H.G. Gupta & Sons vs Commissioner Of Income Tax
1984 Latest Caselaw 38 Del

JUDGMENT

N.N. Goswamy, J.

1. The ITAT, Delhi, has, at the assessed, referred the following question of law, for the opinion of this court :

"Whether, on the facts and in the circumstances of the case, and on a proper interpretation of ss. 28(1)(c) and 34(3) of the IT Act, 1922 the assessment for the year 1953-54 dt. 27-3-1962 has been made within the time prescribed by the Statute or is barred by limitation ?"

2. The assessed is the registered firm carrying on the business as managing agents of limited companies in money-lending, share dealing, etc. For the asst. yr. 1953-54 the assessed filed return showing a loss of Rs. 1,31,553. The ITO examined the account books produced and he came to the conclusion that the total income of the assessed had to be computed at Rs. 99,980. In coming to this conclusion, he disallowed certain claims by the assessed which may be briefly adverted to here. A sum of Rs. 93,017 was claimed by the assessed as bad debts. This item comprised a numbers of claims of varying amounts against several parties. The ITO was of the opinion that these bad debts could not be allowed. In respect of some of the items, he thought the disallowance was necessary because the debt did not represent a business loan. In respect of some items, however, he found that the loan had been advanced by a concern known as Delhi Iron Syndicate and that the loan did not pertain to the assessed company's business. The second item considered by the ITO was a loss of Rs. 51,632 claimed by the assessed on account of revaluation of certain shares held by it as stock-in-trade. The ITO came to the conclusion that the shares did not represent its stock-in-trade and that aforesaid entries had been made merely to transfer to the assessed certain loosing investments of one of the partners of the assessed-firm. Thirdly, the ITO came across deposits aggregating to Rs. 12,01,123 in the balance-sheet of the assessed. He was of the opinion that in respect of a number of these depositors, whose credits came to Rs. 63,700, they could not be found at the addresses furnished by the assessed, and as such the deposits had not been proved and that the amount of these deposits should be treated as the amount of these deposits should be treated as the assessed's income from undisclosed sources. The ITO during the course of assessment also noted that this was a case to which the provisions of s. 28(1)(c) applied. Towards the end of the assessment order, he recorded as follows :

"Action under section 23(3) for furnishing inaccurate particulars of income and for concealing the particulars of income for the following reasons is taken separately :

(i) Source of the deposits of Rs. 63,700 which represents assessed's income from undisclosed sources.

(ii) Interest of Rs. 1,258 which does not represent assessed's liability under the head 'interest' had been claimed as deduction.

(iii) Loss of shares which does not represent assessed's genuine business loss has been claimed as business loss; and

(iv) Amounts which do not represent business loans have been claimed as bad debts."

In the result the total income of the assessed was determined at Rs. 99,980 by the order of the ITO, dt. 27-3-1962.

3. Against the aforesaid assessment order the assessed preferred an appeal to the AAC. The main objection taken before the AAC was that the assessment had been made after the expiry of four years from the end of the assessment year and was therefore barred by limitation. The case of the department was that the provisions of s. 28(1)(c) applied to the facts of the case and therefore the assessment year.

4. The AAC examined the contentions of the parties and analysed the additions and disallowances made by the ITO, he referred to some inquiries in respect of case credits which showed that practically all the deposits were found to be genuine but that even in one or two cases where there were some doubts about the capacity of the parties to advance the amounts, the facts of the giving of loans to the assessed had been confirmed by the concerned parties. He was of the view that the question of levying penalty for such additions was itself very much open to doubt and that therefore the provisions of s. 28(1)(c) could not apply in respect of these deposits nor could they apply in respect of interest disallowances, which was consequential to the deposits. With regard to loss of shares, the AAC was convinced after having carefully considered the matter that the transaction was not collusive and that the provisions of s. 28(1)(c) could not be applied in respect of this claim by the assessed, even if the ITO did not accept the contention of the assessed that it was a dealer in shares. Coming to the bad debts, the AAC found that the assessed was carrying on the financing business and therefore there was no question of saying that the claim of bad debt was bogus. He observed that if some of the items could not be allowed for various reasons it did not mean that claim made by the appellant was false. He, therefore, found that on the whole the provisions of s. 28(1)(c) did not apply to the facts of the case and as such the assessment was barred by time. Consequently he annulled the assessment.

5. Dissatisfied with the aforesaid order of the AAC the department went up in appeal before the Tribunal. The Tribunal considered the provisions of s. 34(3) and s. 28(1)(c) of the Act. It was of the opinion that reading these two sections harmoniously, the provisions of s. 34(3) must be considered to have prescribed the extended period of limitation in all cases where at the time of the assessment the ITO was satisfied that in the course of the proceedings under the Act the assessed deliberately furnished inaccurate particulars of his income. In other words, the extended period of limitation could be availed of in all cases where there was material to hold that the ITO was satisfied that the provisions of s. 28(1)(c) applied to a particular case. After discussing the order of the AAC, the Tribunal observed :

"To our minds all that section 34(3) requires is that at the time the Income-tax officer completes the assessment there must be material on record, on the basis of which he has been satisfied that the assessed has concealed particulars of its income or deliberately furnished inaccurate particulars of its income If it can be said that there is no material at all for arriving at such satisfaction, then perhaps, the mere recording of the satisfaction of the Income-tax Officer cannot work to the prejudice of the assessed, but where there is some material and the Income-tax Officer is satisfied that the provisions of section 28(1)(c) apply, we do think the point of limitation can be availed of by the assessed to call for appraisal of the entire assessment and for arriving at a conclusion of prima facie satisfaction different from that of the Income-tax Officer. We, therefore, think that in order to determine the question of limitation we should rather restrict ourselves to the consideration (i) whether the Income-tax officer was satisfied that section 28(1)(c) applied to the case and (ii) whether such satisfaction was arrived at on the bases of material on record or was purely illusory and bases on no material."

The Tribunal, therefore, came to the conclusion that on the facts and circumstances of the present case, the extended period of the present case, the extended period of limitation was available to the department and that the assessment was made in time. The Tribunal was not called upon to express and it did not express any conclusion on the question whether the additions and disallowances made by the ITO in the assessment were justified and restricted itself to the mere finding that the assessment ought not to have been annulled by the AAC as barred by limitation.

6. The Tribunal also expressed a prima facie view that at least some of the cash credits had not been satisfactorily proved and that in respect of some of them at least there was no the statement that they were borrowed from the parties mentioned. Similar prima facie view was also expressed in respect of the loans of shares as also in respect of the bad debts but after expressing the prima facie view, the Tribunal observed :

"We are now concerned, as we have explained, with the limited question, whether on the date of assessment and in view of the material that was before him, the Income-tax officer could show that this was a case to which the provisions of section 28(1)(c) apply i.e. whether there is a case in which the ITO was satisfied in the proceedings before the there was concealments etc. We are of the opinion that the answer to this can only be in the affirmative."

7. The assessed, being dissatisfied with the order of the Tribunal, filed an application for referring the question of law to this court and as a consequence the question already mentioned above, was referred by the Tribunal for the opinion of this court. The said reference came up for hearing before us in 1981. The contention of the ld. counsel for the assessed was that it was incumbent on the Tribunal to record its own findings regarding the applicability of s. 28(1)(c) and the Tribunal was not justified in holding that it was only on satisfaction of the ITO which was material for the application of s. 28(1)(c). For the reasons recorded in our order dt. 7-8-1981, we accepted this contention of the ld. counsel for the assessed and referred the case back to the Appellate Tribunal under sub-s. (4) or s. 66 for making such conditions to the statement of case as are necessary to enable us to answer the question properly. We further directed the Tribunal to decide the question of applicability of s. 28(1)(c) to the facts of the case on the basis of material already on record and should not admit any fresh evidence.

8. In compliance with our order the Tribunal has submitted supplementary statement of case. As we have already stated above, the ITO had found that the transaction of purchase of share in which the loss has been claimed was a collusive transaction. The Tribunal, after going through the entire evidence on record and after depicting the true financial position of the companies of which the shares were purchased by the assessed company came to the conclusion that the five companies mentioned in para 3 of the supplementary statement of case, were practically the dead companies on the date when the shares were purchased by the assessed company. The Tribunal has further found that the deal was between the assessed firm and its managing partner, and was therefore, not at arm's length but was clearly a collusive one by which Hans Raj Gupta passed on his loss in the shares of these firms which were admittedly losing concerns to the assessed firm in which his two sons were partners with him and fourth partner was Smt. Bhagwati Devi with -/4-/ share. The Tribunal has also recorded a finding to the effect that the assessed is not dealer in shares and the shares were not being dealt with at the stock exchange and as such they could not, therefore, be purchases as a stock-in-trade but could only be as an investment. The balance sheets of the assessed firm also disclosed that the shares were purchased as investments and not as stock-in-trade. In view of these findings, the Tribunal has come to the conclusion that the assessed has deliberately furnished false and inaccurate particulars in respect of these shares. The loss was not incurred due to sale of shares but on the ground that the shares had no value or little value on 31-3-1953. Therefore, the Tribunal is right in coming to the conclusion that such a loss could not be claimed when the shares were purchased as investments and not as stock-in-trade. As regards the deposits, the Tribunal has, after considering the reasons, recorded by the ITO, come to a conclusion that the ITO had rightly held the income of Rs. 63,700 to be from the undisclosed sources. The Tribunal has further come to the conclusion that the claim of interest was certainly not incidental to the deposit which was claimed as interest on non-genuine loans, which have been treated as the assessed's income from the undisclosed sources. The findings of the Tribunal are based on material and are findings of fact.

9. The contention of the ld. counsel for the petitioner was that it was incumbent on the ITO to record reasons within the period of limitation to the effect that s. 28(1)(c) was applicable. This argument, if accepted, would lead us to rewrite section is the Act. A plain reading of s. 34(3) shows that the ordinary period of four years for assessment would not be applicable in cases where clause (c) of sub-s. (1) of s. 28 was applicable. The section no where makes it mandatory that the ITO had good reasons to be of the view that the assessed had concealed the particulars of his income or deliberately furnished inaccurate particulars of such income and if answer to this question is in the affirmative, there is no further requirement for the ITO to record any reasons.

10. The only other contention of the ld. counsel for the petitioner was that on facts no penalty could be levied and therefore the assessment could not have been made after the expiry of the ordinary period of four years. The question as to whether any penalty could be levied is different from the question as to whether the assessed is one to whom the provisions of s. 28(1)(c) would apply. In this case, we are concerned with the earlier stage of assessment itself and all that has to be seen is whether the provisions of s. 28(1)(c) apply or not. The Tribunal has rightly not expressed any opinion on the question whether the imposition of penalty ultimately would be justified or not.

11. For the reasons recorded above, our answer to the question referred, is in the affirmative i.e. in favor of the department and against the assessed. The department will be entitled to its costs. Counsel's fee Rs. 250.