, it is noted that the assessee's counsel relied, before the Division Bench, on the Third Member decision in the case of Sunil M. Kasliwal to bring home the point that the penalty was erron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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