SHRI GOVIND RATHI, PROP. GOVIND DALL MILL,HOSHANGABAD vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE ITARSI, ITARSI

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) IN THE INCOME TAX APPELLATE TRIBUNAL, JABALPUR BENCH, JABALPUR (SMC) (through Virtual Hearing) BEFORE SH. SANJAY ARORA, HON'BLE ACCOUNTANT MEMBER ITA No.04/JAB/2019 Assessment Year: 2012-13 Govind Rathi, Dy. CIT, vs. Circle – Itarsi, Prop: Govind Dall Mill, Itarsi (M.P.) Pipariya, District - Hoshangabad (M.P.) [PAN: ABGPR 8215H] (Appellant) (Respondent) Appellant by Sh. H.S. Modh Adv. Respondent by Smt. Swati Agarwal, Sr. DR Date of hearing 12/10/2021 Date of pronouncement 22/10/2021

ORDER Per Sanjay Arora, AM This is an Appeal by the Assessee directed against the Order by the Commissioner of Income Tax (Appeals)-3, Bhopal (‘CIT(A)’ for short) dated 30.11.2018, partly allowing the assessee’s appeal contesting his assessment under section 143(3) of the Income Tax Act, 1961 (‘the Act’ hereinafter) for the Assessment Year (AY) 2012-13 vide order dated 13/2/2015. 2.1 The appeal raises two issues, which shall be taken up in seriatim. The first issue is in respect of two additions for Rs.4.00 lacs and Rs.1.50 lacs, i.e., at an aggregate of Rs.5.50 lacs, u/s. 68 of the Act. The assessee’s case is that both the sums represent interest bearing loans from existing depositors, who are in fact related to the assessee, and with demonstrated means. All the relevant documents, viz. PAN, confirmation, bank account, copy of return, etc. stand 1

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) submitted, with the interest allowed on loans having been duly returned by the lenders per their respective returns of income for the relevant year (PB pgs. 7, 9- 21). Further, inasmuch as the loan/s stands extended towards the fag-end of the year, availability of cash, i.e., from the income/s realized/realizable in cash during the year, cannot be doubted and, in fact, has not been adversely commented upon by the Revenue authorities, who have in fact allowed the credits (and the interest thereon) for both the earlier and the succeeding year (PB pgs. 6,8). There is as such nothing to doubt the genuineness of the loans, which the Revenue finds suspect only for the reason that cash to that extent stands deposited by the creditors in their respective bank accounts just prior to the issue of cheque to the assessee (PB pgs. 14, 19). 2.2 The Revenue’s case is that there is no built-up of savings in, or otherwise any transfer of funds to, the bank account of the two creditors. Further, there is nothing to show that the assessee’s return for the preceding or the succeeding year was subject to verification under the scrutiny procedure, for it to draw any mileage therefrom. Each credit is to be separately explained as to its nature and source, on the parameters of identity – of which there is though no doubt in the instant case, capacity (of the creditor) and genuineness (of the credit transaction), with the latter two being in serious doubt, and not properly explained. The impugned credits therefore cannot be regarded as proved. 3. I have heard the parties, and perused the material on record. 3.1 A credit would stand to be examined for its genuineness only in the relevant year and, therefore, the occasion to examine the impugned credits is the assessment proceedings for the current year. Nothing, as such, turns on no adjustment qua the credits from the same creditors having been made in the assessee’s ‘assessment’ for the preceding or the succeeding year, which have in fact not been shown to be assessments, implying being u/s. 143(3). Further, each year is separate, and the capacity of the creditor in an earlier year is no 2

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) ground for an ipso facto acceptance of a credit arising in a subsequent year. Rather, credit in an earlier year would only imply that the creditor’s capacity stands utilized to that extent, i.e., in extending the said, earlier credit. There is also no clue as to the manner of the deposits during the other years, to draw any parallel qua the genuineness aspect, doubted for the current year in view of the routing of cash, lying idle, for extending the credits. Here it may be pertinent to state that the amount advanced by one of the creditors is Rs. 4.80 lacs, while only Rs. 4 lac, attributable to the cash deposited in bank, has been regarded as not satisfactorily explained. 3.2 Coming the merits of the case, the deposit of cash by the creditors in their bank accounts just prior to the transfer of funds to the assessee makes it apparent that the same has been only for the said purpose, i.e., transfer of funds by them to the assessee. The bank account thus becomes a conduit, and the genuineness of the transaction would critically depend on proving the cash availability with the creditors at the relevant time, be it sourced from their accumulated capital or current income, and toward which the assessee has furnished the capital account (in lieu of income statement) and Balance-Sheet of both the creditors (PB pgs. 11, 17). As it appears therefrom, the only income received cash by Sh. Giriraj Rathi (GR) during the year (inasmuch as there is no debtor as at the year-end in its respect), is agricultural income (at Rs.66,340) and, further, has a cash utilization of Rs.88,400, i.e., by way of withdrawals. There is thus a negative cash generation of Rs.22,060 during the year. The shortfall in cash as well as the cash deposit of Rs.4 lacs in his bank account, as indeed the closing cash-in-hand (reported at Rs.2,81,346), is thus presumably from the opening cash-in-hand, i.e., as on 31.03.2011, which is thus impliedly at Rs. 7.03 lacs. This is indeed surprising, particularly considering a negative cash generation during the year, which may be so for the preceding year/s as well. Then there is the question as to why would one maintain such a high cash balance, a very risky proposition, apart from loosing on the opportunity cost of 3

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) funds. The question as to the source of cash with the creditor (for being deposited in bank), in any case, continues to remain unexplained; with there being nothing on record to even suggest the same. It may be clarified that stating it to be the cash-in-hand carried forward from an earlier year, as inferred, is neither here nor there inasmuch as it does not specify the source of the said cash, unless of course the capital as at the beginning of the year is proved, including the extent to which it is held in cash. It may be that cash stands withdrawn by the creditor from his proprietary concern (Govind Dal Mill), which, though unlikely inasmuch as he has not even withdrawn from his two bank accounts – which have a combined balance of Rs.7.17 lacs as at the year- end (PB pgs. 11, 14), cannot be a matter of presumption, with there being nothing on record to exhibit it. In the case of Smt. Shilpa Gilda (SG), the second creditor, there is a net cash generation of Rs.79350 during the year. Her closing cash balance being reported at Rs. 1,19,545, it only implies that the entire cash deposited in bank (Rs.1.50 lacs) as well as the excess cash held (over that generated), i.e., Rs.40,195, or, a total of Rs.1.90 lacs, is again unexplained as to its source. The cash deposited in bank is presumably and, thus, again referable to the cash-in-hand at the beginning of the year (31.3.2011). This is again surprising considering that she maintains a paltry balance of Rs.7,583 in her bank account. In both the cases there is nothing on record to exhibit the source of cash with the creditor deposited in bank, or even that available as at the beginning of the year, which though does not signify a source, but only that the same is to be found in an earlier period. Further, quizzically, while one creditor (GR) does not draw on his bank balance in extending the ‘loan’ to the assessee, the other (SG) has a near nil bank balance. The capacity and genuineness aspects cannot be said to be satisfactorily proved. 3.3 At this stage, a doubt arose as to whether the balance-sheet and the income statement (capital account) of the two creditors had indeed been submitted by the assessee before the Assessing Officer (AO) in the assessment 4

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) proceedings. This was as, firstly, the same are not signed (by the creditors) and, two, the certificate appended below the index to the assessee’s paper-book (PB) mentioned of it being furnished before the ‘lower authority’ and not ‘lower authorities’ (since modified by Sh. Modh), coupled with the fact that the written submissions dated 16.11.2018 before the ld. CIT(A) (PB pgs. 1-4), while referring to and discussing this document, nowhere state of the same as having been furnished before the assessing authority; rather, state of the same as ‘attached herewith’, giving an impression of it being submitted before him for the first time. Needless to add, both the Revenue authorities have not discussed this document in their respective orders. This becomes relevant as it is this document that ‘explains’, at least from the assessee’s standpoint, the source of the credit, being the cash available with the creditors and, further, as forming part of their capital, i.e., of the cash with the creditor being accounted for and disclosed, making it irrelevant as to whether the transfer of funds by him/her to the assessee is by way of transfer of bank funds or essentially cash (routed through bank), meeting thus the main objection of the Revenue. In fine, even as the said document does not clarify the exact source of the cash with the creditors that stood deposited in their bank accounts for being transferred to the assessee; rather, gives rise to further questions for being answered (as, for example, the reason for an unusually large cash, not deposited in bank, i.e., other than for being transferred to the assessee; the basis of the opening cash-in- hand inasmuch as it is this that stands ostensibly deposited in bank, etc.), it does (and it is in fact only this document that so does) indicate, even as argued by Sh. Modh, the ld. counsel for the assessee, of the cash with the creditor being accounted/disclosed, i.e., is a prima facie explanation, which could, upon inquiry, be further clarified, viz. as to the source of the opening cash-in-hand with the creditors. The argument is not without merit. Where furnished, it becomes incumbent on the AO to, in case he so considers, seek further clarification in the matter and, further, state explicitly in his order of having 5

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) drawn an adverse inference for want of the stated, specific information, called for. And which is not the case. The actual furnishing of the said document before the AO – on which doubt had arisen, and whose order stands upheld by the ld. CIT(A), thus assumes vital significance in the context of the case. In fact, the argument of either side before the Tribunal was premised on this document having been furnished before the AO during the assessment proceedings. The question, however, that needs to be answered by the Tribunal is not if the AO ought to have called for further information, which he indeed ought to have where not satisfied, but whether the assessee can, on the basis of the documents furnished, be said to have discharged the burden of proof cast on it. Just as the Revenue cannot convert a good explanation into a bad one, it’s non-action, even as argued by Ms. Agarwal, the ld. Sr. DR, would not convert a bad, improper explanation into a good, proper one. 3.4 Sh. Modh would, upon this, clarify, with reference to the assessee’s letter dated 13.2.2015 to the AO (copy on record), stated to be furnished on 15.2.2015, i.e., during the assessment proceedings, by hand; it referring to as well as discussing the capital account and the balance-sheet of the two creditors. This, however, led to further confusion as the assessment order is itself dated 13.2.2015 and, further, the AO mentions of show causing the assessee vide an order-sheet entry dated 15.2.2015 (at para 3 of his order), so that clearly the hearing in assessment was not closed on 13.2.2015. Something is surely amiss, or in the least a typing mistake. Ms. Agarwal was asked to produce the assessment record, and Sh. Modh, the copy of the order sheet dated 15.2.2015, recording the receipt of the relevant document. The Revenue failed to produce the assessment record, while the assessee furnished a copy of the order sheet dated ‘not legible’, reading as under: ‘1 – 4 ….5. Explain the source of cash deposit of Rs. 1,50,000/- in the bank account of Shilpa Devi and of cash deposits in the account of Giriraj Rathi just before giving unsecured loans. Furnish cash flow statements of the lenders. 6…… 6

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) Next date of hearing fixed on 15/2/2015.’ It thus stands clarified that the date of the assessment order is not ‘13.2.2015’. Further, and more importantly, i.e., in the context of the case, it (the order sheet entry), requires the assessee to explain the source of cash with the lenders, i.e., at the time of giving the loan and, further, to furnish their cash flow statements. This is precisely what stands stated in the preceding part of this order, i.e., upon an examination of the said document, furnished on 15/2/2015 in response to the said requisition. How could under circumstances it be said that the assessee had furnished all that was required of him by the AO? True, where the document furnished explained a credit – cash available to the required extent in the instant case, there is a prima facie discharge of the onus on the assessee, and it is for the AO to, where not satisfied, seek further explanation, so that his non-seeking the same, as stated by Sh. Modh during hearing, cannot disturb the said prima facie discharge of the onus by the assessee. In the instant case, however, the argument of a prima facie discharge of onus by the assessee is not available to him as, as found, he had been specifically required by the AO to furnish the source of the cash available with the creditors, also drawing their cash flow statements, and which had not been complied with. As afore-stated, the reference of cash availability to the opening cash-in-hand (i.e., as on 31/3/2011), only implies that the source of the cash is to be found in an anterior period – nothing more and nothing less. Conclusion 4. The matter, on balance, warrants being remitted back to the file of the AO for fresh adjudication, which is hereby directed. It shall be open for him to question the assessee, or even, where so considered, the concerned creditor/s, and/or seek further evidence in validation of the document/s (balance-sheet, income statement, etc.) submitted, which, where belonging to the creditors, would need to be signed by them. He shall make an objective and fair assessment of the different variables impinging on the cash availability, and 7

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) decide in accordance with law per a speaking order after affording a reasonable opportunity to the assessee to present his case before him. He shall neither put blinkers on his eyes (CIT v. Durga Prasad More [1971] 82 ITR 540 (SC)) nor convert an otherwise good explanation into a bad one (Sreelekha Banerjee & Ors. v. CIT [1963] 49 ITR 112 (SC), and be guided by preponderance of probabilities (Sumati Dayal v. CIT [1995] 214 ITR 801 (SC)). Further, where any of the said variables, viz. agricultural income, tuition income, personal withdrawals, etc., stand assessed or determined by the Revenue in proceedings in the case of the creditors, he shall adopt the same, or state reason/s for not doing so, as where he finds a change in or non-consideration of the underlying facts and circumstances. Another aspect of the matter that needs to be before parting clarified is that the Revenue has not disallowed the interest allowed by the assessee on the impugned credits, stated to be loans thereto, and which in fact follows in consequence of the same being, or ought to be the case where it is, deemed as the assessee’s income. Though inconsistent, that would not by itself render the assessee’s case as proved, which will have to be adjudged on its merits. Why, regarding so would make the Revenue’s case a non-starter, and allowing the assessee the benefit of what is essentially a fallacy on the part of the Revenue, which ought to have been addressed by the first appellate authority inasmuch as it is, as afore-said, inconsistent with the impugned credits being regarded by it as the assessee’s income. Why, for that matter, even the said interest having been returned by them, may have been assessed as the creditor’s income for the relevant year. That, again, though would not by itself absolve the assessee from discharging the burden of proof on it. Reference in this context, on which aspect of the matter case law is legion, may be made to decisions as Radhey Shyam Tibrewal v. CIT [1984] 145 ITR 186 (SC); Jamnaprasad Kanhaiyalal v. CIT [1981] 130 ITR 244 (SC). I decide accordingly. 8

Govind Rathi v. Dy. CIT ITA No. 04/Jab/2019 (AY 2012-13) 5. The only other issue in this appeal is qua an addition for Rs. 60,000 toward low house-hold withdrawals. The AO effected the same finding the disclosed withdrawal of Rs. 76,000 as inadequate to satisfactorily explain the personal and house-hold expenditure, i.e., for self and family. The position before the first appellate authority, and in fact even at the second appellate stage, remains the same; the assessee being unable to show as to how the estimated expenditure at Rs. 1,36,000 was excessive, as alleged per his ground of appeal. The same is found reasonable considering the obtaining price levels, with, as afore-said, the assessee not improving his case before me in any manner. I decide accordingly. 6. In the result, the assessee’s appeal is partly allowed for statistical purposes. Order pronounced in the Open Court on October 22, 2021 Sd/- (Sanjay Arora) Accountant Member Dated: 22/10/2021 * Aks/ Copy of the Order forwarded to: 1. The Appellant: Govind Rathi, Prop: Govind Dall Mill, Azad Ward, Pipariya, Distt. Hoshangabad (M.P.) 2. The Respondent: Deputy Commissioner of Income Tax, Circle – Itarsi, Itarsi District Hoshangabad (M.P.) 3. The Pr. CIT-1, Bhopal 4. The CIT(Appeals)-3, Bhopal 5. The Sr. DR, ITAT, Jabalpur 6. Guard File // True Copy //