Oriental Wire Industries (P.) Ltd. v. Commissioner Of Income-Tax, West Bengal-I

Sabyasachi Mukharji, J.:— The assessment year involved in this case is 1965-66. In this reference, under s. 256(2) of the I.T Act, 1961, as directed by this court, the Tribunal has referred the following question:

“Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that the assessee has failed to explain the source of the sum of Rs. 20, 000 (rupees twenty thousand only) is unreasonable and perverse?”

2. The relevant previous year for the assessment year with which we are concerned ended on the 31st March, 1965. The assessee-company is a manufacturer of wire netting, wirenails, strapping, etc. There was a deposit of Rs. 20, 000 as on 1st March, 1965, in the assessee's books of account in the name of Nirmala Debi, wife of V.K Agarwala, the brother of one of the directors of the assessee-company. The explanation of the assessee was that the lady had received Rs. 25, 000 from her father in November, 1962, at the time of her marriage, out of the gifts received by him on her behalf and kept in deposit with M/s. Madanpur Coal Co. Ltd., of which he was the managing director. The ITO did not doubt the fact of receipt of the gift or the withdrawal of the amount by the lady's father. He, however, doubted the fact that the withdrawals remained with the lady and were utilised by her by way of deposit with the assessee-company. He was of the view that the money must have been spent by her father in her marriage. In any case, there was no evidence to show that the same amount continued to remain with the lady which she could have deposited with the assessee after about 2\1 years. Accordingly, he assessed the said amount as his income from other sources. The AAC confirmed the order of the ITO on appeal. There was a further appeal before the Tribunal.

3. Before the Tribunal it was submitted that Rs. 25, 000 withdrawn by the lady's father was handed over to her which she kept with her till Rs. 20, 000 was deposited with the assessee-company on the 1st March, 1965. It was also submitted that the ITO had also assessed Smt. Nirmala Devi Agarwala on the interest income received by her from the assessee company on the above amount after holding that the sum represented her undisclosed income. A copy of the assessment order in the case of the lady relating to the assessment year 1966-67 was also placed before the Tribunal in which it was observed by the ITO that the sum represented the benami investment of her husband, V.K Agarwala, and the income from interest should be considered in his hands and the assessment in this case of the lady was made as “a protective measure”. It was argued on behalf of the assessee before the Tribunal that in view of the above finding of the ITO, an amount of Rs. 20,000 could not be assessed in the hands of the assessee. The Tribunal after a consideration of the facts was of the opinion that the observations of the ITO in the last mentioned assessment order were of no avail at this stage particularly when the assessment of Sri V.K Agarwala had not been finalised. Since the ITO had not given any finding oh merits in the case of the lady, the Tribunal considered whether the credit was explained in the hands of the assessee or not. On the merits of the case, the Tribunal agreed with the authorities below that the assessee on the facts of the case had failed to explain the sources of the amount. In arriving at its finding the Tribunal gave reasons as follows;

“5. In appeal before us the learned counsel repeated his contention and submitted that the sum of Rs. 25, 000 withdrawn by the lady's father was handed over to her which she kept in her custody till Rs. 20, 000 was deposited with the assessee-company on March 1, 1965. He also submitted that the Income-tax Officer had also assessed Smt. Nirmala Devi Agarwala on the interest income received by her from the assessee-company on the above amount of Rs. 25, 000 after holding that the sum represented her undisclosed income. He placed a copy of this order, which related to the assessment year 1966-67, before us. In this year, the Income-tax Officer had also made the following observations:

‘Again I hold this a benami investment of her husband, Sri Vijay Kumar Agarwala, who is assessed by the Income-tax Officer, C-Ward, Dist. S.S.C IV, under File No. 6-1013 and the income from interest should be considered in the hands of her husband and the assessment is made as a protective measure.’

The argument of the learned counsel also was that, in view of the above finding of the ITO, the above amount could not be assessed in the hands of the assessee.

6. We have considered the facts of the case. In our opinion, the observations of the Income-tax Officer are of no avail at this stage particularly when the assessment on Sri V.K Agarwala has not yet been finalised. The Income-tax Officer has not given any finding on merits and, therefore, we have to consider whether the credit is explained in the hands of the assessee or not. Coming now to the merits of the case, we agree with the authorities below that the assessee on the facts of the, case has failed to explain the source of the amount. Without considering as to how the sum of Rs. 25, 000 was actually utilised by the lady's father, we must hold that the burden to prove that the said amount continued to remain with the lady and was deposited; with the assessee-company, lies on the assessee, which has not been discharged. The normal human conduct would hardly require the withdrawal of an interest bearing amount for keeping it as idle cash at home. In this connection, it would be relevant to point out that the lady had received the gift of Rs. 25, 000 from her uncle on 3rd January, 1967, and deposited the amount with M/s. Madanpur Coal Co. (P.) Ltd. on January 4, 1967, which shows the anxiety of her father not to keep the amount idle even Rs. 20, 000 made by the Income-tax Officer and reject the assessee's contention in this connection (sic).”

4. The Tribunal, accordingly, affirmed the conclusion arrived at by the ITO and rejected the assessee's appeal. In the aforesaid circumstances, as directed by this court, the question indicated above has been referred.

5. In a case of this nature, it is for the assessee to satisfy by evidence or other materials that the assessee had, in fact, received the said loan from the person concerned on the dates mentioned. We must also observe that before the AAC, an affidavit affirmed by the lady in whose name the investment had been made, was sought to be filed. The AAC directed the lady to be examined. As the lady did not appear for examination, the AAC rejected the said affidavit. We need not, therefore, refer to the said affidavit of the lady. But, it appears that the lady did not come before the AAC to depose in support of the affidavit which was sought to be relied on on her behalf.

6. The following facts are undisputed: (1) The lady had withdrawn this money in or about November, 1962. The money was alleged to have been invested on 1st March, 1965. Therefore, the sum of Rs. 25, 000 was alleged to have been invested after 2½ years. (2) The lady or the person who was looking after her affairs after her father, and thereafter her husband, was in the habit of keeping the money invested and earning interest. Previously this was done. In fact, in the assessment of the lady it was shown that the lady had a bank account. In these circumstances, there is no explanation on behalf of the lady either by producing any cogent or authentic evidence or by producing any bank account to show in such a situation why the lady kept the said sum of Rs. 25, 000 uninvested with her in cash. (3) It also appears that the sums were withdrawn at the time of the marriage of the lady from the company where it was lying invested and the said sums were withdrawn not all at the same time but in two different dates.

(4) There is also no evidence by any documentary evidence or the books of account produced to show that the loan was actually given. There was also no evidence that during these 2½ years the sum of Rs. 25,000 was in fact lying with the lady by any affidavit or in any document or by oral evidence. In a case like this where the alleged loan appeared in the books of account of the assessee, it is for him to prove that the transaction was genuine and that would entail production of evidence as to the, (i) source of the loan, (ii) capacity of the person who is supposed to have given the loan, and (iii) also the evidence about the fact that the loan was in fact given by the person concerned on the date mentioned. These principles were reiterated by us in the case of Sikri & Co. P. Ltd. v. CIT [1977] 106 ITR 682 at p. 689. Learned counsel for the assessee contended that in this case the source has been proved, as also, the capacity has been proved. Now, the third element is whether in fact the loan was given. That is a question of fact. The Tribunal has judged the evidence on record before it by the yardstick of probability of the situation. It is possible that some other conclusion might have been arrived at. But, in the facts and circumstances' of the case, as indicated by us before, it is impossible to say that the conclusion arrived at by the Tribunal was not a possible one, specially on a question of fact. There is no misdirection by the Tribunal on the relevant material. It was sought to be urged that the Tribunal did not take into consideration the assessment order passed in the case of the lady. That, in our opinion, does not affect the position. Because, even if the assessment order is taken into consideration that would not in any way affect the question whether in fact the lady or her husband had lent this money or not. In the premises, we are of the opinion that it cannot be said that the conclusion arrived at by the Tribunal was perverse in law. Accordingly, the question is answered in the negative and in favour of the revenue.

7. Each party will pay and bear its own costs.

Sudhindra Mohan Guha, J.:— I agree.