[2010] 14 (ADDL.) S.C.R. 499

VIJAY KUMAR TALWAR v.

COMMISSIONER OF INCOME TAX, DELHI

(Civil Appeal Nos.3265-3266 of 2003)

DECEMBER 6, 2010

[D.K. JAIN AND T.S. THAKUR, JJ.]

Income Tax Act, 1961:

s. 68 - Presumption under - Non-satisfactory explanation c by assessee about the nature and source of the cash receipts credited in his account books - Held: Presumption u/s. 68 is to be drawn against him - The sum found credited in the books of assessee for the previous year, to be charged to tax as income of assessee of that previous year since no satisfactory D explanation was offered by him - The conclusion of the Tribunal to the effect that the assessee has failed to prove the source of the cash credits cannot be said to be perverse, giving rise to a substantial question of law.

s. 260A - Substantial question of law - Formulation of - E Held: Appeal to the High Court from the decision of the Tribunal lies only when a substantial question of law is involved

- If the High Court comes to the conclusion that there is a substantial question of law in the case, it is mandatory on its part to formulate such question.

One partnership firm was dissolved on 1.4.1982. The assessee took over the business of the dissolved

(erstwhile) firm on 21.10.1982. On 27.5.1983, a search took place in the premises of the assessee and certain records G were seized. The seized accounts of the assessee revealed cash receipts of Rs.3.49 lacs in the names of 15 persons purportedly received during the period April 1982 to October 1982. The assessee gave explanation that the

499 H

A cash receipts of Rs.3.49 lacs were realizations from the past debtors of the erstwhile firm. The assessee, however, could not produce proof to substantiate the said stand. The assessee was given several opportunities to file confirmations of 15 persons in whose names cash B credit entries appeared in the register. The assessee ultimately filed 7 confirmations with the addresses of 6 other parties, but the enquiry letters sent by the Assessing Officer to them remained unserved, unanswered or denied. By assessment order, the c Assessing Officer added Rs.3.49 lacs as assessee's income under the head "unexplained cash receipts". The assessee unsuccessfully appealed before the Tribunal.

The High Court dismissed the second appeal on the ground that no substantial question of law was involved

0 in the case. Aggrieved, the assessee filed the instant appeals.

Dismissing the appeals, the Court

HELD: 1.1. It is manifest from a bare reading of the E Section 260A of the Income Tax Act, 1961 that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and wtlere the High Court comes to the conclusion that a substantial question of law arises from the said order, it F is mandatory that such question(s) must be formulated.

The expression "substantial question of law" is not defined in the Act. Nevertheless, it has acquired a definite connotation through various judicial pronouncements. A finding of fact may give rise to a substantial question of law, inter alia, in the event t'1e findings are based on no G evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been

VIJAY KUMAR TALWAR v. COMMISSIONER OF 501

INCOME TAX, DELHI

applied in appreciating the evidence, or when the A evidence has been misread. [Paras 18, 21] [509-C-E; 511-

B-C]

Sir Chunilal v. Mehta & Sons, Ltd. v. Century Spinning and Manufacturing Co. Ltd. AIR 1962 SC 1314 Santosh Hazari v. Purushottam Tiwari (2001) 3 SCC 179; Hero Vinoth B (Minor) v. Seshamma/ 2006) 5 SCC 545; Madan Lal v. Mst.

Gopi & Anr. (1980) 4 SCC 255; Narendra Gopal Vidyarthi v.

Rajat Vidyarthi (2009) 3 SCC 287; Commissioner of Customs (Preventive) v. Vijay Oasharath Patel (2007) 4 SCC 118; Metroark Ltd. v. Commissioner of Central Excise, C Calcutta (2004) 12 SCC 505; West Bengal Electricity Regulatory Commission v. CESC Ltd. (2002) 8 SCC 715 - relied on.

1.2. In the instant case, the High Court has correctly D concluded that no substantial question of law has arisen from the order of the T; ibunal. Alf the authorities below, in particular, the Tribunal, have observed in unison that the assessee did not produce any evidence to rebut the presumption drawn against him under Section 68 of the E Act, by producing the parties in whose names the amounts in question were credited by the assessee in his books of account. In the absence of any cogent evidence, a bald explanation furnished by the assessee about the source of the credits in question, viz., realisation from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not satisfactory. It

is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous G year, if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory. On a conspectus of the factual scenario, the conclusion of the Tribunal to the effect that the assessee has failed to prove the source of H

A the cash credits cannot be said to be perverse for giving rise to a substantial question of law. The Tribunal being a final fact finding authority, in the absence of demonstrated perversity in its finding, interference therewith by this Court is not warranted. [Para 22) [511-

B E-G; 512-A-D]

Sumati Dayal v. Commissioner of Income Tax, Bangalore 1995 Supp (2) SCC 453; Commissioner o/ Income Tax v. P. Mohanakala (2007) 6 SCC 21 - relied on. c Case Law Reference:

AIR 1962 SC 1314 relied on Para 18

(2001) 3 sec 119 relied on Para 19

(2006) 5 sec 545 relied on Para 20

(1980) 4 sec 255 relied on Para 21

(2009) 3 sec 287 relied on Para 21

(2007) 4 sec 118 relied on Para 21

(2004) 12 sec 505 relied on Para 21

(2002) 8 sec 115 relied on Para 21

1995 Supp (2) sec 453 relied on Para 22

(2001) 6 sec 21 relied on Para 22

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3265-3266 of 2003.

From the Judgment & Order dated 21.12.2001 and G 19.02.2002 of the High Court of Delhi at New Delhi in LT.A. No.

202 of 2001 and RA No. 10 of 2002 in ITA No. 66 of 2001.

K.R. Manjani, Pankaj Kumar Singh, Dr. Vinod Tewari, K.L.

Janjani for the Appellant.

VIJAY KUMAR TALWAR v. COMMISSIONER OF 503

INCOME TAX, DELHI

R.P. Bhatt, H.R. Rao, Prateek Jalan, Vikas Malhotra, B.V.

A Balaram Das for the Respondent.

The Judgment of the Court was delivered by

D.K. JAIN, J. 1. Challenge in these two appeals, by special leave, is to the orders dated 21st December, 2001 and 19th B February, 2002 whereby the High Court of Delhi dismissed :

(i) the appeal filed by the appellant herein under Section 260- A of the Income Tax Act, 1961 (for short "the Act") in l.T.A.

No.202 of 2001, holding that the order of the Income Tax Appellate Tribunal, New Delhi (for short "the Tribunal") did not C give rise to any substantial question of law; and (ii) the review petition preferred by the appellant against order dated 21st December, 2001, holding that the petition was not maintainable.

2. Shorn of unnecessary details, the facts material for D adjudication of the present appeals may be stated. These are:

The appellant (hereinafter referred to as "the assessee") was a partner in a firm, named and styled as M/s Des Raj Tilak Raj, having its business at Delhi, with a branch at Calcutta. The said partnership firm was dissolved w.e.f. 1st April 1982. As E per the dissolution deed, the assessee took over the business of the Calcutta branch of the erstwhile firm. Thereafter, from 21st October, 1982, the assessee started a proprietary concern by the name of Mis Des Raj Vijay Kumar.

3. On 27th May, 1983, a search took place at the assessee's premises during which certain incriminating documents were recovered and seized. During the course of assessment proceedings for the assessment year 1983-1984,

for which the previous year ended on 31st March 1983, the G assessing officer examined the seized record. One of the registers so examined, revealed cash receipts of Rs.3,49,991/

- in the name of 15 persons, most of which were purportedly received during the period of April, 1982 to October, 1982.

When the assessing officer sought an explanation from the H

A assessee with regard to the said cash credits in the register, the assessee merely stated that the cash receipts were in the nature of realisations from the past debtors of the erstwhile firm.

In order to appreciate the said stand, the assessing officer called for the account books of the Calcutta branch of the

8 erstwhile firm for the relevant period, but the assessee failed

to produce them. The assessing officer also examined the assessee's brother, a partner in the erstwhile firm, who also stated that the account books were not available.

4. Having noted that the outstanding realisations of the C Calcutta branch in the preceding years varied from Rs.25,000/

- to Rs.30,000/-, the assessing officer held that the assessee's submission that cash receipts of Rs.3,49,991/- related to earlier years was untenable. Therefore, vide order dated 20th February, 1986, the assessing officer added a sum of D Rs.3,49,991/- as assessee's income under the head

"unexplained cash receipts."

5. Aggrieved, the assessee appealed to the Commissioner of Income Tax, (Appeals)-XV, New Delhi, who E vide his order dated 6th December 1989, dismissed the same and confirmed the addition made by the assessing officer.

6. Being still aggrieved, the assessee carried the matter in appeal before the Tribunal. Vide .order dated 27th September, 1994, the Tribunal, while partly allowing the appeal, F remitted the matter back to the assessing officer for de-novo adjudication. The Tribunal observed that:

"We find that some of the entries pertained to the period when the erstwhile firm was in existence whereas the G assessee did not conduct business at Calcutta in a proprietary capacity but was only a partner in the erstwhile firm. The A.O. himself observed in the assessment order that the cash receipts are from April 1982 to October, 1982 i.e. prior to the start of the assessee's proprietary

business in the name of M/s Desraj Vijay Kumar. As A against this, we find that some of the entries are dated prior to April, 1982 when the erstwhile firm was in existence. Then again, it is not known as to what happened to the income between the period 1.4.1982 to October, 1982 as the erstwhile firm is supposed to have been B dissolved w.e.f 1.4.1982 and as per the assessee's version the proprietary business was started from October

1982. There is no information made available to us as to whether the Department initiated any action u/s 148 to subject the cash receipts aggregating Rs.3,49,991/- in the c hands of the erstwhile firm ....................................... .

11. In view of the aforesaid discussion, we although taking the view that the onus on the facts and circumstances of the case squarely lies on the assessee, hold that the material has to be re-considered in light of the afore-said D observations ..... "

7. Pursuant thereto, on 17th May, 1995, the assessing officer asked the assessee to file confirmations of the 15 parties, in whose names cash credit entries appeared in the E register seized during the search. In his reply dated 22nd May, 1995, the assessee stated that the said cash receipts were realisations of the sales effected in the earlier years by the erstwhile firm. Subsequently, the assessee was given three more opportunities on 2nd June 1995, 16th June, 1995, and F 3rd July, 1995 to produce fresh evidence, which were not availed of by him. Vide letter dated 28th July, 1995, the assessee was given a final opportunity to file confirmations of the 15 parties, with their complete addresses. In his reply, the assessee filed the confirmations of 7 parties, with the address G of 6 other parties. The assessing officer considered the two remaining parties as non-existent. It is pertinent to note that all the seven confirmations filed by the assessee were identical, and did not contain either a date or the GIR No. of the confirming party; and merely stated that the concerned party had dealings H

A with the erstwhile firm, and it had made purchases from them in the year ending 31st March, 1982 and had made payments prior to October, 1982; and since the matter was really old, the books of accounts of the firm were not available.

8. When the assessing officer sent letters to the six parties, whose addresses had been supplied, three did not respond, while two others denied any relationship with the firm, and remaining one letter was returned by the post office with remarks "not known." Similarly, when letters were sent to C parties who had filed confirmations, three of those letters were returned by the post office marked "not known.", and another one as "no claims." One of the parties denied any relationship with the firm. In light of these circumstances, the assessing officer, vide order dated 19th March, 1996, confirmed the original assessment.

9. The assessee preferred an appeal before the Commissioner of Income Tax, (Appeals)-111, which was dismissed vide order dated 16th December, 1998: The Commissioner observed that:

"The contention of the appellant is apparently unacceptable. Any business realisations of the partnership would have been shared by the erstwhile partners. The cash receipts of Rs.3,49,991/- as per the seized material is, therefore, held to belong to the appellant and assessable as unexplained receipts in the hands of the appellant. The assessment of appellant's income including the aforesaid receipt is, therefore, confirmed and the appeal is dismissed."

10. Still not being satisfied, the assessee carried the matter in appeal before the Tribunal. The Tribunal, vide order dated 23rd October, 2000, while partly allowing the appeal, held that the addition of Rs. 3,49,991/- was correct. It observed that:

"We are also of the opinion that the confirmations filed by

the appellant are of no use because they have not been A co-related with the transactions alleged to have been found entered in the register seized during the time of search if it represents the realization of outstanding amount on sales, this could have been proved with the cross reference to the entries in the register. We cannot ignore s the fact that the enquiry letters sent by the A.O. remained unserved, unanswered and denial."

11. On 22nd February, 2001, the assessee moved an application under Section 254(2) of the Act before the Tribunal for rectification of mistakes in the order of the Tribunal dated C 23rd October, 2000. It was pleaded that the Tribunal had erred in observing that the assessee's premises were raided due to heavy sales, and that cash amounting to Rs.3,49,991/- was seized; that the assessing officer had issued ITNS 150, which the assessee had filed before the Commissioner (Appeals); D and that the Tribunal did not take into consideration the arguments and various judgments relied on by the assessee.

Vide order dated 25th September, 2001, the Tribunal rejected the rectification petition on the ground that:- (i) the Tribunal had relied on the assessing officer's order in relation to the factual E position, and there was no reason to interfere with the same;

(ii) While it was true that cash amounting to Rs.3,49,991/- was not recovered, but the said amount was entered in the_ register which was recovered; and therefore, this would not affect the findings of the Tribunal; (iii) the remarks in relation to ITNS 150 F were not made by the Tribunal, but by the department's representative and (iv) re-considering the judgments relied on, and the arguments made, would tantamount to a review, which power the Tribunal is not authorised to exercise under Section . 254(2) of the_ Act.

12. The assessee preferred an appeal before the High

· Court under Section 260-A of the Act. As already stated, the Hig.h Court, vide judgment dated 21st December 2001, dismissed the appeal of the assessee, observing that: H

"To us it appears that the findings recorded by the Commissioner of Income Tax as also the Income Tax Appellate Tribunal are pure findings of fact. Appreciation of evidence does not fall within the realm of this Court's jurisdiction under section 260-A of the Income Tax Act. ................................................................ .

Having regard to the fact and circumstances of this case we are, therefore, of the opinion that no question of law far less any substantial question of law arises for consideration in this appeal."

13. Thereafter, the assessee filed a review petition before the High Court, which was also dismissed vide order dated 19th February, 2002.

14. Hence, the present appeals.

15. Mr. K.R. Manjani, learned counsel appearing on behalf of the assessee, assailed the impugned orders on the ground that since the Tribunal had taken into consideration irrelevant materials, its findings were perverse and, therefore, the High E Court has erred in holding that there was no substantial question of law involved.

16. Per contra, Mr. R.P. Bhatt, learned senior counsel appearing on behalf of the Revenue supported the view taken F by the High Court and asserted that the impugned orders deserve to be affirmed.

17. Before adverting to the rival submissions, it would be expedient to refer to Section 260-A of the Act. The provisions, relevant for our purpose, read thus:

"(1) An appeal shall lie to the High Court from every order passed in appeal by the Appellate Tribunal, if the High Court is satisfied that the case involves a substantial question of law ....................................... .

(3) Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question ............................................ .

(7) Save as otherwise provided in this Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply

in the case of appeals under this section." C

18. It is manifest from a bare reading of the Section that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial 0 question of law arises from the said order, it is mandatory that such question(s) must be formulated. The expression "substantial question of law" is not defined in the Act.

Nevertheless, it has acquired a definite connotation through various judicial pronouncements. In Sir Chuni/al V. Mehta & Sons, Ltd. Vs. Century Spinning and Manufacturing Co. Ltd. 1, E a Constitution Bench of this Court, while explaining the import of the said expression, observed that:

'The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be F whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this Court or by the Privy Council or by the Federal Court or is not free from difficulty or calls G for discussion of alternative views. If the question is settled by the highest Court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea

AIR 1962 SC 1314.

A raised is palpably absurd the question would not be a substantial question of law."

19. Similarly, in Santosh Hazari Vs. Purushottam Tiwari2. a three judge Bench of this Court observed that:

"A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be "substantial" a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law "involving in the case" there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case.

An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount ov13rall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis."

20. In Hero Vinoth (Minor) Vs. Seshamma/3, this Court has observed that:

G 'The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (1) the courts below have ignored material evidence

(2001) 3 sec 179.

H 3.

(2006) 5 sec 545.

or acted on no evidence; (it) the courts have drawn wrong A inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to "decision based on no evidence", it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the B evidence, taken as a whole, is not reasonably capable of supporting the finding."

21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant C admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See: Madan Lal Vs. Mst. Gopi & Anr. 4; Narendra Gopal Vidyarthi D Vs. Rajat Vidyarthi5; Commissioner of Customs (Preventive) Vs. Vijay Dasharath Patel6; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta 7; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. 8)

22. Examined on the touch-stone of the afore-noted legal principles, we are of the opinion that in the instant case the High Court has correctly concluded that no substantial question of

law arises from the order of the Tribunal. All the authorities below, in particular the Tribunal, have observed in unison that F the assessee did not produce any evidence to rebut the presumption drawn against him under Section 68 of the Act, by producing the parties in whose name the amounts in question had been credited by the assessee in his books of account. In the absence of any cogent evidence, a bald G

4. 51980) 4 sec 255. 5.

(2009) 3 sec 281.

6. c2001) 4 sec 118. 7.

(2004) 12 sec 505.

8. c2002) 8 sec 115.

A explanation furnished by the assessee about the source of the credits in question viz., realisation from the debtors of the erstwhile firm, in the opinion of the assessing officer, was not - satisfactory. It is well settled that in view of Section 68 of the Act, where any sum is found credited in the books of the s assessee for any previous year, the same may be charged to income tax as the income of the assessee of that previous year, if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the assessing officer, not satisfactory. (See: Sumati Dayal Vs. Commissioner of Income c Tax, Bangalore9 and Commissioner of Income Tax Vs. P.

Mohanakala 10). We are of the opinion that on a conspectus of the factual scenario, noted above. the conclusion of the Tribunal to the effect that the assessee has failed to prove the source of the cash credits cannot be said to be perverse, giving rise

0 to a substantial question of law. The Tribunal being a final fact finding authority, in the absence of demonstrated perversity in its finding, interference therewith by this Court is not warranted.

23. For the foregoing reasons, we have no hesitation in holding that no question of law, much less any substantial E question of law arises from the order of the Tribunal requiring consideration of the High Court. There is no merit in the appeals. Both the appeals are dismissed accordingly with costs, quantified at Rs.20,000/-.

D.G.

9. 1995 Supp (2) sec 453.

10. (2007) a sec 21.

Appeals dismissed.