P. D. Abraham alias Appachan v. Commissioner of Income Tax, Kozhikode

## IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 19TH DAY OF SEPTEMBER 2017/28TH BHADRA, 1939 ITA.No. 81 of 2012 ------------------- APPELLANT/APPELLANT: -------------------- P.D.ABRAHAM ALIAS APPACHAN: 'SWARGACHITHRA”: JAIL ROAD, CALICUT. BY ADVS.SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENTS: ------------ THE COMMISSIONER OF INCOME TAX KOZHIKODE. R BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX R1 BY ADV. SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19-09-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ## **ANTONY DOMINIC, J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.No.81 of 2012** **- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -** **Dated this the 19[th] day of September, 2017** ## **JUDGMENT** ## _**Antony Dominic, J.**_ This appeal is filed by the assessee impugning the order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA 172/09 concerning the assessment year 2003-2004. 2. The assessee is a film producer. He claims to have availed loans from various sources. On the ground that the assessee failed to satisfy the source or genuineness of the loans availed, by Annexure A assessment order, Rs.1,76,82,500/- was added to the income of the assessee as unexplained credits under Section 68 of the Income Tax Act. The assessee carried the matter in appeal. Before the Appellate Authority, assessee had produced certain accounts, confirmation letters and PAN cards of some of the lenders. The 1[st] Appellate Authority sought a Remand Report from the assessing officer. Annexure O is the remand report furnished, the relevant portion of which reads thus: “In this connection, it may be submitted that the assessee has submitted confirmation letter in respect of the loans added under Section 68 except in the following cases:- I.T.A.No.81 of 2012 : 2 : |Sl.No.<br>1.<br>2.<br>3.<br>4.<br>5.<br>6.<br>7.<br>8.<br>9.<br>10.|Name of the Party<br>Sibi Avira Loan<br>Malliakarjuna Rao<br>Sreenidhi Financiers<br>Harsha Financiers<br>Sudhakara Gupta<br>M.Viswanathan Loan<br>Ramakrishna Rao<br>Rajeswara Ammal<br>M.M.Bankers<br>Satheesh Loan<br>Total|Amount<br>Rs.900,000<br>Rs.423,000<br>Rs.235,000<br>Rs.235,000<br>Rs. 94,000<br>Rs.235,000<br>Rs.493,500<br>Rs.517,000<br>Rs. 50,000<br>Rs.100,000<br> Rs.32,82,500| |---|---|---| Since no proper loan confirmations have been filed in respect of the above 10 parties, the identity of the party, genuineness of transaction and credit worthiness of the said parties have not been established and hence it appears that the above said loans are not genuine. Confirmations have been furnished by the AR of the assessee in respect of the following parties: |Sl.No.<br>1.<br>2.<br>3.<br>4.<br>5.<br>6.<br>7.<br>8.<br>9.<br>10.<br>11.|Name of the Party<br>Amount<br>J.J.M.Enterprises<br>Rs. 350,000<br>Sambasiva Rao<br>Rs. 141,000<br>K.S.Balakrishnan<br>Rs.70,80,000<br>Money Stores<br>Rs.10,00,000<br>Leo Investment<br>Rs. 175,000<br>Ramesh Financiers<br>Rs. 255,000<br>V.Laxmibai Amma<br>Rs. 117,500<br>Satya Sai Pictures<br>Rs. 94,000<br>Sree Saila Financiers<br>Rs. 352,500<br>Venkiteswara Financiers Rs. 235,000<br>Anjali Finance<br>Rs.30,60,000| |---|---| I.T.A.No.81 of 2012 : 3 : Although the parties mentioned above at Sl.Nos.1 to 4 have submitted confirmation letters directly also, none of the said parties have either submitted any bank account extracts or any evidence regarding the nature and source of the money paid to the assessee as loan. Though the assessee's AR was specifically requested for to produce the parties for personal examination, the assessee did not produce any of them. Hence the genuineness of the transaction and creditworthiness of the above said parties have not been proved and as such it appears that the said loans are not genuine. The loans taken from Sundaram Finance of Rs.450,000/- and Rs.600,000/- respectively and from Vijaya Bank of Rs.500,000/- are towards financing car purchases and the statements of the loan from the respective parties have been furnished.” 3. After receipt of the Remand Report and hearing the assessee, the 1[st] Appellate Authority partly allowed the appeal as per Annexure P order whereby the appeal to the extent of credits of Rs.15,50,000/availed from Sundaram Finance and Vijaya Bank was allowed. The assessee carried the matter in appeal before the Tribunal. By Annexure S order, the Tribunal confirmed the addition to the extent of Rs.159.475 lakhs. It is in these circumstances, the assessee has filed this appeal and the questions of law framed are the following: I.T.A.No.81 of 2012 : 4 : _1. Whether, in a case where an assessee takes loans from Financiers/Money Lenders through account payee cheques in compliance with the provisions of Sec.269 Ss of the IT Act, the assessee has the burden of proving the “source” from which the Creditor has given such loan/s?_ _2. Whether the appellant is right in claiming that he has discharged the burden cast on him under Sec.68 of the Income Tax Act when he established the identity of the Creditors and proved that the loans have been received as per Account Payee Cheques?_ _3. Whether in view of the provisions of Sec.106 of the Indian Evidence Act, it is not correct to state that the burden cast on the assessee under Sec.68 is “limited” and is restricted to showing that the loans have been taken by way of Account Payee Cheques and establishing the identity of the creditor?_ _4. Whether in the facts and circumstances of the case, the appellant is not right in submitting that he has discharged the burden cast on him under Sec.68 by submitting the Copies of Ledger Folios maintained by the Creditors in their books of accounts, in respect of the appellant?_ 4. We heard the counsel for the assessee and the learned Senior Counsel for the Revenue. 5. While according to the counsel for the assessee, the assessee having produced the entire materials available at his possession it was for the assessing officer to have made enquiries and on that basis decided the claim of the assessee, on the other hand, the learned Senior I.T.A.No.81 of 2012 : 5 : Counsel for the Revenue contended that the assessee having not discharged his burden in proving the three requirements of Section 68, namely, identity of the creditors, source and genuineness of the transaction, the assessing officer was justified in making the addition. 6. We have considered the submissions made. Section 68 of the Income Tax Act, provides that 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. This provision has come up for interpretation before various courts and it has been held that it is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. 7. Insofar as this case is concerned, the answer to the questions framed for the consideration of this court would depend upon our conclusion as to whether the assessee has proved the identity of the creditors, their creditworthiness and the genuineness of the I.T.A.No.81 of 2012 : 6 : transactions. Facts as disclosed from the materials, including the Remand Report of the assessing officer, show that apart from the contention of the assessee that the amount was received through banking channels and producing the accounts, confirmation letters and PAN cards of some of the lenders, the assessee has not taken any steps for proving the creditworthiness of the lenders or the genuineness of the transactions. In other words, even if the documents produced by the assessee are taken at its face value, those documents at best proved the identity of the creditors and nothing more. Law is also trite that the fact that the amounts have been received by the assessee through banking channels or that amounts received by the assessee is reflected in the accounts of the lender are of no moment insofar as the discharge of burden under Section 68 of the Income Tax Act is concerned. 8. Learned counsel for the assessee contended that the assessee having produced the aforesaid materials before the assessing officer, it was for the assessing officer to make enquiries and satisfy himself of the creditworthiness and genuineness of the transaction. According to us, this submission is totally misconceived and has been directly answered I.T.A.No.81 of 2012 : 7 : by Calcutta High Court in its judgment in _Commissioner of Income Tax v. Precision Finance Private Limited [1994] 208 ITR 465_ , where it has been held thus: “5. It is for the assessee to prove the identity of the creditors, their creditworthiness and the genuineness of the transactions. In our view, on the facts of this case, the Tribunal did not take into account all these ingredients which have to be satisfied by the assessee. Mere furnishing of the particulars is not enough. The enquiry of the Incometax Officer revealed that either the assessee was not traceable or there was no such file and, accordingly, the first ingredient as to the identity of the creditors had not been established. If the identity of the creditors had not been established, consequently the question of establishment of the genuineness of the transactions or the creditworthiness of the creditors did not and could not arise. The Tribunal did not apply its mind to the facts of this particular case and proceeded on the footing that since the transactions were through the bank account, accordingly, it is to he presumed that the transactions were genuine. It was not for the Income-tax Officer to find out by making investigation from the bank accounts unless the assessee proves the identity of the creditors and their creditworthiness. Mere payment by account payee cheque is not sacrosanct nor can it make a non-genuine transaction genuine. In that view of the matter, the question before us is answered in the negative and in favour of the Revenue.” 9. Learned counsel for the assessee relied on the judgments of the Delhi High Court in _Commissioner of Income Tax v. Divine Leasing and_ I.T.A.No.81 of 2012 : 8 : _Finance Ltd. and others [2008] 299 ITR 268 (Delhi)_ which has confirmed by the Apex Court by dismissing the Special Leave Petitions and the judgments of the Bombay High Court in _Commissioner of Income Tax v. Gagandeep Infrastructure Private Limited [2017] 394 ITR 680 (Bom)_ and _Commissioner of Income Tax v. Orchid Industries Private Limited [2017] 397 ITR 136 (Bom)._ 10. However, a reading of these judgments would show that in these cases the court was concerned with the orders of the Income Tax officers making additions of the share application money received by the assessee companies. In those cases, considering the fact that the assessee would not have any knowledge about source of the respective applicant or even their identity and the assessee having produced the share application form, the share certificates, the PAN card of the applicants was taken to have discharged their burden under Section 68 of the Income tax Act. According to us, such a factual situation is totally incomparable with the case of the assessee who has borrowed money from few known lenders whose creditworthiness and genuineness of the transaction were matters for the assessee to prove. I.T.A.No.81 of 2012 : 9 : 11. The assessee having failed to discharge the burden of proof, the assessing officer, the 1[st] appellate authority and the Tribunal were fully justified in making the additions and confirming the same. Therefore, answering the questions of law framed in favour of the Revenue and against the assessee the appeal is dismissed. _sd/-_ **ANTONY DOMINIC JUDGE** _sd/-_ **DAMA SESHADRI NAIDU JUDGE** _jes_