SAMBANDAM AND COMPANY vs. THE INCOME TAX OFFICER

T.C.A.No.754 of 2019 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 31.08.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MRS.JUSTICE PUSHPA SATHYANARAYANA T.C.A.No.754 of 2019 and CMP.No.21759 of 2019 M/s.Sambandam and Company No.97, Thulasingam Street, Perambur 600 011. .. Appellant Versus The Income Tax Officer, Ward XIV(2), Chennai . .. Respondent Prayer:- Tax Case Appeal filed under Section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras 'C' Bench, Chennai, dated 03.04.2009 made in I.T.A.No.1256/Mds/2008 relating to the Asst Year 1993-94. For Appellant : Ms.Lakshmi Sriram, For Respondent : Mr.M.Swaminathan, Senior Standing Counsel assisted by Ms.V.Pushpa, Standing Counsel 1/8 http://www.judis.nic.in T.C.A.No.754 of 2019 JUDGMENT [Order of the Court was made by

T.S.SIVAGNANAM

, J.]

This appeal filed by the assessee under Section 260 A of the Income Tax Act, 1961 ('the Act' for brevity) is directed against the order dated 03.04.2009 passed by the Income Tax Appellate Tribunal, Madras, 'C' Bench, ('Tribunal' for brevity) in I.T.A.No.1256/Mds/2008 for the assessment year 1993-1994. The appeal has been filed, raising the following Substantial Questions of Law. 1. Whether on the facts and circumstances of the case, the appellate Tribunal is right in law in confirming the additions made under Section 68 under the Act relating to Naninar Mohammed, Selvam and Manikkam especially when the initial burden of proof was discharged by the assessee and the Department failed to issue summons and allow cross examination as ordered by the Tribunal in its earlier order dated 25.11.2005. 2. Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in confirming additions relating to the three persons naninar Mohammed, Selvam and Manikkam after a lpase of more than one and a half decades especially when the assessing officer himself has deleted the addition related to Nainar Mohammed in the 2/8 http://www.judis.nic.in T.C.A.No.754 of 2019 subsequent assessment year and failed to issue summons and allow cross examination of the other two persons. 3.Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law in upholding the addition when the assessing authority's order dated 28.03.1996 got upset by the Tribunal order dated 25.01.2005 in entirety relating to the additions concerned with 6 persons, without granting an opportunity to the appellant as ordered by the Tribunal itself on 25.11.2005. 2. We have elaborately heard Ms.Lakshmi Sriram, learned counsel for the appellant / assessee and Mr.M.Swaminathan, learned Senior standing counsel for the respondent/Revenue assisted by Ms.V.Pushpa, learned standing counsel for the Revenue. The short issue which falls for consideration is whether the additions made by the Assessing Officer on the ground that in respect of three persons, there is unexplained credit and the same was justified ? and whether the Tribunal was right in affirming the said order passed by the Assessing officer ? The case has had a checkered history. The assessment year under consideration is, AY 1993-1994. Earlier round of litigation has made upto the Tribunal to enable the assessee to 3/8 http://www.judis.nic.in T.C.A.No.754 of 2019 produce six sundry creditors before the Assessing Officer for recording statement. The Assessing Officer found that from the 'Anuppu Account' there were several sundry creditors and the assessee stated that they have purchased goods from them. There were totally six persons namely, Pachaiyappan, Selvam, Nainar Mohammed, Jayapal, R.Gajendran and Mani. The assessee was able to convince the Assessing Officer in respect of three persons. However, the Assessing Officer, at the first instance, did not give any opportunity to enable the assessee to examine or cross examine the persons. However on remand by the Tribunal in the earlier round of litigation, the assessee took steps to summon Nainar Mohammed, Selvam and Mani and notice sent by the Assessing Officer to Nainar Mohammed returned with a postal endorsement 'left'. 3. The argument of Ms.Lakshmi Sriram, learned counsel for appellant is that in respect of two persons, the Assessing Officer did not give any specific dates to enable the assessee to produce those two persons before the Assessing Officer for recording statement. It was further argued that in respect of the very same persons, for the earlier assessment year 4/8 http://www.judis.nic.in T.C.A.No.754 of 2019 namely, 1992-1993 and for the subsequent assessment year 1994-95, the Assessing Officer accepted those entries in the assessee's account in the name of the same sundry creditors, as genuine. Therefore, there was no reason as to why for the assessment year under consideration, AY 1993- 1994, the same should not be accepted. It is the further argument that the Tribunal has erroneously recorded, for the earlier assessment year, the addition in respect of Naninar Mohammed, Selvam and Mani was confirmed. 4. However on facts we find that for the very same three sundry creditors for the subsequent assessment year 1994-95 was accepted by the Assessing Officer. Section 68 of the Act states that 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 satisfactory in the opinion of the Assessing Officer, the sum so credited may be charged to income tax as an income of the assessee of the previous year. The proviso under Section 68 of the Act may not be very relevant for the purpose of this case. 5/8 http://www.judis.nic.in T.C.A.No.754 of 2019 5. In terms of the above provision, the onus is on the assessee to explain the sums credited in the books of the assessee. If the explanation offered by the assessee about the nature and source is acceptable to the Assessing officer, then there can be no additions. However, if the Assessing Officer finds the explanation offered by the assessee to be non satisfactory, the sum so credited may be charged to income tax as an income of the assessee. 6. Admittedly in the instant case, the assessee has provided the explanation, such explanation was found acceptable by the Assessing officer for the previous and subsequent Assessment Years. The Assessing Officer did not record a specific note of his satisfaction / dissatisfaction with regard to those three persons. The assessee is non-suited solely on the ground that Mr.Naninar Mohammed did not appear and other two persons did not respond. The fact remains that the notice sent by the Assessing Officer to Mr.Naninar Mohammed returned with a postal endorsement 'left' and there appears to have been no attempt made to summon the said person by 6/8 http://www.judis.nic.in T.C.A.No.754 of 2019 following other modes of substituted service. However the appropriate view that should have been taken is to take note of the genuinity of the assessee and the decision of the Assessing Officer in the assessee's own case for the earlier and subsequent assessment years. We say so because this will prove the genuineness of the transaction as the Assessing Officer accepted those sums found credited in the books of account of the assessee in the names of those three persons to be genuine and the explanation offered was found to be appropriate. Therefore, we are of the considered view that the Assessing Officer should not have disbelieved the stand taken by the assessee. 7. For the above reasons, the Tax Case Appeal is allowed and the order passed by the Tribunal in I.T.A.No.1256/Mds/2008 dated 03.04.2009 is set aside and the Substantial Questions of Law are answered in favour of the appellant / assessee. No costs. Consequently connected miscellaneous petition is closed. (T.S.S.,J) (P.S.N.,J) 31.08.2020 sk 7/8 http://www.judis.nic.in T.C.A.No.754 of 2019 T.S.SIVAGNANAM, J. AND PUSHPA SATHYANARAYANA, J. sk To The Commissioner of Income Tax, Chennai. T.C.A.No.754 of 2019 31.08.2020 8/8 http://www.judis.nic.in