Itta/404/2010 Of Sri S.nanda Gopal Reddy v. Thee Income Tax Officer

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA.No.404 of 2010 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.RAOANDTHE HON'BLE SRI JUSTICE RAMESH RANGANATHAN ITTA.No.404 of 2010 JUDGMENT:(per Hon’ble Sri Justice Ramesh Ranganathan) This appeal arises out of the order of the Income TaxAppellate Tribunal, Hyderabad, in ITA No.194/Hyd/2009 dated09.10.2009 for the assessment year 2003-2004. The appellant,both before us and the Tribunal, is a builder engaged in thebusiness of construction of flats. For the assessment year 2003-2004 the appellant filed his return on 01.11.2005 disclosingan income of Rs.60,572/-. The assessment was taken up forscrutiny and, by order dated 28.12.2007, the assessing authorityassessed the total income of the appellant as Rs.52,95,572/-. Theassessing authority invoked Section 68 of the Income Tax Act, 1961(the Act) and treated cash credits for a sum of Rs.52,35,000/- asundisclosed income of the assessee. Aggrieved thereby, theappellant preferred an appeal before the Commissioner of IncomeTax and, on the appeal being rejected, he preferred a second appeal to the Income Tax Appellate Tribunal. The Tribunal, in itsorder dated 09.10.2009, noted the contention of the assessee thatthe creditors had appeared before the lower authority and hadconfirmed the credits; the primary burden cast upon the assesseewas discharged; and, if the Department disbelieved the same, theyought to have established that the credits were not genuine. Theassessee also contended that no opportunity of cross examining thecreditors was given to him. The Tribunal observed that theassessee had declined the right to cross examine the creditors and,at the stage of second appeal, he was not entitled to raise such anargument. The Tribunal held that the advances received by theassessee were in cash and were later returned to the respectiveparties who had, in turn, withdrawn the net realized amount fromtheir accounts by self cheque; most of them, who had claimed tohave advanced the amount, had no knowledge of the description ofthe flats constructed by the assessee and, they had not visitedBangalore to see the area of the flat to be purchased; most of themwere friends and relatives of the assessee having no regular sourceof income; most of them had denied advancing money to theassessee; there was material on record with the Department toshow that the assessee was in the habit of introducing money in thenames of his friends and relatives; and the assessee had failed toprove the genuineness and creditworthiness of the parties who hadadvanced the money to him. The Tribunal further held that theburden was on the assessee to prove the identity of the party, thecapacity of the party to advance money and, the genuineness of thetransaction; and it is only when the assessee leads evidence toestablish prima facie all these facts, that the onus shifts on to theDepartment. The Tribunal concluded that the assessee was notable to discharge the burden, and 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, 19 in number, for the Bangalore Venture started by theappellant; while an inspection was carried out on 26.12.2006, only 5out of 19 persons were examined in the enquiry; the enquiry wasnot properly conducted; since the appellant had discharged theonus to establish the source from which the money was received,the burden shifts on the assessing authority to establish that thecash credits were not genuine; and that the assessee cannot bemade to prove the source of the source and the origin of the origin. Learned Counsel would rely on Khandelwal Constructions v Commissioner of Income Tax[[1]]in this regard. 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, 19 in number, for the Bangalore Venture started by theappellant; while an inspection was carried out on 26.12.2006, only 5out of 19 persons were examined in the enquiry; the enquiry wasnot properly conducted; since the appellant had discharged theonus to establish the source from which the money was received,the burden shifts on the assessing authority to establish that thecash credits were not genuine; and that the assessee cannot bemade to prove the source of the source and the origin of the origin. Learned Counsel would rely on Khandelwal Constructions v Commissioner of Income Tax[[1]]in this regard. On the other hand, Sri Narasimha Sarma, learned StandingCounsel for the Department, would contend that the initial theburden to establish the source from which cash credit had beenreceived is on the assessee; the assessee had failed to dischargethe said burden; persons who are alleged to have given advancesto the appellant were his friends and relatives; their capacity toadvance the said amounts was not established in the enquiry; and,as such, the order of the Tribunal does not necessitate interference in an appeal under Section 260A of the Act, as no question of lawarises for consideration. We have carefully examined the records and bestowed ourdetailed considerations to the contentions urged before us. Aperusal of the assessment order would reveal that the assessingauthority had considered the statements of persons who wereexamined in the enquiry, and had noted their admission that theyhad not given any advance to the assessee. The assessingauthority further observed that the persons produced by theassessee were apparently tutored, and were trying to help theassessee; the assessee had produced six persons for examinationduring the assessment proceedings; while four persons stated thatthe amounts were given as advance for flats, the other two hadstated that it was a loan; none of the four persons, who hadallegedly given advances for purchase of flats, was aware of thearea of the apartment or the specifications of the flat; only one hadvisited Bangalore ten years back; each of them stated a differentprice for the flats as having been quoted by the assessee; twopersons had stated that the amount was given as a loan, and not asadvance for the flat, which totally negated the version of theassessee; none of them could satisfactorily prove the source formaking the advance/loan. While in all the cases the advance/loanamount is said to have been repaid, none of them could prove suchrepayment; the amounts said to have been repaid by the assesseewas by way of demand drafts deposited in the bank accounts, andcash was withdrawn almost immediately; there was a similar patternin these withdrawals; in all the cases the amounts withdrawn, aftercollection of the demand drafts, was exactly equal to the net amountrealized from these demand drafts. The assessing authority notesthe details of the amounts withdrawn which clearly show that thedraft amount, less the collection charges, were withdrawn. Theassessing authority observed that the amount withdrawn was ofunusually odd figures; on no other occasion had these personswithdrawn such highly odd amounts; and such withdrawals wereunusual, and were obviously intended to settle some amount. It isevident, therefore, that the assessing authority, the appellateauthority and the second appellate authority have carefullyexamined all factual aspects and have recorded their satisfactionthat the cash credits were not genuine. It is the assessee who hadrelied on the notarized affidavits said to have been given by thosewho had advanced money for purchase of flats constructed by him. It is these persons who were examined during the enquiry. The fact that they are persons who the assessee claims had paid him theamount, as advance for the flats, would negate his contention thathe was entitled to cross examine them. It is only in cases where theassessee has discharged the initial burden of establishing that thecash credits were genuine, would the burden shift on the assessingauthority to establish that they are not. In the case on hand theassessee has failed 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 case before the Gauhati HighCourt was one where the creditors had been filing income returnscontinuously for a long time ranging from five to six years, and thisaspect was not considered by the Assessing Officer. It is in suchcircumstances that the Gauhati High Court held that the enquiry tobe conducted under Section 68 of the Act must be reasonable andin consonance with principles of natural justice, and a hastyconclusion 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 Tribunal are on the basis of the material on record and donot necessitate interference in an appeal under Section 260A of theAct. The appeal is, accordingly, dismissed. __________________ (V.V.S.RAO, J) ______________________________ (RAMESH RANGANATHAN, J) 27.08.2010vs [1](1997) 227 ITR 900 (Gauhati)