Full Judgment Text
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PETITIONER:
COMMISSIONER OF INCOME-TAX, ORISSA
Vs.
RESPONDENT:
ORISSA CORPORATION (P) LTD.
DATE OF JUDGMENT19/03/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
PATHAK, R.S.
CITATION:
1986 AIR 1849 1986 SCR (1) 979
1986 SCC Supl. 110 1986 SCALE (1)446
ACT:
Income Tax Act 1961-88.68 and 256(2) - Cash credits in
books of assessee - Onus of proof about source of income.
High Court refusing to direct Tribunal to state case
When valid.
Interference with findings of fact by the Tribunal
Permissible under what circumstances.
HEADNOTE:
For the accounting year ending on 31st March, 1961,
corresponding to the assessment year 1962-63, the Income-tax
Officer did not accept the assessee’s accounts showing cash
credit of Rs.1,50,000 said to have been received by way of
loans from three individual creditors. He produced before
the Income-tax Officer, discharged hundies and confirmation
letters from these creditors who were income-tax assessees.
The assessee made attempts to bring the creditors before the
Income-tax Officer by issue of notices under s.131 of the
Income-Tax Act, 1961 but failed, as these were returned with
the endorsement ’left’. The assessee thereafter wanted
further opportunity to find out the whereabouts of the
lenders. The Income-tax Officer observed certain
inconsistencies in the confirmation letters which did not
inspire confidence, and being of the view that the alleged
creditors were not genuine bankers but were mere name
lenders, treated the entire amount as unproved cash credit
and added the same to the income of the assessee. The
assistant appellate Commissioner dismissed the appeal of the
assessee.
In a separate proceeding under a.271(1)(c) of the Act
on the basis of the assessment order the Inspecting
Assistant Commissioner imposed a penalty of Rs.50,000.
The Tribunal came to the conclusion that the Revenue
was
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not justified in drawing adverse inference against the
assessee. It was of the view that if the assessee could not
produce the persons alleged to be the creditors, it did not
lead automatically to the adverse inference that the amount
represented undisclosed income of the assessee. It found
that the creditors were income-tax assessees and while being
assessed they had mate statements before the respective
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Income-tax Officers admitting that they were allowing their
names to be lent, without actually giving loans as creditors
of different assessees. The Tribunal also could not sustain
the imposition of penalty. The Revenue sought for statement
of the case to the High Court on the aspect of addition of
unproved cash credit to the total income of the assessee,
and also on the imposition of penalty but the same WAS
refused. The High Court also refused to accede to the
prayers of the Revenue in its application under 8.256(2) of
the Act.
In the appeals before this Court on behalf of the
Revenue it was contented that in view of the provisions of
8.68 of the Act the onus in these types of cases was on the
assessee, and in this case the assessee had not discharged
that onus.
Dismissing the appeals, the Court,
^
HELD : 1.(i) The High Court has no power under 8.256(2)
of the 1961 Act to call upon the Appellate Tribunal to state
a case if there was some evidence to support the finding
recorded by the Tribunal, even if it appears to the High
Court that on a re-appreciation of the evidence, it might
arrive at a conclusion different from that of the Tribunal.
[987 D-E]
(ii) The conclusion reached by the Tribunal in the
instant case, that the assessee had discharged the burden
that lay on him could not be said to be unreasonable, or
perverse or based on no evidence. If the conclusion is based
on some evidence on which it could be arrived at, no
question of law as such arises. [987 G-H]
(iii) The assessee had provided the names and addresses
of the alleged creditors. It was in the knowledge of the
Revenue that they were income-tax assessees. Their index
numbers were in the files of the department. The Revenue
apart
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from issuing notices under 8. 131 of the Act at the instance
of the assessees, did not pursue the matter further. It did
not examine the source of income of the alleged creditors to
find out whether they were credit-worthy or were such who
could advance the alleged loans. There was no effort made to
pursue the so-called alleged creditors. The assessee,
therefore, could not do any further. [987 E-G]
2. Section 68 of 1961 Act was introduced for the first
time in the Act. There was no provision in 1922 Act
corresponding to this section. It gives statutory
recognition to the principle that cash credits which are not
satisfactorily explained might be assessed as income. It
enacts that if a sum is found credited in the books of an
assessee maintained for any previous year, the cash credit
might, in case where it is assessed as undisclosed income,
be treated as the income of that previous year, and the
financial year may not be taken as the previous year for
such a cash credit even if the undisclosed income was not
found to be from the assessee’s regular business for which
the books were maintained. The cash credit might be assessed
either as business profit or as income from other sources.
[984 G; 985 A-C]
Lalchand Bhagat Ambica Ram v. Commissioner of Income-
tax, Bihar & Orissa, 37 I.T.R. 288; Homi Jehangir Gheesta v.
Commissioner of Income-tax, Bombay City, 41 I.T.R. 135;
Sreelekha Banerjee & Ors. v. Commissioner of Income-tax,
Bihar & Orissa, 49 IT.E. 112 and Commissioner of Income-tax
(Central), Calcutta v. Daulatram Rawatmull, 53 I.T.R. 574
referred to.
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JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.
13791380 (NT) of 1974.
From the Judgment and Order dated 31st October, 1973 of
the Orissa High Court in S.J.C. Nos. 85 and 116 of 1972. G
S.C. Manchanda, K.C. Dua and Ms. A. & Subhashini for
the Appellants.
S.P. Mittal, S.N. Aggarwal and B.P. Maheshwari for the
Respondents.
The Judgment of the Court was delivered by
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SABYASACHI MUKHARJI, J. These appeals by special leave
arise from the decision of the Orissa High Court dated 31st
October, 1973 refusing to direct the Tribunal to state a
case under section 256(2) of the Indian Income Tax Act, 1961
(hereinafter called the Act) and to refer certain questions
said to be questions of law arising out of the appellate
order of the Income Tax Appellate Tribunal for determination
of the High Court. The assessment year involved was 1962-63.
There were proceedings - one appeal was related to an
assessment order whereby additions were made to the quantum
of income disclosed by the assessee and the other was in
respect of imposition of penalty under section 271(1)(c)
read with section 274(2) of the said Act.
The questions involved respectively in two applications
before the High Court were as follows :
"S.J.C. No. 116 of 1972
1. Whether In the absence of proving confirmation
letters and Hundis by the assessee, the assessee
has discharged his initial onus by producing
merely the confirmation letters and Hundis to
prove the nature of the transaction?
2. Whether in the facts and circumstances of the
case the Tribunal was right in ordering deletion
of Rs. 1,50,000 as assessee’s income from
undisclosed sources?
3. Whether in the facts and circumstances of the
case the cash credit is the assessee’s income from
undisclosed sources?
S.J.C. No. 85 of 1972.
Whether in the facts and circumstances of the case
the Tribunal was right in shifting the onus from
the assessee to the Revenue in deleting the
penalty?"
The assessee at the relevant time was a private limited
company and maintained accounts according to the calendar
983
year. For the accounting year ending on 31st December, 1961
corresponding to the assessment year 1962-63, the Income-tax
Officer did nor accept the assessee’s accounts showing cash
credit of Rs. 1,50,000. Three accounts were shown to have
been received by way of loans from three individual
creditors of Calcutta under Hundis. The assessee produced
before the Income- tax Officer letters of confirmation, the
discharged Hundis and particulars of the different creditors
general index numbers were with the Income-tax Department.
Attempts bad been made to bring those creditors therefore
the Income-tax Officer by issue of notices under Section 131
of the Act, but the said notices were returned with the
endorsement ’left’. The Income-tax Officer, therefore,
treated the entire amount of R. 1,50,000 as unproved cash
credit and added the same to the income of the assessee. The
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appeal of the assessee to the Assistant Appellate
Commissioner was dismissed. Thereafter there was further
appeal to the Tribunal.
In the meantime on the basis of assessment order
proceeding was taken under section 271(1)(c) of the Act and
the Inspecting Assistant Commissioner imposed a penalty of
Rs. 50,000. An appeal against the imposition of penalty was
also filed before the Tribunal. Both the appeals were
disposed of by the Tribunal.
The Tribunal noted that the credit entries stood in the
name of third parties in the account books of the assessee.
The explanation was that the amounts represented loans to
the assessee from the concerned persons. The assessee had
produced discharged Hundis and confirmation letters from
these alleged lenders. The Tribunal was of the view that if
the assessee could not produce these persons alleged to be
the creditors, it did not follow automatically that the
adverse inference should be drawn that these amounts
represented undisclosed income of the assessee. It was
further noted that the creditors were income-tax assessees
and while being assessed they had made statements before the
respective Income-tax Officers admitting that they were
allowing their names to be lent without really giving loans
as creditors of different assessee. A list of the assessees
had also been given but the name of the present assessee did
not figure in that list. me Tribunal came to the conclusion
that the Revenue was not justified in drawing adverse
inference against the assessee and adding
984
these amounts to the assessment of the assessee. The
Tribunal also, in those circumstances, could not sustain the
imposition of the penalty and deleted such imposition. The
Revenue sought for statement of case on both these aspects
i.e. On the aspect of the addition of Rs. 1,50,000 to the
total income of the assessee and also on the imposition of
penalty. The questions sought for by the Revenue were to the
effect noted before. The Tribunal refused to refer any
statement of case to the High Court on those questions. The
Revenue went up in an application under section 256(2) of
the Act before the High Court. The High Court also refused
to accede to the prayers of the Revenue. Hence these
appeals.
Our attention was drawn to the statements in the
assessment order where the Income-tax Officer had observed
certain inconsistencies in the confirmation letters and
observed further that the confirmation letters did not
inspire confidence. It also observed that the assessee had
stated that after making all possible attempts in their own
wag, had failed to produce the parties and thereupon
requested the Income-tax Officer to issue summons under
section 131 to all the alleged creditors and the notices
under section 131 of the Act which had come back unserved
with the remarks ’left’. The assessee thereafter wanted
further opportunity to find out the present whereabouts of
the alleged lenders. The Income-tax Officer observed further
that the wide prevalence of Hundi racket was well-known and
it had been established beyond doubt that most of the so-
called Hundiwallas are not genuine bankers but mere name
lenders.
It was argued that in view of the provisions of section
68 of the Act, the onus in these types of cases was on the
assessee and in this case the assessee had not discharged
that onus and in the premises questions of law as indicated
above arose. Section 68 of 1961 Act was introduced for the
first time in the Act. There was no provision in 1922 Act
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corresponding to this section. The section states that 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. The
985
section only gives statutory recognition to the principle
that cash credits which are not satisfactorily explained
might be assessed as income. The section enacts that if a
sum is found credited in the books of an assessee maintained
for any previous year (which might be different from the
financial year), the cash credit might, in case where it is
assessed as undisclosed income, be treated as the income of
that previous year, and the financial year may not be taken
as the previous year for such a cash credit even if the
undisclosed income was not found to be from the assessee’s
regular business for which the books were maintained. The
cash credit might be assessed either as business profits or
as income from other sources.
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 from that business on the first day of 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 of Kanga
and Palkhiwala’s Income Tax, Seventh Edition, Vol. I pages
609 and 610.
To what extent the assessee has obligation to discharge
the burden of proving that these were genuine incomes has
been considered by this Court in Lalchand Bhagat Ambica Ram
v. Commissioner of Income-tax, Bihar and Orissa, 37 ITR 288.
This Court was concerned there with the encashment of high
denomination notes. In that case some unexplained high
denomination notes were treated as the undisclosed income of
the assessee. This Court held that when a court of fact
arrives at its decision by considering material which is
irrelevant to the enquiry, or act on material, partly
relevant and partly irrelevant, and it is impossible to say
to what extent the mind of the court was affected by the
irrelevant material used by it in arriving at its decision,
a question of law arises, whether the finding of the court
is not vitiated by reason of its having relied upon
conjectures, surmises and suspicions not supported by any
evidence on record or partly upon evidence and partly upon
inadmissible material. On no account whatever should the
Tribunal base its findings on H
986
suspicions, conjectures or surmises, nor should it act on no
evidence at all or on improper rejection of material and
relevant evidence or partly on evidence and partly on
suspicions, conjectures and surmises. In that case the so-
called hundi racket in which the assessee was alleged to
have been involved was not proved. That was only a suspicion
of the Revenue.
The question was again considered by this Court in Homi
Jehangir Gheesta v. Commissioner Income-tax, Bombay City, 41
ITR 135, when this Court reiterated that it was not in all
cases that by mere reject on of the explanation of the
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assessee, the character of a particular receipt as income
could be said to have been established; but where the
circumstances of the rejection were such that the only
proper inference was that the receipt must be treated as
income in the hands of the assessee, there was no reason why
the assessing authority should not draw such an inference.
Such an inference was an inference of fact and not of law.
It was further observed that in determining whether an order
of the Appellate Tribunal would give rise to a question of
law the court must read the order of the Tribunal as a whole
to determine whether every material fact, for and against
the assessee, had been considered fairly and with due care;
; whether the evidence pro and con had been considered in
reaching the final conclusion; and whether the conclusion
reached by the Tribunal had been coloured by irrelevant
considerations or matters of prejudice. It was further
reiterated that the previous decisions of this Court did not
require that the order of the Tribunal must be examined
sentence by sentence through a microscope as it were, so as
to discover a minor lapse here or an incautious opinion
there to be used as a peg on which to hang an issue of law.
In considering probabilities properly arising from the facts
alleged or proved, the Tribunal did not indulge in
conjectures, surmises or suspicions.
In Sreelekha Banerjee and others v. Commissioner of
Income-tax, Bihar and Orissa, 49 ITR 112, this Court held
that if there was an entry in the account books of the
assessee which showed the receipt of a sum on conversion of
high denomination notes tendered for conversion by the
assessee himself. it is necessary for the assessee to
establish, if
987
asked, what the source of that money was and to prove that
it A was not income. The department was not at that stage
required to prove anything. It could ask the assessee to
produce any books of account or other documents or evidence
pertinent to the explanation if one was furnished, and
examine the evidence and the explanation. If the explanation
showed that the receipt was not of an income nature, the
department could not act unreasonably and reject that
explanation to hold that it was income. If, however, the
evidence was unconvincing then such rejection could be made.
The department cannot by merely rejecting unreasonably a
good explanation, convert good proof into no proof.
In Commissioner of Income-tax (Central), Calcutta v.
Daulatram Rawatmull, 53 ITR 574, the principles governing
reference under section 66 of 1922 Act similar to section
256 of 1961 Act were discussed and it was held that the High
Court has no power under section 66(2) of the Indian Income-
tax Act, 1922 which is in pari-materia with section 256(2)
of the Act, to call upon the Appellate Tribunal to state a
case if there was some evidence to support the finding
recorded by the Tribunal, even if it appears to the High
Court that on a re-appreciation of the evidence, it might
arrive at a conclusion different from that of the Tribunal.
In this case the assessee had given the names and
addresses of the alleged creditors. It was in the knowledge
of the Revenue that the said creditors were income-tax
assessees. Their index number was in the file of the
Revenue. The Revenue, apart from issuing notices under
section 131 at the instance of the assessee, did not pursue
the matter further. The Revenue did not examine the source
of income of the said alleged creditors to find out whether
they were credit-worthy or were such who could advance the
alleged loans. There was no effort made to pursue the so
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called alleged creditors. In those circumstances, the
assessee could not do any further. In the premises, if the
Tribunal came to the conclusion that the assessee had
discharged the burden that lay on him then it could not be
said that such a conclusion was unreasonable or perverse or
based on no evidence. If the conclusion is based on some
evidence on which a conclusion could be arrived at, no
question of law as such arises.
988
It is common ground that the question on the penalty
aspect depended on the quantum aspect.
In the premises it cannot be said that any question of
law arose in these cases. The High Court was, therefore,
right in refusing to refer the questions sought for. The
appeals, therefore, fail and are dismissed with costs.
P.S.S. Appeals dismissed.
989