Kerala High Court
Oceanic Products Exporting Co. vs Commissioner Of Income-Tax on 7 February, 1994
Author: P.K. Balasubramanyan
Bench: P.K. Balasubramanyan
JUDGMENT K. Sreedharan, J.
1. In these matters we are concerned with the assessment year 1977-78, the accounting year having ended on March 31, 1977. The assessee has business in sea food. He filed a return showing loss. In that return, there were credits in the names of 15 persons which total to Rs. 5,36,500. The assessee filed confirmation letters from the creditors. Since the source of the creditors was not to the satisfaction of the Income-tax Officer, he issued letters to them calling upon them to explain the source. Letters addressed to some were returned unserved with the postal endorsement "addressee left". The Income-tax Officer was of the opinion that the abovementioned persons were not genuine creditors. So he referred the matter to the Inspecting Assistant Commissioner under Section 144B of the Income-tax Act. The Inspecting Assistant Commissioner gave further opportunity to the assessee to produce the so-called creditors. Six of them appeared before the Income-tax Officer. After examining them, the credit in the name of one person was accepted and the others were disallowed. Thus the final assessment order contained an addition of Rs. 3,86,500.
2. On appeal, the Commissioner of Income-tax (Appeals) was of the opinion that the credits disbelieved by the Income-tax Officer, namely, five out of the six creditors, examined before the Income-tax Officer, on the ground that there were variations in the signatures, should be accepted as genuine. The Commissioner thus cancelled the addition to the extent of Rs. 1,71,500. This order of the Commissioner of Income-tax (Appeals) was challenged before the Tribunal both by the assessee and the Department. The assessee contended before the Tribunal that the creditors mentioned by him are not money-lenders but they had given the money towards advance for the purchase of trawlers and in the subsequent year they had purchased the trawlers. The Tribunal heard both the appeals together. The Department's appeal was allowed and the Tribunal restored the additions which were deleted by the Commissioner of Income-tax (Appeals). Against these findings, the assessee filed a petition for reference to this court under Section 256(1) of the Income-tax Act. A similar petition under Section 256(1) was filed in the appeal filed by the assessee as well. Both the petitions were rejected. Thereupon he has approached this court by moving O. P. No. 9510 of 1985 and O. P. No. 10168 of 1985 for compelling reference under Section 256(2) of the Income-tax Act.
3. Against the decision rendered by the Tribunal, the assessee filed an application purporting to be one for rectification of mistake in the order passed by the Tribunal on the appeals. The assessee brought to the notice of the Tribunal that in the draft assessment proceedings they had taken a stand that the boats have been sold to the respective creditors in the subsequent years and this fact was not taken note of by the Tribunal while disposing of the appeals. The Tribunal did not accept that petition. According to the Tribunal, there was no mistake in the order of the Tribunal. Consequently, the Tribunal rejected that petition. The assessee then prayed for reference to this court under Section 256(1) of the Income-tax Act. ,'Pursuant to that application, the following question was referred by the Tribunal :
"On the facts and circumstances of the case, whether the Tribunal was justified in holding that no mistake in law had arisen in their order which can be rectified under Section 256(2) of the Act ?"
4. That reference is entertained as I. T. R. No. 42 of 1988.
5. The assessee filed its return for the assessment year 1977-78 declaring a loss of Rs. 2,93,853. During the course of the examination Of the accounts, the Income-tax Officer noticed cash credits in the names of 15 persons amounting to Rs. 5,36,500. The assessee filed letters from the creditors confirming the credits. Since two of the creditors owned the credits and the signatures as per the postal acknowledgment were similar, the Income-tax Officer accepted those two cash credits amounting to Rs. 85,000 as genuine. In the case of the remaining 13 creditors, the Income-tax Officer took the view that they were not genuine. Since the addition proposed exceeded Rs. 1,00,000, the Income-tax Officer sent the draft assessment to the Inspecting Assistant Commissioner. As per the Inspecting Assistant Commissioner's direction, the Income-tax Officer gave an opportunity to the assessee to produce the remaining creditors. The assessee produced six creditors. The evidence of one of the creditors in relation to an advance of Rs. 25,000 was accepted. The five other creditors, though they swore to having advanced amounting to a further sum of Rs. 1,71,500, this was not accepted by the assessing authority. On appeal, the Commissioner of Income-tax (Appeals) directed the said amount of Rs. 1,71,500 also to be accepted. According to the five creditors, they made the advance towards the sale consideration for the boat belonging to the assessee. This contention of the assessee does not appear to have been properly dealt with by the Tribunal while disposing of the appeals filed by the Department and the assessee. The contention raised by the assessee was taken note of by the Tribunal when it observed in paragraph 5 as :
"In fact, these people are not money-lenders but they had given the money towards security advance for the purchase of trawlers and in the subsequent year they had purchased all the 12 boats. Therefore, there was no material either for the Income-tax Officer or for the Commissioner of Income-tax (Appeals) to doubt the transactions, to treat them as fictitious and to add the sum towards unexplained credits."
6. But while disposing of the appeal, the Tribunal does not seem to have adverted to this contention. The Tribunal disposed of the appeals observing :
"Hence, the authorities are justified in sustaining the addition of Rs. 2,15,000. Regarding the credits in the names of the five persons amounting to Rs. 1,71,500 allowed by the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) has erred that the variation in the signature alone could not be a reason for rejecting the explanation offered by the creditors who appeared before the Income-tax Officer."
7. This, according to us, was not a proper disposal of the contention raised by the assessee in relation to Rs. 1,71,500 spoken to by the five creditors who were examined by the Income-tax Officer. Therefore, we feel that the Tribunal has to be directed to refer to this court the following question under Section 256(2) :
"Whether, on the facts and in the circumstances of the case, the findings of the Tribunal that the explanation offered by the assessee about the nature and source of the cash credit in the aggregate of Rs. 1,71,500 or any portion of it is not satisfactory, is perverse, unreasonable, contrary to law and one which no reasonable person would have come to that conclusion ?"
8. In the result, we allow O. P. No. 9510 of 1985 and direct the Income-tax Appellate Tribunal, Cochin, to draw up a statement of the case and refer the above question for the decision of this court.
9. In the light of what we have stated above, O. P. No. 10168 of 1985 is dismissed. By virtue of the decision in O. P. No. 9510 of 1985, we feel that question referred to us in Income-tax Reference No. 42 of 1988 need not be answered. Accordingly, we decline to answer the question in Income-tax Reference No. 42 of 1988.