Kushal Prasad Manhar vs Commissioner of Income Tax

N.K. Agarwal, J.—The appeal u/s 260A of the Income Tax Act, 1961 (for short, hereinafter referred to as the Act) was admitted by this Court for consideration on the following substantial questions of law:

(i) Whether in the facts and in the circumstances of the case, the Tribunal was correct in law in holding that Appellant has failed to prove the creditworthiness of the creditors and confirming the addition of Rs. 14,99,000?

(ii) Whether the finding of the Tribunal recorded without considering the evidence on record is justified in law and not perverse?

(iii) Whether on the facts and circumstances of the case, the Tribunal was correct in law in confirming the addition of Rs. 50,000 for disallowance of transportation expenses?

Facts of the case in nutshell are as under:

The Assessee is sole proprietor of M/s Shradha Fuels, Village Tiwarta, Korba and is engaged in the business of trading in petrol, diesel and lubricant oil etc. He submitted this return of income for assessment year 2006-07 on 30-10-2006 declaring total income of Rs. 1,26,359, The assessment proceedings were taken up by issuance of notice u/s 143(2) of the Act, dated 20-2-2007. The Assessee claimed expenses in transportation accounts amounting to Rs. 4,21,150. Cash credits amounting to Rs. 9,00,000 and Rs. 10,99,000 are appearing in the names of Shri S.R. Manhar (Individual) and S.R. Manhar (HUF) in the books of Assessee as under:

Shri S.R. Manhar (Indl.)

S.R. Manhar (HUF)

1-4-2005

Opening balance 3,50,000

3-3-2006

46,000

20-3-2006

89,000

4-3-2006

72,000

21-3-2006

91,000

6-3-2006

2,09,000

23-3-2006

21,000

7-3-2006

91,000

24-3-2006

49,000

8-3-2006

99,000

25-3-2006

1,31,000

10-3-2006

71,000

27-3-2006

49,000

11-3-2006

99,000

28-3-2006

1,20,000

13-3-2006

1,27,000

9,00,000

13-3-2006

84,000

14-3-2006

1,26,000

17-3-2006

75,000

Total

10,99,000

The above amounts were deposited by the creditors in the month of March, 2006 on different dates in cash, in their respective bank accounts and account payee cheques were immediately issued thereafter to Assessee. On being asked, the Assessee produced the above creditors for his examination. Shri S.R. Manhar (Individual) is also Karta of the HUF viz., S.R. Mahar. Statement of Shri S.R. Manhar in his individual as well as his capacity as Karta of HUF were recorded in presence of the Authorized Representative of the Assessee, separately.

Out of Rs. 4,21,150, the assessing officer disallowed Rs. 50,000 for want of proper bills and vouchers and added the same to the income of the Assessee.

The assessing officer after taking into consideration the return filed by the Assessee as well as statements of Shri S.R. Manhar in his both the capacities held cash credit of Rs. 4,00,000 in the name of S.R. Manhar (individual) and cash credit of Rs. 10,99,000 in the name of S.R. Manhar (HUF) as not genuine and added the same to the income of the Assessee.

The appeal preferred thereagainst by the Assessee before the Commissioner (Appeals), Bilaspur was allowed.

Thereagainst, revenue preferred appeal before the Tribunal, Bilaspur. The Tribunal vide its order dated 30-7-2009 allowed the appeal, restored and confirmed the order passed by the assessing officer. Hence this appeal.

Shri G.N. Purohit, learned senior advocate would submit that if the sum is found credited in the account books of Assessee, it has to prove three things viz., identity of the creditor, capacity of such creditor and genuineness of the transaction. Once all the aforesaid three things are proved, burden shifts on the revenue to prove that the amount belongs to Assessee. The Assessee has done everything in as much, he has produced confirmation letters of creditors who are income tax Assessees, also produced them for recording their statements before the assessing officer, in which they have explained everything, thus the Assessee has successfully discharged its initial burden as envisaged u/s 68 of the Act. The Assessee is not obliged to prove the source of the source. For this, the revenue has not discharged its burden, therefore, the order passed by the assessing officer, disallowing cash credit of Rs. 4,00,000 and Rs. 10,99,000 and adding it to the income of the Assessee is perverse being based on no material on record. For this, he placed reliance upon the judgment in the matters of Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd., Commissioner of Income Tax Vs. Mehrotra Brothers, , Commissioner of Income Tax Vs. S. Kamaljeet Singh, , Nemi Chand Kothari Vs. Commissioner of Income Tax and Another, , Jalan Timbers Vs. Commissioner of Income Tax, , Anil Rice Mill Vs. The Commissioner of Income Tax, , Kamal Motors v. CIT (2003) 180 CTR (Raj) 166 , Hotel Mount View Vs. Commissioner of Income Tax and Others, . He would further contend, addition of Rs. 50,000 in the income, disallowing transportation expenses to the above extent incurred for running and maintenance of tanker truck is also without any basis.

On the other hand, Shri Rajeev Shrivastava, learned standing counsel appearing for the Respondent, supported the order passed by the Tribunal and contended that the findings recorded by the assessing officer as well as the Tribunal are pure findings of fact and do not give rise to any substantial question of law requiring interference by this Court, in as much as accepting or rejecting the explanation offered by the Assessee is a finding of fact and the same does not give rise to any substantial question of law, as held by this Court in IT Appeal No. 125 of 1999 (CIT v. Satyanaryan Agrawal) vide its order dated 25-11-2009 and the appeal being sans merit deserves to be dismissed.

We have heard the submissions made by learned Counsel for the parties and also perused the record.

In the instant case, the explanation offered by the Assessee was not found satisfactory by the assessing officer for the reasons (i) income tax returns have been filed by Shri S.R. Manhar (Individual) and S.R. Manhar (HUF) for assessment year 2005-06 for the first time; the returns filed by them are also not supported by capital account, and balance sheet showing loans advanced by them to Assessee; (ii) The loans have been channelled through bank accounts by depositing cash in bank account on various dates, all in the month of March, 2006 and then by issuing account payee cheques in favour of the Assessee immediately thereafter; (iii) It is absolutely unbelievable that any prudent person will keep such a huge amount of cash with him with all the risk of life and property instead of depositing in bank and earning handsome income in the form of interest; (iv) The loans were not given in one lump sum but on several occasions on successive days and sometimes in a days gap by depositing cash in the accounts of the alleged creditors in a similar fashion. This abundantly proves that cash was not available with the alleged creditors as claimed by them; and (v) The capacity of the creditors to advance loans as above to the Assessee, is therefore, not proved.

The assessing officer further held that "the Assessee has claimed expenses in transportation account amount to Rs. 4,21,150. Admittedly, most of the expenses are supported by internal vouchers. It has been stated on behalf of the Assessee that Pacca bills are not given in most of the cases and the Assessee has incurred expenditure for business purpose only. I have considered the submissions. In the absence of proper bills and vouchers the correctness of the claim cannot be verified, I therefore make a disallowance of Rs. 50,000 from the said expenses and add the same to the income shown by the Assessee."

While allowing the appeal preferred by the Assessee, the Commissioner (Appeals) held:

The Assessee has furnished details of the creditors including their names and addresses. They were produced and they have confirmed the transaction. Considering the totality of the case, the facts involved and the stated decision on identical issue, I am of the opinion that the Assessee has discharged the primary onus that lay on it in terms of Section 68 of the Income Tax Act, 1961 and law. I therefore find the addition of Rs. 14,99,000 is not sustainable as per law and facts of the case. The same stands deleted.

In respect of disallowance of the transportation expenses, the net profit shown in respect of truck is more than the amount u/s 44AB, hence the disallowance made by the assessing officer is deleted.

The Tribunal reversed the order passed by the Commissioner (Appeals) and restored the order passed by the assessing officer. While allowing the appeal, the Tribunal has held in paras 15, 16 and 17 as under:

We have heard the rival submissions and perused the material available on record. We find that the learned Commissioner (Appeals) has simply deleted the addition on the ground that the creditors are income tax Assessees and has not gone into the creditworthiness of the creditors. We also find that the Assessee though proved the identity of the creditors but unable to prove their creditworthiness in advancing such huge sums to the Assessee. We also find from the facts of this case that the creditors are using the bank account not for keeping his earnings in that account but only for the purpose of giving loans to the Assessee which is clear from the fact that as and when the creditors issue- cheques he deposits the money in cash and then gives cheques to the Assessee. In view of the above, we are of the opinion that the Assessee fails to prove the creditworthiness of the creditors to advance such huge amount to the Assessee. Therefore, we reverse the order of the learned Commissioner (Appeals) and restore that of the assessing officer. This ground of appeal of the revenue is, therefore, allowed.

In respect of ground Nos. 2(a) and (b), the Assessee claimed transportation expenses amounting to Rs. 4,21,150 and most of the expenses were supported by internal vouchers. In absence of proper bills and vouchers, the correctness of the claim cannot be verified by the assessing officer and therefore, he made the disallowance of Rs, 50,000 and added the same to the income of the Assessee. On appeal, the learned Commissioner (Appeals) deleted the said addition. Aggrieved by that order, now the Assessee is in appeal before us.

After hearing both the sides and perusing the material available on record, we find that in the absence of proper bills and vouchers the assessing officer was reasonable enough to disallow only a sum of Rs. 50,000 out of the total claim of the Assessee of Rs. 4,21,150 as transportation expenses. The learned Commissioner (Appeals) has not given any cogent reason for deleting this meagre addition of Rs, 30,000. Therefore, the order passed by him is hereby reversed and that of assessing officer is restored. This ground of appeal of the revenue is also allowed.

In order to appreciate the controversy involved in the matter, it would be appropriate to reproduce Section 68 of the Act which reads thus:

Where any sum is found credited in the books of an Assessee maintained for any previous year, and the Assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the Assessee of that, previous year.

As per Section 68 of the Act, where any sum is found credited in the books of an Assessee maintained for any previous year, and the Assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to income tax as the income of the Assessee of that previous year.

We have considered the case law cited by Shri G.N. Purohit, learned senior counsel appearing for the Appellant. List of the same is that the Assessee has to prove three conditions:

(i) Identity of the creditor;

(ii) Capacity of such creditor to advance money; and

(iii) Genuineness of transaction.

Burden of Assessee to prove genuineness of the transactions as well as the creditworthiness of the creditor must remain confined to the transactions, which have taken place between the Assessee and the creditor. It is not the business of the Assessee to find out the source of money of his creditor Anil Rice Mill Vs. The Commissioner of Income Tax, ; Nemi Chand Kothari Vs. Commissioner of Income Tax and Another, paras 13 and 14).

A three Judge Bench of the Supreme Court in case of Sumati Dayal Vs. Commissioner of Income Tax Bangalore, while dealing with the facts--

During the assessment year 1971-72, the Appellant received a total amount of Rs. 3,11,831 by way of race winnings in Jackpots and Treble events in races at Turf Clubs in Bangalore, Madras and Hyderabad. The said amount was shown by the Appellant in the capital amount in the books. The Appellant filed a return on 27-3-1972 declaring an income of Rs. 27,829. The Appellant also made a sworn statement on 6-1-1973 before the Income Tax Officer and on the basis of the said statemen: the Income Tax Officer made an assessment order dated 27-3-1974 where he held that the sum of Rs. 3,11,831 is not winnings in races and he treated the said receipts as income from undisclosed sources and assessed the same as income from other sources. For the assessment year 1972-73 the Appellant showed receipts of Rs. 93,500 as race winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the capital account in the books. The Appellant filed a return declaring an income of Rs. 3,827 on 3rd Feb., 1973. In his assessment order dated 31-8-1974 the Income Tax Officer included the amount of Rs. 93,500 as income, from other sources and assessed the income of the Appellant on that basis. The appeals filed by the Appellant against the two assessment orders were disposed of by the Appellate Assistant Commissioner by order dated 12-12-1975 whereby the assessment of Rs. 3,11,831 as income under the head other sources for the assessment year 1971-72 and Rs, 93,500 for the assessment year 1972-73 was confirmed. The Assessee had taken the matter before the Settlement Commission. The two Members constituting majority on the Settlement Commission, came to the conclusion that the apparent is not the real and that the Appellants claim about her winning in races is contrived and not genuine for the following reasons:

(a) The Appellants knowledge of racing is very meagre.

(b) A Jackpot is a stake of five events in a single day and one can believe a regular and experienced punter clearing a Jackpot occasionally but the claim of the Appellant to have won a number of Jackpots in three or four seasons not merely at one place but at three different centres, namely, Madras, Bangalore and Hyderabad appears, prima facie, to be wild and contrary to the statistical theories and experience of the frequencies and probabilities.

(c) The Appellants books do not show any drawings on race days or on the immediately preceding days for the purchase of Jackpot combination tickets, which entailed sizeable amounts varying generally between Rs. 2000 and Rs. 3000. The drawings recorded in the books cannot be correlated to the various racing events at which the Appellant made the alleged winnings.

(d) While the Appellants capital account was credited with the gross amounts of race winnings, there were no debits either for expenses and purchase of tickets or for losses.

(e) In view of the exceptional luck, claimed to have been enjoyed by the Appellant, her loss of interest in races from 1972 assumes significance. Winnings in racing became liable to income tax, from 1-4-1972 but one would not give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, if the claim of winnings in races was false and what were passed off as such winnings really represented the Appellants taxable income from some undisclosed sources.

The majority opinion includes that it would not be unreasonable to infer that the Appellant had not really participated in any of the races except to the extent of purchasing the winning tickets after the events presumably "4th unaccounted funds.

The Chairman of the Settlement Commission, in his dissenting opinion has laid emphasis on the fact that the Appellant had produced evidence in support of the credits in the form of certificates from the racing clubs giving particulars of the crossed cheques for payment of the amounts for winning of Jackpots etc. The Chairman has rejected the contention regarding lack of expertise in respect of the Appellant and has observed that the expertise is the last thing that is necessary for a game of chance and anybody has to go and call for five numbers in a counter and obtain a Jackpot ticket and that books containing information are available which are quite cheap.

has observed in para 12 of its judgment as under:

This, in our opinion, is a superficial approach to the problem. The matter has to be considered in the light of human probabilities. The Chairman of the Settlement Commission has emphasized that the Appellant did possess the winning ticket which was surrendered to the Race Club and in return a crossed cheque was obtained. It is, in our opinion, a neutral circumstance, because if the Appellant had purchased the winning ticket after the event she would be having the winning ticket with her which she could surrender to the Race Club. The observation by the Chairman of the Settlement Commission that fraudulent sale of winning ticket is not an usual practice but is very much of an unusual practice ignores the prevalent malpractice that was noticed by the Direct Taxes Enquiry Committee and the recommendations made by the said Committee which led to the amendment of the Act by the Finance Act of 1972 whereby the exemption from tax that was available in respect of winnings from lotteries, crossword puzzles, races, etc, was withdrawn. Similarly the observation made by the Chairman that if it is alleged that these tickets were obtained through fraudulent means, it is upon the alleger to prove that it is so, ignores the reality. The transaction about purchase of winning ticket takes place in secret and direct evidence about such purchase would be rarely available. An inference about much a purchase has to be drawn on the basis of the circumstances available on the record. Having regard to the conduct of the Appellant as disclosed in her sworn statement as well as other material on the record an inference could reasonably be drawn that the winning tickets were purchased by the Appellant after the event. We are, therefore, unable to agree with the view of the Chairman in his dissenting opinion. In our opinion, the majority opinion after considering surrounding circumstances and applying the test of human probabilities has rightly concluded that the Appellants claim about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the Appellant in respect of the said amounts has been rejected unreasonably and that the finding that the said amounts are income of the Appellant from other sources is not based on evidence.

The Supreme Court in case of Commissioner of Income Tax Vs. P. Mohanakala, after considering the cases of Sumati Dayal (supra), Commissioner of Income Tax, Ernakulam Vs. P.K. Noorjahan (Smt), , The Commissioner of Income Tax, U.P. Vs. Bharat Engineering and Construction Co., , Commissioner of Income Tax, Orissa Vs. Orissa Corporation (P) Ltd., , has observed in paras 24 and 26 of its judgment as under:

It is true that even after rejecting the explanation given by the Assessees if found unacceptable, the crucial aspect whether on the facts and circumstances of the case it should be inferred that the sums credited in the books of the Assessees constituted income of the previous year must receive the consideration of the authorities provided the Assessees rebut the evidence and the inference drawn to reject the explanation offered as unsatisfactory. We are required to notice that Section 68 of the Act itself provides, where any sum is found credited in the books of the Assessees for any previous year the same may be charged to income tax as the income of the Assessees of the previous year if the explanation offered by the Assessees about the nature and source of such sums found credited in the books of the Assessees is in the opinion of the assessing officer not satisfactory. Such opinion found (sic formed) itself constitutes a prima facie evidence against the Assessees, viz., the receipt of money, and if the Assessees fail to rebut the said evidence the same can be used against the Assessees by holding that it if as a receipt of an income nature. In the case in hand the authorities concurrently found the explanation offered by the Assessees unacceptable. The authorities upheld the opinion formed by the assessing officer that the explanation offered was not satisfactory. The Assessees did not take the plea that even if the explanation is not acceptable the material and attending circumstances available on record do not justify the sum found credited in the books to be treated as a receipt of an income nature. The burden in this regard was on the Assessees. No such attempt has been made before any authority. All the decisions cited and referred to hereinabove are required to be appreciated and understood in the light of the law declared by this Court in Sumati Dayal (supra).

Relying on the decisions of this Court in Bejoy Gopal Mukherji Vs. Pratul Chandra Ghose, and Orient Distributors Vs. Bank of India Ltd. and Others, , Shri Iyer, learned senior counsel contended that issue relating to the propriety of legal conclusion that could be drawn on basis of proved facts gives rise to a question of law and, therefore, the High Court is justified in interfering in the matter since the authorities below failed to draw a proper and logical inference from the proved facts. We are unable to persuade ourselves to accept the submission. The findings of fact arrived at by the authorities below are based on proper appreciation of the facts and the material available on record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the Assessee have been duly taken into consideration by the authorities below. The transactions though apparent were held to be not real ones. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence.

By applying the law laid down by the Supreme Court in the dicta of the above-referred two cases, it is clear that where any sum is found credited in the books of Assessee for any previous year, the same may be charged to income tax as income of the Assessee of the previous year if the explanation offered by the Assessee about nature and source of such sums found credited in the books of Assessee is in the opinion of the assessing officer not satisfactory. Such opinion (sic-formed) itself constitutes a prima facie evidence against the Assessee viz. the receipt of money, and if the Assessee fails to rebut the said evidence the same can be used against the Assessees by holding that it was a receipt of an income; nature. In the case in hand the assessing officer has formed the opinion that the explanation offered by the Assessee is not satisfactory, is based on cogent material which shows that the transaction is not genuine.

All the decisions cited by Shri Purohit are required to be appreciated and understood in the light of law declared by the Honble apex court in the cases referred to hereinabove.

We have carefully gone through the finding recorded by the assessing officer as referred in para 10 of the judgment in holding the transaction as not genuine and the explanation offered by the Assessee as not satisfactory and we do not find any illegality in the said finding. Therefore, the case laws cited by Shri Purohit are of no help to him. The Tribunal has confirmed the above finding. The Appellant did not take the plea that even if explanation is not accepted, the material and attending circumstances available on record do not justify the sum found credited in the books to be treated as receipt of income nature, the burden in this regard was on the Assessee as held by Supreme Court in case of CIT v. Mohankala (supra).

So far as the claim of the Assessee regarding transportation expenses amounting to Rs. 4,21,150 is concerned, it is also a finding of fact and we do not find any illegality or perversity in the finding arrived at by the assessing officer as well as by the Tribunal.

In view of above, in our considered opinion, the case in hand does not involve any substantial question of law. The findings of fact arrived at by the assessing officer as well as the Tribunal are based on proper appreciation of facts and material on record and surrounding circumstances. The doubtful nature of the transaction in the manner in which the sum was found credited in the books of accounts maintained by the Assessee has been duly taken into consideration by the above authorities. The transactions, though apparent, were held to be not real ones. May be the money came by way of bank cheques and paid through the process of banking transaction but that itself is of no consequence.

In the result, the appeal preferred by the Appellant deserves to be and is hereby dismissed.