RAICHAND KOTHARI (HUF) VS COMMISSIONER OF INCOME-TAX, 1998 PTD-GAUHATI-HIGH-COURT-INDIA 3411 (1996)

(a) Income-tax---

----Cash credit---Appeal to Appellate Tribunal ---CIT (Appeals) accepting explanation with regard to some of cash credits---Tribunal reversing decision of CIT (Appeals) without a reasoned order---Order of Tribunal was not justified---Indian Income Tax Act, 1961, Ss.68 & 254.

(b) Income-tax---

----Appeal to Appellate Tribunal---Tribunal is final fact finding authority-- Duty of Tribunal to consider evidence on record---Tribunal reversing decision of first appellate authority---Duty of Tribunal to pass reasoned order---Indian Income Tax Act, 1961, S.254.

The decision of the Assam High Court in Tolaram Daga v. CIT (1966) 59 ITR 632, makes it clear that if a deposit is made by a third party, the Income-tax Officer is not powerless to consider whether such deposit is genuine or not. While considering that aspect of the matter the principles laid down in the said case are relevant inasmuch as section 34 of the Evidence Act is also relevant for the purpose of determining the genuineness of the entries made in the books of account. No doubt, the Evidence Act as such is not applicable in income-tax matters. But the spirit of the Act has to be followed. If such books of account are not challenged, those books of account should be considered as genuine. It will not be necessary on the part of the assessee to further prove the capability of the depositor.

The Tribunal is the last authority so far as facts are concerned. The Tribunal is required to consider each and every fact and discuss the evidence available on record. It may not always be necessary to discuss each and every piece of evidence in detail while affirming the order. But in case of reversal, the Tribunal is duty bound to discuss each piece of evidence placed before it and come to an independent finding by giving reasons.

The assessee in order to meet its business requirement took loans from various persons during the assessment year 1982-83 and in the preceding assessment year which were reflected in the balance-sheet. Confirmation of loan statements by the creditors had been furnished to the Assessing Officer. The assessee had also furnished the income-tax file numbers of the creditors and some of the creditors were produced before the Assessing Officer for examination. However, the Assessing Officer was not satisfied with the explanation given by the assessee and the creditors and accordingly the Assessing Officer added the said loans given by the creditors invoking the power under section 68 of the Income Tax Act, 1961, as income from other sources. The Assessing Officer also disallowed the interest paid to all the creditors including the interest paid on amounts obtained from them in the preceding assessment year. On appeal, the Commissioner of Income-tax (Appeals) after hearing the parties allowed the appeal in respect of the loan given by six out of seven creditors. The Tribunal after hearing the parties reversed the finding of the Commissioner of Income-tax (Appeals) on the ground that the explanations offered were not satisfactory and the reasons given by the Commissioner of Income-tax (Appeals) could not be sustained. On a reference:

Held, that the Tribunal did not discuss any evidence whatsoever and after quoting the submissions made by both sides, the Tribunal disagreed with the conclusions arrived at by the Commissioner of Income-tax (Appeals). The order of the Tribunal was not valid.

Tolaram Daga v. CIT (1966) 59 ITR 632 (Assam) applied.

Jalan Timbers v. CIT (1997) 223 ITR 11 (Gauhati) and Udhavdas Kewalram v. CIT (1967) 66 ITR 462 (SC) ref.

J.B. Bhattacharjee and R.K. Joshi for the Assessee.

U. Bhuyan for the Commissioner.

JUDGMENT

D.N. BARUAH, J.---In this reference as per direction given by this Court in Civil Rule No.9(M) of the 1992, the following four questions have been referred under section 256(2) of the Income Tax Act, 1961 (for short, "the Act"), -for opinion of this Court:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the ratio of the decision laid down by the High Court in the case of Tolaram Daga (1966) 59 ITR 532 under the Indian Income-tax Act, 1922, would not apply in the present case of the assessee in view of the provisions contained in section 68 of the Income-tax Act, 1961, and thus, reversing the decision of the Commissioner of Income-tax (Appeals) passed referring and relying on the said decision, amongst others, and restoring the findings of the Assessing Officer regarding the cash credits in question?

(2)Whether, on the facts and in the circumstances of the case, the Tribunal being the final fact finding authority was justified in law in reversing the decision of the Commissioner of Income-tax (Appeals) without any independent consideration of all the issues on facts and in rendering the conclusion by merely restating the findings of the Assessing Officer in that regard?

(3)Whether, on the facts and in the circumstances of the case, the order passed by the Tribunal is vitiated in law for not recording its own independent findings on the different issue on facts on due consideration of the evidence and materials on record in reversing the decision of the Commissioner of Income-tax (Appeals) without passing a speaking and reasoned order?

(4)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in appreciating the principles laid down in the various decisions of the Supreme Court and the High Courts referred to in the order passed on appeal and in applying the said principles to the facts of the present case of the assessee?

The facts for the purpose of answering these questions are:

The assessee in order to meet its business requirement took loans from various persons during the assessment year 1982-83 and in the preceding assessment year which were reflected in the balance-sheet. Confirmation of loan statement of account by the creditors had been furnished to the Assessing Officer. The assessee had also furnished the Income-tax file numbers of the creditors and some of the creditors were produced before the Assessing Officer for examination. However, the Assessing Officer was not satisfied with the explanation given by the assessee and the creditors and accordingly the Assessing Officer added the said loans given by the' creditors invoking the power under section 68 of the Act as income from other sources. The Assessing Officer also disallowed the interest paid to all the creditors including the interest paid on amounts obtained from them in the preceding assessment year.

The assessee being dissatisfied with the order passed by the Assessing Officer preferred an appeal before the Commissioner of Income tax (Appeals). The Commissioner of Income-tax (Appeals) after hearing the parties allowed the appeal in respect of the loan given by six out of seven creditors as mentioned in page 31 of the paper book. The Commissioner of Income-tax (Appeals) remanded the matter to the Assessing Officer directing him to give another opportunity to the assessee to prove 'the transaction. The Revenue, therefore, preferred an appeal to respect of the income of Rs.5,95,000 ordered to be deleted by the Commissioner of Income-tax (Appeals) given by the six creditors. The Tribunal after hearing the parties reversed the finding of the Commissioner of Income-tax (Appeals) on the ground that the explanations offered were not satisfactory and the reasons given by the Commissioner of Income-tax (Appeals) could not be sustained. The assessee, therefore, requested to refer the above questions to this Court. However, the Tribunal refused to do so. Situated, thus, the aforesaid Civil Rule No.9(M) of 1992 was filed before this Court for giving directions to refer the above questions. Hence, this present reference.

We have heard both sides.

Mr. J.P. Bhattacharjee, learned senior counsel assisted by Mr. R.K. Joshi, appearing on behalf of the assessee, submits before us that the Tribunal erred in law by reversing the order of the Commissioner of Income tax (Appeals) without giving any reason whatsoever. Mr Bhattacharjee submits that the order of reversal by the Tribunal was passed without discussing the materials on record including the statements recorded and without giving reasons as to why the conclusions arrived at by the Commissioner of Income-tax (Appeals) could not be accepted. Learned counsel further submits that while passing the order, the Tribunal did not come to an independent finding. The Tribunal simply restored the order of the Assessing Officer setting aside the order passed by the Commissioner of Income-tax (Appeals) without recording any reasons whatsoever. Learned counsel has also submitted that the Tribunal was absolutely wrong in coming to the conclusion that the decision of Tolaram Daga v. CIT (1966) 59 ITR 632 (Assam) was not applicable in the present case on the ground that the said decisions was rendered by the this Court under the Indian Income-tax Act, 1922, where there was no such provision similar to that of section 68 of the present Act. Learned counsel submits that it is true that similar provision of section 68 of the present Act was not there in the Indian Income-tax Act, 1922; but the principles enunciated in the said decision are very much applicable in the present case inasmuch as the law laid down by this Court in Tolaram Daga's case (1966) 59 ITR 632 was based on as to how the Assessing Officer should be satisfied regarding the genuineness of the documents.

Mr. U. Bhuyan, learned junior standing counsel appearing behalf of the Revenue, however, supports the decision of the Tribunal. According to him, the Tribunal after discussing the entire evidence came to its finding. He also submits that the Tribunal's order indicates the grounds on which it set aside the order of the Commissioner of Income-tax (Appeals). Mr. Bhuyan further submits that in the facts and circumstances of the case the principles enunciated by this Court in Tolaram Daga's case (1966) 59 ITR 632 are not applicable in the present case and, therefore, the Tribunal was fully justified in coming to its finding.

On the rival contentions of learned counsel for the parties it is to be seen whether the Tribunal was justified in reversing the order passed by the Commissioner of Income-tax (Appeals) and was also justified in not following the decision in Tolaram Daga's case (1966) 59 ITR 632 (Assam).

In Tolaram Daga's case (1966) 59 ITR 632 (Assam), this Court was required to consider the genuineness of the deposit made by a third party. This judgment was rendered in respect of the assessment made under the Indian Income-tax Act, 1922. However, the fact remains that the principle enunciated in the said case was regarding the genuineness of the deposits made by a third party and under what circumstances such deposits should be considered as genuine or not. In the said case, this Court observed thus.

"At the outset, we have to point out that there is no substance in the contention that the sources from which the money was realised by the third party are within the special knowledge of the petitioner as the depositor happens to be his wife. Whether he has knowledge at all of the source of the money deposited by the third party is a matter which has to be decided on evidence. The mere fact that the third party making the deposit happens to be the wife of the assessee does. not ipso, facto make the assessee come into the knowledge of the sources from which the money was realised. Under law, in the absence of specific proof of that knowledge; it cannot be assumed that the assessee has the knowledge in question within the meaning of section 106 of the Evidence Act. In order to rely on this section, which lays down that when any fact is especially within the knowledge of any person, the burden of proving that fact is upon him, it must be established first that the person has especial knowledge of that fact, having regard to the circumstances of the case. As illustration (b) to the section shows, when A is charged .with travelling on a railway without a ticket, the burden of proving that he had a ticket is on him, obviously, because it is he alone that would have especial knowledge, regarding the possession of the ticket. The instant case is by no means a parallel and, in our opinion, section 106 of the Evidence Act cannot, therefore, be invoked in aid."

From the above decision, it is clear that if deposit is made by third party, the Income-tax Officer is not powerless to consider whether such deposit is genuine or not. While considering that aspect of the matter the principles laid down in the said case are relevant inasmuch as section 34 of the Evidence Act is also relevant for the purpose of determining the genuineness of the entries made in the books of account. No doubt, the Evidence Act as such is not applicable in the' income-tax matter. But the spirit of the said Act has to be followed. If such books of account are not challenged, those books of account should be considered as genuine. It will not be necessary on the part of the assessee to further prove the capability of the depositor. Similar view was expressed by this Court in Income-tax Reference No.2 of 1992---Jalan Timbers v. CIT (1997) 223 ITR 11. In the said decision this Court held thus.

"Besides, the creditors had also shown in the returns about giving of the loan to the assessee. Strangely, the Income-tax Officer while making the assessment in respect of three creditors above named accepted the returns. This itself will go to show that the amount received by the assessee was at least prima facie genuine "

In the present case, the Assessing Officer did not disbelieve the entries made and also the statement recorded. Section 68 of the Act provides as follows:

"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 Income-tax Officer, satisfactory, the sum so credited may by charged to income-tax as the income of the assessee of previous year."

What was the principles to be followed to come to the conclusion regarding the genuineness of the cash credit? Tolaram Daga's case (1966) 59 ITR 632 (Assam) has very clearly laid down the principles to determine the genuineness of the cash credit. In our opinion, therefore, the Tribunal was wrong in ignoring the decision of Tolaram Daga's case (1966) 59 ITR 632 (Assam) stating, inter alia, that this judgment was rendered under the Indian Income-tax Act, 1922.

In view of the above, we answer question No in the negative, in favour of the assessee and against the Revenue.

We have gone through the judgment of the Tribunal. The Tribunal had written a very lengthy judgment quoting the submissions made from the assessee as well as the Revenue. Mr. Bhuyan has drawn our attention to paragraphs 33 and 37 of the judgment in which the Tribunal stated that the Commissioner of Income-tax (Appeals) was wrong in allowing the appeal. But the Tribunal did not consider the materials available in the record. No reason was given as to how the conclusions arrived at by the Commissioner of Income-tax (Appeals) were erroneous. The Tribunal is the last authority so far as the facts are concerned. The Tribunal is required to consider each and every fact and discuss the evidence available on record. It may not always be necessary to discuss each and every piece of evidence in detail while affirming the order. But in case of reversal the Tribunal is duty bound to discuss each piece of evidence placed before it and come to an independent finding by giving reasons. In this connection, Mr. Bhattacharjee has drawn our attention to a decision of the apex Court in Udavdas Kewalram v. CIT (1967) 66 ITR 462. In the said case, the apex Court observed thus.

"The Income-tax Appellate Tribunal performs a judicial function under the Indian Income Tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law."

The apex Court further observed at page 465 thus:

"The Tribunal was undoubtedly competent to disagree with the view of the Appellate Assistant Commissioner. But in proceeding to do so the Tribunal had to act judicially, i.e., to consider all the evidence in favour of and against the assessee. An order recorded on a review of only a part of the evidence and ignoring the remaining evidence cannot be regarded as conclusively determining the questions of fact raised before the Tribunal."

In this case, the Tribunal did not discuss any evidence whatsoever and after quoting the submissions made by both sides the Tribunal disagreed with the conclusions arrived at by the Commissioner of Income-tax (Appeals). In our opinion, this is not correct. The Tribunal failed to discharge its obligation as per the Act.

In view of the above, we answer question No.2 in the negative, in favour of the assessee and against the Revenue and question No.3 in the affirmative in favour of the assessee and against the Revenue. So far as question No.4 is concerned in view of our answer to question No. l we need not answer the same.

A copy of this judgment under the signature of the Registrar and the Seal of the High Court shall be transmitted to the Income-tax Appellate Tribunal.

M.B.A./1608/FCOrder accordingly.