JALAN TIMBERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) AS directed by this Court, vide judgment dt. 6th March, 1991, in Civil Rule No. 5(M) of 1991, the Tribunal has referred the following questions under S. 256(2) of the INCOME TAX ACT, 1961 (for short "the Act"), for opinion of this Court:

(2.) THE facts for the purpose of answering the questions may be narrated as follows: The assessee carries on timber business and the matter relates to the asst. year 1981 -82. In the accounting year 1980 -81, the assessee received a loan of Rs. 1,50,000 from Hans Kumar Jain, a partnership firm, Rs. 35,000 from Malchand Killa and Rs. 30,000 from Malchand Radheshyam. While making the assessment for the said period, the ITO disbelieved the cash credit received and directed the assessee to produce evidence to prove the genuineness of the transaction. Pursuant to that the assessee produced confirmatory letters from the cash creditors. In spite of that the AO was not inclined to accept the cash credits as genuine. Therefore, the AO called all the three creditors for further verification. The manager of Hans Kumar Jain appeared and confirmed the letter and also gave evidence. The other two creditors also appeared before the AO and confirmed the transaction. The AO did not believe the transaction and issued notice under S. 131 of the Act for production of the books of account and in spite of the notice the books of account were not produced. The AO, therefore, called for the income -tax files for the relevant year of the three creditors. After examination of the income -tax files of the aforesaid creditors, the AO disbelieved the same holding the genuineness of the transaction was doubtful. Being aggrieved, the assessee preferred an appeal before the CIT(A) and the CIT(A) after hearing the appeal disposed of the same holding that the assessee discharged their onus regarding receipt of the cash credit. The Revenue being dissatisfied with the appellate order passed by the CIT(A) preferred an appeal before the Tribunal. The Tribunal disposed of the appeal holding that although the identity of the person was not doubtful the capacity to advance the loan was doubtful and, therefore, set aside the appellate order passed by the CIT(A) and restored the order passed by the AO. The assessee requested the Tribunal to refer the aforesaid questions to this Court, which, however, the Tribunal refused. Situated thus, the assessee filed an application under S. 256(2) of the Act which was numbered as Civil Rule No. 5(M) of 1991 and this Court by judgment dt. 6th March, 1991, directed the Tribunal to refer the aforesaid questions to this Court. Hence, this reference.

(3.) DR . Saraf submits that in respect of the three cash credits. the assessee showed the receipt of the amount in the income -tax return. Similarly, the creditors also entered the respective amounts in the statement of accounts which were filed along with the return. In respect of Hans Kumar Jain an amount of Rs. 1,50,000 was shown to have been given on credit to the assessee. Not only that an amount of Rs. 9,375 was shown as interest received from the assessee. The amount has also been reflected in the return filed for the asst. year 1981 -82 which will appear from page 15 of the paper book. Similarly, in the case of Malchand Killa an amount of Rs. 35,000 was shown by the assessee that it had received as a cash credit and the creditor also had shown the amount in their return. In respect of Malchand Radheshyam an amount of Rs. 30,000 had been shown in the return of the assessee as a loan received from the creditor and the creditor entered the amount in the statement of accounts and the returns filed by the creditors were accepted by the ITO and there was no further appeal/revision against the said return. Dr. Saraf submits that the return filed by the creditors should be accepted as final. That being so, when the matters were before the ITO, the onus to prove the transaction had been fully discharged. However, the Tribunal without considering that aspect of the matter brushed aside the case of the assessee holding that mere identity of the transaction was not enough, the capability also ought to have been considered. Dr. Saraf further submits that the assessment made by the ITO in respect of the creditors itself is sufficient to indicate the genuineness of the transaction and capability of giving cash credit. Mr. Bhuyan, however, opposed the submissions made by Dr. Saraf. He strenuously argued that the Tribunal was fully justified in holding that mere identity was not enough, there should be at least some evidence to show that the creditors had the capability to advance cash credit and the transaction was genuine. As the assessee miserably failed to discharge that burden the Tribunal was justified in holding that the assessee failed to discharge its burden in proving the transaction.