Karnataka High Court
S.R. Venkata Ratnam vs Commissioner Of Income-Tax, ... on 14 August, 1980
Equivalent citations: [1981]127ITR807(KAR), [1981]127ITR807(KARN), [1981]6TAXMAN263(KAR)
JUDGMENT
Chandrakantaraj, URS J.
1. This petition, after notice to the respondents, is disposed of by the following order :
The petitioner, for the first time, filed his income-tax return for the assessment year 1975-76. His return disclosed income from business at Rs. 6,100. The ITO estimated his income at Rs. 7,000. The petitioner assessee also showed a capital investment of Rs. 20,000 in the name of his minor sons in a firm, M/s. Santosh Bombay-Dyeing Show-room, Davangere. He explained the source of his capital outlay by accounting for it as having received Rs. 15,000 from pigmy saving in the Grain merchants Co operative Bank, Tumkur, and as having as living borrowed a further sum of Rs. 5,000 from one K. N. Veeerabadrappa. The 2nd respondent ITO disbelieved the explanation of the assessee in respect of the sum claimed to have been received from the pigmy saving account from the Grain Merchants Co-operative Bank, Tumkur, for the following reasons :
"It is not clear the assessee's argument to which year the pigmy deposits related and also it is not properly explained why the assessee withdraw the amount on 12-2-73 when this amount was introduce in the firm on 7-5-1975."
2. Therefore, rejecting the explanation offered by the assessee petitioner, the said sum of Rs. 15,000 was brought to tax as income from unexplained source for the relevant assessment year 1975-76. Aggrieved by the assessment order, the petitioner preferred a revision under s. 264 of the I.T. Act to the commissioner of Income-tax, Karnataka, respondent No. 1 herein. The commissioner disposed of the revision petition rejecting the same, observing as following :
"Thus there is a gap of two years between the withdrawal of the pigmy amount and the investment in Davangere business. The assessee cannot claim ignorance of bank facilities because he has kept money in pigmy deposits and was about to start business in Davangere where there are several bank functioning. In the absence of corroborative evidence that the money invested in 1975 was out of pigmy saving withdrawn in 1973, I see no reason to interfere in the matter."
3. Sri K. Srinivasan, learned counsel for the assessee-petitioner, has contended that the portion of the extracted above clearly indicated that the commissioner who admitted the source of Rs. 15,000 as having come from the pigmy bank was not correct in rejecting the same on the perverse reasoning that the petitioner did not utilise the bank at Devangere in the intervening period of two years as it was open to the petitioner to use or not to use the bank facilities. It is, therefore, contended that the commissioner did not judicially exercise the discretion vested in him under s. 264 of the I.T. Act but proceeded to pass the order on a capricious surmise as to what a person should or should not do with the money he had obtained.
4. As against this, the learned counsel for the revenue has contended that it was for the assessee petitioner to satisfactorily establish the source of the said sum of Rs. 15,000 which was utilised for capital outlay two years after the same was received and not for the department to investigate.
5. There is some force in the argument of the learned counsel for the petitioner and the argument advanced by the revenue is, therefore, with out any force. Once the petitioner assessee disclosed the source as having come from the withdrawn made on a given date from a given bank, it was not for respondents Nos. 1 and 2 to concern themselves with what the assessee did with that money, i.e., whether he had kept the same in his house or uitlised the services of a bank by depositing the same. The ITO had only two choice before him. One was to reject the explanation as not believable for the reason that on his investigation on such pigmy deposit was ever made in the bank. In the alternative he ought to have called upon the assessee-petitioner to substantiate his claim by documentary evidence. Having exercised neither of the choice, it was not open to the ITO to merely surmise that it would not be probable for the assessee to keep Rs. 15,000 unutilised for a period of two years. The ITO should have given an opportunity to the assessee to substantiate his assertion as to the source of his capital outlay.
6. The Commissioner-1st respondent who had jurisdiction under s. 264 of the I.T. Act should have remitted the matter to the ITO with a direction to ascertain from the bank whether such a deposit was withdrawn as contended by the assessee or with the direction that the ITO should call upon the petitioner to substantiate his assertion as to the source of the capital of Rs. 15,000. Neither of the respondents having approached the problem in this manner, it cannot be said that the 1st respondent commissioner exercised his revisional jurisdiction under s. 264 of the I.T. Act judicially and properly.
7. Therefore, the impugned orders of the commissioner and the ITO are set aside. Liberty is reserved to the ITO to call upon the petitioner to substantiate his ascertain as to the source of Rs. 15,000 which he utilised as capital outlay in the year 1975, and to pass a fresh assessment order in accordance with law. Rule will accordingly issue and be made absolute.
8. There will be no order as to costs.