8/6/2019 69C-H.S.Raina

1/6

INTHEHIGHCOURTOFJAMMU&KASHMIRATJAMMU

ITANo.01OF2008

H.S.Raina

Petitioner

IncomeTaxOfficer

Respondent

!Mr.M.M.Gupta,Advocate

^Mr.D.S.Thakur,Advocate

Hon'bleMr.JusticeBarinGhosh,ChiefJustice

Hon'bleMr.JusticeNirmalSingh,Judge

DATE:03/03/2009

:JUDGMENT:

PerBarinGhosh,CJ:

ThisisanappealbytheAssesseeunderSection260AoftheIncomeTaxAct,1961fromtheorderoftheIncomeTaxAppellateTribunal,AmritsarBench,Amritsar.Intheyear1991assesseeconstructedahouseproperty.The

Assessee,whowasapartnerofsixpartnershipFirmscarryingon

financebusiness,hadnotfiledhisincometaxreturnsfortheearlier

fourtofiveyearscontendingthathisincomewasnottaxable.A

noticeunderSection148dated18thFebruary,2000wasservedonthe

2

assesseeon7thMarch,2000,whereuponon11thFebruary,2002

assesseefiledareturnofincomedeclaringincomeofRs.21,175/.

Assessee'scasewasreferredtotheValuationCell,whereuponthe

ValuationCellreportedthatthehousewasconstructedintheyear

1991atacostofRs.17.00lacs.

Assesseedidnotdisputethevaluation.Hecontendedthatthe

costofconstructionwasfinancedbythecompensationamountofRs.

17,85,395/

received

by

his

mother

in

a

land

acquisition

case.

AsumofRs.17,85,395.70receivedbyachequedated8th

April,1991issuedbytheCollectorwasdepositedintheSavingsBank

AccountNo,1968ofthemotheroftheassesseemaintainedwiththe

J&KBank,NanakNagar,Jammu.Assesseecontendedthatmoneys

withdrawnfromthesaidaccountwereutilizedforconstructionofthe

house.Thoughtheassesseedidnotmakeanyefforttoproduceany

materialtosuggestutilizationoftheamountssowithdrawnfor

8/6/2019 69C-H.S.Raina

2/6

constructionofthehouse,butsomeofsuchwithdrawalswere

acceptedtohavebeenutilizedfortheconstructionpurpose.Itwas

acceptedthattheassesseehasbeenabletoestablishsourceof

Rs.11,25,000/ forincurringexpensesforconstructionofthesaid

housebutfailedtoaccountforthesourceofincurringexpenditure

amountingtoRs.5,75,000/.

3

Thereisnodisputethatacertainamountofmoneywaspaidto

thePrincipalofaSchoolfromthesaidaccount.Theassesseedidnot

contendthatthemoneysopaidwasusedforconstructionpurpose.In

additiontothat,certainamountsofmoneywerepaidtofourFinance

Companiesandcertainamountsofmoneywerepaidtocertain

individualsfromthesaidaccount.Theassesseecontendedthatthe

paymentsmadetotheFinanceCompanieswereforrepaymentof

loanstakenfromthemforconstructionpurpose.Assesseecontended

thatpaymentstothoseindividualswereonaccountofpurchaseof

materials.Assesseefurnishedthenamesandparticularsofthose

FinanceCompaniesaswellasofthoseindividuals.Noticessentto

themwerereturnedunserved.PartnersofthoseFirmsappeared

beforetheAssessingTaxOfficerattheinstanceoftheassessee,but

individualsdidnot.PartnersofthoseFirmsstatedthatloanswere

giventotheassesseebytheFirmsrepresentedbythemandthosewere

paidbytheassesseethroughthesubjectcheques.Theystatedthatthe

Firmswereincometaxassessesattherelevanttime.Theyalsostated

thattheloansdidnotbearanyinterest.TheyalsostatedthattheFirms

representedbythemhaveclosedtheirbusinessinviewofthe

directionsoftheReserveBankofIndia.

4

TheamountspaidtotheFirmsandtheamountspaidtothose

individualsfromthesaidaccountwerenotacceptedasamountsspent

forconstructionofthehouse.Thatappearstobetheprincipaldispute

raisedbytheassesseebeforetheCommissionerofIncomeTax

Appeal

and

having

lost

before

him

went

before

the

Tribunal

and

again

havinglostbeforetheTribunalhascomeupbeforethisCourt.

Theprincipalcontentionoftheappellantisthatwhateverwas

withinhiscommandhedid,i.e.,furnishingofparticularsofthe

persons,whograntedloanstotheassesseeandsuppliedmaterials;and

thereisnojustreasonnottoacceptrepaymentofsuchloansand

paymentsmadeforpurchaseofmaterials.

Thereisnodisputethatcertainpaymentsweremadetocertain

8/6/2019 69C-H.S.Raina

3/6

Firmscarryingonfinancebusiness.However,neithertheassessee,

northepartnersofthesubjectfirmscouldbringonrecordanythingto

suggestthatsuchpaymentswereonaccountofrepaymentofloans

receivedbytheassesseeatanearlierpointoftime.Therewasno

evidenceatall,exceptstatementsmadebyfourindividualsand

assertionsoftheassessee,thatloanswerereceivedbytheassessee

fromthoseFirmsatanypointoftimeearlierthanthedatesof

paymentofthesubjectamountsfromthesaidaccount.Similarly,

therewasnomaterial,exceptassertionsbytheassessee,thatbuilding

materialswereprocuredbytheassesseefromthoseindividuals,who

5

werepaidcertainamountsfromthesaidaccount.Apaymentcanbe

acceptedasrepaymentoronaccountofpurchasewhenitis

establishedthatanearlierpaymentwasreceivedorapurchasewas

made.Neitheranearlierpayment,noranypurchasesaidtohavebeen

madewasestablished.Inthecircumstances,nonacceptanceof

paymentsmadetothesaidFirmsasrepaymentofloansandnonacceptance

ofpaymentsmadetothoseindividualsonaccountof

purchaseofmaterialscannotbesaidtobeanactsocapriciousand

unjustthatthesamecanbecalledinquestionasasubstantialquestion

oflaw.Certainpaymentsmadetocertainotherindividualswere

acceptedaspaymentsmadeforconstructionpurpose,butwithout

therebeinganythingtosuggestthatthepaymentssomadewere

utilizedforconstruction.Inthecircumstancesnonacceptanceof

paymentsmadetotheconcernedindividualsaspaymentsmadeon

accountofpurchaseofmaterialscannotbesaidtobequestionoflaw

inasmuchasthecomparablepaymentscannotwithcertaintybetaken

aspaymentsmadefortheconstruction.

Thelearnedcounselfortheappellantcitedthejudgmentofthe

Hon'bleSupremeCourtrenderedinthecaseofLalchandBhagat

AmbicaRamv.CommissionerofIncomeTax,BiharandOrissa,

reportedin37ITR288,andcontendedthatitissuspicionor

conjectureorsurmiseonthepartoftheTribunal,whichhastaken

6

placeofevidence.Hesubmittedthatinadditiontothatthedepartment

hasappliedtheruleofthumb.Inotherwords,hecontendedthat

contentions

of

the

appellant

that

he

repaid

loans

supported

by

evidenceofgrantofloanbythepartnersoftheFirmsfromwhomthe

loanshadbeentakenarematerialevidence,whichcouldnotbe

ignoredeitheronthebasisofruleofthumboronsuspicionor

conjectureorsurmise.

Section69CoftheActprovidesthatwhereinanyfinancial

yearanassesseehasincurredanyexpenditureandheoffersno

explanationaboutthesourceofsuchexpenditureorpartthereof,or

8/6/2019 69C-H.S.Raina

4/6

theexplanation,ifany,offeredbyhimisnot,intheopinionofthe

AssessingOfficer,satisfactory,theamountcoveredbysuch

expenditureorpartthereof,asthecasemaybe,maybedeemedtobe

theincomeoftheassesseeforsuchfinancialyear.Therefore,interms

ofSection69CoftheAct,appellantwasrequiredtoexplain

satisfactorilythesourceoftheexpenditureofRs.17.00lacs,whichhe

hadincurredforconstructionofthehouseinquestion.The

explanationaswasputforwardbytheappellantwasrepaymentof

loans,whichwereusedfortheconstruction,andpaymentsonaccount

ofpurchaseofmaterials.Receiptofloans,utilizationthereoffor

constructionandpurchaseofmaterialswere,therefore,theessential

ingredientstosatisfythatthepaymentsinquestionweremadefor

7

repaymentofloansandfordischargingthedebtsincurredonaccount

ofpurchaseofmaterials.Sincetherewasnothingtosuggestreceiptof

loansandutilizationthereofforconstruction,exceptassertions,andat

thesametimetherebeingnothingtosuggestprocurementofmaterials

fromthoseindividuals,whowerepaidtheamountsinquestion,nonacceptance

ofsuchassertions,toourmind,cannotbesaidtobebased

onsuspicion,conjectureorsurmiseorbyapplyingtheruleofthumb.

Learnedcounselnextcontendedbyreferringtothejudgmentof

theHon'bleSupremeCourtofIndiainthecaseofCommissionerof

IncomeTaxv.OrissaCorporation(P)Ltd.,reportedin159ITR78,

thatsincetheassesseecouldnotproducethetwoindividuals,from

whommaterialswerepurchased,anadverseinferencecouldnotbe

drawnagainsttheassertionsmadebytheassessee.Intheinstantcase,

noadverseinferencewasdrawnagainsttheassessee.Apartfromthe

failureonthepartoftheassesseeinproducingthoseindividuals,he

failedtobringonrecordanythingtosuggestpurchaseofmaterials

fromthoseindividuals.

Learnedcounselfortheassesseecontended,asnoticebythe

Hon'bleSupremeCourtofIndiainCommissionerofIncomeTaxv.Smt.P.K.Noorjahan,reportedin237ITR570,thattheword'shall'wasproposedtobeinsertedinSection69Cwhichwaslateron

changedbytheword'may'and,accordingly,nosoonerthe

8

explanation

of

the

assessee

is

not

satisfactory,

the

amounts

cannot

be

deemedtobetheincomeoftheassessee.Itistrue,aspointedoutby

theHon'bleSupremeCourtinthecasereferredtoabove,adiscretion

hasbeengiventothedepartmentinthematterofdeemingtheunexplained

amountasincomeoftheassessee,butsuchdiscretionisto

beusedjudiciouslyforprotectingtheinterestoftheassesseeaswell

asoftherevenue.Inthatcase,onfacts,itwasfoundthathaving

regardtotheageoftheassesseeandthecircumstancesinwhichshe

8/6/2019 69C-H.S.Raina

5/6

wasplaced.,shecannotbecreditedtomakeincomeofherownandin

thosecircumstances,theHon'bleSupremeCourtupheldtheviewof

theTribunalinrefusingtopermitadditionofthevalueofthesubject

investmentstotheincomeoftheassessee.Intheinstantcase,thereis

nomaterialonrecordwhichwouldsuggestthattheappellantcould

notbecreditedwithhavingmadeanyincomeofhisownhaving

regardtohisageandthecircumstancesinwhichhewasplaced.Inthe

event,itisconstruedthatallunexplainedsourceofexpenditure

shouldnotbedeemedtobetheincomeoftheassesseeandthe

discretionshouldbeusedalwaysinfavouroftheassessee,theSection

itselfwouldbecomeotioso.

Learnedcounselalsocontendedthatbeforeaddingtheamounts

inquestionasincomeoftheassessee,i.e.,beforeusingthediscretion,

theappellantoughttohavehadbeennoticed.TheSection

9

doesnotrequireanysuchnotice.Inanyviewofthematter,fromthe

dayonethequestionwasshouldorshouldnotbesuchexpenditurebe

deemedtobetheincomeoftheassesseeandnoticethereofwas

adequatelygiventotheassessee.Learnedcounselfortheappellant

contendedthatatthetimeofimposingpenalty,anoticeisrequiredto

begivenandthesameanalogyshouldbeappliedwhilesuchaddition

isbeingmade.Therequirementofhearingtheassesseeandgiving

himreasonableopportunityofbeingheardbeforeimposingpenaltyis

arequirementofSection274oftheAct.Nosuchprocedurehasbeen

prescribedformakingadditionsunderSection69CoftheAct.Inany

event,byvirtueofSection69CoftheAct,itisobligatoryonthepart

oftheassesseetoexplain,tothesatisfactionoftheAssessingOfficer,

thesourceofexpendituremadebyhim,withariderthatifthe

explanationisnotsatisfactory,theAssessingOfficermayusehis

discretionagainsttheassessee,whichconnotesanobligationto

satisfy,apartfromtheexplanationtobegivenbyhim,thattherewas

existenceofsuchcircumstancesinwhichtheassesseewasplacedthat

hecannotbecreditedwithhavingmadesuchincomeofhisown.Intheevent,suchobligationhadbeendischargedbutignoringthesame,

AssessingOfficerhadaddedtheexpenditureasdeemedincomeand

therebyhadusedhisdiscretionagainsttheassessee,itwouldhave

been

open

to

the

assessee

to

call

in

question

user

of

such

discretion,

10

buttheassesseedidnotmakeanyendeavoratanystagetoassertthat

thecircumstancesinwhichhewasthenplaced,hecouldnotbe

creditedforhavingmadethesubjectincomeofhisown.

Thelearnedcounselfortheappellantlastlysubmittedthat

accordingtothevaluationreportthepropertywasconstructedinthe

year1991,whichconnotescalendaryear1991.Hesubmittedthat

8/6/2019 69C-H.S.Raina

6/6

calendaryear1991hadtwofinancialyearsandassuchthedeemed

incomeshouldbebifurcated.Thereisnothingonrecordtosuggest

whenconstructioncommenced.Thedrawingsfromthesubject

accountweremadefromApril,1991.Thefactsofthecase,therefore,

didnotmakeoutacaseforbifurcation.

Inthecircumstances,theappealfailsandthesameisdismissed.

(NirmalSingh)(BarinGhosh)

JudgeChiefJustice

Jammu,

03.03.2009

Tilak,Secy.