Income-tax

---Cash credits---Burden of proof ---Assessee must prove identity of creditors their credit-worthiness and the genuineness of the transactions. The primary onus lies on the assessee to prove the nature and source of credits in its accounts. It is necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts does the onus shift on to the Department. It is not enough to establish the identify of the creditors. Mere production of the confirmation letters before the Income-tax Officer would not by itself prove that the loans have been obtained from those loan creditors or that they have credit-worthiness.

Held, that, in the instant case, the Tribunal misdirected itself in holding that the transactions were genuine simply because some of the transactions were made by cheques. The assessee had failed to prove the credit-worthiness of the alleged lenders. A number of other assessees had also admitted that loans obtained from these bankers against Hundis were not genuine and such Hundi loans really represented their own concealed income. The assessee had not discharged its burden of proving that the loans in question were genuine.

Bagchi for the Commissioner.

JUDGMENT

AJIT K. SENGUPTA, J.----In this reference under section 256(2) of the Income-tax Act, 1961, for the assessment years 1965-66 and 1966-67, the following question of law has been referred to this Court.

"Whether the conclusion and/or the findings of the Tribunal that the ass assessee had discharged the initial onus in proving the loans as the genuine and that the loans in question are genuine, are vitiated in law being based on partly relevant and partly irrelevant material and/or inadmissible evidence and/or evidence contradictory and/or inconsistent with the material on record and/or the Tribunal have acted without any legal evidence and/or by rejecting improperly admissible evidence and whether such conclusion and/or findings are otherwise unreasonable and/or perverse?"

The facts shortly stated are that, in the course of assessment proceedings for the years under consideration, the Income-tax Officer noticed Hundi loans in each of the said years. He, therefore, called upon the assessee to prove the genuineness of the said loans. The assessee produced confirmatory letters and discharged Hundis. He also filed copies of accounts to show that the receipts and repayments were made by cheques. The Income-tax Officer, however, called upon the assessee to produce the parties, but the assessee did not do that. He (Income-tax Officer), accordingly issued notices under section 131 of the Act to the Hundi creditors but the same were received back un-served. Even those on whom notices could be served did not appear in response to the said notices. The Income-tax Officer, accordingly, held that no reliance could be- placed on the confirmatory letters. It was also held by him that the enquiries revealed all those parties being bogus Hundi-wallas, the said loans were therefore not genuine. The Income-tax Officer, accordingly, added Rs.90,000 (assessment year 1965-66) and Rs.45,000 (assessment year 1966-67) as the income of the assessee from undisclosed sources. In both these years, he also disallowed interest thereon.

Aggrieved by the said additions, the assessee brought the matter by way of appeals before the Appellate Assistant Commissioner of. Income-tax (Central) Range-II, Calcutta who, after considering the facts and circumstances of the case and the material on record as also the fact that the receipts, as well as the repayments of the loan amounts in question for the years under consideration were by cheques, accepted the genuineness of the loan transactions in question. He, accordingly, deleted the aforesaid additions made by the Income-tax Officer to the total income of the assessee in each of the years under consideration.

Aggrieved by this decision of the Appellate Assistant Commissioner the Revenue brought the matter by way of appeal before the Tribunal. It was contended that the cheque numbers and the bank certificates were not produced before the. Income-tax Officer and they were produced for the first time before him. The assessee has thus not proved the genuineness of the loan transactions in question. It was also submitted by the Department that the Appellate Assistant Commissioner had not given a clear finding with regard to the genuineness of the loan but he had mainly considered that the present credits came out of the earlier withdrawals. These contentions of the Revenue were controverted by the - assessee who contended that the copies of the loan accounts were filed before the Income-tax Officer and in the statement furnished to the Income-tax Officer, it was clearly stated that the receipts and repayments of the loans in question were made by cheques. The cheque numbers and the names of the banks were examined by the Income-tax Officer. If the Income-tax Officer had doubted the numbers of the cheques, he could have asked the assessee to furnish the details in that respect, but that was not done. The assessments, according to the assessee, were completed in a hurried way at the end of the period of limitation. It was also submitted that the alleged confessional statements said to have been made by the creditors were never put to the assessee and so no reliance could be placed on the same. The assessee had proved the genuineness of the loans and had discharged the initial onus. The department had not placed any evidence to rebut the evidence produced by the assessee. The tribunal accepted the contention of the assessee and held as follows:

"The receipts and repayments of the loans as well as the interest payments made by cheques in all the years except 1966-67 were receipts by cash and repayments by cheques. The bank certificates and the full particulars of the cheques were furnished before the Appellate Assistant Commissioner. Before the Income-tax Officer also, in the statement filed, it was clearly mentioned that the receipts and repayments were by cheques. The Income-tax Officer did not care to verify the same. The numbers of the cheques were also mentioned in the books of account. The Income-tax Officer could have very well verified the details from there and he could have verified the bank accounts of the creditors; but he did not do so. The assessee has also filed the confirmatory letters with the income-tax file numbers of the creditors along with the discharged Hundis. Since the amounts were received mostly by cheques and repaid by cheques in all cases which are also supported by the bank certificates, in our view, the assessee has discharged the initial onus. The Department has not placed any evidence to rebut the evidence produced by the assessee. The alleged confessional statements have never been put to the assessee during the assessment proceedings. Hence, they cannot be relied on and should be ignored. In view of the fact that the receipts mostly were by cheques and the repayments were by cheques, the Appellate Assistant Commissioner has rightly accepted the loans as being genuine and also in allowing the interest payments. In our view, the assessee has placed all the relevant evidence and proved the genuineness of the loans. The Appellate Assistant Commissioner was perfectly justified in deleting the additions and allowing the interest payments in the respective years."

At the hearing, Mr. Bagchi, learned counsel appearing for the Revenue, has contented that the Tribunal has wrongly placed the onus of proof of the fictitious character of the disputed loans on the Revenue. According to counsel the finding of the Tribunal is perverse and the Tribunal failed to take into account all relevant materials in coming to its conclusion. The facts which have been highlighted by the counsel for the Revenue are that the assessee stated before the Income-tax Officer that the cash credits represented Hundi loans taken from several parties, viz., Ghanashyam Das, Ashoke Kumar, Pur Usottam Dass Manoharlal and Murlidhar Kanayalal. The Income-tax Officer issued notices under section 131 to the said loan creditors. Those notices came back un-served. Discharged Hundis were produced by the? assessee. These are not discounted with any bank. The assessee was given opportunity to produce the parties with their books of account and other evidence for verification but that was not done. Thereafter, at the instance of the assessee, notices under section 131 were also sent to the new addresses. They also came back un-served.

In our view, the assessee failed to discharge the primary onus which lay on it to prove the nature and source of the credits. It was necessary for the assessee to prove prima facie the identity of his creditors, the capacity of such creditors to advance the money and lastly the genuineness of the transactions. Only when these things are proved by the assessee prima facie and only after the assessee has adduced evidence to establish the aforesaid facts, the onus shifts on to the Department. It is not enough to establish the identity of the creditors. Mere production of the confirmation letters before the Income-tax officer would not by itself prove that the loans have been obtained from those loan creditors or that they have credit-worthiness. The assessee tried to explain that the receipts and payments of the alleged Hundi loans have been made by cheques. But, in the absence of the books of account and other evidence of the parties concerned, it was not possible to verify the real nature of the alleged transactions even though they were made by cheques. The Tribunal misdirected itself in holding that the transactions were genuine simply because some of the transactions were made by cheques. The Income-tax Officer has found that the parties accommodated by handing over the cash to the Hundi bankers and account payee cheques were issued against the same by them. On the due date for the discharge of the Hundis, the party issued account payee cheques. These are credited in the bank account and after the proceeds were cleared, cash was withdrawn from the bank and paid to the parties. The transactions made by cheques, therefore, lost their usual importance and the genuineness of the loans cannot be accepted merely because cheques were exchanged between the parties. The assessee had failed to prove the credit worthiness of the alleged lenders and that those lenders actually had any funds of their own out' of which loans could have been advanced to the assessee. If the alleged lenders are genuine Hundi bankers, they would not have closed down their offices or would not have refused to produce their complete books of account for scrutiny and verification. A number of other assessees had also admitted that loans obtained from these bankers against Hundis were not genuine and that such Hundi loans really represented their own concealed income.

The assessee relied on the confirmatory letters given by the payee bankers. All these show that details were furnished by the assessee. None of these are the certified copies of the assessee's accounts in the books of the payee bankers. The only inference is that the assessee has managed to get the confirmatory letters from the payee just as it had managed to get the bogus Hundis. There can be no other inference. The transactions as well as the Hundis and confirmatory letters are collusive, fictitious and false. The Income ?tax Officer has relied on the confession made by these creditors. These crucial facts were not considered by the Tribunal at all. The Tribunal did not advert-to all the relevant facts in coming to the conclusion that the loans were genuine.

For the reasons aforesaid, we answer the question in this reference in the affirmative and in favour of the Revenue.

BHAGARATI PROSAD BANERJEE, J.--I agree.

M.B.A./1584/T??????????????????????????????????????????????????????????????????????? Reference answered,