1984 (2) TMI 30 - HC - Income Tax

Summary

Issues:
1. Interpretation of section 24 of the Finance (No. 2) Act, 1965 regarding the genuineness of cash credits in the account books of the assessee.
2. Burden of proof under section 68 of the Income-tax Act, 1961 to explain the source of deposits.
3. Nature and source of cash credits in the names of minor children of the partners of the assessee-firm.

Analysis:
The judgment pertains to an assessment year where the assessee, a firm engaged in spinning and weaving of woollen yarn and fabrics, had cash credits in its account books amounting to Rs. 2,43,000 in the names of various individuals. The Income Tax Officer (ITO) treated the entire sum as income from undisclosed sources as he was not satisfied with the explanation provided. The Appellate Assistant Commissioner (AAC) noted that some deposits were made by minors represented by their guardians and others were based on voluntary disclosures under section 24 of the Finance (No. 2) Act, 1965. The AAC accepted the contentions of the assessee and deleted the addition. The Revenue appealed to the Income-tax Appellate Tribunal.

The Tribunal considered the conflicting judgments of different High Courts regarding the interpretation of section 24 of the Finance (No. 2) Act, 1965. The Tribunal relied on the Delhi High Court's decision that declarations made under the voluntary disclosure scheme could not be questioned to ascertain the nature and source of the declared sum. The Tribunal dismissed the Revenue's appeal. Subsequently, the matter was referred to the High Court for opinion.

The High Court analyzed the case law, including a Supreme Court judgment, which concluded that the voluntary disclosure scheme did not preclude an investigation into the true nature and source of the declared amount if it was found to be false. The High Court held that the income declared by the creditors but actually belonging to the assessee could be taxed in the hands of the assessee. The Court upheld certain High Court decisions regarding the scope of the Voluntary Disclosure Scheme and overruled others.

Ultimately, the High Court answered the questions raised. It held that the Department could question the genuineness of cash credits declared by guardians on behalf of minor children. The assessee had discharged the burden of proof only for deposits made by declarants who had themselves declared their assets under the Voluntary Disclosure Scheme. The nature and source of cash credits in the names of minor children were not satisfactorily explained, ruling in favor of the Revenue. The reference was disposed of accordingly, with no costs incurred.