Commissioner of Income-tax v. K. Chinnathamban
Section 69A of the Income-tax Act, 1961 – Unexplained money – Firm ‘V’, allegedly floated for carrying on business of prize tickets and for collecting deposits from public, was managed by one ‘K’ – During search certain amount was seized – Assessing Officer on basis of statements given by ‘K’ concluded that firm was not genuine and observing that ‘K’ was not in position to explain source of deposit of seized amount, treated said amount as undisclosed income of persons (assessees) in whose name deposit appeared in various banks - Accordingly, Assessing Officer made addition of certain amount out of seized amount in income of assessee in question – Assessing Officer also rejected assessee’s case said amount belonged to members of public – Tribunal, however, held that members of public had placed their deposit with said firm through relatives and friends ; though amount in question ought to have been deposited in name of firm, it was not so done, and, therefore it was necessary to link up said amounts with books of firm and to extent possible should be shown as amounts received by said firm as deposits from various persons – Whether onus of proving source of deposit primarily rested on persons in whose names deposit appeared in various banks – Held, yes – Whether since assessee had failed to show that amount in question did not represent his income, department was justified in treating same as assessee’s income under section 69A – Held, yes – Whether since there was no evidence to show that members of public had been placing their deposits with said firm through their relatives and friends, there was no question of linking up amount in question with books of firm which was found to be fictitious – Held, yes
Words and Phrases : ‘income’ as occurring in section 69A of the Income-tax Act, 1961.
The firm ‘V’ allegedly floated for carrying on the business of prize tickets and for collecting deposits from the public. The firm was managed by one ‘K’. During search and seizure proceedings at firm’s premises Rs. 1.18 crores was seized. In the course of assessment proceedings, it was detected the books of account of firm were incomplete and ‘K’ was not in position to explain the source of deposit amount of Rs. 1.18 crores. Therefore, the Assessing Officer treated the said amount as undisclosed income of persons (assessees) in whose names the deposit appeared in various banks. Accordingly individual assessment was made in case of the assessee in question by adding certain amount, out of seized amount in his income. The Assessing Officer also rejected the assessee’s case said amount, belonged to the members of public. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer. On further appeal, the Tribunal held that since the claim was made by members of public, it was not proper to treat the said amount as income from undisclosed source of various assessees and therefore, it was necessary to link up all these amounts with the books of the firm.
On revenue’s appeal to the Supreme Court:
K’s statements were recorded on various dates, where he had admitted that the partners were fictitious. They were not eligible to any shares in the profits of the firm; Monies were lying in various banks in FDRs in the names of these so-called partners and claimed that part of that amount belonged to the members of the public. This part of the statement was not accepted by the department. In view of the aforestated position, the Assessing Officer proceeded to frame the assessment in the hands of ‘K’ on protective basis and in the hands of deposit holders for unexplained deposits. Although the firm was registered, there were no bank accounts in the name of such a firm. There were no accounts in the name of any of the partners of the alleged firm. There were no deposits in the name of the alleged firm. There were no deposits in the name of any of the partners of the alleged firm. None of the assessees had been able to explain the sources of the deposits in the names of the relatives. When asked, they had pointed their fingers to ‘K’. In view of this, the revenue was right in coming to the conclusion that the alleged firm was not genuine. The assessee could not establish the source of deposits. The revenue was right in coming to the conclusion that there was no evidence in support of the claim of the assessee that the aforestated amount was collected from the members of the public. The assessee had failed to show that the collections did not represent this income. In order to find out whether the assessee was the owner of any money in terms of section 69A, the principle of Common Law Jurisprudence in section 110 of the Evidence Act, 1872, can be applied. In the case of Chuharmal v. CIT reported in (1988) 3 SCC 588 it has been held by Supreme Court that the word ‘income’ in section 69A has wide meaning which meant anything which came in as gain. In the instant case, the assessee did not adduce any evidence to show that the amount in question did not belong to him. On the facts, therefore, the revenue was right in drawing inference that the assessee had the said amount as his income which was subject to tax under section 69A. Hence, the Tribunal should not have interfered with these findings of fact rightly recorded by the Assessing Officer and the Commissioner (Appeals). [Para 5].
In the instant case, the Tribunal had further held that the partners were employees of public sector undertakings; that they had acted as partners; that the firm was floated and, therefore, though the firm was illegally constituted, however, the very existence of the firm was never in doubt. It was further held that the members of the public had placed their deposits with the said firm thorough the relatives and friend, and that though the amount in question ought to have been deposited in the name of the firm, it was not so done and, therefore, it was necessary to link up the said amounts with the books of the firm and to the extent possible should be shown as amounts received by the said firm as deposits from various persons. There was no evidence to show that members of the public had been placing their deposits with the said firm through their relatives and friends. Therefore, there was no question of linking up all these amounts with the books of the firm as ordered by the Tribunal. In view of this, the revenue was right in holdings that mount in question could not be considered in the hands of the firm which was found to be fictitious as unexplained investments. Therefore, the Tribunal had erred in directing linking up of the deposits with the accounts of the alleged firm. [Para 6]
Where a deposits stands in the name of a third person and where that person is related to the assessee then in such a case the proper course would be to call upon the person in whose books the deposits appears or the person in whose name the deposits stands should be called upon to explain such deposit. In the instant case, there was no evidence recording registration of the firm. Books of accounts were not properly maintained in the instant case. There was no explanation regarding the source of investment. The evidence of ‘K’, indicated that even the partners of the firm were fictitious. In the above circumstances, the Tribunal had erred in directing linking up of the deposits with the accounts of firm. In fact, the directions given by the Tribunal to the Assessing Officer for such linking up was not even capable of compliance. The onus of proving the source of deposit primarily rested on the person in whose names the deposit appeared in various banks. In the circumstance, the department was right in making individual assessments in the hands of assessee in question. Similarly, the revenue was right in making the individual assessments in the names of other assessees. [Para 7]
In the result, the revenue’s appeals were to be allowed