Commissioner of Income Tax vs Puran Chand Mittal

Ajay Kumar Mittal, J.—This appeal u/s 260A of the income tax Act, 1961 (for short "the Act"), has been filed by the Revenue against the order dated March 30, 2006, passed by the income tax Appellate Tribunal, Chandigarh Bench "B", Chandigarh (in short "the Tribunal") in I.T.A. No. 21/Chandi/2004, relating to the assessment year 1993-94. The appeal was admitted for determination of the following substantial questions of law :

(i) Whether, on the facts and in the circumstances of the case, the hon''ble income tax Appellate Tribunal was right in law in deleting the addition of Rs. 3,25,000 by admitting the evidence, i.e., the agreement on plain paper by ignoring the principle of human probabilities which was apparent from contradictory statements of the alleged creditor ?

(ii) Whether, on the facts and in the circumstances of the case, the hon''ble income tax Appellate Tribunal was right in law in deleting the addition of Rs. 1 lakh which represented repayment out of undisclosed sources ?

The facts, in brief, necessary for adjudication as narrated in the appeal, are that on October 23, 2000, the assessee filed his return for the assessment year 1993-94 declaring income of Rs. 34,150. He had declared the income from salary and interest which he got in the capacity of a partner of M/s. Piare Lal and Sons, Patiala. Besides, the assessee also showed income of Rs. 15,600 from the commission earned by selling and purchasing the properties. During the assessment proceedings, it was found that the assessee had also shown an amount of Rs. 3,25,000 as liability towards one Ajit Singh in the balance-sheet as on March 31, 1993. This amount was stated to be an advance consideration received from him on account of sale of a commercial plot No. 107 situated in Chhoti Baradari, Patiala. By means of producing a copy of the agreement to sell, the assessee showed that as per the terms thereof, the sale price of the plot was determined at Rs. 6,50,000 and the purchaser had paid the amount of Rs. 3,25,000 in advance. It was further stipulated in the agreement that the transfer of plot was to be made by December 31, 1995. During the proceedings, the assessee changed his stand and gave different version.

The pleas raised and the answers furnished to the questionnaire put by the income tax Department did not prevail upon the authorities and ultimately, the Assessing Officer, vide order dated March 27, 2002, made addition of Rs. 3,25,000 on account of unexplained entry showing liability towards Shri Ajit Singh and another sum of Rs. 1 lakh on the ground that the assessee had made payment to Sh. Megh Chand Sharma which was not entered in the books of account. The assessee, however, succeeded in appeal before the Commissioner of income tax (Appeals) (in short "the CIT(A)"). The appellate authority, vide order dated October 29, 2003, deleted the addition, holding that the amount of Rs. 3,25,000 was a trading advance against the intended sale of plot and it was not the assessee''s own money. The Commissioner of income tax (Appeals) also deleted the addition of Rs. 1 lakh made on account of payment to Megh Chand Sharma, In further appeal, at the instance of the Revenue, the order of the Commissioner of income tax (Appeals) was upheld by the Tribunal, vide the order under appeal and this is how the Revenue has come up in appeal before this court.

We have heard learned counsel for the parties and have perused the record.

The two-fold issues raised in the appeal are :

(a) Whether the Commissioner of income tax (Appeals) and the Tribunal were right in deleting the addition of Rs. 3,25,000 made on account of unexplained entry shown as liability to Sh. Ajit Singh in the balance-sheet as on March 31, 1993 ?

(b) Whether the deletion of addition of Rs. 1 lakh by the Commissioner of income tax (Appeals) and the Tribunal on account of payment to Shri Megh Chand Sharma outside the books of account was justified ?

Taking up the first issue, it would, in the first instance, be advantageous to refer to the findings recorded by the Tribunal with regard to the aforesaid addition in paragraph 8 of its order which are as under :

We have considered the rival contentions carefully and gone through the material available on record. In the instant case, it appears that the assessee had shown liability towards Shri Ajit Singh in his balance-sheet, the liability was claimed to be an advance against the commercial plot. However, the Assessing Officer treated the amount as a loan. He made the addition by considering the loan as non-genuine. The assessee produced the purchaser, i.e., Shri Ajit Singh, whose statement was recorded by the Assessing Officer. The purchaser categorically stated in his statement that he was basically an agriculturist and had three sons who were illiterate. He admitted that out of savings from his agricultural income, he was purchasing agricultural land only. However, he stated that an advance of Rs. 3.25 lakhs was given to the assessee to purchase the plot for Rs. 6.50 lakhs and out of advance, a sum of Rs. 75,000 was received back by him. He also admitted that the deal was not materialized. In the instant case, the amount of Rs. 75,000 was received by the purchaser in the month of July, 1994, i.e., in the subsequent year, therefore, the amount shown in the balance-sheet was Rs. 3.25 lakhs and the amount of Rs. 2.50 lakhs was payable by the assessee in the financial year 1994-95. It appears that the Assessing Officer doubted the statement of the purchaser on the basis that the amount of Rs. 2.50 lakhs was payable and the figure shown in the balance-sheet at Rs. 3.25 lakhs was different. In the present case, it is not in dispute that the assessee produced the person in whose name the amount was outstanding. The said person, namely, Shri Ajit Singh admitted that he had given the amount to the assessee as an advance. It is not the case of the Assessing Officer that the purchaser, Shri Ajit Singh, was not a man of means. We, therefore, considering the totality of the facts, are of the view that the learned Commissioner of income tax (Appeals) was justified in deleting the addition made by the Assessing Officer when the assessee discharged the onus cast upon him.

The Tribunal on appreciation of evidence had come to the conclusion that the assessee had received an advance of Rs. 3,25,000 from Shri Ajit Singh for purchase of a plot from the assessee. Further, Shri Ajit Singh was produced before the Assessing Officer who had admitted having made payment to the assessee and that he was man of means. It was, thus, concluded that the amount which was shown in the balance-sheet against the name of Shri Ajit Singh was not the undisclosed income of the assessee. No perversity could be pointed out in the aforesaid findings of the Tribunal warranting interference by this court.

Now, adverting to second issue, the findings recorded by the Tribunal in paragraph 22 of the order read thus :

We have given our careful thought to the rival contentions. In the present case, it seems that the Assessing Officer made the addition only on the basis that the cheque received by the assessee from Shri Megh Chand Sharma had not been reflected as a liability in the balance-sheet. But he ignored this explanation of the assessee that the cheque was received in lieu of cash of Rs. 1 lakh given to Shri Megh Chand Sharma. The contents of the confirmation had not been rebutted by the Assessing Officer. The Assessing Officer had also not rebutted this explanation of the assessee that the amount of Rs. 1 lakh was given to Shri Megh Chand Sharma in cash out of advance received from Shri Ajit Singh. In that view of the matter, we are of the opinion that the addition had been made by the Assessing Officer only on the basis of surmises and conjectures. In other words, the addition had been made only on the basis of presumption that the assessee had repaid the money out of undisclosed income, to Shri Megh Chand Sharma from whom cheque of Rs. 1 lakh was received. On the contrary, the explanation given by the assessee that a sum of Rs. 1 lakh was paid in cash out of receipt from Shri Ajit Singh, in lieu of cheque of the same amount received from Shri Megh Chand Sharma had not been rebutted by the Assessing Officer. Therefore, we are of the view that the learned Commissioner of income tax (Appeals) rightly deleted the addition made by the Assessing Officer.

The Tribunal, while affirming the findings of the Commissioner of income tax (Appeals), had accepted the explanation of the assessee that the amount of Rs. 1 lakh which was paid to Shri Megh Chand Sharma in cash was out of the amount received from Shri Ajit Singh and that Shri Megh Chand Sharma had issued cheque to the assessee in lieu thereof. Learned counsel for the Revenue could not demonstrate that the aforesaid finding of fact recorded by the Commissioner of income tax (Appeals) and affirmed by the Tribunal was erroneous in any manner. In view of the above, the substantial questions of law are decided against the Revenue. The appeal is consequently dismissed.