The Commissioner Of Income Tax v. M/S Construction Engineers, 54 Industrial Estate, Barzulla, Srinagar

HIGH COURT OF JAMMU AND KASHMIRAT SRINAGAR ITA No. 05/2012 Date of Order: 5[th] June 2017 The Commissioner of Income Tax Vs. M/s Construction Engineers, 54 Industrial Estate, Barzulla, Srinagar. Coram: Hon’ble Mr. Justice Badar Durrez Ahmed, Chief Justice Hon’ble Mr. Justice Ali Mohammad Magrey, Judge Appearing counsel: For appellant(s): Mr. J. A. Kawoosa, Adv. For respondent(s): Mr. R. A. Jan Sr. Adv. with Ms. Amani Syed, Adv. i/ Whether to be reported in Press/Media? Yes/No ii/ Whether to be reported in Digest/Journal? Yes/No Badar Durrez Ahmed, CJ (Oral) 1. The present appeal is directed against the order dated 11.05.2012 passed by the Income Tax Appellate Tribunal (ITAT), Amritsar Bench, Amritsar, inter alia, in ITA No. 494(Asr)/2010 and 381 (Asr)/2010 pertaining to the assessment year 2005-06. The former appeal was preferred by the assesse whereas the latter appeal was preferred by the revenue before the Income Tax Appellate Tribunal. 2. On 02.07.2013, a Division Bench of this Court while admitting the present appeal had framed the following substantial questions of law:- (i)Whether the ld. ITAT in the facts of the case was justified to assume that net profit rate must be 7% and not 10.5% as recorded by the fact finding authority i.e., Assessing Officer, especially when the assesse itself pleaded that it should be assumed between 9% and 10%? (ii)Whether in the facts and circumstances and in law, the learned ITAT was justified in deleting the addition made on account of crediting of agricultural income to the capital account of the partners amounting to Rs. 18,00,704/- as unexplained credits in terms of Section 68 of the Income Tax Act, 1961 when the assesse was provided ample opportunity to prove otherwise by furnishing documentary evidence to prove the genuineness of agriculture income?” learned ITAT was justified in deleting the addition made on account of crediting of agricultural income to the capital account of the partners amounting to Rs. 18,00,704/- as unexplained credits in terms of Section 68 of the Income Tax Act, 1961 when the assesse was provided ample opportunity to prove otherwise by furnishing documentary evidence to prove the genuineness of agriculture income?” 3. Insofar as the first question is concerned, the matter has to be remitted to the Tribunal for a consideration afresh in terms of our direction given in ITA No. 04/2012 by the very same assesse which we have rendered today itself (that decision pertains to the year 2007-08). 4. Insofar as the question (ii) is concerned, we find that the Assessing Officer had made an addition of Rs. 18,007,04/- on account of unexplained credit under Section 68 of the Income Tax Act, 1961. The said sum of Rs. 18,00,704 had been credited to the capital account of the partners. As per the Assessing Officer, the assesse was repeatedly asked to furnish documentary evidence with respect to the said credit which according to the assesse was the agricultural income of the partners. In the assessment order, it is noted that since the assesse did not furnish any sort of evidence with regard to the alleged agricultural income or the source of such credits in the books of accounts, an addition to the income of the assesse as unexplained credits in terms of Section 68 of the said Act was made. 5. The Commissioner of Income Tax (Appeals) by virtue of his order dated 28.06.2010 after calling for a remand report directed that the addition made by the Assessing Officer be deleted only after the assessment records of the partners are verified and checked and it is verified that the income has been properly assessed in the hands of the partners. However, the Tribunal while considering this issue observed that the Assessing Officer cannot make any addition in the hands of the firm, even if such capital invested remains unexplained. 5. The Commissioner of Income Tax (Appeals) by virtue of his order dated 28.06.2010 after calling for a remand report directed that the addition made by the Assessing Officer be deleted only after the assessment records of the partners are verified and checked and it is verified that the income has been properly assessed in the hands of the partners. However, the Tribunal while considering this issue observed that the Assessing Officer cannot make any addition in the hands of the firm, even if such capital invested remains unexplained. 6. We are afraid that we cannot agree with this proposition because if there is any sum found credited in the books of an assesse and no explanation is forthcoming about the nature and source thereof, or the explanation offered by the assesse is not in the opinion of the Assessing Officer satisfactory, a sum so credited would be charged to income tax as the income of the assesse in the relevant previous year. Thus the proposition is very clear that in case, any sum which is found credited in the books of an assesse remains unexplained in the terms provided in Section 68 of the Income Tax Act, 1961, or the explanation is not found to be satisfactory by the Assessing Officer, the said sum can be charged to income tax as income of the assesse. Once it is determined that a sum which is credited to the account of the assesse is unexplained, then Section 68 gets triggered. It is well settled that under Section 68 of the said Act, once a credit in the books of assesse is found to be unexplained, a presumption is drawn against the assesse that the said credit is part of the income of the assesse. Of course, the presumption is rebuttable by the assesse by producing relevant cogent evidence in that behalf other than a bald statement about the nature of source of the credits in question. 7. We feel that in view of this position in law, the stand adopted by the Commissioner of Income Tax (Appeals) was the appropriate one whereby he had directed that the addition of Rs. 18,00,704/- made by the Assessing Officer may be deleted but only after the assessment records of the partners were verified and checked and it was verified that the income had been properly assessed or accounted for in the hands of the partners. Therefore, this question is answered accordingly and the view taken by the Tribunal is set-aside and that of the Commissioner of Income Tax (Appeals) is upheld. 8. The appeal stands disposed of as above. (Ali Mohammad Magrey) (Badar Durrez Ahmed) Judge Chief Justice Srinagar 5[th] June 2017 Altaf.