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C.K Gopinathan v. Commissioner Of Income-Tax
Concise Analytical Summary of the Opinion (G. Sivarajan, J.)
Factual and Procedural Background
The appellant, an assessee assessed by the Assistant Commissioner of Income-tax, Circle I, Palakkad, faced an addition of Rs. 2,13,982 alleged to be unaccounted income for the assessment year 1989–90 (previous year ended 31 March 1989). The appellant explained that the credited amounts in his books came from the partnership firm C.K.G Agencies, of which he was the managing partner.
The Assessing Officer (AO) required production of the firm's accounts; on verification, no corresponding debits were found in the firm’s books. The AO made an addition of Rs. 2,13,982 as unaccounted income and completed the assessment by order dated 27 March 1991. The appellant appealed to the Commissioner of Income-tax (Appeals), Calicut, who on 31 December 1992 set aside the assessment and remitted the matter to the AO for fresh consideration. Pursuant to the remand, the AO completed the assessment again on 12 September 1994 and re-made the addition of Rs. 2,13,982.
The appellant again appealed to the Commissioner of Income-tax (Appeals), Kozhikode, which authority dismissed the appeal. The Tribunal subsequently confirmed the orders below and dismissed the appeal. The matter then came before the court in the present second appeal.
Legal Issues Presented
- Whether the addition of Rs. 2,13,982 as unaccounted income (peak cash deficiency) was justified on the basis that the appellant failed to establish the source of amounts credited in his books.
- Whether the appellant's explanation — that the amounts were received from the partnership firm and that any mismatch was due to inadvertent clerical error by the firm's accountant — was sufficient to discharge the evidentiary burden on him.
- Whether, alternatively, credits in the appellant’s books could be treated as coming out of additions made in earlier assessment years (i.e., whether earlier years’ additions could be relied upon if not specifically raised before the Assessing Officer).
- Whether the addition should have been sustained under section 69 of the Income-tax Act (as held) or could properly have been characterised under section 68 (as contended by the appellant).
Arguments of the Parties
Appellant's Arguments (as presented by Shri P. Balachandran)
- The credited amounts in the appellant’s books were monies taken from the partnership firm C.K.G Agencies, where the appellant was managing partner.
- The absence of corresponding debits in the firm's books resulted from inadvertent clerical mistakes by the firm's accountant after the accountant left service and a new accountant was engaged.
- The appellant had consistently stated that the funds came from the firm and there was no contention by the Revenue that the firm lacked sufficient funds to make such payments.
- Errors in dates or entries do not prove that cash was not actually received on those dates; earlier years’ additions could be correlated with the credits in the appellant’s books.
- If any addition was to be made, it could only properly be brought under section 68 of the Income-tax Act (as argued), not section 69.
Department's Arguments (as presented by Shri P.K.R. Menon)
- The appellant did not claim before the AO or during first appeal that the credits should be adjusted against earlier years' additions; therefore no credit could be given for earlier-years additions which were not made available to the AO for consideration.
- It is for the assessee to establish that additions made in earlier assessment years were in fact available for making investments or withdrawals in the year under assessment.
- The Tribunal had found that the appellant failed to establish the source of the credits in his books; those findings are factual and not answers to substantial questions of law.
- The Department relied on the decisions: CIT v. Kulwant Kaur, [1980] 121 ITR 914 (Delhi High Court) and Anantharam Veera-singhaiah and Co. v. CIT, [1980] 123 ITR 457 (Supreme Court), to support the proposition that the assessee must prove availability of earlier additions if that is to be relied upon.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Kulwant Kaur, [1980] 121 ITR 914 (Delhi High Court) | Supports the principle that it is for the assessee to establish that additions made in earlier assessment years were available to the assessee for subsequent investment/withdrawal; evidence must be placed before the assessing authority. | The court noted that the Department relied on this decision to support the position that the appellant did not establish availability of earlier-years additions and that such a contention should have been raised and considered by the Assessing Officer. |
| Anantharam Veera-singhaiah and Co. v. CIT, [1980] 123 ITR 457 (Supreme Court) | Similar supporting principle that the assessee bears the burden of proving availability of earlier additions and that such matters must be raised before the assessing authority for enquiry. | The court observed that the decision was relied upon by the Department and agreed that the appellant's failure to raise the alternate contention before the AO precluded consideration of that contention at the appellate stage; the decision supports the court's stance. |
Court's Reasoning and Analysis
The court proceeded by reviewing the factual findings of the Assessing Officer, the Commissioner (Appeals) and the Tribunal and then examined whether any error of law or fact justified interference.
- Verification and mismatch: The AO examined the firm's books and found no corresponding debit entries on the dates and for the amounts the appellant had credited to his personal books. The firm's entries differed in dates and amounts except for one coinciding figure (Rs. 6,254). The court noted that the entries in the appellant’s books (five specific entries) and the entries in the firm's books did not tally in dates or amounts.
- Evidentiary failure: The AO summoned the appellant and recorded a statement (dated in the record as 12 February 1998). The AO identified a peak cash deficiency on 23 May 1988 of Rs. 2,13,982.09 and treated that as the minimum unaccounted cash utilised in the business. The appellant's explanation (that discrepancies were clerical mistakes because the firm's accountant left and a new accountant had written accounts incorrectly) was considered by the Tribunal and rejected as not establishing the source.
- Duty and primary documents: The Tribunal and the court emphasized that, had the appellant possessed primary documents (for example the day book showing daily receipts and payments), he should have produced them. The court stressed that as managing partner he had a duty to ensure proper maintenance of the day book and accounts; failure to produce the day book or other primary documents meant the appellant did not satisfactorily explain the source of the credits.
- Alternate contention (earlier years' additions): The court analysed the appellant’s alternative argument that the credited amounts could be out of additions made in earlier assessment years. The court held that this contention was not raised before the AO during the original assessment or before the first appellate authority (or at least not raised in time during the remade assessment), and thus could not properly be entertained at this stage. The court relied on the decisions cited by the Department to underline that it was for the assessee to establish availability of earlier-years additions and that such a factual case must be put to the AO so the AO could make inquiries.
- Standard of review: The court found no reason to differ from the concurrent factual findings of the AO, the Commissioner (Appeals) and the Tribunal that the appellant failed to discharge the burden of proof regarding the source of the credits. The court concluded that the Tribunal’s factual findings were binding and did not give rise to a substantial question of law for interference.
Holding and Implications
Holding: The appeal was dismissed; the court upheld the addition of Rs. 2,13,982 (the peak cash deficiency) as unaccounted income and agreed with the conclusions of the authorities below and the Tribunal.
Implications:
- The direct effect of the decision is that the addition of Rs. 2,13,982 stands sustained against the appellant for the assessment year in question; the appellant's explanation that the amounts came from the partnership firm and that discrepancies were clerical errors was rejected for lack of primary evidence (day book and related documents).
- The court declined to consider the alternative contention that earlier-years' additions could be relied upon because that contention was not raised before the Assessing Officer; the ruling underscores the principle that factual contentions which require enquiries must be raised before the assessing authority so that investigation can be undertaken.
- No broader or novel legal precedent was announced by this judgment; the court explicitly treated the Tribunal’s findings as factual conclusions that did not raise substantial questions of law and observed that the Department's cited authorities supported its approach.
Order: The appeal is dismissed.
G. Sivarajan, J.:— The appellant is an assessee to income-tax on the files of the Assistant Commissioner of Income-tax, Circle I, Palakkad. The assessment year concerned is 1989–90, the previous year ended on March 31, 1989. The issue relates to the addition of a sum of Rs. 2,13,982 which was introduced in the accounts of the appellant. The explanation of the appellant was that the said amount came from the partnership firm, C.K.G Agencies, of which the appellant is the managing partner. The Assessing Officer wanted the appellant to establish the same by producing the accounts of the firm. On verification of the accounts of the said firm, no corresponding debit entry was seen in the accounts. On that basis, the Assessing Officer proposed to make the addition of Rs. 2,13,982 as unaccounted income of the year and later completed the assessment by order dated March 27, 1991. The assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals), Calicut, who by his order dated December 31, 1992, set aside the assessment and remitted the matter back to the Assessing Officer to consider the question relating to the addition of Rs. 2,13,982 afresh. Pursuant to the said order, the Assessing Officer again completed the assessment by order dated September 12, 1994, and an addition of Rs. 2,13,982 was again made in the order. The appellant again took up the matter in appeal before the Commissioner of Income-tax (Appeals), Kozhikode. The appellate authority considered the contentions of the appellant, but dismissed the appeal with the following observations:
“The explanation offered in the present appeal proceedings also is not convincing. The appellant cannot get away with the explanation that the deficiency has arisen only on account of clerical error. The availability of cash from the firm in which the appellant is a partner on the basis of the additions made in the earlier year's assessment is also not proved. The very fact that the appellant is resorting to this explanation shows that the account books maintained by him are not correct and complete in all respects and an attempt has been made to suppress the income. In the circumstances, the explanation offered by the appellant deserves to be rejected. The Assessing Officer is justified in making the impugned addition of Rs. 2,13,982.”
2. In second appeal by the appellant, the Tribunal confirmed the orders of the authorities below and dismissed the appeal.
3. Shri P. Balachandran, learned counsel appearing for the appellant, submitted that the appellant had credited certain amounts in his books of account relating to his proprietary business which had come from the firm, C.K.G Agencies, Tirur, of which the appellant is the managing partner. Counsel further submits that the said amounts were not debited in the books of account of the firm especially due to an inadvertent clerical mistake. Counsel also submits that the appellant had clearly stated that the amounts credited in his books of account came from the partnership firm and the assessing authority had no case that the firm did not have sufficient funds to make such payments.
4. Counsel further submits that the Assessing Officer was not justified in disbelieving the explanation offered by the appellant. He further submits that the appellate authority has also committed a mistake by not accepting the explanation offered by the appellant. Counsel also submits that merely because there were errors in regard to the dates, it would not be correct to hold that there were no cash received by the appellant on those dates and that in this context, it was stated that in the earlier years, there were additions in this case and so even if the discrepancies were there, cash introduced on those dates could be correlated with the additions of the earlier years. A further contention taken by counsel is that the authorities below and the Tribunal were not justified in sustaining the addition under section 69 of the Income-tax Act and that if at all, the addition can be brought only under section 68 of the Act.
5. Shri P.K.R Menon, learned senior standing counsel for the Department, submits that no credit could be given for the additions made in the earlier years as there was no such claim made by the assessee before the Assessing Officer or before the Commissioner of Income-tax (Appeals) for adjusting the cash shortage with the additions made in the earlier years. Senior counsel relied on the decision of the Delhi High Court in CIT v. Kulwant Kaur, [1980] 121 ITR 914 and the decision of the Supreme Court in Anantharam Veera-singhaiah and Co. v. CIT, [1980] 123 ITR 457 and submitted that it is for the assessee to establish that the additions made for the earlier assessment years are available for making any investment in the business for this year. Senior counsel brought to our notice the relevant portion of the Tribunal's order and submitted that the Tribunal had clearly found that the appellant had not established the sources of the credit made in his books of account and that the findings entered by the Tribunal on this count are findings of fact from which no substantial question of law much less any question of law arises for consideration by this court in this appeal.
6. Admittedly, the appellant who is a dealer in cement had introduced the following five entries in his books:
Rs. 29-4-1988 50,000 11-5-1998 1,10,000 24-5-1988 70,000 31-5-1988 45,970 31-5-1988 6,254
7. According to the appellant, these amounts were taken from the firm, C.K.G Agencies, Tirur, of which the appellant is the managing partner. In the above circumstances, the Assessing Officer had verified the books of account of C.K.G Agencies and found that there were no corresponding debits on those days. The Assessing Officer also found that there were certain other entries in the books of the firm. They are as follows:
Rs. 24-5-1988 79,000 11-7-1988 50,000 31-8-1988 1,00,000 9-3-1989 55,970 Without showing date 6,254
8. Here it must be noted that neither the dates nor the amounts tally except the last figure with the entries made by the appellant in his books of account which are mentioned earlier. The Assessing Officer had summoned the appellant and a statement was taken from him on February 12, 1998. Though the Assessing Officer sought explanation with regard to the entries, the appellant did not give any satisfactory explanation. It is in those circumstances, the Assessing Officer took the peak deficiency of cash occurred on May 23, 1988, amounting to Rs. 2,13,982.09 and observed that the appellant has utilised a minimum of unaccounted cash amounting to Rs. 2,13,982.09 during the year for his day-to-day business requirements. The explanation offered by the appellant as already noted was that the accountant of the firm had left the service and the firm had to engage a new accountant to write the accounts and that he had committed clerical mistakes. The Tribunal has clearly found that this cannot be treated as a clerical mistake. The Tribunal has considered the question as to whether the appellant had produced proof as to why the amounts were credited on various dates and held that the appellant had not discharged the burden. The Tribunal has also noted that if the appellant had the primary documents showing the debits of the amounts taken by the appellant from the firm, the day book, etc., it was for him to produce it for verification.
9. After bestowing our anxious consideration of the matter, we are not in a position to take a different view from the one taken by the authorities below and the Tribunal. The appellant could have produced the primary documents, viz., the day book, which would show the daily transactions of the firm such as receipts and payments. The appellant instead of producing the day book for establishing the source for the credits made in his books was only making attempts to prove the same by producing letters obtained from the accountant and stating that the accounts of the firm were not correctly written by the accountant. It is significant to note that the appellant was the managing partner of the firm and he had a duty to see that the day book in which the daily transactions of the firm are recorded is properly maintained and accounts are written properly on the basis of such documents. Since the appellant had not made any efforts towards that direction, it cannot be said that the appellant had satisfactorily explained the source for the credits made in the books of account.
10. Regarding the alternative contention that even assuming that the appellant had not established the source for the credits made in his books, the Assessing Officer should have taken that the said credits came out of the additions made for the earlier years which was much more than the peak credit taken by the officer for making the addition. As already noted, the appellant had not chosen to take the alternate contention before the Assessing Officer either at the time of the original assessment or before the first appellate authority in the first instance or at any rate, before the Assessing Officer while fresh assessment was made on the basis of the remand order. If, as a matter of fact, the addition made for the earlier years was available for making the credit in his books for the assessment year concerned, he should have raised the contention before the Assessing Officer so that the Assessing Officer could have considered the question as to whether those additions in fact were available with the assessee for introducing it in the subsequent years by conducting enquiries in that regard. The appellant had not raised such a claim before the Assessing Officer. In these circumstances, we are in agreement with the first appellate authority and the Tribunal that the said question cannot be considered at this stage. The decisions relied on by counsel for the Department also support the stand taken by us. In the above circumstances there is no merit in the appeal.
11. This appeal is accordingly dismissed.
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