H. S. Raina vs Income Tax Officer on 3 March, 2009

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Jammu High Court
H. S. Raina vs Income Tax Officer on 3 March, 2009
       

  

  

 

 
 
 IN THE HIGH COURT OF JAMMU & KASHMIR AT JAMMU            
ITA No. 01 OF 2008 
H. S. Raina
Petitioner
Income Tax Officer
Respondent  
!Mr. M. M. Gupta, Advocate 
^Mr. D. S. Thakur, Advocate

Hon'ble Mr. Justice Barin Ghosh, Chief Justice
Hon'ble Mr. Justice Nirmal Singh, Judge
DATE : 03/03/2009 
:J U D G M E N T :

Per Barin Ghosh, CJ:

This is an appeal by the Assessee under Section 260 A of the
Income Tax Act, 1961 from the order of the Income Tax Appellate
Tribunal, Amritsar Bench, Amritsar.

In the year 1991 assessee constructed a house property. The
Assessee, who was a partner of six partnership Firms carrying on
finance business, had not filed his income tax returns for the earlier
four to five years contending that his income was not taxable. A
notice under Section 148 dated 18th February, 2000 was served on the
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assessee on 7th March, 2000, whereupon on 11th February, 2002
assessee filed a return of income declaring income of Rs.21,175/-.
Assessee’s case was referred to the Valuation Cell, whereupon the
Valuation Cell reported that the house was constructed in the year
1991 at a cost of Rs. 17.00 lacs.

Assessee did not dispute the valuation. He contended that the
cost of construction was financed by the compensation amount of Rs.
17,85,395/- received by his mother in a land acquisition case.
A sum of Rs. 17, 85,395.70 received by a cheque dated 8th
April, 1991 issued by the Collector was deposited in the Savings Bank
Account No, 1968 of the mother of the assessee maintained with the
J&K Bank, Nanak Nagar, Jammu. Assessee contended that moneys
withdrawn from the said account were utilized for construction of the
house. Though the assessee did not make any effort to produce any
material to suggest utilization of the amounts so withdrawn for
construction of the house, but some of such withdrawals were
accepted to have been utilized for the construction purpose. It was
accepted that the assessee has been able to establish source of
Rs. 11,25,000/- for incurring expenses for construction of the said
house but failed to account for the source of incurring expenditure
amounting to Rs. 5, 75,000/-.

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There is no dispute that a certain amount of money was paid to
the Principal of a School from the said account. The assessee did not
contend that the money so paid was used for construction purpose. In
addition to that, certain amounts of money were paid to four Finance
Companies and certain amounts of money were paid to certain
individuals from the said account. The assessee contended that the
payments made to the Finance Companies were for repayment of
loans taken from them for construction purpose. Assessee contended
that payments to those individuals were on account of purchase of
materials. Assessee furnished the names and particulars of those
Finance Companies as well as of those individuals. Notices sent to
them were returned un-served. Partners of those Firms appeared
before the Assessing Tax Officer at the instance of the assessee, but
individuals did not. Partners of those Firms stated that loans were
given to the assessee by the Firms represented by them and those were
paid by the assessee through the subject cheques. They stated that the
Firms were income tax assesses at the relevant time. They also stated
that the loans did not bear any interest. They also stated that the Firms
represented by them have closed their business in view of the
directions of the Reserve Bank of India.

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The amounts paid to the Firms and the amounts paid to those
individuals from the said account were not accepted as amounts spent
for construction of the house. That appears to be the principal dispute
raised by the assessee before the Commissioner of Income Tax
Appeal and having lost before him went before the Tribunal and again
having lost before the Tribunal has come up before this Court.
The principal contention of the appellant is that whatever was
within his command he did, i.e., furnishing of particulars of the
persons, who granted loans to the assessee and supplied materials; and
there is no just reason not to accept repayment of such loans and
payments made for purchase of materials.

There is no dispute that certain payments were made to certain
Firms carrying on finance business. However, neither the assessee,
nor the partners of the subject firms could bring on record any thing to
suggest that such payments were on account of repayment of loans
received by the assessee at an earlier point of time. There was no
evidence at all, except statements made by four individuals and
assertions of the assessee, that loans were received by the assessee
from those Firms at any point of time earlier than the dates of
payment of the subject amounts from the said account. Similarly,
there was no material, except assertions by the assessee, that building
materials were procured by the assessee from those individuals, who
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were paid certain amounts from the said account. A payment can be
accepted as repayment or on account of purchase when it is
established that an earlier payment was received or a purchase was
made. Neither an earlier payment, nor any purchase said to have been
made was established. In the circumstances, non-acceptance of
payments made to the said Firms as repayment of loans and nonacceptance
of payments made to those individuals on account of
purchase of materials cannot be said to be an act so capricious and
unjust that the same can be called in question as a substantial question
of law. Certain payments made to certain other individuals were
accepted as payments made for construction purpose, but without
there being anything to suggest that the payments so made were
utilized for construction. In the circumstances non-acceptance of
payments made to the concerned individuals as payments made on
account of purchase of materials cannot be said to be question of law
inasmuch as the comparable payments cannot with certainty be taken
as payments made for the construction.

The learned counsel for the appellant cited the judgment of the
Hon’ble Supreme Court rendered in the case of Lalchand Bhagat
Ambica Ram v. Commissioner of Income-Tax, Bihar and Orissa,

reported in 37 ITR 288, and contended that it is suspicion or
conjecture or surmise on the part of the Tribunal, which has taken
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place of evidence. He submitted that in addition to that the department
has applied the rule of thumb. In other words, he contended that
contentions of the appellant that he repaid loans supported by
evidence of grant of loan by the partners of the Firms from whom the
loans had been taken are material evidence, which could not be
ignored either on the basis of rule of thumb or on suspicion or
conjecture or surmise.

Section 69C of the Act provides that where in any financial
year an assessee has incurred any expenditure and he offers no
explanation about the source of such expenditure or part thereof, or
the explanation, if any, offered by him is not, in the opinion of the
Assessing Officer, satisfactory, the amount covered by such
expenditure or part thereof, as the case may be, may be deemed to be
the income of the assessee for such financial year. Therefore, in terms
of Section 69C of the Act, appellant was required to explain
satisfactorily the source of the expenditure of Rs. 17.00 lacs, which he
had incurred for construction of the house in question. The
explanation as was put forward by the appellant was repayment of
loans, which were used for the construction, and payments on account
of purchase of materials. Receipt of loans, utilization thereof for
construction and purchase of materials were, therefore, the essential
ingredients to satisfy that the payments in question were made for
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repayment of loans and for discharging the debts incurred on account
of purchase of materials. Since there was nothing to suggest receipt of
loans and utilization thereof for construction, except assertions, and at
the same time there being nothing to suggest procurement of materials
from those individuals, who were paid the amounts in question, nonacceptance
of such assertions, to our mind, cannot be said to be based
on suspicion, conjecture or surmise or by applying the rule of thumb.
Learned counsel next contended by referring to the judgment of
the Hon’ble Supreme Court of India in the case of Commissioner of
Income Tax v. Orissa Corporation (P) Ltd.,
reported in 159 ITR 78,
that since the assessee could not produce the two individuals, from
whom materials were purchased, an adverse inference could not be
drawn against the assertions made by the assessee. In the instant case,
no adverse inference was drawn against the assessee. Apart from the
failure on the part of the assessee in producing those individuals, he
failed to bring on record anything to suggest purchase of materials
from those individuals.

Learned counsel for the assessee contended, as notice by the
Hon’ble Supreme Court of India in Commissioner of Income Tax v.
Smt. P. K. %oorjahan, reported in 237 ITR 570, that the word ‘shall’
was proposed to be inserted in Section 69C which was later on
changed by the word ‘may’ and, accordingly, no sooner the
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explanation of the assessee is not satisfactory, the amounts cannot be
deemed to be the income of the assessee. It is true, as pointed out by
the Hon’ble Supreme Court in the case referred to above, a discretion
has been given to the department in the matter of deeming the unexplained
amount as income of the assessee, but such discretion is to
be used judiciously for protecting the interest of the assessee as well
as of the revenue. In that case, on facts, it was found that having
regard to the age of the assessee and the circumstances in which she
was placed., she cannot be credited to make income of her own and in
those circumstances, the Hon’ble Supreme Court upheld the view of
the Tribunal in refusing to permit addition of the value of the subject
investments to the income of the assessee. In the instant case, there is
no material on record which would suggest that the appellant could
not be credited with having made any income of his own having
regard to his age and the circumstances in which he was placed. In the
event, it is construed that all un-explained source of expenditure
should not be deemed to be the income of the assessee and the
discretion should be used always in favour of the assessee, the Section
itself would become otioso.

Learned counsel also contended that before adding the amounts
in question as income of the assessee, i.e., before using the discretion,
the appellant ought to have had been noticed. The Section
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does not require any such notice. In any view of the matter, from the
day one the question was should or should not be such expenditure be
deemed to be the income of the assessee and notice thereof was
adequately given to the assessee. Learned counsel for the appellant
contended that at the time of imposing penalty, a notice is required to
be given and the same analogy should be applied while such addition
is being made. The requirement of hearing the assessee and giving
him reasonable opportunity of being heard before imposing penalty is
a requirement of Section 274 of the Act. No such procedure has been
prescribed for making additions under Section 69C of the Act. In any
event, by virtue of Section 69C of the Act, it is obligatory on the part
of the assessee to explain, to the satisfaction of the Assessing Officer,
the source of expenditure made by him, with a rider that if the
explanation is not satisfactory, the Assessing Officer may use his
discretion against the assessee, which connotes an obligation to
satisfy, apart from the explanation to be given by him, that there was
existence of such circumstances in which the assessee was placed that
he cannot be credited with having made such income of his own. In
the event, such obligation had been discharged but ignoring the same,
Assessing Officer had added the expenditure as deemed income and
thereby had used his discretion against the assessee, it would have
been open to the assessee to call in question user of such discretion,
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but the assessee did not make any endeavor at any stage to assert that
the circumstances in which he was then placed, he could not be
credited for having made the subject income of his own.
The learned counsel for the appellant lastly submitted that
according to the valuation report the property was constructed in the
year 1991, which connotes calendar year 1991. He submitted that
calendar year 1991 had two financial years and as such the deemed
income should be bifurcated. There is nothing on record to suggest
when construction commenced. The drawings from the subject
account were made from April, 1991. The facts of the case, therefore,
did not make out a case for bifurcation.

In the circumstances, the appeal fails and the same is dismissed.
( irmal Singh) (Barin Ghosh)
Judge Chief Justice
Jammu,
03.03.2009
Tilak, Secy.

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