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Case Number
Attorney(S)
  • Mr. J.P Bhattacharjee, Mr. M.P Jain and Mr. R.K Joshi,
  • Mr. U. Bhuyan, standing counsel,
Judges
  • Hon'ble Mr. Justice S. Barman Roy
  • Hon'ble Mr. Justice Dhirendra Nath Baruah
Acts
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Citation Codes
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citation codes
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Attorney(S)
  • Mr. J.P Bhattacharjee, Mr. M.P Jain and Mr. R.K Joshi,
  • Mr. U. Bhuyan, standing counsel,
Judges
  • Hon'ble Mr. Justice S. Barman Roy
  • Hon'ble Mr. Justice Dhirendra Nath Baruah
Acts
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Smart Summary

Structured Summary of Judgment — D.N. Baruah, J.

Factual and Procedural Background

This is a reference under Section 256(1) of the Income-tax Act, 1961, posed by the Income-tax Appellate Tribunal (ITAT): "Whether in the facts and in the circumstances, Section 68 of the Income-tax Act, 1961 has any application at all to this case?" (assessment year 1982–83).

Material factual and procedural chronology (as stated in the opinion):

  • The Assessing Officer (AO) found a cash credit of Rs. 2,00,000 as on 1.4.81 standing in the names of six persons (including minors). The AO required production of the named creditors; the assessee replied that confirmations had been given by letters but did not produce the creditors for verification.
  • The AO examined records of some of those parties and concluded that they would not have made the credits as claimed. Given the assessee's reluctance to produce the persons, the AO did not accept the cash credits and made an addition under Section 68.
  • The assessee appealed to the Commissioner of Income-tax (Appeals) [CIT(A)], who accepted that the creditors were independent taxpayers and allowed the appeal, deleting the addition and related interest.
  • The Revenue appealed to the ITAT. The ITAT reversed the CIT(A), restored the AO's order, held that the CIT(A) had unduly relied on a prior decision (Orissa Corporation Limited, 159 ITR 78), and concluded that the assessee failed to discharge the burden of proving the genuineness of the creditors.
  • The ITAT made a reference to this High Court under Section 256(1). On initial hearing, the High Court found additional facts necessary and, under Section 258, directed the ITAT to state whether the assessee maintained and produced books of account and whether the Rs. 2,00,000 was shown as a cash credit in those books. The ITAT submitted a supplementary statement in response.
  • The Revenue's departmental representative indicated (in the supplementary statement) that nothing could be said about production of books at assessment, but the assessment order showed scrutiny of certain accounts and additions under Section 68.

Legal Issues Presented

  1. Whether, on the facts and in the circumstances of the case, Section 68 of the Income-tax Act, 1961 has any application at all to this case.
  2. Whether the question referred to the High Court (regarding applicability of Section 68) arises out of the ITAT's order (a point contested by Revenue).

Arguments of the Parties

Assessee's Arguments (Mr. J.P. Bhattacharjee)

  • The invocation of Section 68 is impermissible in the facts of this case because Section 68 requires, as a condition precedent, that the sum be recorded in the books of account maintained by the assessee. If no such books exist or the sum is not recorded therein, Section 68 cannot be invoked.
  • The existence of books of account maintained by the assessee is a prerequisite; only if that condition is fulfilled does the burden of proof shift to the assessee to explain the credit. If the first condition is not fulfilled, the question of burden of proof does not arise.
  • The ITAT failed to consider this mandatory condition and therefore erred in affirming the AO's invocation of Section 68 without determining whether the condition precedent (books of account of the assessee showing the credit) was satisfied.

Revenue's Arguments (Mr. U. Bhuyan, Standing Counsel)

  • The Revenue challenged the reference itself, contending that the question (about applicability of Section 68) did not arise out of the ITAT's order.
  • The Revenue relied on authorities (CIT, Bombay v. Scindia Steam Navigation Co. Ltd.; and K. Lakshinarayanan v. CIT) to support the submission that the question did not arise from the ITAT's order.
  • In oral submissions at the supplementary stage, the departmental representative indicated that nothing specific could be said about production of the books at the assessment stage; however, the assessment order recorded that cash credits were found and added under Section 68.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Orissa Corporation Limited, 159 ITR 78 Ratio relied upon by the CIT(A) (as noted by the ITAT). The ITAT observed that the CIT(A) had simply applied the ratio of this decision; the High Court recorded that the ITAT referred to this precedent when criticising the CIT(A)'s approach.
CIT, Bombay v. Scindia Steam Navigation Co. Ltd., 42 ITR 589 Authority invoked by Revenue counsel for the proposition that a question may not arise out of an appellate order (procedural point). Revenue relied on this decision to argue that the reference question did not arise out of the ITAT's order. The High Court considered this submission in deciding whether the reference was competent.
K. Lakshinarayanan v. CIT, 79 ITR 525 (Madras) Authority cited by Revenue on the procedural contention that the question does not arise from the order. Revenue referred to this decision in support of its contention that the reference question was not within the scope of the ITAT's order. The High Court addressed and rejected the objection.
Smti Shanta Devi v. CIT, ITR 171, p. 532 (Punjab & Haryana High Court) Proposition that "books" under Section 68 must be books of the assessee himself; books of a partnership firm are not books of the individual partner. The High Court expressly adopted and applied this principle: it agreed that partnership-firm books cannot be treated as the books of the individual partner for the purposes of Section 68, and relied on it to hold Section 68 inapplicable here.

Court's Reasoning and Analysis

The Court proceeded in structured steps, addressing both the competence of the reference and the substantive applicability of Section 68:

  1. Competence of the Reference: The Court first considered whether the question referred ("whether Section 68 has any application") arose out of the ITAT's order. Revenue argued it did not. The Court examined the procedural history, noting that the AO had invoked Section 68 in his assessment order and the ITAT had restored that order on appeal. The Court held that the issue of applicability of Section 68 was necessarily implicated by the ITAT's affirmation of the AO's addition and therefore the question did arise out of the ITAT's order. The Court also relied on the fact that it had earlier directed the ITAT (under Section 258) to supply supplementary facts about books of account, indicating that the existence of books was material to answering the reference.
  2. Interpretation of Section 68 — Condition Precedent: The Court examined Section 68 and emphasized its structure: for Section 68 to be invoked the Assessing Officer must be satisfied that (a) books of account are maintained by the assessee and (b) the sum is recorded as a cash credit in those books. The Court treated the maintenance (existence) of books of account by the assessee as a condition precedent; only if that condition is met does the question of the assessee's explanation and the shifting of burden arise.
  3. Application to the Facts: The AO had made an addition under Section 68, and the ITAT affirmed the AO's order. The Court found that the ITAT had a duty to consider whether the condition precedent (existence of books of account of the assessee showing the cash credit) was satisfied before upholding an addition under Section 68. The Court noted conflicting statements in the supplementary record: the departmental representative stated there was nothing to show production of the assessee's books, and the assessment papers referred to scrutiny of accounts and to additions under Section 68. The Court did not accept that the partnership firm's books could be equated with books of the individual assessee.
  4. Distinctiveness of Partnership-Firm Books: Addressing the contention that scrutiny of partnership accounts meant the assessee's books existed, the Court held that a partnership firm is a separate assessable entity; books of the partnership cannot be treated as the books of the individual partner for the purposes of Section 68. The Court expressly relied on and adopted the view in Smti Shanta Devi v. CIT (Punjab & Haryana High Court) to this effect.
  5. Conclusion of Legal Analysis: Because the necessary condition (books of account of the assessee showing the cash credit) was not established, Section 68 could not be validly invoked. The Court therefore answered the referred question in the negative.

Holding and Implications

HOLDING: The Court answered the reference question in the negative — i.e., Section 68 of the Income-tax Act has no application to this case. The decision was recorded in favour of the assessee and against the Revenue.

Implications:

  • The immediate consequence is that the addition of Rs. 2,00,000 under Section 68 cannot stand on the facts as presented (because the prerequisite of books of account maintained by the assessee showing the cash credit was not established).
  • The Court directed that a copy of the judgment be transmitted to the Income-tax Appellate Tribunal under the Registrar's signature and seal.
  • The Court recorded that there would be no order as to costs in the circumstances.
  • The opinion does not purport to lay down a broader new precedent beyond applying existing authority (notably Smti Shanta Devi) to the facts before it; the holding is confined to the case on its facts and the statutory interpretation of Section 68 as explained in the judgment.

End of summary — based exclusively on the provided opinion text.

Show full summary ...

    Anand Ram Raitani v. Commissioner Of Income-Tax .

    D.N Baruah, J.:— In this reference under Section 256(1) of the Income-tax Act, 1961, for short the ‘Act’, the following question has been referred by the Income-tax Appellate Tribunal for opinion of this Court:

    “Whether in the facts and in the circumstances, Section 68 of the Income-tax Act, 1961 has any application at all to this case?”

    2. Facts for answering this reference may be stated thus:

    This reference relates to the assessment year 1982-83. The Assessing Officer found that there was a cash credit of Rs. 2 Lakhs as on 1.4.81 standing in the name of six persons including minors. The Assessing Officer asked the assessee to produce the creditors, but the assessee replied that the parties had confirmed the credits by their letters given earlier. The Assessing Officer observed that the assessee did not give any reason for non production of creditors in spite of specific direction given by him. He examined the records of some of these parties and held that those parties would not have made the credits as claimed by the assessee. The Assessing Officer also observed that as the assessee was reluctant to produce the persons for verification, the cash credit could not be accepted.

    3. Being aggrieved, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), for short the CIT(A). The CIT(A) agreed with the assessee that the creditors were independent people and were income tax assessees in respect of their business income etc. The CIT(A) allowed the appeal and deleted such addition as well as the interest paid by the assessee on such credits. The Revenue preferred appeal before the Income-tax Appellate Tribunal against the order of CIT(A). The Tribunal after hearing the Revenue reversed the finding of CIT(A) and restored the order passed by the Assessing Officer. The Tribunal found that the CIT(A) did not properly consider the findings of the assessing officer and he simply applied the ratio of the decisions relating to the Orissa Corporation Limited, 159 ITR 78. The Tribunal noticed that the Assessing Officer did pursue the matter for verification of the assessment records of the parties, after obtaining confirmation etc. as the assessee declined to produce the creditors. The Tribunal also held that the findings given in the assessment of the creditors would not ipso facto prevent the Income-tax Officer from verification of the Assessee's claim in the present case. It was further observed that the assessee had the burden to prove that the creditors were genuine. However, the assessee failed to discharge his burden. Thus, the Appellate Tribunal was of the opinion that the Income-tax Officer was justified in not accepting those materials. The assessees requested the Tribunal to refer the above question. This reference was heard by this Court at some length on 30.3.94 and after hearing the parties, this Court felt that in order to answer the question certain more facts were necessary. Accordingly, an order was passed by this Court under Section 258 of the Act by observing thus:

    “In the statement of the case drawn up by the Tribunal we do not find anything in this regard. Therefore, we direct the Income-tax Appellate Tribunal to prepare a supplementary statement of the case indicating clearly as to whether the Assessee maintained and produced the Books of Account before the Assessing Officer and whether the amount of Rs. 2,00,000/- was shown as cash credit in the said Books of Account.”

    4. Pursuant to the said order passed by this Court the Tribunal submitted a supplementary statement of case. In paragraph 2 of the said supplementary statement the Tribunal mentioned that the Departmental Representative submitted that nothing could be said about the production of the books of account at the assessment stage but it was clear from the assessment order that the assessee's account in respect of the income from other sources and capital account with the Partnership firms were scrutinized and cash credits were found and accordingly, cash credits were added under Section 68 by the Assessing Officer, rejecting the assessee's submission that the cash credits should be accepted as genuine.

    5. We have heard Mr. J.P Bhattacharjee, learned Senior Counsel appearing for the assessee assisted by Mr. R.K loshi and Mr. U. Bhuyan, learned Standing Counsel for the Revenue. Mr. Bhattacharjee submits that in the facts and circumstances of the case addition of amount by Assessing Officer invoking the power under Section 68 of the Act is not permissible and the Tribunal totally ignored that aspect of the matter. On the other hand, Mr. Bhuyan challenges the reference itself by submitting that the question does not arise out of the order passed by the Tribunal.

    6. On the rival contentions of the parties, it is to be seen whether in the facts and circumstances of the case the question referred can be said to be arising out of the order. Mr. Bhuyan vehemently argues that the question of maintenance of books of account was never raised at any stage and the Tribunal had no opportunity to go through that aspect of the matter, therefore, it cannot be said to be an order arising out of the order. In this connection, Mr. Bhuy an has drawn our attention to a decision in CIT, Bombay v. Scindia Steam Navigation Co. Ltd., 42 ITR 589. Referring to this decision Mr. Bhuyan submits that the question does not arise out of an order of the appellate Tribunal. He has also drawn our attention to a decision of Madras High Court in K. Lakshinarayanan v. CIT, Madras, reported in 79 ITR 525.

    7. Mr. Bhattacharjee, on the other hand, contends that this question was raised before the CIT(A). Mr. Bhattacharjee further submits that under Section 68 of the Act where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is riot, in the opinion of the Assessing Officer satisfactory, the sum so credited may be charged to income tax as the income of the assessee of that previous year. We have gone through the Section 68 of the Act. The Assessing Officer before invoking the power under Section 68 of the Act must be satisfied that there are books of account maintained by the assessee and cash credit is recorded in the said books of account and if the assessee fails to satisfy the Assessing Officer the said sum so credited has to be charged to income-tax as the income of the assessee of that previous year. The existence of books of account is a condition precedent for invoking of the power. Discharging of burden is a subsequent condition. If the first point is not fulfilled the question of burden of proof does not arise. The Assessing Officer made the assessment by making addition of the amount for which disallowance was claimed. Mr. Bhuyan very candidly admits that addition was made in exercise of the power under Section 68 of the Act, therefore, the first condition necessary for invocation of the power is the existance of books of account. The Tribunal restored the order passed by the Assessing Officer, who in his order clearly mentioned that he invoked the power under Sec 68 of the Act as the assessee could not explain the income satisfactorily.

    8. Now the question is whether the order of addition of the amount by the Assessing Officer was challenged before the appellate authority. CIT(A) allowed the appeal filed by the assessee and thereafter, the Revenue preferred appeal before the Tribunal. In order to justify the addition of amount, it was the duty of the Tribunal to look to the Section 68 of the Act, which required that maintenance of books of account was necessary. The Tribunal had no jurisdiction to affirm the order passed by the Assessing Officer without first looking as to whether the conditions necessary were fulfilled. This itself is sufficient to indicate that the Tribunal was aware of this aspect of the matter. In order to give a finding about the applicability of Section 68, the condition necessary is to see whether there was any books of account maintained by the assessee. In that view of the matter, we are of the opinion that the question definitely arises out of the order passed by the appellate Tribunal. Besides, it was the Revenue, who preferred an appeal before the Tribunal. Moreover, when the reference was made to this Court, as stated above, this Court gave direction to the Tribunal to examine the fact whether any books of account was maintained by the assessee. This Court very clearly indicated in the order dated 30.3.94 that this fact was necessary to answer the question referred to. Regarding applicability of Section 68, this was accepted by the revenue and no objection was raised at that time. It is only today after recording the evidence this point has been raised. Mr. Bhuyan has also relied upon the observation made by the Tribunal and submits that this point was never raised. Mr. Bhuyan further points out that the supplementary statement of the case, where the Tribunal observed that such point was never raised. This Court never asked for such comments. In our opinion, the Tribunal was little over jealous in giving the information which was not called for.

    9. Next submission of Mr. Bhattacharjee is that invocation of power under Section 68 was not applicable inasmuch as the condition necessary for invocation of power under Section 68 was the existance of books of account. Before the Tribunal, the Representative of the Revenue has very categorically stated that there was no such books of account. However, reference was made regarding books of account by the firm stating, that cash credits had been found and those were added under Section 68 of the Act by the Assessing Officer, rejecting the assessee's submission that the cash credits would be accepted as genuine. In our opinion, this books of account is not books of account as contemplated under Section 68 of the Act. Partnership firm is a separate entity and may be the assessee was a partner of the said firm, but that does not mean that this books of account was maintained by the assessee in his individual capacity.

    10. In this connection Mr. Bhattacharjee has drawn our attention to a decision of Punjab and Haryana High Court in Smti Shanta Devi v. CIT, reported in ITR 171 Page 532. In the said decision the Punjab and Haryana High Court had the occasion to consider a similar point. While deciding the point the Court observed that a perusal of section 68 of the Act shows that in relation to the expression “Books” the emphasis is on the word “assessee” meaning thereby that such books have to be the books of the assessee himself and not of any other assessee. A partnership firm is an assessable entity distinct from the individual partner. The books of account of a partnership cannot be treated as those of the individual partner. We are in respectful agreement with the decision and conclusion arrived at by the Punjab and Haryana High Court.

    11. In view of the above, we answer the question in negative i.e in favour of the assessee and against the revenue. A copy of this judgment under the signature of the Registrar and seal of the High Court shall be terminated to the Income-tax Appellate Tribunal.

    12. In the facts and circumstances of the case, there will be no direction as to costs.

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    Comments

    Anand Ram Raitani v. Commissioner Of Income-Tax .
    (Aug 20, 1996)