The Commissioner of Income Tax vs Nippon Enterprise

K. Raviraja Pandian, J.—The assessment year is 1993-94. The Revenue filed this appeal formulating the following question of law:

Whether on the facts and in the circumstances of the case, the Income Tax Tribunal is right in law in deleting the addition of Rs.23 lakhs made on

account of unexplained cash credits u/s 68 of the Income Tax Act for the assessment year 1993-94?

The assessee is a company. In respect of the assessment year aforesaid, originally, the assessment was completed u/s 143(3) of the Income Tax

Act on 29.03.1996 making addition of Rs.23 lakhs as unexplained cash credit u/s 68 of Income Tax Act. On appeal, the Commissioner of Income

Tax (Appeals) set aside the order of assessment and remitted back for reassessment after giving an opportunity to the assessee to prove the

transaction by producing the persons from whom the cash credit was received for examination and with further direction to the assessing officer to

peruse the Income Tax file of the lenders. Once again, an assessment order was made by the assessing officer rejecting all the explanations given

by the assessee in respect of the disputed amount of Rs.23 lakhs. On appeal, Commissioner of Income Tax (Appeals) deleted the addition relying

on the order of the Appellate Tribunal in assessee''s own case for the assessment year 1992-93 in I.T.A.No. 948/Mds/96. The further appeal

preferred by the revenue to the Tribunal was also dismissed following its own order in respect of the assessee''s case for the assessment year

1992-93 on which the Commissioner of Income Tax (Appeals) relied. As against the same, the present appeal is filed by formulating the question

of law extracted above.

When the matter came up for admission before this Court, this Court has adjourned the matter for more than four times so as to enable the

counsel for the revenue to find out whether the revenue has taken any further action against the order of the Tribunal in respect of the assessment

year 1992-93, which is followed by the Tribunal for dismissing the appeal of the revenue? However, the counsel was able to get only a letter from

the Department to the effect that the file relating to the said assessment year has been handed over to the counsel for the revenue for filing an

appeal before this Court. Thereafter what happened to the matter is still a mystery. Hence, we heard the learned Counsel for the revenue on merits

of the case for admission.

Learned Counsel appearing for the revenue has strenuously contended that even in the second round, the assessing officer after considering the

explanation offered by the respondent/assessee, rejected the same on the ground that the explanation offered was not to his satisfaction. When that

being the position, the appellate authority would not have interfered with the finding. Hence, the order of the Appellate Tribunal has to be set aside

and the order of the assessing officer has to be restored.

We heard the argument of the learned Counsel for the revenue and perused the material on record.

Section 68 of the Income Tax Act reads as follows:

Cash Credits: 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.

From the reading of the above statutory provision, it is clear that in order to invoke the said provision, there must be credit of amounts in the

books maintained by the assessee for the previous year and for that credit, the assessee offers no explanation about the nature and source of the

credit found in the books or the explanation offered by the assessee in the opinion of the assessing officer is not satisfactory. Only if these

conditions are available, then only Section 68 could be invoked to charge the credit to Income Tax, as the income of the assessee of that previous

year. The expression employed in that provision that ""the assessee offers no explanation"" would mean that the assessee offered no proper or

reasonable or acceptable explanation as regards the sum found credited in the books maintained by the assessee or in the alternate, if the assessee

offered explanation, which in the opinion of the assessment officer, is not satisfactory, even then, the sum so credited may be charged to Income

Tax, as income of the assessee for that previous year. However, the opinion of the assessing officer for not accepting the explanation offered by

the assessee as not satisfactory, is required to be based on proper appreciation of material evidence and other attending circumstances available on

record and is required to be formed objectively.

No doubt, in this case, it is true that some of the summons issued to the parties, the addresses of whom were furnished by the assessee were

returned unserved with the postal marking ""not known"", ""left"", ""no such person"" etc. But other vital explanations offered by the assessee are

available. It is the concrete case of the assessee that he obtained the cash credits from one finance broker Bharat Kumar P.Shah, who arranged

the loan from 31 parties on 4.1.1993. The names and addresses of the parties, the amount of loan and quarterly interests to be paid are all given

by the said finance broker. For arrangement of the above said loan, the assessee paid commission in a sum of Rs.40,500/- and Rs.28,500/-,

Rs.69,000/- on 15.7.1993 by Cheque. The loans were repaid by account payee cheques issued on Hongkong & Shanghai Banking Corporation,

Chennai ​ 1. It is also on record that pursuant to the letter issued by the assessign officer, the assessee made the finance broker Bharat Kumar

P.Shah to appear before the assessing officer and as a matter of fact, Bharat Kumar P.Shah appeared before the assessing officer and gave a

statement that he only arranged the loan from 31 parties for Rs.23 lakhs. He further agreed to produce the parties before the assessing officer,

however failed to do so. When the assessing officer requaired the assessee to produce the parties, the assessee replied that the loans were

arranged by the finance broker and the assessee was not aware of the parties. The books of accounts were maintained as per the particulars given

by Bharat Kumar P.Shah about the names, addresses and the amount of loan and the interest payable.

When this sort of explanation has been given by the assessee, we cannot accept the reasoning given by the assessing officer that the assessee

should produce all the 31 persons, whose names have been given by Bharat Kumar P.Shah, a finance broker, to whom alone the assessee had

contact. In addition to that, the assessee had also stated in their letter dated 19.3.1999 that the Income Tax Department details of the persons

concerned has also been furnished to the assessing officer. This vital information has also not been accepted by the assessing officer.

In the remittal order, the Commissioner of Income Tax not only directed the assessing officer to give one more opportunity to the respondent

to prove his case, but also directed the assessing officer to peruse the Income Tax files of the lenders.

From the above facts, it is clear that the assessee made available the lender of the assessee Bharat Kumar P.Shah before the assessing officer

and the assessing officer also obtained statement from him accepting the transaction. The assessee has also informed the income tax details of the

lenders to the assessing officer. This explanation offered by the assessee cannot be regarded as an improper, unreasonable and unacceptable

explanation. Further, the opinion formed by the assessing officer is also not appears to be based on objective reasoning with reference to the

material available on record and attended circumstances of the case.

The learned Counsel for the revenue sought to rely on the decision of the Supreme Court in the case of Commissioner of Income Tax Vs. P.

Mohanakala, is in favour of the Department. We have gone through the judgment. The Supreme Court has observed in that case that the opinion

of the assessing officer for not accepting the explanation offered by the assessee as not satisfactory was required to be based on proper

appreciation of evidence and such opinion was required to be formed objectively with reference to the material available on record. The

application of mind is the sine qua non for forming the opinion. In the said judgment, the Supreme Court has taken into consideration the judgments

of Sumati Dayal Vs. Commissioner of Income Tax Bangalore, , K.S. Kannan Kunhi Vs. Commissioner of Income Tax, and other earlier

judgments on this point. If the above observation of the Supreme Court is matched with the facts of the present case, we are of the view that the

assessing officer rejected the explanation offered by the assessee for the sake of rejection and the opinion so formed by the assessing officer is not

based on proper appreciation of evidence, material and other attendant circumstances available in this case. The Supreme Court observed in 291

ITR 278 that even the rejection of the explanation offered by the assessees as unacceptable by itself cannot be a reason for making the addition.

Appeal u/s 260-A can be entertained only on a question of law. Apart from that, we are of the view that in this case no question of law, much

less a substantial question of law has arisen for consideration. The entire argument of the learned Counsel appearing for the revenue is on the

appreciation of evidence, which is totally outside the domain of this Court u/s 260-A of the Income Tax Act.

For all the fore-going reasons, we are of the view that there is no clinching material available in favour of the Department so as to maintain the

appeal, in the sense, there is no question of law, much less, a substantial question of law is available in this case for entertaining the appeal. The

appeal is therefore dismissed.