COMMISSIONER OF INCOME TAX, KOTTAYAM vs. KURUVILLA AUGUSTINE

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ITA/1733/2009HC KeralaKLHC01026494200916 January 2014Bench: HONOURABLE MR.JUSTICE A.M.SHAFFIQUE,HONOURABLE THE CHIEF JUSTICE DR. MANJULA CHELLUR5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the orders of the Tribunal were erroneous. Regarding the cash credit of Rs. 26,72,000/-, the Court found that the First Appellate Authority and the Tribunal erred in accepting the assessee's explanation based merely on confirmation letters without further verification of the genuineness of the transaction and the resourcefulness of the creditors. The principle requires the assessee to prove the loan transaction and the creditors' ability to lend. For the undisclosed investment of Rs. 38,50,000/- in M/s. Chola Huts, the Court noted that the statement indicated a significant discrepancy between the declared and actual investment, suggesting concealment. The Court set aside the order of the Tribunal and remitted the matter back to the First Appellate Authority for reconsideration in light of these observations. The issue of travel expenses was not remitted back.

What were the facts?

The assessee, Shri. Kuruvila Augustine, had an undisclosed income of Rs. 66,22,000/-. This comprised Rs. 26,72,000/- as unexplained cash credit and Rs. 38,50,000/- as undisclosed investment in M/s. Chola Huts. The First Appellate Authority deleted the cash credit, which was confirmed by the Tribunal. The Tribunal noted that at the time of search, the assessee had only a rough idea of the loans and lacked records for verification. Subsequently, the assessee obtained details and filed a cash flow statement. The First Appellate Authority accepted this explanation, holding that the assessee discharged the primary onus and any further clarification was for the appellate authority. The High Court, however, found this approach erroneous.

What were the issues?

1. Whether the First Appellate Authority and the Tribunal erred in accepting the assessee's explanation for the cash credit of Rs. 26,72,000/- based solely on confirmation letters without further verification of the genuineness of the transaction and the resourcefulness of the creditors, thereby violating the principle that the assessee must prove the loan transaction and the resourcefulness of creditors? (Question of law and fact, concerning Section 68 of the Income Tax Act, 1961). Assessee's Contention: Not recorded. Revenue's Contention: The First Appellate Authority and the Tribunal erred in accepting the cash credit based on confirmation letters without adequate verification of the transaction's genuineness and the creditors' resourcefulness. 2. Whether the First Appellate Authority and the Tribunal correctly considered the undisclosed investment of Rs. 38,50,000/- in M/s. Chola Huts, particularly in light of the statement indicating a 1/100th figure was shown as investment while the actual investment was much higher, and whether this constituted concealment under Section 158BB of the Act? (Question of law and fact). Assessee's Contention: Not recorded. Revenue's Contention: There was material reflecting concealment, with only 1/100th of actual amounts declared, and the assessee's stake of 1/3rd in Hotel Chola Hut, along with the opportunity for other parties to explain, should have been considered under Section 158BB.

Which sections of the Income-tax Act were involved?

Section 68,Section 158BB

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE THURSDAY, THE 16TH DAY OF JANUARY 2014/26TH POUSHA, 1935 ITA.No. 1733 of 2009 --------------------- AGAINST THE ORDER IN IT(S&S)A 83/COCH/2005 of I.T.A.TRIBUNAL, COCHIN BENCH DATED 13-03-2009 .............. APPELLANT/APPELLANT : ---------------------------- THE COMMISSIONR OF INCOME TAX, KOTTAYAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDNT : -------------------------------- SHRI.KURUVILA AUGUSTINE, KOCHI.

BY ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16-01-2014, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

Manjula Chellur, C.J. & A.M. Shaffique, J. - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A. No. 1733 OF 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 16th day of January, 2014 JUDGMENT Manjula Chellur, C.J. So far as the respondent/assessee in this case the total amount of undisclosed amount of income was fixed at `66,22,000/- of which `26,72,000/- is the cash credit (unexplained) by the respondent/assessee and `38,50,000/- is the undisclosed investment in M/s.Chola Huts. The First Appellate Authority deleted the cash credit of `26,72,000/- and the same came to be confirmed by the Second Appellate Authority. According to the Tribunal, the details of creditors furnished before the Deputy Director of Inspection at the time of search and before the assessing officer along with the submissions made by the representative of the assessee indicate that at the time of search it was only a rough idea about the loans and assessee did not have the benefit of records to verify the details. Subsequent to the assessment proceedings being completed, he could secure the details from the records and filed cash flow statement based on which the

ITA No. 1733 of 2009 -:2:- details of loan/creditors were furnished. The First Appellate Authority accepted the said explanation of the assessee and deleted the same opining that the primary onus in proving the genuineness of the cash credit has been discharged by the assessee and if at all any clarification was required, it was for the appellate authority to conduct necessary enquiries so far as resourcefulness of creditors. This opinion of the First Appellate Authority was confirmed by the Tribunal. 2. In order to explain the cash credit in the hands of the assessee, if he refers to the amounts given to him by the creditors, he must be able to prove the said loan transaction between him and the third parties apart from the resourcefulness of creditors and the genuineness of the transaction. 3. The First Appellate Authority and the Tribunal considered this aspect with reference to the above principle but based on the confirmation letters, without further verification, have simply accepted the statement of the assessee which is erroneous. Therefore there has to be reconsideration by the First

ITA No. 1733 of 2009 -:3:- Appellate Authority regarding the genuineness of the transaction and the resourcefulness of the creditors. So far as `38,50,000/- his unaccounted investment in M/s.Hotel Chola Hut statement of Sri.A.C.Joseph indicates how the figures were reflected by showing 1/100th figure as the investment, though actual investment is much more than the statement of the Sri.A.C. Joseph. Other material reflected the concealment and only 1/100th of the actual amounts are declared. The assessee having stakes of 1/3rd in Hotel Chola, which is reflected in the partnership documents, so far as the investment `38,50,000/-, his portion of the investment as in the case of Sri.A.C. Joseph and also Devasia Devasia, this person also had an opportunity to explain the same and if it is reflected in the books of accounts which could be taken into consideration as contemplated under Section 158BB of the Act. Therefore, the orders of the Tribunal at Annexure E is set aside remitting back the matter to the First Appellate Authority for reconsideration in the light of above observations.

ITA No. 1733 of 2009 -:4:- In this case also we are of the opinion, there is no question of remitting back the matter so far as the travel expenses of the assessee having regard to the nature of business he is conducting. Manjula Chellur, Chief Justice. A.M. Shaffique, Judge.

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