Commissioner of Income Tax vs Varinder Rawlley

Anita Chaudhary, J.—Through the instant appeal filed u/s 260A of the income tax Act, 1961 (for brevity, "the Act"), the appellant-Revenue is questioning the legality and propriety of the order dated December 1, 2006 (annexure A-2) passed by the income tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter, to be referred as "the Tribunal", in short) in I.T.A. No. 74 (ASR)/2006 relating to the assessment year 2002-03, vide which the orders passed by the authorities directing addition of an amount of Rs. 86,737 in the income of the respondent and initiation of penalty proceedings u/s 271(1)(c) read with Explanation 1(A), have been set aside. On October 19, 2007, the instant appeal was admitted to determine the following substantial questions of law :

"1. Whether the income tax Appellate Tribunal has erred in law in deleting the addition sustained by the Commissioner of income tax (Appeals) despite having returned the finding that as per the provisions of section 68 of the income tax Act, the onus to establish the genuineness of the transaction lies upon the assessee and the assessee having been miserably failed to discharge the onus ?

Whether the income tax Appellate Tribunal was right in holding that failure to issue summons under sections 133(1) to the creditor was sufficient to delete the addition, though the onus to establish the genuineness of the transaction was upon the assessee ?

Whether the income tax Appellate Tribunal has erred in law in recording a finding that the addition made on the basis of satisfaction recorded by the Assessing Officer to the effect that M/s. Vishnu Jewellers was engaged in providing ''accommodation entries'' to various beneficiaries against charging of commission is perverse and without any factual basis ?"

The factual matrix. The respondent-assessee is engaged in the business of supply of LPG stoves, pipes, burners, etc. For the financial year 2002-03, he filed the return showing the total sales of Rs. 22,62,814, having a credit entry of Rs. 86,737 in the name of M/s. Vishnu Jewellers. The assessing authority doubted the veracity of the said entry and called upon the assessee to render explanation thereto. The assessee took a stand that he received an advance amount of Rs. 86,737 from M/s. Vishnu Jewellers, vide cheque No. 331190, dated May 10, 2001, for supply of packing charges of 200 LPG stoves. But the order did not mature and he returned the amount without interest, vide cheque No. 64838, dated December 12, 2002. The version was not accepted by the assessing authority and treated the entry of Rs. 86,737 as an unexplained credit and ordered addition thereof in the return of the assessee, vide order dated March 26, 2005.

Dissatisfied with the same, the assessee preferred an appeal before the Commissioner of income tax (Appeals), Jammu (Headquarters Amritsar) (for short, "the CIT(A)"), which concurred with the view taken by the assessing authority and dismissed the appeal, vide order dated February 16, 2006 (annexure A-1).

Impugning both the orders, the assessee approached the Tribunal and filed I.T.A. No. 74(ASR)/2006. The Tribunal came to the conclusion that since the credit and debit transactions were made through account payee cheques and more particularly when the assessee had established the identity of the creditor, the genuineness of the entry could not be doubted. The Tribunal accordingly, vide order dated December 1, 2006 (annexure A-2) allowed the appeal of the assessee and directed deletion of the addition.

Aggrieved with the order, the Revenue has come up before this court impugning the order passed by the Tribunal.

We have heard the learned counsel for the appellant-Revenue as well as for the respondent and have perused the paper-book carefully.

The factual aspect of the case is not in dispute. The whole controversy between the parties revolves around a credit entry of Rs. 86,737 in the name of M/s. Vishnu Jewellers, shown by the respondent in his account books. The assessing authority as well as the Commissioner of income tax (Appeals) doubted the said entry. They drew an adverse inference against the respondent as he failed to produce Rishi Grover, Proprietor M/s. Vishnu Jewellers to prove the said entry and in the light of the fact that the firm dealt in jewellery and had not done any business in the financial year 2001-02 and came to the conclusion that it was an "accommodation entry" made by M/s. Vishnu Jewellers to extend undue benefit to the respondent. In this view of the matter, it has to be seen that, whether the respondent had discharged the burden of the genuineness of the said entry by proving the identity and capacity of the creditor.

Section 68 provides for charging of income of the assessee to tax, if in the opinion of the Assessing Officer, the assessee failed to render any explanation or the explanation offered by the assessee about the nature and source of any sum found credited in the books of the assessee maintained for the previous year, is unsatisfactory. In other words, it is for the assessee to prove the genuineness of the transaction by identifying the creditor and its capacity to advance money. The onus lies upon the assessee to explain the credit entry but it shifts upon the Assessing Officer under certain circumstances. Where the assessee shows that the entries regarding credit in a third party''s account were in fact received from the third party and are genuine, he has discharged the onus. In that case, it cannot be charged as the assessee''s income in the absence of any material to indicate that they belong to the assessee. Reference can be placed on Orient Trading Co. Ltd. Vs. Commissioner of Income Tax (Central), Calcutta,

It has come on record that the assessee-respondent received the amount by way of an account payee cheque. The amount was returned by way of an account payee cheque. The transactions were reflected in the bank accounts of the assessee as well as the creditor. The firm, M/s. Vishnu Jewellers, was an income tax assessee. Its PAN card was placed on record. The assessee had filed the copy of the account of M/s. Vishnu Jewellers in his books of account. The assessee had on three occasions informed that the firm was not under his control and he is unable to produce it before the Assessing Officer. He had requested the Assessing Officer to directly make enquiries. It appears that no enquiry was made by the assessing authority. If the Assessing Officer had any doubts about the entry, instead of drawing any inference, the Assessing Officer could have summoned the proprietor of the firm. No attempt was made by the Assessing Officer to ascertain the factum of clearance of cheque from the bank and subsequent refund of the amount. Once it is so, in our view, the assessee had sufficiently discharged the burden which lay upon it to explain the nature and source of the credit entry appearing in its accounts and the burden clearly shifted in the present case on to the Department to prove to the contrary and hold that in spite of the assessee''s explanation, the entries could still be held to represent the assessee''s income. The Assessing Officer failed to invoke the provisions u/s 131 of the Act, the Tribunal has rightly concluded that it was sufficient to delete the addition. We find no error of law and facts in the findings returned by the Tribunal. We answer the questions against the appellant and in favour of the assessee. The appeal is dismissed.