Assessee's Appeal Dismissed: Funds Diverted for Flood Relief Deemed Taxable Income; Disaster Management Act Arguments Rejected

The HC rejected the assessee's appeal against the Income Tax Appellate Tribunal's order, affirming the assessment for the year 2005-06 regarding diverted funds meant for flood relief in Bihar. The Court emphasized the assessee's failure to substantiate purchases and expenses related to relief materials. It ruled that the assessment was independent of a pending suit filed by the assessee, and the fraudulent funds constituted taxable income. The Court dismissed arguments related to the Disaster Management Act, as the assessee had no contractual obligations with relief suppliers. The decision was unanimous, with both judges concurring.

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The High Court considered two appeals by the assessee against a common order of the Income Tax Appellate Tribunal. The first appeal by the revenue was rejected due to being below the limit prescribed under the litigation policy. The remaining issue was the assessment for the year 2005-06, which revolved around a scam involving the diversion of funds meant for flood relief work in Bihar. The assessee was alleged to have siphoned off funds released by the State Government, and the assessment was based on these diverted amounts.The key issue in question was whether the assessment for the year 2005-06 should wait until the disposal of a suit filed by the assessee, where he claimed amounts far exceeding those already disbursed for flood relief work. The assessment was based on the alleged involvement of the assessee in diverting funds meant for relief work to a fraudulent firm operated by him.The Court noted that the assessee admitted to utilizing the diverted amounts in supplying relief material, but failed to substantiate the purchases made for this purpose. The Department argued that despite the fraudulent nature of the funds received, they constituted taxable income in the hands of the assessee. The Tribunal held that the assessee could not avoid tax liability unless the purchases and expenses on relief material were substantiated.The Court emphasized that the findings of the Assessment Officer and the suit filed by the assessee were independent of each other, and the outcome of the suit would not impact the assessment. The assessee's failure to provide evidence of purchases made from the disbursed amounts led to the rejection of the appeal. The Court also dismissed the contention based on the Disaster Management Act, as the assessee had no contractual relationship with the entities responsible for relief material supply.Ultimately, the Court found no legal question in the case, as the issue was factual rather than legal. The appeal against the Tribunal's order was rejected, affirming the assessment against the assessee for the diverted funds. The Court's decision was unanimous, with both judges concurring.In summary, the Court upheld the assessment against the assessee for diverting funds meant for flood relief work, emphasizing the need for substantiating purchases and expenses related to relief material. The decision highlighted the distinction between factual and legal issues, ultimately rejecting the appeal based on the lack of evidence provided by the assessee.

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