Janak Raj Kashyap vs Commissioner of Income Tax, Shimla

Deepak Gupta, J.—Both these appeals are being disposed of by a common judgment since common questions of law and fact are involved in the same. The substantial questions of law framed in ITA No. 18 of 2005 which are more comprehensive and cover the entire dispute read as follows:--

Whether under the facts and circumstances of the case the Tribunal was right in law in upholding the addition of Rs. 85,000 u/s 69 of the income tax Act as an unexplained investment, though the investment had been made by the appellant in the preceding year i.e., assessment year 1993-94?

Whether in the facts and circumstances of the case the money spent by the appellant in the preceding year could have been assessed in the assessment year under appeal u/s 69 of the IT Act, 1961?

Whether in the facts and circumstances of the case the Ld. Tribunal is right in law in upholding the reopening of the case u/s 147 rule with section 148 of the income tax Act though the very basis of the reopening of the case i.e., valuation report of the department valuer has virtually been rendered infructuous? The brief facts of the case are that the appellant is assessed to income tax. He had submitted his returns for the assessment years 1994-95 to 1997-98. These returns were reopened by taking recourse to the provisions of sections 147 and 148 of the income tax Act, 1961.

The main ground for re-opening the assessment was that the appellant had constructed a house and a tax evasion petition was filed against the appellant. The case was referred to the income tax Officer after getting approval of the Commissioner of the income tax. On valuation, the cost of the house was determined at Rs. 7,54,980 whereas the assessee had claimed that the value of the house was Rs. 3,25,000 in his return. Since there was huge difference in the valuation of the department and the figure submitted by the appellant, the case was reopened.

It is not disputed that the appellant during the re-assessment proceedings finally worked out a figure of Rs. 5,80,498 as the cost of the house meaning thereby that he admitted that the original figure of Rs. 3,25,000 given by him was incorrect. According to the appellant, out of this amount of Rs. 5,80,498, he had spent Rs. 1,55,480 in the assessment year 1993-94, i.e., prior to the period of reassessment and thus claimed that this amount could not be added to his income.

According to the assessee, out of Rs. 1,55,480, Rs. 1 lakh was on account of his past savings from his salary income and the balance Rs. 55,480 on account of unsecured loan raised from three parties, i.e., Rs. 16,280 from his mother, Rs. 19,500 from an agriculturist friend Girja Ram Sharma and another sum of Rs. 19,700 from one Sh. Nitya Nand. The income tax Officer did not accept this explanation given by the appellant and added the entire amount of Rs. 1,55,480 to the income of the appellant for the assessment year 1994-95.

In an appeal filed by the appellant, the explanation of the assessee was accepted in respect of Rs. 55,480 and, therefore, the addition was reduced by Rs. 55,480. The Commissioner, income tax however, did not accept the explanation of the assessee in respect of Rs. 1 lakh mainly on the ground that he could not believe that an engineer having a transferable job and maintaining bank accounts would keep cash amounting to Rs. 1 lakh at home. The assessee then approached the learned income tax Appellate Tribunal which came to the conclusion that it can be believed that the assessee may have kept Rs. 15,000 at home and, therefore, reduced the addition to Rs. 85,000 for the assessment year 1994-95. This has led to the filing of ITA No. 18 of 2005.

The second appeal, i.e., ITA No. 17 of 2005 relates to the assessment year 1997-98. The facts are same but in this case, according to the assessee, he had spent a sum of Rs. 1,43,291 on the construction of the house property. Out of this amount, a sum of Rs. 64,715 was spent out of his savings from salary and agricultural income, another sum of Rs. 28,576 was raised as a loan from the Punjab National Bank and another sum of Rs. 50,000 as loan from various parties. The Assessing Officer came to the conclusion that the net salary of the assessee was only Rs. 60,211 and, therefore, he could not have saved Rs. 64,715 and added this amount to the income of the assessee. The Commissioner reduced the addition to Rs. 40,000 in this regard. The learned Tribunal upheld the order of the Commissioner.

As far as the common questions of law are concerned, in our view, they are not questions of law at all. The finding whether the appellant had spent a particular amount in a particular year out of the savings or not is a pure question of fact and not of law. The assessment was rightly reopened since the assessee himself has admitted that the cost of construction was much higher than what was reflected in his original returns. Therefore, these questions are answered in favour of the revenue and against the assessee.

The main question before us is question No. 1 in the income tax Appeal No. 18 of 2005. According to Sh. Vishal Mohan, learned counsel for the appellant-assessee, since the explanation has been accepted that the amount was spent in the year preceding the assessment in question, the same could not have been added to the income of the assessee for the assessment year 1994-95.

In support of his contention, Sh. Vishal Mohan, Advocate has relied upon a judgment of the Allahabad High Court in Commissioner of Income Tax Vs. Shree Ram Jaiswal,

In our view, this judgment is not at all applicable to this case and does not decide any question of law. The only question is whether the investment was made in the preceding year or not?

As far as the income tax Officer is concerned, he clearly held that no case was made out. The Commissioner, income tax has come to the conclusion that the subsequent claim regarding the investment of Rs. 1 lakh out of the cost of construction has been made only to cover up the difference in the cost of construction initially shown by the assessee and in the valuation done by the valuer. Though the assessee specifically claimed that the investment was made in the previous assessment year, there is no material on record to support his claim. The assessee came out with this explanation after many years. There is no material on record to show that the construction of the house had in fact started in the previous assessment year. It is apparent that the assessee is just trying to cover up the lacunae in his case. Therefore, this question is also decided in favour of the revenue and against the assessee. In view of the above discussion, we find no merit in the appeals which are accordingly rejected. No costs.