2020 (10) TMI 1028 - HC - Income Tax

High Court Decision: Burden of Proof on Assessee in Income Tax Assessments

The High Court affirmed the Commissioner (Appeals)'s decision to assess Rs. 11,26,50,112/- in the hands of the recipients rather than the assessees. ... Unaccounted cash receipts - material on record that this amount was paid to M/s. Good Earth Developers and M/s. Raj Hospitality Pvt. Ltd - HELD THAT:- Nature of such amounts can be very well assessed in the hands of said recipients and need not be assessed in the hands of the assessees.Since, there is material on record, that this amount of ₹ 11.26 crores or thereabouts was paid by the assessee to the aforesaid two entities and since there is evidence on record that the aforesaid two entities had admitted to the receipt of the said amount, the Commissioner (Appeals), was quite right in taking the view that such amounts are best assessed in the hands of the two entities and not in the hands of the assessee. Unable to satisfy us that there was any illegality in the view taken or any perversity in the approach of the Commissioner (Appeals) in so far as the treatment of this amount was concerned. Accordingly, the first substantial question of law needs to be answered against the Revenue and in favour of the assessees. This question is answered against the Revenue only because we agree with the view taken by the Commissioner (Appeals) that it is only appropriate that this amount is assessed in the hands of the two recipient entities as aforesaid and not the assessee - Decided in favour of assessee. Addition u/s 68 - Unexplained cash credit - HELD THAT:- Even if we were to accept that the assessee by pointing out to Mr. Siraj Sheikh, Vijay Kumar Rao, and M/s. Prasad Properties had discharged the initial burden cast upon them by Section 68 we find that the onus which had shifted upon the Revenue, has been appreciably discharged by the Revenue. This is not a case where the Revenue, halted its probe soon after the so-called sources were indicated by the assessee. Revenue, in these matters, probed further and unearthed quality material to establish that the socalled sources completely lacked the capacity or credit-worthiness to advance such a huge amount of ₹ 8.49 crores to the assessees.Revenue, in these matters, established that there was no genuineness in the transactions sought to be projected on behalf of the assessees. Therefore, the Revenue, in these matters, has discharged the onus, assuming that such onus had indeed shifted upon the revenue. Again, this is an aspect, which was ignored by the ITAT. The finding recorded by the ITAT in these matters is based upon the wholly erroneous view of law and perversity on account of ignoring completely, vital and relevant circumstances emanating from the record. Such a finding can be interfered in an appeal under Section 260A of the said Act. The legal position is quite settled that where the findings arrived at by the Tribunal are based upon the wholly erroneous view of the law or are vitiated by perversity, a substantial question of law indeed arises and is required to be addressed in an appeal under Section 260A of the said Act. If at all, any authority is necessary for this proposition, then reference can be usefully made to Nemi Chand Kothari [2003 (9) TMI 62 - GAUHATI HIGH COURT] relied upon by the assessees themselves. We answer the second substantial question of law in favour of the Revenue and against the assessee . 1. ISSUES PRESENTED and CONSIDEREDThe legal judgment revolves around two core issues:(A) Whether the Tribunal was correct in law in deleting the amount of Rs. 11,26,50,112/- made by the Assessing Authority towards unaccounted cash receipts.(B) Whether the Tribunal was correct in law in deleting the amount of Rs. 8,49,49,888/- made by the Assessing Authority towards unaccounted cash receipts.2. ISSUE-WISE DETAILED ANALYSISIssue (A): Deletion of Rs. 11,26,50,112/-Relevant legal framework and precedents: The assessment of unaccounted cash receipts is governed by the provisions of the Income Tax Act, particularly Section 68, which deals with unexplained cash credits.Court's interpretation and reasoning: The High Court agreed with the Commissioner (Appeals) that the amount of Rs. 11.26 crores should be assessed in the hands of the recipients, M/s. Good Earth Developers and M/s. Raj Hospitality Pvt. Ltd., rather than the assessees.Key evidence and findings: Evidence showed that the amount was paid to the aforementioned entities, which admitted receipt of the funds.Application of law to facts: The court found no illegality or perversity in the Commissioner (Appeals)'s approach, agreeing that the amount should be assessed in the hands of the recipients.Treatment of competing arguments: The Revenue's argument that the amount should be assessed in the assessees' hands was not upheld, as the court found the Commissioner (Appeals)'s reasoning sound.Conclusions: The issue was resolved against the Revenue, affirming the Commissioner (Appeals)'s decision.Issue (B): Deletion of Rs. 8,49,49,888/-Relevant legal framework and precedents: Section 68 of the Income Tax Act requires assessees to explain the nature and source of any sums credited to their accounts.Court's interpretation and reasoning: The High Court found that the ITAT erred in accepting the assessees' explanation without sufficient evidence of the source's capacity and the transaction's genuineness.Key evidence and findings: The assessees failed to prove the creditworthiness of the alleged sources, Mr. Siraj Sheikh and Mr. Vijay Kumar Rao, and the firm M/s. Prasad Properties.Application of law to facts: The court emphasized the necessity of proving the identity, capacity, and genuineness of the transaction, which the assessees failed to do.Treatment of competing arguments: The assessees argued that the identity of the source was sufficient, but the court held that capacity and genuineness were also required.Conclusions: The court reversed the ITAT's decision, restoring the Commissioner (Appeals)'s order to add the amount to the assessees' income.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'We agree that it is not the law that any and every explanation by the assessees must be accepted. It must be an acceptable explanation, acceptable to a fact-finding body.'Core principles established: The judgment reinforced the principle that under Section 68, the burden of proof lies on the assessee to establish the identity, capacity, and genuineness of the transaction. Mere identification of the source is insufficient without demonstrating the source's creditworthiness and the transaction's genuineness.Final determinations on each issue:The first substantial question of law was answered against the Revenue, affirming the Commissioner (Appeals)'s decision that the amount should be assessed in the hands of the recipients.The second substantial question of law was answered in favor of the Revenue, reversing the ITAT's decision and restoring the Commissioner (Appeals)'s order to add the amount to the assessees' income.The judgment concluded by disposing of the appeals, with no order as to costs.