2015 (4) TMI 269 - HC - Income Tax

High Court upholds Tribunal's decision on income additions under Section 69. Importance of explanations and legal scrutiny.

The High Court affirmed the Tribunal's decision, upholding the substantive additions under Section 69 of the Income-Tax Act in the hands of the ... Additions under Section 69 in the hands of the appellant - HUF on substantive basis? - ITAT confirming estimate of agricultural income made by the respondent and further confirming the quantum of agricultural income based on inaccurate method of calculating the same - Held that:- We find that the submissions made by the learned Counsel appearing for the Assessee(s) as well as the Revenue on the point of taxable liability, whether as that of the HUFs or of the Company are on nonexistent premise. Once the explanation is not found to be satisfactory and the finding is recorded, as per the provisions of Section 69 of the Act, it would be the deemed income of the HUFs - Assessee(s). Once it is treated as to be deemed income of the HUFs - Assessee(s), naturally the taxable liability would be upon HUFs - Assessee(s). So long as the said finding that the explanation is not sufficient and it can be termed as deemed income of HUFs remains, it is not necessary for us to further examine the aspect as to whether there was any income earned by the Company and as to whether there was diversion of money to the HUFs or not? If it is found on facts that the income was as that of the Company, such question may be required to be examined as to whose liability would be to pay tax. Under these circumstances, we find that the decision upon which reliance has been placed by the learned Counsel for the Assessee(s) on the point of taxable liability would be of no help to the appellant(s). The contention raised by the Assessee(s) on the quantification of the agricultural income of the HUFs as assessed by the A.O., and upheld by the Tribunal, in our view, could again be in the arena of appreciation and reappreciation of evidences on record. After considering the material on record, once the ultimate fact-finding Authority has arrived at the reasonable assessment of the income, we do not find that the same should be upset by undertaking the process of re-appreciation of the evidence. At the level of A.O., earlier assessment returns filed by the Assessee(s) for agricultural income of HUFs are considered, the mode adopted is of the average income and thereafter index is applied. Such cannot be said to be as unreasonable approach on the part of the Assessing Officer, nor can it be said that the finding recorded by the Tribunal was unreasonable or perverse to the record, which may call for interference in the present appeals wherein the judicial scrutiny is limited to only substantial question of law. - Decided in favour of the Revenue Issues Involved:1. Confirmation of additions under Section 69 of the Income-Tax Act, 1961, in the hands of the appellant-HUF on a substantive basis.2. Confirmation of erroneous estimate of agricultural income by the respondent and the method of calculating the same.Detailed Analysis:Issue 1: Confirmation of Additions under Section 69 of the Income-Tax Act, 1961Facts and Proceedings:The case involves search operations conducted by Income Tax authorities under Section 132 of the Income Tax Act on 26.09.1996, which revealed substantial non-genuine agricultural income shown by the HUFs through cash deposits in their bank accounts. The total agricultural income introduced by the five HUFs amounted to Rs. 8,54,53,808/-. Statements recorded under Section 132(4) revealed inflation of agricultural income, which was admitted by the members of the HUFs.Tribunal Findings:The Tribunal found that the HUFs failed to discharge the onus under Section 69 of the Act. It was noted that the statements by the HUF members regarding the source of income being under-invoicing of sales and over-invoicing of expenses were not substantiated with any evidence. The Tribunal upheld the substantive assessment of the undisclosed income in the hands of the HUFs and deleted the protective assessment in the cases of the companies.High Court Judgment:The High Court affirmed the Tribunal's findings, stating that the burden of proof under Sections 68 and 69 of the Act lies on the assessee to provide a satisfactory explanation for the source of the income. The Court held that the HUFs did not provide sufficient evidence to correlate the cash deposits with the income from the companies. The Court emphasized that the findings of fact by the Tribunal, being the ultimate fact-finding authority, should not be interfered with unless they are perverse or unreasonable.Issue 2: Confirmation of Erroneous Estimate of Agricultural IncomeFacts and Proceedings:The appellants contended that the quantification of agricultural income by the Tribunal was erroneous and on the lower side. They argued that the Tribunal averaged out the income and applied the index for subsequent years without considering the rise in agricultural product prices.Tribunal Findings:The Tribunal considered the average agricultural income over seven assessment years and adjusted it using the wholesale price index. The Tribunal found that the method adopted by the Assessing Officer (AO) was reasonable and upheld the AO's estimate of the agricultural income.High Court Judgment:The High Court agreed with the Tribunal's approach, stating that the assessment of agricultural income based on average income and indexation was reasonable. The Court noted that the Tribunal's findings were based on a thorough examination of the evidence and were not perverse. The Court declined to re-appreciate the evidence, emphasizing that the scope of judicial scrutiny in appeals is limited to substantial questions of law.Conclusion:The High Court upheld the Tribunal's decision, confirming the substantive additions under Section 69 of the Income-Tax Act, 1961, in the hands of the appellant-HUFs and the method of estimating agricultural income. The appeals were disposed of accordingly, with both questions answered in favor of the Revenue and against the assessees.