Madhya Pradesh H.C : The sum of Rs. 50,000 credited in the name of Shri Sanjay Talreja was unproved cash credit and assessee’s income from undisclosed source and interest paid thereon is liable to be assessed as income

G.M. Chaphekar with Subhash Samvatsor & Sharda, for the Assessee : D.D. Vyas, for the Revenue

A.R. TIWARI, J. :

On rejection of Ref. Appln. No. 66/Ind/94 on 21st Sept., 1994, the applicant-assessee has filed this application under s. 256(2) of the IT Act, 1961 (for short the `Act’) to direct the Tribunal to state the case and refer the two out of four proposed questions of law, as noted below, arising out of the order dt. 11th March, 1994 passed by the Tribunal in ITA No. 907/Ind/92 for the asst. yr. 1989-90.

(1) Whether the Tribunal is right in law and had any material to hold that the sum of Rs. 50,000 credited in the name of Shri Sanjay Talreja was unproved cash credit and assessee’s income from undisclosed source and interest paid thereon is liable to be assessed as income ?

(2) Whether the Tribunal is right in law and had any material to hold that the sum of Rs. 15,000 credited in the name of Smt. Gayatri Devi was unproved cash credit and assessee’s income from undisclosed sources and interest paid thereon is liable to be assessed as income and the said conclusion was based on conjecture, surmise or suspicion and on a failure to consider relevant evidence in the record ?

2. Briefly stated, the facts of the case are that the applicant is a dealer in cloth carrying on the business in the name of `Ashoka Trading Company’ as proprietary concern owned by Ashok Pal Daga as Karta of HUF. During the course of its business, this concern borrowed money from various parties. The Assessing Officer (AO) however, made additions under s. 68 of the Act on the ground of alleged unproved cash credit and also disallowed interest on the corresponding amount totalling Rs. 52,426 as tabulated in the application. In Appeal No. IT/206/92-93/308, the appellate authority confirmed the addition for the part of the principal amount and corresponding interest, but deleted the addition of principal amount of Rs. 65,504 and interest thereon of Rs. 1,800. In further appeal, the Tribunal in ITA/907/Ind/92 for the asst. yr. 1989-90, confirmed the addition of principal amount of Rs. 65,000 and interest thereon of Rs. 7,425 and deleted the principal amount of Rs. 3,11,000 and interest thereon of Rs. 34,576. The concern had also stated the borrowing of Rs. 50,000 and Rs. 15,000 through cheques. The applicant examined the concerned persons to establish the genuineness of loan through cheque. Yet the same was not accepted. The applicant then filed the Reference Application under s. 256(1) of the Act. The Tribunal declined to refer the questions and rejected the application. The applicant, thereafter, filed this application under s. 256 (2) of the Act.

3. We have heard Shri G.M. Chaphekar, learned Senior counsel, with Shri Subhash Samvatsar and Shri Sharda, for the applicant, and Shri D.D. Vyas, learned counsel for the non-applicant.

4. Shri Chaphekar submitted that the amount was borrowed from stated persons through cheques and as such, the Tribunal was not justified to treat the same as unproved cash credit or undisclosed source. He submitted that the assessee was not required to show as to from which source the creditor acquired the money to make the loan to the assessee. He placed reliance on Orient Trading Co. Ltd. vs. CIT (1963) 49 ITR 723 (Bom) : TC 42R.1039.

5. Shri Vyas, on the other hand, submitted that the proposed questions out of four questions are also the questions of facts and are not referable questions of law.

6. In (1963) 49 ITR 723 (supra), it is held as under : “When, however, in a case where the entry stands in the name of a third party the assessee satisfies the ITO as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious the initial burden which lies on him can be said to be discharged by him. It will not thereafter be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the money with the assessee. The burden will then shift on to the Department to show why the assessee’s case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source. In order to arrive at such a conclusion, however, the Department has to be in possession of sufficient and adequate material.”

7. As the applicant satisfied the authority as to the identity of the third party and also supplied the relevant evidence showing prima facie that the entries were not fictitious, the initial burden can be said to be discharged by the applicant-assessee. In view of the factual matrix and legal position, we are satisfied that the aforesaid two questions are questions of law arising out of the order and are required to be referred for our opinion.

In the circumstances, we allow this Reference Application and direct the Tribunal to state the case and refer the aforesaid two questions of law for our opinion as expeditiously as possible. There shall, however, be no orders as to costs. Counsel fee, however, is fixed at Rs. 750, if certified.

[Citation: 220 ITR 452]