ORDER
U.T. Shah, Vice President
1. In this appeal, the assessee is contesting
(i) re-opening of the assessment under Section 147(a) of the Act; and
(ii) addition of Rs. 1,05,000 being loan of Rs. 1 lakh taken from M/s. Modern Savings and Trading Unit Pvt. Ltd. (M.S.T.U.) and interest of Rs. 5,000 paid thereon.
2. The assessee is a firm. The assessment year is 1976-77 and the relevant previous year is S.Y. 2031 ended on 3-11-1975.
3. On 30-6-1976, the assessee had filed its return of income declaring total income of Rs. 1,70,731.On 1-11-1976, the ITO framed the assessment under Section 143(3) of the Act, on a total income of Rs. 1,79,500.
4. It may be mentioned that the assessee had taken loan from various parties, including M.S.T.U. of Rs. 1 lakh. During the course of assessment proceedings, the assessee had filed confirmation letters of the creditors including M.S.T.U. giving their complete address, GIR Numbers, etc. All the loans taken by the assessee were by Account Payee Cheques only. The assessee had repaid the loans as well as the interest thereon to the creditors by Account Payee Cheque only. The ITO had accepted the genuineness of the loans taken by the assessee, inasmuch as, he did not deem it fit to take any further action in this regard.
5. Subsequently, on 18-6-1977, Shri D.D. Mehta, the Secretary of M.S.T.U. had made a statement under Section 131 of the Act before A.D.I. (Int.), Unit I, Bombay stating that M.S.T.U. had given bogus hawala loans to as many as 44 parties, including Rs. 1 lakh to the assessee during S.Y. 2031. Another statement of Shri D.D. Mehta was also taken on 5-7-1977 under Section 131 of the Act before A.D.I. (Int.), Unit-I, Bombay. Based on this information, the ITO reopened the assessment under Section 148 of the Act and the reasons recorded for the same read as under :
M/s. Modern Savings & Trading Unit Pvt. Ltd., has admitted before the A.D.I. (Int.), Unit-I, Bombay, that it has given bogus hawala loans to M/s. K. Patel & Co. of Rs. 1 lakh during the S. Y. 2031. This fact is sufficient reason to hold that the assessee had introduced in business his concealed income in the guise of loans. I have, therefore, reason to believe that reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment years 1976-77, income chargeable to tax has escaped assessment for that year.
Hence, the assessment for assessment year 1976-77 is re-opened under Section 147(a) of the IT Act. Issue notice under Section 148 of IT Act.
6. The assessee resisted the action of the ITO on the ground that since there was no failure on its part to disclose truly and fully all the material facts necessary for the assessment, at the time of the original assessment proceedings, the assessment cannot be reopened under Section 147(a)/148 of the Act. It was also stated that since M.S.T.U. had filed confirmation letter about the loan taken by the assessee from it and had also given its GIR Number and full address, the genuineness of the loan cannot be doubted, merely on the ground of the statement made by Shri D.D. Mehta, the Secretary of M.S .T.U. The assessee had also requested the ITO to make available Shri D.D. Mehta, for examination. The ITO, however, not only did not produce Shri D.D. Mehta for the examination of the assessee, but had taken an adverse view against the assessee in the following manner :-
The assessee has shown a loan of Rs. 1 lakh from M/s. Modern Savings & Trading Unit Pvt. Ltd. This credit in the books of account of the assessee described as a loan is treated as the income of the assessee from undisclosed sources the assessee has failed to establish. On the other hand, the lender has given a confession statement that it was engaged in the business of giving bogus hawalas, name-lending only. Since the so-called loan were fictitious, the amount is treated as income from undisclosed sources. The assessee has not produced the lender for examination nor has produced any corroborative evidence excepting a confirmation letter. Shri D.C. Jain attended and the case discussed with him.
and made an addition of Rs. 1,05,000 to the total income determined by him in the assessment originally framed.
7. In appeal before the CIT (Appeals), the assessee once again argued that the ITO was not justified in invoking the provisions of Section 147(a) of the Act and. in bringing to tax a sum of Rs. 1,05,000. For the reasons stated in his order, which need not be reproduced here, the CIT (Appeals) upheld the action of the ITO in reopening the assessment under Section 147(a) of the Act. Similarly, he upheld the action of the ITO in bringing to tax Rs. 1,05,000 in the hands of the assessee in respect of the loan taken from M.S.T.U.
8. Being aggrieved by the order of the CIT (Appeals), the assessee has come up in appeal before the Tribunal. The learned advocate for the assessee vehemently argued that since there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, in the original assessment proceedings, the ITO was not justified in reopening the assessment under Section 147(a) of the Act. It was further submitted that for the failure of the ITO to produce Shri D.D. Mehta for the examination of the assessee, no adverse inference could be drawn against the assessee, in view of the fact that in the original assessment proceedings, the assessee had filed confirmation letter of M.S.T.U. wherein its full address and GIR number were given. It was also highlighted that the assessee had taken loan of Rs. 1 lakh from M.S.T.U. by three cheques (Account Payee only) of Rs. 35,000, Rs. 35,000 and Rs. 30,000 on 23-5-1975 and the interest was paid to the said party by Account Payee Cheque only. Not only that the assessee had deducted tax at source on such interest payment and the same was deposited with the RBL The loan of Rs. 1 lakh was repaid to M.S.T.U. by Account Payee Cheque on 26-4-1976. It was therefore, urged that the IT authorities were not justified in treating Rs. 1 lakh as assessee’s income from undisclosed sources in the assessment framed under Section 143(3)/147(a) of the Act. In this connection, she also highlighted the fact that in spite of repeated requests made by the assessee to the ITO to produce Shri D.D. Mehta for examination.the ITO had failed to do so. Even when the assessee had requested the ITO to issue summons/warrant on Shri D.D. Mehta, enforcing him to appear in person before the ITO. According to her, since Shri D.D. Mehta was a witness for the Revenue, it was the duty of the ITO to enforce the presence of Shri D.D. Mehta for the examination of the assessee. In other words, she wanted to impress upon us that the ITO has made the addition of Rs. 1,05,000 on a mere change of opinion on the facts already available on record. The learned advocate for the assessee relied on the decisions of the Hon’ble Supreme Court, in the cases of ITO v. Madnani Engg. Works Ltd. [1979] 118 ITR 1 and CIT v. Orissa Corporation (P.) Ltd. [1986] 159 ITR 78, as well as the decision of the Hon’ble Bombay High Court, in the case of Nirmalkumar Ashokkumar v. K.V. Gopi, ITO [1991] 187 ITR 329 to urge that the reopening of the assessment under Section 147(a) of the Act was clearly bad in law. On the merits of the case, the learned advocate for the assessee submitted that since the initial onus which lay upon the assessee has been discharged at the time of the assessment originally framed, the IT authorities were not justified in making the addition of Rs. 1,05,000.
9. The learned representative for the department, on the other hand, supported the action of the IT authorities. Relying on the decision in the cases of Kashmiri Lal, Kasturi Lal & Co. v. CIT, Abdul Rab Abdul Salam (sic) and ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), he submitted that the ITO was fully justified in reopening the assessment under Section 147(a) of the Act, inasmuch as, in the statement made by Shri D.D. Mehta, he specifically mentioned the name of the assessee, along with 43 other parties, to whom bogus hawala loans were given. In other words, he wanted to impress upon us that sinct there was a direct live-link between the statement made by Shri D.D. Mehta and the amount of Rs. 1,05,000 involved, the IT authorities were fully justified in reopening the assessment under Section 147(a) of the Act. In this connection he further submitted that the fact and circumstances obtaining in various reported decisions, relied upon by the assessee, are clearly distinguishable from the facts and circumstances obtaining in the instant case. In the reported case,s, the name of the concerned assessee was not mentioned directly or indirectly. However, in the instant case, the assessee’s name was specifically mentioned by Shri D.D. Mehta in the statement made before the A.D.I. (Int.), Unit-I, Bombay. As regards the merits of the case, he strongly relied on the decision of the Hon’ble Calcutta High Court, in the case of Shankar Industries v. CIT [1978] 114 ITR 689. According to him, the assessee had failed to establish the identity, credit worthiness and the genuineness of the loan, alleged to have been taken from M/s. M.S.T.U. and the I.T. authorities were fully justified in making the addition of Rs. 1,05,000 – Rs. 1 lakh being the principal amount and Rs. 5,000 being the interest paid thereon. He, therefore, urged that we should uphold the action of the IT authorities.
10. We carefully considered the rival submissions of the parties and the material already brought on record and we are of the view that the assessee cannot successfully challenge the reopening of the assessment under Section 147(a) of the Act. In the statement made by Shri D.D. Mehta, he has clearly stated that Rs. 1 lakh given to the assessee was nothing but a bogus hawala loan. In order to examine and verify the statement so made by Shri D.D. Mehta, the ITO was fully justified in reopening the assessment under Section 147(a) of the Act. We have carefully gone through the reported decisions relied upon by the learned advocate for the assessee and we entirely agree with the stand taken on behalf of the revenue that the facts and circumstances obtaining in those cases are clearly distinguishable from the facts and circumstances obtaining in the instant case. In the reported case, the name of the concerned assessee was not mentioned by any of the parties having dealings with the assessee. However, in the instant case, Shri D.D. Mehta has specifically mentioned the name of the assessee, along with other 43 names. In this view of the matter, we have to hold that the ITO was fully justified in reopening the assessment under Section 147(a) of the Act:
11. However, on the merits of the case, we find considerable force in the stand taken on behalf of the assessee that unless and until she ITO makes available Shri D.D. Mehta for examination by the assessee, no adverse inference could be taken in respect of the loan of Rs. 1 lakh taken by the assessee from M.S.T.U. We have come to this conclusion as unless and until the assessee gets a chance to examine Shri D.D. Mehta, it will be difficult to ascertain under what circumstances and in what situation he made the statement under Section 131 of the Act before A.D.I. (Int.), Unit-I, Bombay. It is quite possible that he might have made the statement, with a view to save his skin and get involved all the parties with whom M.S.T.U. had dealings during S.Y. 2031. On the material already brought on record, during the original assessment proceedings, namely, the confirmation letter of M.S .T.U. giving its full address, GIR number and the fact of advancing loans by Account Payee Cheques only, it is difficult to hold that the assessee has failed to discharge the initial onus, which lay upon it. Viewed from a slightly different angle the position is that the documentary evidence furnished originally is in favour of the assessee and the statement on oath given subsequently is against the assessee; but on that oral statement, the assessee has not had his right of questioning the deponent. The Department has not brought on record any other attendant circumstance or any circumstantial evidence to support a view in its favour like the position of the creditor’s relevant bank accounts or the fate of relevant cheques issued by the assessee. Of course, it is not the Department’s stand that the confirmations, etc., originally given were even prima facie either fake or forged etc. Actually, no such other accentuating circumstance is brought to our notice. Thus, the impasse created by the conflicting stands taken by the creditor in this case on the basis of material brought on record deserves to be resolved in favour of the assessee. More so, the year involved is 1976-77 and the statements of Shri D.D. Mehta were recorded in June and July 1977. No useful purpose would be served in sending the matter back to the file of the ITO as it would not be possible for the ITO to enforce the physical presence of Shri S.D. Mehta, when he had failed to do so during the reassessment proceedings and completed the assessment on.27-2-1985. Therefore, sending the matter back to the ITO to examine Shri D.D. Mehta would be not only a futile exercise by also consuming lot of public time and money. Under the circumstances, we are of the view that on the material already gathered during the original assessment proceedings, it would be reasonable and prudent to accept the assessee’s explanation regarding the nature and source of Rs. 1 lakh being the loan taken from M.S.T.U. and its claim for deduction of Rs. 5,000 being the interest paid on such loans.
12. In the result, the appeal is allowed.