Commissioner of Income-Tax, Orissa Vs.
Orissa Corporation (P) Ltd. [1986] INSC 47 (19 March 1986)
MUKHARJI, SABYASACHI (J) 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 980 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 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 981 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.
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
982 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
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
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 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 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.
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