Commissioner of Income Tax and Another vs S.L.N. Traders (No. 1)

V.G. Sabhahit, J.—The appeal filed by the Revenue has been admitted for consideration of the following substantial question of law:

Whether the appellate authorities were right in holding and recording a finding that a sum of Rs. 16 lakhs and Rs. 10,75,000 treated as income of the assessee u/s 68 of the income tax Act by the Assessing Officer on the basis of admission made by the assessee and the denial issued by Sri Thimmegowda and Sri D. S. Kumar, the persons who had advanced these amounts was not taken into account and consequently a perverse finding came to be recorded ?

The material facts leading up to this appeal for considering the above-said substantial question of law are as follows:

The Assessing Officer by order dated March 28, 2002, in exercise of power u/s 143(3) read with section 147 of the income tax Act, held that the undisclosed credit in respect of Thimmegowda amounting to Rs. 24 lakhs ; Rs. 8 lakhs assessable for the assessment year 1997-98 and Rs. 16 lakhs assessable for the assessment year 1996-97 and undisclosed credit advanced by Sri Shreyas Kumar in a sum of Rs. 10,75,000 not been satisfactorily explained as the said Thimmegowda and Kumar denied such transaction. Wherefore, added the undisclosed credit for the assessment years 1996-97 and 1997-98. Being aggrieved by the same, the assessee filed an appeal before the Commissioner of income tax (Appeals)-VI, Bangalore, in I. T. A. No. 103/CC-1(2)/CIT(A)-VI/02-03 and the appellate authority by order dated July 17, 2002, held that the assessee had discharged his onus of furnishing details and sources of demand drafts and the credit shown in the name of Sri D. S. Kumar, is liable to be deleted and so far as the credit shown in the name of Thimmegowda the assessee did not challenge the same and accepted for the addition of the said credit. Accordingly, the appeal was allowed.

Being aggrieved by the same, the Revenue preferred an appeal before the income tax Appellate Tribunal (hereinafter called as "the Tribunal" for brevity) contending that in view of the fact that both Sri Thimmegowda and Sri D. S. Kumar had appeared before the Assessing Officer and denied the transaction, the assessee has miserably failed to prove the said transaction. The Tribunal rejected the contention of the Revenue and confirmed the order passed by the appellate authority and dismissed the appeal. Being aggrieved by the same, this appeal is filed by the Revenue and the appeal has been admitted for consideration of the abovesaid substantial question of law.

We have heard the learned counsel appearing for the appellants and the learned counsel appearing for the respondent.

The learned counsel appearing for the appellants has taken us through the order passed by the Assessing Officer, the appellate authority and the Tribunal and submitted that when Thimmegowda and D. S. Kumar had themselves appeared and denied the transaction, the demand drafts would not assume any significance. Wherefore, the assessee had failed to explain the said cash credit. Wherefore, addition of the cash credit was justified as ordered by the Assessing Officer. The first appellate authority was not justified in deleting the undisclosed credit in respect of D. S. Kumar and the Tribunal was also not justified in deleting the undisclosed credit in respect of both the persons ; D. S. Kumar and Thimmegowda. He has produced the statement of D. S. Kumar.

Learned counsel appearing for the respondent submitted that the finding of the appellate authority for deleting the cash credit in the name of D. S. Kumar is justified and the Tribunal was also justified in deleting the cash credit in the name of Thimmegowda as sufficient explanation had been offered by producing the demand drafts drawn in favour of Thimmegowda and D. S. Kumar. Wherefore, the finding is justified and the substantial question of law has to be answered against the Revenue.

We have given careful consideration to the contention of the learned counsel appearing for the parties and scrutinised the material on record.

The material on record would clearly show that during the scrutiny for the assessment years 1996-97 and 1997-98 it was found that there was undisclosed credit in the name of Thimmegowda and D. S. Kumar. Though confirmation letters said to have been given by Thimmegowda and D. S. Kumar were produced, the said persons had appeared before the Assessing Officer and have stated that they did not have any such financial transaction. Wherefore, it is clear that when the persons in whose name credit is shown they themselves denied the transaction, mere production of the demand drafts, would not in any way substantiate the case of the respondent-assessee that sufficient explanation is offered and the finding of the appellate authority and the Tribunal for deleting the undisclosed credit added by the Assessing Officer, is clearly perverse and arbitrary as they have proceeded only on the basis that the demand drafts were produced, that the assessee has discharged his onus and, therefore, the credit has been satisfactorily explained, which is clearly perverse as the said persons ; Thimmegowda and D. S. Kumar themselves have stated before the Tribunal that they did not have any financial transaction, which has not at all been taken into account in the said oral statements, was the basis for the Assessing Officer to add the undisclosed credit in the name of Thimmegowda and D. S. Kumar. Wherefore, the order passed by the appellate authority and the Tribunal, deleting the undisclosed credit added by the Assessing Officer in respect of Thimmegowda and D. S. Kumar is perverse and unsustainable in the eye of law.

Accordingly, we answer the substantial question of law in favour of the Revenue and pass the following:

ORDER

The appeal is allowed. The order passed by the Tribunal dismissing the appeal and confirming the order passed by the Commissioner of income tax (Appeals)-VI, Bangalore, dated July 17, 2002, is set aside and the order passed by the Assessing Officer dated March 28, 2002, is restored.