Delhi High Court
Racmann Springs (P.) Ltd. vs Deputy Commissioner Of Income-Tax. on 2 June, 1995
Equivalent citations: [1995]55ITD159(DELHI)
ORDER
Per A. Satyanarayana, Vice-President - This appeal filed by the assessee is against the order of the Commissioner of Income-tax (Appeals) -XV, New Delhi dated 31-1-1994 for the assessment year 1981-82 for which the previous year ended on 30-6-1980.
2. The assessee is a Private Limited Company engaged in the business of automobile springs leaves. It filed a return on 10-10-1983 in pursuance of notice under section 139(2), showing a loss of Rs. 36,43,609 which included loss for the current year amounting to Rs. 11,35,128 and brought forward losses amounting to Rs. 25,08,481.
3. The assessment was originally completed under section 144 on 8-10-1984 determining the total income at Rs. 36,55,169. This assessment was set aside on appeal by the CIT (Appeals) by his order dated 24-3-1988. The Assessing Officer was directed to make the assessment afresh.
4. In pursuance of the directions of the Commissioner of Income-tax (Appeals) in his order dated 24-3-1988, the Assessing Officer passed a fresh assessment order under section 143(3)/250 on 20-1-1989 determining the total income at Rs. 36,55,170. This assessment also was set aside by the CIT (Appeals) by his order dated 29-1-1990. The CIT (Appeals) directed the Assessing Officer to frame a fresh assessment by observing as under :
"I would direct the Assessing Officer to consider the appellants explanations, details and evidence in respect of drafts/cash deposit and give proper, just and fair finding. While so doing he must bear in mind the appellants handicap that the records were destroyed in the riots of November 1984. In view of this he must consider in a just and fair manner the probability of the explanation that the drafts/cash deposits were out of the realization from the sundry debtors, bank withdrawals, cash transfers, etc. In this connection, he will examine the subsequent balance-sheet, companys net assets, the investments and acquisitions of the Directors of the company, etc. An analysis of these factors along with the other relevant factors would help the Assessing Officer to arrive at the truth or near truth about the tenability, probability and acceptability of the explanations."
In pursuance of the directions given by the CIT (Appeals) in his order dated 29-1-1990, the Assessing Officer made a fresh assessment under section 143(3) on 13-1-1992.
5. On 5-10-1984 the ledger for the period 1-7-1979 to 30-6-1980 and File No. 11 containing vouchers for the period from 1-8-1979 to 30-6-1980 were impounded under section 131(3) of the Income-tax Act, 1961. On a test check of the account of the Bank of Tokyo as appearing in the ledger, it was found that there were several drafts deposited in the Bank. In the corresponding vouchers, names of the parties from whom the drafts were received were not mentioned. In the vouchers, only the name of the Station, e.g., Calcutta or Asansole, as the case may be, was mentioned. The details of the drafts deposited in the Bank of Tokyo, Parliament Street, New Delhi were given in List I in the assessment order dated 8-10-1984 passed under section 144. The said List is reproduced in the assessment order dated 13-1-1992 also. The total amount of said drafts aggregated to Rs. 15,59,845. According to the Assessing Officer, who passed the assessment order on 8-10-1984, the assessee was asked to give the names of the parties and to explain the nature and source of these deposits in the Bank. According to the Assessing Officer, who passed the assessment order on 13-1-1992 the assessee filed a reconciliation statement of sundry debtors for a number of years which showed the opening and closing balances and the realization from the sundry debtors during the various years. The reconciliation statement was from 1-7-1979 to 30-6-1985. In the said statement the realization from the sundry debtors during the year ended 30-6-1980 was shown at Rs. 18,00,763.40 P. The Assessing Officer observed that there was no proof for realization of Rs. 18,00,763. He noticed that the realizations from the sundry debtors in the subsequent years were as under :
Assessment year Realization 1982-83 Rs. 3,28,583 1983-84 Rs. 4,59,406 1984-85 Rs. 2,58,000 From the above he observed that the realizations from the sundry debtors did not exceed the figure of Rs. 5 lakhs in any of the above assessment years. In that view he concluded that it was unlikely that in the assessment year under consideration, namely 1981-82, the assessee suddenly had a realization from sundry debtors amounting to Rs. 18,00,763. The Assessing Officer further observed that in view of the fact that the books of account have been burnt and the inability of the assessee to produce any detail regarding the drafts deposited except by way of an explanation that the same were realizations from sundry debtors, no other verifiable details had been filed. He opined that one of the explanations for this can be that properly the sales were not being accounted for in the books of the assessee and the same were being directly deposited in various bank accounts. He held that drafts deposited in the Bank of Tokyo as per List I reproduced in the assessment order, for which no explanation was forthcoming, were actually undisclosed sales of the assessee. Accordingly, he treated the same as income of the assessed under section 68 of the Income-tax Act, 1961 for the assessment year under consideration.
6. In the said assessment order dated 13-1-1992 he disallowed an amount of Rs. 98,532 by observing as under :
"In the details of various expenses filed, the assessee has claimed payment of interest out of which Rs. 98,532 is of penal nature. The same is disallowed."
7. Besides the above, the Assessing Officer observed in the assessment order as under :
Charge interest under section 139(8).
Charge interest under section 217"
Aggrieved by the same, the assessee preferred an appeal before the CIT (Appeals).
8. According to the CIT (Appeals), the learned Counsel for the assessee made elaborate submissions running into several pages but the main thrust of the arguments was that the Assessing Officer was not justified in making the addition of Rs. 15,59,845 for the following reasons :-
"(i) Rejecting sub silentio the net wealth statement of the appellant company for assessment years 1981-82 to 1986-87.
(ii) Rejecting that appellant company will not stand to benefit in any manner by introducing undisclosed funds when carried forward business loss up to assessment year 1980-81 were approximately Rs. 25 lakhs and there were further assessed losses in subsequent years.
(iii) Not accepting that appellant company could easily have shown the drafts as business income of the year without paying taxes due to carry forward losses of earlier years.
(iv) Rejecting the sub silentio consolidated reconciliation statements of sundry debtors for assessment years 1981-82 to 1986-87 without finding fault with it.
(v) Failed to appreciate that Balance sheet will not tally if the drafts were not received from sundry debtors.
(vi) Not appreciating that the appellant or his agents could not go to so many outstations to purchase these drafts from his own funds particularly when no benefit was gained by any manner by saying it as receipt of their sales in view of the heavy brought forward losses.
(Vii) In invoking section 68 of the Income-tax Act while treating the amounts of bank drafts as income from undisclosed sources which was not applicable as otherwise also it could only be income from business.
(Viii) Ignoring the binding CBDT Instruction No. 1659 dated 31-10-1985 regarding riot victims.
(ix) Not giving proper and adequate opportunity to the appellant to put forth his case.
(x) Completing the assessment under section 144 without giving even one clear day for compliance with the voluminous requisition of 1-10-1984 for compliance on 5-10-1984."
9. The CIT (Appeals) observed that before examining the various contentions of the assessee, it would be proper to examine the question of burnt books of account. He noted that when the first assessment order was passed on 8-10-1984, the handicap of books having been burnt was not there and that the assessee had ample time and opportunity to have placed its card openly before the Assessing Officer for drawing the proper inference and that this was not done. He referred to the copy of the police Report filed by the assessee before the Assessing Officer and copy of letter dated 15-11-1984 sent to the Station House Officer, Moti Nagar Police Station and observed that in them there was no reference of destruction of cash book and other account books. He further observed that copy of the F.I.R., as registered in the Rojnamcha" was never filed before the Assessing Officer. He also referred to the assessees letter dated 3-10-1985 wherein it was mentioned that the partywise details of sundry debtors outstanding as on 30-6-1978 based on the parties ledger for that year are being compiled and the same shall be furnished as soon as possible. He concluded from the said letter that it was unfortunate that till date such party-wise details of persons paying Rs. 18 lakhs and odd had never been furnished in spite of the above admission and promise. He further held that in view of the assessees letter dated 3-10-1985 it has to be held that the assessee was not justified in withholding the list of debtors as on various dates. He further mentioned that the assesses never filed the detailed annexures containing list of debtors, creditors, stock inventory, etc. and that the assessee had been failing in filing its complete accounts with the Registrar of Companies and preferred to pay fines for the said default. Ultimately he held that considering the cumulative effect of the entire facts narrated above, it gave an impression that the plea of cash book having been burnt did not appear to be convincing and plausible and that the same was withheld with a purpose.
10. He referred to the assessees contention of rejection sub silentio of the reconciliation statements of the assessee for assessment years 1981-82 to 1986-87. He observed that the said objection was not well-founded as the net wealth statements did not contain the list of annexures to the balance sheet figures like debtors, creditors and other relevant details.
11. He observed that it was not possible for him to comment on the assertion of the assessee as to what benefit would have flown to it as the same was best known to it. He also held that additions for unexplained credits were not liable to be influenced by the quantum of brought forward losses and subsequent losses. After referring to the amount of sundry creditors and bills for collection as on 1-7-1979 and 30-6-1980, he held that these figures showed that the alleged drafts from its sundry debtors were, in fact, utilised by the assessee for reducing the bills for collection limits and in paying of some sundry creditors and that the assessee did gain an advantage from the receipt in the books maintained for the business.
12. He held that the assertion of the assessee that the balance sheet would not tally it the drafts were not received from the sundry debtors, did not appear to be convincing and that it cannot be accepted as such. He also held that such type of generalisation without proof of identity and creditworthiness of the creditors could not be a ground for acceptance.
13. He observed that the plea of the assessee that in any case, the amount of Bank drafts would only be income from business and not income from undisclosed sources, was not acceptable. In support of his reasoning he referred to the Kanga and Palkhivalas "The Law and Practice of Income Tax" page 864 of Eighth Edition, Volume-I, wherein it was stated that the cash credits may be assessed either as business profits or as income from other sources.
14. He also observed that the records showed that assessee was given numerous opportunities to put forth its case.
15. He further held that the Assessing Officer has followed the CBDTs Instruction No. 1659 faithfully and the same was evident from the office note recorded by the Assessing Officer himself and the fact that addition of only Rs. 15.59 lakhs was maintained in the assessment order dated 13-1-1992 as against the addition of Rs. 34 lakhs approximately, in the earlier two assessment orders dated 8-10-1984 and 20-1-1989, for which no explanation was forthcoming although the assessee was in possession of party ledger etc. He also held that nowhere the said Instruction No. 1659 laid down that the accounts as presented should be accepted and that it only stipulated that after verification of the relevant facts and also keeping in view the past history, the assessment should be completed in a liberal and sympathetic manner.
16. The CIT (Appeals) observed that the Assessing Officer made the addition under section 68 has neither any vouchers in respect of the drafts were produced for verification nor the name of the parties from whom those drafts originated were made available. The identity of the depositor party was not verifiable. The Punjab and Haryana High Court in the case of Munshi Ram v. CIT [1980] 126 ITR 663 held that if any sum is found credited in the books of an assessee the onus is on him to explain away the said entry but if he fails to do that, it will be open to the income-tax authorities to fasten him with the liabilities to tax on account of the unexplained entry. As per the decision of the Supreme Court in the case of Kale Khan Mohammad Hanif v. CIT [1963] 50ITR 1 the onus of proving the source of a sum of money found to have been received by the assessee is on him. The judgment of the Supreme Court in the case of A. Govindarajulu Mudaliar v. CIT [1958] 34 ITR 807 is also to the same effect. The Supreme Court held that where an assessee fails to prove satisfactorily the source and nature of certain amounts of cash received during the accounting year, the Income Tax Officer is entitled to draw the inference that the receipts are of an assessable nature. The ingredients of the assessees onus is that it is necessary for him to prove prima facie the transaction which results in a cash credit in his books of account. Such proof includes proof of the identity of the creditor, the capacity of such creditor to advance the money and the genuineness of the transaction. These things must be proved prima facie by the assessee. Only after the assessee has adduced evidence to prove prima facie the aforesaid, the onus shifts on the Department. Merely establishing the identity of the creditor is not enough and mere filing of confirmatory letters also does not discharge the onus that lies on the assessee. Considering the facts of the present assessees case in view of the provisions of section 68, CIT (Appeals) held that the assessee has not only miserably failed in fulfillling the conditions but also failed to discharge the onus placed on him. The mere statement of realization from debtors would not amount to proving prima facie transactions which has resulted in a cash credit in the accounts of the assessee. Even after allowing the benefit of the handicap of the cash book stated to have been destroyed in riots would not entitle the acceptance of the credit because even the evidence which was in the possession of the assessee in the form of party ledger which was promised to be made available was never delivered. If either before the Assessing Officer or before the CIT (Appeals) the assessee had made endeavors or efforts to make the supporting evidence available for the drafts founds credited in the bank, a liberal and sympathetic view was always possible in view of the Instruction of the CBDT. But in the absence of evidence and based on a mere statement, it is not possible to accept the surfacing of huge deposits in the bank except for a credit of Rs. 17,845 on 28-11-1979 with a narration "drafts of Rs. 17,845 is from S.P.S.". It appears to be the credit in the name of Sardar Puran Singh who happens to be the Managing Director of the assessee company and this amount is found reflected in his copy of account. Thus, considering the facts of the case and also keeping in view the Instruction of the CBDT, the CIT (Appeals) held that it was not possible to allow any further benefit to the assessee. He gave a relief of Rs. 17,845 only. Thus, the CIT (Appeals) sustained the addition of Rs. 15,42,000 out of the addition of Rs. 15,59,845 made by the Assessing Officer. Dissatisfied with the action of the CIT (Appeals) in this regard, the assessee preferred the present appeal before the Tribunal.
17. The assessees counsel filed six paper books aggregating to 635 pages. The arguments of the assessees counsel were to the following effect : The balance sheet of the assessee as on 30-6-1980 (relevant for the assessment year 1981-82 under consideration) is given at page 517 (paper book No. 5). The sundry debtors as on 30-6-1980 were shown at Rs. 35,99,538. The reconciliation of the sundry debtors as on 1-7-1979 and 30-6-1980 is given at page 135 of paper book No. 1. The reconciliation statement of sundry debtors from 1-7-1979 to 30-6-1985 is given at pages 136 and 137 of paper book No. 1. According to the said reconciliation statement, the sundry debtors as on 30-6-1985 (relevant to the assessment year 1986-87) were Rs. 38,95,916. The balance sheet as on 30-6-1985 is given at page 140 of paper book No. 1. Thus, the figure of sundry debtors of Rs. 38,95,916 is proved to the hilt. Subsequent assessment i.e. assessment years 1982-83 onwards till today have been completed accepting the sundry debtors figure of Rs. 35,99,538 as on 30-6-1980. The Department has approbated and reprobated by accepting sundry debtors of Rs. 35,99,538 as on 30-6-1980 and by adding Rs. 15,59,845 in assessment year 1981-82. This sort of approbation and reprobation is not permissible. After treating Rs. 15,59,845 as income from other sources, the closing balance of the sundry debtors as on 30-6-1980 was not accordingly increased resulting in a double taxation since closing balance of sundry debtors at Rs. 35,99,538 was arrived at by reducing Rs. 15,59,845 claimed to have been received from sundry debtors. The balance sheet would not tally at all if they were not actually received from sundry debtors. Only credits were taken into account and not debits. Peak credit was not worked out. Each credit was not considered on merits. Omnibus addition at Rs. 15,59,845 is contrary to the judgment of the Delhi High Court in Ganga Automobiles (P.) Ltd. v. Sales Tax Officer [1989] 72 STC 334 and the judgment of the Supreme Court in the case of Tata Engg. & Locomotive Co. Ltd. v. Assistant CCT [1970] 26 STC 354. According to the said judgment the assessing authority was bound to examine each individual transaction. For this case law reference may be made to page 568 of paper book No. 6. The credits are taken from the bank pass books and not from the books of account of the assessee. Bank pass book is not a book maintained by the assessee as per the judgment of the Bombay High Court in the case of CIT v. Bhaichand H. Gandhi [1983] 141 ITR 67. The Tribunal in the case of Kishan Chand Sobhraj Mal v. ACIT [1992] 41 ITD 109 following the judgment of the Bombay High Court in the case of CIT v. Bhaichand H. Gandhis case (supra) held that there is no justification for making any additions on the basis of entries found in the books of account which did not belong to the assessee. There is no evidence whatsoever with the Department to prove that the amount of Rs. 15,59,845 are undisclosed sales of the assessed Even assuming, but not conceding, that there were any sales, section 68 cannot apply as sales constitute business activity, income from which cannot be brought to tax as income from other sources. Further, the Assessing Officer has brought to tax the entire alleged gross sales of Rs. 15,59,845. If at all any addition is to be made, it should have been limited to the profit element only on those alleged sales. Reliance is placed for this proposition on the judgment of the Calcutta High Court in the case of CIT v. S. M. Omer [1992] 62 Taxman 46 and order of the Tribunal in the case of Tara Chand Shantilal v. ITO [1987] 28 TTJ (Jp.) 128. Extracts from these judgments are given at pages 274 and 275 of paper book No. 2. The Assessing Officer observed that there was no proof for realization from sundry debtors during the year ending 30-6-1980 to the extent of Rs. 18,00,763. The Assessing Officer, on comparing the realization from the sundry debtors in the assessment years 1982-83, 1983-84 and 1984-85 observed that it was unlikely that in the assessment year under consideration the assessee suddenly had realization from sundry debtors of about Rs. 18 lakhs. The reason given by the Assessing Officer is not a valid reason. Reliance is placed on the judgment of the Madras High Court in the case of New Ambadi Estates (P.) Ltd. v. State of Tamil Nadu [1993] 200 ITR 64. In that case, the disallowance was made out of mess expenses on the ground that expenditure was higher than in earlier years. The High Court held that in such circumstances the disallowance cannot be sustained. The impugned addition was made on mere assumption and presumption which is not sustainable under the law. For this proposition reliance is placed on the judgment of the Supreme Court reported in Jaswant Singh Saluja v. Chief Settlement Commissioner AIR 1971 SC 748 (given at page 209 of paper book No. 2). Further, no addition can be made without supporting evidence as laid down by the Supreme Court in 26 ITR at page 776 (sic) (given at page 206 of paper book No. 2). In the present case the Assessing Officer has not brought on record any material to substantiate his allegation of unaccounted sales. The burden of establishing malafides is very heavy on the person who alleges it. The very seriousness of such allegation demands proof of a high order of credibility. See AIR 1974 SC 557 (sic) (given at page 210 of paper book No. 2). As held by the Allahabad High Court in the case of CIT v. Mahesh Chand [1993] 199 ITR 247, assessment under section 143(3) must not be arbitrary. It must have nexus to the material on record. This can be seen at page 217 of paper book No. 2. In the assessment order originally passed under section 144 on 8-10-1984, it was held that the impugned deposits are the realization of the sale proceeds against sales not disclosed in the past years in the books of account. (page 538 of paper book No. 5). Same is the finding in the assessment order passed under section 143(3)/250 dated 20-1-1989 (see page 549 of paper book No. 5). Contrary to these findings by the earlier Assessing Officers, the present Assessing officer who passed the assessment order on 13-1-1992 held that these were the receipts from the suppressed sales during the year ending 30-6-1980. Such contrary findings by the concerned authorities vitiate the order. The taxation authorities cannot go on changing their mind from time to time and cannot be allowed to create uncertainty in the realm of taxation. 6 ELT 756 Guj. (sic) (see page 577 of paper book No. 6). Further, departure from earlier conclusion without explanation is vitiated. Please see 209 ITR 433 (sic). When they themselves were not sure about the correct factual position, any addition made is not sustainable under the law. It is settled law that benefit of doubt is the right of the assessee and the onus to prove lies on the Department. As laid down by the Supreme Court in the case of CST v. Suresh Chand Lain (sic) given at page 257 of paper book No. 2 the onus lies on the revenue to disprove the contention of the assessee. In matters concerning taxation the tax authority has to be definite before inflicting a tax on the taxpayer. Where an element of doubt pervades the mind of the tax authority, the benefit of doubt would go to the taxpayer. This is the ratio of the judgment of the Patna High Court in the case of Standard Mercanttle Co. v. State of Bihar [1972] 29 STC 675 (Pat.). (This can be seen at page 262 of paper book No. 2). Where there is no evidence whatsoever to support the addition by the assessing authority, which was made on the suspicion and ipse dixit of the assessing authority, such an addition is a nullity as per the judgment of the Supreme Court in AIR 1984 SC 1812 (sic). Positive evidence was rejected in sub silentio and on the ipse dixit and without assigning any reason whatsoever and contrary to the Instruction No. 1659 dated 31-10-1985 of the CBDT (given at page 95 of paper book No. 1). Any assessment order passed totally disregarding this Instruction is without jurisdiction and a nullity. For this proposition reliance is placed on the judgment of the Allahabad High Court in the case of Atma Stools Ltd v. Union of India 63 ELT 406 (given at page 207A of paper book No. 2) and the order of the Tribunal reported at 35 TTJ 71 (given at page 226 of paper book No. 2). As per the rectification order under section 154 dated 31-7-1992 the business loss carried forward amounted to Rs. 21,61,703. The revised income as per the said rectification order was only Rs. 1,98,137. (The said rectification order is given at pages 562 to 565 of the paper book No. 5). There is no tax advantage to the assessee. When there is no tax advantage to the assessee, the amount added as income from undisclosed sources requires to be deleted as laid down by the Calcutta High Court in the case of CIT v. Western Estates [1994] 209 ITR 343. The judgment of the Supreme Court in 47 ELT (A) 105 is also to the same effect. The CIT (Appeals) in his order dated 29-1-1990 directed the Assessing Officer to examine the subsequent balance sheet, companys net assets, the investments and acquisitions of the Directors of Company etc. He observed that an analysis of these factors along with the other relevant factors would help to arrive at the truth or near truth about the tenability, probability and acceptability of the explanations. These specific directions were completely ignored by the Assessing Officer when he passed the assessment order dated 13-1-1992. These directions given by the CIT (Appeals) cannot be ignored by the Assessing Officer as laid down by the Bombay High Court in the case of Smt. Mukundkumari v. K. V. S. Namoondari 17th ITO [1979] 118 ITR 433. The judgment of the Supreme Court in AIR 1984 SC at page 897 (sic) is also to the same effect. The assessee filed an affidavit dated 10-2-1992 before the CIT (Appeals) which was not considered at all by him. The assessee filed another affidavit dated 17-3-1993 before the Tribunal. No counter-affidavit was filed by the revenue. Hence, the averments made by the assessee are not controverted and should be deemed to be admitted by the doctrine of non-traverse as laid down by the Delhi High Court in the case of Ganesh Rolling Mills v. Union of India 45 ELT 407. This judgment can be seen at page 87 of the paper book No. 1. A statement reconciling the sales of Rs. 2,03,103 during the year ending 30-6-1980 was filed before the Assessing Officer. This can be seen at page 147 of paper book No. 1. This was not questioned by the Assessing Officer when he passed the assessment order on 13-1-1992. Nothing was found fault with. Without prejudice to the above, if the amount of Rs. 15,59,845 was to be treated as undisclosed sales, the net profit element embedded in those sales should be treated as business income and not as income from other sources. as laid down by the Madras High Court in the case of CIT v. Bosotto Bros. Ltd. [1940] 8 ITR 41, if case appears to be governed by either of the two provisions, it is clearly the right of the assessee to claim that he should be taxed under that one which leaves him with a lighter burden. The assessee should be awarded costs. Thus, under these circumstances of the case, the sustained addition of Rs. 15,42,000 deserves to be deleted.
18. The Departmental Representative filed a paper book of 16 pages and urged to the following effect : Reference may be made to page 8 of the assessment order dated 8-10-1984 passed under section 144 originally. (see page 528 of paper book No. 5). Certain drafts were deposited in the bank of Tokyo. These drafts were entered in the books of the assessed There must be credits in any of the accounts in the assessees books of account. The onus of explaining the credit entries is on the assessee. The identity of the person giving the draft, the capacity of the said person and the genuineness of the transaction should be proved. Reliance is placed on the judgments of the Calcutta High Court in the cases of Shankar Industries v. CIT [1978] 114 ITR 689 and CIT v. Precision Finance (P.) Ltd. [1994] 208 ITR 465. The mere fact that the credit was by a draft/cheque is not sufficient. In the letter dated 6-11-1984 addressed to the S.H.O. (given at page 7 of the revenues paper book) there was no mention about the loss of books of account of the assessee. In the said letter it was only stated that on 1-11-1984 two office blocks of the assessees factory was burnt. As mentioned by the CIT (Appeals) in para 22 of his order, FIR was never filed before the Assessing Officer. In the assessees letter dated 3-10-1985 (given at pages 3 to 6 of the revenues paper book) the assessee refers to the ledger for the year ended 30-6-1978. From the ledger for the year ended 30-6-1978, the assessee could have given the names of the debtors from whom the drafts were received during the year ended 30-6-1980 relevant for the assessment year 1981-82. CBDTs instruction No. 1659 is not an instruction to be blindly followed by the Assessing Officer. The assessee cannot say that it will not produce its books of account and yet claim the following of the said Instruction. The assesses cannot claim that directions issued by the CIT (Appeals) in the remand order were not followed. Directions issued by the CIT (Appeals) at para 23 of the appellate order dated 29-1-1990 are nothing but extension of section 68 to the assessees case. The instructions of the CIT (Appeals) were fully and completely followed. Cash credits added under section 68 cannot be treated as income from the business. An explanation of the assessee cannot be equated with evidence whether it is in the form of an affidavit or otherwise. Affidavits cannot be always accepted when other factors are there. Affidavits need not always be accepted as correct as laid down by the Allahabad High Court in the case of Sri Krishna v. CIT [1983] 142 ITR 618. The list of persons from whom the drafts were received was not filed before the Assessing Officer to avoid proper probe. Acceptance of sundry debtors at lesser figures in the subsequent years does not mean anything. That does not mean cash credits being accepted in assessment year 1981-82 under consideration. Section 68 speaks of "any sum". It covers any amount of sales proceeds as well as realization from debtors, share application money etc. If they are not proved, the same can be added under section 68. There is no double taxation in the assessees case on hand. There is no change of stand from the first assessment order dated 8-10-1984 till the present assessment order dated 13-1-1992. The thrust is on cash credits only. There is no malafides or conjectures or surmises on the part of the revenue. The addition was made in the spirit of section 68. Really speaking, the Department is harassed by the assessee and not vice versa. If anybody plays with fire, he has to burn his fingers and he cannot complain later. None of the judgments relied upon by the assessees counsel applies directly to the assessees case. The assessee claimed for costs. The Department performs sovereign functions. Even refund of appeal fee paid is not permissible. As the Tribunal is not a court, it cannot award costs. Reliance is placed on the judgment in the case of R. M. Seshadri v. Second Addt. ITO [1954] 25 ITR 400 (Mad.). In that case it was held that the Appellate Tribunal has no power to award costs or to direct the refund of the fee under section 33(3) of the Income-tax Act, 1922. The observations of the courts de hors context of the case do not apply.
19. In reply the assessees counsel submitted to the following effect : The Departmental Representative has not met my contention about the non-speaking order by the Assessing Officer. He has not met my contention about the not dealing with the judgments of several High Courts and the Tribunal referred to by me before the CIT (Appeals). The Assessing Officer and the CIT (Appeals) have accepted the burning of the books of account. The Department has not filed any appeal against the said finding. The assessment has to be made on circumstantial evidence as directed by the CIT (Appeals) in his appellate order dated 29-1-1990. The Department cannot reject the affidavits. If the Department prefers to reject the affidavits, mention should have been made to that effect in the respective assessment order/appellate order. The present assessment order dated 13-1-1992 was made as original assessment. It was not made as an assessment as directed by the CIT (Appeals) in para 23 of his appellate order dated 29-1-1990. The CIT (Appeals) is bound by the findings of his coordinate authority. He cannot go beyond the findings given by his predecessors. Reliance is placed on the decision of the Tribunalin ITO v. Ram Prasad [1984] 10ITD 96 (All.). The judgment of the Supreme Court in the case of Jasraj Indersingh v. Hemraj Multanchand AIR 1977 SC 1011 is also to the same effect. This judgment can be seen at page 423 of paper book No. 3. The CIT (Appeals) in his appellate order dated 31-1-1994 has made out a new case without giving any opportunity to the assessee. Section 68 is a fictional provision. It should be construed strictly. The marginal note of section 68 reads as "cash credits". The marginal note can be relied upon to show what the section deals with as laid down by the Supreme Court in the case of K. P. Varghese v. ITO [1981] 131 ITR 597. The head of income is not mentioned in section 68. It was nobodies case that no evidence was filed by the assessee before the revenue. The directions of the CIT (Appeals) contained in para 21 of the order dated 29-1-1990 were not properly carried out. No mistake was found in the statements of debtors and in the net worth statements etc., filed. Bank records were requested to be called for under section 131 by the assessee. This was not done by the Department.
20. We have considered the rival submissions and the case law cited and perused the papers filed before us. The assessment order dated 13-1-1992 contains "drafts deposited in the Bank of Tokyo, Parliament Street, New Delhi." as given in List-I as reproduced in the orders of the Assessing Officer as well as the CIT (Appeals). For the sake of convenience it is reproduced below :
Date Amount Remarks (Rs.) 5-7-1979 30,000 19-7-1979 40,000 23-7-1979 1,00,000 60,000 Vouchers not produced 50,000 31-7-1979 30,000 1-8-1979 70,000 7-8-1979 1,00,000 In the vouchers names of 16-8-1979 1,00,000 the parties from whom these 17-8-1979 50,000 drafts are received are not 6-9-1979 90,000 given. Only the name of 24-9-1979 30,000 the station e.g. Calcutta, 10,000 and Asansole are written.
25,000 26-10-1979 40,000 28-11-1979 17,845 Draft of Rs. 17,845 is from S.P.S. That appears to be Sardar Puran Singh.
17-12-1979 1,25,000 1,00,000 29-2-1980 1,50,000 26-3-1980 50,000 3-5-1980 50,000 31-5-1980 25,000 25,000 28-6-1980 17,000 75,000 50,000 Total :
15,59,845 The above shows that vouchers were produced for the following :
Date Amount Remarks (Rs.) 7-8-1979 1,00,000 16-8-1979 1,00,000 17-8-1979 50,000 6-9-1979 90,000 24-9-1979 30,000 10,000 25,000 26-10-1979 40,000 It also shows that vouchers were not produced for the following :
Date Amount Remarks (Rs.) 5-7-1979 30,000 19-7-1979 40,000 23-7-1979 1,00,000 60,000 Date Amount Remarks (Rs.) 50,000 31-7-1979 30,000 1-8-1979 70,000 For the following, the Assessing Officer did not state whether vouchers were produced or not :-
Date Amount Remarks (Rs.) 17-12-1979 1,25,000 1,00,000 29-2-1980 1,50,000 26-3-1980 50,000 3-5-1980 50,000 31-5-1980 25,000 25,000 28-6-1980 17,000 75,000 50,000 So it cannot be said by the Assessing Officer in page 5 of the assessment order dated 13-1-1992 that "in view of ...... inability of the assessee to produce any details regarding drafts deposited".
Further the Assessing Officer has confused himself regarding the pay-in-slips produced by the assessee before him. The "Pay-in-slips" cannot be termed as "Vouchers". The word "voucher" is a misnomer for the "pay-in-slip". Voucher is a receipt issued by the recipient to the payer. The pay-in-slip contains two portions - counterfoil retained by the account holder and the main portion given to the bank along with the draft deposited. The main portion of the pay-in-slip contains the following columns :-
Drawn on Bank Branch Cheque No. Amount Rs.
The counterfoil of the pay-in-slip contains the following columns :-
Details of cheque Amount Rs.
The pay-in-slip does not contain the names of the parties or the source from which the drafts are received as presumed by the Assessing Officer in his assessment order dated 13-1-1992. A specimen form of pay-in-slip is made in Annexure to this order. The Assessing Officer should have summoned the records of the Bank of Tokyo to satisfy himself about the correctness of the assessees claim of depositing the impugned drafts. He has not done so. So on adverse inference can be drawn against the assessee in this regard.
21. There are contradictory findings in the assessment order dated 8-10-1984 and 13-1-1992. In the assessment order dated 8-10-1984, that Assessing Officer (Mr. O. S. Bajpai) at page 18 stated that these deposits are the realization of the sale proceeds against the sales not disclosed in the past years in the books of account". However, in the assessment order dated 13-1-1992 at page 5 the Assessing Officer (Mrs. Gunjan Misra) stated that "drafts deposited in the Bank of Tokyo as per List-I ....... are actually undisclosed sales of the assessee." and "the sales were not being accounted for in the books of the assessee and the same were being directly deposited in various bank accounts". Thus, the successive Assessing Officers are not sure of the stand taken by them. Added to this, no evidence was brought on record by the Assessing Officer to substantiate the allegation that the impugned amount of Rs. 15,59,845 represented undisclosed sales. In the circumstances, benefit of doubt should have been given to the assessee as contended by the assessees counsel reproduced earlier. The taxation authorities cannot go on changing their mind from time to time and cannot be allowed to create uncertainty in the realm of taxation [6 ELT 756 Guj. (sic)]. Departure from earlier conclusion without explanation is vitiated. When the taxing authorities themselves were not sure about the correct factual position, any addition made is not sustainable under the law. It is settled law that benefit of doubt is the right of the assessee. [29 STC 695 (sic)].
22. The assessee has filed reconciliation statement of sundry debtors from 1-7-1979 to 30-6-1980 (page 135 of paper book No. 1). In the said statement Rs. 18,00,763 was shown as realization from the debtors during the year ended 30-6-1980. The Assessing Officer after comparing the figures of realization from the debtors in the assessment years 1982-83, 1983-84 and 1984-85 concluded that it was unlikely that for the assessment year 1981-82 the assessee suddenly had realization from sundry debtors of about Rs. 18 lakhs. This is only a suspicion of the Assessing Officer. Suspicion, however, grave, cannot take the place of proof. The assessees plea of realization of Rs. 18,00,763 from the sundry debtors in the year ended 30-6-1980 cannot be rejected on the ground that realizations in the later assessment years were less. Please see the case of New Ambadi Estates Pvt. Ltd.s case (supra).
23. The reconciliation statement of debtors from 1-7-1979 to 30-6-1985 is given at pages 136 and 137 of paper book No. l. The sundry debtors as on 30-6-1981, 30-6-1982, 30-6-1983, 30-6-1984 and 30-6-1985 were given in the balance sheets filed in the later assessment years. They were all accepted by the Assessing Officer. When such is the factual position, the Assessing Officer cannot find fault with the figure of sundry debtors as on 30-6-1980 at Rs. 35,99,538. If at all the Assessing Officer disbelieved Rs. 35,99,538 he should have enhanced the figure of sundry debtors as on 30-6-1980 by Rs. 18,00,763 and adopted the same in the later assessment years. This was not done by the assessing authorities. This blowing of hot and cold by the Assessing Officer is not permissible in law.
24. The Assessing officer held in the assessment order dated 13-1-1992 that the drafts deposited in the Bank of Tokyo as per List-I are actually undisclosed sales and treated the same as income of the assessee under section 68 of the Income-tax Act, 1961. This was really strange. Only unsubstantiated cash credits could be added under section 68 of the Income-tax Act, 1961. The said section does not permit the Assessing Officers to add undisclosed sales under that section. Further, the realizations from the sundry debtors cannot be treated as cash credits. Cash credits always appear as a liability in the balance sheet of the assessee. Realization from the sundry debtors would reduce the sundry debtors appearing on the "assets" side of the balance sheet.
25. As already stated the Assessing Officer has not brought any material on record to substantiate his allegation that the impugned amount of Rs. 15,59,845 represented undisclosed sales of the assessee. Even assuming that it represents undisclosed sales, the whole of the said amount cannot be included in the total income of the assessee. Only the net profit element in the alleged undisclosed sales of Rs. 15,59,845 can be included in the total income of the assessee. For this proposition reference can be made to the order of the Tribunal in the case of Tarachand Shantilal (supra) (given at page 101 of paper book No. l) and also the judgment of the Calcutta High Court in the case of S. M. Omer (supra) given at page 102 of paper book No. 1.
26. Even assuming that some amount is to be added in the total income of the assessee towards the profit element embedded in the alleged unaccounted sales, it can only be assessed under the head "Income from business" and not as "Income from other sources" as has been done by the Assessing Officer.
27. The assessee has got carried forward losses of preceding assessment years viz., assessment years 1977-78 to 1980-81 aggregating to Rs. 21,61,703 as per order under section 154 dated 31-7-1992 placed at page 48 of the paper book No. 1. Hence there is no tax advantage to the assessee, if the assessee were to suppress the sales to the extent of Rs. 15,59,845. No prudent businessman would allow so much amount to go as unaccounted when he can easily afford to have it accounted for without paying even a rupee towards income-tax. To indulge in such unaccounted sales in such circumstances is against common human behavior. When there is no tax advantage, the sustained addition of Rs. 15,42,000 has to be deleted as per the judgment of the Calcutta High Court in the case of Western Estates (supra).
28. The Assessing Officer accepted the plea of the assessee that books of account had been burnt in the riots of November 1984. Please see the observation of Assessing Officer at page 5 of the assessment order dated 13-1-1992 reading as "In view of the fact that the books of account have burnt". In such circumstances, the CBDTs Instruction No. 1659 dated 31-10-1985 should have been applied. This was not done. Hence the sustained addition of Rs. 15,42,000 cannot be upheld. Any order contrary to administrative instructions is null and void as laid down by the Andhra Pradesh High Court in the case of K. Yadaiah v. Government of Andhra Pradesh AIR 1984 NOC 5 (given at page 96 of paper book No. 1). Further, as laid down by the Supreme Court in the case of Rajinder Nath v. CIT [1979] 120 ITR 14 at page 20 a direction by a statutory authority is in the nature of an order requiring positive compliance. Reliance is also placed on the judgment of the Supreme Court in Jasraj Indersinghs case (supra) (given at page 4232 P.B. No. III).
29. The CIT (Appeals) in his appellate order dated 29-1-1990 gave certain directions in paras 21 and 23 but they have not been carried out by the Assessing Officer when he passed the assessment order dated 13-1-1992. This amounts to judicial indiscipline. Please see judgment of the Supreme Court in the case of Union of India v. Kamlakshi Finance Corp. Ltd. 72 Taxman 43 (sic) given at page 63 of the papers filed along with the Memorandum of Appeal. Hence the addition of Rs. 15,59,845 by the Assessing Officer is not Warranted
30. The CIT (Appeals) after referring to the assessees letter dated 3-10-1985 in para 23 of his order, concluded in para 24 that flit is rather unfortunate that till date such partywise details of persons paying Rs. 18 lakhs and odd has never been furnished in spite of above admission and promise. This obviously shows that the appellant had no such intention". This conclusion is based on his misreading of assessees letter dated 3-10-1985. In that letter dated 3-10-1985 (given at pages 3 to 6 of revenues paper book) the assessee referred to compilation of "partywise details of sundry debtors outstanding as on 30-6-1978 based on the parties ledger for that year". The parties ledger referred to by the assessee is for the year ending 30-6-1978 relevant for the assessment year 1979-80 and not for the year ending 30-6-1980 relevant for the assessment year 1981-82 under consideration. Hence the said observation of the CIT (Appeals) in para 24 is misleading.
31. His observation at the end of the para 25 that "In view of the appellants counsels letter dated 3-10-1985 mentioned earlier it has to be held that the appellant was not justified in withholding the list of debtors on various dates," is also misleading. How can he expect the assessee to give the list of debtors on various dates - on the basis of parties ledger for the year ending 30-6-1978 ? How can he expect the assessee to give lists of sundry debtors as on 30-6-1979 and 30-6-1980 based on the parties ledger for the year ending 30-6-1978 ? This shows the lack of understanding on the part of the CIT (Appeals).
32. Again in para 31 he observes "although the assessee was in possession of parties ledger etc." which ledger he is referring to ? Probably he has in his mind parties ledger for the year ending 30-6-1978.
33. Again he harps in para 34 "even the evidence which was in the possession of the appellant in the form of parties ledger which was promised to be made available was never delivered". What the assessee referred to in letter dated 30-10-1985 is parties ledger for the year ending 30-6-1978 and not for the year ending 30-6-1980.
34. The observations of the CIT (Appeals) are also contradictory. In para 26 he observes that "the plea of cash book having been burnt does not appear to be convincing and plausible". In para 27 he observes that "when admittedly only the cash book was burnt".
35. The CIT (Appeals) proceeds on the basis that the impugned addition of Rs. 15,59,845 is made as the assessee was not able to prove the cash credits. This is evident from para 29 of his order. He speaks of identity and creditworthiness of the creditors. The Assessing Officer never held that the said amount represents unproved credits. The Assessing Officer only held that it represents "undisclosed sales of the assessee". This shows the utter confusion in the mind of the CIT (Appeals) which led to the dismissal of the assessees appeal.
36. Besides the total of the amounts of drafts as per list-I reproduced in the assessment order dated 13-1-1992 comes only to Rs. 15,09,845. But the Assessing Officer had made an addition of Rs. 50,000 more by taking the figure to be added at Rs. 15,59,845. Neither the assessees counsel nor the Departmental Representative have noticed this. This shows the light attitude taken by the Assessing Officer.
37. In the above facts and circumstances of the case, we hold that the Assessing Officer is not at all justified in adding Rs. 15,59,845 towards undisclosed of the assessee and in applying section 68 of the Income-tax Act, 1961 to the same. We delete the sustained addition of Rs. 15,42,000.
38. In the assessment order dated 13-1-1992 the Assessing Officer disallowed Rs. 98,532 out of interest payments claimed by the assessee, holding it as "of penal nature". He did not give the nature of the same and did not give any reason how it is of penal in nature. Before the CIT (Appeals), it was contended by the assessees counsel that it was paid for default in making payments to banks as per the terms and conditions of the sanctioned loan and that it was compensatory in nature and that it was not paid for any violation of law. The CIT (Appeals) simply held that the Assessing Officer was fully justified making the disallowance "if the same was not a legitimate deduction". Both the orders of the Assessing Officer and the CIT (Appeals) are not speaking orders. The CIT (Appeals) left the question open by observing "if the same was not a legitimate deduction". Such non-speaking orders deserve to be annulled. Reliance is placed on the judgment of Gauhati High Court in the case of Baidya Nath Sarma v. CWT [1983] 140 ITR 801 where Supreme Courts judgments in Mahabir Prasad Santosh Kumar v. State of U.P. AIR 1970 SC 1302 and Manager, Government Branch Press v. D. B. Belliappa AIR 1979 SC 429 were followed. Accordingly we delete the disallowance of Rs. 98,532.
39. The charging of interest under sections 139(8) and 217 is consequential.
40. The assessees claim for awarding of costs is not allowable in view of the judgment of the Madras High Court in the case of the R. M. Seshadri (supra).
41. In the result, the appeal is partly allowed.