Madras High Court
Commissioner Of Income-Tax vs K. Palaniappan on 20 February, 1998
Equivalent citations: [2000]242ITR719(MAD)
JUDGMENT N.V. Balasubramanian, J.
1. The following questions of law have been referred to .us in pursuance of the directions of this court in T. C. P. No. 255 of 1983, dated November 1, 1983 :
"1. Whether having regard to the provision in Section 68 of the Income-tax Act, 1961, the decision of the Appellate Tribunal that the cash credit of Rs. 50,000 entered in the books of the assessee on December 29, 1975, is not assessable in the assessment for the assessment year 1976-77 is based on valid materials and sustainable in law ?
2. Whether the assessee's statement in a proceeding under a different statute that the aforesaid credit represents undisclosed profits of some earlier years has overriding" effect and must be taken as constituting a satisfactory explanation for the source thereof, within the meaning of Section 68 of the Income-tax Act, 1961 ?"
2. The assessee is an individual and the assessment year with which we are concerned is 1976-77, the relevant previous year ended on April 15, 1976. The Income-tax Officer made an addition of a sum of Rs. 50,000 to the total income returned by the assessee on the ground that the assessee had not satisfactorily explained the nature and source of credit entry of Rs. 50,000 found in the books of account dated December 29, 1975. The assessee had made a voluntary disclosure of Rs. 50,000 under the provisions of the Voluntary Disclosure of Income and Wealth Act, 1976 {hereinafter referred to as "Voluntary Disclosure Act"). The assessee made the declaration under the Voluntary Disclosure Act as under : 1968.-69 income Rs. 10,000 ;
1969-70 income Rs. 10,000 ;
1970-71 income Rs. 10,000 ;
1971-72 income Rs. 10,000 ;
1972-73 income Rs. 10,000.
3. The assessee signed the necessary declaration form under the Voluntary Disclosure Act on December 29, 1975, and remitted the tax of Rs. 16,250 on the same day. The assessee also despatched the papers by post to the Commissioner of Income-tax on December 31, 1975, but the papers were received by the office of the Commissioner of Income-tax only after January 1, 1976, and as the matter was late, the Department has not accepted the disclosure made by the assessee. The Department also refunded that tax to the assessee. The assessee made a representation to the Commis sioner of Wealth-tax that he may be assessed to wealth-tax for the amount of Rs. 50,000 spread over for a period of five years 1968-69 to 1972-73. It appears from the order of the Appellate Tribunal that the wealth-tax assessments were made on protective basis and tax was paid thereon. The assessee seems to have made a similar representation under the provisions of the Income-tax Act, 1961 (hereinafter called "the Act"), for the consideration of the Department. In the meantime, the Income-tax Officer initiated assessment proceedings for the assessment 1976-77 and the officer required the assessee to explain the source of the credit entry of Rs. 50,000 made on December 29, 1975. The assessee explained that the credit entry of Rs. 50,000 was made in accordance with the provisions of the Voluntary Disclosure Act and it was earned during the earlier years and not brought into the assessment in those years and he pleaded that the entry of Rs. 50,000 made on December 29, 1975, cannot be considered in isolation and it must be taken along with the disclosure made by the assessee under the Voluntary Disclosure Act. The Income-tax Officer, however, found that the explanation offered by the assessee was not satisfactory and held that the amount of Rs. 50,000 credited in the books of account of the assessee should be regarded as an income of the assessee and made an addition of the said amount to the total income returned by the assessee for the said assessment year.
4. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals), Coimbatore, against the inclusion of the said sum of Rs. 50,000. The Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer holding that the assessee had not explained the source of credit and the Income-tax Officer was justified in treating the said sum as the income of the assessee.
5. The assessee preferred a further appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal, after noticing the declaration made by the assessee under the Voluntary Disclosure Act, held that the declaration made under the Voluntary Disclosure Act has to be accepted as true and correct unless there are materials to discredit the statement. The Appellate Tribunal, therefore, held that in the absence of any evidence contra, the statement of the assessee as to the nature and source of the said sum of Rs. 50,000 has to be accepted. The Appellate Tribunal perused the assessment files for the earlier years and found that the sum of Rs. 50,000 probably cannot be an income for the assessment year 1976-77 on the score that the assessment records for the assessment years 1964-65 to 1975-76 gave an impression that there might be a possibility of some income escaping assessment in those assessment years. The Tribunal, therefore, held that the assessee had explained the nature and source of the credit entry and deleted the addition made by the Income-tax Officer and allowed the appeal preferred by the assessee.
6. Mr. C. V. Rajan, learned counsel for the Revenue, submitted that the view of the Appellate Tribunal is erroneous in law and the assessee's explanation that it was concealed income of the earlier years cannot be regarded as a valid and satisfactory explanation. He submitted that under the provisions of Section 68 of the Act, the onus is on the assessee to prove satisfactorily the source of the credit entry and there is no material or evidence to show that the credit entry relates to the concealed income of the earlier years. He also submitted that since the declaration was not accepted by the Department, the declaration cannot be looked into for any purpose and the statement made therein cannot be regarded as a satisfactory explanation for the purpose of Section 68 of the Act. The further submission of learned counsel for the Revenue is that the finding of the Appellate Tribunal was based on probabilities and since the finding of the Tribunal was not based on any material, the Appellate Tribunal has come to an erroneous conclusion in holding that the assessee had explained the credit entry.
7. Mr. R. Janakiraman, learned counsel for the assessee, on the other hand, submitted that the credit entry cannot be looked into in isolation, but it must be viewed in the light of the surrounding circumstances of the case and the necessity for the assessee to make the credit entry. He referred to the provisions of the Voluntary Disclosure Act and submitted that though the declaration filed by the assessee was rejected, not due to the situation created by the assessee, but due to the fact that the declaration reached the Department beyond the time, the declaration made by the assessee would constitute a relevant piece of evidence to show that the credit entry represented the income during the earlier years. He submitted that it was on the basis of the inducement offered by the Government of India, that the assessee came forward with the disclosure and there is nothing to discredit the statement made by the assessee that it represented the income of the earlier years. The Tribunal, according to learned counsel for the assessee, after perusing all the records came to the conclusion that the assessee could not have earned the income of Rs. 50,000 during the relevant previous year for the assessment year 1976-77 and the credit entry represented the income of the earlier years. He, therefore, submitted that the finding was arrived at on the basis of the evidence and, therefore, this court should not interfere with the finding of the Appellate Tribunal.
8. Before considering the arguments, it is necessary to refer to the decisions relied upon by learned counsel. In Baldeo Prasad v. CIT [1987] 166 ITR 205 the Patna High Court held that there the assessee admitted that the disclosure, disclosing certain sum of money under the Voluntary Disclosure Act, was not accepted by the Department, it is open to the authorities to draw an inference that the sum declared by the assessee and not accepted by the Department was the income of the assessee from undisclosed sources. In CITv. Durga Prasad More [1969] 72 ITR 807, the Supreme Court held that once it was found that a receipt by the assessee was income of the assessee it is not necessary for the Revenue to locate its exact source of the credit and the said principle will apply also to cases where entries are made in the books of account.
9. In Kale Khan Mohammed Hanif v. CIT [1963] 50 ITR 1, the Supreme Court held that the onus is on the assessee to prove the nature and source of the credit entry found in the account books of the assessee. In CIT v. Orissa Steel Corporation P. Ltd. [1983] 144 ITR 662, the Calcutta High Court held that where cash credits and other sums were credited in the books of account of the assessee, the assessee has to satisfactorily explain the source of credit, otherwise the said sums would come within the purview of Section 68 of the Act and would be assessable as the income of the assessee. In-CITv. Orissa Corporation P. Ltd. [1986] 159 ITR 78, the Supreme Court held as under (page 82) :
"Under the 1922 Act, where a large amount of cash was found credited on the very first day of the accounting year, and considering the extent of the business, it was not possible that the assessee earned a profit of that amount in one day, the amount could not be assessed as the income of the year on the first day on which it was credited in the books. Under this Section, even in such a case, the unexplained cash credit might be assessed as the income of the accounting year for which the books are maintained. See, in this connection, the observations in Kanga and Palkhi-vala's Income Tax, seventh edition, volume I, pages 609 and 610."
10. In CITv. K. Sreedharan [1993] 201ITR 1010, the Kerala High Court held that it is well established that the onus is on the assessee to explain the cash credit entries in the books of account and where certain intangible additions of income were made in a previous year, though they represented secret profits not disclosed, since they were added in the course of the assessment proceedings or disclosed in some other ancillary proceedings, the amount so added can be treated as the income of the assessee available for investment. The Kerala High Court further held that once an intangible addition is made, that is as good as the disclosed income of the assessee and that could be treated as available for investment from the year in which such an addition was made.
11. In Ashokpal Duga (HUF) v. CIT [1996] 220 ITR 452, the Madhya Pradesh High Court held that the question whether the Tribunal was right in law and had any material to hold that the sums in the names of various parties were unproved cash credits and the assessee's income from undisclosed sources and interest paid thereon were liable to be assessed as income is a question of law arising out of the order of the Appellate Tribunal. In CIT v. Bharat Engineering and Construction Co. [1972] 83 ITR 187, the Supreme Court held that the finding of the Appellate Tribunal that the credit entry did not represent the income of the assessee-company is a finding of fact. In Patnaik and Co. Ltd. v. CIT[1986] 161 ITR 365, the Supreme Court held that the Appellate Tribunal is the final fact-finding authority under the Income-tax Act and the court has no jurisdiction to go behind the statements of fact made by the Tribunal in its appellate order. The Supreme Court also held that the court may do so only if there is no evidence to support the findings of the Appellate Tribunal or the Tribunal has misdirected itself in law in arriving at the findings of fact. In S. R. Venkata Ratnam v. CIT [1981] 127 ITR 807, the Karnataka High Court held that once the assessee disclosed the source of credit, the Income-tax Officer has only two options ; one is, he can reject the explanation given by the assessee, and another is, he can call upon the assessee to substantiate his claim by documentary evidence and on the basis of mere surmises, it is not open to the Income-tax Officer to make an addition.
12. The principle of law is well settled and there is no dispute that the Tribunal is the final fact-finding authority and this court has no jurisdiction to disturb the finding of fact arrived at by the Tribunal, if the finding is based on certain materials on record. The questions referred to us have to be considered in the light of the provisions of Section 68 of the Income-tax Act which reads as under :
"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 Income-tax Officer, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year."
13. Under the above provisions of Section 68 of the Act, the onus is on the assessee to offer an explanation where any sum is found credited in the books of account and if the assessee offers no explanation or the explanation offe,red by the assessee is not satisfactory, the sum credited is liable to be charged to income-tax as the income of the assessee of that previous year. Section 68 codified the law on the topic and it is not necessary to discuss the case law in great detail as the case of the Revenue is based only on the provisions of Section 68 of the Act. The Tribunal gave three reasons to hold that the assessee had properly explained the credit entry of Rs. 50,000 on December 29, 1975. The first reason is that the amount was disclosed in the declaration filed under the Voluntary Disclosure Act, The second reason is that it cannot be regarded as concealed income of the relevant previous year as the assessee could not have earned in one year such a huge profit. The third reason given by the Appellate Tribunal is that there may be possibility of some income escaping assessment in the earlier assessment years. Based on the above three reasons, the Appellate Tribunal came to the conclusion that the nature and source of the credit entry has been properly explained by the assessee.
14. In so far as the first reason is concerned, the declaration made by the assessee under the Voluntary Disclosure Act was not accepted by the Commissioner of Income-tax as the declaration reached the Commissioner belatedly and, therefore, the declaration of the assessee that it represented the income of earlier years cannot be accepted. The reliance placed by the Appellate Tribunal on the declaration filed under the Voluntary Disclosure Act would indicate that the Tribunal has accepted the voluntary disclosure made by the assessee and when the Commissioner had not accepted the same it is impermissible for the Tribunal to come to the conclusion that the credit entry represented the income of the earlier years. The Tribunal was also of the view that the Government has induced and invited the assessee to come out with the truth and, therefore, basing upon the inducement offered by the Government that immunity will be offered, the assessee has made the statement. It is, no doubt, true that the Government made a promise that if the assessee voluntarily discloses the income subject to certain conditions, the immunity will be granted, but when the assessee had not fulfilled the terms under which the disclosure was expected to be made, it is not open to him to complain that he would not have made the statement, but for the inducement offered by the Government and, therefore, it is impermissible to rely upon the statement made in the voluntary disclosure scheme. Even assuming that the statement made therein is regarded as a piece of evidence the assessee must be able to prove the statement made by him in the disclosure scheme corroborated by some independent materials as the assessee has come under the regular assessment channel and it is for him to satisfy the authorities that the onus placed on him under Section 68 of the Act is discharged.
15. The second reasoning given by the Appellate Tribunal is also based on the probabilities of the case. The view of the Appellate Tribunal that the assessee could not have earned Rs. 50,000 in one year is not based on any material and further, the reasoning of the Appellate Tribunal is against the teeth of the provisions of Section 68 of the Act.
16. The third reasoning given by the Appellate Tribunal is also farfetched. The Tribunal perused the assessment records of the earlier assessment years 1964-65 to 1975-76 and recorded a finding that the earlier assessment records gave the Tribunal an impression that there may be possibility of some income escaping assessment in those earlier assessment years. The finding of the Appellate Tribunal clearly shows that the Tribunal has arrived at the conclusion on the basis of certain probabilities and without any material on record. The Appellate Tribunal has not even discussed the nature of the business and the volume of business and how it came to the conclusion that there could have been some escaped income in the earlier years. The observation made by the Appellate Tribunal that there may be possibility of some income escaping assessment clearly shows that the Tribunal has acted on the basis of probabilities and has allowed its imagination to run the field. The Appellate Tribunal is a final fact finding authority, but if it renders a finding on the basis of its conjectures and surmises, such a finding cannot be regarded as binding on the courts. That apart, the courts have taken a view that where certain intangible additions were made in the earlier years, that would constitute the source for the credit entry in the subsequent year, but, however, we are of the opinion that a concealed income which was neither disclosed in the assessment proceedings nor in any other ancillary proceeding for any earlier year can hardly constitute a source for a subsequent credit entry and if the explanation of the assessee that the source of the credit entry is the undisclosed income of the earlier years is accepted, it will open the doors to tax evasion and the purpose behind the enactment of Section 68 will be easily defeated as it will be open to any one to point out that the credit entry came from some undisclosed and unassessed income of a prior year. When Parliament has placed the onus on the assessee to explain satisfactorily the nature and source of the credit entry, it is for the assessee to prove the source of the credit entry and the courts have held that if the additions were made in the earlier years, that would constitute the source for the subsequent credit entry, and then it is for the Department to prove that the earlier additions were spent away during intervening period. It is not clear from the order of the Appellate Tribunal how the Tribunal came to the conclusion on a perusal of the earlier assessment records that the assessee might have earned the sum which was not disclosed in the earlier assessment proceedings. In our view, the conclusion of the Appellate Tribunal is arrived at only on the basis of its own surmises and conjectures and there is a complete dearth of materials for its conclusion and, in our opinion, it has by cosmeticising it, given an illusion that it has arrived at findings of fact, on the basis of materials, and the ultimate inference drawn on the basis of the above reasonings, in our view, is not sustainable on the facts of the case. The Income-tax Officer as well as the Commissioner of Income-tax (Appeals) has clearly found that the assessee has not explained the source of the credit entry and the assessee had not let in any new evidence before the Appellate Tribunal and only on the basis of the plea raised before the Appellate Tribunal that the said amount could have been the undisclosed income of the earlier years and it would not represent the income of the previous year and also on the basis of the belated disclosure made by the assessee under the Voluntary Disclosure Act, the Appellate Tribunal has come to the conclusion that the assessee had explained the source of the credit entry. We are of the view that the finding of the Appellate Tribunal is not based on any material on record and, therefore, we are not able to sustain the finding of the Appellate Tribunal that the assessee had explained the nature and source of the credit entry.
Mr. Janakiraman, learned counsel for assessee, pleaded that at least the matter may be remitted to the Appellate Tribunal to consider the matter afresh. However, we are of the view, the assessment year involved is 1976-77 and two decades have passed since then, and we are not able to entertain the request of learned counsel for the assessee that the matter should be remitted to the Appellate Tribunal to consider the matter afresh. In this view of the matter, we answer the questions of law referred to us in the negative and in favour of the Revenue. However, in the circumstances of the case, there will be no order as to costs.