COMMISSIONER OF INCOME TAX vs. P. MOHANAKALA

CIVIL APPEAL No. 2540/2007Supreme Court[2007] 6 S.C.R. 68015 May 2007Bench: 2 JudgesAuthor: S.H. KAPADIA, B. SUDERSHAN REDDY COMMISSIONER OF13 pages
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What did the Supreme Court hold?

The Supreme Court held that the expression 'the assessee offers no explanation' under Section 68 means where the assessee offers no proper, reasonable, or acceptable explanation. The Assessing Officer's opinion for not accepting an explanation must be based on a proper appreciation of material and attending circumstances, formed objectively. The assessees did not take the plea that even if their explanation was unacceptable, the material and circumstances did not justify treating the credited sums as income. The burden to prove this was on the assessees, and they made no such attempt. The Court found that the Assessing Officer, Commissioner (Appeals), and Tribunal concurrently held that the gifts were not real, based on various surrounding circumstances and material on record, not conjectures. The High Court erred in disturbing these concurrent findings of fact as no substantial question of law arose. The appeals by the Revenue were allowed.

What were the facts?

The respondents-assessees received various amounts from a foreign donor during the assessment years 1995-96 and 1996-97 through banking channels. Upon inquiry by the Revenue, the assessees claimed these amounts as gifts. The Assessing Officer rejected this explanation, treating the sums as income under Section 68 of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal upheld the Assessing Officer's decision. However, the High Court, in appeals under Section 260A, allowed the assessees' appeals, finding the lower authorities' reasoning to be based on surmises and conjectures. The Revenue appealed this decision to the Supreme Court.

What were the issues?

1. Whether, in the facts and circumstances, the Income Tax Appellate Tribunal was correct in law to accept the principle of preponderance of probabilities in holding that the sum received by the appellant (assessee) by way of gifts through normal banking channels was not genuine and was liable to be assessed under Section 68 of the Income Tax Act, 1961? 2. Whether, in the light of established law and based on the facts and circumstances, the Income Tax Appellate Tribunal was legally justified in concluding that the burden of proof cast on the appellant (assessee) under Section 68 of the Income Tax Act, 1961, had not been discharged and the ingredients for invoking Section 68 were present? 3. Whether, in the facts and circumstances, the conclusion of the Tribunal that the claim of gift is not genuine is reasonable and based on relevant material and not perverse? Assessee's contentions: The High Court did not exceed its jurisdiction or commit an error in its conclusion based on the evidence; the lower authorities' conclusions were based on surmises and suspicion; improper inference drawn from proven facts gives rise to substantial questions of law; even if the explanation is not acceptable, the amounts credited cannot automatically be treated as income unless the question of unexplained cash credit being income is framed and answered. Revenue's contentions: The High Court exceeded its jurisdiction under Section 260A by disturbing concurrent findings of fact through re-appreciation of evidence and substitution of its own findings; since the assessees failed to offer a reasonable explanation for the cash credits, they were rightly treated as income under Section 68.

Which sections of the Income-tax Act were involved?

Section 68,Section 260A

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A COMMISSIONER OF INCOME TAX v. P. MOHANAKALA MAY 15, 2007 B [S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.)

Income Tax Act, 1961-Sections 68 & 260A-Cash Credits-Assessee claiming amounts received from a foreign donor during relevant assessment ~ " 4-. c year as gifts on enquiry-Assessing Officer rejecting the explanation and treating the amounts as income of the assessee liable to income tax- Commissioner of Income Tax (Appeals) and·Tribunal upholding the assessment made by the Assessing Officer-High Court reappreciating the evidence and allowing the appeal of the assessee-Correctness of-Held, on facts, the opinion of the Assessing Officer in treating the amounts received by the D assessee as income of the assessee was based on materials on record and surrounding circumstances-Hence, the assessee is liable to income tax on the amounts received-High Court erred in re-appreciating the evidence and .,. setting aside concurrent findings of fact without there being any substantial question of law involved. E Respondents-assessees received different amounts from a foreign donor during relevant assessment years through banking channels. On enquiry by Revenue about th

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