Import Export Sales Corporation vs Commissioner Of Income-Tax, New ...
1983 Latest Caselaw 352 Del

JUDGMENT

Chadha, J.

1. This reference under s. 256(1) of the I.T. Act, 1961 (hereinafter referred to as "the Act"), at the instance of the assessed poses the following question :

"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in disturbing the estimate made by the AAC by an order dated August 10, 1972, passed in pursuance of the Tribunal's order dated July 18, 1970, in I.T.A. No. 1915/1968-69 of the amount available, as at the end of October 12, 1962, out of the intangible additions made in the assesseds firm's asessment for the assessment year 1961-62 ?"

2. The assessed is a firm of wholesale dealers in paper. Its head office is in Delhi and it has a branch in Calcutta. It has also a factory at Bahadurgarh run since June 15, 1969, under the style of Hanuman Paper Company, where coloring and glazing of paper is done. The assessed introduced in the books of account of the Calcutta branch relevant to the assessment year 1965-66, four different amounts totalling Rs. 45,000. The assessed had claimed the amounts to be genuine items of loan. The claim was, however, rejected by the ITO, according to whom, the parties were mere namelenders. The assessed contested the additions of Rs. 45,000 in an appeal to the AAC. The alternative plea raised was that the deposits should be taken as covered by the intangible additions made for the assessment year 1961-62. The AAC accepted the alternative plea and deleted Rs. 45,000 as covered by the intangible additions made for the assessment year 1961-62.

3. Aggrieved with the AAC's order deleting Rs. 45,000 from the income assessed for the assessment year 1965-66, the ITO went in appeal to the Income-tax Appellate Tribunal (for short called the "Tribunal"). The Tribunal observed at the outset that the AAC had not been correct in taking into consideration Rs. 70,000 added to the trading account of the Hanuman Paper Company, as one of the items of intangible addition available to the assessed. They then proceeded to consider whether, and to what extent, the unexplained deposits of Rs. 45,000 occurring in the assessed firm's Calcutta books pertaining to the assessment year 1965-66 could be said to be covered by the items of intangible addition made in the firm's assessment for the year 1961-62 The Tribunal held that any assessment of the unexplained deposits against the intangible additions made for the assessment year 1961-62 would have to be made within the four corners of the Income-tax Appellate Tribunal's order dated July 18, 1970, in I.T.A. No. 1915 (DEL) /1968-69, whereby they had remanded to the AAC the appeal filed by the ITO against its income-tax assessment for the assessment year 1963-64, involving the addition of Rs. 25,000 introduced on October 12, 1962, in the name of M/s. Daluram Gagan Mull. On this basis, they found that the maximum amount of the intangible additions made in the past years which could legitimately have been expected to remain with the assessed at the end of October 12, 1962, was Rs. 5,774 and not Rs. 58,202 as held by the AAC in his order dated August 10, 1972. Taking into account certain other amounts which could have been drawn on by the assessed for the purpose of the deposits aggregating to Rs. 45,000, they held further that Rs. 19,000 on an aggregate may have been available. Accordingly, they set aside the order of the AAC and restored the addition of uncovered balance of Rs. 26,000 as the assessed's income from undisclosed sources.

4. The AAC in his order dated August 10, 1972, had worked out a figure of Rs. 58,202. The question is whether the Tribunal was justified in disturbing the finding of the AAC that the assessed's available cash balance as at the end of October 12, 1962, out of the intangible additions made in the firm's assessment for the assessment year 1961-62 was Rs. 58,202. The Tribunal addressed itself to the rival contentions put forward by the assessed and the Department as to whether the addition of Rs. 25,000 representing an alleged loan from M/s. Daluram Gagan Mull for the assessment year 1963-64 and Rs. 45,000 representing alleged loans from M/s. Daluram Gagan Mull and M/s. Sureka Jute Company for the assessment year 1965-66 could have been sustained in the background of substantially larger additions made, on an agreed basis, in the firm's assessment for the assessment year 1961-62. Earlier, three different AAC's had gone into this question and came to the finding that even though the assessed firm had failed to prove that the alleged loans of Rs. 25,000 and Rs. 45,000 considered in the firm's assessments for the assessment years 1963-64 and 1965-66 respectively had actually come from these two parties and the amounts could be legitimately treated as the firm's own money, no addition to cover the amounts of unexplained cash credit for these two years would be justified in view of the additions in the firm's assessment for the assessment year 1961-62.

5. The matter had come up for consideration before the Tribunal in connection with an appeal filed by the ITO against the AAC's order deleting Rs. 25,000 from the total income for the assessment year 1963-64. The Tribunal remanded the case to the AAC by an order dated July 18, 1970 in I.T.A. No. 1915 (DEL)/1968-69. Their observations and directions regarding the various issues considered by them are reproduced below :

"Issue No. 1 : Whether the additions made for the assessment year 1961-62 on account of cash credits and interest can be held to have been available for reinvestment in the accounts for the assessment year 1963-64. The Tribunal observed, 'it could be said that this sum was available with the assessed provided it is shown that the entire sum added back in the year 1961-62 was withdrawn in the assessment year 1962-63 and was so available with the assessed for introduction'. They further recorded in this respect, 'we are asked to presume this factual position. No details were filed.'

Issue No. 2 : Whether the addition of Rs. 70,000 made in the trading account of the Bahadurgarh set, not because of inadequacy of gross profits but for pledging of stocks with the bank in excess of declared stocks, could be available for reintroduction in later years. They observed, 'It cannot be presumed that the addition represented by the sum was available with the assessed in the shape of cash for introduction unless it is shown that those stocks were converted into cash at some point of time earlier to the introduction of cash.... if really the stocks were disposed of by the assessed before the credit was introduced a presumption can be raised in favor of the assessed that money was available for the reintroduction". Accordingly, they set aside the order of the AAC in so far as this point (sic) of time the excess stock pledge with the bank was disposed of and whether the assessed could be credited with the sale proceeds of that sum so that the credit of Rs. 25,000/- could be referred to it. They further directed the AAC to 'consider whether the assessed had in any manner invested that money'."

6. In pursuance of the directions and observations of the Tribunal, the AAC made further enquiries and passed an order dated August 10, 1972, in Appeal No. 1039/1971-72 repeating the deletion of Rs. 25,000 from the total income for the assessment year 1963-64. The AAC recorded his findings regarding the issues on which the Tribunal has issued directions. We are not referring to the various calculations made by the AAC. The AAC found that the assessed had converted a part of its undisclosed stock into cash. The total cash in hand on October 12, 1962, was calculated by the AAC. The AAC then found that during the cash introduction of Rs. 25,000 on October 12, 1962, some balance was available. The balance available was determined by him at Rs. 58,202 as at the close of October 12, 1962.

7. The Tribunal in the appeal from which this reference has arisen rightly came to the conclusion that the AAC was not justified in determining the intangible additions represented by the additions of Rs. 70,000 to the trading account for the assessment year 1961-62 and then holding it as available for later cash introduction. The Tribunal had specifically directed, on July 18, 1970, the AAC to confine himself to the value of undisclosed stock actually sold. He was to verify at what point of time the excess stock pledge with the bank was disposed of and whether the assessed could be credited with the sale proceeds of that sum so that the credit of Rs. 25,000 could be referred to it. There was no direction by the Tribunal to the AAC to determine the availability of the intangible additions for later cash introduction.

8. Apart from it the Tribunal went into the accounts. According to it the maximum amount of cash that could possibly have been held as available at the end of October 12, 1962, was detailed below :

                                            Rs.              Rs.
"Cash credits added and
interest disallowed in the
assessment year 1961-62.              1,11,600
Less : - Unexplained cash
credit set off in the assessment
year 1962-63 :                        1,05,000
                                     ---------
Surplus on 12-10-62 ?                                     6,600
Add : - Interest relating to

 3-7-62 :                                1,630
20-9-62 :                                1,688            4,121
                                        ------
Add : - Proceeds of sales
out of concealed stock
 7-10-62 :                              13,485
10-10-62 :                               6,528           20,013
                                        ------           ------
                                                         20,734
Deduct :
Cash introduction on
12-10-62. In the name of M/s.
Daluram Gagan Mull                                       25,000
Maximum cash available at
the end of 12-10-62 out of the
additions made for the
assessment year 1961-62                                  5,774
against                                                  58,202

worked out by the
Appellate Assistant
Commissioner in his
order dated 10-8-72." 
 

9. The law is settled that when an intangible addition is made during assessment proceedings, it is on the basis that the amount represented by that addition constitutes undisclosed income of the assessed. That income, although commonly described as intangible, is as much a part of his real income as that disclosed by his account books. It has the same concrete existence. In the case before us, the addition of Rs. 70,000 in the assessment year 1961-62 was made in the trading account of the Bahadurgarh set, not because of inadequacy of the gross profits but for the pledging of stocks with the bank in excess of the declared stocks. The question was whether the addition could be available for reintroduction in later years. This was precisely the question for the assessment year 1963-64. The AAC for the assessment year 1963-64 had considered that the assessed had converted a part of its undisclosed stock into cash and that during the cash introduction of Rs. 25,000 as on October 12, 1962, the intangible additions made in the assessment year 1961-62 were available. The AAC's jurisdiction was circumscribed to consider the cash introduction of Rs. 25,000. He had no power to pronounce upon the question or determination of the balance of Rs. 58,202 as at the close of October 12, 1962.

10. The assessed had claimed the amount of Rs. 45,000 to be genuine items of loans, three of which had been received by cheques from the concerned parties. The assessed at the time of hearing of the appeal before the AAC raised the alternative plea that the deposits, if held to be the assessed's own money in benami, should be taken as covered by past intangible additions made for the year 1961-62. It was necessary that an explanation was then given by the assessed regarding the nature of the source of the cash credit. The explanation could not have been by a mere legal argument advanced before the AAC. The assessed had not given any statement on affidavit that this sum was out of the intangible additions of 1961-62. The assessed had not placed on record any material showing that the stocks were converted into cash. The assessed had failed to explain that the amounts, namely the cash credits, came out of the intangible additions made to the assessed's income in the earlier assessment year.

11. Apart from it, the Tribunal went into the accounts itself and found that only a part of the amount was available out of the intangible additions. The questions of fact are for the Tribunal to decide and this court cannot go behind the findings of fact recorded by the Tribunal.

12. Accordingly, we answer the reference against the assessed and in favor of the Revenue with no order as to costs.