Patna High Court
Jhaverbhai Bihari Lal & Co. vs Commissioner Of Income-Tax on 11 July, 1984
Equivalent citations: [1985]154ITR591(PATNA)
JUDGMENT
1. A statement of the case has been submitted under Section 256(2) of the I.T. Act, 1961 (hereinafter referred to as "the Act "), by the Income-tax Appellate Tribunal, Patna Bench 'B', Patna. In view of the direction of this court, the Tribunal originally referred the following question of law :
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law in upholding an addition of Rs. 80,374 as assessee's income from other sources ?"
2. Subsequently, in view of the order dated June 27, 1979, passed by this court, the Tribunal has submitted a supplementary statement of the case and referred the following question of law for our opinion:
"Whether, on the facts and in the circumstances of the case, the refusal to summon the persons mentioned in the petition under Section 131 of the Income-tax Act, 1961, vitiated an addition of cash credit amounting to Rs. 80,374 to the assessee's income as income from other sources ?"
3. The fact as found in the original reference under Section 256(2) of the Act may be briefly stated. The assessee is a partnership firm deriving income from business in bin leaves and tobacco. It has its head office at Jhajha and branches at Calcutta, Rehala, Muzaffarpur and Katihar. A sum of Rs. 1,05,000 plus interest of Rs. 3,201--total Rs. 10,8,201--was found credited in the books of the assessee for the assessment year 1968-69. The credits were in the names of eight parties, six of whom were stated to belong to Nepal and the other two to Purnia. All the deposits were stated to have been received in cash at Rehala Branch of the assessee in the month of May, 1967. Enquired about the nature and source, the assessee explained that these parties went to Rehala and paid the cash as advance for purchase of biri leaves but they took their money back later as the biri leaves offered for sale by the assessee were not to their satisfaction. Certificate of confirmation, alleged to be from these eight parties, were filed. The ITO found that all the certificates filed had a set pattern about the deposits and also the withdrawals and some of them appeared to have been written by the same person. He, therefore, asked the assessee on January 15, 1972, to prove the signatures on the certificates, by the production of the parties or otherwise, on January 29, 1972. But the assessee replied that it had sent telegrams to the parties on January 24, 1972, but as they had not turned up on January 29, 1972, the ITO may issue summons to them under Section 131 of the Act. The ITO observed that the parties were residing beyond his jurisdiction and so he could not issue notice under Section 131 of the Act to them. Further, he noted that the time lag between alleged rejection of goods by the parties and the repayment of their money took long to make the explanation probable. He, therefore, rejected the explanation and taxed the sum of Rs. 1,05,000 as well as the interest of Rs. 3,201 as the assessee's income from undisclosed sources. A copy of the assessment order of the ITO is marked annexure-A to the statement of the case.
4. On appeal, the assessee did not produce any further evidence before the AAC but contended that the ITO should have summoned the parties. The AAC rejected this contention and confirmed the addition. A copy of of the order of the AAC is marked annexure-B to the statement of the case.
5. Being aggrieved by the order of the AAC, the assessee appealed before the Tribunal. Before the Tribunal it was contended that these additions were not justified. The learned counsel for the assessee filed before the Tribunal copies of the account of the eight parties to show that the money along with interest was returned to each of these parties. He further filed some copies of the accounts to show that the assessee was accepting similar deposits against some other parties as well. He stated that these were genuine deposits and should have been accepted as such. The Department, on the other hand, contended that the assessed did not discharge the onus that lay on it and that the explanation given by it was too improbable to be accepted as satisfactory. The Tribunal, for the reasons recorded by it in paragraphs 18 and 19 of its order, considered that the deposits in case of the two parties alone--Rs. 20,598 and Rs. 8,247--both inclusive of interest, could be treated as satisfactorily explained and the explanation regarding the other six credits was rightly rejected by the department as unsatisfactory. Accordingly, the Tribunal upheld the addition of these credits and the interest thereon amounting in all to Rs. 80,354. Against this addition, the Tribunal, however, conceded the assessee's other plea that the intangible addition upheld in the biri leaves account/tobacco account be set off and directed that the balance alone should be brought to tax under Section 68. A copy of the order of the Appellate Tribunal is marked annexure-C to the statement of the case.
6. Pursuant to the directions of this court, as already stated earlier, a supplementary statement of the case has been submitted.
7. On these facts, the learned counsel for the petitioner, Mr. Narayan Prasad Agarwal, has submitted that the Tribunal was not justified in sustaining the addition of Rs. 80,354 (wrongly printed or typed as Rs. 80,374 at places).
8. Mr. B.P. Rajgarhia, learned senior standing counsel for the Revenue, raised a preliminary objection that the question as reframed by this court and referred by the Tribunal consequent thereupon did not arise from out of the Tribunal's appellate order and, therefore, could not be said to be a question of law arising out of the order of the Tribunal. This court, therefore, had no jurisdiction to go into that question. We are afraid, this contention is not tenable. Looking to the appellate order of the Tribunal, we find in paragraph 15 thereof that the Tribunal itself has narrated the facts as follows:
"Certificates of confirmation alleged to be from these eight parties were filed. The Income-tax Officer found that all the certificates filed had a set pattern about the deposits and also the withdrawal and some of them appeared to have been written by the same person; He, therefore, asked the assessee on January 15, 1972, to prove the signatures in the certificate by the production of the parties or otherwise on January 29, 1972. The assessee replied that it sent telegrams to the parties on January 24, 1972, but as they did not turn up on January 29, 1972, the Income-tax Officer may issue summons to them under Section 131 of the I.T. Act. The Income-tax Officer observed that the parties were residing beyond his jurisdiction and so he could not issue notices under Section 131 of the I.T. Act, 1961, to them."
9. In paragraph 16 of the appellate order, the Tribunal has taken note of the order of the AAC in which the first appellate authority had also rejected the prayer of the assessee for summoning the parties under Section 131 of the Act. In paragraph 17 of the appellate order, the Tribunal has recorded:
"Sri Agarwal urged before us that these additions were not justified. He filed before us copies of accounts of these eight parties to show that the money along with the interest was returned to each of these parties. But, he further filed some copies of accounts to show that the assessee was accepting deposits against further sale of goods from other parties also. He stated that these were genuine deposits and should have been accepted as such. Sri Sinha, on the other hand, urged that the assessee did not discharge the onus that lay on it and the explanation given by it is too improbable to be accepted as satisfactory."
10. And again, in paragraph 19 of the appellate order, the Tribunal states:
"This state of affairs, in our opinion, is not in keeping with the normal business practice and is improbable. Nor is there any evidence to show that the financial capacities of these parties were such that they were in a position to deposit the amounts under consideration. We, therefore, hold that the explanation relating to these six credits were rightly rejected as unsatisfactory."
11. From the aforesaid paragraphs, it is clear that the Tribunal was quite alive to the situation and the question of law raised, both before the ITO as well as the AAC. The Tribunal was also aware that the assessee was all along pressing that its prayer under Section 131 of the Act was wrongly rejected and merely by rejecting the said prayer, the onus could not be said to have been discharged by the assessee. By not summoning the six parties concerned, as it had all along been contended on behalf of the assessee, the onus that lay on the Department was not discharged. Thus, it was an aspect of the question regarding the justifiability of the addition of Rs. 80,354 and was included in ground No. 11 taken before the Tribunal in the memorandum of appeal to the effect that the addition was not justified in law. It is too well settled now by the highest court of the land that if an aspect of a question is involved in the question as referred under Section 256 of the Act, then the same can said to arise from out of the order of the appellate Tribunal [CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC) at 612]. In the aforementioned case, at page 661, four principles have been laid down to test as to whether a question can be said to arise from the order of the Appellate Tribunal or not. One is where the question is definitely raised and dealt with by the Tribunal. The second category is where a question is raised but is not discussed by the Tribunal. The third is where the question is not raised before the Tribunal but the Tribunal deals with it. In all these three types of cases, a question may be said to arise from out of the Tribunal's order. The fourth category is the only category which precludes the jurisdiction of the High Court under Section 256 of the Act corresponding to Section 66 of the 1922 Act. And, that is, when a question of law is neither raised before the Tribunal nor considered by it. While dealing with the first three categories at page 612, the Supreme Court has laid down that :
"A question of law might be a simple one, having its impact at one point, or it may be a complex one, trenching over an area with approaches leading to different points therein. Such a question might involve more than one aspect, requiring to be tackled from different standpoints. All that Section 66(1) (of the 1922 Act) requires is that the question of law, which is referred to the court for decision and which the court is to decide must be the question which was in issue before the Tribunal. Where the question itself was under issue, there is no further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal. It will be an over refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose......"
12. As we have already observed earlier, the Tribunal was seized of the question of legality and justifiability of the question of Rs. 80,354 as represented by the cash credits of the six parties concerned. The question with regard to the effect of non-issuance or refusal to issue summons to those parties, as prayed for by the assessee under Section 131 of the Act, was merely an aspect of that question. There is a catena of decisions of the Supreme Court as well as of various High Courts consistently following the principle laid down by the Supreme Court in the case of Scindia Steam Navigation Co. Ltd, [1961] 42 ITR 589. It is needless to multiply decisions on the point. A recent decision of the Delhi High Court, however, which was relied upon by Mr. Agarwal, learned counsel for the assessee, deserves attention here. The decision is reported in the case of CIT v. Blaze Advertising (Delhi) Pvt. Ltd. [1983] 143 ITR 421 (Delhi). A question that arose in that case was whether the basic point on which the ITO decided in the case could be said to have ceased to exist merely because the Tribunal did not mention it in its order. And on a reference under Section 256(2) of the Act, the Delhi High Court held that though the question was neither raised before the Tribunal nor dealt with by it, yet it was the basis of the decision of the ITO and the AAC. The Tribunal, on appeal, could not overlook such a question. Therefore, a question of law did arise out of the Tribunal's order. The case at hand stands on a stronger footing since, as already stated earlier, the Tribunal has in its appellate order made express mention of the point raised before the ITO as well as the AAC. The Tribunal was, it would bear repetition to say, very much alive to the question of law as reframed and referred to this court, namely, the effect of non-compliance with the provisions of Section 131 of the Act. We, therefore, are constrained to overrule the preliminary objection raised on behalf of the Revenue.
13. Admittedly, the assessee had produced its books of account. Admittedly, again, the books of account did mention the names of the six creditors whose cash credits have not been accepted by the Department in spite of the production of certificates from them by the assessee It was, therefore, incumbent on the ITO to have resorted to the provisions of Section 131 of the Act at least even once by issuing summons to those six creditors. As to what would have been the effect of their non-appearance or the non-service of notices on them is a question with which we are not concerned in this case. We have merely to see as to whether, on the facts and in the circumstances of the case, the onus that lay on the Department can be said to have been discharged in view of the refusal on the part of the ITO to issue summons to those six parties. The answer to our mind is clear. The law enjoins the issuance of summons in cases where certificates purported to have been granted by such creditors are produced before the assessing authority. We could have at once directed the deletion of the additions made to the tune of Rs. 80,354 if the identity of the creditors was well established. But, in the instant case, it cannot be said with any amount of precision that the identity of the creditors was fully established. That can be decided only if in spite of summons or registered notices to them, they do not or any of them does not respond. Mr. Agarwal, learned counsel for the assessee, placed reliance on some of the decisions in which the additions were directed by the High Court in a reference under Section 256 of the Act to be struck down. But, in all those cases, the identity of the creditors was fully established since their G.I.R. Nos. had been given and they were all assessees under the Act whose books of account could very well be used for the purpose of verification. That, however, is not the position in the instant case. This court is not in a position, from the materials on record, to say with any amount of exactitude as to whether those persons are genuine or not. On the facts and in the circumstances of the instant case, therefore, the Tribunal should direct the ITO to issue notice to those creditors and only after the return of service, these additions should be made or should be deleted as the facts warrant.
14. We, accordingly, answer, in the light of the observations made earlier, the question referred to this court in the supplementary statement of the case in the affirmative and hold that the refusal to summon the persons mentioned under Section 131 of the Act vitiated the addition of cash credits amounting to Rs. 80,354 to the assessee's income as income from other sources. In view of what we have already held earlier, the Tribunal may take appropriate steps by directing the ITO to issue notices to the six creditors in question and thereafter to finalise the assessment in relation to the cash credits to the extent aforementioned. On the facts and in the circumstances of the case, however, we shall make no order as to costs.