Partly allowed

Ivan Singh v. the Asstt. Commissioner of Income-Tax CIRCLE-1 (1) and Anr.

Bombay HC14 Feb 2020TXA/29/2013

Case brief

AI extract

What is this about?

This tax appeal addressed discrepancies in assessing income under Section 68 of the Income Tax Act. The High Court allowed the appellant's contention that credits from an earlier year could not be taxed as income for a later year. Conversely, it dismissed challenges to an adhoc disallowance of labour charges, finding the authorities had not relied on mere suspicion and had afforded the assessee an

What did the court decide?

First substantial question answered in favour of appellant; second and third substantial questions answered against appellant; appeal disposed of in modified terms.

Ivan Singh Vs the Asstt. Commissioner of Income-Tax CIRCLE-1 (1)… — Income Tax | Bombay HC (2020)

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TXA No. 29 of 2013

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IN THE HIGH COURT OF BOMBAY AT GOA

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TAX APPEAL NO. 29 OF 2013

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Shri Ivan Singh, S-6, Ground Floor, The
Landscape Grand, Behind Mahalaxmi Temple,
Panaji-Goa. ….Appellant

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Versus

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1. The Asstt. Commissioner Income-Tax, Circle-1 (1), Room No. 208, 1st Floor, Aayakar Bhavan, Panaji, Goa-403 001.

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2. The Commissioner of Income-Tax, Aayakar Bhavan, Patto, Panaji, Goa-403 001.

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…. Respondents

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***

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Dr. P. Daniel with Ms. Yadika Mandrekar, Advocates for the Appellant.

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Ms. Susan Linhares, Standing Counsel for the Respondents.

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Coram:- M.S. SONAK &

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 SMT. M.S. JAWALKAR, JJ.
Date:- 14th February, 2020

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ORAL JUDGMENT: (Per M. S. Sonak, J.)

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Heard Dr. Daniel with Ms. Y. Mandrekar, the learned

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Counsel for the appellant-assessee and Ms. Susan Linhares, the learned
Standing Counsel for the respondent-Revenue.

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TXA No. 29 of 2013

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2. On 02.12.2013, this Appeal came to be Admitted on the following substantial questions of law:

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(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 ?

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(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 ?

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(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 ?

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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

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TXA No. 29 of 2013

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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.

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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.

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TXA No. 29 of 2013

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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 respondentRevenue.

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6. Rival contentions now fall for our determination.

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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.

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8. Thereafter, reference is necessary to the provisions of

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TXA No. 29 of 2013

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Section 68 of the IT Act, which read as follows:

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Cash credits.

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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
previous year:

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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
satisfactory, unless—

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(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 credited; and

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(b) such explanation in the opinion of the
Assessing Officer aforesaid has been found to
be satisfactory:

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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.

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From the plain reading of the provisions of Section 68 of

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9.

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TXA No. 29 of 2013

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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
previous year”.

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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.

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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

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TXA No. 29 of 2013

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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.

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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.

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13.For all the aforesaid reasons, we answer the first substantial
question of law in favour of the appellant-assessee and against the
respondent-Revenue.

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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

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TXA No. 29 of 2013

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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.

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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
Officer.

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16.In Laxmi Engineering Industries Vs. Income-Tax
Officer, [2008] 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

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TXA No. 29 of 2013

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the similar effect are certain observations in Principal Commissioner
of Income-Tax, Mumbai Vs. Chawla Interbild Construction Co.
(P) Ltd., [2019] 104 taxmann.com 402 (Bombay).

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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
warrant interference.

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18.For all these reasons, the second and the third substantial
questions of law are required to be answered against the appellant-
assessee and in favour of the respondent-Revenue.

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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
period.

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TXA No. 29 of 2013

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20. The Appeal is disposed off, without there being any order as

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to costs.

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SMT. M. S. JAWALKAR, J.

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M. S. SONAK, J.

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EV

Ivan Singh v. the Asstt. Commissioner of Income-Tax CIRCLE-1 (1) and Anr.

Case brief

What is this about?

What did the court decide?

Ivan Singh v. the Asstt. Commissioner of Income-Tax CIRCLE-1 (1) and Anr.

Case brief

What is this about?

What did the court decide?

What the court decided

A compact analysis

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