Madras H.C : The AO was not correct in invoking ss. 69 and 69A of the IT Act, 1961, in the hands of the persons in whose names the monies stood invested on the ground that some members of the public have claimed monies as belonging to them and that too in the absence of any corroborative evidence

High Court Of Madras

CIT vs. K. Chinnathambi

Section 69

Asst. Year 1992-93

P.D. Dinakaran & P.P.S. Janarthana Raja, JJ.

Tax Case No. 680 of 2004

24th January, 2006

Counsel Appeared :

N. Muralikumaran, for the Appellant : V.D. Gopal, for the Respondent

JUDGMENT

P.P.S. Janarthana Raja, J. :

This appeal is filed by the Revenue under s. 260A of the IT Act, 1961 (hereinafter referred to as “the Act”), against the order of the Tribunal dt. 29th Aug., 2003, made in ITA No. 1812/Mds/1996, raising the following substantial questions of law :

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the AO was not correct in invoking ss. 69 and 69A of the IT Act, 1961, in the hands of the persons in whose names the monies stood invested on the ground that some members of the public have claimed monies as belonging to them and that too in the absence of any corroborative evidence?

Whether, on the facts and in the circumstances of the case the Tribunal was right in holding that income, if any, on the unexplained investments should be considered in the hands of the firm especially when it had been found that the firm itself was not genuine and in the absence of any evidence to show that the deposits belonged to such a firm ?

Whether, on the facts and in the circumstances of the case the Tribunal was right in giving directions to verify and link the deposits with the accounts of the firm when the taxing of any unexplained investment and income by way of interest, etc., in the hands of the firm by initiation of proceedings under s. 147 was already barred by limitation ?

Whether, on the facts and in the circumstances of the case the Tribunal was right in giving directions which are incapable of compliance like linking up of the deposits with the accounts of a firm which was admittedly not genuine and which has not maintained proper books of accounts ?

Whether, on the facts and in the circumstances of the case the Tribunal was right in giving concluding remarks which did not spell out as to whether the Tribunal has set aside all the assessments for de novo consideration ?

Whether, on the facts and in the circumstances of the case the Tribunal was right in giving directions to consider all the issues pending in various Courts of law when it is impossible to complete the fresh assessments within the time limit prescribed under the Act, since the final Court verdicts may not be available before quantifying the incomes in the fresh assessment within the period of limitation prescribed under the Act ?”

2. The assessment year involved as 1992-93. The facts relevant for the purpose of disposal of the appeal are as under :

(a) The assessee was connected with the concern, by name, Vazhaga Vaiyagam Enterprises having its premises at Nos. 2 and 3A, East Perumanoor Road, Salem. One K. Palanisamy was the person running the concern. There was a search by police officials in the premises of concern on 19th Aug., 1991, and a sum of Rs. 1,18,21,935 was seized. It was followed by a survey under s. 133A of the Act and action under s. 132 of the Act.

(b) On notice, the said Palanisamy filed return. He also appeared on summons and gave statements. Then,complaints were lodged against the partners and promoters of the concern. Books of account maintained were also incomplete and no evidence was produced to show that funds were collected from the public. As it was found that Palanisamy was not in a position to explain the source of deposits made, the AO treated the same as undisclosed income.

(c) In the course of assessment proceedings of some colleagues of Palanisamy, who had deposited moneys in various banks, the AO held that the onus of proving the source of deposits primarily rested on the persons in whose names the deposits appeared in various banks and accordingly, the AO made individual assessments in the hands of colleagues and close associates of Palanisamy including the assessee herein.

(d) The assessment made in respect of the assessee herein, is as under :

(e) Aggrieved by the order of assessment, the assessee filed an appeal before the CIT(A) who had upheld the order of assessment.

(f) The assessee filed a further appeal before the Tribunal. The Tribunal held that wherever amounts could not be linked with the accounts of the firm, but such amounts were found in the names of various other persons, it would be necessary for such persons to offer explanation. The Tribunal also held that since there were claims by public, it was not proper to treat the amounts as income from undisclosed source of various assessees and directed the AO to examine all the aspects of the matter including the criminal proceedings. Against the order of the Tribunal the Revenue has come forward with this appeal raising the questions referred to above.

3. Heard learned counsel appearing for the Revenue. In our considered view, it is relevant to notice the operative portion of the order of the Tribunal, which reads as follows : “It would, therefore, be necessary to link up all these amounts with the books of the firm and to the extent it is shown as received by the firm as deposits from various persons, it is necessary to examine the income earned on those deposits like interest on deposit with the bank and any other investment. The expenditure that has to be allowed is with regard to administrative and incidental expenses incurred in connection with earning of the income and such other normal expenses of the firm. Wherever the amounts found in the names of various individual persons, relatives, close friends etc. which could not be linked with the accounts of the firm, it would be necessary for such individuals to explain. In the interest of natural justice and fair play it would be necessary to examine the firm on the one hand along with the various individuals with the account books of the firm to appreciate that the moneys belong to the various persons. ‘What is claimed by the public as money belonging to them, which has been frozen by the police and the Department, in these circumstances would not be treated as income from unexplained source, namely cash credits. We direct the AO to examine the above closely with all the above facts. He shall also consider the various criminal proceedings. He shall also co-ordinate with the police authorities. He may call for the various depositions. He may call for such information of the claims made by various depositors against the firm as alleged in the Courts’.”

4. A perusal of the above observations made by the Tribunal makes it clear that none of the observations would affect the interest of the Revenue. Further, learned counsel appearing for the Revenue is also not in a position to point out any of the observations of the Tribunal attracting a substantial question of law. In the circumstances, we find no question of law, much less a substantial question of law arises out of the order of the Tribunal for our consideration. Accordingly, the appeal fails and the same is dismissed. No costs.

[Citation : 292 ITR 673]

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