Calcutta High Court
Commissioner Of Income-Tax vs Bhartia Steel Engg. Co. (P.) Ltd. on 7 January, 1986
Equivalent citations: [1986]162ITR20(CAL)
JUDGMENT Satish Chandra, C.J.
1. The assessee is a private limited company carrying on business in the manufacture and sale of iron and steel goods. In respect of the assessment year 1961-62, the assessee filed a return disclosing a loss of Rs. 1,25,450. The Income-tax Officer, however, assessed the company on an income of Rs. 2,96,417. After deducting the tax payable thereon, the distributable surplus for the purposes of Section 23A of the Indian Income-tax Act, 1922 ("the Act"), was worked out at Rs. 1,68,029. The company had not declared any dividend. The Income-tax Officer passed an appropriate order under Section 23A. The assessee went up in appeal and succeeded. The Appellate Assistant Commissioner held that the add-backs made by the Income-tax Officer were on the basis that those claimed deductions were not proved. There was no material to show that the unproved items really pertained to actual concealment of income on the part of the assessee. The assessment under Section 23A was consequently cancelled. The Revenue went up in appeal to the Tribunal but failed. At the instance of the Revenue, the Tribunal has referred the following question of law for our opinion :
" Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in confirming the order of the Appellate Assistant Commissioner cancelling the order passed under Section 23A(1) of the Indian Income-tax Act, 1922, in the case of the assessee for the assessment year 1961-62 and in dismissing the Department's appeal ?"
2. Before the Tribunal, the Department had placed reliance upon a letter dated December, 24, 1965, whereby the assessee-company had made a voluntary disclosure of Rs. 8,60,000 as undisclosed income under Section 24 of the Finance (No. 2) Act, 1965. The Tribunal held that this letter of voluntary disclosure did not contain any admission of concealment of income to sustain the order under Section 23A.
3. On a perusal of the letter dated December 24, 1965, it is clear that that the statement in paragraph 7 thereof to the following effect, namely, "That the above sum of Rs. 16,56,600 is the income from our business undisclosed up to March 31, 1964, i.e., the assessment year 1964-65", does amount to an admission that this amount was not disclosed in the returns filed by the assessee-company for the assessment years up to the year 1964-65. On this aspect, we cannot uphold the view of the Tribunal.
4. Learned counsel for the assessee has, however, invited our attention to Section 24 of the Finance (No. 2) Act, 1965. Sub-section (11) of that section provides--See [1965] 58 ITR (Statutes) 10 and 11 :
(11) Notwithstanding anything contained hereinabove or in any other law for the time being in force, nothing contained in any declaration made under this section shall be admissible as evidence against the declarant for the purpose of any assessment proceeding or any proceeding relating to imposition of penalty or for the purpose of prosecution under any of the Acts mentioned in Sub-section (9) or the Wealth-tax Act, 1957 (27 of 1957), in respect of any amount specified in an order made by the Commissioner under Sub-section (4) or, if such amount is altered by an order of the Board under Sub-section (6), then such altered amount."
5. Under this provision, nothing contained in the declaration made under this section shall be admissible in evidence against the declarant for the purpose of any assessment proceedings, etc. This letter is being utilised by the Revenue for the purpose of satisfying the court that there was an admission of concealment of income. It is, however, not admissible in evidence for the purpose of any assessment proceedings. It could not be utilised to sustain the order under Section 23A which is an assessment order. Hence, it is quite clear that reliance on this letter was not permissible. The Appellate Assistant Commissioner as well as the Tribunal have on facts found that the Revenue on whom the burden of proof lies has not established any material apart from the findings in the original assessment order that the items of claimed deductions were not proved. The Income-tax Officer held that a sum of Rs. 74,970 claimed as wastage was not proved to be so and it was hence added back. Similarly, an amount of Rs. 26,486 claimed as interest was disallowed for lack of proof. The third item of Rs. 3,72,228 consisted of cash credits and bank deposits in the name of one of the directors of the company. That was also disallowed on the ground that the source of those credits and deposits was not proved. Hence, this was not a case where the assessee might have admitted that it deliberately omitted to disclose those items in its return. It was a case where the amounts in dispute were admitted but the claim for deductions was not proved. In this situation, the decision of the Supreme Court in Gobald Motor Service (P.) Ltd. v. CIT [1966] 60 ITR 417 is not applicable.
6. There it was held that for the purpose of Section 23A, the commercial or accounting profits have to be taken into consideration to see whether a larger amount than that declared by the company could be distributed in view of the smallness of the profits made. If an item of receipt is deliberately omitted from the accounts, it cannot be said that commercial principles prevent that amount being added to the profits in order to arrive at the real commercial or accounting profits. Here, there is no question of any deliberate omission. The claimed deductions were disallowed for lack of proof. That is not the same thing as a deliberate omission from the accounts.
7. Though we are not in a position to uphold the interpretation of the voluntary disclosure letter put by the Tribunal, yet we affirm the conclusion reached by the Tribunal in confirming the order of the Appellate Assistant Commissioner. The question referred to us is, accordingly, answered in the affirmative and against the Department.
8. There will be no order as to costs.
Mukherji, J.
9. I agree.