M.A.A. KHAN, J.M. : -
(1.) THESE two appeals, one each by the assessee and the Revenue, are directed against the order dt. 28th March, 1990 whereby the learned CIT(A), Jodhpur, confirmed the additions of Rs. 95,000 made on account of three cash credits but deleted the addition of Rs. 60,000 made on account of two cash credits. Both were heard together and are now decided by this consolidated order.
(2.) The relevant facts giving rise to these two appeals may shortly be narrated as under :
The assessee is an individual earning income from salary, interest and other sources. He returned his income at Rs. 13,930 for the year under consideration and the same was accepted under S. 143(1) of the IT Act, 1961 (the Act). The assessment was, however, reopened under S. 143(2)(b) on noticing the following cash credits allegedly of doubtful nature :
4. The Assessing Officer (AO) after conducting necessary enquiries came to the conclusion that though the identity of creditors S.Nos. 1 to 6 stood established, yet their creditworthiness was not acceptable. He, therefore, took the view that cash credits at S.No. 1 to 6 were unexplained and added to the income of the assessee. He, however, accepted the cash credit of Shri Zakir Hussain, appearing at S.No. 7. The assessee appealed to the CIT(A). 5. The learned CIT(A) examined the creditworthiness of all the creditors in sufficient details. He noted that Shri Mahabir Chand Bothra (S.No. 1) and his father Shri Vabudan Bothra (S.No. 2) had been earning business income as partners in a jute firm at Calcutta, called M/s. Rajendra Jute Supply Co., for some time and on dissolution of the said firm had received their capitals. He, therefore, accepted the creditworthiness of these two depositors and deleted the additions of Rs. 30,000 each made on account of the credits in their respective names. This part of CIT(A)s order has given rise to Revenues appeal. 6. In respect to the cash credits of Rs. 30,000 each in the names of Smt. Padam Lata and Smt. Suva Devi appearing at S. Nos. 3 and 4, wives of S/Shri Mahavir Chand and Pabudan respectively, as also in regard to the cash credit of Rs. 35,000 in the name of Shri Mohan Lal Jain (S. No. 5) the learned CIT(A) held the opinion that although all these three creditors were IT assessees and that they had allegedly deposited the amount of cash credits with the assessee through crossed cheques yet their creditworthiness was not to be accepted in view of their respective statements recorded at the earliest occasion in the course of enquiries. It may be noted that all these three creditors were examined by the AO behind the back of the assessee and when the assessee had the opportunity to cross-examine them they all admitted to have advanced the amounts of the cash credits to him. The learned CIT(A), however, accepted their earlier versions and rejected the later ones. Any way the learned CIT(A) did not approve of the creditworthiness of these three creditors and confirmed addition of Rs. 95,000 on account of the cash credits appearing in their names. This part of CIT(A)s order has given rise to assessees appeal. 7. With regard to the cash credit of Rs. 55,000 appearing in the name of Shri Surjmal Baid (S. No. 6) the learned CIT(A) thought it proper to remit what issue for re-examination and re-decision of the AO. That part of CIT(A)s order has not been challenged before us by either of the parties. 8. We heard Shri H.C. Ojha, Chartered Accountant for the assessee, and Shri G.C. Bansal, Departmental Representative for the Revenue, at sufficient length. We have also gone through the material brought on our record carefully. After hearing the learned representatives, the evidence on record and the law applicable thereto we are clearly of the opinion that the creditworthiness of all the creditors stands satisfactorily proved and, therefore, no addition on account of any of the cash credits in dispute can be made in the hands of the assessee. 9. Objecting seriously to the confirmation of the additions on account of cash credits appearing in the names of Smt. Padam Lata, Smt. Suva Devi and Shri Mohanlal Jain, Mr. H.K. Ojha, the learned counsel for the assessee, vehemently urged that not only the identity of these creditors was fully established but also their creditworthiness was proved and, therefore, there were no good grounds to reject assessees case in their respect. Mr. Ojha submitted that all these creditors had advanced the amounts in question through account payee cheques, that they were income-tax assessees and the amounts advanced by them had been duly reflected in their respective returns and assessments were duly made in their cases. The learned counsel further submitted that these creditors had not only filed confirmations of the credits but had also confirmed them as genuine in their sworn testimonies and thus the genuineness of the transactions was also proved. Mr. Ojha further submitted that the statements recorded behind the back of the assessee were of no value and only the cross-examined testimony of these and other creditors made substantive evidence in the case. He, therefore, urged that the IT authorities grossly erred in rejecting substantive evidence in the case and relying upon the statements of the persons recorded behind their back. In this behalf Mr. Ojha heavily relied upon the cases of Sohanlal Jain vs. ITO (1987) Taxation 84(4) -104, Sukha Nand Agarwal vs. ITO (ITA No. 6647 (Cal) of 1971-72), CIT vs. Puran Chand Ramkishan (P) Ltd. [RA No. 1408 (Cal) of 71-72/ITA No. 6930 (Cal) 69-70] and K. Patel & Co. vs. Thirteenth ITO (1991) 105 Taxation 52]. Mr. Ojha supported the order of deletion of the cash credits in the names of S/Shri Mahavir Chand and Pabudan and submitted that the same standard of appreciation of evidence ought to have been applied by the learned CIT(A) in the cases of the cash credits in the name of Smt. Padam Lata, Smt. Suva Devi and Shri Mohanlal Jain as well. 10. The learned Departmental Representative supporting the order of confirmation of the cash creditors in the names of Smt. Padam Lata, Smt. Suva Devi and Shri Mohanlal Jain, submitted that since in the course of enquiry these creditors had defined to have advanced the amount of cash credits, as appearing in their respective names, the IT authorities were justified in not accepting the cash credits, in their names as genuine. The learned Departmental Representative further submitted that the completion of assessments in the cases of some of the assessees had no adverse effect for the reasons that such assessments were completed in a summary way. Assailing the order of deletion of the addition of cash credits in the names of S/Shri Mahabir Chand and Pabudan, the learned Departmental Representative submitted that their creditworthiness was in doubt, and, therefore, the order of the learned CIT(A) in their respect was not correct. 11. Before we proceed to judge the merits of individual cash credits it is worthwhile to observe that addition on account of unexplained cash credit may be made under S. 68 of the Act where any sum is found credited in the books of an assessee, maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not in the opinion of the ITO satisfactory, the sum so credited may be charged to tax as the income of the assessee of that previous year. The mandate contained in S. 68 clearly conveys the message that the nature and source of the cash credit is to be explained by the assessee. This necessarily means that in the first place the identity of the creditor has to be established. Once that is done the next step is to prove his creditworthiness. Both these ingredients having been proved, the very character of the transaction, as a genuine transaction, has to be shown. Whereas the first two ingredients are ordinarily proved by leading some positive evidence, the third one can be established by taking an overall view of the evidence brought on record and the facts and circumstances of a given case. If an assessee succeeds in proving these three ingredients, then his explanation cannot be rejected as being unsatisfactory. The satisfaction of the ITO must be reasonable satisfaction. It is not to depend upon his whims and caprices. In case he wants to demolish the explanation offered and proof adduced by an assessee, the ITO is required to bring some material on record which can justify his action. That he may do either by leading some positive evidence or relying upon the inferences to be drawn from the evidence existing on record. But before treating the amounts of the cash credit as income of the assessee, the ITO is required to refer to such facts and circumstances which may legitimately lead to the reasonable conclusion that the amount of cash credit belongs to the assessee. In that behalf he may refer to the relationship between the alleged creditor and the assessee or may point out at the possibilities enabling the assessee to introduce his own income in the fake and fictitious names of others. 12. At this stage we would also like to say a few words about the appreciation of evidence brought on the record of the case. An ITO can no doubt make enquiries behind the back of an assessee and the evidence collected in such enquiry may also be used against the assessee. But before using such evidence against an assessee that shall have to be put to him and he shall be allowed an opportunity of rebutting the same. If such evidence consists of oral evidence the assessee shall be given an opportunity to cross-examine the person concerned. It would be that testimony which has been subjected to cross-examination, which could be used against the assessee. It is the cardinal principle of appreciating oral evidence that the testimony of a witness should be read as a whole and the acceptable part thereof should be relied upon. If grain cannot be successfully separated from the chaff, then the entire testimony should be rejected and conclusion should be based on some independent and impartial evidence. If the retracted testimony of a witness gets support from some independent evidence, then conclusion may be based on the retracted testimony and act upon the testimony, which was obtained behind the back of the assessee and which was not tested at the test of cross-examination. That seems to us to be the gist of the cases relied upon by Mr. Ojha. 13. Now coming to the merits of each of the disputed cash credits, the position comes to this. Additions of Rs. 50,000 (sic) each made on account of the cash credits appearing in the names of S/Shri Mahabir Chand and Pabudan (S.Nos. 1 & 2) was deleted by the CIT(A) on the ground that the creditworthiness of both the depositors was satisfactorily proved by the fact that they had been earning incomes as partners of M/s. Rajendra Jute Supply Co. Calcutta. It is not in dispute that the said firm was dissolved. On dissolution of the said firm, the two partners, who were father and son, inter se, received their respective shares of capital. In their statements they had confirmed that they had advanced Rs. 30,000 each to the assessee. The advances were made through cheques. It is well on record that Shri Pabudan had been carrying on money-lending business and had advanced various amounts to different persons. He was an old IT assessee and was assessed for this year before filing the return by the assessee. We, therefore, fully agree with the learned CIT(A) that the identity of both these creditors, their creditworthiness and the genuineness of the transactions stood well established on record. The additions made in respect to the cash credits in their respective names have been deleted for quit valid and satisfactory reasons and the order of the learned CIT(A) in that behalf is confirmed. Accordingly, the appeal filed by Revenue has to be dismissed. 14. Now coming to the assessees appeals, we find that the confirmations of the addition of Rs. 30,000 each made on account of cash credits appearing in the books of the assessee in the names of Smt. Padam Lata (S.No. 3) and Smt. Suva Devi (S.No. 4) and addition of Rs. 35,000 made on account of cash credit in the name of Shri Mohan Lal Jain has been challenged. The identity of these creditors is not in dispute. What is in dispute is their creditworthiness and genuineness of the relevant transactions. Smt. Padam Lata is the wife of Shri Mahabir Chand (S.No. 1) and Smt. Suva Devi is the wife of Shri Pabudan (S.No. 2). Both are IT assessees. They had filed their returns for the year under consideration on 31st July, 1985 and were assessed on 23rd Aug., 1985 and 7th Aug., 1985 respectively, Shri Mohanlal is not a member of this family. He has also filed his return for this year on 31st July, 1985. It was not disputed that the amounts stated by them as advanced to the assessee were duly reflected in their respective returns. None of the three creditors is in any way, related to the assessee. 15. In the course of assessment proceedings, the two lady creditors and Shri Mohanlal not only confirmed the advancing of loans to the assessee in their respective affidavits but also confirmed the same in their sworn testimonies. The IT authorities have, however, chosen to rely upon their statements recorded behind the back of the assessee in preference to those recorded in his presence. 16. Here it would be worthwhile to refer to the proceedings leading to the recording of the statements of these creditors. The assessee had filed the return on 29th Aug., 1985, and the same was accepted under S. 143(1) on 19th Sept., 1985. The assessment was, however, reopened on 23rd July, 1986, under S. 143(2)(b) of the Act. The AO summoned these creditors for 1st Sept., 1986 by issuing notices under S. 131 which were served on 23rd Aug., 1986. The witnesses were present on that day but allegedly they sought adjournment and the recording of their statement was postponed. Shri Mohan Lal was examined on 18th Sept., 1986. On 19th Sept., 1986, Smt. Suva Devi was examined. Smt. Padam Lata was examined on 28th Aug., 1986. As the study of the record of the proceedings maintained by the AO revealed, no notices of the dates of recording the statements of all these three witnesses was ever given to the assessee and the statements of all the three creditors were recorded behind his back. We were told no reasons for the AO proceeding to record the statements of these three creditors in that way. 17. In her such statements Smt. Padam Lata had stated that she had received Rs. 5,000 as gift in her marriage solemnised on 28th Nov., 1979, and that her father-in-law had invested the same in FDRs. She further stated that often her father-in-law used to obtain signatures on some papers. She denied to have herself advanced any amount to the assessee. But on being examined on 25th March, 1988, by the assessee, she not & only admitted her signatures on the cheque issued in favour of the assessee but also on the return filed by her for this year. Thereafter she was cross-examined at length by the AO and in such cross-examination she explained that in her earlier statement the factum regarding receipt of gifts by her at various occasions and her signatures on various papers were not put to her. 18. Similarly in her statement recorded on 19th Sept., 1986, Smt. Suva Devi had stated that she was doing some moneylending business for the last 15 years but such business was being carried on by her husband on her behalf. When cross-examined by the assessee on 16th March, 1988, she confirmed to be running a bank account and advancing loan to needy persons, including the assessee. She was also cross-examined at length by the AO but no material contradictions could be obtained in such cross-examination. 19. In his statement recorded on 18th Sept., 1986, Shri Mohan Lal had stated that after leaving his studies in 1981-82 he had engaged himself in purchooni business which was carried on till 1986. Thereafter he started commission agency business in grain. He admitted to have issued an a/c payee cheque of Rs. 35,000 to the assessee but alleged that he had advanced no money to him. But when cross-examined by the assessee he admitted that the money was got deposited by him in his bank a/c through his brother Shri Shushil Kumar and that he had advanced his own money to the assessee. This creditor too was cross-examined at length by the AO but no fruitful purpose could be served. 20. It may be appreciated that even in their statements recorded behind the back of the assessee, the lady creditors had not stated that amount of the cash credits were given to them by the assessee. In their cross-examined testimony, they had clearly confirmed that it was their own money that had been advanced to the assessee. In the appreciation of the testimonies of these lady creditors, it shall have to be kept in mind that they came from a business family and the male members of their family, i.e., their husbands were having good sources of income. The head of the family, viz., Shri Pabudan was doing moneylending business. Under such circumstances, the male members of the family were in a position to advance their own money in the names of their females. There is no iota of evidence to prove that the money representing cash credits in their respective names had come to them from the assessee. Above all, they had declared the advances in their respective returns for this very year and the Department chose to assess them. We were told at the hearing that the assessments of these ladies were not reopened for any correction. 21. The case of Shri Mohan Lal creditor is also on the same footing. He was having good sources of income and was assessed for the amount of the disputed cash credits. The amount had been advanced through a/c payee cheque and the amount was deposited in his account by his brother Shri Suresh Kumar. 22. To sum up we hold that not only the creditworthiness of all the three creditors was fully proved on record but also the genuineness of the relevant transactions stood proved. The AO had brought no material on record to suggest that the amounts of the disputed cash credits represented assessees income. Above all, the amounts in question stood assessed in the respective hands of the three creditors and such assessments are not claimed as bad or ineffective. Under such circumstances, and on such facts, there can be no good and valid reasons to treat the same amounts as the income of the assessee for the year under consideration. That being so additions made on account of cash credits appearing in the books of the assessee in the names of Smt. Padam Lata, Smt. Suva Devi and Shri Mohanlal are hereby deleted. Assessees appeal shall, therefore, stand allowed. 23. In the result assessees appeal is allowed but that of Revenue is dismissed.;