Mr. Vinay M. Kumar, President V. Mr. Keshav L. Doshi, Owner

ITTA/129/2012

AI Insights

The case involves an appeal by the legal representative of an assessee, who was engaged in excise contracting and tamarind business, against the order of the Income Tax Appellate Tribunal. The appeal challenged the assessment of undisclosed income for the block period from 1990 to 2000 following a search and seizure operation. The appellant contested the valuation of opening cash balance, agricultural income, and claimed deductions for borrowed funds and cash balances. The Tribunal and the lower authorities had rejected these claims, leading to the appeal in the High Court.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 796421 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 23-11-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: B NARASIMHA SARMA
• Assessee Lawyers: K NEERAJA
• Keywords: Agricultural income; Block period; Borrowed funds; Cash Balance; Search and seizure; Undisclosed income; Excise contractor
• Section: 132; 68; 69; 260-A; 158(B)(C)

Judgement Text

"HONOURABLE SRI JUSTICE GODA RAGHURAM AND HONOURABLE SRI JUSTICE M.S.RAMACHANDRA RAO I.T.T.A.No.129 of 2012 JUDGMENT (per Hon’ble Sri Justice M.S.Ramachandra Rao): This appeal is filed under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) by the assessee’s legal representative challenging the order dated 05-12-2008 in I.T. (S.S.).A.No.106/Hyd/2004 for the block period from 01-04-1990 to 17-10-2000. 2. The appellant-assessee was carrying on business as an excise contractor in the State of Karnataka in his individual capacity. He was also carrying on business in tamarind at Rayadurg, Ananthapur in the status of a Hindu Undivided Family of which he was the Kartha. 3. It is an admitted fact that no books of accounts were maintained by the assessee for his excise contract business and no returns of income were filed before the Income Tax Department for any assessment year in respect of income from this business. But as far as his business in tamarind is concerned, books of accounts were regularly maintained and returns were also filed for all the assessment years. 4. Search and seizure operations were carried out under Section 132 of the Act in the business as well as residential premises of the assessee on 17-10-2000. In the course of the said search operations, demand drafts and fixed deposits in Corporation Bank, Rayadurg and Ananta Gramina Bank, Rayadurg of the value of Rs.349.10 lakhs were found. Out of these, instruments of the value of Rs.261.43 lakhs were seized. 5. Notice under Section 158-B C of the Act was issued to the assessee calling for return declaring his undisclosed income. In response to the said notice, the appellant filed a block return in Form No.2-B declaring undisclosed income of Rs.1,73,07,554/-. 6. The assessee contended before the assessing officer that (i) he is having Rs.60.00 lakhs opening balance as on 01-04-1990, that this amount does not form the part of the total income of the block period and therefore set off should have be allowed for the said amount by the Assessing Officer. The Assessing Officer held that the opening balance prior to the date of search is to be taken as Rs.34.60 lakhs only and not as Rs.60.00 lakhs as contended by the assessee. (ii) he had an agricultural income of Rs.52.50 lakhs from the lands owned by him and his family and also other lands taken on lease by him, that this income was invested in the excise business and therefore, he is entitled to claim for set off Rs.52.50 lakhs against the investments found during the course of search. However, the Assessing Officer held that only Rs.33,41,000/- would be income from the agricultural lands owned by the assessee including lease hold lands. (iii) he had borrowed Rs.40.00 lakhs from 11 persons/creditors but the Assessing Officer after making enquiries at the addresses given by the assessee of such persons informed the assessee by a letter dated 04-10-2002 that the registered letters addressed by him to the addressees/creditors were returned unserved and in some cases no reply had been received. Only one creditor by name Sri Thimmappa who was the father-in-law of the son of the assessee appeared before the Assessing Officer on 11-10-2002 and confirmed that he advanced Rs.6.00 lakhs to the assessee. Therefore, the Assessing Officer accepted that only Rs.6.00 lakhs was borrowed by the assessee from the said Thimmappa and not Rs.40.00 lakhs as claimed by the assessee. (iv) cash as per HUF books as on the date of search of Rs.43,72,076/- be allowed as deduction since no cash is found at the business or residential premises of the assessee. It was also claimed that the assessee had invested this amount in his individual business. The Assessing Officer held that the same cannot be allowed as there is no such entry in the HUF account books. He held that the cash introduced by the assessee in his individual capacity is noted on various dates in the assessee’s C/A from 01-04-2000 till the date of search and that if any cash was withdrawn from HUF business, it would have been noted in the same account. As there was no such entry in the audited HUF account books, the said deduction cannot be allowed. (v) an amount of Rs.22,83,500/- which was the balance in the Corporation Bank A/c.8181 of the assessee belongs to the HUF . In the assessment order, the Assessing Officer held that it was undisclosed income. As the assessee did not supply any evidence in support of his claim either in the form of copies of bank statements or pass books or any other documents, the Assessing Officer concluded that this amount has to be added to the undisclosed income of the assessee. The Assessing Officer by order dated 31-10-2002 thus determined the taxable undisclosed income of the assessee at Rs.3,02,16,847/-. He therefore assessed the assessee to tax of Rs.1,81,30,108/-, surcharge and interest etc. 7. Aggrieved thereby the assessee filed an appeal before the CIT (Appeals), Tirupathi. The CIT (Appeals) agreed with the Assessing Officer on all the additions of the income but granted relief to the assessee in respect of only levy of surcharge of the tax. 8. The assessee thereafter filed an appeal I.T. (S.S.) A.No.1061/Hyd/2004 before the Income Tax Appellate Tribunal, Hyderabad Bench (B), Hyderabad. 9. Before the Tribunal, the assessee reiterated his contention that he is having Rs.60.00 lakhs opening balance as on 01-04-1990, that this amount does not form the part of the total income of the block period and therefore set off should have been allowed for the said amount by the Assessing Officer. The Tribunal held that the assessee had not filed any documentary evidence or material to show that he is having Rs.60.00 lakhs as opening balance as on 01-04-1990, that the assessee’s Bank Account No.11 in Corporation Bank (from the material furnished by the assessee) did not disclose that he was having such balance as on 01-04-1990 and only on 28-07-1990 there was an opening balance of Rs.65,09,806.63 ps. It relied on a memorandum issued by the Branch Manager of the said Bank to it’s Managing Committee stating that the assessee on 31-03-1990 had cash in hand and bank of Rs.34.60 lakhs and held that the Assessing Officer was fully justified in allowing credit of Rs.34.60 lakhs only to the assessee and not Rs.60.00 lakhs as claimed by the assessee. 10. As regards, the agricultural income, the Tribunal noted that the Assessing Officer had conducted enquiry and had found that a report issued by the M.R.O. proved that some land claimed to be agricultural land owned or taken on lease by the assessee is either P.W.D. road or waste or belonging to others, that it would not belong to the assessee and that the assessee had placed no material on record to show that the information given by the M.R.O. was false or not reliable and that he had cultivated the said lands. It therefore confirmed the finding of the Assessing Officer and CIT (Appeals) that the agricultural income from the assessee’s owned agricultural land including lease hold land amounts to only 33.41 lakhs and only to the said extent, deduction can be allowed to the assessee from the income . 11. As regards the claim of the assessee that he had borrowed Rs.40 lakhs from 11 persons/creditors , the Tribunal , on appreciation of the evidence held that the assessee had failed to prove the identity, credit worthiness and genuineness of the transactions between himself and the creditors and therefore confirmed the findings of the Assessing Officer and the CIT (Appeals). 12. As regards the claim for deduction of Rs.43,72,076/- claimed by the assessee to have been invested in his individual business from the HUF account, the Tribunal held that non-availability of cash from the date of search as per books and accounts in the HUF file would not lead to the conclusion that it was used in the individual business. It held that the assessee had not placed any material to show that cash in hand of Rs.43,72,076/- shown in the HUF’s balance sheet prepared as on 17-10-2000 as required by the Assessing Officer was utilized by the assessee individually for his business purposes prior to the date of search. It held that the assessee also failed to explain the nexus showing that such cash in hand was available with the assessee for making corresponding investment in the hands of his “individual” business and it rejected his contention in this regard also. 13. As regards the addition of Rs.22,83,500/- made by the Assessing Officer , the Tribunal held that the CIT (Appeals) had held that the assessee had not supplied any evidence for his claim and that there is a dispute as to in which bank, the said balance lies. It therefore held that on this issue, the matter should go back to the file of the Assessing Officer and it directed him to determine the same afresh after providing a reasonable opportunity of being heard to the assessee. 14. In this appeal, under Section 260-A of the Act, the assessee has raised the following issues: “1. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in ignoring the wealth of material placed before it and rejecting the appellant’s claim for opening cash balance of Rs.60,00,000/- and thus is not the decision perverse? 2. Whether on the facts and in the circumstances of the case, in the absence of books of accounts, the provisions of sec.68 would apply or of sec.69 where, in the later case the burden of proof would lie on the Department? 3. Whether on the facts and in the circumstances of the case, the Tribunal is correct in law in not giving credit to the cash balance of Rs.43,72,076/- of the HUF business by the mere fact of there being no entry made in the individual account, when no evidence was found to show that the said amount was spent away by the appellant for any other purpose?” 15. Heard Smt. K.Neeraja, learned counsel for the appellant and Sri B.Narasimha Sarma, learned Standing Counsel for the Income Tax Department. 16. The learned counsel for the appellant contended that the Tribunal erred in rejecting the assessee’s claim as regards opening cash balance of Rs.60.00 lakhs and also in not giving credit to cash balance of Rs.43,72,076/- on HUF business. She also contended that the Tribunal erred in applying Section 68 of the Act and should have applied Section 69 instead, and if Section 69 applies, the burden of proof would lie on the Department. 17. Sri B.Narasimha Sarma, learned Standing Counsel for the Revenue however supported the order of the Tribunal and contended that no case has been made out by the assessee for interference with the findings of fact recorded by the Tribunal. 18. We have considered the submissions of both the parties. 19. In respect of issue no.1 mentioned above, we are of the view that the Assessing Authority, the CIT (Appeals) and the Tribunal have concurrently held on appreciation of the evidence on record that the assessee failed to show that he was having an opening balance of Rs.60.00 lakhs as on 01-04-1990 and that only Rs.34.60 lakhs is to be considered to be the opening balance prior to the block period on the basis of the memorandum submitted by the Corporation Bank, Rayadurg to its managing committee. This finding of fact is supported by valid reasons and is based on appreciation of evidence and cannot therefore be interfered with in the limited jurisdiction vested in this Court u/s.260-A of the Act. 20. On issue no.2 also we are of the view that burden of proof is on the assessee whether S.68 or S.69 of the Act is applied to the facts of the case. Section 68 of the Act states as follows: “S.68. Cash credits: 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 by him is not, in the opinion of the 1[ Assessing] Officer, satisfactory, the sum so credited may be charged to income- tax as the income of the assessee of that previous year.” Section 69 of the Act states as follows: “S. 69. Unexplained investments: Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the 2[ Assessing] Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.” In the present case, it is admitted that the assessee had not maintained any books of account as far as the excise contract business is concerned. Therefore, Section 69 would apply and not Section 68 as was applied by the Tribunal at para 22 of this order. However, this would not make any difference to the result of this appeal because even if Section 69 applied, if the Assessing Officer is of the opinion that the assessee’s explanation about the nature and source of investments is unsatisfactory, the value of the investments made by the assessee would be deemed to be the income of the assessee for such financial year. Thus even if S.69 applied, the assessee has to let in evidence to prove the nature and source of investments and the burden of proof thus continues to be with the assessee. Therefore, the assessee is not right in contending that the burden of proof, in the absence of books of accounts ,would lie on the department and not on him. 21. On issue no.3 also, we are of the view that the Tribunal did not commit any error in law in denying credit of cash balance of Rs.43,72,076/- to the assessee. If that amount of cash was actually withdrawn from the assessee’s HUF business, it could have been noted in the account books of the assessee and admittedly there was no such entry. Merely because there was no such cash found on the date of search, the assessee cannot claim it as a deduction and contend that he has used the said amount in his individual business. We are of the view that the Tribunal has correctly appreciated the evidence on record and its findings are supported by valid reasons. 22. Therefore, its order is not liable to be interfered with in exercise of jurisdiction vested in this Court under Section 260-A of the Act. 23. The appeal is without any merit and no question of law, much les a substantial question of law arises for our consideration in it. It is therefore dismissed. No costs. ____________________________ JUSTICE GODA RAGHURAM __________________________________ JUSTICE M.S.RAMACHANDRA RAO Date:23-11-2012 Kvr "