Ita/283/2010 Of The Commissioner Of Income Tax v. Shri.t.b.kunhimahin Haji

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR.JUSTICE V.G.ARUN TUESDAY,THE 18TH DAY OF JUNE 2019 / 28TH JYAISHTA,1941 ITA.No.283 of 2010 AGAINST THE ORDER IN ITA 858/2008 of I.T.A.TRIBUNAL,COCHIN BENCHDATED 10-03-2010 APPELLANT: THE COMMISSIONER OF INCOME TAX(CENTRAL), COCHIN. BY ADV. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) RESPONDENTS: 1SHRI.T.B.KUNHIMAHIN HAJITHEKKIL PO,KASARAGOD-671 541THEKKIL PO,KASARAGOD-671 541 ADDL.R2 TO R7 IMPLEADED 2S.L.P KUNHIBIW/O. SHRI. KUNHIMAHIN HAJI, PADOOR HOUSE, CHETTANCHALPOST.,THEKKIL VILLAGE, KASARAGOD DISTRICT.W/O. SHRI. KUNHIMAHIN HAJI, PADOOR HOUSE, CHETTANCHALPOST.,THEKKIL VILLAGE, KASARAGOD DISTRICT. 4K.M. MOHAMMED SHEREEF, AGED 46 YEARS,S/O SHRI. T. B. KUNHIMAHIN HAJI, -DO - DO-S/O SHRI. T. B. KUNHIMAHIN HAJI, -DO - DO- 5K.M. MOIDEEN KUNHI, AGED 44 YEARSS/O. SHRI. T.B. KUNHIMAHIN HAJI, -DO- DO-S/O. SHRI. T.B. KUNHIMAHIN HAJI, -DO- DO- ITA.No.283 of 2010 2 6K.M. AHAMMED NIZAR, AGED 39 YEARS,S/O. SHRI. T.B. KUNHIMAHIN HAJI, -DO- DO-7K.M. ARIFA, AGED 37 YEARS,D/O. SHRI. T.B. KUNHIMAHIN HAJI -DO - DO - BY ADVS.SRI.ANIL D. NAIRSMT. ARYA ANILSMT. NILOOFAR O. NIZAMSMT.NIVEDITA A.KAMATHSRI.SREEJITH R.NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10.04.2019, THE COURT ON 18.6.2019 DELIVERED THE FOLLOWING: Arun.J JUDGMENT The appeal is filed by the Revenue, aggrieved by the decision of the Commissioner ofIncome Tax (Appeals), as confirmed by the Income TaxAppellate Tribunal. By the impugned orders, appealfiled by the assessee was allowed and the addition ofan amount of Rs.2,67,99,547/- to the income of theassessee, treating it to be unexplained cash credit,deleted. The assessee is the Managing Partner ofChandragiri Construction, Kasaragode. The assesseehad filed return of income for the assessment year2004-05, showing a total income of Rs.11,14,080/-and agricultural income of Rs.12,44,850/-. On receiptof notice issued under Section 143(2), the assesseeappeared and filed cash flow statement in support ofthe return of income filed. The cash flow statementsubmitted by the assessee showed credit ofRs.2,67,99,547/- as NRI receipts. This amount was ITA.No.283 of 2010 4 seen credited in the capital account of the assesseewith the Chandragiri Construction Company. On beingasked to furnish details regarding the cash credits, theassessee explained that the receipt was from his son-in-law, Dr.K.P.Ali, who is a practicing Doctor at Dubai.In support of his explanation the assessee producedconfirmation letter from Federal Bank, Kasaragode anda letter from Dr.K.P.Ali confirming that he hadadvanced Rs.2,67,99,547/- to his father-in-law, theassessee. Dr.K.P.Ali claimed his source of income to befrom the three clinics and four pharmacies run by himat Dubai, details of which were also produced. Relyingon Commissioner of Income Tax v P.Mohanakala(2007)291 ITR 278) and other decisions, theAssessing Officer held that the assessee had notdischarged his onus of proving the genuineness of thereceipts, by establishing the identity and capacity ofthe creditor and the genuineness of the transaction.Based on the said finding, the Assessing Officer cameto the following conclusion: “The assessee has not proved the credit by producing satisfactoryevidence for the capacity of theremitter to advance the money.Following the settled law as statedabove the amount of Rs.2,67,99,547/-,credited in the capital account istreated as income of the assessee andis added as income from othersources.” 2. The assessee challenged the assessment “The assessee has not proved the credit by producing satisfactoryevidence for the capacity of theremitter to advance the money.Following the settled law as statedabove the amount of Rs.2,67,99,547/-,credited in the capital account istreated as income of the assessee andis added as income from othersources.” 2. The assessee challenged the assessment order in appeal successfully. The appeal was allowedby the CIT(Appeals) finding that no undisclosed sourceof income for the assessee had been identified at anytime in the income tax assessments. It was observedthat the assessment of genuine remittances in theaccount of the assessee, by his son-in-law from Dubai,should not be suspected as credits to account andcover up any undisclosed income. The First AppellateAuthority took note of the fact that the remittancereceived by the assessee from Dr.K.P.Ali through theFederal Bank had been confirmed by the bank. Thedetails of the clinics and business concerns, from whichsource amounts were remitted to India, was furnished ITA.No.283 of 2010 6 to the Assessing Officer by Dr.K.P.Ali, along with hisconfirmation of the remittances. The fact that in theprevious assessment year Rs.2,22,13,020/- wasremitted by Dr.K.P.Ali in the account of the appellantand the same was accepted after verifying theconfirmation, credit worthiness and genuineness of thetransaction was given due credence. It was found thatno reason was given for disbelieving the receipts fromDr.K.P.Ali during the assessment year in question. TheFirst Appellate Authority found that all conditions aslaid down by various court decisions to prove theremittance as genuine are satisfied and hence, theassessment of the amount received from Dr.K.P.Ali asincome under other sources is not justified.Consequently, the assessment of Rs.2,67,99,547/- asincome from other sources was cancelled. 3. The revenue filed appeal against the order ofthe First Appellate Authority, but without success. Inaddition to the finding of the CIT(Appeals), the Tribunaltook note of a decision of the Settlement Commission, ITA.No.283 of 2010 7 wherein a credit of Rs.43,54,482/- in the capitalaccount of the assessee with Chandragiri ConstructionCompany was dealt with by the SettlementCommission and held that the amount was received bythe assessee through proper banking channel. TheTribunal held that Section 68 will be attracted onlywhen the assessee offers no explanation or theexplanation so offered is not satisfactory to theAssessing Officer. It was found that in the presentcase assessee had established the identity of thecreditor, the source for the credit and the genuinenessof the transaction and had thereby discharged theinitial burden in the manner required by law. It wasalso found that the department had accepted theassesses explanation regarding the remittance, in theprevious assessment year. Based on the said findings,the Tribunal refused to interfere with the order of theFirst Appellate Authority and dismissed the appeal filedby the Revenue. 4. In this appeal the Revenue has raised the ITA.No.283 of 2010 8 following substantial questions of law: 1. Whether on the facts and in thecircumstances of the case and also forthe reasons noted in the statement ofthe case and the grounds raised- i. The Tribunal is right in law indeleting the unexplained cash creditsof Rs.2,67,99,547/- said to have beenreceived from an NRI on sevendifferent dates without indicating thenature of receipts ie, whether theamounts are received as loan or gift? 4. In this appeal the Revenue has raised the ITA.No.283 of 2010 8 following substantial questions of law: 1. Whether on the facts and in thecircumstances of the case and also forthe reasons noted in the statement ofthe case and the grounds raised- i. The Tribunal is right in law indeleting the unexplained cash creditsof Rs.2,67,99,547/- said to have beenreceived from an NRI on sevendifferent dates without indicating thenature of receipts ie, whether theamounts are received as loan or gift? ii. Tribunal is right in law and factin relying on the order of SettlementCommission in support of thegenuineness of the credit (from thesame person during the year prior to2002-2003) since being prima faciesatisfied that the assessee hadobtained the Settlement dated4.3.2008 under Sec. 245D(4) by fraudand misrepresentation, the SettlementCommission had issued notice dated8.2.2010 under Sec. 245D(6) of theAct to the assessee to show cause asto why the said Settlement should notbe declared as void. 2. Whether, on the facts and inthe circumstances of the case does thewithdrawals in total noted at page 12of the order of ITAT runs to more thanRs.4 crores? and is not the calculationfactually wrong and does the same(even if correct) have any relevance, inthe absence of proof satisfying all the three ingredients as laid down by theSupreme Court in the case ofP.Mohanakala and nexus with theassessee? 3. Whether, on the facts and inthe circumstances of the case as aresult of search on 21.6.2001, theassessee of this group were found tobe operating a large number ofundisclosed bank accounts throughwhich among others, undisclosedcontract receipts and undisclosedinvestments were routed and theadmission of the same before thesame, should not the ITAT have takenthe above fact of admission intoconsideration? 4. Whether on the facts and in thecircumstances of the case should notthe ITAT have considered the case inthe light of fraud and misinterpretationalleged in the notice by the settlementcommission and the 'admission' ofoperating a large number ofundisclosed bank account in the earlieryear's dealings and in the light of theobservation of the Supreme Court:“Neither law nor human experienceguarantees that an assessee who hasbeen dishonest in one assessment yearis bound to be honest in a subsequentassessment year” (123 ITR 457 at 463 )? and is not the order of the ITATperverse and an affront to ordinaryhuman intelligence? 5.Whether, on the facts in the ITA.No.283 of 2010 10 circumstances of the case- a) did the assessee discharge theburden that lay on him, b) reasons stated in the groundthe Tribunal is right in law in relying onthe order for the earlier asst.year? 6. Whether, on the facts and inthe circumstances of the case and forthe reasons stated in the statement ofthe case is not the deletion of theaddition perverse against all canons oflaw and procedure? 5. In effect, all questions pertain to the legality of the finding that the assessee had offeredsatisfactory explanation about the nature and source ofthe sums credited in his account by Dr.K.P.Ali. Thelearned Standing Counsel for the appellant contendedthat the finding in this regard entered by theCIT(Appeals) and the ITAT are patently illegal andperverse. In order to buttress this contention, relianceis placed on the decision inCommissioner ofIncome Tax v P.Mohanakala(2007)291 ITR 278).It is contended that, in the previous year the ITA.No.283 of 2010 11 explanation offered by the assessee for the cashcredits received from Dr.K.P.Ali was accepted is not arelevant factor. It is further contended that theAssessing Officer had made the addition in accordancewith section 68 as the assessee had failed to offerproper explanation for the NRI receipts. 6. The learned counsel for the assessee ITA.No.283 of 2010 11 explanation offered by the assessee for the cashcredits received from Dr.K.P.Ali was accepted is not arelevant factor. It is further contended that theAssessing Officer had made the addition in accordancewith section 68 as the assessee had failed to offerproper explanation for the NRI receipts. 6. The learned counsel for the assessee contended that no question of law, let alone anysubstantial question of law, arises for consideration inthe appeal. It is contended that the CIT Appeals andITAT having found that the explanation offered by theassessee for the remittances in his account to besatisfactory, no interference is warranted on thosefindings of fact. 7. A reading of Section 68 of the Income Tax Act makes it clear that the section would come intooperation when there is credit of amounts in the booksmaintained by an assessee during the previous yearand the assessee offers no explanation about thenature and source of such credit; or, the explanation ITA.No.283 of 2010 12 offered by the assessee, in the opinion of theAssessing Officer, is not satisfactory. In Mohanakala'scase, the Hon'ble Supreme Court elaborately dealt withthe onus of the assessee to dispel any doubtregarding the genuineness of the transaction, to thesatisfaction of the Assessing Officer. The relevantportion of the judgment is as under : “ The question is what is the truenature and scope of section 68 of theAct? When and in what circumstanceswould section 68 of the Act come intoplay? A bare reading of section 68suggests that there has to be credit ofamounts in the books maintained byan assessee; such credit has to be of asum during the previous year; and theassessees offer no explanation aboutthe nature and source of such creditfound in the books; or the explanationoffered by the assessees in the opinionof the Assessing Officer is notsatisfactory, it is only then the sum socredited may be charged to income-tax as the income of the assessees ofthat previous year. The expression“the assessees offer no explanation”means where the assessees offer noproper, reasonable and acceptableexplanation as regards the sums foundcredited in the books maintained bythe assessees. It is true the opinion of the Assessing Officer for not acceptingthe explanation offered by theassessees as not satisfactory isrequired to be based on properappreciation of material and otherattending circumstances available onrecord. The opinion of the AssessingOfficer is required to be formedobjectively with reference to thematerialavailableonrecord.Application of mind is the sine qua nonfor forming the opinion. It is true that even after rejectingthe explanation given by the assesseesif found unacceptable, the crucialaspect whether on the facts andcircumstances of the case it should beinferred the sums credited in thebooks of the assessees constitutedincome of the previous year mustreceive the consideration of theauthorities provided the assesseesrebut the evidence and the inferencedrawn to reject the explanation offeredas unsatisfactory. We are required tonotice that section 68 of the Act itselfprovides, where any sum is foundcredited in the books of the assesseesfor any previous year the same maybe charged to income tax as theincome of the assessees of theprevious year if the explanationoffered by the assessees about thenature and source of such sums foundcredited in the books of the assesseesis in the opinion of the AssessingOfficer not satisfactory. Such opinionformed itself constitutes a prima facie evidence against the assessees, viz.,the receipt of money, and if theassessees fail to rebut the saidevidence the same can be usedagainst the assesses by holding that itwas a receipt of an income nature.” 8. On facts, the Apex Court found that the evidence against the assessees, viz.,the receipt of money, and if theassessees fail to rebut the saidevidence the same can be usedagainst the assesses by holding that itwas a receipt of an income nature.” 8. On facts, the Apex Court found that the authority had concurrently found the explanationoffered by the assessee to be unacceptable. That, theassessee had not taken the plea that even if theexplanation is not acceptable, the materials andattending circumstances available on record do notjustify the sum found credited in the books to betreated as receipt of an income nature. It was in thosecircumstances that the appeal filed by the revenue wasallowed finding that the High Court had misdirecteditself and committed an error in disturbing theconcurrent findings of fact. 9. As far as the case at hand is concerned the assessee as well as the creditor had offered theirexplanations. The creditor had explained his source ofincome, the transactions were effected through bank, ITA.No.283 of 2010 15 which fact was substantiated by producing a certificatefrom the bank. It was in such circumstances that theCIT (Appeals) and the ITAT found that the assesseehad established the identity of the creditor, source forthe credit and genuineness of the transaction. The factthat the Department had accepted a similarexplanation offered in the previous assessment yearassume relevance in the above context. Further, theSettlement Commission had also held similar cashtransactions during the previous years to be genuine.On the contrary, the finding of the Assessing Officer isthat the assessee had not proved the credits byproducing satisfactory evidence regarding the capacityof the remitter to advance the money and that the wifeof the remitter being a partner in ChandragiriConstruction, the proper course was to credit theamount in the capital account of the wife or to showthe same as a loan from the creditor. A careful readingof the decision in Mohanakala shows that even afterrejecting the explanation given by the assessee, the ITA.No.283 of 2010 16 assessing authority should consider the crucial aspectas to whether on the facts and circumstances of thecase it could be inferred that the sums credited in thebooks of the assessee constituted income of theprevious year. 10. In Commissioner of Income Tax, Orissa v Orissa Corporation (P) Ltd. (AIR 1986SC 1849)the Hon'ble Supreme Court held that theassessee by giving the name and addresses of thealleged creditors, had discharged the burden that layon him. That, the Revenue having taken no effort topursue the alleged creditors cannot be heard tocontend that the finding of the Income Tax Tribunalwas unreasonable or perverse or based on noevidence. It was held that if the conclusion is based onsome evidence on which such a conclusion could bearrived at, no question of law as such arises. 11. As far as the instant case is concerned,both CIT(Appeals) as well as the ITAT had found theassessee to have discharged his burden of explaining ITA.No.283 of 2010 17 the genuineness of the cash credits in his account byproviding confirmation from the creditor regardingremittance and the source of funds and certificate fromthe assessee's bank. The explanation offered by theassessee, coupled with the fact that a similarexplanation regarding remittances during the previousyear was accepted by the Assessing Officer and similarremittances during the period prior had been acceptedby the Settlement Commission, had weighed with theCIT(Appeals) and the ITAT. Such conclusion beingpossible in the facts and circumstances, no question oflaw arises for consideration. Consequently, the Appealis dismissed. K.VINOD CHANDRAN, JUDGE cms V.G.ARUN, JUDGE ITA.No.283 of 2010 18