Delhi H.C : In terms of provisions contained in section 68, any amount other than one found credited in books of account can not be estimated and charged to tax

High Court Of Delhi

D.C. Rastogi Vs. CIT

Assessment Year : 1989-90

Section : 68

Ravindra Bhat And Najmi Waziri, Jj.

IT Appeal No. 27 Of 2000

August  13, 2013


1. Though the appeal was admitted long ago in the year 2000, no question of law has been framed. Having considered the materials on record and with the assistance of the-counsel for the parties, the following question of law is framed for consideration:—

“1. Whether on the facts and in the circumstances and on the true interpretation of the provisions contained in Section 68 of the Income Tax Act, any amount other than one found credited in the account/books of the assessee could be estimated and charged to tax? “

2. The brief facts of this appeal directed against the judgment and order of Income Tax Appellate Tribunal (ITAT) dated 23rd August, 1999, in ITA No. 3888/Del/1993 and ITA 6256/Del/1995; are that for the assessment year 1989-1990, the AO during the course of assessment proceedings noticed that an unexplained cash entry to the tune of Rs. 15,17,060/- was discernible from the materials made available to him. On an overall examination of the assessee’s accounts, the AO was of the opinion that even the profits returned were not truly disclosed as were other sources of income. He, therefore, proceeded to reject the accounts and complete the assessment on an estimate basis. During the course of his assessment order, the A.O. added a sum of Rs.25 lakhs over and above the specific amount of Rs. 15,17,060/-. Aggrieved, the assessee carried the matter to the Appellate Commissioner. The Appellate Commissioner, however, remanded the matter for reconsideration by the A.O., who proceeded to affirm his previous findings but on the basis of more elaborate reasons. The Appellate Commissioner, on being petitioned by the assessee, this time upheld the reasoning by the A.O. but reduced the estimation from Rs.25 lakhs to Rs.17 lakhs. The assessee unsuccessfully appealed to the Tribunal; its decision has been questioned in. the present appeal.

3. It is contended by Mr. Monga, learned counsel for the appellant, that having regard to the express language of Section 68, the recourse to estimation by tax authorities was unwarranted. It was submitted that even if the reasoning of the lower authorities were to be affirmed with regard to the finalization of assessment vis-a-vis other heads of income, such course was not available to them in view of the clear phraseology adopted by Parliament in section 68 of the Income Tax Act, 1961.

4. Mr. Sinha, learned counsel for the Revenue, contended that once the accounts presented by the assessee are rejected, it is open to the ITO to arrive at a fair estimate and record his findings on that basis. Consequently, the estimation ultimately adopted, i.e. Rs. 15,17,060/-, could not be faulted with. Counsel also relied upon the decision of the Madras High Court in P. Abdul Khadar v. CIT [1960] 38 ITR 341, in support of his submissions. For a better appreciation of the issue, it is necessary to extract section 68 of the Income Tax Act, which reads as follows:

“Cash Credits:

Where any sum is found credited in the books of an assessee maintained in a 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. “

5. The brief discussion would show that in both the rounds, the A.O. had rejected the assessee’s books/accounts. However, the figure of the sums credited in the books maintained by the assessee for the concerned year remained unexplained, i.e. cash of Rs. 15,17,060/-. In the opinion of the Court, the language of section 68 does not admit to the interpretation that the reference to “any sum” which is found to be “credited” in the assessee’s book for any particular year can mean only one thing, i.e. the actual sum found in the books for the concerned previous year and which is unexplained. In this case that amount was Rs. 15,17,060/-. The judgment of the Madras High Court is only an authority for the proposition that if the profits reported by the assessee are not accepted on the basis of the supporting accounts, the ITO can process such profits by estimation after rejecting the books. That was not a case where interpretation of Section 68 was called for. It is one thing to say that for separate heads of income such as profits, capital gains, etc., which would involve reporting of accounts maintained on an elaborate basis and also detailing expenditure etc., the Assessing Officer may have the discretion to reject accounts and arrive at the income on the basis of estimation. However, in the case of section 68, there cannot be any estimate even if for the rest of the accounts, such an exercise is validly undertaken. This is for the simple reason that the expression “any sum” refers to any specific amount and nothing more”.

6. In view of the above discussion, this Court is of the opinion that the question of law framed has to be answered in favour of the assessee and against the Revenue.

The appeal is accordingly allowed.

[Citation : 359 ITR 513]