I. T. AS. NOS. 984/KB TO 986/KB AND 923/KB TO 925/KB OF 1979-80, DECIDED ON 27TH JANUARY, 1981. Versus I. T. AS. NOS. 984/KB TO 986/KB AND 923/KB TO 925/KB OF 1979-80, DECIDED ON 27TH JANUARY, 1981.
ORDER
GHULAM MURTAZA KHAN (MEMBER).‑‑ These are three cross‑appeals filed by the Department and the assessee‑respondent against the combined order of the learned A. A. C. relating to the charge years 1974‑75, 1975‑76 and 1976‑77. The Department's grievance is against the deletion of an amount of Rs. 2,50,000 added being the unexplained investment and the allowance of interest on loans obtained for making the impugned investment. The assessee, on the other hand, has only disputed the disallowance of certain expenses claimed by it. Since the objections arise out of the combined order of the learned A. A. C. all the six appeals are being disposed of by this order.
2. We first take up the Department's appeals assailing the investment of Rs. 2,50,000 through raising loans for the purchase of a barge and the allowance of interest to the alleged creditors. In the original return of income for the charge year 1973‑74, the respondent‑assessee did not declare any income from a barge let out Messrs R. E. Lightrage Company and assessment was made only on income from salary and bonus etc. The Income‑tax Officer, on receipt of information regarding the income from barge, re‑opened the assessment under section 34 and the respondent filed a return but instead of disclosing any income from barge, only wrote a note on the return form that the respondent had made a declaration under section 33‑C/Vth Schedule of the Income‑tax Act, covering the assessment year 1974‑75 and hence the notice under section 34 was illegal. The Income‑tax Officer, however, initiated proceedings under section 23(2) and noted that the respondent‑assessee has entered into an agreement with E. E. Lightrage Company in the month of October, 1973 in respect of hiring of barge, which was purchased from Messrs Falcon Interna tional (Pakistan) Limited for an amount of Rs. 2,50,000. This amount was paid in two instalments of Rs. 1 lakh on 30th August, 1973 and Rs. 1,50,000 on 27th October, 1973. When called upon to explain the source of this invest ment, the respondent‑assessee filed ten typed copies of agreement purporting to show that Rs. 25,000 was obtained in cash on 16th October, 1973 from nine parties; whereas the tenth one paid the money on 7th November, 1973. The Income‑tax Officer, was not satisfied with the evidence produced to prove the loans utilized for purchasing the barge and hence he issued a notice under section 23(3) calling upon the respondent‑assessee to adduce evidence in support of impugned loans by producing :‑
(1) Identity‑cards of the lenders ;
(2) Their G. I. R. numbers, or those of their husbands (almost all the lenders were ladies)
(3) Specimen signatures of the lenders or the husbands;
(4) Source of income of the husband with information regarding their business and their address.
(5) Explanation in writing signed by all the lenders regarding source of cash in their hands;
(6) To produce before him all the lenders so that their statements could be recorded.
The assessee‑respondent did not comply with the requirements of the Income‑tax Officer and instead, repeated the same argument that she was not supposed to explain anything in this regard on account of the declaration having been made by the two Companies of which she was a Director. The Income‑tax Officer did not agree with the assessee‑respondent's contention that her case was covered by the declaration made by the two Companies under section 3‑C of the Income‑tax Act and since no evidence whatsoever was produced in support of the loans utilized in the purchase of the barge, he treated the amount of Rs. 2,50,000 as income of the assessee‑respondent from undisclosed sources and he added this amount to the declared income from other sources. In appeal, the learned A. A. C. accepted the genuineness of the loans obtained by the respondent by observing that the respondent bad already filed copies of agreement from all the lenders and that other requirements of the Income‑tax Officer regarding identification of lenders, their sources of income etc. were not called for and in fact, according to the learned A. A. C. the appellant was under no legal obligation to produce the documents etc. as also the lenders before the Income‑tax Officer. Besides recording this finding, the learned A. A. C. also observed that the appellant had made a declaration under section 3‑C, read with Schedule V of the Income‑tax Act and this fact of filing declaration was found to be correct but he did not give any definite find ing whether or not the respondent's case would be covered .for amnesty by the declarations made by the two Companies in which the respondent was one of the Directors. For the aforesaid reasons, the learned A. A. C. accepted the loans as genuine and directed that the addition of Rs. 2,50,000 should be deleted. In consequence; he also allowed the appellant's claim of interest paid to the aforesaid lenders, which was disallowed by the Income -tax Officer when be treated the entire investment as the respondent's own income from undisclosed source.
3. The learned Departmental Representative vehemently contends that the learned A. A. C. was not justified in trying to cover the respondent's case by the declarations made by two Companies in which she was only a Director. According to the learned Departmental Representative of the respondent herself had made a declaration under section 3‑C, she would have got the benefit available by the law. In the instant case, even the Board's circular, which extended the benefit of making declarations by the Director, on behalf of the Companies, could not be availed of because in this case the facts are vice versa since the declarations were made by the Companies but a Director was trying to take benefit from that declaration. Further, the learned Departmental Representative contends that the issue of getting cover from the declaration does not arise at all since the respondent's case was that of obtaining loans from different parties aggregating to Rs. 2,50,000 on which interest was also payable. The only issue for consideration, therefore, remains whether or not the loans obtained could be considered as genuine. The Income‑tax Officer, according to the learned Departmental Representative, made all possible afforts to ascertain the genuineness of the claim but since no evidence whatsoever was produced, he was left with no alternative but to treat the unexplained investment as respondent's own income from undisclosed source. The learned counsel appearing on behalf of the respondent, on the other hand, contends that only the agreements of the lenders were necessary and that by producing copies of these agreements, the respondent discharged its onus of proving the genuineness of loans. Further, the learned counsel also tries to justify the learned A. A. C.'s finding that the respondent could get benefit of declaration under section 3‑C made by the Company.
4. We have heard both the sides and have also carefully considered the facts of the case. So far as the onus of proving credits or loans obtained is concerned, there cannot be the slightest doubt in the proposition that the onus lies on the person introducing such credits. If sufficient and reliable evidence is not produced in support of such credits, the Department get enough justification to treat such unproved loans as assessee‑respondent' own income. In this case, although it was the respondent own responsibility to prove beyond all shadow of doubt, the genuineness of loans, the respondent did not care to adduce any evidence. The Income‑tax Officer, therefore, mad efforts to ascertain the genuineness of the loans, which in fact, was not hi responsibility. In order, however, to provide a fair opportunity to the respon dent to prove the alleged loans, the assessing officer, desired certain informa tion on specific points. The respondent did not submit the required infor mation and hence the Income‑tax Officer was fully justified in treating the total amount of loan as income from undisclosed sources o#' the respondent. Besides the above facts the respondent's theory that loans were agreed obtained on 16‑10‑1973 has no legs to stand when payment of first instalment of Rs. 100,000 had already been made on 30‑10‑1973. This amount, in the absence of any evidence could only be from the respondent's own unexplained source. We also agree with learned Departmental Representative that from no stretch of imagination, the respondent's case would be covered by the amnesty granted by section 3‑C/Vth Schedule of Income‑tax Act. As a matter of facts, this issue does not arise out of the order of the learned A. A. C. who did not give any finding on it but simply made a passing remark. In this view of these facts, we vacate the order of the A. A. C. and restore that of the Income‑tax Officer. However, it appears that the Income‑tax Officer committed a mistake in treating the respondent lady also as, one of the lenders. To this extent, the learned Departmental Representative conceded that the addition of undisclosed income could be reduced by an amount of Rs. 25,000. The Income‑tax Officer will now give effect to this order.
5. One of the loans, as well as the lenders, could not be proved as genuine, the question of making payment of interest to such person also does not arise. The matter being consequential, the Income‑tax Officer's order of disallowing the claim of interest to the nine lenders also stands restored in all the three years.
6. We now take up the assessee‑respondent's cross‑appeal for the charge year 1974‑75 to 1976‑77. In these appeals, the assessee‑respondent has only disputed the disallowances made under various heads. In the charge years 1974‑75, the learned counsel does not press the disallowance of interest amounting to Rs. 14,062. The other disallowances relate to court‑fees Rs. 404, K. P. T. registration expenses Rs. 15,000, salries Rs. 1,250, mis cellaneous repairs Rs. 2,600. According to the Department, the expenses could not be allowed in the absence of accounts or vouchers. The learned counsel, on the other hand, contends that in conducting her business, the respondent did incur expenses which should have been allowed. After considering the facts, we are of the opinion that only court‑fees Rs. 404 could be allowed on production: of evidence and if admissible as a revenue expenses. Registration fee of Rs. 15,000 paid to the K. P T. having been paid for acquiring permission to operate the barge would be a capital expenditure and the question of allowing it as a revenue expense does not arise. So far as other expenses are concerned, the departmental officer appears to be justified because in the first instance, there was no necessity for incurring such expenses and secondly the respondent failed to produce any evidence regarding these expenses.
7. In the charge year 1975‑76, since according to the agreement with the lightrage Company, the entire expenditure including repairs etc. was to be borne by them, the respondent's claim of miscellaneous expenses Rs. 13,519, salaries Rs. 21,600, K. P. T. fee and repairs Rs. 9,150 remained unproved in the absence of details and the supporting evidence. The assessee‑respondent also claimed insurance premium on barge etc. amounting Rs. 3,222. This was also disallowed because the Income‑tax Officer had no material available with him to verify the genuineness of the claim. In our opinion, this expenditure could be verified from the Insurance Company or the assessee could himself produce a certificate from the insurance Company in proof of the payment of premium for the asset used in the business. If satisfactory evidence is forthcoming this claim may be examined and allowed by the Income‑tax Officer. The other claim relating to the fee paid/payable to K. P. T. could also be examined and if the fee is a recurring business charge, it could be allowed as expense. For other expense, neither the agreement with lightrage Company nor any evidence with the appellant could support the claim. Under the circumstances obtaining in this case, the departmental officers were justified in disallowing such claims. The Income‑tax Officer will however, examine and allow the expenses as per our directions contained hereinabove.
8. In the charge year 1976‑77 also, the disallowance of interest cannot be pressed because it has been held by us that the barge was purchased from the assessee's own undisclosed sources the other expenses relating to salaries Rs. 11,400 and miscellaneous expenses Rs. 7,926 could not be allowed in the absence or of any evidence and for the reasons briefly stated while considering such expenses in the appeal relating to the immediately preceding year. The disallowances confirmed by the learned A. A. C. are therefore, upheld.
9. In the result, the three departmental appeals succeed as indicated and the three appeals of the assessee‑respondent stand disposed of as above.
Order accordingly.