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Smt. Annamma Paul Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 10 of 1977
Judge
Reported in[1980]121ITR433(Ker)
ActsIncome Tax Act, 1961 - Sections 147
AppellantSmt. Annamma Paul
RespondentCommissioner of Income-tax
Appellant Advocate K.S. Paripoornan and; C.S. Balagangadharan, Advs.
Respondent Advocate P.K.R. Menon, Standing Counsel
Excerpt:
.....to show that admitted intangible additions of prior years not available for set-off in subsequent year - assessee failed to produce any evidence to show that same intangible addition available to assessee for being considered once against credits in capital account and then again against unledgerised cash credits in cash books - on material of record no such fund of intangible additions available to assessee for re-introduction in accounting year - in light of precedent burden of proof to trace unexplained credits to intangible additions on assessee and not on department - question answered in negative. - - when the ito took up the case for hearing, the argument before him was that the unledgerised credits came out of the intangible addition of a larger amount made in the..........as the amount that could have been available out of the intangible addition of rs. 17,000 for that year. the assessee had claimed that the intangible addition of rs. 48,000 for 1948-49 was available for set-off. the tribunal's order did not record any specific finding in regard to the claim. but the addition was confirmed. on the present occasion, the tribunal, from whose order this reference arises, held that the earlier order of the tribunal had rejected the claim for set-off.3. the ito reopened the assessment for a second time. the second reopening was occasioned against the following background. the assessee was a partner in two firms. one of them was paul perincherry & m. i. chakkoru. in the books of accounts of the firm there were unledgerised cash credits in the name of the.....
Judgment:

Gopalan Nambiyar, C.J.

1. At the instance of the assessee, the Income-tax Appellate Tribunal, Cochin Bench, has forwarded the statement of the case and sent up the following questions of law for our opinion, namely :

'1. Whether, on the facts and in the circumstances of the case, the reassessment proceedings under Section 147(a) of the Income-tax Act, 1961, are legal and valid Was the Appellate Tribunal justified in sustaining the addition of Rs. 49,700 for all or any of the reasons stated in the appellate order ?

2. Whether, on the facts and in the circumstances of the case, the finding of the Tribunal to the effect that (in I.T.A. No. 12037 of 1959-60) they (the Tribunal) have rejected the assessee's claim that intangible addition of Rs. 48,000 for the year 1948-49 was available for set-off in 1950-51 is justified in law Is the interpretation placed on the earlier order of the Tribunal dated November 21, 1961, proper and valid ?

3. Was the Appellate Tribunal justified in law in holding that the assessee is precluded from claiming a set-off of Rs. 48,000 or disabled from claiming set-off of Rs. 7,150 for all or any of the reasons stated in paragraph 16 of the order ?

4. Was not the burden of proof on the department to show that the admitted intangible additions of the prior years was not available for set-off in the subsequent year If so, has the burden been discharged by the department ?'

2. The assessee is an individual and the accounting year is the Malayalam year 1124 (1948-49). The assessee was doing business in arrack, medicines and also share of profits from two firms. The ITO completed the assessment on December 28, 1951. Subsequently, he came to know that there were certain items of income which had escaped assessment. One of them was certain credits to the capital account amounting to Rs. 65,000. The assessment was reopened and additions to the income were made. The matter was taken in appeal to the Income-tax Appellate Tribunal. The plea before the Tribunal was that the intangible additions which had been made in the assessment year 1948-49 and the assessment year 1950-51 should be held to be the source for these unexplained credits. This explanation was not accepted by the Tribunal. On the facts, the Tribunal allowed a set-off of Rs. 15,000 as the amount that could have been available out of the intangible addition of Rs. 17,000 for that year. The assessee had claimed that the intangible addition of Rs. 48,000 for 1948-49 was available for set-off. The Tribunal's order did not record any specific finding in regard to the claim. But the addition was confirmed. On the present occasion, the Tribunal, from whose order this reference arises, held that the earlier order of the Tribunal had rejected the claim for set-off.

3. The ITO reopened the assessment for a second time. The second reopening was occasioned against the following background. The assessee was a partner in two firms. One of them was Paul Perincherry & M. I. Chakkoru. In the books of accounts of the firm there were unledgerised cash credits in the name of the assessee. These were disclosed in the course of certain litigations between the assessee and Shri Chakkoru, the partner of the firm. The ITO held that the total of such unledgerised cash credits amounted to Rs. 1,29,700 and that the amount stood divided between two years as Rs. 68,200 for 1950-51 and Rs. 61,000 for 1951-52. By the time the officer had information about these credits, the time-limit of 8 years from the end of the assessment year for reopening the assessment under Section 147(a) had run out, and reopening could only be had with the approval of the Central Board of Direct Taxes. The said approval was obtained and assessment proceedings were reopened. Meanwhile, the assessee, Mr. Paul, died, and notices were issued to the legal representative, namely, his wife, Annamma. When the ITO took up the case for hearing, the argument before him was that the unledgerised credits came out of the intangible addition of a larger amount made in the assessment of that year as well as in the earlier years. This was rejected. The officer also rejected the objection to his jurisdiction. He took only the peak amount which fell in the accounting year, namely, Rs. 49,700. This was added to the income. The ITO's order was dated March 26, 1969. An appeal to the AAC failed. The matter came up before the Income-tax Appellate Tribunal. The Tribunal rejected the objection of jurisdiction to reopen the assessment. On the merits, the Tribunal relied on the unreported decision of a Division Bench of this court in M.I. Chakkoru v. CIT [I.T.R. No. 61 of 1965--since reported in : [1980]121ITR440(Ker) (Appendix) infra]. That decision laid down that it is for the assessee to explain the cash credits and to trace their source, and if the explanation was with respect to certain intangible additions made in the earlier years, it is for the assessee to prove the same. It was ruled that no onus was cast on the department. In the light of the decision, the Tribunal found that part of the intangible additions of the earlier years had already been used up in explanation for the credit of Rs. 65,080 considered in the first reopened assessment. The intangible addition of Rs. 48,000 could not be set off against the credit of Rs. 65,000 in the same year. It was noticed that the assessee must have explained before the Tribunal in the earlier proceedings that as regards the addition of Rs. 68,060 for the year 1948-49 it was re-introduced as a credit in the books, and ledgerised as against the present credits, unledgerised. In view of these facts, the Tribunal took the view that the assessee could not be allowed to set off Rs. 48,000 for the assessment year 1948-49. With regard to Rs. 7,150 added in the year 1949-50 it held that if it had been available for re-introduction at all, the assessee would have claimed that also against the ledgerised credit of Rs. 65,000 brought in in the earlier reopened proceedings. The omission of the assessee to claim any such set-off was regarded as giving rise to a presumption that the amount was not available for set-off. On these grounds, the Tribunal rejected the claim of the assessee and dismissed the appeals.

4. The questions of law noticed earlier were compelled to be referred by this court at the instance of the assessee. On an examination of the questions of law it would be seen that on the answer to be given to the 4th question the other questions would really become academic and insignificant. We, therefore, concentrate on the 4th question as to the burden of proof. It has been ruled by a Division Bench of this court in Abraham v. CIT, ILR [1975] (1) Ker 426, after examining the relevant decisions, that it was for the assessee to give a satisfactory explanation in regard to the cash credit entries ; and if the explanation furnished by the assessee is found to be not acceptable, the entries may be taken to represent income that had accrued to the assessee during the year of account. This is what this court observed :

'It is well established that when cash credits are found in the account books of the assessee for the relevant period of account it is the assessee who should give a satisfactory explanation in regard to those entries and if the explanation furnished by the assessee is found to be not acceptable those cash credit entries may be taken to represent the income that had accrued to the assessee during that year of account. This principle is in no way rendered inapplicable merely because it is found that the assessee had earned some undisclosed income in some year anterior to the period of account in respect of which an admission had been made in the course of his assessment for that year. If the assessee has a case that the cash credits noticed during the relevant accounting period have come out of the amount which had been added to his income for the earlier year it is undoubtedly open to him to put forward such a plea while furnishing his explanation about the source of the cash credits and in the event of any such plea being raised by the assessee the same will fall to be carefully considered by the assessing authority. While the fact of such an amount having accrued to the assessee as his income during the earlier year is undoubtedly a matter to be taken note of by the Income-tax Officer in considering the question whether the source of the cash credits has been satisfactorily explained by the assessee, the burden of proof rests squarely on the shoulders of the assessee to establish the truth and tenability of the explanation furnished by him.'

5. This court considered the decisions of the Madras High Court in Kuppuswami's case : [1964]51ITR757(Mad) and Abdul Qadir's case : [1964]52ITR364(Mad) and stated that although some of the observations in the decisions would appear to support the contention urged by the assessee in those cases, those observations have to be understood against the background of the facts and circumstances disclosed. The Division Bench was unable to regard the Madras decisions as laying down any general principle that in all cases where an addition had been made to the income of the assessee in making the assessment for an earlier year, the amount- so added should be presumed to be available to the assessee during the subsequent years. The Division Bench then referred with approval to the previous ruling of this court in M.I. Chakkoru v. CIT [ITR No. 61 of 1965--since reported in : [1980]121ITR440(Ker) (Appendix) infra] and recorded complete agreement with the principle of that decision. The principle approved was stated thus :

'We have been referred to two decisions of the Madras High Court in S. Kuppuswami Mudaliar v. CIT reported in : [1964]51ITR757(Mad) and B. Abdul Qadir v. CIT reported in : [1964]52ITR364(Mad) . We do not understand these decisions as laying down a principle that whenever an estimate had been made of income for any particular year the amount added by that estimate as income from the business disclosed and additions to income from undisclosed sources because of unexplained credits must be taken to be available with the assessee for being credited in a subsequent year of account. And that in all such cases it is for the department to establish that that amount was not available with the assessee. If these decisions imply the casting of any such burden on the department, with great respect we are unable to agree with that view.'

6. It is clear from the above Division Bench rulings of this court in ITR No. 61 of 1965 (M. I. Chakkoru v. CIT) [since reported in : [1980]121ITR440(Ker) (Appendix) infra] and Abraham v. CIT, ILR [1975] Ker 426 that the burden of proof to trace the unexplained credits to the intangible additions is on the assessee and not on the department.

7. Counsel for the revenue drew our attention to the various aspects of the statement of the case. For instance, it was stressed that the assessee had not offered any convincing explanation regarding the source of un-ledgerised credits given at pages 6 and 7 of the statement of the case and that the assessee's position that these credits might have come out of the intangible additions of the past years or the assessment year was a vague conjecture. Attention was also called to the finding of the AAC regarding the intangible additions to the extent of Rs. 17,000 and the comment raised by that authority that the assessee's representative was not able to produce any evidence to show that the same intangible addition was available to the assessee for being considered once against the credits in the capital account, and then again against unledgerised cash credits in the cash books. Attention was also called to the Tribunal's finding at page 22 of the statement of the case that on the material on record no such fund of the intangible additions of Rs. 55,210 (for the years 1948-49 and 1949-50) could have been available to the assessee for re-introduction in the accounting year relevant for the assessment year 1950-51. On these materials on the record we think the Tribunal was right in holding against the assessee. We answer the first part of question No. 4 in the negative ; and, therefore, the second part of that question would not arise for consideration. Question No. 1 :

This question is directly covered in favour of the revenue and against the assessee by the decision of the Division Bench ruling of this court in Kerala Oil Mills' case : [1980]121ITR254(Ker) . It was there ruled that the period prescribed for taking action for reopening assessments was a period of limitation and not a jurisdictional condition. Being so, the longer period of limitation which came into force before March 31, 1959, and before the proceedings of reassessment were initiated was available to the revenue. Therefore, the contention of the assessee that the proceedings are barred by limitation cannot hold good. We answer the first part of question No. 1 in the affirmative, that is, against the assessee, and in favour of the revenue. On the second part of question No. 1 we find no ground or material for interfering with the order of the Appellate Tribunal and in holding that the addition of Rs. 49,700 was unwarranted and illegal. We answer the second part of question No. 1 in the affirmative, that is, in favour of the revenue and against the assessee. Question No. 2 :

In view of our finding on question No. 4, question No. 2 does not arise for consideration and we give no answer to the said question. Question No. 3: Again, in view of our finding on question No. 4, question No. 3 does not arise for consideration and we decline to answer the said question.

8. In the result, the questions are answered as indicated above. We make no order as to costs.

9. A copy of this judgment under the seal of the court and the signature of the Registrar will be communicated to the Tribunal as required by law.


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