//
you're reading...
CHEQUE BOUNS CASE

The assessing authority invoked Section 68 of the Income Tax Act, 1961 (the Act) and treated cash credits for a sum of Rs.52,35,000/- as undisclosed income of the assessee. the initial the burden to establish the source from which cash credit had been received is on the assessee; the assessee had failed to discharge the said burden; persons who are alleged to have given advances to the appellant were his friends and relatives; their capacity to advance the said amounts was not established in the enquiry; and, as such, the order of the Tribunal does not necessitate interference in an appeal under Section 260A of the Act, as no question of law arises for consideration. where the creditors had been filing income returns continuously for a long time ranging from five to six years, and this aspect was not considered by the Assessing Officer. It is in such circumstances that the Gauhati High Court held that the enquiry to be conducted under Section 68 of the Act must be reasonable and in consonance with principles of natural justice, and a hasty conclusion on a perfunctory enquiry cannot be the basis for rejecting the claim of the assessee.

THE HON’BLE SRI JUSTICE V.V.S.RAO

AND

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

 

ITTA.No.404 of 2010

 

Dated:27.08.2010

 

Between:

Sri S.Nanda Gopal Reddy.

…Appellant

and

The Income Tax Officer,

Ward-I, Gudur

…Respondent

 

 

THE HON’BLE SRI JUSTICE V.V.S.RAO

AND

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

 

ITTA.No.404 of 2010

 

JUDGMENT: (per Hon’ble Sri Justice Ramesh Ranganathan)

 

This appeal arises out of the order of the Income Tax Appellate Tribunal, Hyderabad, in ITA No.194/Hyd/2009 dated 09.10.2009 for the assessment year 2003-2004.  The appellant, both before us and the Tribunal, is a builder engaged in the business of construction of flats.  For the assessment year 
2003-2004 the appellant filed his return on 01.11.2005 disclosing an income of Rs.60,572/-.  The assessment was taken up for scrutiny and, by order dated 28.12.2007, the assessing authority assessed the total income of the appellant as Rs.52,95,572/-.  The assessing authority invoked Section 68 of the Income Tax Act, 1961 (the Act) and treated cash credits for a sum of Rs.52,35,000/- as undisclosed income of the assessee.  Aggrieved thereby, the appellant preferred an appeal before the Commissioner of Income Tax and, on the appeal being rejected, he preferred a second appeal to the Income Tax Appellate Tribunal.  The Tribunal, in its order dated 09.10.2009, noted the contention of the assessee that the creditors had appeared before the lower authority and had confirmed the credits; the primary burden cast upon the assessee was discharged; and, if the Department disbelieved the same, they ought to have established that the credits were not genuine.  The assessee also contended that no opportunity of cross examining the creditors was given to him. The Tribunal observed that the assessee had declined the right to cross examine the creditors and, at the stage of second appeal, he was not entitled to raise such an argument.  The Tribunal held that the advances received by the assessee were in cash and were later returned to the respective parties who had, in turn, withdrawn the net realized amount from their accounts by self cheque; most of them, who had claimed to have advanced the amount, had no knowledge of the description of the flats constructed by the assessee and, they had not visited Bangalore to see the area of the flat to be purchased; most of them were friends and relatives of the assessee having no regular source of income; most of them had denied advancing money to the assessee; there was material on record with the Department to show that the assessee was in the habit of introducing money in the names of his friends and relatives; and the assessee had failed to prove the genuineness and creditworthiness of the parties who had advanced the money to him.  The Tribunal further held that the burden was on the assessee to prove the identity of the party, the capacity of the party to advance money and, the genuineness of the transaction; and it is only when the assessee leads evidence to establish prima facie all these facts, that the onus shifts on to the Department.  The Tribunal concluded that the assessee was not able to discharge the burden, and confirmed the order of the Commissioner of Income Tax (Appeals).

Before us Sri Pushyam Kiran, learned Counsel for the appellant, would submit that the amount treated as undisclosed income by the authorities were advances received from the flat owners, 19 in number, for the Bangalore Venture started by the appellant; while an inspection was carried out on 26.12.2006, only 5 out of 19 persons were examined in the enquiry; the enquiry was not properly conducted; since the appellant had discharged the onus to establish the source from which the money was received, the burden shifts on the assessing authority to establish that the cash credits were not genuine; and that the assessee cannot be made to prove the source of the source and the origin of the origin.  Learned Counsel would rely on Khandelwal Constructions v Commissioner of Income Tax[1] in this regard.

On the other hand, Sri Narasimha Sarma, learned Standing Counsel for the Department, would contend that the initial the burden to establish the source from which cash credit had been received is on the assessee; the assessee had failed to discharge the said burden; persons who are alleged to have given advances to the appellant were his friends and relatives; their capacity to advance the said amounts was not established in the enquiry; and, as such, the order of the Tribunal does not necessitate interference in an appeal under Section 260A of the Act, as no question of law arises for consideration.

We have carefully examined the records and bestowed our detailed considerations to the contentions urged before us. A perusal of the assessment order would reveal that the assessing authority had considered the statements of persons who were examined in the enquiry, and had noted their admission that they had not given any advance to the assessee.  The assessing authority further observed that the persons produced by the assessee were apparently tutored, and were trying to help the assessee; the assessee had produced six persons for examination during the assessment proceedings; while four persons stated that the amounts were given as advance for flats, the other two had stated that it was a loan; none of the four persons, who had allegedly given advances for purchase of flats, was aware of the area of the apartment or the specifications of the flat; only one had visited Bangalore ten years back; each of them stated a different price for the flats as having been quoted by the assessee; two persons had stated that the amount was given as a loan, and not as advance for the flat, which totally negated the version of the assessee; none of them could satisfactorily prove the source for making the advance/loan.  While in all the cases the advance/loan amount is said to have been repaid, none of them could prove such repayment; the amounts said to have been repaid by the assessee was by way of demand drafts deposited in the bank accounts, and cash was withdrawn almost immediately; there was a similar pattern in these withdrawals; in all the cases the amounts withdrawn, after collection of the demand drafts, was exactly equal to the net amount realized from these demand drafts.  The assessing authority notes the details of the amounts withdrawn which clearly show that the draft amount, less the collection charges, were withdrawn.  The assessing authority observed that the amount withdrawn was of unusually odd figures; on no other occasion had these persons withdrawn such highly odd amounts; and such withdrawals were unusual, and were obviously intended to settle some amount.  It is evident, therefore, that the assessing authority, the appellate authority and the second appellate authority have carefully examined all factual aspects and have recorded their satisfaction that the cash credits were not genuine.  It is the assessee who had relied on the notarized affidavits said to have been given by those who had advanced money for purchase of flats constructed by him.  It is these persons who were examined during the enquiry.  The fact that they are persons who the assessee claims had paid him the amount, as advance for the flats, would negate his contention that he was entitled to cross examine them.  It is only in cases where the assessee has discharged the initial burden of establishing that the cash credits were genuine, would the burden shift on the assessing authority to establish that they are not.  In the case on hand the assessee has failed to discharge the initial burden.

Reliance placed by the learned Counsel on the judgment of the Division Bench of the Gauhati High Court in Khandelwal Constructions is misplaced.  The case before the Gauhati High Court was one where the creditors had been filing income returns continuously for a long time ranging from five to six years, and this aspect was not considered by the Assessing Officer.  It is in such circumstances that the Gauhati High Court held that the enquiry to be conducted under Section 68 of the Act must be reasonable and in consonance with principles of natural justice, and a hasty conclusion on a perfunctory enquiry cannot be the basis for rejecting the claim of the assessee.

  We are satisfied that, in the case on hand, the enquiry conducted is reasonable and is not perfunctory.  The assessing authority has recorded his satisfaction based on material evidence on record.  We have also examined the reasons recorded by all the authorities and are satisfied that the conclusions arrived at by the assessing authority, the Commissioner of Income Tax (Appeals) and the Tribunal are on the basis of the material on record and do not necessitate interference in an appeal under Section 260A of the Act.

The appeal is, accordingly, dismissed.

 

__________________

(V.V.S.RAO, J)

______________________________

(RAMESH RANGANATHAN, J)

 

27.08.2010

vs

 

 


[1] (1997) 227 ITR 900 (Gauhati)

Advertisements

About advocatemmmohan

ADVOCATE

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: