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27 September 2007
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Kindly mail me the details of CASE - NEMICHAND KOTHARI VS. CIT
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Kindly mail me the details of CASE - NEMICHAND KOTHARI VS. CIT
Thanks.
28 September 2007
[2003] 264 ITR 254 (GAU.)
HIGH COURT OF GAUHATI
Nemi Chand Kothari
v.
Commissioner of Income-tax
P.P. NAOLEKAR C.J.
AND I.A. ANSARI, J.
IT APPEAL NO. 5 OF 2003
SEPTEMBER 2, 2003
JUDGMENT
I.A. Ansari, J.—This appeal has been heard on the following substantial question of law :
"Whether, on the facts and circumstances of the case, the learned Tribunal was justified in demanding the proof regarding the creditworthiness of the sub-creditor and in drawing an adverse inference against the appellant on his alleged failure to satisfy the respondents regarding the creditworthiness of the sub-creditors?"
In a short compass, the facts leading to the present appeal may be put as follows:
The appellant carries on the business of supply of bamboo in the name of Bamboo Bagicha as its proprietor. For the assessment year 1992-93, the appellant filed his return of income and the same was processed under section 143(2) of the Income-tax Act, 1961. During the course of the assessment, the Assessing Officer examined the relevant books of account and various other particulars and completed the assessment vide order, dated March 30, 1995. In the course of the assessment so made, the Assessing Officer found that the assessee had taken loans from Nemichand Nahata and Sons (HUF) amounting to Rs. 4,35,000 and from one Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000 during the previous year ending on March 31, 1992. The Assessing Officer declined to treat the loan of Rs. 4,35,000 claimed to have been taken by the appellant from Nemichand Nahata and Sons (HUF) and added the entire amount of Rs. 4,35,000 in the assessee’s total income from undisclosed sources under section 68 of the Income-tax Act, 1961. As regards the loan from Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000, the Assessing Officer declined to treat the loan amount to the extent of Rs. 4,25,000 as genuine and added the said amount of Rs. 4,25,000 to the total income of the assessee as income from undisclosed sources. As regards the first creditor, namely, Nemichand Nahata and Sons (HUF), the Assessing Officer, in the course of the assessment, examined the Hindu undivided family under section 131 of the Income-tax Act. In his statement so recorded, Sri Nemichand confirmed to have advanced the loan of Rs. 4,35,000 to the appellant on two different dates by cheques. Explaining the source from which he had received the said amount of Rs. 4,35,000, Sri Nemichand stated that the Hindu undivided family had taken loans from three different persons, namely, 1. Smt. Jhumku Devi Nahata, 2. Smt. Shanti Devi Nahata, and 3. Smt. Madhu Devi Nahata, amounting to Rs. 1,20,000, Rs. 1,25,000 and Rs. 1,20,000, respectively. Sri Nemichand further claimed that out of the said amount of Rs. 4,35,000 advanced to the assessee, a sum of Rs. 70,000 was from his own source and that the said three loans amounting to Rs. 3,65,000 had been taken from the said 3 (three) different sub-creditors by the Hindu undivided family by means of account payee cheques. It was also clarified, during the course of this assessment proceeding, that Nemichand Nahata and Sons (HUF) and all the three sub-creditors were income-tax assessees. The Assessing Officer, upon examining the assessment records of the three sub-creditors, namely, 1. Smt. Jhumku Devi Nahata, 2. Smt. Shanti Devi Nahata, and 3. Smt. Madhu Devi Nahata, found that all the three sub-creditors had submitted their return of income for the first time, on February 17, 1992, showing that the said income had been derived by them from seasonal business without, however, mentioning the amounts involved in purchase, sales, etc. The Assessing Officer held that the returns of income submitted by the creditor as well as the sub-creditors were actually submitted by them merely for enabling them to advance the loan of the said loan amounts to the appellant. The Assessing Officer also held that no genuine loan had been taken by the creditor, namely, Nemichand Nahata and Sons (HUF) from the three sub-creditors amounting to Rs. 3,65,000 and the creditor had no fund of his own amounting to Rs. 70,000 to advance the loan to the appellant and, therefore, declined to accept the loan of Rs. 4,35,000 as genuine and added the said amount of Rs. 4,35,000 to the total income of the assessee as his income from undisclosed sources under section 68 of the Income-tax Act. As regards the loan claimed to have been taken by the assessee from the creditor, namely, Sri P.K. Agarwalla, the Assessing Officer found that the said P.K. Agarwalla had taken loan of Rs. 4,25,000 from five different parties by account payee cheques for advancing the loan to the appellant. The said sub-creditors were also examined and they confirmed that they had advanced the loans to the creditor, namely, Sri P.K. Agarwalla. It was also found by the Assessing Officer that the creditor as well as the sub-creditors aforementioned were all income-tax assessees. On examining the creditor and the sub-creditors aforementioned and also the assessment records of the sub-creditors, the Assessing Officer concluded that their income files were nothing, but capital building exercise aimed at accommodating others without support from any documentary evidence regarding their own business activities. The Assessing Officer, therefore, accepted as genuine the loan said to have been advanced by Sri P.K. Agarwalla to the assessee from his own source, but so far as the amount of Rs. 4,25,000 was concerned, the Assessing Officer added back the said amount to the assessee’s total income from undisclosed sources under section 68 of the Income-tax Act.
Feeling aggrieved by the assessment order, dated March 30, 1995, aforementioned, the assessee preferred appeal before the Commissioner of Income-tax (Appeals), Guwahati, who, vide his order dated February 29, 1996, deleted both the additions of Rs. 4,35,000 and Rs. 4,25,000 on the ground that the assessee-appellant had not only established the identity of the creditors, but also the genuineness of the loans taken by the appellant and that the same could not be controverted by the Assessing Officer. On appeal preferred by the Revenue, the learned Income-tax Appellate Tribunal, Guwahati, vide order dated May 27, 2002, passed in I.T.A. No. 311 (Gauhati) of 1996, set aside the said order of the Commissioner of Income-tax (Appeals) and upheld the order of the Assessing Officer on the ground that neither the sub-creditors nor the creditors, in question, had creditworthiness to advance the said loans. Not satisfied with this order, the assessee has, now, preferred the present appeal.
We have heard Dr. A.K. Saraf, learned counsel for the assessee-appellant, and Mr. U. Bhuyan, learned counsel for the Revenue.
It is submitted, on behalf of the appellant, that as far as the appellant is concerned, it had proved that it had received the two loan amounts of Rs. 4,35,000 and Rs. 5,00,000 aforementioned from the said two creditors, namely, Nemichand Nahata and Sons (HUF) and P.K. Agarwalla, respectively. Thus, the identity of the creditor, according to Dr. Saraf, had been established by the appellant. Since the amounts were paid by cheques by the creditors to the appellant, it is contended, on behalf of the appellant, that the amounts so paid by cheques had not only been established, but that even the identity of the creditors as well as the genuineness of the transactions had been proved by the appellant. It is also submitted, on behalf of the appellant, that since the creditors had also received the amounts aforementioned by way of loans from their sub-creditors by means of cheques, the Assessing Officer and the learned Tribunal ought to have concluded that so far as the appellant was concerned, his creditors aforementioned had the creditworthiness to advance the loan to the appellant. It is not the burden of the assessee, contends Dr. Saraf, to prove how the creditor of an assessee happened to obtain the amount, which the creditor had advanced, as loan, to the assessee. In the case at hand, however, points out Dr. Saraf, the appellant had not only established the identity of the creditor, but had also established the genuineness of the transactions and credit worthiness of the creditors aforementioned by showing that the creditors had received the amounts aforementioned by way of cheque from the sub-creditors. To prove the creditworthiness of a sub-creditor is not, according to Dr. Saraf, the onus of the assessee inasmuch as it is immaterial so far as the assessee is concerned as to how and from what source(s), the creditor happens to receive the amount, which the creditor advances to the assessee as loan. Support for the submission is sought to be derived by Dr. Saraf, from the decision in Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam).
It is also submitted by Dr. Saraf that in the present case, the creditors as well as the sub-creditors were income-tax assessees and, hence, the genuineness of the transactions and creditworthiness of the creditors had been clearly established by the appellant. In such a situation, according to Dr. Saraf, even if the sub-creditors had failed to show how they had received the amount(s), which they had advanced, as loan, to the creditors, then, the said amounts could have, at best, been treated as income from undisclosed sources of the sub-creditors, but the failure, if any, on the part of the sub-creditors to show their creditworthiness could not have been stretched to mean that the said amounts formed the income of the present appellant from undisclosed sources and/or that the said amounts had actually come to the hands of the sub-creditors from the end of the present appellant and, then, the same had passed over from the hands of the sub-creditors to the hands of the creditors.
It is further submitted by Dr. Saraf that an enquiry under section 68 of the Income-tax Act must remain confined to the determination of the question of genuineness of the transaction, which has taken place between the assessee and his creditor and shall not extend to the transactions, which might have taken place between the creditor and his sub-creditors and, similarly, the creditworthiness of the creditor, contends Dr. Saraf, has to be determined keeping the enquiry confined to the transaction, which has taken place between the assessee and the creditor and cannot be extended to the transactions, which may have taken place not between the assessee and the creditor, but between the creditor and his sub-creditors.
Controverting the above submissions made on behalf of the appellant, Mr. U. Bhuyan has submitted that in the present case, the questions as to whether the assessee could establish satisfactorily the genuineness of the transactions involved in the assessment and the creditworthiness of the creditors are essentially questions of facts and the same cannot be treated as questions of law and, hence, the same could not have been raised as substantial questions of law. According to Mr. Bhuyan, the question raised by the appellant is a question of fact and not a question of law, far less, a substantial question of law.
Mr. Bhuyan has also submitted that while determining the creditworthiness of a creditor and also the genuineness of the transactions between the creditor and the assessee, the Assessing Officer cannot only determine the genuineness of a transaction between the assessee and the creditor, but also between the creditor and his sub-creditors. If the sub-creditor, according to Mr. Bhuyan, does not have the means to give the funds, in question, to the creditor, the same can be reflected to mean that the creditworthiness of the creditor has not been established and in such a case, failure of the creditor to prove his creditworthiness can be extended to mean that there was no genuine transaction between the creditor and the assessee and that the creditor had no creditworthiness to advance the loan to the assessee. Viewed from this angle, contends Mr. Bhuyan, section 68 of the Income-tax Act cannot be limited to mean that the scope of the enquiry under section 68 by an Assessing Officer shall remain confined to the determination of the question as to whether the money had passed hands from the creditor to the assessee or not. Such interpretation, according to Mr. Bhuyan, will introduce a limitation on the powers of the Assessing Officer, which has not been envisaged by section 68 of the Income-tax Act.
It is further submitted by Mr. Bhuyan that in the present case, merely because the transactions had taken place between the assessee and the creditor as well as the sub-creditors by means of cheques, it could not have necessarily led to the conclusion that the transactions were genuine inasmuch as nothing, according to Mr. Bhuyan, can be held as sacrosanct about the payments made by cheques. In support of this submission, Mr. Bhuyan has placed reliance on the decision rendered in CIT v. Precision Finance P. Ltd. [1994] 208 ITR 465 (Cal).
Upon hearing learned counsel for the parties and perusal of the materials on record, we find that none of the two rival submissions made before us, on behalf of the parties, is entirely correct. For the sake of brevity, we quote hereinbelow section 68 of the Income-tax Act, which reads as follows:
"68. 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."
While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorise the Revenue Department to make inquiry into the source(s) of the creditor and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is, under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act, which reads as follows:
"Burden of proving fact especially within knowledge.—When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.
Illustrations: (a) When a person does an act, with some intention other than that which the character and circumstances of the act suggest, the burden of proving that intention is upon him.
(b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him."
On a careful reading of section 106, we notice that what is the source from which an assessee has obtained the loan can be safely held to be a fact, which is actually within the special knowledge of the assessee; hence, it is the burden of the assessee to show the source(s) from which he has received the loans. Once the assessee discloses the source(s) from which he has received the loans, his burden under section 106 stands discharged and the onus, then, shifts to the Assessing Officer to show, if he wants to treat the loan as an income of the assessee from undisclosed source, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which has been received by the assessee in the form of loans, actually belonged to the assessee himself. There can be no doubt that in order to establish the receipt of cash credit as required under section 68, the assessee must satisfy three important conditions, namely, (i) identity of the creditor, (ii) genuineness of the transaction, and (iii) financial capability of the person giving the cash credit to the assessee, i.e., the creditworthiness of the creditor.
What, thus, transpires from the above discussion is that while section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the assessee to show the source(s) of his creditor nor is it the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee.
A person may have funds from any source and an assessee, on such information received, may take loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions, which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what source or sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor. No such additional burden can be placed on an assessee, which is not envisaged by section 106 of the Evidence Act. The Revenue/Assessing Officer, however, remains free to show that the amount, which has come to the hands of the assessee by way of loan from the creditor actually belonged to the assessee, but this conclusion cannot be reached by mere failure on the part of the sub-creditor to show his creditworthiness and/or the genuineness of the transaction between the creditor and sub-creditor, for, the creditor may receive any amount from sources known to the creditor only and if he fails to show how he has received the amount, in question, or if he fails to show the creditworthiness of his sub-creditor, such an amount may be treated as the income from undisclosed source of the creditor or of the sub-creditor, as the case may be, but such failure, on the part of the creditor cannot, in the absence of any clinching evidence, be treated as the income of the assessee derived from undisclosed source.
Since it is not the business of the assessee to find out the source(s) from where the creditor has accumulated the amount, which he has advanced, in form of the loan, to the assessee, section 68 cannot be read to show that in the case of failure of the sub-creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be read, as a corollary, as the income from undisclosed source of the assessee himself. If sections 106 and 68 have to survive together, the logical interpretation will be that while the assessee has to prove only his special knowledge, i.e., the source from where he has received the credit and once he discloses the source from which he has received the money, he must also establish that so far as his transaction with his creditor is concerned, the same is genuine and his creditor had the creditworthiness to advance the loan, which the assessee had received. When the assessee discharges the burden so placed on him, the onus, then, shifts to the Assessing Officer if the Assessing Officer wishes to assess the said loan as the income of the assessee from undisclosed source, to prove either by direct evidence or indirect/circumstantial evidence that the money, which the assessee received from the creditor actually belonged to, and was owned by, the assessee himself. If there is direct evidence to show that the loan received by the assessee actually belonged to the assessee, there will be no difficulty in assessing such amount as the income of the assessee from undisclosed source; but if there is no direct evidence in this regard, then, the indirect or circumstantial evidence has to be conclusive in nature and must, in such circumstances, unerringly point to the assessee as the person from whom the money had actually flown to the hands of the sub-creditor and, then, routed through the hands of the sub-creditor to the hands of the creditor. For this purpose, the circumstantial evidence has to be not only consistent with the hypothesis that the money belonged to the assessee, but that this hypothesis must also be inconsistent with the hypothesis that none other than the assessee owned the said money. If the conclusion be that the money received, as loan, by the assessee may or may not belong to him or if the possibility exists that the money received, as loan, by the assessee may not belong to him, then, in none of such two cases, the loan amount can be conclusively treated as income from undisclosed source of the assessee inasmuch as for assessing the money as income of the assessee from undisclosed source, there must be clinching evidence to show that the money actually belonged to none but the assessee himself. If no such clinching evidence is available, the money may be treated as the income from disclosed source of the creditor or of the sub-creditor, as the case may be. If the inquiry under section 68 reveals that though the creditor had the creditworthiness, on the day on which he had advanced the loan to the assessee, yet the source of the creditor is not genuine, that is to say, though the transaction between the assessee and the creditor is genuine, the transaction between the creditor and the sub-creditor is not genuine, then, in such a situation, it cannot be read as a corollary nor can it lead to the lone and only conclusion, in the absence of any other material, that the money that has changed hands from the sub-creditor to the creditor was received by the sub-creditor from none other than the assessee himself.
In other words, though under section 68, an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount, which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. We are fortified in adopting this view from the following observations made in Tolaram Daga’s case [1966] 59 ITR 632 (Assam) (page 635):
"At the outset, we have to point out that there is no substance in the contention that the sources from which the money was realised by the third party are within the special knowledge of the petitioner as the depositor happens to be his wife. Whether he has knowledge at all of the source of the money deposited by the third-party is a matter which has to be decided on evidence.....Under law, in the absence of specific proof of that knowledge, it cannot be assumed that the assessee has the knowledge in question within the meaning of section 106 of the Evidence Act.....To require the firm or the individual partners to go further and adduce proof of the sources from which the deposits in question appearing in the accounts in the name of third parties were derived by them, would be placing a burden on the firm as well as the partners, which is not required or justified by law. For ought we know, in most cases it may well-nigh be impossible for the firm or the partners to know or determine the sources from which the money deposited with them had been realised by the depositors.....The enquiry as to the source from which this amount was acquired or obtained by Smt. Munni Devi Daga may, perhaps, be relevant in an investigation into the assessment to be made regarding her income and when determining the correctness of the return submitted by her. But the mere fact that the petitioner was unable to satisfy the authorities as to the source from which Smt. Munni Devi Daga derived the monies which she deposited with the firm cannot, in our opinion, be used against the petitioner. The Tribunal, therefore, was not justified in either demanding this proof or in drawing an adverse inference against the assessee on his failure to produce the same." (emphasis is supplied)
Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact, the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness.
It is, no doubt, true that in the present case, the findings arrived at by the Assessing Officer as well as the learned Tribunal are findings of fact, but since these findings are based on an wholly erroneous view of law, such findings cannot be said to be mere findings of facts. It is trite that no assessment can be made contrary to the provisions of law. In the case at hand, the very basis for making assessment is under challenge. If the assessment is based on a completely erroneous view of law, such findings cannot be regarded as mere findings of fact, but must be treated as substantial question of law, particularly, when the very basis of the assessment is on a wrong interpretation of law. Viewed from this angle, we are firmly of the view that the question raised in the present appeal is a substantial question of law inasmuch as the same goes to the very root of the assessment made and we have no hesitation in answering the same in the negative.
Mr. Bhuyan’s contention that a payment made by cheque cannot be treated as sacrosanct and his reliance on the law laid down in Precision Finance P. Ltd.’s case [1994] 208 ITR 465 (Cal) are wholly misplaced inasmuch as even we do not hold that a transaction, which takes place by way of cheque, is invariably sacrosanct. What we hold is that so far as the present assessee-appellant is concerned, his burden stood discharged, when he had proved the identity of his creditors, the genuineness of the transactions, which he had with his creditors, and the creditworthiness of his creditors vis-a-vis the transactions, which he had with the creditors. The burden had, then, shifted to the Revenue to show that though covered by cheques, the amounts, in question, actually belonged to, or were owned by, the assessee himself, but no material, direct or indirect, exists on record to come to such a conclusion confidently and boldly. For the reasons, discussed above, this appeal succeeds and the impugned orders are set aside and quashed.
With the above observations and directions, this appeal stands disposed of. No order as to costs.
HIGH COURT OF GAUHATI
Nemi Chand Kothari
v.
Commissioner of Income-tax
P.P. NAOLEKAR C.J.
AND I.A. ANSARI, J.
IT APPEAL NO. 5 OF 2003
SEPTEMBER 2, 2003
JUDGMENT
I.A. Ansari, J.—This appeal has been heard on the following substantial question of law :
"Whether, on the facts and circumstances of the case, the learned Tribunal was justified in demanding the proof regarding the creditworthiness of the sub-creditor and in drawing an adverse inference against the appellant on his alleged failure to satisfy the respondents regarding the creditworthiness of the sub-creditors?"
In a short compass, the facts leading to the present appeal may be put as follows:
The appellant carries on the business of supply of bamboo in the name of Bamboo Bagicha as its proprietor. For the assessment year 1992-93, the appellant filed his return of income and the same was processed under section 143(2) of the Income-tax Act, 1961. During the course of the assessment, the Assessing Officer examined the relevant books of account and various other particulars and completed the assessment vide order, dated March 30, 1995. In the course of the assessment so made, the Assessing Officer found that the assessee had taken loans from Nemichand Nahata and Sons (HUF) amounting to Rs. 4,35,000 and from one Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000 during the previous year ending on March 31, 1992. The Assessing Officer declined to treat the loan of Rs. 4,35,000 claimed to have been taken by the appellant from Nemichand Nahata and Sons (HUF) and added the entire amount of Rs. 4,35,000 in the assessee’s total income from undisclosed sources under section 68 of the Income-tax Act, 1961. As regards the loan from Sri Pawan Kumar Agarwalla amounting to Rs. 5,00,000, the Assessing Officer declined to treat the loan amount to the extent of Rs. 4,25,000 as genuine and added the said amount of Rs. 4,25,000 to the total income of the assessee as income from undisclosed sources. As regards the first creditor, namely, Nemichand Nahata and Sons (HUF), the Assessing Officer, in the course of the assessment, examined the Hindu undivided family under section 131 of the Income-tax Act. In his statement so recorded, Sri Nemichand confirmed to have advanced the loan of Rs. 4,35,000 to the appellant on two different dates by cheques. Explaining the source from which he had received the said amount of Rs. 4,35,000, Sri Nemichand stated that the Hindu undivided family had taken loans from three different persons, namely, 1. Smt. Jhumku Devi Nahata, 2. Smt. Shanti Devi Nahata, and 3. Smt. Madhu Devi Nahata, amounting to Rs. 1,20,000, Rs. 1,25,000 and Rs. 1,20,000, respectively. Sri Nemichand further claimed that out of the said amount of Rs. 4,35,000 advanced to the assessee, a sum of Rs. 70,000 was from his own source and that the said three loans amounting to Rs. 3,65,000 had been taken from the said 3 (three) different sub-creditors by the Hindu undivided family by means of account payee cheques. It was also clarified, during the course of this assessment proceeding, that Nemichand Nahata and Sons (HUF) and all the three sub-creditors were income-tax assessees. The Assessing Officer, upon examining the assessment records of the three sub-creditors, namely, 1. Smt. Jhumku Devi Nahata, 2. Smt. Shanti Devi Nahata, and 3. Smt. Madhu Devi Nahata, found that all the three sub-creditors had submitted their return of income for the first time, on February 17, 1992, showing that the said income had been derived by them from seasonal business without, however, mentioning the amounts involved in purchase, sales, etc. The Assessing Officer held that the returns of income submitted by the creditor as well as the sub-creditors were actually submitted by them merely for enabling them to advance the loan of the said loan amounts to the appellant. The Assessing Officer also held that no genuine loan had been taken by the creditor, namely, Nemichand Nahata and Sons (HUF) from the three sub-creditors amounting to Rs. 3,65,000 and the creditor had no fund of his own amounting to Rs. 70,000 to advance the loan to the appellant and, therefore, declined to accept the loan of Rs. 4,35,000 as genuine and added the said amount of Rs. 4,35,000 to the total income of the assessee as his income from undisclosed sources under section 68 of the Income-tax Act. As regards the loan claimed to have been taken by the assessee from the creditor, namely, Sri P.K. Agarwalla, the Assessing Officer found that the said P.K. Agarwalla had taken loan of Rs. 4,25,000 from five different parties by account payee cheques for advancing the loan to the appellant. The said sub-creditors were also examined and they confirmed that they had advanced the loans to the creditor, namely, Sri P.K. Agarwalla. It was also found by the Assessing Officer that the creditor as well as the sub-creditors aforementioned were all income-tax assessees. On examining the creditor and the sub-creditors aforementioned and also the assessment records of the sub-creditors, the Assessing Officer concluded that their income files were nothing, but capital building exercise aimed at accommodating others without support from any documentary evidence regarding their own business activities. The Assessing Officer, therefore, accepted as genuine the loan said to have been advanced by Sri P.K. Agarwalla to the assessee from his own source, but so far as the amount of Rs. 4,25,000 was concerned, the Assessing Officer added back the said amount to the assessee’s total income from undisclosed sources under section 68 of the Income-tax Act.
Feeling aggrieved by the assessment order, dated March 30, 1995, aforementioned, the assessee preferred appeal before the Commissioner of Income-tax (Appeals), Guwahati, who, vide his order dated February 29, 1996, deleted both the additions of Rs. 4,35,000 and Rs. 4,25,000 on the ground that the assessee-appellant had not only established the identity of the creditors, but also the genuineness of the loans taken by the appellant and that the same could not be controverted by the Assessing Officer. On appeal preferred by the Revenue, the learned Income-tax Appellate Tribunal, Guwahati, vide order dated May 27, 2002, passed in I.T.A. No. 311 (Gauhati) of 1996, set aside the said order of the Commissioner of Income-tax (Appeals) and upheld the order of the Assessing Officer on the ground that neither the sub-creditors nor the creditors, in question, had creditworthiness to advance the said loans. Not satisfied with this order, the assessee has, now, preferred the present appeal.
We have heard Dr. A.K. Saraf, learned counsel for the assessee-appellant, and Mr. U. Bhuyan, learned counsel for the Revenue.
It is submitted, on behalf of the appellant, that as far as the appellant is concerned, it had proved that it had received the two loan amounts of Rs. 4,35,000 and Rs. 5,00,000 aforementioned from the said two creditors, namely, Nemichand Nahata and Sons (HUF) and P.K. Agarwalla, respectively. Thus, the identity of the creditor, according to Dr. Saraf, had been established by the appellant. Since the amounts were paid by cheques by the creditors to the appellant, it is contended, on behalf of the appellant, that the amounts so paid by cheques had not only been established, but that even the identity of the creditors as well as the genuineness of the transactions had been proved by the appellant. It is also submitted, on behalf of the appellant, that since the creditors had also received the amounts aforementioned by way of loans from their sub-creditors by means of cheques, the Assessing Officer and the learned Tribunal ought to have concluded that so far as the appellant was concerned, his creditors aforementioned had the creditworthiness to advance the loan to the appellant. It is not the burden of the assessee, contends Dr. Saraf, to prove how the creditor of an assessee happened to obtain the amount, which the creditor had advanced, as loan, to the assessee. In the case at hand, however, points out Dr. Saraf, the appellant had not only established the identity of the creditor, but had also established the genuineness of the transactions and credit worthiness of the creditors aforementioned by showing that the creditors had received the amounts aforementioned by way of cheque from the sub-creditors. To prove the creditworthiness of a sub-creditor is not, according to Dr. Saraf, the onus of the assessee inasmuch as it is immaterial so far as the assessee is concerned as to how and from what source(s), the creditor happens to receive the amount, which the creditor advances to the assessee as loan. Support for the submission is sought to be derived by Dr. Saraf, from the decision in Tolaram Daga v. CIT [1966] 59 ITR 632 (Assam).
It is also submitted by Dr. Saraf that in the present case, the creditors as well as the sub-creditors were income-tax assessees and, hence, the genuineness of the transactions and creditworthiness of the creditors had been clearly established by the appellant. In such a situation, according to Dr. Saraf, even if the sub-creditors had failed to show how they had received the amount(s), which they had advanced, as loan, to the creditors, then, the said amounts could have, at best, been treated as income from undisclosed sources of the sub-creditors, but the failure, if any, on the part of the sub-creditors to show their creditworthiness could not have been stretched to mean that the said amounts formed the income of the present appellant from undisclosed sources and/or that the said amounts had actually come to the hands of the sub-creditors from the end of the present appellant and, then, the same had passed over from the hands of the sub-creditors to the hands of the creditors.
It is further submitted by Dr. Saraf that an enquiry under section 68 of the Income-tax Act must remain confined to the determination of the question of genuineness of the transaction, which has taken place between the assessee and his creditor and shall not extend to the transactions, which might have taken place between the creditor and his sub-creditors and, similarly, the creditworthiness of the creditor, contends Dr. Saraf, has to be determined keeping the enquiry confined to the transaction, which has taken place between the assessee and the creditor and cannot be extended to the transactions, which may have taken place not between the assessee and the creditor, but between the creditor and his sub-creditors.
Controverting the above submissions made on behalf of the appellant, Mr. U. Bhuyan has submitted that in the present case, the questions as to whether the assessee could establish satisfactorily the genuineness of the transactions involved in the assessment and the creditworthiness of the creditors are essentially questions of facts and the same cannot be treated as questions of law and, hence, the same could not have been raised as substantial questions of law. According to Mr. Bhuyan, the question raised by the appellant is a question of fact and not a question of law, far less, a substantial question of law.
Mr. Bhuyan has also submitted that while determining the creditworthiness of a creditor and also the genuineness of the transactions between the creditor and the assessee, the Assessing Officer cannot only determine the genuineness of a transaction between the assessee and the creditor, but also between the creditor and his sub-creditors. If the sub-creditor, according to Mr. Bhuyan, does not have the means to give the funds, in question, to the creditor, the same can be reflected to mean that the creditworthiness of the creditor has not been established and in such a case, failure of the creditor to prove his creditworthiness can be extended to mean that there was no genuine transaction between the creditor and the assessee and that the creditor had no creditworthiness to advance the loan to the assessee. Viewed from this angle, contends Mr. Bhuyan, section 68 of the Income-tax Act cannot be limited to mean that the scope of the enquiry under section 68 by an Assessing Officer shall remain confined to the determination of the question as to whether the money had passed hands from the creditor to the assessee or not. Such interpretation, according to Mr. Bhuyan, will introduce a limitation on the powers of the Assessing Officer, which has not been envisaged by section 68 of the Income-tax Act.
It is further submitted by Mr. Bhuyan that in the present case, merely because the transactions had taken place between the assessee and the creditor as well as the sub-creditors by means of cheques, it could not have necessarily led to the conclusion that the transactions were genuine inasmuch as nothing, according to Mr. Bhuyan, can be held as sacrosanct about the payments made by cheques. In support of this submission, Mr. Bhuyan has placed reliance on the decision rendered in CIT v. Precision Finance P. Ltd. [1994] 208 ITR 465 (Cal).
Upon hearing learned counsel for the parties and perusal of the materials on record, we find that none of the two rival submissions made before us, on behalf of the parties, is entirely correct. For the sake of brevity, we quote hereinbelow section 68 of the Income-tax Act, which reads as follows:
"68. 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."
While interpreting the meaning and scope of section 68, one has to bear in mind that normally, interpretation of a statute shall be general, in nature, subject only to such exceptions as may be logically permitted by the statute itself or by some other law connected therewith or relevant thereto. Keeping in view these fundamentals of interpretation of statutes, when we read carefully the provisions of section 68, we notice nothing in section 68 to show that the scope of the inquiry under section 68 by the Revenue Department shall remain confined to the transactions, which have taken place between the assessee and the creditor nor does the wording of section 68 indicate that section 68 does not authorise the Revenue Department to make inquiry into the source(s) of the creditor and/or sub-creditor. The language employed by section 68 cannot be read to impose such limitations on the powers of the Assessing Officer. The logical conclusion, therefore, has to be, and we hold that an inquiry under section 68 need not necessarily be kept confined by the Assessing Officer within the transactions, which took place between the assessee and his creditor, but that the same may be extended to the transactions, which have taken place between the creditor and his sub-creditor. Thus, while the Assessing Officer is, under section 68, free to look into the source(s) of the creditor and/or of the sub-creditor, the burden on the assessee under section 68 is definitely limited. This limit has been imposed by section 106 of the Evidence Act, which reads as follows:
"Burden of proving fact especially within knowledge.—When any fact is especially within the knowledge of any person, the burden of proving that fact is upon him.
Illustrations: (a) When a person does an act, with some intention other than that which the character and circumstances of the act suggest, the burden of proving that intention is upon him.
(b) A is charged with travelling on a railway without a ticket. The burden of proving that he had a ticket is on him."
On a careful reading of section 106, we notice that what is the source from which an assessee has obtained the loan can be safely held to be a fact, which is actually within the special knowledge of the assessee; hence, it is the burden of the assessee to show the source(s) from which he has received the loans. Once the assessee discloses the source(s) from which he has received the loans, his burden under section 106 stands discharged and the onus, then, shifts to the Assessing Officer to show, if he wants to treat the loan as an income of the assessee from undisclosed source, that the transaction(s) between the assessee and the creditor is/are not genuine or that the creditor has no creditworthiness and/or that the money, which has been received by the assessee in the form of loans, actually belonged to the assessee himself. There can be no doubt that in order to establish the receipt of cash credit as required under section 68, the assessee must satisfy three important conditions, namely, (i) identity of the creditor, (ii) genuineness of the transaction, and (iii) financial capability of the person giving the cash credit to the assessee, i.e., the creditworthiness of the creditor.
What, thus, transpires from the above discussion is that while section 106 of the Evidence Act limits the onus of the assessee to the extent of his proving the source from which he has received the cash credit, section 68 gives ample freedom to the Assessing Officer to make inquiry not only into the source(s) of the creditor, but also of his (creditor’s) sub-creditors and prove, as a result, of such inquiry, that the money received by the assessee, in the form of loan from the creditor, though routed through the sub-creditors, actually belongs to, or was of, the assessee himself. In other words, while section 68 gives the liberty to the Assessing Officer to enquire into the source/sources from where the creditor has received the money, section 106 makes the assessee liable to disclose only the source(s) from where he has himself received the credit and it is not the burden of the assessee to show the source(s) of his creditor nor is it the burden of the assessee to prove the creditworthiness of the source(s) of the sub-creditors. If section 106 and section 68 are to stand together, which they must, then, the interpretation of section 68 has to be in such a way that it does not make section 106 redundant. Hence, the harmonious construction of section 106 of the Evidence Act and section 68 of the Income-tax Act will be that though apart from establishing the identity of the creditor, the assessee must establish the genuineness of the transaction as well as the creditworthiness of his creditor, the burden of the assessee to prove the genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the assessee and the creditor. What follows, as a corollary, is that it is not the burden of the assessee to prove the genuineness of the transactions between his creditor and sub-creditors nor is it the burden of the assessee to prove that the sub-creditor had the creditworthiness to advance the cash credit to the creditor from whom the cash credit has been, eventually, received by the assessee. It, therefore, further logically follows that the creditor’s creditworthiness has to be judged vis-a-vis the transactions, which have taken place between the assessee and the creditor, and it is not the business of the assessee to find out the source of money of his creditor or of the genuineness of the transactions, which took between the creditor and sub-creditor and/or creditworthiness of the sub-creditors, for, these aspects may not be within the special knowledge of the assessee.
A person may have funds from any source and an assessee, on such information received, may take loan from such a person. It is not the business of the assessee to find out whether the source or sources from which the creditor had agreed to advance the amounts were genuine or not. If a creditor has, by any undisclosed source, a particular amount of money in the bank, there is no limitation under the law on the part of the assessee to obtain such amount of money or part thereof from the creditor, by way of cheque in the form of loan and in such a case, if the creditor fails to satisfy as to how he had actually received the said amount and happened to keep the same in the bank, the said amount cannot be treated as income of the assessee from undisclosed source. In other words, the genuineness as well as the creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, which he has with the assessee. The reason why we have formed the opinion that it is not the business of the assessee to find out the actual source or sources from where the creditor has accumulated the amount, which he advances, as loan, to the assessee is that so far as an assessee is concerned, he has to prove the genuineness of the transaction and the creditworthiness of the creditor vis-a-vis the transactions, which had taken place between the assessee and the creditor and not between the creditor and the sub-creditors, for, it is not even required under the law for the assessee to try to find out as to what source or sources from where the creditor had received the amount, his special knowledge under section 106 of the Evidence Act may very well remain confined only to the transactions, which he had with the creditor and he may not know what transaction(s) had taken place between his creditor and the sub-creditor. No such additional burden can be placed on an assessee, which is not envisaged by section 106 of the Evidence Act. The Revenue/Assessing Officer, however, remains free to show that the amount, which has come to the hands of the assessee by way of loan from the creditor actually belonged to the assessee, but this conclusion cannot be reached by mere failure on the part of the sub-creditor to show his creditworthiness and/or the genuineness of the transaction between the creditor and sub-creditor, for, the creditor may receive any amount from sources known to the creditor only and if he fails to show how he has received the amount, in question, or if he fails to show the creditworthiness of his sub-creditor, such an amount may be treated as the income from undisclosed source of the creditor or of the sub-creditor, as the case may be, but such failure, on the part of the creditor cannot, in the absence of any clinching evidence, be treated as the income of the assessee derived from undisclosed source.
Since it is not the business of the assessee to find out the source(s) from where the creditor has accumulated the amount, which he has advanced, in form of the loan, to the assessee, section 68 cannot be read to show that in the case of failure of the sub-creditors to prove their creditworthiness, the amount advanced as loan to the assessee by the creditor shall have to be read, as a corollary, as the income from undisclosed source of the assessee himself. If sections 106 and 68 have to survive together, the logical interpretation will be that while the assessee has to prove only his special knowledge, i.e., the source from where he has received the credit and once he discloses the source from which he has received the money, he must also establish that so far as his transaction with his creditor is concerned, the same is genuine and his creditor had the creditworthiness to advance the loan, which the assessee had received. When the assessee discharges the burden so placed on him, the onus, then, shifts to the Assessing Officer if the Assessing Officer wishes to assess the said loan as the income of the assessee from undisclosed source, to prove either by direct evidence or indirect/circumstantial evidence that the money, which the assessee received from the creditor actually belonged to, and was owned by, the assessee himself. If there is direct evidence to show that the loan received by the assessee actually belonged to the assessee, there will be no difficulty in assessing such amount as the income of the assessee from undisclosed source; but if there is no direct evidence in this regard, then, the indirect or circumstantial evidence has to be conclusive in nature and must, in such circumstances, unerringly point to the assessee as the person from whom the money had actually flown to the hands of the sub-creditor and, then, routed through the hands of the sub-creditor to the hands of the creditor. For this purpose, the circumstantial evidence has to be not only consistent with the hypothesis that the money belonged to the assessee, but that this hypothesis must also be inconsistent with the hypothesis that none other than the assessee owned the said money. If the conclusion be that the money received, as loan, by the assessee may or may not belong to him or if the possibility exists that the money received, as loan, by the assessee may not belong to him, then, in none of such two cases, the loan amount can be conclusively treated as income from undisclosed source of the assessee inasmuch as for assessing the money as income of the assessee from undisclosed source, there must be clinching evidence to show that the money actually belonged to none but the assessee himself. If no such clinching evidence is available, the money may be treated as the income from disclosed source of the creditor or of the sub-creditor, as the case may be. If the inquiry under section 68 reveals that though the creditor had the creditworthiness, on the day on which he had advanced the loan to the assessee, yet the source of the creditor is not genuine, that is to say, though the transaction between the assessee and the creditor is genuine, the transaction between the creditor and the sub-creditor is not genuine, then, in such a situation, it cannot be read as a corollary nor can it lead to the lone and only conclusion, in the absence of any other material, that the money that has changed hands from the sub-creditor to the creditor was received by the sub-creditor from none other than the assessee himself.
In other words, though under section 68, an Assessing Officer is free to show, with the help of the inquiry conducted by him into the transactions, which have taken place between the creditor and the sub-creditor, that the transaction between the two were not genuine and that the sub-creditor had no creditworthiness, it will not necessarily mean that the loan advanced by the sub-creditor to the creditor was income of the assessee from undisclosed source unless there is evidence, direct or circumstantial, to show that the amount, which has been advanced by the sub-creditor to the creditor, had actually been received by the sub-creditor from the assessee. We are fortified in adopting this view from the following observations made in Tolaram Daga’s case [1966] 59 ITR 632 (Assam) (page 635):
"At the outset, we have to point out that there is no substance in the contention that the sources from which the money was realised by the third party are within the special knowledge of the petitioner as the depositor happens to be his wife. Whether he has knowledge at all of the source of the money deposited by the third-party is a matter which has to be decided on evidence.....Under law, in the absence of specific proof of that knowledge, it cannot be assumed that the assessee has the knowledge in question within the meaning of section 106 of the Evidence Act.....To require the firm or the individual partners to go further and adduce proof of the sources from which the deposits in question appearing in the accounts in the name of third parties were derived by them, would be placing a burden on the firm as well as the partners, which is not required or justified by law. For ought we know, in most cases it may well-nigh be impossible for the firm or the partners to know or determine the sources from which the money deposited with them had been realised by the depositors.....The enquiry as to the source from which this amount was acquired or obtained by Smt. Munni Devi Daga may, perhaps, be relevant in an investigation into the assessment to be made regarding her income and when determining the correctness of the return submitted by her. But the mere fact that the petitioner was unable to satisfy the authorities as to the source from which Smt. Munni Devi Daga derived the monies which she deposited with the firm cannot, in our opinion, be used against the petitioner. The Tribunal, therefore, was not justified in either demanding this proof or in drawing an adverse inference against the assessee on his failure to produce the same." (emphasis is supplied)
Keeping in view the above position of law, when we turn to the factual matrix of the present case, we find that so far as the appellant is concerned, he has established the identity of the creditors, namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The appellant had also shown, in accordance with the burden, which rested on him under section 106 of the Evidence Act, that the said amounts had been received by him by way of cheques from the creditors aforementioned. In fact, the fact that the assessee had received the said amounts by way of cheques was not in dispute. Once the assessee had established that he had received the said amounts from the creditors aforementioned by way of cheques, the assessee must be taken to have proved that the creditor had the creditworthiness to advance the loans. Thereafter the burden had shifted to the Assessing Officer to prove the contrary. On mere failure on the part of the creditors to show that their sub-creditors had creditworthiness to advance the said loan amounts to the assessee, such failure, as a corollary, could not have been and ought not to have been, under the law, treated as the income from the undisclosed sources of the assessee himself, when there was neither direct nor circumstantial evidence on record that the said loan amounts actually belonged to, or were owned by, the assessee. Viewed from this angle, we have no hesitation in holding that in the case at hand, the Assessing Officer had failed to show that the amounts, which had come to the hands of the creditors from the hands of the sub-creditors, had actually been received by the sub-creditors from the assessee. In the absence of any such evidence on record, the Assessing Officer could not have treated the said amounts as income derived by the appellant from undisclosed sources. The learned Tribunal seriously fell into error in treating the said amounts as income derived by the appellant from undisclosed sources merely on the failure of the sub-creditors to prove their creditworthiness.
It is, no doubt, true that in the present case, the findings arrived at by the Assessing Officer as well as the learned Tribunal are findings of fact, but since these findings are based on an wholly erroneous view of law, such findings cannot be said to be mere findings of facts. It is trite that no assessment can be made contrary to the provisions of law. In the case at hand, the very basis for making assessment is under challenge. If the assessment is based on a completely erroneous view of law, such findings cannot be regarded as mere findings of fact, but must be treated as substantial question of law, particularly, when the very basis of the assessment is on a wrong interpretation of law. Viewed from this angle, we are firmly of the view that the question raised in the present appeal is a substantial question of law inasmuch as the same goes to the very root of the assessment made and we have no hesitation in answering the same in the negative.
Mr. Bhuyan’s contention that a payment made by cheque cannot be treated as sacrosanct and his reliance on the law laid down in Precision Finance P. Ltd.’s case [1994] 208 ITR 465 (Cal) are wholly misplaced inasmuch as even we do not hold that a transaction, which takes place by way of cheque, is invariably sacrosanct. What we hold is that so far as the present assessee-appellant is concerned, his burden stood discharged, when he had proved the identity of his creditors, the genuineness of the transactions, which he had with his creditors, and the creditworthiness of his creditors vis-a-vis the transactions, which he had with the creditors. The burden had, then, shifted to the Revenue to show that though covered by cheques, the amounts, in question, actually belonged to, or were owned by, the assessee himself, but no material, direct or indirect, exists on record to come to such a conclusion confidently and boldly. For the reasons, discussed above, this appeal succeeds and the impugned orders are set aside and quashed.
With the above observations and directions, this appeal stands disposed of. No order as to costs.
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