OCEANIC PRODUCTS EXPORTING CO. VS COMMISSIONER OF INCOME-TAX, 2002 PTD-KERALA-HIGH-COURT-INDIA 1244 (1999)

Income‑tax‑‑

‑‑‑‑Cash credits‑‑‑Effect of S.68‑‑‑Burden of proof‑‑‑Burden on assessee to prove source of credits and credit worthiness of lenders‑‑‑Alleged creditors fishermen who were not capable of lending substantial amounts‑‑‑Finding by Tribunal that cash credit were not genuine was a finding of fact‑‑‑‑Amounts represented by cash credits assessable as income of assessee‑‑‑Indian Income Tax Act, 1961, S. 68.

After the enactment of section 68 of the Income Tax Act, 1961, the burden is placed on the assessee to prove a credit appearing in its books of account. That burden has to be discharged with positive material. When it is contended that a person had advanced money or had given a loan it has to be established that the person had the capacity to give the money. A conclusion regarding creditworthiness or otherwise of a person is essentially one of fact. It does not give rise to a question of law unless it is established that the conclusion was contrary to the materials on record. Section 68 gives statutory recognition to the principle that cash credits not satisfactorily explained can be assessed as income.

Held, that, in the instant case, the Tribunal noticed that the assessee failed to prove the creditworthiness of the alleged creditors to advance such huge amounts varying from Rs.25,000 to Rs.60,000. It was observed that of the persons were fishermen who were not capable of lending such huge amounts to the assessee. In fact, while explaining the discrepancy in the signatures of the persons, the representative for the assessee himself had described these fishermen as illiterate and nomadic in nature. It was not shown that they had any assets worth‑mentioning, in the form of immovable or movable properties. During their examination, they had given versions different from those givers in their earlier statements. Some of them had gone to the extent of saying that they had signed blank papers. Some claimed to have borrowed amounts from friends and relatives to give advances to the assessee. Most of them could not mention the names of the persons from whom they borrowed and the amount borrowed from them. The findings of the Tribunal that the explanation offered by the assesses, about the nature and source of the cash credits in the aggregate of Rs.1,71,500 or any portion of it was not satisfactory was a finding of fact. The amount was includible in the total income of the assessee.

CIT v Manic: Sons (1969) 74 ITR 1 (SC); CIT v. Nelliappan (S.) (1367) ITR 722 (SC)‑ and Kale Khan Mohammad Hanif v. CIT (1963) 50 ITR 1 (SC) ref.

C. Kochuinni Nair and S. Vindo Kumar for the Assessee.

P.K.R. Menon, Senior Advocate, and N.R.K. Nair for the Commissioner.

JUDGMENT

ARIJIT PASAYAT, C.J.‑‑‑At the instance of the assessee, the following question has been referred by the Income‑tax Appellate Tribunal, Cochin Bench (in short "the Tribunal"), on consideration of an application under section 256(2) of the Income Tax Act, 1961 (in short "the Act"), for opinion:‑‑

"Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that the explanation offered by the assessee about the nature and source of the cash credits in the aggregate of Rs.1,71,500 or any portion of it is not satisfactory, is perverse, unreasonable, contrary to law and one which no reasonable person would have come to that conclusion?"

The dispute relates to the assessment year 1977‑78. In the books of account, certain credits were noticed by the Assessing Officer, totalling Rs.5,36,500, in relation to 15 persons. It was indicated in each case that the amount received from the concerned person related to rent and security deposit of fishing boat. The Assessing Officer, at the time of hearing on October 17, 1979, directed the assessee to furnish confirmations from all the creditors, which were filed on January 25, 1980. He was of the view that the explanation given for source of credit given by each creditor was not satisfactory. Therefore, letters were addressed to all the creditors at the address furnished in the confirmation letters, to explain the source of credits. Some of the letters were returned with postal endorsements "the addressee left without instruction" or "insufficient address". Accordingly, in the draft assessment order Rs.4,11,500 was proposed to be added. In respect of the six creditors who were produced before the Assessing 'Officer, reasons were given as to' why their cases were to be excluded. It is to be noted that the Inspecting Assistant Commissioner to whom draft assessment order was submitted for approval gave certain directions in modification of the proposal in the draft assessment order. The unexplained cash credit was held to be Rs.3,86,500 which was assessed under the head "Other sources".

In appeal, the Commissioner of Income‑tax (Appeals) (in short "the CIT (A)"), held that the statements in respect of the six persons who had appeared before the Assessing Officer regarding deposits made by them were to be accepted as genuine. Accordingly; a sum of Rs.1,96,500 was directed to he, deleted

Both the assessee and the Revenue preferred appeals before the Tribunal which were numbered as I.T.A. No.532 (Cock) of 1982 and I.T.A. No.561 (Coch.) of 1982, respectively. The Tribunal noticed that the assessee had not been able to obtain confirmation in respect of Rs.2,15,000. So far as the balance amount is concerned, which was the subject‑matter of challenge by the Revenue,, it was notified .hat the assessee hopelessly failed to prove creditworthiness of the alleged creditors to advance such huge amounts varying from Rs.25,000 to Rs.60,000. It was noticed that the Income‑tax Officer had discussed in detail the contents of the statements given by the creditors who had appeared on August 16, 1980, and only one of the reasons on which the Income‑tax Officer relied for not believing the creditors is the difference in the signatures. It was observed that all the persons were fishermen who were not capable of lending such huge amounts to the assessee. In fact, while explaining the discrepancy in the signatures of the persons, the learned representative for the assessee himself had described these fishermen as illiterate and nomadic in nature. It was not shown that they had any assets worth mentioning in the form of immovable or movable properties. During their examination, they had given versions different from those given in their earlier statements. Some of them had gone to the extent of saying that they had signed blank papers. Some claimed to have borrowed amounts from friends and relatives to give advance to the assessee. Most of them could not mention the names of the persons from whom they borrowed and the amount borrowed from them. These factors weighed with the Tribunal to reverse the findings recorded by the Commissioner of Income‑tax (Appeals) and accept the Revenue's appeal.

Learned counsel for the assessee‑submitted that the very fact that boats had been subsequently delivered, be it after some length of time, was a relevant factor which the Tribunal failed to notice. It is further submitted that the contentions regarding creditworthiness had not been examined in the proper perspective. Strong reliance was placed on certain observations made by this Court while calling for the statement, to contend that there was non-?application of mind and non‑consideration of the grounds of challenge, thereby vitiating the conclusions. Learned counsel for the Revenue submitted that all relevant aspects were considered and factual conclusion have been arrived at.

It is trite law that when there is non‑consideration of a relevant material and/or non‑consideration of a plea not given up, or consideration of irrelevant material, a question of law may arise. But, in the case at hand, we find that the Tribunal elaborately dealt with the respective stands and gave its positive findings as to how the explanation offered by the assessee was untenable. After the enactment of section 68 of the Act, the burden is placed on the assessee to prove e, credit appearing in its books of account. 'That burden has to be discharged with positive material. When it is contended that a person had advanced money or had given a loan, it has to be established that the person was not a man of straw and had the capacity to give the money. A conclusion regarding creditworthiness or otherwise of a person is essentially one of fact. It does not give rise to a question Pf law unless it is established that the conclusion was contrary to the materials on, record. Section 68 gives statutory recognition to the principle that cash credits which are not satisfactorily explained may be assessed as income. Where an assessee has failed to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Assessing Officer is entitled to draw the inference that the receipts are of an income nature. As has been observed by the apex Court in Kale Khan Muhammad Hanif v. CIT (1963) 50 ITR 1, the onus is on the assessee to explain the nature and source of cash credits, whether they stand in the assessee's account or in the account of a third party. Merely because a different view may be possible to be drawn on the same set of facts, that will not give rise to a question of law if there is some evidence to support the finding. The Tribunal's conclusions are essentially factual and we find no perversity therein. As observed by the apex Court in CIT v. S. Nelliappan (1967) 66 ITR 722, the conclusion whether a cash credit in the books of account of an assessee is properly explained or not is a question of fact. Similar view was expressed in CIT v. Manick Sons (1969) 74 ITR 1 (SC).

Our answer to the question, is therefore in the negative, i.e., in favour of the Revenue and against the assessee

The reference is disposed of accordingly.

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