^ r L-k.<r.-- IN THE HIGH COURT OF CHATTISGARH AT BILASPUR (C.G.) t^T ft,, No.66/JDI?^a@©9 TAX CASE No..A^:.../2010 APPELLANT; p ^sj^Kushal Prasad Manhar, *^"®^' S/o Shri S.R. Manhar, years, Nagar, Vyapar Vihar, Bilaspur (C.G.) A^^"®.'y [ s/° shri s- ^.'y-'\/ Aged about ...^' Bhartiya N£ -A'i1 " i-.t"?3-y Rl "^" -Vs.-, Commissioner of Income, Bilaspur, Chhattisgarh. RESPONDENT : APPEAL UNDER SECTION 260A OF THE INCOME TAX AC^Ji'QRASSESSMENT YEAR 2006-2007 i® mGH COURT OF CHHATHSGARH AT BILASPUR TaxCaseNo. 12 of 2010 APPELLANT Respondent : Kushal Prasad Manhar Versus Commissioner of Income Tax, Bilaspiir ORDER For consideration Sd/- N.K. Agarwal Judge $'-8-2010 ^ HQN'BLE SIEmi I.M. QUDDUSI. J 3 1 Y<j6^ Sd/-:1---^ DR. I.M.Quddusi Judge wvcyga- e^ -8-2010 Postfor: o^ -8-2010 Sd/- N.K. Agrawal Judge o-S^-8-2010 HIGHCOURTOF CHHATTISGARH AT BILASPUR TaxCase No. 12 of 2010 APPELLANT Respondent Kushal Prasad Manhar Versus : Commissioner 6f Income Tax, Bilaspur APPEAL UNDER SECTION 260-A OF THE INCOME TAXACT FOR ASSESSMENTYEAR 2006-2007 DB: Hon'bleMr^LM.Quddusiand Hon'ble Mr. N.K. Aearwal. JJ. Present : !" • .• ' 1.;":' • '1 - ,1 1': 1 ;'' Shri G.N. Purohit, Sr. Advocate with Shri Abhishek Oswal, Advocate for the appellsLD.t. * Shri Rajeev Shrivastava, Standing Counselfor the respondent. !.t .' , ORDER (Passed on fc day pfAugust, 2010) PER N.K. AGARWAL. J. 1. The appeal under Section 26Q-A ofthe In-come Tax Act, 1961 (for short, hereinafter refen-ed to as the Act') was admitted by this Court for consideration on the following substantial questions of law:- i. Whether in the facts and in the circum.stances of the case, the Tribunal was correct in law in holding . that appeUant has failed to prove the creditworthiness of the creditors and confirmmg the addition ofRs. 14,99,000/- ? ii. Whether the finding of the Tribunal recorded without considering the evidfence on record is justified in law and not perverse ? iii. Whether on the facts and circumstances of the case, fhe Tribunal was eorrect in law in confirraing •^s':"'ys-^ y<.A''%, ' ^t \- "• ' ' '' '^" ^' the addition of Rs. 50,000/- for disallowance of transportation expenses ? Facts of the case in nutshell are as under:- 2. The assessee is sole prpprietor ofM/s Shradha Fuels,yill. Tiwarta, Korba and is engaged in the business of trading in Petrol, Diesel and Lubricant Oil ete.. He submitted his return ofincome for Assessment Year 2006-2007 on 30-10- 2006 declaring total income of Rs. 1,26,359/-, The assessment proceedings were taken up by issuance of notice under Section 143(2) OftheActdated 20-3-2007. The assessee claiined expenses in transportafion accoiints amounting to Rs. 4,21,150/-. Cash credit amounting to Rs. 9,00,000/- and Rs. 10,99,000/- are app.earihg in the names ofShriS.R. Manhar (Individual) and S.R. Manhar (HUF) in the books 6f assessee as under:- Shri S.R. Manhar (Indl.) S.R.ManharfHUF) The above amounts were deposited by the creditors in the month of Mareh, 2006 bn different dates in eash, in their respective bank accounts and account payee cheques were immediately issued thereafter to assessee. Qn being asked, the assessee produced the above creditor for his 1-4-2005 Op. Balance3,50,000/- 3-3-2006 46,000/- 20-3-2006 89,000/- 4-3-2006 72,000/- 21-3-2006 91,000/- 6-3-2006 2,09,000/- 23-3-2006 21,000/- 7-3-2006 9I,000/- 24-3-2006 49,000/- 8-3-2006 99,000/- 25-3-2006 1,31,000/- 10-3-2006 71,OQO/- 27-3-2006 49,000/- 11-3-2006 99,000/-. 28-3-2006 1,20,000/- 13-3-2006 1,27,000/- 9,00,000/- 13-3-2006 84,000/- 14-3-2006 1,26,000/- 17-3-2006 75,000/- Total Rs. 10,99,000/- •y^. ^ &.:'.L- % ^,.. ¥--ffy "70 7. examination. Shri S.R.Manhar (Individual) is also Karta bf the HUF viz., S.R. Mahar; Statement of Shri S.R. Manhar in his individual as weU as his capacity as Karta of HUF were recorded in presence ofthe Authorized Representative of the assessee,separately. Out of Rs. 4,21,150/-, the Assessirig Officer disallowed Rs. 50,000/- for want of proper bills and vouchers and added the same to the inGome ofthe assessee. The Assessing Officer after taking into. consideration the return ffled by the assessee as well as statem.ents of Shri S.R. Manhar in. his bofl-l the capacities held cash credit of Rs. 4,QO,000/- in the name of S.R. Manhar (individual) and cashcredkofRs. 10,99,QOO/- in thename ofS.R.Manhar (HUF) as not genuine and added the same to the income of the assessee. The appeal preferred thereagainst by fhe assessee before the Commissioner of Income Tax (Appeals), Bilaspur •was allowed, • • ;• - ' • 1 ! "1'. '•• : / , :1 .' ' Thereagainst, revenue preferred appeal before the Income Tax Appellate Tribunal, BUaspur. The Income Tax AppeUate Tribunal vide its order dated 30-7-2009 allowed the appeal, resfored and confirmed the prder passed by the Assessing Officer. Hence this appeal. Shri G.N. F'urohit, learned Sr. Advocate would submit that if the sum is found credited in the account books of assessee, it has to prove three things viz. identity of the ereditor, capacity of such creditor and genuineness of the transaction. Once aU the aforesaid three things are proyed, \\ \. burden shifts on the revenue to prove that the amount belongs to assessee. The assessee has done everything inasmuch, he has produced confirmation letters of creditors who are income tax assessee, also produced them for recording their statements before the Assessing Officer, in which they have explained everything, .thus the assessee has successfully discharged its initial burden as envisaged under Section 68 of theAct. The assessee is not obliged to prove the source ofthe source. For this, the revenue has not discharged its burderi, therefore, the order passed by the Assessing Officer, disallowing cash credit of Rs. 4,00,OOO/- and Rs. 10,99,000/- and adding it ta the income of the assessee is perverse being based on no niaterial on record. For this, he placed reUance upon the judgment in the matters of Coniinissioner of Inconie Tax —v-Orissa Corporation (P) Ltd. [(1986) 159 ITR 78 (SC)], Comniissioner of Income Tax -v- Mehrotra Brothers [(2004) 270 ITR 157 (MP)],Commissioner for Income Tax -v- S.MaljeetSineh [(2005)147 TAXMAN 18 (All)], Nemi Chand Kothari -v- Conitnissioner of Inconie Tax and another [(2003) 264 ITR 254 (Gau), Commissioner of Income Tax -v- Baishnab Charan Mohantv (212 ITR199), Jalan' Tiinbers -v- Commissiorier of rncome Tax [(1997)223 rTR (Gau) 649], Anil Rice Mills -v- Commissioner of Income Tax [(2006) 282 ITR 236 (All)], Kainal Motors —v-Conimissioner of Ihcoine Tax, [(2003) 18Q CTR (Raj) I66], Aravali Tradine Co. -v- Income Tax Officer_[(2008) 220 CTR (Raj) 622 and Murlidhar :/ Lahorimal—v-Commissioner oflncome Tax [ (2006) 280 ITR(Guj)512. He woiild further contend, addition of Rs. 50,000/- in the income, disallowing transportation expenses to fhe above exteht inciirred for rurining ahd maintenance oftankertruckisalsowithout any basis. 8. On the other hand, Shri Rajeev Shrivastava, leamed Standing Counsel appearing for the reqpondent, supported the order passed by the Tribunal and contended that the findings recorded by the Assessing OfBcer as well as the Tribunal are pure fihdings of fact and do notgive rise to any substantial question of law reqi.uring interference by this Court, inasmuch as accepting or rejectihg the explanation offered by the assessee is a finding of fact and thesame does not give rise to Einy substantial question of law, as held by this Court in I.T.A. No. 125 of 1999 (The Commissioner of Income Tax, Raipur -v- Shri Satyanarayan Agrawal, Raipur) yide its order dated 25-11-2009 and the appeal being sans merit deserves to be dismissed. 9. We have heard thesubmissions made by learned counsel for the parties, and also perused the record. 10; In the instant case, the explanation offered by the assessee was not found satisfactoryby the Assessing Officer foi- the reasoris (i) Incoine-tax Retyms have been filed by Shri S.R. Manhar (Indl) and S.R. Manhar (HUF) for a.y. 2005-2006 for the first time; the retums filed by them are also not supported by Capital A/c. and Balance Sheet showing loans advanced by them to assessee; (ii) the loans have been channeled through bank accounts by depositing cash in ''. .•(.. •i' •" •.<•''•'.• •"•" 73> •y •""" \ bank account on various dates, all in the month of Msirch, 2006 and then by issuing accountpayee cheques in favour of the assessee iramediately thereafter; (iii) It is absolutely unbelievable that any prudent person will keep such a huge amount of cash with him with allthe risk oflife and property instead of depositing in bank and eaming handsome income in fhe form ofinterest; (iv) The loans were not given in one lurripsum but on several occasions on successive days and sometimes in a day's gap by depositmg eash in the accounts pf the alleged creditorsin a similar fashion. This abundantlyproves that eash was not available with the alleged creditors as claimed by them; and (y) The capacity bf the creditors to advance loans as above fo the assessee, is fherefbre, not proved. The Assessing Officer further held that "The assessee has claimed expenses in transportation A/G.amount to Rs. 4,21,150/-. Admittedly, most of the expenses are supported by intemal vouchers. It has been stated on behalf of the assessee that Pacca bills are not given in most of the cases and the assessee has incurred expenditure for business purpose only. I have cbnsidered fhe submissions. In tihe absence of proper biUs and vouchers the correctness of the claim. cannot be verified. I therefore make a disallowance of Rs. 50,000/- frpm the said expenses ahd add the same to the income shown by the assessee." While allowing the appeal preferred by the assessee, the Commissioner of Income Tax (Appeals) held:- "The assessee has fumished details of the Creditors iricluding their names and addresses. They were produced and they have confinned the transaction. Considering the totality of the case, the facts involved and thestated decision on identical issue, I am of the opinion that the assessee has discharged the primary onus that lay on it in terms ofsection 68 ofthe I.T.Act, 1961 and law. I therefore find the additidn of Rs. 14,99,000/- is not sustainable as perlaw and fact ofthecase.,Thesame stands deleted.'' "In respect of disallowance .of the transportation expenses, the net profit shown in respect offruokismore than the amount u/s. 44AE, hence the disaUowance made bytheAOisdeleted." ^ 11. The Income Tax Appellate Tribunal reversed the order passed by the Commissioner oflncome Tax (Appeals) and restored the order passed by fhe Assessing Officer. While aUowing the appeal, the Income Tax Appellate Tribunal has held iri para 15, 16 and 17 as under:- "15. We have heard the rival submissions and perused the material available on fecord. We find that the Ld. CIT(A) has simply deleted the addition on the groimd that the creditors are income tax assessee and has not gone into the creditworthiness of the Creditors. We also find that the assessee though proved the identity of the creditQrs but unable tp prove their creditworthiness in advaneing such huge sums to the assessee. We also find from the faets of this case that fhe creditors are using the bank aecount not for -1-1 ' ' !t. •/'•''.(; •'.. •'"•" (' •':' /''. 8 "7S y/^:'\' '^ ^^gDte.' ' ^ "saBa g "'"% ^•-^ B^"^£?(^' keeping his eamings in that account but only for the purposeofgiving Ipans to the assessee which is clear from the fact that as and when the creditors issue cheque he deposits the money in cash and then gives cheques to the assessee. In view of the above, we are pf the opinipn that the assessee fails to proye the creditworthiness of the creditqrs to advahce suchhuge amount to the assessee. Therefore.we reverse the order of the Ld. CIT(A) and restpre that of the AO. This ground of appeal of the revenue is, therefore, allowed. . 16. In respect of grpund no. 2(a) and (b), fhe assessee claimed transportation expenseS ainounting to Rs. 4,21,150/- and most of the expenses were suppQrted by internal vouchers. In absence of proper bills and vouchers, the correctness of the claim cannot be verified by the A.O. and therefore, he made the disallowance of Rs. 50,000/- and added the saine to the income of the assessee. On appeal, the Ld. GIT (A) deleted the said addition. Aggrieved by that order, now the assessee is in appeal before us. 17. After hearing both the sides and perusing the material available on record, we find that in the a.bsence of proper bills and vouchers the AQ was reasoriable enough to disallow only a sum of Rs. 50,OQO/- out of the total claim of fhe assessee ofRs. 4,21,150/- as transportation expenses. The Ld. CIT(A) has not given ariy cogent I'eason for delefing this ^? '^ ^.^, .. 1" -y 9 meager addition ofRs. SO.OOO/-. Therefore, the order passed by him is hereby reversed and that ofAO is' restored. This ground of appeal of the revenue is also allowed. 12; In order to appreciate the CQntroversy involved m the matter, it would be apprQpriate to reproduce Sectibn 68 pf the Actwhichreads thus:- 68. Where any sum. is found creditedin the bodks : of an assessee rn.aintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation cffered by him is not, in the opinion ofthe Assessing Officer, satisfactory, the sumso credited may be charged to income-tdx cis the income of the assessee of that previous year." 13. As per Section 68 of fhe Act, where any sum is found. credited in the books of an assessee maintam.ed for any previoys year, and the assessee offers no explanation about the nature and spurce thereofor the explanation offered by him is not, in the opinion pf fhe Assessing Officer, satisfaGtory, the sym so credited may be charged to income tax as the inconie of the assessee of that previous year. ?^-."- 14. We have considered fhe ease lawcited by Shri G.N. Purohit, learned Sr. Counsel appearing for the appellant. Gist ofthe same is fhat the assessee has to prove three conditions: i. Identity ofthecreditor; ii. Capacity ofsuch creditor to advance money; and ^: 10 iii. Genuineness of transactiDn Burden ofassessee to prove genuineness ofthe transactions as well as the creditworthiness of the creditor must remain confined to the transactions,which have taken place between the assessee and the creditor. It is not the business of the assessee to find out the souree of money of his creditor. t(2006) 282 FTR 236 (All) Para 9], [(2003) 264 ITR 254(Gau)Para 13 and 14]. 15. A three Judges Beneh of the Supreme Court in case of Sumati Dayal -v- Comihissioner of Incoine Tax, Banglore reported inl995 Supp.(2) SCC 453 while dealing with the facts- .. : . • ,' ' ; ', ! • : ' ' ; • . .'.. "During the assessment year 1971-72, the appellant received a total amountofRs. 3,11,831 by way ofrace winnings in Jackpots and Treble events in rdces at Turf Clubs in Bangalpre, Madras and Hyderabad. The sdid am.ount was shown by the appellantinthe capital amount in fhe books. Ths dppellant filed a retum on 27-3-1972 declaringanincome of Rs. 27.829. The. appellant also m.ade a swom statement on 6-1-1973 before the Income TaxOfficer and on the bdsis of the said statement the Income Tax Officer m.ade an assessment order dated 27-3-1974 where he held that the sumofRs. 3,112,831 isnotwinningsinracesdnd he treated the said receipts as income fromundisclosed sources and assessed the same as incom.e from. other sources. For the assessment year 1972-73 the appellant showed receipts 6f Rs. 93,500 as race 77- / 11 winnings in two Jackpots at Bangalore and Madras and the said amount was credited in the cdpital account in the books. The appellant filed a retum declaring an income of Rs. 3827 on 3-2-1973. In his assessment order dated 31-8-1974 the Income Tax Officer included tke mnount of Rs. 93,500 asincome' frqm. other sources and assessed the income of the appellant on that basis. The appeals filed by the appellant against the two assessment orders were disposed of by the Appellate Assistant Commissioner by order dated 12-12-1975 wkereby the assessmentof Rs. 3,11,831 asincomeundertheheadothersources for the assessment year 1971-72 and Rs. 93,500 for- the assessmentyear 1972-73 was confirmed. The assessee had taken the m.atter before the Settlement Commission. Thetwo members constituting majority on the Settlement Com.mission, came to theconclusion that the apparent is not the real and. that the appellant's claim about her winning inraces is contrived and not genuine forthe follpwing reasons:-: . a. The appellant's knowledge of racing is very 7£ b: meager. . A Jackpot is a stake offive events in a single day and one ean believe a regutar and experienced punter clearing a Jackpot occasioncdly but the claim of the appellant to have won anumber of Jackpots in three or four seasons not rrierely at one place but at three ' '. !t- ./'•' '.(""'.• '."•' c. d. 12 different centres, namely, Madras, Bangalore and Hyderabad appedrs, prima fade, to be wild and contrary to the statistical theories and experience of the frequencies and prqbabilities. The appeUant's books do not show any drawings onrace days oron the im.mediately preceding days for the purchase of Jackpot combination tickets, which entailed sizeable ' amounts varying generally between Rs. 2000 and Rs- 3000. The drawings recorded in the books cannot be correlated to the various racing events at which the appellanf mad.e the alleged winnings. While the appellant's capital account was credited with the gross amounts of race- winnings, there were no debits etther for expenses and purcha&e oftickets orforlosses.' In view ofthe exceptional luck claimedto kave been enjoyed by the appellant, her loss of mterest in. races from 1972 assumes signijicance. Winnings in racing became liable to incometcixfrom 1-4-1972 but one would not. give up an activity yielding or likely to yield a large income merely because the income would suffer tax. The position would be different, however, ifthe claim ofwinnings in races was false and what were passed off as such 77 tB]l;%^®S^^':?'''r?:'': ^ Vl:^l-':'l:'1 '.W winninjgs really represehted the appellants taxable mcome from. some u.ndisclosed sources. 10. The majority opinion includesthat it would notbe unreasonable to mfer that tKe appellant had hot really participated in any of the races excepf to the extent of purchdsing the winning tickets after fhe events presumably itdth unaccountedfunds. 11. The Chairmdn of the Settlement Commisswn, m his dissenting opinion has Idid emphasis on the fact that the appellant had produced evidence in support of the credits in the form. of certificates from the racing clubs giving particulars of fhe crossed cheques forpayment of the amounts for. winning 6f Jackpots ete. The Chairman has rejected the contention regarding lack ofexpertise in respect ofthe appellant and has bbserved that the expertise is the last thing that is necessary for a game ofchcm.ee and anybody has to go andcall for five numbers in a counter and obtairt a Jackpot ticket and that books containing informationare available which are quite cheap." has observed in para 12 ofitsjudgment as under:- "12. Th.ls, inour opinion, is a superficial approach to the problem. The matter has to be considered in the light of humanprobabilities. The Chairm.an df the Settlement Com.rrdssion kas emphasized that the dppellant did possess the © •t' "'.r;'":•;„: ',/,»" 'sv^'. S'gi. 'KAil 14 winning ticket which was surrendered to the Race Club and in retum a crossed cheque was obtained.It is, in our opinion, a neutral. circumstanCe, beeause if the appellant had purchased the winning ticket after the event she would be haifing the winning ticket urith her which she could surrender to the Race Club. The observation by the ChairmcCn of the Settlement Comnzission that "fraudulent sale of winning ticket is natan usual practice but is uery muchof an unusual practice" ignores the prevalent malpractice tkatwas notieed by the Direct Taxes Enquiry CQmmittee and the recommendations rnade by the said Committee whichled to the amendment pf the Actby the-Finance Act of 1972 whereby the exemption from tax that was available in respect of winnings from. lotteries, crossword pups.les, races, etc; was withdrawn. Similarly the observation m.ade by the Chairm.an that if it is alleged that these ti.ckets were obtainedthroughfraudulentmeans, itisupon the alleger to prove that it isso, ignores the reality. The transaction abaut purchase of wm.ningtick.et takes place in secret and direct evidence about such purchase would be rarely available. An inference about sucha purchase has tobe drawn onthe basis of fhe circumstances availdble on the record. Having regard 'to the conduct 6f the ; :^.'r •2- 16. 15 appellant as disclosed in her swom statement as well as other material on the record an inference eould reasonably be drawn that the winning tickets were purchased by the appellant after the event. We are, therefore, unable toagree withthe view of the Chairman in his dissenting opinwn. In our opinion, the majority opinion after considering surraunding drcumstances and applying the. test of hum.an probabilities has rightly concluded that the appellant's clairh about the amount being her winnings from races is not genuine. It cannot be said that the explanation offered by the appellant in respect of the said amouhts has been rejected unreasonably and that the finding that the sdid amounts are income of the appellant from other sources is not based on evidence. The Supreme Court in case 6f Commissioner of Income Tax -v- P. Mohankala reported in (2007) 6 SCC 21 after consideringthe case of Sumati Dayal (supra), GIT V. P.K." NQprjahan [(1997) 11 SGC 198], CIT V. Bharat Engineering and Construction Co. [(1972) 4 SCC 401], CIT v. Orissa Cprporation (P) Ltd. [(1986) Supp. SCC 110], has observed in para 24 and 26 pfitsjudgment as under:- "24. R is true that even afterrejecting the explanation given by the assessees if found unacceptdble, the crucial aspect whether onthefacts and circumstances I.!.'-. •i' ''.r''".-^'" i.i!'. t.,.I1. •t 1 '"' •.f'".'^' 16 ofthe case it should be inferred that the sums credited in the books ofthe assessees constituted incorne ofthe previous year must receive the cpnsideratlon of the authorities provided the assessees rebut the evidence and the inference drawn to reject the expldnation offered as unsatisfactory. We are required to notice that Section 68 ofthe Act itself provides, where any sum.is found credited in the books of the assessees for any previous year fhe same may be charged to income tax as the income of the assessees of the previous year if the explanation offered by the assessees about the nature and source of such sums found credited in the books of the assessees is in the opinion qf the Assessing Qfficer not satisfactory. Such opinion found (sic formed) itself constitutes a prima facie evidence' against the assessees, im., the receipt of money, and if tke assessees fail to rebut the said eiridence the same canbe used againstthe assessees by holding that it was a receiptofan income nature. In the case inhand the authorities concurrently found the explanation offered by the assessees unacceptable. The authorities upheld the opinionformed by the Assessing Officerthat- the explanation offered was not satisfactory. The assessees did not take the plea that even if the explanation is riot acceptable the material and attending circumstances available on record do not justify the sumfoundcreditedinthe books t6 be treated as d receipt of an income nature. Ths burden in this ^ '.: lt.:., .•{'••• .r':',;--"-~. • ':. 1.1. 17 regard was on the assessees. No such attem.pt has beenmade before any authority. All the deciswns cited and referred to hereinabove are required fo be appredated and understood in the light of the law declared by this GourtinSumatiDayal(supra). 26. Reh/ing oh the decisions of this Court in Bejoy Gopal Mukherji Vs. Pratul Chandra Ghose [AIR 1953 SC 153] & M/s Orient Distributors Vs. BankofIndiaLtd. 8s Ors. [AIR 1979 SC S67], Shri lyer, leamed senior cpunsel contended that issue relating to the propriety of legal conclusion that could be drawn on basis ofproved facts gives riseto aquestion oflaw and, therefore, the High Court is Justified in interfering in the matter since the authorities belqw failed to draw a proper and logical inference from the proved facts. We are unable tp persuade ourselves to accept tke submission. The findings offact arrlved at by the authorities belovj are based on proper appredation of the facts dnd the' material available on record and surrounding eircumstances. Tke doubtful nature ofthe transaction andthe mdnner in which