P.D.ABRAHAM ALIAS PAPPACHAN vs. THE COMMISSIONER OF INCOME TAX

ITA/81/2012HC KeralaKLHC01024003201219 September 2017Author: HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU,HONOURABLE MR.JUSTICE ANTONY DOMINIC10 pages
AI SummaryDismissed

What were the facts?

The assessee, a film producer, is appealing an order by the Income Tax Appellate Tribunal (ITAT) for the assessment year 2003-2004. The Assessing Officer (AO) added Rs. 1,76,82,500 to the assessee's income under Section 68 of the Income Tax Act, 1961, for unexplained credits, citing failure to satisfy the source or genuineness of loans. The assessee appealed to the First Appellate Authority (FAA), providing some account details, confirmation letters, and PAN cards. The FAA sought a remand report from the AO, which identified Rs. 32,82,500 in loans for which confirmations were not filed, and Rs. 1,59,47,500 for which confirmations were filed but no bank statements or evidence of the nature/source of funds were provided, nor were the lenders produced for examination. The FAA partly allowed the appeal, excluding Rs. 15,50,000 from Sundaram Finance and Vijaya Bank. The ITAT confirmed the addition to the extent of Rs. 159.475 lakhs.

What did the High Court hold?

The High Court held that the assessee failed to discharge the burden of proof under Section 68 of the Income Tax Act. The court reasoned that while the assessee provided some documentation like confirmation letters and PAN cards, these at best proved the identity of the creditors. Crucially, the assessee did not take steps to prove the creditworthiness of the lenders or the genuineness of the transactions. The court emphasized that receiving amounts through banking channels or reflecting them in the lender's accounts does not, by itself, discharge the assessee's burden under Section 68. The court distinguished the present case from those involving share application money, where the assessee might have limited knowledge of the applicant's source. It relied on the principle laid down in CIT v. Precision Finance Private Limited (1994) 208 ITR 465 (Calcutta), stating that it is for the assessee to prove identity, creditworthiness, and genuineness, and mere furnishing of particulars is insufficient. The court found the assessee's submission that the AO should have made further inquiries to be misconceived. Consequently, the questions of law were answered in favour of the Revenue, and the appeal was dismissed.

What were the issues?

The Tribunal had to decide the following questions of law: 1. Whether, in cases where an assessee takes loans from financiers/money lenders through account payee cheques in compliance with Section 269SS of the Income Tax Act, the burden of proving the 'source' from which the creditor provided the loan shifts to the assessee? 2. Whether the appellant has discharged the burden cast under Section 68 of the Income Tax Act by establishing the identity of creditors and proving receipt of loans via account payee cheques? 3. Whether, under Section 106 of the Indian Evidence Act, the burden on the assessee under Section 68 is limited to showing receipt of loans by account payee cheques and establishing creditor identity? 4. Whether the appellant discharged the burden under Section 68 by submitting copies of ledger folios maintained by creditors in their books? Assessee's Contentions: The assessee argued that having produced all available materials, the onus was on the AO to make further inquiries. They also contended that the burden under Section 68 is limited to proving the identity of creditors and receipt of funds via account payee cheques, especially considering Section 106 of the Evidence Act. Revenue's Contentions: The Revenue contended that the assessee failed to discharge the burden under Section 68 by not proving the identity of creditors, their creditworthiness, and the genuineness of the transactions, justifying the AO's addition.

Which sections of the Income-tax Act were involved?

Section 68,Section 269SS,Section 106

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUE AY, THE 19TH DAY OF SEPTEMBER 2017/28TH BHADRA, 1939 ITA.No. 81 of 2012 ------------------- APPELLANT/APPELLANT: -------------------- P.D.ABRAHAM ALIAS APPACHAN: 'SWARGACHITHRA”: JAIL ROAD, CALICUT.

BY ADVS.SRI.P.RAGHUNATH SRI.PREMJIT NAGENDRAN RESPONDENTS: ------------ THE COMMISSIONER OF INCOME TAX KOZHIKODE.

R BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX R1 BY ADV. SRI.P.K.R.MENON, SR.COUNSEL, GOI(TAXES) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19-09-2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ANTONY DOMINIC, J. & DAMA SESHADRI NAIDU, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.No.81 of 2012 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 19th day of September, 2017 JUDGMENT Antony Dominic, J. This appeal is filed by the assessee impugning the order passed by the Income Tax Appellate Tribunal, Cochin Bench in ITA 172/09 concerning the assessment year 2003-2004. 2.

The order continues below.

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