2010 (7) TMI 778 - HC - Income Tax

High Court rules on burden of proof for undisclosed income

The High Court ruled in favor of the assessee in a case concerning the determination of the onus to establish the source of receipt of amounts shown as ... Whether Tribunal onus was on the assessee to establish the source of receipt shown to have been received as sales proceeds and in upholding its assessment as assessee's income from the undisclosed sources - Assessing Officer took the view that M/s Sandeep Wire Industries is not traceable and a non-existing entity, therefore, no sale was made to the said firm – Held that:- assessee had taken this specific plea, in the alternative i.e. without prejudice to his contention that the sales were actually made and the receipt should not have been received as income from undisclosed sources before the CIT(A) as well as Income Tax Appellate Tribunal, plea was rejected by both these authorities observing that in order to accept this plea further evidence was required to be produced which was in the knowledge of the assessee, assessee was maintaining that it had actually made the sales, Assessing Officer did not deal with the issue from this angle at all and such a reasoning adopted by the CIT(A) and ITAT was based on surmises and imagination, Reference in favour of the assessee and against the Revenue Issues:- Determination of the onus to establish the source of receipt of amounts shown as sales proceeds.- Treatment of receipt as income from undisclosed sources and its impact on sales figures.- Rejection of plea for further evidence by lower authorities.Analysis:1. The primary issue in this case was the determination of the onus to establish the source of receipt of amounts shown as sales proceeds. The Income Tax Appellate Tribunal referred the question of whether the assessee was correct in holding the onus to establish the source of receipt of amounts as sales proceeds from a specific entity. The Assessing Officer did not accept the transaction as a sale due to the non-existence of the mentioned entity, treating the received amount as income from undisclosed sources and adding it to the assessee's income. Both the CIT(A) and ITAT upheld this assessment.2. The second issue revolved around the treatment of the receipt as income from undisclosed sources and its impact on sales figures. The counsel for the assessee argued that once the receipt was treated as income from undisclosed sources, the sale figures should have been reduced accordingly. The counsel provided an illustration to demonstrate that whether the amount was considered a receipt against sale proceeds or income from undisclosed sources, the taxable income would remain the same. The court agreed with this argument, emphasizing the need to reduce the sale figures when the Assessing Officer disbelieved the sales to the non-existent entity.3. The final issue involved the rejection of the plea for further evidence by the lower authorities. The assessee had presented an alternative plea that the sales were actually made and the receipt should not be treated as income from undisclosed sources. However, both the CIT(A) and ITAT rejected this plea, stating that further evidence was required, which the assessee failed to produce. The court criticized this reasoning, highlighting that when there was no dispute about the opening and closing balances, no further evidence could be expected. The Assessing Officer's failure to address this aspect and the reliance on surmises by lower authorities were deemed unjustified.In conclusion, the High Court ruled in favor of the assessee, emphasizing the need to reduce the sale figures when a receipt is treated as income from undisclosed sources and criticizing the demand for additional evidence when the existing financial data was undisputed.