In a significant order, the Delhi High Court has upheld a ruling by Commissioner of I-T (Appellate) (CIT-A) that an Assessment Officer of the Income Tax (I-T) Department cannot work on mere suspicion and needs to exercise his powers to verify genuineness of the claim, without surmising.
"A transaction cannot be treated as fraudulent if the assessee has furnished documentary proof and proved the identity of the purchasers and no discrepancy is found. The AO has to exercise his powers under section 131 & 133(6) of the I-T Act to verify the genuineness of the claim and cannot proceed on surmises," a bench of Justice Najmi Waziri and Justice Ravindra Bhat said in
a judgement last month.
The I-T department has challenged in the HC a ruling of Income Tax Appellate Tribunal (ITAT), which had affirmed the order passed by CIT-A. In the order, the CIT-A had ruled that the addition of Rs93.45 lakh made under Section 68 were unwarranted. The I-T department contended that both the Appellate Commissioner and the ITAT misapplied the law and that the findings in the impugned order are unreasonable.
The case related to Jatin Investment Pvt Ltd for Assessment Year (AY) 2003-04, during which the company had reported Rs96.25 lakh as receipts. For AY2004-05, Jatin Investment reported receipts of Rs1.50 crore. After the assessment was framed, a notice under Section 147/148 was issued, which led to the reopening of the assessment. The AO by his order, added Rs93.45 lakh on his conclusion that various amounts received from 21 parties were suspect. The AO’s findings were based on his appreciation of the facts, which are that upon issuance of summons under Section 131 none of the parties reported or joined the proceedings.
While the CIT-A upheld re-opening of the assessment, he directed deletion of Rs93.45 lakh brought to tax by the AO. In its contention, Jatin Investment had stated that it is engaged in trading of shares and security and had in previous years acquired shares of some companies. Those shares were sold during the assessment year in question and amounts received from purchases of the shares were shown as receipts. These amounts were garnered in the ordinary course of business, Jatin Investment contended.
In its order, the CIT-A said, "It is observed that the AO based his argument purely on the basis of information from DIT (Investigation), New Delhi. He has entirely relied upon such information for reaching such conclusion. The above information may be sufficient grounds to initiate reassessment proceedings of a case, but no (sic) make an addition the AO has to establish the fact of fraudulent nature of such transaction. Purely on surmises and conjuncture (sic) no transaction can be held as bogus unless the same is proved on the basis of sound reasoning and evidence on the part of the AO before making the addition. When the assessee has furnished all necessary proofs in support of its claim, it is all the more necessary to rebut such evidence with cogent and credible evidence on the part of the AO before making the addition. It is true that the said amount of Rs93.45 lakh has been received during the year under consideration by the appellant from 21 persons listed in the assessment order. However, the perusal of the balance sheet as on 31 March 2003 reveals that no new money has been introduced during the year under consideration. This also implies that there has neither been fresh loan nor fresh share capital introduced in the accounts of the appellant company during the year under consideration. The perusal of the account of the appellant company does not leave any room for doubt that the said amount was nothing but the sale proceeds of the shares, which have already been shown by the appellant in the profit & loss account for AY2003-04. When the sale proceeds of the shares have already been shown by the appellant and the same has also been offered as income, it cannot be brought to tax again in the same AY2003-04 which is under appeal."
After the order from the CIT-A, the I-T department filed appeal before the ITAT. After independently examining the records, the ITAT agreed with the conclusion of CIT-A. The I-T department contended that the investment shown in the book of accounts and reflected as assets in the side of the balance sheet of Jatin Investment should have been properly treated and, in the absence of such treatment, Section 68 applies. However, the ITAT rejected this contention and held that, in the circumstances (related with Jatin Investment), invocation of Section 68 is unwarranted.
The I-T department then approached the Delhi HC. The counsel for the Department emphasised on the submission that the incorrect reflection of the receipts in the balance sheet belied the true nature of the receipts, as a justification for the application of Section 68. However, the High Court too rejected the contention of the I-T department.
"The ITAT in our opinion quite correctly appreciated the law and its application by the first appellate authority, the CIT (A). Having regard to the facts and the nature of the analysis based upon the decisions of this Court, as well as the reliance on various decisions with respect to the true nature of Section 68, we are of the opinion that no question of law arises; the appeals are accordingly dismissed," the Delhi HC Bench said in its order.
The judiciary have been enabled to be unaccountable to notions of law, equity and fair play by the executive and superior courts through social engineering appointments and immunity from impeachment among other things and by the Constitution that has enshrined exceptions to both the Rule of Law and Equality under law in the Indian Constitution. Apart from eroding competence and integrity, the resultant culture has bred insouciance and arbitrariness of a very high order. The deleterious effect of this on the National character has been as extreme as the corrosion of education for political convenience. Today the Courts are defenders of the four important principles of any Banana Republic, "Just because you did it does not mean you are criminal", "Just because the statute book says so, does not make your actions a crime", "Evidence lies in the perception of the judge", and "Just because you did not do it, does not mean you are innocent".