ita15.98.odt
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH AT NAGPUR
INCOME TAX APPLICATION NO.15/1998
APPLICANT: The Commissioner of Income Tax,
Vidarbha, Nagpur.
...VERSUS...
RESPONDENT: M/s. Gwalior Distillers Ltd.,
Sadiq Building, Mount Road, Nagpur.
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Shri Anand Parchure Adv. with Shri Bhushan Mohta, Adv. for applicant
Shri L.S. Dewani, Adv. with Shri K.P. Dewani, Adv. for respondent
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CORAM : SMT. VASANTI A NAIK, AND
V.M. DESHPANDE, JJ.
DATE : 09.03.2017 ORAL JUDGMENT (PER : SMT. VASANTI A. NAIK, J.) This is an application filed by the Department - Revenue under Section 256 (2) of the Income Tax Act, 1961 as the Income Tax Appellate Tribunal had refused to refer the questions stated by the Department in the application under Section 256 (1) of the Act to the High Court for a decision.
The questions that were sought to be referred to the High Court under Section 256 (1) of the Act by the Department are stated thus :-
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ita15.98.odt 2 "(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in admitting additional evidence as regards expenditure as per Annexure B of the Book No.D-14 without affording opportunity to the department to examine the evidence ?
(2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in accepting the payments as per information submitted by the assessee without identifying the parties ?
(3) Whether on the facts and in the circumstances of the case, the ITAT was justified in law in giving weightage to the statement of Shri Adil Bapuna recorded on 21-8-95 over that recorded on 4/8/95 which substantially changes the character of entries of Note Book D-14 ?
(4) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in reducing the peak deficit of Rs.55,52,042/- worked out by the Assessing Officer by Rs.33,48,560/- ?
(5) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in working out a peak deficit on the basis of total receipts and total payments instead of on a day-to-day basis ?
(6) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in quantifying the undisclosed income on grounds/arguments not fully supported by valid evidence ?"::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 :::
ita15.98.odt 3 The following facts give rise to the application : -
The respondent - assessee is a company engaged in the manufacture of spirit, alcohol etc. On 2.8.1995 there was a search by the Income Tax authorities under Section 132 of the Income Tax Act at the office premises of the assessee at Nagpur, the factory premises at Gwalior and also the residential premises of the Directors of the company at Nagpur. The search took place simultaneously and during the course of the search at Gwalior a Note Book that was marked as D-14 was seized.
The Managing Director of the company was examined at the time of the search and he stated that the exercise book, D-14 represented the miscellaneous receipts of the assessee - company some of which had been accounted and some of which were not accounted. It was stated that the company was willing to pay the income tax on the other miscellaneous receipts. A notice under Section 158 BC of the Act was served on the assessee and in compliance of the same, the assessee - company filed a return on 12.4.1996 declaring the undisclosed income for the block period from 1.4.1985 to 2.8.1995. A sum of Rs.7,00,000/- was seized from the factory of the assessee at Gwalior and a sum of Rs.10,00,000/- was seized from the residential premises of the two Directors of the company at Nagpur. The total cash that was seized, i.e., Rs.17,00,000/- was offered by the assessee- company as undisclosed income. During the ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 4 course of the proceedings before the Assessing Officer another statement of the Managing Director was recorded on 21.8.1996. In the said statement, the Managing Director clarified and explained that at the time of making the original statement on 4.8.1995, the company had showed its willingness to pay taxes for unaccounted miscellaneous receipts after deducting the expenditure. The Assessing Officer, however, considered the said explanatory statement to be a contradiction and after examining Shri D.P. Bohre, the Cashier of the assessee - company whose statement was earlier recorded on 3.8.1995, held that the undisclosed income of the assessee - company was Rs.6,04,90,481/-. The Assessing Officer did not accept the statement of Shri D.P. Bohre, the Cashier recorded on 16.8.1996 and which referred to the Annexures of D-14, i.e., A, B, C & D to point out that Annexure-A represented receipts, Annexure - represented expenditure, Annexure-C represented transactions recorded in the books of account and Annexure - D represented transactions which were neither trading receipts nor trading payments. The Assessing Officer made the addition of Rs.10,56,755/- towards the total investment in the immovable property and the addition of Rs.15,91,589/- as unexplained money of the assessee- company. After making the aforesaid additions, the Assessing Officer computed the amount of tax payable by the assessee at Rs.3,78,83,295/-. Being aggrieved by the order of the Assessing Officer, ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 5 the assessee filed an appeal before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal by the order dated 21.3.1997 partly allowed the appeal of the assessee and held that the Assessing Officer was not justified in working out the undisclosed income at Rs.6,31,38,825/- and the assessee was also not justified in offering the undisclosed income of Rs.17,00,000/-. The Tribunal determined the undisclosed income at Rs.61,20,114/-. While holding so, the Tribunal considered the entire material on record and went through each and every entry to satisfy itself about the position of transactions explained by the assessee. After the Tribunal decided the appeal on 21.3.1997, the Department filed an application under Section 256 (1) of the Act for referring the aforestated six questions to the High Court for a decision. The Tribunal decided the application under Section 256 (1) of the Act against the Department by the order dated 10.9.1997. In view of the dismissal of the application under Section 256 (1) of the Act, the Department has filed the application under Sub Section 2 of Section 256 of the Act seeking the exercise of the jurisdiction under the said provision.
The learned Counsel for the Department submitted that the Tribunal was not justified in admitting the additional evidence in the appeal filed by the assessee without affording an opportunity to the Department to examine the same. It is submitted that the Tribunal was ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 6 not justified in giving undue weightage to the statement of the Managing Director recorded on 21.8.1996 while giving inadequate weightage to his earlier statement dated 4.8.1995. It is submitted that when the Managing Director of the assessee - company had during the search submitted that the exercise book, D-14 represented miscellaneous receipts, he could not have subsequently in his statement made on 21.8.1996 submitted that the exercise book, D-14 did not consist only the receipts but also the expenditure. It is submitted that the Tribunal was not justified in reducing the peak deficit of Rs.55,52,042/- while deciding the appeal filed by the assessee. It is submitted that the findings recorded by the Tribunal in its order dated 21.3.1997 are not supported by valid evidence and hence, the Tribunal was not justified in quantifying the undisclosed income. The learned Counsel relied on the judgment of the Delhi High Court, reported in (2015) 375 ITR 373 (Delhi) to substantiate his submission that if the Assessing Officer does not exercise his jurisdiction properly, it would be for the Appellate Authorities, i.e., the Commissioner of Income Tax (Appeals) and the Tribunal, that are the fact finding authorities to conduct a proper enquiry on facts and come to a conclusion based on facts and law.
Shri Dewani, the learned Counsel for the assessee- company supported the order of the Tribunal on the application made by the ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 7 Department under Section 256 (1) of the Act. It is submitted that in regard to each of the questions that were sought to be referred by the Department, the Tribunal has recorded cogent reasons to record the finding that no question of law would arise for being referred to the High Court. It is submitted that while deciding the appeal of the assessee vide order dated 21.3.1997 the Tribunal had not applied any legal principles or law. It is submitted that on the basis of the material evidence and the factual aspects of the matter, the Tribunal had decided the appeal of the assessee by the order dated 21.3.1997. It is submitted that while deciding the application under Section 256 (1) of the Act, the Tribunal has considered the order of the Tribunal dated 21.3.1997 in detail and has recorded convincing reasons for refusing to refer the questions that were sought to be referred by the Department to the High Court under Section 256 (1) of the Act. The learned Counsel for the assessee- company took this Court through the order of the Tribunal dated 21.3.1997 to point out that the findings of the Tribunal in the appeal filed by the assessee are based fully on facts, specially on a perusal of the Note Book, D-14 and each and every entry made therein. The learned Counsel sought for the dismissal of this application.
On a reading of the orders of the Tribunal, dated 21.3.1997 and 10.9.1997, it appears that it is not necessary to invoke the jurisdiction ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 8 under Section 256 (2) of the Act. The Assessing Officer had passed the order mainly by relying on the statement made by the Managing Director of the assessee - company dated 4.8.1995 that the Note Book, D-14 comprised of the entries in respect of miscellaneous receipts. The Tribunal, however, on an appreciation of the material on record, specially the Note Book, D-14 on the basis of which the assessment order was passed, held that it was dangerous to accept the statement made by the Managing Director of the assessee-company on 4.8.1995 in its totality as the very perusal of Note Book, D-14 reflected that the entries in the said Note Book were not only the miscellaneous receipts but there were entries pertaining to expenditure in the said Note Book. While holding so, the Tribunal perused each and every entry in the Note Book, D-14 that was classified in Annexure - A, B, C and D and the Tribunal was satisfied that the position of the transactions as explained by the Managing Director in the subsequent statement was correct. The Tribunal found that as a matter of fact there were some items in Annexure - C, that pertain to the amounts in respect of Bank commission. The Tribunal held that by no stretch of imagination the said entries could be said to be the receipts. The Tribunal further found that many entries between the period from 30.6.1995 to 31.7.1995 were by way of cheques and the books of accounts were maintained not only up to June, 1995 but up to 31.7.1995. ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 :::
ita15.98.odt 9 The Tribunal further found that when the statement of the Cashier, Shri Bohre was initially recorded, no query was put to him in regard to the contents of Note Book, D-14 and about the nature of transactions recorded therein and in the statement of Shri Bohre, that was subsequently recorded, he had categorically explained the transactions in respect of both receipts and payments. The Tribunal then observed by referring to certain pages in the Note Book, D-14 that some of the transactions mentioned therein reflected the receipts and the others reflected the expenditure. The assessee had also been able to explain that the payment had been made to the regular suppliers of the assessee and those entries were also found in the regular books of accounts. The Tribunal observed that the evidence of Shri Bohre could not have been discarded only because he happened to be the employee of the assessee. On an appreciation of the material on record, the Tribunal held that the entries in the same were not only the receipts but also the expenditure. While holding so, the Tribunal found that the statement of Shri Bohre that Annexure-A represented receipts, Annexure - B represented expenditure, Annexure-C represented transactions recorded in the books of account and Annexure - D represented transactions which were neither trading receipts nor trading payments was substantially correct. After recording the aforesaid findings of facts, the Tribunal proceeded to decide the ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 10 question as to what would be the quantum of addition to be made in respect of the suppressed receipts. By relying on the judgment of the Hon'ble Supreme Court, the Tribunal held that it was not proper to treat the entire receipts as the income of the assessee. The Tribunal then considered the peak deficit, cash balance in the books of account of the company besides the sale proceeds as also the offer of Rs.17,00,000/- by the assessee as undisclosed income and came to the conclusion that the undisclosed income of the assessee would be Rs.61,20,114/-.
After minutely perusing the order of the Tribunal dated 21.3.1997, the Tribunal while rejecting the application under Section 256 (1) of the Act, dated 10.9.1997 refused to refer the questions that were sought to be referred by the Department to the High Court. The Tribunal referred to each of the questions separately and gave convincing reasons for refusing to refer the same. The Tribunal held that though it was the case of the Department in the appeal before the Tribunal that the assessee had tendered additional evidence and no opportunity was granted to the Department to refute the same, the Tribunal found as a matter of fact that no additional evidence was admitted before the Tribunal in the appeal filed by the assessee. The Tribunal recorded that the Counsel for the Department was not able to demonstrate before the Tribunal while hearing the application under Section 256 (1) of the Act that any ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 11 additional evidence was considered by the Tribunal. In regard to the other questions that were sought to be referred, the Tribunal held that on a scrutiny of the Note Book, D-14 it was apparent that all the entries mentioned therein did not pertain to the receipts and several entries pertain to expenditure and therefore, it was rightly observed by the Tribunal that it was dangerous to accept the statement of the Managing Director of the Company that was initially made on 4.8.1995. The Tribunal held that it could not be said after considering the Note Book, D-14 that there was a contradiction in the statement made by the Managing Director as the subsequent statement of the Managing Director was an explanatory statement that was substantiated by the Managing Director, on the basis of the Note Book, D-14. The Tribunal has, in the order dated 21.03.1997 recorded reasons for reducing the peak deficit and quantifying the undisclosed income by referring to the material available before the Tribunal. While deciding the application under Section 256 (1) of the Act, the Tribunal came to the conclusion that the Tribunal had, while deciding the appeal of the assessee, quantified the undisclosed income after referring to the entries in the books of accounts. In the order under Section 256 (1) of the Act, while refusing to refer question no.4, the items from the peak deficit of Rs.55,52,042/- are recorded and it is observed that the Tribunal had given sufficient reasons ::: Uploaded on - 15/03/2017 ::: Downloaded on - 16/03/2017 00:23:01 ::: ita15.98.odt 12 for reducing the peak deficit. While refusing to refer the questions that were sought to be referred, after recording convincing reasons it is observed by the Tribunal that no question of law would arise for being referred to the High Court. We find on a reading of the orders of the Tribunal, dated 21.03.1997 and 10.09.1997 that the order of the Tribunal, dated 21.03.1997 is based on the material on record and no legal principles are applied, that would give rise to a question of law that would require a reference being made to the High Court. We find that the order of the Tribunal dismissing the application under Section 256 (1) of the Act is just and proper and the jurisdiction under Section 256 (2) of the Act is not exercisable in the facts of the case. The judgment reported in (2015) 375 ITR 373 (Commissioner of Income Tax-II Versus Jansampark Advertising & Marketing (P) Limited) and relied on by the counsel for the Department only reiterates the well established legal position that the Commissioner (Appeals) and the Tribunal are fact finding authorities and if the Assessing Officer fails to discharge his functions properly, there is an obligation on the said authorities to conduct appropriate enquiry on facts. We are afraid that the said decision is not relevant for the purpose of deciding this application under Section 256 (2) of the Act.
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ita15.98.odt 13 Hence, we dismiss the income tax application with no order as to costs.
JUDGE JUDGE
Wadkar &
Apte
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