Commissioner Of Income-Tax ... vs Sat Parkash Agarwal
1981 Latest Caselaw 166 Del

JUDGMENT

Ranganathan, J.

1. The assessed, Sat Parkash Agarwal, it an individual. This reference relates to the assessment year 1967-68 for which the assessed's previous year was the financial year 1966-67.

2. It appears that on some day prior to May 31, 1966 (the exact date is not available) the assessed's wife, Smt.Kamlawati, had made a disclosure under s. 24 of the finance (No. 2) Act of 1965, in respect of a sum of Rs. 5,000. There were similar declarations on behalf of the assessed's four minor children each in respect of a sum of Rs. 5,000. As required by the Finance Act, above refereed to, these declarations were accepted by the CWT and taxes were paid in accordance therewith as contemplated by s. 24 of the said Finance Act.

3. In the books of the assessed for the financial year 1966-67 relevant to the assessment year 1967-68, five credits appeared each in respect of Rs. 5,000 in the names of the wife and minor children of the assessed. Two of these credits appeared in April, 1966, and the rest in July, 1966. When called upon to explain the nature and source of the above credits the assays relied upon the disclosures that had been made under the Finance Act of 1965. The ITO, however, observed that those declarations and their acceptances conferred an immunity on the declarants concerned but that if it was found that some other assessed had got benami declarations made in the names of the members of his family, employees, etc., it was open to the ITO to examine the matter in the course of the assessment of such person and if he found that the amount declared belonged to such person, to assess it in his hands in spite of acceptance of the declarations made by the benamidars. The ITO referred to an admission made by the assessed in the course of the assessment proceedings that neither his wife nor any of his minor children had any apparent source of income except interest income shown in their names in the books of the firm and concluded that the money actually belonged to the assessed. He included it in the assessment as the assessed's income from undisclosed sources. He also disallowed an interest of Rs. 1,411 shown as having been paid in respect of the above deposits.

4. The assessed preferred an appeal to the AAC who, relying on certain earlier decisions of the Tribunal, held that where the depositors had made voluntary disclosures and these had been accepted, the amounts could not be brought to tax in the hands of the parties with whom the amounts were deposited.

5. The ITO preferred an appeal to the Tribunal. The Tribunal considered the issue in two aspects. So far as the binding nature of the declaration made under the Finance (No. 2) Act of 1965 was concerned, the Tribunal was of opinion that the view taken by the AAC was not correct. According to the Tribunal in respect of such declarations it was open to the ITO to examine the explanation put forward by the assessed in respect of the cash credits and to take appropriate action. However, the Tribunal was of opinion that so far as the present case was concerned it was not necessary to examine the facts from that angle because the assessed was entitled to succeed on the other aspect. The Tribunal pointed out that the declarations in question had been made before March 31, 1966. The amount in question, therefore, had sen the light of the day some time on or before March 31, 1966. In this view of the matter though the assessed was no doubt under an obligation to explain the source of deposits introduced into its books and could not evade his obligation by referring only to voluntary disclosures made by other persons, he could certainly claim that the amount was in existence before the beginning of the accounting period, relevant to the assessment year 1967-68. This conclusion of the Tribunal had actually been arrived at in a similar case which was followed in the appeal in the present case as well.

6. Aggrieved by the order of the Tribunal the commissioner has sought for a reference to this court of two questions of law. The questions read as follows:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the provisions of section 68 of the Income-tax Act, 1961, were not attracted in regard to unexplained cash credits of Rs. 25,000 in the names of the assessed's wife and minor children ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was legally correct in holding that action to tax the unexplained cash credits of Rs. 25,000 in the names of assessed's wife and minor children which were credited in the account books of the assessed in respect of the previous year relevant to the assessment year 1967-68 ?"

7. As we have already mentioned, there are two aspects to be considered. The first aspect is as to whether in view of the discloses having been made under the Finance (No. 2) Act of 1965 it was at all open to the Department to examine the genuineness of the deposits afresh in the case of the present assessed though he was not a declarant under the Finance Act. This aspect of the matter has been examined at great length in two decisions of this court in the cases of Rattan Lal v. ITO [1975] 98 ITR 681 and Shakuntala Devi v. CIT [1980] 125 ITR 18. There is no doubt a conflict of judicial opinions in regard to this aspect and this court has taken a view different from that taken by certain other High Courts. However, the decision of this court in the earlier matters is binding on us and we would, therefore, answer this issue in favor of the assessed following our own earlier decision. The first question is, therefore, answered in the negative and in favor of the assessed.

8. Shri Wazir Singh, learned counsel for the Department, contended that this reference should be adjourned for some time to await a decision on certain appeals which, he said, were pending in the supreme Court in regard to the above issue. We may have acceded to his request but for the fact that we have come to the conclusion that even on the assumption that it is open to the department to examine the position independently of the declarations made under the Finance (No. 2) Act of 1965, we feel that the assessed is entitled to succeed on the ground mentioned by the Tribunal. This takes us to the second aspect to which we have referred earlier. It is common ground that in the present case the existence of the sum of the Rs. 25,000 had been declared by the wife and the minor children of the assessed on or before March 31, 1966. Whether these declarations represent the truth and the amounts represent the undisclosed income of those persons or whether, as contended for by the Department, these disclosures were only made by the assessed in the names of his wife and the minor children, the clear indisputable fact is that the declarations were made on March 31, 1966, or earlier. No person would come up before the Department and make a declaration of funds which are not in existence. It is, therefore, clear that on March 31, 1966, there was available either with the assessed or his wife and minor children the sum of Rs. 25,000. It is no doubt true that these funds have been introduced in the books of account subsequently in the course of the financial year 1966-67. But once the assessed is able to establish that these funds were in existence even on March 31, 1966, or earlier, it is clear that the amounts cannot be brought to tax in the assessment year 1967-68. To give a simple illustration, suppose there is a cash credit in the books of an assessed on April 2, 1966. If the assessed is unable to explain satisfactorily the nature and source of that credit, it could be taxed as the undisclosed income of the assessed for the assessment year 1967-68. But suppose, through the assessed is unable to explain the nature of the funds and how he came in possession thereof, he is able to show that he had obtained a draft in respect of that amount on March 28, 1966, and that it is the receipt of this draft which had been recorded in the books of the assessed, then it is clear that, notwithstanding the entry in the books in the financial year 1966-67, the illusion of the amount as income can be considered, if at all, only in the assessment year 1966-67. The position is similar in the present case. The credits no doubt appear in the books of the assessed only in the financial year 1966-67. But the assessed has proved that he was in possession of a sum of Rs. 25,000 on March 31, 1966, or earlier. The Tribunal has accepted this explanation and has come to the conclusion that it was assessable if at all only in the assessment year 1966-67. This is a conclusion of fact and this is also a correct conclusion with which we entirely agree. We have, therefore, to answer the second question referred to us in the affirmative and in favor of the assessed.

9. Shri Wazir Singh, learned counsel for the Department, sought to contend that as the cash credits had appeared in the books of account of the assessed in April, 1966, and July 1966, it should be taken that the assessed has not established the link between the amount that was disclosed under the Finance (No. 2) Act of 1965 and the actual credits appearing in the assessed's books. He contended that even assuming that the assessed, his wife or minor children had Rs. 25,000 prior to March 31, 1966, those amounts could have been spent away or utilised otherwise and there was nothing to show that these were the amounts which were credited in the assessed's books. There are two answer to this contention: one is that this is a question of fact. The ITO, the AAC and the Tribunal have all proceeded on the footing that the credits are referable to the amounts declared under the Finance (No. 2) Act of 1965. The second is that no objection has been taken by the Department at any stage pointing out that possibly the cash credits may not be referable to the declarations made. It was an appeal by the department before the Tribunal and in reply to the assessed's contention that the amounts had seen the light of day even prior to March 31, 1966, the department must have contended at least before the Tribunal that no link had been established between the disclosure and the cash credits. Such a contention was not taken not has any such question been referred to us at the instance of the Commissioner. In those circumstances, we are not able to entertain the point raised by the learned counsel.

10. For the reasons discussed above, the first question is answered in the negative and in favor of the assessed. The second question is incomplete but its purpose is clear in view of the Tribunal findings. It refers to the second aspect discussed above and is answered in the affirmative and in favor of the assessed. As the assessed has succeeded, he will be entitled to this reference. Counsel's fee Rs. 350.