2024 (2) TMI 1534 - HC - Income Tax

Disposal of the suit filed by the assessee as claimed amounts from the State far in excess of that already disbursed which disbursed amounts also is claimed to have been utilized fully in providing flood relief - HELD THAT - We have to immediately notice that though the amounts were siphoned off and deposited in an account of a fictitious firm registered in the name of a fictitious person the assessee admits to have utilized the said amounts in supplying relief material. There is also evidence to substantiate the operation of the accounts by the assessee. Hence as held by the Tribunal the assessee cannot wriggle out of the liability unless the purchases and the money spent on relief material is substantiated failing which the assessee would have to be taxed for the entire money s received in the accounts. We do not think that there is any reason to keep the matter pending till the suit is disposed off. As has been rightly noticed by the Tribunal neither would the findings of the Assessment Officer have a bearing on the disposal of the suit nor would the findings in the suit have a bearing on the assessment to be carried out. Assessee has not produced any material before the AO to substantiate the purchases made by him from the amounts disbursed by the State Government for the purpose of providing flood relief. Tribunal has categorically noticed that no evidence was led by the assessee before the AO A contention was raised based on Section 50 of the Disaster Management Act 2005 but no certificate of utilization was produced by the assessee. The supply of relief material was the responsibility of the Corporation and if at all the utilization certificate is obtained it can only be by the Corporation. The assessee had no privity of contract either with the State or the Corporation to supply relief material and there is no question of a utilization certificate issued under the Disaster Management Act coming to the rescue of the assessee. We find absolutely no question of law arising in the case and the question framed is one on facts and not on law.

Summary

The High Court considered two appeals by the assessee against a common order of the Income Tax Appellate Tribunal. The first appeal by the revenue was rejected due to being below the limit prescribed under the litigation policy. The remaining issue was the assessment for the year 2005-06, which revolved around a scam involving the diversion of funds meant for flood relief work in Bihar. The assessee was alleged to have siphoned off funds released by the State Government, and the assessment was based on these diverted amounts.The key issue in question was whether the assessment for the year 2005-06 should wait until the disposal of a suit filed by the assessee, where he claimed amounts far exceeding those already disbursed for flood relief work. The assessment was based on the alleged involvement of the assessee in diverting funds meant for relief work to a fraudulent firm operated by him.The Court noted that the assessee admitted to utilizing the diverted amounts in supplying relief material, but failed to substantiate the purchases made for this purpose. The Department argued that despite the fraudulent nature of the funds received, they constituted taxable income in the hands of the assessee. The Tribunal held that the assessee could not avoid tax liability unless the purchases and expenses on relief material were substantiated.The Court emphasized that the findings of the Assessment Officer and the suit filed by the assessee were independent of each other, and the outcome of the suit would not impact the assessment. The assessee's failure to provide evidence of purchases made from the disbursed amounts led to the rejection of the appeal. The Court also dismissed the contention based on the Disaster Management Act, as the assessee had no contractual relationship with the entities responsible for relief material supply.Ultimately, the Court found no legal question in the case, as the issue was factual rather than legal. The appeal against the Tribunal's order was rejected, affirming the assessment against the assessee for the diverted funds. The Court's decision was unanimous, with both judges concurring.In summary, the Court upheld the assessment against the assessee for diverting funds meant for flood relief work, emphasizing the need for substantiating purchases and expenses related to relief material. The decision highlighted the distinction between factual and legal issues, ultimately rejecting the appeal based on the lack of evidence provided by the assessee.