Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: MESSRS DHANRAJMAL MANUMAL & SONS VS Respondent: COMMISSIONER OF INCOME-TAX JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian, Syed Haider Ali Pirzada Title:MESSRS DHANRAJMAL MANUMAL & SONS vs COMMISSIONER OF INCOME-TAX
JUDGMENT
Reported As: 1985 PTD 433 Result: Order accordingly Judgment JUDGMENT ' HAIDER ALI PIRZADA, J.-These are income-tax references under section 66 (1) of the Income-tax Act, 1922 (hereinafter called the Act). In all of them the parties are the same. So also are the essential facts and the question to which they give rise. The only difference is that they pertain to different assessm ent years for purpose of Income-tax. We proceed to dispose of all of them by this common judgment. ' The facts are simple and short. The applicant is a partnership firm carrying on business of ginning and pressing cotton with its principal place of business at Tando Adam. For the account year ending on 31st August, 1969, 31st August, 1970 and 31st August, 1971, assessable in the assessment years 1970-71, 1971-72 and 1972-73, the applicant filed its return of income on due dates. ' The Income-tax Officer fixed 29th May, 1972 for examination of account books and for furnishing some details in respect of all the above three assessment years. The applicants authorised representative duly appeared and filed the details. After some discussion the Income-tax Officer adjourned the cases sine die. The Income-tax Officer after lapse of one year fixed the cases on 9th June, 1973 for proceeding in respect of the above assessment years. On that date authorised representative of the applicant attended, after examination of the accounts the Income-tax Officer recorded an order on the order sheet whereby the applicant was required to prove the genuineness of the cash credits standing in the names of 21 and 15 parties by 22nd June, 1973. While in the assessm ent year 1972-73 the Income-tax Officer asked the applicant to prove the genuineness of 6 parties by producing them in person on 23rd June, 1973. On 22nd June, 1973 the authorised representative attended but asked for some extension. The Income-tax Officer on that
---
## Page 2
date indicated that he wants all the parties to be produced before him for recording their statements on 23rd June, 1973. The authorised representative produced before the Income-tax Officer one out of 21, 15 and 6 parties and produced certificate from other parties admitting the fact that the amount standing to their credits in the books of the applicant was owned to them by the applicant and were later repaid to them. The applicants' explanation before the Income-tax Officer was that all the parties in whose names credit stood in the books of the applicant are known persons of their residential area and are men of substance owning agricultural lands and in a position to advance loans and deposits. In the premises, the applicant contended that the amount belonged to those parties and should not be added to the income of the applicant. The Income- tax Officer rejected the explanation of the applicant and the said sums of Rs, 1,68,000, Rs, 2,52,980 and Rs, 81,000 were added as the income of the applicant from undisclosed sources. An appeal was filed by the applicant before the Tribunal that sufficient opportunity was not given to lead evidence and in fact, there was no cash credit but the sums standing to the credit of the various parties pointed out by the Income-tax Officer represent short time deposits from the parties from whom the applicant makes purchases of Phutti. The contentions of applicant were not found favour with the learned Tribunal but the appeals failed. ' On these facts the following 9 questions said to have arisen for our opinion :- (1) Whether in the facts and circumstances of the case, the Tribunal was right in failing to give a finding whether the Income-tax Officer had afforded reasonable and adequate opportunity to the Applicants to prove the genuineness of cash credits standing in the names of the persons mentioned in the Assessm ent order ? (2) Whether in the facts and circumstances of the case the Income-tax Officer had afforded reasonable and adequate opportunity to the Applicant to prove genuineness of the cash credits in the names of the persons mentioned in the assessment order ? (3) Whether having regard to the fact that full addresses of the persons in whose names the credits stood were mentioned in the ledger and other documents of the Applicants, the Income-tax Officer was legally justified in requiring the Applicants to produce those persons before him instead of summoning them under section 37 of the Income-tax Act ? (4) Whether in the facts and circumstances of the case the Income-tax Officer and the Tribunal were legally justified in holding that certificates of the persons in whose names the credits stood duly signed by them did not enable the Applicants to discharge the onus of proving the genuineness of the credits ? (5) Whether having regard to the fact that the credit standing in the names of the persons mentioned in the Assessm ent order were subsequently repaid to them and receipts were obtained, the Income-tax Officer and the Tribunal were right in holding that the genuineness of the credits were not proved ? (6) Whether in the facts and circumstances of the case there is any material or evidence on the record in support of the finding that the cash credits in the name of the persons mentioned in the assessm ent order were not genuine ? (7) Whether in the facts and circumstances of the case there was any material or evidence on the record in support of the Tribunal's finding that the accounting system that the Applicant is adopting is a tricky device of inflating Phutti purchased by falsely crediting to the accounts of the various sellers of Phutti at higher prices when it was not the case of even the Income-tax Officer and whether this finding has not vitiated the order of the Tribunal ? (8) Whether in the facts and circumstances of the case the Income-tax Officer having allowed interest paid to some of the persons in whose names the cash credits stood as a deduction, the Income-tax Officer could lawfully doubt their genuineness ?
---
## Page 3
(9) Whether in the facts and circumstances of the case the Tribunal was right in attributing the allowance of interest on some of the cash credits by the Income-tax Officer as indicating unsatisfactory work on the part of the Departmental Representative?" ' Mr. Shaikh Gul Pir Bux, the learned counsel for the applicant pressed only questions 1, 2 and 6 and does not press the remaining questions. ' Mr. Shaikh Gul Pir Bux the learned counsel has contended before us that the finding of the Income- tax Officer to the effect that the said amounts of Rs, 1,68,000, Rs, 2,62,980 and Rs, 81,000 are the suppressed income of the applicant from the undisclosed source is a finding arrived at without any evidence at all and that sufficient opportunity was not given to lead evidence. The amounts credited in the books of account of the applicants are admitted in writing by the per-sons concerned as their own money which was repaid to them and as such, the inference of law that the said sums belonged to a secret income of the applicant is based on no positive evidence. According to Mr. Shaikh Gul, the initial discharge of explaining the cash credits certainly lays with the assessee, but the assessee has explained satisfactorily the said amounts by getting the explanation corroborated by the parties. This fact is further supported by the production of certificates. Further, it is urged that when the persons identity is established and it is well-known that the said persons have means to pay, the department should not have refused the applicant's explanation without any materials. Thus, the onus to explain the credits of the said sums of Rs, 1,68,000, Rs, 2,52,960 and Rs, 81,000 have been discharged by the applicant and the department should not have included the said amounts as the suppressed income of the applicant from an undisclosed source. ' On the other hand Mr. Shaikh Hyder, learned counsel for the department has submitted that the learned Appellate Tribunal's order should not be interfered with by the High Court in its jurisdiction under section 66 (1) of the Act, inasmuch as the learned Tfibunal's conclusion cannot be said to be based on no evidence or that conclusion is perverse. He has asked us to hold that although applicant was given all the opportunities to the applicant and no satisfactory evidence was made available by the applicant to the Income-tax Officer. He has argued that the said sums being the income of applicant from undisclosed source has rightly been included in the applicant's income and asseseed. ' Several cases were referred to us by the learned counsel for the applicant and the department and we may now discuss them. The first case relied upon by Mr. Shaikh Gul in Universal Engineering Co., Karachi (1), in the matter of: The Income-tax ,Officer noticed a cash credit entry of Rs, 15,000, dated 7th September, 1953 in an account styled as "Deposit {{FOOT NOTE}} (1) PL D 1963 Kar. 487 {{FOOT NOTE}} ' Account" in the books of the assessee. The Income-tax Officer felt suspicious about the nature of this cash receipt and called upon the assessee to explain its source. The explanation offered was that the deposit in question represented cash received as an advance from a customer and the money was to be returned in case the transaction didnot materialise. The Income-tax Officer disbelieved the explanation and treated this amount as assessee's income from undisclosed source. An appeal was filed by the assessee before the Appellate Assistant Commissioner without any success. The Appellate Tribunal also, on second appeal, rejected the appeal. On these facts, the then Karachi High Court while dismissing application of the department observed : - "When the assessee state that the entry in question represented a deposit from a customer and the money was to be returned in case the transaction did not materialise and when an entry was shown in the accounts of a date only three weeks after the date of deposit showing that the money
---
## Page 4
had been returned, there can be little doubt that an explanation was offered. This explanation was given towards the discharging of onus which initially lay upon the assessee. ' And onus is not something which is stationary and it cannot be laid down that it can be discharged only by a particular kind of evidence or information." ' Mr. Shaikh Gul next cited case of Munnilal Murlidhar v. Commissioner of Income-tax (I), a Division Bench of Allahabad High Court. In that case the grievance of the assessee that he was not given a reasonable opportunity and facility to produce evidence in support of its explanation. The Division Bench held that the grievance of the assessee that he was not given a reasonable opportunity and facility to produce evidence in support of its explanation is justified. It was further observed "There was in this case, a denial to the assessee of an opportunity to produce evidence in support of its case. As we have already pointed out the assessee was entitled to produce such evidence and the Income-tax Officer was bound to give the assessee reasonable opportunity to do so. In the circumstances, the finding of the Tribunal as to the nature and source of the deposit of Rs, 70,000 must be regarded as legally vitiated". The next case, Sreelekha Banerjee and others v. Commissioner of Income-tax, Bihar and Orissa (2) is a decision which was decided by the Supreme Court of India in favour of the department, which happened to be a case of encashment of high denomination notes. The assessee encashed high denomination notes of the value of Rs, 51,000. The Income-tax Officer found a discrepancy of nearly Rs, 50,000 in the statements filed by the assessee. He accordingly, treated the high denomination notes as profits, from some undisclosed source and assessed them as assessable income. The assessee appealed to the Appellate Assistant Commissioner and further to the Tribunal. Both the authorities upheld the order of the Income-tax Officer. The assessee demanded a case which was refused, but the High Court directed a statement of the case on the question. The High Court decided the question against the assessee. {{FOOT NOTE}} (1) (1973) 27 Taxation 209 (2) (1963) 49 I T R 112 {{FOOT NOTE}} "It seems to us that the correct approach to questions of this kind in this. If there is an entry in the account books of the assessee which shows the receipt of a sum on conversion of high denomination notes tendered for conversion by the assessee himself, it is necessary for the assessee to establish, if asked, what the source of that money is and to prove that it does not bear the nature of income. The department is not at this stage required to prove anything. It can ask the assessee to bring any books of account or other documents or evidence pertinent to the explanation if one is furnished, and examine the evidence and the explanation. If the explanation shows that the receipt was not of an income nature, the department cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The department does not then proceed on no evidence, because the fact that there was receipt of money is itself evidence against the assessee. There is thus, prima facie, evidence against the assessee, which he fails to rebut, and being unrebutted, that evidence can be used against him by holding that it was a receipt of an income nature." ' The next case, Orient Trading Co. Ltd., v. Commissioner of Income-tax (Central) Calcutta (1) is a decision which was decided by the Bombay High Court in favour of the assessee. In the course of assessm ent proceedings, the Income-tax Officer found that a sum of Rs, 2,50,000 was credited in the books of accounts of the assessee standing in the name of one Rampartab Agarwal. The Income-tax Officer called upon the assessee to establish the identity of the said Rampartab and the source of the said sum of Rs, 2.5 lacs. The Income-tax Officer was told that the said Rampartab
---
## Page 5
was a Benami of Messrs Suraymal Nagarmal and the said amount was accounted for in the settlement that Surajmal reach with the Central Government through the Income-tax investigation Commission. No evidence was, however, led before him on either of these two allegations. The Income-tax Officer, therefore, completed the assessment including the said amount in the total income as income from undisclosed sources. The assessee appealed to the Appellate Assistant Commissioner and further to the Tribunal. Both the authorities upheld the order of the Income-tax Officer. On a reference, the Bombay High Court held :- "It seems to us that where the entry stands in the name of the assessee's wife or children, or in the name of any other near relation, or an employee of the assessee, the burden will lie on the assessee, though the entry is not in his own name, to explain satisfactorily the nature and source of that entry. Where the entry stands not in the name of any such person having a close relation or connection with the assessee, but in the name of an independent party, the burdoned will still lie upon him to establish the identity of the said party, and to satisfy the Income-tax Officer that the entry is real and not fictitious. When, however, {{FOOT NOTE}} (1) (1963) 49 I T R 723 {{FOOT NOTE}} in a case where the entry stands in the name of the third party, the assessee satisfied the Income- tax Officer as to the identity of the third party and also supplies such other evidence which will show, prima facie, that the entry is not fictitious, the initial burden which lies on him can be said to have been discharged by him. It will not, thereafter, be for the assessee to explain further how or in what circumstances the third party obtained money and how or why he came to make a deposit of the same with the assessee. The burden will then shift on the department to show why the assessee's case cannot be accepted and why it must be held that the entry, though purporting to be in the name of a third party, still represents the income of the assessee from a suppressed source." ' Mr. Shaikh cited next case C. I. T. (Central) Calcutta v. Daulat Ram Rawatmul (1) a decision was decided by the Supreme Court of India. The Income-tax Officer originally assessed on the basis of an income of Rs, 4,71,552. The Income-tax Officer issued notice under section 34 of the Act stating that he had reason to believe that the assessee had been under assessed. The assessee filed return. The Income-tax Officer made re-assessment. It was found by the Income-tax Officer that the assessee had obtained overdraft to the extent of Rs, 10,00,000 from the Central Bank of India Ltd., upon the security of two fixed receipts of Rs, 500,000 each. One of them was in the name of Raghunath and the other was in the name of Biswanath. The amount of Rs, 10,00,000 was added to the total income of the assessee. On appeal the Appellate Assistant Commissioner reduced Rs, 50,000 and maintained additions of Rs, 9,50,000 In the appeal filed by the assessee the Tribunal agreed with the order of the Appellate Assistant Commissioner. On reference the High Court held that there was no material before the Tribunal to hold that it was the concealed income of the assessee. The department being aggrieved preferred appeal before Supreme Court. The Supreme Court while dismissing appeal observed as follows :- "The onus to prove that the apparent is not the real is on the party who claims it to be so. As it was the department which claimed that the amount of fixed deposit receipt belonged to the respondent firm even through the receipt had been issued in the name of Biswanath, the burden lay on the department to prove that the respondent was the owner of the amount deposit the fact that the receipt was in the name of Biswanath. A simple way of discharging the onus and resolving the controversy was to true the source and origin of the amount and find out its ultimate destination. So far as the source is concerned, there is no material on the record to show that the amount came from the offers of the respondent firm."
---
## Page 6
' Mr. Shaikh next cited case of Lakhand Bhajat Ambica Ram v. Commissioner of Income-tax, Bihar and Orissa (2) was a decision of Supreme Court. Of India. The fact are in the case that the Income- tax Officer in the course of assessment noticed that the assessee had encashed high denomination notes of the value of Rs, 2,91,000. The Income-tax Officer asked for explanation which the assessee gave statement that these {{FOOT NOTE}} (1) (1973) 87 I T R 349 (2) (1959) 37 1 T R 288 {{FOOT NOTE}} notices formed part of its cash balances including cash balance in the Almirah account. The Income-tax Officer rejected the explanation and traced the amount as assessee's secreted profits from business and included in total income. The assessee appealed to the Appellate Assistant Commissioner and further to the Tribunal. Both the authorities upheld the order of the Income-tax Officer. On reference the High Court was of the opinion that the onus of proving the source of the said amount was on the assessee which the assessee did not discharge and there was evidence before the Tribunal to come to the conclusion it did. The finding arrived at by the Tribunal was therefore, a pure finding of fact and it could not be urged that it was based on no evidence. The assessee preferred appeal before the Supreme Court of India. The Supreme Court held as follows :- "It is, therefore, clear that the Tribunal in arriving at the conclusion it did in the present case indulged in suspicious, conjectures and surmises and acted without any evidence or upon a view of the facts which could not reasonably be entertained or the facts found were such that no person acting judicially and properly instructed as to the relevant law could have found, or the finding was, in other words, preverse and this Court is entitled to interfere." ' The learned counsel for the department has contended that it has been well-established by the decision of the Supreme Court of India in Govindarajulu Muderliar v. Commissioner of Income-tax (1) that, where an assessee fails to prove satisfactorily the source and the nature of amounts received during the accounting year, the Income-tax ooficer is entitled to draw the inference that the receipts are income. In that case, the Income-tax Officer found that the income of the assessee, chargeable to tax was Rs, 54,000 for the assessment year 1945-46, Rs, 2,75,000 for the year 1946-47 and Rs, 54,500 for the year 1947-48. These amounts appeared as credits in the name of the assessee in the account books of a firm of which he was a partner. He was asked by the Income-tax Officer to explain as to how he came to possess these amounts. His explanation was that he got Rs, 80,000 in 1944 from his account with whom his father, who died in 1936, had entrusted it, and that Rs, 42,000 represented his share in the profits of a firm which carried on business in arrack. He was not himself a partner of this firm ; but he stated that one of its partner was a name lender for him. The above explanation was examined by the Income-tax Officer in detail, and rejected ; and he held that the amounts in question represented concealed income. This finding was affirmed by the Appellate Assistant Commissioner and also by the Appellate Tribunal. The assessee appealed to the Supreme Court by Special leave ; it was contended that it did not follow from the failure of the assessee to establish the case put forward by him that these amounts were income of the previous year, and it was the duty of the department to show from what source the income was derived and why it should be treated as concealed income. The contention was rejected : and in doing so the Supreme Court said : "Whether a receipt is to be treated as income or not, must depend very largely on the facts and circumstances of each case. In the present case the receipts are shown in the account books of a firm {{FOOT NOTE}} (1) (1958) 34 I T R 807 (2) {{FOOT NOTE}}
---
## Page 7
of which the appellant and Govindaswamy Mudaliar were partners. When he was called upon to give explanations he put forward two explanations one being a gift of Rs, 80,000 and the other being receipt of Rs, 42,000 from business of which he claimed to be the real owner. When both these explanations were rejected, as they have been, it was clearly, open to the Income-tax Officer to hold that the income must be concealed income. There is ample authority for the position that where an assessee fails to prove satisfactorily the source and nature of certain amount of cash received during the accounting year, the Income-tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The conclusion to which the Appellate Tribunal came appears to us to be amply warranted by the facts of the case." ' The learned counsel for the department has contended that it is not open to this Court to go behind the finding given by Income-tax Officer supported by the Income-tax Appellate Tribunal with regard to the treating the cash credits as income from undisclosed sources in the present case. The learned counsel for the department has relied upon the case of Commissioner of Income-tax v. S. Zoraster & Co. (1) in which the Income-tax Officer disallowed a sum of Rs, 10,000 out of the expenditure of Rs, 85,650 incurred by the assessee in the renovation of the cinema building and capitalized the rest of the amount, on which depreciation was allowed under the heading "building" as in the opinion the expenses incurred by the assessee in respect of renovation of the cinema building was of the nature of capital expenditure. The assessee preferred an appeal against the assessm ent order. The Appellate Assistant Commissioner held that the claim of the assessee was not unreasonable and so he allowed a deduction in respect of a sum of Rs, 17,124 representing 1/5th of the expenditure incurred by the assessee on renovation. The revenue department filed appeals before the Income-tax Appellate Tribunal in respect of both the assessm ent years, challenging the correctness of the order passed by the Appellate Assistant Commissioner. The Appellate Tribunal while dismissing the appeal of the department, held by its order, that the expenditure incurred by the assessee on account of repairs carried out for the upkeep of the picture house and that 1/5th of such expenditure was rightly allowed by the Appellate Assistant Commissioner as claimed by…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.