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TMI Blog1988 (7) TMI 134X X X X Extracts X X X X X X X X Extracts X X X X ..... addressed to me as well as the case law relied upon. 3. The short dispute is, like in any other case, of cash credits where the explanation is that the cash credits represented borrowings from outsiders, whether such an explanation could be accepted and whether the assessee had produced enough and adequate evidence to substantiate the borrowings. The assessee is an individual. At the relevant time, i.e., in the asst. yr. 1980-81during the period ended 31st March, 1980, he was deriving income, albeit on a small scale, from a service station in Pune and from catering establishment, called Kalmadi Caterers. He was a young man graduated from National Academy and Air Force Flying College, Bangalore, worked as a Pilot in Air Force. He left service sometime in 1975-76 to join his family business by becoming a partner in a firm called M/s. Jai Service Station alongwith his brother, which he said yielded meagre income. He also started a canteen in the premises of Pune Municipal Corporation, which was also yielding him not substantial income, which is clear from the fact that the ITO estimated the income from this source at Rs. 10,000. Sometime in 1979, a private limited company by name S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. Shelar and Shri H.S. Shelar were partners. The assessee was asked as to how he was able to finance Rs. 2,38,000 to the said Mr. Bhagde. The assessee stated that he borrowed money from the four creditors on the following dates: Sr. No. Name of the party Amount Date Mode 1. M/s. Super No. . . . . Sales . . . . Syndicate, Panjarapole Building, 2nd Floor, Room No 21, 198 Panjara Pole Road, Bombay Rs. 50,000 31st March, 1979 Cash 2. -do- Rs. 50,000 10th July, 1979 Cash 3. M/s. M.K. 1st Enterprises . . . . Room No. 11, Floor, Dhaulat Road, Borivili East, Bombay-66. Rs. 40,000 31st March, 1979 Cash 4. Sterling Chem. Pharma, 329, Madhani Estate, Sanapathi Bapat Mart, Dadar, Bombay-28. Rs. 50,000 31st March, 1979 Cash 5. Ambika Trading Co., Ramadari Jadav Chal, Kartar Road, No. 8, Room No. 38, Borivili Bombay-66 Rs. 50,000 10th July, 1979 Cash . Rs.2,40,000 . . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng personal knowledge, no broker would arrange a loan because that would amount to taking huge risk and no creditor would advance money because there was no surety of repayment. After having examined all these aspects, the ITO posed to himself two questions, (a) the money could be assessee's own money came back to him in the garb of a loan through the medium of creditors all to create evidence by giving it the appearance of a genuine loan, or (b) the money could be the unaccounted for money of the creditors. The ITO ruled out the second possibility and probabilised the first possibility with reference to the above mentioned aspects. Another important aspect on which the ITO laid stress was, besides the above, in the statement recorded from the assessee on 19th April, 1980 when the search took place, he did not mention anything about the loans even though he was asked about them. He only stated that there was no comments to offer. Thereafter he had three good years to go and this time he utilised to manipulate evidence to create a facade of borrowals of loans. From the fact that the assessee did not mention anything on the date when the search was made about the loans, the ITO suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis on the rate of interest of 12 per cent, which according to him was very fair. The rate of interest to be charged is a matter in these deals of personal negotiations and it depends upon several factors. Not much store should have been set by the ITO by the rate of interest of 12 per cent to substantiate his conclusions, as, according to him, the rate of interest appeared to have greatly influenced the mind of the ITO in throwing out the assessee's case. What was more, the repayment was by account payee cheques and drafts. They should not have been doubted all because the creditors withdrew the money immediately. For these and other reasons recorded by him in his order, he did not agree with the ITO's view and deleted the entire addition, aggrieved by which the Department has come up in appeal before the Tribunal. 5. After hearing both the sides at great length, the learned Judicial Member, who wrote the leading order, agreed with the view of the Commissioner(A) and held that the ITO ignored the relevant evidence, which materially and substantially proved the assessee's case and by indulging in conjectures and guess work and irrelevant considerations and evidence, rejected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowing money from these creditors was false, a fictitious story woven to explain the payments made to Mr. Bhagde. The mere acceptance by the creditors about the lending of money was not enough for the purpose of IT assessment to accept the loans as genuine. The assessee has to further establish that not only the loans were genuine but the creditors were creditworthy. The ITO examined the books of account of each of the creditors and found to his dismay that entries were erased to introduce the name of the assessee and in order not to affect the cash balance, which were carried forward because those entries were interpolatent along after the search had taken place by when the account books of the creditors were closed it was shown as if the money was borrowed from those creditors, which was again fictitious. This circumstance according to him was sufficient to prove that what was provided by the creditors was not loan or finance but only their name and hawala transaction and what was paid by way of interest was only commission. He also referred to another aspect touched upon by the ITO, namely, interpolation of dates in the books of the creditors. It was found that year 1980 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this argument appeared to have been accepted by the Commissioner(A) and the learned Judicial Member, the learned Accountant Member pointed out that since the payments were small, they could represent hawala commission. He then wondered how an assessee, who took care to pay small amounts of interest by cheque, could receive the principal amount from Bombay and bring it to Pune in cash. The inference drawn by him appeared to be that both the payments of interest and the receipt of money in cash did not take place. He did not place much reliance upon this aspect and the worst that could be said, according to him was that some hawala-wales must have escaped tax on their hawala-commission cum interest, which fact would not help the assessee's. laying great stress on the assessee s conduct while recording the preliminary statement on 19th April, 1980 in not giving the necessary particulars regarding these loans, the learned Accountant Member pointed out that the stub born refusal of the assessee at that time exposed the real nature of the transactions and only helped the latter in the fabrication of evidence. He also held that the assessee was not entitled to the benefit of doubt on fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the assessee and (e) more importantly the creditor was assured atleast no evidence was brought on record to show as to how the creditor was assured of the repayment of the money and when. These circumstances alone are sufficient to disprove the theory of loan having been borrowed by the assessee. To crawl it all the ITO proved beyond any shadow of doubt by going through the accounts of each of the creditors that there were manipulations, erasures, insertions of assessee's name just to provide proof that money was advanced. In the case of Super Salem Syndicate, it was said that the money was borrowed by them from one Suresh Metal Corporation. Suresh Metal Corporation did not producer their books on the ground that the books were lost in journey. When the receipt of money from Subhash Metal Corporation by Super Sales Syndicate was not established and when there was no cash balance in the books of Super Salem Syndicate independent of the receipt of money from Subhash Metal Corporation, how can it be taken that Super Sales Syndicate had advanced money to the assessee even though Super Sales Syndicate admit that they advanced the money to the assessee. Similarly, in the case of M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appreciating of the evidence on record by the Revenue and in the ultimate analysis what transpired was 20 creditors were shown to have advanced the money of smaller denomination to 4 creditors, who advanced the money to a broker, who, through the good offices of Nana Chudasama, advanced the money to the assessee. Thus, there were as many as 26 dramatic personae introduced into the Act. He says, this story is gullible and should not be accepted as real. He thus supported very strongly the order passed by the learned Accountant Member. 8. The learned counsel for the assessee Shri Joglekar in a suave and confident manner submitted, by taking me through the order of the Commissioner(A) and referring me to the salient points in the order of the learned Judicial Member and tracing the history of the family of the assessee and his desire to start a hotel by going in for huge borrowings even against the advice of his father, that it was very unfortunate that the Department preferred to disbelieve the assessee's version merely on the ground that some discrepancies appeared in the accounts of the creditors. But for the discrepancies in the accounts of the creditors, all the other evidence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence in support of it. It could be said to be a bogus hawala transaction when money had not passed. The creditors admitted that they had advanced the money to the assessee; the broker admits that he received the money from those creditors and passed on a part of the money to Nana Chudasama and a part of the money to the assessee, Nana Chudasama also admits that through the agency of the broker, he was able to advance the money to the assessee. How can all this be ignored and rely only upon the alleged manipulations of accounts of the creditors. That is putting on the assessee an impossible burden to discharge. That was why the courts have repeatedly and unanimously held that under the IT Act, the obligation of an assessee is only to prove the nature and source of the credit and not the source of the source or else we cannot stop. If the creditors have chosen to introduce their own money into their accounts in the names of fictitious, the creditors must explain the source for the money and in case they failed to explain, that must be added as the undisclosed income of the creditors but for the reason that the creditors had brought into their accounts their unaccounted for money the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of adjudication of evidence against the assessee. He thus submitted that the assessee having discharged the onus that lay on him and since no flaw was found in that evidence, it was wrong on the part of the Department to add the same as the undisclosed income of the assessee and the entire amount should have been deleted and therefore, both the Commissioner(A) and the learned Judicial Member, who very properly appreciated the evidence, were justified in deleting the addition. 9. In reply, the learned counsel for the Revenue pointed out that since in 1980 at the time when the raid took place, the evidence of loans being nil, the subsequent evidence brought in was nothing but tainted evidence and one should not do only by an agreement of the creditors, their credit worthiness should also be proved and in that direction, the assessee had not done anything and therefore, the evidence must fall to the ground. He again emphasised the non-payment of brokerage as fatal to the case. 10. Now my part comes. As I have said in the beginning, I have carefully considered the entire evidence on record and also the arguments. It appeared to me that the basic foundation for the Department to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cord the borrowals because the particulars were not really known to him. If the loans were genuine, which I assume for the present purpose to be so to test the assessee's explanation, there is no other reason as to why he did not record in the diary meant for his personal purpose, the names of the lenders otherwise than due to the fact that he did not know the names. He has to contact the broker and Nana Chudasama, who arranged the money. That was the reason why the assessee had said no comments to offer at the moment. This explanation must be seen not in isolation but in the context of his statements, wherein he had said that (a) he acquired the business of Sair Service Station by taking loans, (b) started business of caterers by taking loans (c) put up first floor of his house by taking loans (d) that the bank balances of any one of his family members was not more than a few thousands and (assessment) that even the hotel project was sought to be erected by raising loans from foreign parties and there were several other persons in the project of the hotel, who were very well to do, whose names were given in the orders of the ITO as well as in the other orders passed, and Nana Chud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 (52) . 45,000 (66) . 6,50,0000 . Nama 4,00,000 W 15,000 Dro 2,53,000 K 5,000 50,000 Cheque" . Please explain". The answer to this question was that Nana Chudasama and Y.P. Trivedi were looking after the accounts and they would be in a position to tell about it. Like this there were several other entries running into lacs, which I myself have personally seen at the time of hearing of this appeal in June. The explanation given in respect of these items, which were running into lacs, were all accepted for which there was no documentary evidence other than oral explanation which were accepted and only this particular piece of statement was doubted and an adverse view was drawn. This, I thought, is not fair because the same diary, same state of evidence and a part of it was sought to be accepted and a part of it was sought to be rejected. Dr. V. Balasubramanian has no answer as to why this double standard was adopted in regard to the entries in the diary when the evidence happened to be of the same state at the time when the first statemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, it is easy for the Super Sales Syndicate to come out of the imbroglio by denying that they have not advanced the money to the assessee and that they provided only hawala transaction. This they never said. This shows, in my opinion, that the transaction of Super Sales Syndicate could no be said ITO be unreal because every one knows the risk involved in telling an untrue statement before the IT authorities. They did account for this transaction in their books, the repayment of the loan, the interest received as and when it took place and in the light of that evidence, the mere fact that the accounts were manipulated should not have been given so much of weight as to efface the entire transaction even to hold that no loan had taken place. This I thought is not fair. At no stage of the statements of Super Sales Syndicate, the evidence was shoken even to cast a doubt about the genuineness of the loan. I have been looking into the evidence only from this point, not from the point whether there was any manipulation or not but from the point whether the loan could have been advanced or not. Manipulation might have been resorted to bring to surface cash into the cash book. That is the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O raised two probabilities, one that the creditor has introduced his own money and the second that he had only provided for hawala transaction and held that the first probability was impossible and relied upon the second probability. I am not able to follow how the first probability could be ruled out. It is equally possible to hold that the second probability is out of question and the first probability is more real and likely. In such a situation one has to go by the evidence on record, that is the admission made by the creditors which puts in a greater risk rather than the second probability. Similarly, in the case of other creditors, the ITO pointed out that the source was not proved by the creditors and therefore the transaction was only hawala transaction. Here again the ITO is putting upon the assessee a burden to prove the worth of the creditors' creditor, which is not permissible under the law. As in the case of Super Sales Syndicate, in the case of other creditors also, they never detracted from their statement that they advanced the money to the assessee. They stood by what they had said and asserted that their books of account were real and correct and what is more, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because here again, like in the case of M.K. Enterprise, there does not appear to be any finding by the assessing officer of Ambika Trading Company that Ambika Trading Company was indulging in bogus hawala transactions and more so with the assessee, otherwise that would have been produced before me. With regard to the repayment, the ITO pointed out that immediately after the repayment those parties withdrew the money. If that happened only in the case of the assessee, one can appreciate the conclusion drawn by the Departments but the ITO pointed out in his order a number of transactions, where in the books of Ambika Trading Company, the amounts realised from other creditors was deposited and then withdrawn immediately. Therefore, the assessee's case was not the solitary transaction. Either that was the modus operandi of his business or the whole thing was bogus as suspected by the ITO. For the latter to be relied upon as a fact, there ought to be more evidence after a probe into the account of Ambika Trading Company by the assessing officer. On the other hand the explanation of Ambika Trading Company, as of M.K. Enterprise, was that the money was withdrawn immediately to advance it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the assessee not knowing the broker cannot be used against him or turn against him. The assessee knew Nana Chudasama, who arranged the broker, who in turn arranged the loans from the creditors. There does not appear to be any missing link in this chain and the whole thing appeared to have taken place on the basis of faith and confidence, prestige and influence. One cannot under estimate the effect of influence in these matters. That was the reason why I said in the beginning that the Department proceeded in this case more on suspicion than on facts. In any case that was the impression that was created on my mind by going though the entire evidence. I thought it unnecessary to discuss the various other points because I felt I should touch upon the major points addressed to me and such other points which I thought are salient. 14. On a consideration of all this, I am of the opinion that the view expressed by the learned Judicial Member on the facts of the case is more just, proper and probable than the view expressed by the learned Accountant Member, though both of them are equally meritorious. I therefore express my assent with the view of the learned Judicial Member in the se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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