Income Tax Appellate Tribunal - Mumbai
Sunder Agencies vs Deputy Commissioner Of Income-Tax on 16 May, 1997
ORDER
M.K. Chaturvedi, JM
1. This appeal by the assessee is directed against the order of the Deputy Commissioner of Income-tax, Special Range, Thane, passed under section 158BC of the Income-tax Act, 1961 (hereinafter referred to as 'Act') and pertains to the Block Period commencing from 1-4-1985 to 16-11-1995.
2. Briefly the facts : The assessee is a partnership firm. It is a member of Dayaramani Group of Ulhasnagar. It is engaged in the business of Indian made foreign liquor, beer, wines, etc. On 16-11-1995, search and seizure action under section 132 of the Act was conducted at the business premises of the assessee. Among other things, a 'gift item register' was found. It is shown under Sl. No. 19 of the Panchnama. Deposition under section 132(4) of the Act was recorded. There was no question in regard to Gift register. The register contained some entries for the period 1994-95. It was not complete. Certain presumptions were drawn by the Assessing Officer on the basis of that register and additions were made, in the block assessment for all the years.
3. At the assessment stage the assessee was required to give details of the 'sales promotion expenses'. He was asked to produce the records regarding the distribution of 'sales promotion items'. The assessee's claim in regard to 'sales promotion expenses' was approximately 1 to 1.5% of sales. It also debited in the Profit & Loss Account Diwali expenses, advertisement expenses, commission on sales, P.P. Cork Scheme, rate difference, etc. The expenditure claimed on sales promotion were found to be high as compared to other concerns dealing in the same line of business. The Assessing Officer considered the percentage of sales promotion expenses claimed by M/s. Tulsi Trading Corporation and M/s. Rama Wines. The Assessing Officer proceeded on the basis that the expenses claimed by the assessee under the head "Sales promotion" were high pitched. The onus of proving the factum of expenditure according to the Assessing Officer was on the assessee.
4. It was explained before the Assessing Officer that there was steep competition in the liquor trade. Manufacturing companies were not allowed to advertise their liquor products. The advertisements were through whole seller and agents. The assessee was dealing in less known brands. Purchases were said to be fully vouched and verifiable. The expenses were said to be incurred for boosting the sales. A comparative chart was produced to buttress this point. It was stated that sales got increased year after year, because of the sales promotion expenses.
5. The gift items were said to be given as per the business exigencies. The gift items were of varied nature. The Assessing Officer recorded in his order that mere filing of list of persons from whom the sales promotion items were purchased and details of payment of the same will not be suffice to discharge the onus which lay on the assessee. He admitted the position that it is not possible to maintain 100% records for the distribution of sale promotion items. But the expenditure which are not fully verifiable should be reasonable and not exorbitant. Therefore, he made estimate of sales promotion expenses.
6. Dr. S.V. Pathak along with Sri M.P. Makhija, learned counsel for the assessee appeared before us. It was vehemently argued that the disallowance in the facts of the present case is beyond the ken of Chapter XIV-B of the Act. Our attention was invited on the various provisions laid down under Chapter XIV-B of the Act. It was stated that section 158BA deals with the assessment of "undisclosed income" as a result of search. The word "undisclosed income" is defined under section 158B(b) of the Act. 'Sales promotion expenses' once considered in the assessment, cannot be construed to be 'the undisclosed income' of the assessee under Chapter XIV-B of the Act. Reference was made to the decision of the Delhi High Court rendered in the case of L.R. Gupta v. Union of India [1992] 194 ITR 32. The Hon'ble High Court has held that the expression "income, which has not been, or would not be, disclosed for the purposes of the Income-tax Act" would mean that income which is liable to tax but which the assessee has not returned in his income-tax return or made known to the Income-tax Department. The sub-clause itself refers to this as "undisclosed income or property". In our opinion, the words, "undisclosed income", in that context, must mean income which is hidden from the department. It was stated that nothing connected with the sales promotion expenses was hidden from the department. It was duly disclosed in the returns. It was considered at the time of making the assessments. In the assessment years 1991-92 and 1992-93 while making assessment under section 143(3), the Assessing Officer made some disallowances also on this court.
7. Dr. Pathak placed before us the gist of the schemes for distribution of sales promotion articles announced by the assessee. These schemes were announced on the occasion of festivals, etc. The items of free gifts were mentioned in the format of the schemes. The amount of gifts varied with the volume of purchases.
8. It was further argued that the assessee is dealing with the less known brands of liquors. Therefore, to boost the sale, it is necessary to make the offer of gift more attractive. The Assessing Officer made the comparison of the assessee-company with M/s. Tulsi Trading Corpn. which is dealing in 'McDowell's Whisky' and 'King Fisher', Beer. Similarly, M/s. Rama Wines deals with 'Haywards Whisky' and 'London Pilsnor Beer'. These are well-known brands. The assessee is dealing in 'Green Label Whisky' and 'Khazana & Khajuraho Beer'. These brands are not very popular. Therefore, the sales promotion expenses of the assessee were not correctly compared.
9. Dr. Pathak stated that there is no mandatory requirement for maintaining register for the disbursement of gifts. As a matter of fact, it is not customary to obtain the receipt of the gifted items. The gift items were said to be distributed through the agents. It is difficult to maintain record for such gift articles. No register was maintained in the preceding years. During the period 1994-95, attempt was made to make such register but it was found not to be pragmatic. Therefore, the idea was dropped.
10. It was argued that the expenditure incurred on the purchase of gift items are fully vouched and verifiable. No discrepancy was detected in relation to the purchase of gift items. The payments were also made by account payee cheques. Nothing was found at the time of search to suggest any sort of concealment on this count. No undisclosed stock of gift item was found with the assessee at the time of search. This clearly goes to show that the assessee did not earn any undisclosed income. Dr. Pathak placed before us the chart of turnover. It was explained with reference to the said chart that how with the introduction of the gift schemes, sales boosted year after year. It was further argued that the assessee is the best Judge of his affairs. He knows what is good for his business. Assessing Officer cannot lay down the code for running the business.
11. Dr. Pathak submitted that the expenditure incurred by the assessee on 'sales promotion' was reasonable. It was in conformity with the business needs. It was incurred wholly and exclusively for the business purposes. It was considered in the assessments made in the past. Now the Assessing Officer cannot make roving enquiry in regard to the same. Our attention was invited on the Budget Speech of the Minister of Finance for 1995-96 reported in 212 ITR 87 (Statute). It was stated on the floor of the Parliament :
"71. Hon'ble Members are aware that the searches conducted by the Income-tax Department are an important means of unearthing black money. However, undisclosed incomes have to be related to the different years in which the income was earned and as such assessments are unduly delayed. In order to make the procedure more effective, I am proposing a new scheme under which undisclosed income detected as a result of search shall be assessed separately at a flat rate of 60 per cent. An appeal against the order can be filed directly before the Income-tax Appellate Tribunal."
12. Our attention was further invited on clause 32 of the Notes on Clauses (212 ITR 306)(St.). The following portion was read :
"In order to make the procedure of assessment of search or requisition cases effective, it is proposed to introduce new provisions for assessment of undisclosed income detected as a result of search or requisition. Under the new provisions, the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995, shall be assessed separately as income of a block of ten previous years. Where the previous year has not ended or the due date for filing a return of income for any previous year has not expired, the income recorded on or before the date of search or requisition in the books of account or other documents maintained in the normal course relating to such previous years will not be included in that block."
13. It was emphasised that Chapter XIV-B deals with assessment of undisclosed income detected as a result of search. Nothing was found at the time of search which can be utilised against the assessee for establishing that expenditure on sales promotion, was the undisclosed income of the assessee. In section 132(4), deposition no question connected with the sales promotion expenses was asked from the assessee. The addition is, therefore, beyond the pale of the provisions of Chapter XIV-B. The learned counsel further invited our attention on the CBDT's Circular No. 707 dated 14-8-1995 (215 ITR 33 at p. 37). The CBDT clarified : "Though the block period can be extended up to ten years in a case where the assessee has not disclosed undisclosed income in any one or more of the previous years in the block periods the Assessing Officer also does not find any material indicating undisclosed income in any one or more of the previous years comprised in the block period, it will not be necessary to do the exercise of computing the undisclosed income for the relevant years and the exercise may be limited to the years in respect of which the undisclosed income has been found". It was argued that even assuming that gift register can be considered as material, in view of the circular, income cannot be computed for the years for which no evidence or material was found.
14. The learned counsel further relied on the decision of the Apex Court rendered in the case of Shree Sajjan Mills Ltd. v. CIT [1985] 156 ITR 585/23 Taxman 37 (SC) wherein it was held that marginal note or heading to a section is a relevant factor to be taken into consideration in construing the ambit of section. He further relied on the case of K.P. Verghese v. ITO [1981] 131 ITR 597/7 Taxman 13 (SC) wherein it was held that the speeches made by the Members of the Legislature on the floor of the House when the Bill is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for its introduction can certainly be referred for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. It was stated that the heading of section 158BA : "Assessment of undisclosed income as a result of search" is very much relevant in construing the meaning of the section. It was argued that the Assessing Officer cannot ignore the regular assessment. Under Chapter XIV-B, the Assessing Officer cannot review the additions made in the original assessment. The jurisdiction is limited to the assessment of undisclosed income found as a result of the search only. The purport of the section cannot be pressed beyond its true limits.
15. Sri M.V. Rao, the learned Departmental Representative appeared before us. It was argued that section 158BA begins with a non obstante clause. It, therefore, prevails over the other provisions of the statute. How undisclosed income is to be computed for the block period is described under section 158B(b). It is stated that such income is to be computed in accordance with the provisions of Chapter IV, on the basis of evidence found as a result of search or requisition of the books of account or documents and such other materials or information as are available with the Assessing Officer. Therefore, Assessing Officer can rely upon other material and information for making the assessment of the block period. The scope of the word 'material' is much wider. Reliance was placed on the decision of the Tribunal rendered in the case of Mont Blanc Properties & Industries (P.) Ltd. [IT Appeal No. 614 (Bom.) of 1987]. In this case, the Tribunal held that the word 'evidence'as used in section 143(3) obviously cannot be confined to direct evidence. The word is comprehensive enough to cover circumstantial evidence also. Under the tax jurisprudence the connotation of the term 'evidence' is much wider. Under section 143(3) of the Act, it is used in a generic sense and not in the arrested sense so as to be either oral or documentary evidence, or both. While the word 'evidence' may recall the oral and documentary evidence as may be admissible under the Indian Evidence Act, the use of the word 'material' in section 143(3) shows that the Assessing Officer not being a court, can rely upon material, which may not strictly be evidence admissible under the Indian Evidence Act, for the purpose of making an order of assessment. Court often takes judicial notice of certain facts which need not be proved, while administrative and quasi-judicial authorities can take 'official notice' of wider varieties of facts which need not be provided before them. Thus, not only in respect of the relevancy but also in respect of proof the material which can be taken into consideration by the Assessing Officer and other authorities under the Act is far wider than the evidence which is strictly relevant and admissible under the Evidence Act. It may be seen from sections 142 and 143 that the Assessing Officer may also act on the material gathered by him. The word 'material' clearly shows that the Assessing Officer is not fettered by the technical rules of evidence and the like, and that he may act on material which may not strictly speaking, be accepted evidence in a court of law.
16. It was further stated that the circular cannot over-ride the law. It was issued just to clarify the provision. For this proposition the learned D.R. relied on the decision of the Apex Court rendered in the case of Kerala Financial Corpn. v. CIT [1994] 210 ITR 129/75 Taxman 573 (SC). He further relied on the decision in the case of CIT v. DPSI (P.) Ltd. [1996] 222 ITR 371 (Cal.) and in the case of Dadamchand Keshrimal & Co. v. CIT [1996] 222 ITR 433/86 Taxman 312 (MP). It was stated that the assessee was a whole seller. Gift items must have been given in bulk and not in pieces. It was not, therefore, difficult on their part to maintain a register. The learned D.R. further submitted that the onus was on the assessee to prove that the expenditure was incurred for the business purposes. He failed to discharge the onus. Therefore, the addition was justified. Reliance was placed on the following decisions :
(1) Leeladhar Sukh Das v. CIT [1995] 211 ITR 441 (All.) (2) East India Pharmaceutical Works v. CIT [1997] 224 ITR 627 (SC) and (3) Lachminarayan Madan Lal v. CIT [1972] 86 ITR 439 (SC).
It was further stated that it is mandatory on the part of the assessee to prove the user for the items purchased for the purposes of presentation. The assessee did not prove beyond the shadow of doubt the user of the gift items. The addition was, therefore, rightly been made by the Assessing Officer. Reliance was placed on the decision of the Madras High Court rendered in the case of Kanthimathy Plantations (P.) Ltd. v. State of Tamil Nadu [1995] 215 ITR 203.
17. We have heard the rival submissions in the light of the material placed before us and the precedents relied upon. Levy Ullamann, the great French Jurist said that a definition of law should have two aims - firstly, to make precise the meaning of law, and secondly, to call up in the mind of the reader a true picture of law and its operation.
18. Coming now to the interpretation of the provisions of section 158BA, we are reminded a well known Latin phrase, A RUBRO AD NIGRUM (From red to the black). Formerly, the title of a statute was written in red while its body was written in black, and this phrase meant the process of interpreting a statute with reference to its title. The Apex Court in the case of Sajjan Mills Ltd. (supra) has held that the marginal note or heading to a section is a relevant factor to be taken into consideration in construing the ambit of the section. Therefore, it is important to see the rubro for construing the meaning of the provision.
The head note of section 158BA is : "Assessment of undisclosed income as a result of search". It indicates that section deals only with those assessments which concern with the undisclosed income detected as a result of search. The meaning of head note conveys nothing more nothing less than this. Now we come to the body of the section. It begins with Non obstante clause. It applies for search conducted after 30th day of June 1995 under section 132 etc. The total undisclosed income relating to block period is not subject to ordinary rates of tax. It is subject to the rate specified in section 113 of the Act, irrespective of the previous year or the year to which such income relates, and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not.
19. Now the question arises what is undisclosed income. In the case of L.R. Gupta (supra) the Delhi High Court has held that the income which is hidden from the department is undisclosed income. The definition of undisclosed income is given under section 158B(b) as under :
"158B(b). Undisclosed income - includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."
20. The purport of the definition cannot be pressed beyond its true limits. It begins with the words "undisclosed income" includes - sometimes, some definition used both words 'mean' and 'include'. There, it may be regarded that an exhaustive explanation of the things intended to be caught in the net of the section is specified. But where the expression is merely 'include', it does not have a restrictive operation so as to confine the scope of the section only to those things specified in the words following. When the Legislature wants to enlarge the natural meaning of a word or a phrase it uses the word 'includes' and, in such a context, an inclusive definition means that over and above the natural meaning of the word, the specially provided meaning of the word will also have to be attributed for the purpose of interpretation of that particular statute or that particular Chapter. But the word 'include' is susceptible of another construction, which may become imperative, if the context of the Act is sufficient to show that it was not merely employed for the purpose of adding to the natural significance of the words or expression defined. It may be equivalent to 'mean' and 'include' and in that case it may afford an exhaustive explanation of the meaning which, for the purposes of the Act, must invariably be attached to these words or expressions. Words in a section are not to be interpreted by having those words in one hand and the dictionary in the other hand. In spelling out the meaning of the words in a section, one must take into consideration the setting in which those terms are used and the purpose they are intended to serve.
21. The two rules of most general application in construing the meaning of a provision of a statute are first, that it shall if possible, be so interpreted UT RES MAGIS VALEAT QUAM PERFAT. The word of statute should be given a sensible meaning so as to make them effective. And secondly, that such a meaning shall be given to it as may carry out and effectuate to the fullest extent the intention of the Legislature. It is to be seen that nebulous concept of the legislative intent be not used to curtail the explicit provisions in a statute. It is of paramount importance that streams of justice be kept clear and pure.
22. As a matter of fact, search and seizure, is a serious invasion on the rights of the subject. The search and seizure was really not known at earlier stages to common law. When it was for the first time introduced, it was confined only to stolen goods, but its usefulness soon forced its recognition and was, from time to time extended to such like search and seizure. Section 132 of the Act is intended to unearth the hidden or undisclosed income or property and bring it to assessment. The objective of the section is to get hold of evidence bearing on the tax liability of a person which the said person is seeking to withhold from the assessing authority and to get hold of assets representing income believed to be undisclosed income and applying so much of them as may be necessary in discharge of the existing and anticipated tax liability of the person concerned.
23. There are adequate safeguards present against any possible misuse of the provision of search and seizure. Chapter XIVB was introduced in order to make procedure of assessment of search and for requisition cases more effective. Under the provisions of this Chapter the undisclosed income detected as a result of search initiated or requisition made after 30th June, 1995 be assessed separately as income of that block of ten previous years. The provision was introduced to streamline the procedure concerning the search matters. It is abundantly clear from the perusal of the prescription of section 158BA that within the pale of Chapter XIVB assessment could be made only in respect of the undisclosed income. Such undisclosed income must come as a result of search. This section does not provide a licence to the revenue for making roving enquiries connected with the completed assessment. It is beyond the power of the Assessing Officer to review the assessments completed unless some direct evidence come to the knowledge of the department as a result of search which indicates clearly the factum of undisclosed income. Without such evidence or material the Assessing Officer is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such inference is disproved by other evidence. We find that the scheme of Chapter XIVB does not give power to the Revenue to draw the presumption in regard to the undisclosed income. The Assessing Officer could proceed on the basis of material detected at the time of search and the evidence gathered. Under section 132(4), the authorised officer may, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Act. In the instant case the partners of the firm were examined by the authorised officer. No question apropos sales promotion expenses was put to the partners. There was no enquiry as to this aspect at the time of the search. Nothing incriminating as regards sales promotion expenses was detected when the raid was conducted. From the perusal of the Panchnama, it appears that only one gift book was impounded. That book related to period 1994-95. There is absolutely no evidence and material in regard to the other years of assessment. The book was stated to be incomplete. There are some entries in regard to the gift given. No conclusion can be drawn on the basis of that book. All the purchases were found to be fully vouched and verifiable. All the payments were made by account payee cheques. No stock of gift article was found when the search was conducted. Learned D.R. did not dispute these facts. Therefore, it can be concluded that the assessee incurred the expenditure for purchasing the gift articles. Such articles were distributed to the dealers. There is no evidence that the assessee sold the articles in the market for consideration. There is also no evidence that the assessee used those articles for some other purposes. In these circumstances no adverse presumption can be drawn. Besides, such presumption is beyond the ken of Chapter XIVB.
24. The burden of proof is of importance only where by reason of not discharging the burden which was put upon it, a party must eventually fail. The law of burden is canonised in common law doctrine : INCUMBIT PROBATIO QUI DICIT NON QUI NEGAT (Burden lies upon one who alleges and not upon one who deny the existence of a fact).
In the instant case, there is absolutely no evidence or material on record to justify the addition. Addition was based solely on presumptions and assumptions. Therefore the abstract question of burden of proof is only academic.
25. It is abundantly clear from the perusal of the impugned order that the Assessing Officer accepted the fact that the gift was given as a normal business practice. He did not reject the amount of sales promotion expenses in toto. He made estimate. What induced him to make such estimate ? What was the basis for such estimate ? He made comparison with the other traders. It was explained that the other traders were dealing in well-known brand of the product whereas the assessee was dealing in the less known brand of the product. Therefore, such comparison was not proper. Circular cannot override the law it is true, but how the circular transgressed the boundaries of law was not explained. It was issued just to clarify the provision. It only explained the purport of law nothing more, nothing less. Addition under section 158B(b) cannot be based on jejune reasoning or guess work. It is imperative that the department must have in its possession cogent material and/or evidence to support the addition. It is not open for the Assessing Officer to grope in the dark. It is obvious from the perusal of impugned order that no attempt was made to examine the evidentiary value of the gift book. Its contents are not discussed in the order. How it proves a fact is not known to us. Its nexus with the undisclosed income was not established. Its relevance in the facts of the present case is a dark cat. This cannot be used as a panoply for making the roving enquiries. It appears that the Assessing Officer is looking for a black cat in a dark room which may or may not be there. He transgressed the boundaries of section 158B(a), while making the addition. Section 158B(b) contemplates that the undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period. It is to be computed in accordance with the provisions of Chapter IV (Sections 14 - 59). Such computation should be on the basis of evidence found as a result of the search or requisition of the books of account or documents and such other materials or information as are available with the Assessing Officer. The Legislature has used the words, "such other materials" and not "any other materials". The word 'such' is defined in Concise Oxford Dictionary, 5th Edition at page 1289 as :
"Of the kind or degree already described or implied or intelligible from the context or circumstances."
But what material is available ? There is absolutely nothing except the gift book (1994-95), which was impounded at the time of search. This, in our opinion, is not relevant for making such addition.
26. Having regard to the facts and circumstances of the case and after considering the precedents relied upon, we hold that the Assessing Officer was not justified in making the addition. Accordingly, we direct him to delete the same.
27. In the result, the appeal of the assessee stands allowed.