important point
When the assessee did not even adduce any evidence to show that the amount in question did not belong to him, Department held right in inferring the amount to be income of the assessee.

Headnote:Income Tax Act, 1961 – Section 69A– The word ‘income’ has wide meaning which means anything which comes in as gain – Assessee not even adducing any evidence to show that the amount in question did not belong to him – Department right in inferring the amount to be income of the assessee. (Para 5)
       (1988) 3 SCC 588 – Relied upon.
       Income Tax Act, 1961 – Section 69A– There being no evidence to show that members of the public have been placing their deposits with the said firm through their relatives and friends, there was no question of linking up all these amounts with the books of the firm which was found to be fictitious – Department was right in holding that income on unexplained investments cannot be considered in the hands of the firm – Tribunal had erred in directing linking up of the deposits with the accounts of the alleged firm. (Para 6)
       Facts of the case :
       Rs.1.18 crores was seized from the firm with which the respondent-assessee was associated. The Manager was not in a position to explain the source of the deposit amount of Rs.1.18 crores (approx.). Therefore, the Assessing Officer treated the said amount as undisclosed income of persons in whose names the deposit appeared. This order of assessment was upheld by the CIT(A). The respondent-assessee carried the matter in appeal with the Tribunal. By the impugned judgment, the Tribunal held that since the claim was made by members of the public, it was not proper to treat the amount as income from undisclosed source of various assessees and, therefore, according to the Tribunal, it was necessary to link up all these amounts with the books of the firm. It is this part of the reasoning given by the Tribunal which is the subject matter of these civil appeals.
       Findings of the Court:
       Department was right in holding that income on unexplained investments cannot be considered in the hands of the firm.
       Result : Appeals dismissed.

JUDGMENT

KAPADIA, J.—

1.Leave granted.

2.The short question which arises for determination in this group of civil appeals is:

Whether in the facts and circumstances of the case the Tribunal was right in holding that income on the unexplained investments should be considered in the hands of the firm, M/s V.V. Enterprises.

3.For the sake of convenience, we mention hereinbelow the facts of the civil appeal arising out of Special Leave Petition (C) No. 11596/2006.

4.K. Chinnathamban, the respondent-assessee, was connected with the firm by the name V.V. Enterprises, having its premises at No. 2 & 3A, East Perumanoor Road, Salem. There was a search in the premises by police officers on 19.8.1991 when Rs.1.18 crores (approx.) was seized. This seizure was followed by a survey under Section 133A and investigations under Section 132 of the Income Tax Act, 1961 (hereinafter referred to as the “said Act”). The firm was managed by one K. Palanisamy who had filed his Return and who appeared on summons and gave statements. In the course of assessment proceedings, it was detected that the books of accounts were incomplete. K. Palanisamy was not in a position to explain the source of the deposit amount of Rs. 1.18 crores (approx.). Therefore, the Assessing Officer (“A.O.”) treated the said amount as undisclosed income of persons in whose names the deposit appeared. The assessment made in respect of K. Chinnathamban was Rs. 5.16 lacs consisting of Rs. 16,148 as salary and Rs. 5 lacs as undisclosed income under Section 69. This order of assessment was upheld by the CIT(A). The assessee, K. Chinnathamban, carried the matter in appeal with the Tribunal. By the impugned judgment, the Tribunal held that since the claim was made by members of the public, it was not proper to treat the amount as income from undisclosed source of various assessees and, therefore, according to the Tribunal, it was necessary to link up all these amounts with the books of the firm. It is this part of the reasoning given by the Tribunal which is the subject matter of these civil appeals.

5.At the outset, we may state that none appeared for the assessees though served. M/s V.V. Enterprises ostensibly was a firm floated for carrying on the business of prize tickets and for collecting deposits from the public. K. Palanisamy was the man behind the said activity. His statement was recorded on various dates. He has admitted that the partners were fictitious. They were not eligible to any shares in the profits of the firm. K. Palanisamy has further stated that monies were lying in various banks in FDRs. in the names of these so-called partners. He further claimed that part of this amount belonged to the members of the public.This part of the statement was not accepted by the Department. In view of the afore stated position the A.O. proceeded to frame the assessment in the hands of Palanisamy on protective basis and in the hands of deposit holders for unexplained deposits. The most important aspect of the case is that although M/s V.V. Enterprises was stated to be a registered firm, there were no bank accounts in the name of such a firm. There were no accounts in the name of any of the partners of the alleged firm. There were no deposits in the name of the alleged firm. There were no deposits in the name of any of the partners of the alleged firm. None of the assessees have been able to explain the source of the deposits in the names of the relatives. When asked, they have pointed their fingers to K. Palanisamy. In the circumstances, the Department was right in coming to the conclusion that the alleged firm of M/s V.V. Enterprises was not genuine. The assessee could not establish the source of deposits. The Department was right in coming to the conclusion that there was no evidence in support of the claim of the assessee that the afore stated amount was collected from the members of the public. The assessee had failed to show that the collections did not represent his income. In order to

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Judicial Analysis

SupremeToday

2007 Supreme(SC) 989

important pointWhen the assessee did not even adduce any evidence to show that the amount in question did not belong to him, Department held right in inferring the amount to be income of the assessee.

Cases Referred (1)

Judicial Analysis

important point
When the assessee did not even adduce any evidence to show that the amount in question did not belong to him, Department held right in inferring the amount to be income of the assessee.