Allahabad High Court
Munnalal Murlidhar vs Commissioner Of Income-Tax on 7 July, 1970
Equivalent citations: [1971]79ITR540(ALL)
Author: R.S. Pathak
Bench: R.S. Pathak
JUDGMENT T.P. Mukherjee, J.
1. The material facts bearing on this reference are as follows. The assessee is a registered firm. It carried on business as a commission agent in catechu. During the relevant previous year, ending on Chait 2007 (S.Y.), a cash deposit of Rs. 17,000 was found in the books of the assessee on September 10, 1949. The amount was credited to the account of one Abdul Sattar Abdul Ghani. The amount was withdrawn on October 11, 1949. The Income-tax Officer, in the course of his assessment of the assessee-firm for the year 1950-51, noticed this deposit and asked the assessee to explain the nature and source thereof. The assessee's explanation was that Abdul Sattar and his son, Mohammad Ismail, were carrying on business at Moolganj in Kanpur. Mohammad Ismail was well known to the partners of the assessee-firm. When Mohammad Ismail was going home in Kutch he deposited' the sum of Rs. 17,000 with the assessee-firm and he took back the amount on his return therefrom. The assessee stated in its written explanation that if its explanation in point was not accepted then notice might be issued under Section 37 of the Indian Income-tax Act, 1922 (hereinafter referred to as "the Act"), to the party concerned at its cost. The Income-tax Officer, it appears, paid no heed to the request made on behalf of the assessee and he completed the assessment under Section 23(3) of the Act on a total income of Rs. 92,672 including the sum of Rs. 17,000 which was treated as the income of the assessee from undisclosed sources.
2. An appeal to the Appellate Assistant Commissioner proved futile. The assessee then preferred an appeal to the Tribunal. The Tribunal, however, dismissed the appeal of the assessee in point holding as under :
" The assessee did not produce any evidence to show that the deposit was a genuine one. In these circumstances, it is difficult to hold that the deposit was genuine. The assessee has not discharged the onus that lay on him. The inference follows that the amount was income of the assessee from some undisclosed source."
3. The following question has been stated by the Tribunal in compliance with an order made by this court under Section 66(2) of the Act:
"Whether, by reason of the omission to summon and examine the evidence offered by the assessee, the finding of the Tribunal with regard to the nature and source of the sum of Rs. 17,000 has not been legally vitiated ? "
4. In our opinion, the grievance of the assessee that he was not given a reasonable opportunity and facility to produce evidence in support of its explanation is justified. In this case a notice under Section 23(2) of the Act was issued to the assessee.
5. In reply to this notice the assessee submitted its explanation to the Income-tax Officer on October 22, 1954, by means of a letter. In paragraph 5 of this letter the assessee stated as follows :
" Deposit of Rs. 17,000 in the account of M/s. Abdul Sattar Abdul Ghani.
Mohammed Ismail, son of Abdul Sattar, was formerly working in M/s. Habib Moosa who was very well known to us. He and his father, Abdul Sattar, were carrying on business in Moolganj, Kanpur. At the time of his going to his home in Kutch he deposited this amount of Rs. 17,000 with us and when he returned back to Kanpur, he took back the amount. It may also be submitted that at the time when he deposited the money, we were not short of funds. Sri Abdul Sattar died subsequently and his son, Mohammad Ismail, has since left Kanpur. "
6. The letter concluded as follows:
" We trust we have made our position quite clear, but if any further information is required or if the parties are to be called in support of the genuineness of the above deposits, then notices under Section 37 may kindly be issued at our cost."
7. It does not appear from the record that the Income-tax Officer had considered the petition of the assessee and passed an order thereon. As Lord Shaw had said, " of things that do not appear and of things that do not exist, the reckoning in law is the same." It may be presumed, therefore, that no order was passed by the Income-tax Officer on the application of the assessee for summoning the parties concerned. About a week thereafter, i.e., on October 30, 1954, the impugned assessment was made by the Income-tax Officer in complete disregard of the explanation of the assessee and its prayer for production of evidence in support of such explanation.
8. On a reference to the terms of Section 23(2) of the Act, it would appear that if the Income-tax Officer is not satisfied as to the return made by an assessee under Section 22 of the Act, he (Income-tax Officer) shall require the assessee to attend his office in person or to produce or cause to be there produced, such evidence on which the assessee might rely in support of the return. In the present case, it is evident that the Income-tax Officer was not satisfied as to the correctness of the return submitted by the assessee under Section 22 of the Act. The Income-tax Officer, therefore, served the notice on the assessee to produce or cause to be produced such evidence on which it might rely in support of the return. It is implicit in the terms of Section 23(2) of the Act that the Income-tax Officer should give the assessee reasonable time and opportunity to produce evidence. The Income-
tax Officer, however, appears to have acted with undue haste. He made no order on the letter of the assessee dated October 22, 1954, and completed the assessment on October 30, 1954. Rejecting the explanation of the assessee, the Income-tax Officer observed as follows in his assessment order:
"No evidence has, however, been produced to prove that the party in question was really in a position to make such a huge deposit... I doubt whether the money in question was paid by the alleged party as nobody from this has been produced nor even any independent evidence is forthcoming."
9. The remark loses its significance in view of the fact that the Income-tax Officer did not accede to the request made by the assessee to summon the party concerned for examination under Section 37 of the Act. In E. M. C. Works (P.) Ltd. v. Income-tax Officer, District I, Kanpur, [1963] 49 I.T.R. 650 (All.) this court observed that it is the duty of the Income-tax Officer to assist the assessee by exercising his powers under Section 37 of the Act and enable it to produce evidence in support of the return made by it. The court also remarked that the assessee's application requesting the officer to exercise his powers in such circumstances under Section 37 should not be rejected summarily. In the present case, the Income-tax Officer failed to act up to this salutary principle.
10. Even before the Tribunal, the assessee made a request by letter dated May 7, 1957, to direct the departmental representative to produce the assessment files of Abdul Sattar Abdul Ghani and of the firm styled as "M/s. Habib Moosa". The departmental counsel submitted that the Tribunal did call for the relevant files and they were produced before it. But, curiously enough, the Tribunal has not said a word about these files either in its appellate order dated August 5, 1957, or in the statement of case submitted by it on August 28, 1962. At any rate, it does not appear that the departmental representative produced the files before the Tribunal to the knowledge of the assessee.
11. In our opinion, the assessee has been materially prejudiced on account of the failure on the part of the Income-tax Officer to call for and examine the evidence which was offered by the assessee to explain the nature and the source of the sum of Rs. 17,000. The assessee has also been prejudiced on account of the fact that, if the assessment files relating to the firm, M/s. Habib Moosa and M/s. Abdul Sattar Abdul Ghani had at all been produced before the Tribunal, there was no examination of these files to the knowledge of the assessee.
12. There was, in this case, a denial to the assessee of an opportunity to produce evidence in support of its case. As we have already pointed out, the assessee was entitled to produce such evidence and the Income-tax Officer was bound to give the assessee reasonable opportunity to do so. In the circumstances, the finding of the Tribunal as to the nature and source of the deposit of Rs. 17,000 must be regarded as legally vitiated.
13. The question referred is, therefore, answered in the negative and in favour of the assessee. The assessee will get costs of this reference which we assess at Rs. 200. Counsel's fee is also assessed at the same figure.
14. Before concluding we must observe that the Tribunal should refrain from framing questions in the negative form as has been done in the present case. Such a practice has been condemned by Beaumount C. J. (sitting with Kania J.) of the Bombay High Court in Maharaja of Patiala v.
Commissioner of Income-tax, [1943] 11 I.T.R. 202 (Bom.).
Question answered in the negative.