Itta/129/2004 Of Dr. T. Suryanarayana Rao v. Assistant Commissioner Of Income Tax

*THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND *THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM+ I.T.T.A.No.129 of 2004 % Dated 16.12.2014 Dr. T.Suryanarayana Rao. ….Appellant $ Assistant Commissioner of Income Tax. ….Respondent ! Counsel for the appellant : Sri Pushyam Kiran^ Counsel for respondent : Ms. Kiranmayee < GIST: HEAD NOTE: ? Cases referred: THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYANDTHE HON’BLE SRI JUSTICE CHALLA KODANDA RAMI.T.T.A.No.129 of 2004 JUDGMENT: (Per LNR,J) The appellant is a Lecturer in English, and an assesseeunder the Income Tax Act, 1961 (for short ‘the Act’). A searchwas conducted in his premises on 04.11.1993 and he wasissued a notice, dated 04.04.1995 under Section 148 of the Act. In response to the same, he submitted block returns showingincome of Rs.45,455/-. An order of assessment was passed on31.03.1997 to the effect that the appellant has unexplainedincome of Rs.7,60,515/- and the same was brought under tax. The appeal preferred by the appellant herein before theCommissioner (Appeals) was allowed and the matter wasremanded. After remand, the Assessing Officer reduced theunexplained income to Rs.5,20,455/-. Not satisfied with that, theappellant carried the matter before the Commissioner (Appeals)but was not successful there. He filed I.T.A.Nos.47 and48/Hyd/2002 before the Hyderabad Bench of the Income TaxAppellate Tribunal, with reference to Assessment years 1991-92and 1992-93. The appeals were dismissed through order, dated10.08.2004. Hence, this further appeal under Section 260-A ofthe Act. Sri Pushyam Kiran, learned counsel for the appellantsubmits that the three amounts of Rs.1,00,000/-, Rs.50,000/-,Rs.50,000/- were borrowed by the wife of his client from differentindividuals and though sufficient evidence in that behalf wasplaced before the Assessing Officer, the same was not believedonly on the ground that the concerned persons were notexamined. He further submits that once the letters ofconfirmation of lending are filed, the assessee virtuallydischarges his obligation and in case, the Assessing Officer isnot inclined to accept the statements, it is for him to summon theconcerned persons. Learned counsel further submits that theplea as to sale of gold ornaments of the wife of appellant cannotbe disbelieved, having regard to the status of the family. Ms.Kiranmayee, learned counsel representing SriJ.V.Prasad, learned counsel for the respondent, on the otherhand submits that atleast in search proceedings, an assessee,when faced with the allegation of unexplained cash credits, isunder obligation not only to place the relevant material but also toprove the creditworthiness of the lenders. He further submits thatin a given case, the asessee must also examine the creditorsand only then, the version of the assessee can be accepted. Learned counsel submits that in the instant case, the appellantfailed to discharge his burden and obligation under Section 68 ofthe Act and that no exception can be taken to the orders passedby the Assessing Officer, the Commissioner and the Tribunal. The unexplained income, which was found by theAssessing Officer at Rs.7,60,515/- was slashed down toRs.5,20,455/- after remand by the Commissioner. In the secondround of proceedings, the controversy was mostly about a sumof Rs.2,40,000/-. Out of this, the wife of the appellant is said tohave borrowed a sum of Rs.1,00,000/- from oneMr.P.Ramabrahmam, Rs.50,000/- from Sri N.Ramanujachari andanother sum of Rs.50,000/- from Y.Venkateshwara Rao. A sumof Rs.40,000/- is said to have been garnered by her, by sellingthe ornaments. The Assessing Officer did not believe any ofthese sources and added the entire amount to the income bytreating it as unexplained cash credit. The unexplained income, which was found by theAssessing Officer at Rs.7,60,515/- was slashed down toRs.5,20,455/- after remand by the Commissioner. In the secondround of proceedings, the controversy was mostly about a sumof Rs.2,40,000/-. Out of this, the wife of the appellant is said tohave borrowed a sum of Rs.1,00,000/- from oneMr.P.Ramabrahmam, Rs.50,000/- from Sri N.Ramanujachari andanother sum of Rs.50,000/- from Y.Venkateshwara Rao. A sumof Rs.40,000/- is said to have been garnered by her, by sellingthe ornaments. The Assessing Officer did not believe any ofthese sources and added the entire amount to the income bytreating it as unexplained cash credit. Section 68 of the Act no doubt provides for addition ofunexplained cash credits to the income of the assessee. Beyond that, the Section does not stipulate the manner in whichthe assessee must explain the source. We are referring to this inthe context of the strong plea raised by the learned counsel forthe respondent that the assessee is under obligation not only toexplain the source but also the creditworthiness of the creditor. We do not find any support from Section 68 of the Act for thisproposition. An assessee may put forward his own contention either inthe ordinary returns, or those filed in response to a notice underSection 148 of the Act. The Assessing Officer is conferred withample power either to accept or disbelieve such versions. However, the disbelief must be on the basis of objectiveexercise of power. In case, the Assessing Officer intends todisbelieve any document or other material presented by theassessee, it can certainly require him to supplement it. Wherehowever, the assessee files not only the promissory notescovering any amounts, but also the letters of confirmation fromthe concerned lenders, the Assessing Officer does not have theluxury of ignoring such material. If he is of the view that theperson, who is said to have lent or advanced the amount doesnot have the capacity, he can certainly summon him byexercising the powers, and ascertain creditworthiness. It is not atall for the assessee to prove the creditworthiness of an individual. Further, the expression “creditworthiness” is too abstract, tobe defined or explained with any precession. A person withordinary source of income may save part of it and may be in aposition to lend it to others, to earn income in the form of interest. In contrast, a person who is endowed with extensive resourcesor wealth may turn out to be a borrower, for variety of reasons.When such is the disparity, the Assessing Officer cannotproclaim the lender of an assessee, as the one who does nothave creditworthiness, that too without making an effort toascertain the information from such a person. Out of three promissory notes, covering a sum ofRs.2,00,000/-, the appellant has placed before the AssessingOfficer, not only the promissory notes but also the letters ofconfirmation in respect of Rs.1,50,000/-. We do not see anyreason to disbelieve them, particularly when the AssessingOfficer himself did not feel the necessity of summoning those twopersons to verify their creditworthiness. As regards the otheramount of Rs.50,000, we concur with the Assessing Officer,Commissioner and Tribunal, since the letter of confirmation fromthe concerned creditor was not filed. So far as the amount ofRs.40,000/-, which is said to have been procured by the wife ofthe respondent, by selling her gold ornaments, we do not findanything unnatural about it. The starting point for a doubt in thisbehalf must be the capacity of the family. A Lecturer in Englishwith the income to the extent of being under obligation to filereturns, can certainly provide jewellery of that much value to hiswife. In addition to that, part of it may have been contributed byher parents also. Since the amount was invested for purchase ofland, it is nothing but conversion of an item of movable propertyinto that of an immovable property. We therefore partly allow the appeal to the extent ofRs.1,50,000/-, borrowed from Mr.P.Ramabrahmam (Rs.1,00,000)and Mr.N.Ramanujachari (Rs.50,000/-) and the amount procuredthrough sale of gold ornaments to the extent of Rs.,40,000/-. Asregards the rest, the appeal shall stand rejected. The miscellaneous petition filed in this appeal shall also stand disposed of. There shall be no order as to costs. ____________________ L.NARASIMHA REDDY, J ______________________ CHALLA KODANDA RAM, J Date: 16.12.2014Note: L.R.Copy to be marked.JSU THE HON’BLE SRI JUSTICE L.NARASIMHA REDDYAND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM I.T.T.A.No.129of 2004 JSU Date: 16.12.2014