Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income Tax vs M. V. Nagaraja. on 21 August, 1998
Equivalent citations: [1999]70ITD318(BANG)
ORDER
Mrs. P.K. Ammini, J.M.
1. The appeals are by the Revenue and they relate to the asst. yrs. 1986-87 and 1987-88. As common issues are involved in these appeals, for the sake of convenience, they are being disposed of by a consolidated order.
2. There are two common grounds to be decided in these appeals. However, at the time of hearing, the learned Departmental Representative submitted that the first ground is not pressed. Therefore, we dismiss the first ground as not pressed.
3. The remaining common ground to be decided is to the effect :
"The CIT(A) ought to have considered the fact that the assessee himself has accepted that there was a business and that he earned income. He has further stated that the business is of undisclosed nature. The business income admitted for 1988-89 was Rs. 60,000 for six months. On the same proportion, the income for earlier years was estimated as the assessee had treated Rs. 6,40,000 as business capital for 1988-89."
4. The facts germane to the above issue are that the assessee is an individual. On 2nd October, 1987 at the Sahar International Airport in Mumbai he was found to be in possession of Rs. 7 lakhs. The Air Intelligence Unit of Customs (ATUC, for short, hereinafter) intercepted the assessee on his arrival from Bangalore and was questioned about the source of the cash of Rs. 7 lakhs. Not being satisfied with the explanation, the ATUC referred the matter to the IT authorities in Mumbai and an Asstt. Director of IT (Inv.) (hereinafter referred to as ADI, for short) was empowered by a necessary warrant under s. 132A of the IT Act to initiate necessary proceedings against the assessee. Being not fully satisfied with the explanation offered, the ADI seized the cash of Rs. 7 lakhs after completing formalities. Besides, a statement on oath was also recorded on the same day at the airport. In answer to question No. 3, the assessee had stated to have earned an income of Rs. 1,08,000 each from business during the periods relevant for the asst. yrs. 1986-87 and 1987-88 and that the same was not disclosed to the Department. The assessee also did not file returns of income subsequent to the above admission of earning income from business. The assessee was asked to show cause why the admitted income should not be added to his income already declared for the two years under consideration. The assessee's learned representative, by way of letters dt. 20th September, 1988 and 18th October, 1988, objecting to the addition, stated that the statement recorded on 2nd October, 1987 from the assessee was not a valid statement. The following reasons were cited :
(a) The statement did not specify the section under which it was recorded,
(b) even if it was a statement recorded under s. 131 it could not have been recorded in the airport by the ADI, and
(c) since the action taken (against) the assessee was under s. 132A of the IT Act, the statement could not be deemed to have been recorded under s. 132(4) of the IT Act.
5. The above objections were refuted by the AO as under :
"(a) It is true that the statement in reference recorded on 2nd October, 1987 does not indicate the section under which it was recorded. It is only a question of procedure. However in substance the assessee has given a statement voluntarily which was correctly recorded, as certified and signed by the assessee himself. In any case the assessee is expected to speak the truth whether or not under the oath. Therefore there is only a thin line between a statement under s. 131/132(4) and a statement given otherwise.
(b) The other contention is that the Asstt. Director of Income-tax (Inv.) was not a mobile Court and he was not supposed to record a statement at the Sahar Airport, Bombay is not at all acceptable. An AO or an Asstt. Director of Income-tax, in exercise of his powers under s. 131 of the IT Act can also record a statement outside his office chamber is a settled matter. Therefore this does not deserve further attention.
(c) It is true that a statement on oath cannot be recorded under s. 132A of the IT Act but it is already pointed out that the fact of non-specifying the section cannot convert a true statement into a false statement. The substance and the spirit of a statement given by a person before the taxing authorities, vested with quasi-judicial powers has to be correctly appreciated even if such a statement is devoid of the external trappings called procedures. It appears that the s. 292B of the IT Act does envisage such situations. As per the provisions of the s. 292B of the IT Act no proceedings are invalid, if such proceedings are in substance and effect in conformity with or according to the intent and purpose of the Act. Therefore, merely by reason of a procedural error, the proceedings under the Act cannot be said to be invalid."
6. Another objection of the assessee was that there was no evidence to show that he had in fact earned an income of Rs. 1,08,000 from business. To this the AO pointed out that it was the assessee who had stated that he had earned such an income and the onus of proof did not lie on the Department to prove it otherwise. According to him, the onus of proof lay on the assessee to prove that the admitted income was never earned. The explanation of the assessee regarding the source for Rs. 7 lakhs was not satisfactory. In the return of income filed by the assessee subsequent to the seizure, for the asst. yr. 1988-89, it was stated that the sum of Rs. 7 lakhs represented the business capital and the business income earned during the financial year 1987-88. It was also stated that the business was of an undisclosed nature and the sources of capital were not verifiable. In the view of the AO the person who had earned Rs. 7 lakhs during the financial year 1987-88 could have earned a sum of Rs. 1,08,000 each during the financial years 1985-86 and 1986-87. He also noticed that in the asst. yr. 1988-89, the assessee had offered a sum of Rs. 6,40,000 as unexplained investment under s. 69 of the Act. The contention of the assessee that out of Rs. 7 lakhs seized a sum of Rs. 6,40,000 represented unexplained investment was not acceptable to the AO. According to the AO, even assuming that the assessee had really invested Rs. 6,40,000 in an undisclosed business, his own admission of having earned Rs. 1,08,000 during the previous years relevant to the assessment years under consideration was quite plausible and self-explanatory. For the above reasons, he concluded that the assessee must have earned an income of Rs. 1,08,000 each during the years under consideration. He, therefore, included a sum of Rs. 1,08,000 each in the assessments of the assessee for the two years under consideration.
7. Aggrieved by the above additions, the assessee appealed to the CIT(A). The validity of the statement recorded by the ADI was also challenged. The CIT(A) passed a consolidated order for these two years and also for the asst. yr. 1988-89. The contentions raised before the AO were reiterated before the CIT(A). The CIT(A) found that the only reason for the AO to include the amounts of Rs. 1,08,000 each in the two years under consideration was the statement of the assessee recorded on 2nd October, 1987 indicating the above amounts as his likely business income. He found that none of the other papers seized from the possession of the assessee ever showed any indication of a business having been carried on. Most of the papers pertained only to purchase of the properties. According to the CIT(A), when the entire question of whether a business, was carried on or not, and if so, what the nature of business and how much income could have been earned from such business, revolved only on a single statement made by the assessee, it was necessary to determine whether such a statement was at all a valid statement for the purpose of law. In the view of the CIT(A), a statement under s. 132(4) could be recorded only during the course of a search under s. 132 and such a statement could not be recorded during the course of a seizure made under s. 132A and, in fact, there was a specific exclusion in terms of s. 132A(3).
8. Further, for a statement to be recorded under s. 131, the person questioned would have to appear either as an assessee or as a witness and the assessee was clearly not asked to appear either as an assessee or as a witness. According to the CIT(A), therefore, the ADI who recorded the statement had no jurisdiction to record a statement under s. 131, as he was neither the AO nor had he been issued with a commission by the AO to record such a statement. In fact, the statement, in the opinion of the CIT(A), did not purport to be a statement either under s. 131 or under s. 132(4) but a statement in terms of s. 132A. The CIT(A) also considered whether by s. 292B would have any application. According to him, by s. 292B was a section that prevented the invalidation of a proceeding on account of technical errors of notice, etc. and there was no technical error at all whatsoever in the present case. The error here was jurisdictional and went to the very root of the matter and the ADI had no powers to record any statement from the assessee when he was proceeding under s. 132A. For the above reasons, he concluded that the statement recorded was not valid. Lastly, he observed that the assessee, during the years in question, was an employee of a public sector undertaking and pursuit of any no business giving rise to such large income was certainly prohibited. He also observed that the CBI had also conducted searches on the assessee a few months earlier and the proceedings were closed and the assessee was allowed to resign. This, according to the CIT(A), was an additional indication that no investigating agency had ever found that the assessee had carried on any business. He also found that for the asst. yr. 1988-89, where the assessee had claimed to have conducted business and offered Rs. 60,000 as gross income therefrom, the ITO had come to the view that the assessee never carried on any business. For the above reasons, the CIT(A) deleted the business income assessed of Rs. 1,08,000 each for asst. yrs. 1986-87 and 1987-88. Hence these appeals by the Revenue.
9. The learned Departmental Representative attacked the order of the CIT(A). He filed an argument note wherein it is stated that the assessee gave a voluntary statement. The assessee has not alleged any coercion at the time of recording of the statement. The statement was correctly recorded. It has been certified as correct and signed by the assessee. The assessment was made on the basis of this statement. He contended that the plea of the assessee that the statement recorded by the ADI is ab initio void cannot be accepted. It is the case of the assessee that in the heading of the statement it is written "statement recorded during proceedings under s. 132A" and no statement can be recorded during such proceedings. Further, the statement does not indicate the section under which it was recorded. According to the learned Departmental Representative this is only a question of procedure and only because of this a true statement cannot be converted into a false statement. It is contended that the substance and the spirit of a statement given by a person before the taxing authorities, vested with quasi-judicial powers, has to be correctly appreciated even if such a statement is devoid of the external trappings called procedures. As per s. 292B, no proceedings are invalid, if such proceedings are in substance and in effect in conformity with or according to the intent and purpose of the Act. For this purpose, the learned Departmental Representative placed reliance on the following case laws :
(i) L. Hazari Mal Kuthiala vs. ITO (1961) 41 ITR 12 (SC);
(ii) R. P. Kandaswami & Ors. vs. CIT (1963) 49 ITR 344 (Mad); and
(iii) CIT vs. Hargopal Bhalla & Sons (1971) 82 ITR 243 (P&H).
10. The learned Departmental Representative also contended that even though no oath was administered at the time of recording the statement still the material furnished is good material. In support, he placed reliance on the decision of the Assam High Court in the case of Chowkchand Balabux vs. CIT (1961) 41 ITR 465 (Assam). The learned Departmental Representative contended that the argument of the assessee that the ADI cannot record statement outside his office chambers cannot survive as it is a settled matter that the AO or ADI, in exercise of his powers under s. 131 can also record a statement outside his office chambers. He contended that the ADI has got power to record statement as evident from s. 131(1A). The learned Departmental Representative also placed reliance on the decision of the Kerala High Court in the case of V. Kunhambu & Sons vs. CIT (1996) 219 ITR 235 (Ker), wherein it is held that assessment on the basis of voluntary statement is valid unless coercion is proved. In this case, there is no allegation of coercion at all. In the statement, the assessee admitted that he earned income of Rs. 1,08,000 in each of the two years. It is also contended that the income from business not disclosed to Department is entirely in the knowledge of the assessee. Hence, his admission was taken as true. Subsequently, during the assessment proceedings, he retracted from his original statement, without the support of any evidence. It is contended by the learned Departmental Representative that the onus is on the assessee to prove that whatever he stated originally was wrong. This, the assessee has failed to do. He placed reliance on the decision of the Supreme Court in the case of CIT vs. Durga Prasad More (1971) 82 ITR 540 (SC). The CIT(A), it is contended, erred in deleting the addition observing that no attempt had been made by the AO or the ADI to show the existence of a business yielding income of Rs. 1,08,000. He drew our attention to the letter of the assessee dt. 30th July, 1988 enclosed to the return of income for asst. yr. 1988-89 wherein it is stated "business was of an undisclosed nature and source of capital were not verifiable". It is contended that the assessee is not right in claiming, on the one hand, that business done was of undisclosed nature and, on the other hand, asking the Department to show evidence that he did business. He contended that the deletion of the addition by the CIT(A) is not justified and prayed for restoration of the orders of assessment for the two years under appeal.
11. On the other hand, the learned counsel for the assessee contended that the statement recorded by the ADI is not valid, as he has not quoted the section under which the statement is recorded. Further, it is contended that the assessee has not carried on any business much less earning an income of Rs. 1,08,000 for the two years under consideration. He filed a copy of the assessment order for the asst. yr. 1988-89 wherein the AO has himself stated that the assessee had not carried on any business. He justified the deletion of the addition by the CIT(A).
12. We have heard the rival submissions. The first question to be decided is whether the ADI is competent to record the statement of the (sic-assessee) during the proceedings under s. 132A. It is true that the ADI has not quoted any section under which the statement was recorded. The statement is given by the assessee voluntarily on his own. The assessee has not alleged any coercion during the proceedings under s. 132A when the statement was recorded from him. It is the contention of the Revenue that the ADI is competent to record a statement under s. 131(1A). It is also the case of the Revenue that even if the section under which the statement is recorded is not quoted, it can be regularised by invoking by s. 292B. The case laws cited by the learned Departmental Representative support the case of the Revenue.
(i) In the case of L. Hazari Mal Kuthiala (supra), the Hon'ble Supreme Court held as under :
"... the exercise of a power would be referable to a jurisdiction which conferred validity upon it and not to a jurisdiction under which it would be nugatory; and the order of the CIT was not invalid merely because it was not made under the Patiala Act."
"... the failure of the CIT to consult the Central Board of Revenue did not render his order invalid since the provision about consultation in s. 5(5) of the Patiala Act was merely directory."
"... the provisions of s. 5(7A) of the Patiala Act were to be read as not prejudicing the general powers granted by s. 5(5) and vice versa."
"... therefore, the CIT's order was valid and the Officer at Ambala had jurisdiction to assess the firm."
(ii) In the case of R. P. Kandaswami (supra) the Madras High Court has held as under at p. 349 :
"... We do not think that the assessment should be held to be invalid by reason of the fact that the ITO purported to act under s. 34 as well. It is now well-settled that the jurisdiction of any Tribunal does not depend upon the wrong provisions of law upon which the Tribunal might have purported to act, but upon the question whether the Tribunal had jurisdiction on a proper view of the functions and powers with which it is clothed under the law or the statute creating it. In other words, the Tribunal will not lose its jurisdiction which it undoubtedly has in a particular case because of its having misquoted the provisions of law under which it exercised the jurisdiction."
(iii) The Punjab & Haryana High Court in the decision in the case of Hargopal Bhalla & Sons (supra) held as follows :
"A wrong reference to the power under which an order is made does not per se vitiate the order if there is some other power under which the order could lawfully be made. The validity of the impugned order has to be tested by reference to the question whether the ITO had any power at all to make an order of that nature. If the power is otherwise established, the fact that the source of the power has been incorrectly described would not make the order invalid.
The provisions of s. 23(3) of the 1922 Act are in pari materia with the provisions of s. 143(3) of the 1961 Act and deal with the same subject-matter, that is, assessment. There is a slight difference in the language but the purport of the provisions in both the Acts is the same. An order of the ITO passed under s. 143(3) of the Act of 1961 could, therefore, be legitimately held to have been passed in exercise of the powers vested in the ITO under s. 23(3) of the 1922 Act. Penalty proceedings based on such an assessment order would also be valid."
It is the contention of the learned Departmental Representative that the assessee has given a statement voluntarily and stated that he got business income from a business of undisclosed nature. Hence, the statement recorded by the ADI has to be held to be valid.
(iv) The Assam High Court in the case of Chowkchand Balabux (supra) has held that the provisions of s. 37 of the IT Act only empowered, and did not lay down an obligation, on the ITO to administer oath when examining persons appearing before him and that the statements recorded by the ITO without administering an oath to the persons attending was good material and admissible in income-tax proceedings.
(v) The Kerala High Court has held as under, in the case of V. Kunhambu & Sons (supra) :
"The Explanation to s. 132 of the IT Act, 1961, inserted w.e.f. 1st April, 1989, seeks to clarify the necessary import of the main provision contained in sub-s. (4) of s. 132 of the Act. It does not change the substantive provision of the Act; nor does it lay down a different method of using the statement recorded under sub-s. (4) of s. 132 of the Act. It permits interrogation of persons not only in relation to the books of account, etc. found as a result of the search but also on any other matter relevant for any proceeding under this Act."
13. It is the argument of the learned Departmental Representative that the statement recorded by the ADI has to be held to be valid. The fact is that the assessee was interrogated at the airport on 2nd October, 1987. A statement was recorded from him by the ADI. It is to be seen whether the ADI is competent to record statement under s. 131(1A). The section reads as follows :
"If the Asstt. Director of Inspection has reason to suspect that any income has been concealed, or is likely to be concealed, by any person or class of persons, within his jurisdiction, then, for the purpose of making any enquiry or investigation relating thereto, it shall be competent for him to exercise the powers conferred under sub-s. (1) on the IT authorities referred to in that sub-section, notwithstanding that no proceedings with respect to such person or class of persons are pending before him or any other IT authority."
14. In this case, admittedly, the assessee was found to be in possession of Rs. 7 lakhs when he was intercepted by the Customs authorities at the Sahar Airport at Mumbai on 2nd October, 1987. The Customs authorities found that there was no violation of customs rules. Therefore, the assessee was handover to the IT authorities. The ADI was also given powers to investigate the matter and he questioned the assessee. He also took possession of the sum of Rs. 7 lakhs. During the course of the enquiry the ADI recorded statement of the assessee. But he did not specify the section under which the statement was recorded. In our opinion, though the ADI has not recorded the section under which the statement of the assessee was recorded, it will not invalidate the statement recorded during the course of the proceedings under s. 132A. The ADI is competent to record the statement under s. 131(1A). The authorities cited by the learned Departmental Representative which we have perused support the above view. Therefore, we reject the contention of the assessee that the statement recorded on 2nd October, 1987 by the ADI is not valid. On this technical ground, the Department succeeds.
15. The next question to be decided is whether the assessee has carried on any business during the course of the assessment years under consideration giving rise to an income of Rs. 1,08,000 each. The AO has computed the income from business only on the basis of the answer given by the assessee to a question put to him during the recording of the statement on 2nd October, 1987 at the airport. The assessee has stated, in answer to that particular question, that he has earned an income of Rs. 1,08,000 each from the business during the period relevant to the asst. yrs. 1986-87 and 1987-88. On the strength of the above admission of the assessee, the AO held that the assessee had earned an income of Rs. 1,08,000 each for the two years under consideration and that the same was not disclosed. The assessee also did not file revised returns for the two years subsequent to admission of earning the income from business. It is the contention of the assessee that he has not carried on any business during the years in question. It is pertinent to note that though the assessee disclosed an income of Rs. 6,40,000 for the asst. yr. 1988-89 from business, the AO held that the assessee did not carry on any business and the amount of Rs. 7 lakhs was held to be income from undisclosed sources under s. 69A. The assessee appealed and the CIT(A) confirmed the assessment order treating the amount of Rs. 7 lakhs as hit by the provisions of s. 69A. In our opinion, though the assessee gave a statement before the ADI during the investigation under s. 132A stating that he has earned a business income of Rs. 1,08,000 each during the two years under consideration, the Department has not pursued the matter any further. The assessee also did not file revised returns. Further, it has come out in evidence that the assessee was an employee of a public sector undertaking till 31st March, 1987. Being an employee of a public sector undertaking the assessee could not have carried on any business. It has also to be noted that the CBI has also conducted searches on the assessee and the proceedings were closed without any finding against the assessee. Over and above, though the assessee claimed to have returned an income of Rs. 60,000 from business for the asst. yr. 1988-89, the AO has stated that there is no evidence that the assessee had carried any business. In the order of assessment, it is specifically stated that the assessee has not been able to furnish necessary evidence in this regard and the expenditure claimed under the head 'business' was not allowed. It is also important to note that the assessee, in answer to certain questions, has stated that he has not earned any income from business so far but, in answer to certain other question, forming part of the same statement, he has stated that he has done business between August, 1987 and October, 1987. Thus, it is evident that the assessee has given contradictory statements. As stated earlier, the assessee has returned an income of Rs. 60,000 from business for the asst. yr. 1988-89 and the AO has pointed out that the assessee has not been able to furnish any details or evidence thereon. From this, it is clear that the Department has not accepted that the assessee has carried on any business during the accounting periods relevant to the assessment years under consideration and also that he has earned any income from business. Again, it is important to note that the Department did not press ground No. 1 taken in the grounds of appeal which is in the following terms :
"The CIT(A) erred in observing that for the asst. yr. 1988-89 where the assessee had claimed to have conducted business and offered Rs. 60,000 as gross income therefrom, the AO was right in coming to the view that the assessee never carried on any business whatsoever."
16. This would also show that the Department has accepted that the assessee has not carried on any business and earned any income during the asst. yr. 1988-89. When that is the position, the Department now cannot contend that the assessee has carried on business during the assessment years under consideration and that he has earned an income of Rs. 1,08,000 each. Therefore, we hold that the CIT(A) is justified in deleting the additions of Rs. 1,08,000 for the asst. yrs. 1986-87 and 1987-88. We uphold his order in this regard.
17. In the result, the appeals filed by the Revenue are allowed in part.