|COURT:||Bombay High Court (Goa Bench)|
|CORAM:||M. S. Jawalkar J, M. S. Sonak J|
|CATCH WORDS:||Section 68 cash credit|
|COUNSEL:||Dr. P. Daniel|
|DATE:||February 14, 2020 (Date of pronouncement)|
|DATE:||February 24, 2020 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
S. 68 Bogus Cash Credits: The expression “any previous year” does not mean all previous years but the previous year in relation to the assessment year concerned. If the cash credits are credited in the FY 2006-07, it cannot be brought to tax in a later AY.
1 TXA No. 29 of 2013
IN THE HIGH COURT OF BOMBAY AT GOA
TAX APPEAL NO. 29 OF 2013
Shri Ivan Singh, S-6, Ground Floor, The
Landscape Grand, Behind Mahalaxmi Temple,
Panaji-Goa. …. Appellant
1. The Asstt. Commissioner Income-Tax,
Circle-1 (1), Room No. 208, 1st Floor,
Aayakar Bhavan, Panaji, Goa-403 001.
2. The Commissioner of Income-Tax, Aayakar
Bhavan, Patto, Panaji, Goa-403 001. ….
Dr. P. Daniel with Ms. Yadika Mandrekar, Advocates for the Appellant.
Ms. Susan Linhares, Standing Counsel for the Respondents.
Coram:- M.S. SONAK &
SMT. M.S. JAWALKAR, JJ.
Date:- 14 th February, 2020
ORAL JUDGMENT: (Per M. S. Sonak, J.)
Heard Dr. Daniel with Ms. Y. Mandrekar, the learned
Counsel for the appellant-assessee and Ms. Susan Linhares, the learned
Standing Counsel for the respondent-Revenue.
2 TXA No. 29 of 2013
2. On 02.12.2013, this Appeal came to be Admitted on the
following substantial questions of law:
(I) On the facts and in the circumstances of the
case and in law, whether the Tribunal was
right in sustaining the additions made of old
outstanding sundry credit balances
amounting to Rs.62,24,163/- under Section
68 of the said Act ?
(II) On the facts and in the circumstances of the
case and in law, whether the Tribunal was
right in sustaining the allowance made of
Rs.26,54,158/- out of labour charges on an
adhoc basis ?
(III) On the facts and in the circumstances of the
case and in law, whether the I.T.A.T. had any
material to confirm the adhoc disallowance
of labour charges of Rs.26,54,158/- on an
assumption that the same are not genuine ?
3. Insofar as the first substantial question of law is concerned,
Dr. Daniel has pointed out that Section 68 of the Income Tax Act,
1961 (IT Act), is very clear in providing that where any sum is found
to be credited in the books of the assessee for the previous year and the
assessee offers no explanation about the nature and source thereof or
the explanation offered by him is not, in the opinion of the Assessing
Officer, satisfactory, the sum so credited may be charged to the income
tax as the income of the assessee of that previous year. Relying upon
3 TXA No. 29 of 2013
several decisions, Dr. Daniel submits that since, it is the case of
Revenue that some amounts were found credited in the books of
account for the financial year 2006-07, there was no question of taking
cognizance of such amounts for the assessment year 2009-10 and the
corresponding previous year 2008-09. He submits that on this short
ground, the first substantial question of law, is liable to be answered in
favour of the appellant-assessee and against the respondent-Revenue.
4. Insofar as the second and third substantial questions of law
are concerned, Dr. Daniel is quite correct in pointing out that both
these substantial questions of law relate to one and the same issue of
adhoc disallowance of labour charges to the extent of ₹26,54,158/-.
He submits that in the present case, disallowance is only on the basis of
some suspicion, which is backed by no material as such. He submits
that the disallowance is also based upon the failure on the part of the
appellant-assessee to challenge the similar disallowance for the
preceding year 2008-09. He submits that in such matters, principles
of estoppel or acquiescence cannot be applied and therefore, the
substantial questions of law are liable to be answered in favour of the
appellant-assessee and against the respondent-Revenue. Dr. Daniel
referred to certain decisions in support of his contentions.
4 TXA No. 29 of 2013
5. Ms. Linhares, the learned Standing Counsel for the
respondent-Revenue supports the impugned judgments and orders
made by the ITAT, on the basis of the reasoning reflected therein. She
pointed out that the contentions based upon the definition of the
“previous year” and the provisions of the IT Act were never raised and
therefore, are not reflected in the order of the ITAT. She pointed out
that there are concurrent findings of facts in relation to disallowance of
labour charges. She pointed out that opportunity was granted to the
appellant-assessee to explain the cash payment against vouchers
amounting to 2.65 crores in respect of ₹ labour charges. For these
reasons, she submits that the substantial questions of law may be
decided against the appellant-assessee and in favour of the respondent-
6. Rival contentions now fall for our determination.
7. Insofar as the first substantial question of law is concerned,
reference at the outset is necessary to the definition of the expression
“previous year” as defined in Section 3 of the IT Act. This definition
provides that for the purposes of the IT Act, “previous year” means the
financial year immediately preceding the assessment year.
8. Thereafter, reference is necessary to the provisions of
5 TXA No. 29 of 2013
Section 68 of the IT Act, which read as follows:
68. Where any sum is found credited in the books
of an assessee maintained for any previous year, and
the assessee offers no explanation about the nature
and source thereof or the explanation offered by him
is not, in the opinion of the Assessing Officer,
satisfactory, the sum so credited may be charged to
income-tax as the income of the assessee of that
Provided that where the assessee is a company (not
being a company in which the public are
substantially interested), and the sum so credited
consists of share application money, share capital,
share premium or any such amount by whatever
name called, any explanation offered by such
assessee-company shall be deemed to be not
(a) the person, being a resident in whose
name such credit is recorded in the books of
such company also offers an explanation
about the nature and source of such sum so
(b) such explanation in the opinion of the
Assessing Officer aforesaid has been found to
Provided further that nothing contained in the first
proviso shall apply if the person, in whose name the
sum referred to therein is recorded, is a venture
capital fund or a venture capital company as referred
to in clause (23FB) of section 10.
9. From the plain reading of the provisions of Section 68 of
6 TXA No. 29 of 2013
the IT Act, it does appear that where any sum is found to be credited
in the books of Account maintained for any previous year and there is
no proper explanation for such credit, the sum so credited can be
charged to the income tax as the income of the assessee of “that
10. In the present case, the material on record indicates that
the Assessing Officer has relied upon the credits for the financial year
2006-07. However, the sum so credited, in terms of such credit, is
sought to be brought to tax as the income of the appellant-assessee, for
the assessment year 2009-10, which means for the previous year 2008-
09, in terms of the definition under Section 3 of the IT Act. Dr.
Daniel is justified in submitting that this is not permissible.
11. The view taken by this Court in Commissioner of
Income-Tax, Poona Vs. Bhaichand H. Gandhi, 141 ITR 67 and by
Rajasthan High Court in Commissioner of Income-Tax, Rajasthan
Vs. Lakshman Swaroop Gupta & Brothers, 100 ITR 222, supports
the contentions raised by Dr. Daniel. Similarly, we find that in M/s
Bhor Industries Limited Vs. Commissioner of Income Tax,
Bombay, AIR 1961 SC 1100, the Hon’ble Apex Court in the
context of provisions of the Merged States (Taxation Concessions)
Order (1949) has interpreted the expression “any previous year” to
7 TXA No. 29 of 2013
mean as not referring to all the previous years, but, the previous year in
relation to the assessment year concerned. Again, this decisions also, to
some extent, supports the contentions of Dr. Daniel.
12. The crucial phrase in Section 68 of the IT Act, which
provides that the sum so credited in the books and which is not
sufficiently explained, may be charged to the income tax as income of
the assessee of “that previous year” also lends support to the
contentions of Dr. Daniel.
13. For all the aforesaid reasons, we answer the first substantial
question of law in favour of the appellant-assessee and against the
14. Insofar as the second and third substantial questions of law
are concerned, we find that the Assessing Officer, the Commissioner
(Appeals) as well as the ITAT have recorded concurrent findings of
facts. The contention that no opportunity was afforded to the assessee
is not correct. The order of the Assessing Officer clearly indicates that
opportunity to explain the cash payments to the tune of ₹2.65 crores
was afforded to the assessee. It is only after taking into consideration
the explanation offered and further, looking to the position of the
preceding year, which was not even contested, the Assessing Officer has
8 TXA No. 29 of 2013
made disallowance only to the extent of 10% of ₹2.65 crores. In these
circumstances, we do not think that the substantial questions of law, as
framed, on this issue of disallowance are required to be answered in
favour of the appellant-assessee.
15. In Abdul Qayume Vs. Commissioner of Income-Tax,
184 ITR 404, the Allahabad High Court has no doubt held that an
admission or an acquiescence cannot be the foundation for an
assessment, where the income is returned under an erroneous
impression or misconception of law. In the present case, the
foundation of the assessment order cannot be said to be an admission
or an acquiescence on the part of the assessee. The circumstance that
in the preceding year that the appellant has not allowed disallowance,
is only one of the considerations taken into account by the Assessing
16. In Laxmi Engineering Industries Vs. Income-Tax
Officer,  298 ITR 203 (Raj) and J.K. Woollen
Manufacturers Vs. Commissioner of Income-Tax, U.P., 72 ITR
612, it is held that disallowance should not be on the basis of mere
suspicion and further, on applying test of commercial expediency, the
reasonableness of the expenditure must be judged from the point of
view of the businessman and not on the Income Tax Department. To
9 TXA No. 29 of 2013
the similar effect are certain observations in Principal Commissioner
of Income-Tax, Mumbai Vs. Chawla Interbild Construction Co.
(P) Ltd.,  104 taxmann.com 402 (Bombay).
17. On perusing the impugned judgment made by the Assessing
Officer, Commissioner (Appeals) and the ITAT, we are satisfied that all
these Authorities have in fact, followed the principles laid down in the
aforesaid decisions. This is not a matter where the disallowance is
based on mere suspicion. Further, it is only accepting the principle
that commercial expediency has to be judged from the view of
businessman, that these Authorities have made disallowance of only
10%, in the present case. There is neither any unreasonability nor any
perversity in the approach or the findings of these authorities so as to
18. For all these reasons, the second and the third substantial
questions of law are required to be answered against the appellantassessee
and in favour of the respondent-Revenue.
19. The Appeal is accordingly disposed off in the aforesaid
terms. The modification in terms of this judgment and order to be
carried out by the concerned Assessing Officer, within a reasonable
10 TXA No. 29 of 2013
20. The Appeal is disposed off, without there being any order as
SMT. M. S. JAWALKAR, J. M. S. SONAK, J.