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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI JASON P. BOAZ
Per N.V. Vasudevan, Judicial Member
These appeals are by the assessee against the common order dated 15.12.2010 of the CIT(Appeals), Mysore relating to assessment years 2004-05 & 2005-06.
In these appeals the issues that arise for consideration are regarding the action of the AO in treating gift/loans received by the assessee as unexplained. The gifts/loans received by the Assessee were as follows:-
AY 2004-05 (1) Gift received from Mr. Tahir Ali – Rs. One lakh. (2) Loan received from Shivanna Siddapur – Rs. One lakh. (3) Loan received from Irshad Ali Khan- Rs.1.45 lakhs. All the above sums were added as unexplained cash credits u/s. 68 of the Act by the AO, which was confirmed by the CIT(Appeals).
AY 2005-06 3. Loan taken by the assessee from Zafrullah Khan of Rs.1 lakh was treated as unexplained cash credit u/s. 68 by the AO and confirmed by the CIT(Appeals).
Originally these appeals were heard by the Tribunal and by an order dated 15.6.2012, the additions made by the revenue authorities as above were confirmed by the Tribunal. The assessee preferred appeals before the Hon’ble High Court of Karnataka. The Hon’ble High Court by its judgment dated 28.1.2014 in & 367 of 2012, remanded the matter in respect of merits of addition of above cash credits to the file of Tribunal. It is in these circumstances that these appeals were listed for hearing and were heard.
The assessee was an agriculturist and was running a rice mill. The assessee constructed a commercial complex at Koramangala, Near KSRTC Bus Stand. A sum of Rs.33,50,000 was spent as investment in the construction. In the course of explaining the source of making the aforesaid investment in the construction, the gift as well as loans were shown as source of funds from which the investments were made by the assessee in the construction. It is in this background that the genuineness of the gift as well as loans were examined by the AO.
We have heard the ld. counsel for the assessee and the ld. DR. AY 2004-05 7. Gift received from one Mr. Tahir Ali – Rs. One lakh : The facts as it transpires are that Mr. Tahir Ali gave a sum of Rs.1 lakh as gift in favour of the assessee by a Demand Draft drawn on Canara Bank, dated 7.7.2003. The AO found that on 7.7.2003, Tahir Ali had deposited a sum of Rs.1 lakh by cash in the bank account. Tahir Ali was examined by the AO and he could not produce any evidence to substantiate the source of cash of Rs. 1 lakh deposited in the bank account. The AO also found from the bank account of Tahir Ali with Canara Bank that for the period from 30.10.02 to 6.7.03, there was deposit of Rs.66,951 and the balance available in his account as on 6.7.03 was Rs.795. It also transpired that Tahir Ali had availed a bank loan of Rs.1 lakh on 10.9.03 for business purpose and on 10.3.04 for installation of solar nets in his house. It is in these circumstances that the AO held that the creditworthiness of Mr. Tahir Ali was not established. The Tribunal upheld the conclusions of the AO.
Loan received from Shivanna Siddapur – Rs. One lakh: The loan in question was given by cash on 3.11.03. The sworn statement was recorded under section 131 of the I T Act from Shri Shivanna on 26.7.2006.
In answer to question No.10, Shri Shivanna had stated that he had given a loan of Rs.1 lakh to Irshad Ali Khan, S/o. K.B. Khaleel by cash on 3.11.2003. In answer to Q.No.11, Shri Shivanna had stated that the said sum of Rs.1 lakh was withdrawal out of his PF account and the withdrawal was for the purpose of performing his daughter’s marriage. It was further stated that the loan given was interest free and no pro-notes/document was executed evidencing giving of the said loan. The alleged loan transaction had taken place in November, 2003. Shri Shivanna’s daughter’s marriage was conducted in the month of November, 2003. Shri Shivanna had taken a loan from his PF account to the extent of Rs.2.5 lakhs. In the sworn statement recoded by the Assessing Officer, in answer to the question No.9, Shri Shivanna had stated that for his daughter’s marriage, he had incurred approximately an expenditure of Rs.3.5 lakhs. The conclusion of the revenue authorities was that when Shri Shivanna’s daughter’s marriage was conducted in the month of November, 2003, it is highly improbable that the cash withdrawn on 3.11.2003 (noted as “self” in the cheque) is for giving loan to the assessee.
Loan received from Irshad Ali Khan- Rs.1.45 lakhs: The loan in question had been given by Irshad Ali Khan by cheque dated 29.6.03. On examination of his bank account, it transpired that a sum of Rs.1,45,000 had been deposited in the form of cash by him in his bank account. The creditor could not explain the source of cash so deposited, which ultimately was used for payment of cheque of Rs.1.45 lakhs. It is in these circumstances that the loan was treated as unexplained.
AY 2005-06 10. Loan of Rs. 1 lakh taken by the assessee from Zafrullah Khan: As regards this loan, the creditor happens to be the son-in-law of the assessee. He explained that the sum of Rs.1 lakh was paid out of loan received from his brother-in-law, Mr. Zakir Hussain (son of the Assessee).
The assessee had a bank account with Canara Bank, Mandi Mhalla, Mysore. On perusal of this account, the AO found that on 31.12.04, a sum of Rs.2 lakhs was deposited in his bank account and the next day i.e., on 1.1.05, the same was withdrawn by issuing a cheque of Rs.1 lakh to Zakir Hussain and a DD for Rs.1 lakh in favour of Smt. Fahimida Khatoon. Zakir Hussain is the son of the assessee and is not the same Zakir Hussain from whom Zafrullah Khan claimed to have availed of loan which was used for giving loan of 1 lakh to the assessee. Zakir Hussain (son of assessee) had utilized the said sum of Rs. 1 lakh for his business. This fact was confirmed by him when his statement was recorded on 17.7.06.
The above circumstances, according to the AO, clearly proved that the plea of Zafrullah Khan regarding source of funds out of which loan was given to assessee was false. This finding of the AO was also confirmed by the Tribunal.
Before us, the ld. counsel for the assessee submitted that in all the cases, the donor/creditors had confirmed the fact that they had given the gift/loans to the assessee. According to him, the assessee cannot be called upon to explain the source out of which gift/loans were given by donor/creditors. According to him, asking the assessee to explain the source of the donor/creditors would be asking the assessee to explain the source of source. According to him, the law is well settled that assessee cannot be called upon to explain the source of source. In this regard, reliance was placed by him on the decision of Hon’ble Supreme Court in Daulat Ram Rawatmull, 87 ITR 349 (SC). He also placed reliance on the decision of Hon’ble Rajasthan High Court in Kanhaiyalal Jangid v.
ACIT, 217 CTR 345 (Raj), wherein it was held that once the assessee files confirmation from the creditor and produces the creditor before the AO, and where the creditor confirms giving of loan to the assessee; no addition u/s. 68 could be made in the hands of assessee on the ground that creditor could not satisfactorily explain the source of loan. The Hon’ble Rajasthan High Court held that burden on the assessee does not extend to prove the source of creditor form where he made the advance to the assessee.
The ld. DR, on the other hand, submitted that the creditworthiness of the donor/creditors had not been proved by the assessee and in such circumstances, the addition made was justified. According to him, in the present case, the AO has not called upon the assessee to prove the source of source, but only wanted the assessee to prima facie show the creditworthiness of the creditor. According to him, u/s. 68 of the Act, the onus is on the assessee to establish the identity and creditworthiness of the creditor and also the genuineness of the transaction. It was submitted by him that the additions made were justified and did not call for any review. He placed reliance on the decision in the case of K.C.N. Chandrashekar v. ACIT, 66 TTJ 355 (Bang), wherein the Bangalore Tribunal after making a reference to the decision of the Hon’ble Calcutta High Court in Shankar Industries v. CIT, 114 ITR 689 (Cal) and the decision of Hon’ble High Court of Karnataka in Bedi & Co. P. Ltd. v. CIT, 144 ITR 352 (Kar), held that capacity of the creditor has to be established by the assessee.
Our attention was also drawn to the decision of Chennai Bench of M/s. Lalita Jewellery Mart v. ACIT, ITA the Tribunal in No.1871/MDS/2010, A.Y. 2007-08, order dated 15.4.2013, wherein the Chennai Bench held that the mere fact that transactions were effected through banking channels is not sufficient to uphold the genuineness of the credit.
We have given a very careful consideration to the rival submissions. It is clear from the material on record that donor as well as creditors could not show prima facie the source of funds out of which gift/loans were given. Added to this is the circumstance that on the date when the gift/loans were given, there were cash deposits made in the bank accounts. It is in these circumstances that the donor/creditors were called upon to show their capacity to give gift/loans. We are satisfied that the explanation given with regard to capacity of the donor/creditors is unsatisfactory.
In the case of Shivanna Siddapur, who gave Rs.1 lakh as loan and explained that the same was withdrawal from GPF account, it transpired that he was to perform the marriage of daughter at the time of withdrawal from PF account. This circumstance was considered by the revenue authorities as indicating that withdrawal from PF account would not have been used for giving loan to the assessee. In our opinion, this conclusion arrived at by the revenue authorities is correct and calls for no interference.
With regard to the argument of the ld. counsel for the assessee that the assessee has been called upon to explain the source of source, we are of the view that the said stand taken by the ld. counsel for the assessee is unsustainable. As already stated, the capacity of the creditor alone was questioned by the revenue authorities. This cannot be equated as calling upon the assessee to furnish source of source. The capacity of the creditors has not been prima facie established by the assessee. It is only when credible evidence is let in regarding capacity of the creditor that this argument of calling upon the assessee to explain source of source can be advanced. In this regard, the law laid down by the Hon’ble Calcutta High Court in Shankar Industries (supra) clearly explains the legal position. We therefore do not find any merit in the appeal by the assessee and dismiss the same.
In the result, the appeals by the Assessee are dismissed.
Pronounced in the open court on this 5th day of March, 2015.