Punjab-Haryana High Court
Commissioner Of Income-Tax vs Jagdish Chand Gupta Naraingarh on 6 August, 2010
Author: Adarsh Kumar Goel
Bench: Adarsh Kumar Goel, Ajay Kumar Mittal
ITR Nos. 185 & 186 of 1999 -1-
IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
ITR Nos. 185 & 186 of 1999
Date of Decision: 6.8.2010
Commissioner of Income-tax
....Petitioner.
Versus
Jagdish Chand Gupta Naraingarh
...Respondent.
CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.
HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.
PRESENT: Mr. Yogesh Putney, Advocate for the petitioner.
Mr. Pankaj Jain, Advocate and
Mr. Devinder Goel, Advocate for the respondent.
ADARSH KUMAR GOEL, J.
1. The Income Tax Appellate Tribunal, Chandigarh Bench (in short "the Tribunal") has referred following questions of law for opinion of this Court arising out of its order dated 26.1.1997 in RA Nos. 56 & 57/Chandi/96 in ITA Nos. 31/Chandi/93 & 34/Chandi/94 for the assessment year 1989-90:-
"RA No. 56/Chandi/96
1. Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that assumption of jurisdiction u/s 263 by the CIT without giving a specific finding as to whether the amount of Rs.48.00 Lakhs was ITR Nos. 185 & 186 of 1999 -2- assessable u/s 68 or 69 is unjustified, particularly when section 68 had no application?"
2. "Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that if the AO had all the information at the time of completion of assessment in relation to a certain amount remedial powers u/s 263 can not be exercised even when the available information has not been utilised in accordance with law?"
RA No. 57/Chandi/96
1. "Whether on the facts and in the circumstances of the case, the ITAT was right in law in holding that no addition can be made on the basis of confessional statements of the assessee made under duress?"
2. "Whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the addition of Rs.48.00 Lakh made on account of unexplained expenditure by way of payment to one Shri J.M. Paul, when the recipient had denied its receipt and the department had not taken any action to assess it in his hands?"
2. The assessee is an individual and a Director of M/s Jagdish ITR Nos. 185 & 186 of 1999 -3- Chand Construction Pvt. Ltd. and derived income from property and from plying of truck apart from other sources like interest. For the assessment in question, the income of the assessee was assessed at Rs.42,110/- on 27.3.1991. The Commissioner exercised jurisdiction under Section 263 of the Act vide order dated 30.10.1992 and directed fresh assessment having regard to facts and circumstances on record. The assessee was apprehended by the officials of Enforcement Directorate on 14.5.1989 at Delhi and a cash amount of Rs.21.10 lacs was seized from him. His statement was recorded which was to the effect that he had already paid a sum of Rs.48 lacs to one Shri J.M. Paul as illegal gratification for securing maruti car agency. The amount seized was intended to be paid as further payment to said Shri J.M. Paul for the same purpose. Statement of his son-in-law Dr. Arun Gupta who accompanied him was also recorded on the same date corroborating the version given by the assessee. Thereafter on 16.5.1989, the assessee surrendered the amount of Rs.48 lacs claimed to have been paid to Shri J.M. Paul as additional taxable income. Later, the assessee resiled from the statement on the ground that he had made statement to avoid harassment and to go ahead with Shagan ceremony on the eve of marriage of his son. Accordingly fresh assessment was made on 29.4.1993 and amount of Rs.48 lacs was added as income for the period from August 1988 to January 1989 under Section 69. The assessment was upheld by the CIT (A). On further appeal to the Tribunal, the addition was deleted. It was held that the assessee had retracted his earlier statement and in these circumstances exercise of jurisdiction under Section 263 was not ITR Nos. 185 & 186 of 1999 -4- justified. Reliance was placed on judgment of this Court in CIT v. Kanda Rice Mills, 178 ITR 446. It was further observed that the assessee was entitled to show that his admission made previously was not correct as held in Shri Krishan v. Kurukshetra University (ATR 1976 SC 376) and in Krishan Lal Shiv Chand Rai v. CIT (88 ITR 293). The explanation of the assessee that he made statement to avoid harassment at the time of ceremony relating to marriage of his son should have been accepted. It was further observed that the Commissioner had not recorded any finding on the question whether addition should have been under Section 68 or 69.
3. We have heard learned counsel for the parties and perused the record.
4. Learned counsel for the revenue submitted that view taken by the Tribunal was erroneous. It was wrongly presumed that finding was not recorded by the Commissioner as to under which section the amount was assessable. He further submitted that having regard to the nature of order, it would not be held that there was no application of mind by the Commissioner to the correctness of the view taken by the Assessing Officer. It was held by the Commissioner that the amount surrendered by the assessee himself should have been included in the taxable income and, thus, the order of the Assessing Officer was erroneous. This being the position, requirements of Section 263 of the Act i.e. order sought to be revised being erroneous and against the interest of the revenue were fully met. The said order could not be held to be illegal only on the ground that taxability of amount was not specified under Section 68 or 69. He further submitted that the Tribunal ITR Nos. 185 & 186 of 1999 -5- erred in observing that power under Section 263 of the Act could not be exercised by the Commissioner since information was available with the Assessing Officer at the time of completion of assessment which had not been utilized by the Assessing Officer. He submitted that the very purpose of Section 263 of the Act is to remedy the error in the order of the Assessing Officer which adversely affects the revenue and mere fact that in spite of having available information the Assessing Officer did not make necessary addition to the income cannot be a ground to set aside the order of the Commissioner.
5. Learned counsel for the assessee submitted that in subsequent assessment year i.e. 1990-91, order under Section 132 (5) was passed and in such a situation, addition of the said amount in the assessment year 1989-90 was not justified. He further submitted that the amount having been paid as a bribe was business loss and even if the statement of the assessee was to be accepted, there was no taxable income after deducting the amount paid as illegal gratification which was to be treated as loss. Reliance has been placed on judgment of the Hon'ble Supreme Court in T.A. Quereshi (Dr.) v. Commissioner of Income Tax, Bhopal, (2007) 2 SCC 759 wherein earlier judgment in CIT v. Piara Singh, (1980) 124 ITR 40 has been followed. He also submitted that Shri J.M. Paul denied having received the money and, thus, the statement of the assessee that amount was paid to Shri J.M. Paul was not justified.
6. We have considered the rival submissions and are of the view that the questions referred have to be answered in favour of the revenue.
ITR Nos. 185 & 186 of 1999 -6-
7. The questions of law raised in these references require answer to the following issues:-
(i) Whether the CIT had invoked the provisions of Section 263 of the Act in accordance with law?
(ii) Whether the ITAT was justified in deleting the addition of Rs.48 lacs?
(iii) Whether the assessee was entitled to deduction of Rs.48 lacs as business loss from the undisclosed income?
Reg: (i)
8. Section 263 of Act empowers the Commissioner of Income Tax to revise an order passed by the Assessing Officer which is erroneous in so far as it is prejudicial to the interest of the revenue. The sine qua non for exercise of jurisdiction under this Section is that there should be an error which must be "prejudicial to the revenue." The Assessing Officer, in the present case, had failed to tax the additional income disclosed in the statement of the assessee recorded on 16.5.1989 surrendering Rs.48 lacs which was paid as illegal gratification to Shri J.M. Paul for the purpose of obtaining Maruti Car dealership which was unrecorded in the regular books of account of the assessee. It is, thus, patent that the Commissioner rightly invoked Section 263 of the Act as the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue.
9. In the absence of any specific discussion relating to surrender of Rs.48 lakhs in the assessment order dated 27.3.1991, the Tribunal was not justified in presuming that it was adjudicated not to include the aforesaid amount in the taxable income after consideration merely because the confessional statement and its retraction were on ITR Nos. 185 & 186 of 1999 -7- the record.
10. The Commissioner of Income Tax in para 5 of its order dated 19.11.1992 had recorded as under:-
"5. In view of the above, it is held that the Income-tax Officer had failed to make enquiries while completing the assessment w.r.t. nature and source of Rs.48 lacs. Therefore the order of the ITO is erroneous in so far as it is prejudicial to the interests of revenue. The assessment is, therefore, set aside with the directions to the Income-tax Officer to complete the assessment afresh, after allowing the assessee reasonable opportunity of being heard and to consider the taxability and inclusion of this amount of Rs.48 lacs, under section 68/69 of the I.T. Act, 1961."
11. In the existing facts and circumstances, the Commissioner had in uncertain terms recorded the failure of the Assessing Officer to advert to exigibility of Rs.48 lakhs to tax in the hands of the assessee which has resulted in erroneous and prejudicial assessment order dated 27.3.1991 being passed. The Commissioner had further directed the Assessing Officer to complete the assessment afresh after considering the taxability of Rs.48 lakhs as unexplained cash credit or unexplained investment. The Tribunal was, thus, not justified in annulling the order of the Commissioner especially when, as noticed earlier, the essential requirements of Section 263 of the Act had been complied with. Reg: (ii)
12. The next issue relates to exigibility of Rs.48 lacs to income ITR Nos. 185 & 186 of 1999 -8- tax. The Assessing Officer and CIT (A) on the basis of confessional statement and surrender made by the assessee which was corroborated by his son-in-law made the addition of Rs.48 lacs which, however, was deleted by the Tribunal by ignoring the surrender and confessional statement merely on the ground that the assessee had retracted from his earlier statement on 11.9.1989.
13. It is an admitted fact that on 14.5.1989, the assessee had made a statement before the Enforcement Directorate of FERA authorities which was corroborated by his son-in-law Dr. Arun Gupta. The assessee had reiterated the said statement on 16.5.1989 during the course of search operation when the statement under Section 132 (4) of the Act was recorded, wherein he surrendered Rs.48 lakhs on account of payment made to Shri J.M. Paul as illegal gratification for procuring Martui Car dealership which was not reflected in the books of accounts of the assessee. The assessee had sought to retract from his statement on 11.9.1989 after about 4 months. The confessional statement made by a person would be very material and relevant consideration in recording a finding as the facts are in the personal knowledge of the person who makes the statement. However, an admission wrongly made can be withdrawn in a given situation but when the statement made was corroborated by circumstances and was not shown to be erroneous, the retraction thereof would not deviate from its correctness. No doubt, the statement made by the assessee was withdrawn, mere withdrawal of such a statement could not be taken to be conclusive. No explanation much less plausible explanation had been furnished by the assessee as to why he could not retract from his ITR Nos. 185 & 186 of 1999 -9- statement made on 14.5.1989 and again on 16.5.1989 at the earliest occasion and what prevented him from not approaching the authorities raising his grievance in this regard. The silence on the part of the assessee till 11.9.1989 remains unexplained and the retraction from the earlier statement would be an after thought. The Tribunal was, thus, not justified in reversing the findings recorded by the Assessing Officer and the CIT (A). The sum of Rs.48 lacs represented undisclosed income of the assessee.
Reg: (iii).
14. Lastly, the Assessing Officer as also the CIT (A) had concurrently recorded that the assessee had not returned any income from illegal business nor his so called business of Maruti dealership ever came into existence. It was also observed that the amount of Rs.48 lacs could not be said to be loss in the course of business under any head of income. The assessee an individual had not incurred any loss from any business on account of which he could claim set off under the Act. The dictum laid down in T.A. Quereshi (Dr.) case (supra), does not come to the rescue of the assessee being distinguishable on facts. Moreover, it is also well settled that an illegal payment made which may be an offence cannot be permissible expenditure under Section 37 of the Act. In M/s Haji Azis and Abdul Shakoor Bros v. The Commissioner of Income-tax Bombay City-II, AIR 1961 Supreme Court 663, it was held by a Bench of three Hon'ble Judges that if a sum was paid by the assessee that may render him liable to penal action, the same could not be allowed as deductible expense. ITR Nos. 185 & 186 of 1999 -10-
15. Accordingly, we answer the questions in favour of the revenue and against the assessee.
(ADARSH KUMAR GOEL)
JUDGE
August 6, 2010 (AJAY KUMAR MITTAL)
gbs JUDGE