ORDER
Vimal Gandhi, JM
1. This appeal by the Revenue for the assessment year 1988-89 is directed against order of CIT(A) deleting cash credits of Rs. 82,000 and Rs. 78,000 in names of Kumari Priya Aggarwal and Kumari Preeti Aggarwal respectively added by the Assessing Officer under section 68 of the Income-tax Act.
2. Two ladies referred to above are sister/cousin of partners of assessee-firm. They claim to have received gifts from their close relations. From above gifts and from savings, cash was deposited in Bank accounts and ultimately brought in the books of assessee-firm. These ladies also filed returns and got assessed for assessment years 1982-83 to 1986-87 under the Amnesty Scheme. The deposits were made in bank on 31-3-1987 and brought in the books through cheques on 1-4-1987, i.e., on the 1st day of business of assessee-firm for the assessment year 1988-89.
3. When called upon to explain cash credits, the assessee relied upon assessment orders passed in the hands of creditors and on bank entries through which amounts were transferred to books of account of the assessee and confirmations of the creditors. The Assessing Officer rejected above explanation of cash credits and held that the creditors lacked “creditworthiness” and a device was adopted by the assessee. The matter, in his opinion, was not covered by the Amnesty Scheme. The cash credits were accordingly treated as assessee’s income under section 68 of the Income-tax Act.
4. The assessee challenged the addition in appeal before CIT(A) and contended that disputed amounts could not be added under section 68 of the Income-tax Act in assessment year 1988-89. The facts recorded by the CIT(A) and his reasoning for deleting the disputed addition are as follows :-
“2. I have heard the submissions of the learned authorised representative and considered the same carefully. I have also perused the order of assessment under appeal. I find that regarding the creditworthiness and the disclosure made by the depositors the Assessing Officer has discussed the matter at length. The Assessing Officer came to the conclusion that the appellants had failed to establish the genuineness of the cash credits within the meaning of the provisions of section 68 of the Income-tax Act, 1961. However, it is seen that there is one vital factor which positively operates against the action of the Assessing Officer in treating the deposits as the income of the appellant-firm in the year under appeal. There is documentary evidence to show that the funds deposited with the firm were in possession of the depositor in the immediately preceding year also and in view of the same the Assessing Officer could not have treated the funds pertaining to an earlier year to be the income of a later year. From the relevant records it is seen that both the depositors had filed their returns of income under the Amnesty Scheme which were completed under section 143(1) on 28-5-1987 and 13-10-1987 respectively. In both the cases the returns came to be filed on 31-3-1987 for assessment years 1982-83 to 1986-87. Along with these returns, copies of capital account were also filed. The balance available as per the respective capital accounts for the assessment year 1986-87 were as under :-
Kumari Priya Aggarwal Rs. 82,000 Kumari Preeti Aggarwal Rs. 78,000
Out of the above balances, it is seen from the respective capital accounts Kumari Preeti Aggarwal deposited Rs. 78,000 in her bank account No. 1337 with the Dena Bank on 31-3-1987 and on 1-4-1987 she issued a cheque in favour of the appellant-firm which was also credited to the bank account of the firm on the same date. These details are verifiable from the bank accounts of the appellant-firm as well as the account of two depositors. On the basis of these records it is established beyond doubt that source of the two deposits relates to a period immediately preceding the year under appeal. In view of the same in spite of the detailed deliberations of the Assessing Officer in assessment order, it is but to be held that the fund appearing in the respective bank accounts of the two depositors in earlier year could not be treated to be the income under section 68 of the appellant-firm in a subsequent year, i.e., the year under appeal. The fact that these amounts were deposited in the bank account only day prior to the commencement of the subsequent accounting period would not in my considered view, go to detract from the efficiency of the principle that the funds having emanated in a preceding year cannot be treated to be the income of the subsequent year. The decision of the ITAT relied upon by the appellant before the Assessing Officer in the case of Mahabir Prasad Prem Chand Jain v. ITO [1988] 40 Taxman 55 to 36 also lends full support to the claim of the appellant that the deposits could not be treated as unexplained cash credit under section 68 of the Income-tax Act, 1961 in the case of the appellant. In view of the same it is held that the amounts in question which had found their way in the books of the assessee during the year relevant to the assessment year in appeal were in existence prior to the beginning of the accounting period 1987-88 and these amounts can be clearly correlated with the date of 31st March, 1987 when these amounts in question were deposited in the respective bank account of the depositor for the first time. The same amounts have been established to have gone into the books of the appellant in the subsequent year under appeal. In this view of the matter for the sake of arguments even if it was correct that the depositors were only name lenders it would not be legally and factually correct to record a finding that the said amount had been earned by the appellant during the assessment year under appeal and that they were, therefore, the income of the appellant. Whatever be the nature of these deposits, it has to be held that these could not be treated as the income of the appellant for the assessment year 1988-89, i.e., year under appeal. In the result, the additions of Rs. 80,000 and Rs. 75,000 are deleted.”
5. The Revenue has come up in appeal. The main contention of the D. R. was that the cash credits were added under a deemed provision and, therefore, addition could be made in the year in which amounts were introduced in the books of account. It was immaterial that prior to introduction in books of account of these amounts were deposited in bank accounts. The explanation furnished of the assessee regarding cash credits was not accepted by the Assessing Officer or by learned CIT(A). But, the latter failed to properly appreciate and apply provision of section 68 of the Income-tax Act. The unexplained amount became deemed income of the assessee. The learned counsel for the assessee, on the other hand, supported the impugned order. He submitted that the cash credits were fully explained as creditors were assessed on disputed amounts for the assessment years 1982-83 to 1986-87. The credits were introduced through account payee cheques. Genuineness of transaction, identity of the payee and entries pertaining to transaction were fully proved. Alternatively, he stated that addition, if any, could be made in assessment year 1987-88 and not in the year under appeal.
6. We have given careful thought to the submissions of the parties. The Assessing Officer recorded a finding that the amounts did not belong to Kumari Priya Aggarwal and Kumari Preeti Aggarwal and their creditworthiness was not proved. The learned CIT(A) has not disturbed this finding of the Assessing Officer. Although learned counsel for the assessee submitted that the alleged creditors were assessed on disputed income and, therefore, it cannot be held to be income of anybody else, on facts found it is difficult to accept this submission. It is an admitted position that in the explanation, a case of gifts received by these ladies was set up. But as gifts could not be proved satisfactorily, the creditors surrendered the amounts under the Amnesty Scheme by filing returns for assessment years 1982-83 to 1986-87. No detail of gifts is available on record. In fact, it is an undisputed position that these could not be satisfactorily proved and, therefore, were surrendered as ‘income’. Having regard to the above background, the amount assessed and deposited in the bank accounts cannot be held to be ‘earned income’ of these ladies. The fact that the disputed sums were assessed in the hands of the ladies, does not make a material difference. It is settled law that the income is to be assessed in the hands of the real owner and principle of estoppel is not applicable to income-tax proceedings.
7. However, in spite of above observations, we are unable to interfere with the impugned order of the CIT(A). We agree and endorse his reasoning and see no scope to interfere with his order. The provision of section 68 under which additions have been made is to the following effect :-
“68. 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 Assessing Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”
It is clear from the above section that if a cash credit is introduced in the books of account maintained by the assessee in the previous year, it has to be explained and in case the assessee offers no explanation about the nature and source thereof or explanation offered by him is not “satisfactory”, the sum so credited may be charged to tax as income of the previous year. Conversely where explanation offered is satisfactory, the sum so credited cannot be treated as income or ‘deemed income’ of the year in which sum is found to be credited. To this extent, the contention advanced on behalf of the Revenue is unassailable. However, explanation offered regarding source or nature of credits has to be considered objectively to see whether whole or any part of it is proved and is, therefore, “satisfactory”. In several cases, it is possible that a part of explanation regarding source is established. In that situation, it is not legally permissible to throw the entire explanation and treat it of no consequence. The legal effect of such explanation is to be seen as no presumption under the law can be raised contrary to the facts established on record. It is possible that explanation given may prove that sum credited was available in a year different from the one in which it was credited. In such a situation, the amount has to be assessed in the year in which it is found to be available and not in the year in which it is credited.
8. In the present case, the sums were introduced in books of account of the assessee after 1-4-1987 through cheques but in the bank accounts of the creditors these sums were found credited on 31-3-1987. Thus immediate source of credits in books of account was transfer through cheques from bank accounts. Under no circumstances, this part of the explanation could be rejected by the revenue. The revenue may not be entitled to question source of deposits of creditors in bank accounts as it tantamounts to questioning “source of a source”. But assuming such a question can be raised and it is found that creditors lacked creditworthiness, the fact remained established that sums in dispute were in existence on 31-3-1987 earned by somebody who made the deposits. Now an income which is proved to have been earned by 31-3-1987 cannot be assessed in assessment year 1988-89. The demonstrative evidence relating to availability of the disputed sum by 31-3-1987 cannot be disregarded. In other words, the explanation of the assessee relating to nature and source of creditors and that those sums was not income of period starting w.e.f. 1-4-1987, has to be accepted as “satisfactory”. The above satisfaction was required to be recorded and given legal effect to. The Assessing Officer, in our considered opinion, was not right in ignoring the above aspect of the matter which has been rightly appreciated by CIT(A). The sums of cash credits could not be added in the hands of the assessee as income for assessment year 1988-89. For all the above reasons, we confirm and uphold order of CIT (A).
9. In the result, revenue’s appeal is dismissed.