M/S.ST.REDDIAR & SONS (P)LTD. vs. ASST.COMMISSIONER OF INCOME TAX

The short facts to be noticed are that in the assessment year 1992-93, there was detected an amount of Rs.3,25,000/- credited to the accounts of the assessee termed as "advance" towards allotment of shares in the Company. The Assessing Officer [for brevity "AO"] treated the same as "cash credit” under Section 68 of the Income Tax Act, 1961 [for brevity "the Act"]. There was a notice issued and the assessee submitted an explanation. Rs.1,25,000/-, which was received from five persons, was accepted as advance share allotment money. As far as Rs.2,00,000/-, the assessee submitted that it was received from one Smt.Rukmini Ammal. The AO was not satisfied about the source of income and, hence, the finding earlier made with respect to that amount was reiterated. The assessee took it in appeal before the first appellate authority. The first appellate authority found, relying on the decisions in CI.T. v. Stellar Investment Ltd. [(1991) 192 ITR 287 (Delhi)] and C.I.T. v. Steller Investment Ltd. [(2001) 251 ITR 263 (SC)], that proceedings could be taken only against the person who is said to have made such investment, whose identity is disclosed, as an unexplained investment under Section 69 of the Act. The Tribunal reversed the order of the first appellate authority and found the amounts liable to be treated as cash credit under Section 68. The assessee is in appeal.

We notice that the decision of the Delhi High Court was rendered without noticing Section 68 of the Act. Section 68, as it stood then, reads as under: "S.

Cash Credit.- 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 - 4 - income-tax as the income of the assessee of that previous year". Hence, when a sum is credited in the books of accounts of the assessee, there should be an explanation offered by the assessee as to the nature and source thereof. If no such explanation is offered and when the explanation is not satisfactory, then the sum credited can be charged to income-tax as the income of the assessee of the previous year. Here, though there was an explanation offered, the same was found to be not satisfactory.

Though this is an appeal under Section 260A of the Act and we are not obliged to look into the facts; we have still gone through the order of the AO to understand as to the explanation submitted. By the time the assessment was taken up, the investor died. The daughter-in-law of the deceased submitted that her mother-in-law would have made such investment out of cash in hand. In fact, the specific submission made by the daughter-in-law before the AO was that her husband, the son of the investor, died in the year 1965 and her father-in-law died in 1975. The mother-in-law is said to have been carrying on small chitty and financing business. It is very unlikely that a person carrying on small chitty and financing business could raise Rs.2,00,000/- as advance - 5 - for investment in a Company in the year 1992. We, hence, find that the essential question raised is on facts as to the satisfactory nature of the explanation offered.

We do not think that the reliance placed on the decision of the Delhi High Court can be sustained especially in view of the fact that Section 68 was not noticed by the Delhi High Court. We, hence, refuse to answer the questions of law, on the ground that there was no positive evidence tendered by the assessee as to the source of the amounts shown in the accounts and the explanation offered was also found to be not satisfactory. The appeal, for the above reasons, would stand rejected. Parties are left to suffer their respective costs. K.VINOD CHANDRAN JUDGE ASHOK MENON JUDGE - 6 -