IN THE HIGH COURT OF KERALA AT ERNAKULAM

The Hon'ble MR. Justice C.N. Ramachandran Nair and The Hon'ble MR. Justice K. Vinod Chandran

I.T.A. No. 405 of 2010

Dated this the 11^th day of January, 2012

Head Note:-

Income Tax Act, 1961 – Sections 68 and 143(2) - Undisclosed income - When there is credit of amounts in the books maintained by an assessee and such credit is a sum during the previous year, then if the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not satisfactory in the opinion of the assessing officer, then the sum so credited is to be charged to income tax as the income of the previous year. 

Income Tax Act, 1961 – Sections 68 and 143(2) - The mere production of confirmation letters, it goes without saying, does not discharge the liability of the assessee to offer satisfactory explanation for the loan receipts. The production of such material cannot lead either to a conclusion that the assessing officer has to discredit the same or call for further details in the event of non-satisfaction. 

Income Tax Act, 1961 – Sections 68 and 143(2) - The assessing officer cannot be burdened with the onus of proving the negative nor can there be an endless process of substantiation of materials by production of other materials. The burden of the assessee is to offer satisfactory explanation and if the materials and documents produced by the assessee does not lead to a proper, reasonable or acceptable explanation as regards the receipts in the books, the assessing officer is perfectly entitled to record his non-satisfaction.

For Appellant:-

• A.K. Jayasankar Nambiar (Senior Advocate)
• E.K. Nandakumar
• K. John Mathai
• P. Benny Thomas
• P. Gopinath
• Preetha S. Nair

For Respondent:-

• P.K.R. Menon
• Jose Joseph

J U D G M E N T

K. Vinod Chandran, J.

1. The assessee is in appeal before us from the order of the Tribunal reversing the order of the first appellate authority and confirming that of the assessing officer. The short question raised in the appeal is with respect to the addition of Rs. 22,20,549/- made by the assessing officer, disclosed as loans by the assessee in his cash flow statement. The assessee would contend that having produced confirmation letters from the creditors, the assessee has discharged his burden and that on furnishing such primary material, it was for the assessing authority to ask for and obtain further materials to substantiate the same, if so required.

2. The assessee, a partner of a Roller Flour Mill, filed his return of income for the assessment year 2005-06, which was processed under Section 143(1)(a) of the Income Tax Act (for short “the Act”). On the case of the assessee being taken for scrutiny, notice was issued under Section 143(2) of the Act and the cash flow statement submitted by the assessee for the period 01.04.2004 to 31.03.2005 showed loan receipt of Rs. 22,20,549/- from four individuals. The assessing officer then directed the assessee to furnish the details of the loans received and the creditors to prove the genuineness of the transaction as also the capacity of the creditors. In reply to the same, the assessee filed letter furnishing the addresses and also attaching the confirmation letters from each of the said creditors, all of whom were close relatives of the assessee. Except the sum of Rs. 2,88,730/-, the balance amounts were alleged to have been received by the assessee in cash from the creditors, all of whom were alleged to be non - residents working abroad. The assessing officer relying on the decision of the Supreme Court in CIT v. P. Mohanakala, 291 ITR 278 found that the explanation offered by the assessee is not satisfactory and the source of the receipt of loans having been not proved, the same is liable to be treated as undisclosed income of the assessee. On first appeal by the assessee, the first appellate authority, based on the confirmation letters of the creditors, held that there was no requirement on the part of the assessee to prove the source of the creditors and further held that the assessing officer has not brought out any evidence to prove the genuineness of the source of the assessee. The Tribunal, however, reversed the order of the first appellate authority, confirming the additions in a second appeal filed by the Revenue.

3. The question which arises for consideration before us is as to whether by mere production of confirmation letters of the creditors can the assessee be said to have discharged his burden to offer satisfactory explanation and whether the onus would shift to the assessing officer to discredit such confirmation letters and prove the negative.

4. There can be no dispute that the assessee having admitted to the loan receipts in the cash flow statement filed before the assessing officer, the burden to offer satisfactory explanation is squarely cast on the assessee under Section 68 of the Act. The true nature and scope of S.68 of the Act as also the circumstances in which the same would come into play was discussed by the Hon’ble Supreme Court in P. Mohanakala’s case (supra). The Supreme Court held that a bare reading of the Section would suggest that when there is credit of amounts in the books maintained by an assessee and such credit is a sum during the previous year, then if the assessee offers no explanation about the nature and source thereof or the explanation offered by the assessee is not satisfactory in the opinion of the assessing officer, then the sum so credited is to be charged to income tax as the income of the previous year. The expression “the assessee offers no explanation” was also held to mean the absence of any proper, reasonable and acceptable explanation and what was required by the assessing officer is to make a proper appreciation of material and other circumstances available on record, to arrive at a satisfaction or otherwise.

5. In the instant case, the assessee, on the details being sought by the assessing officer, produced confirmation letters from the so - called creditors and rested contend. The assessee would contend that those are primary materials on which the assessing officer was to arrive at a satisfaction on and that being found insufficient, the assessing officer ought to have called for more details. In other words, the assessee would contend that on production of confirmation letters, the assessee’s burden stands discharged and it was for the assessing officer to discredit the confirmation letters. We are unable to agree with the same. The learned Senior Counsel for the assessee Sri. A.K. Jayasankar Nambiar would strenuously urge before us that the assessee has materials, like statement of accounts and deed of conveyance to prove the genuineness of the transaction as also the source of his creditors and prays for examination of the same by this Court or in the alternative, prays for a remand. We are not inclined to examine the additional documents said to be available with the assessee for more than one reason. The assessee had ample opportunity to produce the said documents before the assessing officer as also the two appellate forums, which constitute the fact finding authorities under the Act. The Tribunal on facts having confirmed the finding of the assessing officer that the assessee has not explained the receipts satisfactorily, there is no question of law arising from the order of the Tribunal. On the issue of remand, the assessee’s contention would be that the confirmation letters were produced by the assessee as primary materials and if the assessing authority did not find favour with the same, the said authority ought to have called for further details. This argument cannot be countenanced. The mere production of confirmation letters, it goes without saying, does not discharge the liability of the assessee to offer satisfactory explanation for the loan receipts. The production of such material cannot lead either to a conclusion that the assessing officer has to discredit the same or call for further details in the event of non - satisfaction. The assessing officer cannot be burdened with the onus of proving the negative nor can there be an endless process of substantiation of materials by production of other materials. The burden of the assessee is to offer satisfactory explanation and if the materials and documents produced by the assessee does not lead to a proper, reasonable or acceptable explanation as regards the receipts in the books, the assessing officer is perfectly entitled to record his non - satisfaction, provided he has applied his mind which is discernible from the impugned order. As noticed earlier, the assessee rested contend with the production of confirmation letters without any further material regarding the identity, status or capacity of the creditors or even the dates on which the said loans were said to be made. However, we notice that the credit of Rs. 2,88,730/- as indicated in the assessment order itself is a receipt through Bank, the details of which would necessarily require further examination by the assessing officer to ascertain the genuineness and veracity of the transaction.

In the result, we do not find any question of law arising from the order of the Tribunal and there is no sustainable reason to interfere with the same except to the extent of the verification of the details regarding the receipt of Rs. 2,88,730/-, for which alone we remand the matter to the assessing officer. The order of the Tribunal confirming the additions made by the assessing officer, except to the extent noticed above, is confirmed.