CIT vs. Sadiq Sheikh (Bombay High Court) (Goa Bench)

COURT:
CORAM: ,
SECTION(S):
GENRE:
CATCH WORDS: ,
COUNSEL: , ,
DATE: October 14, 2020 (Date of pronouncement)
DATE: October 31, 2020 (Date of publication)
AY: 2006-07
FILE: Click here to download the file in pdf format
CITATION:
S. 68 Bogus Cash Credits: The Revenue can examine the source of the source. Merely pointing out to a source and the source admitting that it has made the payments is not sufficient to discharge the burden placed on the assessees by s. 68. Otherwise, it would be sufficient for assessees to simply persuade some credit-less person to own up having made such huge payments and thereby evade payment of tax on the specious plea that the Revenue can always recover the tax from such credit-less source. The explanation has to be plausible and backed by reliable evidence. 'Fantastic or unacceptable' explanations are not acceptable (All imp verdicts on s. 68 referred)

TXA NO.18 & 19-2014
IN THE HIGH COURT OF BOMBAY AT GOA
TAX APPEAL NO. 18 OF 2014
The Commissioner of Income Tax
Karnataka (Central), Bangalore. … Appellant
Versus
Sadiq Sheikh,
FR5, 4th floor, Souza Towers,
Opp. Municipal Garden,
Panaji-Goa.
PAN: AMFPS2073J
& major in age … Respondent
Ms. Susan Linhares, Advocate for the Appellant.
Mr. S. S. Kantak, Senior Advocate along with Mr. Nikhil Pai, Advocate
for the Respondent.
AND
TAX APPEAL NO. 19 OF 2014
The Commissioner of Income Tax
Karnataka (Central),
Bangalore. … Appellant
Versus
Sadia Sheikh,
FR5, 4th floor, Souza Towers,
Opp. Municipal Garden,
Panaji-Goa.
PAN: AKQPS9076A
& major in age … Respondent
2 TXA NO.18 & 19-2014
Ms. Susan Linhares, Advocate for the Appellant.
Mr. S. S. Kantak, Senior Advocate along with Mr. Nikhil Pai, Advocate
for the Respondent.
Coram:- M. S. SONAK &
DAMA SESHADRI NAIDU, JJ .
Reserved on:- 29th September , 2020
Pronounced on:- 14 th October, 2020
JUDGMENT (Per M. S. Sonak, J.):
Heard Ms. Susan Linhares, for the appellants and Mr. Kantak,
learned Senior Advocate along with Mr. Nikhil Pai for the respondents.
2. The learned counsel state that both these appeals may be
disposed of by a common judgment and order since, the issues
involved in both these appeals are virtually identical and also the
substantial questions of law as framed, are identical.
3. Tax Appeals were admitted on 25.09.2014 on the following
substantial questions of law:-
(A) Whether on the facts and circumstances of the case, the
Tribunal was correct in law and not perverse in its findings in
deleting the amount of Rs.11,26,50,112/- made by the Assessing
Authority towards unaccounted cash receipts?
(B) Whether on the facts and circumstances of the case, the
Tribunal was correct in law and not perverse in its findings
3 TXA NO.18 & 19-2014
deleting the amount of Rs.8,49,49,888/- made by the Assessing
Authority towards unaccounted cash receipts?
4. The assessees in these appeals are individuals. They are in fact,
spouses of one another. Since they were found to be eligible for the
benefits under Section 5A of the Income Tax Act, 1961 (said Act),
50% of their income was brought to tax in the hands of the spouse.
Hence, there were two separate but identical assessment orders and
consequently, there are these two appeals, which can as well be
considered and disposed of by a common judgment and order.
5. The assessees filed their return of income declaring total income
of `7,36,911/- for the year previous to the relevant assessment year.
6. Thereafter, on 25.02.2010, a search was conducted under
Section 132 of the said Act in the residential premises of the assessees
at Dona Paula, Goa. The case was then centralized vide the
Commissioner’s order dated 16.07.2010 and notices dated 20.01.2011
under Section 153(A) of the said Act were served upon the assessees on
25.01.2011 calling for their returns for the relevant assessment years.
7. After reminders, the assessees filed their returns, again declaring
total income of `7,36,910/- and agricultural income of `30,000/-.
8. Notices were issued under Section 142(2) and 143(1) of the said
Act to the assessees. The assessing officer (AO) vide order dated
4 TXA NO.18 & 19-2014
29.12.2011 finalized the assessment by adding an amount of
`19,76,00,000/- on account of the unaccounted cash receipts from
Shri N. Suryanarayana and `30,00,000/- on account of unexplained
investments by the assessees.
9. The assessees, aggrieved by the aforesaid additions to the
declared income, appealed the assessment order dated 29.12.2011 to
the Commissioner (Appeals), who partly allowed the assessees’ appeal.
From out of the addition of `19.76 crores, addition to the extent of
`8,49,49,888/- was sustained. However, the addition to the extent of
`11.76 crores was deleted. Similarly, the Commissioner (Appeals),
sustained the addition of `30 lakhs on account of unexplained
investments by the assessees. This is evident from the order dated
27.03.2013 made by the Commissioner (Appeals).
10. Both the assessees as well as the Revenue appealed to the Income
Tax Appellate Tribunal (ITAT) against the order dated 27.03.2013
made by the Commissioner (Appeals). The ITAT, by its impugned
order dated 31.07.2013, allowed the assessees’ appeal and dismissed the
appeal instituted by the Revenue. Hence, the present appeals on the
aforesaid substantial questions of law.
11. Ms. Linhares, the learned counsel for the Revenue submits that
the ITAT has misconstrued the provisions of Section 68 of the said Act
and the finding recorded by the ITAT reversing the concurrent
5 TXA NO.18 & 19-2014
findings by the assessing officer and the Commissioner (Appeals) is
vitiated by perversity. She, therefore, submits that the two substantial
questions of law as raised be answered in favour of the Revenue and
against the assessees.
12. Ms. Linhares submits that in this case, the ITAT has only taken
into consideration the circumstance that the amount of `8,49,49,888/-
was credited by M/s. Prasad Properties into the accounts of the
assessees by cheque and further one of the partners of M/s. Prasad
Properties had owned up to making such payment to the assessees by
way of loan. Ms. Linhares submits that there is overwhelming evidence
on record which establishes beyond reasonable doubt that the firm
M/s. Prasad Properties could never have made such a huge payment to
the assessees and the partners of this firm were virtually persons of
straw. She points out that this firm was never registered and was
dissolved within a period of hardly one year from its alleged
incorporation. She pointed out that this firm had neither any bank
account nor permanent account number (PAN) issued to it.
13. Ms. Linhares submits that the explanation about the huge
amount of `8.49 crores being carried in cash from Chennai to Goa was
too fantastic to deserve any credit. She pointed out that there is no
explanation as to why this cash was allegedly carried by road for 1046
kms. and thereafter deposited in Goa. She pointed out that it is quite
evident that all these transactions could not have been carried out in
6 TXA NO.18 & 19-2014
the normal course of business and therefore, both the assessing officer
and Commissioner (Appeals), quite correctly held that the explanation
offered by the assessees was far from satisfactory.
14. Ms. Linhares submits that the ITAT by ignoring all this material
evidence has accepted the assessees’ explanation and ordered the
deletion of `8.49 crores added to the income of the assessees. She
pointed out that the finding recorded by the ITAT is vitiated by
perversity and misconstruction of the provisions of Section 68 of the
said Act. She relies on CIT v. M/s. Mussadilal Ram Bharose –
1987(2) SCC 39 in support of her submissions.
15. Mr. Kantak, learned senior advocate for the assessees submits
that once the assessees indicate the source from whom the amounts
were received by cheque and further, such source confirms the
payment, the burden which the law casts upon the assessees is fully
discharged. He submits that thereafter, onus shifts upon the Revenue
to establish that nevertheless, the amount represents an unexplained
income of the assessees.
16. Mr. Kantak submits that in this case, both the assessing officer
and Commissioner (Appeals) had raised certain doubts about the
source from which M/s. Prasad Properties may have arranged for the
amount of `8.49 crores. He submits that the source of the source is not
at all relevant consideration in such matters. If at all, there are any
7 TXA NO.18 & 19-2014
doubts about the source of the source, then, it is for the Revenue, to
take out appropriate proceedings against the source and not against the
assessees in the present case. Mr. Kantak submits that this error on the
part of the assessing officer and Commissioner (Appeals) was quite
correctly set right by the ITAT relying upon the decisions in CIT v.
Tania Investments P. Ltd. – 322 ITR 394, CIT v. Daulat Ram
Rawatmull – (1973) 3 SCC 133, Aravali Trading Co. v. ITO –
187 Taxman.com 338 (Raj), Nemi Chand Kothari v. CIT – 264
ITR 254 (Gau) . Mr. Kantak, therefore, submits that no substantial
questions of law as framed arise in this matter and both these appeals
be therefore dismissed.
17. The rival contentions now fall for our determination.
18. At the outset, we may deal with the first substantial question of
law, which relates to the deletion of the amount of `11,26,50,112/-
towards unaccounted cash receipts. This will have to be answered
against the Revenue and in favour of the assessees by accepting the
reasoning of the Commissioner (Appeals) in his order dated
27.03.2013. The Commissioner (Appeals), has not held that this
amount was accounted for by the assessees but the Commissioner
(Appeals) has held that no inferences need to be drawn about this
amount simply because there is material on record that this amount
was paid to M/s. Good Earth Developers and M/s. Raj Hospitality Pvt.
Ltd. Therefore, the nature of such amounts can be very well assessed
8 TXA NO.18 & 19-2014
in the hands of said recipients and need not be assessed in the hands of
the assessees.
19. Since, there is material on record, that this amount of `11.26
crores or thereabouts was paid by the assessees to the aforesaid two
entities and since there is evidence on record that the aforesaid two
entities had admitted to the receipt of the said amount, the
Commissioner (Appeals), was quite right in taking the view that such
amounts are best assessed in the hands of the two entities and not in
the hands of the assessees.
20. Ms. Linhares was unable to satisfy us that there was any illegality
in the view taken or any perversity in the approach of the
Commissioner (Appeals) in so far as the treatment of this amount of
`11.26 crores was concerned. Accordingly, the first substantial question
of law needs to be answered against the Revenue and in favour of the
assessees. However, by clarifying that such an answer ought not to be
construed to mean that the assessees have explained satisfactorily the
nature and source of this amount. This question is answered against
the Revenue only because we agree with the view taken by the
Commissioner (Appeals) that it is only appropriate that this amount is
assessed in the hands of the two recipient entities as aforesaid and not
the assessees.
21. The answer to the second substantial question of law depends
9 TXA NO.18 & 19-2014
upon the application of the provisions of Section 68 of the said Act to
the facts and circumstances as borne out of the record in this case.
22. Section 68 of the said Act, inter alia provides that where any sum
is found credited in the books of assessees maintained for any previous
year, and the assessees offer no explanation about nature and source
thereof or explanation offered by him is, not found to be satisfactory,
the sum so credited may be charged to income tax as the income of the
assessees of that previous year. Two provisos are dealing with the share
application money and venture capital fund, with which we are not
concerned in these appeals.
23. The record, in this case, indicates that hardly any explanation as
such was offered by the assessees when called upon to explain the
transactions leading to the transfer of this huge amount of `8.49 crores
into their bank accounts on 10.03.2007. Even the source was not
indicated by the assesses but the same was unearthed by the Revenue
by probing the bank accounts and the money trail.
24. The assessees neither cooperated nor were they candid. It is only
as the probe deepened, the assessees and their alleged sources began to
offer some halfhearted explanations, which, as found by the AO and
the Commissioner (Appeals) were far from satisfactory.
25. The ITAT, in its impugned order dated 31.07.2013, has,
10 TXA NO.18 & 19-2014
however, purported to accept the assessee’s’ so-called explanation
relying almost entirely upon the following three circumstances:-
(a) That this amount of `8.49 crores was transferred into the
assessees’ bank account at Development Credit Bank, Panaji
Goa on 10.03.2007. The ITAT regards this as a transfer
through a “normal banking channel”.
(b) That this amount of `8.49 crores was transferred from out of
the bank accounts of Siraj Sheikh (assessees’ brother/brother in
law) and Vijay Kumar Rao (assessees’ close friend) held in the
same bank. The ITAT has held that the identity of the source
was thus established.
(c) That the identified sources have confirmed having made
these payments to the assessees.
26. Based almost entirely upon the aforesaid three circumstances and
virtually ignoring all other circumstances emanating from the record,
the ITAT, in its impugned order dated 31.07.2013, has rather abruptly
concluded that “…….therefore, in our opinion, the requirement u/s 68
is proved beyond any doubt by the Assessee. Therefore we are of the
view that no addition is required/sustainable” . The ITAT, by reference
to the rulings in Tania Investment P. Ltd. (supra), Aravali Trading Co.
(supra), and Nemi Chand Kothari (supra) , has held that if the identity
of the creditor is established and the monies are received through
banking channel, then, the assessees are not required to prove the
source of the source in such matters.
27. According to us, the ITAT, in this case, has grievously erred both
11 TXA NO.18 & 19-2014
on facts as well as in law, in interfering with the well-reasoned analysis
reflected in the orders of the AO and Commissioner (Appeals) in these
matters.
28. The three circumstances relied upon by the ITAT in the
impugned judgment may not be irrelevant circumstances, But they
were certainly not the only circumstances on basis of which and by
ignoring other numerous circumstances, the ITAT could have abruptly
concluded that the assesses had proved the so-called explanation
beyond the reasonable doubt for Section 68 of the said Act.
29. In Oceanic Products Exporting Co. v. CIT – 241 ITR 497
(Ker) it is held that after the enactment of Section 68, the burden is
placed on the assessees to prove a credit appearing in its books of
accounts. That burden has to be discharged with positive material.
When it is contended that a person had advanced money or had given
a loan, it has to be established that the person was not a man of straw
and had the capacity to give the money.
30. In CIT v. Bikram Singh – 399 ITR 407 , it is held that each of
the three conditions i.e. identity of the creditor, capacity of the
creditor, and genuineness of the transaction had to be fulfilled
cumulatively. Merely because the transactions were through banking
channels, it cannot be said that such transactions were genuine when
the assessees were not in a position to show the credit-worthiness of the
12 TXA NO.18 & 19-2014
creditors, there was no question of accepting the explanation of the
assessees.
31. In CIT v. P. Mohanakala – 291 ITR 278 (SC) , it is held that
the mere furnishing of particulars or the mere fact of payment by an
account payee cheque or mere submissions of a confirmatory letter by
the creditor, is, by itself, not enough to shift the onus on the Revenue.
32. To the same effect are the observations in Yashpal Goel v. CIT
– 310 ITR 75 and Mangilal Jain v. CIT – 315 ITR 105, CIT v.
United – 187 ITR 596 .
33. Even in Tania Investments P. Ltd. (supra) upon which reliance
was placed by the ITAT and by Mr. Kantak before us, this court has
tacitly accepted the legal position that in case of cash credit entries in
the books of account, the assessee has to establish (i) identity of the
party; (ii) capacity, and (iii) the genuineness of the transaction. In the
said case, the assessee had established the identity and perhaps the
genuineness of the transaction. On the aspect of ‘capacity’, this court
agreed with the finding of the ITAT in the said case, that books of
account of the said party were very much available with the AO. Such
books of account itself would indicate the capacity of the party to
advance loans. Therefore, without examining such books of account
the AO could not have rejected the assessees’ explanation.
13 TXA NO.18 & 19-2014
34. Tania Investment P. Limited (supra) is not an authority for the
omnibus proposition relied upon by the ITAT and Mr. Kantak. In fact,
even this decision accepts that to discharge the burden which Section
68 of the said Act casts upon an assessee, the assessee has to not only
establish the identity of the source but also establish at least prima facie
the capacity of such source and the genuineness of the transaction.
35. In the present matters, the assessees quite reluctantly, may have
indicated, but not established the identity of the source. In any case,
the assessees have failed to establish the capacity of the source and the
genuineness of the transaction. Therefore it is clear that Tania
Investments P. Limited (supra) was quite mechanically relied by the
ITAT to accept the assessees’ so-called explanation in these matters. It
is possible that the ITAT merely went by the headnotes which, at
times, may not accurately represent the ratio of the decision.
36. Similarly, even Nemi Chand Kothari (supra) rendered by learned
Single Judge of the Gauhati High Court has laid down the following
propositions, which, support the case of the Revenue than the
assessees:-
(i) The inquiry under Section 68 need not necessarily be
confined by the Assessing Officer to the transactions, which took
place between the assessee and his creditor, but that same may be
extended to the transactions, which may have taken place
between the creditor and his sub-creditor;
14 TXA NO.18 & 19-2014
(ii) There can be no doubt that to establish the receipt of cash
credit as required under Section 68, the assessee must satisfy
three important conditions, namely, (a)identity of the creditor,
(b) the genuineness of the transaction, and (c) financial capacity
of the person giving the cash credit to the assessee, i.e., the
creditworthiness of the creditor;
(iii) Once, the assessee fulfills the aforesaid two conditions,
thereafter there is no further burden upon the assessee to
establish the creditworthiness of the sub creditor or the creditor’s
creditor. The onus then shifts upon the Revenue.
37. In the present matters, the assessees have failed to discharge the
burden of establishing the creditworthiness of the creditors i.e. Siraj
Sheikh and Vijay Kumar Rao. The assessees have miserably failed to
establish the genuineness of the transaction between said Siraj Sheikh
and Vijay Kumar Rao on one hand and the assessees on the other. In
fact, there is no reference to any transaction between these apparent
sources/creditors and the assessees. These apparent sources at one stage
chose to call themselves as ‘conduits’ on behalf of M/s. Prasad
Properties to the transaction projected in the agreement dated
22.12.2006. If the apparent sources i.e. Siraj Sheikh and Vijay Kumar
Rao are mere conduits as claimed by them, then the creditor or the
source is M/s. Prasad Properties. The burden, therefore, lay upon the
assessees to establish the capacity of such source i.e. M/s. Prasad
15 TXA NO.18 & 19-2014
Properties and the genuineness of the transactions with M/s. Prasad
Properties. The assessees have failed miserably on both these aspects.
38. In Aravali Trading Co. (supra) , the firm of creditors who had
advanced the amounts to the assessees had not only admitted to the
making of such advances but further, there was material on record to
establish the creditworthiness of such creditors. Such creditors were
themselves taxpayers who had been assessed for income tax for the
relevant years. In these factual circumstances, the court held that the
capacity of creditors had been established and therefore the burden was
discharged. In contrast, in the present matters, neither is the capacity
of Siraj Sheikh and Vijay Kumar Rao nor M/s. Prasad Properties
established, even prima facie. The genuineness of the transaction, if
any, is also far from established. The material on record suggests that
there was no transaction worth the name and the agreement dated
22.12.2006 executed on stamp papers dated 03.04.2000 was nothing but
a desperate attempt to create a facade. The ruling in Aravali Trading
Co (supra) can, therefore, in no manner, assist the assessees in these
matters.
39. Even according to us, merely pointing out to a source and the
source admitting that it has made the payments is not, sufficient to
discharge the burden placed on the assessees by Section 68 of the said
Act. If this were so, then, it would be sufficient for assessees, to simply
persuade some credit- less person or entity to own up having made
16 TXA NO.18 & 19-2014
such huge payments and thereby evade payment of property tax on the
specious plea that the Revenue, can always recover the tax from such
credit- less source, if possible. To discharge the burden which Section
68 casts upon assessees, at least some plausible explanation is required
to be furnished, which must be backed by some reliable evidence. If
the circumstances listed above are to be taken into consideration, then,
it can hardly be said that the assessees in the present case, has
discharged the burden which was cast upon it by Section 68 of the said
Act.
40. Now coming to the perversity in the findings of fact that the
explanation furnished by and on behalf of the assessees was acceptable,
reference is necessary to some of the circumstances which emanate
from the record in these matters. These circumstances were considered
in some details by the AO and Commissioner (Appeals). Even the
ITAT, has not disbelieved any of these circumstances but the ITAT, has
simply ignored or bypassed all such circumstances by observing that
the Revenue was not entitled to inquire into the source of the source.
Some of such circumstances which emanate from the record are as
follows:
(a) Mr. Siraj Sheikh (brother/brother-in-law of the assesses)
and Mr. Vijay Kumar Rao, (a close friend of the assessees) are
not at all clear about their precise role in this transaction
involving the amount of `8.49 crores;
17 TXA NO.18 & 19-2014
(b) At one stage, they refer to themselves as the source of this
amount but at another stage, they claim to be mere “conduits”
or “facilitators” for the transfer of this amount of `8.49 crores
from M/s. Prasad Properties to the assessees;
(c) Mr. Siraj Sheikh and Mr. Vijay Kumar Rao have not
produced even shred of evidence to establish even prima facie
their capacity to raise such a huge amount of `8.49 crores.
There is no explanation as to how this amount became payable
to them by M/s. Prasad Properties on 10.03.2007, when, on
03.04.2006 i.e. hardly a year ago, they had allegedly invested an
amount of `10,000/- each to the capital of the firm M/s. Prasad
Properties;
(d) There is no clarity as to whether this amount of `8.49
crores was a “loan” or an “investment” by M/s. Prasad Properties
to or with the assessees;
(e) In either case, there is no explanation on the issue of
repayment of this huge amount of `8.49 crores or about the
securities to secure repayment of such amount;
(f) The ledger accounts maintained by M/s. Prasad Properties
at Chennai indicated that Mr. Siraj Sheikh made a cash
withdrawal of `6,30,00,000/- and Mr. Vijay Kumar Rao made a
cash withdrawal of `2,20,08,700/-. However, Mr. Siraj Sheikh
18 TXA NO.18 & 19-2014
deposited an amount of `2,19,50,000/- in his bank account at
Goa and Mr. Vijay Kumar Rao deposited an amount of
`6,30,00,000/- in his bank account at Goa. Both these amounts
were deposited in cash. This discrepancy is never explained and
establishes the extent to which the ledgers came to be fabricated;
(g) The firm M/s. Prasad Properties was constituted on
03.04.2006 and dissolved on 29.03.2007 i.e. hardly within the
same financial year;
(h) Though, the assessees would like the Revenue to believe
that M/s. Prasad Properties was dealing in crores of rupees, the
record establishes that M/s. Prasad Properties had neither any
PAN card in its name nor did M/s. Prasad Properties ever filed
any returns of income;
(i) That though the firm M/s. Prasad Properties was supposed
to be dealing in transactions involving crores of rupees, it did
not even have a bank account in its name i.e. at Chennai or
Goa;
(j) The assessees had relied upon only four documents in
support of their so-called explanation. The first was the
Partnership Deed dated 03.04.2006 which was typed on stamp
paper of 20.03.2002; second, the agreement dated 22.12.2006,
which was typed on stamp paper dated 03.04.2000; third, the
19 TXA NO.18 & 19-2014
agreement inter se between the partners dated 22.01.2007,
which was typed on stamp paper dated 20.03.2002; and fourth
the Deed of Dissolution dated 29.03.2007 typed on stamp
paper dated 20.03.2002. Again, there is no explanation as to
why these documents were typed on stamp paper of the year
2000-2002 when the documents were allegedly prepared in
2006-07;
(k) Mr. A. Manohar Prasad claimed that `8.49 crores were
transported in cash in a shooting vehicle by road for a distance
of over 1046 km. from Chennai to Goa. No details of the
vehicle number etc. were furnished;
(l) If ultimately, this amount of `8.49 crores was to be paid
through banking channels to the assessees, there is no
explanation as to why this amount was not deposited in a bank
in Chennai and thereafter transferred into the bank account of
the assessees;
(m) The explanation offered by Mr. A. Manohar Prasad was
that Mr. Sadiq Sheikh had promised him a 40% discount in the
land transaction if payments were made in cash. This is not
something which is reflected in the agreement dated
22.12.2006, which is the document relied upon by the parties.
In any case, if this was so, there is no explanation as to why the
huge amount was deposited in the bank account of Mr. Siraj
20 TXA NO.18 & 19-2014
Sheikh and Mr. Vijay Kumar Rao and thereafter transferred into
the bank account of the assessees;
(n) There are absolutely no documents to secure this loan or
investment of `8.49 crores executed by the assessees in favour of
M/s. Prasad Properties. The only lame explanation offered by
Mr. A. Manohar Prasad was that Mr. Sadiq Sheikh had orally
confirmed the repayment and had already shown him the
property belonging to his family.
(o) There are no documents to indicate whether interest, if
any, was payable on this loan of `8.49 crores. There are no
documents to indicate the return which M/s. Prasad Properties
was to expect on this huge investment of `8.49 crores.
41. If the ITAT were to have considered the aforesaid circumstances,
which, according to us, the ITAT was duty-bound to, we are quite sure
that the ITAT would not have, nevertheless, found the so-called
explanation of the assessees acceptable or in compliance with the
provisions of Section 68 of the said Act. Rather we are inclined to
believe, that the ITAT too, would have found the so-called explanation
of the assessees too fantastic to deserve any acceptance. In Mussadilal
Ram Bharose (supra), the Hon’ble Supreme Court has cautioned
against acceptance of any ‘fantastic’ or ‘unacceptable’ explanations in
tax matters.
21 TXA NO.18 & 19-2014
42. In Mussadilal Ram Bharose (supra) , the Hon’ble Supreme
Court agreed with the view taken by the Full Bench of the Patna High
Court in the case of CIT v. Nathulal Agarwala & Sons – 153 ITR
292 (Pat), which reiterated that the onus to discharge the presumption
raised by the explanation to Section 271(1)(c) was on the assessees and
it was for him to prove that the difference between the returned
income and the assessed income did not arise from any fraud or gross
or willful neglect on his part. The court should come to a clear
conclusion whether the assessees had discharged the onus or rebutted
the presumptions against him. The Full Bench emphasized that as to
the nature of the explanation to be rendered by the assessees, it was
plain on the principle that it was not the law that the moment any
‘fantastic or unacceptable’ explanation was given, the burden placed
upon him would be discharged and the presumption rebutted. After
specifically adverting to these observations of the Full Bench, the
Hon’ble Apex Court observed as follows:-
“We agree. We further agree that it is not the law that any and
every explanation by the assessees must be accepted. It must be
an acceptable explanation, acceptable to a fact-finding body.”
43. In this case as well the assessees want the fact-finding authorities
to believe that this amount of `8.49 crores credited into their accounts
was indeed sourced from Siraj Sheikh and Vijay Kumar Rao and M/s.
Prasad Properties. This explanation is purported to be backed by some
4 documents of absolutely dubious origins executed in the year 2006-
07 but on stamp papers of the year 2000-02 for which there is no
22 TXA NO.18 & 19-2014
explanation whatsoever. This firm M/s. Prasad Properties was allegedly
founded on 03.04.2006 and stood dissolved on 29.03.2007 i.e. within
a single financial year. This firm had neither any bank account nor any
PAN card. This firm has never filed any return of income nor paid any
income tax. All this even though this firm and its partners including
Siraj Sheikh and Vijay Kumar Rao claim to have transacted the
business of ‘crores of rupees’. Above all, this explanation furnished on
behalf of the assessee involves transportation by road from Chennai to
Goa (a distance of over 1046 km.) a cash stash of `8.50 crores. This is
exactly what the Hon’ble Apex Court refers to as ‘any fantastic or
unacceptable explanation’. Yet, the ITAT, by virtually ignoring all these
circumstances and further by applying incorrect legal principles, has
chosen to accept such fantastic and unacceptable explanation put forth,
not by the assessees themselves but on behalf of the assessees.
44. In these matters, even if we were to accept that the assessees, by
pointing out to Mr. Siraj Sheikh, Vijay Kumar Rao, and M/s. Prasad
Properties had discharged the initial burden cast upon them by Section
68 of the said Act, we find that the onus which had shifted upon the
Revenue, has been appreciably discharged by the Revenue. This is not
a case where the Revenue, halted its probe soon after the so-called
sources were indicated by the assessees. The Revenue, in these matters,
probed further and unearthed quality material to establish that the socalled
sources completely lacked the capacity or credit-worthiness to
advance such a huge amount of `8.49 crores to the assessees. Further,
23 TXA NO.18 & 19-2014
the Revenue, in these matters, established that there was no
genuineness in the transactions sought to be projected on behalf of the
assessees. Therefore, the Revenue, in these matters, has discharged the
onus, assuming that such onus had indeed shifted upon the revenue.
Again, this is an aspect, which was ignored by the ITAT.
45. The finding recorded by the ITAT in these matters is based
upon the wholly erroneous view of law and perversity on account of
ignoring completely, vital and relevant circumstances emanating from
the record. Such a finding can be interfered in an appeal under
Section 260A of the said Act. The legal position is quite settled that
where the findings arrived at by the Tribunal are based upon the wholly
erroneous view of the law or are vitiated by perversity, a substantial
question of law indeed arises and is required to be addressed in an
appeal under Section 260A of the said Act. If at all, any authority is
necessary for this proposition, then reference can be usefully made to
Nemi Chand Kothari (supra) relied upon by the assessees themselves.
Even otherwise, this position is settled in several rulings including CIT
v. Antartica Investment Pvt. Ltd. – 262 ITR 493; Bhola Shankar Cold
Storage P. Ltd. v. Joint Commissioner of Income-Tax – 270 ITR 487;
and Hindusthan Tea Trading Co. Ltd. vs Commissioner of Income Tax
– 263 ITR 289.
46. Therefore, for all the aforesaid reasons, we answer the second
substantial question of law in favour of the Revenue and against the
24 TXA NO.18 & 19-2014
assessees. As a consequence, we reverse the order of ITAT and restore
the order made by the Commissioner (Appeals) in these matters.
47. These appeals are accordingly disposed of by making the
following order:
(a) The first substantial question of law is answered against the
Revenue and in favour of the assessees. However, we clarify that
such an answer is not to be construed as acceptance of assessees’
explanation in respect of the amount of `11.26 crores. We have
only agreed with the reasoning of the Commissioner (Appeals) in
his order dated 27.03.2013 that it is only appropriate that this
amount is assessed in the hands of the two recipients and not in
the hands of the assessees;
(b) The second substantial question of law is answered in
favour of the Revenue and against the assessees and the ITAT’s
order dated 31.07.2013 is set aside and the order of the
Commissioner (Appeals) dated 27.03.2013 is hereby restored,
insofar as the addition of the amount of `8,49,49,888/- to the
assessees’ income.
48. The two appeals are disposed of accordingly. There shall be no
order as to costs.
DAMA SESHADRI NAIDU, J. M. S. SONAK, J.

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