COMMISSIONER OF INCOME TAX, SALEM versus K. CHINNTHAMBAN

Citation: [2007] 8 S.C.R. 496 · Decided: 24-07-2007 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Appeal(s) allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

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COMMISSIONER OF INCOME TAX, SALEM 
v. 
K. CHINN A THAMBAN 
JULY 24, 2007 
[S.H. KAPADIA AND B. SUbERSHAN REDDY, JJ.] 
Income Tax Act, 1961-Sections 69 and 69A-Firmfloatedfor collecting 
deposits from pub/ic-Assessee, connected with the firm~ln assessment 
C proceedings, amount shown as undisclosed income subject to tax uls 69-
0rder of tribunal that since claim made by members of public. income on 
unexplained investments to be considered in the hands of the firm-
Correctness of-Held: Not correct since no evidence recording registration 
of firm, books of account not properly maintained-No explanation by assessee 
about source of investment-No evidence that members of public placed their 
D · deposits with the firm through their relatives and friends-A/so the firm as 
·well as its partners found to be fictitious. 
Firm VV was floated for carrying on the business of prize tickets and 
for collecting deposits from the public. The firm was managed by KP. Police 
Officer carried out search in the premises of the firm and seized Rs. 1.18 
E crores. KP filed his return. In the assessment proceedings, the books of 
accounts were found incomplete and KP could not explain source of deposit 
amount of Rs. 1.18 crores. Assessing Officer treated the amount as 
undisclosed income of persons in whose names the deposit appeared. 
Respondent-assessee was also connected with the firm and with regard to his 
F assessment, Rs. 5 .lakhs was shown as undisclosed income under s. 69 of the 
Income Tax Act, 1961. CIT upheld ·the Assessment Order. However, 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 it was necessary to link up all these amounts with books of the 
firm. High Court upheld the order. Hence the present appeals. 
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Allowing the appeals, the Court 
HELD: 1.1 Where a deposit stands in the name of a third person and 
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where that.person is related to the assessee then in such a case the .proper 
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course would be to call upon the person in whose books the deposit appears 
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COMMNR. OF INCOME TAX, SALEM,., K. CHINNATHAMBAN (KA!'ADIA, J.) 
497 
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or the person in whose name the deposit stands should be called upon to A 
explain such deposit. !Para 711500-BI 
1.2. In the instant case, there was no evidence recording registration 
of the firm, the books of accounts were not properly maintained; there was no 
explanation regarding the source of investment and the evidence of KP 
indicated that even the partners of the firm were fictitious. There was no ,B 
evidence to show that members of the public have been placing their deposits 
with the firm through their relatives and friends, therefore, there was no 
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question of linking up all these amounts with the books of the firm. The 
Department was right in holding that the income on unexplained investments 
cannot be considered in the hands of the firm found to be fictitious and that c 
the assessee had the amount as his income which was subject to tax under 
section 69A of the Income Tax Act, 1961. Therefore, the Tribunal erred in 
directing linking up of the deposits with the accounts of the alleged firm. In · 
fact, the directions given by the Tribunal to the A.O. for such linking up was , 
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not even capable of compliance. The onus of proving the source of deposit 
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primarily rested on the persons in whose names the deposit appeared in D 
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''arious banks. Thus, the Department was right in making individual 
assessments in the hands of respondent-assessee and in the names of other 
respondent-assessees in the other civil appeals. The tribunal should not have 
interfered with these findings of fact rightly recorded by A.O. and C.l.T. (A). 
(Paras 5, 6, and 71 (499-G, H; E; 500-A; C; D, El E 
Chuharmal v. C.l.T., (198813 SCC 588, referred to. 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3230 of 2007. 
From the Judgment & Order dated 24.01.2006 of the High Court of 
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Judicature at Madras in Tax Case Appeal No. 680 of 2004. 
WITH 
C.A. Nos. 3231-3235 of2007. 
Arijit Prasad, Chinmay Sharma and 8. V. Balaram Oas for the Appellan~. G 
The Judgment of the Court was delivered by 
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KAPADIA, J. I. Leave granted. 
2. The short question which arises for determination in this group of H 
498 
SUPREME COURT REPORTS 
[2007) 8 S.C.R. 
A civil appeals is: Whether in the facts and circumstances of the case the 
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