Ajit K.Sengupta, J. - (1.) In this reference under Section 256(2) of the Income-tax Act, 1961, for the assessment years 1978-79 and 1979-80, the following question has been referred to this court : "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 5,64,631 and Rs. 4,84,205 as unexplained credits and interest thereon for the assessment years 1978-79/1979-80, respectively ?" Shortly stated the facts leading to this reference are that the assessee is Messrs. Precision Finance Pvt. Ltd. and the assessment years involved are 1978-79 and 1979-80 for which the accounting periods ended on June 30, 1977, and June 30, 1978, respectively. The business of the assessee-company is loan financing. In the assessment for the assessment year 1978-79, there were two assessments under Section 144 due to non-compliance by the assessee but both the ex parte assessments were reopened under Section 146 of the Income-tax Act, 1961. The present assessment was a third assessment made under Section 143(3)/146 on March 11, 1986. In the course of assessment proceedings for the year 1978-79, the Assessing Officer found that the following cash credits appeared in the books of account of the assessee for which the income-tax file numbers of the creditors as furnished by the assessee were as under : -------------------------------------------------------------------------------- Sl. No. Name of the creditors Cash credit I.T. file Nos. -------------------------------------------------------------------------------- Rs. 1. Mohanla) Golcha 80,000 11-018-FX-5414 Cal/IV0/H 2. Assam Jute Supply Company 10,000 Not furnished 3. Associated Syndicate Company 50,000 11-082-FD-4270 Cal/I(1)/G 4. Sun Enterprises 75,000 11-014-PX-2155 Cal/V(2)/F 5. Rajasthan Jute Supply Company 50,000 11-015-PN-4659 Cal/VI/M 6. Probhat Trading Company 80.000 11-045-PX-2648 Cal/II(2)/L 7. Mahalakshmi Bastralaya 50,000 11-051-PY-7837 Cal/VI/C 8. Sohanlal Suresh Kumar 25,000 V(1)/734-S/G 9. Mulchand Chabra 25,000 11-011-PX-9410 Cal/IV(2)/M 10. Somani Supply Syndicate Company 1,00,000 -------------------------------------------------------------------------------- 11-054-FQ-0953 Total 5,45,000 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------- The Assessing Officer deputed his inspector to make investigation about the above loan creditors. On enquiry, it was found that the income-tax file numbers given in respect of Mohanlal Golcha (Sl. No. 1) was not available and the said party was not also available at the given address at 161/1, M.G. Road, Calcutta. In respect of Assam Jute Supply Company (Sl. No. 2), the assessee neither filed the confirmatory letter nor the address was fully given which could be verified by the inspector. In respect of Associated Syndicate Co. (Sl. No. 3), the inspector could not find the file in District (1), C-Ward, Calcutta. Moreover, the creditor, Messrs. Associated Syndicate Company, was not traceable at the given address at 2, Nawab Badruddin Street, Calcutta. In respect of Sun Enterprises (Sl. No. 4), on enquiry the file could not be found in District V(2), F-Ward. The said party was also not traceable at the given address at 4, Wood Street, Calcutta. In respect of Rajasthan Jute Supply Company (Sl. No. 5), the file could not be found in District VI also. The party was not traceable at the given address at 11, Pollock Street, Calcutta. Subsequently, the assessee in respect of this party had furnished a file number of District 7(1) but the file also could not be found out. In respect of Probhat Trading Company (Sl. No. 6), the file could not be found out in District II(2), B-Ward. In respect of Mahalakshmi Bastralaya (Sl. No. 7), the file number given by the assessee could not be found out in C-Ward, District VI. In respect of Sohanlal Suresh Kumar (Sl. No. 8), the file number given could not be found out in District V(1), Calcutta. Moreover, the party was not traceable at the given address. In respect of Mulchand Chabra it was found on examination of the income-tax assessment records that the party had income from commission and interest. His balance-sheet for the relevant year did not reflect the alleged loan given to the assessee-company. In respect of Somani Supply Syndicate Company (Sl. No. 10), it was found on enquiry that the loan given to the assessee-company was not reflected in the balance-sheet. For the aforesaid reasons, the Assessing Officer made an addition of Rs. 4,45,000 as cash credits and also disallowed interest relatable to those loans amounting to Rs. 19,631 for the assessment year 1978-79. Similarly, for the assessment year 1979-80, the Assessing Officer made an addition of Rs. 4,50,000 as income from other sources as he found similar defects in respect of cash credits from the following parties : 1. Mohanlal Chola. 2. Rajasthan Jute Supply Company. 3. Assam Jute Supply Company. 4. Rajendra Kumar Gupta. 5. Hemraj Sagarmal. 6. Lakshmi Narayan Botanlal. 7. Sitaram Khaitan. 8. Kedarnath Ramratan. The Assessing Officer also added interest relatable to the fictitious loans amounting to Rs. 37,512 for the assessment year 1979-80.
(2.) Aggrieved by the orders of the Assessing Officer, the assessee filed appeals before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals), considering the facts and circumstances of the case, confirmed the additions.
(3.) Being aggrieved, the assessee came up in appeal before the Tribunal. The Tribunal found that all the parties were old parties. It also found that the Assessing Officer made enquiries in the old districts of the Department but did not try his hand in the survey circles of the Department to find out the creditors. Therefore, the Tribunal held that it could not be said that efforts were made by the Assessing Officer to trace the income-tax files of the cash creditors. The Tribunal also held that the Assessing Officer was expected to find out the truth from all districts. In this case all the transactions were made by account payee cheques. The assessee urged the Assessing Officer to verify the bank accounts of the parties to find out the truth of the transactions which he did not do. The Tribunal further found that since the Assessing Officer did not verify the bank accounts of the creditors, it should be held that the creditworthiness and genuineness of the transactions have been established. By so holding the Tribunal deleted the additions made by the Assessing Officer for the two years under reference.;