JUDGMENT Rajes Kumar, J.
1. Tribunal has referred the following question under Section 256(1) of the for the assessment year 1986-87 for the opinion of this Court:
"Whether the Tribunal was justified in adding the cash credit in the income of the assessee when persons in whose names the cash credit, had declared the same under amnesty scheme and had also been assessed as such on the respective amount credited in the account, despite the fact that those persons were closely related to the partners of the assessee firm?"
2. Brief facts of the case are as follows:
The applicant assessee (hereinafter referred to as "Assessee") was a partnership firm consisting of two partners, Sri Prayag Narain Gupta and his son Pramod Kumar Gupta having equal shares. Assessee derived its income from manufacturing and sale of rice and rice bran and also from purchase and sale of food grains, pulses and oil seed. In the course of scrutiny of the account assessing authority found the following cash credit entries during the relevant accounting period:
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"The explanation of the assessee is not satisfactory as he could not explain the ability & capacity of the creditors to make such heavy deposits. Initially to make deposits in he hank and then to make deposits with the assessee firm by withdrawing the amounts by cheque does not prove the capacity of the creditors to make the deposits with the assessee unless they prove their sources of income with documentary evidence. All the above creditors had no independent source of income except Shri Anil Kumar Gupta who carried on truck plying business. He has been assessed on the following total income: -
In the assessment year 1985-86 Shri Anil Kumar Gupta purchased a truck No. URM- 1635 for Rs. 80,000/-. On 2.8.94. Hence he was not in a position to advance such a heavy amount of Rs. 99,000/- to the assessee firm. As regards the other creditors who are the minors and ladies and closely related to both the partners. From the scrutiny of the facts it appears that both the partners have introduced the cash creditors in the names of their family members in proportion to their capital in the assessee firm.
Assessee has explained that they have introduced their money under Amnesty Scheme and deposited in the bank a/es and by withdrawing from bank account, they have deposited with the assessee firm. Assessee cannot take any benefit of the Amnesty Scheme introduced by the Board by issuing various circulars in this regard. Circular No. 451 dated 17.2.86 in the question & answer from Question No. 11 is very much relevant on this issue which is reproduced below:
"Q.No.1... Whether ladies and minors can avail of the immunity given by the circulars ? Answer. Yes, in respect of their own income or wealth certainly. Abut tax payers who try to introduced black money and benami investments in the names of ladies or minors will be doing so at their own risk."
Hence Board had specifically mentioned that bogus and benami declarations are not allowable under the Amnesty Scheme. Assessee has nowhere furnished evidence regarding the source of income declared by the creditors in their returns of income under Amnesty scheme. From the perusal of these returns filed by above creditors under Amnesty scheme it appears that they had not furnished any evidence regarding the source of their income in the returns, income has been declared under the head "Income from other sources" or Cash gifts received from relations and friends other than husband but due to lack of evidence or details regarding their source of income. It can therefore be proved that ht creditors do not even deserve the immunity granted by the Amnesty scheme as they have not proved their own income as laid down by the Hoard in Answer to Q.No. 11 of the above mentioned circular No. 451.
Even if for argument's it is admitted that immunity has been granted to the creditors under Amnesty scheme and they were not hound to disclosed their sources of income assessee cannot take any benefit in its own case in view of the decision of the Hon'ble Supreme Court in the case of Jamuna Prasad Kanhaiyalal v. CIT . This decision has set in rest a controversy among different high courts regarding voluntary disclosures. It has held that voluntary disclosure scheme cannot be construed as concerning any benefit or immunity to any person other than the person making the declaration under that scheme. There was nothing in that scheme which prevented the /TO, It he was not satisfied with the explanation of the assessee about the genuineness or source of the amount found credited in its books inspite of its already being made a subject of the declaration by the creditor and taxed under the scheme, from investigating the true nature and source of the credits. There is no question of double taxation once it was found that the income declared by the creditors did not belong to them there has nothing to prevent the same being taxed in the lianas of the assessee to whom it actually belongs.
In view of the above discussion, I am of the opinion that the explanation offered by the assessee regarding the total sum of Rs. 4,80,900/- credited in his books of accounts in the names of wives, 5 minor children and one major child of the partners is not satisfactory as he could not prove their capacity to make the deposits with the assessee firm. Hence the total sum of Rs. 4,80,900/- so credited is charged to Income Tax as the income of the assessee from undisclosed sources for this year and added to his total income."
4. Assessee filed the appeal before the Commissioner of Income (Appeals), which was rejected. Applicant further filed appeal before the Tribunal, which too has been rejected Before the Tribunal assessee raised the following submissions:
"2. That the learned Commissioner of Income Tax (appeals) has failed to appreciate that the interest on these deposits has been duly accepted by the Income-tax Officer, which indirectly proofs that he has partially accepted the credits.
3. That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that each of the creditors were regular assessee on record and had deposited fund with the assessee by means of cheques drawn by them in favour of the assessee firm on their personal bank account.
4. That the learned Commissioner of Income Tax (Appeals) has misdirected himself in stating that partners have introduced the cash credits in proportion to their capital in the assessee firm. There is no basis for such observation. It any case, even it these credits represents the credits made by the partners then also these can not be included as an income of the firm.
5. That the learned Commissioner of Income-tax (Appeals) has misdirected himself in confirming the assessing officer conclusion that the assessee had brought buck undeclared income in the form of declaration by the above creditors under the amnesty scheme and no advantage of such deposits can be taken by the assessee. These findings of the assessing officer are without any evidence or material on record and are based on mere suspicion and conjunctures.
6. That the entire thrust of the arguments and pleading of the assessing officer in confirming the cash credits has been only emphasis that the alleged cash creditors are benamidar of the assessee firms partners and as such the income is liable to be included in the hands of the assessee firm under Section 68. This entire approach is prima facie erroneous in law and can not be sustained specially in view of the provision contained in Benami transactions (Prohibition) Act, 1988 which is retrospective application and is universally applicable in India.
7. That the Assessing Officer and the learned Commissioner of Income Tax (Appeals) has failed to that the creditors are all regular assessee on record who have paid the moneys by means of cheques and have duly confirmed the deposits. The assessment of the creditors have been duly completed before the present assessment in the hands of the assessee and accordingly there is no warrant for such addition or conclusion as arrived by the authorities below."
5. Tribunal held as follows:
"We have heard the parties at length and also carefully perused the entire facts on record. In this case, the facts are not much in dispute. It is admitted that the persons, in whose names the cash credits stood, were wives and minor sons of he partners. It is also admitted that these persons had filed returns under Amnesty Scheme and had been assessed on certain incomes, which were deposited in the respective Bank accounts. Thereafter, the amounts deposited with the assessee were made through cheques. ft is also correct that under the Amnesty Scheme who declares his income will he accepted as such by the Department and the person, who declares, will not be required to disclose the source of his income or any other details of the return filed by him. The only point in dispute is as to how far the said declaration made by the creditors will got to prove the genuineness of the cash credits made in the account of the assessee. The Hon'ble Supreme Court in the case of Yamuns Prasad Kanhaiya Lal v. C.I.T. (130 ITR 244) had held that the declaration Under Section 24(2) of the Finance (No. 2) Act, 1965 had to relate to income actually earned by the declarant and the Act granted immunity to has declarant alone cannot to other persons, to whom the income really belonged. The legal fiction created by Section 24(3) of Finance (No. 2) Act, 1965 was limited in its scope and could not be invoked in the assessment proceedings relating to any other person, other than a person who is making the declaration under the Act, so as to rule out the applicability of Section 68 of the Income-tax Act, 1961. The facts of this case were that they were certain cash credits in the named of sons of Managing partners and the sons were having on independent source of income. Disclosure was made by the sons under the Voluntary Disclosure Scheme. Such disclosure did not preclude enquiry Into the genuineness of the cash credits and their assessment us the firm's income from undisclosed sources Under Section 68 of the Income-tax Act, as held by their Lordships in the said case.
On these decisions of various High Courts and those of the Hon'ble Supreme Court it is established that the immunity or the acceptance of the disclosures or the voluntary returns filed by creditors applies to the persons who made the declarations and it does not extend to a third person in whose hooks cash credits are entered. The Assessing Officer was perfectly justified in probing into the genuineness of the cash credits and the capacity of the creditors to advance the alleged loans. In this case the creditors being the wives and the minor sons, there is absolutely no explanation on record to show as to what was the source of income and how they happened to possess such huge amounts. The only explanation offered is that they have made voluntary disclosures and the income in their hands was from other source or cash gifts received from relations and friends other than no hand but due to lack of evidence, the same was to be credited as income. This more explanation is very value. No evidence of possession has been given by the assessee to prove that these creditors were having any independent source of Income from which they could get the said amount in their possession so as to advance the same to the assessee. Section 68 of the Income tax Act casts responsibility on the assessee, in whose account the cash credits are entered, to prove the nature and source of the cash credits and if the explanation is not found to he satisfactory, then the said sums so credited may he charged to income-tax as the income of the assessee of that previous year. In absence of any proper explanation by the assessee, Section 68 is a deemed provision and given a right to the assessing officer to treat the said cash credit as income of the assessee. Here, as we have Seen from the above description that the only explanation by the assessee is that the creditors had made voluntary disclosures and had been assessed as such Under Section 143(1) and thereby they had the capacity to advance the loans. That mere explanation in our opinion, was not sufficient to explain the source of income or the amount in possession of the creditor and more specially when the creditors were the wives and minor sons of the assessee ordinarily the natural presumption will he that these amounts have been declared voluntarily in (he names of the wives and minors just to dilute the impact of taxation while, in fact, the amount really belonged to the assessee. As the amount has been declared in the Voluntary Disclosure Scheme by the wives and minors, the assessee cannot be allowed to take the advantage of the said disclosure. The Hon'ble High Court and the Hon'ble Supreme Court, have been very specific on this point that such immunity cannot be availed of by a third person other than the declarant. Hence we are of the opinion that the conclusions arrived at by the learned C.I.T. (A) were perfectly correct and justified and does not suffer from any infirmity.
As regards Shri Anil Kumar Gupta, it has been emphasised that he had sufficient liquid fund out of which are he has deposited Rs. 90,000/- on different dates with the assessee, firm. A copy of account of Shri Anil Kumar Gupta in M/S Ain't Rice Mills, that is, the assessee has been filed which shows the pending balance of Rs. 59,645/- in 1983-84. It has been stressed that this assessee as back as in 1983-84 had estimated the amount as cash credits standing in the account of the assessee itself and the same was accepted by the Department and thus his capacity to advance the loan at least should have been accepted. A little careful scrutiny of the facts will show that this argument of the learned counsel for the assessee does not have much force. Shri Anil Kumar Gupta had withdrawn a sum of Rs. 50,000/- on 23.12.1985 from the firm's account to purchase a truck and in this way only Rs. 9,645/- were left in the account. This very assessee had been assessed on the following total income in the assessment years 1983-84, 1984-85 and 1985-86:-
A.Y. Truck Interest Other Total income sources ------------------------------------------------------------------------------ 1983-84 ------ 9,098/- 7,000/- 16,100/- 1984-85 9,790/- ------ 25,000/- 15,210/- 1985-86 14,100/- 593/- ------ 14,690/-
From this very assessment, it is evident that the assessee did not have much income as to spare an amount of Rs. 90,000/-. He was just a marginal assessee filing the return of Rs. 16,000/- Rs. 15,000/- and Rs. 14,000/- and add in these respective Years. We, therefore, are of the opinion that even he too was not a position to advance that much amount as shown in his name in the books."
6. Heard Sri R.R. Agarwal, learned counsel for the assessee and Sri A.N. Mahajan. learned Standing Counsel.
7. Learned counsel for the assessee submitted that so far as the applicant is concerned, burden has been discharged, proving the nature and source of the deposits as required under Section 68 of the Act. He submitted that genuineness of the depositors have not been disputed. Since the money has come through cheques the genuineness of the deposits can not be disputed and so far as the capacity of the depositors are concerned, it was explained that the depositors have disclosed their income under the amnesty scheme under the Board Circular No. 451 dated 17.02.1986 and the declarant income has been assessed under amnesty scheme treating their own income from undisclosed sources and the gift received. He submitted that under the amnesty scheme Board has allowed the declarant income from other sources also and it was not necessary to disclose the specific source of income. He submitted that the disclosed income has been accepted for the various years under the amnesty scheme and the depositors had saving out of such disclosed income, which were deposited in the bank in their account and subsequently by cheque paid to the assessee. Therefore, the source of the deposits was full explained and established. He submitted that under the Amnesty scheme ladies and minors have also been allowed to avail the benefit of the immunity, Their returns have been accepted and their income have been assessed. Income disclosed by the depositors minor and ladies have not been treated as income of their husband and father. He submitted that there is no issue involved relating to the claim of immunity allowed under the amnesty scheme to the declarant by the assessee. If money is found deposited in the account of the assessee it was always open to the assessing authority to make the enquiry with regard to such deposits and it is the assessee to prove the nature and source of such deposit as required under Section 68 of the Act. Therefore, Tribunal has unnecessary raised the issue relating to the immunity under the amnesty scheme. Submission is that on the facts and circumstances burden which was on the assessee to prove the nature and source of the deposit has been discharged. Assessee was not required under Section 68 of the Act to prove the source of the same and how the income has been earned by the depositors and about their source. He further submitted that the even the assessing authority observed that the partners of the firm introduced the money in the name of their wives and minor and even if that is accepted then the addition should be made in the hand of the partners and not in the hand of the assessee firm. He further submitted that the interest, which was paid by the assessee firm to the depositors have not been disallowed which also proves the genuineness of the transactions. On these facts it has been submitted that the Tribunal has illegally observed that the deposited amount belonged to the assessee which is based on no evidence. Learned Standing Counsel submitted that the immunity under the Board Circular No. 451 dated 17.02.1986 was available only to the declarant and not to the assessee and it was open to the assessing authority to make the enquiry with regard to the deposits. In support of his contention he relied upon the decision of the Commissioner of Income Tax v. United Trading And Construction Co. reported in 247 ITR, 819. He further submitted that the assessee failed to prove the genuineness and the source of the deposits and, therefore, it has been rightly treated as income under Section 68 of the Act and findings in this regard is finding of fact.
8. The Apex Court in the case of CIT v. United Trading And Construction Co. (Supra) has considered its earlier decision in the case of ITO v. Rattan Lal reported in 145 ITR 183. The Apex Court held as follows.
"It is now brought to our notice that this very question has since been decided by this Court in ITO v. Rattan Lal . In the said decision it has been held that the immunity enjoyed by a declarant under Section 24 of the Finance (No. 2) Act, 1965, under the Voluntary Disclosure Scheme is confined to the declarant alone and is not extended to the assessment of a third party assessee in relation to the income disclosed by the declarant. It was further held that there is nothing in Section 24 of the Finance (No. 2) Act which prevents the Income Tax Officer, if he is not satisfied with the explanation of the assessee about the genuineness of sources of amounts found credited in his books to add them to the Assisi's income amount inspite of these having already been made the subject-matter of the declaration made by the depositors/creditors. He is entitled to include them as income of the assessee from undisclosed sources."
9. We have given our anxious consideration to the arguments of the learned counsel for the parties.
10. The Apex Court in the case of Commissioner of Income Tax v. United Trading And Construction Co (supra) has only held that there is nothing in Section 24 of the Finance (no 2) Act which prevents the Income Tax Officer, if he is no satisfied with the explanation of the assessee about the genuineness of sources of amounts found credited in his books to add them to the assessee's income amount in spite of these having already been made the subject matter of the declaration made by the depositors/ creditors. There is no quarrel about the preposition of law laid down by the Apex Court which was relating to the case of declaration of the income under the Voluntary Disclosure Scheme introduced by the Finance ( No. 2) Act, 1965 '
11. Section 68 and 69 of the Income Tax Act reads as follows:
Cash Credits "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 years.
Unexplained investments.
69. where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by It in for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year."
12. Under Section 68 of the Act if any sum is found credited in the books of account of the assessee 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 maybe charged to income-tax as the income of the assessee of that previous year. Therefore what has to be enquired into by the Assessing Authority is about the nature and source of the deposit. If the explanation with regard to nature and source is found unsatisfactory only then the amount so credited may be treated as income.
13. Section 68 came up for consideration before the various High Courts. The Court has held that assessee has to prove three conditions; 1) identity of the creditor; 2) capacity of such creditor to advance money; and 3) genuineness of the transactions; (vide Shankar Industries v. CIT, Central, (Calcutta), 114 ITR 689, C. Kant And Co. v. CIT-III, West Bengal, 126 ITR 63, Calcutta, Prakash Textile Agency v. CIT-III, West Bengal, 121 ITR 890, Calcutta, Oriental Wire Industries (P) Ltd. v. CIT, 131 ITR 688 Calcutta, CIT v. Baishnab Charan Mohanty, 212 ITR 199 Orissa, Jalan Timbers v. CIT, 223 ITR, 11 Gauhati and CIT v. Korlay Trading Co. Ltd., 232 ITR 820 Calcutta.
14. If all the aforesaid three conditions are proved the burden shift on the revenue to prove than the amount belong to the assessee. (vide CIT v. United Commercial And Industrial Co. (P) Ltd. 187 ITR 596, Calcutta, M.A. Unneeri Kutty v. CIT, 198 ITR 147 SLP dismissed 2001 ITR (ST) 23, CIT v. Precision Finance Pvt. Ltd., 208 ITR 465.
15. It has been held by the various High Courts that the assesses can not be asked to prove source of source or the origin of origin (vide S. Hastimal v. CIT, Madras, 49 ITR 273 Madras, Tolaram Daga v. CIT, Assam, 59 ITR 632, Assam. CIT v. Daulat Ram Rawatmull, 87 ITR 349 SC, Sarogi Credit Corporation v. Commissioner of Income Tax, 103 ITR 344 Patna.)
16. In the case of Jallan Timbers v. CIT reported in 223 I.T.R, 11, the Division Bench of Gauhati High Court held that under Section 68 of the Income Tax Act, the assessee has to prove three important conditions (1) Identity of the person (2) Genuineness of the transaction and (3) capability of the person giving cash credit. On the explanation being given the assessing authority can reject the explanation by cogent grounds and if the ground are based on no ground, presumption against the assessee does not arise.
17. In Sreelekha Banerjee v. CIT reported in 43 ITR page 112, Apex Court held that "if there was an entry in the account books of the assessee which showed the receipt of a sum on conversion of high denominations notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish it asked, what the source of that money was and to prove that it was not income The Department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished and examine the evidence and the explanation. If the explanation showed that the receipt was not of an income nature, the Department could not Act unreasonably and reject that explanation to hold that it was income. If however. the evidence was unconvincing, then such rejection could be made The Department cannot by merely rejecting a good explanation unreasonably, corvert good prod into no proof.
18. In the case of Commissioner of Income Tax v. Orissa Corporation P. Ltd. reported in 159 I.T.R., 78. the Apex Court observed as follow s;-
"In this case, the assessee had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income tax assesses. Their Index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the assesses did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstances, the assessee could not do any thing further. In the premises, if the Tribunal came to the conclusion that the assessee has discharged the burden that lay on him, [hen it could not he said that such a conclusion was unreasonable or perverse or based on no evidence, "
19. The Apex Court in the case of CIT v. P.K. Noorjahan (Smt) while interpreting similar language used in Section 69 has held as follows:
"Shri Ranbir Chandra, the learned counsel appearing for the Revenue has urged that the Tribunal as well as the High Court were in error in their interpretation of Section 69 of the Act, The submission is that once the explanation offered by the assessee far the sources of the investments are found to be unacceptable the only course open to the Income Tax Officer was to treat the value of the investments to be the income of the assessee. The submission is that the word "may" in Section 69 should be read as "shall". We are unable to agree. As pointed out by the Tribunal, in the corresponding clause in the Hill, which was introduced in Parliament, the word "shall" had been used but during the course of consideration of the Bill and on the recommendation of the Select Committee, the said word was substituted by the word "mar". This clearly indicates that the intention of Parliament in enacting Section 69 was to confer a discretion on the Income Tax Officer In the matter of treating the source of investment which has not been satisfactorily explained by the assessee as the income of the assessee and the Income Tax officer is not obliged to treat such source of investment as income in every case where the explanation offered by the assessee is found to be not satisfactory. The question whether the source of the investment should he treated as income or not under Section 69 has to he considered in the light of the facts of each case. In other words, a discretion has been conferred on the Income Tax Officer under Section 69 of the Act to treat the source of investment as the income of the assessee if the explanation offered by the assessee is not found satisfactory and the said discretion has to be exercised keeping in view the facts and circumstances of the particular case."
20. It may be mentioned here that under the Amnesty Scheme the new Taxpayers were allowed to declare their income for various years and their returns were allowed to be accepted without any charge of penalty and interest. In the present case with regard to the deposits. the assessee has offered explanation that the depositors have given the amount by cheque; they were all income tax assessee. assessed to tax under the amnesty scheme and, therefore, their identify, genuineness of the transaction, and their creditworthiness were established It is not the case where the assessee has claimed any immunity on account of the assessment being made in the case of these depositors under the amnesty scheme. As stated, above, under Section 68 of the Act it is open to the assessing authority to make the enquiry in respect of the identity genuineness of the transaction and the creditworthiness of the depositors
21. From the perusal of the order of the Tribunal and the authorities below, it appears that the explanation of the assessee has not been properly examined and has been rejected mainly on the ground that the immunity of the declaration under the amnesty scheme was only available to the declarant and not to the assessee without appreciating that the assessee has not claimed any immunity under the amnesty scheme Therefore, in our opinion, the explanation of the assessee with regard to these deposits requires fresh consideration. The order of the Tribunal is also not sustainable on the ground that before the Tribunal, the assessee has categorically submitted that the assessing authority has held that the partners of the firm introduced the money in the name of their wives and minors and, thus, the addition should be made i n the hands of the partners and not in the hands of the assessee. Tribunal has not considered this aspect of the matter. Therefore, the order of the Tribunal vitiates Tribunal has also not considered that the interest paid to the depositors have not been disallowed which proves the genuineness of the transaction.
22. So far as addition relating to the deposit of Sri Anil Kumar Gupta is concerned. we find that the Tribunal has not examined the matter property Admittedly. Sri Anil Kumar Gupta was income tax assessee and was carrying on the business He has not denied the deposit in the firm. The interest paid on such deposit has not been disallowed. Therefore. we are of the opinion that Tribunal should examine the matter afresh in the light of the observations made above.
23. For the reasons stated above, we are of the opinion that the order of the Tribunal is not sustainable and the matter requires reconsideration We answer the question referred to us in the negative i.e. in favour of the assessee and against the revenue However, the Tribunal is directed to decide the issue with regard to the addition towards cash credit afresh.