ORDER
J.P. BENGRA, J.M. :
This is an appeal by the assessed against an order of the CIT(A)-XII, New Delhi pertaining to the asst. yr. 1980-81.
2. The grievance if the assessed in this appeal is that the CIT(A) erred in making an addition of Rs. 2,18,800 as an unexplained investment in the hands of the assessed and also disallowed interest relating to the expenses of Rs. 11,325 (though it is mentioned as Rs. 12,500).
3. The assessed is engaged in purchase, process and sale of ferrous and non-ferrous metals. During the assessment year under consideration, the assessed had filed a return showing an income of Rs. 14,348. The first assessment was completed under [SECTION] on total income of Rs. 3,18,800 (Rs. 1 lakh as business income and Rs. 2,18,800 as unexplained investment). However, the same was cancelled under [SECTION] vide order dt. 31st March, 1983. Again assessment was completed on the same figure under [SECTION]. The assessed went in appeal and the assessment was set aside by the CIT(A) vide order dt 13th Nov., 1985. This is a third round of assessment. Fresh notice under [SECTION] was served on the assessed and in compliance of that notice, the assessed appeared before the ITO where he contended that the account books for the asst. yr. 1980-81 having been lost as per copy of report dt. 1st Jan., 1981, made to the Police, already filed. The same cannot be produced. However, he filed copies of trading account, P&L a/c and balance sheet on the basis of books of account so maintained and requested that the assessment should be made on the basis of statutory statement filed with the return. The ITO found that the assessed made purchases from MMTC apart from purchase made from other sources. During the year under consideration, the assessed purchased imported goods on high sea basis on 12th July, 1979 through M/s [ENTITY]. The payments toward the said purchases were made by means of pay order dt. 16th Sept., 1979 for Rs. 2,04,000 and draft dt. 5th Dec., 1979 for Rs. 14,800. The ITO mentioned that the assessed had not been able explain the source of investment of Rs. 2,18,800 despite the fact that the assessed had explained that the payments were made by raising loans from the following parties :
i) Shri [ENTITY], Prop. Chander Trading Co.
Rs. 50,000
ii) Shri [ENTITY], Prop. of M/s [ENTITY] Rs. 50,000
iii) M/s Aggarwal Trading Co.
Rs. 50,000
iv) M/s [ENTITY] Rs. 50,000 The Assessing Officer observed that three loans aggregating to Rs. 1,50,000 were stated to have been raised in cash on 1st Sept., 1979 and 3rd Sept., 1979, i.e. two months after the date of purchase of the goods. Regarding the balance amount of loan of Rs. 50,000 the date was not available. He was also not satisfied about the genuineness of the loans because the parties were not produced and their financial capacity to advance loans was also not proved. In this connection, the Assessing Officer also referred to the statement of the assessed before the A.D.I., Intelligence wherein he has accepted that he was dealing in the import license for purchase of nickel silver scrap from Reliance International Corporation Pvt. Ltd. though he changed his statement subsequently. In his statement recorded on 9th Oct., 1981, before the ITO, the assessed accepted that the purchase bill for the above said goods (goods worth Rs. 2,18,800 purchased on 12th July, 1979) had been prepared by the Reliance International Corporation Pvt. Ltd. or from any other one. He has no idea that who took the delivery. He did not get prepared any draft for the payment to M/s Reliance International Pvt. Ltd. The Assessing Officer observed that this statement of the assessed was contradictory to the stand taken by him regarding loan of Rs. 2,00,000 for making the payment of the purchase price of Rs. 2,18,800. Therefore, he held that the investment in the purchase of imported goods on high sea basis for Rs. 2,18,800 was not satisfactorily explained. Therefore, he added the amount in the total income of the assessed. On the same basis, he also disallowed interest payment of Rs. 12,500 shown by the assessed in his books of account. Aggrieved by that order, the assessed field appeal before the CIT(A), New Delhi.
4. Before the CIT(A), was pointed out that the payment was made after raising loans from the parties mentioned above and also filed affidavits and confirmation of statement of accounts along with GIR numbers before the Assessing Officer. Since there was a time lag of more than 8 years, therefore, the parties are not under the control of the assessed. Therefore, it is not possible to produce them. It was pleaded that the assessed had been able to prove genuineness of loans and capacity of the parties which could be verified by summoning them. On the request of the assessed summons were issued to the aforesaid parties for verification of alleged loans. But the notices were received back with the remarks that there was no person/firms of such name on the given address. This was confronted to the assessed. The assessed further filed copies of assessment orders of the parties from whom he has shown raising of loans and submitted that explanation and evidences filed regarding the source of purchase proved the identity of the creditors, genuineness of the transaction and their capacity. Therefore, no addition is called for. However, the CIT(A), was not satisfied with his explanation. So, he confirmed an addition of Rs. 2,18,000 in the hands of the assessed. Similarly addition of Rs. 12,500 was also made in respect of interest payment shown by the assessed. Aggrieved by that order, the assessed filed appeal before the Tribunal.
5. The learned counsel for the assessed, Shri [ENTITY] very vehemently argued that at the time of making first assessment the assessed was not called upon to produce the parties. In this connection, our attention was invited to the assessment order dt. 28th March, 1983 and 4th March, 1985. It was pointed out that the observation of the Assessing Officer that the assessed has not been able to explain the source of payment is without any basis because the assessed moved an application before the Asstt. Director/Inspector (Intelligence) on or before Feb., 1983, intimating that all books, statements and books of concerned parties from whom loans have been raised are being produced. Their GIR numbers and District and copies of account of M/s Reliance Corporation Ltd. are also submitted. It was also mentioned that the books of account have been lost and the report had been lodged with the Police on 2nd Jan., 1981. A photo copy of the FIR was also enclosed. Later on another application was given to the ITO on 9th Feb., 1983, intimating the same to the ITO also. With this application, affidavit attested by the Notary Public, of [ENTITY] and [ENTITY], certificate from M/s Aggarwal Trading Co. certifying the cash transaction of Rs. 50,000 and pronote along with the confirmation on the back of it from Shri [ENTITY], Proprietor, was also placed before him. It was submitted that copies of affidavit along with copies of account in support of alleged loans were sufficient and conclusive evidence to prove the genuineness of the transaction and their capacity. It was also pointed out that after this assessment was completed, the assessed went in appeal before the CIT(A), New Delhi. He set aside the order of the ITO with the observation that during the course of proceedings a request was made to summon various parties and the assessed had also deposited the required Court fee, but no further opportunity was given by the ITO not he made any further enquiries in the matter. The record showed that before the first ex parte assessment as completed, enquiries were made by the ITO and evidence was also led before him regarding Rs. 50,000 each taken from the four creditors. Summons have also been issued to some of the parties and assesseds statement were also recorded. Besides this, enquiries were also made by the Intelligence Wing but there are no details as to what happened to these enquiries and what discrepancies were found in that and why the ITO took up the matter hurriedly to complete assessment ex parte only towards the end of the financial year. Keeping in view the complexity of investigations and information available on record, the order was set aside which proves that the assessed made efforts to produce those parties through legal processes issued by Assessing Officer and submitted for the enquiries in respect to the raising of loans from those four parties. It was also pointed out that the assessed has also given their addresses. Instead of all this in the third round of assessment, the ITO just completed the formality and sustained the additions made. When this matter was taken up in the second round of appeal before the first appellate authority, the assessed reiterated that the evidence in support of the claim of the assessed regarding raising of loans from these four parties were available before the Assessing Officer. However, he has no control over these parties and it is not possible for the assessed to produce them at this later stage, particularly when the amount in question raised by the assessed from the parties related to September 1979. Therefore, he requested the Asstt. CIT(A) to issue summons. He has also filed assessment orders in respect of Shri [ENTITY] and Shri [ENTITY] to show that these parties are in existence but the Department was sleeping over the matter. The primary onus which laid upon the assessed had been discharged because it is a case of addition under [SECTION] of the [ACT]. Reliance was also placed on the decision of Madras High Court in the case of [PRECEDENT] for the proposition that after the lapse of a decade, an assessed should not be placed upon the rack and called to explain not merely origin and source of a capital contribution but the origin of origin and source of a sources as well. The difficulty on the part of an assessed to explain the transaction which took place before a decade, has to be borne in mind by the Department and should under no circumstances be under-estimated or taken advantage of it. Reliance was also placed on the decision of Allahabad High Court in the case of [PRECEDENT], on the decisions of Patna High Court in the case of [PRECEDENT] and in the case of Addl. CIT vs. [ENTITY] (1985) 151 ITR 150 (Pat) for the proposition that the assessed is not expected to prove the source of source of credit. Once identity of the party is established before the ITO and other such evidence are, prima facie, placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessed can be said to have been duly discharged by him. Reliance was also placed on the decision of Madras High Court in the case of [PRECEDENT]. It was also pointed out that it is not the case of the Department that the purchases were not recorded in the books of account. When the sales and purchases are fully recorded, the books of account are produced and they are accepted by the Department, that means the Department has accepted the raising of loans which is made for the making of purchases. The trading results have been accepted by the Department, profit arising out of it has been taken into account, therefore, there is no question of making addition as income from unexplained investment.
6. As against this, the learned Departmental Representative Shri [ENTITY] submitted that as per the decision of Hon'ble Calcutta High Court in the case of [PRECEDENT], the assessed is required to prove the identity of the creditor, genuineness of the transaction and capacity of the creditor. As per the evidence filed by the assessed, the burden laid upon the assessed has been discharged. Our attention was invited to the assessment orders filed along with the Paper Book (pp. 32 to 34) in respect of Shri [ENTITY] and (pp. 42-43) in respect of Shri [ENTITY]. It was pointed out that these pertained to the assessment year after 1981-82, whereas the loan is raised in the asst. yr. 1980-81. These documents have no relevance. However, if we see all these assessment orders, it will be clear that these persons have shown no business income. If there is no business income and the assesses were assessed in the salary circle, certificates in which they have shown savings from business become falsified. Regarding Aggarwal Trading Co., it was submitted that this gentleman had not appeared before the ITO. A certificate has been given by him simply in respect of Shri [ENTITY], Proprietor of M/s [ENTITY]. It was submitted that the assessed had produced a pronote and receipt on the back of it showing interest and the principal but he had not been produced. Therefore, from all these facts, it is clear that the burden laid upon the assessed to prove the genuineness of the transaction and the capacity of the creditor had not been proved. In this connection, reliance was placed on the following decisions :
(1) [PRECEDENT]; (2) [PRECEDENT]; (3) [ENTITY] vs. CIT (1983) ITR 151 (All); (4) [PRECEDENT].
The learned counsel submitted that as early as in 1981, the assessed furnished all the information and requested the ITO to summon the parties but no efforts were made by the Assessing Officer. Under [SECTION] the primary onus which laid upon the assessed had been discharged. Now, the burden shifts upon the Department to prove that the loans raised were not genuine. The assessed had produced the assessment orders besides, he had already submitted the GIR numbers and complete addresses of the parties to show that these parties have been existing for which efforts were made by the assessed to summon them through the Department. But the Department had been sleeping over the matter and after a time gap of 8 years now when the parties have gone out of control and closed down their business, it is not possible to produce them. According to the settled principle of law, the burden is discharged. Reliance was also placed on the following decisions for the proposition that where there are conflicting views between the two High Courts, the view favorable to the assessed should be accepted :
(1) [PRECEDENT]; (2) [PRECEDENT]; and (3) [PRECEDENT].
Reliance was also placed on the decisions of Allahabad High Court in the cases of [PRECEDENT]; and [PRECEDENT]. Regarding disallowance of interest, the learned counsel submitted that it will go along with the substantive additions. Alternatively it was submitted that from the evidence available on the record, the assessed could prove the genuineness of raising of loans in respect of three parties. However, with respect to fourth one, M/s [ENTITY], he can only produce the pronote and no other evidence. To this extent if at all it is considered, the evidence will not be sufficient. So additions cannot be sustained in full.
7. We have considered the rival submissions. In this case, the first and second assessment orders were passed under [SECTION] of the [ACT] on 8th March, 1983 and 4th March, 1985. In both these assessment orders, the Assessing Officer has mentioned that the assessed had not been able to explain the source of payment of Rs. 2,18,800 but it is surprising that the Assessing Officer has not mentioned whether the assessed was ever called upon to produce these parties or not. From the letter of the assessed, dt. Feb., 1983, to the Asstt. Director/Inspector Intelligence and another letter to the ITO, dt. 9th March, 1983, makes it clear that the assessed had given all bank statements and pass books, GIR number of the assessed 3170-S, District V(13), copy of account of M/s Reliance International Corpn. Pvt. Ltd. with details of parties amount and PNR number along with addresses of these parties to the Department. It was also informed to both these authorities as back as in February 1983, that the books of account of the assessed have been lost and the report has been lodged with the Police on 2nd Jan., 1981. Photocopy of the FIR was also enclosed. Letter to ITO appears additional evidence where the assessed had filed photocopies of affidavits of those parties from whom the assessed had raised loans of Rs. 50,000 each. These are at pp. 17 to 23 of the Paper Book. It is also not in dispute that these documents (pp. 17 to 23) were obtained subsequently by the assessed from the records of the Revenue as at the bottom of these papers, true copy had been signed by some authority of the Department. Therefore, it is clear that the previous two orders of the Assessing Officer were passed without looking into the evidence produced by the assessed. That is why when this matter was carried before the CIT(A)-XII, New Delhi, the CIT(A) made observations that "the records show that before the first ex parte assessment was completed enquiries were made by the ITO and evidence was also led before him regarding the loans of Rs. 50,000 each taken from four creditors Summons also seem to have been issued to some of the parties and assesseds statement also had been recorded but in the assessment order there is no discussion about the enquiries. It appears that certain enquiries also were made by the Intelligence Wing but about this also there are no details as to what discrepancies were found. During the earlier proceedings ITO appears to have issued summons to a number of parties some of which complied while others sought time and no further progress was made in the fresh proceedings for completing the enquiries embarked upon earlier. The ITO took up and completed the assessment ex parte only towards the end of the financial year". After making these observations, the CIT (A), further observed that in a case like this, enquiries should have been completed well in time so the assessed should have been confronted with adverse material. Thus, he set aside the assessment orders passed by the Assessing Officer to be made afresh after proper enquiries. This order makes it clear that as far as back in 1983, materials were made available to show the identity of the creditors, genuineness of the transaction and the sources from where the assessed raised loans. Full GIR number, addresses of the parties, were also made available. But the Assessing Officer did not care to verify the genuineness of the transactions and capacity of these creditors. But in the third round of assessment instead of making enquiries from those parties, whose details were made available, the Assessing Officer had gone on the basis of contradiction in the statement recorded and the plea taken by the assessed and thus, he decided the matter. The assessed had submitted an explanation vide letter dt. 24th March, 1988, before him that the purchase of imported goods on high sea basis was made from M/s Reliance International Corpn. Pvt. Ltd. after raising loans from four parties as per details already furnished to the Department.
The purchases and sales were duly incorporated in the books of account. The Assessing Officer did not care to verify the truthfulness of the matter from M/s Reliance International Corpn. Ltd. and also from M/s Narain Dass Ratan Lal through whom these purchases were made. When the matter was carried before the CIT(A), in second round, the assessed made it clear that in the reassessment proceedings before the Assessing Officer, he has filed copies of affidavits of the parties along with copies of account in support of the alleged loans and further gave addresses of those parties vide letter dt. 22nd Dec., 1988 and also mentioned that the assessed has now no control on these parties and it is not possible for him to produce these parties at this later stage, particularly when the amount in question was raised by the assessed in September, 1979. Therefore, it was submitted that in case the CIT (A) desires to verify the genuineness of the transaction and the capacity of the parties, the persons may be summoned on the given addresses. On the basis of that letter summons were sent to the parties but they returned with the remark that there was no person/firm of such name on the given address. However, the assessed vide letter dt. 14th Sept., 1989, made it clear that the remarks on the summons are incorrect and the assessed also submitted copies of assessment orders in respect of Shri [ENTITY] and Shri [ENTITY] in order to show that the parties were existing and their addresses were available with the Department, so as to controvert the remarks given on the summons sent under [SECTION]. It was also made clear that in view of the decision of Madras High Court in the case of [ENTITY] (supra), it is difficult for the assessed to explain the transaction which took place before a decade specially the origin of origin and source of source. However, the CIT(A) decided the matter against the assessed. It is time and again Hon'ble Patna High Court in the case of Sarogi Credit Corpn. (supra) mentioned that once the identity of the party is established before the ITO and other such evidence are, prima facie, placed before him pointing to the fact that the entry is not fictitious, the initial burden lying on the assessed can be said to have been duly discharged by him. It will not, therefore, be for assessed to explain further as to how or in what circumstances the third party obtained money or how or why he came to make an advance of the money as a loan to the assessed. Once such identity is established and the creditors had given affidavits to show that they had advanced the amount to the assessed, the burden immediately shifts on to the Department to show as to why the assesseds case should not be accepted. In a subsequent decision, the Hon'ble Patna High Court in the case of [ENTITY] (supra) has observed that where an assessed gives the correct name, address and GIR number of the creditor, he has discharged his onus to prove the genuineness of credits in his accounts and unless a notice in due form under [SECTION] of the Act is issued by the Revenue authorities to test the genuineness of the transaction or the capacity of the creditor to pay, the amounts cannot be assessed in the hands of the assessed. We are aware that Allahabad High Court in the case of [ENTITY] (supra), has taken a view that mere confirmation letter from alleged creditor could not be treated as sufficient evidence to prove the genuineness of the loan and it will not amount to discharge of burden placed. This view was further reiterated in another case of [PRECEDENT] (supra), by Allahabad High Court where the observations were made that ordinarily, in the absence of denial, the statements may be accepted as true but if there are circumstances which suggest that the statement on affidavit should not be accepted as true, the absence of denial by the other side, would not by itself be sufficient to clothe the statements on affidavit with truthfulness and reliability. The Supreme Court in the case of [PRECEDENT] (supra) and in the case of Naga Hills Tea Co. Ltd. (supra), has observed that if the provisions of taxing statute can be reasonably interpreted in two ways that interpretation which is favorable to the assessed has got to be accepted. Here we are concerned with the case of Delhi jurisdiction. Therefore, the view favorable to the assessed taken by the Hon'ble Patna High Court has to be accepted specially in the circumstances that the assessed at the first instance had given all the bank statements, pass book, GIR number, copy of account of parties with whom the transactions were made, details of loans and addresses of those parties along with their GIR numbers as back as in February, 1983. It was also informed that the books of account have been lost and the report has been lodged with the Police on 2nd Jan., 1981, photocopy of the same was also filed. Further, the assessed had also filed affidavit before the Assessing Officer. Now, after expiry of about more than 8 years, the assessed was called upon by the CIT(A) to prove the origin of origin and source of source of the loan in the year 1989. In the circumstances, the Hon'ble Patna High Court has taken a view that if this information was given by the assessed, the burden laid upon the assessed, stands discharged. However, we find that in the case of [ENTITY] (supra), the Hon'ble Madras High Court has gone further to observe that after lapse of a decade an assessed should not be placed on the rack and called upon to explain not merely the origin and source of a capital contribution but the origin or origin and source of source as well.
The difficulty on the part of any assessed to explain a transaction which took place before a decade has to be borne in mind by the Department and should under no circumstances be underestimated or taken advantage of by them. Applying the principle laid down by the Hon'ble Madras High Court to its logical conclusion specially in the facts of the present case, we are of the opinion that so far as the identity of the creditors, genuineness of the transaction and the capacity of the creditors in respect of three parties, namely, M/s Chandra Trading Co., M/s Aggarwal Trading Co. and M/s [ENTITY], are concerned, their confirmatory letters, GIR numbers and addresses were given well in time and the Department has not examined them at that time and subsequently after about 8 years when the assessed had no control over these parties, he was asked to produce them by the CIT(A) and the assessed had given all the details relating to them before the CIT(A). Therefore, the burden laid upon the assessed had been discharged with respect to these parties and unless the Department is able to show from the evidence available or from additional evidence on the record that these are not genuine transactions or the parties have no capacity, no adverse inference can be drawn. So far as the loan from M/s [ENTITY] to the extent of Rs. 50,000 is concerned, the only evidence available with the assessed is a receipt which has been placed on record. No other evidence is available with the assessed. There is no GIR number, no address of this party is available. Therefore, so far as this party is concerned, the burden which laid upon the assessed had not been fully discharged. There is no sufficient evidence to prove that the loan to the extent of Rs. 50,000 shown to have been raised from M/s [ENTITY], had a capacity to make such loan. Therefore, in the absence of this evidence, addition to this extent can be sustained as unexplained investment under [SECTION]. It will also be pertinent to mention here that the Department had found sales and purchases fully recorded in the books of account produced by the assessed and they had been accepted by the Department. The trading result shown by the assessed was also accepted. This is an additional factor which goes in favor of the assessed to show indirectly that addition as unexplained investment to the extent explained by the assessed as above is not called for. As regards the decision of Punjab High Court in the case of [ENTITY] (supra) is concerned, it laid down the principle that the initial onus of explaining cash credits in the accounts lies on the assessed. So far as the decision of Madras High Court in the case of [ENTITY] (supra) is concerned, it was a case where the ITO asked the assessed to produce two parties for examination but they were not produced and it was also found that there was no person going by the name at the address given by the assessed. In those circumstances, the Hon'ble Madras High Court had taken a view that the ITO was justified in assessing the amount as income from undisclosed sources. On these principles the arguments of the learned Departmental Representative were that no business income was shown by the persons from whom loans shown to have been raised. But they have forgotten that the assessed had not produced these assessment orders in order to show business income but to controvert the remark of the process server on the summons issued under [SECTION] to show that these parties were existing and they were assessed by the ITO.
Therefore, the remarks given on the summons sent by the Department under [SECTION] are incorrect. Further no adverse inference can be drawn where no business income is shown in the assessment order because these persons have shown income from other sources also besides salary. The income from other sources includes even the income from moneylending. Therefore, it is possible they may be having other source of income, so it cannot be said that there is no other source of income of these persons. Keeping in view the totality of the facts and circumstances, the evidence produced and the observations of the CIT in the first appellate order, we are of the opinion that the burden has been discharged by the assessed to prove the identity, the genuineness of the transaction and the creditworthiness of the creditors M/s Aggarwal Trading Co.,. M/s Chander Trading Co. and M/s [ENTITY] Das Lakshman Das & Co. Therefore, to this extent of Rs. 1,50,000, no addition can be made under [SECTION] of the [ACT] in the income of the assessed as unexplained investment. However, we find that the assessed had not given sufficient evidence with regard to creditworthiness of M/s [ENTITY] from whom a loan of Rs. 50,000 had been shown to have been raised. Therefore, to this extent addition can be sustained. We, therefore, modify the order of the CIT(A) accordingly and direct the ITO to delete the addition of Rs. 1,50,000 out of Rs. 2,00,000 shown to have been raised as loan. The Revenue authorities have wrongly made addition of Rs. 2,18,800 shown in the bill of purchase of nickel silver scrap. The assessed explained that a sum of Rs. 2,04,000 Department had suspected the raising of loan of Rs. 2 lakhs. Therefore, addition to that extent was not justified. Now as per our order addition to the extent of Rs. 50,000 can be sustained.
8. The next question relates to disallowance of interest. The assessed had claimed payment of interest Rs. 11,325 on these four loans (though it is mentioned as Rs. 12,500 in the order of the CIT). Since we have accepted the explanation of the assessed with regard to three loans, of Rs. 50,000 each, therefore, the interest payment to this extent is justified. However, interest payment regarding fourth party is not justified. So, the proportionate addition out of interest claimed Rs. 11,325 can be sustained. The disallowance of interest of Rs. 8,493 is unjustified. Therefore, the ITO is directed to allow the same.
9. The issue regarding charging of interest under [SECTION] is consequential. The ITO is directed to revise the interest on the basis of above findings.
10. In the result, the appeal is partly allowed.