Nemi Chand Kothari = Vs

[2003] 264 ITR 254=20 (GAU.)

HIGH COURT OF=20 GAUHATI

Nemi Chand = Kothari

Commissioner of=20 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.=97This appeal has been heard on = the following=20 substantial question of law :

"Whether, on the facts and = circumstances of=20 the case, the learned Tribunal was justified in demanding the proof = regarding=20 the creditworthiness of the sub-creditor and in drawing an adverse = inference=20 against the appellant on his alleged failure to satisfy the respondents=20 regarding the creditworthiness of the = sub-creditors?"

In a short compass, the facts = leading to the=20 present appeal may be put as follows:

The appellant carries on the = business of=20 supply of bamboo in the name of Bamboo Bagicha as its proprietor. For = the=20 assessment year 1992-93, the appellant filed his return of income and = the same=20 was processed under section 143(2) of the Income-tax Act, 1961. During = the=20 course of the assessment, the Assessing Officer examined the relevant = books of=20 account and various other particulars and completed the assessment vide order, dated March 30, = 1995. In=20 the course of the assessment so made, the Assessing Officer found that = the=20 assessee had taken loans from Nemichand Nahata and Sons (HUF) amounting = to Rs.=20 4,35,000 and from one Sri Pawan Kumar Agarwalla amounting to Rs. = 5,00,000 during=20 the previous year ending on March 31, 1992. The Assessing Officer = declined to=20 treat the loan of Rs. 4,35,000 claimed to have been taken by the = appellant from=20 Nemichand Nahata and Sons (HUF) and added the entire amount of Rs. = 4,35,000 in=20 the assessee=92s total income from undisclosed sources under section 68 = of the=20 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=20 amount to the extent of Rs. 4,25,000 as genuine and added the said = amount of Rs.=20 4,25,000 to the total income of the assessee as income from undisclosed = sources.=20 As regards the first creditor, namely, Nemichand Nahata and Sons (HUF), = the=20 Assessing Officer, in the course of the assessment, examined the Hindu = undivided=20 family under section 131 of the Income-tax Act. In his statement so = recorded,=20 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=20 had received the said amount of Rs. 4,35,000, Sri Nemichand stated that = the=20 Hindu undivided family had taken loans from three different persons, = namely, 1.=20 Smt. Jhumku Devi Nahata, 2. Smt. Shanti Devi Nahata, and 3. Smt. Madhu = Devi=20 Nahata, amounting to Rs. 1,20,000, Rs. 1,25,000 and Rs. 1,20,000, = respectively.=20 Sri Nemichand further claimed that out of the said amount of Rs. = 4,35,000=20 advanced to the assessee, a sum of Rs. 70,000 was from his own source = and that=20 the said three loans amounting to Rs. 3,65,000 had been taken from the = said 3=20 (three) different sub-creditors by the Hindu undivided family by means = of=20 account payee cheques. It was also clarified, during the course of this=20 assessment proceeding, that Nemichand Nahata and Sons (HUF) and all the = three=20 sub-creditors were income-tax assessees. The Assessing Officer, upon = examining=20 the assessment records of the three sub-creditors, namely, 1. Smt. = Jhumku Devi=20 Nahata, 2. Smt. Shanti Devi Nahata, and 3. Smt. Madhu Devi Nahata, found = that=20 all the three sub-creditors had submitted their return of income for the = first=20 time, on February 17, 1992, showing that the said income had been = derived by=20 them from seasonal business without, however, mentioning the amounts = involved in=20 purchase, sales, etc. The Assessing Officer held that the returns of = income=20 submitted by the creditor as well as the sub-creditors were actually = submitted=20 by them merely for enabling them to advance the loan of the said loan = amounts to=20 the appellant. The Assessing Officer also held that no genuine loan had = been=20 taken by the creditor, namely, Nemichand Nahata and Sons (HUF) from the = three=20 sub-creditors amounting to Rs. 3,65,000 and the creditor had no fund of = his own=20 amounting to Rs. 70,000 to advance the loan to the appellant and, = therefore,=20 declined to accept the loan of Rs. 4,35,000 as genuine and added the = said amount=20 of Rs. 4,35,000 to the total income of the assessee as his income from=20 undisclosed sources under section 68 of the Income-tax Act. As regards = the loan=20 claimed to have been taken by the assessee from the creditor, namely, = Sri P.K.=20 Agarwalla, the Assessing Officer found that the said P.K. Agarwalla had = taken=20 loan of Rs. 4,25,000 from five different parties by account payee = cheques for=20 advancing the loan to the appellant. The said sub-creditors were also = examined=20 and they confirmed that they had advanced the loans to the creditor, = namely, Sri=20 P.K. Agarwalla. It was also found by the Assessing Officer that the = creditor as=20 well as the sub-creditors aforementioned were all income-tax assessees. = On=20 examining the creditor and the sub-creditors aforementioned and also the = assessment records of the sub-creditors, the Assessing Officer concluded = that=20 their income files were nothing, but capital building exercise aimed at=20 accommodating others without support from any documentary evidence = regarding=20 their own business activities. The Assessing Officer, therefore, = accepted as=20 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=20 concerned, the Assessing Officer added back the said amount to the = assessee=92s=20 total income from undisclosed sources under section 68 of the Income-tax = Act.

Feeling aggrieved by the assessment = order,=20 dated March 30, 1995, aforementioned, the assessee preferred appeal = before the=20 Commissioner of Income-tax (Appeals), Guwahati, who, vide his order dated February = 29, 1996,=20 deleted both the additions of Rs. 4,35,000 and Rs. 4,25,000 on the = ground that=20 the assessee-appellant had not only established the identity of the = creditors,=20 but also the genuineness of the loans taken by the appellant and that = the same=20 could not be controverted by the Assessing Officer. On appeal preferred = by the=20 Revenue, the learned Income-tax Appellate Tribunal, Guwahati, vide order dated May 27, = 2002, passed=20 in I.T.A. No. 311 (Gauhati) of 1996, set aside the said order of the=20 Commissioner of Income-tax (Appeals) and upheld the order of the = Assessing=20 Officer on the ground that neither the sub-creditors nor the creditors, = in=20 question, had creditworthiness to advance the said loans. Not satisfied = with=20 this order, the assessee has, now, preferred the present=20 appeal.

We have heard Dr. A.K. Saraf, = learned counsel=20 for the assessee-appellant, and Mr. U. Bhuyan, learned counsel for the=20 Revenue.

It is submitted, on behalf of the = appellant,=20 that as far as the appellant is concerned, it had proved that it had = received=20 the two loan amounts of Rs. 4,35,000 and Rs. 5,00,000 aforementioned = from the=20 said two creditors, namely, Nemichand Nahata and Sons (HUF) and P.K. = Agarwalla,=20 respectively. Thus, the identity of the creditor, according to Dr. = Saraf, had=20 been established by the appellant. Since the amounts were paid by = cheques by the=20 creditors to the appellant, it is contended, on behalf of the appellant, = that=20 the amounts so paid by cheques had not only been established, but that = even the=20 identity of the creditors as well as the genuineness of the transactions = had=20 been proved by the appellant. It is also submitted, on behalf of the = appellant,=20 that since the creditors had also received the amounts aforementioned by = way of=20 loans from their sub-creditors by means of cheques, the Assessing = Officer and=20 the learned Tribunal ought to have concluded that so far as the = appellant was=20 concerned, his creditors aforementioned had the creditworthiness to = advance the=20 loan to the appellant. It is not the burden of the assessee, contends = Dr. Saraf,=20 to prove how the creditor of an assessee happened to obtain the amount, = which=20 the creditor had advanced, as loan, to the assessee. In the case at = hand,=20 however, points out Dr. Saraf, the appellant had not only established = the=20 identity of the creditor, but had also established the genuineness of = the=20 transactions and credit worthiness of the creditors aforementioned by = showing=20 that the creditors had received the amounts aforementioned by way of = cheque from=20 the sub-creditors. To prove the creditworthiness of a sub-creditor is = not,=20 according to Dr. Saraf, the onus of the assessee inasmuch as it is = immaterial so=20 far as the assessee is concerned as to how and from what source(s), the = creditor=20 happens to receive the amount, which the creditor advances to the = assessee as=20 loan. Support for the submission is sought to be derived by Dr. Saraf, = from the=20 decision in Tolaram Daga v. CIT [1966] 59 ITR 632=20 (Assam).

It is also submitted by Dr. Saraf = that in the=20 present case, the creditors as well as the sub-creditors were income-tax = assessees and, hence, the genuineness of the transactions and = creditworthiness=20 of the creditors had been clearly established by the appellant. In such = a=20 situation, according to Dr. Saraf, even if the sub-creditors had failed = to show=20 how they had received the amount(s), which they had advanced, as loan, = to the=20 creditors, then, the said amounts could have, at best, been treated as = income=20 from undisclosed sources of the sub-creditors, but the failure, if any, = on the=20 part of the sub-creditors to show their creditworthiness could not have = been=20 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=20 come to the hands of the sub-creditors from the end of the present = appellant=20 and, then, the same had passed over from the hands of the sub-creditors = to the=20 hands of the creditors.

It is further submitted by Dr. = Saraf that an=20 enquiry under section 68 of the Income-tax Act must remain confined to = the=20 determination of the question of genuineness of the transaction, which = has taken=20 place between the assessee and his creditor and shall not extend to the=20 transactions, which might have taken place between the creditor and his=20 sub-creditors and, similarly, the creditworthiness of the creditor, = contends Dr.=20 Saraf, has to be determined keeping the enquiry confined to the = transaction,=20 which has taken place between the assessee and the creditor and cannot = be=20 extended to the transactions, which may have taken place not between the = assessee and the creditor, but between the creditor and his=20 sub-creditors.

Controverting the above submissions = made on=20 behalf of the appellant, Mr. U. Bhuyan has submitted that in the present = case,=20 the questions as to whether the assessee could establish satisfactorily = the=20 genuineness of the transactions involved in the assessment and the=20 creditworthiness of the creditors are essentially questions of facts and = the=20 same cannot be treated as questions of law and, hence, the same could = not have=20 been raised as substantial questions of law. According to Mr. Bhuyan, = the=20 question raised by the appellant is a question of fact and not a = question of=20 law, far less, a substantial question of law.

Mr. Bhuyan has also submitted that = while=20 determining the creditworthiness of a creditor and also the genuineness = of the=20 transactions between the creditor and the assessee, the Assessing = Officer cannot=20 only determine the genuineness of a transaction between the assessee and = the=20 creditor, but also between the creditor and his sub-creditors. If the=20 sub-creditor, according to Mr. Bhuyan, does not have the means to give = the=20 funds, in question, to the creditor, the same can be reflected to mean = that the=20 creditworthiness of the creditor has not been established and in such a = case,=20 failure of the creditor to prove his creditworthiness can be extended to = mean=20 that there was no genuine transaction between the creditor and the = assessee and=20 that the creditor had no creditworthiness to advance the loan to the = assessee.=20 Viewed from this angle, contends Mr. Bhuyan, section 68 of the = Income-tax Act=20 cannot be limited to mean that the scope of the enquiry under section 68 = by an=20 Assessing Officer shall remain confined to the determination of the = question as=20 to whether the money had passed hands from the creditor to the assessee = or not.=20 Such interpretation, according to Mr. Bhuyan, will introduce a = limitation on the=20 powers of the Assessing Officer, which has not been envisaged by section = 68 of=20 the Income-tax Act.

It is further submitted by Mr. = Bhuyan that in=20 the present case, merely because the transactions had taken place = between the=20 assessee and the creditor as well as the sub-creditors by means of = cheques, it=20 could not have necessarily led to the conclusion that the transactions = were=20 genuine inasmuch as nothing, according to Mr. Bhuyan, can be held as = sacrosanct=20 about the payments made by cheques. In support of this submission, Mr. = Bhuyan=20 has placed reliance on the decision rendered in CIT v. = Precision=20 Finance P. Ltd. [1994] 208 ITR 465 (Cal).

Upon hearing learned counsel for = the parties=20 and perusal of the materials on record, we find that none of the two = rival=20 submissions made before us, on behalf of the parties, is entirely = correct. For=20 the sake of brevity, we quote hereinbelow section 68 of the Income-tax = Act,=20 which reads as follows:

"68. Where any sum is found = credited in the=20 books of an assessee maintained for any previous year, and the assessee = offers=20 no explanation about the nature and source thereof or the explanation = offered by=20 him is not, in the opinion of the Assessing Officer, satisfactory, the = sum so=20 credited may be charged to income-tax as the income of the assessee of = that=20 previous year."

While interpreting the meaning and = scope of=20 section 68, one has to bear in mind that normally, interpretation of a = statute=20 shall be general, in nature, subject only to such exceptions as may be = logically=20 permitted by the statute itself or by some other law connected therewith = or=20 relevant thereto. Keeping in view these fundamentals of interpretation = of=20 statutes, when we read carefully the provisions of section 68, we notice = nothing=20 in section 68 to show that the scope of the inquiry under section 68 by = the=20 Revenue Department shall remain confined to the transactions, which have = taken=20 place between the assessee and the creditor nor does the wording of = section 68=20 indicate that section 68 does not authorise the Revenue Department to = make=20 inquiry into the source(s) of the creditor and/or sub-creditor. The = language=20 employed by section 68 cannot be read to impose such limitations on the = powers=20 of the Assessing Officer. The logical conclusion, therefore, has to be, = and we=20 hold that an inquiry under section 68 need not necessarily be kept = confined by=20 the Assessing Officer within the transactions, which took place between = the=20 assessee and his creditor, but that the same may be extended to the=20 transactions, which have taken place between the creditor and his = sub-creditor.=20 Thus, while the Assessing Officer is, under section 68, free to look = into the=20 source(s) of the creditor and/or of the sub-creditor, the burden on the = assessee=20 under section 68 is definitely limited. This limit has been imposed by = section=20 106 of the Evidence Act, which reads as follows:

"Burden of proving fact = especially within=20 knowledge.=97When any fact is especially within the knowledge of any = person,=20 the burden of proving that fact is upon him.

Illustrations: (a) When a person does an = act, with=20 some intention other than that which the character and circumstances of = the act=20 suggest, the burden of proving that intention is upon = him.

(b) A is charged with = travelling on a=20 railway without a ticket. The burden of proving that he had a ticket is = on=20 him."

On a careful reading of section = 106, we=20 notice that what is the source from which an assessee has obtained the = loan can=20 be safely held to be a fact, which is actually within the special = knowledge of=20 the assessee; hence, it is the burden of the assessee to show the = source(s) from=20 which he has received the loans. Once the assessee discloses the = source(s) from=20 which he has received the loans, his burden under section 106 stands = discharged=20 and the onus, then, shifts to the Assessing Officer to show, if he wants = to=20 treat the loan as an income of the assessee from undisclosed source, = that the=20 transaction(s) between the assessee and the creditor is/are not genuine = or that=20 the creditor has no creditworthiness and/or that the money, which has = been=20 received by the assessee in the form of loans, actually belonged to the = assessee=20 himself. There can be no doubt that in order to establish the receipt of = cash=20 credit as required under section 68, the assessee must satisfy three = important=20 conditions, namely, (i) identity of the creditor, (ii) = genuineness=20 of the transaction, and (iii) financial capability of the person = giving=20 the cash credit to the assessee, i.e., the creditworthiness of = the=20 creditor.

What, thus, transpires from the = above=20 discussion is that while section 106 of the Evidence Act limits the onus = of the=20 assessee to the extent of his proving the source from which he has = received the=20 cash credit, section 68 gives ample freedom to the Assessing Officer to = make=20 inquiry not only into the source(s) of the creditor, but also of his=20 (creditor=92s) sub-creditors and prove, as a result, of such inquiry, = that the=20 money received by the assessee, in the form of loan from the creditor, = though=20 routed through the sub-creditors, actually belongs to, or was of, the = assessee=20 himself. In other words, while section 68 gives the liberty to the = Assessing=20 Officer to enquire into the source/sources from where the creditor has = received=20 the money, section 106 makes the assessee liable to disclose only the = source(s)=20 from where he has himself received the credit and it is not the burden = of the=20 assessee to show the source(s) of his creditor nor is it the burden of = the=20 assessee to prove the creditworthiness of the source(s) of the = sub-creditors. If=20 section 106 and section 68 are to stand together, which they must, then, = the=20 interpretation of section 68 has to be in such a way that it does not = make=20 section 106 redundant. Hence, the harmonious construction of section 106 = of the=20 Evidence Act and section 68 of the Income-tax Act will be that though = apart from=20 establishing the identity of the creditor, the assessee must establish = the=20 genuineness of the transaction as well as the creditworthiness of his = creditor,=20 the burden of the assessee to prove the genuineness of the transactions = as well=20 as the creditworthiness of the creditor must remain confined to the=20 transactions, which have taken place between the assessee and the = creditor. What=20 follows, as a corollary, is that it is not the burden of the assessee to = prove=20 the genuineness of the transactions between his creditor and = sub-creditors nor=20 is it the burden of the assessee to prove that the sub-creditor had the=20 creditworthiness to advance the cash credit to the creditor from whom = the cash=20 credit has been, eventually, received by the assessee. It, therefore, = further=20 logically follows that the creditor=92s creditworthiness has to be = judged vis-a-vis the transactions, = which have=20 taken place between the assessee and the creditor, and it is not the = business of=20 the assessee to find out the source of money of his creditor or of the=20 genuineness of the transactions, which took between the creditor and=20 sub-creditor and/or creditworthiness of the sub-creditors, for, these = aspects=20 may not be within the special knowledge of the = assessee.

A person may have funds from any = source and=20 an assessee, on such information received, may take loan from such a = person. It=20 is not the business of the assessee to find out whether the source or = sources=20 from which the creditor had agreed to advance the amounts were genuine = or not.=20 If a creditor has, by any undisclosed source, a particular amount of = money in=20 the bank, there is no limitation under the law on the part of the = assessee to=20 obtain such amount of money or part thereof from the creditor, by way of = cheque=20 in the form of loan and in such a case, if the creditor fails to satisfy = as to=20 how he had actually received the said amount and happened to keep the = same in=20 the bank, the said amount cannot be treated as income of the assessee = from=20 undisclosed source. In other words, the genuineness as well as the=20 creditworthiness of a creditor have to be adjudged vis-a-vis the transactions, = which he=20 has with the assessee. The reason why we have formed the opinion that it = is not=20 the business of the assessee to find out the actual source or sources = from where=20 the creditor has accumulated the amount, which he advances, as loan, to = the=20 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=20 taken place between the assessee and the creditor and not between the = creditor=20 and the sub-creditors, for, it is not even required under the law for = the=20 assessee to try to find out as to what source or sources from where the = creditor=20 had received the amount, his special knowledge under section 106 of the = Evidence=20 Act may very well remain confined only to the transactions, which he had = with=20 the creditor and he may not know what transaction(s) had taken place = between his=20 creditor and the sub-creditor. No such additional burden can be placed = on an=20 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=20 has come to the hands of the assessee by way of loan from the creditor = actually=20 belonged to the assessee, but this conclusion cannot be reached by mere = failure=20 on the part of the sub-creditor to show his creditworthiness and/or the=20 genuineness of the transaction between the creditor and sub-creditor, = for, the=20 creditor may receive any amount from sources known to the creditor only = and if=20 he fails to show how he has received the amount, in question, or if he = fails to=20 show the creditworthiness of his sub-creditor, such an amount may be = treated as=20 the income from undisclosed source of the creditor or of the = sub-creditor, as=20 the case may be, but such failure, on the part of the creditor cannot, = in the=20 absence of any clinching evidence, be treated as the income of the = assessee=20 derived from undisclosed source.

Since it is not the business of the = assessee=20 to find out the source(s) from where the creditor has accumulated the = amount,=20 which he has advanced, in form of the loan, to the assessee, section 68 = cannot=20 be read to show that in the case of failure of the sub-creditors to = prove their=20 creditworthiness, the amount advanced as loan to the assessee by the = creditor=20 shall have to be read, as a corollary, as the income from undisclosed = source of=20 the assessee himself. If sections 106 and 68 have to survive together, = the=20 logical interpretation will be that while the assessee has to prove only = his=20 special knowledge, i.e., the source from where he has received = the credit=20 and once he discloses the source from which he has received the money, = he must=20 also establish that so far as his transaction with his creditor is = concerned,=20 the same is genuine and his creditor had the creditworthiness to advance = the=20 loan, which the assessee had received. When the assessee discharges the = burden=20 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=20 from undisclosed source, to prove either by direct evidence or=20 indirect/circumstantial evidence that the money, which the assessee = received=20 from the creditor actually belonged to, and was owned by, the assessee = himself.=20 If there is direct evidence to show that the loan received by the = assessee=20 actually belonged to the assessee, there will be no difficulty in = assessing such=20 amount as the income of the assessee from undisclosed source; but if = there is no=20 direct evidence in this regard, then, the indirect or circumstantial = evidence=20 has to be conclusive in nature and must, in such circumstances, = unerringly point=20 to the assessee as the person from whom the money had actually flown to = the=20 hands of the sub-creditor and, then, routed through the hands of the=20 sub-creditor to the hands of the creditor. For this purpose, the = circumstantial=20 evidence has to be not only consistent with the hypothesis that the = money=20 belonged to the assessee, but that this hypothesis must also be = inconsistent=20 with the hypothesis that none other than the assessee owned the said = money. If=20 the conclusion be that the money received, as loan, by the assessee may = or may=20 not belong to him or if the possibility exists that the money received, = as loan,=20 by the assessee may not belong to him, then, in none of such two cases, = the loan=20 amount can be conclusively treated as income from undisclosed source of = the=20 assessee inasmuch as for assessing the money as income of the assessee = from=20 undisclosed source, there must be clinching evidence to show that the = money=20 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=20 source of the creditor or of the sub-creditor, as the case may be. If = the=20 inquiry under section 68 reveals that though the creditor had the=20 creditworthiness, on the day on which he had advanced the loan to the = assessee,=20 yet the source of the creditor is not genuine, that is to say, though = the=20 transaction between the assessee and the creditor is genuine, the = transaction=20 between the creditor and the sub-creditor is not genuine, then, in such = a=20 situation, it cannot be read as a corollary nor can it lead to the lone = and only=20 conclusion, in the absence of any other material, that the money that = has=20 changed hands from the sub-creditor to the creditor was received by the=20 sub-creditor from none other than the assessee = himself.

In other words, though under = section 68, an=20 Assessing Officer is free to show, with the help of the inquiry = conducted by him=20 into the transactions, which have taken place between the creditor and = the=20 sub-creditor, that the transaction between the two were not genuine and = that the=20 sub-creditor had no creditworthiness, it will not necessarily mean that = the loan=20 advanced by the sub-creditor to the creditor was income of the assessee = from=20 undisclosed source unless there is evidence, direct or circumstantial, = to show=20 that the amount, which has been advanced by the sub-creditor to the = creditor,=20 had actually been received by the sub-creditor from the assessee. We are = fortified in adopting this view from the following observations made in=20 Tolaram Daga=92s case [1966] 59 ITR 632 (Assam) (page=20 635):

"At the outset, we have to point = out that=20 there is no substance in the contention that the sources from which the = money=20 was realised by the third party are within the special knowledge of the=20 petitioner as the depositor happens to be his wife. Whether he has = knowledge at=20 all of the source of the money deposited by the third-party is a matter = which=20 has to be decided on evidence.....Under law, in the absence of specific = proof of=20 that knowledge, it cannot be assumed that the assessee has the knowledge = in=20 question within the meaning of section 106 of the Evidence Act.....To = require=20 the firm or the individual partners to go further and adduce proof of = the=20 sources from which the deposits in question appearing in the accounts in = the=20 name of third parties were derived by them, would be placing a burden on = the=20 firm as well as the partners, which is not required or justified by law. = For=20 ought we know, in most cases it may well-nigh be impossible for the firm = or the=20 partners to know or determine the sources from which the money deposited = with=20 them had been realised by the depositors.....The enquiry as to the = source from=20 which this amount was acquired or obtained by Smt. Munni Devi Daga may, = perhaps,=20 be relevant in an investigation into the assessment to be made regarding = her=20 income and when determining the correctness of the return submitted by = her. But=20 the mere fact that the petitioner was unable to satisfy the authorities = as to=20 the source from which Smt. Munni Devi Daga derived the monies which she=20 deposited with the firm cannot, in our opinion, be used against the = petitioner.=20 The Tribunal, therefore, was not justified in either demanding this = proof or in=20 drawing an adverse inference against the assessee on his failure to = produce the=20 same." (emphasis is=20 supplied)

Keeping in view the above position = of law,=20 when we turn to the factual matrix of the present case, we find that so = far as=20 the appellant is concerned, he has established the identity of the = creditors,=20 namely, Nemichand Nahata and Sons (HUF) and Pawan Kumar Agarwalla. The = appellant=20 had also shown, in accordance with the burden, which rested on him under = section=20 106 of the Evidence Act, that the said amounts had been received by him = by way=20 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.=20 Once the assessee had established that he had received the said amounts = from the=20 creditors aforementioned by way of cheques, the assessee must be taken = to have=20 proved that the creditor had the creditworthiness to advance the loans.=20 Thereafter the burden had shifted to the Assessing Officer to prove the=20 contrary. On mere failure on the part of the creditors to show that = their=20 sub-creditors had creditworthiness to advance the said loan amounts to = the=20 assessee, such failure, as a corollary, could not have been and ought = not to=20 have been, under the law, treated as the income from the undisclosed = sources of=20 the assessee himself, when there was neither direct nor circumstantial = evidence=20 on record that the said loan amounts actually belonged to, or were owned = by, the=20 assessee. Viewed from this angle, we have no hesitation in holding that = in the=20 case at hand, the Assessing Officer had failed to show that the amounts, = which=20 had come to the hands of the creditors from the hands of the = sub-creditors, had=20 actually been received by the sub-creditors from the assessee. In the = absence of=20 any such evidence on record, the Assessing Officer could not have = treated the=20 said amounts as income derived by the appellant from undisclosed = sources. The=20 learned Tribunal seriously fell into error in treating the said amounts = as=20 income derived by the appellant from undisclosed sources merely on the = failure=20 of the sub-creditors to prove their = creditworthiness.

It is, no doubt, true that in the = present=20 case, the findings arrived at by the Assessing Officer as well as the = learned=20 Tribunal are findings of fact, but since these findings are based on an = wholly=20 erroneous view of law, such findings cannot be said to be mere findings = of=20 facts. It is trite that no assessment can be made contrary to the = provisions of=20 law. In the case at hand, the very basis for making assessment is under=20 challenge. If the assessment is based on a completely erroneous view of = law,=20 such findings cannot be regarded as mere findings of fact, but must be = treated=20 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=20 firmly of the view that the question raised in the present appeal is a=20 substantial question of law inasmuch as the same goes to the very root = of the=20 assessment made and we have no hesitation in answering the same in the=20 negative.

Mr. Bhuyan=92s contention that a = payment made=20 by cheque cannot be treated as sacrosanct and his reliance on the law = laid down=20 in Precision Finance P. Ltd.=92s case [1994] 208 ITR 465 (Cal) = are wholly=20 misplaced inasmuch as even we do not hold that a transaction, which = takes place=20 by way of cheque, is invariably sacrosanct. What we hold is that so far = as the=20 present assessee-appellant is concerned, his burden stood discharged, = when he=20 had proved the identity of his creditors, the genuineness of the = transactions,=20 which he had with his creditors, and the creditworthiness of his = creditors vis-a-vis the transactions, = which he=20 had with the creditors. The burden had, then, shifted to the Revenue to = show=20 that though covered by cheques, the amounts, in question, actually = belonged to,=20 or were owned by, the assessee himself, but no material, direct or = indirect,=20 exists on record to come to such a conclusion confidently and boldly. = For the=20 reasons, discussed above, this appeal succeeds and the impugned orders = are set=20 aside and quashed.

With the above observations and = directions,=20 this appeal stands disposed of. No order as to=20 costs.