INCOME TAX OFFICER v. BADIANI ENTERPRISE
[Citation -1984-LL-0928-6]

Citation 1984-LL-0928-6
Appellant Name INCOME TAX OFFICER
Respondent Name BADIANI ENTERPRISE
Court ITAT
Relevant Act Income-tax
Date of Order 28/09/1984
Assessment Year 1976-77
Judgment View Judgment
Keyword Tags unexplained cash credit • agricultural income • immovable property • deeming provision • promissory note • registered firm • initial burden • draft order
Bot Summary: Accepting the submissions made on behalf of the assessee, the Commissioner deleted the addition of Rs. 40,000 from the total income of the assessee. Placing before us a copy of the statement made by Shri Masri Jivabhai before the ITO, the learned counsel for the assessee submitted that since the assessee had not only produced evidence about the genuineness of the loan and credit-worthiness of the party who advanced such loan but had also produced Shri Masri Jivabhai before the ITO for the latter's examination, the Commissioner had rightly deleted the addition of Rs. 40,000 made by the ITO. Once the creditor had accepted the fact that he had advanced loan of Rs. 40,000 to the assessee, the learned counsel for the assessee submitted that the assessee had successfully discharged the onus which laid upon it. Since, in our opinion, the assessee has discharged the initial onus, which lay upon it, to explain the nature and source of credit of Rs. 40,000 the Commissioner was fully justified in deleting the said amount from the total income of the assessee. ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 - Because of difference of opinion between two members, the following question is referred to for the opinion of Third Member: Whether, on the facts and in the circumstances of the case, the amount of Rs. 40,000 represented by cash credit in books of the assessee is required to be added to the income of the assessee THIRD MEMBER ORDER Per Dr. V. Balasubramanian, Vice President - The assessee is a registered firm, carrying on among other things the running of Cinema House. The two members who heard the appeal having differed, the following point of difference is referred to me as the Third Member for resolution: Whether, on the facts and in the circumstances of the case, the amount of Rs. 40,000 represented by cash credit in books of the assessee is required to be added to the income of the assessee 2. Since neither the ITO nor the Commissioner or even the learned members of the Tribunal, who heard the case, have gone into the financial position of the assessee himself and the particular context in which this loan was allegedly taken by the assessee, I am not in a position to appreciate the context in which the loan was said to have been taken. The decisions are clear that in the case of a person who is not under the control of the assessee so as to manipulate things, the assessee cannot be held responsible for whatever oddities the creditor can be invested with.


This is departmental appeal against order of Commissioner (Appeals), wherein he has deleted following additions made by ITO on account of certain cash credits appearing in books of assessee: (i) Shri Laljibhai Manga Rs. 10,000 (ii) Shri Masri Jivabhai Rs. 40,000 2. At outset, learned counsel for assessee was fair enough to state that he cannot possibly support order of Commissioner (Appeals) deleting Rs. 10,000. In this view of matter, we have no hesitation in reversing order of Commissioner (Appeals) on this point. 3. ITO made addition of Rs. 40,000 in following manner: " 6. assessee was asked to produce cash creditors, Shri Bhaichandbhai, accountant of assessee, produced Shri Masri Jivabhai, whose statement on oath was recorded in presence of Shri Bhaichandbhai. It was stated by him that he had 38.25 acres of land at village Raval and there were seven members in his family. It was stated that his net income from agricultural land was approximately at Rs. 20,000 per annum and his household expenses were Rs. 12,000. It was stated by him that he had no bills for sale of crops, etc. It was stated that there was branch of Bank of India at Raval since 15 years but he used to keep cash with him. It was stated that before 8 years, he had obtained loan of Rs. 12,000 from Bank of India for installing pipeline to his field. It was contended by him that he had advanced loan of Rs. 40,000 to Shri Abhalbhai Makwana in cash, which represented his past savings. It was further stated by him that Shri Makwana wanted to be partner in Amber Cinema, so he had given him loan. It was also stated by him that his younger brother was studying with Shri Makwana and, thus, he knew him. It was stated by him that no receipt was obtained by him. It was stated that except that his brother was studying with him, he was in no other way connected with him. 7. It would be pertinent to note that cash credit appears in books of account of M/s Badiani Enterprises and not in books of Shri Makwana, who i s only partner. Further, in view of fact that Shri Masri Jivabhai had to obtain loan for installation of pipeline, story of availability of Rs. 40,000 during relevant year cannot be accepted and same was proposed to be added to total income of assessee in draft order of assessment. assessee objected to addition of cash credits of Rs. 40,000 in name of Shri Masri Jivabhai. After hearing assessee, IAC directed that addition of unexplained cash credit should be added as it was highly improbable that any normal person would advance Rs. 40,000 to stranger without bothering to obtain even receipt. I am, therefore, adding amount of Rs. 40,000 as unexplained cash credit in hands of assessee." 4. In appeal, assessee submitted that since ITO had failed to appreciate its case in proper perspective, addition of Rs. 40,000 made by him is unwarranted. Accepting submissions made on behalf of assessee, Commissioner (Appeals) deleted addition of Rs. 40,000 from total income of assessee. 5. learned representative for department kly relied on order of ITO and submitted that on material gathered by him, Commissioner (Appeals) ought to have confirmed addition of Rs. 40,000 made in assessment. He also relied on decision of Hon'ble Bombay High Court in case of Velji Deoraj & Co. v. CIT [1968] 68 ITR 708. learned counsel for assessee, on other hand, supported action of Commissioner (Appeals). Placing before us copy of statement made by Shri Masri Jivabhai before ITO, learned counsel for assessee submitted that since assessee had not only produced evidence about genuineness of loan and credit-worthiness of party who advanced such loan but had also produced Shri Masri Jivabhai before ITO for latter's examination, Commissioner (Appeals) had rightly deleted addition of Rs. 40,000 made by ITO. Once creditor had accepted fact that he had advanced loan of Rs. 40,000 to assessee, learned counsel for assessee submitted that assessee had successfully discharged onus which laid upon it. At this stage, he also emphasised fact that said creditor was not related to any of partners of firm. In support of his submission, learned counsel for assessee relied on decision of Hon'ble Patna High Court in case of Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344. of Sarogi Credit Corpn. v. CIT [1976] 103 ITR 344. 6. On due consideration of rival submissions of parties as well as material placed before us, we do not find any justification to interfere with order of Commissioner (Appeals) on this point. It would appear from order of ITO itself that assessee had successfully discharged initial onus, which laid upon it, by not only establishing credit-worthiness and genuineness of loan of Rs. 40,000, but also had produced creditor before ITO who had confirmed fact about advancing loan of Rs. 40,000 to assessee. Under these circumstances, we are of view that ITO was not justified in considering irrelevant material of obtaining loan of Rs. 12,000 by creditor some 8 years back. Since, in our opinion, assessee has discharged initial onus, which lay upon it, to explain nature and source of credit of Rs. 40,000 Commissioner (Appeals) was fully justified in deleting said amount from total income of assessee. As we are deciding appeal on appreciation of facts already brought on record, it is not necessary to refer to aforesaid two decisions cited by parties. 7. In result, appeal is partly allowed. Per Shri P. J. Goradia, Accountant Member -- I have gone through order of my learned brother and have also discussed same. I have not been able to convince myself about decision taken in respect of cash credit of Rs. 40,000 from Shri Masri Jivabhai and, therefore, I disagree. In my opinion, order of Commissioner (Appeals), deleting amount of Rs. 40,000, requires to be set aside and that of ITO restored. reasons are as follows: 1.1. provisions contained in section 68 of Income-tax Act, 1961 (' Act '), are new ones as compared to Indian Income-tax Act, 1922 (' 1922 Act '). However, under 1922 Act, unexplained cash credits used to be added under general law of income-tax. Section 68 essentially contains deeming provision and phraseology of section is very clear. law has laid down that in absence of satisfactory explanation, unexplained cash. credit may be charged to income-tax as deemed income. explanation about nature and source of cash credit should be satisfactory in opinion of ITO. So test to be applied is whether assessee has been able to adduce necessary evidence so that it can be called satisfactory explanation. In this case, out of four cash credits, two cash credits were added by ITO, as directed by IAC, as unproved cash credits and cash credit of Rs. 40,000 from Shri Masri Jivabhai, with which we are concerned, is in respect of loan obtained by cash. On going through statement of lender taken by ITO on 18-1-1979, information gathered supports more case of revenue rather than that of assessee. Following attendant aspects are noteworthy: 1. lender is not assessed to tax and is having only agricultural income. According to version of lender, he was having yearly agricultural income of Rs. 20,000, out of which his household expenses were Rs. 12,000 approximately and balance of Rs. 8,000 was accumulated in cash from year to year, He was accumulating those savings in cash since 1969, approximately 10 years before statement. 2. In 1971, he had taken loan of Rs. 12,000 from Bank of India and only Rs. 4,000 was paid towards amount of loan by 1979 (Question No. 15). (This aspect is clearly against version that he was saving Rs. 8,000 yearly in cash). 3. He was not in habit of advancing any loan to any person but this was only one instance (no convincing reasons given). 4. In question No. 28, it is replied stating that he did not know in what denomination of notes amount of Rs. 40,000 was paid (this is unbelievable because number of currency notes of each denomination was not asked). 5. Though loan (with interest) was outstanding to be paid to Bank of India, he had not received any interest on advance of Rs. 40,000 during period of 4 years between 1975 and 1979---Question Nos. 28 and 29 (why this was so?). 6. Neither receipt nor promissory note was taken for such big sum paid to Mr. Makwana (this raises doubt rather than removing it). 1.2 From above Inference drawn by IAC that claim like this one had to be viewed in light of normal human conduct, was correct inference. inference. 1.3 Commissioner (Appeals) has deleted amount of cash credit on ground that assessee had discharged initial burden; nothing was proved by ITO to show that lender was not man of means or that transaction was not genuine. In my opinion, it is necessary for assessee to prove, prima facie, transaction which results in cash credit by good material especially when it is by cash. Such proof includes not only identity of lender but also capacity of lender to advance money (not only his worth because of immovable property but also he must be able to spare and advance liquid cash) and genuineness of transaction. Unless this is done, it cannot be said that assessee has adduced evidence so as to shift burden on revenue. Here, in this case, only thing that is proved is that depositor had 38.25 acres of land. But nothing is proved regarding whether depositor could have saved and was in possession of necessary amount of cash. It cannot be said that transaction is accepted by ITO as genuine one and not doubted. 1.4 case relied upon by learned counsel for assessee in case of Sarogi Credit Corpn. cannot be applied to facts of case. Out of many, two distinct features of case are that depositors were on records of income-tax department and depositors were doing some business. Besides, decision heavily relied upon decision of Bombay High Court in Orient Trading Co. Ltd. V. CIT [1963] 49 ITR 723, which pertained to provisions under 1922 Act. As stated earlier, section 68 is deeming provision introduced only in 1961 Act. Besides, there cannot be one general o r universal proposition of law which could be guiding yardstick in matter under consideration. Each case has to be decided on facts and in circumstances of particular case. surrounding circumstances to be considered must be objective facts, evidence adduced before taxing authorities and acceptance of facts based on common human experience in life. 2. In result, appeal requires to be allowed. ORDER UNDER SECTION 255(4) OF INCOME-TAX ACT, 1961 -- Because of difference of opinion between two members, following question is referred to for opinion of Third Member: " Whether, on facts and in circumstances of case, amount of Rs. 40,000 represented by cash credit in books of assessee is required to be added to income of assessee?" THIRD MEMBER ORDER Per Dr. V. Balasubramanian, Vice President -- assessee is registered firm, carrying on among other things running of Cinema House. While making assessment for assessment year under appeal, ITO included sum of Rs. 40,000 as income from other sources. This represented alleged loan of Rs. 40,000 taken on 15-4-1975 from one Shri Masri Jivabhai. addition made by ITO was deleted by Commissioner (Appeals). It is, thus, that matter came before Tribunal. two members who heard appeal having differed, following point of difference is referred to me as Third Member for resolution: " Whether, on facts and in circumstances of case, amount of Rs. 40,000 represented by cash credit in books of assessee is required to be added to income of assessee?" 2. learned counsel for department, relying on order of ITO and instructions of IAC, has pointed out that assessee has not brought on record any evidence to support genuineness of loan. In matters of this type; especially in context of newly introduced section in 1961 Act, namely, section 68, which was not present in 1922 Act, it was entirely for assessee to establish genuineness of any alleged loan. It is not enough that assessee points out to alleged creditor in flesh and blood. He should also point out that party is capable of making advance. While learned counsel would leave manner of satisfying this point to assessee, normal conduct of persons would certainly be of importance in this context. In present case that creditor has not behaved in normal fashion, is clear from his statement. This has been highlighted by order of learned Accountant Member, where he has pointed out at least six discrepancies enabling assessee's claim to be thrown out. 3. Repeating points to stress them, learned counsel has pointed out that creditor claims to have substantial agricultural income and also having purchased pump set, etc., with borrowed money. There is no proof, however, for extent of agricultural income stated to be earned, details of household expenses, etc. alleged estimate made by creditor in this regard is not corroborated by any other details. creditor has bank account. He is supposed to be saving substantial amount from agriculture from year to year. Even so, he claims to keep substantial cash at home. No part of alleged income is put into bank. creditor borrowed sum of Rs. 12,000 from bank as agricultural loan. Out of this, only Rs. 4,000 has been paid. If person has got substantial income as claimed, asked learned counsel, would he not pay back loan outstanding for long time? creditor has not advanced any loan to any other party. He has not taken any receipt for loan even though it is large amount of Rs. 40,000. He has not received any interest on loan. What his other activities are, is also not known. In short, it is claim of learned counsel that there is complete blank as regards details of activities of creditor going to show that he was merely name lender. Apparently, assessee has taken advantage of fact that creditor has some agricultural lands. 4. Laying stress on decision of Bombay High Court in Velji Deoraj & Co.'s case, especially at pages 717 and 719 of report, learned counsel has pointed out that mere identification of creditor only has been done in present case. assessee has not proved with any evidence that creditor is in position to lend amount. More than that as decision lays down, it has not been shown that creditor did give amount to assessee. decision in Sarogi Credit Corpn.'s case, referred to by learned Judicial Member, has no application to case. In fact, this decision has not taken note of other important decision in Velji Deoraj & Co.'s case. 5. For assessee, stress is laid on orders of Commissioner (Appeals) and learned Judicial Member. Referring to assessment order and directions issued by IAC, it is pointed out that ITO wanted to make addition of more than Rs. 1 lakh but IAC restricted same to only portion thereof. Even out of this, Commissioner (Appeals) deleted substantial amount. Ultimately, it is only this addition of Rs. 40,000, which is now substantial amount. Ultimately, it is only this addition of Rs. 40,000, which is now for consideration before Tribunal. assessee has produced creditor. deposition of creditor has been taken. No part of deposition casts doubt on genuineness of loan or assessee's explanation. When assessee has done all he can to substantiate loan, there was no justification for making addition. 6. matter lies in small compass. assessee claims to have received sum of Rs. 40,000 by way of loan from creditor, Shri Masri Jivabhai, o n 15-4-1975. Since neither ITO nor Commissioner (Appeals) or even learned members of Tribunal, who heard case, have gone into financial position of assessee himself and particular context in which this loan was allegedly taken by assessee, I am not in position to appreciate context in which loan was said to have been taken. What I want to mention is urgency with which assessee wanted finance or purpose for which it was needed might have added strength to arguments on either side but there is no information on this point. Be that as it may, assessee's case is that he took loan from party whose whereabouts were given. party is not related to assessee. alleged creditor is not under control of assessee, so that he could force him to give false statement or manipulate evidence. creditor has been not only identified but also examined by ITO. T h e statement given by him does not cast any doubt on alleged loan. According to learned counsel for department, there are certain aspects of deposition which are not in consonance with normal human behaviour. It is pointed out that with substantial agricultural income and having bank account, creditor has not banked money. absence of document or receipt is also referred to. Reference also is made to fact that loan is taken from bank and has not been completely returned. It is true that these incidents do speak of peculiar behaviour on part of creditor different from normal. It, however, requires to be noted that these are facts which concerned creditor. There may be hundred and one reasons why creditor behaved i n this peculiar fashion. This may not affect assessee at all. position would be, however, different if creditor is relative or creditor is under control of assessee and latter could force him to do as he liked. Certainly such allegation is not made in present case. mere fact, therefore, that creditor's behaviour does not confirm to what one would regard as normal human behaviour, should not be reason to cast extraordinary burden on assessee. fact remains that alleged creditor has substantial agricultural lands, nearly 40 acres. He has taken loan and purchased pump set for about Rs. 12,000. He would not have done this unless he has some income. What he has done with his income, why he did not put money in bank, etc., are relevant in his case but certainly, assessee cannot explain or be responsible for these. decisions are clear that in case of person who is not under control of assessee so as to manipulate things, assessee cannot be held responsible for whatever oddities creditor can be invested with. I have, therefore, no hesitation in holding that assessee has done all in his power to prove genuineness of credit. order of learned Judicial Member should be upheld. 7. two decisions referred to by parties in Velji Deoraj & Co.'s case and Sarogi Credit Corpn.'s case, in my opinion, cannot settle issue. circumstances of Velji Deoraj & Co.'s case are entirely different. In fact, it refers to assessee who had long standing relations with creditor and in whose case manipulations are possible. decision in Sarogi Credit Corpn.'s case, on contrary, confirms normal fact that person who genuinely takes money from another can, at best, have necessary identity of person and other details but certainly cannot be responsible for financial prudence, behaviour, etc., of other. Perhaps department's case would have been worth considering if creditor were pawn in hands of assessee, which certainly is not case here. I, therefore, agree with view of learned Judicial Member. matter will go back to Bench which heard case for proper disposal. *** INCOME TAX OFFICER v. BADIANI ENTERPRISE
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