Case Law Details
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.
The learned Judges of the Calcutta High Court observed that in Phool Chand Bajrang Lal & Anr. vs. ITO reported in 203 ITR 456, the Income Tax Department received information that the assesssee did not receive any loan but merely the authority from an associate to show Rs.50,000/- as loan received and disallowed the deduction on account of interest payable on such loan after initiating proceeding under Section 147/148 of the said Act. The Supreme Court held that the Income Tax Officer(AO) had initiated the reassessment proceeding on the basis of specific information. The above case was cited by Mr. P. K Bhowmick. In CIT vs. P. Mohanakala reported in (2007) 291 ITR 278 (SC) also cited by Mr. Bhowmick, the Supreme Court found the explanation given under Section 68 of the Act before the lower adjudicating authorities to be most unsatisfactory. The conclusion of the said authorities that the said fund was to be added to the income of the assessee to be well founded in evidence. It did not appreciate the interference of the High Court in the finding of those facts in a Section 147 proceeding. These two cases cited on behalf of the appellant do not help the department at all. In the first case (203 ITR 456) there was specific information at a later point of time. The second case does not assist the appellant because the court is not called upon to adjudge whether the assessee was able to explain its source of fund or cash money. The assessee took a fundamental objection with regard to the exercise of jurisdiction under Section 147 for non-existence of the factual basis on which such jurisdiction was sought to be exercised. In other words, a 1997-98 assessment year discovery could not be used to cast the same imputation on the 1992-93 assessment. The learned Senior Advocate appearing for the respondent assessee first cited a division bench judgment of High Court in ACIT vs. Sarvamangla Properties reported in 257 ITR 722 where the question was whether the assessee had disclosed their liability of Rs.35 lakhs towards the banks to the AO. The income tax department knew that the assessee was paying Rs.17,500 per month to the bank after an interim order dated 29th April, 1957 in the suit between the bank and the assessee. Thereafter, a dispute arose whether the sum was being repaid as principal or interest. The bank claimed it was being repaid as principal whereas the assessee said that it was interest. The bank started Section 147/148 proceeding against the assessee alleging suppression. The division bench discharged the assessee from this allegation on the reasoning that the bank was always aware of the payment of Rs.17,500 per month by the assessee. So there was no question of concealment of income by the assessee. A division Bench judgment of Delhi High Court in CIT vs. Gupta Abhushan P. Ltd. reported in (2009) 312 ITR 166 (Delhi) is more closer in facts to this case. If renovation work was done in this assessment year it could not be presumed that the same work had been done in the previous year. It was mere suspicion which could not take the place of belief as held by the Delhi High Court. When the income tax department presumed 10% of the gross receipt would constitute profit for a particular assessment year, it did not follow that the same formula had to be applied to the earlier assessment year and the assessment reopened under Section 147/148. That would amount to “presumption and guess work and no valid material to reopen the case”. The application of mind of the AO should be that of a prudent and reasonable man. Some material may subsequently be discovered along with other discovery which the income tax authority would use to form the opinion that the assessee was guilty of concealment of income. This was held by the Allahabad High Court in Dass Friends Builders P. Ltd. vs. DCIT reported in 280 ITR 77. Furthermore the case of the Department cannot be whimsical. On a given set of facts it cannot at one point of time say that there was no concealment of income and at another point of time say, otherwise. There was no scope of change of opinion. The income tax department cannot presume something to have happened five years ago just because in the assessment year 1997-98 the assessee failed to explain its source of fund under Section 68 and cash fund under Section 269SS. It did not mean that it indulged in similar activity in the previous year 1992-93. The Calcutta High Court held that the Tribunal was absolutely right in dismissing the appeal against the order of the CIT(A). The appeal (ITA 454 of 2008) was allowed.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
On 12th August, 2008, and 13th August, 2008 a division bench of this court admitted the above two appeals under Section 260A of the Income Tax Act, 1961 on the following substantial question of law:
“Whether on the facts and circumstances of the case, the Learned Tribunal was justified in law in holding that contravention of Section 269SS by the assessee cannot be a reason for re-opening the assessment under Section 147 of the Act?”
Section 269SS is as follows:
“269SS. Mode of taking or accepting certain loans and deposits and specified sum. No person shall, after the 30th day of June, 1984 , take or accept from any other person (hereafter in this section referred to as the depositor), any loan or deposit otherwise than by an account payee cheque or account payee bank draft if,-
(a) the amount of such loan or deposit or the aggregate amount of such loan and deposit; or
(b) on the date of taking or accepting such loan or deposit, any loan or deposit taken or accepted earlier by such person from the depositor is remaining unpaid (whether repayment has fallen due or not), the amount or the aggregate amount remaining unpaid; or
(c) the amount or the aggregate amount referred to in clause (a) together with the amount or the aggregate amount referred to in clause (b), is twenty thousand rupees or more:
Provided that the provisions of this section shall not apply to any loan or deposit taken or accepted from, or any loan or deposit taken or accepted by,-
(a) the Government;
(b) any banking company, post office savings bank or co- operative bank;
(c) any corporation established by a Central, State or Provincial Act;
(d) any Government company as defined in section 617 of the Companies Act, 1956 (1 of 1956 );
(e) such other institution, association or body or class of institutions, associations or bodies which the Central Government may, for reasons to be recorded in writing notify in this behalf in the Official Gazette:”
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) 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 said Act.
The stand of the department was justified by recourse to the explanation to Section 37 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 ommission 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 Commissioner of Income Tax (Appeals) and dismissed the revenue’s appeals.
Hence, the Section 260A appeal by the revenue.
Two sections of the Income Tax Act, 1961 have become relevant in this appeal. First is Section 68 which provides that where any sum is found credited in the books of an assessee relating to a previous year and the assessee is unable to explain the nature and source of it or the explanation is not satisfactory, the credited sum may be charged to income tax as income of the previous year. Read this with Section 269SS of the said Act which says that no person should accept any loan, deposit etc. of Rs.20,000/- or more in cash. He should do so only by account payee cheque.
The special feature of this case is that the relevant assessment year was 1992-93 of which assessment was completed on 28th March, 1995. In the assessment year 1997-98 the revenue found some discrepancy in the account of the assessee with regard to the credits received or the cash receipts, compelling them to start Section 147/148 proceedings against the assessee, in respect of the assessment year 1992-93. The question is: Could they do so?
In Phool Chand Bajrang Lal & Anr. Vs. Income-Tax Officer & Anr. reported in 203 ITR 456, the Income Tax Department received information that the assesssee did not receive any loan but merely the authority from an associate to show Rs.50,000/- as loan received and disallowed the deduction on account of interest payable on such loan after initiating proceeding under Section 147/148 of the said Act. The Supreme Court held that the Income Tax Officer had initiated the reassessment proceeding on the basis of specific information. The above case was cited by Mr. P. K Bhowmick.
In Commissioner of Income-Tax Vs. P. Mohanakala reported in (2007) 291 ITR 278 (SC) also cited by Mr. Bhowmick, the Supreme Court found the explanation given under Section 68 of the Act before the lower adjudicating authorities to be most unsatisfactory. The conclusion of the said authorities that the said fund was to be added to the income of the assessee to be well founded in evidence. It did not appreciate the interference of the High Court in the finding of those facts in a Section 147 proceeding. These two cases cited on behalf of the appellant do not help the department at all. In the first case (203 ITR 456) there was specific information at a later point of time. The second case does not assist the appellant because the court is not called upon to adjudge whether the assessee was able to explain its source of fund or cash money. The assessee took a fundamental objection with regard to the exercise of jurisdiction under Section 147 for non-existence of the factual basis on which such jurisdiction was sought to be exercised. In other words, a 1997-98 assessment year discovery could not be used to cast the same imputation on the 1992-93 assessment.
Mr. J. P. Khaitan learned Senior Advocate appearing for the respondent assessee first cited a division bench judgment of our Court in Assistant Commissioner of Income-Tax & Ors. Vs. Sarvamangla Properties reported in 257 ITR 722 where the question was whether the assessee had disclosed their liability of Rs.35 lakhs towards the banks to the income tax officer. The income tax department knew that the assessee was paying Rs. 17,500 per month to the bank after an interim order dated 29th April, 1957 in the suit between the bank and the assessee. Thereafter, a dispute arose whether the sum was being repaid as principal or interest. The bank claimed it was being repaid as principal whereas the assessee said that it was interest. The bank started Section 147/148 proceeding against the assessee alleging suppression. The division bench discharged the assessee from this allegation on the reasoning that the bank was always aware of the payment of Rs. 17,500 per month by the assessee. So there was no question of concealment of income by the assessee.
A division bench judgment of Delhi High Court in Commissioner of Income Tax Vs. Gupta Abhushan P. Ltd. reported in (2009) 312 ITR 166 (Delhi) is more closer in facts to this case. If renovation work was done in this assessment year it could not be presumed that the same work had been done in the previous year. It was mere suspicion which could not take the place of belief as held by the Delhi High Court. When the income tax department presumed 10% of the gross receipt would constitute profit for a particular assessment year, it did not follow that the same formula had to be applied to the earlier assessment year and the assessment reopened under Section 147/148. That would amount to “presumption and guess work and no valid material to reopen the case”. The application of mind of the income tax officer should be that of a prudent and reasonable man. Some material may subsequently be discovered along with other discovery which the income tax authority would use to form the opinion that the assessee was guilty of concealment of income. This was held by the Allahabad High Court in Dass Friends Builders P. Ltd. Vs. Deputy Commissioner of Income-Tax reported in 280 ITR 77.
Furthermore the case of the department cannot be whimsical. On a given set of facts it cannot at one point of time say that there was no concealment of income and at another point of time say, otherwise. There was no scope of change of opinion.
The income tax department cannot presume something to have happened five years ago just because in the assessment year 1997-98 the assessee failed to explain its source of fund under Section 68 and cash fund under Section 269SS. It did not mean that it indulged in similar activity in the previous year 1992-93.
For all those reasons we feel that the Tribunal was absolutely right in dismissing the appeal against the order of the CIT(A).
Hence this appeal is disposed of by answering the question of law in the affirmative and in favour of the assessee.
The appeal (ITA 454 of 2008) is thus allowed.
No order as to costs.
ITA 510 of 2008
The assesse filed its return for the assessment year 1993-94 on 30th August, 1994 and a revised return on 14th February, 1995. The original assessment under Section 143(3) was made on 27th March, 1996 at a total income of Rs. 10,87,85,198. The assesse filed an appeal against this order before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by his order dated 5th July, 1996 partly allowed the appeal filed by the assessee. The assessing officer initiated reassessment proceedings. By an order under Section 143(3)/25 1 dated 29th January, 1999 he disallowed the reimbursement of expenses of Rs.1,10,30,840 and recomputed the total income at Rs. 1,85,81,390. The assessee again preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by his order dated 26th March, 2001 set aside the issue of reimbursement of expenses of Rs. 1,10,30,890.
The revenue filed a second appeal against both the appellate orders of Commissioner of Income Tax (Appeals) dated 5th July, 1996 and 26th March, 2001. Both the appeals are pending before the learned Tribunal. In the meantime proceedings under Section 147 were initiated and the case was reopened by issuing notice under Section 148 on 30th May, 2001 after taking prior permission on the ground that the assessee was collecting deposits in gross and deliberate contravention of the provisions of Section 269SS. The assessing officer after detailed consideration and discussion of all the aspects of the matter assessed the income of the assessee at Rs.43, 12,59,210 by his order under Section 144 read with Section 148 and also under Section 251 dated 1st January, 2003. Being aggrieved by and dissatisfied with the above order passed by the assessing officer the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by his order dated 3rd April, 2007 quashed the reopening of assessment under Section 148 and allowed the appeal filed by the assesses.
Being aggrieved by and dissatisfied with the said order passed by the Commissioner of Income Tax (Appeals) the revenue filed an appeal before the Tribunal ‘A’ Bench, Kolkata in ITA No. 1778/Kol/2007 for the assessment year 1993-94, the income Tax Appellate Tribunal by his order dated 20th December, 2007 dismissed the appeal filed by the revenue.
Identical questions of law as in ITA 454 of 2008 arise from this order. They are answered similarly.
Hence this appeal is disposed of by answering the question of law in the affirmative and in favour of the assessee.
No order as to costs.
Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.
