Calcutta High Court
Pritam Daftary vs Commissioner Of Income Tax on 22 February, 2005
Equivalent citations: (2005)195CTR(CAL)304, [2006]283ITR259(CAL)
Author: Soumitra Pal
Bench: D.K. Seth, Soumitra Pal
JUDGMENT Soumitra Pal, J.
1. The present appeal under Section 260A of the IT Act, 1961, has been filed by the assessee against the order passed by the learned Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal").
2. The facts are the assessee was the director of M/s Cosmopolitan Construction (P) Ltd. (for short 'CCPL'). A diary marked UPD 10 was seized in course of search and seizure against CCPL. Particular entries in UPD 10 reflected that CCPL received consideration amount in cheque as well as in cash against the flats purchased under project P-206. The cheques were accounted for but it was alleged that the cash entries were unaccounted. This was sought to be alleged as income of the assessee out of his own business. Assessee contended that the sum of Rs. 2,95,002 belonged to the CCPL. CCPL had earlier moved the Settlement Commission and made disclosures with details pertaining to the asst. yrs. 1986-87 to 1989-90, CCPL filed an application before the Commission disclosing the said sum for the asst, yr. 1989-90. According to the assessee, since the said sum was subjected to tax at the hands of CCPL, it cannot be taxed in his hands.
So far as the sum relating to Rs. 1,00,000 is concerned, the assessee requested one S.K. Pincha to make payment of the said sum to RICCO on his behalf and debit it to his account. Accordingly, on 16th Nov., 1988, Pincha got a draft of Rs. 1,00,000 and paid to RICCO. The said sum of Rs. 1,00,000 together with interest totalling Rs. 1,05,625 was credited by the assessee in his books in the name of said Pincha. Confirmation letter from said Pincha along with income-tax file number and copy of receipt for filing return were adduced. According to the assessee, since the identity of the creditor and genuineness of the loan were established, the order of the learned Tribunal regarding the addition of the said sum on the ground of unexplained loan credit is erroneous and thus perverse.
3. In this factual backdrop, let us examine how the Revenue dealt with the assessment. The assessee had filed its return of income. The AO passed the assessment order. The assessee being unsuccessful preferred an appeal before the learned Commissioner of Income-tax (Appeal) [for short "CIT(A)"]. As regards the sum of Rs. 2,95,002, the CIT(A) found that examination of the seized materials revealed that the persons from whom cash was received made payments in cash as well as through account payee cheques. Cheques were credited in the hands of CCPL, and the cash received by the assessee remained unexplained. The CIT(A) declined to interfere as the sum of Rs. 2,95,000 remained out of the books and, therefore, required to be taxed in the hands of the assessee. Regarding the addition of Rs. 1,05,625 on account of unexplained loan credit, the CIT(A) also declined to interfere as the assessee failed to produce any documentary evidence to prove the creditworthiness of the creditor.
Still aggrieved, the assessee preferred an appeal before the learned Tribunal. The learned Tribunal while passing the order, inter alia, declined to interfere with the said two additions. Regarding the addition of Rs. 2,95,002 the Tribunal held as under :
"We have considered the rival submissions. We are of the view that the assessee is trying to dodge the issue of specific finding of the learned AO regarding the cash transactions with the flat buyers and circumventing receipts therefrom various projects which may or may not form part of the projects before the Settlement Commission. Before us also, the learned Authorised Representative has not been able to establish the distinction between the disclosure before the Settlement Commission by the company and by the specific finding of the learned AO as per the diary serial marked UPD-10 pp. 96 and 97 which otherwise should have also been disclosed before the Settlement Commission. We are, therefore, of the view that the addition of Rs. 2,95,002 was made after specific enquiries by the IT authorities and the fact that the assessee has not been able to establish the complexity of number of projects undertaken, number of flats sold and those remaining unsold, cost of construction per sq. ft. as against the actual expenditure incurred by the company which could have left a residual income. All the cash transactions remained out of books of Cosmopolitan Construction (P) Ltd. These facts are not borne out of the order of the Settlement Commissioner under Section 245D. We, therefore, confirm the addition."
While dealing with the addition of Rs. 1,05,625 the Tribunal held as follows :
"We have considered the rival submissions and have gone through the paper book submitted by the learned Authorised Representative and we have also perused the orders of the lower authorities. Prima facie, it appears that the assessee had made an investment amounting to Rs. 1,05,625 in purchasing of land at Bhiwadi. This fact has been clearly brought out by both the lower authorities who in the absence of any documentary evidence, creditworthiness of the creditor, bank statement and/or other evidence, in support of the claim of investment in land at Bhiwadi was made disallowed/added under Section 68. The affidavit, copy thereof has been filed by the Authorised Representative, also leaves much to be desired which remained unfulfilled before the lower authorities. This affidavit speaks of refund of loan together with interest which has not been substantiated by the learned Authorised Representative before us. The creditworthiness of the deponent has also not been established. We are, therefore, in agreement with the CIT(A) in confirming the loan credit under Section 68 of the IT Act."
4. Being aggrieved by the order of the Tribunal the assessee has filed the appeal pertaining to the asst. yr. 1989-90 questioning, inter alia, the addition of a sum of Rs. 2,95,002 and Rs. 1,05,625.
The appeal was admitted in terms of the following questions :
"1. Whether the purported findings of the Tribunal upholding the assessment in the hands of the assessee of Rs. 2,95,002 which sum had already suffered tax in the hands of Cosmopolitan Construction (P) Ltd. are based on any material and/or have been arrived at by ignoring the relevant materials and/or by taking into consideration irrelevant materials and/or otherwise arbitrary, erroneous, and perverse ?
2. Whether the purported findings of the Tribunal upholding the addition of Rs. 1,05,625 on account of loan taken by the assessee from Subh Karan Pincha are based on any material and/or have been arrived at by ignoring the relevant materials and/or by taking into consideration irrelevant materials and/or are otherwise arbitrary, erroneous and perverse ?"
5. Mr. J.P. Khaitan, learned advocate for the appellant, submitted that CCPL was in the construction business and one of the projects undertaken by it at the material point of time was project 206 for which it received amounts in cash as well as cheques from the buyers of the flats. Initially, CCPL in its books of account included only the amounts received by cheque and had not accounted for the cash received. Subsequent to search, CCPL filed a settlement application before the Settlement Commission which included the asst. yr. 1989-90. Revised accounts were filed for the previous year wherein the aggregate amount of the advance received from the flat buyers in cash as well as by cheque was shown. In arriving at the cash amount received from the buyers of the flats, CCPL took into consideration the cash receipts reflected in the seized diary marked as UPD 10. The said diary mentioned in detail the names along with the dates, the amount received in cash as well as by cheque. According to Mr. Khaitan, pursuant to a specific query by the Settlement Commission, CCPL by letter dt. 13th Sept., 1991 explained the items appearing at pp. 96 and 97 in the seized diary marked UPD 10, which appears at p. 78 of the supplementary paper book. The Settlement Commission taking note of project 206, assessed the entire additional income of CCPL for the asst, yr. 1989-90 at Rs. 4,13;840 Which included the income from the said project 206 after taking into consideration the undisclosed cash receipts including those reflected in the seized diary UPD 10. It was contended that the cash amount mentioned in the seized diary UPD 10 relating to the construction business of the CCPL, have already been assessed in its hands, the same cannot be included in the assessment of the assessee. Submission was made that though the assessee duly explained the factual position before the CIT(A), yet it held that the cash receipts had not been accounted for by CCPL and that the same were required to be taxed in the hands of the appellant. According to Mr. Khaitan, since the assessee had duly explained the nature and source of the sum in question, the finding of the Tribunal is perverse and the addition of Rs. 2,95,002 should be deleted.
6. Regarding the addition of Rs. 1,05,625 on account of unexplained loan, relying on the judgment of the apex Court in CIT v. Orissa Corporation (P) Ltd. it was submitted by Mr. Khaitan that though details were not before the AO, the same were before the CIT(A). The name, address and the income-tax number of the creditor were furnished and were within the knowledge of the Revenue. Thus, the assessee had discharged his burden of proof under Section 68 of the IT Act, 1961, and no addition could be made on account of failure of the Revenue to summon the creditor and collect evidence as to his identity and creditworthiness
7. Mr. Dipak Kumar Shome, learned senior advocate, appearing on behalf of the Revenue, refuting the contentions raised on behalf of the assessee regarding the addition of Rs. 2,95,002 submitted that the diary in which cash transactions were recorded was maintained by the assessee: Though for the asst. yr. 1989-90 CCPL made a disclosure before the Settlement Commission, yet it could not be ascertained which portion of it pertained to the said project as there was no break-up to show that the said sum of Rs. 2,95,002 was part of the Rs. 4,13,840, that is, the disclosed amount. Submission was made that the learned Tribunal was justified in upholding the addition of Rs. 2,95,002 as the order of the Settlement Commission did not deal with the said cash transaction.
8. So far as the question No. 2 is concerned, it was submitted that the assessee for the first time raised the issue before the CIT(A). It lacked relevant particulars. Not original, but a copy of purported affidavit affirmed by the creditor was filed. Since it was incomplete, the Department was justified in not relying on the same. Thus, according to Mr. Shome, the learned Tribunal was justified in confirming the loan credit under Section 68 of the IT Act, 1961, as there was no sufficient documentary evidence to prove the Identity and creditworthiness of the creditor.
9. We have considered the submissions of Mr. Khaitan and Mr. Shome for the respective parties.
10. Regarding question No. 1, it is to be determined whether in view of the disclosure made by CCPL before the Settlement Commission, the learned Tribunal was justified in upholding the order passed by the CIT(A). Since Section 68 of the IT Act casts an obligation upon the Revenue to apply its discretion judicially and rationally, it is to be seen whether while dealing with the issue, the identity of the person and creditworthiness were established and the genuineness of the transaction was tested. Before us, pp. 56 to 78 of the supplementary paper book reveal the names and details of payment made in cheques and cash which were disclosed by the CCPL before the Settlement Commission. The identity of the persons was established. Creditworthiness was not in dispute. The transaction under project 206 in cheques and cash between the purchaser and CCPL was not disbelieved. If the transaction between the purchaser and the company is established, then the genuineness cannot be questioned. Therefore, once the transaction including cash transaction is accepted, until it is identified that a particular entry in UPD 10 was not included in the said disclosure in the settlement, no definite conclusion could be arrived at that this amount was not included within the said disclosure in the settlement. When this cannot be conclusively decided, the benefit, if there be any, would accrue to the assessee.
Thus, in our view, the learned Tribunal was not justified in holding that the facts relating to the cash receipts were not borne by the order of the Settlement Commission under Section 245D of the IT Act, 1961. Since the order of the learned Tribunal was not based on record, it is perverse. Thus, the question No. 1 is answered in the affirmative and in favour of the assessee and against the Revenue.
11. So far as the question No. 2 is concerned, we accept the contention of Mr. Shome that the affidavit affirmed by the creditor was not original and was incomplete. However, the said incomplete affidavit contained the name, address and the income-tax file number of the creditor. Since these were before the Revenue, being the fact-finding authorities, it was incumbent upon them to enquire about the genuineness and creditworthiness of the creditor. Not having done so the Revenue failed to apply its discretion rationally under Section 68 of the Act. The judgment of the Supreme Court in the Orissa Corporation (supra) is applicable in the facts and circumstances of this case. There the assessee produced the discharged Hundies and confirmation letters from the alleged lenders. The Supreme Court, negating the contentions raised by Revenue, held since the assessee had given names and addresses of the creditors, who were income-tax assessees, the Revenue should have pursued the matter apart from issuing notices under Section 131 of the Act. The apex Court held that there was no effort to pursue the so-called alleged creditor. In the case at hand, as the name, address and the income-tax file number of the creditor was before the Revenue, the Revenue should have pursued the matter about the genuineness and creditworthiness of the creditor before coming to conclusion.
Thus, we set aside the order of the learned Tribunal upholding the addition of Rs. 1,05,625 on account of loan taken by the assessee and remand the matter back to the AO to consider it afresh in the light of the observations made in this judgment.
Thus, the appeal succeeds in part.
12. No order as to costs.
D.K. Seth, J.
13. I agree