Kerala High Court
Commissioner Of Income-Tax vs South Indian Rubber Products. on 27 February, 1987
Equivalent citations: (1987)64CTR(KER)282, [1987]166ITR687(KER)
JUDGMENT
K. P. RADHAKRISHNA MENON J. - This reference is at the instance of the Revenue. The questions referred are :
"1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law and fact in deleting the addition of Rs. 50,000?
2. Whether there are materials for the Tribunal to find that the assessee has successfully rebutted the evidence in the possession of the Department and is not the above finding wrong and unreasonable in law and also based on probabilities and surmises?
3. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that there is no reliable evidence in the case to show that the assessed has a stock of unaccounted synthetic sheets and is not the above finding wrong and perverse in law and also based on probabilities and surmises?
4. Whether the Tribunal is right in law the fact in deleting the addition of Rs. 50,000 relying on probabilities and without taking any evidence either by itself or from authorities below?"
The year of assessment, the relevant previous years ending August 31, 1969, for business and March 31, 1970, for income assessable under the head "Other sources" is 1970-71. The assessee-firm carries on the business of manufacture and sale or rubber products, mattings, hose pipes, etc. Facts relevant and requisite to dispose of the issue arising for consideration, briefly stated are : Noticing that the assessees books of account did not reflect the true value of the closing stock, the assessing authority wanted to assessee to submit its explanation thereto, as is seen from annexure-A letter. Annexure-A letter discloses that the assessee was having dealing with the Central Bank of India, Alleppey. The Income-tax Officer, therefore, by his letter, annexure-C, dated December 19, 1972, called upon the Central Bank of India, Alleppey which had provided the assessee with a key loan accommodation, to furnish the details regarding the matter made mention of on the following three point, highlighted in the said letter :
"1. Whether the fact that the assessee pledged only ordinary insertion sheets in the guise of synthetic sheets is burned out by your records?
2. Whether a verification of the stock pledged from time to time has been made with reference to the stock declared in the statement filed by the assessee and it has been accepted as correct?
3. Whether the value given in the declaration made by the assessee from time to time has been found to be correct having due regard to the market value of the goods pledged?"
Both the assessee and the bank submitted explanation.
After enquiry, the assessing authority held thus :
"In my opinion, the assessed cannot be considered to have discharged the onus of proving that the stock declared was not synthetic sheets but mere insertion sheets merely because the bank agent has stated that the bank is relying mainly on the declaration given by the parties. Moreover, the fact that the synthetic sheets have been completely released on December 21, 1972, i.e. after the enquiries have been started, clearly establish that these assessee has tried to suppress the evidence."
On appeal, the Appellate Assistant Commissioner declared that the assessee, in order to obtain the key loan accommodation from the Central Bank, had pledged only ordinary insertion sheets and not synthetic sheets and, therefore, the addition of Rs. 50,000 made by the assessing authority is not sustainable. Accordingly, the same was directed to be deleted from the assessment.
The Appellate Tribunal accepted the said finding of the Appellate Assistant Commissioner and dismissed the second appeal the Revenue had filed against the order of the Appellate Assistant Commissioner.
The above questions arise out of the said order of the Appellate Tribunal.
It is not disputed, and for that matter it cannot be disputed, that the "pledge documents" signed and submitted by the assessee to the bank for the accommodation show that the goods pledged are synthetic sheets. That these synthetic sheets are valuable articles cannot be disputed. They, however, were not reflected in the books of account of the assessee. The assessee, therefore, was called upon to explain the discrepancy. The explanation offered by the assessee, however, was found to be not satisfactory by the assessing authority. The assessing authority accordingly held that the value of the synthetic sheets worked out by him was liable to be treated as income of the assessee for the year in question.
To the question put to the bank agent who has examined as a witness in the case, namely, "I put it to you that the bank has accepted the goods on the strength of the declaration made by the party and the lodgment application", the answer was "to a certain extent, since technical knowledge is required to identify the different types of rubber, we depends on the partys declaration". Coupled with this is the telling circumstances that within two days of the issue of the letter dated December 19, 1972, to the bank enquiring about the nature of the articles on December 21, 1972, the assessee took delivery of the pledged articles from the bank. Having taken delivery of the goods, the assessee should have made them available to the assessing authority for verification. On the other hand, nothing was heard about these goods thereafter. The goods, it is said, were disposed of by the assessee without notice to the assessing authority. This one circumstances coupled with the declaration of the assessee contained in the "pledge documents" that the articles pledged are synthetic sheets is sufficient, according to the assessing authority, to hold that, to avail of the key loan, the assessee has pledged synthetic sheets owned by it. As already noted, the value of these articles has not been reflected in the books of account of the assessee. In these circumstances, the value of these articles will be deemed to be the income of the assessee for the year in question (see section 69B). The assessee, no doubt, can rebut the presumption. The onus, in this regard, is on the assessee. To hold that at the relevant time synthetic sheets did not from part of the stock-in-trade of the assessee, the Appellate Assistant Commissioner has relied on the communication of the Central Excise Department to the assessing authority dated December 19, 1972. It reads :
"The matter was investigated into and it is ascertained that M/s. SIRWO had pledged the goods with the bank branding them as "Synthetic Rubber Sheets" in spite of the fact that they were only "Natural rubber". The term "Synthetic rubber" was used by the firm with a definite motive of obtaining a substantial loan, perhaps with the concurrence of bankers. It is also ascertained that M/s. SIRWO have no materials or machinery to manufacture synthetic rubber. As such, no further probe is considered necessary."
The above, at best, can be treated as an opinion expressed by the Central Excise Department. This document, in the light of the discussions above, cannot be said to be sufficient to rebut the presumption based don the solemn declaration of the assessee coupled with the conduct of the assessee in disposing of the pledged articles without making them available for verification by the assessing authority. It should be remembered that these articles were disposed of in the midst of the enquiry and without the notice to the Income-tax Officer. A prudent businessman, in the circumstance in which the assessee is placed, would definitely, have made them available for inspection by the Income-tax Officer. The haste with which the assessee took delivery of these articles from the bank add the haste with which these articles were disposed of even without notice to assessing authority, coupled with the declaration of the assessee that the pledged goods were synthetic sheets, establish beyond doubt that what was pledged by the assessee for the key loan was nothing but synthetic sheets. No contra evidence worth the name has been produced by the assessee in rebuttal of the presumption. The Appellate Commissioners as also the Appellate Tribunal, however, accepted the explanation of the assessee and directed deletion of the addition From the discussions in the order of the Tribunal, it is clear that the assessee has not proved that the pledged articles are not synthetic sheets. That it is so can be seen from the following excerpts from the order of the Tribunal :
"The assessee also, though it knew the evasive answer (answer given by the bank agent while examined as a witness), did not ask any question to get the matter clarified and make the witness state that what was pledged was only insertion sheets. We can well approve of the stand of the assessee. Perhaps, it reframed from asking the question only to avert a calamity. If it asked a question to get a clarification and positive answer, there was every possibility that the witness, in the predicament in which he was placed and which we have discussed above, would be compelled to answer that the goods actually pledged were in accordance with the description in the pledge documents. It was only to avoid such an adverse answer that the assessee had refrained from asking that question. It was the fear that the assessee will be inviting an adverse piece of evidence that made him keep silent."
Similarly, the Tribunal wrongly cast the burden of proof on the assessing authority. A reference in this connection to the following observations in the order of the Tribunal is relevant :
"But the Income-tax Officer could have questioned and asked him to shed his evidence methods and give a straight answer whether the goods were synthetic sheets, particularly when the evidentiary value of the pledge documents shad been belittled by the evasive answer given in writing by the bank agent."
The controversies could have been given a quietus it the assessee had made available the pledged goods which he got released on December 21, 1972, for verification by the Income-tax Officer. It should be remembered that these goods were not released and hidden from the reach of the Income-tax Officer by the assessee, while the enquiry into the issue was progressing. Ignoring such telling, circumstances, the Tribunal has made the following comments regarding the release of the pledged goods on December 21, 1972 :
"This hasty release on December 21, 1972, strengthens our view. The release may be, as sought to be argued by the department representative, at the instance of the assessee with a view to screen the pledged synthetic sheets from the gaze of the Income-tax Officer of the makes a local inspection. If the Income-tax Officer see the synthetic sheets, the assessee has no escape. This is of course one probability. It may also be that only insertion sheets were pledged, that the assessee and the bank agent knew that the Income-tax Officer may make a local inspection and that then if it is founds that it is only insertion sheets, the bank agent will get into trouble and that, therefore, to avoid such a piquant situation, it is better to remove the goods so that no one will see it. This is another probability. Which is the greater possibility is the question. The evasive answer given, even after such removal of the goods from the purview, goes to show that the latter is the greater probability. Otherwise, after putting the articles beyond the possibility of purview by the Income-tax Officer, why should the bank agent lie an evasive answer. He could have affirmatively and positively said that the goods pledged were synthetic sheets. He gave an evasive answer because he still feared that truth may come out by other evidence and in that event, he should not be accused of having given a false certificate."
From the discussion above, it is clear that the Tribunal has not given cogent reasons for upsetting the finding of the Income-tax Officer. It committed to take into account relevant materials borne out by record. The findings are based on conjectures and surmises. The Tribunal has cast the burden of proof wrongly on the Income-tax Officer. It has even refused to take into account relevant considerations like the conduct of the assessee in not making the pledged goods after releases from the bank, available for the verification of the Income-tax Officer. The Tribunal thus has misunderstood the languages of section 69B. Not only that, it has arrived at the conclusion casting the burden of proof wrongly on the Income-tax Officer. The finding are controversy to the evidence available on recorded. The discussion in para 7 of the order (extracted above) shows that the Tribunal has imported facts and circumstances not apparent from the record to purpose to the finding of the Income-tax Officer. They also show that the conclusion is based on conjectures and surmises. The facts established by the "pledge documents" and the telling circumstances, like keeping the pledged good from the reach of the Income-tax Office to go to show that no person judicially acting would have come to the conclusion the Tribunal has arrived at in the case of hand. In these circumstances, this court, in the exercise of its advisory jurisdiction, has always the power to interfere with the finding of the Appellate Tribunal. This court accordingly can declared the finding thus arrived at as vitiated. We are fortify in this view by the decision of the Supreme Court in CIT v. S. P. Jain [1973] 87 ITR 370.
For the reasons stated above, we are constrained to set aside the order of the Appellate Tribunal and restore the order of the Income-tax Officer, annexure-F. Question No. 1, therefore, is answered in the negative, in favour of the Revenue and against the assessee.
Question No. 2 is answered in favour of the Revenue and against the assessee.
In the light of the answers given to question No. 1 and 2, no answers are warranted to question Nos. 3 and 4.
We direct the parties to bear their respective costs in this tax referred case.
A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.