Commissioner of Income Tax vs N. Swamy

R. Jayasimha Babu, J.—The question referred to us at the instance of the Revenue which concerns the assessment year 1977-78 is :

Whether the Appellate Tribunal was justified in deleting the addition of Rs. 26,000 which had been added in the computation of total income from

some ''undisclosed sources'' representing the value of the excess stock hypothecated to the bank under ""open loan account'' ?

The assessee had shown the value of the stock in its books of account. The Income Tax Officer thought that the figures relating to the value of

the stocks in the book could not be regarded as the correct value of the stocks as the assessee had given a declaration to the bank from which it

had obtained overdraft facilities and in its declaration valued the stock at a figure higher than that in the books of the assessee. The Income Tax

Officer computed the difference between the value as recorded in the books and that found in the declaration to the bank and treated the same as

income from undisclosed sources. The assessee had contended that the value of the stocks as stated by him in the declaration given to the bank

was inflated, that he had not suppressed that value of the stock, and that there was no income from undisclosed sources. The Appellate Assistant

Commissioner to whom the assessee appealed, reduced the amount of the addition from Rs. 34,070 to Rs. 26,000. When the matter was taken

up by the assessee to the Tribunal, the learned Members of the Bench who heard the matter were unable to agree, the Accountant Member

holding that there was suppression while the Judicial Member held that it had not been established that there was undisclosed income from out of

which the stocks declared to the bank in excess of the stocks shown in the account books could be said to have been acquired. The matter having

thereafter been placed before the Third Member, Vice-President of the Tribunal, he concurred with the Judicial Member and held that the loan

taken by the assessee from the bank was not on key loan account, and that no verification was made by the bank officials of the stock disclosed

by the assessee, that there was no material to show that the assessee had undisclosed income, that the assessee had in fact, admitted to gross

profits in that year which was 31/2 times higher than the gross profits from the earlier years which would lead to the reasonable inference that the

assessee was not making any attempt to deflate the profits. The Judicial Member as also the Vice-President of the Tribunal held that the facts of

the present case were distinguishable from those considered by the High Court in the case of Coimbatore Spinning and Weaving Co. Ltd. Vs.

Commissioner of Income Tax, .

Counsel for the Revenue relied on the decision in Coimbatore Spinning and Weaving Co. Ltd. Vs. Commissioner of Income Tax, , wherein the

court observed that the alleged practice said to be followed by business houses of declaring larger stocks to the banks for the purpose of getting

higher loans or overdraft facilities has neither been shown to exist nor recognised in commercial circles or by courts and even assuming that such a

practice exists, the Tribunal is not expected to take judicial notice of such substandard morality on the part of the assessees so as to enable them to

go back on their own sworn statements given to the banks as to the stocks held or hypothecated by them in the banks.

We find it a little difficult to agree with those observations. The asses-see''s income is to be assessed by the Income Tax Officer on the basis of

the material which is required to be considered for the purpose of assessment and ordinarily not on the basis of the statement which the assessee

may have given to a third party unless there is material to corroborate that statement of the assessee given to a third party, even if it be a bank. The

mere fact that the assessee had made such a statement by itself cannot be treated as having resulted in an irrebuttable presumption against the

assessee. The burden of showing that the assessee had undisclosed income is on the Revenue. That burden cannot be said to be discharged by

merely referring to the statement given by the assessee to a third party in connection with a transaction which was not directly related to the

assessment and making that the sole foundation for a finding that the assessee had deliberately suppressed his income.

That the burden is on the Revenue to prove that the income sought to be taxed is within the taxing provisions and there was in fact income, are

propositions which are well settled by the Supreme Court in the case of Parimisetti Seetharamamma Vs. Commissioner of Income Tax,

Hyderabad, which reiterates these propositions.

Be that as it may, it is unnecessary for us to say anything further on that matter, in view of the fact that even by applying the decision in

Coimbatore Spinning and Weaving Co. Ltd. Vs. Commissioner of Income Tax, , the result reached by the Tribunal can be sustained. The Division

Bench in that case accepted the argument that was advanced by the Revenue that the question whether an explanation offered by the assessee is

acceptable or not is a pure question of fact, and that this court is not entitled to examine the correctness of such a finding on a reference. On the

facts of that case, the Tribunal had rejected that explanation and this court after examining the facts upheld the rejection. Here the situation is

reversed. The Tribunal has accepted the explanation of the assessee and it is the Revenue which wants that order of the Tribunal to be set aside on

the ground that the explanation could not have been accepted. The rejection of the explanation was a matter for the Tribunal. The Tribunal has

exercised its jurisdiction and the question decided by it is a question of fact. We, therefore, do not see any scope for interference with the order of

the Tribunal.

The question referred to us is, therefore, answered in favour of the assessee and against the Revenue. There will be no order as to costs.