NEMICHAND KOTHARI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) This appeal has been heard on the following substantial question of law: -

(2.) In a short compass, the facts leading to the present appeal may be put as follows : (i) The appellant carries on the business of supply of bamboo in the name of M/s Bamboo Bagicha as its proprietor. For the assessment year 1992-93, the appellant filed his return of income and the same was processed under Section 143(2) of the Income Tax Act, 1961. During the course of the assessment, the Assessing Officer examined the relevant books of accounts and various other particulars and completed the assessment vide order, dated 30.03.95. In course of the assessment so made, the Assessing Officer found that the assessee had taken loans from M/S Nemichand Nahata & Sons (HUF) amounting to Rs. 4,35,000/- and from one Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000/- during the previous year ending on 31.3.92. The Assessing Officer declined to treat the loan of Rs. 4,35,000/- claimed to have been taken by the appellant from M/S Nemichand Nahata & Sons (HUF) and added the entire amount of Rs. 4,35,000/- in the assessee's total income from undisclosed sources under Section '68' of the Income Tax Act, 1961. As regards the loan from Sri -Pawan Kumar Agarwalla amounting to Rs. 5,00,000/-, the Assessing Officer declined to treat the loan amount to the extent of Rs. 4,25,000/- as genuine and added the said amount of Rs. 4,25,000/- to the total income of the assessee as income from undisclosed sources. As regards the first creditor, namely, M/S Nemichand Nahata & Sons (HUF), the Assessing Officer, in course of the assessment, examined the HUF under Section 131 of the Income Tax Act. In his statement so recorded, Sri Nemichand confirmed to have advanced the loan of Rs. 4,35,000/- to the appellant on two different dates by cheques. Explaining the source' from which he had received the said amount of Rs. 4,35,000/-, Sri Nemichand stated that HUF had taken loans from three different persons, namely, 1. Smti Jhumku Devi Nahata, 2. Smti Shanti Devi Nahata and 3. Smti Madhu Devi Nahata amounting to Rs. 1,20,000/-, 1,25,000/ - and 1,20,000/- respectively. Sri Nemichand further claimed that out of the said amount of Rs. 4,35,000/- advanced to the assessee, a sum of Rs. 70,000/- was from his own source and that the said three loans amounting to Rs. 3,65,000/- had been taken from the said 3 (three) different sub-creditors by the HUF by means of account payee cheques. It was also clarified, during the course of this assessment proceeding, that M/S Nemichand Nahata & Sons (HUF) and all the three sub-creditors were income-tax assesses. The Assessing Officer, upon examining the assessment records of the three sub-creditors, namely, 1. Smti Jhumku Devi Nahata, 2. Smti Shanti Devi Nahata and 3. Smti Madhu Devi Nahata, found that all the three sub-creditors had submitted their return of income tax for the first time, on 17.2.92, showing that the said income had been derived by them from seasonal business without, however, mentioning the amounts involved in purchase, sales, etc. The Assessing Officer held that the returns of income submitted by the creditor as well as the sub- creditors were actually submitted by them merely for enabling them to advance the loan of the said loan amounts to the appellant. The Assessing Officer also held that no genuine loan had been taken by the creditor, namely, M/S Nemichand Nahata & Sons (HUF) from the three sub-creditors amounting to Rs. 3,65,000/ and the creditor had no fund of his own amounting to Rs. 70,000/- to advance the loan to the appellant and, therefore, declined to accept the loan of Rs. 4,35,000/- as genuine and added the said amount of Rs. 4,35,000/- to the total income of the assessee as his income from undisclosed sources under Section 68 of the Income Tax Act. As regards the loan claimed to have taken by the assessee from the creditor, namely, Sri PK Agarwalla, the Assessing Officer found that the said Sri PK Agarwalla had taken loan of Rs. 4,25,000/- from five different parties by account payee cheques for advancing the loan to the appellant. The said sub-contractors were also examined and they confirmed that they had advanced the loans to the creditor, namely, Sri PK Agarwalla. It was also found by the Assessing Officer that the creditor as well as the sub-creditors aforementioned were all income-tax assesses. On examining the creditor and the sub-creditors aforementioned and also the assessment records of the sub-creditors, the Assessing Officer concluded that their income files were nothing, but capital building exercise aimed at accommodating others without support from any documentary evidence regarding their own business activities. The Assessing Officer, therefore, accepted as genuine the loan said to have been advanced by Sri PK Agarwalla to the assessee from his own source, but so far as the amount of Rs. 4,25,000/- was concerned, the Assessing Officer added back the said amount to the assessee's total income from undisclosed sources under Section 68 of the Income Tax Act. (ii) Feeling aggrieved by the assessment order, dated 30.03.95, aforementioned, the assessee preferred appeal before the Commissioner of Income Tax (Appeals), Guwahati, who, vide his order, dated 29.02.96, deleted both the additions of Rs. 4,35,000/- and Rs. 4,25,000/- on the ground that the assessee-appellant had not only established the identity of the creditors, but also the genuineness of the loans taken by the appellant and that the same could not be controverted by the Assessing Officer. On appeal preferred by the Revenue, the learned Income Tax Appellate Tribunal, Guwahati, vide order, dated 27.05.2002, passed in ITA No. 311(Gan) of 1996, set aside the said order of the Commissioner of Income Tax (Appeals) and upheld the order of Assessing Officer on the ground that neither the sub-creditors nor the creditors, in question, had credit-worthiness to advance the said loans. Not satisfied with this order, the assessee has, now, preferred the present appeal.

(3.) We have heard Dr. AK Saraf, learned counsel for the assessee-appellant, and Mr. U Bhuyan, learned counsel for the Revenue.