DHANALAXMI STEEL RE-ROLLING MILLS VS COMMISSIONER OF INCOME-TAX
1999 P T D 2732
[228 I T R 780]
[Andhra Pradesh high Court (India)]
Before P. S. Mishra, C.J. and V. Rajagopala Reddy, J
DHANALAXMI STEEL RE-ROLLING MILLS
Versus
COMMISSIONER OF INCOME-TAX
Income-tax Case No.51 of 1996, decided on 07/10/1996.
(a) Income-tax---
----Reference---Cash credits---General principles, ---that explanation regarding cash credits was not satisfactory---Tribunal justified in adding amounts represented by cash credits to total income of assessee---No question of law arose---Indian Income Tax Act, 1961, Ss.68 & 256(2).
(b) Income-tax---
----Reference---Finality of findings of fact---Indian Income Tax Act, 1961, S.256.
A finding of fact can be reviewed only on the ground that there is no evidence to support it or that it is perverse. When a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole.
Section 68 of the Income Tax Act, 1961, does not stop at stating that there should be an explanation about the nature and source of any sum found credited in the books by the assessee; the Assessing Officer is also required to be satisfied that the explanation offered by the assessee is acceptable and/or in other words genuine:
Held, dismissing the application for reference, that the Tribunal had rightly held that the assessee was required to prove prima facie the transaction which resulted in a cash credit in its books of account by proof of the identity of the creditor, .the capacity and credit worthiness of such creditor and the genuineness of the transaction. It was not possible on the facts of the case to hold that any irrelevant material had been taken into consideration. It was also not possible to hold that any relevant material had not been considered or that the authorities including the Tribunal had acted on conjecture or surmise. The authorities were not satisfied with the genuineness or creditworthiness of the creditors. The Tribunal was justified in holding that the sum of Rs.14,12,081 could be treated as the undisclosed income of the assessee. No question of law arose from its order.
CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC); Sarogi Credit Corporation v. CIT (1976) 103 ITR 344 (Pat.) and Tolaram Daga v. CIT (1966) 59 ITR 632 (Assam) ref.
S. Ravi for the Assessee.
S. R. Ashok for the Commissioner.
JUDGMENT
P. S. MISHRA. C.J.---Heard
The petitioner herein is an assessee who has moved this Court under section 256(2) of the Income Tax Act, 1961, against the decision of the Income-tax Appellate Tribunal , Hyderabad "B" Bench, Hyderabad, and sought a direction for a reference on the following questions:
"(I) Whether, on the facts and in the circumstances of the case, the sale of scrap to Balaji Steel Traders by the appellant having been accepted by the Department, the Tribunal was correct in law in holding that sum of Rs.14,12,081 advanced against the said sale could be treated as undisclosed income of the applicant?
(II) Whether, in a transaction of sale of stock-in-trade the Tribunal is right in placing the onus on the assessee to prove the source of moneys paid to the assessee by the purchaser of goods?
(III) Whether, on the facts and in the circumstances of the case, the Income-tax Officer not having trade the addition under section 68 of the Income Tax Act, 1961, the Tribunal could have considered the sustained addition under that section, by applying the tests in respect of cash credits to a sum representing advance against sale of scrap?
(IV) In the event the answer to question No.3 is the affirmative, whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the appellant had not sufficiently discharged the onus cast upon it?
(V) Whether the applicant was required to establish the source or sources and origin or origin, as is implied by the order of the Tribunal?
(VI) Whether the Tribunal is justified in their finding that the advance received by the seller assessee from its customer against supply of goods be treated as income under section 68 when the sale price of such goods was admitted in its books and reflected in its business profits assessed to tax?"
The above, however, has been raised as grounds seeking reference on a categorical statement that the order of the Tribunal is erroneous on the facts and in the circumstances of the case and the questions of law referred to above arise out of the order of the Tribunal on grounds, inter alia, that the sums of money taken for addition under section 68 of the Income Tax Act, 1961, were advances against the sale of scrap to Balaji Scrap Traders and thus was not undisclosed income of the petitioner-assessee and since it was not an undisclosed source and the source accordingly was explained by the petitioner-assessee, the onus was not on it to prove the source of monies of the purchaser of the goods.
It is not in dispute that the petitioner-assessee is a partnership firm and for the business of manufacture and sale of MS rounds in their steel re?-rolling mills they filed a return of income of Diwali year on June 6, 1984, and claimed carry forward of unabsorbed investment allowance in the sum of Rs.2,44,682 and , income--- "nil". Subsequently, however, the petitioner-?assessee filed a series of revised returns including the one on September 30, 1986, showing art income of Rs.1,11,273. The Taxing Officer, however, undertook an enquiry under section 143(3) and also invoked section 68 of the Act to find additional income of Rs.14,12,081, thus, the total income of Rs.15,56,500 for the relevant assessment year Further facts relevant for the purpose of the present proceeding are as follows:
"During the course of assessment, the Assessing Officer started investigation by way of correspondence with the Sales Tax Department and with the Registrar of Firms in connection with certain enquiries relating to Balaji Scrap Traders, Begum Bazar, Hyderabad, a proprietary concern dealing in scrap and which had business dealings with the assessee. The Assessing Officer found that the assessee had purchased iron and steel scrap to the extent of Rs.68,38,478 which included purchases to the extent of Rs.56,42,058 from Hindustan Shipyard, Visakhapatnam. During the accounting year relevant to the year under appeal, the assessee had sold scrap for a value of Rs.17,63,803 which included value of Rs.14,12,031 to Balaji Scrap Traders. The Assessing Officer had taken the deposition of Sri Mohanlal, one of the partners of the assessee-firm, who has stated that the assessee had also purchased scrap from Balaji Scrap Traders amounting to Rs.35,913. He has also further stated that he did not know the person who runs Balaji Scrap Traders. Sri Mohan Lal further stated that Sri Rajendra Kumar, one of the partners, was looking after the purchase and sale of scrap. Sri Mohan Lal was further asked as to who took delivery of the goods on behalf of Balaji Scrap Traders and he replied that lorry people and representatives of Balaji Scrap Traders took delivery. The Assessing Officer on further examination found that, in the statement given for the month of March, 1983, the sale was shown as nil, whereas according to Sri Mohanlal, scrap sale to the extent of Rs.22,883 was effected to Balaji Scrap Traders. The Assessing Officer deputed an inspector for making enquiries and report and in the report, it was stated that he visited House No.15-8-225, Basheerbagh, Hyderabad, where Balaji Scrap Traders was supposed to have its business, that there was no firm in existence when he visited, that enquiries with Balaji Scooter Works, a neighbour who was doing repair works for one and half years revealed that there was no scrap business in 15-8-215, Begum Bazar, Hyderabad, that other neighbours vaguely remembered unloading of scrap in autorikshaws and they stated that even if the business was in existence, it was a small business and it may be inferred that the business in the name-of Balaji Scrap Traders should have been closed. Thereafter, the Assessing Officer sent a letter to the CTO having jurisdiction over Begum Bazar on January 8, 1986, asking for details with regard to the sales tax assessment of Balaji Scrap Traders. The C.T.O. informed the Assessing Officer that there was a firm by name Balaji Scrap Traders, Begum Bazar, Hyderabad, and the said firm possessed APGST No.4917/82-83 and CST No.3261/82-83 and that the final assessment of this concern for the assessment year 1982-83 was completed on a net turnover of Rs.75,887. The Assessing Officer also obtained a copy of the sales tax assessment orders of Balaji Scrap Traders. The Assessing Officer found that from April, 1984, to March, 1985, the turnover was Rs.4,92,401 and sales tax turnover of Balaji Scrap Traders was fixed at Rs.2,52,057 and in view of the above stated facts, the Assessing Officer held that it was imperative that Balaji Scrap Traders would not have effected purchases to the extent of Rs.15,25,664 from the assessee. Subsequently, after the above enquiries, the Assessing Officer summoned Sri Prahladarai of Balaji Scrap Traders on March 29, 1986, as per the address supplied by Sri Mohan Lal, partner of the assessee-firm. These summons could not be served by the notice server as no such person was available in the given address. The Assessing Officer also issued summons to Sri Mohanlal and Sri Rajendra Kumar partners of the firm. On that day, Sri Mohanlal did not comply, but Sri Rajendra Kumar complied and sought for adjournment. Ultimately, on November 7, 1986, Sri Rajendra Kumar appeared before the Assessing Officer from whom a statement was recorded. In his deposition, Sri Rajendra Kumar stated that Balaji Scrap Traders, Dhanalakshmi Steel Re-rolling Mills, etc, were the major parties and the statement of Sri Rajendra Kumar revealed that he was not the sole person who looks after purchases and sales of scrap, etc., but Mohanlal and also the munim at times look after the purchases and sales and Mr. Mohanlal revealed that he does not know the person from whom he receives money. Sri Rajendra Kumar in his sworn statement stated that Sri Mohanlal also at times received advances from Balaji Scrap Traders. Subsequently, on September 30, 1986, the assessee filed a revised return disclosing income of Rs.2,50,000. On February 27, 1987, the Assessing Officer issued show-cause notice for production and evidence to the effect that the assessee received nearly Rs.15 lakhs from Balaji Scrap Traders. A similar letter was also addressed to Sri Rajendra Kumar requiring him to produce Sri Prahladrai of Balaji Scrap Traders and accordingly Sri Prahladarai was produced before the Assessing Officer and the Assessing Officer recorded statement from him and the said statement of Sri Prahladarai, inter alia, stated at the time of deposition that he was doing commission business in iron and steel scrap and received commission from purchasers and he stated that he did business in 1983 by name Balaji Scrap Traders. He stated that the business was located in Begum Bazar opposite to Mitti-ka-Ghare near Coal Depot. He also further stated that in 1982 he had invested about Rs.70,000 to Rs.80,000 and later he took loans from his friends and relatives of nearly Rs.7,00,000 without any interest or by giving any promisory note and he did not own any immovable properties. In response to further queries by the Assessing Officer, he stated that the loans were obtained at the rate of 18 percent but nothing was given in writing because all those people had given loans out of unaccounted moneys. To a further question, he stated that Dhanalakshmi Steel Re-Rolling Mills was in their locality and as a customer, he knew it and he stated that he used to buy iron scrap from them and he did not obtain any bills from the assessee and that he used to give advances of Rs. l lakh or Rs.2 lakhs before receipt of material and he had no bank account and he used to take loans in cash and handed over the advances to the munim, Sri Badripershad and sometimes to Sri Rajendra Kumar. He further stated that he might have given about Rs.13 to Rs.14 lakhs to Dhanalakshmi Steel Re-rolling Mills. It was further stated by him that he had disclosed Rs.l lakh as turnover to the sales tax authorities. To a specific question of the Assessing Officer regarding an amount of Rs.14 lakhs which was advanced by Sri Prahladarai to the assessee-firm when he disclosed a turnover of Rs.l lakh only, it was stated as under:
I did not disclose the entire turnover to the sales tax authorities and from out of my unaccounted money, I lent Rs.14 lakhs to Dhanalakshmi people did not give any sale bills, when I received the material (sic). I was also not issuing any sale bills to my customers and the entire transactions were unaccounted'.
In this background, the Assessing Officer was not satisfied with the explanation offered by Sri Prahladarai and added the entire amount of Rs.14,12,081 as income of the assessee-firm for the year under appeal which was introduced in the name of Balaji Scrap Traders."
The petitioner-assessee preferred appeal against the additions. The Appellate Authority deleted the additions with the following observations:
"As regards the alternative claim of the appellant that there is no justification for the addition of Rs.14,12,081 I find that there is considerable force in the appellant's submission that it is uncalled for. The report of the I.T.I. notwithstanding, it is an undisputed fact that Balaji Scrap Traders is a proprietary concern of which Sri Prahladarai was the proprietor. The evidence gathered by the Income-tax Officer himself from the Commercial Tax Department, bears ample testimony to this. Sri Prahladarai appeared before the Income-tax Officer and stated that he had made the advances in question to the appellant and that the appellant was dispatching scrap against the advance. However, the Income-tax Officer refused to believe this. It is quite evident that the Income-tax Officer-in coming to the conclusion that the advances were not actually made was influenced by the following facts.
(i) Sri Prahladarai had shown lesser turnover in his sales tax returns;
(ii) He had only meagre capital;
(iii) He had stated that he had borrowed Rs.7 lakhs from his friends and ??????????? relatives, whom he refused to identify.
I do not think that the fact that Sri Prahladarai had not disclosed his entire turnover to the sales tax authorities should influence the Income-tax Officer in his conclusion that the advance was not made at all. In fact his sales tax assessments have nothing to do with these transactions with the appellant, which he owned. The possibilities of scrap sale by Sri Prahladarai being made as advance for further supplies were always there. Sri Prahladari stated that he borrowed about Rs.7 lakhs from friends and relatives, whom he did not' identify. If Sri Prahladarai is not in a position to explain how he managed the sources for making advances to the appellant, I do not see how the appellant can be punished for the same for Sri Prahladarai's omission to disclose the names of persons from whom he made the borrowals for making advances to the appellant for supply of scrap, the Income-tax Officer has to proceed against this person and not the appellant. The Income-tax Officer did not state in the order that the sum of Rs.14,12,081 was being considered by him as cash credit. He only questioned the genuineness of the claim that advances were made for the sake of lifting supplies of scrap.; As the appellant had rightly pleaded by accepting that sale to the extent of Rs.14,12,081 was effected to Balaji Scrap Traders by the appellant during the year of account, the Income-tax Officer himself has tacitly 'accepted the fact relating to the purchase of scrap by Sri Prahladarai from the appellant. there can be no purchase without payment of consideration and the advances made represented such consideration.
Though the Income-tax Officer has not stated in the order that he was making the addition of Rs.14,12,081 as unexplained cash credit, even granting that this sum could also be regarded as unexplained advance or cash credit, it is now well-established that there is no onus to prove source or sources and origin or origins. Courts have held that the fact that the assessee was unable to satisfy the authorities as to the source from which the depositor had derived money cannot be used against the assessee CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC), Tolaram Daga v. CIT (1966) 59 ITR 632 and Sarogi Credit Corporation v. CIT (1976) 103 ITR 344 (Pat.).
In the case of CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349, the Supreme Court held that the fact that the depositor had not been able to give a satisfactory explanation regarding the source of deposit would not be decisive even of the matters as to whether the depositor was or was not the owner of the amount, that a person could still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money was found to be incorrect, and that from the simple fact that the explanation regarding the source of the money had been found to be false, it would be a remote and farfetched conclusion to hold that the money belonged to the assessee. In this case the Supreme Court also held that the use of extraneous and irrelevant material in arriving at that conclusion would vitiate the conclusion of fact because it is difficult to predicate as to what extent the extraneous and irrelevant material has influenced the authority in arriving at the conclusion of fact.
For the reasons stated in paragraphs 8.1, 8.2 and 8.3, 1 hold that there is no justification for the Income-tax Officer to hold that the sum of Rs.14,12,081 being advances made by Sri Prahiadarai to the appellant for supply of scrap was not genuine and adding the same to the income of the appellant. 1, therefore, delete the addition of Rs.14,12,081."
The Revenue moved the Tribunal against the above. The Tribunal has allowed the appeal, inter alia, on the principle that the petitioner-assessee was required to prove prima facie the transaction, which resulted in a cash credit in its books of account by proof of the identity of the creditor, the capacity and creditworthiness of such creditor and the genuineness of the transaction. Since, the Tribunal has declined to make the reference holding that no question of law arises out of the order of the Tribunal, the instant petition has been filed.
Mr. Ravi S., learned counsel for the petitioner, has urged that any enquiry under section 143(3) of the Act in respect of the returns filed by the petitioner was not warranted for the petitioner had disclosed the nature and source of the entry in the books and in any case the creditors, who had advanced money for supply of goods in future, did appear before the Assessing Officer, which fully explained the nature and source of the credit in the books. Additions in the income of the amounts so entered in the books were not available as profits or income for assessment.
A judgment of the Supreme Court in CIT V. Daulat Ram Rawatmull (1973) 87 ITR 349 on section 66 of the Indian Income-tax Act, 1922, is relied upon by the learned counsel for the petitioner for urging that the primary facts upon which the conclusion is based for including in the assessment such sums credited in the books of an assessee, must disclose direct nexus and once the assessee explained the source, the genuineness of his source is established. Whether the source is able to establish that it had the capacity or the potential to advance such amount of money or that it had obtained such amount of money from some undisclosed source, etc., were/are not matters which could have been investigated in the instant proceeding and if investigated, the onus could not be put upon the assessee to establish the creditworthiness of any intending purchaser who deposited the said amount of money.
Section 68 of the Income Tax Act, 1961, reads, as follows
"68. 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 not, 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."
It is not in dispute that the above said additional money is found credited in the books of the petitioner-assessee. The petitioner-assessee has offered explanation that the amounts credited were advances against future sale of goods and disclosed the source. Section 68 of the Act, however, does not stop at advancing of explanation about the nature and source of any sum found credited in the books by the assessee; the Assessing Officer is also required to be satisfied that the explanation offered by the assessee is acceptable and/or in other words, genuine.
The facts as found are clearly (as above) indicative of the source being not genuine---a finding which has been specifically recorded in the proceeding. When the law has given to the Assessing Officer discretion and it is his satisfaction upon which genuineness has to be decided, his inference on the basis of the facts, in our view, is a finding of fact and as held by the Supreme Court in CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349, findings on questions of pure fact arrived at by the Tribunal are not to be disturbed by the High Court on a reference unless it appears that there was no evidence before the Tribunal upon which they, as reasonable men, could come to the conclusion to which they have come; and this is so even though the High Court would on the evidence have come to a conclusion entirely different from that of the Tribunal. It is well-settled that a finding of fact can be reviewed only on the ground that there is no evidence to support it or that it is perverse. Moreover, when a conclusion has been reached on an appreciation of a number of facts, whether that is sound or not must be determined, not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting as a whole.
It is not possible on the facts of the instant case to hold that any irrelevant material has been taken into consideration. It is also not possible to hold that any relevant material has not been considered or that the authorities including the Tribunal have acted on conjecture or surmise. When a finding has been recorded on a pure question of fact and the authorities have found that they are not satisfied with the genuineness or creditworthiness of the creditors, in our view, on such facts not question of law can be said to have arisen.
We, for the said reason, decline the petition. The petition is dismissed.
M.B.A./3019/FC ??????????????????????????????????????????????????????????????????????????????? Petition dismissed