Commissioner of Income Tax vs Bhadra Enterprises

Paripoornan, J.—The Revenue is the petitioner herein. The respondent is an assessee to Income Tax. The matter arises with regard to the assessment year 1978-79. The respondent-assessee is a firm of Abkari contractors constituted by a deed of partnership dated March 1, 1977. The assessment was completed in the status of an unregistered firm. During the assessment proceedings, two credits of Rs. 40,000 and Rs. 1,50,000 in the names of one P. P. Raju and one P. K. Viswanathan were noticed by the Income Tax Officer. The creditors denied the advance. They were examined by the Income Tax Officer. The assessee was not able to explain the source of the cash credits. The Income Tax Officer completed the assessment by including the above amounts as the assessee''s income from other sources. The plea of the assessee that it had not done any business during the year ended March 31, 1978 was discarded. The Commissioner of Income Tax (Appeals) upheld the addition made by the Income Tax Officer. In the second appeal, the Appellate tribunal, after adverting to certain facts, held that no business was done by the firm during the relevant period for the assessment year 1978-79 and so the addition of Rs. 1,90,000 as cash credits from other sources was unwarranted. It was further held that the Commissioner of Income Tax (Appeals) was in error in directing the Income Tax Officer to grant registration to the assessee-firm by condoning the delay in filing the application in Form No. 11. The Revenue filed an application before the Tribunal u/s 256(1) of the Income Tax Act to refer certain questions of law which, according to the Revenue, arose from the order of the Tribunal for the decision of this court. It was dismissed by order dated February 27, 1987. Thereafter, the Revenue has filed the original petition, u/s 256(2) of the Act, to direct the Income Tax Appellate Tribunal to refer the questions of law formulated in paragraph 8 of the original petition for the decision of this court. The questions formulated in para 8 of the original petition are as follows :

"1. Whether, on the facts and in the circumstances of the case and also on a true intent and interpretation of Section 68 of the Income Tax Act, 1961, the Tribunal is right and justified in deleting the additions made by the Income Tax Officer ?

Whether, on the facts and in the circumstances of the case, the Tribunal is right and had materials in holding--

(i) ''Except for the fact that the partners participated in the bid on March 10, 1978, the business, in fact, was not commenced and the same was commenced only from April 1, 1978'' ;

(ii) ''Since no business has been done during the year in question, there cannot be a firm in existence'' and are not the above findings incorrect, legally and factually ?

Whether the, date given in line 6 in paragraph 9 on page 8 is correct and should not the date be March 31, 1978 ?"

We heard counsel for the Revenue, Mr, Menon as also counsel for the respondent-assessee. In the journal-cum-ledger of the assessee, for the assessment year in question, cash credit of Rs. 1,50,000 in the name of Shri P. P. Raju, Chengannur, and another cash credit of Rs. 40,000 in the name of Shri P. K. Viswanathan, Mavelikkara, find a place on March 31, 1978. In the sworn statement given before the Income Tax Officer, both Raju and Viswanathan disowned the cash credits. The Income Tax Officer disbelieved the explanation offered by the assessee for the cash credits and added a sum of Rs. 1,90,000 to the income of the assessee for the year as income from "other sources". Prima facie, it is for the assessee to explain the cash credits. That cash credits appeared in its journal-cum-ledger on March 31, 1978, is admitted. In such circumstances, the applicability of Section 68 of the Income Tax Act, 1961, calls for consideration. Prima facie, we are of the view that the questions of law, formulated as questions Nos. 1 and 2, arise out of the appellate order of the Tribunal dated February 17, 1986, in I. T. A. No. 234 of 1985 for the assessment year 1978-79.

We, therefore, direct the Income Tax Appellate Tribunal, Cochin Bench, to refer questions Nos. 1 and 2 formulated in paragraph 8 of the original petition for the decision of this court along with a statement of the case. This shall be done within three months from the date of the receipt of a copy of this judgment.