INCOME TAX OFFICER, BHIWADI vs. SHRI PRATAP SINGH TANWAR, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1027/JP/2017 fu/kZkj.k o"kZ@Assessment Year :2009-10 cuke Income Tax Officer, Sh. Pratap Singh Tanwar Ward- Bhiwadi Vs. S/o Sh. Bhagwan Singh Tanwar, 132, KAV Sub Station, Neelam Chowk, Bhiwadi, Distt.- Alwar LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADAPT0047M vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@ Revenue by : Shri Anup Singh (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri P. C. Parwal (CA) lquokbZ dh rkjh[k@ Date of Hearing : 31/10/2018 mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 29/01/2019 vkns'k@ ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the Revenue against the order of ld. CIT(A), Alwar dated 06.10.2017 for A.Y. 2009-10 wherein the Revenue has taken following ground of appeal: “On the facts and circumstances of the case and in law ld. CIT(A) erred in deleting the penalty of Rs. 30,00,000/- imposed by the AO u/s 271(1)(c) of the I.T. Act 1961 without appreciating the material facts of the case.”

2. Briefly stated, the facts of the case are that the assessee is engaged in the business of trading in liquor. He filed his return declaring income of Rs.10,55,233/- which was assessed u/s 143(3) at total income of Rs.2,26,55,672/- by making trading addition of Rs.23,49,472/- and addition on account of unexplained cash credit u/s 68 amounting to Rs.2,03,06,200/-. The AO held that the assessee has filed inaccurate particulars and concealed the true particulars of his income and penalty proceedings u/s 271(1)(c) were initiated separately.

3. In appeal, ld. CIT(A) vide order dt. 14.03.2014 restricted the trading addition to Rs.2,85,181/- and addition on account of unexplained cash credit to Rs.85,49,700/-. Against the order of Ld. CIT(A), both assessee and the Revenue filed appeal before the Tribunal who vide its order dt. 11.08.2017 in & 423/JP/14 confirmed the trading addition of Rs.2,85,181/- but restricted the addition on account of unexplained cash credit to Rs.65,24,700/-.

4. In penalty proceedings, the AO vide his order dt. 18.03.2016 held that after the receipt of the order of ld. CIT(A), amount of Rs.2,85,181/- on account of trading addition and amount of Rs.85,39,700/- u/s 68 of the Act remains confirmed. This proves that assessee has concealed particulars of his income and filed inaccurate particulars of his income. No reply of show cause notice has been filed by assessee till date. Therefore, in absence of any reply of these notices, it is presumed that assessee has nothing to say in his favor. Accordingly, he imposed the penalty of Rs.30 lacs.

5. In appeal, the ld. CIT(A) after relying on the decision of Hon’ble Supreme Court in case of Reliance Petroproducts Pvt. Ltd. held that there is little justification in levying penalty on the estimated GP addition merely on account of non-production of some of the bills/ vouchers. With regard to levy of penalty on the addition made u/s 68, he held that assessee had disclosed all the facts in the books of accounts and also details with regard to such creditors. The additions in some of the cases were sustained by the Tribunal mainly on the reason of creditworthiness. Accordingly, after relying on the decision of Hon’ble Supreme Court (supra) and other decisions relied upon by the assessee, he deleted penalty of Rs.30 lacs. Against the said findings of the ld CIT(A), the Revenue is in appeal before us.

(i) Trading addition of Rs.2,85,181/- (a) The assessee maintains regular books of accounts which is subject to audit. During the year, he declared gross profit of Rs.18,02,976/- on turnover of Rs.2,98,30,810/- giving gross profit rate of 6.04% as against gross profit of Rs.5,56,678/- on turnover of Rs.76,27,050/- giving gross profit rate of 7.29% in the immediately preceding year. In course of remand proceedings, assessee produced computerised cash book, ledger, purchase bills and sales summary. All the purchases are made from the government department i.e. RSBCL. The purchases have been accepted by the lower authorities. In respect of sales, assessee has furnished the sales summary. Sale bills were not maintained as sales were made to the consumers on retail basis having petty value. There was no opening or closing stock. Thus, all the purchases made during the year were sold. Bills for expenses claimed in the Profit & Loss were not maintained as some are petty in nature and some are fixed in nature.

(b) The AO observed that there is a decline in gross profit rate as compared to the preceding year. Assessee has not produced the books of accounts and purchase/sale bills to verify the correctness of the trading results declared. Accordingly, he rejected the books of accounts by applying provisions of section 145(3) and made trading addition of Rs.23,49,473/- by applying gross profit rate of 13.92% on declared turnover. For applying gross profit rate of 13.92%, he relied upon the case of Sh. Prahalad Singh (wine contractor), Bhiwadi who has declared this gross profit rate on turnover of Rs. 85,53,932/-.

(c) The Ld. CIT(A) confirmed the action of AO in invoking the provisions of sec. 145(3) of the IT Act. However, he restricted the trading addition to Rs.2,85,181/- by holding that the best guide for making the best judgment assessment would be the history of the appellant and therefore it would be just and fair to adopt gross profit rate of 7% on the declared turnover.

(d) The Tribunal confirmed the addition sustained by Ld. CIT(A) by holding that his approach is reasonable where he has followed the past history of the assessee.

(e) It is submitted that though the g.p. rate for the year is 6.04% as compared to 7.30% in AY 2008-09 but turnover has increased by 3.91 times from Rs.76.27 lacs to Rs.298.31 lacs. In AY 2010-11, the g.p. rate of 3.61% on turnover of Rs.638.41 lacs has been accepted after making trading addition of Rs.1 lacs, thereby determining g.p. rate at 3.77%. Therefore, g.p. rate declared during the year considering the turnover is comparable to past year and the subsequent year. In any case, the trading addition made is only on estimate. On such estimated trading addition, penalty is not leviable as held in the following cases:- • CIT Vs. Mahendra Singh Khedla 71 DTR 189 (Raj.) • Shiv Lal Tak Vs. CIT 251 ITR 373 (Raj.) • Harigopal Singh Vs. CIT 258 ITR 85 (P&H) • CIT Vs. Vijay Kumar Jain 38 DTR 345 (Chattisgarh) • CIT Vs. Suresh Kumar Bansal 254 ITR 130 (P&H)

(ii) Unexplained cash credit of Rs.85,39,700/-:-

(a) At the outset, it is to submit that after the order of Tribunal, the addition on account on unexplained cash credit has been reduced to Rs.65,24,700/-. Therefore, no penalty on addition of Rs.20,15,000/- (85,39,700- 65,24,700) can be levied.

(b) In respect of remaining cash creditors of Rs.65,24,700/-, the name of cash creditors, amount of addition made by AO, documents furnished by assessee, findings of CIT(A) and Hon’ble ITAT is tabulated as under:- S. Name of Documents Observation of Ld. Observation of No. creditor & furnished by CIT(A) Hon’ble ITAT amount assessee - PAN isAAIPC2761N - Assessee has merely 1. Ravi Kant The assessee - Amount received filed a confirmation has failed to Rs.1 lakhs on 28.03.09 along with PAN of satisfy the initial through demand the creditor onus cast on - Assessee draft failed to him in terms of - Complete address produce the creditor identity & - No given as Ravi Kant reply received creditworthiness S/o Ram Chander, from creditor in Chandna Bus response to notice of creditor, Stand, Near Natraj u/s 133(6) genuineness of - Notice issued u/s 131 Hotel, Rewari, the transaction. Haryana came back with the - Confirmation filed remark ‘refused on 26.12.13 service’ - The - Copy amount is of bank subsequently statement not filed - Copy of ITR not filed repaid on - Details 16.06.2012 regarding source of income not filed 2. Bhishan -Complete address -Appellant has filed The AO has Singh/Ashok given as VPO confirmation, a given a finding Kumar Santhlaka, 278 certificate from bank that cash was Vasai-401202 and affidavit of the deposited in the Rs.28,10,000/- creditor. creditor’s bank -Amt. of Rs.28.10 account and on lakhs has been -Appellant failed to the same date received by A/c produce the creditor demand draft payee cheque no. and also failed to was issued. 55682 of Bank of furnish any evidence Nothing has Baroda from joint regarding sources of been submitted a/c with son Ashok credits and income to explain the Kumar. Since of creditor source of such Bhishan Singh is cash deposits. It -No reply received in the 1st holder of is not a question response to notice the A/c, assessee of determining issued by AO u/s credited the source of source 133(6) money in his name rather it is a while his son -Initially appellant question of Ashok Kumar has had stated that loan satisfying the confirmed the loan has been given by test of given by him by Bhishan Singh but in creditworthiness. filing affidavit, remand proceedings The assessee confirmation of the name of the has thus failed account and letter creditor has been to satisfy the in response to changed to Sh. initial onus notice u/s 131. Ashok Kumar placed on him especially in -The name and the -Cash deposits were terms of amt. advanced by found by AO in creditworthiness the creditor has account before the of the creditor. also been issue of cheque/DD confirmed by a in favour of letter or certificate appellant issued by Bank of -Appellant has failed Baroda dt. to furnish any 09.12.13. details regarding the sources of income of creditor so as to establish creditworthiness -Copy of ITR filed by the creditor was not produced before the AO

- Confirmation of the A/c of Raju has been account Tanwar on submitted to - Bank statement 22.07.2008, a day explain the - Satpal Tanwar is before the cheque is source of such brother of Raju issued to the cash deposits. It Tanwar and he has appellant is not a question confirmed in his of determining own signature the -The appellant has transaction of his source of source failed to produce the brother Raju rather it is a creditor before AO Tanwar question of - AO has overlooked satisfying the -In remand the ITR of the test of creditor for A.Y. proceedings, the creditworthiness. 08-09 and 09-10 appellant stated that even when the The ITR filed of Sh. Raju Tanwar and same is filed in his the cash creditor Satpal Tanwar are jurisdiction ward doesn’t inspire brothers and only any confidence therefore the in our mind. confirmation was There is nothing signed earlier by further on Satpal Tanwar. None record to satisfy the less, the the test of explanation given by creditworthiness the appellant of the creditor. remains The finding of unsubstantiated as it the Ld. CIT(A) was stated earlier remain that Raju is the nick unrebutted name of Satpal before us. The Tanwar. Therfore, assessee has what are the real thus failed to facts still remains satisfy the initial unclear. onus placed on -Appellant has failed him especially in to furnish any details terms of regarding the creditworthiness sources of income of of the creditor. the creditor so as to establish the creditworthiness

of remand proceedings. First the name of the creditor was given as Rakesh Chiwa, then changed to Rakesh Thankar and finally to Rakesh Bhukar

-PAN 6. Bhagirath is -Appellant has filed The AO has Singh ASVPS3578E confirmation, copy of given a finding Shekhawat ITR, PAN, copy of that cash was -Address is Vijay bank a/c etc. before deposited in the Rs.7.20 lakhs Deep House, the AO in course of creditor’s bank Transport Nagar, remand proceedings. account before Jaipur Road, Sikar Further, the cash advancement of – 332001 creditor has also loan to the furnished these assessee. -The assessee documents before Nothing has received the the AO in response been submitted amount through to notice issued u/s to explain the a/c payee cheques 133(6) of the IT Act source of such -Bank statement in course of remand cash deposits. proceedings. The ITR filed of -ITR the cash creditor -Books of a/c of the doesn’t inspire -In response to creditor are audited any confidence notice issued u/s u/s 44AB of the IT in our mind to 133(6) of the IT Act and the creditor satisfy the test Act, confirmation is regularly assessed of of A/c of the to tax creditworthiness creditor, copy of of the creditor. ITR, computation -Loan has been The assessee of total income for returned back by a/c has thus failed A.Y. 09-10 and payee cheque in to satisfy the bank statement March 2012 initial onus was filed. -The appellant has placed on him -The accounts of thus discharged the especially in the creditor are onus u/s 68 of the IT terms of audited u/s 44AB Act and addition creditworthiness of the IT Act, 1961 made by AO on this of the creditor.

-The loan has been a/c is deleted. The fact that the returned back to loan amount has the cash creditor subsequently through a/c payee been returned to cheque in March the cash creditor 2012. The same is an event has been which at best, confirmed by the satisfy the cash creditor in linkage between letter dt. lending and 05.03.2013 filed in repayment. But response to notice the same is not issued u/s 133(6) a basis to hold of the IT Act that the money initially belongs to the cash creditor when there are facts on record to suggest that cash was deposited in the bank account immediately before the event of lending. The question that remains is what’s the source of such cash deposits and whether cash belongs to cash creditor or to the assessee.

(c) It is submitted that in case of Mangal Singh, the Ld. CIT(A) has deleted the addition but the same is restored back by the Hon’ble ITAT. The AO in this case has made an addition of Rs.8,82,240/- in respect of cash deposit in his bank account vide order dt. 22.02.2016 (refer Pg 23, Para 11.5 of ITAT order). However, the Hon’ble ITAT has restored the addition only for the reason that it is unclear whether the proceedings in case of Sh. Mangal Singh has attained finality or not. In the penalty proceedings, AO has not given any finding as to whether the reassessment proceedings of Sh. Mangal Singh has attained finality or not but in any case where Mangal Singh has been assessed by AO by treating the cash deposit in his bank account as unexplained which is the source of amount given by him to the assessee, the same is the hands of assessee cannot be considered as unexplained. Hence, on this amount, penalty cannot be levied. Similarly in case of Bhagirath Singh Shekhawat, the addition was restored by Hon’ble ITAT on the ground that ITR filed by him does not inspire any confidence in our mind to satisfy the test of creditworthiness of creditor and the fact that the loan is subsequently returned cannot be a basis to hold that the money initially belong to the cash creditor. However, in the penalty proceedings, no material is brought on record that the amount received from Bhagirath Singh Shekhawat is the undisclosed income of the assessee. Therefore, on both these amounts, even if addition is restored by Hon’ble ITAT, no penalty is leviable as penalty proceedings are separate and independent proceedings and the AO has not brought any material on record that assessee has channelized his own undisclosed income through these creditors. In any case, when there is difference of opinion in respect of the addition between the Ld. CIT(A) and the Hon’ble ITAT, then on such amount penalty u/s 271(1)(c) is not leviable as held in the following cases:- • CIT Vs. Calcutta Credit Corporation 166 ITR 29 (Cal)

In this case cash credit was added as income from other sources and interest paid thereon was disallowed. AAC deleted the addition but tribunal partly restored the addition. It was held that two opinions on the facts of the case were possible, concealment is not established and therefore penalty cannot be levied.

• CIT Vs. Jagbandhu Prasanna Kumar Ruplal Sen Poddar 133 ITR 156 (Cal)

In this case cash deposited in assessee’s books were added but deleted by AAC. The tribunal restored the addition in quantum appeal. The penalty on these facts was deleted by holding that two opinions are possible in respect of the deposits and there is no material to show that these deposits were assessee’s income • CIT Vs. Sood Harvestar 304 ITR 279 (P&H)

It was held that a case of difference of opinion is not concealment of income and not chargeable to tax.

(d) In respect of all the above creditors, assessee has proved the identity of creditor, genuineness of the transaction and the creditworthiness of creditor by furnishing various documents. He has submitted explanation regarding each of these cash creditors. The assessee has filed the explanation in respect of each of the creditors by substantiating it with the various documents. The explanation is neither found to be malafide nor false. Thus, when assessee has furnished all the details & such details were not found to be false or bogus, only because the explanation of the assessee is not accepted, would not mean that assessee has concealed his income or furnished inaccurate particulars of income. For this purpose, reliance is placed on the following cases:-

• Vikram Bhatia Vs. ITO (2014) 32 ITR 206 (Lucknow) (Trib.)

Only addition made by AO for which penalty is imposed is addition on account of two unsecured loans which was made u/s 68. Both persons have given confirmation, which is available in paper book. It is true that unsecured loan, claimed to have been received by assessee, was not accepted by revenue. Assessee could not prove ingredients of section 68 in respect of these two loans but explanation of assessee could not be disproved by revenue. Although addition was finalized but penalty was not justified because assessee has submitted explanation regarding these cash credits and same could not be established to be non bonafide and penalty was not justified.

• Miter Sain (HUF) Vs. ITO (2012) 34 CCH 227 (Del.) (Trib.)

AO noted that assessee failed to establish genuineness of gifts during course of assessment proceedings, appellate proceedings and penalty proceedings hence, levied penalty at 150 percent for willful and intentional tax evasion. CIT(A) confirmed penalty order u/s 271(1)(c) passed by AO. It was held that assessee had duly disclosed gifts and there was no concealment. However, assessee failed to produce alleged donor. Assessee's conduct was not contumacious to warrant levy of penalty u/s 271(1)(c).

• CIT Vs. M.M. Gujamgadi (2007) 290 ITR 168 (Kar.) (HC)

A reading of ss. 271 and 271(1)(c) and the Explanation appended thereto manifestly makes it clear that every addition of income by the ITO will not automatically attract levy of penalty. It is clear from Expln. 1(B) to sec. 271(1)(c) that while computing the total income of an assessee, if the assessee fails to prove that such explanation is bona fide then there will be a deemed concealment by the assessee. In the instant case, the assessee made attempts to secure those creditors to be examined before the ITO. Despite the best efforts of the assessee, he could not secure the creditors as witnesses to substantiate his claim before the ITO. Having no other alternative, the assessee voluntarily agreed for addition to his income as cash credit. Under these circumstances it cannot be said that the explanation of the assessee for non-inclusion of an income in his return of income is not bona fide. The explanation offered by the assessee is available on record. Bona fide failure on the part of assessee in not substantiating his claim is also available on record. The ITO, while passing the order of penalty under s. 271(1)(c), has not considered the available explanation of the assessee and whether the explanation so offered is bona fide or not. The order of the Tribunal in setting aside the penalty proceedings on the basis of the material on record is just and proper.

• CIT Vs. Jalaram Oil Mills (2001) 253 ITR 192 (Guj.) (HC)

If an addition is not warranted in each and every case, there cannot be a situation where, merely because an addition has been made by invoking provisions of s. 68, penalty under s. 271(1)(c) would follow as a natural corollary. The settled legal position is that the Explanation to s. 271(1)(c) raises a rebuttable presumption and the burden which is cast on an assessee is akin to a civil burden which may be discharged on a preponderance of probabilities. Keeping this legal position in mind, it is not possible to state with certainty that the assessee failed to return the correct income due to any fraud or any gross or willful neglect on its part. Certain entries were found credited in the books of the assessee maintained for the previous year and the explanation offered by the assessee about the nature and source of such entries was not satisfactory in the opinion of the ITO and accordingly, in the assessment proceedings, the said sums were charged to income-tax as the income of the assessee for the assessment year under consideration. It is a case where the assessee has conceded that the entries in question may be treated as his income and added by virtue of provisions of s. 68 for the purposes of assessing the total income of the assessment year. From this concession, it is an entirely different matter, whether the said sum could be treated concealed income of the year under consideration. On the basis of the assessee agreeing to have credit entries in its books of accounts treated as its income, by virtue of provisions of s. 68, the said sums shall be deemed to be income of the year under consideration. However, de hors the said provision, it is not possible to state with certainty that the said sums would be "concealed income" of the assessee for the year under consideration. The Tribunal has tested the levy of penalty by applying provisions of the Explanation and recorded a finding of fact to the effect that there is no past history of the assessee to show that the assessee had been earning business income outside the books, nor is there in the books relating to the year under consideration any instance pointed out indicating any transaction outside the books. In light of the aforesaid findings of fact, it is not possible to take any other view of the matter in the light of the settled legal position. Therefore, the Tribunal was justified in law, on the facts and in the circumstances of the case, in holding that the penalty imposed by the IAC under s. 271(1)(c) could not be sustained.

• National Textiles Vs. CIT (2000) 249 ITR 125 (Guj.) (HC)

Provisions of s. 68 are enabling provisions for making additions where the assessee fails to give an explanation regarding cash credit or where the explanation is not to the satisfaction of the AO. Such addition would not automatically justify imposition of penalty under s. 271(1)(c) r/w Expln. 1 thereto. In order to justify levy of penalty there must be some material or circumstances leading to reasonable conclusion that the amount does represent assessee’s income and the circumstances must show that there was conscious concealment or act of furnishing of inaccurate particulars. Expln. 1 does not make the assessment order conclusive evidence that the amount assessed was in fact the income of the assessee. Assessee did not satisfactorily explain the cash credits by producing evidence and documents. Neither the parties who are said to have advanced temporary loans nor the accountant who had allegedly arranged the loans was produced. Though the Department was justified in treating the cash credits as income of assessee there was nothing to lead to a reasonable and positive inference that the assessee’s explanation was false. Circumstances do not justify imposition of penalty even by taking recourse to Expln. 1 to sec. 271(1)(c).

In view of above, it was submitted that the order of Ld. CIT(A) be upheld.

Cash creditor: Ravi Kant – Rs 1,00,000 “8.4 We have heard the rival submissions and purused the material available on record. We do not find any infirmity in the order of ld CIT(A). The assessee has failed to satisfy the initial onus cast on him in terms of identity & creditworthiness of creditor, genuineness of the transaction. Hence, the addition of Rs 1 lacs is confirmed and to this extent, the ground of appeal’s assessee is dismissed.”

Cash creditor: Bhishan Singh/Ashok Kumar – Rs 28,10,000 “10.3 We have heard the rival submissions and pursued the material available on record. The AO has given a finding that cash was deposited in the creditor’s bank account and on the same date, demand draft was issued. Nothing has been submitted to explain the source of such cash deposits. It is not a question of determining source of source rather it is a question of satisfying the test of creditworthiness. The said finding of the AO which has been confirmed by the ld CIT(A) remain unrebutted before us. The assessee has thus failed to satisfy the initial onus placed on him especially in terms of creditworthiness of the creditor. In the result, we confirm the findings of the ld CIT(A) and the addition of Rs 28,10,000 is hereby confirmed. The ground of assessee’s appeal to this extent is thus dismissed.”

Cash creditor: Mangal Singh – Rs 7,20,000 “11.3 We have heard the rival contentions and pursued the material available on record. In the instant case, the assessee has failed to discharge the onus placed on him under section 68 in terms of satisfying the test of creditworthiness of Shri Mangal Singh. Regarding assessee’s contention that an amount of Rs 8,82,240 has already been brought to tax in the hands of Shri Mangal Singh and the same cannot be brought to tax in the hands of the assessee again, we are unable to accept the same. The reason for the same is that it is unclear at this stage whether the proceedings in case of Shri Mangal Singh has attained finality or not. Therefore, it cannot be said that the same amount has been subjected to tax twice. We further donot agree with the findings of the ld CIT(A) as the test of creditworthiness has not been satisfied in the instant case and thus, the initial onus placed on the assessee remain unsatisfied. We confirm the addition of Rs 7,20,000 u/s 68 of the Act. The ground of revenue’s appeal to this extent is hereby confirmed.”

Cash creditor: Raju – Rs 16,74,700 “12.3 We have heard the rival submissions and pursued the material available on record. The ld CIT(A) has given a finding that cash was deposited in the creditor’s bank account and on the next date, cheque was issued. Nothing has been submitted to explain the source of such cash deposits. It is not a question of determining source of source rather it is a question of satisfying the test of creditworthiness. In other words, whether the cash creditor has the necessary financial standing of his own to lend to the assessee and what are the sources thereof. The ITR filed of the cash creditor doesn’t inspire any confidence in our mind. There is nothing further on record to satisfy the test of creditworthiness of the creditor. The finding of the ld CIT(A), remain unrebutted before us. The assessee has thus failed to satisfy the initial onus placed on him especially in terms of creditworthiness of the creditor. In the result, we confirm the findings of the ld CIT(A) and the addition of Rs 16,74,700 is hereby confirmed. The ground of assessee’s appeal to this extent is thus dismissed.”

Cash creditor: Rakesh Chiwa/Bhukar – Rs 5,00,000 “13.3 We have heard the rival submissions and pursued the material available on record. The appellant has not been able to discharge the initial onus placed on him u/s 68 of the IT Act. The identity, creditworthiness of creditor, and genuineness of the transaction have not been proved The findings of the ld CIT(A) remain unrebutted before us and the same are hereby confirmed. In the result, the addition of Rs 5,00,000 is confirmed and appeal of the assessee to this extent is dismissed.”

Cash creditor: Bhagirath Singh – Rs 7,20,000 “14.3 We have heard the rival submissions and pursued the material available on record. The AO has given a finding that cash was deposited in the creditor’s bank account before advancement of loan to the assessee. Nothing has been submitted to explain the source of such cash deposits. It is not a question of determining source of source rather it is a question of satisfying the test of creditworthiness. In other words, whether the cash creditor has the necessary financial standing of his own to lend to the assessee and what are the sources thereof. The ITR filed of the cash creditor doesn’t inspire any confidence in our mind to satisfy the test of creditworthiness of the creditor. The assessee has thus failed to satisfy the initial onus placed on him especially in terms of creditworthiness of the creditor. The fact that the loan amount has subsequently been returned to the cash creditor is an event which at best, satisfy the linkage between lending and repayment. But the same is not a basis to hold that the money initially belongs to the cash creditor when there are facts on record to suggest that cash was deposited in the bank account immediately before the event of lending. The question that remains is what’s the source of such cash deposits and whether cash belongs to cash creditor or to the assessee. As we have held above, it is not a question of determining the source of source rather it is a fundamental test to be satisfied to establish the creditworthiness of the cash creditor. In the result, we reverse the findings of the ld CIT(A) and the addition of Rs 7,20,000 is hereby confirmed. The ground of department’s appeal to this extent is thus upheld.”

Pronounced in the Open Court on 29/01/2019.