Dr. T. Suryanarayana Rao V. Assistant Commissioner of Income Tax

ITTA/129/2004

AI Insights

Dr. T. Suryanarayana Rao, a lecturer and assessee under the Income Tax Act, faced a series of assessments and appeals regarding unexplained income following a search of his premises. Initially assessed with unexplained income of Rs.7,60,515, this amount was later reduced to Rs.5,20,455 after appeals. The main contention in the subsequent appeals was the source of Rs.2,40,000, which included alleged loans from various individuals and proceeds from the sale of gold ornaments. The Assessing Officer initially treated these as unexplained cash credits, leading to further appeals by the appellant. The court's decision highlighted the need for the Assessing Officer to substantiate any disbelief in the documents provided by the assessee and to verify the creditworthiness of the lenders if necessary.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 676781 (HC-INDIA)
• Appeal Type: Others
• Pronouncement Date: 16-12-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: KIRANMAYEE
• Assessee Lawyers: PUSHYAM KIRAN
• Keywords: Appeal; Assessment; Income tax appellate tribunal; Unexplained income; Block returns
• Section: 148; 68

Judgement Text

"*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND *THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + I.T.T.A.No.129 of 2004 % Dated 16.12.2014 # Dr. T.Suryanarayana Rao. ….Appellant $ Assistant Commissioner of Income Tax. ….Respondent ! Counsel for the appellant : Sri Pushyam Kiran ^ Counsel for respondent : Ms. Kiranmayee < GIST: > HEAD NOTE: ? Cases referred: THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.129 of 2004 JUDGMENT: (Per LNR,J) The appellant is a Lecturer in English, and an assessee under the Income Tax Act, 1961 (for short ‘the Act’). A search was conducted in his premises on 04.11.1993 and he was issued a notice, dated 04.04.1995 under Section 148 of the Act. In response to the same, he submitted block returns showing income of Rs.45,455/-. An order of assessment was passed on 31.03.1997 to the effect that the appellant has unexplained income of Rs.7,60,515/- and the same was brought under tax. The appeal preferred by the appellant herein before the Commissioner (Appeals) was allowed and the matter was remanded. After remand, the Assessing Officer reduced the unexplained income to Rs.5,20,455/-. Not satisfied with that, the appellant carried the matter before the Commissioner (Appeals) but was not successful there. He filed I.T.A.Nos.47 and 48/Hyd/2002 before the Hyderabad Bench of the Income Tax Appellate Tribunal, with reference to Assessment years 1991-92 and 1992-93. The appeals were dismissed through order, dated 10.08.2004. Hence, this further appeal under Section 260-A of the Act. Sri Pushyam Kiran, learned counsel for the appellant submits that the three amounts of Rs.1,00,000/-, Rs.50,000/-, Rs.50,000/- were borrowed by the wife of his client from different individuals and though sufficient evidence in that behalf was placed before the Assessing Officer, the same was not believed only on the ground that the concerned persons were not examined. He further submits that once the letters of confirmation of lending are filed, the assessee virtually discharges his obligation and in case, the Assessing Officer is not inclined to accept the statements, it is for him to summon the concerned persons. Learned counsel further submits that the plea as to sale of gold ornaments of the wife of appellant cannot be disbelieved, having regard to the status of the family. Ms.Kiranmayee, learned counsel representing Sri J.V.Prasad, learned counsel for the respondent, on the other hand submits that atleast in search proceedings, an assessee, when faced with the allegation of unexplained cash credits, is under obligation not only to place the relevant material but also to prove the creditworthiness of the lenders. He further submits that in a given case, the asessee must also examine the creditors and only then, the version of the assessee can be accepted. Learned counsel submits that in the instant case, the appellant failed to discharge his burden and obligation under Section 68 of the Act and that no exception can be taken to the orders passed by the Assessing Officer, the Commissioner and the Tribunal. The unexplained income, which was found by the Assessing Officer at Rs.7,60,515/- was slashed down to Rs.5,20,455/- after remand by the Commissioner. In the second round of proceedings, the controversy was mostly about a sum of Rs.2,40,000/-. Out of this, the wife of the appellant is said to have borrowed a sum of Rs.1,00,000/- from one Mr.P.Ramabrahmam, Rs.50,000/- from Sri N.Ramanujachari and another sum of Rs.50,000/- from Y.Venkateshwara Rao. A sum of Rs.40,000/- is said to have been garnered by her, by selling the ornaments. The Assessing Officer did not believe any of these sources and added the entire amount to the income by treating it as unexplained cash credit. Section 68 of the Act no doubt provides for addition of unexplained cash credits to the income of the assessee. Beyond that, the Section does not stipulate the manner in which the assessee must explain the source. We are referring to this in the context of the strong plea raised by the learned counsel for the respondent that the assessee is under obligation not only to explain the source but also the creditworthiness of the creditor. We do not find any support from Section 68 of the Act for this proposition. An assessee may put forward his own contention either in the ordinary returns, or those filed in response to a notice under Section 148 of the Act. The Assessing Officer is conferred with ample power either to accept or disbelieve such versions. However, the disbelief must be on the basis of objective exercise of power. In case, the Assessing Officer intends to disbelieve any document or other material presented by the assessee, it can certainly require him to supplement it. Where however, the assessee files not only the promissory notes covering any amounts, but also the letters of confirmation from the concerned lenders, the Assessing Officer does not have the luxury of ignoring such material. If he is of the view that the person, who is said to have lent or advanced the amount does not have the capacity, he can certainly summon him by exercising the powers, and ascertain creditworthiness. It is not at all for the assessee to prove the creditworthiness of an individual. Further, the expression “creditworthiness” is too abstract, to be defined or explained with any precession. A person with ordinary source of income may save part of it and may be in a position to lend it to others, to earn income in the form of interest. In contrast, a person who is endowed with extensive resources or wealth may turn out to be a borrower, for variety of reasons. When such is the disparity, the Assessing Officer cannot proclaim the lender of an assessee, as the one who does not have creditworthiness, that too without making an effort to ascertain the information from such a person. Out of three promissory notes, covering a sum of Rs.2,00,000/-, the appellant has placed before the Assessing Officer, not only the promissory notes but also the letters of confirmation in respect of Rs.1,50,000/-. We do not see any reason to disbelieve them, particularly when the Assessing Officer himself did not feel the necessity of summoning those two persons to verify their creditworthiness. As regards the other amount of Rs.50,000, we concur with the Assessing Officer, Commissioner and Tribunal, since the letter of confirmation from the concerned creditor was not filed. So far as the amount of Rs.40,000/-, which is said to have been procured by the wife of the respondent, by selling her gold ornaments, we do not find anything unnatural about it. The starting point for a doubt in this behalf must be the capacity of the family. A Lecturer in English with the income to the extent of being under obligation to file returns, can certainly provide jewellery of that much value to his wife. In addition to that, part of it may have been contributed by her parents also. Since the amount was invested for purchase of land, it is nothing but conversion of an item of movable property into that of an immovable property. We therefore partly allow the appeal to the extent of Rs.1,50,000/-, borrowed from Mr.P.Ramabrahmam (Rs.1,00,000) and Mr.N.Ramanujachari (Rs.50,000/-) and the amount procured through sale of gold ornaments to the extent of Rs.,40,000/-. As regards the rest, the appeal shall stand rejected. The miscellaneous petition filed in this appeal shall also stand disposed of. There shall be no order as to costs. ____________________ L.NARASIMHA REDDY, J ______________________ CHALLA KODANDA RAM, J Date: 16.12.2014 Note: L.R.Copy to be marked. JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.129 of 2004 Date: 16.12.2014 JSU "