Gujarat High Court
Commissioner Of Income Tax vs D.P. Karai on 12 November, 2003
Equivalent citations: (2003)185CTR(GUJ)497, [2004]266ITR113(GUJ)
Author: K.A. Puj
Bench: D.H. Waghela, K.A. Puj
JUDGMENT K.A. Puj, J.
1. The CIT, Jamnagar, has filed this Tax Appeal No. 199 of 2003 under Section 260A of the IT Act, 1961 (hereinafter referred to as "the Act") requesting this Court to frame and decide following substantial questions of law arising out of the order of the Tribunal, Rajkot Bench, Rajkot in ITA No. 5/Rjt/2001 for the block period from 1st April, 1987 to 29th Jan., 1998, decided on 3rd Jan., 2003:
"Whether, on the facts and in the circumstances of the case, the Tribunal is legally justified in quashing the order of CIT passed under Section 263 of the IT Act ?
Whether, on the facts and in the circumstances of the case, the Tribunal is legally justified in holding that the order of AO was not erroneous and prejudicial to the interest of Revenue ?"
2. During the course of hearing of this Tax Appeal, one more substantial question of law is proposed to be raised by Mr. Pranav G. Desai, learned counsel appearing for the Department, which is as under:
"Whether, in the facts and circumstances of the case, Tribunal is right in law in relying upon the affidavit of assessee retracting confession at its face value and not considering voluntary confession of disclosure made on oath before the authorities in presence of witnesses ?"
3. The brief facts, giving rise to the present Tax Appeal are as follows. The respondent-assessee herein was intercepted on 29th Jan., 1998, at Santa Cruz Airport and was searched under Section 132 of the Act. He was found to be in possession of cash worth Rs. 20 lakhs which was seized. His statement on oath was recorded under Section 132(4) of the Act on the same date, i.e., 29th Jan., 1998, wherein he has stated that the cash seized was out of his undisclosed income and the same was being offered for taxation in the current year being financial year 1997-1998. The said declaration of income of Rs. 20 lakhs was stated to have been made voluntarily and without any threat, coercion or undue influence.
4. Pursuant to the said search and seizure, proceedings under Section 158BC were initiated on 27th Feb., 1998, in the form of issuance of notice calling for the return of the undisclosed income for the block period. The respondent-assessee filed his return of income for the block year 1st April, 1987 to 29th Jan., 1998, showing undisclosed income at Rs. 'Nil'. For the accounting year, being financial year 1997-98 relevant to the asst. yr. 1998-99, it was stated that the year had not ended and hence the income was not ascertainable. The respondent-assessee has not disclosed the income of Rs. 20 lakhs which was declared by him while recording statement under Section 132(4) of the Act and for that purpose he has filed an affidavit dt. 7th Feb., 1998 stating therein that the sum of Rs. 20 lakhs was part of Rs. 40 lakhs disclosed by. him under Voluntary Disclosure of Income Scheme, 1997 ("VDIS") and that he was compelled to accept Rs. 20 lakhs as his undisclosed income.
5. During the course of block assessment proceedings, the respondent-assessee, besides stating what was stated in the affidavit, relied upon certain decisions and contended that though admission of income was a good piece of evidence, it was not conclusive. The fact of disclosure under VDIS was reiterated to show that his earlier statement was erroneous one. The AO, after considering the detailed written submissions, the depositions made and the arguments put forward and after perusal of the details produced, arrived at the conclusion that the income from undisclosed sources for the block period was at Rs. 'Nil' as was returned by the respondent-assessee for the period under reference, vide his order dt. 13th July, 1998.
6. The CIT, Jamnagar, the appellant herein, was of the view that the order passed by the AO under Section 158BC of the Act on 13th July, 1998, was erroneous one and it was prejudicial to the interest of Revenue. He, therefore, initiated proceedings under Section 263 of the Act. The main reason for holding the order so was that the affidavit dt. 7th Feb., 1998 was filed as late as on 25th May, 1998, and that there was no purpose of opening supplementary cash book which contained entries relating to the disclosure made under VDIS only and the sum of Rs. 40 lakhs was credited in the cash book of Halar Maritime Agencies. The computer printouts of the respondent-assessee's books were given after the assessment order was passed and, therefore, the AO did not verify the correctness of the respondent-assessee's contentions that the statement on the day of search was given under pressure and that there was no inquiry as to why the respondent-assessee was carrying as much cash with him and hence the order under Section 158BC suffered from the vice of lack of inquiry and non-application of mind. Accordingly, the CIT had directed vide his order dt. 27th March, 2001, to treat the seized cash of Rs. 20 lakhs as undisclosed income and subject it to tax.
7. Being aggrieved by the said order of the CIT, Jarnnagar, the respondent-assessee filed an appeal before the Tribunal, Rajkot Bench, Rajkot, being Appeal No. 5/Rjt/2001. It was contended by the respondent-assessee before the Tribunal that the respondent-assessee is a retired "Navy" captain and he continued his maritime adventure by starting the business of stevedoring from the asst. yr. 1987-88 to 1998-99. He was earning income from Rs. 1 lakh to Rs. 10 lakhs which was evident from the return filed by him. Under the VDIS, 1997, he delcared income of Rs. 40 lakhs for taxation on 31st Dec., 1997. The said amount of Rs. 40 lakhs fully represented the cash and the tax of Rs. 12 lakhs on the said amount was fully paid by the respondent-assessee. Relevant certificate to that effect was produced before the Tribunal. It was further contended before the Tribunal that search took place at around 4.00 a.m. and concluded at around 10.30 a.m. On completion of search the respondent-assessee boarded the 1st flight for Chennai and on return from Chennai he swore an affidavit retracting his earlier admission offering Rs. 20 lakhs as cash.
8. After considering the submissions made by both the parties and after appreciating the evidence produced by the respective parties, the Tribunal, vide its order dt. 3rd Jan., 2003, held that, as there was no long gap between the declarations made under VDIS and the date of search, and as there was no finding that the cash declared under VDIS was either converted into any other assets or was used for incurring any expenses by the date of search, the order of the AO was not erroneous and prejudicial to the interest of Revenue and, therefore, the Tribunal has quashed the order passed by the CIT, Jamnagar, under Section 263 of the Act.
9. Being aggrieved by the said order of Tribunal, the GIT, Jamnagar, the appellant herein, has filed the present appeal under Section 260A of the Act.
10. Mr, Pranav G. Desai, learned standing counsel appearing for the IT Department has submitted that the Tribunal has substantially erred in law and on facts in coming to the conclusion that, even though there may not be any coercion on the part of the search party it did not necessarily mean that the person cannot come under pressure on his own. He has further submitted that there was no justification in arriving at the conclusion that the respondent-assessee must be wanting to get released as soon as possible to attend to his Chennai engagements and the pressure along with the sudden interception could have triggered a thought to accept Rs. 20 lakhs as undisclosed income. He has further submitted that the Tribunal has erroneously jumped to the conclusion that much credence should not be given to the admission made by the respondent-assessee at the time of search and/or recording his statement under Section 132(4) of the Act. The Tribunal has also materially erred in accepting the explanation given by the respondent-assessee in the affidavit branding it as a palatable explanation. Mr. Desai has also objected to the finding given by the Tribunal to the effect that there was no infirmity in the conclusion of the AO and that it was not true to say that there was lack of inquiry or non-application of mind on the part of the AO. Mr. Desai has further submitted that the Tribunal has committed a very serious error in law in arriving at the conclusion that none of the reasons given by CIT carried any real force or conviction to hold the order of the AO to be erroneous. He has further submitted that the Tribunal has not properly appreciated the provisions of law concerning carrying of currency during the travel by airlines. Mr. Desai has further submitted that the Tribunal has not applied its mind to the original statement of the respondent-assessee recorded by the search party on 29th Jan., 1998 and that the Tribunal has solely decided the matter on the basis of the affidavit dt. 7th Feb., 1998. He has further submitted that the supplementary cash book prepared by the respondent-assessee was bogus and not genuine and it was prepared only with a view to justify his retraction. He has further submitted that the Tribunal has not taken into consideration at all the corroborative piece of evidence and circumstances justifying the voluntary statement of the respondent-assessee recorded on 29th Jan., 1998. Mr. Desai has, therefore, submitted that when the relevant material is ignored and irrelevant material is taken into consideration by the Tribunal and based on such consideration if an erroneous finding or conclusion is arrived at, a substantial question of law did arise out of the order of the Tribunal and hence the question as proposed hereinabove should be framed by this Court for its determination and the present appeal is, therefore, required to be admitted and allowed.
11. Mr. K.H. Kazi, the learned advocate appearing for the respondent-assessee on the other hand supported the order passed by the AO as well as by the Tribunal. He has submitted that in Dec., 1997, the respondent-assessee had declared Rs. 40 lakhs in VDIS and this amount of Rs. 40 lakhs was in the form of cash. The said amount was taken in supplementary cash book and after deducting Rs. 20 lakhs seized by the Department the balance was transferred to the regular cash book. He has further submitted that the reason for opening supplementary cash book was that the regular cash book for the period ending on 31st Dec., 1997, was already closed and even otherwise the said amount has to be shown in the supplementary cash book. He has further submitted that the admission made by the respondent-assessee should not be given undue importance as it was not a formal search in the sense that it was not at the place of residence or at the business place but was at the airport and it had taken nearly 3-1/2 hours to record the statement. He has further submitted that no adverse inference should be drawn from the fact that the computer printouts of the account books were furnished after the assessment order was passed inasmuch as that the original handwritten account books were examined by the AO. Mr. Kazi has further submitted that the Tribunal has taken pains to appreciate and analyse the order passed by the CIT and observed that the CIT has given mainly four reasons for holding the assessment order to be erroneous. The Tribunal was of the view that the affidavit filed by the respondent-assessee retracting his earlier statement could not be brushed aside. With regard to supplementary cash book, computer printouts, non-verification of reasons to carry the huge sum of cash by the respondent-assessee etc. were also taken due care of and explained in detail. The Tribunal has also taken into consideration two more reasons for accepting the explanation of the respondent-assessee and they are to the effect that there was no long gap between the declaration under VDIS and the date of search, and secondly, there was no finding that cash declared under VDIS was either converted into any other asset or was used for incurring any expenses till the date of search. After taking into consideration all these aspects of the matter and the relevant materials, the Tribunal has come to the conclusion that the order of the AO was not erroneous and prejudicial to the interests of the Revenue and quashed the order passed by the CIT under Section 263 of the Act. Mr. Kazi has, therefore, submitted that the Tribunal has come to the just and proper conclusion after appreciation of evidence and it being finding of fact it cannot be said that any question of law, much less the substantial question of law arises out of the order of the Tribunal.
12. In support of his submissions, Mr. Kazi has relied on the decision of the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83 (SC), wherein it is held as under :
"A bare reading of Section 263 of the IT Act, 1961, makes it clear that the prerequisite to exercise of jurisdiction by the CIT suo motu under it, is that the order of the ITO is erroneous in so far as it is prejudicial to the interests of the Revenue. The CIT has to be satisfied of twin conditions, namely, (i) the order of the AO sought to be revised is erroneous; and (ii) it is prejudicial to the interests of the Revenue. If one of them is absent--if the order of the ITO is erroneous but is not prejudicial to the Revenue or if it is not erroneous but is prejudicial to the Revenue--recourse cannot be had to Section 263(1) of the Act. The provision cannot be invoked to correct each and every type of mistake or error committed by the AO; it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind. The phrase 'prejudicial to the interests of the Revenue' is not an expression of art and is not defined in the Act. Understood in its ordinary meaning it is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the Revenue. If due to an erroneous order of the ITO, the Revenue is losing tax lawfully payable by a person, it will certainly be prejudicial to the interests of the Revenue. The phrase 'prejudicial to the interests of the Revenue' has to be read in conjunction with an erroneous order passed by the AO. Every loss of revenue as a consequence of an order of AO cannot be treated as prejudicial to the interests of the Revenue, for example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law."
13. After having considered the rival submissions of the parties and after having gone through the relevant materials and evidence produced before this Court and after having gone through the orders passed by the authorities below, this Court is of the view that what was done by the Tribunal is appreciation of evidence and after such appreciation the conclusion drawn and finding arrived at is purely a finding of fact which does not give rise to any question of law much less a substantial question of law. The AO has considered the relevant facts and circumstances of the case and the affidavit filed by the respondent-assessee during the course of proceedings under Section 158BC and has come to the conclusion that the seized cash of Rs. 20 lakhs formed part of Rs. 40 lakhs which were already disclosed by the respondent-assessee under VDIS. Even if the CIT is empowered to initiate proceedings under Section 263 of the Act, looking to the facts and circumstances of the case, the said powers are not exercised in accordance with law as on facts coming on record, it cannot be said that the order passed by the AO is erroneous and prejudicial to the interests of the Revenue. The Tribunal has also endorsed the view taken by the AO and that too after proper appreciation of the facts on record and evidence produced before it and the finding arrived at is absolutely a finding of fact, it cannot be said that the said finding is either unreasonable or perverse. This Court is not endorsing the view canvassed by Mr. Desai that the Tribunal has not taken into consideration the relevant material and based its order on irrelevant material. This Court is also of the view that even on facts a different view is hardly possible. And in such facts, no question of law arises. This view is further fortified by the observations made by the Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. (supra) wherein it is in terms held that "Every loss of revenue as a consequence of an order of the AO, cannot be treated as prejudicial to the interests of the Revenue." For example, when an ITO adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the ITO has taken one . view with which the CIT does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the ITO is unsustainable in law. Having regard to the facts and circumstances of the case, it cannot be said that the view taken by the AO to the effect that the seized cash of Rs. 20 lakhs formed part of the amount of Rs. 40 lakhs disclosed by the respondent-assessee under VDIS is a view unsustainable in law. Simply because the CIT does not agree with the view, it cannot be said that the order passed by the AO is an erroneous order prejudicial to the interests of the Revenue. In view of the facts and circumstances of the case and in view of the observations made hereinabove, we are of the view that no question of law, much less any substantial question of law; arises out of the order of the Tribunal and hence the present Tax Appeal is dismissed without any order as to costs.