The Supreme Court in Civil Appeal No. 6110 of 2009 titled Basir Ahmed
Sisodiya Vs Income Tax Officer
, held that that the addition under Section 68
of the Income Tax Act, 1961 is needed to be quashed since the appellant or
assessee, in subsequent and separate penalty proceedings offered an explanation
and caused to produce affidavits and record statements of the concerned
unregistered dealers and established their credentials following which penalty
proceedings qua same assessment year he was exonerated from findings of
concealment of Income.
Reverting to the factual matrix of Civil Appeal No. 6110 of 2009, the assessee,
Basir Ahmed Sisodiya was served with a notice under Section 143 (2) of the
Income Tax Act, 1961 by the Assessing Officer, for the assessment year
19981999, pursuant to which an assessment order was passed on 30.11.2000.
This appeal involves a limited challenge to certain additions made under the
heads- Trading Account
and Credits in the assessment order. The Officer,
inter alia, while relying on the Balance Sheet and the books of account, took
note of the credits amounting to Rs. 2, 26, 000/- (Rupees Two Lakhs Twenty Six
Thousand Only). The Officer treated that amount as Cash credits
Section 68 of the Income Tax Act and added the same in the declared income of
the assessee. The Officer then proceeded to compute the income of the assessee
for the concerned assessment year.
Aggrieved, the appellant/assessee preferred an appeal before the Commissioner of
Income Tax (Appeals), Jodhpur. The appeal was partly allowed Vide Order dated
09.01.2003. However, as regards the Trading Account & Credits in question, the
CIT (A) upheld the Assessment Order.
The appellant/assessee then preferred further appeal to the ITAT. Having noted
the issues and objections raised by the Department and the appellant/assessee,
the ITAT partly allowed the appeal Vide Order dated 4.11.2004. However, the
Order relating to the second addition (under consideration in civil appeal)
regarding credits of Rs. 2, 26, 000/ (Rupees Two Lakhs Twenty Six Thousand
Only) came to be upheld.
The appellant/assessee then filed an appeal before the High Court under Section
260-A of the Income Tax Act, 1961. The appeal was admitted on 27.04.2006 on the
following substantial question of law:
Whether claim to purchase of goods by the assessee could be dealt with under
Section 68 of the Income Tax as a Cash Credit, by placing burden upon the
assessee to explain that the purchase price does not represent his income from
the disclosed sources?
Arguments raised on behalf of appellant/assessee before Hon'ble High Court
The principal argument of the appellant/assessee was that once the books of
account have been rejected and an assessment order has been passed, the same
books of account cannot be then relied upon by the Officer to impose consequent
The High Court dismissed the appeal Vide impugned Judgment & Order dated
21.8.2008, as being devoid of merits. The High Court opined that the amount
shown as credits was nothing but bogus entries and was justly added to the
income of the appellant/assessee. The Court also noted other reasons to dismiss
Arguments raised by the appellant/assessee before Hon'ble Supreme Court
The appellant/assessee in the Civil Appeal No. 6110 of 2009 reiterated the
argument that the Officer, having made the addition under Section 144 of the
1961 Act being best judgment assessment, had invoked powers under subsection
(3) of Section 145 of Income Tax Act, 1961.
For, assessment under Section 144 is done only if the books are rejected. In
that case, the same books cannot be relied upon to impose subsequent additions,
as has been done in this case under Section 68 of the 1961 Act. The appellant/assessee
adopted a three pronged plea in support of the above contention; First, that
assessment order refers to Section 145 (2) of the 1961 Act. It should have
mentioned Section 145 (3) of the 1961 Act.
For that, the appellant/assessee relies on the amendment of the 1961 Act which
came into effect from 01.04.1997. It is urged that Section 145 (2) prior to
01.04.1997 (pre- amendment) is akin to Section 145 (3) post 01.04.1997
(post-amendment). It is thus urged that the Department committed error in
mentioning Section 145 (2) and not Section 145 (3); Second, that the assessment
order in reference to the first addition has incorrectly mentioned the term
According to the appellant/assessee, the prefix of the paragraph and the
language used, makes it abundantly clear that the Department had relied upon
Section 145 (3) of the 1961 Act to impose the addition. Third, that the
assessment was made under Section 144 as the same refers to Section 145 (3).
Under Section 144, the Officer has to make best judgment assessment
The appellant/assessee urges that the purport of the stated provision is that
the Officer reassesses the entire accounts and makes the assessment of total
income and thereafter computes the income tax liability. Resultantly, the
Officer (after rejecting the books of account) cannot then rely on the same
books of account to make any subsequent addition(s). The appellant/assessee also
argues that the approach adopted by the Officer would have the effect of taxing
the same transaction twice.
Arguments raised by revenue/income tax department before Hon'ble Supreme Court.
Per contra, the respondent urged that the assumption of the appellant/assessee
that the assessment order had rejected the books of accounts under Section 145
(3) of the 1961 Act is preposterous. In that, the assessment in question came to
be made under Section 143 (3) of the 1961 Act.
Thus, the Officer was justified in relying upon the said books for making
addition(s). The respondent would also urge that while imposing the first
addition, the assessment order does not reject the books of accounts, but only
that part which pertained to assessing the gross profit, as the assessee had not
maintained day to day stock registers, nor had produced or maintained other
necessary vouchers while determining the gross profits. Additionally, the
respondent would also urge that the amount mentioned under Credits
Balance Sheet is incorrect and qualifies as Cash Credits under Section 68 of the
1961 Act, as stated in the assessment order.
Indisputably, the Officer gave several opportunities to the appellant/assessee
to prove the authenticity of the entries in question. As a matter of fact,
summon notices were issued to the named fifteen creditors, but no
evidence/explanation was forthcoming. The finding of fact so recorded by the
Officer is unexceptionable. The respondent thus contends that the finding
relating to the cash credits, does not give rise to any substantial question of
Ratio of law laid down by Hon'ble Supreme Court
Supreme Court Bench consisting of Justice A. M. Khanwilkar & Justice Dinesh
Maheshwari set aside the addition made by the Assessing Officer by holding that:
14. However, it has now come on record that the appellant/assessee in penalty
proceedings offered explanation and caused to produce affidavits and record
statements of the concerned unregistered dealers and establish their
credentials. That explanation has been accepted by the CIT (A) Vide Order dated
13.01.2011. In Paragraph 17 of the said decision reproduced hitherto, it has
been noted that the Officer recorded statements of 12 unregistered dealers out
of 13 and their identity was also duly established.
After analysing the evidence so produced by the appellant/assessee, the
appellate authority [(CIT (A)] noted that the Officer had neither doubted the
identity of those dealers nor any adverse comments were offered in reference to
their version regarding sale of marble slabs by them to the appellant/assessee
in the financial year relevant to assessment year 19981999 and receipt of
payments after two to three years.
Further, there was no denial of purchase of marbles worth Rs. 4, 78, 900/
(Rupees Four Lakhs Seventy Eight Thousand Nine Hundred Only) by the assessee
and sale thereof worth Rs. 3, 57, 463/ (Rupees Three Lakhs Fifty Seven
Thousand Four Hundred Sixty Three Only) with closing stock of Rs. 2, 92, 490/
(Rupees Two Lakhs Ninety Two Thousand Four Hundred Ninety Only), as disclosed in
the trading account for the year ended on 31.03.1998.
The appellate authority thus found that without purchases of marbles, there
could be no sale and disclosure of closing stock in the trading account. In
other words, the materials on record would clearly suggest that the concerned
unregistered dealers had sold marble slabs on credit to the appellant/assessee,
As a consequence of this finding, the appellate authority concluded that there
was neither any concealment of income nor furnishing of inaccurate particulars
of income by the assessee. We are conscious of the fact that these observations
are made by the competent forum (appellate authority) in penalty proceedings
under Section 271 of the 1961 Act in favour of the assessee.
However, what needs to be noted is that the stated penalty proceedings were the
outcome of the assessment order in question concerning assessment year 1998
1999. Indeed, at the time of assessment, the appellant/assessee had failed to
produce any explanation or evidence in support of the entries regarding
purchases made from unregistered dealers. In the penalty proceedings, however,
the appellant/assessee produced affidavits of 13 unregistered dealers out of
whom 12 were examined by the Officer.
The Officer recorded their statements and did not find any infirmity therein
including about their credentials. The dealers stood by the assertion made by
the appellant/assessee about the purchases on credit from them; and which
explanation has been accepted by the appellate authority in paragraphs 17 and 19
of the order dated 13.01.2011.
Bench further observed that:
15. To put it differently, the factual basis on which the Officer formed his
opinion in the assessment order dated 30.11.2000 (for assessment year
19981999), in regard to addition of Rs. 2, 26, 000/ (Rupees Two Lakhs Twenty -
Six Thousand Only), stands dispelled by the affidavits and statements of the
concerned unregistered dealers in penalty proceedings. That evidence fully
supports the claim of the appellant/assessee.
The appellate authority Vide Order dated 13.01.2011, had not only accepted the
explanation offered by the appellant/assessee but also recorded a clear finding
of fact that there was no concealment of income or furnishing of any inaccurate
particulars of income by the appellant/assessee for the assessment year
19981999. That now being the indisputable position, it must necessarily follow
that the addition of amount of Rs. 2, 26, 000/ (Rupees Two Lakhs Twenty Six
Thousand Only) cannot be justified, much less, maintained.
The rest of the assessment order dated 30.11.2000 as modified by the CIT(A) vide
order dated 9.1.2003, shall remain undisturbed. There shall be no order as to
costs. All pending interlocutory applications are also disposed of.
Written By: Dinesh Singh Chauhan, Advocate
- High Court of Judicature,
Email: [email protected]
, [email protected]