Commissioner of Income Tax vs Vir Bhan and Sons

N.K. Sud, J.—Revenue has filed this appeal u/s 260A of the income tax Act, 1961 (for short ''the Act'') against the order of the income tax Appellate Tribunal, Delhi Bench A, New Delhi (for short ''the Tribunal''), dated 28-7-2003 pertaining to assessment year 1992-93. Revenue is aggrieved by the order of the Tribunal whereby its appeal against the order of the Commissioner of income tax (Appeals) deleting the additions of Rs. 22,01,500 on account of unexplained cash credits and Rs. 94,602 on account of interest claimed thereon has been dismissed. The relevant facts pertaining to this issue may first be noticed.

Assessee had filed its return of income for the assessment year 1992-93 on 12-3-1993 declaring a total income of Rs. 3,45,370. Prior to this, a search and seizure operation had been carried out in the business premises of the assessee on 25-9-1992 and certain information and documents had been seized. During the course of assessment proceedings, the Assessing Officer noticed that the assessee had raised following loans during the year under consideration:-

1.

Smt. Sarla Rani

Rs. 49,000.00

2.

Sh. Lokesh Kumar

Rs. 2,54,000.00

3.

Smt. Priti Singla

Rs. 91,000.00

4.

Sh. Bhupesh Kumar

Rs. 97,500.00

5.

Sh. Vir Bhan

Rs. 4,10,000.00

6.

M/s. Riba Textiles Pvt. Ltd.

Rs. 8,00,000.00

7.

Adarsh Woollen Inds.

Rs. 5,00,000.00

Total

Rs. 22,01.500.00

He required the assessee to file confirmation with permanent account numbers from the creditors and also produce them for examination. Since, the assessee failed to produce the creditors, a show-cause notice was issued by the Assessing Officer requiring it to explain as to why the said amount be not treated as unexplained cash credit u/s 68 of the Act and added to its income. No reply to the show-cause notice was furnished by the assessee and, accordingly, while framing the assessment on 20-3-1995, the Assessing Officer treated the cash credits of Rs. 22,01,500 as unexplained and added it to the income as income from undisclosed sources u/s 68 of the Act. As a corollary thereto, interest paid on these unexplained credits amounting to Rs. 94,602 was also disallowed.

The assessee challenged these additions in appeal before the Commissioner of income tax (Appeals) before whom he furnished the following written submissions:

The appellant has already annexed a chart in the statement of facts giving complete data of all the seven creditors, a perusal of which would leave no doubt that all payments were received by payee''s account cheques and all of them were existing assessee with the income tax Officer, Panipat. And first five were being assessed by the Assessing Officer himself. Your honour would kindly appreciate that it is a case of investigation circle and to make an addition of Rs. 22 lacs and odd in respect of amounts received by Payee''s A/c cheques, is nothing but framing an assessment in a manner like ex parte. The appellant relies on Addl. Addl. Commissioner of Income Tax Vs. Bahri Bros. P. Ltd., The Hon''ble High Court held ''Lenders making payment to assessee by A/c payee cheques and assessee paying interest and cash credits cannot be treated as income''. In the facts and circumstances of the appellant''s case, the ld. Assessing Officer should not have made an addition of such a huge amount when all amounts were proven receipts from existing assessees through payee''s A/c cheques. The appellant seeks permission before your honour to place the relevant copies and documents to prove the genuineness of these loans. It is hoped that in presence of the facts stated in memorandum of appeal and the relevant data being produced with your honour''s permission, the addition made shall be deleted.

The two additions were deleted by the Commissioner of income tax (Appeals) vide his order dated 4-12-1995. We deem it appropriate to reproduce his findings on these issues as under:

2.3 I have perused the assessment order. I have also considered the written submissions of the appellant as well as his contention pleaded during the course of hearing of appeal and I feel inclined to agree with the same. As has been brought to my notice these creditors except M/s. Riba Textiles Pvt. Ltd. are being assessed by the Assessing Officer who has completed the assessment under appeal and I am further informed that the relevant records of these creditors are also lying with the said Assessing Officer from where he could conveniently make a counter check and verification of the version of the appellant with regard to these credits. It is also pointed out that even the case of M/s. Riba Textiles Pvt. Ltd. was being assessed with another Assessing Officer in I.T. office, Panipat itself and their return and balance sheet could be available for verification of credit appearing in the accounts of appellant. I am of the view that the learned Assessing Officer should have tried to carry out the requisite verification from such records which could be so easily available. The appellant has also invited my attention to Pat. H.C. judgment in the case o Addl. Commissioner of Income Tax Vs. Bahri Bros. P. Ltd., wherein it is held that-

''Lender''s making payment to assessee by A/c payee cheques and assessee paying interest and cash credits cannot be treated as income''.

The appellant also sought permission to submit relevant copies and documents to prove the genuineness of these loans. Since these documents are in accordance with the accounts and records available with the Assessing Officer, the filing of these in appeal would not amount to fresh evidence and hence permitted. I have looked into the same and find that these fully support the version of the appellant. The amounts of the credits were received by the appellant by means of cross A/c payee cheques, the creditors were existing income tax assessee and the Assessing Officer had access to their records for verification. Under these circumstances I feel convinced that the Assessing Officer was not right in treating these creditors as not genuine and was not justified in making the addition of Rs. 22,01,500. I also feel that it would not be fair to restore the issue back to Assessing Officer since the mode of receiving these creditors from existing assessees in the absence of any incriminating or contradictory information do not cast any doubt on the genuineness of credits as far as appellant''s case is concerned. If at all these could be any deficiency on the part of creditors who give these amounts by A/c payee cheques, the action could have been considered in the cases of these creditors instead of the appellant''s case. Considering all the relevant facts aspects of the matter I hold that the addition of Rs. 22,01,500 is not justified and hence the same is deleted. This ground of appeal is allowed.

****

It is submitted by the appellant that this ground of appeal is consequential to issue dealt with in ground of appeal No. 2. I have perused the same, the Assessing Officer had treated the credits of Rs. 22,01,500 as not genuine and had also disallowed the under reference interest of Rs. 94,602 shown as payable by appellant on said credits. Since I have held the addition of said credits as undo uncalled for, the interest on the same is also considered as allowable. The addition of Rs. 94,602 is deleted. This ground of appeal is allowed.

Aggrieved by the order of the Commissioner of income tax (Appeals), Revenue preferred an appeal, before the Tribunal which vide the impugned order has upheld that findings of the Commissioner of income tax (Appeals) in the following terms:-

After hearing the learned DR and perusing the record, we do not find any justification to interfere with the order of the CIT(A) since all the records are available with the Assessing Officer from where he could conveniently make a counter check and verification of the version of the assessee with regard to the credits. The Assessing Officer should have tried to carry out the requisite verification from such records which could be easily available but he has not done so. Therefore, this ground fails.

We have purposely reproduced the findings of the two appellate authorities in extenso as we are of the view that their approach has been totally erroneous. The assessment order clearly shows that the assessee did not care to respond to the show-cause notice issued by the Assessing Officer requiring it to explain, why in the absence of production of the creditors, the amount standing to their credit be not treated as unexplained cash credit u/s 68 of the Act. It was not the case of the assessee that the creditors were not responding to his letters or refusing to attend the office. The assessee did not even make a request to the Assessing Officer to make the necessary verification. The assessee appears to have furnished certain material before the Commissioner of income tax (Appeals) who has straightaway accepted the same. The order does not show that he afforded any opportunity to the Assessing Officer to verify the correctness of the material produced before him. He has also not recorded a finding that he has himself made any verification from the records of the creditors. The main reason for deletion of additions is that the Assessing Officer ought to have made counter check and verification from the records of the creditors who, except for M/s. Riba Textiles Private Limited, were being assessed by him whereas M/s. Riba Textiles Private Limited was being assessed by another Assessing Officer at Panipat itself. This is also the reason given by the Tribunal for upholding the action of the Commissioner of income tax (Appeals).

It is true that the assessee may have discharged the initial onus by furnishing the permanent account numbers and copies of accounts of the creditors showing receipts and payment by way of account payee cheques. This, however, cannot conclusively prove the genuineness of the creditors. The Assessing Officer is fully competent to make further verification to satisfy himself that the transactions are genuine. The appellate authorities have failed to appreciate that in the present case the assessee had totally failed to respond to the notice of the Assessing Officer. Further, even if they were of the view that the Assessing Officer should have made cross-verifications with the records of the creditors available with him, they ought to have directed the Assessing Officer to do so instead of straightaway accepting the assessee''s version without affording any opportunity to the Assessing Officer to make the verification. In the alternative, the appellate authorities could have themselves verified the material placed before them with the records of the creditors. This has not been done. Accordingly, we are satisfied that the appellate authorities have not dealt with the matter properly.

In this view of the matter, we set aside the findings of the Assessing Officer and the two appellate authorities on this issue and restore the matter back to the file of the Assessing Officer for fresh adjudication. The assessee shall place before him all the material filed by it before the Commissioner of income tax (Appeals) and the Assessing Officer shall make further verifications from the records of the creditors, if necessary. In case, required information is not available in the records of the assessee, the Assessing Officer shall be at liberty to require the assessee to produce the creditors along with the records. The appeal is, accordingly, allowed in the above terms.