SARASWATI TRACTORS CORP vs. COMMISSIONER OF INCOME TAX

Income-tax Appeal No. 68 of 2004 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. --- Income Tax Appeal No. 68 of 2004 Date of decision: 23.11.2010 Saraswati Tractors Corporation through its Proprietor Manju Singla --- Appellant Versus Commissioner of Income Tax Karnal --- Respondent CORAM: HON’BLE MR. JUSTICE ADARSH KUMAR GOEL HON’BLE MR. JUSTICE AJAY KUMAR MITTAL ---- PRESENT: Mr. Pankaj Jain, Advocate for the appellant. Mr. Yogesh Putney, Senior Standing Counsel for the respondent. ---- AJAY KUMAR MITTAL, J. This appeal under Section 260A of the Income-tax Act, 1961 (for short “the Act’”) has been filed by the assessee against the order dated 16.7.2003, passed by the Income Tax Appellate Tribunal, Chandigarh Bench (A), Chandigarh (in short “the Tribunal”) in ITA No. 1248/CHANDI/98 relating to the assessment year 1994-95. The assessee has claimed the following substantial question of law for determination by this Court:

Income-tax Appeal No. 68 of 2004 2 “Whether under the facts and circumstances of the case and on the true and correct interpretation of the provisions of Section 68, whether the Tribunal is justified in upholding the addition on the ground of lack of explanation for the source of, whereas when the genuineness of the transaction and the identity of the creditors along with the explanation of the credit stands established thereby complying with the requirements of the provisions of the Act?” Briefly stated the facts necessary for adjudication, as narrated in the appeal are that the appellant-assessee is engaged in the business of purchase and sale of tractors and its parts. During the assessment year under reference, the assessee received loans from eight persons. The assessing officer made addition of Rs. 95,000/- in respect of the following cash credits received by the assessee: Name Amount Smt. Shanti Diwan 20,000 Smt. Renu Diwan 20,000 Shri Yogesh Kumar 25,000 Income from commission received by Yogesh Kumar and converted into loan account 30,000 Though according to the assessee, all the aforesaid cash credits were received by it through account payee’s drafts, and many other proofs in support of that fact were also produced before the assessing officer, but the assessing officer did not accept the genuineness of cash credits and made addition of an amount of Rs. 95,000/-, noticed above, vide order dated 25.2.1997, Annexure A-2. Income-tax Appeal No. 68 of 2004 3

The appeal carried by the assessee against the said addition was allowed by the Commissioner of Income Tax (Appeals), [for short “CIT(A)”] by order dated 18.9.1998, Annexure A7, whereby the addition of Rs. 95,000/- was deleted. Aggrieved by the order of the CIT(A), the Revenue preferred appeal before the Tribunal. The Tribunal by order under appeal reversed the order of the CIT(A) insofar as the addition of Rs. 20,000/- each, advanced by Shanti Diwan and Renu Diwan; and Rs. 25,000/- by Yogesh Kumar is concerned, and confirmed the order of the CIT(A) insofar as it related to deletion of Rs.30,000/-. In other words, the Tribunal, while observing that the assessing officer had rightly rejected the genuineness of cash transactions in respect of which it had made additions, and put its seal of approval on the addition of Rs. 65,000/- except the addition of Rs. 30,000/- advanced by Yogesh Kumar.

We have heard learned counsel for the parties and have perused the record. Whether disallowance under Section 68 of the Income Tax Act, 1961 on account of cash credits being ingenuine is the point for consideration in this appeal. The Tribunal had concluded that the addition of Rs.65,000/- on account of cash credits being not genuine, on appreciation of evidence available on record, was justified. The finding recorded by the Tribunal affirming the disallowance is as under:- “Coming to the balance additions of Rs.20,000, Rs.20,000 and Rs.25,000 received from Shanti Diwan,

Income-tax Appeal No. 68 of 2004 4 Renu Diwan and Yogesh Kumar, we find that the AO has given opportunity to the assessee to produce the cash creditors, so that the identity and genuineness of the transactions could be verified. None of the parties is a regular assessee. We have gone through copy of girdawari and find that it stands in the name of Ram Gopal and not in the names of Shanti Diwan, Renu Diwan or Yogesh Kumar, although it has been shown that Yogesh Kumar son of Ram Gopal was cultivating the land. Thus, the ownership of the land vests with Ram Gopal and Shanti Diwan, Renu Diwan and Yogesh Kumar did not own land. There is no evidence on record to prove that Ram Gopal has gifted amount to Shanti Diwan, Renu Diwan and Yogesh Kumar or has given the said amount as loan to them. The money has been advanced to the assessee not by Ram Gopal but by Shanti Diwan, Renu Diwan and Yogesh Kumar. Therefore, the onus lies on the assessee to prove the creditworthiness of these parties. Creditworthiness of Ram Gopal will not discharge the onus which lies on the assessee to prove the creditworthiness of Shanti Diwan, Renu Diwan and Yogesh Kumar. Under IT Act, each individual is a separate person/entity. Thus, the assessee must prove that all the ingredients of section 68 are complied with. There is nothing on record that the parties were having bank a/c. The assessee has no doubt filed affidavits confirming advance of money received from these parties

Income-tax Appeal No. 68 of 2004 5 but the onus cannot be said to be discharged when the parties are closely related to the managing partner by merely filing affidavits when the AO asked for production of the parties. Hon'ble Calcutta High Court has held so in the case of CIT v. United Commercial and Industrial Co (P) Ltd. 187 ITR 596. Capacity, creditworthiness to lend money are not proved. The law is clear, if direct evidence is not available, then circumstantial evidence has to be looked into. No evidence has been produced which may prove that the parties have ever made investments in earlier year/s to the extent that they have shown that they have received the money during the year out of agricultural income to advance the same to the assessee. The money has not been advanced through cheques but through drafts and there is nothing on record which may prove that the drafts were made out of bank a/c. of these parties. Even the assessee has not claimed that the parties here having regular bank a/c. The only inference which could be drawn is that drafts were made by paying cash. Even the assessee has not paid any interest to these parties. Therefore, on totality of facts and circumstances of the case, we feel that the AO has rightly rejected the genuineness of these transactions and made the additions. We set aside the order of CIT(A) so far deletion of cash credits of Rs.65000/- (Rs.20,000 advanced by Shanti Diwan, Rs.20,000 by Renu Diwan and Rs.25,000 by Yogesh Kumar) is concerned and Income-tax Appeal No. 68 of 2004 6 confirm his order so far as it relates to deletion of Rs.30,000 advanced by Yogesh Kumar is concerned. Ground stands partly allowed.” The Tribunal on appreciation of evidence had concluded that the cash credits amounting to Rs. 65,000/- in the name of Smt. Shanti Diwan; Smt. Renu Diwan and Yogesh Kumar were not proved to be genuine, whereas Rs. 30,000/- which was an income from commission received by Yogesh Kumar and converted into loan account, stood proved and could not be added under Section 68 of the Act. Learned counsel for the appellant has not been able to show any perversity or error of law in the findings recorded by the Tribunal so as to persuade this Court to interfere therewith. The Tribunal while setting aside the order of the CIT(A) has elaborately examined the matter in the light of the material available on record and come to the conclusion regarding cash credits of Rs. 65,000/- not to be genuine transactions of loans received by the assessee. The Tribunal has taken a possible view on appreciation of evidence on record. That being so, we find no merit in the appeal and the same is dismissed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) November 23, 2010 JUDGE *rkmalik*