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TMI Blog2006 (3) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... of account and a cash credit entry appeared in the books of the firm in the name of the partner, section 68 would apply and the amount of the cash credit would be liable to be assessed in the hands of the firm because the entry appeared in the books of account of the firm which was a separate entity from its partner. In the present case also, these credits appeared in the books of account of the assessee. Therefore, these are liable to be considered in the hands of the assessee as per provisions of section 68 of the Act. Thus, it is clear from the facts of the case that even though amount credited to the capital account included gold ornaments i.e., in kinds and partly in cash, the addition of the entire amount was upheld. Thus, from the discussion, it is very clear that the provisions of section 68 are wide enough to cover all credits including credits of the nature found in the books of account of the assessee. The submission of the assessee that provisions of section 68 apply only to cash receipt/loans only is without any merit. Therefore, this submission is rejected. - HON'BLE JOGINDER PALL, A.M. AND BHAVNESH SAINI, J.M. For the Appellant : Sudhir Sehgal, Harjinder Singh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Cotton General Mills, Kotkapura, respectively. All these concerns who owed money to the assessee belong to assessee's close relations i.e., father, brother of the assessee, relatives of the assessee and a concern where assessee himself was a partner. The Assessing Officer, therefore scrutinized the sundry creditors appearing in the balance sheet and asked the assessee to furnish the names and addresses of these persons. These details were furnished and appeared on page 8 of the assessment order, where credits amounting to Rs. 62,55,097 in the names of 52 persons have been listed. The assessee stated that all these persons had sold their agricultural produce to the assessee. The Assessing Officer sent enquiry letters by Registered post to 12 out of the 52 persons at the addresses given by the assessee. All these letters were returned by the postal authorities 'unserved' with the remarks Not Known . Thereafter, the Assessing Officer issued a show-cause notice vide a letter dated 8-3-2004 mentioning this fact and his tentative conclusion that these credits did not appear to be genuine. The assessee was asked to produce these creditors simultaneously. The Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of J forms, the assessee had to clear the liability. Thus, the Assessing Officer observed that the assessee failed to discharge the onus cast on him to establish the identity of the persons and the source and genuineness of the credits. He relied on the judgment of Hon'ble Kerala High Court in the case of Oceanic Products Exporting Co. v. CIT [2000] 241 ITR 497, where it was held that the onus was on the assessee to establish the identity of the persons, creditworthiness of the creditor and genuineness of the transactions. He further relied on two judgments of Hon'ble Supreme Court in the cases of Kale Khan Mohammad Hanif v. CIT [1963] 50 ITR 1 and Roshan Di Hatti v. CIT [1977] 107 ITR 938, where it was held that the onus is on assessee to prove the source of receipt, whether it to of money or of other property. In case the assessee fails to satisfactorily explain, the Revenue is justified to treat the same as income and no further burden lies on the Revenue to establish that such income was from a particular source. He also relied on the judgment of Hon'ble Calcutta High Court in the case of Shanker Industries v. CIT [1978] 114 ITR 689 in support of the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was argued before the CIT(A) that the provisions of section 68 were not applicable because the assessee had not received cash. These credits represented sale of agricultural produce by the persons. It was also argued that the Assessing Officer failed to successfully show that amount of credits represented assessee's income from undisclosed sources. The assessee also submitted that the Assessing Officer had doubted only entries outstanding on the last date of the accounting year. It was also submitted that the Assessing Officer had not rejected the books of account as he had not given any finding about the undisclosed sales/purchases etc. and had not invoked the provisions of section 145 of the Act. It was also argued that the assessee had maintained complete records required under the Punjab Agriculture Produce Markets Act, 1961 which were also subject to check by Market Committee and the other State Government Authorities. These authorities had not found faults with the assessee about the maintenance of books of account or the procedures required to be followed. It was also argued that the statements of various persons were recorded at the back of the assessee and, therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer had rightly relied and referred to those enquiries. He further observed that the assessee's reliance on C.B.D.T. Circular No. 452 dated 17-3-1986 in case of 'Kacha Ahartia' was relevant for the purpose of lessening the burden of section 44AB on Kacha Ahartia. But these did not absolve the assessee for discharging a burden cast on him under section 68 of the Act. Thus, the learned CIT(A) upheld the addition made by the Assessing Officer. The assessee is aggrieved with the order of the CIT(A). Hence, this appeal before us. 5. The Ld. counsel for the assessee, Sh. Sudhir Sehgal, reiterated the submissions which were made before the authorities below. He submitted that the assessee who was 46 years of age started business of Kacha Ahartia and was granted licence by Punjab Mandi Board, Chandigarh for the period from 8-10-1999 to 31-3-2002. He drew our attention to page 80 of the paper book which is a copy of licence granted to the assessee. He was encouraged by his father and brother who were also engaged in the business of ginning of Narma and Cotton and owned independent concerns. The name of the concern owned by his father Sh. Gurcharan Singh was M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uction of the same. He also drew our attention to pages 36, 38 and 40 of the paper book which are copies of 'J' Forms containing details of seller and purchaser, rate at which sold, weight, total amount, labour charges and where the signatures of the seller and also of the kacha arhatia. He submitted that these forms were like bearers cheques which enabled the farmers to collect the amounts mentioned therein by presenting these forms to 'Kacha Arhatia'. He submitted that the names of these sellers also appear in the heap register. Further Forms 'GH' are issued to the buyers of the agricultural produce. He also drew our attention to pages 62 to 65 of the paper book which are copies of 'GH' forms issued to the purchaser of the agricultural produce which contains the names of the buyers, rate at which purchased, total amount, labour charges etc. He further stated that weekly returns were also required to be submitted to the Market Committee and he drew our attention to pages 44 and 45 of the paper book which are copies of such weekly returns. He further stated that unlike purchases of wheat and paddy made by Government Agencies like FCI, PUNSUP, cotton ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no addition could have been made under section 68 of the Act. He further argued that section 68 is applicable only where the assessee has introduced any cash in his books. However, the assessee had not introduced any such cash and, therefore, no addition under section 68 was liable to be made. He relied on the following decisions/judgments: (i) ITAT, Amritsar Bench in the case of Amritsar Trading Co. Jalandhar v. ITO Distt. 11(3), Jalandhar, [IT Appeal No. 586(ASR) of 1980] for the assessment year 1976-77, where it was held that in a case where purchases of the skins and hides were not doubted by the Assessing Officer, no addition could be made for the reason that the assessee failed to produce the suppliers who had sold the goods to the assessee. (ii) The ITAT, Amritsar Bench, in the case of Asstt. CIT, CC. II, Amritsar v. Swani Enterprises, Amritsar, [IT Appeal No. 178(ASR) of 1996], assessment year 1992-93, where it was held that non-existence of the farmers from whom purchases had been made could not be the basis for addition because such purchases were represented by corresponding sales and the average purchase price from 'arhtias' and from the parties was accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts received from a party were settled through bills and cheques and assessee had business dealing with the same party in succeeding years also. On enquiry, the party was not found in existence. However, the Assessing Officer made addition under section 68 which was deleted by the Tribunal on the ground that without finding out further details of the party, credit could not be held to be bogus. (viii) ITAT, Delhi Bench in the case of Annamaria Travels Tours (P.) Ltd. v. Dy. CIT [2005] 95 TTJ (Delhi) 71, where the tickets sold of the airlines in the last fortnight of March, 1997, paid to principal in April, 1997 and the assessee claimed deduction of the expenses for the assessment year 1998-99, such expenses were held to be allowable in the year 1998-99 because such practice had been followed and accepted for about a decade. It was also observed that there was no loss to revenue because rates of tax in a case of company were the same as for earlier year and subsequent assessment year. It was also held that no addition under section 68 could be made in respect of the amount standing to the credit of sundry creditors for purchase of airlines tickets merely on the ground that no conf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT v. P.K. Noorhajan [1999] 273 ITR 570, the ld. counsel for the assessee submitted that the expression used in section 69 is 'may' and not 'shall' which means that it is not obligatory on the part of the Assessing Officer to make addition in each and every case where the explanation submitted by the assessee is not found to be satisfactory. He further relied on the judgment of Patna High Court in the case of Hanutram Chandanmul v. CIT [1983] 23 ITD 505 which is on the procedure for reference to the Third Member and application of proviso to section 13 of the old Act. He further relied on the decision of Supreme Court in the case of CIT v. Bharat Engineering Construction Co. [1972] 83 ITD 187 which was rendered in the context of old provisions of the Act which did not contain any section corresponding to section 68 of the Act. However, the Hon'ble Supreme Court observed that the findings of the Tribunal that cash credit entered in the first year of business did not represent the income of the company and, therefore, was not liable to addition was a finding of fact which did not warrant any interference. He also relied on the judgment repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned excess amount of Rs. 26,000 was upheld under section 68 of the Income-tax Act, 1961. Thus, he submitted that the provisions of section 68 were rightly held applicable by the authorities below. He further submitted that the decision of ITAT, Amritsar Bench in the case of Amritsar Trading Co. Jalandhar, relied upon by the ld. counsel was not applicable because in this case none of the persons in whose name credits appeared has been identified. The same is the position with various other decisions relied upon by the ld. counsel which are not applicable to the facts of the present case. In most of the cases relied upon by the ld. counsel additions were made by treating the amounts as bogus purchases without questioning corresponding sale. Therefore, the additions were deleted. But these are not the facts of the present case. He further relied on the judgment of Hon'ble Supreme Court in the case of Kale Khan Mohammad Hanif [1963] 50 ITR 1 where it was held that burden of proving the source and genuineness of the liability is on the assessee. He further relied on the judgment of Hon'ble Calcutta High Court in the case of Shanker Industries v. CIT [1978] 114 ITR 689, where it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fy these persons because most of the transactions were not frequent or regular. He further stated that the ld. Counsel has extensively argued about the identity of the persons having been established through Form 'J'. He drew our attention to pages 36, 38 and 40 of the paper book which are copies of Form 'J'. He submitted that as per J-form, the requirement was to record the name of the seller of produce along with his complete address. He submitted that in Form 'J', only the name of village Kot Fattu has been mentioned. This cannot be considered the complete address of the farmers. He further drew our attention to the relevant pages of the Heap register maintained by the assessee. These again did not contain complete address of the parties whose agricultural produce was sold by the assessee. Similarly, the ld. DR submitted that the weekly statements submitted to the Market Committee do not contain the complete address of the sellers which the assessee was required to maintain. Thus, he submitted that none of these documents referred to by the ld. counsel establish the identity of the sellers of the agricultural produce. He also refuted the submissions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... produce any of the parties except one. He submitted that in the present case, the assessee had not been able to satisfy even the first ingredients of the identity of the creditors much less of proving the subsequent part about the creditworthiness and genuineness of the transaction. He also stated that mere fact that one Heap register or other records maintained under the bye-laws of Market Committee does not mean that it would override the provisions of section 68 of the Income-tax Act. He further stated that the issue regarding rejection of books of account is not at all relevant for the purpose of making addition under section 68 of the Income-tax Act. Thus, he submitted that the Assessing Officer has rightly made the impugned addition and the learned CIT(A) has rightly sustained such addition. 7. We have heard both the parties at some length and given our thoughtful consideration to the rival submissions with reference to facts, evidence and material on record. We have also gone through the orders of the authorities below and referred to the relevant pages of the paper book to which our attention has been drawn. Since the judgments/decisions cited at they were not found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed in the hands of the firm because the entry appeared in the books of account of the firm which was a separate entity from its partner. In the present case also, these credits appeared in the books of account of the assessee. Therefore, these are liable to be considered in the hands of the assessee as per provisions of section 68 of the Act. Further in the case of Roshan Di Hatti, the assessee carried on business of gold and jewellery in Lahore till June, 1947. In June, 1947, the assessee transferred from Lahore the sums of Rs. 12,094, Rs.13,000 and Rs. 6,000 to banks in New Delhi. The assessee left Lahore for Mussoorie in June, 1947, with a sealed trunk containing gold ornaments, jewellery and cash which he deposited in the Imperial Bank at Amritsar. He stayed in Mussoorie till October, 1947, where he did not carryon any business or had any means of income. In October, 1947, the assessee came to Delhi and secured premises for commencing business in February, 1948. The first entry in the books of account of the assessee was dated 30-3-1948, bringing in an aggregate capital of Rs. 3,33,414 including gold ornaments for Rs. 1,19,320, gold rawa for Rs. 1,69,020 and stones for Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though amount credited to the capital account included gold ornaments i.e., in kinds and partly in cash, the addition of the entire amount was upheld. Thus, from the above discussion, it is very clear that the provisions of section 68 are wide enough to cover all credits including credits of the nature found in the books of account of the assessee. The submission of the assessee that provisions of section 68 apply only to cash receipt/loans only is without any merit. To give such a narrow meaning to section 68 would be contrary to the Legislative intent and the ratio of judicial pronouncements of the Supreme Court and the High Courts. Therefore, this submission is rejected. 7.1 Having held that provisions of section 68 are applicable to the present case, the next important issue that requires to be decided is whether the addition in this case was called for. In order to answer this issue one needs to take into account relevant facts of each case. Now the most significant facts relating to this case are that the assessee was a 'katcha arhatia'. The role of katcha arhatia is to provide a platform to the sellers to sell their produce in the market. The transactions of purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This finding is supported by the enquiries made by the Assessing Officer during the course of assessment proceedings, i.e., the non-service of enquiry letters by postal authorities on 12 persons, the statements of the two persons and village Sarpanches recorded by the Inspectors during the conduct of enquiries and inability of Assessing Officer to produce any of these 51 parties before the Assessing Officer. The fact is that complete addresses of the farmers have not been recorded in the Heap register, in Form 'J', in form 'GH', books of account maintained by the assessee, weekly returns submitted to the Market Committee etc. The omission of their complete addresses in the aforesaid documents/records could not be a matter of just co-incidence. The question also arises why the agriculturists who are not liable to income-tax would hide their identity and give wrong names and addresses. This is all the more surprising when the payments for the purchases made from them were not made immediately on purchase. The amounts in question were paid in the subsequent assessment year. Now in such a case, no reasonable person with normal prudence would like that his correct name a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of such credits is the purchase of cotton and narma from the assessee and such entries appear in their books of account. The assessee in his books has shown the amounts due from his sister concerns as sundry debtors and the corresponding credit entries in their books of account justify such action. Therefore, no fault can be found with the entries made in their books of account of the sister concerns because their balance sheet depict correct position about their assets and liabilities. But if the credits appearing in the balance sheet remain unexplained, the same would warrant addition in this case because the credits appear in the balance sheet of the assessee. If these credits are not genuine, the balance sheet would show the difference on asset aside higher than the total of liabilities. Therefore, the addition under section 68 would be called for in this case and not in the cases of sister concerns. 7.4 Both the parties have cited catena of judgments/decisions before us. It is settled position that decision of a particular Bench or Court takes its colour and shape from the facts of the case and the issue raised before the court. Reliance in this regard is placed on the judg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are effected only as a commission agent on behalf of other parties. Therefore, the ratio of all these decisions relied upon by the assessee has to be seen in the light of facts of the present case. These distinguishing features have been highlighted in the preceding paragraphs where submissions of the ld. counsel have been recorded. Most of other decisions relied upon by the ld. counsel are on the issue of rejection of book results in the light of specific defects found in the books of account or even low yield in respective cases where the question related to estimation of income by applying the provisions of section 145(2) of the Act. But in the present case, the assessee has not carried on any trading on its own. He has earned income by way of DAMI on the transactions effected through him as a commission agent. Income received by way of DAMI is fully supported by documentary evidence. Therefore, the question of rejection of book results does not arise in the present case. Moreover, there is nothing in section 68 of the Act that books of account must be rejected before making an addition under this section. This is an independent and deeming provision and will apply if the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions were not frequent and regular. The assessee never desired to have cross-examination of the Village Sarpanches with whom the Inspectors had made enquiries. We may further mention that the Assessing Officer is vested with power to cause enquiries made through his Inspectors. In fact, section 133A confers powers on the Income-tax Authorities to carry out survey. The Assessing Officer can take such action himself or through a person authorized by him. Section 133A confers powers on an Income-tax Authority. Clause (a), to section 133A defines Income-tax Authority which also includes an Inspector of Income-tax . Clause (iii) of sub-section (3) of section 133A also confers powers on an 'Income-tax Authority' to record the statement of any person which may be useful for, or relevant to, any proceeding under this Act. Thus, it is not correct to say that the Inspector cannot record the statement of any person. The Assessing Officer has made enquiries through his Inspectors in exercise of the powers conferred under the Act. Moreover, such enquiries only confirmed the fact that the persons have not been found existing at the given villages and obviously they have not sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i High Court held that the order of the Tribunal was perverse as the Tribunal had acted on irrelevant material. The relevant findings recorded by the High Court on page 576 are as under: Held, that the Tribunal had not taken into consideration relevant materials and had acted on irrelevant materials. The question before the Tribunal was not whether purchases were made from another concern. What was under consideration was whether the purchases were made from K as was claimed by the assessee. Once it was accepted that the supplies were not made by K to whom payments were alleged to have been made, the question whether the purchases were made from some other source could not have weighed with the Tribunal as a factor in favour of the assessee. The conclusions of the Tribunal were, therefore, clearly erroneous, contrary to the materials on record and had been arrived at without taking into consideration relevant material and by placing reliance on irrelevant materials. Where the Tribunal acted partly on relevant and partly on irrelevant materials, and it was not possible to say to what extent the latter had influenced its mind, the finding was vitiated because of the use of irrelevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and there was no evidence that amount paid by cheques had come back to assessee. Therefore, the Tribunal deleted the addition. On a reference, the High Court answered the question in favour of assessee and against the Revenue by recording following findings in last paragraph on page 251 of 163 ITR: On a perusal of the order of the Tribunal, it clearly appears that whether the said transactions were bogus or not was a question of fact. The Tribunal has also pointed out that nothing is shown to indicate that any part of the fund given by the assessee to these parties came back to the assessee in any form. It is further observed by the Tribunal that there is no evidence anywhere that these concerns gave vouchers to the assessee. Even the two statements do not implicate the transactions with the assessee in any way. With these observations, the Tribunal ultimately has observed that there are certain doubtful features, but the evidence is not adequate to conclude that the purchases made by the assessee from these parties were bogus. It may be stated that the assessee was given credit facilities for a short duration and the payments were given by cheques. When that is so, it cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. ACIT has not afforded any opportunity to the appellant for rebutting the cross examining the statement recorded and information gathered by the Inspectors and other inquiries made in the absence of the appellant. These proceedings are illegal ab initio in the eyes of law. We also find that the assessment was completed on 29-3-2004. Thus, the whole exercise of asking the assessee to produce 52 parties was during the period from 8-3-2004 to 26-3-2004. This in our view could not be considered as sufficient time allowed to the assessee when the persons were not located at the same place. Besides, the assessee was confronted with the material gathered during the course of enquiries made by the Inspectors and statements recorded only on 22-3-2004. Thus, there was hardly any time given to the assessee for making any effective representation. The Ld. CIT(A) has summarily disposed of this ground; Thus, we find force in the submission of assessee. Therefore, in order to be fair to the assessee, we consider it appropriate to set aside the order of CIT(A) and restore the addition to the file of Assessing Officer for deciding the same afresh as per law and after affording sufficient and reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ills. Both stated that they made purchases of cotton and narma through the assessee who was a commission agent. They also stated that the assessee did not know many persons who grow cotton. Since they were engaged in the business of cotton ginning, some persons or small traders who purchased the Kapas and Narma from villages, approached them to sell the produce. They recommended the name of the assessee for making their sales. It was also stated that as per bye-laws of the Market Committee, they could not purchase the kapas and narma directly from the farmers. Therefore, the name of assessee was recommended. They stated that they took responsibility for making payments of the purchases. However, when asked to furnish the names and addresses of the parties who were recommended to assessee to sell their produce, both replied that this was not known to them. They also admitted that such persons were not personally known to them. However, they stated that commission was paid to them for introduction and the responsibility of the payments to the agriculturists. The Assessing Officer observed that Sh. Baljit Singh did not even know the names and addresses of the persons who were sent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritten statements recorded by the Assessing Officer both Sh.Gurcharan Singh Ahuja and Sh. Baljit Singh Ahuja confirmed that they used to send persons who come to them to sell cotton and narma. He stated that they were also assured of payments to them. He stated that what was relevant was the commercial expediency for the benefit of the assessee. Whether that benefit is to accrue immediately or after some time was not relevant? He further relied on the following judgments of various Courts: (i) Aluminum Corpn. of India Ltd v. CIT [1972] 86 ITR 11 (SC) where it was held that the agent was entitled to commission on all sales whether made through agent or directly as he was responsible for ensuring fulfilment of all the contracts. (ii) J.R. Patel Sons (P.) Ltd. v. CIT [1968] 69 ITR 782 (Guj.), where it was held that in deciding whether payment was made for the purposes of business, the correct approach would be to see whether it was made on grounds of commercial expediency for the ultimate benefit of the business. Whether that benefit is to accrue immediately or after the lapse of time and whether directly or indirectly was immaterial. (iii) Addl. CIT v. Kuber Singh Bhagwandas [1979] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the statements recorded, none of the persons could tell name of a single person who was sent to the assessee for selling their agricultural produce. Thus, he submitted that it is a clear case of diversion of income and the order of the CIT(A) does not merit any interference. 12. We have heard both the parties and carefully considered the rival submissions, examined the facts, evidence and material on record. It is settled law that if the assessee claims deduction of any expenses, the burden of proof is on him to establish that such expenditure was incurred wholly and exclusively for the purpose of his business. Reliance in this regard is placed on the three judgments of Hon'ble Supreme Court in the case of CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191, Lakshmiratan Cotton Mills Co. Ltd. v. CIT [1969] 73 ITR 634 and L.R Sugar Factory Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293. There is no dispute about the fact that there is no written agreement between the assessee and two sister concerns to whom 75 per cent of the commission had been paid. Even if there is no written agreement, the assessee could still claim deduction for the expenses provided he is able to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X
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