D. RAJESHKUMAR & CO. v. INCOME TAX OFFICER
[Citation -1987-LL-0331-2]

Citation 1987-LL-0331-2
Appellant Name D. RAJESHKUMAR & CO.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 31/03/1987
Assessment Year 1983-84
Judgment View Judgment
Keyword Tags unexplained investment • search and seizure • undisclosed income • business premises • source of receipt • source of income • suppressed sales • valuable article • concealed income • registered firm • cash credit • diwali year
Bot Summary: Since the assessee was maintaining books of account and the credit appears in those books, provisions of section 68 would apply and the assessment should be for the year 1984-85. According to him the concealment may relate to several transactions over a period of years and not necessarily limited t o the previous year Diwali 1982 to Diwali 1983. With reference to the submission of the assessee that section 68 of the Act would apply, he pointed out that the explanation given earlier was found to be not correct and therefore it could not be said that there was any cash credit in the books at all on 14-12- 1982. Shri Swamy, the learned counsel for the assessee first submitted that there is cash credit found in the books of account. The only dispute is the assessment year: whether it should be assessed in the year 1983-84 by invoking the provisions of section 69A or in the assessment year 1984-85. The ingredients of the section which are cumulative, are as follows: In any financial year the assessee should be found to be the owner of money, bullion etc. By applying the ratio implied in the Supreme Court's decision cited above the previous year for the suppressed receipts of a disclosed business must be the previous year of the business itself i.e. the Diwali 1982 to Diwali 1983 relevant to the assessment year 1984-85.


only point argued in this appeal is whether amount of Rs. 83,000 falls for assessment in assessment year 1983-84 or 1984-85. 2. assessee is registered firm consisting of three partners. One Veerchand Pokarchand was one of them. They had employee by name Phoolchand. On 14-12-1982 Shri Phoolchand was apprehended at Madras Airport with cash of Rs. 83,000. When questioned about source of this amount he stated that partner of assessee, Shri Veerchand had given this amount to him. He further stated that money was given for buying tailoring materials. We may mention here that assessee firm is dealer in tailoring materials. 3. Assistant Director of Inspection, Hyderabad on intimation from Madras visited business premises of assesses on 14-12-1982 itself and recorded statement from Veerchand. Veerchand admitted that he had given sum of Rs. 83,000 as stated by Phoolchand. Assistant Director of Inspection on inspection of books of accounts found that there was no entry of this transaction in books. explanation was given that books are maintained by part-time accountant who makes entries in evenings when he comes to premises. As matter of fact entries were made on next day to this effect. amount was said to be received as loan from three persons through one Sohanlal Jain. Later on in course of assessment proceedings farther investigations were taken up. Although Sohanlal Jain had supported initially statement of Veerchand, later on he retracted and admitted that he had not given loan to assessee and entries were only havalas. partner Veerchand also accepted that entries were havalas. He further admitted that moneys belonged to firm itself in answer to question he stated that this money " was accumulated over period of one week out of sale of goods ". 4. From above facts, Income-tax Officer made following inferences: (i) cash of Rs. 83,000 belonged to firm and it was its undisclosed income. (ii) firm had been doing business which was not wholly disclosed in its books. (iii) plan of firm was to make purchases with unaccounted moneys of firm. (iv) firm accumulated sum of Rs. 83,000 out of sales unaccounted in its books. There is suppression of sales. In view of these he held that cash of Rs. 83,000 was income assessable under section 69A and it fell for assessment in 1983-84. That was because under section 69A financial year will accounting year. 5. assessee appealed. main contention before Commissioner o f Income-tax (Appeals) was that Income-tax Officer was wrong in making addition in assessment year 1983-84 under provisions of section 69A. It was submitted before him that credit had appeared in books of account on 14-12-1982, date falling in accounting period Diwali 1982 to Diwali 1983. Since assessee was maintaining books of account and credit appears in those books, provisions of section 68 would apply and assessment should be for year 1984-85. 6. Commissioner of Income-tax (Appeals) did not agree with findings of Income-tax Officer that sum of Rs. 83,000 represents part of sales which were not fully recorded. According to him concealment may relate to several transactions over period of years and not necessarily limited t o previous year Diwali 1982 to Diwali 1983. With reference to submission of assessee that section 68 of Act would apply, he pointed out that explanation given earlier was found to be not correct and therefore it could not be said that there was any cash credit in books at all on 14-12- 1982. position might have been different if there was no search and seizure at Madras Airport. In such case it would have been normal cash credit and if department did not accept explanation it would have been assessable only under section 68 of Act. He further pointed out that assessee was not able to explain this cash with any of its business transactions. Under circumstances, he held that Income-tax Officer was justified in treating sum as unexplained investment under Section 69A. 7. assessee is on further appeal before us. Shri Swamy, learned counsel for assessee first submitted that there is cash credit found in books of account. It is different matter that persons in whose names credit was entered had denied credit and assessee also had accepted that credit is not genuine. But so long as there was cash credit entry in books it has to be assessed only under section 68. fact that there was search on 14-12-1982 was not relevant. He then submitted that findings of Commissioner (Appeals) on this point are contradictory. At earlier part he had given finding that amount represented income of several years. At later part of order he had stated that assessee was not able to explain this cash with any of its business transactions. These are two contradictory statements. He then relied on decision of Patna High Court in case of CIT v. Meghu Sao Jhandhu Sao [1955] 27 ITR 371 and decision of Supreme Court in case of Baladin Ram v. CIT [1969] 71 ITR 427. Shri Santhanam for department pointed out that according to statement of partner, cash was in cash box on 13-12-1982 itself. He farther pointed out that entry for receipt of Rs. 83,000 was in different handwriting and therefore is case of clear interpolation. cash was in possession of firm one day previously and therefore entry on 14-12-1982 was totally irrelevant. It is case of money being found in possession of assessee. Therefore section 69A was rightly invoked. For same reason section 68 would not be applicable. He also submitted that there is no contradiction in findings of Commissioner of Income-tax (Appeals). Commissioner of Income-tax (Appeals) had stated that assessee has not been able to establish his submission with any direct evidence. 8. We have considered submissions. It is not disputed that amount of Rs. 83,000 found is taxable receipt for assessee. only dispute is assessment year: whether it should be assessed in year 1983-84 by invoking provisions of section 69A or in assessment year 1984-85. For considering assessment year 1984-85 two separate submissions are made. One is that Section 68 would be applicable. Second is that amount is suppressed income of assessee's disclosed business. 9. We will straightaway agree with department that section 68 will not be applicable. This is not case of cash credit. As Mr. Santhanam pointed out partner's admission establishes that cash was available on 13-12-1982. Therefore entry in books of accounts has become irrelevant. Then only question is source for this cash of Rs. 83,000. Commissioner of Income- tax (Appeals) had rightly distinguished decision of Supreme Court in Baladin Ram's case. That was case under 1922 Act when there was no corresponding provision like section 68 of 1961 Act. Since amount was undisclosed income Supreme Court held that it has to be assessed only in financial year. 10. We, must next consider submission that amount represents concealed income of assessee from business which is disclosed to Dept. Since it is income of known source, submission is that previous year adopted for known source should govern assessment year o f this amount. At this stage we will consider provisions of section 69A. Section 69A reads as follows: " Where in any financial year assesses is found to be owner of any money, bullion, jewellery, or other valuable article and such money, bullion, jewellery or valuable article is not recorded in books of account, if any, maintained by him for any source of income, and assesses offers no explanation about nature and source of acquisition of money, bullion, jewellery or other valuable article, or explanation offered by him is not in opinion of Income-tax Officer, satisfactory, money and value of bullion, jewellery or other valuable article may be deemed to be income of assessee for such financial year." ingredients of section which are cumulative, are as follows: (i) In any financial year assessee should be found to be owner of money, bullion etc. (ii) Moneys, bullions etc. are not recorded in books of account. (iii) assessee offers no explanation about nature and source of acquisition of money etc. or explanation, offered is not satisfactory. Now first ingredient is satisfied. assessee was found to be owner of sum of Rs. 83,000. We also agree that second ingredient is satisfied, i.e., it is not recorded in books maintained by it. recording on 14-12-1982 is clearly to give veneer of genuineness and does not represent correct state of affairs. 11. However we are not satisfied with regard to third ingredient. In order to satisfy this ingredient, assessee should offer no explanation both about nature and source of money or explanation offered is unsatisfactory. Both these ingredient are not satisfied. assesses has offered explanation. That explanation is that it represents sales not recorded in books. following answers given by Veerchand are clear: " Question: Where was cash on 13-12-1982 night? Answer: It was in shop in cash box. I took it out and gave it to Sri Phoolchand after counting. Question: Since how many days was that cash in shop? Answer: It was accumulated over period of one week out of sale of goods. Question: It means that sales are not fully accounted in that year. Is it correct? Answer: We are sorry that we missed to account some sales." From above statement Income-tax Officer has drawn inference that amount represents suppressed sales of business. That means nature of this sum of Rs. 83,000 as explained by assessee is accepted. That is nature is; it is trading receipt. source is also accepted, i.e., it is from business disclosed in books. 12. Commissioner (Appeals) has also given same finding. only difference between Commissioner's finding and income-tax Officer's finding is period for which sales were unaccounted. Commissioner of Income-tax (Appeals) found that income-tax officer accepted that sales of about one week were unaccounted. He states that for all we know concealment may relate to several transactions over period of years not necessarily limited to previous Diwali year 1982 to Diwali 1983. In other words, Commissioner of income-tax (Appeals) agreed that nature and source is same. However he does not agree with regard to period for which sales were suppressed. At this stage we must point out that in paragraph 1(vi) Commissioner (Appeals) does give finding that assessee was not able to explain cash with any of its business transactions. N o w while making this statement what Commissioner of Income-tax (Appeals) wants is certain particular transactions which have been accounted for from sales to be linked with cash of Rs. 83,000. In nature of things when assessee initially wanted to suppress sales such direct nexus may not be available. What one has to see is whether cash would in normal course represent suppressed sale proceeds of assessee. We are of opinion that there is enough evidence to show that this amount would represent suppressed sale proceeds. first point we must note is that assessee is registered firm. Therefore its income normally would be business income. This particular firm would have only sources to which these persons subscribed. I n case of individual or HUF it may be possible to have many other sources of income not disclosed to department. But in case of firm which has established business normal likelihood is that concealed income would refer to their existing business. We may say that it is not necessary to emphasise this point because that is also finding of Income- tax Officer and Commissioner of Income-tax (Appeals). Secondly all persons connected with business transactions have stated that amount has come out from disclosed business. In other words, it is undisclosed receipt of disclosed business. There had been no contradictions to this finding and in our opinion, this is submission which has to be accepted on facts of case. department has no contrary evidence. Thus we are faced with case of certain receipt not disclosed in books but which related to disclosed business. 13. Once it is found to be receipt from known source previous year relevant to that known source must be adopted. In this connection we will refer to decision of Supreme Court in case of Chidambaram Mulraj & Co.(P.) Ltd. v. CIT [1976] 102 ITR 7. In that case assessee was recipient of compensation for termination of managing agency. Under section 10(5A) of Indian Income-tax Act, 1922 it was treated as taxable and Submission of assessee in that case was that section 10(5A) deems this as income to be treated as receipt from. anew source and that being so relevant previous year would be different from previous year of managing agency business. This contention was rejected by Supreme Court. They pointed out that amount received was payment for termination of managing agency and as such receipt is obviously related to that business. It is of course true that amount was not earned in carrying on business of managing agency but it is clear that source of receipt was managing agency itself. It cannot therefore be said that receipt was income from new and independent source. We will emphasise last finding that it was not income from new and independent source. That finding has to be given here. This sum of Rs. 83,000 is not income from new and independent source. That being so, by applying ratio implied in Supreme Court's decision cited above previous year for suppressed receipts of disclosed business must be previous year of business itself i.e. Diwali 1982 to Diwali 1983 relevant to assessment year 1984-85. No other point was pressed. 14. In result, appeal is allowed in part. *** D. RAJESHKUMAR & CO. v. INCOME TAX OFFICER
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