Delhi High Court
Cit vs La Medica on 15 March, 2001
Equivalent citations: (2001)168CTR(DEL)314
Author: Arijit Pasayat
Bench: Arijit Pasayat
JUDGMENT Arijit Pasayat, C.J.
Pursuant to directions given by this court under section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as the Act), following question has been referred by the Income Tax Appellant Tribunal, Delhi Bench E (hereinafter referred to as the Tribunal), for opinion :
"Whether, on the facts and in the circumstances of the case the Tribunal had material to come to the conclusion that the sum of Rs. 3,82,750 could not be treated as the assesseds income from undisclosed sources ?"
Dispute relates to the assessment year 1971-72.
2. Factual position as noticed by the Tribunal is as follows. assessed was a manufacturer of allopathic medicines, the most famous being Equibrom which was used as a tranquilliser. It claimed to have purchased raw material worth Rs. 3,82,750 from M/s Kalpana Enterprises, 71, canning street, Calcutta on credit. Two purchases, i.e., one for Rs. 1,83,750 and the other for Rs. 2 lakhs were claimed to have been made. The Income Tax Officer found that the rate at which the purchases were made was high. He also found that these were the only purchases from the alleged seller. On that ground he asked the assessed to produce the alleged seller along with its books of account. A copy of the accounts of the party from the books of account of the assessed starting from the date of raising of bills till payments were made was also asked for Summons under section 131 of the Act were also issued to the alleged seller. assessed failed to produce the party. A registered letter sent by the Income Tax Officer on 23-10-1973, was received back unserved. Thereafter Income Tax Officer fixed up a tour from 18-2-1974, to 23-2-1974, to Calcutta and informed the assessed by his letter, dated 2-2-1974, to produce the party as well as another seller M/s. Medicine House of Calcutta along with complete set of books of account. Copies of the summons under section 131 of the Act were supplied to the assessed for effecting service, who was also requested to be present for cross-examination. On the date of hearing, neither the assessed nor anybody from M/s Kalpana Enterprises appeared. He, therefore, deputed an Inspector to conduct spot enquiry about the genuineness of the party. One Mr. M.N. Mahato conducted the enquiry and submitted a report to the effect that there was no tenant by the name of M/s. Kalpana Enterprises at 71, Canning Street, Calcutta. On making enquiries from the neighborhood it was found that none of them had ever heard of M/s. Kalpana Enterprises. Income Tax Officer was thereafter of the firm view about the non-existence of M/s. Kalpana Enterprises at the premises indicated, i.e., 71, Canning Street, Calcutta. Income Tax Officer issued summons to the agent of Indian Overseas Bank, Janpath, New Delhi, through whom the payment was made to M/s. Kalpana Enterprises on 24-3-1973. The agent informed on 13-3-1974, that the account of M/s. Kalpana Enterprises was opened with them on 24-3-1973 with four pay orders, three of Rs. 1 lakh each and the fourth for Rs. 82,750. The address furnished by M/s. Kalpana Enterprises was 479, Bartan Market, Sadar Bazar, Delhi. The name of the person who was operating the bank account was Chedi Lal. One Satya Pal Jain, partner of M/s. Medipac, one of the sister-concerns of the assessed-firm had introduced Chedi Lal to the bankers. The amount in question was withdrawn by Chedi Lal. Bank was, therefore, required to produce all the documents relating to M/s. Kalpana Enterprises including copy of account, cheques issued for withdrawal of money, details of payment orders account opening form, specimen signature card, which were duly produced. Income Tax Officer deputed an Inspector to make spot enquiries at 479, Bartan Market, Sadar Bazar, Delhi, where it was found that one Kapur Chand of M/s. F.C. Oswal Hosiery was carrying on business since partition of the country at the relevant place. Office secretary of the property was also contacted. It was found out that there was no tenant named Chedi Lal ever operating at that place. Finding that the bank account was opened by Chedi Lal with the Delhi address and the bills indicated the address as that of 71, Canning Street, Calcutta. Income Tax Officer entertained doubt and suspicion. It was noted that the account was opened on introduction by Satya Pal Jain, partner of the sister concern of assessed. On the same day assessed deposited Rs. 3,82,750. The Income Tax Officer, therefore, concluded that after withdrawing the amount Chedilal must have passed on the same to the assessed privately. Again assessed was required to produce Chedi Lal and Satya Pal Jain on 22-3-1974. Neither of them was produced on the ground that it was not possible to trace Chedi Lal, and Satya Pal Jain was not available. On the basis of material on record, Income Tax Officer treated the sum of Rs. 3,82,750 as assesseds income from undisclosed sources. Matter was carried in appeal before the Appellate Assistant Commissioner. Said authority was of the view that though circumstances were not very clear yet the fact remained that the goods had been pledged with the bank after the alleged purchase. Therefore, no adverse inference could be drawn. It was also concluded that though Chedi Lal and Satya Pal Jain were not produced and that Satya Pal Jain had introduced Chedi Lal, that cannot be a basis for doubting genuineness of purchases and/or to infer that there were fictitious purchases. Matter was carried in appeal by revenue before the Tribunal. Stand of the assessed was reiterated before the Tribunal while revenues stand was that the whole thing was shrouded in mystery. If Kalpana Enterprises, was a party of Calcutta it was required to be established by the assessed. On enquiry and on the basis of materials on record it was found out that no such person ever existed. The bank accounts were opened by Chedi Lal on introduction by Satya Pal Jain by giving another fictitious address of Delhi. All these established that the purchases were non-existent. Certain materials by way of additional documents were also placed before the Tribunal for consideration. Some of them related to the statement of Chedi Lal and others were materials to show that he was a petty employee with Satya Pal Jains concern. Additionally, voluntary disclosure statements made by M/s. Inder Sain Jain (HUF) and letter addressed to the Commissioner explaining the purchases, were brought on record. In spite of objection from the assessed, Tribunal accepted these materials for consideration. It ultimately came to hold that notwithstanding the suspicious circumstances the fact remained that purchases were made and merely because of the involvement of Chedi Lal and Satya Pal Jain and Inder Sain Jain (HUF) the fact that purchases were made and payments made cannot be doubted. Accordingly revenues appeal was dismissed. An application filed under section 256(1) of the Act by the revenue was not accepted by the Tribunal and as indicated above, on being moved under section 256(2) of the Act, the question as set out above has been referred.
3. We have heard learned counsel for revenue . There is no appearance on behalf of assessed in spite of notice. Though essentially the conclusions of the Tribunal have the colour of factual findings, still we find that the Tribunal has not taken into consideration relevant materials and has also acted on irrelevant materials. The fact that the alleged sellers have been found to be persons with no means to effect purchases or to carry on business is a factor which does not appear to have been considered by the Tribunal in its proper perspective. Materials on record clearly establish that Chedi Lal was a petty employee of a concern of which Satya Pal Jain was a partner. In fact Satya Pal Jain was a partner of M/s. Medipac, one of the sister-concerns of the assessed-firm. On enquiries conducted by the authorities after due notice to the assessed it was found that there was no such concern called M/s. Kalpana Enterprises at either 71, Canning Street, Calcutta or 479, Bartan Market, Sadar Bazar, Delhi. Additionally Chedi Lal opened the bank account with the introduction of Satya Pal Jain and the amounts were withdrawn. If the purchases were really effected from M/s. Kalpana Enterprises it is not understood as to how some other person, namely, Inder Sain Jain (HUF) accepted that the materials were supplied by it. The question before the Tribunal was not whether purchases were made from another concern. What was under consideration was whether the purchases were made from M/s. Kalpana Enterprises as was claimed by the assessed. Ample material has been brought on record by the revenue to show that the purchases were in fact not made from M/s. Kalpana Enterprises. These are some of the relevant materials which have not been considered by the Tribunal. Tribunals conclusion that even if it is accepted that Chedi Lal was only an instrument used by Satya Pal Jain, assessed was not involved in it, is a conclusion arrived at without any foundation. On the contrary it has been established by materials on record that assessed knew that the whole thing was a fictitious arrangement. Once it is accepted that the supplies were not made by Kalpana Enterprises to whom payments were alleged to have been made, the question whether the purchases were made from some other source ought not to have weighed with the Tribunal as a factor in favor of the assessed. The conclusions of the Tribunal are, therefore, clearly erroneous, contrary to materials on record and have been arrived at without taking into consideration relevant material and placing reliance on irrelevant materials. It is to be noted that assesseds stand was not that it had effected purchases from anybody else. Its stand throughout was that it had effected purchases from M/s, Kalpana Enterprises. It was not open to the Tribunal to make out a third case, which was not even the case of the assessed, to hold that the transactions were real and not fictitious as claimed by the revenue. As observed in Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC), a question of law arises if a finding of fact is arrived at by the Tribunal after improperly rejecting evidence. A question of fact becomes a question of law if the finding is not founded on any evidence or material, or if it is contrary to evidence. Similar is the position if it is perverse or there is no direct nexus or link between conclusion of fact and the primary fact upon which that conclusion is based. Where Tribunal acts on partly relevant and partly irrelevant materials, and it is not possible to say as to what extent latter has influenced its mind, the finding is vitiated because of use of irrelevant material. That gives rise to a question of law. This position has been succinctly stated by the Apex Court in Dhirajlal Girdharilal v. CIT (1954) 26 ITR 736 (SC). CIT v. Daulat Ram Rawatmull (1973) 87 ITR 349 (SC). Where the Tribunal misdirects itself in law in basing its conclusions on some evidence ignoring other essential materials on record, a question of law arises. (See CIT v. Radha Kishan Nandlal (1975) 99 ITR 143 (SC). The answer to the question therefore, is in the negative, in favor of revenue and against the assessed.
The reference application stands disposed of.