Calcutta H.C : The books of accounts were not reliable nor was it observed by the AO that the explanation furnished was not satisfactory

High Court Of Calcutta

Unit Construction Co. Ltd. vs. JCIT

Sections 69, 69B

D.K. Seth & R.N. Sinha, JJ.

IT Appeal No. 184 of 2002

13th January, 2003

Counsel Appeared

Ms. Sutapa Roy Chowdhury, for the Petitioner : None, for the Respondent

JUDGMENT

D.K. Seth, J. :

In this case, it is urged on behalf of the applicant that the accounts were neither rejected nor there was any finding that the books of accounts were not reliable nor was it observed by the AO that the explanation furnished was not satisfactory. Therefore, the books of accounts, as produced by the assessee, are to be accepted. Having regard to the provisions contained in ss. 69 & 69B of the IT Act, 1961, he relied upon the decision CIT vs. Pratapsingh Amrosingh Rajendra Singh & Deepak Kumar (1993) 200 ITR 788 (Raj) of the Rajasthan High Court. In the said decision, it was held that there can only be two modes to find out the correct position in respect of investment namely, examination of books of accounts which have been maintained properly and valuation report. If the assessee has maintained proper books of account and all details are mentioned in such books of account, which are duly supported by vouchers and no defects are pointed out and the books are not rejected, the figures shown therein have to be followed. The valuation report can be taken into consideration only when the books of accounts are not reliable or are not supported by proper vouchers or the ITO is of the opinion that no reliance can be placed on such books of account. It is true that the ITO has no option but to rely on the valuation report, which is a document prepared by an expert and is admissible, but there must be a finding by the ITO that the books of account maintained by the assessee are defective or are not reliable. There may be a marginal difference in the actual investment and the report of the Valuation Officer for a number of reasons as the valuation report is prepared on the basis of norms prescribed by the CPWD for the construction of buildings and the difference may be with regard to quality of the materials, etc.

Thus, it appears that the AO can add back only if he rejects the books of accounts or it is found by him that the books of accounts are not reliable or are not supported by proper vouchers or that no reliance can be placed on the books of accounts. Secs. 69 and 69B, IT Act, make it clear that if the amount is not recorded in the books of accounts, even then it can be explained. But if the explanations are not satisfactory, then the amount can be held to be undisclosed income and not otherwise. We do not find any reason to differ with the said decision. But,however, statement made in the books of accounts shall not alone by sufficient evidence. Inasmuch as, according to s. 34 of the Indian Evidence Act, 1872, entries in books of accounts, regularly kept in the course of business are relevant whenever they refer to a matter into which the Court has to enquire. Sec. 34 of the Evidence Act has two parts. The first part speaks of relevance of the entries as evidence. The second part speaks of its evidential value. It is necessary upon the person relying on those entries to prove that they were in accordance with facts. It is to be supported by some other independent evidence. It was so held in CBI vs. V.C. Shukla 1998 (3) SCC 410 at p. 425. In our view, it is not necessary that the books of accounts are to be rejected. Inasmuch as, s. 68 IT Act essentially contains a deeming provision which applies when the assessee’s explanation is rejected. Sec. 68 does not imply that the books of accounts are to be rejected in order to hold otherwise than the entries made. On the other hand, it implies addition only when the discrepancies are not explained by the assessee to the satisfaction of the AO. Same principle will apply in cases under ss. 69 and 69B. The onus of proving the source of a sum of money is on the assessee. If he disputes the liability for tax, it is for him to show that the receipt was not income or that it was exempted from taxation under the law. In the absence of any proof, the AO is entitled to charge it as taxable income Kale Khan Mohammad Hanif vs. CIT (1963) 50 ITR 4 (SC). If any assessee fails to prove satisfactorily the source and nature of certain amount received during the accounting year, the AO is entitled to draw the inference that the receipts are of an assessable nature [A. Govindarajulu vs. CIT (1958) 34 ITR 807 (SC) at p. 810]. The presumption arising under s. 132(4A), IT Act, does not override or exclude s. 68, IT Act. It does not obviate the necessity to establish by independent evidence, the genuineness of cash credit under s. 68. The presumption is relevant and limited only to summary adjudication contemplated under s. 132(5), Neither more nor less.

The assessee has a legal obligation to explain the nature and source of such entries [Sreelekha Banerjee & Ors. vs. CIT (1963) 49 ITR 112 at p. 117]. Thus, it appears that it is not necessary that the books of accounts have to be rejected expressly or that it is to be, in express terms, recorded that the books of accounts are not reliable or the explanation is not satisfactory. It has to be gathered from the order itself whether in effect the AO was satisfied with the explanation or had found that the books of accounts were not reliable. It is not the technical terms, which must appear in the order. It is the substance of the order that the AO was not satisfied with the explanation, which is relevant. This is apparent from ss. 69 and 69B. Where accounts are not reflected in the accounts book, it can be explained by the assessee, who under s. 69 is entitled to an opportunity to explain. If in the opinion of the AO the explanation is not satisfactory, the income can be added. The phraseology of s. 69 creates a legal fiction. According to the counsel for the assessee, in this case there are materials to show that the explanation was satisfactory. Nowhere the ITO had recorded his observation that either the books of accounts are not reliable or that he was not satisfied with the explanation given. Therefore, according to him, the books of accounts as produced were required to be accepted. We have gone through the orders and found that in fact the AO has not rejected the books of accounts. He has not specifically observed that the books of accounts are not reliable. But he has pointed out that a sum of Rs. 2,68,986 was spent during the year for building construction. This was admitted by the representative of the assessee. The details of purchase, etc. were not produced before the AO. Before the appellate authority, it was pointed out that the bills and other materials were available with the assessee. Admittedly, these are not reflected in the books of accounts. On the other hand, the representative of the assessee had admitted the spending of Rs. 2,68,986 whereas an amount of Rs. 8,31,225 was shown to have been spent in the books of accounts. Thus, when there is an admission that a further sum of Rs. 2,68,986 was spent apart from Rs. 8,31,225, then the cost of construction would come to Rs. 11,00,211 and odd. The Tribunal had accepted Rs. 10,67,638 as assessed by the valuer. Thus, the principle that has been raised by the learned counsel for the assessee cannot be attracted in the facts and circumstances of the case. The appeal is, therefore, dismissed.

[Citation : 260 ITR 189]

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