Rakesh Kumar Gupta, A.M.
This appeal has been preferred by the assessee against the order of the Commissioner (Appeals), I, Hyderabad, dated 10-1-1996, and is arising out of the assessment order framed under section 143(3).
2. There is only one issue which has been raised by the appellant in this appeal and that is the addition of Rs. 45,500 on account of cash credits added under section 68 of the Income Tax Act, 1961 (though the ground of appeal taken before this Tribunal mentions the addition at Rs. 45,000).
3. The facts of the case are that assessee raised an aggregate loans of Rs. 52,500 from the under mentioned persons on the date mentioned there against. These loans were repaid on the dates mentioned below :
Date of receipt
Date of payment
G. Venkateswara Reddy
A. Prasada Reddy
K. Subba Reddy
L. Sambi Reddy
Since there was an advance of Rs. 7,000 by Sri S. Nagireddy and the higher amount of credit had already been taken into account by the assessing officer in the total amount of Rs. 52,500, a reduction of Rs. 7,000 was allowed and the net amount of the cash credits came to Rs. 45,500. The assessing officer gave opportunities to the assessee to prove the unsecured loans aggregating to Rs. 45,500. Assessee apart from filing confirmatory letters from these persons, could not produce any other evidence. The assessing officer was not satisfied with the explanation of the assessee, as in his view, the creditworthiness of the creditors was not proved. Therefore, he made additions to the extent of Rs. 45,500. Aggrieved against the addition, appeal was preferred by the assessee before the learned Commissioner (Appeals), who after relying upon the decision is Shankar Industries v. CIT (1978) 114 ITR 689 (Cal) and CIT v. Precision Finance (P) Ltd. (1994) 208 ITR 465 (Cal), confirmed the addition. Aggrieved against the order of the first appellate authority, assessee has come up in appeal before us.
4. Shri S. Rama Rao, learned counsel for the assessee appeared before us and submitted that assessee is a firm, which is reasonably big as was clear from the quantum of gross receipts, which were to the tune of Rs. 3,68 crores. He argued that assessee has discharged its onus to prove the credits by filing confirmatory letters. He further argued that since assessment in this case has resulted into ultimate losses and assessee being quite a big firm, there could be no motive for the assessee to introduce small sum of Rs. 45,500 out of its own income and such small loans, therefore, should not have been doubted by the assessing officer in the first instance. Alternatively, he pleaded that the peak credit results into Rs. 33,000 and if at all addition was to be made, it could not exceed Rs. 30,000. He made prayer for the deletion of the addition of Rs. 45,500 in the ultimate argument.
5. On the other hand, learned Departmental Representative relied upon the reasonings given by the authorities below in their respective orders and prayed for the confirmation of the addition. In reply, the learned counsel for the assessee justified the non-charging of interest by the creditors on their loans as the period involved was not significant and, therefore, he pleaded that no adverse inference should be drawn merely because interest has not been charged by the creditors.
6. We have considered the rival submissions and have gone through the orders passed by the authorities below. The question which is to be addressed by us is, as to whether assessee has discharged its onus to prove the credits appearing in its books, in terms of the provisions of section 68 or not. Under section 68, if the explanation by the assessee in respect of the credits appearing in its books of account is not found satisfactory, the sum so credited may be charged to income-tax, as the income of the assessee of that previous year in which the credits appear in the books of account. Section 68 has come to be considered in very many judgments before various High Courts and before Honble Supreme Court. It is settled law that it was necessary for the assessee to prove prima facie the transactions which results in cash credits in his books of account. Three ingredients will have to be satisfied by an assessee for discharging its onus, i.e., identity of the creditors, capacity of such creditors to advance the money and the genuineness of the transaction.
7. Adverting to the facts of the present case, we find that assessee has merely filed confirmatory letters in which the alleged creditors have confirmed the fact of loans given to the assessee and the source was explained to be out of their agricultural income. No corroborative evidence has been furnished by the assessee to prove that whether the alleged creditors were having any agricultural land and if they have, whether the quantum of land holding was enough to enable them to save adequate money with them. It has been recorded by the assessing officer in the assessment order that sufficient opportunities were given to the assessee to prove the cash credits. It is not the case of the assessee, at any stage, that opportunity of hearing and to prove the cash credit was not adequate. The case of the assessee is that, by filing confirmatory letters, it has discharged its primary onus cast on it, and if at all revenue wanted to verify those loans, it would have conducted necessary enquiries. We are not satisfied with the argument of the learned counsel for the assessee that the initial onus has been discharged in this case. The onus gets discharged only by adducing primary material to prove the above mentioned three ingredients. Once such primary material has been furnished by the assessee, then the onus would shift to the department. Merely filing confirmatory letters to establish the identity of the creditors is not enough and it cannot be said that the onus lying on the assessee has been discharged. Our view finds support from the decisions of Calcutta High Court in the case of Bharati P. Ltd. v. CIT (1978) 111 ITR 951 (Cal) and CIT v. W.J. Walker & Co. (1979) 117 ITR 690 (Cal). We are not impressed by the argument of the learned counsel for the assessee to the effect that the factum of repayment was the pointer to the genuineness of the loan transactions. Therefore, keeping in view the entire material placed before us and the law position as enunciated by Honble Calcutta High Court in the cases relied upon by the learned Commissioner (Appeals) and by us supra, we are of the considered view that assessing officer was justified in not being satisfied by the explanation offered by the assessee in relation to the impugned cash credits and he was justified in making additions of the cash credits under section 68 of the Income Tax Act, 1961.
8. However, the plea of the assessee regarding the peak of the amount of the cash credit alone be added, is not without merit and we find, on the basis of the dates of receipts and dates of repayment of the impugned loans, the amount of peak credits comes to Rs. 33,000. Therefore, we direct the assessing officer to restrict the addition to Rs. 33,000 and delete the balance addition of Rs. 12,500. We order accordingly.
9. In the result, appeal is allowed in part.