Income Tax Appellate Tribunal - Ahmedabad
Income-Tax Officer vs Meghji Jadav And Co. on 16 June, 1986
Equivalent citations: [1986]18ITD170(AHD)
ORDER
P.S. Dhillon, Judicial Member
1. The department has preferred this appeal against the order dated 28-9-1983 of Shri Jamaluddin, AAC, Junagadh Range, Junagadh, who allowed the appeal against the order dated 16-11-1977 of ShriN.L. Udani, ITO, Ward-B, Junagadh.
2. The relevant facts in brief are that the assessee is an individual and the previous year relevant for the assessment year 1975-76 ended on Samvat year 2029-30.
2.1 During the previous year, the assessee constructed a launch, viz., 'Satyam Shivam Sundaram' and the cost of construction was shown at Rs. 3,31,533 in the books of account. The ITO made enquiries regarding the cost of construction and came to know from the assessee that the launch was insured with United India Fire & General Insurance Co. Ltd. and for insurance company, the cost of construction was shown at Rs. 3,51,000 and, accordingly, the insurance policy was taken. In the subsequent year, the launch was destroyed and, therefore, the insurance company paid Rs. 3,51,000 for the launch. From these facts, the ITO came to the conclusion that it was on account of real cost of construction of the launch at Rs. 3,51,000 and, therefore, the cost of construction shown at Rs. 3,31,533 in the books of account could not be accepted. Accordingly, he made an addition of Rs. 19,467.
2.2 In appeal, the AAC deleted the addition on the grounds and submissions of the assessee's counsel before him and in particular relying in the case of Haridas Nathubhai & Co. observing that the ITO on similar circumstances did not make any addition on account of unexplained investment for the assessment year 1977-78, the total cost of the vessel was Rs. 4,29,155 as against its insurance for Rs. 6 lakhs which showed a difference of Rs. 1,70,855 between the cost price and the insured amount of the vessel.
2.3 The revenue being aggrieved has preferred this appeal in the Tribunal.
3. Shri Harne, the learned departmental representative contends that the order of the AAC is erroneous in law and on facts of the case. Since there is evidence on record which shows that the assessee insured the launch for Rs. 3,51,000 and received it in the succeeding year, therefore, the cost of construction of which is Rs. 3,51,000. He further contends that the launch is insured with the United India Fire & General Insurance Co. Ltd. under the prescribed law and rules and the payment of Rs. 3,51,000 was made to the assessee in lieu of the launch being destroyed and, therefore, the case of the assessee is distinguishable with that of the Haridas Nathubhai & Co. relied upon by the AAC as mentioned above. He further contends that the case of Haridas Nathubhai & Co. decided by the ITO is not final as the ITO is within his power to rectify his order and moreover the decision of the ITO in this case is erroneous and as such, it has no binding effect on the ITO. Besides, such assessment cases are independent and specific and, principle of estoppel and res judicata is not applicable to the income-tax proceedings. Therefore, the order of the ITO is to be restored. He further contends that when the assessee is insuring the launch for a higher sum than that of the cost price shown in the books of account, then the books of account entries regarding the cost price could not be relied upon as these have been disproved by the admission of conduct of the assessee itself. There is no need for the department to prove that the market value of the launch is not as the assessee showed it for insurance purpose rather it is almost as is shown in the books of account by the assessee and, therefore, the AAC has committed an error in law and facts in accepting the cost of construction of the launch as shown in the books of account.
4. On the other hand, Shri Patel, the learned counsel for the assessee, contends that the books of account of the assessee has not been rejected by the ITO and, therefore, the cost of construction shown in the books of account is the market value of the launch and as such, the AAC is justified in taking it and thereby deleting the addition made by the ITO amounting to Rs. 19,467. He further contends that for the purpose of insurance the assessee has inflated the value and as such, it should not be taken as market value of the launch. He relies on the order of the AAC.
5. We have heard the rival submissions and have gone through the record before us. As it is clear from the record that the assessee showed the cost of construction of the launch at Rs.3,31,533 while for the purpose of insurance the assessee itself showed it at Rs.3,51,000. The prescribed authority for the purpose of insurance accepted it on the satisfaction of rule and law on the subject and verification as he had it for the purpose of insurance. Therefore, the value shown for the purpose of insurance by the assessee is the real value of the launch and the same is proved from the conduct of the assessee and declaration so made in the form meant for insurance purpose. Further, the insurance of the launch is made by the insurance authorities under rule and law meant for insurance purpose. Furthermore, in the succeeding year, the insurance company paid to the assessee a sum of Rs.3,51,000 as the cost of the launch and the assessee accepted it. Therefore, it cannot be held that the cost of construction of the launch is as shown by the assessee in the books of account for the assessment year under consideration since the books of account of the assessee has not been rejected by the department; because the entries in the books of account regarding it has been disproved by the conduct of the assessee and the amount paid and received by the insurance company and the assessee. Furthermore, the contention of the learned departmental representative Mr. Harne reproduced above are well founded in view of the fact that the entries in the books of account are not sacrosanct or conclusive proof of the fact so evident from the entries in the books of account. The ITO is within his power to make enquiry about the entries in the books of account and onus is on the assessee to prove these. In this case, the ITO made the enquiry and the assessee stated to him that the launch has been insured for a sum of Rs.3,51,000. Therefore, the cost of construction of the launch is proved at Rs.3,51,000 and the assessee by its conduct has proved that these are not true entries.
6. Further, the case relied upon by the AAC is distinguishable with the case of the assessee. The assessee actually received a sum of Rs. 3,51,000 just in the immediate succeeding year which is not there in the case of Haridas Nathubhai & Co. Furthermore, the case of Haridas Nathubhai & Co. has not become final and each case of assessment is specific and independent. Moreover, the principle of estoppel and res judicata is not applicable to the assessment proceedings. No doubt, it is contended that the ITO should be consistent in its approach but in this case, there is material on record which empowers him to depart, as we have mentioned above. Moreover, it is in the public interest that the citizen of India and in particular the assessees should not be allowed to inflate the value for the purpose of insurance, as the insurance companies in India are nationalised. Moreover, the assessee should not be allowed to change sides off and on and inflate the value of the goods and articles for the purpose of insurance to that for the purpose of reduction of income-tax liability on tax proceedings as the conduct of the assessee is relevant in such situation and it is not in the interest of justice that such conduct of the assessee should be overlooked and, therefore, the entries in the books of account which have not been rejected by the department should be followed to prevail though there is a documentary evidence to discard these made and furnished for the purpose of insurance. To take such a view in the case of the assessee is gross injustice and against the public interest and policy on the facts and in the circumstances of the case.
7. Thus, looking to the totality of the facts and circumstances of the case, we hold that the AAC has committed an error in law and on facts in deleting the addition of Rs.19,467. Hence, we set aside his order and restore that of the ITO as in this case the cost of construction of the launch as is shown and declared by the assessee for the purpose of insurance, i.e., Rs.3,51,000 and also revised it as mentioned above.
8. In the result, the appeal is allowed.
K.T. Thakore, Accountant Member
1. I have carefully gone through the order of my learned brother. With utmost respect, I am unable to agree with the conclusion reached by him. The facts lie in a narrow compass. The assessee, an individual, had constructed a launch named 'Satyam Shivam Sundaram' cost of which was shown at Rs.3,31,533 in the books of account. The ITO on the basis of enquiries found that the assessee had obtained an insurance from United India Fire & General Insurance Co. Ltd. for a sum of Rs.3,51,000. The said launch was destroyed and the insurance company settled the claim at Rs.3,51,000. The ITO on the basis of this fact came to the conclusion that the cost of the launch should be taken at Rs.3,51,000 and not at Rs.3,31,533 as disclosed in the books of account. In this view of the matter, he made an addition of Rs.19,467 as income in the hands of the assessee.
2. Being aggrieved, the assessee carried the matter in appeal before the AAC and contended that the insurance cover was taken against all marine risks and, therefore, the insurance cover was obtained for a sum of Rs.3,51,000. The said insurance cover took into account probable expenses which were required to be incurred during the voyage such as fuel, ration, medicines as also the loss of profit. Therefore, the insurance policy not only covers the cost but also incidental expenses. It was, therefore, claimed that the addition as income from undisclosed sources was not justified. It was also pointed out that in another case, namely, Haridas Nathubhai & Co., the ITO had accepted similar contentions and did not bring the difference between the insurance value and the cost to tax. These contentions found a favour with the AAC who deleted the said addition.
3. Being aggrieved, the revenue has come up in appeal before us and it was contended on behalf of the revenue that the said difference was rightly brought to tax as income from undisclosed sources. It was the contention on behalf of the assessee that insurance cover does not represent the cost of construction alone but also included other marine risks as well. Therefore, in absence of any other material to discredit the cost of construction shown in the books of account, the addition was not justified.
4. In my view, there is considerable force in the contention raised on behalf of the assessee. The insurance cover without more cannot ipso facto represent the. cost of construction. The fact that other marine risks which was incidental to the voyage also formed part of the insurance cover cannot be brushed aside. That apart, the assessee had shown the cost of construction in the books of account and no material is placed to show that the assessee is incurred any other expenditure over and above what was shown in the books of account. It may be that the difference between the insurance amount received at a subsequent date and the cost of construction may be chargeable as profit if the relevant conditions laid down in the Act are satisfied but this is a different aspect of the matter. In the present case, the dispute is whether cost of construction as debited in the books of account represents the correct cost of construction and whether the same could be discredited merely on the basis of the larger insurance cover obtained by the assessee. In my view, therefore, there is absolutely no justification in bringing to tax the impugned amount as unexplained cost of construction. In fact, there is absolutely no basis to make the said addition. I would, therefore, fully agree with the reasoning and the conclusion of the AAC, more so, when on identical fact a much larger amount was rightly not brought to tax by the ITO. I would, therefore, dismiss this appeal.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT Since there is a difference of opinion between us, we would, therefore, refer the following point of difference to the learned President for placing the same before the Third Member.
Whether, on the facts and in the circumstances of the case, an addition of Rs.19,467 as unexplained difference in cost of construction of the ship was justified ?
THIRD MEMBER ORDER T.D. Sugla, President
1. There has been a difference of opinion between the members who heard the appeal originally. The point of difference has been stated as under :
Whether, on the facts and in the circumstances of the case, an addition of Rs.19,467 as unexplained difference in cost of construction of the ship was justified ?
2. Briefly stated, the relevant facts are that the assessee constructed a launch known as 'Satyam Shivam Sundaram'. The cost of construction in the books of account maintained came to Rs.3,31,533. However, the assessee had insured it for a sum of Rs.3,51,000 with United India Fire & General Insurance Co. Ltd. In the subsequent year the launch was destroyed and United India Fire & General Insurance Co. Ltd. paid the assessee Rs.3,51,000. On these facts, the ITO came to the conclusion that the real cost of construction of the launch was Rs.3,51,000 and added the difference between this amount and the cost of construction shown in the books of account as Rs.19,467 as the assessee's income. The AAC has noted similar facts in another case, viz., Haridas Nathubhai & Co. and accepted the assessee's claim that there was no justification for addition of Rs.19,467 to the assessee's income.
3. The learned Judicial Member has set aside the order of the AAC and confirmed the addition of Rs.19,467 for reasons given in paragraphs 5, 6 and 7 of his order whereas the learned Accountant Member has, for reasons given in paragraph 4 of his order, upheld the order of the AAC. While the departmental representative has strongly relied on the order of the learned Judicial Member, the counsel for the assessee has relied on the order of the learned Accountant Member.
4. My attention, in particular, is invited to an order of the Tribunal in the case of ITO v. Karsan Premjibhai [IT Appeal No. 1158 (Ahd.) of 1984, dated 11-4-1985], where both the learned Members who have differed in this case, have agreed that the addition on the basis of difference between the cost of construction as per books and the amount of insurance taken is not justified. In response to a query from me. Shri K.C. Patel stated that the only difference in the two cases is that while the impugned case is represented by him, the other case was represented by 'none' for the assessee.
5. I have heard the parties and have carefully gone through the order of assessment, the order of the AAC and the differing orders of the learned Members and the order of the learned Members in the case of Karsan Premjibhai (supra). I find that the cost of construction shown by the assessee at Rs.3,31,533 is on the basis of the books of account regularly maintained. Without finding anything wrong with the accounts maintained, I do not think one would be justified to make an addition on the mere fact that insurance has been taken on the launch for Rs.3,51,000. It is common knowledge that on account of inflation and for many considerations, a person would like to insure his plant and machinery at a price slightly higher than the cost so that in the event of destruction, loss or damage, it is fully compensated. In the circumstances, I agree with the learned Accountant Member and hold that the addition is not justified.
My order will now go to the Division Bench for deciding the appeal according to the majority view.