Assessment cannot be completed on the basis of past Incident

Advocate Akhilesh Kumar Sah

CIT Vs Sahara India Mutual Benefit Co. (Calcutta High Court)

Sahara India Mutual Benefit Co. Ltd appeal: The income tax department cannot presume something to have happened five years ago, it did not mean that assessee indulged in similar activity in the previous year

In CIT vs. Sahara India Mutual Benefit Co. Ltd [ITA 454 of 2008 with ITA 510 of 2008, decided 21.12.2018], briefly (in ITA 454 of 2008), the respondent/assessee filed a return for the assessment year 1992-93 declaring an income of Rs.64,150/-. This was later revised to a claim of loss of Rs.49,34,173/-. The original assessment under Section 143(3) of the Income Tax Act, 1961 (for short ‘the Act’) was made on 28th March, 1995 on an income of Rs.5,05,40,440/-. However, in the assessment year 1997-98 certain cash credits representating deposit and share capital, to the extent of Rs.26,18,63,800/- were found as unexplained. On this basis the assessment for the year 1992-93 was reopened by the Income Tax department. A notice under Section 148 issued by the department to the respondent assessee dated 31st March, 2001 asking them to explain why for the above deposit in gross violation of Section 269SS, the case of the said earlier assessment year 1992-93 should not be reopened under Section 147. The allegation against the assessee was that the deposits collected during the assessment year 1992-93 were also unexplained. The assessee according to the department had not discharged its obligations under Section 68 read with 269SS of the Act. The stand of the Department was justified by recourse to the Explanation to Section 37 of the Act which laid down that any expenditure incurred by an assessee for any purpose which was an offence or which was not permitted by law shall be deemed not to have been incurred. Therefore, since the expenditure in respect of the said deposit was not to be allowed, the income of the respondent assessee was said to have escaped assessment. The Tribunal by its order dated 29th February, 2008 held that there was “no omission or failure on the part of the assessee to disclose fully and truly all material facts at the time of original assessment” and the allegation that the deposits were unexplained were not based on any “cogent material evidence on record. The same analogy applies in respect of the contribution towards share capital by the members.” The Tribunal upheld the order of CIT(A) and dismissed the Revenue’s appeals.

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