I.T.A. NO.4415/KB OF 1986-87 VS I.T.A. NO.4415/KB OF 1986-87
1997 P T D (Trib.) 2344
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Mujibullah Siddiqui, Actg. Chairman and S.M. Sibtain, Accountant Member
I.T.A. No.4415/KB of 1986-87, decided on 13/02/1995.
(a) Income Tax Ordinance (XXXI of 1979)---
----S.22---Income from business---Estimate of sales---Assessee returned sales---Assessing Officer, discharging trading results, estimated sales on his own with high G.P. rate ---C.I.T. (Appeal) confirmed same---Validity-- Held, Commissioner of Income Tax (Appeal) erred in ignoring fact that in case cited by assessee, G. P. rate was estimated on sale of scraps from two self-imported scrap vessels and Assessing Officer failed to distinguish facts of two cases---Confirmation of G.P. rate and estimate of sales, therefore, were unsustainable---Both G. P. rate and sales were ordered to be deleted.
(b) Income Tax Ordinance (XXXI of 1979)---
----S.148---Credit entries---Onus of proof---Credit entries were found in assessee's books of account in the name of other persons ---Assessee was confronted ---Assessee pleaded that creditors had admitted giving loans--- Assessing Officer doubted creditworthiness of auditors---Addition under S.13(1)(a), Income Tax Ordinance, 1979 was made ---C.I.T.(A) upheld addition on the ground that onus to prove genuineness of cash credit squarely rested on assessee who had failed to discharge---Held, assessee satisfactorily identified creditors who had admitted having advanced amounts credited to their accounts in assessee's books and Assessing Officer failed to discharge his onus to record any materials in his possession to prove that assessee's case could not be accepted and entries still represented income of assessee from suppressed source---Assessing Officer also failed to pursue equity to its logical end ---Assessee thus, had sufficiently discharged his onus to explain source of credit income---Assessing Officer having failed to discharge his onus and C.I.T. (A) had also failed to weigh properly burden of proof, addition was ordered to be deleted.
NTN 12-06-3253281; Sarogi Credit Corporation v. CIT, Behar (1976) 103 ITR 344; Anraj Nasim Das Punjab (1951) 29 ITR 562 and Shankar Inds. v. C.I.T., Calcutta (1978) 114 ITR 689 ref.
Rehan Hassan Naqvi for Appellant. Muhammad Yousuf Butt, D.R. for Respondent
Date of hearing: 13th February, 1995.
ORDER
S.M. SIBTAIN (ACCOUNTANT MEMBER).---The appellant, an A.O.P., engaged in ship breaking has preferred this appeal against the order of the learned CIT (A) Out of various grounds taken in the appeal grounds number 2,3,4, and 9 are not pressed by the learned counsel of the appellant, Mr. Rehan Hassan Naqvi.
We have heard Mr. Rehan Hassan Naqvi the learned counsel of the appellant and Mr. Yousuf Butt, the learned D.R., On the issues of confirmation of Estimate of sales at Rs.20,00,000 against declared sales of Rs.14,37,313, estimate of G.P. @ 18%, against declared G.P. @ 14.7% deeming Rs.5,00.000, claimed to be credit balances of six persons, as income from undisclosed source under section 13(l)(a) read with section 30 of the Ordinance. We find that the learned CIT (A) erred in ignoring the fact that in the case cited by the appellant at NTN 12-06-3253281 admittedly the G.P. @ 15% was estimated on sale of scrap from two self-imported Scrap Vessels and the I.T.O. had failed to distinguish the facts of the case with the facts of appellant's case. Confirmation of 18% G.P. Rate, therefore, is found unsustainable. Similarly confirmation of the estimate of sales at Re.20,00,000 against declared sales of Rs.14,37,913 also is not supported with sound basis and it is found excessive. Accordingly we vacate the order of the learned CIT(A) and reduce the rate of estimated G.P. to 15% and the estimated sale to Rs.16,00,000.
Regarding confirmation of the addition of Rs.5,00,000 made by the I.T.O. under section 13(1) (a) read with section 30 of the Income Tax Ordinance, briefly, the facts were that credits appeared in the books of accounts of the appellant in the name of following persons.
| (i) M/s. M ..E Prop. D ,B | Rs.90,000 |
| (ii) "R .E .Prop T .B | Rs.85,000 |
| (iii) M/s. S T Co. Prop. N ..B | Rs.50,000 |
| (iv) M/s. A ,A .E Prop.. F.. B | Rs.85,000 |
| (v) M/s. N .T Prop.. M.. R | Rs.1,00,000 |
| (vi) M/s. J..A.. & Co. Prop. GA | Rs.90,000 |
| | Rs.5,00,000 |
The appellant was confronted vide notice under section 62 of the Income Tax Ordinance, 1979 that the credits of Rs.5,00,000 were bogus and fictitious and the credit worthiness of the creditors could not be established in the light of their Income-tax records.
The appellant's Authorised representative vide explanation letter, dated June 15, 1985 pleaded acceptance of these credits on the grounds. , ,
that the creditors had admitted giving loans to the assessee and reliance was placed on case reported as (1976) 103 ITR page.344'.
Enquiries and investigations from the income tax record of the persons admitting to have given the loan revealed that the persons were not capable of advancing the loans as shown in the books of accounts. "
Admittedly five out of the six aforementioned persons were tax payers. The assessing officer examined their assessment records and found that none of the creditors had sufficient funds, as per their income tax records, to make the aforesaid advances to the appellant at the relevant point of time. Figures of their declared incomes and business capital have been extensively reproduced at pages 5 to 8 of the assessment order. However, summon under section 148 issued to Mr. G A, proprietor of M/s. J . A & Co. were not complied with on the plea that he was out of the country.
The Assessing Officer, therefore, concluded that Rs.90,000 advanced by M/s. J .A ..& Co. remained unverified; hence fictitious and bogus and in the other five cases, the statements of the creditors were not relied upon for want of their credit worthiness. Reliance was placed on the ratio of decisions in the undermentioned reported cases.
(1) Anraj Nasim Das - Punjab (1951) 29 ITR 562 (pages 562-567).
(2) Shankar Inds. v. CIT Calcutta (1978) 114 ITR 689 at page 698 (Calcutta High Court).
It was pleaded before the learned CIT (A) that each one of the creditors was being assessed in the jurisdiction of the CIT. Hyderabad Zone and had admitted the fact of having advanced the loans to the appellant. The learned CIT (A) held that the onus to prove the genuineness of cash credit squarely lay on the appellant which it failed to discharge and upheld the addition of Rs.5,00,000 under section 13(1)(aa).
Mr. Rehan Hassan Naqvi has pleaded before us that all the creditors had filed affidavits in response summons under section 148, confirming the advances made by them and all of them were bona fide tax payers. Thus, the appellant had duly discharged his onus of not only properly identifying the creditors, but rendering to the learned I.T.O. the affirmation of the creditors of having advanced the amounts credited to their accounts in the appellant's books. Beyond this it was for the learned I.T.O. to see if any action was warranted in their respective cases under the Income Tax Ordinance as well as to discharge his onus to prove that the cash credits were not genuine and that it was appellant's secreted profit. He further contends that the cases cited by the learned assessing officer in support of the adverse inference drawn by him from the prima facie lack of means with the creditors to advance the aforesaid amounts, are inapplicable to the facts of appellants case because in all those cases the credits appeared in the books either in the name of proprietor of partners or in the names of wife, son, daughter or close relatives and not in the name of independent third parties as in appellant's case. Even in the case of Shankar Industries v. CIT Calcutta (1978) 114 ITR 689, the facts that led to an adverse decision, as recorded by the Honourable Court were as under:--
"The facts found and/or admitted are, inter alia, that in the assessment year 1963-64, the previous year being the samvat year 2019, ending on the 1st April, 1963 a number bf cash credits were noticed in the books of account of the assessee in the names of various parties, including those of Sureka Jute Co. Ram Kumar Chotaria, and Chouthmull Raghulall. In pursuance of a summons issued by the Income-tax Officer, one Vidyanand Sureka appeared before the Income-tax Officer on the 11th December, 1967, on behalf of Sureka Jute Co. He claimed to be the proprietor of the concern and stated that his books had been seized by the income-tax department on the 17th November, 1965. It was ascertained from departmental records that the said Vidyanand Sureka had made a confession on the 9th September, 1966, to the effect that this loan transactions were not genuine and that he was only a name lender. It was also noted that in the books of account of Sureka Jute Co. The source of payments made by third parties were not ascertainable as the entire debit side of the cash book was kept blank and no dates were given.
No one appeared on behalf of Ram Kumar Chotaria in spite of summons issued. On examination of the income-tax file of the said party it was found that the firm had been closed after the death of the proprietor, Ram Kumar Chotaria, and in the assessment year in question it had not filed profit and loss account or balance sheet and that its assessment had been completed under section 144 of the Income Tax Act, 1961. The previous assessment of the firm for the assessment year 1962-63 had also been completed under section 144 and the income assessed was only Rs.2,000. It was also found that a similar loan of Rs.65,000 alleged to have been advanced by Ram Kumer Chotaria another concern had been held to be spurious.
No confirmation letter was furnished on behalf of Chouthmull Raghulall and no one appeared for the firm before the Income-tax Officer. "
We place, reliance, in support of his contention, on the decision of Patna High Court in the case of Sarogi Credit Corporation v. CIT Behar (1976) 103 ITR 344. Finding the decision on all fours with the facts of the instant case we are reproducing the decision at some length hereunder:---
"The facts giving rise to this reference are short and simple. The assessee is a registered firm and derives income from financing purchase of trucks and other vehicles. During the examination of its books of account, the Income-tax Officer found certain cash credits in the names of two persons, namely, Shree Zahir Hussain and Shree Ram Swarup Saw. In the name of Shree Zahir Hussain there were two credit entries, dated the 24th July, 1961, and the 27th October, 1961, for Rs.5,000 and Rs.7,000 respectively. The credit entry in the name of Shree Ram Swarup Saw was dated the 27th October, 1961, for a sum of Rs.8,000. The Income-tax Officer issued summons under section 131 of the Act to both the persons above-named in whose favour the credit entries stood. Shree Zahir Hussain appeared before the Income-tax Officer and stated on oath that he invested the amount of Rs.12,000 during the assessment year 1962-63 from out of his past income. Shree Ram Swarup Saw also appeared in person and stated on oath that he had also invested a sum of Rs.8,000 out of his income of the past. It was further stated by both the creditors that they were income-tax assessees. The Income-tax Officer disbelieved the statements on oath of aforesaid two creditors. The statement of Ram Swarup Saw was not accepted for the following reasons:
(i)No evidence had been furnished in regard to the contention that he had received money at the time of his marriage.
(ii)No evidence whatsoever had been produced that he was doing business since 1955. As a matter of fact, he had been assessed for the first time in the assessment year 1962-63 on a total income of Rs.5,223 only.
(iii)No evidence had been produced to prove possession of the money by Ram Swarup Saw.
Again, Shree Zahid Hussain's statement on oath was disbelieved by the Assessing Officer on the ground that he had not produced his books of account and that from his assessment records it had been found that he did not produce any evidence to prove the existence of business, brokerage commission and odd jobs; nor was there any evidence of any saving by him: Having thus rejected the statements of the two creditors, the Income-tax Officer added a total sum of Rs.20,000 to the assessable income of the assessee as being income from undisclosed sources within the meaning of section 68 of the Act. The assessee having preferred an appeal, the Appellate Assistant Commissioner held that, in the case of third parties where they came forward and admitted to have advanced loans to an assessee, the onus of proving that the said loans were not genuine ones and actually emanated from the assessee shifted on the Income tax Officer. It was further held that the mere fact that no convincing explanation regarding sources out of which the loans were advanced by the third parties could be given would not make the said loans assessable in the hands of the assessee. The Income-tax Officer's order regarding addition of Rs.20,000 to the assessee's income as from undisclosed sources was, therefore, knocked down. The revenue pursued a second appeal before the Tribunal. The Tribunal, on an interpretation of section 68 of the-Act, held that the primary onus was on the assessee to prove the nature and source of the deposits which it did not discharge. The Tribunal went on to observe that, when the money was deposited by the two creditors above-named, they were not income tax payers, and, therefore, the deposits stood in the books of the assessee as unexplained; and purporting to rely upon a Bench decision of the Calcutta High Court in Northern Bengal Jute Trading Co. Ltd. v. Commissioner of Income-tax the Tribunal came to the conclusion that the admission by the depositors could not lead to the conclusion that they were in a position to advance the money to the assessee, and since the assessee could not prove that the depositors were in a position to make the deposits to the extent they stood in the books, the onus that lay on the assessee had not been discharged. All the same, the Tribunal also found that both the depositors were doing some business and subsequently they had filed returns showing some small income. In that view of the matter, the Tribunal thought it fair and reasonable to allow a sum of Rs.5,000 as having been sufficiently explained by the assessee; but the remaining sum of Rs.15,000 was added to the assessee's income as being secreted profits.
Mr. N.P. Agrawala, learned counsel for the assessee, contended, and, in my view, rightly so, that the position under section 68 of the 1961 Act is no way different from that with regard to cash credit entries prior to the 1961 Act, and although there was no specific statutory provision in the 1922 Act, the principles which governed cases arising under the 1922. Act would also govern cases falling under section 68 of the 1961 Act. Learned counsel further contended that there was absolutely no inconsistency in the various decisions of the various High Courts as also of the Supreme Court in so far as the question at issue is concerned. One line of cases lays down that, where an assessee shows that the entries regarding cash credits in third parties accounts are genuine and the sums were in fact, received from third parties as loans or deposits, the onus is discharged by the assessee. In that case it would be for the third parties to explain their 4ources of the money so advanced. In any event, such loans cannot be charged as the assessee's income, in the absence of any cogent material to indicate that they belonged to the assessee. The position in law, however is different in so for as the degree of heaviness of the burden to prove varies where the credit entries in the assessee's books of account are in favour of, say, partners of the firms, of which the assessee is himself a member, in the assessee's own name in any different capacity, in the, names of other near relatives of the assessee, in the names of the employees of the assessee, or in the names of other such units as have got some financial interest common to the assessee. In my view, the law is too well-settled and this I say not only on account of consensus of judicial opinion, but also for the additional reason that, stretching the doctrine of onus too fare in the case of entries in favour of third parties, who themselves come forth and admit that they had advanced the loans, the addition of such amounts as from undisclosed sources or secreted profits in the assessee's books of account, on rejection of such statements made by disinterested third parties, would lead to an absurd inconvenience, which the statute does not envisage. Decisions are numerous; to wit, a Bench decision of this Court in Radhakrishna Bihari Lal. v. Commissioner of Income-tax, a Bench decision of the Nagpur High Court in Jainarayain Balabakas of Khamgaon v. Commissioner of Income tax, a Bench decision of the Allahabad High Court in Ram Kishan Das Munnu Lal v. Commissioner of Income tax and a Bench decision of the Bombay High Court in Orient Trading Co. Ltd. v. Commissioner of Income tax, may be referred to as authorities for the proposition that, if a credit entry stands in the name of the assessee himself, the burden is undoubtedly on him to prove satisfactorily the nature and source of that entry and to show that it does not constitute a part of his income liable to tax. If the credit entry stands in the names of the assessee's wife and children, or in the name of any other near relation, or an employee of the assessee, the burden lies on the assessee, though the entry is not in his own name, to explain satisfactorily the nature and source of that entry. But if the entry stands not in the name of any such person having a close relation or connection with the assessee, but in the name of independent party, the burden will still lie upon him to establish the identity of that party and to satisfy the Income-tax Officer that the entry is real and not fictitious. Once the identity of third party is established before the Income-tax Officer and other such evidence are prima facie placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessee can be said to have been duly discharged by him. It will not, therefore, be for the assessee to explain further as to how or in what circumstances the third party obtained the money and how or why he came to make advance of the money as a loan to the assessee. Once such identity is established and the creditors, as in the instant case, have pledged their oath that they have advanced the amounts in question to the assessee, the burden immediately shifts on to the department to show as to why the assessee's case could not be accepted and as to why it must be held that the entry, though purporting to be in the name of a third party, still represented the income of the assessee from a suppressed source. And, in order to arrive at such a conclusion, even the department has to be in possession of sufficient and adequate materials. As I have already indicated above, the Income tax Officer's rejection not of the explanation of the assessee, but of the explanation regarding the source of income of the depositors, cannot by itself lead to any inference regarding the non genuine or fictitious character of the entries in the assessee's books of account. Nor, for that matter, is there any such finding recorded either by the Income-tax Officer or the Appellate Assistant Commissioner. On the contrary, the Appellate Assistant Commissioner, whose appellate order in favour of the assessee forms part of the statement of the case, marked "B" clearly points out that the findings recorded by the Income tax Officer were no positive findings. The Appellate Assistant Commissioner, in my view had rightly assessed to the position in law by holding that in order to crop in any amount as the income of the assessee from undisclosed sources, or as secreted profits, there must be some tangible materials.
Learned standing counsel appearing for the department vehemently relied upon the Bench decision of the Calcutta High Court in Northern Bengal Jute Trading Company's case, on which reliance was also placed by the Tribunal. As I have indicated earlier, no Principle of law laid down in Northern Bengal Jute Trading Company's case runs counter to the principles as enunciated by the different High Courts in the decisions referred to above. As a matter of fact, the decision of Bombay High Court in Iruebtak Trading Company case was referred to in that case and it was on the distinction of the facts of the Bombay case and the Calcutta case that a different conclusion was arrived 'at by the Bench of the Calcutta High Court in the above mentioned case, as it has itself said at page 415 of the reports.
There cannot be one general or universal proposition of law which could be the guiding yardstick in the matter. Each case has got to be decided on the facts and circumstances of that case. The surrounding circumstances to be considered must, however, be objective facts, evidence adduced before the taxing authorities, presumption of facts bases on common human experience in life and reasonable conclusions: In holding a particular receipt as income from undisclosed source, the fate of the assessee cannot be decided by the revenue on the basis of surmises, suspicions or probabilities. Further, the High Court in deciding a reference can and should always intervene in the conclusions of the Tribunal, if it is satisfied that such conclusions were arrived at although there is no evidence or that the conclusions are perverse'. "
Coming back to the facts of the appellant's case we find that admittedly the appellant satisfactorily identified all the creditors who have admitted having advanced the amounts credited to their accounts in appellant's books and the learned I.T.O., except for giving a finding that as per assessment records of the creditors they did not have sufficient funds to make the aforementioned advances, failed to discharge his onus to record any material to his possession to adequately prove any sufficiently conclude that the assessee's case could not be accepted and it must be held that the entries, though purporting to be in the name of third parties, still represented the income of the assessee from a suppressed source or from the disclosed source. The I.T.O. therefore, failed to pursue his enquiry to its logical end. Thus, we find that while the appellant had sufficiently discharged its onus to explain the source of cash credits. The I.T.O. failed to discharge his onus and the CIT(A) also failed to weigh properly both the burden of proof and the ratio of decisions in the cases relied upon by the appellant and the learned I.T.O. The impugned orders, therefore, cannot be sustained. Accordingly, the addition of Rs.5,00,000 made by the I.T.O. under section 13(-1)(aa) of I the Ordinance is deleted.
C.M.S./306/Trib. Appeal allowed.