Commissioner of Income Tax and Another vs Ram Babu Roy, Prop. Shree Ram Enterprises

Ram Babu Roy happened to be the proprietor of Shree Ram Enterprises, Khajekalan, Patna City and used to derive income from the business of crackers. A search and seizure operation was conducted in the business and residential premises of Ram Babu Roy (hereinafter referred to as "the assessee") on October 18, 1995. A notice was issued to him u/s 158BC of the Income Tax Act, 1961, requiring the assessee to file his return of disclosed and undisclosed income. In the present case, we are concerned with the amount pertaining to the sundry creditors. As per the original books of account of the assessee as on October 18, 1995, the amount due to the sundry creditors has been shown at Rs. 13,70,724.76. However, as per the declared undisclosed income as on October 18, 1995, the amount due to the sundry creditors is shown at Rs. 27,56,441.17. Sundry creditors included M/s. Mohan Fireworks to the tune of Rs. 9,52,020 and M/s. Santosh Sharma to the tune of Rs. 4,70,891.16. During the course of hearing, the assessee was asked to submit confirmation of accounts of all sundry creditors, but confirmation in regard to the aforesaid two creditors were not submitted. Show-cause notice given to the assessee also did not yield any result. Neither the assessee submitted confirmation from the aforesaid creditors nor delivery challans were filed to prove that those are genuine creditors. During the course of hearing before the Assessing Officer, the assessee did not submit the addresses of the aforesaid two creditors. Accordingly, the Assessing Officer held that the sundry creditors as on October 18, 1995, will be taken at Rs. 13,33,530.01.

Aggrieved by the same as also other additions, the assessee preferred the appeal before the Patna Bench of the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal"). The Tribunal by the impugned order observed that it was not necessary to make further addition on account of the two sundry creditors, namely, M/s. Mohan Fireworks and M/s Santosh Sharma and accordingly ordered for its deletion.

The relevant portion of the judgment of the Tribunal in this regard is as follows:

The matter has been discussed on page 4 of the assessment order. It mentions that the figure of sundry creditors as on the date of search was originally shown at Rs. 13.71 lakhs, but the same had gone up to Rs. 27.56 lakhs in view of the undisclosed purchases made by the assessee. Out of these parties, no confirmation was filed from the following 2 parties:

Mohan Fire Works Rs. 7.52 lakhs

Shantosh Sharma Rs. 4.71 lakhs

The authorised representative of the assessee pleaded that the parties mentioned above were not co-operating with the assessee. Reference is made to the decision of the Andhra Pradesh High Court reported in Indwell Constructions Vs. Commissioner of Income Tax, that when the books of account have been rejected such additions should not be made. Even though the facts of the assessee''s case are different from the facts before the Andhra Pradesh High Court (supra), it can be said taking the entire facts of the assessee''s case into consideration that it was not necessary to make a further addition on account of the two parties mentioned above. Therefore, the addition is deleted.

The Commissioner of Income Tax aggrieved by the same has preferred this appeal u/s 260A of the Income Tax Act, 1961.

By order dated November 14, 2003, the appeal has been admitted on the following substantial question of law:

(i) Whether the assessee has discharged the onus put upon him in respect of the entry of trade creditors in the books of account ?

Mrs. Archana Sinha, appearing on behalf of the appellants submits that in the facts of the present case, the Tribunal ought not to have directed for deletion of the amount in regard to the two sundry creditors. She submits that the Tribunal without assigning any reason has deleted the addition. In support of this submission, she has placed reliance on a judgment of the Supreme Court in the case of KALE KHAN MOHAMMAD HANIF Vs. COMMISSIONER OF Income Tax, MADHYA PRADESH AND BHOPAL., and our attention has been drawn to the following passage from the said judgment, which reads as follows (page 4):

It seems to us that the answer to this question must be in the affirmative and that is how it was answered by the High Court. It is well established that the onus of proving the source of a sum of money found to have been received by the assessee is on him. If he disputes liability for tax, it is for him to show either that the receipt was not income or that if it was, it was exempt from taxation under the provisions of the Act. In the absence of such proof, the Income Tax Officer is entitled to treat it as taxable income.

Despite service of notice, nobody has chosen to appear on behalf of the respondent.

We find substance in the submission of Mrs. Sinha. The assessee though had given the names of two sundry creditors, but when asked to submit confirmation he did not bring on record any material. Other documents concerning the issue of the sundry creditors, i.e., delivery challans and addresses of these two sundry creditors were not furnished. Further, in earlier years no purchases are said to have been made from these sundry creditors.

In view of the aforesaid, we are of the opinion that the Assessing Officer rightly did not accept the case of the assessee in regard, to those two creditors and the Tribunal without assigning any reason had deleted the said addition. In the facts of the present case, we are of the opinion that the assessee had not discharged the onus and the Tribunal erred in directing deletion thereof.

In the result, the appeal is allowed and the impugned order of the Tribunal in regard to the aforesaid issue is set aside. No costs.