The Commissioner Of Income Tax, Jalandhar v. M/S Nathu Ram Hari Dev, Dana Mandi Phagwara

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. ITR No.30 of 1998 Date of decision: 12.7.2010 The Commissioner of Income Tax, Jalandhar -----Petitioner Vs. M/s Nathu Ram Hari Dev, Dana Mandi Phagwara ----Respondent CORAM:- HON'BLE MR JUSTICE ADARSH KUMAR GOELHON’BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Vivek Sethi, Standing Counsel for the revenue. None for the assessee. Adarsh Kumar Goel,J. 1.Following question of law has been referred for opinion of thisCourt by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsarunder section 256 (1) of the Income Tax Act, 1961 (for short, ‘the Act’)arising out of its order dated 7.5.1996 in ITA No.386(ASR)/1990, for theassessment year 1987-88:- “Whether on the facts and in the circumstances of the case,the ld. ITAT is right in law in deleting the addition ofRs.1,35,000/- confirmed by the ld. CIT(A) in the light of thedecision of the Hon’ble Supreme Court in the case of JamunaPrashad Kanhaiya Lal reported at 130 ITR 244?” 2.The assessee is a registered firm. During assessment, nine cash credit entries were found in the books of account of the assessee. Thecreditors were minor children of the partners. The assessee submitted that the creditors had declared their income under the Amnesty scheme. TheAssessing Officer held that declaration under the Amnesty Scheme was notconclusive qua non-declarant and in absence of any valid explanation forthe credit entries, the amount could be treated to be undisclosed income ofthe assessee. Accordingly, addition was made to the declared income whichwas upheld by the CIT(A). The Tribunal held that since depositors had beenassessed under the Amnesty scheme and the amount had suffered tax,source of the money could not be enquired into. It was further held that theassessee firm had explained the source and could not be required to explainthe source of the source. Reliance was placed on judgment of the PatnaHigh Court in Sarogi Credit Corporation v. CIT, (1976) 103 ITR 344. 3.We have heard learned counsel for the revenue. None appearsfor the assessee. 4.Contention raised on behalf of the revenue is that the viewtaken by the Assessing Officer and the CIT(A) was correct and is consistentwith the law laid down by the Hon’ble Supreme Court in Jamnaprasad Kanhaiyalal v. CIT, MP, Bhopal, (1981) 130 ITR 244. Mere fact that thecreditors had made declaration under the Amnesty Scheme was notconclusive when creditors had no source of income as they were admittedlyminor children of the partners. In such circumstances, it could not be heldthat the assessee had duly explained the source, as observed by the Tribunal.Mere fact that transfer of money was by cheque could not be, in thecircumstances, of significance. Genuineness of the transaction was requiredto be established. 5.Reference to the order of the CIT(A) shows that afterappreciation of evidence, it was held that the assessee firm introduced its own undisclosed funds in the name of minor children. The relevantobservations are:- “8……In the present case, I find that the assessee firm hastried to introduce its own undisclosed funds in the names ofminor children and, therefore, the immunity given by theAmnesty Scheme was not applicable. Besides that the benefitof the Amnesty Scheme was available only to the declarantsand not to the assessee firm as held by the Supreme Court inthe case of Jamna Parshad Kanhaiya Lal v. CIT, 130 ITR 244.Therefore, in these circumstances, it appears to me that theassessee firm has not been able to furnish the nature andsource of the cash credits totaling Rs.1,35,500/- and theAssessing Officer was justified in making the additionaccordingly.” own undisclosed funds in the name of minor children. The relevantobservations are:- “8……In the present case, I find that the assessee firm hastried to introduce its own undisclosed funds in the names ofminor children and, therefore, the immunity given by theAmnesty Scheme was not applicable. Besides that the benefitof the Amnesty Scheme was available only to the declarantsand not to the assessee firm as held by the Supreme Court inthe case of Jamna Parshad Kanhaiya Lal v. CIT, 130 ITR 244.Therefore, in these circumstances, it appears to me that theassessee firm has not been able to furnish the nature andsource of the cash credits totaling Rs.1,35,500/- and theAssessing Officer was justified in making the additionaccordingly.” 6.Reference to judgment of the Hon’ble Supreme Court showsthat it was permissible to go into question of genuineness of the creditentries from a person who may have made declaration under the AmnestyScheme. It will be worthwhile to refer to the following observations in thejudgment after referring to the Scheme of the Act:- “18. The immunity under S. 24 of the Act was conferred onthe declarant only, and there was nothing to preclude aninvestigation into the true nature and source of the credits.The I.T.O. was, therefore, justified in treating the cash creditsin the books of account of the assessee in the names of thecreditors as unexplained cash credits. The finality under sub-sec. (8) is to the order of the Central Board of Revenue undersub-sec. (6). Under sub-sec. (4) the Commissioner ofIncome-tax was required, within thirty days, if satisfied thatthe whole or any part of the income declared has beendetected or deemed to have been detected by the I.T.O. priorto the date of declaration, to make an order in writing to thateffect and forward a copy thereof to the declarant. Any person who objected to such an order could appeal undersub-sec. (5) to the Central Board of Revenue stating thegrounds for such an objection. The Board was empowered topass such orders as it thought fit under sub-sec. (6). Thisorder of the Board under sub-sec. (6) was final andconclusive by reason of sub-sec. (8). Thus, the finality undersub-sec. (8) was to the order of the Board under sub-sec. (6)of S. 24 and not to the assessment of tax made on thedeclarations furnished by the creditors under the scheme, byvirtue of the legal fiction contained in sub-sec. (3) of S. 24 ofthe Act. 20. In our judgment, the legal fiction created by sub-sec. (3)of S. 24 of the Act by virtue of which the amount declared bythe declarant was to be charged to income tax "as if suchamount were the total income of the declarant" was limited inits scope, and it cannot be invoked in assessment proceedingsrelating to any person other than the person making thedeclaration under the Act so as to rule out the applicability ofS. 68 of the Income-tax Act, 1961. 21. The last question that remains is whether the sameincome cannot be taxed twice, once in the hands of thecreditors and again in the hands of the assessee. In a case ofthis description, there is no question of double taxation. Thesituation is of the assessee's own making in getting falsedeclarations filed in the names of the creditors with a viewavoid higher slab of taxation. Once it was found that theincome declared by the creditors did not belong to them,there was nothing to prevent the same being taxed in thehands of the assessee to which it actually belonged.” 7.We are of the view that the Tribunal failed to correctlyappreciate the law laid down by the Hon’ble Supreme Court. The credit entries represented undisclosed income of the assessee. The creditors wereminor children of partners who had no source of income. Their making adeclaration under the Amnesty scheme was not conclusive for treating thecredit entries to be genuine even if the transfer was made by way of cheque. 8.We accordingly, answer the question in favour of the revenue and against the assessee. 7.We are of the view that the Tribunal failed to correctlyappreciate the law laid down by the Hon’ble Supreme Court. The credit entries represented undisclosed income of the assessee. The creditors wereminor children of partners who had no source of income. Their making adeclaration under the Amnesty scheme was not conclusive for treating thecredit entries to be genuine even if the transfer was made by way of cheque. 8.We accordingly, answer the question in favour of the revenue and against the assessee. 9.The reference is disposed of accordingly. (Adarsh Kumar Goel) Judge July 12, 2010‘gs’ (Ajay Kumar Mittal) Judge