JUDGMENT
Balasubramanyan, J.
This appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) at the instance of the Income Tax Officer was admitted by this court on the following substantial questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order of the assessing officer who held the deposits totalling to Rs. 3,33,700 in the name of the eleven depositors, as unexplained cash credits and assessed the same under section 68 of the Income Tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in interfering with the reasoning of the assessing officer, who logically concluded that the bank account, through which the deposits are said to have been routed have been opened only to lend a shade of genuineness to these transactions which were not genuine ?”
On receipt of notice on these substantial questions of law on which the appeal was to be heard, the assessee appeared through counsel. Both sides were finally heard.
2. For the assessment year 1988-89, the assessee, a private limited company, filed its return of income showing a loss of Rs. 1,320. The company is running the business of money lending. The assessing officer found that deposits for various amounts in the name of eleven persons were found credited in the books of the assessee maintained for the previous year ending on 30-6-1987. The assessing officer called for explanation about the nature and source of the said credit entries or deposits amounting to Rs. 3,33,700. The assessee explained that they were deposits received from eleven persons and furnished the names of those persons. The assessing officer was not satisfied immediately about the explanation of the assessee. The assessing officer thereupon summoned the eleven depositors as per the books of the company and examined them. He also conducted an enquiry. Thereafter, he recorded the finding that the explanation offered by the assessee, regarding the nature and source of the sum found credited in the books of the company was not satisfactory and hence, the amount had to be charged to income-tax, as income of the assessee for the previous year. The assessing officer recorded the clear circumstances, emerging from the evidence and the inferences drawn by him from the evidence gathered by him in support of his conclusion. He ultimately concluded after a discussion of all the relevant aspects that the deposit of Rs. 3,33,700 shown as having been advanced by eleven depositors was, in fact, never advanced by them and that they had no connection with the money. The assessing officer also found that Jaya Electricals which is said to have paid the amounts to the depositors, who had allegedly deposited the amounts in the assessee-company, was a partnership wherein P.D. John, a director of the assessee-company was a partner. The assessing officer also found that the payments were channelled into the assessee-company and have in most of the cases found their way back to the director Mr. P.D. John, his wife, and his son in one way or another. It was thus that the assessing officer treated this amount as income of the assessee for the previous year.
3. The assessee appealed. The argument, on behalf of the assessee, was that the amounts were paid by Jaya Electricals to the various persons shown as depositors in the assessee-company, by cheques and that they had in turn, paid the amounts to the assessee-company by way of cheques and this showed that the transactions were genuine and the assessing officer was in error in treating the sum of Rs. 3,33,700 as the income of the assessee-company for the previous year. The Commissioner (Appeals) did not consider the reasons given by the assessing officer for coming to the conclusion that the explanation of the assessee was not satisfactory and treating the amount as income of the assessee for the previous year based on the evidence, he had taken. The Commissioner (Appeals), even without discussing or adverting to such evidence, accepted the argument on behalf of the assessee that since the payments were made by way of cheques, the assessing officer was not entitled to treat the amount shown as deposits received by the assessee-company as the income of the company for the previous year in terms of section 68 of the Act. Thus, the Commissioner deleted the addition of Rs. 3,33,700. The revenue appealed before the Tribunal. A single Member Bench of the Tribunal, again, without adverting to the evidence and the circumstances discussed by the assessing officer, simply agreed with the approach and conclusion of the Commissioner (Appeals) and dismissed the appeal. It is the submission of the appellant that the decision of the Tribunal suffers from the substantial errors of law, as reflected by the two substantial questions of law referred to above.
4. Section 68 reads thus :
“Cash creditsWhere 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 assessing officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
There is no doubt that a sum of Rs. 3,33,700 was found credited in the books of the assessee maintained for the previous year relevant to the assessment year. The assessing officer was, therefore, entitled to call for an explanation regarding the credit thus shown. The assessing officer called for an explanation. The assessee offered an explanation. Finding that, prima facie, the explanation could not be accepted without an enquiry into it, the assessing officer conducted an enquiry. The sum was shown as being credited as deposits from eleven persons, whose names the assessee furnished. The assessing officer thereupon summoned those persons and examined them. One alone was not available for examination. The assessing officer in his order has detailed the evidence given by these persons and has also pointed out the infirmities and improbabilities surrounding the transactions. None of them could prove the authenticity of the receipt of the funds and the only fact was that they were routed through the bank. Some of them could not even show on what basis or for what reason, Jaya Electricals had paid them such an amount. Thus, on an assessment of the materials available, which on going through the elaborate discussion by the assessing officer, we find to be satisfactory and proper, the assessing officer held that the sum of Rs. 3,33,700 had to be charged to income-tax as the income of the assessee for the previous year.
5. According to us, the Commissioner (Appeals) did not ask himself the right question. He was carried away by the fact that Jaya Electricals had paid these amounts to the eleven persons by way of cheques and that the deposits had made by way of cheques. He did not advert to the reasons given by the assessing officer for finding that the explanation of the assessee for this sum credited in the books of assessee was not satisfactory. He had nothing to say about the evidence gathered by the assessing officer while completing the assessment on the basis that the sum had to be treated as income in terms of section 68 and charged to income-tax as the income of the assessee for the previous year. Accepting the case of the assessee that since the deposits were made by way of cheques nothing more remains, the Commissioner (Appeals) allowed the appeal and deleted the sum of Rs. 3,33,700. As we have noticed, the Tribunal has also done the same, thereby misdirecting itself into an erroneous line of enquiry.
6. It is clear on the terms of section 68, that the burden is on the assessee to offer a satisfactory explanation about the nature and source of the amount, found credited in the books of the assessee. It is also clear that the mere furnishing of particulars is not enough. The mere fact, that payment was by way of account payee cheque is also not conclusive. Therefore, the assessing officer was entitled to consider whether notwithstanding the fact that the payments were made by cheques, whether the assessee has satisfactorily explained the nature and source of the amounts found credited in the books of the assessee. It is clear that the assessing officer was satisfied that the so-called depositors did riot have the resources to make such deposits. A reading of the order of the assessing officer also shows that some of the alleged depositors were not even fully aware of what had happened regarding these deposits alleged to have been made by them in the assessee-company. In this situation, according to us, the assessing officer was fully justified in finding that the explanation of the assessee was unsatisfactory, regarding the amount found credited in the books of the assessee.
7. The Commissioner (Appeals) and the Tribunal, in our view, have committed a substantial error of law in not properly approaching the question arising for consideration and arising out of the findings rendered by the assessing officer. According to us, the Commissioner (Appeals) and the Tribunal have not asked themselves the right question. In such a situation, it has to be held that they have committed a substantial error of law in interfering with the order of the assessing authority without proper basis. We are, therefore, satisfied that interference by this court is called for in this appeal filed under section 260A of the Act. Then the question is whether the assessing officer was justified in proceeding to treat the deposit as income of the assessee in the previous year in terms of section 68. We have already indicated that the assessing officer has made the correct approach to the question and the finding rendered by him is amply supported by the materials relied on by him and discussed by him in his order. In that situation, we are of the view that the assessing officer was justified in adding a sum of Rs. 3,33,700 towards the income of the assessee for the previous year relevant to the assessment year. Hence, we answer the substantial questions of law formulated in favour of the revenue and against the assessee. The result of the same is that we have to restore the order of the assessing officer. Hence, we restore the order of the assessing officer.
8. The learned counsel for the assessee argued that once it is found that the deposits into the assessee-company were made by way of cheques and the amount had been credited to the amounts of the assessee, he had no jurisdiction to enquire into the question whether the person who is said to have made the deposit had the source to make such a deposit. In the context of section 68 and in the light of the materials available in the case, this argument, on the side of the assessee, cannot be accepted.
9. The learned counsel for the assessee brought to our notice that subsequent to the order of the Commissioner (Appeals), an assessment has been made under section 147 of the Act in the name of Jaya Trust (it is not clear whether this is the same as the Jaya Electricals referred to in the present proceeding). According to counsel for the assessee, an amount of Rs. 1,50,000 out of Rs. 3,33,700 has been treated as the income of Jaya Trust on a finding that the advances or payments alleged to have been made as commission, etc., by Jaya Trust was bogus and that the same was liable to be added to the income of Jaya Trust. The counsel also points out that there is also reference to the decision of the Commissioner (Appeals) in the case relating to the present assessee, while completing the assessment against Jaya Trust. The counsel submitted that the impact of this order on the present proceeding has also to be considered by this court. If a sum of Rs. 1,50,000 out of sum of Rs. 3,33,700 is found to be a fictitious payment by Jaya Trust (if it is the same as Jaya Electricals) and the same is disallowed by the assessing officer in the case of Jaya Trust, the question would arise whether the said sum of Rs. 1,50,000 already taxed at the hands of Jaya Trust could get taxed also at the hands of the assessee. In any event, there cannot be any doubt, regarding the amount other than Rs. 1,50,000 said to have been taxed at the hands of Jaya Trust referred to by the counsel for the assessee. That part of the order of the assessing officer is final. We think that in the circumstances, the assessing officer must be directed to recompute the income of the assessee, if it is necessary, after considering the impact of the order of assessment dated 29-8-1995 against Jaya Trust. To consider whether any such deletion is needed or warranted and to pass consequential orders based thereon, the matter will stand remitted to the assessing officer.
In the result, we allow the appeal and setting aside the orders of the Commissioner (Appeals) and the Tribunal, restore the order of the assessing officer. We remit the proceedings to the assessing officer to consider the claim of the assessee regarding the sum of Rs. 1,50,000 as set out in paragraph 9 of this judgment and pass consequential orders after deciding that question relating to them sum of Rs. 1,50,000.
