2012 (6) TMI 439 - HC - Income Tax

Person liable to tax - cash credit - owner - assessee or his son - held that - there is a concerted attempt by the father and the son to suppress income and one is trying to put the blame on the other. In the process both of them are not willing to offer the said income for tax under the Act. - As the said amount was credited to the bank account of the assessee which is also reflected in the statement of books of the assessee and the explanation offered by him is not consistent, subsequently the said amount is not repaid and there are contradictions in his statement and the statement of his son, apart from other two persons from whom the money is said to have flown, we are satisfied that all the ingredients of section 68 are attracted. The burden of showing the nature and source of income was squarely on the assessee. In the facts of the case, he has miserably failed to prove the said fact. Therefore, the impugned order passed by the Tribunal cannot be sustained and accordingly it is set aside. The first substantial question of law framed in this regard is answered in favour of the Revenue and against the assessee. Enhancement of assessed income - jurisdiction of CIT(A) to enhance - held that - the first appellate authority gave an opportunity to the assessee to explain those receipts, called upon the Assessing Officer to hold an enquiry and submit a report. In the report submitted it became evident that except the aforesaid payment of Rs. 40 lakhs in respect of all other payments, the creditors stood by the said payment. Only in respect of this disputed payment, in the first place there is a difference in the name. After the person was identified he gave a statement denying the said pay- ment, denied knowing the assessee at all. The assessee was given an opportunity to cross-examine the said Rajanna who was extensively cross- examined. It is after all this exercise, the appellate authority held that the explanation offered by the assessee is not satisfactory and, therefore, he has failed to disclose the nature and source of income and, section 68 is attracted. Therefore, it cannot be said that the appellate authority had no jurisdiction to go into the said matter, add the said income and enhance the tax. The Tribunal was wholly in error in its approach in so far as the jurisdiction of the appellate authority is concerned. As the judgment relied on by the Tribunal is set aside by the apex court, the order passed by the first appellate authority is valid and legal and the same is restored.

Summary

Issues Involved:
1. Assessment of Rs. 1.35 crores in the hands of the assessee or another person.
2. Jurisdiction of the Commissioner of Income-tax (Appeals) to consider the genuineness of cash credit.
3. Legality of the enhancement made by the Commissioner of Income-tax (Appeals).

Issue-wise Detailed Analysis:

1. Assessment of Rs. 1.35 crores in the hands of the assessee or another person:

The assessee, engaged in agricultural operations and a partner in liquor business firms, had Rs. 1.35 crores credited in his Canara Bank account in May 1985. During a search and seizure operation, the assessee claimed ignorance of the source, attributing it to his son, K. Venkatesh Dutt. P. J. Fernandez, initially claimed to have advanced the amount, later denied it, stating he only lent his name. The Assessing Officer found the explanation unsatisfactory and taxed the amount under Section 68 of the Income-tax Act, 1961. The first appellate authority confirmed the addition, finding the explanation unsatisfactory. The Tribunal, however, found the explanation plausible, noting the amount was assessed in Venkatesh Dutt's hands and directed deletion of the addition in the assessee's hands. The High Court, however, found the Tribunal's reasoning unsupported by material evidence and reinstated the addition, emphasizing the assessee's failure to provide a satisfactory explanation for the credit, thus attracting Section 68.

2. Jurisdiction of the Commissioner of Income-tax (Appeals) to consider the genuineness of cash credit:

During the search of the assessee's son, an account book revealed additional loans, including Rs. 40 lakhs credited in the name of Rajan Patel, later identified as B. Rajanna, who denied the transaction. The Commissioner of Income-tax (Appeals) added this amount to the assessee's income under Section 68, finding the explanation unsatisfactory. The Tribunal held that the Commissioner lacked jurisdiction to enhance the assessment based on this credit, as it was not part of the original assessment order. The High Court, relying on Supreme Court precedents, clarified that the Commissioner (Appeals) has plenary powers to enhance assessments, even on matters not raised before the Assessing Officer, provided they arise from the assessment proceedings. Thus, the High Court upheld the Commissioner's jurisdiction and restored the enhancement.

3. Legality of the enhancement made by the Commissioner of Income-tax (Appeals):

The High Court examined whether the Commissioner (Appeals) could enhance the assessment by adding Rs. 40 lakhs based on the enquiry report revealing the credit was not genuine. The Tribunal had set aside this enhancement, citing lack of jurisdiction. The High Court, however, noted that the appellate authority has wide powers to revise the assessment, including matters not explicitly addressed by the Assessing Officer, as long as they arise from the assessment proceedings. The High Court found the Commissioner (Appeals) acted within his jurisdiction and upheld the enhancement, setting aside the Tribunal's contrary finding.

Conclusion:

The High Court allowed the Revenue's appeal, reinstating the addition of Rs. 1.35 crores in the assessee's hands and upholding the Commissioner (Appeals)' jurisdiction to enhance the assessment by Rs. 40 lakhs. The Tribunal's order cancelling the levy of penalty under Section 271(1)(c) was also set aside, remanding the matter for fresh consideration in light of the High Court's decision.