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TMI Blog2013 (1) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... d have proceeded further to enquire about the creditworthiness of those 148 persons, he may have found that all persons had capacity to advance a loan of Rs.20,000 in cash. In such fact situation, it is heavy duty of the A.O. and other authorities to find out all truth from the evidence which includes acceptance or rejection of evidence of independent or interested witnesses. In three days, the assessee himself, who was having no worth, alleged that he borrowed Rs.25.97 lakhs from 148 persons as if every person was waiting for this person to come and demand the money and every person was ready to give him money. This type of modus-operandi can be adopted by many persons. The test check method for the purpose of finding out the creditworthiness of individual creditor may not be a valid mode of proceeding in the other tax matter. But so far as to find out whether the transaction as a whole is absolutely unbelievable which may not be believed by a prudent man of slightest common sense, then in that situation, in addition to other facts and circumstances, test check can be the right mode so as to meet with the clever mode of avoiding the tax Every officer, who is required to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 142(1), the assessee filed a petition dated 12.09.2006 and requested the Department to accept original returns filed on 22.04.2004, as returns was filed under Section 148 of the Act of 1961. In view of the above, the case was fixed for hearing by issuing notice under Section 143(2) afresh. In course of scrutiny, the assessee was asked to file the details of the names and addresses of the persons from whom he had taken loan of Rs.32 lakhs for having allegedly advanced loan to another person, Sri Ajay Kumar of Hazaribagh, later on. 5. Upon this, the assessee submitted a list of the name of the persons, who were 148 in number with their addresses from whom he had taken loan of Rs.25.97 lakhs. As already noticed, all loans were claimed to have been taken in cash and all were below Rs.20000/-. 6. The assessee also submitted that the said loan from 148 persons and others were taken to advance the loan of Rs.32 lakhs to one Sri Ajay Kumar,S/o Bhagat Kishan, Director of M/s Dahanu Agency (P) Ltd., Mumbai, resident of 'Kishan House', Dipugarh, Hazaribagh, Jharkhand. In support of that transaction with said Ajay Kumar, the assessee submitted a photo copy of the agreement da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... creditworthiness of the loan creditors, considered the facts in detail and thereafter, declared that out of the entire transaction of taking loan of Rs.32 lakhs, Rs.25.97 lakhs have been alleged to have been taken from 148 different persons, is absolutely bogus transaction and, therefore, added amount of Rs.2,88,000/- as taxable income of the assessee and assessed the total taxable income to the tune of Rs.38,66,230/-. The A.O. also ordered for initiation of penalty proceedings under Section 271(1)(c) of the Act of 1961 and also ordered to charge interest as per rule. 8. Being aggrieved against the order of A.O., dated 28.12.2006, assessee preferred an appeal before the Commissioner of Income Tax (Appeals), Dhanbad, Jharkhand, who also gave a detailed order and rejected the appeal of the assessee and then, the further appeal of the assessee, being I.T.A. No. 169/RAN/2008 for the Assessment Year 2003-04, was dismissed by the order dated 29.3.2010 passed by Income Tax Appellate Tribunal, Circuit Bench, Ranchi. Hence, this Tax Appeal. 9. Learned senior counsel for the appellant, Shri Binod Poddar, vehemently submitted that the A.O., who is the first fact finding authority, commit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rissa Corporation (Pvt.) Limited reported in (1986)159 ITR 78 (SC), wherein also in a case where the A.O. was informed about the details of the creditors who were the income tax assessees, and to whom notice under Section 131 of the Act was issued at the instance of assessee, the A.O. did not pursue the matter further, nor did he examine the source of income of the said alleged creditors to find out whether they were credit-worthy or were such who could advance the alleged loans, then it was held that there was no effort made by the A.O. to find out the genuineness of the transaction, therefore, the liability cannot be fastened upon the assessee, once he has discharged his burden of proof. In view of the above decision, the learned senior counsel for the appellant submitted that the present case is squarely covered of the said judgment. It is submitted by the learned counsel for the appellant that the judgment of the Hon'ble Supreme Court delivered in the case of Orissa Corporation (Pvt.) Ltd. (supra) has been followed by almost all the High Courts and in support of this, he has cited yet three more judgments including the judgment of Hon'ble Supreme Court delivered in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove procedure or there can be exception to above procedure? 14. Similar question came-up for consideration before the Division Bench of this Court in the case of Mukesh Shaw Vrs. Income Tax Officer reported in 2012 (1) JCR 230 (Jhr), wherein it has been held that the admission contrary to the trustworthy evidence of donor cannot be accepted as binding upon the A.O. The admission binds the author of admission and operate as estoppel against him but is not binding upon any other persons or authority and ultimately, it has been held as under: Much stress has been given that in a number of judgments, it has been held that once identity of a donor or a creditor is disclosed by the assessee, then the Income Tax Officer can only proceed to register proceedings against such creditor and can give proper notice to such creditor to explain his income or the source from which he has given money to the assessee. Such plea do not applies in the facts of the case where from trustworthy evidence the Assessing Officer reaches to conclusion that the transaction itself is not genuine so as to have any doubt that the payment has been made by third person to assessee then issuing notice to a th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son over 2-3 days to raise loan of Rs.25.97 lakhs from them. The finding recorded by the Assessing officer in this behalf and confirmed by the ld. CIT (A) is, therefore, in order. Secondly, it is highly improbable that a person of ordinary prudence would approach 148 person for raising loans in order to pass on the same as loan to another person. It would be basically an exercise as middleman without any gain and thus, an exercise in futility, which nobody would like to undertake. Thirdly, it is stated in the assessment order that all the confirmations are on pro-forma papers, i.e., they are identically worded. The assessee has not filed any evidence before us to rebut the aforesaid finding recorded by the Assessing Officer and confirmed by the ld. CIT (A). In this view of the matter, their findings stand confirmed that all the confirmations are identically worded and are on pro-forma papers. It would not have been possible to obtain confirmations from 148 creditors, which are identically worded and on proforma papers unless the assessee himself had prepared confirmation letters and obtained signatures of the concerned persons. This again does not inspire confidence. Fourthly, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en mentioned in the said agreement (copy of original agreement was not produced) that both the parties agreed to enter into this agreement on 10.5.2002 at Dhanbad and Shri Ajay Kumar, who is one of the Directors of M/s Dhanu Agency (P) Limited, registered under the Companies Act, 1956 on 30.04.1998 and having its registered office at Mumbai, is carrying on business of Commission Agents traders and/or imports and exports in all kinds of paper and plastic stationery items and account books, diaries, files and allied etc. The assessee, by this agreement, agreed that the said Ajay Kumar accepted that, if the assessee invests a sum of Rs. 32 lakhs on loan basis in the Company of Shri Ajay Kumar, he will return a sum of Rs. 30 lakhs out of the total amount of Rs.32 lakhs, without interest to the assessee within one year and remaining Rs. 02 lakhs will be invested in the share capital of the Company against which the assessee will be the one of the Directors of the Company. This agreement runs into two pages and stamps paper was purchased on 23.4.2002 from Mumbai in the name of Dhanu Agency Pvt. Limited. We are proceeding further to examine this agreement because of the reason that copy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only. With this background, the assessee's contention that being a politician, he is a political leader(as per A.O., not star Politician and not disputed by the assessee) and, therefore, he could contact 148 persons in a very short period of three days and had collected Rs.25.97 lakhs, does not inspire confidence. The assessee's further admitted case is that he is the brother of an Advocate and there is allegation of one of the persons that because of the assessee being brother of Advocate, he had to sign confirmation note. A person, who had a total income of Rs.84,200/-, could not have collected Rs.25.97 lakhs from 148 persons in such a short period of three days, is a finding of fact and for this, we do not find any reason for which A.O. should have further proceeded to inquire into the matter even in a case where the identities of persons have been shown by the assessee and confirmation letters have been produced by the assessee and principle laid down by the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vrs. Orissa Corporation (Pvt.) Ltd.(Supra) cannot be stressed to the extent that where genuineness of transaction itself is found to be totally false, even t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or it's Director Ajay Kumar. The taking loan from 148 and other persons and advanced to said Company or person, in the facts of case is inseparable transaction. Therefore, in the fact situation, there was no need for further inquiry by the A.O. regarding the creditworthiness of all the creditors and sample inquiry was justified which finds support from findings recorded for other creditors. Therefore, we are of the considered opinion that when there is an exceptional case, then it is required to be dealt with and decided exceptionally. Such exceptional cases cannot be decided according to general cases. This is one of the example case. As we have already observed and we may further make it clear that in this case, in three days, the assessee himself, who was having no worth, alleged that he borrowed Rs.25.97 lakhs from 148 persons as if every person was waiting for this person to come and demand the money and every person was ready to give him money. This type of modus-operandi can be adopted by many persons. 21. On this point though judgment has been brought to our notice by the learned Senior counsel for the appellant, Shri Binod Poddar, but we have examined this case accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar' of the assessee, whose vehicle was financed by the assessee, (xii) The assessee, whose worth, as we have already stated above, must have prepared all the confirmation letters, which are verbatim same for all the creditors and as per the documents placed before us along with supplementary affidavit filed by the appellant (dated 03.7.2012) and endorsement has been obtained for repayment of the money by the assessee to such lenders, (xiii) Total 148 persons in three days gave money as interest free loan to the assessee. In view of the above facts, thus, there were sufficient reasons before the authorities below to discard the stand of the assessee that he borrowed the amount of Rs.32 lakhs from 148 person, from his wife and from other persons. Further, test check was done and that test check itself was not sole ground for rejecting the stand of the assessee, then that set of test check is certainly permissible in that facts and circumstances. The A.O. was not required to call all such creditors who also, if called, may have admitted in favour of the assessee, then that admission itself would not have been sufficient proof of the genuineness of the transaction of loan to Aj ..... X X X X Extracts X X X X X X X X Extracts X X X X
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