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Case Number

Income-tax Case No. 1 of 1998

Judges

G.S Singhvi
Virender Singh, JJ.

Acts

provisions of section 68 of the Income-tax Act override the provisions of section 69 of the Income-tax Act
section 256(2) of the Income-tax Act, 1961 (for short the Act),
SECTION 68 INCOME TAX ACT
INCOME TAX ACT

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Smart Summary

Structured Summary of the Opinion (G.S. Singhvi, J.)

Factual and Procedural Background

This petition under section 256(2) of the Income-tax Act, 1961 was filed by the assessee seeking directions to the Income-tax Appellate Tribunal (Delhi Bench "A") to refer ten specific questions of law to this Court for its opinion. The assessee is a firm engaged in the business of iron and steel.

For the assessment year 1988-89 the assessee returned total income of Rs. 45,530. The Assessing Officer rejected the return and, by order dated 29 March 1989, assessed the taxable income at Rs. 1,93,450 by adding credits recorded in the books in the names of: Shri Dalip Singh (Rs. 38,518), Smt. Kamlesh wife of Shri Makhan Lal (Rs. 49,316) and Smt. Krishna wife of Shri Ami Lal (Rs. 48,709).

The Commissioner of Income-tax (Appeals), Faridabad dismissed the assessee's appeal and confirmed these additions. The Tribunal also dismissed the assessee's appeal and the reference application under section 256(1). The present petition challenged the Tribunal's refusal to refer the stated questions of law to this Court.

Legal Issues Presented

Whether, on the material on record, the Income-tax Appellate Tribunal was right in law in sustaining the addition of Rs. 38,518 being the credits in the account of Shri Dalip Singh as the income of the assessee?
Whether, in view of the statement of Shri Dalip Singh duly confirming the credits in the books of the assessee, the Tribunal was right and justified in law in sustaining the addition of Rs. 38,513 to be the income of the assessee when the creditworthiness of the creditor had not been disputed?
Whether, on the true and correct interpretation of the provisions of section 68 of the Income-tax Act, the Tribunal was correct in law in sustaining the aforesaid amount as the income of the assessee for the instant assessment year?
Whether the Tribunal's order is vitiated because it proceeded to sustain the addition based upon certain statements recorded behind the back of the assessee and not confronted to her?
Whether the Tribunal was right in law in sustaining the additions in the accounts of Smt. Kamlesh (Rs. 49,316) and Smt. Krishna (Rs. 48,709)?
Whether, on the material on record, the Tribunal was justified and right in law in holding that the credits aggregating to Rs. 98,025 had rightly been assessed as the income of the assessee from undisclosed sources?
Whether the Tribunal rightly held that the investments made by the creditors (Smt. Kamlesh and Smt. Krishna) were the income of the assessee liable to be assessed under section 68 despite the amounts being assessed in the hands of those creditors?
Whether the addition of Rs. 98,025 sustained by the Tribunal is justified in the hands of the assessee and liable to be assessed under section 68 having regard to the fact that the investor-creditors were assessed on these credits?
Whether the provisions of section 68 of the Income-tax Act override the provisions of section 69 and if not, whether the Tribunal was justified in sustaining the addition of Rs. 98,025?
Whether, having regard to the fact that the creditors were assessed under the Income-tax Act (returns filed under the amnesty scheme), the Tribunal was justified in upholding the addition in the hands of the assessee?

Arguments of the Parties

Assessee's Arguments

The Assessing Officer erred in making additions of the sums deposited by Shri Dalip Singh, Smt. Kamlesh and Smt. Krishna, because there was no dispute as to their identity and the source of their income (agriculture).
The pattern of deposits and withdrawals did not justify an inference of non-genuineness.
Relied on several precedents (listed in the opinion) and sought a direction to the Tribunal to refer the reproduced questions to this Court for opinion.

Revenue's Arguments

The assessee (a business in iron and steel) had no occasion to accept money from Shri Dalip Singh, who was not a resident of the village where the assessee operated; the Assessing Officer's additions were not erroneous.
The amounts shown as credits for Smt. Kamlesh and Smt. Krishna were not genuine; findings recorded by the Tribunal were based on appreciation of evidence and thus raised no substantial question of law for this Court.
Relied on several precedents (listed in the opinion) in support of the proposition that factual findings do not raise questions of law.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court (as per the opinion)
Parimisetti Seetharamamma v. CIT, [1965] 57 ITR 532 (SC)	Relied on by the assessee in support of directing the Tribunal to refer questions to this Court.	The precedent was cited by the assessee's counsel; the Court did not find that substantial questions of law arose and dismissed the petition.
CIT v. Ram Prasad Ram Bhagat, [1987] 163 ITR 202 (Patna)	Relied on by the assessee as supportive authority for contesting additions.	Cited by the assessee's counsel; the Court ultimately held the questions were factual and dismissed the petition.
Pushkar Narain Sarraf v. CIT, [1990] 183 ITR 388 (All)	Relied on by the assessee in support of its submissions.	Cited by the assessee's counsel; the Court found no substantial question of law and dismissed the petition.
CIT v. Kakkar Complex Steels Pvt. Ltd., [1996] 222 ITR 184 (P&H)	Relied on by the assessee in support of its contentions.	Cited by the assessee's counsel; the Court did not accept that the matter raised questions of law requiring its opinion.
CIT v. Bedi and Co. P. Ltd., [1998] 230 ITR 580 (SC)	Relied on by the assessee as authority in its submissions.	Referenced by the assessee's counsel; the petition was dismissed as raising factual issues.
Oceanic Products Exporting Co. v. CIT, [2000] 241 ITR 497 (Ker)	Relied on by the Revenue for the proposition that factual findings do not give rise to questions of law for this Court.	Cited by the Revenue; the Court agreed the Tribunal's findings were findings of fact and dismissed the petition.
R.B. Mittal v. CIT, [2000] 246 ITR 283 (AP)	Relied on by the Revenue in support of its submissions.	Cited by the Revenue; the Court treated the matter as involving factual conclusions and dismissed the petition.
CIT v. Heeralal Chaganlal, [2002] 257 ITR 281 (Raj)	Relied on by the Revenue as authority for its position.	Cited by the Revenue; the Court concluded no substantial question of law arose and dismissed the petition.
Ram Kishan Dass Viresh Kumar, Rampur v. ITO (ITA No.4550.Delhi/89 for AY 1987-88) (Tribunal)	Relied upon by the Tribunal (and cited in the Tribunal's reasoning) for the proposition that where creditors were wives of partners with no apparent source, the husbands might be the true persons to be assessed.	The Tribunal relied on this Tribunal order; the Court records that the Tribunal itself distinguished these facts from the present case and the Court accepted the Tribunal's factual distinction.

Court's Reasoning and Analysis

The Court examined the record de novo to determine whether the questions posed were questions of law fit to be referred under section 256(2). It carefully considered the Tribunal's detailed findings on the credits in the names of Shri Dalip Singh, Smt. Kamlesh and Smt. Krishna.

The Tribunal's analysis (quoted in the opinion) on Shri Dalip Singh emphasised the following factual considerations:

The small and repetitive pattern of deposits and withdrawals (including sums down to paise) suggested improbability that genuine third-party advances were made.
Affidavit contents (a copy of account) were not read over to Shri Dalip Singh and he was not aware of the year-end outstanding; he initially denied putting a thumb impression and later admitted it only on suggestion of counsel.
There was no evidence that Shri Dalip Singh had funds available on the date the alleged advance was made.
On the cumulative view of facts the Tribunal found the credit not genuine, though it accepted the assessee's alternative plea to allow relief by permitting only the peak of the credits as assessable.

With respect to Smt. Kamlesh and Smt. Krishna, the Tribunal reasoned (and the Court recorded) that:

Although both women admitted advancing the amounts and their statements were recorded, the Assessing Officer and CIT(A) rejected their explanations for reasons set out in their orders.
The women lived in small villages, declared modest incomes (from stitching/knitting), and their bank accounts showed large deposits followed by immediate withdrawals, which the Tribunal found improbable given the village background.
Returns had been filed under the amnesty scheme and the alleged source (advances from other village ladies) was unsupported by objective evidence.
The fact that transactions were effected by cheque did not, on the Tribunal's assessment, validate the deponents' accounts in the absence of corroboration; inquiries from the village had not been confronted to the assessee and the Tribunal found relevant facts distinguishable from the authority it cited.
Consequently, the Tribunal held the additions in the case of both ladies maintainable under section 68 of the Act.

The Court applied the legal standard governing onus in cases of cash credits (section 68) and asked whether the assessee had discharged the burden of proving genuineness. In the Court's view, the assessee had failed to discharge that burden and the findings recorded by the CIT(A) and the Tribunal were findings of fact based on appreciation of evidence. The Court therefore concluded that none of the questions raised by the assessee constituted substantial questions of law requiring its opinion.

Holding and Implications

Holding: The petition under section 256(2) is dismissed.

Implications:

Direct effect on the parties: The Tribunal's factual conclusions upholding the additions made by the Assessing Officer in respect of the credits in the names of Shri Dalip Singh, Smt. Kamlesh and Smt. Krishna stand; the assessee's request for the Tribunal to refer the stated questions of law to this Court is refused.
Broader legal effect: The Court expressly treated the contested determinations as findings of fact based on appreciation of evidence, and thus declined to treat the matters as questions of law for this Court's opinion. The opinion records that none of the questions raised were questions of law requiring the Court's consideration. The Court did not lay down any new legal principle or overrule existing precedent in this order.

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

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Maru Ram Makhan Lal v. Commissioner Of Income-Tax

G.S Singhvi, J.:— This is a petition by the assessee under section 256(2) of the Income-tax Act, 1961 (for short “the Act”), for directing the Income-tax Appellate Tribunal, Delhi Bench “A”, New Delhi (for short “the Tribunal”), to refer the following questions of law to this court for its opinion:

“(1) Whether, on the material on record, was the hon'ble Income-tax Appellate Tribunal was right in law in sustaining the addition of Rs. 38,518 being the credits in the account of Shri Dalip Singh as the income of the assessee?

(2) Whether, in view of the statement of Shri Dalip Singh duly confirming the credits in the books of the assessee could it be held that the Income-tax Appellate Tribunal was right and justified in law in sustaining the addition of Rs. 38,513 to be the income of the assessee when the creditworthiness of the creditor in question had not been disputed to be unsound?

(3) Whether, on the true and correct interpretation of the provisions of section 68 of the Income-tax Act, was the Income-tax Appellate Tribunal correct in law in sustaining the aforesaid amount as the income of the assessee for the instant assessment year?

(4) Whether/the order of the Income-tax Appellate Tribunal is not vitiated as it proceeded to sustain the addition based upon certain statements which were admittedly recorded behind the back of the assessee and had not been confronted to her on the mere assumption that the assessee had made no efforts to challenge the enquiries made from the village which was not confronted?

(5) Whether the Income-tax Appellate Tribunal was right in law in sustaining the additions in the account of Smt. Kamlesh w/o Shri Makhan Lal of Rs. 49,316 and of Smt. Krishna w/o Shri Ami Lal of Rs. 48,709?

(6) Whether, on the material on record, the Income-tax Appellate Tribunal was justified and right in law in holding that the credits aggregating to Rs. 98,025 had rightly been assessed as the income of the assessee from undisclosed sources?

(7) Whether the Income-tax Appellate Tribunal has rightly held that the investment made by the creditors, namely, Smt. Kamlesh of Rs. 49,316 and Smt. Krishna of Rs. 48,709 was the income of the assessee liable to be assessed under section 68 of the Income-tax Act despite the fact that the said income was duly assessed as investment made by the creditors in their hands?

(8) Whether the addition of Rs. 98,025 sustained by the Income-tax Appellate Tribunal be held as justified in the hands of the assessee and liable to be assessed under section 68 of the Income-tax Act having regard to the fact that the investors-creditors have duly been assessed on the amount of credits granted as credits to the assessee-firm?

(9) Whether the provisions of section 68 of the Income-tax Act override the provisions of section 69 of the Income-tax Act and if not, whether the Income-tax Appellate Tribunal was justified in sustaining the addition of Rs. 98,025?

(10) Whether, having regard to the fact that the creditors in question were duly assessed under the Income-tax Act, was the Income-tax Appellate Tribunal justified in upholding the addition in the hands of the assessee and in doing so had not failed to appreciate that such persons had not been assessed under the voluntary disclosure scheme but under the regular provisions of the Income-tax Act, though returns were filed under the amnesty scheme ?”

2. The assessee is engaged in the business of iron and steel. For the assessment year 1988-89, it filed a return declaring the total income of Rs. 45,530. The Assessing Officer did not accept the return and vide order dated March 29, 1989, he assessed the taxable income of the assessee at Rs. 1,93,450 by adding the credits appearing in the books in the accounts of Shri Dalip Singh, Smt. Kamlesh, wife of Shri Makhan Lal (partner) and Smt. Krishna, wife of Shri Ami Lal (partner) of the sums of Rs. 38,518, Rs. 49,316 and Rs. 48,709, respectively.

3. The Commissioner of Income-tax (Appeals), Faridabad (for short “the CIT(A)”), dismissed the appeal filed by the assessee and confirmed the additions made by the Assessing Officer. The Tribunal not only dismissed the appeal filed by the assessee, but also the reference application filed by it section 256(1) of the Act.

4. Shri Akshay Bhan, learned counsel for the assessee, argued that the Assessing Officer gravely erred in making the additions of the sums deposited by Shri Dalip Singh, Smt. Kamlesh and Smt. Krishna ignoring the fact that there was no dispute about their identity and the source of their income, namely, agriculture. He argued that the pattern of deposits and the withdrawals made within the short period could not lead to an inference that deposits were not genuine. In support of his arguments, learned counsel relied on Parimisetti Seetharamamma v. CIT, [1965] 57 ITR 532 (SC); CIT v. Ram Prasad Ram Bhagat, [1987] 163 ITR 202 (Patna); Pushkar Narain Sarraf v. CIT, [1990] 183 ITR 388 (All); CIT v. Kakkar Complex Steels Pvt. Ltd., [1996] 222 ITR 184 (P&H) and CIT v. Bedi and Co. P. Ltd., [1998] 230 ITR 580 (SC) and submitted that the Tribunal may be directed to refer the above reproduced questions for the opinion of this court.

5. Shri Rajesh Bindal, learned counsel for the Revenue, emphasized that the assessee which was engaged in the business of the sale of iron and steel did not have any occasion to accept the money from Shri Dalip Singh, who was not even a resident of the village where the assessee was operating and argued that the Assessing Officer did not commit any error by making additions of the amounts shown in his credit. Shri Bindal then submitted that the amounts shown in the credits of Smt. Kamlesh and Smt. Krishna were not genuine. He further submitted that the findings recorded by the Tribunal are based on pure appreciation of evidence and no substantial questions of law arises for determination by this court. In support of his arguments, Shri Bindal relied on the judgments of Oceanic Products Exporting Co. v. CIT, [2000] 241 ITR 497 (Ker); R.B Mittal v. CIT, [2000] 246 ITR 283 (AP) and CIT v. Heeralal Chaganlal, [2002] 257 ITR 281 (Raj).

6. We have given serious thought to the respective arguments and carefully perused the record. While upholding the additions made by the Assessing Officer with reference to the credits standing in the names of Shri Dalip Singh, Smt. Kamlesh and Smt. Krishna, the Tribunal observed as under:

“There is no dispute in regard to the identity of the party as well as the source of income which is agricultural land in the aforesaid case. The main attack is on the genuineness of the credit which is to be seen in the background of the party as well as the factors which led to the rejection of the party's statement. Though when considered individually each lapse may not be significant yet the cumulative effect of all is a pointer to the fact that the credit is not genuine. The pattern of the deposits and withdrawals made within a short period of interval coupled with the fact that the amounts so deposited and withdrawn are reflected to the extent of paise also show that the same could not have been given as deposits by Shri Dalip Singh. As per the copy of account Shri Dalip Singh had initially deposited Rs. 5,864.80 which was withdrawn in full as such. There are other deposits made at Rs. 220 and Rs. 43.20 on other dates too. The withdrawals made are also to the same extent. No party would travel from village to the assessee's place to deposit as small a sum as Rs. 243.20 and then also withdraw the same after a period of some months. This assumes significance when viewed in the light of the fact that the contents of the affidavit where the copy of account was given, were not read over to Shri Dalip Singh as admitted by him. Shri Dalip Singh is not aware of the amount outstanding at the end of the year. Initially, he denied having put any thumb impression on any affidavit and it is only at the suggestion of counsel that he admitted having done so. For acceptance of a cash credit it is not only enough that the creditworthiness of the party should be shown but also that, he had sufficient funds to advance on the date when the amount was given to the assessee. No evidence in this respect is on record. Taking an overall view of the facts we are of the considered view that the credit is not genuine and hence cannot be accepted. We would however accept the assessee's alternative plea that at best the peak of the amount should be added. We would, therefore, direct the Assessing Officer to allow relief on account of the peak of the credits for which the addition has been made in this case ….

The next additions pertain to Rs. 49,316 and Rs. 48,709 made on account of deposits of Smt. Kamlesh w/o. Shri Makhan Lal, a partner, and Smt. Krishna w/o. Shri Ami Lal, partner. Both the parties admitted of having advanced the amounts to the assessee-firm and their statements were also recorded by the Assessing Officer. The explanation rendered by them which was identical, was not accepted by the Assessing Officer as well as the learned Commissioner of Income-tax (Appeals) for the reasons as given in their orders. According to the learned authorised representative the identities of the parties were established their source of deposits were specified and in view of the fact that the deposits were made through cheques, there was no material with the Revenue authorities to reject the explanation as given. As per the arguments advanced the reliance was placed by the Revenue authorities on the enquiries made from the villages which were not confronted to the assessee. As such, the same could not be made use of for rejection of the explanation as given. Reliance was also placed on the order of the Income-tax Appellate Tribunal, Delhi Bench “D”, in the case of Ram Kishan Dass Viresh Kumar, Rampur v. ITO ITA No. 4550.Delhi/89 for the assessment year 1987-88, for the proposition that where the creditors were the wives of the partners and had no apparent source of their own to deposit the money in the bank, the natural assumption is that it is their husbands who made the money available to them. Therefore, on that assumption the respective partners would have been the proper persons against whom the addition of the respective amounts should have been proposed. The learned Departmental representative, on the other hand, drew our attention to the various discrepancies as pointed out by the Revenue authorities in the statements of both the ladies highlighting certain facts which according to him were sufficient for rejection of the explanations. It was argued that since the parties were related to the partner of the firm, strict criteria is required to be adopted before the credits could be accepted as genuine…

The identical statements of both the deponents when read with the material placed before the Assessing Officer in the form of the income-tax returns filed by them clearly show that the same cannot be accepted at their face value. Both the ladies are residents of a village, the population of which varies from 1000 to 1500. As per their statements they are in the receipt of earnings ranging from Rs. 10,000 to Rs. 15,000 per annum. Thus, between two of them, they earned Rs. 20,000 to Rs. 30,000 per annum. This is also from stitching, sewing and knitting in the village where scope is limited. If for the sake of argument the statement is to be accepted then as rightly pointed out by the learned Commissioner of Income-tax (Appeals), the capital as shown on March 31, 1987, of Smt. Kamlesh is much below the amount which should have been there. As per her own statement, she has been earning the income right from the year 1976 when she was married that in her return filed by Smt. Kamlesh, the amounts shown were in the form of gifts and cash from relatives, friends, etc. The income derived from knitting and tailoring declares for the assessment year 1987-88 was only Rs. 10,000. Furthermore, the return had been filed under the amnesty scheme and that too on the date March 31, 1987. As per the statement, the amounts were first given to the ladies of village on interest and after receiving the same from them (names of few of them mentioned by her) it was deposited in the bank and then advanced to the firm. For this there is no evidence brought on record. A copy of the bank account on the other hand shows that a sum of Rs. 40,050 was first deposited and then withdrawn immediately thereafter. Right from April 1, 1987, to September 20, 1988, there is no deposit in the bank then there appeared a sum of Rs. 13,900 which is followed by Rs. 1,100 on September 21, 1988. Subsequently, withdrawal were made for an amount of Rs. 15,000. If there are any withdrawals thereafter, the statement is not before us. Similar is the case in regard to Smt. Krishna. Like Smt. Kamlesh, she also mentioned the names of few ladies to whom the money was first given and after receiving the same from them, the amount was deposited in the bank. Her bank account also shows a deposit of Rs. 40,100 on April 1, 1987, which was subsequently withdrawn in the month of June 1987. The aforesaid bank account shows another deposit of Rs. 15,000 again made in cash which is also withdrawn during the same month. Keeping in view the village background it is difficult to believe that the ladies could earn the income as stated and that too from stitching etc., in the village. In these circumstances, the fact that the amounts were given through cheques do not advance the case of the deponents. We would also like to mention that no efforts were made before the learned Commissioner of Income-tax (Appeals) to challenge the enquiries made from the village which were not confronted to the assessee. As to the reliance placed on the order of the Income-tax Appellate Tribunal, we find that the facts are distinguishable. In the aforesaid case, the parties were not summoned or required to be produced before the Assessing Officer and their affidavits remained uncontroverted. In the absence of complete facts available, it could not be said that the facts in the cited case are on all fours with those of the assessee. In view of the provisions of section 68 of the Act as the amounts find place in the books of the assessee, the additions made in the case of both the ladies are maintainable in its case which we uphold.”

(underlining 1 is ours).

7. In our opinion, the assessee had failed to discharge the burden which lay upon it to prove the genuineness of the credits shown in its account. Therefore, it is not possible to agree with learned counsel that the Assessing Officer had illegally made additions to the income of the assessee.

8. We are further of the view that the findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal are pure findings of fact and none of the questions raised by the assessee can be treated as question of law requiring opinion of this court.

9. For the reasons mentioned above, the petition is dismissed.

Maru Ram Makhan Lal v. Commissioner Of Income-Tax

Structured Summary of the Opinion (G.S. Singhvi, J.)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's Arguments

Revenue's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Maru Ram Makhan Lal v. Commissioner Of Income-Tax

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