Patna High Court
Commissioner Of Income-Tax vs Jhaverbhai Biharilal & Co. on 1 August, 1985
Equivalent citations: [1986]160ITR634(PATNA)
JUDGMENT Uday Sinha, J.
1. These are two references under Section 256(1) of the Income-tax Act, 1961, by a consolidated case statement. They arise out of six appeals and cross-appeals by the assessee and the Department. The references relate to the assessment years 1967-68 and 1968-69.
2. The assessee is a firm of five partners. It was assessed as an unregistered firm. It deals in sale and purchase of bidi leaves and tobacco. While assessing, the Income-tax Officer found a sum of Rs. 1,25,000 plus interest of Rs. 4,106 thereon (total Rs. 1,29,106) credited in the books of the firm for the assessment year 1967-68 and a sum of Rs. 1,05,201 during the assessment year 1968-69. The Income-tax Officer not having accepted the genuineness of the cash credits treated them as unexplained income and taxed them accordingly. The Appellate Assistant Commissioner confirmed the findings of the Income-tax Officer in regard to the cash credits. The stand of the assessee in regard to the cash credits in respect of all but two items did not find favour with the Appellate Tribunal as well. The Tribunal, however, accepted the stand of the assessee in regard to loans of Rs. 20,598 and Rs. 8,247 (principal and interest) by Navjug Bidi Company and Ram Bidi Company, respectively. The Tribunal thus held that out of the credits in the assessment year 1968-69, the assessee had successfully explained the loans of Rs. 28,845 from Navjug Bidi Company and Ram Bidi Company--both of Nepal. The transactions in regard to loans from individuals during the year 1967-68 were rejected without any modification. The finding of the Tribunal in regard to cash credits, therefore, was that the assessee had failed to explain the cash credits to the tune of Rs. 1,29,106 during the year 1967-68 and a sum of Rs. 85,356 during the year 1968-69. I have some difficulty in following the arithmetic of the Tribunal in regard to the unexplained sums, but that is not important. Suffice it to say that the case of cash credits was rejected by all the Revenue authorities. Thus far, there is no difficulty.
3. The Tribunal, however, allowed " telescoping benefit " to the assessee on account of intangible additions sustained by them in bidi leaves and tobacco account to the tune of Rs. 25,000 and Rs. 17,250 for the two assessment years, respectively. The Revenue objects to the conferment of telescoping benefit to the assessee for the two years. The claim of the assessee to telescoping benefit was accepted by the Tribunal on the ground that that point had been decided in favour of the assessee in the appeal for the assessment year 1966-67. For the sake of consistency, it followed its earlier decision and confirmed the telescopic benefit to the assessee. The question, therefore, referred to this court is :
" Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal were correct in law in allowing the telescoping benefit on account of intangible additions in the trading account sustained by them during the same assessment year ? "
4. The order of the Tribunal in the appeal in relation to the assessment year 1966-67 has been filed as a miscellaneous paper by the Revenue. From the order of the Tribunal in relation to the appeal for the assessment year 1966-67, the position was that sums of Rs. 4,000 and Rs. 3,500 were found credited in the books of the assessee as loans from Pravin Kumar and Chhotelal Dubey, respectively. The Income-tax Officer did not accept them as genuine loans. They were, therefore, taxed as income from " other sources ". While asserting that the cash credits were genuine transactions, the assessee contended in the alternative that even if they were not held to be genuine, they should be set off against the additions in the trading account. The Tribunal accepted the transaction in regard to loan from Chhotelal Dubey, but rejected it in regard to loan from Pravin Kumar to the tune of Rs. 4,000. Having done that, the Tribunal accepted the alternative plea of the assessee and set off the additions against the cash credits. The profit of the firm had been enhanced by a sum of Rs. 10,000. The Tribunal held that the sum of Rs. 4,000 was covered by the added profit of Rs. 10,000. The addition of Rs. 7,500 was thus deleted. The Tribunal gave the same benefit for the assessment years 1967-68 and 1968-69 with which we are concerned in the two references before us.
5. The question, therefore, is whether additions in the trading account can be set off against income from undisclosed sources or other sources. In order to appreciate the contentions of the parties, it would be useful to set out some more facts.
6. During the assessment year 1967-68, the assessee showed purchase in bidi leaves of the value of Rs. 13,67,856. The Income-tax Officer held that the purchase figures were inflated. He, therefore, cut down the purchase figure by Rs. 1,50,000. He took this figure as income of the assessee. The Income-tax Officer also found that the figure for shortage of 12,546 bags on conversion to 7,281 bags of bidi leaves was high. The shortage thus was about 72.6% as against 62% during the preceding year. This, in the view of the Income-tax Officer, was unusually high. He, therefore, added back Rs. 25,000 for excess shortage. The Income-tax Officer thus added Rs. 1,75,000 in the bidi leaves purchase account for the assessment year 1967-68 and Rs. 1,05,000 for the assessment year 1968-69 and Rs. 30,000 on account of conversion loss. The Income-tax Officer thus treated Rs. 1,35,000 as income of the assessee for the year 1968-69.
7. The assessee during the assessment year 1967-68had shown gross profit of Rs. 1,84, 519 which worked out to 11.72%. This was considered to be low by the Income-tax Officer in view of the past records. For reasons assigned, the Income-tax Officer rejected the figures and estimated the profit at Rs. 2,16,000 which worked out to 13.5% gross profit. He thus added Rs. 32,156 for the year 1967-68 and for the assessment year 1968-69, a sum of Rs. 5,000 to the total income.
8. On appeal, the Appellate Assistant Commissioner added only Rs. 50,000 on account of excess purchase of bidi leaves as against the estimate of the Income-tax Officer at Rs. 1,75,000 for the year 1967-68 and Rs. 70,000 for the year 1968-69 as against the sum of Rs. 1,05,000 added by the Income-tax Officer. The sum of Rs. 30,000 on account of shortage of bidi leaves by conversion was totally deleted for both the years by the appellate authority. On account of purchase of tobacco, the Appellate Assistant Commissioner sustained the addition only of Rs. 5,000 for the year 1967-68. The addition on account of sale of tobacco of Rs. 5,000 during the year 1968-69 as found by the Income-tax Officer was completely deleted.
9. On further appeal by the assessee, the figures on account of excess purchase of bidi leaves was reduced to Rs. 20,000 and Rs. 15,000 during the assessment years 1967-68 and 1968-69, respectively. The Tribunal confirmed the addition of Rs. 5,000 during the assessment year 1967-68 on account of sales of tobacco in agreement with the findings of the Appellate Assistant Commissioner, but retained an addition of Rs. 2,500 on account of sales of tobacco during the year 1968-69. This was as a sequel to the appeal by the Revenue.
10. Thus, during the year 1967-68, a total sum of Rs, 25,000 was added to the taxable income on account of discrepancy in purchase of bidi leaves and a sum of Rs. 7,500 on account of profit on sales of tobacco. Having recorded these findings of fact, the Tribunal considered the claim of the assessee that the sums added as profits to the total income should be set off or adjusted against the cash credits whose existence had not found favour with the Revenue and directed that the intangible additions upheld in the bidi leaf account and the tobacco account be set off against the cash credits which had not been satisfactorily explained by the assessee. The Revenue has taken exception to this set-off doled out to the assessee. In the back ground of these facts, the question referred to us has to be answered.
11. Learned standing counsel for the Revenue has contended that there was no occasion for adjusting or setting off of additions in trading account against cash credits. It was submitted that all the cash credits were recorded in May, 1967, which would be the mid-season of the bidi account and, therefore, they could not be concealed profits earned during the assessment years. The Tribunal observed in respect of the previous assessment year (1966-67) that the cash credits may be deemed to have been covered by the additions made in the trading account. The orders of the Tribunal for the years under reference were passed on the same footing. The basis of the order of the Tribunal thus is that since there were unexplained cash credits, the additions to trading account must be related to those cash credits. I have some difficulty in accepting this bald proposition. There can be no presumption that whenever additions to profit or trading account are effected, they must be set off against cash credits unexplained by the assessee. It was never the case of the assessee that the cash credits were intangible additions of the previous assessment years. It was not the assessee's assertion that the intangible additions were available with the assessee and that these were introduced in the books of account as cash credits. It was open to the assessee to advance pleas in the alternative in regard to the cash credits, but no such plea was taken. It is, therefore, difficult to hold that the cash credits were intangible additions of the previous years. In Anantharam Veerasinghaiah & Co. v. CIT [1980] 123 ITR 457, the Supreme Court observed that (p. 462):
" the secret profits or undisclosed income of an assessee earned in an earlier assessment year may constitute a fund, even though concealed, from which the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books. But it is quite another thing to say that any part of that fund must necessarily be regarded as the source of unexplained expenditure incurred or of cash credits recorded during a subsequent assessment year. The mere availability of such a fund cannot, in all cases, imply that the assessee has not earned further secret profits during the relevant assessment year......... It is a matter for consideration by the taxing authority in each case whether the unexplained cash deficits and the cash credits can be reasonably attributed to a pre-existing fund of concealed Profits or they are reasonably explained by reference to concealed income earned in that very year. In each case, the true nature of the cash deficit and the cash credit must be ascertained from an overall consideration of the particular facts and circumstances of the case. Evidence may exist to show that reliance cannot be placed completely on the availability of previously earned undisclosed income. A number of circumstances of vital significance may point to the conclusion that the cash deficit or cash credit cannot reasonably be related to the amount covered by the intangible addition but must be regarded as pointing to the receipt of undisclosed income earned during the assessment year under consideration. It is open to the Revenue to rely on all the circumstances pointing to that conclusion. What these several circumstances can be is difficult to enumerate and indeed, from the nature of the enquiry, it is almost impossible to do so."
12. Thus there can be no general or absolute rule to the effect that whenever additions to profits are made, they must be regarded as funds represented in the books of account as cash credit. The assessee may try to cheat the Revenue not only by showing fake cash credits but also by suppressed profits. The Tribunal, therefore, had to consider whether the cash credits were profits or income earned during the respective assessment years. The assessee did not point to any circumstance or material indicating that the cash credits were profits earned by the assessee during the very same assessment year.
13. Learned standing counsel for the Revenue brought to our notice the decision in CIT v. Manick Sons [1969] 74 ITR 1 (SC) in aid of his submission. We have considerable reservation about the efficacy of this decision in favour of the Revenue. The weight of a decision must depend upon its ratio. A decision is an authority only for what it actually decides and not the logical extension therefrom. [See Quinn v. Leathem [1901] AC 495 and Regional Manager v. Pawan Kumar Dubey, AIR 1976 SC 1766]. In that case, the question was whether a Tribunal hearing an appeal may give direction for reopening of the assessment of an year to which the appeal does not relate. In that context, the Supreme Court observed that the Tribunal cannot give any direction to reassess any case for a period not covered by that year and that it cannot assume powers which are inconsistent with the express provisions of the Act or its scheme. This decision, therefore, must be left out of account. It does not support either the assessee or the Revenue in the instant case.
14. In M.I. Chakkoru v. CIT [1980] 121 ITR 440, 442 (Ker) and in Annamma Paul v. CIT [1980] 121 ITR 433, (Ker), the Kerala High Court laid down that it is not the law that whenever an estimate of income has been made for any particular year, the amount added by that estimate as income from the business disclosed and additions to income from undisclosed sources because of unexplained credits must be taken to be available with the assessee for being credited in a subsequent year of account. Similarly, the Madras High Court in CIT v. Banarsilal Dhawan [1977] 109 ITR 360 laid down as follows (headnote):
"There is no general proposition of law that whenever an assessee failed to explain the credits found in his books of account, it was open to him to claim a set-off of those credits as against the additions made to his income in the previous years' assessments. It will be a question of fact in each case as to whether there was evidence to find that such additions were the sources of the subsequent credits."
15. Learned counsel for the assessee placed reliance upon a decision of the Allahabad High Court in CIT v. Babban Pandey [1970] 77 ITR 601, where T.P. Mukherjee J., on a difference of opinion between Jagdish Sahai and M. H. Beg JJ. (as they were then), accepted the conferment of telescoping benefit to the assessee. In that case, the Tribunal had held that there was a connection between profits withheld from the books and the cash credit entries. His Lordship held that the finding was a pure question of fact. That finding could not be challenged in a reference. This case, in my view, proceeds upon a finding of fact recorded by the Tribunal. No exception can be taken to it. The situation in the present case is rather different as I shall explain later. The decision of the Allahabad High Court is based upon the decision of the Supreme Court in C1T v. S. Nelliappan [1967] 66 ITR 722. The ratio of the decision is to be found in the following observations of Shah J. (headnote):
"The inference of the Tribunal that there is a connection between the profits withheld by the assessee from his account books and the cash credit entries found therein and the conclusion that since additions were made to the book profits in excess of the amount of the cash credits, the addition of the cash credits becomes redundant, are findings of fact and no question of law can arise therefrom."
16. The question, however, before us is really within a very narrow compass. The question is whether the Tribunal has found any connection between the additions and the cash credits. If the Tribunal had held that there was such a connection, that would have been a finding of fact and would have closed all controversy. The situation in the instant case, however, is entirely different. The discussion in regard to this aspect of the matter is to be found in paragraph 21 of the order of the Appellate Tribunal. The Tribunal held that the additions to the profits must be held to be implicit in the claim of cash credits and as such a set-off had been conceded in the assessments in the assessment year 1966-67, the assessee was entitled to some rebate. The order of the Tribunal in regard to the assessment year 1966-67 shows that a set-off of Rs. 4,000 claimed to be cash credits was allowed, as it was implicit in the additional profits of Rs. 10,000. That was a case where the story of cash credits had been rejected and they were not treated as income of the assessee, as addition of Rs. 10,000 had been added to the profits. In the year in question, the position is reverse. The Tribunal has ordered that the addition to profit must be adjusted against the claim of the cash credits. If this process of reasoning were to be accepted, it would have to be conceded that if the assessee has tried to hoodwink the Revenue at one point, he cannot be held to have hoodwinked at another point as well. Such an inference is not permissible. There is no presumption that whenever an assessee has claimed fast and loose on one aspect, he must be given a clean chit on all other aspects of the matter and exonerated of all delinquencies. There are various modes of concealing profits. One may be by the creation of cash credits. Another mode may be by inflating expenditure. The other may be by decreasing the profits. It cannot, therefore, be taken as an axiom that once the claim of the assessee in regard to the cash credit has been rejected, his claim or assertion in regard to the profits must be accepted. An assessee may be caught lying at more than one point and he will be liable to pay tax on account of all the delinquencies at all the points. The Tribunal appears to have taken the view as a question of law, that if claim of cash credit is accepted, the taxing authority must not challenge the figure of profits returned by the assessee. The case in regard to intangible additions does not appear to have relevance on the facts and situation in the instant case. I have, therefore, not considered it necessary to go into greater detail into the question of intangible additions being available for use or expenditure in the subsequent years. The case before us is not of intangible additions in the past but of cash credit and addition to profits in the same year. The decision of the Supreme Court in CIT v. S. Nelliappan [1967] 66 ITR 722 is relevant to the case before us, but that case was decided on the findings of fact. It does not, therefore, give us much help. The Tribunal not having held that there was a connection between the cash credits and the profit additions, it would be difficult to accord set off of the two figures as ordered by the Tribunal, The Tribunal, therefore, had no justification for confirming telescoping benefits upon the assessee.
17. Learned counsel for the assessee brought to our notice a decision of this court in CIT v. Thakur Ram Ganga Prasad (P.) Ltd. [1986] 158 ITR 409 (Taxation Case No. 85 of 1975, disposed of on July 6, 1984). That case has no application to this case, as that proceeded upon an intangible addition in the past. It did not relate to cash credits and additions to profits during the assessment year itself. The other distinctive feature is that in that case their Lordships found that the matter was concluded by findings of fact. The Tribunal had held that the intangible additions of the past were available with the assessee howsoever inaccurate. That finding was binding upon the High Court. That is not the situation here. That case, therefore, has no relevance in the instant case.
18. For the reasons stated above, I am of the view that the Tribunal was not correct in allowing telescoping benefit on account of intangible additions in the trading account claimed by the assessee during the same assessment year. The reference is thus answered in favour of the Revenue and against the assessee. In the circumstances of the case, there shall be no order as to costs.
Nazir Ahmad, J.
19. I agree.