DM ENGINEERING vs. COMMISSIONER OF INCOME-TAX

ITR/52/1994HC GujaratGJHC24020130199420 September 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI21 pages
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What were the facts?

The assessee, DM Engineering, had four cash credits totaling Rs. 4,75,000/- in its books for assessment year 1976-77, explained as cash received from Syndicate Bank against bearer cheques. The Assessing Officer added this amount under Section 68 as unexplained cash credit. The CIT(Appeals) confirmed the addition. The Tribunal deleted the addition for the first two cheques (Rs. 50,000/- and Rs. 1,50,000/-) but confirmed it for the remaining two (Rs. 1,50,000/- and Rs. 1,25,000/-). The revenue is in reference against the deletion, and the assessee is in reference against the confirmation. The assessee firm had two partners, both employees of the Vora Group, and conducted business from their residence. A search and seizure under Section 132 had occurred earlier.

What did the High Court hold?

The High Court held that the Tribunal was right in deleting the addition for the first two cheques (Rs. 50,000/- and Rs. 1,50,000/-), answering the revenue's reference in the affirmative (in favour of the assessee). The Tribunal was also right in confirming the addition for the last two cheques (Rs. 1,50,000/- and Rs. 1,25,000/-), answering the assessee's first question in the affirmative (in favour of the revenue). Regarding the applicability of Section 69, the Tribunal was right in rejecting the assessee's contention, answering the assessee's second question in the affirmative (in favour of the revenue). The Court reasoned that Section 68 requires an explanation for cash credits, and the assessee's explanation that amounts were withdrawn by bearer cheques was found unsatisfactory by the Tribunal because the funds were diverted to purchase demand drafts, meaning cash was not physically available as reflected in the cash book. The Court found no legal infirmity in the Tribunal's order, even regarding the affidavit, as the Tribunal had reached its conclusions based on the evidence.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the addition in respect of the first two cheques for Rs. 50,000/- and Rs. 1,50,000/- respectively? (Question of law, at the instance of the revenue). 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the addition in respect of the last two cheques for Rs. 1,50,000/- and Rs. 1,25,000/- respectively? (Question of law, at the instance of the assessee). 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the assessee's contention that the amount could be taxed if at all only in assessment year 1975-76 on financial year basis as unexplained investment u/s 69 of the Act? (Question of law, at the instance of the assessee). Assessee's arguments: Section 68 applies only to credit entries, not their utilization. The onus was discharged by showing withdrawal from the bank via bearer cheques. Alternatively, Section 69 should apply, and this is not the correct assessment year for it. An affidavit by Shri Mahendra Turakhia was also submitted. Revenue's arguments: The transaction was not genuine; no cash was actually received from the bank, as it was diverted to purchase demand drafts. Section 68 requires a sum credited in the books, and here there was no actual sum to back the entry.

Which sections of the Income-tax Act were involved?

Section 256(1),Section 147,Section 143(3),Section 68,Section 132,Section 69

AI-generated summary — verify with the full judgment below

ITR/52/1994 1/21 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 52 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================================== DM ENGINEERING - Applicant(s) Versus COMMISSIONER OF INCOME-TAX - Respondent(s) ============================================================== Appearance : MR J.P.SHAH WITH MR.MANISH J SHAH for Applicant MR T.U.BHATT for Respondent ================================================================== CORAM :  HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 29/08/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA)

ITR/52/1994 2/21 JUDGM

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