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TMI Blog2005 (7) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 256(1) of the Income-tax Act, 1961, for the assessment year 1986-87 for the opinion of this court: "Whether the Tribunal was justified in adding the cash credits in the income of the assessee when persons in whose names were the cash credits, had declared the same under amnesty scheme and had also been assessed as such on the respective amount credited in the account, despite the fact that those persons were closely related to the partners of the assessee-firm?" Brief facts of the case are as follows: The applicant-assessee (hereinafter referred to as "the assessee") was a partnership firm consisting of two partners, Sri Prayag Narain Gupta and his son Pramod Kumar Gupta, having equal shares. The assessee derived its income from manufacturing and sale of rice and rice bran and also from purchase and sale of foodgrains, pulses and oil seed. In the course of scrutiny of the account the assessing authority found the following cash credit entries during the relevant accounting period: --------------------------------------------- Sl. Name Old No. balance --------------------------------------------- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt from the fresh deposits made in this year and their deposits have been accepted as genuine and true by the Department. In this way it was submitted that the nature and source of the deposits are explained, inasmuch as the identity of the person, genuineness of the transactions and the capacity of the payment have been established. The Assessing Authority had not accepted the explanation and made the addition of the entire deposits towards unexplained income under section 68 of the Act. The Income-tax Officer further observed as follows: "The explanation of the assessee is not satisfactory as he could not explain the ability and capacity of the creditors to make such heavy deposits. Initially to make deposits in the bank and then to make deposits with the assessee-firm by withdrawing the amounts by cheque does not prove the capacity of the creditors to make the deposits with the assessee unless they prove their sources of income with documentary evidence. All the above creditors had no independent source of income except Shri Anil Kumar Gupta who carried on truck plying business. He has been assessed on the following total income: ----------------------------------- A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarding their source of income, it can, therefore, be proved that the creditors do not even deserve the immunity granted by the amnesty scheme as they have not proved their own income as laid down by the Board in answer to question No. 11 of the above-mentioned Circular No. 451. Even if for the sake of argument it is admitted that immunity has been granted to the creditors under the amnesty scheme and they were not bound to disclose their sources of income, the assessee cannot take any benefit in its own case in view of the decision of the hon'ble Supreme Court in the case of Jamnaprasad Kanhaiyalal v. CIT [1981] 130 ITR 244. This decision has set at rest a controversy among different High Courts regarding voluntary disclosures. It has held that voluntary disclosure scheme cannot be construed as concerning any benefit or immunity to any person other than the person making the declaration under that scheme. There was nothing in that scheme which prevented the Income-tax Officer, if he was not satisfied with the explanation of the assessee about the genuineness or source of the amount found credited in its books, in spite of its already being made a subject of the declaration by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or material on record and are based on mere suspicion and conjectures. 6. That the entire thrust of the arguments and pleading of the Assessing Officer in confirming the cash credits has been only emphasis that the alleged cash creditors are benamidars of the asses-see-firm's partners and as such the income is liable to be included in the hands of the assessee-firm under section 68. This entire approach is prima facie erroneous in law and cannot be sustained specially in view of the provision contained in the Benami Transactions (Prohibition) Act, 1988, which is retrospective in application and is universally applicable in India. 7. That the Assessing Officer and the learned Commissioner of Income-tax (Appeals) have failed to note that the creditors are all regular assessees on record who have paid the moneys by means of cheques and have duly confirmed the deposits. The assessment of the creditors have been duly completed before the present assessment in the hands of the assessee and accordingly there is no warrant for such addition or conclusion as arrived by the authorities below." The Tribunal held as follows: "We have heard the parties at length and also carefully per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctly justified in probing into the genuineness of the cash credits and the capacity of the creditors to advance the alleged loans. In this case the creditors being the wives and the minor sons, there is absolutely no explanation on record to show as to what was the source of income and how they happened to possess such huge amounts. The only explanation offered is that they have made voluntary disclosures and the income in their hands was from other source or cash gifts received from relations and friends other than the partners. But due to lack of evidence, the same was to be credited as income. This mere explanation is very vague. No evidence of possession has been given by the assessee to prove that these creditors were having any independent source of income from which they could get the said amount in their possession so as to advance the same to the assessee. Section 68 of the Income-tax Act casts responsibility on the assessee, in whose account the cash credits are entered, to prove the nature and source of the cash credits and if the explanation is not found to be satisfactory, then the said sums so credited may be charged to income-tax as the income of the assessee of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the following total income in the assessment years 1983-84, 1984-85 and 1985-86: ----------------------------------- A.Y. Truck income Interest ----------------------------------- 1983-84 - 9,098 1984-85 9,790 - 1985-86 14,100 593 ----------------------------------- ----------------------------------- Other sources Total ----------------------------------- 7,000 16,100 25,000 15,210 - 14,690 ----------------------------------- From this very assessment, it is evident that the assessee did not have much income so as to spare an amount of Rs. 90,000. He was just a marginal assessee filing the return of Rs. 16,000, Rs. 15,000 and Rs. 14,000 and odd in these respective years. We, therefore, are of the opinion that even he too was not in a position to advance that much amount as shown in his name in the books." Heard Sri R.R. Agarwal, learned counsel for the assessee and Sri A.N. Mahajan, learned standing counsel. Learned counsel for the assessee submitted that so far as the applicant is concerned, burden has been discharged proving the nature and source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of their wives and minors and even if that is accepted, then the addition should be made in the hands of the partners and not in the hands of the assessee-firm. He further submitted that the interest, which was paid by the assessee-firm to the depositors have not been disallowed which also proves the genuineness of the transactions. On these facts it has been submitted that the Tribunal has illegally observed that the deposited amounts belonged to the assessee, which is based on no evidence. Learned standing counsel submitted that the immunity under the Board Circular No. 451, dated February 17, 1986 (see [1986] 158 ITR (St.) 135), was available only to the declarant and not to the assessee and it was open to the assessing authority to make the enquiry with regard to the deposits. In support of his contention he relied upon the decision of the CIT v. United Trading and Construction Co. [2001] 247 ITR 819 (SC). He further submitted that the assessee failed to prove the genuineness and the source of the deposits and, therefore, it has been rightly treated as income under section 68 of the Act and the findings in this regard is a finding of fact. The apex court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. 69. Unexplained investments.- Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." Under section 68 of the Act if any sum is found credited in the books of account of the assessee 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. Therefore, what has to be enquired into by the assessing authority is about the nature and source of the deposit. If the explanation with regard to nature and source is found unsatisfactory only then the amount so credited may be treated as income. Section 68 came up for consideration before the vario ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing then such rejection could be made. The Department cannot by merely rejecting a good explanation unreasonably, convert good proof into no proof. In the case of CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC), the apex court observed as follows: "In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any thing further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and their returns were allowed to be accepted without any charge of penalty and interest. In the present case, with regard to the deposits, the assessee has offered the explanation that the depositors have given the amount by cheque, they were all income-tax assessees assessed to tax under the amnesty scheme and, therefore, their identity, genuineness of the transaction and their creditworthiness were established. It is not the case where the assessee has claimed any immunity on account of the assessment being made in the case of these depositors under the amnesty scheme. As stated above, under section 68 of the Act it is open to the assessing authority to make the enquiry in respect of the identity, genuineness of the transaction and the creditworthiness of the depositors. From the perusal of the order of the Tribunal and the authorities below, it appears that the explanation of the assessee has not been properly examined and has been rejected mainly on the ground that the immunity of the declaration under the amnesty scheme was only available to the declarant and not to the assessee without appreciating that the assessee has not claimed any immunity under the amnesty scheme. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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