Full Judgment Text
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CASE NO.:
Appeal (civil) 2540 of 2007
PETITIONER:
Commissioner of Income Tax
RESPONDENT:
P. Mohanakala
DATE OF JUDGMENT: 15/05/2007
BENCH:
S.H. Kapadia & B. Sudershan Reddy
JUDGMENT:
J U D G M E N T
CIVIL APPEAL NO. 2540 OF 2007
(Arising out of SLP(c) No. 17358 of 2006)
WITH
CIVIL APPEAL NOs. 2541,2542,2543,2544,2545,2546
and 2547 OF 2007
(Arising out of SLP(C ) Nos. 17356,
17364,17365,19565,19563,21066 & 19566 of 2006
B.SUDERSHAN REDDY,J.
Leave granted.
These appeals have been filed against the judgment of
Madras High Court dated 29.3.2006 in TC (A) Nos. 74 to 76
and 78 to 82 of 2002 whereby the following questions have
been answered by the High Court in favour of the assessees
and against the revenue:
(a) Whether in the facts and circumstances, the
Income Tax Appellate Tribunal was correct in
law to accept the principle of preponderance of
probabilities in holding that the claim of the
appellant that the sum of Rs. 15,62,500/-
received him by way of gifts through normal
Banking Channels was not genuine an that it
was liable to be assessed under Section 68 of
the Income Tax Act, 1961?
(b) Whether in the light of the law established and
based on the facts and in the circumstances of
the case, the learned Income Tax Appellant
Tribunal is legally justified in concluding that
burden of proof cast on the appellant under
Section 6B of the Income Tax Act, 1961 has not
been discharged and the ingredients for
invoking section 68 of the Income Tax Act are
present?
(c) Whether in the facts and circumstances of the
case, the conclusion of the Tribunal that the
claim of gift is not genuine is reasonable and
based on relevant material and not perverse?
These appeals relate to the assessment years 1995-96
and 1996-97. The dispute in all these appeals essentially
relates to the addition made by the Assessing Officer in
respect of several foreign gifts stated to have been
received by the assesses from one common donor namely
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Sampath Kumar. The gifts received were from one
Ariavan Thotan and Suprotoman. It is during the
enquiry by the Revenue it is asserted that they were the
aliases of Sampathkumar. These gifts were made to A.
Srinivasan and his wife, Smt. S. Kalavathy, his son, S.
Balaji Manikandan and to one of his brothers, Rajendran
and Smt. Mohanakala. Each one of them is an assessee
within the jurisdiction of the appellant. The foreign gifts
are received by the assesses during the assessment years
1993-94 to 1996-97. The detail of the gifts received by
each one of the assessees is as under:
Assessment years
Shri/Smt.
93-94
94-95
95-96
96-97
A. Srinivasan
6,40,758
14,46,933
26,47,647
8,64,500
S. Kalavathy
1,47,797
16,19,679
21,82,847
1550,00
S.Balaji Manikandan
84,423
5,68,015
21,85,604
8,64,500
A. Rajendran
15,62,500
R. Mohanakala
15,62,500
8,72,978
36,34,627
101,41,098
32,79,000
In all the aggregate gifts received by the assessees
is to the extent of Rs. 1,79,27,703/-. The Assessing
Officer did not accept the explanation offered by the
respective assessees that the amount of credit is a gift
from NRI and proceeded to add it as the income of the
assessees from undisclosed sources. The credit entries
have been made during the period from 8.7.1992 to
19.10.1995. There is no dispute that the payments
were made by instruments issued by a foreign bank and
credited into the respective assessee’s account by
negotiation through a bank in India. Most of the cheques
sent from abroad were drawn on Citibank, N.A.
Singapore.
The Assessing Officer dealt with the controversy as
regards the cash credit entries received from the foreign
donor. He noticed that the gifts have been sent in the
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name of Ariavan Thottan and received by A. Srinivasan
and others who are all his family members. Each one
of them is an individual assessee.
That all the assessees were summoned and their
statements have been recorded by the Assessing Officer.
Srinivasan who is the key person in his statement said
that he knew Sampathkumar for the last 20 years and
he had been helping Sampathkumar prior to 1985 by
paying Rs. 100/- to 200/- every month as he had no
source of income to get himself educated.
There are material inconsistencies in the
statements made by other assessees which we are not
required to notice in detail. Sampathkumar in his own
statement stated that he was in Indonesia up to the
year 1992 and employed as an Engineer. Thereafter, he
shifted to England and started consultancy profession
there. Later in the end of the year 1994-95, he joined
New Century Machinery Ltd. Cheshire, SK 16 4xS and
became its director in 1996. It is in his statement that
he is paying taxes in England from his income earned in
England. As far as his Indian income is concerned, he
stated that he filed the returns for the assessment
years 1996-97 & 1997-98 before the Income Tax
Officer, Ward 1(4), CBE only on 23rd October, 1997. His
investment in Indian companies according to him will be
around for Rs. 5 crores and made out of his income
earned in the foreign countries. He did not reveal the
details of his bank account in India and stated that he
would be submitting the details through his auditor
which he did not. Except the self serving statement
there is no material evidence as regards his financial
status. He stated from 1972-73 he knew Srinivasan,
Rajendran and their families. His father was a taxi
driver, and was very poor. Srinivasan and his family
members were supporting him when he was in India. To
a pointed query as to whether there is any evidence to
show that he was also known by any other name other
than Sampathkumar, he stated that "no evidence. Only
Mr. Srinivasan used to call me as Suprotoman."
The Assessing Officer after an elaborate
consideration of the material available on record and the
statements of the assessees and as well as that of
Smapathkumar noted that all the gifts were received
from Ariavan Thotan and Suprotoman. It is only after the
enquiries by the department, it was informed by letter
dated 25.4.1996 that Ariavan Thotan and Suprotoman are
one and the same person. Even at that time, no mention
was made about Sampathkumar. For the first time
Sampathkumar’s name figured in the letter dated
30.08.1996 and thereafter it was stated that the names of
Ariavan Thotan and Suprotoman are the other names of
Sampathkumar. The Assessing Officer while appreciating
the contents of the letters brought on record came to the
conclusion that Smpathkumar had obliged in giving ’gifts’ to
Srinivasan and his family members. It is further held that in
all probabilities Sampathkumar may have received
compensatory payments in lieu of the gifts made by him.
The letters according to the Assessing Officer suggest that
Sampathkumar reserved his right to receive suitable
compensation from the respondents-assessees. The
Assessing Officer in the circumstances came to the
conclusion that the gifts though apparent are not real and
accordingly treated all those amounts credited in the books
of assessees as the income of the assessees.
On appeal the Commissioner of Income Tax concluded
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that the story set up by the assessees is unacceptable and
hard to believe and the "preponderance of probabilities, the
common course of human livings point to the contrary". The
appeals were accordingly dismissed.
There was difference of opinion between two members
of the Tribunal and the matter has been referred by the
President, Income Tax Appellate Tribunal under Section 255
(4) of the Income Tax Act, 1961 ( for short ’the Act’) to the
Senior Vice President to resolve the difference of opinion. In
order to resolve the difference of opinion the Tribunal
(through its Sr. Vice President) re-appreciated the entire
material available on record and reheard the matter. The
Senior Vice President concurred with the findings and
conclusions arrived at by the Assessing Officer and the
Commissioner of Income Tax. The Tribunal noticed that the
letters exchanged "by the person who had sent foreign
exchange to the assessees only indicate that there is no love
and affection between them and that he is clearly
materialistic and his statement of accepting a reciprocation
is also an indication to the fact that he is not doing anything
free but clearly the compensation was a round about manner
of showing of he having been compensated either in India or
abroad." The Tribunal also took note of the various other
attending circumstances and found it difficult to accept the
explanation offered by the assesses.
We may at this stage profitably note that the Assessing
Officer, the Commissioner of Appeals and the Tribunal in one
voice held that the explanation offered by the assessees as
regards cash credit entries is not acceptable. The material
and the evidence available on record according to each one
of the authorities lead to one and only possible inference
that the so-called gifts received by the assessees in reality
are no gifts.
The High Court vide the impugned judgment in exercise
of its jurisdiction conferred upon it under Section 260(A) of
the Act reversed the finding of fact and allowed the appeals.
The High Court virtually re-appreciated the evidence
available on record and substituted its own findings for that
of the Tribunal and the other authorities. The High Court
came to the conclusion that the reasons assigned by the
Tribunal and other authorities "are in the realm of surmises,
conjectures and suspicions \005\005\005the authorities under the Act
have failed to draw the only conclusion that is possible
legally and logically." The judgment of the High Court is
assailed in these appeals.
The learned Solicitor General strenuously contended
that the approach adopted by the High Court is totally
erroneous. The High Court in exercise of its jurisdiction
under Section 260(A) of the Act may interfere with the order
of the Tribunal provided substantial question of law arises
for its consideration. Re-appreciation of evidence and
substitution of the findings by the High Court is
impermissible. The High Court exceeded its jurisdiction in
disturbing concurrent findings of facts. The learned Solicitor
General further contended that once explanation offered by
the assessees is found unsatisfactory, the sums credited in
the books are to be charged to income-tax as the income of
the assessees. Duty is heavily cast upon the assessees to
offer reasonable explanation as regards the nature and
source of the amounts found credited in the books
maintained by the assessees.
Shri T.L.V. Iyer, learned Senior Counsel appearing on
behalf of the respondents-assessees submitted that the High
Court did not exceed its jurisdiction in any manner
whatsoever nor committed any error in arriving at proper
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conclusion based on the evidence available on record. The
conclusions drawn by the authorities below including the
Tribunal were based on surmises, conjectures and suspicion
which cannot be equated to that of findings based on
evidence. Improper inference drawn from proven facts
definitely gives rise to substantial question of law. It was
also contended that even if the explanation offered by the
assessees is not acceptable the amounts credited
automatically cannot be treated as an income in the hands
of the assessees unless such a question is framed and
answered that unexplained cash credit was the income of
the assessees.
In order to appreciate the contentions urged before us
it would be appropriate to notice Section 68 of the Act which
is re-produced:
Cash credits.
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 Assessing
Officer, satisfactory, the sum so credited may be charged to
income-tax as the income of the assessee of that previous year.
The question is what is the true nature and scope of
Section 68 of the Act? When and in what circumstances
Section 68 of the Act would come into play? That a bare
reading of Section 68 suggests that there has to be
credit of amounts in the books maintained by an
assessees; such credit has to be of a sum during the
previous year; and the assessees offer no explanation
about the nature and source of such credit found in the
books; or the explanation offered by the assessees in
the opinion of the Assessing Officer is not satisfactory,
it is only then the sum so credited may be charged to
income-tax as the income of the assessees of that
previous year. The expression "the assessees offer no
explanation" means where the assessees offer no
proper, reasonable and acceptable explanation as
regards the sums found credited in the books
maintained by the assessees. It is true the opinion of
the Assessing Officer for not accepting the explanation
offered by the assessees as not satisfactory is required
to be based on proper appreciation of material and other
attending circumstances available on record. The
opinion of the Assessing Officer is required to be formed
objectively with reference to the material available on
record. Application of mind is the sine qua non for
forming the opinion.
In Sumati Dayal Vs. Commissioner o Income
Tax, Bangalore [1995 Supp.(2) SCC 453) this Court
held:
"In all cases in which a receipt is sought to
be taxed income, the burden lies on the
Department to prove that it is within the
taxing provision and if a receipt is in the
nature of income, "the burden of proving
that it is not taxable because it falls within
exemption provided by the Act lies upon the
assessee. But, in view of Section 68 of the
Act, where any sum is found credited in the
books of the assessee for any previous year
the same may be charged to income tax as
the income of the assessee of that previous
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year if the explanation offered by the
assessee about the nature and source
thereof is, in the opinion of the Assessing
Officer, not satisfactory. IN such a case
there is, prima facie, evidence against the
assessee, viz., the receipt of money, and if
he fails to rebut, the said evidence being
unrebutted, can be used against him by
holding that it was a receipt of an income
nature." (emphasis supplied)
In that case the amount was credited in the capital
account in the books and the assessee offered her
explanation about the said receipt being her winnings
from horse races. The explanation was not accepted.
There was no dispute that the amount was received by
the assessee from various race Clubs on the basis of
winning tickets presented by her. This Court based on
the material available on record found that an inference
about such a purchase has to be drawn on the basis of
the circumstances available on record inasmuch as no
direct evidence about such purchase be rarely available.
This Court accordingly upheld the majority opinion of the
Settlement Commission based on surrounding
circumstances and applying the test of human
probabilities. This authoritative pronouncement in our
considered opinion is the complete answer to reject the
submissions made by the learned senior counsel on
behalf of the respondents.
In Commissioner of Income-Tax Vs. Smt. P.K.
Noorjahan [1999] 237 IT 570, this Court while
construing Section 69 of the Act observed that the
intention of Parliament in enacting Section 69 was to
confer a discretion on the Income Tax Officer in the
matter of treating the source of investment which has
not been satisfactorily explained by the assessee as the
income of the assessee and the Income Tax Officer is
not obliged to treat such source of investment as income
in every case where the explanation offered by the
assessee is found to be not satisfactory. "The question
whether the source of the investment should be treated
as income or not under Section 69 has to be considered
in the light of the facts of each case. The contention of
Shri Iyer was that the ratio of the decision would equally
be applicable to interpret Section 68 of the Act. There is
no dispute about the same but the assessees in no
manner raised any plea that even if their explanation is
not acceptable the same cannot be treated as an income
in their hands. In cases where the explanation offered
by the assessee about the nature and source of sums
found credited in the books is not satisfactory there is,
prima facie, evidence against the assessee, viz; the
receipt of money, the burden is on the assessee to rebut
the same, and if he fails to rebut it can be held against
the assessee that it was a receipt of an income nature.
The alternative submission made by Shri Iyer before us
would not help the assessees in this case in hand.
In K.S. Kannan Kunhi Vs. Commissioner of
Income Tax, Kerala [1969] 72 ITR 757, the High Court
came to the conclusion that the Income Tax Officer and
the Appellate Assistant Commissioner have not
considered the acceptability otherwise of the assessee’s
explanation about the credit nature, except making an
assertion that it was not acceptable. On the facts it
was held that whether it should be inferred that the
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amounts constituted income of the previous year,
though the explanation offered by the assessee was not
acceptable, did not receive the consideration of the
authorities. On the facts the findings of the Tribunal
were held not valid. The decision does not show that it
is the duty of the Assessing Officer to suo motu make an
enquiry even in the absence of any plea and rebuttal by
the assessee. This decision is required to be understood
in the light of the ratio of the judgment in Sumati
Dayal (supra).
In Commissioner of Income Tax, U.P Bharat
Engineering & Construction Co. [1972] 83 ITR 187,
the facts are that the Tribunal itself found that the cash
credit entries could not represent the income or profit of
the assessee as they were all made very soon after the
assessee commenced its activities. This Court observed
in the circumstances it would be reasonable to assume
that those cash credit entries were capital receipts. It is
held that in the absence of satisfactory explanation of
the assessee the Income Tax Officer may assume that
cash credit entries in its books represent income from
undisclosed sources. But what inference should be
drawn from the facts proved is a question of fact and the
Tribunal’s finding on that question is final. We are
unable to appreciate as to how the said judgment
renders any assistance and supports the contention
urged by the learned counsel for the assessees.
In Commissioner of Income Tax, Orissa Vs.
Orissa Corporation P. Ltd. [1986] 159 ITR 78, the
Income tax Officer did not accept the assessee’s
accounts showing cash credits which were shown to
have been received by way of loans from three
individual creditors. The Income Tax Officer treated the
entire amount as unproved cash credit and added the
same to the income of the assessee. On appeal the
Tribunal took the view that the assessee could not
produce those persons alleged to be creditors, but it did
not follow automatically and an adverse inference should
be drawn that the amount represented undisclosed
income of the assessee. The creditors were themselves
income tax assesses and while being assessed, they had
made statements before the respective Income Tax
Officer admitting that they were allowing their names to
be lent without giving loans as creditors of different
assessees. In those circumstances, the Tribunal came
to the conclusion that the assessee had discharged the
burden that lay on him. This Court held that the
Tribunal’s conclusion was not unreasonable or perverse
or based on no evidence and accordingly further held
that no question of law as such had arisen for
consideration.
In Commissioner of Income tax, Bombay City
II Vs. Deviprasad Khandelwal & Co. Ltd. [1971] 81
ITR 460, the Bombay High Court took the view that in
every case where the Income Tax Officer rejects the
explanation submitted by an assessee in respect of
unexplained cash credits in his books of accounts, a
finding against the assessee must be made that the
cash credit entry represents the assessee’s income from
undisclosed sources. After the Tax Authorities reject the
explanation submitted by the assessee the further
question that must always arise for decision would be,
"whether it could justly, in the facts and circumstances
of the case, be held that the unexplained cash credit
was the income of the assessee." The Tribunal in that
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case on the basis of evidence and surrounding
circumstances even after disbelieving the explanation of
the assessee still held that it cannot be held to be the
income of the assessee. The said finding was held to be
a finding of fact not to be interfered with by the High
Court.
It is true that even after rejecting the explanation
given by the assessees if found unacceptable, the crucial
aspect whether on the facts and circumstances of the
case it should be inferred the sums credited in the books
of the assessees constituted income of the previous year
must receive the consideration of the authorities
provided the assessees rebut the evidence and the
inference drawn to reject the explanation offered as
unsatisfactory. We are required to notice that Section
68 of the Act itself provides, where any sum is found
credited in the books of the assessees for any previous
year the same may be charged to income tax as the
income of the assessees of the previous year if the
explanation offered by the assessees about the nature
and source of such sums found credited in the books of
the assessees is in the opinion of the Assessing Officer
not satisfactory. Such opinion found itself constitutes a
prima facie evidence against the assessees, viz., the
receipt of money, and if the assessees fail to rebut the
said evidence the same can be used against the
assessees by holding that it was a receipt of an income
nature. In the case in hand the authorities concurrently
found the explanation offered by the assessees
unacceptable. The authorities upheld the opinion
formed by the Assessing Officer that the explanation
offered was not satisfactory. The assessees did not
take the plea that even if the explanation is not
acceptable the material and attending circumstances
available on record do not justify the sum found credited
in the books to be treated as a receipt of an income
nature. The burden in this regard was on the assessees.
No such attempt has been made before any authority.
All the decisions cited and referred to hereinabove are
required to be appreciated and understood in the light
of the law declared by this Court in Sumati Dayal
(supra).
Whether the High Court was justified in interfering
with the concurrent finding of fact arrived at by all the
authorities including the Tribunal? The Assessing Officer
found that all the so-called gifts came from Ariavan
Thotan and Suprotoman. The assessees did not declare
that they are the alias of Sampathkumar. It is only an
afterthought they have come forward with the said plea.
The Assessing Officer also found that the gifts were not real
in nature. Various surroundings circumstances have been
relied upon by the Assessing Officer to reject the explanation
offered by the assessees. The Commissioner of Appeals
confirmed the findings and conclusion drawn by the
Assessing Officer. The Tribunal speaking though its Senior
Vice President concurred with the findings of fact. The
findings in our considered opinion are based on the material
available on record and not on any conjectures and
surmises. They are not imaginary as sought to be
contended.
Relying on the decisions of this Court in Bejoy Gopal
Mukherji Vs. Pratul Chandra Ghose [AIR 1953 SC 153] &
M/s Orient Distributors Vs. Bank of India Ltd. & Ors. [
AIR 1979 SC 867], Shri Iyer, learned senior counsel
contended that issue relating to the propriety of legal
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conclusion that could be drawn on basis of proved facts
gives rise to a question of law and, therefore, the High
Court is justified in interfering in the matter since the
authorities below failed to draw a proper and logical
inference from the proved facts. We are unable to persuade
ourselves to accept the submission. The findings of fact
arrived at by the authorities below are based on proper
appreciation of the facts and the material available on record
and surrounding circumstances. The doubtful nature of the
transaction and the manner in which the sums were found
credited in the books of accounts maintained by the
assessee have been duly taken into consideration by the
authorities below. The transactions though apparent were
held to be not real one. May be the money came by way of
bank cheques and paid through the process of banking
transaction but that itself is of no consequence.
No question of law much less any substantial question
of law had arisen for consideration of the High Court. The
High Court misdirected itself and committed error in
disturbing the concurrent findings of facts.
No other point is urged.
The appeals preferred by the Revenue Department
deserve to be allowed and they are accordingly allowed.
No costs.