Karnataka High Court
The Assistant Commissioner Of Income ... vs Vishwanath And Company Excise ... on 10 November, 2006
Equivalent citations: [2007]292ITR225(KAR), [2007]292ITR225(KARN)
Author: N. Ananda
Bench: N. Ananda
JUDGMENT
1. Revenue is before us aggrieved by the order of the Income Tax Appellate Tribunal dated 8.4.1999, Annexure 'C'. Respondent is an Excise Contractor. Re-assessment order was passed by the assessing officer Under Section 143(3) r/w. Section 143 of the Income Tax Act. Assessee filed a return of income declaring a net loss of Rs. 9,223/-. It was concluded Under Section 143(1) of the I.T. Act. Thereafter, notice was issued Under Section 148 of the Act and the assessment was re-opened. Assessee wrote a letter dated 9.10.1990 stating therein that the return filed on 2.12.1985 may be taken as a return filed in response notice Under Section 148 of the I.T. Act. Before that the department issued notifications dated 2.12.1989, 2.2.1990, 26.2.1990, 2.7.1990, 1.11.1990 in the matter of proceedings, a summon was also issued on 21.11.1990. In response to the said notice one Sri. Appa Rao appeared and his submission was recorded. On 19.12.1990, a notice Under Section 143(2) of the I.T. Act was issued to the assesses. Thereafter other notices dated 1.10.1991 and 31.1.1992 were, issued. There was no response by the assessee. An assessment order was passed on 5.3.1992 Under Section 143(3) of the Act. Aggrieved by the same, an appeal was filed before the Appellate Commissioner. Appellate Commissioner upheld the addition and the business income assessed by the assessing officer. A second appeal was filed before the Tribunal. The Tribunal deleted the addition of cash credit of Rs. 61,85,000/- and re-determined the business income at Rs. 1/- lakh as against Rs. 5/- lakhs assessed by the assessing authority. It is in these circumstances, the revenue is before us. The following questions of law are raised:
a) Whether, on the facts and circumstances of the case, the income tax appellate tribunal is correct in law in directing the deletion of the income assessed in the respondent-assessee's case Under Section 68 of the Income Tax Act 1961 for the assessment year 1985-86?
b) Whether, on the facts and circumstances of the case, there is evidence and material for the tribunal to hold that the loan as advanced to the respondent-assessee in a sum of Rs. 61,85,000/-during the accounting year 1983-84 was genuine and not liable to be assessed Under Section 68 of the Income Tax Act 1961?
c) Whether, on the facts and. circumstances of the case, the tribunal is right in law in holding that the income as assessed Under Section 68 of the Income Tax Act 1961 cannot be assessed for the assessment year 1985?
d) Whether, on the facts and circumstances of the case, the Tribunal is correct in law in redetermining the business income at Rs. 1,00 lakh as against. Rs. 5.00 lakh as determined by the assessing authority for the assessment year 1985-86?
2. Heard Sri. Indra Kumar, learned Counsel appearing for the Revenue, He would take us through various case-laws to nay that huge sums of money were noticed and the same was subjected to tax, The said order was accepted by the Commissioner. However, the Tribunal according to him reversed the addition without taking into consideration the material facts and the material laws as applicable to the facts of this case. He says that the addition of Rs. 61,85,000/- is in consonance with Section 68 of the I.T. Act. The said amount is nothing but an income from un-explained source on the facts of this case and in the given circumstances. He also finds fault with the Tribunal in re-determining the assessed business income by Rs. 1/- lakh as against Rs. 5/- lakhs. Several Judgments are pressed into service.
3. Sri. Shankar, learned Counsel would argue at great length to say that the said income cannot be taxed as an income from un-explained source. He would refer to us the material facts and the material evidence to say that the said sum is accounted for by the assessee and that order of the Tribunal has to be accepted. He would refer to us the various statements and also the material on record to contend that Sri. Appa Rao's statement has to be accepted in the given circumstances. The doubting of Sri. Appa Rao by the Assessing Officer and the Commissioner according to him is un warranted on the facts of this case. He says that the Tribunal, after noticing has chosen to rightly reversed the orders of the assessing authority confirmed in appeal. He says that Section 68 is wholly inapplicable to the facts of this case.
4. After hearing, we have carefully perused the material on record.
5. Admittedly, the assesses is an Excise Contractor. A return was filed claiming a net loss of Rs. 9,223/-. The same was re-opened after notice to the assessee. Several notices have been issued on several dates. Notices dated 2.12.1989, 10.1.1990, 2.2.1990, 26.2.1990, 26.2.1990, 2.7.1990, 1.11.1990, 21.11.1990, 19.12.1990, 1.10.1991, 31.1.1992 were issued Under Section 143 of the Act. There was no response by the assesses. Summons were issued to the so-called lender by name Sri. Appa Rao, in whose name there were credits in the books to the extent of Rs. 61,85,000/-. His statement was recorded. His statement, would show that he was employed in Toddy business. His salary will be in the range of Rs. 500/- to Rs. 1,000/- per month. His previous employer was one Sri. Renukasri & Co. and M/s. Devi Enterprises. He was staying in a rented house. His source of loan is from S. Ramaimirthy & Co. No written document was produced. He is not aware of any interest. After noticing the statement, the assessing officer was of the view that the assessee has no capacity to pay in the light of his (sic) salary and is staying in a rented house by way of a payment of Rs. 600/-. After noticing his contrary statement, the assessing officer was of the view that it is un-reliable witness. He has also noticed that the return filed by the assessee has no capacity to lend. He has only lent his name and nothing more. After noticing all these aspects of the matter, an adverse order was passed. The same was challenged before the Appellate Commissioner. The Appellate Commissioner notices several facts in his order. Sri. Appa Rao was an employee of a salary of Rs. 500/- to Rs. 1,000/- per month. He was staying in a rented house at a payment of Rs. 600/- month. Source of loan is one from M/s. Rama murthy and Co., which is supposed to have been obtained without any security and for which Sri. Appa Rao does not know whether any interest is paid or not but the accounts filed show that this money has been credited in cash to the account of Sri. Appa Rao, The same is withdrawn in cash. Sri. Appa Rao returned a loss for the accounting year 1984-85. He returned a fixed income of Rs. 12,000/-for each of the assessment years. He supposed to have obtained a loan of Rs. 33.50/- lakhs from M/s. Ramamurthy & Co., and advanced over Rs. 61/-lakhs to M/s. Vishwanath & Co., both without any security. After noticing all these aspects of the matter, the appellate Commissioner accepted the order of the assessing officer. When the same was challenged before the Tribunal, the Tribunal accepts the case of the assesses. The Tribunal was of the view that on a close examination of the facts of the case, it find that there are some apparent reasons to disbelieve the genuineness of the loan. There is no doubt about the fact that Sri. Appa Rao is not a man of sufficient means so as to be able to lend this huge amount of Rs. 61,85,000/- to the assessee-firm. The want of any written agreement and securities to the loan and also lack of provision relating to payment of interest on the loan would also normally go to enhance suspicion against the genuineness of the loan. After expressing his disbelieve and also suspicion, the Tribunal in the subsequent paragraph would say that Sri. Appa Rao himself might not have been a rich person so as to give such a huge loan. However, in excise loan it is an accepted fact that big contractors bid in auctions and take contracts in the name of their hench-men and carry on business for a year or so in the names of such hench-men, and appropriate the profits for themselves paying only paltry amounts to the front persons. Such might have been the case of Sri. Appa Rao. Excise business running in lakhs of rupees in the districts of Chilbarga and Raichur, in the name of Sri. Appa Rao, cannot at all be considered to be non-existent. On papers, the assessee firm is shown to have received the money from Sri. Appa Rao. Actually, however, such money has come from the excise business run in the name of Sri. Appa Rao. The source of money is easily explained from the books of accounts maintained with regard to that business. It 'is an acknowledged fact that in excise business; huge amounts of cash loans are transacted between different contractors for short periods by way of accommodations without, charging any interest. Such seems to be the case with regard to the loan accommodated by Sri. Appa Rao to the present assesses. Sri. Appa Rao was simply a front man of other business persons running the excise contracts. With this finding, the Tribunal accepts the genuineness of the transaction. In the light of various factors mentioned by the assessing officer and the Commissioner, we fail to understand how the Tribunal having expressed dis-belief and suspicion can subsequently chose to say that the transaction is genuine in terms of the excise contract. The acceptance of the transaction on the ground of "excise contract" to our mind is totally un-acceptable. No material was placed before the Tribunal with regard to excise business and the various findings recorded by the Tribunal, with regard to excise business has no basis, whatsoever. In our view, the acceptance of the genuineness of transaction by the Tribunal despite expressing suspicion cannot be accepted by law. We therefore are of the view that the findings of the Tribunal with regard to genuineness on the facts of this case has to be set aside and we do so in the case on hand. We cannot forget that large sums of money is involved and there is no acceptable material placed by the parties to believe the theory of a loan of Rs. 61 lakhs that too without interest and without anything in writing and that too from Sri .Appa Rao in terms of the material in the case on hand. The invention of Sri. Appa Rao and the loan from Sri. Appa Rao is probably made to get over the difficulties in the case on hand. We have no hesitation in accepting the order of the assessing officer confirmed, in appeal and we have further no hesitation in setting aside the findings of the Tribunal.
6. At this stage, we resist also notice the submission of Sri. Shankar, learned Counsel. Sri. Shankar, learned Counsel says that the Balance Sheet of Sri. Appa Rao would say that the assessee being a debtor to the expenditure of Rs. 61.85 lakhs. It also shows that the Tribunal has noticed Section 68 and that therefore, the findings are to be accepted. It is no doubt true that Sri. Appa Rao did produce some material but those uiaterials in our view cannot be accepted in the light of Sri. Appa Rao's contradictory statement in the case on hand. We cannot accept the statement of Sri. Appa Rao on the facts of this case. The Tribunal itself has expressed doubt in the matter. That being the position, it is not possible for us to accept the argument of Sri. Shankar, learned Counsel that the assessing officer has committed an error in treating this as an income for un-disclosed source Under Section 68 of the Act.
7. Both the parties have placed before us several Judgments. Sri. Seshachala, learned Counsel places before us the Judgment of the Supreme Court in 130 ITR 244 (Jamnaprasad Kanhaiyalal v. Commissioner of Income-Tax). The Supreme Court notices the material on record in that case and thereafter has ruled that a disclosure made by sons under Voluntary Disclosure Scheme does not preclude enquiry into genuineness of cash credits and their assessment as firm's income from undisclosed sources in the light of Section 68 of the Act.
The Supreme Court in the case of A. Govindarajulu Hudaliar v. Commissioner of Income Tax in the case of 34 ITR 807 has chosen to say that where the asses see fails to prove satisfactorily the source and nature of certain amounts of cash received, during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature.
In 214 ITR 801 (Sumati Dayal v. Commissioner of Income-Tax), the Supreme Court has ruled that the burden is on the assesses to prove that amounts credited in accounts did not represent income in terms of Section 68 of the Act.
8. In the case on hand, we are satisfied that the assesses has failed to prove the cash transaction in the case on hand in terms of case laws, The findings of the Tribunal to our mind (sic) nothing but surmises & conjectures, as understood in law.
9. Sri. Shankar, learned Counsel however relies on several Judgments in support of his submissions.
223 ITR 11 (Jalan Timbers v. Commissioner of Income-Tax) is a case wherein the Court was considering the exercise of discretion by the I.T.O and the Commissioner.
In 72 ITR 766 (Sheo Narain Duli Chand v. Commissioner of Income-Tax), the Court ruled that there is no presumption that witness appearing for an assessee comes forward to give false evidence to oblige the assesses.
256 ITR 795 (Commissioner of Income-Tax v. Gujarat Heavy Chemicals Ltd.) is a Judgment of the Supreme Court in which the Supreme Court considers the deletion of the addition on the ground that the material indicated that big business houses and industrialists were using Sikkim as a base of rerouting their unaccounted money and a search revealed that SD was controlling a few Sikkim companies for laundering such black money.
159 ITR 78 (Commissioner of Income-Tax, Orissa v. Orissa Corporation F. Ltd.) is a case in which the Court was considering with regard to knowledge of the revenue of the creditors. The Court was considering that the findings in that case cannot be termed as unreasonable or perverse.
283 ITR 377 (Saree Barkha Synthetics Ltd v. Assistant Commissioner of Income-Tax) is a case of Rajasthan High Court. The Court noticed that transactions are made through banking channels and once the existence of persons by name in the share applications in whose name the shares have been issued is shown, the assessee-company cannot be held responsible to prove whether that persons himself has invested the said money or some other person had made investment in the name of that person. The burden then shifts on the Revenue to establish that such investment has come from the assessee-company itself.
223 ITR 11 (Jalan Timbers v. Commissioner of Income-Tax) is a Judgment of the Gauhati High Court. The Court noticed that the assesses must prove three important conditions, namely identity of the person, the genuineness of the transaction and the capability of the person. It is unnecessary for us to considers each one of these Judgments in the case on hand.
All that Section 68 requires is an acceptable proof in a matter like this. Apart from identity, satisfaction has to be with reference to a bundle of facts including the capacity to pay for proving the genuineness of the transaction. The income has to be explained in terms of Section 68 of the Act. Unfortunately, in the case on hand, as rightly ruled by the assessing officer and the Commissioner, the assessee was unable to explain to the satisfaction of the assessing authority with regard to the genuineness of the transaction. As men tipped earlier, we are in agreement with the findings of the assessing officer confirmed in appeal. Though there can be no quarrel over the principles in terms of the Judgments cited by Sri. Shankar, learned Counsel, the facts of this case compels us not to accept his submissions. Moreover, a transaction of Rs. 61 lakhs cannot be done without anything in writing. The very want of written document/the very nature of transaction/'the very conduct of Sri. Appa Rao would go against the assessee.
10. In the result, this appeal is accepted. Questions of law are answered in favour of the revenue. The order of the Tribunal is set aside. No costs.