9911796707
TMI Blog2003 (9) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... ount and various other particulars and completed the assessment vide order, dated March 30, 1995. In the course of the assessment so made, the Assessing Officer found that the assessee had taken loans from Nemichand Nahata and Sons (HUF) amounting to Rs. 4,35,000 and from one Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000 during the previous year ending on March 31, 1992. The Assessing Officer declined to treat the loan of Rs. 4,35,000 claimed to have been taken by the appellant from Nemichand Nahata and Sons (HUF) and added the entire amount of Rs. 4,35,000 in the assessee's total income from undisclosed sources under section 68 of the Income-tax Act, 1961. As regards the loan from Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000, the Assessing Officer declined to treat the loan amount to the extent of Rs. 4,25,000 as genuine and added the said amount of Rs. 4,25,000 to the total income of the assessee as income from undisclosed sources. As regards the first creditor, namely, Nemichand Nahata and Sons (HUF), the Assessing Officer, in the course of the assessment, examined the Hindu undivided family under section 131 of the Income-tax Act. In his statement so recorded, Sri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for advancing the loan to the appellant. The said sub-creditors were also examined and they confirmed that they had advanced the loans to the creditor, namely, Sri P.K. Agarwalla. It was also found by the Assessing Officer that the creditor as well as the sub-creditors aforementioned were all income-tax assessees. On examining the creditor and the sub-creditors aforementioned and also the assessment records of the sub-creditors, the Assessing Officer concluded that their income files were nothing, but capital building exercise aimed at accommodating others without support from any documentary evidence regarding their own business activities. The Assessing Officer, therefore, accepted as genuine the loan said to have been advanced by Sri P.K. Agarwalla to the assessee from his own source, but so far as the amount of Rs. 4,25,000 was concerned, the Assessing Officer added back the said amount to the assessee's total income from undisclosed sources under section 68 of the Income-tax Act. Feeling aggrieved by the assessment order, dated March 30, 1995, aforementioned, the assessee preferred appeal before the Commissioner of Income-tax (Appeals), Guwahati, who, vide his order dated F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orthiness of the creditors aforementioned by showing that the creditors had received the amounts aforementioned by way of cheque from the sub-creditors. To prove the creditworthiness of a sub-creditor is not, according to Dr. Saraf, the onus of the assessee inasmuch as it is immaterial so far as the assessee is concerned as to how and from what source(s), the creditor happens to receive the amount, which the creditor advances to the assessee as loan. Support for the submission is sought to be derived by Dr. Saraf, from the decision in Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam). It is also submitted by Dr. Saraf that in the present case, the creditors as well as the sub-creditors were income-tax assessees and, hence, the genuineness of the transactions and creditworthiness of the creditors had been clearly established by the appellant. In such a situation, according to Dr. Saraf, even if the sub-creditors had failed to show how they had received the amount(s), which they had advanced, as loan, to the creditors, then, the said amounts could have, at best, been treated as income from undisclosed sources of the sub-creditors, but the failure, if any, on the part of the sub-creditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no genuine transaction between the creditor and the assessee and that the creditor had no creditworthiness to advance the loan to the assessee. Viewed from this angle, contends Mr. Bhuyan, section 68 of the Income-tax Act cannot be limited to mean that the scope of the enquiry under section 68 by an Assessing Officer shall remain confined to the determination of the question as to whether the money had passed hands from the creditor to the assessee or not. Such interpretation, according to Mr. Bhuyan, will introduce a limitation on the powers of the Assessing Officer, which has not been envisaged by section 68 of the Income-tax Act. It is further submitted by Mr. Bhuyan that in the present case, merely because the transactions had taken place between the assessee and the creditor as well as the sub-creditors by means of cheques, it could not have necessarily led to the conclusion that the transactions were genuine inasmuch as nothing, according to Mr. Bhuyan, can be held as sacrosanct about the payments made by cheques. In support of this submission, Mr. Bhuyan has placed reliance on the decision rendered in CIT v. Precision Finance P. Ltd. [1994] 208 ITR 465 (Cal). Upon hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Illustrations: (a) When a person does an act, with some intention other than that which the character and circumstances of the act suggest, the burden of proving that intention is upon him. (b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him." On a careful reading of section 106, we notice that what is the source from which an assessee has obtained the loan can be safely held to be a fact, which is actually within the special knowledge of the assessee; hence, it is the burden of the assessee to show the source(s) from which he has received the loans. Once the assessee discloses the source(s) from which he has received the loans, his burden under section 106 stands discharged and the onus, then, shifts to the Assessing Officer to show, if he wants to treat the loan as an income of the assessee from undisclosed source, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which has been received by the assessee in the form of loans, actually belonged to the assessee himself. There can be no doubt that in order to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , received by the assessee. It, therefore, further logically follows that the creditor's creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee. A person may have funds from any source and an assessee, on such information received, may take loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... failure of the sub-creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be read, as a corollary, as the income from undisclosed source of the assessee himself. If sections 106 and 68 have to survive together, the logical interpretation will be that while the assessee has to prove only his special knowledge, i.e., the source from where he has received the credit and once he discloses the source from which he has received the money, he must also establish that so far as his transaction with his creditor is concerned, the same is genuine and his creditor had the creditworthiness to advance the loan, which the assessee had received. When the assessee discharges the burden so placed on him, the onus, then, shifts to the Assessing Officer if the Assessing Officer wishes to assess the said loan as the income of the assessee from undisclosed source, to prove either by direct evidence or indirect/circumstantial evidence that the money, which the assessee received from the creditor actually belonged to, and was owned by, the assessee himself. If there is direct evidence to show that the loan received by the assessee actually b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount, which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. We are fortified' in adopting this view from the following observations made in Tolaram Daga's case [1966] 59 ITR 632 (Assam): "At the outset, we have to point out that there is no substance in the contention that the sources from which the money was realised by the third party are within the special knowledge of the petitioner as the depositor happens to be his wife. Whether he has knowledge at all of the source of the money deposited by the third-party is a matter which has to be decided on evidence.....Under law, in the absence of specific proof of that knowledge, it cannot be assumed that the assessee has the knowledge in question within the meaning of section 106 of the Evidence Act.....To require the firm or the individual partners to go further and adduce proof of the sources from which the deposits in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... longed to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness. It is, no doubt, true that in the present case, the findings arrived at by the Assessing Officer as well as the learned Tribunal are findings of fact, but since these findings are based on an wholly erroneous view of law, such findings cannot be said to be mere findings of facts. It is trite that no assessment can be made contrary to the provisions of law. In the case at hand, the very basis for making assessment is under challenge. If the assessment is based on a completely err ..... X X X X Extracts X X X X X X X X Extracts X X X X
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