COMMISSIONER OF INCOME-TAX, ORISSA versus ORISSA CORPORATION (P) LTD.

979

CCJIMISSIONER OF INCOME-TAX, ORISSA v. ORISSA CORPORATION (P) LTD.

MARCH 19, 1986

[R.S. PATHAK AND SABYASACHI MUKffAIUI, JJ.]

Income Tax Act 1961-ss.68 and 256(2) - Cash credits in

books of assessee - Onus of proof about source of income.

High Court refusing to direct Tribunal to state case -

When valid.

Interference with findings of fact by the Tribunal -

Permissible under what circumstances.

A

B

C

For the accounting year ending on 31st March, 1961, corresponding to the assessment year 1962-63, the Income-tax D Officer did not accept the assessee 's accounts showing cub credit of Rs.1,50,000 said to have been received by way of loans from three individual creditors. He produced before the confirmation Incmae-tax Officer, discharged hundies and letters from these creditors who were income-tax assessees. The assessee made attempts to bring the creditors before the Income-tax Officer by issue of notices under s.131 of the Income Tax Act, 1961 but failed, as these were returned with the endorsement 'left'. The assessee thereafter wante4 fUrther opportunity to find out the whereabouts of the lenders. The Income-tax Officer observed certain inconsistencies in the confirmation letters which did not inspire confidence, and being of the view that the alleged creditors were not genuine bankers but were mere name lenders, treated the entire uount as unproved cash credit and added the same to the income of the assessee. The Assistant Appellate Coaal.ssioner dismissed the appeal of the assessee.

E

F

In a separate proceeding under s.27l(l)(c) of the Act on the basis of the assessment order the Inspecting Assistant Coamissioner imposed a penalty of Rs.50,000.

The Tribunal came to the conclusion that the Revenue was

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II

980

SUPREME COURT REPORTS

[1986] 1 S.C.R,

justified

inference against

in drawing adverse

they had made statements before

not the assessee. It was of the view that if the assessee could not produce the persons alleged to be the creditors, it did not lead automatically to the adverse inference that the arount represented undisclosed income of the assessee. It found that income-tax assessees and while being the creditors were assessed the respective Income-tax Officers admitting that they were allowing their names to be lent, without actually giving loans as creditors of different assessees. The Tribunal also could not suatain the imposition of penalty. The Revenue sought for statement of the case to the High Court on the aspect of addition of unproved cash credit to the total income of the assessee, and also on the imposition of penalty but the same was refuaed. The High Court also refused to accede to the prayers of the Revenue in its application under s.256(2) of the Act.

the In the appeals before this Court on behalf of Revenue it was contended that in view of the provisions of s. 68 of the Act the onus in these types of cases was on the assessee. and in this case the assessee had not discharged that onus.

Dismissing the appeals, the Court,

Bl!Lll : l.(i) The High Court has no power under s.256(2) of the 1961 Act to call upon the Appellate Tribunal to state a case if there was the finding recorded by the Tribunal, even if it appears to the High Court that on a re-appreciation of the evidence, it might arrive at a conclusion different from that of the Tribunal. (987 D-E]

some evidence

to support

(ii) The conclusion reached by

the Tribunal in the instant case, that the assessee had discharged the burden that lay on him could not be said to be unreasonable, or perverse or based on no evidence. If the conclusion is based on some evidence on which it could be arrived at, no question of law as such arises. [987 G-H]

(iii) The assessee had provided the names and addresses in the knowledge of the of Revenue index numbers were in the files of the department. The Revenue apart

the alleged creditors. It was they were

income-tax asseesees. Their

that

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E

F

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C.I.T. v. ORISSA CORPORATION

981

from issuing notices under s. 131 of the Act at the instance of the assessee, did not pursue the matter further. It did not examine the source of income of the alleged creditors to find out whether they were credit-worthy or were such who could loans. There was no effort made to pursue advance the alleged the so-called alleged creditors. The assessee, therefore, could not do any further. (987 E-G)

the Act. There was no provision

2, Section 68 of 1961 Act was introduced for the first time in 1922 Act in corresponding to this section. It gives statutory recognition to the principle that cash credits which are not satis factorily explained might be assessed as income. It enacts that if a sum is found credited in the books of an assessee maintained for any previous year, the cash credit might, in case where it is assessed as undisclosed income, be treated as the income of that previous year, and the financial year may not be taken as. the previous year for such a cash credit even to be from the if the undisclosed assessee' s the books were maintained. The cash credit might be assessed either as (984 G; business profit or as 985 A-C)

income was not found for which

income from other sources.

regular business

llaa v. Com:lasioner of Lalcband Bhagat Ambica !=--tax, Bibar & Orissa, 37 I.T.R. 288; Ba.r. Jebaagl.r Gbeesta v. CcwaiBBioner of lncoB!-tax, Bombay City. 41 I. T.R. 135; Sreelekha Bf.bar & Orf.ssa, 49 I, T.R, 112 and Comisaioner of 1 - - t a : {Central), Calcutta "· Daalatr- llavatmll, 53 I.T.R, 574 ref erred to.

llmlerjee & Ors. "· c-1.ssioner of ~.

\. .

CIVIL APPELLATE JURISDICTION

Civil Appeal Nos. 1379-

1380 (NT) of 1974,

From the Judgment and Order dated 31st October, 1973 of

the Orissa High Court

in S,J,C, Nos. 85 and 116 of 1972.

S.C. Manchanda, K.C. Dua and Ms. A. Subhashini for

the

Appellants.

S.P. Mittal, S.N. Aggarwal

and B, P. Maheshwari

for

the Respondents.

The Judgment of the Court was delivered by

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A

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E

F

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982

SUPREME COURT REPORTS

[19861 i s.c.R.

SABYASACHI MllKHARJI, J. These appeals by special leave arise from the decision of the Orissa High Court dated 31st October, 1973 refusing to direct the Tribunal to state a case under section 256(2) of the Indian Income Tax Act, 1961 (hereinafter called the Act) and to refer certain questions said to be questions of law arising out of the appellate order of the Income Tax Appellate Tribunal for determination of the High Court. The assessment year involved was 1962-63. There were proceedings - one appeal was related to an assessment order whereby additions were made to the quantum of income disclosed by the assessee and the other was in respect of ia.,osition of penalty under section 27l(l)(c) read with section 274(2) of the said Act.

The questions involved respectively in two applications

before the High Court were as follows

).

"S.J.c. No. 116 of 1972

1. Whether in the absence of proving confirmation letters and Hund.is by the assessee, the assessee has discharged his initial onus by producing merely the confirmation letters and Hundis to prove the nature of the transaction?

2. Whether in the facts and circumstances of the case the Tribunal was right in ordering deletion of Rs. 1,50,000 as assessee's income from undisclosed sources?

3. Whether in the facts and circumstances of the case the cash credit is the assessee's income from undisclosed sources?

I

S.J.C. No. 85 of 1972.

Whether in the facts and circumstances of the case the Tribunal was right in shifting the onus from the assessee the the Revenue penalty?"

in deleting

to

, __ ,__

H

The assessee at the relevant time was a private limited company and maintained accounts according to the calendar

C.l.T. v. ORISSA CORPORATION [MUKHARJI, J.]

983

A

year. For the accotlnting year ending on 31st December, 1961 corresponding to the assessment year 1962-63, the Income-tax Officer did not accept the assessee's accounts showing cash credit of Rs. 1,50,000. Three amounts were shown to have been received by way of loans from three l ndi vidual creditors of Calcutta under Hundis. The assessee produced before tax Officer letters of confirmation, the discharged Income- Hundis and particulars of the different creditors general index numbers were with the Income-tax Department. Attempts had been made to bring those creditors before the Income-tax Officer by issue of notices under section 131 of the Act, but the said notices were returned with the endorsement 'left'. The Income-tax Officer, therefore, treated the entire a100unt C of Rs. 1,50,000 as unproved cash credit and added the same to the income of the assessee. The appeal of the assessee to the Assistant Appellate Commissioner was dismissed. Thereafter there was further appeal to the Tribunal.

the B

In

the meantime on

the basis of assessment order D

proceeding was taken under section 27l(l)(c) of the Act and the Inspecting Assistant Coumissioner illJPOSed a penalty of Rs. 50,000, An appeal against the illJPOSition of penalty was also filed before the Tribunal. Both the appeals were disposed of by the Tribunal.

E

The Tribunal noted that the credit .entries stood in the name of third parties in the account books of the assessee. The explanation was that the amounts represented loans to the assessee from the concerned persons. The assessee had produced discharged Hundis and confirmation letters from these alleged lenders. The Tribunal was of the view that if the assessee F could not produce these persons alleged to be the creditors, it did not follow automatically that the adverse inference should be drawn that these amounts represented undisclosed income of the assessee. It was further noted that the credi tors were income-tax assessees and while being assessed they had made statements before the respective Income-tax Officers G admitting that they were allowing their names to be lent with- out really giving loans as creditors of different assessees •. A list of the assessees had also been given but the name of the present assessee did not figure in that list. The Tribunal came to the conclusion that the Revenue was not justified in drawing adverse

inference against the assessee and adding H

r

A

B

c

D

E

F

G

H

f.

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984

SUPREME COURT REPORTS

[1986] 1 s.c.R.

these amounts to the assessment of the assessee. The Tribunal also, in those c~rcum.stances, could not sustain the imposition of the penalty and deleted such imposition. The Revenue sought for statement of case on both these aspects i.e. on the aspect of the addition of Rs. l,50,000 to the total income of the assessee and also on imposition of penalty. The the questions sought for by the Revenue were to the effect noted before~ The Tribunal refused to refer any statement of case to the High Court on those questions. The Revenue went up in an application under section 256(2) of the Act before the High Court. The High Court also refused to accede to the prayers of the Revenue. Hence these appeals.

to

in

that

in the

the statements

Our attention was drawn

inconsistencies further

the confirmation confirmation

the assessment order where the Income-tax Officer had observed certain letters and observed letters did not inspire confidence. It also observed that the assessee had stated that after making all possible attempts in their own way, had failed to produce the parties and thereupon requested the Income-tax Officer to issue summons under section 131 to all the alleged creditors and the notices under section 131 of the Act which had come back unserved with the remarks 'left'. The assessee thereafter wanted further opportunity to find out the present whereabouts of the alleged lenders. The Income-tax Officer observed further that the wide prevalence of Hundi racket was well-known and it had been estab1ished beyond doubt that most of the so-called Rundiwallas are genuine bankers but mere name lenders.

not

It was.argued that in view of the provisions of section 68 of the Act, the onus in these types of c·ases was on the assessee a~ in this case the a~s·essee had not dis_charged that onus and in the premises questions of law as indicated above arose. Section 68 of 1961 Act was introduced for the first time in the Act. There was no provision in 1922 Act corres ponding to th~s section. The section states that 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 in the opinion of the Income-tax Officer, by him is not, satisfactory, the sum so credited may be charged to income-tax income of the assessee of that previous year. The as the

C.I.T. v. ORISSA CORPORATION [MUK!IARJI, J.]

985

section only gives statutory recognition to the principle that cash credits which are not satisfactorily explained might be assessed as income. The section enacts that if a sum is found credited in the books of an assessee maintained for any previous year (which might be different from the financial year), the cash credit might, in case where it is assessed as undisclosed income, be treated as the income of that previous year, and the financial year may not be taken as the previous year for such a cash credit even if the undisclosed income was not found to be from the assessee's regular business for which the books were maintained. The cash credit might be assessed either as business profits or as income from other sources.

Under the 1922 Act where a large amount of cash was found credited on the very first day of the accounting year, and considering_ the extent of the business, it was not possible that the assessee earned a profit of that amount in one day, the year the amount could not be assessed as the from that business on the first day of which it was credited in the books. Under this section, even in such a case the unexplained cash credit might be assessed as the income of the accounting year for which the books are maintained. See in this connection the observations of Kanga and Pallddwala' s Income Tax, Seventh Edition, Vol. I pages 609 and 610.

income of

there with In

To what extent the assessee has obligation to discharge ,the burden of proving that these were genuine incomes has been considered by this Court in Lalchand Bhagat Ambica Ram v. Coomissioner of Income-tax, Bihar and Orissa, 37 ITR 288. This Court was concerned the encashment of high denomination notes. some unexplained high that case denomination notes were treated as the undisclosed income of the assessee. This Court held that when a court of fact arrives at its decision by considering material which is irrelevant to the enquiry, or act on material, partly relevant and partly irrelevant, and it is impossible to say to what extent the mind of the court was affected by the irrelevant material used by it in arriving at its decision, a question of law arises, whether the finding of the court is not vitiated by reason of its having relied upon conjectures, surmises and suspicions not supported by any evidence on record or partly upon evidence and partly upon inadmissible material. On no accoU.nt whatever should the Tribunal base its findings on

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986

SUPREME COURT REPORTS

[19861 t s.c.R.

suspicions, conjectures or surmises, nor should it act on no evidence at all or on improper rejection of material and relevant evidence or partly on evidence · and partly on suspicions, conjectures and the so-called hundi racket in which the assessee was alleged to have been involved was not proved. That was only a suspicion of the Revenue.

that case

surmises.

In

reason why

rejection of

there was no

the assessee,

that by mere

the explanation of

to have been established; but where

the character of a particular receipt as

The question was again considered by this Court in lloml. Jebangir Cbeesta v. c.-1.ssiooer of lnconle-tlx, Bol!lbay City, 41 !TR 135, when this Court reiterated that it was not in all cases the assessee, income the could be said circumstances of the rejection were such that the only proper inference was that the receipt llllSt be treated as income in the hands of the assessing authority should not draw such an inference. Such an inference was an inference of fact and not of law. It was further observed that in determining whether an order of the Appellate Tribunal would give rise to a question of law the read the order of the Tribunal as a whole to court DJJSt determine whether every material fact, for and against the assessee, had been considered fairly and with due care; whether the evidence pro and con had been considered in reaching the final conclusion; and whether the conclusion irrelevant the Tribunal had been coloured by reached by considerations or matters of prejudice. It was further reiterated that the previous decisions of this Court did not require that llllSt be examined sentence by sentence through a microscope as it were, so as to discover a minor lapse here or an incautious opinion there to law. In be used as a peg on which to hang an issue of the facts considering probabilities properly arising from alleged or proved, in conjectures, surmises or suspicions.

the Tribunal did not

the order of

the Tribunal

indulge

In Sreelekha Banerjee and Others v. Commissioner of lncome-1:8", Bf.har and Oriasa, 49 !TR 112, this Court held that if there was an entry in the account books of the assessee the receipt of a sum on conversion of high which showed denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if

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C.I.T. v. ORISSA CORPORATION [Mlll<HARJI, J.]

987

the explanation. If the explanation showed

asked, what the source of .that money wa8 and to prove that it was not income. The department was not at that stage required to prove anything. It could ask the assessee to produce any books of account or other documents or evidence pertinent to the explanation if one was furnished, and examine the evidence and the receipt was not Of an income nature, the department could not act unreasonably and reject that explanation to hold that it then was income. If, however, the evidence was unconvincing such rejection could be made. The department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof.

that

(Central), Calcutta v. In Commissioner of Income-tax Daulatraa Rawatml.l, 53 the principles governing ITR 574, reference under section 66 of 1922 Act similar to section 256 of 1961 Act were discussed and it was held that the High Court has no power under section 66(2) of the Indian Income-tax Act, 1922 which is in pari-materia with section 256(2) of the Act, to call upon the Appellate Tribunal to state a case if there was some evidence to support the Tribunal, even if it appears to the High Court that on a re appreciation of the evidence, it might arrive at a conclusion different from that of the Tribunal.

the finding recorded by

In this case

in the file of

index number was

the assessee had given

the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. the Revenue. The Their Revenue, apart from issuing notices under section 131 at the instance of the assessee, did not pursue ·t)le matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were credit..,.orthy or were such who could advance the alleged loans. There was no effort made to pursue the so called alleged creditors. In those circumstance~, the assessee could not do any further. In to the conclusion that the the premises, if the Tribunal came assessee had discharged the burden that lay on him then it could not be satd that such a conclusion was unreasonable or perverse or based on no evidence. If the conclusion is based some evidence on which a Conclusion could be arrived at, on no question of law as such arises.

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B

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B

988

SUPREME COURT REPORTS

[1986] i s.c.R.

It is

co111110n ground that the question on the penalty

aspect depended on the quantum aspect.

In the premises it cannot be said that any question of therefore, law arose in these cases. The High Court was, right in refusing to refer the questions sought for. The appeals, therefore, fail and are dismissed with costs.

P.s.s.

Appeals disml.ssed.