Itta/40/2009 Of Sri S. Nanda Gopal Reddy v. The Income Tax Officer

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA.No.40 of 2009 Dated:27.08.2010 Between: Sri S.Nanda Gopal Reddy. …Appellant and The Income Tax Officer,Ward-I, Gudur …Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA.No.40 of 2009 JUDGMENT:(per Hon’ble Sri Justice Ramesh Ranganathan) This appeal arises from the order of the Income Tax AppellateTribunal, Hyderabad, in ITA No.634/Hyd/08 dated 21.11.2008, forthe assessment year 2004-2005. The appellant, both before us andthe Tribunal, is a builder engaged in the business of construction offlats. For the assessment year 2004-2005 the appellant filed the return on 01.11.2005 disclosingan income of Rs.62,250/-. The assessment was taken up forscrutiny and, by order dated 29.12.2006, the assessing authorityassessed the total income of the appellant as Rs.37,32,250/-. Theassessing authority invoked Section 68 of the Income Tax Act, 1961(the Act), treated cash credits for a sum of Rs.12,45,000/- as the undisclosed income of the assessee and Rs.24,25,000/-,representing the gift from S.Ravindra babu, was also added. Thereason assigned for such addition was that there were allegedcontradictions and falsities in the statements of the creditors. Aggrieved thereby, the appellant preferred an appeal beforethe Commissioner of Income Tax (Appeals) and, on the appealbeing rejected, he preferred a second appeal to the Income TaxAppellate Tribunal. The Tribunal, in its order dated 21.11.2008,noted the contentions of the assessee that the creditors hadappeared before the lower authority and had confirmed the credits;when the assessee had proved the identity of the creditors, as alsotheir creditworthiness, the revenue was not right in invoking Section68 of the Act, and the impugned addition was unjustified. Theassessee also contended that no opportunity of cross examining thecreditors was given to him. The Tribunal held that the advancesreceived by the assessee were in cash, and not through anybanking channel; in most of the cases, the creditors did not furnishdetails of their land holding; they could not also produce detailsregarding their savings, or any other evidence to show that they hadthe capacity to give the advance to the assessee; and they had noknowledge of the proposed venture of the assessee. The Tribunalfurther held that the burden was on the assessee to prove theidentity of the party, and that the assessee had failed to dischargehis primary onus of establishing the genuineness of thetransactions. The Tribunal, therefore, confirmed the order of theCommissioner of Income Tax (Appeals). Before us Sri Pushyam Kiran, learned Counsel for theappellant, would submit that the amount treated as undisclosedincome by the authorities were advances received from the flatowners; an inspection was carried out on 27.12.2006 and sixpersons were examined; however the enquiry was not properlyconducted; since the appellant had discharged the onus ofestablishing the source from which the money was received, theburden shifted on the assessing authority to establish that the cashcredits were not genuine, and the assessee cannot be asked toprove the source of the source or the origin of the origin. LearnedCounsel would rely on Khandelwal Constructions vCommissioner of Income Tax[[1]]in this regard. On the other hand, Sri Narasimha Sarma, learned Counselappearing for the Department, would submit that the initial burden,to establish the source from which cash credit had been received, ison the assessee; the assessee had failed to discharge the saidburden; the persons, who are alleged to have given advances to theappellant, were his friends and relatives; their capacity to advance the said amounts was not established in the enquiry; and the orderof the Tribunal does not necessitate interference in an appeal underSection 260A of the Act, as there is no question of law which arisesfor consideration. On the other hand, Sri Narasimha Sarma, learned Counselappearing for the Department, would submit that the initial burden,to establish the source from which cash credit had been received, ison the assessee; the assessee had failed to discharge the saidburden; the persons, who are alleged to have given advances to theappellant, were his friends and relatives; their capacity to advance the said amounts was not established in the enquiry; and the orderof the Tribunal does not necessitate interference in an appeal underSection 260A of the Act, as there is no question of law which arisesfor consideration. We have carefully examined the records and have given ourdetailed considerations to the contentions urged by either side. Aperusal of the assessment order would reveal that the assessingauthority had observed that the amounts withdrawn were veryunusual except in one case; on no other occasion had thosepersons drawn such highly odd figures; cash withdrawal for suchodd amounts was highly unusual; and the assessee himself hadcollected the cheques from those persons and had withdrawn thecash. As such he held that the cash credits made in the books ofaccounts of the assessee, during the financial year 2003-2004amounting to Rs.12,45,000/-, were not genuine, and should betreated as the unexplained income of the assessee under Section68 of the Act. Regarding the gift of Rs.24,25,000/-, the assessing authority,based on the evidence on record, came to the conclusion that theassessee had not proved the genuineness of the gift satisfactorilyand the alleged gift amount of Rs.24,25,000/- was treated as theincome of the assessee from undisclosed sources under Section 68of the Act. It is evident that the assessing authority, the Commissioner ofIncome Tax (Appeals) and the Tribunal have carefully examined allfactual aspects, and have recorded their satisfaction that the cashcredits were not genuine. It is the assessee who relied on thenotarized affidavits said to have been given by persons who hadadvanced money for the purchase of flats constructed by him. It isthese persons who were examined during the enquiry. The veryfact that they are persons, who the assessee claims had paid himcertain amounts as advance for purchase of the flats constructed byhim, would negate his contention that he was entitled to crossexamine these persons. It is only in cases where the assessee haddischarged the initial burden of establishing that the cash creditswere genuine, would the burden shift to the assessing authority toestablish that they are not. In the case on hand the assessee hasfailed to discharge the initial burden. Reliance placed by the learned Counsel on the judgment ofthe Division Bench of the Gauhati High Court, in KhandelwalConstructions, is misplaced. The said case, before the GauhatiHigh Court, was one where the creditors had been filing income returns continuously for a long time ranging from five to six years,and this aspect was not considered by the Assessing Officer. It is insuch circumstances that the Gauhati High Court held that theenquiry to be conducted under Section 68 of the Act must bereasonable, in consonance with principles of natural justice, and ahasty conclusion on a perfunctory enquiry cannot be the basis forrejecting the claim of the assessee. We are satisfied that, in the case on hand, the enquiryconducted is reasonable and is not perfunctory. The assessingauthority has recorded his satisfaction based on material evidenceon record. We have also examined the reasons recorded by all theauthorities and are satisfied that the conclusions arrived at by theassessing authority, the Commissioner of Income Tax (Appeals)and the Income Tax Appellate Tribunal are on the basis of thematerial on record, and do not necessitate interference in an appealunder Section 260A of the Act. The appeal is, accordingly, dismissed. __________________(V.V.S.RAO, J) ______________________________(RAMESH RANGANATHAN, J) 27.08.2010vs [1](1997) 227 ITR 900 (Gauhati)