COMMISSIONER OF INCOME-TAX, ORISSAversusORISSA CORPORATION (P) LTD.

                                                          979

                                                                 A
             CCJIMISSIONER OF INCOME-TAX, ORISSA
                              v.
                 ORISSA CORPORATION (P) LTD.

                       MARCH 19, 1986
                                                                 B
          [R.S. PATHAK AND SABYASACHI MUKffAIUI, JJ.]

      Income Tax Act 1961-ss.68 and 256(2) - Cash credits in
books of assessee - Onus of proof about source of income.

      High Court refusing to direct Tribunal to state case -
When valid.                                                      C

     Interference with findings of fact by the Tribunal -
Permissible under what circumstances.

      For the accounting year ending on 31st March, 1961,
corresponding to the assessment year 1962-63, the Income-tax     D
Officer did not accept the assessee 's accounts showing cub
credit of Rs.1,50,000 said to have been received by way of
loans from three individual creditors. He produced before the
Incmae-tax Officer, discharged hundies and confirmation
letters from these creditors who were income-tax assessees.
The assessee made attempts to bring the creditors before the     E
Income-tax Officer by issue of notices under s.131 of the
Income Tax Act, 1961 but failed, as these were returned with
the endorsement 'left'. The assessee thereafter wante4 fUrther
opportunity to find out the whereabouts of the lenders. The
Income-tax Officer observed certain inconsistencies in the
confirmation letters which did not inspire confidence, and       F
being of the view that the alleged creditors were not genuine
bankers but were mere name lenders, treated the entire uount
as unproved cash credit and added the same to the income of
the assessee. The Assistant Appellate Coaal.ssioner dismissed
the appeal of the assessee.
                                                                 G
     In a separate proceeding under s.27l(l)(c) of the Act on
the basis of the assessment order the Inspecting Assistant
Coamissioner imposed a penalty of Rs.50,000.

      The Tribunal came to the conclusion that the Revenue was
                                                                 II
    980               SUPREME COURT REPORTS         [1986] 1 S.C.R,

A
    not justified in drawing adverse inference against the
    assessee. It was of the view that if the assessee could not
    produce the persons alleged to be the creditors, it did not
    lead automatically to the adverse inference that the arount
    represented undisclosed income of the assessee. It found that
    the creditors were income-tax assessees and while being
B   assessed they had made statements before the respective
    Income-tax Officers admitting that they were allowing their
    names to be lent, without actually giving loans as creditors
    of different assessees. The Tribunal also could not suatain
    the imposition of penalty. The Revenue sought for statement of
    the case to the High Court on the aspect of addition of
c   unproved cash credit to the total income of the assessee, and
    also on the imposition of penalty but the same was refuaed.
    The High Court also refused to accede to the prayers of the
    Revenue in its application under s.256(2) of the Act.

           In the appeals before this Court on behalf of the
D   Revenue it was contended that in view of the provisions of
    s. 68 of the Act the onus in these types of cases was on the
    assessee. and in this case the assessee had not discharged
    that onus.

          Dismissing the appeals, the Court,
E
          Bl!Lll : l.(i) The High Court has no power under s.256(2)
    of the 1961 Act to call upon the Appellate Tribunal to state a
    case if there was some evidence to support the finding
    recorded by the Tribunal, even if it appears to the High Court
    that on a re-appreciation of the evidence, it might arrive at
F   a conclusion different from that of the Tribunal. (987 D-E]

          (ii) The conclusion reached by the Tribunal in the
    instant case, that the assessee had discharged the burden that
    lay on him could not be said to be unreasonable, or perverse
    or based on no evidence. If the conclusion is based on some
G   evidence on which it could be arrived at, no question of law
    as such arises. [987 G-H]

          (iii) The assessee had provided the names and addresses
    of the alleged creditors. It was in the knowledge of the
    Revenue that   they were   income-tax asseesees.   Their index
H   numbers were in the files of the department. The Revenue apart
                 C.I.T. v. ORISSA CORPORATION                        981


       from issuing notices under s. 131 of the Act at the instance
       of the assessee, did not pursue the matter further. It did not
       examine the source of income of the alleged creditors to find
       out whether they were credit-worthy or were such who could
       advance the alleged loans. There was no effort made to pursue
       the so-called alleged creditors. The assessee, therefore,           B
       could not do any further. (987 E-G)

             2, Section 68 of 1961 Act was introduced for the first
       time in the Act. There was no provision in 1922 Act
       corresponding to this section. It gives statutory recognition
       to the principle that cash credits which are not satis-
       factorily explained might be assessed as income. It enacts          c
       that if a sum is found credited in the books of an assessee
       maintained for any previous year, the cash credit might, in
       case where it is assessed as undisclosed income, be treated as
       the income of that previous year, and the financial year may
       not be taken as. the previous year for such a cash credit even
       if the undisclosed income was not found to be from the              D
       assessee' s regular business for which the books were
       maintained. The cash credit might be assessed either as
       business profit or as income from other sources. (984 G;
       985 A-C)

              Lalcband Bhagat Ambica llaa v.        Com:lasioner of        E
       !=--tax, Bibar & Orissa, 37 I.T.R. 288; Ba.r. Jebaagl.r
       Gbeesta v. CcwaiBBioner of lncoB!-tax, Bombay City. 41 I. T.R.
       135; Sreelekha llmlerjee & Ors. "· c-1.ssioner of ~.
       Bf.bar & Orf.ssa, 49 I, T.R, 112 and Comisaioner of 1 - - t a :
       {Central), Calcutta "· Daalatr- llavatmll, 53 I.T.R, 574
\. .   ref erred to.                                                       F

             CIVIL APPELLATE JURISDICTION       Civil Appeal Nos. 1379-
       1380 (NT) of 1974,

            From the Judgment and Order dated 31st October, 1973 of
       the Orissa High Court in S,J,C, Nos. 85 and 116 of 1972.            G


            S.C. Manchanda, K.C. Dua and Ms. A. Subhashini     for   the
       Appellants.

             S.P. Mittal, S.N. Aggarwal     and   B, P. Maheshwari   for
       the Respondents.                                                    H

             The Judgment of the Court was delivered by
    982                    SUPREME COURT REPORTS   [19861 i s.c.R.
A

           SABYASACHI MllKHARJI, J. These appeals by special leave
    arise from the decision of the Orissa High Court dated 31st
    October, 1973 refusing to direct the Tribunal to state a case
    under section 256(2) of the Indian Income Tax Act, 1961
    (hereinafter called the Act) and to refer certain questions
B   said to be questions of law arising out of the appellate order
    of the Income Tax Appellate Tribunal for determination of the
                                                                     ).
    High Court. The assessment year involved was 1962-63. There
    were proceedings - one appeal was related to an assessment
    order whereby additions were made to the quantum of income
    disclosed by the assessee and the other was in respect of
c   ia.,osition of penalty under section 27l(l)(c) read with
    section 274(2) of the said Act.

          The questions involved respectively in two applications
    before the High Court were as follows

D              "S.J.c. No. 116 of 1972

               1. Whether in the absence of proving confirmation
               letters and Hund.is by the assessee, the assessee
               has discharged his initial onus by producing merely
               the confirmation letters and Hundis to prove the
E              nature of the transaction?

              2. Whether in the facts and circumstances of the
              case the Tribunal was right in ordering deletion of
              Rs. 1,50,000 as assessee's income from undisclosed
              sources?
F
              3. Whether in the facts and circumstances of the
                                                                      I
              case the cash credit is the assessee's income from
              undisclosed sources?

               S.J.C. No. 85 of 1972.
G
              Whether in the facts and circumstances of the case
              the Tribunal was right in shifting the onus from
              the assessee to the Revenue in deleting the
               penalty?"
                                                                     , ,__
                                                                      __



H        The assessee at the relevant time was a private limited
    company and maintained accounts according to the calendar
         C.l.T. v. ORISSA CORPORATION [MUKHARJI, J.]      983

                                                                 A
year. For the accotlnting year ending on 31st December, 1961
corresponding to the assessment year 1962-63, the Income-tax
Officer did not accept the assessee's accounts showing cash
credit of Rs. 1,50,000. Three amounts were shown to have been
received by way of loans from three l ndi vidual creditors of
Calcutta under Hundis. The assessee produced before the          B
Income- tax Officer letters of confirmation, the discharged
Hundis and particulars of the different creditors general
index numbers were with the Income-tax Department. Attempts
had been made to bring those creditors before the Income-tax
Officer by issue of notices under section 131 of the Act, but
the said notices were returned with the endorsement 'left'.
The Income-tax Officer, therefore, treated the entire a100unt    C
of Rs. 1,50,000 as unproved cash credit and added the same to
the income of the assessee. The appeal of the assessee to the
Assistant Appellate Commissioner was dismissed. Thereafter
there was further appeal to the Tribunal.

     In the meantime on the basis of assessment order            D
proceeding was taken under section 27l(l)(c) of the Act and
the Inspecting Assistant Coumissioner illJPOSed a penalty of
Rs. 50,000, An appeal against the illJPOSition of penalty was
also filed before the Tribunal. Both the appeals were disposed
of by the Tribunal.
                                                                 E
     The Tribunal noted that the credit .entries stood in the
name of third parties in the account books of the assessee.
The explanation was that the amounts represented loans to the
assessee from the concerned persons. The assessee had produced
discharged Hundis and confirmation letters from these alleged
lenders. The Tribunal was of the view that if the assessee F
could not produce these persons alleged to be the creditors,
it did not follow automatically that the adverse inference
should be drawn that these amounts represented undisclosed
income of the assessee. It was further noted that the credi-
tors were income-tax assessees and while being assessed they
had made statements before the respective Income-tax Officers G
admitting that they were allowing their names to be lent with-
out really giving loans as creditors of different assessees •. A
list of the assessees had also been given but the name of the
present assessee did not figure in that list. The Tribunal
came to the conclusion that the Revenue was not justified in
drawing adverse inference against the assessee and adding H
r


        984                  SUPREME COURT REPORTS      [1986] 1 s.c.R.

    A
        these amounts to the assessment of the assessee. The Tribunal
        also, in those c~rcum.stances, could not sustain the imposition
        of the penalty and deleted such imposition. The Revenue sought
        for statement of case on both these aspects i.e. on the
        aspect of the addition of Rs. l,50,000 to the total income of
        the assessee and also on the imposition of penalty. The
    B   questions sought for by the Revenue were to the effect noted
        before~ The Tribunal refused to refer any statement of case to    f.
        the High Court on those questions. The Revenue went up in an
        application under section 256(2) of the Act before the High
        Court. The High Court also refused to accede to the prayers of
        the Revenue. Hence these appeals.
    c
              Our attention was drawn to the statements in the




    D
        assessment order where the Income-tax Officer had observed
        certain inconsistencies in the confirmation letters and
        observed further that the confirmation letters did not
        inspire confidence. It also observed that the assessee had
        stated that after making all possible attempts in their own
                                                                               -
        way, had failed to produce the parties and thereupon requested
        the Income-tax Officer to issue summons under section 131 to
        all the alleged creditors and the notices under section 131 of
        the Act which had come back unserved with the remarks 'left'.
        The assessee thereafter wanted further opportunity to find out
    E   the present whereabouts of the alleged lenders. The Income-tax
        Officer observed further that the wide prevalence of Hundi
        racket was well-known and it had been estab1ished beyond doubt
        that most of the so-called Rundiwallas are      not    genuine
        bankers but mere name lenders.

    F        It was.argued that in view of the provisions of section
        68 of the Act, the onus in these types of c·ases was on the
        assessee a~ in this case the a~s·essee had not dis_charged that
        onus and in the premises questions of law as indicated above
        arose. Section 68 of 1961 Act was introduced for the first
        time in the Act. There was no provision in 1922 Act corres-
    G   ponding to th~s section. The section states that 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 Income-tax Officer,
        satisfactory, the sum so credited may be charged to income-tax
    H   as the income of the assessee of that previous year. The
          C.I.T. v. ORISSA CORPORATION [MUK!IARJI, J.]        985
                                                                    A
section only gives statutory recognition to the principle that
cash credits which are not satisfactorily explained might be
assessed as income. The section enacts that if a sum is found
credited in the books of an assessee maintained for any
previous year (which might be different from the financial
year), the cash credit might, in case where it is assessed as       B
undisclosed income, be treated as the income of that previous
year, and the financial year may not be taken as the previous
year for such a cash credit even if the undisclosed income was
not found to be from the assessee's regular business for which
the books were maintained. The cash credit might be assessed
either as business profits or as income from other sources.
                                                                    c
     Under the 1922 Act where a large amount of cash was found
credited on the very first day of the accounting year, and
considering_ the extent of the business, it was not possible
that the assessee earned a profit of that amount in one   day,
the amount could not be assessed as the income of the     year
from that business on the first day of which it was credited        D
in the books. Under this section, even in such a case the
unexplained cash credit might be assessed as the income of the
accounting year for which the books are maintained. See in
this connection the observations of Kanga and Pallddwala' s
Income Tax, Seventh Edition, Vol. I pages 609 and 610.
                                                                    E
      To what extent the assessee has obligation to discharge
,the burden of proving that these were genuine incomes has been
considered by this Court in Lalchand Bhagat Ambica Ram v.
Coomissioner of Income-tax, Bihar and Orissa, 37 ITR 288. This
Court was concerned there with the encashment of high
denomination notes. In that case some unexplained high              F
denomination notes were treated as the undisclosed income of
the assessee. This Court held that when a court of fact
arrives at its decision by considering material which is
irrelevant to the enquiry, or act on material, partly relevant
and partly irrelevant, and it is impossible to say to what
extent the mind of the court was affected by the irrelevant         G
material used by it in arriving at its decision, a question of
law arises, whether the finding of the court is not vitiated
by reason of its having relied upon conjectures, surmises and
suspicions not supported by any evidence on record or partly
upon evidence and partly upon inadmissible material. On no
accoU.nt whatever should the Tribunal base its findings on          H
    986                   SUPREME COURT REPORTS      [19861 t s.c.R.

A
    suspicions, conjectures or surmises, nor should it act on no
    evidence at all or on improper rejection of material and
    relevant evidence or partly on evidence · and partly on
    suspicions, conjectures and surmises. In that case the
    so-called hundi racket in which the assessee was alleged to
    have been involved was not proved. That was only a suspicion
B   of the Revenue.

          The question was again considered by this Court in lloml.
    Jebangir Cbeesta v. c.-1.ssiooer of lnconle-tlx, Bol!lbay City,
    41 !TR 135, when this Court reiterated that it was not in all
    cases that by mere rejection of the explanation of the
c   assessee, the character of a particular receipt as income
    could be said to have been established; but where the
    circumstances of the rejection were such that the only proper
    inference was that the receipt llllSt be treated as income in
    the hands of the assessee, there was no reason why the
    assessing authority should not draw such an inference. Such an
D   inference was an inference of fact and not of law. It was
    further observed that in determining whether an order of the
    Appellate Tribunal would give rise to a question of law the
    court DJJSt read the order of the Tribunal as a whole to
    determine whether every material fact, for and against the
    assessee, had been considered fairly and with due care;
E   whether the evidence pro and con had been considered in
    reaching the final conclusion; and whether the conclusion
    reached by the Tribunal had been coloured by irrelevant
    considerations or matters of prejudice. It was further
    reiterated that the previous decisions of this Court did not
    require that the order of the Tribunal llllSt be examined
F   sentence by sentence through a microscope as it were, so as to
    discover a minor lapse here or an incautious opinion there to
    be used as a peg on which to hang an issue of law. In
    considering probabilities properly arising from the facts
    alleged or proved, the Tribunal did not indulge in
    conjectures, surmises or suspicions.
G
          In Sreelekha Banerjee and Others v. Commissioner of
    lncome-1:8", Bf.har and Oriasa, 49 !TR 112, this Court held that
    if there was an entry in the account books of the assessee
    which showed the receipt of a sum on conversion of high
    denomination notes tendered for conversion by the assessee
H   himself, it is necessary for the assessee to establish, if
          C.I.T. v. ORISSA CORPORATION [Mlll<HARJI, J.]    987

                                                                  A
asked, what the source of .that money wa8 and to prove that it
was not income. The department was not at that stage required
to prove anything. It could ask the assessee to produce any
books of account or other documents or evidence pertinent to
the explanation if one was furnished, and examine the evidence
and the explanation. If the explanation showed that the
                                                                  B
receipt was not Of an income nature, the department could not
act unreasonably and reject that explanation to hold that it
was income. If, however, the evidence was unconvincing then
such rejection could be made. The department cannot by merely
rejecting unreasonably a good explanation, convert good proof
into no proof.

      In Commissioner of Income-tax (Central), Calcutta v.
                                                                  c
Daulatraa Rawatml.l, 53 ITR 574, the principles governing
reference under section 66 of 1922 Act similar to section 256
of 1961 Act were discussed and it was held that the High Court
has no power under section 66(2) of the Indian Income-tax Act,
1922 which is in pari-materia with section 256(2) of the Act,
                                                                  D
to call upon the Appellate Tribunal to state a case if there
was some evidence to support the finding recorded by the
Tribunal, even if it appears to the High Court that on a re-
appreciation of the evidence, it might arrive at a conclusion
different from that of the Tribunal.
                                                                  E
      In this case the assessee had given the names and
addresses of the alleged creditors. It was in the knowledge of
the Revenue that the said creditors were income-tax assessees.
Their index number was in the file of the Revenue. The
Revenue, apart from issuing notices under section 131 at the
instance of the assessee, did not pursue ·t)le matter further.
                                                                  F
The Revenue did not examine the source of income of the said
alleged creditors to find out whether they were credit..,.orthy
or were such who could advance the alleged loans. There was
no effort made to pursue the so called alleged creditors. In
those circumstance~, the assessee could not do any further. In
the premises, if the Tribunal came to the conclusion that the
                                                                  G
assessee had discharged the burden that lay on him then it
could not be satd that such a conclusion was unreasonable or
perverse or based on no evidence. If the conclusion is based
on some evidence on which a Conclusion could be arrived at,
no question of law as such arises.
                                                                  H
    988                 SUPREME COURT REPORTS      [1986] i s.c.R.
A

          It is co111110n ground that the question on the penalty
    aspect depended on the quantum aspect.

          In the premises it cannot be said that any question of
    law arose in these cases. The High Court was, therefore,
B   right in refusing to refer the questions sought for. The
    appeals, therefore, fail and are dismissed with costs.




    P.s.s.                                      Appeals disml.ssed.