Gujarat High Court
Nandkishore Shantilal Parekh vs Commissioner Of Income Tax on 13 October, 1992
Author: G.T. Nanavati
Bench: G.T. Nanavati
JUDGMENT G.T. Nanavati, J.
1. This reference is made by the Tribunal at the instance of the assessee Niranjan Shantilal Parekh and Nandkishore Shantilal Parekh under s. 256(1) of the IT Act. The assessee suggested that the following four questions be referred to this Court :
"1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the household expenses disclosed were inadequate without there being any basis for doing so ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal once having found that other expenses like payment of taxes, premium were separately debited there was any material evidence to hold that the household expenses shown were inadequate ?
3. Whether, on the facts and in the circumstances of the cases, the Tribunal order is perverse and/or unreasonable the same having been based on irrelevant material while having ignored relevant materials on record ?
4. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in considering the present day prices and ignoring the prices prevalent during the relevant accounting period ?
2. The Tribunal did not think it fit to refer those questions and instead preferred to refer the following questions to this Court :
"1. Whether, on the facts and in the circumstances of the case the Tribunal was justified in law in considering the present day prices and ignoring the prices prevalent during the relevant accounting period ?
2. Whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding that the AAC deleted the additions without bringing on record sufficient material ?
3. Whether, there was any evidence on record to sustain the additions of Rs. 7,000, Rs. 7,500, Rs. 8,000 and Rs. 8,500 in the asst. yrs. 1972-73 to 1975-76 in the case of Nandkishore S. Parekh ?
4. Whether, there was any evidence on record to sustain the addition of Rs. 6,500, Rs. 7,000, Rs. 7,500 and Rs. 8,000 in the asst. yrs. 1972-73 to 1975-76 respectively in the case of Shri Niranjan S. Parekh ?"
3. As the questions which the assessees had proposed were not referred, the assessees have preferred IT application Nos. 93/1980 and 94/1980 for a direction to the Tribunal to refer to this Court the questions suggested by the assessees but not referred to this Court. Rule was issued in these applications on 21st October, 1980 and they were ordered to be heard along with this reference. Therefore, the reference and the two applications are heard together and are disposed of by this common judgment.
4. This reference arises out of the orders passed in eight reference applications. Four reference applications were filed by Nandkishore S. Parekh in respect of asst. yrs. 1972-73 to 1975-76. Similarly, four reference applications were filed by Niranjan S. Parekh for the same assessment years. Four applications were filed by each of the assessee because they arose out of the judgment delivered in four appeals filed by the Revenue against each of them. Therefore, the Tribunal ought to have made eight separate references. We have noticed that the Tribunal is following the practice of making only one reference not only when the assessment orders are different, but also when the assessees are also different, if common questions of law arises for determination by this Court.
Earlier also this Court has observed that in such cases separate reference should be made. We hope that the Tribunal will now follow this correct practice in future. As the Tribunal has failed to make separate references in respect of each year and in respect of each assessee, we direct the office to give separate numbers, as if eight references have been made to this Court - four by Niranjan S. Parekh in respect of four different assessment orders and four by Nandkishore s. Parekh again in respect of four different assessment orders.
5. Both the assessees constitute a joint Hindu family and carry on their ancestral business in the name of M/s. Shantilal Dahyabhai Parekh. The Partnership firm, the HUF, Nandkishore and his wife and Niranjan and his wife are all assessed separately. They maintained separate books of account and filed separate returns of their income. For the asst. yrs. 1972-73, 1973-74, 1974-75 and 1975-76, Nandkishore disclosed his household expenses at Rs. 5,100, Rs. 8,286, Rs. 7,572 and Rs. 8,937 respectively. Niranjan in his return for the asst. yrs. 1972-73, 1973-74, 1974-75 and 1975-76 disclosed his household expenses at Rs. 5,125 Rs. 7,550, Rs. 7,564 and Rs. 10,368 respectively. The HUF had also shown in their books household expenses at Rs. 2,467, Rs. 1,201, Rs. 840 and Rs. 3,620 in respect of asst. yrs. 1972-73, 1973-74, 1974-75 and 1975-76 respectively. The ITO found that the household expenses shown by both the assessees were very low compared to their standard of living and the costly items found in their possession. It was noticed by the ITO that the assessees had two residential houses - one an ancestral house in Begumpura area in Surat and the other a new bungalow in Adarsh Society, Surat. The said bungalow was lavishly furnished and had a good garden around it. He had also noticed that the assessees possessed a Stereo system, Air-conditioner, Refrigerator and other expensive household appliances. Wives of the two assessees had 200 costly sarees and they possessed large number of imported perfume bottles. Number of imported toys decorated their show-cases. They possessed a car and three telephones. On the basis of this material, he came to the conclusion that the household expenses of the assessees' family as a whole could not have been less than Rs. 30,000, Rs. 35,000, Rs. 40,000 and Rs. 45,000 for asst. yrs. 1972-73, 1973-74, 1974-75 and 1975-76 respectively. On this basis he computed the unaccounted household expenses and treated half of the said amounts as undisclosed income in the hands of each assessee.
6. Both the assessees feeling aggrieved by the assessment orders, preferred separate appeals to the AAC. The AAC held that it was no proper on the part of the ITO to consider the withdrawals for household expenses as inadequate and to infer that the assessees had some extra funds our of which the household expenditure was being met in absence of any material gathered after making proper enquiries in that behalf. He was also of the view that in all probability the ITO was influenced by the fact of a raid carried out at the premises of the appellants and it was for that reason that all the explanations given by the assessees were rejected by him. In substance, the AAC held that the assessment orders were passed more on suspicion and conjuctures and the additions which were made were not justified. He, therefore, allowed the appeal and ordered deletion of additions made by the ITO.
7. The Revenue thereupon preferred 8 separate appeals before the Tribunal. They are all disposed of by a common order. The Tribunal relying upon the facts found by the ITO and more particularly the circumstances that the assessees were paying electricity bills ranging between Rs. 125 to Rs. 300 per month, were staying in a good bungalow having a good garden, were members of the Clubs like Lions, Rotary, etc. that the assessees had visited foreign countries and had stayed in costly hotels and that they were usually travelling in car, came to the conclusion that the withdrawals for the household expenses shown by the assessees were highly inadequate and "in these days of high prices" they could not have maintained themselves in such a manner. The Tribunal observed "in these days even an ordinary family consisting of four or five members will not be able to pull on with amount of household expenses of Rs. 10,000 per annum". The Tribunal, therefore, allowed the appeal in part by setting aside the order passed by the AAC and directing additions of Rs. 7,000, Rs. 7,500, Rs. 8,000 for the asst. yrs. 1972-73, 1973-74, 1974-75 and 1975-76 respectively in case of Nandkishore Parekh and Rs. 6,500, Rs. 7,000, Rs. 7,500 and Rs. 8,000 in case of Niranjan Parekh. It may be stated that these additions were less than the additions which were made by the ITO.
8. What is contended by the learned counsel appearing for the assessee is that the judgment of the Tribunal is perverse as the findings recorded by him are based upon conjectures and surmises and are vitiated on account of consideration of irrelevant materials. The learned counsel also made a grievance that the Tribunal has not referred to any of the contentions raised on behalf of the assessees and the explanations given on behalf of the assessees have not been considered. We find that there is much substance in the grievance made by the learned counsel. While carefully going through the judgment of the Tribunal, we find that there is no reference whatsoever to the contentions raised on behalf of the assessees. Only at one place in paragraph 14, the Tribunal has stated that it had considered the rival submissions, but what were the submissions made on behalf of the assessee is nowhere stated. Even the discussion in the judgment does not indicate what those submissions were. This was obviously a dissatisfactory way of disposing of the appeals. In fairness to the assessees the submissions made on behalf of the assessees ought to have been set out or indicated in the judgment.
9. We also find that even though the relevant assessment years were 1972-73 to 1975-76, the Tribunal took into consideration the prices prevailing in the year 1979 for coming to the conclusion that considering the cost of living prevailing then i.e., in 1979, the assessees could not have maintained themselves in the way they were living by spending only those amounts which were shown as household expenses in their returns. When the Tribunal observed in paragraphs 12 and 19 that "in these days of high prices" it had in mind the prices prevailing in 1979 and we cannot accept the explanation given by the learned counsel for the Revenue that by stating like that the Tribunal was referring to the prices prevailing during the relevant years and not in 1979. It is also difficult to appreciate how the circumstances that the assessees were from a family well established in business and that they had separate sources of income and their wives having separate sources of income could be regarded as irrelevant circumstances for the purpose of coming to the conclusion that the household expenses which they had shown were not genuine and highly inadequate. The wives of the assessees had also withdrawn amounts by way of household expenses and the material on record also discloses that those amounts were put together with other amounts withdrawn by the assessees for the household expenses. Yet, the Tribunal has observed that this circumstance was of no help to the assessee. Thus, this relevant circumstance was omitted from consideration by the Tribunal while drawing the inference regarding adequacy or otherwise of amounts shown as household expenditure. The assessees had shown to the satisfaction of the authorities that the expenses which they had incurred for constructing the bungalow, furnishing the same and for purchasing all other household items, separate debit entries were made in their books of account and they were all accepted by the authorities. The assessees had also shown to the satisfaction of the authorities that the car was maintained our of the funds of the partnership firm and necessary entries in that behalf were also made in the account books. Electricity bills were also paid separately by making separate debit entries in the account books. Under these circumstances, it is difficult to appreciate how by applying the test of human probability the Tribunal was able to persuade itself that the orders passed by the AAC were not proper.
10. But for the fact that many years have passed in between and that the tax effect will be comparatively small and if the matters are again sent back to the Tribunal, that will involve further expenses not only to the assessee but also to the Revenue, we would have answered the questions in favour of the assessees and remitted the matter back to the Tribunal. We are of the opinion that it is of no use to send the matter back to the Tribunal for the reasons stated above. Accordingly, we decline to answer the questions referred to us. This reference is disposed of accordingly. The Reference Applications are also dismissed. Rule is discharged. There shall be no order as to costs.