H. S. Raina v. Income Tax Officer. Coram

HIGH COURT OF JAMMU AND KASHMIR|Al JAMMU Case:- [TA No. 01/2008 CMP no. 1/2008 Date of decision:|03.03.2009. H. S. Raina.VS. Income Tax Officer.Coram: Hon’ble Mr. Justice Barin Ghosh, Chief Justice Hon’ble Mr. Justice Nirmal Singh, Judge Appearing counsel: For the appellant(s) : Mr. M.M. Gupta, AdvocateFor the respondent(s) : Mr. D. S. Thakur, Advocate 1) Whether approved for reporting inYes_|Law journals etc.: |11) Whether approved for publicationIn.(TGSS.$(tional Per Barin Ghosh, CJ: This 1s an appeal by the Assessee under Section 260 A of theIncome Tax Act, 1961 from the order of the Income Tax Appellate|Tribunal, Amritsar Bench, Amritsar. In the year 1991 assessee constructed a house property. TheAssessee, who was a partner of six partnership Firms carrying on.finance business, had not filed his income tax returns for the earlier|four to five years contending that his income was not taxable. A|notice under Section 148 dated 18[th]February, 2000 was served on the| assessee on /[th]March, 2000, whereupon on II[th]February, 2002assessee filed a return of income declaring income of Rs.21,175/-.|Assessee’s case was referred to the Valuation Cell, whereupon theValuation Cell reported that the house was constructed in the year1991 ata cost of Rs. 17.00 lacs. Assessee did not dispute the valuation. He contended that thecost of construction was financed by the compensation amount of Rs.17,85,395/- received by his mother in a land acquisition case. A sum of Rs. 17, 85,395.70 received by a cheque dated 8[th]April, 1991 issued by the Collector was deposited 1n the Savings Bank|Account No, 1968 of the mother of the assessee maintained with the|J&K Bank, Nanak Nagar, Jammu. Assessee contended that moneyswithdrawn from the said account were utilized for construction of thehouse. Though the assessee did not make any effort to produce any|material to suggest utilization of the amounts so withdrawn for'construction of the house, but some of such withdrawals were|accepted to have been utilized for the construction purpose. It was.accepted that the assessee has been able to establish source of |Rs. 11,25,000/- for incurring expenses for construction of the said|house but failed to account for the source of incurring expenditure|amounting to Rs. 5, 75,000/-. | There 1s no dispute that a certain amount of money was paid tothe Principal of a School from the said account. The assessee did notcontend that the money so paid was used for construction purpose. Inaddition to that, certain amounts of money were paid to four Finance,Companies and certain amounts of money were paid to certainindividuals from the said account. The assessee contended that the’payments made to the Finance Companies were for repayment ofloans taken from them for construction purpose. Assessee contendedthat payments to those individuals were on account of purchase of,materials. Assessee furnished the names and particulars of thoseFinance Companies as well as of those individuals. Notices sent to.them were returned un-served. Partners of those Firms appeared.before the Assessing Tax Officer at the instance of the assessee, but,individuals did not. Partners of those Firms stated that loans were|given to the assessee by the Firms represented by them and those werepaid by the assessee through the subject cheques. They stated that theFirms were income tax assesses at the relevant time. They also statedthat the loans did not bear any interest. They also stated that the Firms|represented by them have closed their business in view of the|directions of the Reserve Bank of India. The amounts paid to the Firms and the amounts paid to thoseindividuals from the said account were not accepted as amounts spent,for construction of the house. That appears to be the principal dispute,raised by the assessee before the Commissioner of Income Tax)Appeal and having lost before him went before the Tribunal and againhaving lost before the Tribunal has come up before this Court. © The amounts paid to the Firms and the amounts paid to thoseindividuals from the said account were not accepted as amounts spent,for construction of the house. That appears to be the principal dispute,raised by the assessee before the Commissioner of Income Tax)Appeal and having lost before him went before the Tribunal and againhaving lost before the Tribunal has come up before this Court. © The principal contention of the appellant is that whatever was.within his command he did, 1.e., furnishing of particulars of thepersons, who granted loans to the assessee and supplied materials; andthere 1s no just reason not to accept repayment of such loans and|payments made for purchase of materials. There 1s no dispute that certain payments were made to certain.Firms carrying on finance business. However, neither the assessee,|nor the partners of the subject firms could bring on record any thing tosuggest that such payments were on account of repayment of loans|received by the assessee at an earlier point of time. There was no.evidence at all, except statements made by four individuals and.assertions of the assessee, that loans were received by the assessee_from those Firms at any point of time earlier than the dates of|payment of the subject amounts from the said account. Similarly,|there was no material, except assertions by the assessee, that building|materials were procured by the assessee from those individuals, who. were paid certain amounts from the said account. A payment can be)accepted as repayment or on account of purchase when it 1s.established that an earlier payment was received or a purchase was.made. Neither an earlier payment, nor any purchase said to have beenmade was established. In the circumstances, non-acceptance of,payments made to the said Firms as repayment of loans and non-acceptance of payments made to those individuals on account of,purchase of materials cannot be said to be an act so capricious and.unjust that the same can be called in question as a substantial question of law. Certain payments made to certain other individuals were.accepted as payments made for construction purpose, but withoutthere being anything to suggest that the payments so made were.utilized for construction. In the circumstances non-acceptance of,payments made to the concerned individuals as payments made on|account of purchase of materials cannot be said to be question of law|Inasmuch as the comparable payments cannot with certainty be taken.aS payments made for the construction. The learned counsel for the appellant cited the judgment of theHon’ble Supreme Court rendered in the case of)Lalchand Bhagat Ambica Ram vy. Commissioner of Income-Tax, Bihar and Orissa,reported in 37 ITR 288, and contended that it 1s suspicion orconjecture or surmise on the part of the Tribunal, which has taken| place of evidence. He submitted that in addition to that the department,has applied the rule of thumb. In other words, he contended thatcontentions of the appellant that he repaid loans supported by.evidence of grant of loan by the partners of the Firms from whom the,loans had been taken are material evidence, which could not be|ignored either on the basis of rule of thumb or on suspicion orconjecture or surmise. The learned counsel for the appellant cited the judgment of theHon’ble Supreme Court rendered in the case of)Lalchand Bhagat Ambica Ram vy. Commissioner of Income-Tax, Bihar and Orissa,reported in 37 ITR 288, and contended that it 1s suspicion orconjecture or surmise on the part of the Tribunal, which has taken| place of evidence. He submitted that in addition to that the department,has applied the rule of thumb. In other words, he contended thatcontentions of the appellant that he repaid loans supported by.evidence of grant of loan by the partners of the Firms from whom the,loans had been taken are material evidence, which could not be|ignored either on the basis of rule of thumb or on suspicion orconjecture or surmise. Section 69C of the Act provides that where in any financialyear an assessee has incurred any expenditure and he offers no.explanation about the source of such expenditure or part thereof, orthe explanation, if any, offered by him is not, in the opinion of the|Assessing Officer, satisfactory, the amount covered by such|expenditure or part thereof, as the case may be, may be deemed to bethe income of the assessee for such financial year. Therefore, 1n terms_of Section 69C of the Act, appellant was required to explain.satisfactorily the source of the expenditure of Rs. 17.00 lacs, which hehad incurred for construction of the house in question. The|explanation as was put forward by the appellant was repayment of|loans, which were used for the construction, and payments on accountof purchase of materials. Receipt of loans, utilization thereof forconstruction and purchase of materials were, therefore, the essentialingredients to satisfy that the payments 1n question were made for| repayment of loans and for discharging the debts incurred on account,of purchase of materials. Since there was nothing to suggest receipt of|loans and utilization thereof for construction, except assertions, and atthe same time there being nothing to suggest procurement of materials,from those individuals, who were paid the amounts in question, non-acceptance of such assertions, to our mind, cannot be said to be basedon suspicion, conjecture or surmise or by applying the rule of thumb. Learned counsel next contended by referring to the judgment ofthe Hon’ble Supreme Court of India in the case ofCommissioner of Income Tax v. Orissa Corporation (P) Ltd., reported in 159 ITR 78,that since the assessee could not produce the two individuals, from|whom materials were purchased, an adverse inference could not be|drawn against the assertions made by the assessee. In the instant case, no adverse inference was drawn against the assessee. Apart from the,failure on the part of the assessee in producing those individuals, he.failed to bring on record anything to suggest purchase of materials|from those individuals. Learned counsel for the assessee contended, as notice by theHon’ble Supreme Court of India inCommissioner of Income Tax v. Smt. P. K. %oorjahan, reported in 237 ITR 570, that the word ‘shall’was proposed to be inserted in Section 69C which was later on|changed by the word ‘may’ and, accordingly, no sooner the Learned counsel for the assessee contended, as notice by theHon’ble Supreme Court of India inCommissioner of Income Tax v. Smt. P. K. %oorjahan, reported in 237 ITR 570, that the word ‘shall’was proposed to be inserted in Section 69C which was later on|changed by the word ‘may’ and, accordingly, no sooner the explanation of the assessee is not satisfactory, the amounts cannot bedeemed to be the income of the assessee. It 1s true, as pointed out bythe Hon’ble Supreme Court in the case referred to above, a discretion|has been given to the department in the matter of deeming the un-explained amount as income of the assessee, but such discretion 1s to.be used judiciously for protecting the interest of the assessee as wellas of the revenue. In that case, on facts, it was found that having,regard to the age of the assessee and the circumstances 1n which she)was placed., she cannot be credited to make income of her own and in,those circumstances, the Hon’ble Supreme Court upheld the view ofthe Tribunal in refusing to permit addition of the value of the subjectinvestments to the income of the assessee. In the instant case, there1s |no material on record which would suggest that the appellant couldnot be credited with having made any income of his own having|regard to his age and the circumstances in which he was placed. In theevent, it 1s construed that all un-explained source of expenditureshould not be deemed to be the income of the assessee and thediscretion should be used always in favour of the assessee, the Section itself would become otioso. — Learned counsel also contended that before adding the amounts.in question as income of the assessee, 1.e., before using the discretion, the appellant ought to have had been noticed. The Section does not require any such notice. In any view of the matter, from theday one the question was should or should not be such expenditure bedeemed to be the income of the assessee and notice thereof was|adequately given to the assessee. Learned counsel for the appellant,contended that at the time of imposing penalty, a notice 1s required tobe given and the same analogy should be applied while such addition|is being made. The requirement of hearing the assessee and giving,him reasonable opportunity of being heard before imposing penalty is_a requirement of Section 274 of the Act. No such procedure has been.prescribed for making additions under Section 69C of the Act. In any|event, by virtue of Section 69C of the Act, it 1s obligatory on the partof the assessee to explain, to the satisfaction of the Assessing Officer, the source of expenditure made by him, with a rider that 1f theexplanation is not satisfactory, the Assessing Officer may use his|discretion against the assessee, which connotes an obligation to|satisfy, apart from the explanation to be given by him, that there was.existence of such circumstances in which the assessee was placed that,he cannot be credited with having made such income of his own. Inthe event, such obligation had been discharged but ignoring the same,Assessing Officer had added the expenditure as deemed income and|thereby had used his discretion against the assessee, 1t would have|been open to the assessee to call in question user of such discretion,| but the assessee did not make any endeavor at any stage to assert that,the circumstances in which he was then placed, he could not becredited for having made the subject income of his own. The learned counsel for the appellant lastly submitted thataccording to the valuation report the property was constructed in theyear 1991, which connotes calendar year 1991. He submitted thatcalendar year 1991 had two financial years and as such the deemed.income should be bifurcated. There 1s nothing on record to suggestwhen construction commenced. The drawings from the subjectaccount were made from April, 1991. The facts of the case, therefore, did not make out a case for bifurcation. In the circumstances, the appeal fails and the same is dismissed. (Nirmal Singh) (Barin Ghosh) Judge Chief Justice but the assessee did not make any endeavor at any stage to assert that,the circumstances in which he was then placed, he could not becredited for having made the subject income of his own. The learned counsel for the appellant lastly submitted thataccording to the valuation report the property was constructed in theyear 1991, which connotes calendar year 1991. He submitted thatcalendar year 1991 had two financial years and as such the deemed.income should be bifurcated. There 1s nothing on record to suggestwhen construction commenced. The drawings from the subjectaccount were made from April, 1991. The facts of the case, therefore, did not make out a case for bifurcation. In the circumstances, the appeal fails and the same is dismissed. (Nirmal Singh) (Barin Ghosh) Judge Chief Justice Jammu, 03.03.2009)Tilak, Secy.|