1. The Income-tax Appellate Tribunal, New Delhi, has referred the following two questions of law under section 256(2) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), for opinion to this court for the assessment year 1987-88:
“1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was legally justified in deleting the addition of Rs. 95,000 made under section 68 of the Income-tax Act on account of unproved credits appearing in the accounts of the assessee in the names of his daughters?
2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is right in law to hold that the unproved credits appearing in the account books of the year under consideration cannot be assessed in the relevant assessment year under section 68 of the Income-tax Act?”
2. The brief facts of the case are as follows:
The opposite party/assessee (hereinafter referred to as “the assessee”) was assessed to tax in the status of an individual. The accounting period for the previous year ended on October 11, 1986. In the books of account of the assessee, deposit of Rs. 50,000 was found in the name of Smt. Vimlesh Aggarwal and a sum of Rs. 45,000 was found credited in the name of Smt. Shashi Aggarwal. The assessing authority asked the assessee to explain the aforesaid deposits. In pursuance thereof, it was explained that a sum of Rs. 50,000 was paid by Smt. Vimlesh Aggarwal from the bank account No. 2128 in the Bank of Baroda which stood in the joint name of Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal. Copy of the pass book was also filed. The entry in the pass book was as follows:
Date
Amount
Cr.
Dr.
17-3-1986
By cash
40,000
20-3-1986
By cash
11,000
28-6-1986
15,000
19-7-1986
10,000
20-7-1986
15,000
1-8-1986
10,000
50,000
3. It was explained that the amount was paid by cheque. It was further explained that she had been assessed to tax under the amnesty scheme. With regard to the deposit of Smt. Shashi Aggarwal, it was explained that the amount was paid by cheque. She was maintaining a bank account No. 2119 in the Bank of Baroda in the joint name of Smt. Shashi Aggarwal and Deepak Kumar Goel from where the amount was withdrawn. Copy of the pass book was also filed. It was also explained that she was also assessed to tax under the amnesty scheme. The entry in the pass book was as follows:
Date
Amount
Cr.
Dr.
17-3-1986
By cash
60,000
26-3-1986
By cash
13,000
6-8-1986
15,000
16-8-1986
10,000
25-8-1986
20,000
45,000
A.Y 1987-88
20-10-1986
10,000
11-3-1987
7,000
23-4-1987
11,000
28,000
A.Y 1988-89
4. The Income-tax Officer added the aforesaid two amounts as the income of the assessee under section 68 of the Act. It was observed that according to Circular No. 451, dated February 17, 1986 (see [1986] 158 ITR (St.) 135), it was clarified that amnesty was not available for introducing black money and benami investment in the names of the ladies. It has been further observed that the hon'ble Supreme Court in the case of Jamunaprasad Kanhaiyalal v. CIT, [1981] 130 ITR 244 has ruled that the protection under the voluntary disclosure scheme was extended only to the declarant and not to third parties. The assessing authority was of the view that the assessee introduced his black money by filing voluntary returns of his daughters. The assessee filed an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed the appeal and held as follows:
“I have carefully considered the submissions of the learned authorised representative and have also gone through the assessment records. To me, there appears to be some contradiction in the approach of the Assessing Officer. He has mentioned at page 3 of the assessment order that the amount disclosed in the amnesty scheme actually belongs to the assessee as no proof regarding source of income in the hands of the depositor has been furnished. Although, the exact amounts disclosed by these two ladies in the amnesty scheme are not known, it is observed that Smt. Vimlesh had deposited a sum of Rs. 51,000 in March, 1986 and Smt. Shashi had deposited a sum of Rs. 73,000 in March, 1986. The deposits which have been made in the names of these two ladies in the books of the appellant have arisen against the credits made by these two ladies in their bank accounts in March, 1986, therefore, if the Assessing Officer was of the view that these two ladies did not have any independent source of income and these two bank accounts actually belong to the appellant, then the proper course for the Assessing Officer, was to add the entire accounts of deposits in the bank accounts maintained in the names of the two ladies in the hands of the appellant. In that case the additions would have been of Rs. 51,000 and Rs. 73,000 respectively in respect of deposits in the bank account of Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal rather than the amounts of deposits of Rs. 50,000 and Rs. 45,000 in the books of the appellant. Moreover in such a situation, section 69 relating to unexplained investment outside the books rather than section 68 in respect of each credit would apply and if section 69 is attracted the assessment year would be determined with reference to the financial year and not the accounting year of the appellant. Therefore, the correct assessment year would be assessment year 1986-87 and not the assessment year 1987-88 in which deposits had been added.”
5. The Revenue filed an appeal against the order of the Commissioner of Income-tax (Appeals) before the Tribunal. The Tribunal rejected the appeal and confirmed the order of the Commissioner of Income-tax (Appeals). The Tribunal has held as follows:
“We have given careful thought to the rival submissions of the parties. It is true that mere fact of disclosure under the amnesty or voluntary disclosure scheme by one person would not preclude the Revenue to make enquiry into the ownership of the amount disclosed. The Revenue is always entitled to assess the amount in the hands of the rightful owner of the amount irrespective of disclosure made by somebody else. It is equally true that for purposes of section 68, the assessee has to prove the creditworthiness of the creditor. But the above propositions or authorities do not entitle the Revenue to add all credits as income of the assessee. The facts of each case are required to be examined objectively. Turning to the present case, we find that the creditors had confirmed the deposits on oath in statements recorded by the Assessing Officer. The amount deposited had come from their bank account and the source of the deposit was disclosure made under the amnesty scheme. The detailed statement of the ladies recorded by the Assessing Officer is not available on record. Assuming that the source of disclosure made under the amnesty scheme was not explained by the ladies, it does not follow that amount deposited in the bank belonged to the assessee. The Assessing Officer has not placed any material on record to show that the amounts deposited in the bank were the assessee's income or that the assessee was responsible for making the deposits. We agree with the learned Commissioner of Income-tax (Appeals) that the immediate source of the deposits, i.e, the bank accounts of the creditors was established in this case. The assessee thus discharged the initial onus that lay on him to prove the cash credits.”
6. Heard Sri A.N Mahajan, learned standing counsel for the Revenue and Sri Bhupeshwar Dayal, learned counsel for the assessee.
7. Learned standing counsel for the Revenue submitted that the benefit of amnesty scheme was available to the declarant and not to the assessee in whose books of account the deposit was found. He submitted that it was open to the assessing authority to make the enquiry and to add the cash credit in the hands of the assessee. In support of his contention, he relied upon the decision of the apex court in the case of Commissioner Of Income Tax v. United Trading & Construction Co. and Construction Co., [2001] 247 ITR 819 in which the earlier decision of the apex court in the case of ITO v. Rattan Lal, [1984] 145 ITR 183 has been followed. The apex court held as follows (page 820):
“It is now brought to our notice that this very question has since been decided by this court in ITO v. Rattan Lal, [1984] 145 ITR 183. In the said decision it has been held that the immunity enjoyed by a declarant under section 24 of the Finance (No. 2) Act, 1965, under the Voluntary Disclosure Scheme is confined to the declarant alone and is not extended to the assessment of a third party assessee in relation to the income disclosed by the declarant. It was further held that there is nothing in section 24 of the Finance (No. 2) Act which prevents the Income-tax Officer, if he is not satisfied with the explanation of the assessee about the genuineness of sources of amounts found credited in his books to add them to the assessee's income amount in spite of these having already been made the subject-matter of the declaration made by the depositors/creditors. He is entitled to include them as income of the assessee from undisclosed sources.”
8. Learned counsel for the assessee relied upon the order of the Tribunal. We have given our anxious consideration to the arguments of the learned counsel for the parties. We do not find any force in the argument of the learned standing counsel. The apex court in the case of Commissioner Of Income Tax v. United Trading & Construction Co. and Construction Co., [2001] 247 ITR 819 has only held that there is nothing in section 24 of the Finance (No. 2) Act which prevents the Income-tax Officer, if he is not satisfied with the explanation of the assessee about the genuineness of sources of amounts found credited in his books to add them to the assessee's income amount in spite of these having already been made the subject-matter of the declaration made by the depositors/creditors. There is no quarrel about the proposition of law laid down by the apex court which was relating to the case of declaration of the income under the Voluntary Disclosure Scheme introduced by the Finance (No. 2) Act, 1965.
9. Sections 68 and 69 of the Income-tax Act read as follows:
“68. Cash credits.—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.
69. Unexplained investments.—Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.”
10. Under section 68 of the Act if any sum is found credited in the books of account of the assessee 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. Therefore, what has to be enquired into by the assessing authority is about the nature and source of the deposit. If the explanation with regard to nature and source is found unsatisfactory only then the amount so credited may be treated as income. In the present case, the assessee offered the explanation both about the nature and source of the money. It was explained that the money was deposited by Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal, which they have deposited after withdrawing from their bank account. The Commissioner of Income-tax and the Tribunal found that the assessee has discharged his burden in proving the source of the money, which had flown from the bank account. It was further held that in addition to the source of money from the bank account of Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal both the ladies were income-tax assessees and assessed to tax under the amnesty scheme and the amount was deposited in their bank account as a result of their disclosure of income under the amnesty scheme. The Commissioner of Income-tax (Appeals) and the Tribunal found the explanation satisfactory and accordingly deleted the addition. It is not a case where the assessee claimed any immunity from tax on account of the disclosure of income by Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal. It is a case where the assessee was asked to explain the deposits in his books of account about the nature and source, which the assessee has explained. The assessing authority though has not accepted the explanation but the Commissioner of Income-tax (Appeals) and the Tribunal have accepted the explanation. The finding of the Tribunal is a finding of fact. In this regard learned standing counsel is not able to show that the findings recorded by the Tribunal are perverse.
11. Section 68 came up for consideration before various High Courts. The court has held that the assessee has to prove three conditions: (1) identity of the creditor; (2) capacity of such creditor to advance money; and (3) genuineness of the transactions; (vide Shankar Industries v. CIT, [1978] 114 ITR 689 (Cal), C. Kant & Co. v. CIT, [1980] 126 ITR 631 (Cal), Prakash Textile Agency v. CIT, [1980] 121 ITR 890 (Cal), Oriental Wire Industries (P.) Ltd. v. CIT, [1981] 131 ITR 688 (Cal), CIT v. Baishnab Charan Mohanty, [1995] 212 ITR 199 (Orissa), Jalan Timbers…Applicant; v. Commissioner Of Income Tax N.E Region, Shillong…., [1997] 223 ITR 11 (Gauhati) and CIT v. Korlay Trading Co. Ltd., [1988] 232 ITR 820 (Cal)).
12. If all the aforesaid three conditions are proved the burden shifts on the revenue to prove that the amount belongs to the assessee. (vide CIT v. United Commercial & Industrial Co. (P.) Ltd., [1991] 187 ITR 596 (Cal), M.A Unneeri Kutty v. CIT, [1992] 198 ITR 147 (Ker) SLP-dismissed [1993] 201 ITR (St.) 23, CIT v. Precision Finance (P.) Ltd., [1994] 208 ITR 465).
13. It has been held by various High Courts that the assessee cannot be asked to prove the source of the source or the origin of the origin (vide S. Hastimal v. CIT, [1963] 49 ITR 273 (Mad), Tolaram Daga v. CIT, [1966] 59 ITR 632 (Assam), CIT v. Daulat Ram Rawatmull, [1973] 87 ITR 349 (SC), Sarogi Credit Corporation v. CIT, [1976] 103 ITR 344 (Patna)).
14. In the case of Jalan Timbers, [1997] 223 ITR 11, the Division Bench of the Gauhati High Court held that under section 68 of the Income-tax Act, the assessee has to prove three important conditions: (1) the identity of the person; (2) the genuineness of the transaction; and (3) the capability of the person giving cash credit. On the explanation being given the assessing authority can reject the explanation by cogent grounds and if the grounds are based on no ground, the presumption against the assessee does not arise.
15. In Sreelekha Banerjee v. CIT, [1963] 49 ITR 112, the apex court held that if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denominations notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money was and to prove that it was not income. The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not act unreasonably and reject that explanation to hold that it was income. If, however, the evidence was unconvincing, then such rejection could be made. The Department cannot by merely rejecting a good explanation unreasonably, convert good proof into no proof.
16. In the case of Commissioner Of Income Tax, Orissa v. Orissa Corporation (P) Ltd.., [1986] 159 ITR 78, the apex court observed as follows (page 84):
“In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the revenue. The Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do anything further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence…”
17. The apex court in the case of Cit, Ernakulam v. P.K Noorjahan (Smt)., [1999] 237 ITR 570 (SC); (1997) 11 SCC 198 while interpreting similar language used in section 69 has held as follows (page 573):
“Shri Ranbir Chandra, learned counsel appearing for the Revenue has urged that the Tribunal as well as the High Court were in error in their interpretation of section 69 of the Act. The submission is that once the explanation offered by the assessee for the sources of the investments are found to be non-acceptable the only course open to the Income-tax Officer was to treat the value of the investments to be the income of the assessee. The submission is that the word ‘may’ in section 69 should be read as ‘shall’. We are unable to agree. As pointed out by the Tribunal, in the corresponding clause in the Bill which was introduced in Parliament, the word ‘shall’ had been used but during the course of consideration of the Bill and on the recommendation of the Select Committee, the said word was substituted by the word ‘may’. This clearly indicates that the intention of Parliament in enacting section 69 was to confer a discretion on the Income-tax Officer in the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income-tax Officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should be treated as income or not under section 69 has to be considered in the light of the facts of each case. In other words, a discretion has been conferred on the Income-tax Officer under section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case.”
18. It may be mentioned here that under the amnesty scheme, new taxpayers were allowed to declare their income for various years and their returns were allowed to be accepted without any charge of penalty and interest. It appears that Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal filed returns under the amnesty scheme declaring certain income and as a result of such declaration, savings have been deposited in the bank account which have been subsequently paid to the assessee. There is no dispute that the income-tax returns under the amnesty scheme in the case of Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal have been accepted.
19. We also do not find any error in the order of the Tribunal where the Tribunal held that in case the amount deposited in the bank account of Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal are to be treated as the amount belonging to the assessee and the deposits made by the assessee, then it would be a case of investment made by the assessee in the name of Smt. Vimlesh Aggarwal and Smt. Shashi Aggarwal and the provisions of section 69 of the Act would apply and not section 68 of the Act and for that purpose the financial year would be relevant and then such investment may be deemed to be the income of the assessee of such financial years which falls to the assessment year 1986-87 and not 1987-88. Section 68 applies when the amount is found deposited in the books of account of the assessee and not in third party. Deposit in the account of bank would amount to investment and section 69 would apply and not section 68. Reliance is placed on the decision of the Gauhati High Court in the case of Anand Ram Raitani v. CIT, [1997] 223 ITR 544. For the reasons stated above, both the questions are answered in the affirmative, i.e, in favour of the assessee and against the Revenue.