Income Tax Appellate Tribunal - Ahmedabad
Rajmoti Industries vs Income-Tax Officer on 30 November, 1994
Equivalent citations: [1995]52ITD286(AHD)
ORDER
Abdul Razack, Judicial Member
1. The assessee in the second appeal has taken 24 grounds assailing the order of the Assellate Commissioner (A/c.) for the assessment year 1982-83. While grounds 1 to 18 relate to the grievance regarding confirmation of addition towards loan (cash credits) aggregating to Rs. 4,34,400 taken by the assessee from different persons and Rs. 35,000 being interest on such loans totalling to Rs. 4,69,400. The remaining grounds dispute the confirmation of varying amounts under different heads but the challenge is very serious as regards loan and we shall, therefore, deal with the same first by narrating the connected facts but in brief.
2. The assessee borrowed loans from seventeen different persons aggregating to Rs. 4, 34, 400, some through cheques, some by means of bank demand drafts and some petty amounts in cash also. The details can be found at pages 3 and 4 of the assessment order. The loans are recorded in the account books of the assessee which have been maintained by it on mercantile basis as is recorded by the Assessing Officer (AO) in the assessment order. A return was filed on 29th June, 1982 declaring loss of Rs. 2, 99, 486. The Assessing Officer issued letter dated 13-11-1984 to the assessee demanding proof of capital and cash credits (loan) appearing in the account books of the assessee. The case was fixed on 30th November, 1984 for this purpose. This letter was served on the assessee on 15-11-1984. As no proof was advanced on 30-11-1984 the case was adjourned and reported to 3-12-1984 and then again to 5-12-1984. Further time was given by the Assessing Officer till 10-12-1984 for production of evidence but there was no response from the assessee on that date. The Assessing Officer addressed another letter on 15-1-1985 which was served on the assessee on 16-1-1985 demanding proof within five days i. e. by 21-1-1985. The Assessing Officer says that there was no appearance nor any petition for adjournment on that date. However, a letter was filed on 24-1-1985 giving some information by the assessee's advocate but not regarding loans. In the said letter it was stated as under:
Contra A/cs. are called for. Whatever we have received are enclosed. Rest will be submitted as soon as received.
On 28-3-1985 the Assessing Officer states in his order at page 5 that Mr.. Sanghavi, advocate, assessee's AR appeared and filed some proof. Since the assessment was getting barred by time the Assessing Officer did not refix the case nor gave any further time to enable the assessee to file the required information and evidence relating to loan and the assessment was finalised on 29-3-1985 adding the loans of Rs. 4, 34, 400 plus Rs. 35, 000 being interest thereon. Some other additions were also made by the Assessing Officer which were subject-matter of the first appeal and some before us in this appeal as recorded elsewhere above.
3. It is pertinent to extract have the relevant portion from the advocate's letter (assessee's AR) dated 28-3-1985 which the Assessing Officer has also extracted at page 5 of his order. It reads as under:
The firm has written to the parties concerned for confirmation or for sending copies of A/c. Some parties are at Ahmedabad some have gone out of Rajkot and hence we were unable to obtain confirmation from these parties.
However, if your honour will kindly go through these remaining account mostly the amount is received by cheques. All the parties are genuine. We undertake to file the copies of A/c. or the confirmation at the earliest.
In the mean time assessment be made and if in case your honour feel that some items are unexplained or not genuine we will not take any objection if you reopen the assessment. However, the amount is received by cheques mostly or all remaining A/c. and hence they may be accepted.
4. The Assessing Officer did not accede to the request of the assessee's advocate and after discussing the provisions of Section 68 and some related case laws on the subject added the sum of Rs. 4, 34, 400 plus interest amount of Rs. 35, 000 as assessee's income. The assessee challenged this addition as well as other additions made by the Assessing Officer in the first appeal before the A/c.
5. During the course of hearing of first appeal the assessee's advocate filed an undated explanatory letter alongwith account copies and confirmation letters of some creditors/lenders. This came to light after examination of the record of the A/c. produced before us after the hearing by the Departmental Representative as per our direction given on the date of hearing, viz. on 6-10-1994. The A/c. has reproduced the explanation submitted by the assessee's advocate in para 13 at pages 4 and 5 of the impugned order and which we deem it useful to reproduce as under:
Cash Credits:
1. 1. The learned ITO has laid great stress on the time extended. However, there were substantial cash credits and the assessee was called upon to explain each and every account. As such the assessee tried to get verification from all the depositors. It may kindly be noted that substantial credits are by cheques. Even though the assessee tried to get confirmation from each creditors.
1.2. Shri Madhukant Girdharlal was attending to this matter. During this time he was President of Chamber of Commerce. Then came the election of office bearers. Much of the time of Shri Madhukant Girdharlal was spent after chamber's work. In the mean time he was attending before ITO and whatever confirmation were available from time to time was giving.
1. 3. During the election Shri Madhukantbhai unfortunately expired due to severe heart attack at an age of 52 years. During his visit before ITO he had several confirmations which he had given to ITO but the same were returned by the ITO for reasons not known to us. After the death we could get hold of all these documents from his table.
1.4 Thus non-filing of confirmation was not due to any mala fide intention. If your honour will go the history of this, since 30 years your honour will find that the assessee is regular tax payer-nowhere in the past any such substantial additions. For all the years the assessee has always co-operated.
1.5. It may kindly be noted that most of the credits are by cheques only. Further some of the depositors were well-known to the ITO. He could have called for their record and found the details.
1.6. The assessee had given all the statements of accounts with addresses. It was only because of the fact that Shri Madhukant due to election of Chamber could not attend and afterwards he expired that some of the confirmation remained to be given. Further out of these some confirmations were found from his table being returned by ITO.
1.7. All these reasons coupled with the clean history of the assessee for past many years may kindly be taken into consideration. Further due to untimely death of the main partner Shri Madhukantbhai we are unable to throw any more light.
1. 8. We submit that all parties are genuine. The assessee has in most cases received cheques....
6. The A/c. also called for a remand report from the Assessing Officer which was submitted by the Assessing Officer through letter dated 23-4-1988 and which has been reproduced by the A/c. in para 14 on pages 5 and 6 of the impugned order. We also reproduce the same as under:
1. Addition of alleged cash credit - Rs. 4, 34, 400:
An addition of Rs. 4, 34, 400 on a/c. of unexplained cash credit was made while finalising the assessment. While going through case records, it is seen that despite giving several opportunities both in writing and verbal, the assessee did not care to produce confirmatory letters/contra -account or any other evidence to support of various cash credits. The case was taken up for hearing on 30-11-1984. Prior to that vide this office letter dated 13-11-1984, the assessee was requested vide question No. 6 of said letter to produce proof regarding cash credits appearing in balance sheet. The same was not produced. After that, another opportunity was given on 3-12-1984 to produce required details on 5-12-1984 but again nothing was produced. After that the assessee was again requested vide this office letter dated 15 1-1985 by which the assessee was requested to produce proof by 21-1-1985. Practically no proof was furnished. Then as the matter was getting time-barred, assessee's ITP was personally requested and in response to that a written submission dated 28-3-1985 was filed. In this submission it was contended by the assessee that the firm has written to the parties concerned for confirmation or for sending copies of a/cs. Some parties are at Ahmedabad and some have gone out of Rajkot and hence we were unable to obtain confirmation from these parties.
However, if your honour will kindly go through these remaining account mostly the amount is received by cheque. All the parties are genuine. We undertake to file the copies of a/c. or the confirmation at the earliest. In the meantime assessment be made and if in case your honour feel that some items are unexplained or not genuine we will not take any objection if you reopen the assessment. However, the amount is received by cheque mostly or all remaining a/c. and hence they may be accepted.
From the above discussion and assessee's submission it is clear that the assessee did not produce the required details during the assessment proceedings. The confirmatory letters which are produced before your kind honour were also not produced at the time of assessment proceedings. In absence of all these an addition on account of unexplained cash credit was made....
7. The A/c. was not satisfied with the explanation furnished before him with partial evidence and confirmed the addition made by the Assessing Officer in respect of loans and interest thereon aggregating to Rs. 4, 69, 400. The pertinent observations of the A/c. while confirming the addition in para 15 deserve to be reproduced and we reproduce the same as under:
...It is seen that most of the credits are by cheques but somehow or the other the assessee has not been able to get confirmatory letters from the creditors concerned. The ITO also did not make any effort to find out the genuineness of these credits. It seems that the confirmatory letters were given by the partner Shri Madhukantbhai to the ITO, however, according to the assessee, the same seems to have been returned....
8. Thus, having lost before the A/c. in first appeal the agitation and grievance was carried to this Tribunal as recorded by us above.
9. Shri K. C. Patel, the learned advocate appearing for the assessee submitted that on account of non-co-operative attitude of most of the creditor/lenders the assessee-firm was unable to file full and satisfactory corroborative evidence in respect of the loans appearing in the account books and took us through the relevant observation made by the Assessing Officer in the assessment order as well as by the A/c. in the impugned order which we have reproduced in the preceding paragraphs. The assessee's AR submitted that the advocate who appeared before the A/c. in first appeal also filed an explanatory letter alongwith the copies of accounts and confirmation letters from most of the creditors and the A/c. in order to do justice instead of calling for a remand report from the Assessing Officer ought to have remanded the matter on this issue to, the file of the Assessing Officer for receiving such evidence and for further enquiry as per law in respect of the cash credits which were unlawfully added invoking the provisions of Section 68 of the Act. The Assessing Officer also in his letter of 23-4-1988 repeated what transpired during the course of assessment proceedings. He further stated that the confirmation letters and evidence submitted before him (A/c.) were not filed before him (AO) and therefore, he made the addition on account of unexplained cash credits. Before us in this appeal, the assessee's AR has filed a voluminous paper book containing confirmation letters, account copies, affidavits in Gujarati with their English translation and other connected materials which also included copies of letters filed by the assessee's advocate Shri Sanghavi in first appeal enclosing therewith copies of some confirmation letters and account copies. In respect of affidavits and other related evidence/material as placed in the paper book filed before us, the assessee's AR prayed for admitting the same as additional evidence in terms of Rule 29 of the ITAT Rules, 1963 which according to him, was essential and vital for deciding the dispute regarding the addition of loans and also in larger interest of rendering and dispensing substantial justice to the assessee. The assessee's AR in this regard heavily relied on the decision of the Gujarat High Court in the case of Pan Mangaldas Girdhardas. On merits, the assessee's AR's contention was that most of the loans were by cheques and by bank demand drafts and therefore, the burden which lay on the assessee stood satisfactorily discharged as per the provisions of Section 68 of the Act and no addition was required to be made as unexplained cash credit as has been done by the Assessing Officer and unjustifiably confirmed by the A/c. In order to convince us, reference was made to the relevant confirmation letters and affidavits found in the voluminous paper book filed for being admitted as additional evidence. In the end the assessee's advocate prayed for doing substantial justice to the assessee who was handicapped in leading corroborative evidence on account of circumstances beyond the control of the assessee as has been narrated by the assessee's advocate Shri Sanghavi before the Assessing Officer as well as before the A/c. and prayed for admission of the additional evidence for judiciously considering the said addition.
10. Shri A. K. Hajela, appearing for the Revenue, while relying upon the reasons given by both the lower authorities, opposed with full vehemence the submissions made by the assessee's AR and strongly objected the admission of additional evidence by us at this belated stage in accordance with the provisions of Rule 29 of the ITAT Rules. According to the D. R. the assessee has been negligent since the commencement of the enquiry for completion of the assessment before the Assessing Officer and in order to satisfy us in this regard he took us to the relevant observations of the Assessing Officer made in the assessment order. It was further argued by the DR that the assessee/appellant does not deserve any mercy, indulgence or help from this Tribunal under Rule 29 of the ITAT Rules and the prayer made by the appellant in this regard has therefore, to be rejected in limine.
11. A direction was given by us to the assessee's AR on the date of final hearing (6-10-1994) to make a written application for admitting additional evidence and further to specify which of the evidence/document was filed before each of the lower revenue authorities and time was given till 20th October, 1994. The assessee has filed on 20-10-1994 a written application dated 19-10-1994 segregating the evidence into two filed marked "A" and "B". File marked "A" contains evidence filed before the A/c. and file marked "B" contains additional evidence for admission in the second appeal as per Rule 29 of the ITAT Rules. In the said application of 19-10-1994 the assessee has stated in the last para that a copy of the said petition was also tendered to the DR.
12. We have given our anxious consideration to the submissions made by both the representatives. For diverse reasons which we give hereinafter we are of the view that no prejudice is likely to be caused to the Revenue if the additional evidence now produced before us by the assessee is admitted as per the provisions of Rule 29 of the ITAT Rules. This Tribunal, under the scheme of the Income-tax Act, 1961 is a final fact-finding authority and in order to enable it to decide disputes brought before it by way of second appeal in a lawful, fair and judicious manner it has necessarily to look into and consider such evidence and other material having a nexus and bearing on the subject-matter of the appeal viz. the dispute involved. Even according to the provisions of Rule 29, the Tribunal is empowered to receive and admit additional evidence for any other substantial cause.
13. The Hon'ble Supreme Court in the case of K. Venkata Ramaiah v. A. Sitarama Reddy AIR 1963 SC 1526 has laid down that an appellate court has power to allow additional evidence not only if it requires such evidence to enable it to pronounce judgment but also for any other "substantial cause". The Calcutta High Court in the case of Kali Charan Ram Chander v. CIT [1978] 112 ITR 405 at 409 have held as under:
Ordinarily, an appeal should be decided by the Tribunal on the materials before it. This rule is, however, subject to a further rule, namely, that if the Tribunal is unable to decide the appeal on the materials before it or if the relevant facts for deciding the appeal are not before it, it may adopt anyone of the three alternative courses which are open to it in order to do substantial justice between the parties.
It may admit further evidence and decide the appeal. Or it may keep the appeal pending before it and direct anyone of the authorities below to ascertain further facts which are essential for the purpose of determination of the appeal and then on the basis of the remand report may decide the appeal. The third alternative course is the course which has been adopted by the Tribunal in the instant case before us. In the absence of the relevant and essential facts, the Tribunal was unable to decide whether Bindawalla Trading Co. was a branch of the assessee-firm which was the only subject-matter of the appeals before it. Merely because the parties did not ask for an opportunity of adducing further evidence, it cannot be said the Tribunal was debarred from directing the Appellate Asstt. Commissioner to take additional evidence on lines indicated in its order and on the basis of such additional evidence to decide those appeals.
14. Thus, from the above judgment of the Calcutta High Court it is amply clear that the appellate Tribunal can direct the first appellate authority to receive further evidence and decide the appeal though the parties did not pray for adducing further evidence because the Tribunal has to decide the appeal. This view, taken by the Calcutta High Court, was approved by the Madhya Pradesh High Court in the case of CIT v. Kum. Satya Setia [1983] 143 ITR 486. In that case, a subsequent agreement, a crucial document, was not filed and produced before the Assessing Officer or before the first appellate authority and yet the Tribunal admitted the same as an additional evidence and directed that fresh assessment be made in the light of the new agreement. On a reference to the High Court, it was held that the Tribunal rightly exercised its discretion under Rule 29 in allowing production of additional evidence. The Madras High Court in the case of R. S. S. Shanmugam Pillai & Sons v. CIT [1974] 95 ITR 109 examining the scope of the powers of the Tribunal under Rule 20 of the ITAT Rules held that the Tribunal has got a wide discretion to admit or reject documents at the stage of appeal but such discretion cannot be exercised in an arbitrary manner and that if the Tribunal found that the documents filed are quite relevant for the purpose of deciding the issue before it would be well within its powers to admit the evidence, consider the same or remit it to the lower authorities for fresh consideration. This view of the Madras High Court was reiterated in another case which arose in the year 1990 in the case of Anaikar Trades & Estates (P.) Ltd. (No. 2) v. CIT[1990] 186 ITR 313. Even the jurisdictional Gujarat High Court as far back as 1977 in the case of Pari Mangaldas Girdhardas (supra) have laid down that the Tribunal has power to allow additional evidence also if it requires such evidence or for any other substantial cause, that is to say, even in cases where the Tribunal finds that it is able to pass order on the state of the record as it is, it may still allow additional evidence to be brought on record if it considers that in the interest of justice something which remains obscure to be filled up so that it can pronounce its order is a more satisfactory manner.
15. Thus, from the judicial analysis of various decisions, it is amply settled and clear that this Tribunal can admit additional evidence in terms of Rule 29 of ITAT Rules if the receipt or admission of additional evidence is vital and essential for the purpose of consideration of the subject-matter of the appeal and arrive at a final and ultimate decision. The Tribunal, therefore, has also power to admit additional evidence in the interest of justice or if there exists substantial cause.
16. The main dispute and subject-matter of this appeal is whether the A/c. was justified in confirming the addition made by the Assessing Officer under Section 68 of the Act as unexplained cash credits (loans) appearing in the assessee's account books. Admittedly, the primary and base evidence with the assessee in respect of the loans is its own account books containing the recording of the entries of various loans from different persons. These entries as per Section 34 of the Indian Evidence Act are relevant if the accounts are maintained in the regular course of business and the court considers it relevant in any enquiry, but not sufficient evidence to charge any person with liability. The Assessing Officer in this case had accepted these credit entries (loans) in assessee's account books and wanted further corroborative evidence for his satisfaction in terms of Section 68 of the Act. The assessee time and again informed the Assessing Officer about the circumstances which prevented it from procuring the confirmatory letters from the various lenders/creditors which are the corroborative evidence to support the main evidence viz. the credit entries in its account books. The Assessing Officer was not convinced with the explanation of assessee's advocate as extracted by us elsewhere above and finally completed the assessment adding the aggregate amount of loans borrowed plus interest accrued and payable thereon and the A/c. approved such action of the Assessing Officer inspite of the explanation submitted before him by the assessee's AR that some connected evidence in the shape of account copies and confirmation letters as has been recorded by us above in this order. In fact, a careful reading of para 15 of the impugned order of the A/c. reveals that he was not happy with the addition made by the Assessing Officer from the observation "the Income-tax Officer also did not make any effort to find out the genuineness of these credits". The A/c. was convinced that most of the credits were by cheques but the assessee for various reasons was not in a position to obtain confirmation letters from the creditors concerned. Well, In such a situation the A/c. ought to have remitted the matter to the file of the Assessing Officer giving one more chance to the assessee to procure the corroborative evidence in respect of the loans but he opted the course of obtaining a remand report from the Assessing Officer which was nothing, except reiteration of the same observations as were made in the assessment order. The Assessing Officer in his remand report dated 23i4-1988 has stated that the addition came to be made because the assesses did not file the confirmation letters as were filed before the A/c. in the course of first appeal. From these observations in the impugned order it is transparent that some corroborative evidence was led in the first appeal, but the same was not duly considered as required by law for dispensing justice to the assessee-firm.
17. We do agree with the D. R. that benediction of Rule 29 of ITAT Rules should not be bestowed upon any party who is negligent,, non-co-operative and recalcitrant; nor should the Tribunal give another chance or opportunity to any party to cover up lacunae, latches and lapses,. But the present assessee cannot be faulted for remissness or negligence in filling or producing the required corroborative evidence in reject; of the loans. In this case, though the return was filed by the assessee on 29-6-1982 the file was dormant and not looked or touched upon by the Assessing, Officer till 13th November,, 1984, that is to say, till 2 1/2 year since the date of filing of the returns when a letter on that date was addressed by the Assessing Officer to the assessee demanding proof of capital and cash credits and the case was partly examined on 30-11-1984, by the Assessing Officer. Thereafter, it was adjourned on few occasions as narrated by us else where above giving very short time/notice to the assessee for compliance and on every such occasions, the assessee's AR pleaded inability of the assessee in procuring the desired corroborative evidence in respect of the loans taken. The Assessing Officer coming nearer to the line of limitation period prescribed under Section 153 of the Act for the completion of the assessment, without giving any further time or opportunity to the assessee to lead evidence in respect of the loans, completed the assessment adding the entire loan amount plus interest payable thereon as remaining unexplained by the assessee-firm.
18. The assessee having lost in first appeal and in order to get a fair deal and substantial justice from this Tribunal for deletion of the addition made by the Assessing Officer in respect of the loans and interest thereon has mustered relevant additional evidence and compiled it into paper books filed before us as recorded above. We have examined the said evidence and are satisfied that in order to do substantial justice to the appellant-assessee the additional evidence as compiled in the paper books filed before us has to be admitted in terms Of Rule 29 of the ITAT Rules and we therefore, admit the same.
19. After pondering over the matter, we deem it fit and proper to remit the case to the file of the Assessing Officer with a direction to receive the said additional evidence which have now been filed before us by the appellant in the shape of confirmation letters, affidavits and account copies of lenders. We further direct the Assessing Officer to process the same by conducting a valid, proper and thorough enquiry into the whole loan transactions aggregating to Rs. 4, 34, 400 and then to arrive at a correct decision but not without affording a fair and reasonable opportunity of hearing to the appellant-assessee to convince the Assessing Officer that the loans are genuine. We therefore, vacate the finding and conclusion of the A/c. in respect of this dispute and order and direct accordingly.
20. We now come to the different additions upheld and sustained by the A/c. which have been listed from ground Nos. 19 to 24. We have heard the elaborate arguments made before us by representatives of both the sides in respect of each ground and we order as under:
21. In the 19th ground the appellant is not satisfied with the confirmation of the addition of Rs. 5000 made by the Assessing Officer on account of low yield. However, considering the turnover and production results it is fair and reasonable to sustain the addition to the extent of Rs. 2, 500. The assessee gets relief of Rs. 2, 500.
22. In the 20th ground the assessee is not satisfied with the confirmation of the disallowance of Rs. 7, 030 on account of intercom expenses which was treated as capital expenditure by the Assessing Officer. In our view, the confirmation was rightly made by the A/c. and no interference is called for. This ground is dismissed.
23. In the 21st ground the dispute is regarding the disallowance of Rs. 2, 500 being religious expenses. The A/c. in our view, was right in agreeing with the Assessing Officer in respect of this addition. No interference is called for. This ground is dismissed.
24. In the 22nd ground the assessee has a grievance against confirmation of disallowance of Rs. 6, 000 out of bardan kharajat expenses. The A/c. confirmed the addition made by the Assessing Officer in this account as the assessee failed to give satisfactory explanation and related evidence in the absence of which we are inclined to agree with the A/c. This ground is dismissed.
25. The 23rd ground disputes the confirmation of disallowance of Rs. 2, 500 out of interest payment account. We are unable to subscribe to the view taken by the A/c. that since no interest is charged on debit balance of one of the partners Shri Madhukant Girdharlal interest to the extent of Rs. 2, 500 was rightly disallowed by the Assessing Officer. In our view, no such disallowance can be made until it is shown that the borrowed funds were withdrawn or utilised by the said partner Shri Madhukant. Mere debit balance in one of the partners' account does not empower the Assessing Officer to disallow genuine interest payment claimed. We direct the Assessing Officer to delete the sum of Rs. 2, 500 on account of interest payment. The assessee succeeds on this ground.
26. The 24th ground is regarding restoration of the matter to the file of the Assessing Officer for working out the deduction under Section 80J of the Act on refinery section as claimed by the appellant before the Assessing Officer. The assessee's grievance is that the A/c. should have allowed the same without remitting the matter to the file of the Assessing Officer. We are unable to agree with this contention of the assessee's AR. Since the matter is restored to the file of the Assessing Officer for examination of the claim under Section 80J we do not wish to disturb the direction of the A/c. in this regard. This ground is dismissed. No other point or ground was raised.
27. The appeal is partly allowed.