COMMISSIONER OF INCOME TAX VS BAISHNAB CHARAN MOHANTY
1996 P T D 1197
[212 I T R 199]
[Orissa High Court (India)]
Before G. B. Patnaik and P. C. Naik, JJ
COMMISSIONER OF INCOME TAX
Versus
BAISHNAB CHARAN MOHANTY
Special Jurisdiction Case No. 126 of 1990, decided on 11/11/1994.
Income-tax---
----Cash credits---Finding that credits were genuine---Tribunal justified in deleting addition on account of cash credits---Income Tax Act, 1961, S.68.
When a question arises as to whether a cash credit appearing in the books of account of an assessee has to be accepted or to be rejected and addition to be made in accordance with section 68 of the Income Tax Act, 1961, the assessee is required to establish the identity of his creditor, the capacity of the creditor to advance the money arid the genuinences of the transaction. If the assessee establishes the aforesaid three pre-conditions, then it would be for the Department to disprove the same.
Held, that the first appellate authority as well as the Tribunal had accepted the identity of the persons who had entered into business with the assessee. The Tribunal further, relying upon the confirmation letters available in the paper book as well as all other relevant materials, recorded the finding that the transactions were genuine. The Tribunal was justified in holding the transactions appearing in the names of M and MS to be genuine transactions and, deleting the sum of Rs.57,000 from the income of the assessee.
CIT v. Jain (S.P.) (1973) 87 ITR 370 (SC) ref
A.K. Ray for the Commissioner.
S.N. Rath for the Assessee.
JUDGMENT
G.B. PATNAIK, J.---On an application being filed by the Department under subsection (2) of section 256 of the Income Tax Act, 1961 (hereinafter referred to as "the Act", this Court formulated the following question and called upon the Income Tax Appellate Tribunal to submit a statement of facts. The question formulated was:
"Whether the Tribunal was justified in holding that the transactions appearing in the names of Messrs Mineral Chemical Mart, Calcutta, and Messrs Mineral Supply Agency, Calcutta, were genuine transactions and the addition made under section 68 of the Income Tax Act, 1961, was untenable?"
Under section 68 of the Act if 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 not satisfactory, then the sum so credited may be charged to income-tax as the income of the assessee of that previous year. For the Assessment year 1983-84, cash credits were found in the names of Messrs Mineral Chemical Mart, Calcutta, and Mineral Supply Agency, Calcutta, amounting to Rs.25,000 and Rs.32,000 respectively. The Assessing Officer added the aforesaid amounts to the income of the assessee. The Assessing Officer did not accept the explanation of the assessee that the assessee was having a business relationship with the two firms at Calcutta. The Assessing Officer had observed that the assessee could not prove the genuineness of the transactions either by furnishing confirmation letters or by producing the parties. Being aggrieved by the order of Assessment, the assessee having preferred an appeal, the appellate authority came to hold that it cannot be denied that both the Calcutta parties were having trading transactions with the appellant for quite some time and were sending various amounts by cheque or by cash towards advance payment for supply of materials. But taking into consideration the fact that the assessee had returned several amounts as he did not want to continue the business relationship due to the difficulties in encashment of the cheques received, the appellate authority came to hold that sufficient opportunity should be given to establish the genuineness of the transactions. On consideration of the report of the inspector sent by the Income Tax Officer, Calcutta, the appellate authority came, to hold that it is quite obvious that the creditors were operating from the Addresses at Calcutta, but the persons concerned were not traceable at the time of enquiry. He believed the transactions between the parties and held: .
"....I can easily draw the conclusion that the parties did carry out certain transactions and it was incumbent on the appellant to establish the genuineness of such transactions..."
With the aforesaid conclusion, the order of assessment was set aside and the matter was remitted to the assessing authority to reassess after giving opportunity to the assessee to establish the genuineness of the transactions.
The assessee carried the matter to the Tribunal in second appeal. The second appellate authority after consideration of the entire materials on record as well as the confirmation letters which were available in the paper book, came to hold that it cannot be said that the identity of the parties was not established. After thorough discussion of the entire materials on record, the second appellate authority recorded the finding that the transactions between the assessee and the Calcutta parties appear to be genuine transactions and, therefore, addition of Rs.57,000 cannot be made to the income of the assessee. The Tribunal directed deletion of the income of Rs.57,000 from the income of the assessee. It is against this order of the Tribunal that the Department filed an application for making a reference and having failed in its attempt approached this Court under subsection (2) of section 256 of the Act and on the direction of this Court, the question of law has been formulated for the opinion of the Court.
Mr. Ray, appearing for the Department, argues with vehemence that even though the question whether a particular transaction is genuine or not is a question of fact, if the finding of the Tribunal on such question of fact is a finding which no reasonable man could have come to, then it would be a question of law arising out of the order and, consequently, the said finding cannot be sustained. Mr. Rath, appearing for the assessee, on the other hand, contends that all relevant materials having been duly considered by the second appellate authority and the conclusion having been arrived at, the same cannot be said to be a finding either based on no evidence or perverse and, therefore, no question of law arises.
When a question arises as to whether a cash credit appearing in the books of account of an assessee has to be accepted or to be rejected and addition to be made in accordance with section 68 of the Act, the assessee is required to establish the identity of his creditor, the capacity of the creditor to advance the money and the genuineness of the transaction. If the assessee establishes the aforesaid three pre-conditions, then it would be for the Department to disprove the same. In the present case, the first appellate authority as well as the Tribunal had accepted the identity of the persons who had entered into business with the assessee. The Tribunal further, relying upon the confirmation, letters available in the paper book as well as all other relevant materials, recorded the finding that the transactions are genuine. The question posed for reference, therefore, requires an answer as to whether the Tribunal was justified in coming to the finding that the transactions are genuine and further directing deletion of the income from the income of the assessee. Under what circumstances the finding of a Tribunal on a question of fact could be interfered with by the superior Court came up for consideration before the Supreme Court in the case of CIT v. S.P. Jain (1973) 87 ITR 370. After elaborate discussion of the law on the subject, their Lordships held (at page 381):
"In our view, the High Court and this Court have always the jurisdiction to intervene if it appears that either the Tribunal has misunderstood the statutory language, because the proper construction of the statutory language is a matter of law, or it has arrived at a finding based on no evidence or where the finding is inconsistent with the evidence or contradictory of it, or it has acted on material partly relevant and partly irrelevant or where the Tribunal draws upon its own imagination, imports facts and circumstances not apparent from the record, or bases its conclusions on mere conjectures or surmises, or where no person judicially acting and properly instructed as to the relevant law could have come to the determination reached, "
Their Lordships have referred to several cases wherein the Supreme Court has set out the principles on which interference with a finding of fact arrived at by the Tribunal would be justified. Bearing in mind the ratio of the aforesaid case, and on examining the order of the Tribunal, it is difficult for us to accept the contention of learned standing counsel for the Department that the finding of the Tribunal with regard to the genuineness of the transactions cannot be said to be a finding of a reasonable man, nor can we hold the said finding to be a perverse one. On the other hand, as a Court of fact, the Tribunal has recorded the finding after consideration of all relevant and germane materials, which it was entitled to. In the aforesaid circumstances, we answer the question posed against the Department and in favour of the assessee and hold that the Tribunal was justified in holding the transactions appearing in the names of Messrs Mineral Chemical Mart, Calcutta, and Messrs Mineral Supply Agency, Calcutta, to be genuine transactions and direction for deletion of the sum of Rs.57,000 from the income of the assessee is wholly tenable.
P.C. NAIK, J.---I agree
M. B. A./1108/F????????????????????????????????????????????????????????? Order accordingly.