CIT JALANDHAR vs. M/S NATHU RAM HARI DEV,PHAGWAR

Following question of law has been referred for opinion of this Court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar under section 256 (1) of the Income Tax Act, 1961 (for short, ‘the Act’) arising out of its order dated 7.5.1996 in ITA No.386(ASR)/1990, for the assessment year 1987-88:- “Whether on the facts and in the circumstances of the case, the ld. ITAT is right in law in deleting the addition of Rs.1,35,000/- confirmed by the ld. CIT(A) in the light of the decision of the Hon’ble Supreme Court in the case of Jamuna Prashad Kanhaiya Lal reported at 130 ITR 244?”

The assessee is a registered firm. During assessment, nine cash credit entries were found in the books of account of the assessee. The creditors were minor children of the partners. The assessee submitted that the creditors had declared their income under the Amnesty scheme. The Assessing Officer held that declaration under the Amnesty Scheme was not conclusive qua non-declarant and in absence of any valid explanation for the credit entries, the amount could be treated to be undisclosed income of the assessee. Accordingly, addition was made to the declared income which was upheld by the CIT(A). The Tribunal held that since depositors had been assessed under the Amnesty scheme and the amount had suffered tax, source of the money could not be enquired into. It was further held that the assessee firm had explained the source and could not be required to explain the source of the source. Reliance was placed on judgment of the Patna High Court in Sarogi Credit Corporation v. CIT, (1976) 103 ITR 344. 3. We have heard learned counsel for the revenue. None appears for the assessee.

Contention raised on behalf of the revenue is that the view taken by the Assessing Officer and the CIT(A) was correct and is consistent with the law laid down by the Hon’ble Supreme Court in Jamnaprasad Kanhaiyalal v. CIT, MP, Bhopal, (1981) 130 ITR 244. Mere fact that the creditors had made declaration under the Amnesty Scheme was not conclusive when creditors had no source of income as they were admittedly minor children of the partners. In such circumstances, it could not be held that the assessee had duly explained the source, as observed by the Tribunal. Mere fact that transfer of money was by cheque could not be, in the circumstances, of significance. Genuineness of the transaction was required to be established.

Reference to the order of the CIT(A) shows that after appreciation of evidence, it was held that the assessee firm introduced its own undisclosed funds in the name of minor children. The relevant observations are:- “8……In the present case, I find that the assessee firm has tried to introduce its own undisclosed funds in the names of minor children and, therefore, the immunity given by the Amnesty Scheme was not applicable. Besides that the benefit of the Amnesty Scheme was available only to the declarants and not to the assessee firm as held by the Supreme Court in the case of Jamna Parshad Kanhaiya Lal v. CIT, 130 ITR 244. Therefore, in these circumstances, it appears to me that the assessee firm has not been able to furnish the nature and source of the cash credits totaling Rs.1,35,500/- and the Assessing Officer was justified in making the addition accordingly.”

Reference to judgment of the Hon’ble Supreme Court shows that it was permissible to go into question of genuineness of the credit entries from a person who may have made declaration under the Amnesty Scheme. It will be worthwhile to refer to the following observations in the judgment after referring to the Scheme of the Act:- “18. The immunity under S. 24 of the Act was conferred on the declarant only, and there was nothing to preclude an investigation into the true nature and source of the credits. The I.T.O. was, therefore, justified in treating the cash credits in the books of account of the assessee in the names of the creditors as unexplained cash credits. The finality under sub- sec. (8) is to the order of the Central Board of Revenue under sub-sec. (6). Under sub-sec. (4) the Commissioner of Income-tax was required, within thirty days, if satisfied that the whole or any part of the income declared has been detected or deemed to have been detected by the I.T.O. prior to the date of declaration, to make an order in writing to that effect and forward a copy thereof to the declarant. Any person who objected to such an order could appeal under sub-sec. (5) to the Central Board of Revenue stating the grounds for such an objection. The Board was empowered to pass such orders as it thought fit under sub-sec. (6). This order of the Board under sub-sec. (6) was final and conclusive by reason of sub-sec. (8). Thus, the finality under sub-sec. (8) was to the order of the Board under sub-sec. (6) of S. 24 and not to the assessment of tax made on the declarations furnished by the creditors under the scheme, by virtue of the legal fiction contained in sub-sec. (3) of S. 24 of the Act. Xx xx xx xx xxx

In our judgment, the legal fiction created by sub-sec. (3) of S. 24 of the Act by virtue of which the amount declared by the declarant was to be charged to income tax "as if such amount were the total income of the declarant" was limited in its scope, and it cannot be invoked in assessment proceedings relating to any person other than the person making the declaration under the Act so as to rule out the applicability of S. 68 of the Income-tax Act, 1961. 21. The last question that remains is whether the same income cannot be taxed twice, once in the hands of the creditors and again in the hands of the assessee. In a case of this description, there is no question of double taxation. The situation is of the assessee's own making in getting false declarations filed in the names of the creditors with a view avoid higher slab of taxation. Once it was found that the income declared by the creditors did not belong to them, there was nothing to prevent the same being taxed in the hands of the assessee to which it actually belonged.”

We are of the view that the Tribunal failed to correctly appreciate the law laid down by the Hon’ble Supreme Court. The credit entries represented undisclosed income of the assessee. The creditors were minor children of partners who had no source of income. Their making a declaration under the Amnesty scheme was not conclusive for treating the credit entries to be genuine even if the transfer was made by way of cheque.

We accordingly, answer the question in favour of the revenue and against the assessee.

The reference is disposed of accordingly. (Adarsh Kumar Goel) Judge July 12, 2010 (Ajay Kumar Mittal) ‘gs’ Judge 5