ORDER
N.L. Kalra, A.M.
1. The revenue has filed these appeals against the order of the Commissioner (Appeals), Mysore dated 31-7-2003.
2. The only grievance of the revenue is that the learned Commissioner (Appeals) has erred in deleting the addition of Rs. 10 lakhs by holding that the assessee has property explained the service of Rs. 10 lakhs and it cannot be treated as unexplained investment in the hands of assessee.
3. Survey under Section 133A was conducted on 2-2-2001 and statement on oath was recorded. In the statement, the assessee stated that he has sold agricultural land to H.B. Nagendra of Mandya at the rate of Rs. 2 lakhs per acre measuring 20 acre & 12 guntas and 10 acres of land at the rate of Rs. 1.45 lakhs per acre was sold to Shri Poddar of Bangalore. Amounts so received were invested in brick factory, residential house, residential plots, F.D.R.s and money lending business. During the course of proceedings, the assessee filed statement of affair as on 31-3-1995 and 31-3-1996. Receipt and payment account showed that he has accounted for Rs. 16.5 lakhs as sale proceeds of agricultural land. Vide letter dated 8-3-2002, the assessee stated that he sold agricultural land to one Shri Sanwarmal Poddar, 701, Richmond Plane, 3/2 Convent Road Bangalore-25 for a consideration of Rs. 16.5 lakhs. It was admitted by him that the property was registered for a consideration of Rs. 8 lakhs only. The purchaser Shri Sanwarmal Poddar in communication to the assessing officer through letter dated 5-4-2002 stated that he has paid Rs. 8 lakhs as under :
Sale deed dated 16-10-1995
Rs.
4,00,000
Sale deed dated 11-12-1995
Rs.
4,00,000
4. The assessing officer recorded the statement of Shri Sanwarmal Poddar and of assessee under Section 131 of the Income Tax Act on 13-2-2003.
5. Gist of statements of assessee and Shri Poddar have been mentioned by the assessing officer in his order and the same is reproduced for ready reference. Gist of statement of assessee is as under:
That he does not have any evidence or proof of having entered into any agreement on 17-2-1995 which was stated by him on 31-1-2003 at the time of recording of statement under Section 131 for the assessment year 1997-98.
A copy of the cancellation deed of agreement dated 11-11-1995 is available (which is impounded by the department).
That he received Rs. 16.50 lakhs from the transaction entered into between Sri Poddar and himself and that he received Rs. 10 lakhs by cheque dated 8-6-1995 drawn on City Union Bank, Bangalore and Rs. 6.5 lakhs in cash on the date of registrations.
He does not remember whether the sale consideration was mentioned in the agreement dated 17-2-1995.
He came to know about Shri Poddar through one Srinivas alias Seetharam and the transaction was done through Shri Srinivas. Draft deed was done through Shri Basavaraj, Advocate.
6. Gist of statement of Shri Poddar is as under:
That he purchased agricultural lands from Shri Chikkalingiah but the actual measurement of land was only 6.5 acres and the balance was Karab Land.
He has categorically denied having entered into any agreement and the total consideration paid to Shri Chikkalingiah, but has stated that he remember to have paid Rs. 6 to 8 lakhs.
To a specific question asked whether a cheque for Rs. 10 lakhs was issued to Shri Chikkalingiah drawn on City Union Bank dated 8-6-1995 and Rs. 6.5 lakhs was paid in cash. Shri Poddar has stated that he remembered to have paid Rs. 6 to 8 lakhs in presence of 3 -4 people and broker and he does not know about the details of cheque shown to him.
When a cheque copy was shown to Shri Poddar which was signed by the proprietor of Karthik Enterprises, Shri Poddar has stated that he does not know any body of Karthik Enterprises.
7. After recording of statement of Shri Poddar, the assessee was further examined and the gist of further examination is mentioned by assessing officer in his order is as under:
That Shri Srinivas got the cheque for Rs. 10 lakhs drawn on City Union Bank, Bangalore and he (Chikkalingiah) encashed the cheque at Bangalore and accounted the same as consideration received in respect of survey No. 82, Shanamangala transaction.
Since he (Chikkalingiah) got the cheque through Shri Srinivas and he could encash the same, he did not observe who issued the cheque.
To a specific question asked, whether Shri Chikkalingiah has any evidence that the cheque issued by Karthik Enterprises did really represent the money paid by Shri Poddar, and that the cheque was not even crossed though it was for such a huge sum. Shri Chikkalingiah has stated that he does not have any evidence to prove that the cheque by him represented the money from Poddar, and he did not observe whether it was crossed or not.
8. In view of the factual background. of the statement of Shri Poddar, the assessee was asked to file corroborative evidence to establish that consideration over and above of Rs. 8 lakhs was received from Shri Poddar. The assessee filed a letter dated 25-2-2003 and stated that Rs. 10 lakhs was received through bearer cheque No. 07915 dated 8-6-1995 drawn by M/s. Karthik Enterprises and the cheque was encashed by him at Bangalore. Remaining amount of Rs. 6.5 lakhs was received in cash. The assessee requested for cross examination of Prop. of M/s. Karthik Enterprises and Shri P. Basavraj, Advocate Ramanagram for ascertaining the truth.
9. The assessing officer required the assessee to prove the genuineness of transaction of receipt of Rs. 10 lakhs from M/s. Karthik Enterprises as the onus was on him to establish the genuineness of transaction. The learned assessing officer relied on the judgment of Allahabad High Court in Sri Jagdish Saran Shukla v. CIT for the proposition that onus was on the assessee. The assessee submitted that cheque was encashed by putting his signature on the reverse of cheque. Such fact can be verified from the xerox copy of cheque which can be requisitioned from the bank. The assessee wanted to cross examine prop. Of Karthik Enterprises and also the witnesses to the sale deed. The assessing officer addressed a letter to the City Union Bank for furnishing some information.
10. The information given by the bank is as under:
(a) Address of M/s. Karthik Enterprises is 16, 3rd Marin, 8th B Cross, Bull Temple Road, Bangalore.
(b) Cheque No. 07915 of City Union Bank was uncrossed.
(c) Date of encashment of cheque was 10-6-1995.
(d) Xerox copy of the bank cheque was enclosed by the bank with the letter.
(e) No introduction of the payee was necessary as it was bearer cheque.
11. The assessing officer sent summons under Section 131 to M/s. Karthik Enterprises, Bangalore at the address obtained from City Union Bank. For giving evidence, the Summon remain unserved by the postal authority. The assessing officer thereafter concluded that the assessee has to fulfil the following conditions in respect of transactions recorded in the books of account or diary.
a. Genuineness of the transaction.
b. Identity of the person.
c. Confirmation from the party involved in the transaction.
12. Moreover the assessee is required to prove that the entries made did not represent income and assessee was to prove that substantial amount was received ‘on money’. The learned assessing officer relied on the decision of the Hon’ble Supreme Court in Sumati Dayal v. CIT . The assessing officer further concluded that the assessee has failed to establish that the cheque and cash given by him did really represent the consideration from Shri Poddar. In view of these facts, the learned assessing officer held that the sum of Rs. 10 lakhs claimed to have been received as on money from Shri Poddar represents unexplained sources of funds for making investments in the properties, fixed deposits etc. Therefore the assessing officer added a sum of Rs. 10 lakhs to the total income of the assessee.
13. Before the learned Commissioner (Appeals), it was submitted that the land was sold to Shri Poddar and Shri H.P. Nagendra but negotiations were made by Shri Thammana and Shri P. Basavaraj, advocate on different dates. The assessee received cash from these two persons towards sale of land in different dates. Though the land was shown to have been sold to Shri Poddar and Shri H.P. Nagendra. It was submitted before the learned Commissioner (Appeals) that when cash is paid in excess of the amount mentioned in the sale deed, no record is normally kept. Hence no documentary evidence can be produced in respect of such money. As a supporting evidence, the assessee submitted that the land which was sold was subsequently acquired by M/s. Karnataka Industrial Area Development Board, Bangalore at a much higher sum and this supports the assessee’s case that the land prices were more than that was mentioned in the documents. Transaction of sale of agricultural land were found recorded in the diary and the assessee during the course of survey admitted that amounts mentioned in the diary are correct. The assessee runs a small Kirana Shop and was not in a position to earn such huge income from undisclosed sources.
14. The learned Commissioner (Appeals) observed that the assessee gave an explanation that he has received the ‘on money’ and such ‘on money’ stands recorded in the diary. The assessee cannot have any direct evidence. The assessee has no control on the seller and seller under the circumstances is not admitting that he has paid ‘on money’, as he will be liable to explain such amount. Under such circumstances, one has to consider the available sources of income of the assessee. One has to see as to whether the assessee is in a position to earn such huge income in a particular year. The assessee was running a small Kirana shop and turnover of this Kirana shop cannot be more than Rs. 10 lakhs for the whole year. This is supported from the facts of inventory of stock found during survey. No substantial stock was found during survey. The learned Commissioner (Appeals) further observed that decision of the Supreme Court in the case of Sumati Dayal (supra) is not applicable in the instant case. In that case, the assessee explained that she has received the amount by way of race winning in jackpots and treble events in races at turf clubs in Bangalore, Madras and Hyderabad. The Supreme Court noticed that the assessee’s knowledge of race was very meagre. The jackpot is rarely won when in the assessee’s case before the SC, she not only won the race not at one place but at all the three places. The learned Supreme Court after considering the circumstantial evidence held that receipt credited by the assessee as race winning is not genuine. The learned Commissioner (Appeals) further relied on the judgment of Supreme Court in the case of CIT v. Smt. P.K. Noorjahan . The learned Commissioner (Appeals), therefore, deleted the addition of Rs. 10 lakhs for the assessment year 1996-97.
15. During the course of proceedings before us, the learned Departmental Representative stated that the additions have been made for unexplained credit as mentioned in the diary. The assessing officer has not applied provisions of Section 68. For explaining the credit entry, the onus is on the assessee to explain the sources. In the instant case, the assessee has not been able to prove that the amount of Rs. 10 lakhs was received from Shri Poddar. It was argued that the learned Commissioner (Appeals) has deleted the addition by presuming that additions were made under Section 69 of the Income Tax Act.
16. The learned authorised representative submitted that the amounts were reflected in the diary. The revenue is not disputing the issue that the lands were not sold. It means that the sale of land as mentioned in the diary is being accepted. Diary cannot be accepted in part. Moreover the assessee offered the explanation and he has not been allowed the opportunity to cross examine the persons through whom the negotiations for sale were effected. The revenue has not established that he has not put his signature on reverse side of the cheque issued by M/s. Karthik Enterprises. The assessing officer has not made any effort to locate the owner of M/s. Karthik Enterprises. The learned authorised representative also relied on the report published by National Institute of Public Finances titled as “Aspect of Black Money in India” In this report, it has been mentioned that there is payment of black money in real estate transactions. In the case of Jenjibai Stud & Agricultural Farm v. Deputy Commissioner (sic) it has been observed that though technically the report of National Institute of Public Finances and Policies cannot substitute the evidence but such report also cannot be over looked. Another purchaser Shri H.D. Nagendra was not allowed to be cross-examined. No question was asked to him about the source of payment of Rs. 14.7 lakhs. It was submitted that assessee is carrying on a petty business and he is not in a position to earn such huge money.
17. We have heard both the parties. The amounts have been credited in the diary. On the basis of such entries in the diary, the assessee prepared statement of affairs for the previous year under reference. He also prepared receipt and payment account. In the receipt and payment account, the assessee has shown the receipt of the amount against sale of agricultural land. Section 68 is applicable when any sum is found credited in the books of account of the assessee maintained for any previous year. Hence for the purpose of applying Section 68, the revenue has to establish that the entry is appearing in the books of account of an assessee maintained for any previous year. In case the assessee was maintaining the books of account, then there was no need for the assessee to have prepared the statement of affairs. It is nowhere mentioned by the assessing officer that the assessee has produced the books of account for the Kirana business. This shows that the revenue is treating the diary found during the course of survey as books of the assessee. It is to be noted that there was no corresponding section in 1922 Act. Section 68 was introduced in the 1961 Act to make it a deeming provision so that the amounts credited in the books of account of the assessee will be treated as income of assessee in case the assessee is not able to offer satisfactory explanation. The objective behind the enactment of Section 68 was to curb the methodology adopted by the dishonest tax-payers in introducing their black money under the garb of loans. The Bombay High Court in the case of CIT v. Bhaichand H. Gandhi (1983) 141 ITR 671 (Bom) held that bank pass book is not a book maintained by the assessee. We are not having the benefit of ascertaining the entire contents of the diary. In case the diary is maintained as a memorandum book, then it will be considered as a book as mentioned in Section 68 of the Act. In case, it contains only the details of sale of land, then it will be document and the onus will be on the revenue to show that receipt contained in it is of income nature. Hence the learned assessing officer will examine the diary and will give a finding as to whether it is a book maintained by assessee or is only an incriminating document.
18. In Section 68, the word ‘may’ has been used. The Chandigarh Bench in the case of Jindal Udyog v. Income Tax Officer (2002) 83 ITD 248 (Chd) held that rule contained in Section 68 is not an absolute rule. There are certain cases when the exception to general rule contained in Section 68 can be made. The word ‘may’cannot be interpreted to mean ‘shall’. For coming to such conclusion Chandigarh Bench relied on the decision of Supreme Court in the case of Smt. P.K. Noorjahan (supra). Hence, even if it is presumed that Section 68 is applicable, then one will have to consider the surrounding circumstances to see whether the amount can be treated as income of the assessee. In the instant case, the assessee was able to show that he has received the sum of Rs. 10 lakhs through a bearer cheque issued by M/s. Karthik Enterprises. Xerox copy of the cheque was sent by the bank to the assessing officer. It is not rebutted by the revenue that signature of the assessee were not appearing on the reverse side of the cheque. The assessing officer was not able to locate M/s. Karthik Enterprises. No prudent person will issue a bearer cheque of Rs. 10 lakhs to other person without any purpose.
19. It is true that in case the diary is held as book then onus is on the assessee to prove the credit entry. For providing such entry, the assessee can make request to the revenue to issue summons to the concerned persons as the assessee cannot enforce attendance of such persons. Some person must have introduced M/s. Karthik Enterprises. The assessee has contended that he entered into negations for sale of land and the purchasers did not directly contact him. Such persons be examined as witness of assessee. The documentary evidence in respect of sale of land is showing lesser consideration, if ‘on money’ has passed in such transacting, then the assessee had helped the purchaser for not only evading payment of proper stamp duty but also income-tax on such undisclosed amount. Should such conduct of the assessee be rewarded? The answer to such querry is that the assessee must be able to establish on the basis of some independent evidence that such on-money was paid by the purchaser. The diary has been maintained by the assessee and it is not an independent evidence. It is felt that assessee has not been given sufficient opportunity to place all the evidences to establish that he received ‘on money’ from the purchaser of land. It will be fair and reasonable if assessment is set aside.
ITA No. 1214/Bang./2003
20. The facts in the case are similar to the facts in the case of the assessee and for the assessment year 1996-97 except that in that previous year relevant to the assessment year 1997-98, the assessee has sold agricultural land to Shri H.P. Nagendra. The transaction of sale of agricultural land was found recorded in the diary. The assessee gave the details of the amount received. It was further stated by him that the amount was received through Shri Basavaraj and Shri Thammana. He met Shri Nagendra only on the date of registration. The assessee’s request for cross examining Shri Thammana and Shri Basavaraj was not accepted by the assessing officer. The assessing officer has not accepted that the amounts were received on account of sale of agricultural land.
21. The assessment for the assessment year 1996-97 has been set aside and since facts are similar, assessment for assessment year 1997-98 is also set aside.
In the result, the appeals are treated as allowed for statistical purposes.