ACIT, MUZAFFARNAGAR vs. SH. MUKESH JAIN., MUZAFFARNAGAR

This appeal is preferred by Revenue against the order of CIT (A) – Muzaffarnagar dated 13.12.2011 raising following grounds : “

The facts of the case are that the assessee deals in timber, trading, sawing and importing of timbers and deriving income from trading of timber etc. He filed his return of income on 29.09.2008 showing income of Rs. 7,54,640/-. His case was selected for scrutiny and in assessment proceedings; it is found that the assessee has availed unsecured loans from following parties. Sr Name Amount of loan In Rs No 1 Jalco Financial services private Limited 8,00,000/- 2 Pradeepkumar Jain HUF 685000/-

Therefore, he was required to furnish documentary evidence to establish the identity, creditworthiness and genuineness of the transactions of the loan. AO was not satisfied with explanation of the assessee made addition of all above four parties and therefore loan amounts were added u/s 68 of Income Tax Act. Assessee carried matter before CIT (A) and who after obtaining the remand report from AO deleted the addition with respect to first three parties amounting to Rs 15,33,000/- and confirmed the addition with respect to fourth Party Ms. Sarita Jain of Rs 1,00,000/-. Against the deletion of the amount of Rs 15,33,000/- u/s 68 by CIT (A) , revenue is in appeal before us raising the solitary ground of appeal

Therefore it is apparent in all the three cases that assessee has submitted the full details of the lenders stating their name, address and Permanent Account number and therefore the identity of the all the three creditors are proved. Regarding the credit worthiness of the parties on verification of details submitted it is apparent that (a) Jalco Financials service private Limited I has file the return of income and shown gross total income in that return for AY 2008-09 of Rs 1,35,65,016/-. Bank account submitted by the party shows the substantial sums for a long time available in the account of the lender. Therefore, the assessee establishes the creditworthiness of this party. (b) In case of Pradeep Kumar Jain HUf who has advanced Rs 6,85,000/- is having income of Rs 1,59,000/- and opening capital balance of Rs 7,03,467/-. Therefore, it is apparent that lender has the sums available with him. In the bank account of the lender with oriental bank of commerce lender has maintained the bank balance of Rs 70,000/- to 1, 00,000/-. Therefore, the creditworthiness of the lender cannot be doubted. (c) In case of Shashank Jain whose loan of Rs 48,000/- has bene added has capital of Rs 3,28,306/- and in his bank account submitted balance of Rs 58,000/- to 8,000/- is maintained. Therefore, it cannot be said that the assessee failed to establish the creditworthiness of this creditor.

Main reason of AO doubting the loan is genuineness of the credits for the sole reason that in case of Pradeepkumar Jain HUF and Shashank Jain HUF before the issue of cheque the cash amount is deposited in their bank account and after Mukesh Jain. that, the loan cheques are issued to the assesse. However, in case of Jalco Financial, services there are such facts and therefore in the remand report AO has not doubted the transactions. The issue is that merely because cash is deposited in the bank account before issue of cheques to the may lead to the addition in the hands of the assessee despite the lenders , confirming the same submitting their income tax returns and bank passbook. In 131 ITD 127 IN THE ITAT AGRA BENCH THIRD MEMBER Umesh Electricals v. Assistant Commissioner of Income-tax where in it is held that :- “11. In the case before me the person M/s Om Prakash Haresh Chand from whom the loans have been received by the assessee amounting to Rs. 1,50,000 vide draft No. 045754 dated 6-8- 1999 drawn on Canara Bank Belan Ganj Agra is income-tax assessee. He is having PAN Numbers. The confirmation from this person was filed. The amounts have been received through banking channel. Xerox copy of the bank statement of account of the lender was also filed. M/s Om Parkash Haresh Chand has deposited a sum of Rs. 1,50,000 in its bank account on 6-8-1999 before the draft No. 045754 was taken by issuing a cheque No. 522129 dated 6-8- 1999. The assessee has submitted a copy of cash book of M/s Om Parkash Haresh Chand available at pages 11 to 20 of the paper book. Cash book clearly shows opening balance of the cash in hand of Rs. 1,26,748.50 as on 16-6-1999 and on 6-8-1999 the opening balance was Rs. 1,56,748.50 after the assessee has shown withdrawal of Rs. 6,000 from Canara Bank and Rs. 27,000 from Punjab National Bank. On 6-8-1999, M/s. Om Prakash Haresh Chand, as per cash book, have received a sum of Rs. 17,250 from Navin Goel and has also deposited a sum of Rs. 1,50,000 in Canara Bank Belanganj Branch, Agra and accordingly withdrawn a sum of Rs. 1,50,150 - Rs. 1,50,000 by way of draft No. 045754 and Rs. 150 as bank charges leaving cash in hand of Rs. 6,748. M/s. Om Prakash Haresh Chand is a regular assessee having permanent account number, which is available on the confirmation. M/s. Om Prakash Haresh Chand has deposited the cash on 6-8-1999, does not mean that the assessee has not proved the genuineness of the transaction. The assessee by filing the copy of the cash book of M/s. Om Prakash Haresh Chand has discharged the onus and even proved the source of sources which he is not obliged to prove. The assessee has duly explained in respect of the deposit and the circumstances under which the deposits were received. The identity of the persons is not beyond the doubt. The source of cash was duly explained. The identity and capacity of the creditors was duly established. The Assessing Officer only doubted the genuineness of the transactions. Under these facts in my opinion, the amount received by the assessee from M/s. Om Prakash Haresh Chand cannot be regarded to be unexplained one.

I have gone through the decision in the case of Biju Patnaik (supra). The facts involved in this case were that the assessee had claimed deduction in respect of payment of interest on loan taken from Kalinga Foundation Trust for the assessment years 1962-63 to 1964-65. The Assessing Officer asked the assessee to produce the evidence and to prove (i) that the cash credits in the name of the Trust were genuine, and (ii) that 39,000 shares of Kalinga Tubes Ltd. standing in the names of certain persons, were not really his own investments. The cash credit was claimed by the assessee to be loans from the Trust. The Trust was formed in 1947 and it was claimed that it collected large amount of donations over a decade and had kept all the money collected by it with the Maharaja of Sonepur without earning interest. The amount was not deposited in bank. The evidence of the persons who had collected the donations was given but the respondent did not produce evidence as to who were the persons from whom the money was collected, how the money was received or how it was invested. The Assessing Officer after making enquiries took the view that Kalinga Foundation Trust did not exist and even if it existed it had no funds; and that the name of the Trust was used as a camouflage by the respondent to put through his unaccounted money and treated the cash credit as income of the assessee from undisclosed sources. Similarly, after the decision of Supreme Court in the case Mukesh Jain. on Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 the ITO also held that the 39,000 shares acquired in the name of seven persons with moneys advanced in the name of the Trust actually belonged to the assessee, the holders being benamidars and brought to tax the dividends on those shares in the hands of the assessee. The Income-tax Officer referred to the financial incapacity of one of them who was not assessed to tax as an individual and who had never filed his wealth-tax return to hold shares worth Rs. 2.5 lakhs to 7.5 lakhs. When the matter travelled to the Tribunal, the Tribunal held that the trust was comprised of and under the effective control of persons of public repute and held that the investments made by the Trust with the assessee's group of industries or with the assessee were from its own resources and funds and, therefore, the cash credits, income from interest, dividend etc. should be excluded. The Tribunal as well as High Court rejected the application of the department for a reference. When the matter went before the Hon'ble Supreme Court, the Hon'ble Court held that the two basis questions were whether the donations collected by the Trust were genuine and whether the Department could rely upon the large amount of material collected by the Department subsequent to the decision of the Supreme Court in Jain's case. The identity and creditworthiness of the donors had not been established and the large amounts received as donations by the Trust were for over a decade lying as cash without being invested anywhere. The question whether the moneys were raised by the Trust as donations from various people or not was not considered by the Tribunal in its proper perspective. In not appreciating the basic question or discussing the evidence in respect thereof, there was non-consideration of a relevant factor on a factual aspect and the question whether the Tribunal's decision was perverse in the sense that no man instructed properly in law could have acted as the Tribunal did and whether there was ignoring of material and relevant facts in considering this aspect arose out of the order of the Tribunal. Ignoring the point as to who made the donations and what was their capacity to make the donations which was a vital fact, gave rise to the question of law.

This case in my opinion is not applicable to the facts of the case before me. In the case before me, the identity of the lender is not denied even by the department. The lender is an Income-tax assessee and is being regularly assessed to Income-tax. In the case before the Supreme Court, the identity and creditworthiness of the donors were not established, but in the case before me, the assessee has duly produced evidence regarding the cash in hand available with the lender in his regular books out of which the lender has deposited the money in his bank account.

Coming to the case of Sumati Dayal (supra), I noted that in this case the Hon'ble Supreme Court has held that in view of section 68 of the Income-tax Act, 1961, where any sum is found credited in the books of the assessee for any previous year it may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut the said evidence, it can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee, the Department cannot, however, act unreasonably. In this case, during the assessment year 1971-72, the assessee claimed that she received a total amount of Rs. 3,11,831 by way of race winnings in jackpots and treble events in races at turf clubs in Bangalore, Madras and Hyderabad. The said amount was shown by the assessee in the capital account in her books. For the assessment year 1972-73, she claimed receipts of Rs. 93,500 as race winnings in two jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The Assessing Officer included these amounts as income from other sources and assessed them. The AAC confirmed the addition. The matter went to Settlement Commission who by a majority held that the explanation of the assessee was not genuine due to the reasons (i) that the assessee's knowledge of racing was very meager, (ii) that a jackpot is a stake of five events in a single day and one can believe a regular and experienced punter clearing a jackpot occasionally but the claim of the assessee of having won a number of jackpots in three or four seasons not merely at one place but at three different centres, namely Madras, Bangalore and Hyderabad appeared, prima facie, to be wild and contrary to statistical theories and Mukesh Jain. experience of frequencies and probabilities, (iii) the assessee's books did not show any drawings on race days or on the immediately preceding days for the purchase of jackpot combination tickets, which entailed sizable amounts varying generally between Rs. 2,000 and Rs. 3,000, (iv) the assessee's capital account was credited with the gross amount without showing any expenses and purchases of tickets or for losses, (v) in view of the exceptional luck claimed to have been enjoyed by the assessee, her loss of interest in races from 1972 was very significant. The Settlement Commission took the view that one would not lose interest in race from 1972 and income yielding activities merely because the income from that source become chargeable to tax. When the matter went before the Supreme Court, it dismissed the appeal of the assessee. From the facts of this case, it is apparent that this case does not relate to the case where the assessee has taken loan from any parties but it is a case where the assessee himself has shown the income from a particular source and income shown by the assessee was not found to be genuine. This case, in my opinion, will not assist the revenue.

In the case of Rohini Builders (supra), the facts are that during the assessment year under consideration, the assessee had taken loans from various parties and during the course of assessment proceedings, the assessee had furnished the loan confirmations giving full addresses, GIR numbers/permanent account numbers etc. of all the depositors. The Assessing Officer issued summons to some of the creditors and also conducted inquiries into the genuineness or otherwise of the loans taken by the assessee. Ultimately, the Assessing Officer made an addition of Rs. 12,85,000 to the returned income of the assessee, which was confirmed by the CIT(A). On further appeal, the Tribunal held that the phraseology of section 68 of the Act was clear that the Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to income-tax as the income of the assessee of that previous year, that the legislative mandate is not in terms of the words "shall be charged to income-tax as the income of the assessee of that previous years", that the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as income of the assessee. The Tribunal found that the assessee had discharged the initial onus which lay on it in terms of section 68 by proving the identity of the creditors by giving their complete addresses, GIR numbers/Permanent Account Numbers and the copies of assessment orders wherever readily available, that it had also proved the capacity of the creditors by showing that the amounts were received by the assessee by account payee cheques drawn from bank accounts of the creditors and the assessee was not expected to prove the genuineness of the cash deposited in the bank accounts of those creditors because under law the assessee can be asked to prove the source of the credits in its books of account but not the source of the source. Thus, taking into consideration the totality of the facts and circumstances of the case, and, in particular the fact that the Assessing Officer had not disallowed the interest claimed/paid in relation to these credits in the assessment year under consideration or even in the subsequent years, and tax had been deducted at source out of the interest paid/credited to the creditors, the Tribunal held that the Departmental authorities were not justified in making the addition of Rs. 12,85,000. The Hon'ble High Court dismissed the appeal of the Department. Hon'ble Supreme Court also dismissed the Special Leave Petition. This decision clearly lays down the proposition that the assessee is not required to prove the source of source. The assessee can be asked only to prove the source of the credit. This decision, in my opinion, is clearly applicable to the facts of the case before me. The assessee in the case before me has duly discharged his onus by filing the confirmation, address, permanent account number and the copy of bank account of the creditor. Even though the assessee was not required to prove the source of source but still the assessee in the case before me has filed the copy of cash book of the lender from which it is apparent that the lender was having the cash in hand on the date when he has deposited the amount in his bank account.

I have also gone through the decision in the case of Juaharimal Goel (supra). In this case, the Assessing Officer found two deposits in the books of account of assessee in the name of his daughters. The Assessing Officer asked the assessee to explain these deposits. The assessee explained that the amounts were paid by the two ladies through cheque and that both of them had been assessed to tax under the Amnesty Scheme. The Assessing Officer was of the view that the assessee had introduced his black money by filing voluntary returns of his daughters and,

In the above decision hon ITAT considering the decision of Honourable supreme court in case of Ms. Sumati Dayal, relied up on by the ld. DR has held that merely because cash is deposited in the bank account of the lender in view of other overwhelming evidences, no addition can be made in the hands of the borrower u/s 68 of the act. In view of the above decision of Agra bench where in the lenders being on record of income tax department and are filing regular return of income, merely because cash has been deposited in their bank account before issue of cheque cannot lead to addition in the hands of the assessee. Therefore, we do not find any infirmity in the order of CIT (A) in deleting the addition of Rs 13,55,000/- with respect to three lenders in the hands of the assessee u/s 68 of the Act. We confirm the order of CIT (A).

In the result appeal of the revenue is dismissed. Order pronounced in open court on 06/11/2015.