Commissioner Of Income Tax vs Reliance International Corp. ...
2010 Latest Caselaw 4427 Del

                              Reportable

*           IN THE HIGH COURT OF DELHI AT NEW DELHI


+                          ITR No.327 of 1991

                            Judgment Reserved On: 09th August, 2010.
%                     Judgment Pronounced On: 21st September, 2010.


      COMMISSIONER OF INCOME TAX                             . . . Appellant

                        through :          Ms. Suruchi Aggarwal, Advocate



                              VERSUS


      RELIANCE INTERNATIONAL CORP. PVT. LTD.               . . .Respondent

                        through:           Mr. C.S. Aggarwal, Sr. Advocate
                                           with    Mr.   Prakash    Kumar,
                                           Advocate


CORAM :-
    HON'BLE MR. JUSTICE A.K. SIKRI
    HON'BLE MS. JUSTICE REVA KHETRAPAL

      1.    Whether Reporters of Local newspapers may be allowed
            to see the Judgment?
      2.    To be referred to the Reporter or not?
      3.    Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J.

1. For the year ended on 31.5.1980, while scrutinizing the details in

respect of loans raised from various parties, the Assessing Officer

(AO) found that the assessee had raised loans aggregating to

`17,10,000 from five different parties. He, therefore, required the

assessee to file the necessary evidence to prove the genuineness

of the cash credits. The assessee stated that the loans were

raised by cheques and/or bank drafts, and the depositors had also

subscribed towards shares of the assessee company, besides

filing letters in writing from various persons. Not satisfied with the

evidence produced, the AO issued summons under Section 131 of

the Income Tax Act (hereinafter referred to as 'the Act') so as to

ensure personal presence of the creditors and since the summons

issued were returned by the postal authorities, the AO in the draft

assessment order proposed addition of cash credits. In the

proceedings under Section 144B of the Act, the assessee further

explained that the amounts were received from Shri B.S. Patel,

who owned various concerns and had also made the deposition

before the Department on three occasions in this regard.

However, in the absence of detailed deposition in writing before

the IAC, the IAC justified the addition under Section 68 of the Act.

In appeal, the various factual aspects alongwith the evidence laid

from time to time were placed before the CIT (Appeals). After

considering the evidence and the findings brought on record, the

CIT(A) concluded that the amounts given to the assessee were

confirmed by Shri B.S. Patel, who had received the amounts from

M/s. Sehgal Paper Ltd. or some other party and it was clear that

the funds did not belong to the assessee company. According to

him, the provisions of Section 68 were not applicable. He,

therefore, deleted the addition made under Section 68 together

with the interest payable thereon.

2. Feeling aggrieved with this order of the CIT (A), the Department

approached the Income Tax Appellate Tribunal (hereinafter

referred to as 'the Tribunal') and challenged the said order. The

contention of the Revenue before the Tribunal was that the

assessee had not proved the identity of the creditors nor the

capacity or genuineness of the transaction and addition was

rightly made by the AO under Section 68 of the Act. The Tribunal

considered the relevant material given in the assessee's paper

book especially a chart giving the details with regard to the

deposits and withdrawals made in and from various bank accounts

opened in the names of various concerns by one Shri B.S. Patel,

who confirmed the advances made to the assessee, who was also

assessed to tax and then passed the following orders:

"On considering of the rival submissions and evidence to which our attention was drawn, we find that the Commissioner (A) has taken the right decision and there is no justification to interfere with the appellate order. We have nothing further to add. It may be pertinent to state here that the IAC under Section 144B of the Act justified the addition under sec. 68 of the Act in the absence of copies of statements made by Shri B.S. Patel who had claimed that the loans were advanced by him to the assessee out of the payments received by him from M/s. Sehgal Papers Ltd. The Commissioner (A) has considered the depositions made by Shri B.S. Patel from time to time and has correctly appreciated the evidence required to be considered for the purpose of arriving at right conclusion. There is no material brought on record to suggest that the moneys claimed by Shri B.S. Patel belonged to assessee. Hence, assessee did discharge its burden under Section 68 of the Act."

3. On the basis of the aforesaid reasons, the Tribunal confirmed the

order of the CIT (A) and thereby dismissed the appeal preferred by

the Department.

4. At this stage, the Commissioner of the Income Tax moved an

application under Section 256(1) of the Act seeking reference of

certain questions. Hence, the following question of law has been

referred for opinion of this Court:

"Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the assessee had discharged its burden under Section 68 of the Income Tax act, 1961 and thereby deleting the aggregate amount of `17,10,000 raised by way of cash credits and also deleting the amount of `1,04,784 disallowed on account of interest payable on those credits."

5. Ms. Suruchi Aggarwal, learned counsel appearing for the Revenue,

argued that fresh evidence was adduced before the CIT(A), which

was taken into consideration, but the remand report thereupon of

the AO was not sought. Likewise, the statement of Mr. B.S. Patel

was produced before the Tribunal, but no remand report was

called for. We are of the opinion that it will not be permissible for

the learned counsel to take these contentions as in the

application seeking reference filed by the Commissioner of Income

Tax under Section 256(1) of the Act, neither such grievance was

made nor any reference was sought thereupon. Naturally, no

such reference is made as well. We have to deal with the

reference in the form forwarded for our opinion and therefore, the

issue is as to whether the assessee had discharged its burden

under Section 68 of the Act on the basis of material considered by

it. The issue is not about the admissibility of that material. On

merits, submission of Ms. Aggarwal was that the approach

adopted by CIT (A) as well as by the Tribunal is not in accordance

with law. She has submitted that the required onus which was

laid upon the assessee, in these circumstances, was not

discharged by him. For the nature of onus to be discharged, she

referred to the following principle laid down by the Supreme Court

in the case Roshan Di Hatti Vs. Commissioner of Income Tax,

Delhi reported as [107 ITR 938]

"Now, the law is well settled that the onus of proving the source of a sum of money found to have been received by an assessee is on him. If he disputes the liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Revenue is entitled to treat it as tax able income. This was laid down as far back as 1958 when this Court pointed out in A. Govindarajulu Mudaliar v.

Commissioner of Income Tax [1958]34ITR807(SC) that:

"There is ample authority for the position that where an assessee fails to prove satisfactorily the sources and nature of certain amount of cash received during the accounting year, the I.T.O. is entitled to draw the inference that the receipts are of an assessable nature." To put it differently, where the nature and source of a receipt, whether it be of money or of other property, cannot be satisfactorily explained by the assessee, it is open to the Revenue to hold that it is, the income of the assessee and no further burden lies on the Revenue to show that that income is from any particular source. Vide Commissioner of Income Tax, U.P. v. Devi Prasad Vishwanath Prasad [1969] 72 ITR 194 (SC)."

6. We find in the present case that the return was filed by the

assessee for the assessment year in question on 26.08.1983

declaring a loss of `25,65,636. In this return, it had shown certain

loans raised from different parties, the particulars whereof are as

under:

            a) Gayatri Tech. Services          `7,75,000

            b) S.K. Mehtotra                   `15,000

            c) S.P. Agro Products              `5,05,000

            d) B.K. Nair                       `15,000

            e) Plastika Enterprises            `4,00,000
                                               `17,10,000

7. The order of the AO reveals that he had asked the assessee to file

proof of the genuineness of these loans. The assessee had stated

before the AO itself that the above loans/deposits were either by

cheques or by bank draft and these depositors had also

subscribed towards the shares of the assessee company. It was

explained by the assessee that the aforesaid sums received from

these parties have emanated from Mr. B.S. Patel, Prop. M/s.

Chemoplat of New Kavi Nagar, Ghaziabad. The assessee had also

explained the work of apoxy-lining of water tank in different

treatment plants of M/s Sehgal Papers Ltd. was being carried on,

under a contract, by Shri B.S. Patel in the name of aforesaid

proprietary firm. He had submitted various bills to the said

company for the work done by him for Sehgal Papers Ltd and

received payment against those bills. Particulars of these

payments amounting to `22.76 Lakhs were also furnished. The

documents were also furnished in support of work done by Mr.

Patel at Sehgal Paper Ltd. However, Mr. Patel was not produced.

In these circumstances, the AO opined that even if money had

been received by Mr. Patel from Sehgal Papers Ltd., that could not

have been utilized for making deposits by the assessee company

in different names. Thus, in his view, the assessee had failed to

discharge the requisite onus. The AO observed as under:

"When a cash credit entry appears in the assessee's books of account in an accounting year, it is the assessee who is under legal obligation to explain the source of credit (Sreelekha Banerji Vs. CIT (1963) 49 ITR 112 (SC). If the assessee offers an explanation about a cash credit, the department can put to the assessee to prove the explanation and if the assessee fails to tender evidence or shirks an enquiry, then the ITO is justified in rejecting the explanation. The ITO is not required to specifically prove the source which is only known to the assessee (50 ITR 1 (SC). It is necessary for the assessee to prove the transaction resulting in a cash credit in his books of account. Such proof includes proof of the identity of the creditor. The capacity of such creditor to advance the money and lastly, the genuineness of the transaction. "

8. While this was the position at the level of AO, before the CIT(A),

some additional evidence had surfaced. It so happened, in the

meantime, that the action under Section 132 was taken against

various concerns controlled by one Shri M.M. Sehgal. The

assessee as well as Sehgal Paper Ltd. are two such concerns.

During the search, Shri. M.M. Sehgal produced certain letters

purported to have been written by Mr. B.S. Patel to him in which it

was stated that he had done some construction work for M/s.

Sehgal Paper Ltd. Thereafter, Mr. Patel submitted an affidavit on

01.08.1980 before the ADI of the Intelligence Wing explaining that

the letters produced by Shri Sehgal had been written by him

under pressure on 30.07.1980. However, his statement on three

different occasions were recorded by the Intelligence Wing in

which he had stated that Shri Sehgal had contacted and asked

him to give bogus bill in respect of the construction work for M/s.

Sehgal Papers Ltd. Payments in respect of these bills were made

by cheques and deposits in five names had been made by Mr.

Patel out of the funds received by M/s. Sehgal Papers Ltd. Taking

note of these facts, the CIT(A) allowed the appeal in the following

manner:

"I have considered the sequence of events and the arguments of the appellant. While there is no doubt that Sh. Patel had made different statements on different occasions, he is consistent about one statement i.e. that the funds in the names of various concerns came through him. As regards the sources of these funds there may be a doubt i.e. whether the funds belong to Sh. B.S. Patel or to M/s Sehgal Papers Ltd. or some other party. However, his statement does not leave any doubt in my mind that the funds did not belong to the appellant company. As such it would not be correct to invoke the provisions of Section 68 in the present case. The addition of `17,10,000/- thus appears to be unwarranted. The appeal on this point is, therefore, allowed."

9. The Tribunal in its brief order observed that since the identity of

the creditors, especially, Mr. Patel had been proved, who was

assessed to tax regularly, the assessee had successfully

discharged the onus.

10. It is clear from the aforesaid approach of the CIT (A) as well as

Tribunal that the fact which they took into consideration was that

insofar as the assessee is concerned, the funds did not belong to

it. Therefore, the provisions of Section 68 of the Act could not be

invoked. It is difficult to accept this approach of these two

Authorities.

11. Learned counsel for the Revenue appears to be correct when she

argued that the CIT (A) or the Tribunal did not keep in mind the

parameters required for discharge of such an onus. We have

already indicated the reasons which persuaded the AO to make

additions. It may be reiterated that five persons from whom the

loans are allegedly raised, nowhere come into the picture. What

is sought to be projected is that Mr. Patel did some work for M/s.

Sehgal Papers Ltd and he received some payment therefrom,

which was deposited in the accounts of those five persons and

those five persons gave that money to the assessee by way of

loans/deposits. Mr. Patel was neither produced before the AO nor

before the CIT (A). It is the statements recorded by the

Intelligence Wing under Section 132 of the Act, which has got

favour from the CIT (A). However, these statements are contrary.

There is a blame game between Shri M.M. Sehgal on the one hand

and Mr. Patel on the other hand. The question as to whether Mr.

Patel did work for M/s. Sehgal Papers Ltd. or not would not be

relevant here. Whether bogus bills were raised and payments in

cheques received against them by Mr. Patel or whether these

payments were received for doing actual work again would not be

sufficient to discharge the onus. Insofar the assessee is

concerned, it has received the loans/deposits neither from Mr.

M.M. Sehgal nor from M/s. Sehgal Papers Ltd nor from Mr. Patel.

The loans/deposits are shown to have been received from five

different persons. Those persons are not produced and their

identity is not established. A mere attempt to show that from the

withdrawals of amount from M/s. Sehgal Papers Ltd., moneys were

invested in the assessee-company in different names would not

serve the purpose.

12. When the fact remains that those five persons have not come

forward to say that they had deposited the money or advanced

loans to the assessee and even Mr. Patel or M/s. Sehgal Papers

Ltd. has not stated that it belonged to them, which was advanced

to the assessee under assumed names, it is hard to understand as

to how the CIT (A) or the Tribunal could presume that the funds

did not belong to the assessee company, but it belonged to either

Mr. Patel or M/s. Sehgal Papers Ltd. or some other party. The

assessee has clearly failed to discharge its onus by linking its

inability to link the amounts with the ultimate deposits/loans.

13. We may point out here that Mr. C.S. Aggarwal, learned Senior

Counsel appearing for the assessee, had highlighted the

observations of the CIT (A) and the Tribunal in support of his plea

that their approach was correct. We are unable to agree. He had

also argued that these were only concurrent findings of fact and

no legal issue arises. In view of our aforesaid observations, we

are unable to agree with this contention also. Therefore, various

judgments cited by the learned Senior counsel that it was only a

question of evaluation of evidence and findings recorded on that

basis and no question of law arises would not be of any help to

him. Establishing the identity of Mr. Patel would not be sufficient

in these circumstances, which was the main thrust of the

argument of Mr. Aggarwal.

14. We are of the opinion that there is no evidence worthy enough on

the basis of which the assessee could claim that it has

satisfactorily proved the source of the said entries or the nature of

cash received. One also cannot lose sight of the fact that Mr. M.M.

Sehgal not only controlled M/s. Sehgal Papers Ltd., but also the

assessee company. That is what is recorded by the CIT (A) itself.

In such circumstances, money purportedly coming from M/s.

Sehgal Papers Ltd. and getting invested in the appellant's

company under assumed named reveals much. The CIT (A) or the

Tribunal did not even notice this important aspect from which

inference can clearly be drawn that the moneys shown as

deposits/loans in five different names, in fact, belonged to the

assessee and the assessee has not been able to discharge the

onus that it belonged to some third party.

15. We, thus, answer the question in negative, i.e., in favour of the

Revenue and against the assessee.

(A.K. SIKRI) JUDGE

(REVA KHETRAPAL) JUDGE

SEPTEMBER 21, 2010.

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