Punjab & Haryana H.C : the ground of lack of explanation for the source of income good for addition u/s 68

High Court Of Punjab And Haryana

Dayal Singh And Sons Vs. CIT

Assessment Year 1995-96

Section : 68

Adarsh Kumar Goel And Ajay Kumar Mittal, JJ.

IT Appeal No. 73 Of 2004

November  23, 2010



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 July 16, 2003, passed by the Income-tax Appellate Tribunal Chandigarh Bench “A”, Chandigarh (in short “the Tribunal”) in I.T. A. No. 1249/Chandi/1998, relating to the assessment year 1995-96.

2. The following substantial question of law has been claimed for determination by this court :

“Whether under the facts and circumstances of the case and on the true and correct interpretation of the provisions of section 68, the Tribunal is justified in upholding the addition on the ground of lack of explanation for the source of income 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 ?”

3. The facts, in brief, necessary for adjudication, as narrated in the appeal are that the appellant-assessee is engaged in the business of manufacturing, sale and re-sale of wheat thresher and various agricultural implements. A survey was conducted on the premises of the assessee on March 7, 1995. The assessment was completed on March 27, 1998. The assessing authority made an addition of Rs. 50,000 on account of one cash credit received by the assessee through an account payee’s cheque No. 858325 on February 24, 1995, from the savings bank account of one Manjit Kaur in the State Bank of Patiala. In response to a questionnaire issued in the process of probe, said Manjit Kaur got recorded her statement on December 22, 1997, whereby she confirmed the advancing of the amount of Rs. 50,000. The assessing authority did not feel satisfied with the explanation furnished on behalf of the assessee and consequently made an addition of the said sum vide order dated March 27, 1998.

4. Aggrieved by the order of the Assessing Officer, the assessee filed an appeal before the Commissioner of Income-tax (Appeals), for short (“CIT(A)”). The Commissioner of Income-tax (Appeals) deleted the said addition vide order dated September 18, 1998. In the appeal carried by the Revenue before the Tribunal, the order of the Commissioner of Income-tax (Appeals) deleting the addition of Rs. 50,000 was set aside and that of the assessing authority restored, vide order under appeal.

5. We have heard learned counsel for the parties and have perused the record.

6. The point for determination in this appeal is, whether the Tribunal had rightly sustained the addition made under section 68 of the Income-tax Act, 1961 by disagreeing with the explanation furnished by the assessee and holding that the cash credit was not genuine. Findings recorded by the Tribunal may be reproduced with advantage which read as under :

“In respect of ground No. 2 the Assessing Officer noted that the assessee received a sum of Rs. 50,000 from Smt. Manjit Kaur as cash credit through account payee cheque No. 858325 dated February 24, 1995. Statement of Manjit Kaur was recorded, wherein she confirmed the loan being advanced. The Assessing Officer noted that a sum of Rs. 50,000 was deposited in cash on the same date when the cheque was advanced to the assessee-firm. About source, Manjit Kaur stated ‘I don’t remember at the moment’. The Assessing Officer ultimately made the addition which came to be deleted by the Commissioner of Income-tax (Appeals) in first appeal.

3.1 Learned Departmental representative relied on the order of the Assessing Officer and pointed out that a sum of Rs. 50,000 no doubt was advanced through cheque but on the same date cash was deposited in the account of Manjit Kaur. In respect thereof, she could not explain the source. She is not a regular assessee. Her affidavit is incomplete and simply states that loan was given out of money sent by her husband from abroad and also from agricultural savings. No evidence was, however, filed to prove her creditworthiness and the genuineness of transaction. Learned authorised representative on the other hand, relied on the impugned order.

3.2 After considering the rival submissions, we find that Manjit Kaur has advanced a sum of Rs. 50,000 to the assessee-firm through cheque. In her statement, she has accepted that she advanced money to the assessee-firm but in reply to source, she stated my husband owns about 10 acres of land in village Jhimalgora and the loan was given out of agricultural income. She also stated that her husband is having income in Italy. In reply to a question ‘what was approximate amount sent by your husband from Italy, she replied, ‘. . . exactly it is not known to me’. The Assessing Officer further raised a question from the copy of account produced by the assessee M/s. Dayal Singh and Sons, ‘it is seen that you have deposited Rs. 50,000 in cash on February 24, 1995, please explain the exact source of deposit’, she replied ‘I don’t remember exactly but amount might have been deposited from my savings and agricultural income or from money sent by my husband from Italy’. From the said statement, it is clear that Manjit Kaur explained the source of deposit in cash in a general manner. If any, funds are being received from a foreign country the same should have come through banking channel. That is not the position in the instant case. This is a case where the provisions of section 68 are clearly attracted. Section 68 provided that any cash credit found in the books relating to which the assessee offers no explanation is unsatisfactory. Such credit could be charged to tax as income of the assessee. The principle embodied in section 68 is only a statutory recognition of what was always understood to be the law based upon the rule of evidence that it is for the assessee to prove the genuineness of borrowings or other credits in his books, since the relevant facts are exclusively within his knowledge. The expression ‘nature and source’ has to be understood together as a requirement of identification of the source and the nature of the source, so that the genuineness or otherwise could be inferred. The law on the subject prior to 1968 illustrates this position in a number of precedents. The Supreme Court in Kale Khan Mohd. Hanif v. CIT [1963] 50 ITR 1 (SC) pointed out that the onus on the assessee has to be understood with reference to the facts of each case and proper inference drawn from the facts. The law after introduction of section 68 did not change and recognize the rule lay down by the apex court. We feel that the assessee could not prove the creditworthiness of the creditors and the genuineness of transaction because the creditor has deposited the money on the same day in cash when the money on the same day was advanced to the assessee-firm. The creditor was not in a position to pinpoint the exact source of money which was deposited nor did any evidence or circumstantial filed before the tax authorities or even before us. We feel that it is a fit case where the Assessing Officer has rightly rejected the genuineness of the transaction and added the cash credit. On the facts of the case, we set aside the order of the Commissioner of Income-tax (Appeals) on this issue and restore that of the Assessing Officer. For relying on the surrounding circumstances and applying the test of human probabilities we rely on the decision in the case of Sumati Dayal v. CIT [1995] 214 ITR 801 (SC). Ground stands allowed.”

7. The Tribunal on appreciation of material on record had observed that the cash credit of Rs. 50,000 in the name of Mrs. Manjit Kaur was not proved to be genuine and was, therefore, liable to be added under section 68 of the Act. The Tribunal has taken a plausible view while reversing the order of the Commissioner of Income-tax (Appeals) and the finding is based on evidence on record.

8. Learned counsel for the appellant made strenuous efforts for reappreciation of evidence on the basis of which finding of fact has been recorded by the Tribunal. However, he remained unsuccessful in his attempt as he only required reappreciation of evidence, without pinpointing any illegality or perversity in the evidence. Accordingly, there is no merit in the appeal and the same is dismissed.

[Citation: 335 ITR 90]

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