KUSHAL PRASAD MANHAR V. COMMISSIONER OF INCOME

TAXC/12/2010

AI Insights

The case involves Kushal Prasad Manhar, a sole proprietor of M/s Shradha Fuels, who appealed against the order of the Income Tax Appellate Tribunal concerning the assessment year 2006-2007. The primary issues were the addition of Rs. 14,99,000 as unexplained cash credits and the disallowance of Rs. 50,000 from transportation expenses claimed by the appellant. The Assessing Officer had initially disallowed these amounts, which was later contested but ultimately upheld by the Tribunal and the High Court. The court's decision was based on the finding that the appellant did not satisfactorily prove the creditworthiness of the creditors and that the transportation expenses were not adequately substantiated by proper documentation.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 726507 (HC-CHHATTISGARH)
• Appeal Type: Others
• Pronouncement Date: 08-08-2010
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax \/ Orissa Corporation (P) Ltd., Commissioner of Income Tax \/ Mehrotra Brothers, Commissioner for Income Tax \/ S. Maljeet Singh, Nemi Chand Kothari \/ Commissioner of Income Tax, Commissioner of Income Tax \/ Baishnab Charan Mohanty, Jalan Timbers \/ Commissioner of Income Tax, Anil Rice Mills \/ Commissioner of Income Tax, Kainal Motors \/ Commissioner of Income Tax, Aravali Trading Co. \/ Income Tax Officer, Murlidhar Lahorimal \/ Commissioner of Income Tax, Sumati Dayal \/ Commissioner of Income Tax, Bangalore, P. Mohankala \/ Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: RAJEEV SHRIVASTAVA
• Assessee Lawyers: G N PUROHIT; ABHISHEK OSWAL
• Keywords: Cash credit; Creditworthiness; Income tax appeal; Transportation expenses
• Section: 143(2); 68; 260A

Judgement Text

"^ r L-k. •y •\"\"\" bank account on various dates, all in the month of Msirch, 2006 and then by issuing accountpayee cheques in favour of the assessee iramediately thereafter; (iii) It is absolutely unbelievable that any prudent person will keep such a huge amount of cash with him with allthe risk oflife and property instead of depositing in bank and eaming handsome income in fhe form ofinterest; (iv) The loans were not given in one lurripsum but on several occasions on successive days and sometimes in a day's gap by depositmg eash in the accounts pf the alleged creditorsin a similar fashion. This abundantlyproves that eash was not available with the alleged creditors as claimed by them; and (y) The capacity bf the creditors to advance loans as above fo the assessee, is fherefbre, not proved. The Assessing Officer further held that \"The assessee has claimed expenses in transportation A/G.amount to Rs. 4,21,150/-. Admittedly, most of the expenses are supported by intemal vouchers. It has been stated on behalf of the assessee that Pacca bills are not given in most of the cases and the assessee has incurred expenditure for business purpose only. I have cbnsidered fhe submissions. In tihe absence of proper biUs and vouchers the correctness of the claim. cannot be verified. I therefore make a disallowance of Rs. 50,000/- frpm the said expenses ahd add the same to the income shown by the assessee.\" While allowing the appeal preferred by the assessee, the Commissioner of Income Tax (Appeals) held:- \"The assessee has fumished details of the Creditors iricluding their names and addresses. They were produced and they have confinned the transaction. Considering the totality of the case, the facts involved and thestated decision on identical issue, I am of the opinion that the assessee has discharged the primary onus that lay on it in terms ofsection 68 ofthe I.T.Act, 1961 and law. I therefore find the additidn of Rs. 14,99,000/- is not sustainable as perlaw and fact ofthecase.,Thesame stands deleted.'' \"In respect of disallowance .of the transportation expenses, the net profit shown in respect offruokismore than the amount u/s. 44AE, hence the disaUowance made bytheAOisdeleted.\" ^ 11. The Income Tax Appellate Tribunal reversed the order passed by the Commissioner oflncome Tax (Appeals) and restored the order passed by fhe Assessing Officer. While aUowing the appeal, the Income Tax Appellate Tribunal has held iri para 15, 16 and 17 as under:- \"15. We have heard the rival submissions and perused the material available on fecord. We find that the Ld. CIT(A) has simply deleted the addition on the groimd that the creditors are income tax assessee and has not gone into the creditworthiness of the Creditors. We also find that the assessee though proved the identity of the creditQrs but unable tp prove their creditworthiness in advaneing such huge sums to the assessee. We also find from the faets of this case that fhe creditors are using the bank aecount not for -1-1 ' ' !t. •/'•''.(; •'.. •'\"•\" (' •':' /''. 8 \"7S y/^:' ' '^ ^^gDte.' ' ^ \"saBa g \"'\"% ^•-^ B^\"^£?(^' keeping his eamings in that account but only for the purposeofgiving Ipans to the assessee which is clear from the fact that as and when the creditors issue cheque he deposits the money in cash and then gives cheques to the assessee. In view of the above, we are pf the opinipn that the assessee fails to proye the creditworthiness of the creditqrs to advahce suchhuge amount to the assessee. Therefore.we reverse the order of the Ld. CIT(A) and restpre that of the AO. This ground of appeal of the revenue is, therefore, allowed. . 16. In respect of grpund no. 2(a) and (b), fhe assessee claimed transportation expenseS ainounting to Rs. 4,21,150/- and most of the expenses were suppQrted by internal vouchers. In absence of proper bills and vouchers, the correctness of the claim cannot be verified by the A.O. and therefore, he made the disallowance of Rs. 50,000/- and added the saine to the income of the assessee. On appeal, the Ld. GIT (A) deleted the said addition. Aggrieved by that order, now the assessee is in appeal before us. 17. After hearing both the sides and perusing the material available on record, we find that in the a.bsence of proper bills and vouchers the AQ was reasoriable enough to disallow only a sum of Rs. 50,OQO/- out of the total claim of fhe assessee ofRs. 4,21,150/- as transportation expenses. The Ld. CIT(A) has not given ariy cogent I'eason for delefing this ^? '^ ^.^, .. 1\" -y 9 meager addition ofRs. SO.OOO/-. Therefore, the order passed by him is hereby reversed and that ofAO is' restored. This ground of appeal of the revenue is also allowed. 12; In order to appreciate the CQntroversy involved m the matter, it would be apprQpriate to reproduce Sectibn 68 pf the Actwhichreads thus:- 68. Where any sum. is found creditedin the bodks : of an assessee rn.aintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation cffered by him is not, in the opinion ofthe Assessing Officer, satisfactory, the sumso credited may be charged to income-tdx cis the income of the assessee of that previous year.\" 13. As per Section 68 of fhe Act, where any sum is found. credited in the books of an assessee maintam.ed for any previoys year, and the assessee offers no explanation about the nature and spurce thereofor the explanation offered by him is not, in the opinion pf fhe Assessing Officer, satisfaGtory, the sym so credited may be charged to income tax as the inconie of the assessee of that previous year. ?^-.\"- 14. We have considered fhe ease lawcited by Shri G.N. Purohit, learned Sr. Counsel appearing for the appellant. Gist ofthe same is fhat the assessee has to prove three conditions: i. Identity ofthecreditor; ii. Capacity ofsuch creditor to advance money; and ^: 10 iii. Genuineness of transactiDn Burden ofassessee to prove genuineness ofthe transactions as well as the creditworthiness of the creditor must remain confined to the transactions,which have taken place between the assessee and the creditor. It is not the business of the assessee to find out the souree of money of his creditor. t(2006) 282 FTR 236 (All) Para 9], [(2003) 264 ITR 254(Gau)Para 13 and 14]. 15. A three Judges Beneh of the Supreme Court in case of Sumati Dayal -v- Comihissioner of Incoine Tax, Banglore reported inl995 Supp.(2) SCC 453 while dealing with the facts- .. : . • ,' ' ; ', ! • : ' ' ; • . .'.. \"During the assessment year 1971-72, the appellant received a total amountofRs. 3,11,831 by way ofrace winnings in Jackpots and Treble events in rdces at Turf Clubs in Bangalpre, Madras and Hyderabad. The sdid am.ount was shown by the appellantinthe capital amount in fhe books. Ths dppellant filed a retum on 27-3-1972 declaringanincome of Rs. 27.829. The. appellant also m.ade a swom statement on 6-1-1973 before the Income TaxOfficer and on the bdsis of the said statement the Income Tax Officer m.ade an assessment order dated 27-3-1974 where he held that the sumofRs. 3,112,831 isnotwinningsinracesdnd he treated the said receipts as income fromundisclosed sources and assessed the same as incom.e from. other sources. For the assessment year 1972-73 the appellant showed receipts 6f Rs. 93,500 as race 77- / 11 winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the cdpital account in the books. The appellant filed a retum declaring an income of Rs. 3827 on 3-2-1973. In his assessment order dated 31-8-1974 the Income Tax Officer included tke mnount of Rs. 93,500 asincome' frqm. other sources and assessed the income of the appellant on that basis. The appeals filed by the appellant against the two assessment orders were disposed of by the Appellate Assistant Commissioner by order dated 12-12-1975 wkereby the assessmentof Rs. 3,11,831 asincomeundertheheadothersources for the assessment year 1971-72 and Rs. 93,500 for- the assessmentyear 1972-73 was confirmed. The assessee had taken the m.atter before the Settlement Commission. Thetwo members constituting majority on the Settlement Com.mission, came to theconclusion that the apparent is not the real and. that the appellant's claim about her winning inraces is contrived and not genuine forthe follpwing reasons:-: . a. The appellant's knowledge of racing is very 7£ b: meager. . A Jackpot is a stake offive events in a single day and one ean believe a regutar and experienced punter clearing a Jackpot occasioncdly but the claim of the appellant to have won anumber of Jackpots in three or four seasons not rrierely at one place but at three ' '. !t- ./'•' '.(\"\"'.• '.\"•' c. d. 12 different centres, namely, Madras, Bangalore and Hyderabad appedrs, prima fade, to be wild and contrary to the statistical theories and experience of the frequencies and prqbabilities. The appeUant's books do not show any drawings onrace days oron the im.mediately preceding days for the purchase of Jackpot combination tickets, which entailed sizeable ' amounts varying generally between Rs. 2000 and Rs- 3000. The drawings recorded in the books cannot be correlated to the various racing events at which the appellanf mad.e the alleged winnings. While the appellant's capital account was credited with the gross amounts of race- winnings, there were no debits etther for expenses and purcha&e oftickets orforlosses.' In view ofthe exceptional luck claimedto kave been enjoyed by the appellant, her loss of mterest in. races from 1972 assumes signijicance. Winnings in racing became liable to incometcixfrom 1-4-1972 but one would not. give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, ifthe claim ofwinnings in races was false and what were passed off as such 77 tB]l;%^®S^^':?'''r?:'': ^ Vl:^l-':'l:'1 '.W winninjgs really represehted the appellants taxable mcome from. some u.ndisclosed sources. 10. The majority opinion includesthat it would notbe unreasonable to mfer that tKe appellant had hot really participated in any of the races excepf to the extent of purchdsing the winning tickets after fhe events presumably itdth unaccountedfunds. 11. The Chairmdn of the Settlement Commisswn, m his dissenting opinion has Idid emphasis on the fact that the appellant had produced evidence in support of the credits in the form. of certificates from the racing clubs giving particulars of fhe crossed cheques forpayment of the amounts for. winning 6f Jackpots ete. The Chairman has rejected the contention regarding lack ofexpertise in respect ofthe appellant and has bbserved that the expertise is the last thing that is necessary for a game ofchcm.ee and anybody has to go andcall for five numbers in a counter and obtairt a Jackpot ticket and that books containing informationare available which are quite cheap.\" has observed in para 12 ofitsjudgment as under:- \"12. Th.ls, inour opinion, is a superficial approach to the problem. The matter has to be considered in the light of humanprobabilities. The Chairm.an df the Settlement Com.rrdssion kas emphasized that the dppellant did possess the © •t' \"'.r;'\":•;„: ',/,»\" 'sv^'. S'gi. 'KAil 14 winning ticket which was surrendered to the Race Club and in retum a crossed cheque was obtained.It is, in our opinion, a neutral. circumstanCe, beeause if the appellant had purchased the winning ticket after the event she would be haifing the winning ticket urith her which she could surrender to the Race Club. The observation by the ChairmcCn of the Settlement Comnzission that \"fraudulent sale of winning ticket is natan usual practice but is uery muchof an unusual practice\" ignores the prevalent malpractice tkatwas notieed by the Direct Taxes Enquiry CQmmittee and the recommendations rnade by the said Committee whichled to the amendment pf the Actby the-Finance Act of 1972 whereby the exemption from tax that was available in respect of winnings from. lotteries, crossword pups.les, races, etc; was withdrawn. Similarly the observation m.ade by the Chairm.an that if it is alleged that these ti.ckets were obtainedthroughfraudulentmeans, itisupon the alleger to prove that it isso, ignores the reality. The transaction abaut purchase of wm.ningtick.et takes place in secret and direct evidence about such purchase would be rarely available. An inference about sucha purchase has tobe drawn onthe basis of fhe circumstances availdble on the record. Having regard 'to the conduct 6f the ; :^.'r •2- 16. 15 appellant as disclosed in her swom statement as well as other material on the record an inference eould reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable toagree withthe view of the Chairman in his dissenting opinwn. In our opinion, the majority opinion after considering surraunding drcumstances and applying the. test of hum.an probabilities has rightly concluded that the appellant's clairh about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amouhts has been rejected unreasonably and that the finding that the sdid amounts are income of the appellant from other sources is not based on evidence. The Supreme Court in case 6f Commissioner of Income Tax -v- P. Mohankala reported in (2007) 6 SCC 21 after consideringthe case of Sumati Dayal (supra), GIT V. P.K.\" NQprjahan [(1997) 11 SGC 198], CIT V. Bharat Engineering and Construction Co. [(1972) 4 SCC 401], CIT v. Orissa Cprporation (P) Ltd. [(1986) Supp. SCC 110], has observed in para 24 and 26 pfitsjudgment as under:- \"24. R is true that even afterrejecting the explanation given by the assessees if found unacceptdble, the crucial aspect whether onthefacts and circumstances I.!.'-. •i' ''.r''\".-^'\" i.i!'. t.,.I1. •t 1 '\"' •.f'\".'^' 16 ofthe case it should be inferred that the sums credited in the books ofthe assessees constituted incorne ofthe previous year must receive the cpnsideratlon of the authorities provided the assessees rebut the evidence and the inference drawn to reject the expldnation offered as unsatisfactory. We are required to notice that Section 68 ofthe Act itself provides, where any sum.is found credited in the books of the assessees for any previous year fhe same may be charged to income tax as the income of the assessees of the previous year if the explanation offered by the assessees about the nature and source of such sums found credited in the books of the assessees is in the opinion qf the Assessing Qfficer not satisfactory. Such opinion found (sic formed) itself constitutes a prima facie evidence' against the assessees, im., the receipt of money, and if tke assessees fail to rebut the said eiridence the same canbe used againstthe assessees by holding that it was a receiptofan income nature. In the case inhand the authorities concurrently found the explanation offered by the assessees unacceptable. The authorities upheld the opinionformed by the Assessing Officerthat- the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation is riot acceptable the material and attending circumstances available on record do not justify the sumfoundcreditedinthe books t6 be treated as d receipt of an income nature. Ths burden in this ^ '.: lt.:., .•{'••• .r':',;--\"-~. • ':. 1.1. 17 regard was on the assessees. No such attem.pt has beenmade before any authority. All the deciswns cited and referred to hereinabove are required fo be appredated and understood in the light of the law declared by this GourtinSumatiDayal(supra). 26. Reh/ing oh the decisions of this Court in Bejoy Gopal Mukherji Vs. Pratul Chandra Ghose [AIR 1953 SC 153] & M/s Orient Distributors Vs. BankofIndiaLtd. 8s Ors. [AIR 1979 SC S67], Shri lyer, leamed senior cpunsel contended that issue relating to the propriety of legal conclusion that could be drawn on basis ofproved facts gives riseto aquestion oflaw and, therefore, the High Court is Justified in interfering in the matter since the authorities belqw failed to draw a proper and logical inference from the proved facts. We are unable tp persuade ourselves to accept tke submission. The findings offact arrlved at by the authorities belovj are based on proper appredation of the facts dnd the' material available on record and surrounding eircumstances. Tke doubtful nature ofthe transaction andthe mdnner in which the sums werefound credited in the books of accaunts maintained by the assessee have been duly taken into consideration by the authorities below. The transactions though apparent were heldto be not real ones. May be the money came- by way of bank cheques and paid through the process of banking transaction but that itself -is of no corisequence.\" ' 'L'. •:.lt. , •/'•;'.'''\".••'\"'\"• lt \", it.', >'-;:.^J^.^I^S^.'? 4~~'' 18 17. By applying the law laid down by the Supreme Gourt in the dicta of the above referred two cases, it is clear that where any soine is foi.md credited in the books of assessee for any previous year, the same may be charged to income tax as income of the assessee of the previous year if the explanation offered by the assessee about nature and source ofsuch suins found credited in the books of assessee is iti the opinion of the AO not satisfactory. Sucla opinion (sic formed) itself constitutes a prima facie evidence agairist the assessee viz. the receipt of money, and if the assessee fail to rebut the said evidence the same can be used agairist the assessees by holding that it was a l;eceipt ofan iricome natiu-e. Inthe case in hand theAO hasformed the opinion that the explanatiori offered by the assessee is not satisfactory, is based on cogent material which shows that the transaction is not genuine. 18. All the decisions cited by Shri Purohit are required to be appreciated and understood in the light of law declared by the Hontile Apex Court in the cases referred to hereinabove. 19. We have carefully gone through the finding recorded by the Assessing Offieer as referred in para 10 of the judgment in holding the traiisaction as not genuine and the explanation offered by the assessee as not satisfactory and we do not firid any illegality in the said finding. Therefore, the case laws cited by Shri Purohit are ofno help to him. The Tribunal has confirmed the above Ending. The appellant did not ,take the plea that everi if explanation is not accepted, the material aad attending circumstances available on ^ '; * 19 record do not justify the suin found credited in the bopks to be treated as receipt of income nature, the burden in this regard was on the assessee as held by Supreme Court in case of CIT -V- Mohankala (supra). 2Q. So far as the clauns ofthe assessee regarding transportation expenses amounting to Rs, 4.21,l50/- is concerned, it is also a finding of fact and we do not find any illegality or perversity in the flnding arrived at by the Assessing Officer as well as by the Tribunal. , 21. In view of above, in our considered opinion, the case in hand does not involve any substantial question of law. The Bnding of fact arrived at by the AO as well as the Income Tax Appellate Tribunal are based on proper appreciation of fact and material on record and surrounding circumstances. The doubtful nature of the transaction in the mahrier in which the sum was fdund credited in the books of accounts niaintained by the assessee have been duly taken into consideration by the above authorities. The transactibns though apparent were held to be notreal ones. May be the money came by way of bank cheques and paid through the process 6f banking trEinsaction but that itself is of no consequence. 22. In the resylt, the appeal preferred by the appellant deserves to be and is hereby dismissed. s^ Sd/-^-: .. DR. LM.Quddusi Judge Sd/- M.K.' Judge "