2005 (7) TMI 99 - HC - Income Tax

Ornaments and bullion found in search income from undisclosed sources since assessee failed to explain the source of acquisition of ornaments tribunal restored the additions made by AO - Tribunal has considered the affidavits & other evidence and has given reasons for non-acceptance of assessee s explanation - Tribunal held that the entries in accounts have been manipulated - Findings of the Tribunal are the finding of fact so it cannot be interfered

Summary

Issues Involved:
1. Justification of Tribunal in rejecting affidavits and oral evidence adduced by the assessee.

Detailed Analysis:

1. Justification of Tribunal in Rejecting Affidavits and Oral Evidence:
The primary issue for consideration was whether the Tribunal was justified in rejecting the affidavits and oral evidence presented by the assessee. The case revolved around the assessment year 1977-78, where the assessee, a Hindu undivided family engaged in the sarrafa business, had undergone a search by the Income-tax Department on September 23, 1976. This search revealed significant ornaments and bullion at both the shop and residence, along with a cash book.

The Income-tax Officer (ITO) identified several abnormalities in the books of account, noting discrepancies in the profits and purchases of silver ornaments compared to the previous year. The assessee claimed that the stock found during the search was reflected in the accounts, supported by loans from agriculturists and agricultural income. However, the ITO found various credits in the cash book, which appeared to be interpolated entries, suggesting manipulation to account for unaccounted stocks.

The ITO disbelieved the affidavits and oral evidence provided by the assessee, noting that the parties allegedly lending money did not have the capacity to do so. The affidavits were deemed stereotyped, and the ITO found inconsistencies in the explanations provided. The ITO concluded that the entries in the cash book were bogus and included the value of the unexplained silver ornaments as income from undisclosed sources.

The Commissioner of Income-tax (Appeals) accepted the assessee's explanation, treating the cash book as maintained in the normal course of business and finding the entries genuine. However, the Tribunal, upon appeal by the Department, disagreed. The Tribunal scrutinized the cash book and found that the entries were interpolated after the book was written, indicating manipulation. The Tribunal referenced the Supreme Court's observation in CIT v. Durga Prasad More, emphasizing that taxing authorities are entitled to look beyond documents to the surrounding circumstances.

The Tribunal found that the affidavits and statements of the alleged creditors were not credible, noting that some creditors were not produced for examination, and the explanation for their inability to appear was unconvincing. The Tribunal agreed with the ITO's findings that the creditors did not have the capacity to lend the amounts claimed and that the entries in the cash book were not reliable. Consequently, the Tribunal restored the addition of Rs. 1,13,914 as income from undisclosed sources.

The High Court, after hearing both parties, upheld the Tribunal's decision, stating that the Tribunal had considered the affidavits and other evidence and provided valid reasons for their rejection. The findings of the Tribunal were based on material on record and were not perverse, thus requiring no interference.

Conclusion:
The High Court affirmed the Tribunal's rejection of the affidavits and oral evidence presented by the assessee, concluding that the Tribunal's findings were justified and based on substantial evidence. The Tribunal's decision to treat the entries in the cash book as manipulated and the affidavits as unreliable was upheld, resulting in the addition of Rs. 1,13,914 to the assessee's income from undisclosed sources. The question referred to the court was answered in the affirmative, against the assessee and in favor of the Revenue.