Chennai – 600 034 v. M/S.nippon Enterprise South

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 28.08.2007 CORAM: THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIAN AND THE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMAN The Commissioner of Income-taxNungambakkam High RoadChennai – 600 034. Chennai – 600 034. ... AppellantVs.M/s.Nippon Enterprise SouthNO.46, T.T.K.Road, Chennai – 600 018. ...Respondent. Tax Case Appeal filed under Section 260-A of the Income-tax Act, 1961against the order of the Income-tax Appellate Tribunal, 'B' Bench, Chennaidated 28.7.2006 and made in I.T.A.No.79/Mds/2001. against the order of CIT(a)in ITA nO.77/1999-2000 dated 30.10.2000 against this order of the JointCommissioner of Income Tax Special RangeVII, chennai34. dated 26.3.93 andmade in PAN/GIR No. . The assessment year is 1993-94. The Revenue filed this appealformulating the following question of law: "Whether on the facts and in the circumstances of the case, theIncome Tax Tribunal is right in law in deleting the addition of Rs.23lakhs made on account of unexplained cash credits under Section 68 of theIncome-tax Act for the assessment year 1993-94? 2. The assessee is a company. In respect of the assessment yearaforesaid, originally, the assessment was completed under Section 143(3)of the Income-tax Act on 29.03.1996 making addition of Rs.23 lakhs asunexplained cash credit under Section 68 of Income-tax Act. On appeal,the Commissioner of Income-tax (Appeals) set aside the order of assessmentand remitted back for reassessment after giving an opportunity to theassessee to prove the transaction by producing the persons from whom thecash credit was received for examination and with further direction to theassessing officer to peruse the income-tax file of the lenders. Onceagain, an assessment order was made by the assessing officer rejecting allthe explanations given by the assessee in respect of the disputed amountof Rs.23 lakhs. On appeal, Commissioner of Income-tax (Appeals) deletedhttps://hcservices.ecourts.gov.in/hcservices/ the addition relying on the order of the Appellate Tribunal in assessee'sown case for the assessment year 1992-93 in I.T.A.No.948/Mds/96. Thefurther appeal preferred by the revenue to the Tribunal was also dismissedfollowing its own order in respect of the assessee's case for theassessment year 1992-93 on which the Commissioner of Income-tax (Appeals)relied. As against the same, the present appeal is filed by formulatingthe question of law extracted above. 3. When the matter came up for admission before this Court, thisCourt has adjourned the matter for more than four times so as to enablethe counsel for the revenue to find out whether the revenue has taken anyfurther action against the order of the Tribunal in respect of theassessment year 1992-93, which is followed by the Tribunal for dismissingthe appeal of the revenue? However, the counsel was able to get only aletter from the Department to the effect that the file relating to thesaid assessment year has been handed over to the counsel for the revenuefor filing an appeal before this Court. Thereafter what happened to thematter is still a mystery. Hence, we heard the learned counsel for therevenue on merits of the case for admission. 4. Learned counsel appearing for the revenue has strenuouslycontended that even in the second round, the assessing officer afterconsidering the explanation offered by the respondent/assessee, rejectedthe same on the ground that the explanation offered was not to hissatisfaction. When that being the position, the appellate authority wouldnot have interfered with the finding. Hence, the order of the AppellateTribunal has to be set aside and the order of the assessing officer has tobe restored. 5. We heard the argument of the learned counsel for the revenue andperused the material on record. 6. Section 68 of the Income-tax Act reads as follows: 4. Learned counsel appearing for the revenue has strenuouslycontended that even in the second round, the assessing officer afterconsidering the explanation offered by the respondent/assessee, rejectedthe same on the ground that the explanation offered was not to hissatisfaction. When that being the position, the appellate authority wouldnot have interfered with the finding. Hence, the order of the AppellateTribunal has to be set aside and the order of the assessing officer has tobe restored. 5. We heard the argument of the learned counsel for the revenue andperused the material on record. 6. Section 68 of the Income-tax Act reads as follows: "Cash Credits: Where any sum is found credited in the books of anassessee maintained for any previous year, and the assessee offers noexplanation about the nature and source thereof or the explanation offeredby him is not, in the opinion of the Assessing Officer, satisfactory, thesum so credited may be charged to income-tax as the income of the assesseeof that previous year." 7. From the reading of the above statutory provision, it is clearthat in order to invoke the said provision, there must be credit ofamounts in the books maintained by the assessee for the previous year andfor that credit, the assessee offers no explanation about the nature andsource of the credit found in the books or the explanation offered by theassessee in the opinion of the assessing officer is not satisfactory. Onlyif these conditions are available, then only Section 68 could be invokedto charge the credit to income-tax, as the income of the assessee of thatprevious year. The expression employed in that provision that "theassessee offers no explanation" would mean that the assessee offered noproper or reasonable or acceptable explanation as regards the sum foundcredited in the books maintained by the assessee or in the alternate, ifthe assessee offered explanation, which in the opinion of the assessmenthttps://hcservices.ecourts.gov.in/hcservices/ officer, is not satisfactory, even then, the sum so credited may becharged to income-tax, as income of the assessee for that previous year.However, the opinion of the assessing officer for not accepting theexplanation offered by the assessee as not satisfactory, is required to bebased on proper appreciation of material evidence and other attendingcircumstances available on record and is required to be formedobjectively. officer, is not satisfactory, even then, the sum so credited may becharged to income-tax, as income of the assessee for that previous year.However, the opinion of the assessing officer for not accepting theexplanation offered by the assessee as not satisfactory, is required to bebased on proper appreciation of material evidence and other attendingcircumstances available on record and is required to be formedobjectively. 8. No doubt, in this case, it is true that some of the summons issuedto the parties, the addresses of whom were furnished by the assessee werereturned unserved with the postal marking "not known", "left", "no suchperson" etc. But other vital explanations offered by the assessee areavailable. It is the concrete case of the assessee that he obtained thecash credits from one finance broker Bharat Kumar P.Shah, who arrangedthe loan from 31 parties on 4.1.1993. The names and addresses of theparties, the amount of loan and quarterly interests to be paid are allgiven by the said finance broker. For arrangement of the above said loan,the assessee paid commission in a sum of Rs.40,500/- and Rs.28,500/-,Rs.69,000/- on 15.7.1993 by Cheque. The loans were repaid by account payeecheques issued on Hongkong & Shanghai Banking Corporation, Chennai – 1. Itis also on record that pursuant to the letter issued by the assessignofficer, the assessee made the finance broker Bharat Kumar P.Shah toappear before the assessing officer and as a matter of fact, Bharat KumarP.Shah appeared before the assessing officer and gave a statement that heonly arranged the loan from 31 parties for Rs.23 lakhs. He further agreedto produce the parties before the assessing officer, however failed to doso. When the assessing officer requaired the assessee to produce theparties, the assessee replied that the loans were arranged by the financebroker and the assessee was not aware of the parties. The books ofaccounts were maintained as per the particulars given by Bharat KumarP.Shah about the names, addresses and the amount of loan and the interestpayable. 9. When this sort of explanation has been given by the assessee, wecannot accept the reasoning given by the assessing officer that theassessee should produce all the 31 persons, whose names have been givenby Bharat Kumar P.Shah, a finance broker, to whom alone the assessee hadcontact. In addition to that, the assessee had also stated in their letterdated 19.3.1999 that the Income-tax Department details of the personsconcerned has also been furnished to the assessing officer. This vitalinformation has also not been accepted by the assessing officer. 10. In the remittal order, the Commissioner of Income-tax not onlydirected the assessing officer to give one more opportunity to therespondent to prove his case, but also directed the assessing officer toperuse the income-tax files of the lenders. 11. From the above facts, it is clear that the assessee madeavailable the lender of the assessee Bharat Kumar P.Shah before theassessing officer and the assessing officer also obtained statement fromhim accepting the transaction. The assessee has also informed the incometax details of the lenders to the assessing officer. This explanationoffered by the assessee cannot be regarded as an improper, unreasonablehttps://hcservices.ecourts.gov.in/hcservices/ and unacceptable explanation. Further, the opinion formed by the assessingofficer is also not appears to be based on objective reasoning withreference to the material available on record and attended circumstancesof the case. 11. From the above facts, it is clear that the assessee madeavailable the lender of the assessee Bharat Kumar P.Shah before theassessing officer and the assessing officer also obtained statement fromhim accepting the transaction. The assessee has also informed the incometax details of the lenders to the assessing officer. This explanationoffered by the assessee cannot be regarded as an improper, unreasonablehttps://hcservices.ecourts.gov.in/hcservices/ and unacceptable explanation. Further, the opinion formed by the assessingofficer is also not appears to be based on objective reasoning withreference to the material available on record and attended circumstancesof the case. 12. The learned counsel for the revenue sought to rely on thedecision of the Supreme Court in the case of COMMISSIONER OF INCOME-TAXVS. P.MOHANAKALA ((2007) 291 ITR 278) is in favour of the Department. Wehave gone through the judgment. The Supreme Court has observed in thatcase that the opinion of the assessing officer for not accepting theexplanation offered by the assessee as not satisfactory was required to bebased on proper appreciation of evidence and such opinion was required tobe formed objectively with reference to the material available on record.The application of mind is the sine qua non for forming the opinion. Inthe said judgment, the Supreme Court has taken into consideration thejudgments of SUMATI DAYAL VS. COMMISSIONER OF INCOME-TAX ((1995) 214 ITR801 (SC)), K.S.KANNAN KUNHI ((1969) 72 ITR 757 (KERALA) and other earlierjudgments on this point. If the above observation of the Supreme Court ismatched with the facts of the present case, we are of the view that theassessing officer rejected the explanation offered by the assessee for thesake of rejection and the opinion so formed by the assessing officer isnot based on proper appreciation of evidence, material and other attendantcircumstances available in this case. The Supreme Court observed in 291ITR 278 that even the rejection of the explanation offered by theassessees as unacceptable by itself cannot be a reason for making theaddition. 13. Appeal under Section 260-A can be entertained only on aquestion of law. Apart from that, we are of the view that in this case noquestion of law, much less a substantial question of law has arisen forconsideration. The entire argument of the learned counsel appearing forthe revenue is on the appreciation of evidence, which is totally outsidethe domain of this Court under Section 260-A of the Income-tax Act. 14. For all the fore-going reasons, we are of the view that there isno clinching material available in favour of the Department so as tomaintain the appeal, in the sense, there is no question of law, much less,a substantial question of law is available in this case for entertainingthe appeal. The appeal is therefore dismissed. usksd/-Asst.Registrar To 1. The Asst.Registrar, Income-tax Appellate Tribunal,Rajaji Bhavan, Besant Nagar,Chennai. 2. The Joint Commissioner ofIncome-tax, Special Range-VIIChennai – 34. 3. The Commissioner of Income Tax (Appeals) – XIII, Chennai 4. The Commissioner of Income Tax,Nungambakkam High Road,Chennai.34. + 1 cc to Mr.N.Muralikumaran Advocate SR.NO.53706 LA(CO)RD 12.9.07 Tax Case (Appeal) No.413 of 2007