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TMI Blog2011 (1) TMI 740X X X X Extracts X X X X X X X X Extracts X X X X ..... Bansal for the Appellant. Vinod Kumar for the Respondent. ORDER Sanjay Arora, Accountant Member. This is an Appeal by the assessee, arising out of the Order by the ld. Commissioner of Income-tax (Appeals)-I, Agra (CIT(A) for short) dated 2-2-2006, and the assessment year (A.Y.) under reference is 2000-01, The Revenue's appeal (ITA No. 201/Agr./2006) and the assessee's Cross Objection (CO. No. 51/Agr./2006) also arising out of the impugned order were also heard along with, though stand decided per a separate/order for logistical reasons; there being no common ground between the two. 2. The grounds raised by the assessee are as under : "(1) That the CIT (Appeals) has erred in law and on facts in confirming the disallowance of loan of Rs. 1,50,000, besides interest credited on loan at Rs. 11,700, raised from M/s. Om Prakash Haresh Chand through Draft No. 045754 dt. 6-8-1999, which was admittedly purchased by him by issue of cheque No. 522129 drawn from his regular Canara Bank A/c. (2) That since the appellant has proved the identity creditworthiness genuineness of transaction for the loan of Rs. 1,50,000 raised from M/s. Om Prakash Haresh Chand, the CIT ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditor being a part of the Ganga Ram Agarwal group of concerns. Even as argued by the ld. A.R. himself, while defending the revenue's appeal [ITA No. 201/Agr./2006] in its case, no generalized observations could hold. The ld. CIT(A), as would be observed, has himself, where found it as so, deleted the addition, clearly holding that no assistance could be drawn by the Assessing Officer (A.O.) from the fact that the creditor concern belonged to the Ganga Ram Agarwal group. Qua the present addition of Rs. l.50 lakhs under section 68 of the Act, as also the interest allowed by the assessee thereon, however, the ld. CIT(A) has upheld the addition on specific grounds, giving definite findings, and which stand not impugned by the assessee. The assessee's bank balance stood at a meager Rs. 2,277, and the cash of Rs. 1.50 lakhs deposited therein stood immediately utilized for the purpose of purchase of the draft in the assessee's favour. The creditor has not been able to explain the source of cash, and that being the case, reliance on the creditor's cash-book by the assessee is wholly misplaced. Why, it may be asked, if the cash in the cash-book represented actual cash, the same stood no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prove them. In fact, if so contended, it would make the section (section 68) itself internally inconsistent, i.e., self-contradictory and inoperable. It needs to be appreciated that it is the transaction(s) that is to be proved under section 68, and not the account books; the same, rather, exhibiting the fact of the money flowing to the assessee, and which forms the raison de'tre of the same, where not satisfactorily explained as to its nature and source, being considered as its income. As such, the argument of proving the credit with reference to it being reflected in the books of account, be it of the assessee or the creditor, is perverse. If that be not so, the lending in cash, or through the banking channel, where recorded in books, could not be challenged, and for that reason. Again, it would not be material, for the purpose of establishing the genuineness of the credit transaction(s), whether the books are of the assessee or its creditor, as the law does not, nor cannot possibly, draw any distinction per se between the books maintained by two persons, and which, rather, if so, would be anomalous. All that an assessee in such a case would be required to show, to meet the burde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to independently prove its case with reference to the provision of the said section. In its words : '.... This presumption cannot, however, have the effect of excluding section 68 when regular assessment is made in regard to the income of the person from whose possession those books of account were seized under section 132. It does not obviate the necessity to establish by independent evidence the genuineness of the cash credits.' (p. 388) 4.3 Further, no doubt, the fact of the disclosure per the creditor's books, where regular, would lend credence, albeit prima facie, to the assessee's claim of the credit being genuine, or being explained to be thus, on that basis. As such, the revenue would have to show cause for its non-satisfaction, as the same, or its satisfaction, has necessarily to be arrived at objectively, stating reason(s), either way, so that where the credit is stated to be flowing from the creditor's regular accounts, the matter boils down to one of factual findings, rather than one of law. Suffice to say that the issue is factual and what is to be seen by the appellate authority, as the Tribunal, is whether the explanation(s) furnished by the assessee, including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 264 ITR 254/[2004] 136 Taxman 213 (Gauhati) and Dy. CIT v. Rohini Builders [2002] 256 ITR 360/[2003] 127 Taxman 523 (Guj.). In this regard, we may clarify that we nave only applied the trite law, as explained by the Hon'ble Apex Court per a host of case law, as under, to the facts of the case, so that we do not consider it necessary to discuss and distinguish the case law 'relied upon', which would only be rendered in the facts and the circumstances of the respective cases, and which were even otherwise neither taken us through by the ld. A.R. during hearing nor its reliance/applicability exhibited/pleaded: A. Govinda Rajulu Mudaliar v. CIT [1958] 34 ITR 807 (SC) Sreelekha Banerjee v. CIT [1963] 49 ITR 112 (SC) Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1 (SC) CIT v.Durga Prasad More [1971] 82 ITR 540 (SC) Biju Patnaik's case (supra) Sumati Dayal's case (supra) CIT v. P. Mohanakala [2007] 291 ITR 278/161 Taxman 169 (SC) In fact, the ld. CIT(A) has himself relied upon several decisions, which stand neither met nor even adverted to by the assessee during hearing, even as it impugns his order, as was also the case qua the order by the Tribunal in the case of Shyam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with section 148 was initiated on account of certain findings arrived at by the investigating wing of the department in the case of one Shri Ganga Ram Agarwal, wherein it was a clear-cut finding of the department that he had meticulously undertaken a scam of providing accommodation entries to the beneficiaries for earning commission income. But in that group case, this Bench has arrived at a categorical conclusion that the department did not took the factual matrix of that case to the logical conclusion and without confronting ten substance obtaining in that case, to the assessee. The department cannot be allowed to treat as bogus any credit taken from any of the related entity person of that infamous group, which is commonly known as GR Group, and that no addition can be made simpliciter on that basis without there being any other independent evidence(s) available on the record to support such an adverse finding. The assessee had taken various loans from different persons including one from M/s. Om Prakash Haresh Chand. Insofar as other loans are concerned, their deposits have been accepted by this very Bench through the common order which was later segregated and pronounced on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence it is clearly established on record that this cash credit stands fully explained because the creditor is identified and the transaction of loan is genuine. The assessee has also explained the source of this loan. At page 8 of assessee's paper book, a confirmation directly sent to the Assessing Officer by Shri Haresh Chand Agarwal, on behalf of the creditor is self-explanatory, in which it has been stated that his statement was recorded by Assessing Officer on 18-10-2005 and showed his inability to again appear in compliance of notice issued under section 131 and vide letter dated 29-10-2005 he has confirmed the advancement of impugned loan and also produced a copy of cash book, a copy of ledger account, a copy of bank statement and acknowledgement of his return filed before the department. A copy of accounts of the assessee in the books of the creditor is enclosed at PB-9 in which PA Number of the creditor has also been given. The only reason that an amount of Rs. 1.5 lakhs was deposited in cash, out of which DD was purchased for the same amount on the same day or the next day, cannot alone prove that the assessee had deposited his unaccounted money to purchase a draft thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is allowed. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 Re.: Reference to Hon'ble President, ITAT under section 255(4) of the Income-tax Act in ITA No. 231/Agr./2006 for assessment year 2000-01 in the case of Umesh Electricals, Agra v. ACIT. There being difference in opinion between the Members constituting the Bench, the point(s) of difference is being referred for getting Third Member nominated as per provisions of section 255(4) of the Act: "1. Whether in the given facts and circumstances of the case, the impugned cash credit of Rs. 1.5 lakhs is genuine or not?" THIRD MEMBER ORDER P.K. Bansal, Accountant Member (As a Third Member). - Following question on difference of opinion between the learned Accountant Member and the learned Judicial Member has been referred to me by Hon'ble President under section 254(4) of the Income-tax Act for my opinion : "Whether, in the given facts and circumstances of the case, the impugned cash credit of Rs. 1.5 lakhs is genuine or not? 2. The facts as gathered from the record and the orders of both the Members are that the assessee has taken loan of Rs. 1,50,000 from M/s. Om Prakash Haresh Chand Co. vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to my knowledge, there is no such evidence, from which the adverse finding of the department can be approved. A copy of ledger, placed at PB 11 to 20, also clearly expresses the intention of the cash creditor. The cash creditor is an Income-tax assessee and has clearly explained and confirmed the transaction of loan and the receipt of interest having been received by him. The department has taken no action in the next year relating to receipt of interest in the hands of M/s. Om Prakash Haresh Chand, which was allowed while making assessment under section 143(3) in that case. Simply because a cash amount was deposited in the bank of the cash creditor and a draft was purchased, would not take the case out of the sphere of genuinity. The cash creditor has explained that the amount which was deposited in the bank came through withdrawals from his cash book which is evident from page Nos. 9 to 20 of his paper book. The Hon'ble Jurisdictional High Court in the case of CIT v. M/s. Rajesh Dal Mill Kosi Kalan, Mathura, in like circumstances and under almost identical facts has held that when in the cash book of the creditor small sums are found but later on large amounts are shown, it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he beneficiary of the said sum, so that that itself is an evidence against it [refer: Sumati Dayal v. CIT, 214 ITR 801 (SC)]. The onus on the assessee in the present case has thus definitely not been discharged, both with regard to the capacity of the creditor and the genuineness of the transaction. We decide accordingly. 4.5 The assessee has before us relied on the decisions in the case of Nemi Chand Kothari v.CIT, 264 ITR 254 (Gauhati) and Rohini Builders v. Dy. CIT, 256 ITR 360 (Guj.). In this regard, we may clarify that we have only applied the trite law, as explained by the Hon'ble Apex Court per a host of case law, as under, to the facts of the case, so that we do not consider it necessary to discuss and distinguish the case law 'relied upon', which would only be rendered in the facts and the circumstances of the respective cases, and which were even otherwise neither taken us through by the ld. A.R. during hearing nor its reliance/applicability exhibited/pleaded : A. Govinda Rajulu Mudaliar v. CIT 34 ITR 807 (SC) Sreelekha Banerjee v. CIT 49 ITR 112 (SC) Kalekhan Mohammed Hanif v. CIT 50 ITR 1 (SC) CIT v.Durga Prasad More 82 ITR 540 (SC) CIT v. Biju Patnaik (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The learned AR before me vehemently argued that only question is whether the cash credit of Rs. 1,50,000 received by the assessee is genuine or not. According to the learned Accountant Member, cash credit is not explained while according to the learned Judicial Member, the cash credit was duly explained. The learned AR carried me to page 5 para 16 of the assessment order and pointed out that the assessee produced the confirmation from Om Prakash Haresh Chand from whom the assessee has received a sum of Rs. 1,50,000 vide draft No. 045754 dated 6-8-1999. The Assessing Officer noted that Om Prakash Haresh Chand has deposited a cash of Rs. 1,50,000 in his Canara Bank account on 6-8-1999 prior to making of the draft in favour of the assessee. The assessee has submitted confirmation of Om Prakash Haresh Chand along with PAN for which attention was drawn to page No. 1 of the paper book. He also submitted the copy of PAN Card of the lender, copy of bank statement and pointed out that the lender is an Income-tax assessee. Copy of assessee's account is available at page 9. It was also pointed out that even though the assessee has not to prove the sources of source, but still the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the creditors, there affidavits and passbooks, all creditors being assessed to tax and identified and having furnished proof of source of cash and all transactions having been conducted through banking channels, cash credits were rightly accepted by the Assessing Officer as genuine. Thus, it was contended that the decision of learned Judicial Member is in accordance with law. 6. The learned DR, on the other hand, relied upon the decision of learned Accountant Member. 7. I have carefully considered the rival submissions and perused the material on record. I have also gone through the case law as relied on by the learned AR before us. In order to appreciate the contentions urged before me, it would be appropriate to reproduce the provisions of section 68 of the Act: "68. Cash Credits. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year." From the reading of the af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot accepting the explanation offered by the assessee as not satisfactory must be based on proper appreciation of the material and other surrounding circumstances available on record. The opinion of the Assessing Officer is to be based on appreciation of the material on record. 10. The word "may" used in section 68 provides discretion to the Assessing Officer. in general the word "may" is an auxiliary verb clarifying the meaning of another verb of expressing an ability, contingency, possibility or probability. When used in a statute in its ordinary sense the word is permissive and not mandatory. But where certain conditions are provided in the statute and on the fulfilment thereof a duty is cast on the authority concerned to take an action, then on fulfilment of those conditions the word "may" take the character of "shall" and then it becomes mandatory. In section 68, we find that there are no such conditions on the fulfilment of which the Assessing Officer is duty bound to make the addition. The word "may" denotes the discretion of the Assessing Officer that he can make an addition or cannot make an addition. The Supreme Court in the case of CIT v. Smt. P. K. Noorjahan [1999] 237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , M/s. Om Prakash Haresh Chand, as per cash book, have received a sum of Rs. 17,250 from Navin Goel and has also deposited a sum of Rs. 1,50,000 in Canara Bank Belanganj Branch, Agra and accordingly withdrawn a sum of Rs. 1,50,150 - Rs. 1,50,000 by way of draft No. 045754 and Rs. 150 as bank charges leaving cash in hand of Rs. 6,748. M/s. Om Prakash Haresh Chand is a regular assessee having permanent account number, which is available on the confirmation. M/s. Om Prakash Haresh Chand has deposited the cash on 6-8-1999, does not mean that the assessee has not proved the genuineness of the transaction. The assessee by filing the copy of the cash book of M/s. Om Prakash Haresh Chand has discharged the onus and even proved the source of sources which he is not obliged to prove. The assessee has duly explained in respect of the deposit and the circumstances under which the deposits were received. The identity of the persons is not beyond the doubt. The source of cash was duly explained. The identity and capacity of the creditors was duly established. The Assessing Officer only doubted the genuineness of the transactions. Under these facts in my opinion, the amount received by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es and funds and, therefore, the cash credits, income from interest, dividend etc. should be excluded. The Tribunal as well as High Court rejected the application of the department for a reference. When the matter went before the Hon'ble Supreme Court, the Hon'ble Court held that the two basis questions were whether the donations collected by the Trust were genuine and whether the Department could rely upon the large amount of material collected by the Department subsequent to the decision of the Supreme Court in Jain's case. The identity and creditworthiness of the donors had not been established and the large amounts received as donations by the Trust were for over a decade lying as cash without being invested anywhere. The question whether the moneys were raised by the Trust as donations from various people or not was not considered by the Tribunal in its proper perspective. In not appreciating the basic question or discussing the evidence in respect thereof, there was non-consideration of a relevant factor on a factual aspect and the question whether the Tribunal's decision was perverse in the sense that no man instructed properly in law could have acted as the Tribunal did and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ine due to the reasons (i) that the assessee's knowledge of racing was very meager, (ii) that a jackpot is a stake of five events in a single day and one can believe a regular and experienced punter clearing a jackpot occasionally but the claim of the assessee of having won a number of jackpots in three or four seasons not merely at one place but at three different centres, namely Madras, Bangalore and Hyderabad appeared, prima facie, to be wild and contrary to statistical theories and experience of frequencies and probabilities, (iii) the assessee's books did not show any drawings on race days or on the immediately preceding days for the purchase of jackpot combination tickets, which entailed sizable amounts varying generally between Rs. 2,000 and Rs. 3,000, (iv) the assessee's capital account was credited with the gross amount without showing any expenses and purchases of tickets or for losses, (v) in view of the exceptional luck claimed to have been enjoyed by the assessee, her loss of interest in races from 1972 was very significant. The Settlement Commission took the view that one would not lose interest in race from 1972 and income yielding activities merely because the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account but not the source of the source. Thus, taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12,85,000. The Hon'ble High Court dismissed the appeal of the Department. Hon'ble Supreme Court also dismissed the Special Leave Petition. This decision clearly lays down the proposition that the assessee is not required to prove the source of source. The assessee can be asked only to prove the source of the credit. This decision, in my opinion, is clearly applicable to the facts of the case before me. The assessee in the case before me has duly discharged his onus by filing the confirmation, address, permanent account number and the copy of bank account of the creditor. Even though the assessee was not required to prove the source of source but still the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals) and the Tribunal had found that the assessee had discharged his burden in proving the source of the money, which had flew from the bank account. It was further held that in addition to the source of money from the bank account both the ladies were the income-tax assessees and assessed to tax under the Amnesty Scheme and the amount deposited in their bank account was as a result of their disclosure of income under the Amnesty Scheme. The Commissioner (Appeals) and the Tribunal found the explanation satisfactory and, accordingly, deleted the addition. It was not a case where the assessee claimed any immunity from tax on account of the disclosure of income by the two ladies. It was a case where the assessee was asked to explain the deposits in his books of account about the nature and source, which the assessee had explained. The assessing Authority had not accepted the explanation but the Commissioner (appeals) and the Tribunal had accepted the explanation. The finding of the Tribunal was a finding of fact in that regard and it was not shown that the finding recorded by the Tribunal was perverse. Various courts have held that the assessee has to prove three conditions : (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer, but treated as erroneous by the Commissioner of Income-tax by invoking the provisions of section 263. This decision since relates to the question of applicability of provision of section 263, in my opinion, will not be applicable to the facts of the case. In this decision, the Third Member has agreed with the order of learned Judicial Member who has come to the conclusion that in the light of the decision of Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83/109 Taxman 66 and the decision of Hon'ble Bombay High Court in the case of CIT v. Gabrial India Ltd. [1993] 203 ITR 108/71 Taxman 585, the order of CIT under section 263 cannot be sustained. 18. I have also gone through the decision in the case of Rajesh Dal Mill (supra) Mathura in Reference No. 12 of 1994 dated 22-9-2006, copy of which available on record, wherein, the Hon'ble Allahabad High Court has held as under : "We have heard Shri R.K. Upadhyaya, learned standing counsel appearing on behalf of the Revenue and Sri Krishna Agarwal, learned counsel for the applicant. Learned standing counsel submitted that even though the creditors were genuine and the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rged. Therefore, if the Revenue was not satisfied with the source of the funds in the hands of the donor, it was up to the Revenue to take appropriate action. The Tribunal considered the motivation for making the gift which was not relevant. The addition of Rs. 50,000 was not justified." 21. In the instant case, the Assessing Officer without looking into the facts and bringing any evidence to the contrary rejected the explanation of the assessee. Section 68 nowhere empowers the Assessing Officer to reject each and every explanation of the assessee. The Assessing Officer is a quasi-judicial authority and he should form his opinion judiciously, not in an arbitrary manner. It appears that in this case the Revenue has just made the addition for the sake of making the addition under section 68. The decisions of the Gujarat High Court as well as that of Allahabad High Court as cited earlier are applicable to the facts of the case. 22. In view of my aforesaid discussion. I agree with the view taken by the learned Judicial Member that under the given facts and circumstances of the case, the impugned cash credit of Rs. 1,50,000 is genuine. Now, the matter will go to the regular Bench. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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