Bombay High Court
The Commissioner Of Incometax, ... vs M/S Gwalior Distilleries Ltd., ... on 9 March, 2017
Bench: V.A. Naik
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1
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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"(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 ?"
ita15.98.odt
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
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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,
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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
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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
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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
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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.
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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
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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
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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
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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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Hence, we dismiss the income tax application with no order
as to costs.
JUDGE JUDGE
Wadkar &
Apte
