High Court Of Kerala
Income Tax Officer vs. Diza Holdings (P) Ltd.
Sections 68, 260A
Asst. Year 1988-89
P.K. Balasubramanyan & C.N. Ramachandran Nair, JJ.
IT Appeal No. 46 of 1999
16th November, 2001
Counsel Appeared
P.K. Ravindranatha Menon & George K. George, for the Appellant : S. Ananthakrishnan & N.K. Subramanian, for the Respondent
JUDGMENT
P.K. BALASUBRAMANYAN, J. :
This appeal under s. 260A of the IT Act, at the instance of the ITO was admitted by this Court on the following substantial questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in cancelling the order of the AO who held the deposits totalling to Rs. 3,33,700 in the name of the 11 depositors as unexplained cash credits and assessed the same under s. 68 of the IT Act?
2. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in interfering with the reasoning of the AO who logically concluded that the bank account, through which the deposits are said to have been routed have been opened only to lend a shade of genuineness to these transactions which were not genuine ?”
On receipt of notice on these substantial questions of law on which the appeal was to be heard, the assessee appeared through counsel. Both sides were finally heard.
For the asst. yr. 1988-89, the assessee, a private limited company, filed its return of income showing a loss of Rs.
1,320. The company is running the business of money-lending. The AO found that deposits for various amounts in the name of 11 persons were found credited in the books of the assessee maintained for the previous year ending on 30th June, 1987. The AO called for explanation about the nature and source of the said credit entries or deposits amounting to Rs. 3,33,700. The assessee explained that they were deposits received from eleven persons and furnished the names of those persons. The AO was not satisfied immediately about the explanation of the assessee. The AO thereupon summoned the 11 depositors as per the books of the company and examined them. He also conducted an enquiry. Thereafter he recorded the finding that the explanation offered by the assessee regarding the nature and source of the sum found credited in the books of the company was not satisfactory and hence the amount had to be charged to income-tax as income of the assessee for the previous year. The AO recorded the clear circumstances emerging from the evidence and the inferences drawn by him from the evidence gathered by him in support of his conclusion. He ultimately concluded after a discussion of all the relevant aspects that the deposit of Rs. 3,33,700 shown as having been advanced by 11 depositors was, in fact, never advanced by them and that they had no connection with the money. The AO also found that Jaya Electricals which is said to have paid the amounts to the depositors, who had allegedly deposited the amounts in the assessee-company, was a partnership wherein P.D. John, a director of the assessee-company, was a partner. The AO also found that the payments were channelled into the assessee-company and have in most of the cases found their way back to the director Mr. P.D. John, his wife, and his son in one way or another. It was thus that the AO treated this amount as income of the assessee for the previous year.
The assessee appealed. The argument on behalf of the assessee was that the amounts were paid by Jaya Electricals to the various persons shown as depositors in the assessee-company, by cheques and that they had in turn paid the amounts to the assessee-company by way of cheques and this showed that the transactions were genuine and the AO was in error in treating the sum of Rs. 3,33,700 as the income of the assessee-company for the previous year. The CIT(A) did not consider the reasons given by the AO for coming to the conclusion that the explanation of the assessee was not satisfactory and treating the amount as income of the assessee for the previous year based on the evidence he had taken. The CIT(A) even without discussing or adverting to such evidence, accepted the argument on behalf of the assessee that since the payments were made by way of cheques, the AO was not entitled to treat the amount shown as deposits received by the assessee-company as the income of the company for the previous year in terms of s. 68 of the IT Act. Thus, the CIT(A) deleted the addition of Rs. 3,33,700. The Revenue appealed before the Tribunal. A single member Bench of the Tribunal, again, without adverting to the evidence and the circumstances discussed by the AO, simply agreed with the approach and conclusion of the CIT(A) and dismissed the appeal. It is the submission of the appellant that the decision of the Tribunal suffers from the substantial errors of law as reflected by the two substantial questions of law referred to above.
4. Sec. 68 of the IT Act reads thus : “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 AO, satisfactory, the sum so credited may be charged to income-tax as the income of the assessee of that previous year.”There is no doubt that a sum of Rs. 3,33,700 was found credited in the books of the assessee maintained for the previous year relevant to the assessment year. The AO was, therefore, entitled to call for an explanation regarding the credit thus shown. The AO called for an explanation. The assessee offered an explanation. Finding that, prima facie, the explanation could not be accepted without an enquiry into it, the AO conducted an enquiry. The sum was shown as being credited as deposits from 11 persons, whose names the assessee furnished. The AO thereupon summoned those persons and examined them. One alone was not available for examination. The AO in his order has detailed the evidence given by these persons and has also pointed out the infirmities and improbabilities surrounding the transactions. None of them could prove the authenticity of the receipt of the funds and the only fact was that they were routed through the bank. Some of them could not even show on what basis or for what reason Jaya Electricals had paid them such an amount. Thus, on an assessment of the materials available, which, on going through the elaborate discussion by the AO, we find to be satisfactory and proper, the AO held that the sum of Rs. 3,33,700 had to be charged to income-tax as the income of the assessee for the previous year.
5. According to us, the CIT(A) did not ask himself the right question. He was carried away by the fact that Jaya Electricals had paid these amounts to the 11 persons by way of cheques and that the deposits had made by way of cheques. He did not advert to the reasons given by the AO for finding that the explanation of the assessee for this sum credited in the books of assessee was not satisfactory. He had nothing to say about the evidence gathered by the AO while completing the assessment on the basis that the sum had to be treated as income in terms of s. 68 of the Act and charged to income-tax as the income of the assessee for the previous year. Accepting the case of the assessee that since the deposits were made by way of cheques nothing more remains, the CIT (A) allowed the appeal and deleted the sum of Rs. 3,33,700. As we have noticed, the Tribunal has also done the same, thereby misdirecting itself into an erroneous line of enquiry. It is clear on the terms of s. 68 of the Act, that the burden is on the assessee to offer a satisfactory explanation about the nature and source of the amount found credited in the books of the assessee. It is also clear that the mere furnishing of particulars is not enough. The mere fact that payment was by way of account payee cheque is also not conclusive. Therefore, the AO was entitled to consider whether notwithstanding the fact that the payments were made by cheques, whether the assessee has satisfactorily explained the nature and source of the amounts found credited in the books of the assessee. It is clear that the AO was satisfied that the so-called depositors did not have the resources to make such deposits. A reading of the order of the AO also shows that some of the alleged depositors were not even fully aware of what had happened regarding these deposits alleged to have been made by them in the assessee-company. In this situation, according to us, the AO was fully justified in finding that the explanation of the assessee was unsatisfactory regarding the amount found credited in the books of the assessee.
The CIT(A) and the Tribunal, in our view, have committed a substantial error of law in not properly approaching the question arising for consideration and arising out of the findings rendered by the AO. According to us, the CIT(A) and the Tribunal have not asked themselves the right question. In such a situation, it has to be held that they have committed a substantial error of law in interfering with the order of the assessing authority without proper basis. We are, therefore, satisfied that interference by this Court is called for in this appeal filed under s.260A of the IT Act.
Then the question is whether the AO was justified in proceeding to treat the deposit as income of the assessee in the previous year in terms of s. 68 of the IT Act. We have already indicated that the AO has made the correct approach to the question and the finding rendered by him is amply supported by the materials relied on by him and discussed by him in his order. In that situation, we are of the view that the AO was justified in adding a sum of Rs. 3,33,700 towards the income of the assessee for the previous year relevant to the assessment year. Hence, we answer the substantial questions of law formulated in favour of the Revenue and against the assessee. The result of the same is that we have to restore the order of the AO. Hence, we restore the order of the AO.
Learned counsel for the assessee argued that once it is found that the deposits into the assessee-company were ade by way of cheques and the amount had been credited to the amounts of the assessee he had no jurisdiction to enquire into the question whether the person who is said to have made the deposit had the source to make such a deposit. In the context of s. 68 of the Act and in the light of the materials available in the case, this argument on the side of the assessee cannot be accepted.
Learned counsel for the assessee brought to our notice that subsequent to the order of the CIT (A), an assessment has been made under s. 147 of the IT Act in the name of M/s Jaya Trust (it is not clear whether this is the same as the Jaya Electricals referred to in the present proceeding). According to counsel for the assessee, an amount of Rs.1,50,000 out of Rs. 3,33,700 has been treated as the income of M/s Jaya Trust on a finding that the advances or payments alleged to have been made as commission etc. by M/s Jaya Trust was bogus and that the same was liable to be added to the income of M/s Jaya Trust. Counsel also points out that there is also reference to the decision of the CIT(A) in the case relating to the present assessee, while completing the assessment against M/s Jaya Trust. Counsel submitted that the impact of this order on the present proceeding has also to be considered by this Court. If a sum of Rs. 1,50,000 out of sum of Rs. 3,33,700 is found to be a fictitious payment by M/s Jaya Trust (if it is the same as Jaya Electricals) and the same is disallowed by the AO in the case of M/s Jaya Trust, the question would arise whether the said sum of Rs. 1,50,000 already taxed at the hands of M/s Jaya Trust could get taxed also at the hands of the assessee. In any event, there cannot be any doubt regarding the amount other than Rs. 1,50,000 said to have been taxed at the hands of M/s Jaya Trust referred to by counsel for the assessee. That part of the order of the AO is final. We think that in the circumstances, the AO must be directed to recompute the income of the assessee, if it is necessary, after considering the impact of the order of assessment dt. 29th Aug., 1995, against M/s Jaya Trust. To consider whether any such deletion is needed or warranted and to pass consequential orders based thereon, the matter will stand remitted to the AO.
In the result, we allow the appeal and setting aside the orders of the CIT(A) and the Tribunal, restore the order of the AO. We remit the proceedings to the AO to consider the claim of the assessee regarding the sum of Rs. 1,50,000 as set out in para. 9 of this judgment and pass consequential orders after deciding that question relating to the sum of Rs. 1,50,000.
[Citation : 255 ITR 573]