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INTHEHIGHCOURTOFJAMMU&KASHMIRATJAMMU ITANo.01OF2008 H.S.Raina Petitioner IncomeTaxOfficer Respondent !Mr.M.M.Gupta,Advocate ^Mr.D.S.Thakur,Advocate Hon'bleMr.JusticeBarinGhosh,ChiefJustice Hon'bleMr.

.JusticeNirmalSingh,Judge DATE:03/03/2009 :JUDGMENT: PerBarinGhosh,CJ: ThisisanappealbytheAssesseeunderSection260Aofthe IncomeTaxAct,1961fromtheorderoftheIncomeTaxAppellate Tribunal,AmritsarBench,Amritsar. Intheyear1991assesseeconstructedahouseproperty.The Assessee,whowasapartnerofsixpartnershipFirmscarryingon financebusiness,hadnotfiledhisincometaxreturnsfortheearlier fourtofiveyearscontendingthathisincomewasnottaxable.A noticeunderSection148dated18thFebruary,2000wasservedonthe 2 assesseeon7thMarch,2000,whereuponon11thFebruary,2002 assesseefiledareturnofincomedeclaringincomeofRs.21,175/. Assessee'scasewasreferredtotheValuationCell,whereuponthe ValuationCellreportedthatthehousewasconstructedintheyear 1991atacostofRs.17.00lacs. Assesseedidnotdisputethevaluation.Hecontendedthatthe costofconstructionwasfinancedbythecompensationamountofRs. 17,85,395/receivedbyhismotherinalandacquisitioncase. AsumofRs.17,85,395.70receivedbyachequedated8th April,1991issuedbytheCollectorwasdepositedintheSavingsBank AccountNo,1968ofthemotheroftheassesseemaintainedwiththe J&KBank,NanakNagar,Jammu.Assesseecontendedthatmoneys withdrawnfromthesaidaccountwereutilizedforconstructionofthe house.Thoughtheassesseedidnotmakeanyefforttoproduceany materialtosuggestutilizationoftheamountssowithdrawnfor

constructionofthehouse,butsomeofsuchwithdrawalswere acceptedtohavebeenutilizedfortheconstructionpurpose.Itwas acceptedthattheassesseehasbeenabletoestablishsourceof Rs.11,25,000/forincurringexpensesforconstructionofthesaid housebutfailedtoaccountforthesourceofincurringexpenditure amountingtoRs.5,75,000/. 3 Thereisnodisputethatacertainamountofmoneywaspaidto thePrincipalofaSchoolfromthesaidaccount.Theassesseedidnot contendthatthemoneysopaidwasusedforconstructionpurpose.In additiontothat,certainamountsofmoneywerepaidtofourFinance Companiesandcertainamountsofmoneywerepaidtocertain individualsfromthesaidaccount.Theassesseecontendedthatthe paymentsmadetotheFinanceCompanieswereforrepaymentof loanstakenfromthemforconstructionpurpose.Assesseecontended thatpaymentstothoseindividualswereonaccountofpurchaseof materials.Assesseefurnishedthenamesandparticularsofthose FinanceCompaniesaswellasofthoseindividuals.Noticessentto themwerereturnedunserved.PartnersofthoseFirmsappeared beforetheAssessingTaxOfficerattheinstanceoftheassessee,but individualsdidnot.PartnersofthoseFirmsstatedthatloanswere giventotheassesseebytheFirmsrepresentedbythemandthosewere paidbytheassesseethroughthesubjectcheques.Theystatedthatthe Firmswereincometaxassessesattherelevanttime.Theyalsostated thattheloansdidnotbearanyinterest.TheyalsostatedthattheFirms representedbythemhaveclosedtheirbusinessinviewofthe directionsoftheReserveBankofIndia. 4 TheamountspaidtotheFirmsandtheamountspaidtothose individualsfromthesaidaccountwerenotacceptedasamountsspent forconstructionofthehouse.Thatappearstobetheprincipaldispute raisedbytheassesseebeforetheCommissionerofIncomeTax AppealandhavinglostbeforehimwentbeforetheTribunalandagain havinglostbeforetheTribunalhascomeupbeforethisCourt. Theprincipalcontentionoftheappellantisthatwhateverwas withinhiscommandhedid,i.e.,furnishingofparticularsofthe persons,whograntedloanstotheassesseeandsuppliedmaterials;and thereisnojustreasonnottoacceptrepaymentofsuchloansand paymentsmadeforpurchaseofmaterials. Thereisnodisputethatcertainpaymentsweremadetocertain

Firmscarryingonfinancebusiness.However,neithertheassessee, northepartnersofthesubjectfirmscouldbringonrecordanythingto suggestthatsuchpaymentswereonaccountofrepaymentofloans receivedbytheassesseeatanearlierpointoftime.Therewasno evidenceatall,exceptstatementsmadebyfourindividualsand assertionsoftheassessee,thatloanswerereceivedbytheassessee fromthoseFirmsatanypointoftimeearlierthanthedatesof paymentofthesubjectamountsfromthesaidaccount.Similarly, therewasnomaterial,exceptassertionsbytheassessee,thatbuilding materialswereprocuredbytheassesseefromthoseindividuals,who 5 werepaidcertainamountsfromthesaidaccount.Apaymentcanbe acceptedasrepaymentoronaccountofpurchasewhenitis establishedthatanearlierpaymentwasreceivedorapurchasewas made.Neitheranearlierpayment,noranypurchasesaidtohavebeen madewasestablished.Inthecircumstances,nonacceptanceof paymentsmadetothesaidFirmsasrepaymentofloansandnonacceptance ofpaymentsmadetothoseindividualsonaccountof purchaseofmaterialscannotbesaidtobeanactsocapriciousand unjustthatthesamecanbecalledinquestionasasubstantialquestion oflaw.Certainpaymentsmadetocertainotherindividualswere acceptedaspaymentsmadeforconstructionpurpose,butwithout therebeinganythingtosuggestthatthepaymentssomadewere utilizedforconstruction.Inthecircumstancesnonacceptanceof paymentsmadetotheconcernedindividualsaspaymentsmadeon accountofpurchaseofmaterialscannotbesaidtobequestionoflaw inasmuchasthecomparablepaymentscannotwithcertaintybetaken aspaymentsmadefortheconstruction. Thelearnedcounselfortheappellantcitedthejudgmentofthe Hon'bleSupremeCourtrenderedinthecaseofLalchandBhagat AmbicaRamv.CommissionerofIncomeTax,BiharandOrissa, reportedin37ITR288,andcontendedthatitissuspicionor conjectureorsurmiseonthepartoftheTribunal,whichhastaken 6 placeofevidence.Hesubmittedthatinadditiontothatthedepartment hasappliedtheruleofthumb.Inotherwords,hecontendedthat contentionsoftheappellantthatherepaidloanssupportedby evidenceofgrantofloanbythepartnersoftheFirmsfromwhomthe loanshadbeentakenarematerialevidence,whichcouldnotbe ignoredeitheronthebasisofruleofthumboronsuspicionor conjectureorsurmise. Section69CoftheActprovidesthatwhereinanyfinancial yearanassesseehasincurredanyexpenditureandheoffersno explanationaboutthesourceofsuchexpenditureorpartthereof,or

theexplanation,ifany,offeredbyhimisnot,intheopinionofthe AssessingOfficer,satisfactory,theamountcoveredbysuch expenditureorpartthereof,asthecasemaybe,maybedeemedtobe theincomeoftheassesseeforsuchfinancialyear.Therefore,interms ofSection69CoftheAct,appellantwasrequiredtoexplain satisfactorilythesourceoftheexpenditureofRs.17.00lacs,whichhe hadincurredforconstructionofthehouseinquestion.The explanationaswasputforwardbytheappellantwasrepaymentof loans,whichwereusedfortheconstruction,andpaymentsonaccount ofpurchaseofmaterials.Receiptofloans,utilizationthereoffor constructionandpurchaseofmaterialswere,therefore,theessential ingredientstosatisfythatthepaymentsinquestionweremadefor 7 repaymentofloansandfordischargingthedebtsincurredonaccount ofpurchaseofmaterials.Sincetherewasnothingtosuggestreceiptof loansandutilizationthereofforconstruction,exceptassertions,andat thesametimetherebeingnothingtosuggestprocurementofmaterials fromthoseindividuals,whowerepaidtheamountsinquestion,nonacceptance ofsuchassertions,toourmind,cannotbesaidtobebased onsuspicion,conjectureorsurmiseorbyapplyingtheruleofthumb. Learnedcounselnextcontendedbyreferringtothejudgmentof theHon'bleSupremeCourtofIndiainthecaseofCommissionerof IncomeTaxv.OrissaCorporation(P)Ltd.,reportedin159ITR78, thatsincetheassesseecouldnotproducethetwoindividuals,from whommaterialswerepurchased,anadverseinferencecouldnotbe drawnagainsttheassertionsmadebytheassessee.Intheinstantcase, noadverseinferencewasdrawnagainsttheassessee.Apartfromthe failureonthepartoftheassesseeinproducingthoseindividuals,he failedtobringonrecordanythingtosuggestpurchaseofmaterials fromthoseindividuals. Learnedcounselfortheassesseecontended,asnoticebythe Hon'bleSupremeCourtofIndiainCommissionerofIncomeTaxv. Smt.P.K.Noorjahan,reportedin237ITR570,thattheword'shall' wasproposedtobeinsertedinSection69Cwhichwaslateron changedbytheword'may'and,accordingly,nosoonerthe 8 explanationoftheassesseeisnotsatisfactory,theamountscannotbe deemedtobetheincomeoftheassessee.Itistrue,aspointedoutby theHon'bleSupremeCourtinthecasereferredtoabove,adiscretion hasbeengiventothedepartmentinthematterofdeemingtheunexplained amountasincomeoftheassessee,butsuchdiscretionisto beusedjudiciouslyforprotectingtheinterestoftheassesseeaswell asoftherevenue.Inthatcase,onfacts,itwasfoundthathaving regardtotheageoftheassesseeandthecircumstancesinwhichshe

wasplaced.,shecannotbecreditedtomakeincomeofherownandin thosecircumstances,theHon'bleSupremeCourtupheldtheviewof theTribunalinrefusingtopermitadditionofthevalueofthesubject investmentstotheincomeoftheassessee.Intheinstantcase,thereis nomaterialonrecordwhichwouldsuggestthattheappellantcould notbecreditedwithhavingmadeanyincomeofhisownhaving regardtohisageandthecircumstancesinwhichhewasplaced.Inthe event,itisconstruedthatallunexplainedsourceofexpenditure shouldnotbedeemedtobetheincomeoftheassesseeandthe discretionshouldbeusedalwaysinfavouroftheassessee,theSection itselfwouldbecomeotioso. Learnedcounselalsocontendedthatbeforeaddingtheamounts inquestionasincomeoftheassessee,i.e.,beforeusingthediscretion, theappellantoughttohavehadbeennoticed.TheSection 9 doesnotrequireanysuchnotice.Inanyviewofthematter,fromthe dayonethequestionwasshouldorshouldnotbesuchexpenditurebe deemedtobetheincomeoftheassesseeandnoticethereofwas adequatelygiventotheassessee.Learnedcounselfortheappellant contendedthatatthetimeofimposingpenalty,anoticeisrequiredto begivenandthesameanalogyshouldbeappliedwhilesuchaddition isbeingmade.Therequirementofhearingtheassesseeandgiving himreasonableopportunityofbeingheardbeforeimposingpenaltyis arequirementofSection274oftheAct.Nosuchprocedurehasbeen prescribedformakingadditionsunderSection69CoftheAct.Inany event,byvirtueofSection69CoftheAct,itisobligatoryonthepart oftheassesseetoexplain,tothesatisfactionoftheAssessingOfficer, thesourceofexpendituremadebyhim,withariderthatifthe explanationisnotsatisfactory,theAssessingOfficermayusehis discretionagainsttheassessee,whichconnotesanobligationto satisfy,apartfromtheexplanationtobegivenbyhim,thattherewas existenceofsuchcircumstancesinwhichtheassesseewasplacedthat hecannotbecreditedwithhavingmadesuchincomeofhisown.In theevent,suchobligationhadbeendischargedbutignoringthesame, AssessingOfficerhadaddedtheexpenditureasdeemedincomeand therebyhadusedhisdiscretionagainsttheassessee,itwouldhave beenopentotheassesseetocallinquestionuserofsuchdiscretion, 10 buttheassesseedidnotmakeanyendeavoratanystagetoassertthat thecircumstancesinwhichhewasthenplaced,hecouldnotbe creditedforhavingmadethesubjectincomeofhisown. Thelearnedcounselfortheappellantlastlysubmittedthat accordingtothevaluationreportthepropertywasconstructedinthe year1991,whichconnotescalendaryear1991.Hesubmittedthat

calendaryear1991hadtwofinancialyearsandassuchthedeemed incomeshouldbebifurcated.Thereisnothingonrecordtosuggest whenconstructioncommenced.Thedrawingsfromthesubject accountweremadefromApril,1991.Thefactsofthecase,therefore, didnotmakeoutacaseforbifurcation. Inthecircumstances,theappealfailsandthesameisdismissed. (NirmalSingh)(BarinGhosh) JudgeChiefJustice Jammu, 03.03.2009 Tilak,Secy.

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