Commissioner Of Income Tax v. P. Mohanakala

COMMISSIONER OF INCOME TAX v. P. MOHANAKALA MAY 15, 2007 [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.) Income Tax Act, 1961-Sections 68 & 260A-Cash Credits-Assessee claiming amounts received from a foreign donor during relevant assessment c [year ][as ][gifts on enquiry-Assessing Officer rejecting the explanation and ]treating the amounts as income of the assessee liable to income tax-Commissioner of Income Tax (Appeals) and·Tribunal upholding the assessment made by the Assessing Officer-High Court reappreciating the evidence and allowing the appeal of the assessee-Correctness of-Held, on facts, the opinion of the Assessing Officer in treating the amounts received by the D [assessee ][as ][income ][of ][the assessee was based ][on ][materials ][on ][record and ]surrounding circumstances-Hence, the assessee is liable to income tax on the amounts received-High Court erred in re-appreciating the evidence and setting aside concurrent findings of fact without there being any substantial question of law involved. E Respondents-assessees received different amounts from a foreign donor during relevant assessment years through banking channels. On enquiry by Revenue about the nature of cash credits entries in their books of account, the assessees claimed the amounts as gifts received from the donor. Assessing Officer rejected the explanation of the assessees and treated the amounts as F [income of the assessees under section ][68 ][of the Income Tax ][Act, ][1961. ]Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the findings of the Assessing Officer. The High Court allowed the appeals of the assessees preferred under section 260A of the Act on the ground that the reasons assigned by the Tribunal and lower authorities are in the realm of surmises, conjectures and suspicions. In appeal to this Court, the appellant-Revenue contended that the High Court exceeded its jurisdiction under section 260A of the Act by disturbing the concurrent findings of fact through re-appreciation of evidence and substitution of its own findings; and that since the assessees failed to offer reasonable explanation about the nature of the cash credits in the books of A accounts, the cash credits were treated as income of the assessees under section 68 of the Act. Respondents-assessees contended that the High Court did not exceed its jurisdiction or committed any error in arriving at proper conclusion based on the evidence available on record; that the conclusions of the lower authorities were based on surmises, conjectures and suspicion; that improper inference drawn from proven facts definitely gives rise to substantial questions of law; and that even if the explanation offered is not acceptable, the amounts credited automatically cannot be treated as an income in the hands of the assessees unless such a question is framed and answered that unexplained c cash credit was the income of the assessees. Allowing the appeals, the Court HELD: 1.1. The expression "the assessee offers no explanation" under section 68 of the Income Tax Act, 1961 means where the assessees offer no D proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. The opinion of the Assessing 0 fficer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the Assessing Officer is required to be formed objectively with reference to the E material available on record. Application of mind is the sine qua non for forming the opinion. [Para 15] (688-A, BJ 15 मई, 2007 1.2. The assessees did not take the plea that even if the explanation is not acceptable, the material and attending circumstances available on record F do not justify the sum found credited in the books to be treated as receipt of an income nature. The burden in this regard was on the assessees. No such attempt has been made before any authority. In cases, where the explanation offered by the assessee about the nature and source ofsums found credited in the books is not satisfactory there is, prima facie, evidence against the assessee, viz. the receipt of money, the burden is on the assessee to rebut the G same, and if he fails to rebut, it can be held against the assessee that it was a receipt of an income nature. [Paras 23 and 18) [691-E, F, G; 689-D, E) Sumati Dayal v. Commissioner of Income Tax, Bangalore, (1995) Supp. 2 SCC 453; Commissioner of Income T(L....v. Smt. P. K Noorjahan, (1999) 237 ITR 570; K.S. Kannan Kunhi v. Commissioner of Income Tax, Kera/a, (1969) H A 72 ITR 757; Commissioner of Income Tax, U.P. Bharat Engineering & Construction Co., (1972) 83 ITR 187; Commissioner of Income Tax, Orissa v. Orissa Corporation P. Ltd, (1986) 159 ITR 78 and Commissioner of Income Tax, Bombay City II v. Deviprasad Khandelwal & Co. Ltd., (1971) 81 ITR 460, referred to. B 1.3. The Assessing Officer found that the gifts were not real in nature. Various surrounding circumstances have been relied upon by the Assessing Officer to reject the explanation offered by the assessees. The Commissioner of Appeals confirmed the findings and conclusion drawn by the Assessing Officer. The Tribunal concurred with the findings of fact. The findings are C based on material available on record and not on any conjectures and surmises. They are not imaginary as sought to be contended. The findings offact arrived at by the authorities.below are based on proper appreciation of the facts and the material available on record and surrounding circumstances. The doubtful nature of the transaction and the manner in which the sums were found credited in the books of accounts maintained by the assessee have been duly D taken into consideration by the authorities below. The transactions though apparent were held to be not real one. No question of law much less any substantial question of law had arisen for consideration of the High Court. The High Court misdirected itself and committed error in disturbing the concurrent findings of facts. (Paras 24, 25 and 26) (691-G; 692-A, C, D, E) Bejoy Gopa/ Mukherji v. Pratu/ Chandra Ghose, AIR (1953) SC 153 and Mis Orient Distributors v. Bank of India Ltd. & Ors., AIR (1979) SC 867, referred to. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2540 of2007. From the Final Judgment and Order dated 20.03.2006 of the High Court of Judicature at Madras in Income Tax Appeal No. 78 of 2002. WITH C.A. Nos. 2541, 2542, 2543, 2544, 2545, 2546, 2547 of2007. G.E. Vahanvati, S.G., Dr. R.G. Padia, Sr. Adv., O.P. Srivastava, Hrishikesh Barna, and B.V. Balaram Das for the Appellant. T.L.V. ... Iyer, Gopalakrishnan, R., Subramonium Prasad for the Respondent. The Judgment of the Court was delivered ?Y B. SUDERSHAl'I REDDY, ,___ -..... ,. J. I. Leave granted ~ .. A 2. These fill?ials have _!>een !'led _against th!J,udgment of Madras High Court dated 29.f~06 in rC:tAJ ms. 74 to ftall{!fa to 82 of2002 whereb~ _ the following questions have been answered by th~ High Court in favour ,of_,;..:~ th: asseSs~eS:and . - ,. . against the J reve~ue: . .,..~·'. 3:-;;_ ,leg--·~- ,.-~·"(a) Whether in the facts .;;,d circumstant'es, the Income Tax Appellate -Tribunal w;s·"co'r~ect iii law to accept the prin<;iple of preponderar(e'of probabilities in holding that the c_~m of..!he_ appellant t!lac the sum of Rs. 15,62,500/-" received hi.Jn_by w~of gifts through normal Banking Channels was not ~.liuine :'an"Utat it was liable to be '.15Sessed under Section 68 of~e Ini:OO.eq.ax C Act, 1961? • ; (b) Whether in the light of the law established and based on the facts and in the circumstances of the cas·~. the learned Income Tax Appellant Tribunal is legally justilled in concluding that burden of proof cast on the appellant under Section 68 of the D Income Tax Act, 1961 has not been discharged and the iiigredients for invoking section 68 of the Income T'f Act are pr;sent? (c) ·Whether in the facts and circumstances of the case, the qmclusion of the· Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse? These appeals relate to the assessment years 1995-96 and 1996-97. The dispute in all these appeals essentially relates to the addition made by the Assessing Officer in respect of several foreign gifts stated to have been received by the assessees from one common donor namely Sarnpath Kumar. The gifts received were from one Ariavan Thotan and Suprotoman. It is during the enquiry by F the Revenue it is asserted that they were the aliases of Sarnpathkumar. These gifts were made to A. Srinivasan and his wife, Smt. S. Kalavathy, his son, S . Balaji Manikandan and to one of his brothers, Rajendran andSmt Mohanakala Each one of them is an assessee within the jurisdiction of.~. appellant. The foreign gifts are received by the assesses during the assessment years 1993- G 94 to 1996-97. The detail of the gifts received by each one of the assessees is as under. 3. In all the aggregate gifts received by the assessees is to the extent D of Rs. 1,79,27,703/-. 'The Assessing Officer did not accept the explanation offered by the respective assessees that the amount of credit is a gift from NRI and proceeded to add it as the income of the assessees from undisclosed sources. The credit entries have been made during the period from 8.7.1992 to 19.10.1995. There is no dispute that the payments were made by instruments E [issued ][by ][a ][foreign ][bank ][and credited ][into ][the ][respective assessee's account ]by negotiation through a bank in India. Most of the cheques sent from abroad were drawn on Citibank, N.A. Singapore. 4. The Assessing Officer dealt with the controversy as regards the cash credit entries received from the foreign donor. He noticed that the gifts have F [been sent ][in ][the ][name ][of ][Ariavan Thottan ][and ][received ][by ][A. ][Srinivasan and ]others who are all his family members. Each one of them is an individual assessee. 5. That all the assessees were summoned and their statements have been recorded by the Assessing Officer. Srinivasan who is the key person in G [his ][statement said that ][he ][knew ][Sampathkumar ][for ][the ][last ][20 ][years ][and ][he ]had been helping Sampathkumar prior to 1985 by paying Rs. 100/- to 200/-every month as he had no source of income to get himself educated. · 6. There are material inconsistencies in the statements made by other assessees which we are not required to notice in detail. Sampathkumar in his H own statement stated that he was in Indonesia up to the year 1992 and employed as an Eogiqeer. Thereafter, he shifted to England and started A consultancy profession there. Later in the end of the year 1994-95, he joined New Century Machinery Ltd. Cheshire, SK 16 4xS and became its director in 1996. It is in his statement that he is paying taxes in England from his income earned in England. As far as his Indian income is concerned, he stated that he filed the returns for the assessment years 1996-97 & 1997-98 before the B Income Tax Officer, Ward 1(4), CBE only on 23rd October, 1997. His investment in Indian companies according to him will be around for Rs. 5 crores and made out of his income earned in the foreign countries. He did not reveal the details of his bank account in India and stated that he would be submitting the details through his auditor which he did not. Except the self serving statement there is no material evidence as regards his financial status. He stated from C 1972-73 he knew Srinivasan, Rajendran and their families. His father was a taxi driver, and was very poor. Srinivasan and his family members were supporting him when he was in India. To a pointed query as to whether there is any evidence to show that he was also known by any other name other than Sampathkumar, he stated that "no evidence. Only Mr. Srinivasan used to call D me as Suprotoman." 7. The Assessing Officer after an elaborate consideration of the material available on record and the statements of the assessees and as well as that of Smapathkumar noted that all the gifts were received from Ariavan Thotan and Suprotoman. It is only after the enquiries by the department, it was E informed by letter dated 25.4.1996 that Ariavan Thotan and Suprotoman are one and the same person. Even at that time, no mention was made about Sampathkumar. For the first time Sampathkumar's name figured in the letter dated 30.08.1996 and thereafter it was stated that the names of Ariavan Thotan and Suprotoman are the other names of Sampathkumar. The Assessing Officer while appreciating the contents of the letters brought on record came F to the conclusion that Smpathkumar had obliged in giving 'gifts' to Srinivasan and his family members. It is further held that in all probabilities Sampathkumar may have received compensatory payments in lieu of the gifts made by him. The letters according to the Assessing Officer suggest that Sampathkumar reserved his right to receive suitable compensation from the respondents- G assessees. The Assessing Officer in the circumstances came to the conclusion that the gifts though apparent are not real and accordingly treated all those amounts credited in the books of assessees as the income of the assessees. 8. On appeal the Commissioner of Income Tax concluded that the story set up by the assessees is unacceptable and hard to believe and the H [SECT