Ajanta Construction Company vs Chief Commissioner of Income Tax

On an application filed by the petitioner u/s 256(2) of the Income Tax Act, 1961, this Court, by order dated December 1, 2006, had directed the Patna Bench of the Income Tax Tribunal to refer the following question for our opinion:

Whether in view of the decision of Supreme Court in the case reported in Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd., , the addition by way of investment in postal time deposits during pendency of investigation about its genuineness could be said to be income from undisclosed sources of the assessee.

In view of the aforesaid, the Patna Bench of the Income Tax Tribunal, hereinafter referred to as "the Tribunal", had drawn the statement of the case and referred the question of law aforesaid for our opinion.

The short facts giving rise to the present application are that M/s. Ajanta Construction Company Limited, for short "the assessee", is a contractor. It filed its return of income on October 31, 1990, and assessment was completed on March 23, 1993, on a total income of Rs. 53,74,035. The business premises of the assessee was searched on August 26, 1993, u/s 132(1) of the Income Tax Act, 1961, hereinafter referred to as "the Act", and in course thereof, it was found that the assessee made the following investments by way of time deposits in post offices during the financial year under consideration:

------------------------------------------------------------------- Rs. Tekari Post Office 17-10-1989 10,60,000 3-2-1990 15,56,000 5-2-1990 16,70,000 ------------ 42,86,000 ------------ Nehalpur PC 10-4-1989 80,000 2-9-1989 12,82,000 11-11-1989 5,00,800 15-11-1989 15,00,000 10-5-1989 10,00,000 ------------ 86,48,800 -------------------------------------------------------------------

The aforesaid investments have not been shown by the assessee in its balance-sheet. On an inquiry by the Assessing Officer, the State Bank of Bikaner and Jaipur informed that time deposit receipts (for short "the TDR") worth Rs. 76,58,567 are lying as securities for the loan advanced by the bank to the assessee. The bank also furnished details regarding the name of the post offices from where the TDRs were issued. The Assessing Officer, during the course of assessment, required the assessee to explain the aforesaid investment. Its explanation being not satisfactory, the Assessing Officer treated the investment of Rs. 86,48,800 as undisclosed and concealed income for the assessment year 1990-91 and included the said income of the assessee u/s 69 of the Act.

It is relevant here to state that the post offices from where the postal time deposits were issued, denied their existence. However, before the Assessing Officer, the assessee did not offer any categorical explanation. Accordingly, the Assessing Officer observed that in view of the affirmation of the assessee in the crjminal case that it had deposited the amount in the postal time deposits, no cognizance could be taken of the communication of the post offices.

Aggrieved by the same, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and contended before it that the addition was unjustified and wrong because the post offices had denied the existence of the postal time deposits in the name of the assessee. The assessee further contended in appeal that he had invested the amount out of the contract receipt and maturity of the securities in the financial year in question. The assessee attempted to explain the sources of investment. This did not find favour with the Commissioner of Income Tax and he dismissed the appeal.

The assessee thereafter preferred appeal before the Tribunal and reiterated the same submission. The Tribunal negatived the plea of the assessee and while doing so, observed that the State Bank of Bikaner and Jaipur had affirmed the investment in postal time deposits. It had given the details thereof. It further found that the assessee itself had accepted the existence of the TDR in its name and in fact, attempted to explain the sources of investment. It also found that the investment in postal time deposits have not been shown in the balance-sheet. Ultimately, the Tribunal concluded that "the assessee had taken the stand in a criminal case that the postal time deposits receipts are genuine and it had made investment in the same." It appeared to the Tribunal that the assessee had taken this stand to prove its innocence in the criminal case and denied the investment before the tax authorities to save itself from the tax liability on the unexplained investment.

Mr. Dinesh Choudhary, appearing on behalf of the assessee, submits that so long the criminal court does not record the finding that the time deposit receipts are genuine, the amount spent cannot be said to be unexplained investment. In support of his submission, he has placed reliance on a judgment of the Supreme Court in the case of Commissioner of Income Tax, West Bengal-II, Calcutta Vs. Hindustan Housing and Land Development Trust Ltd., and our attention has been drawn to the following passage from the said judgment (page 530):

It is unnecessary to refer to all the cases cited before us. It is sufficient to point out that there is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles. We are of the opinion that the High Court is right in the view taken by it and, therefore, this appeal must be dismissed.

Mr. Rishi Raj Sinha, appearing on behalf of the Revenue, however, submits that the assessee had not disputed the existence of the TDR and in the explanation, it had not taken the plea that the TDRs are not genuine. Further, no explanation about the source of the investment having been offered, it was rightly construed to be an unexplained investment.

Having considered the rival submission, we do not find any substance in the submission of Mr. Choudhary. As pointed out above, the assessee admits the existence of the TDRs in its name. He has not disclosed the same in its balance-sheet. He does not state that the TDRs are not genuine. He has further not offered any explanation about the sources of investment.

In view of the aforesaid, we are of the opinion that the Tribunal did not err in holding that investment in postal time deposits is income from undisclosed sources. The matter would have been different had the asses-see taken the plea that TDRs are not genuine or had offered any other explanation about the source of investment.

In the light of the discussion aforesaid, our opinion is that the Tribunal was right in holding the investment in postal time deposits as income from undisclosed sources. The reference is answered accordingly.

Tax case stands disposed of.

Let a copy of our opinion be forwarded to the Patna Bench of the Tribunal.