Vildirect: IncomeTax-caselaws-1988-VIL-61-ITAT-PAT

1988-VIL-61-ITAT-PAT

Equivalent Citation: TTJ 032, 483, [1998] 25 ITD 599

Income Tax Appellate Tribunal PATNA

Date: 18.02.1988

RAMA TRADERS.

FIRST INCOME TAX OFFICER.

BENCH

Member(s) : T. VENKATAPPA., U. S. DHUSIA., B. NATH.

JUDGMENT

The issue is about a sum of Rs. 45,710 which was added by the ITO in the assessment for the asst. yr. 1979-80.

2. The sum of Rs. 45,710 was made up of two additions one for Rs. 21,170 and another for Rs. 24,540. The sum of Rs. 21,170 represented the profit worked out at 2per cent on sale of goods amounting to Rs. 10,58,509. It was found by the ITO that the account books of M/s Raj Trading Co. which have been seized during the search of their premises contained an account of M/s Rama Traders, the assessee, where the later was found to have made purchases amounting to Rs. 10,87,306. The books of the assessee showed that he had made purchases of only Rs. 28,797 from M/s Raj Trading Co. The ITO, therefore relying on the ledger account of the assessee as appearing in the seized books of M/s Raj Trading Co. enquired why the excess purchases amounting to Rs. 10,58,509 were not appearing in the account of Raj Trading Co. in his accounts maintained by him. The assessee denied that he had made any purchases from M/s Raj Trading co., in excess of what appeared in his accounts, i.e., in excess of purchases made for Rs. 28,797. The ITO overruled him and held that the assessee had suppressed purchases. He brought out two or three reasons for his finding that there was suppression of purchases. On the suppressed purchases he worked out the profit of 2 per cent and reached the sum of Rs. 21,170 one of the two sums which had been pointed out above as forming an aggregate of Rs. 45,710.

3. The ITO also found that from a perusal of the accounts of the assessee as appearing in the books of M/s Raj Trading Co. that up to 28th Dec., 1977 the appellant firm had made payment to the tune of Rs. 1,92,069 as against goods purchased at Rs. 1,05,448. Even after adding the profit on the sale of Rs. 1,05,448 at 2per cent the excess payment worked out to Rs. 24,540 as no explanation was filed by the appellant firm to explain the source of investment he treated the above amount of Rs. 24,540 as unexplained investment and added the same to the total income of the appellant.

4. The two sums of Rs. 21,170 and Rs. 24,540 made up the aggregate of Rs. 45,710 which were added to the total income of the assessee. The assessee impugned these additions before the CIT(A). He raised a plea that his account books were genuine account books and they showed his transaction and dealing with M/s Raj Trading Co. correctly. He was not responsible and bound by the entries appearing in the books of third party which were seized during the income-tax search but the CIT(A) overruled him and rejected his contention. He was moved by the plea of Revenue that two sets of account books had been recovered during the search from the premises of M/s Raj Trading Co. one of the sets was to be considered as correct and genuine while the other set of accounts should be considered as not genuine and which was meant for production before the authorities. After plea which moved the CIT(A) was that the several accounts appearing in the other sets were found on verification to be correct. Therefore, he held that the account of the assessee as appearing in that set must be found to be correct. The assessee felt aggrieved and has brought the issue in appeal before the Tribunal.

5. Having heard both sides, we are of the view that it is not possible for us to turn down the plea of the assessee that the onus for proving the correctness of the entries appearing in the books of M/s Raj Trading Co. was not on the assessee but on the Revenue. The Revenue could not depend upon indirect support derived from verification of other accounts or from the fact that M/s Raj Trading Co. was maintaining two sets of account out of which one must be taken to be correct. The very fact that M/s Raj Trading Co. was found to be maintaining two sets of account casts shadow on his integrity. There can be no presumption of genuineness in respect of entries appearing in any of the two sets. If the Revenue wanted to rely on entries appearing in one of the sets of account it has to prove and support the entries which in our view has not been done. Revenue could not in course of regular assessment depend upon sub-s. (4A) of s. 132 to draw the presumption against the assessee who is a third party. No doubt the Revenue would be fully entitled to draw presumption against M/s Raj Trading Co. in a proceeding under s. 132 relating to search and seizure but the effect of the presumption cannot be stretched to hold the assessee bound by the entries appearing in the books of M/s Raj Trading Co. We are unable to find any support for the finding of the CIT(A) and, therefore, we vacate it and strike down the addition. The appeal of the assessee on this issue is allowed.

6. There is another issue in respect of an addition of Rs. 1,08,818 made up of cash credits appearing in the names of several ladies, i.e., Sharda Devi Kerjriwal Rs. 20,000, Pramodi Devi Kerjriwal Rs. 17,000, Manu Devi Kerjriwal Rs. 18,000, Rukmani Devi Kerjriwal Rs. 8,000, Bimla Devi Kerjriwal Rs. 18,000, Geeta Devi Kerjriwal Rs. 18,818 and Laxmi Devi Kerjriwal Rs. 9,000. The ITO took these credits as those not proved by the assessee and therefore, added the amounts as income of the assessee from undisclosed sources. He also disallowed the interest of Rs. 4,805 claimed by the assessee as due for payment on these credits. Therefore, he caused additions of Rs. 1,08,818 and Rs. 4,805. The CIT(A) confirmed the additions. The assessee having felt aggrieved by this finding impugned the additions in an appeal filed before the Tribunal.

7. It is pointed out by the learned counsel for the assessee that the issue is covered by several orders passed by the Tribunal in the case of these ladies. The Tribunal accepted the amounts appearing in the books of the assessee in their names. In particular, he pointed out to ITA Nos. 92 to 96 (Pat.) of 1982 where the deposits appearing in the name of Bimla Devi Kerjriwal was upheld by the aforesaid order of the Tribunal. Similarly, he pointed out that similar orders were passed in respect of other ladies by the Tribunal in IT Appeal Nos. 92, 94 to 97 and 99(Pat.) of 1982. It was also pointed out that the Tribunal had also rejected the reference applications moved by the Revenue having accepted the deposits appearing in the names of these ladies to be genuine the issue raised in this appeal does not survive. We are to hold that the CIT(A) misdirected himself in treating the cash credits as not proved. In our view, his finding in liable to be vacated as the credits appearing in the names of these ladies are found genuine and bona fide. Consequently, the finding of the CIT(A) in respect of interest of Rs. 4,805 is also to be treated erroneous and discharged. We do so. The appeal of the assessee is allowed.

B. NATH, A.M.

There are two issues in this appeal— one issue is with regard to the addition of Rs. 45,710 which has been added as a result of books of account found in the course of raid at the premises of Raj Trading Co. The other issue is with regard to the addition of Rs. 1,08,818 which were cash credits in the account of several ladies and the disallowances of interest on this cash credits.

2. As far as the cash credits in the names of the ladies are concerned, I agree fully with the conclusion of my learned brother that these credits are explained by the assessments in the hands of the ladies themselves who were income-tax assessees at Ranchi. Moreover, this issue is covered by the orders of the Tribunal which have been referred to in the order of my learned brother. The Tribunal has already held in the case of the ladies that the ladies had earned incomes which were invested in the firm. The Department moved reference petition against the orders of the Tribunal which were rejected. I understand that the prayer for reference under s. 256(2) before the Court was withdrawn by the Department itself. After the orders of Tribunal passed in the cases of the ladies, the Department has not been able to bring any material to show or prove that the said cash credits represented unexplained income of the assessee-firm.

3. I therefore concur with the decision of my learned brother on this issue that this contention of the assessee be allowed.

4. As far as the next issue is concerned, I have not been able to agree with the conclusion of my learned brother. According to the facts as mentioned by my learned brother in the order, it was detected' in the account books of Raj Trading Co. which were found in the course of raid that the assessee had made purchases from them amounting to Rs. 10,87,306. The assessee had actually shown in its books purchases to the extent of only Rs. 28,797 from Raj Trading Co. Thus, it was held by the ITO that the assessee had suppressed purchases to the extent of Rs. 1,58,509. Further, the assessee had also made payments according to the books of Raj Trading Co. to the extent of Rs. 1,92,069. In the books of the assessee, the payments to Raj Trading Co. were shown at a lesser figure. The assessee completely denied to have made those purchases from Raj Trading Co. which were not shown in the books of the assessee. The ITO had added Rs. 45,710 as mentioned by my learned brother in his order treating that the assessee had made purchases outside books and the profit on the sale or purchases outside books and had also made payments to them outside books. The CIT(A) has agreed with the ITO and mentioned that the books of Raj Trading Co. which were seized in the course of raid tally with all the government Institutions, Banks and the accounts of other manufacturing companies. Moreover, the provisions of s. 142(4A) were also relied upon to hold that under the law entry in the seized books of account have to be taken as correct. There was a presumption which was against the assessee. The CIT(A) also examined the contentions raised by the assessee that the assessee had shown all purchase made from Raj Trading Co. in his books which is clear from the cash memo, stock register and form IXC which is required under the Essential Commodities Act. It was also contended by the assessee that there were some purchase which were not entered into the books of even Raj Trading Co. though the same were entered into the books of the assessee.

5. My learned brother has deleted the above addition which was confirmed by the CIT(A) by holding that the presumption under s. 132(4A)(ii) is only against Raj Trading Co. whose books were seized and the said presumption cannot be drawn against the assessee who is a third party. I have not been able to agree with the legal interpretation made by my learned brother. Sec. 132(4A) reads as under:

"(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession of control of any person in the course of a search, it may be presumed—

(i) that such books of account, other documents, money, bullion, jewellery or other valuable article or thing belong or belongs to such persons,

(ii) that the contents of such books of account and other documents are true, and

(iii) that the signature and every other part of such books of account and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by, or to be in the handwriting of, any particular person, are in that person's handwriting and in the case of a document stamped and executed or attested, that it was only stamped and executed or attested by the person by whom it purports to have been so executed or attested."

The above would show that s. 132(4A)(ii) does not say that the presumption regarding correctness of the books of account seized would hold good only as far as the assessee is concerned. It is a presumption which would hold good even in the cases of other persons who are concerned with the entries in those books. Otherwise the result would be anomalous. If the presumption is for Raj Trading Co. only that Raj Trading Co. sold goods worth Rs. 10,87,306 to the assessee in this year and if the said presumption is not applicable in the case of the assessee, in the assessment of the assessee purchases from Raj Trading Co. would be held to be only of Rs. 28,797 while in the case of Raj Trading Co. sales to the assessee would be taken at Rs. 10,87,306. There would be, thus, clearly conflicting findings in the cases of the seller and the purchaser. I do not think that an interpretation of law which gives rise of contrary finding in two cases who are concerned with the two sides of a transaction would be correct. An interpretation which makes the law workable has to be taken and not an interpretation which places the provision of law under such an anomalous situation. Moreover provision of law is clear as it is. I, therefore, hold that the presumption in s. 132(4A)(ii) has to be drawn even against the assessee and not merely against Raj Trading Co. Acting on this presumption, the addition confirmed by the CIT(A) was to be held to be correct. It may be mentioned here that this issue is also covered by the decision of this Bench in ITA Nos. 378 and 554(Pat) of 1983 for the asst. yr. 1978-79 in the case of Deepak General Stores, (order dt., 14th Dec., 1984) in which similar addition made in exactly identical circumstances has been confirmed.

6. However, a plea was taken by the assessee strongly at the time of hearing of appeal that proper and reasonable opportunity of hearing was not given to the assessee before making this addition. According to the assessee, the presumption is rebuttable. Of course it is so. The assessee was given an opportunity to state its viewpoint and its reply and time of this purpose was given to the assessee of only two days. It was stated that the assessee was confronted on this issue only on 1st Aug., 1982 and the next date of hearing was 3rd Aug., 1982 on which reply of the assessee was filed. The assessee was not given reasonable opportunity to give detailed explanation after looking into the books of Raj Trading Co. nor any opportunity to examine the proprietors of Raj Trading Co. It was thus argued that the proper opportunity of hearing in this connection was not given. On consideration of this argument of the assessee, I am of the opinion that reasonable opportunity was not given to the assessee in this connection before adding the said amount. In my opinion, therefore, this issue should be sent back to the ITO after setting aside the conclusions of the authorities below to he decided afresh after giving reasonable opportunity of hearing to the assessee.

Order under s. 255(4) of the IT Act, 1961.

U.S. DHUSIA, J.M.:

We, the Members of Patna Bench having differed on the above issue while deciding the case of M/s Rama Traders, Ranchi (In the ITA mentioned above) for the asst. yr. 1979-80, refer the following questions to the President, Tribunal under s. 255(4):

"1. Whether on the facts and in the circumstances of the case, the ITO was authorised to rely upon presumption referred in sub-s. (4A) of s. 132 in course of regular assessment and call upon the assessee a third party to disprove the entries in his alleged account appearing in the books of M/s Raj Trading Co. from whose premises the said books of accounts had been recovered and seized during the search under s. 132?

2. Whether on the facts and in the circumstances of the case, the Tribunal would be justified in setting aside the finding of the CIT(A) regarding the addition of Rs. 45,710 representing profit estimated by the ITO on the basis of entries of purchases made by the assessee found in his account in the books of M/s Raj Trading Co. which had been denied by the assessee completely and not striking out the addition?

3. If the answer to the question were in the affirmative whether the Tribunal would be justified in remanding the proceeding to ITO with the object of providing more opportunities to the assessee to disprove the entries of alleged purchases found in the books of M/s Raj Trading Co.?"

Registry while sending the above will send the records of the case.

B. NATH, A.M.:

We, the Members of Patna Bench having differed on the following issue while deciding ITA No. 143(Pat) of 1984 for asst. yr. 1979-80 (case of Rama Traders) refer the following questions to President, Tribunal under s. 255(4).

"(1) Whether in the facts of the case the addition of Rs. 21,170 + Rs. 24,540 = Rs.45,710 were correctly confirmed by the CIT(A) and whether his order on this issue is fit to be upheld?

(2) Whether the presumption mentioned in s. 132(4A)(ii) regarding correctness of entries in the seized books can be drawn only in the case of the assessee whose books are seized or also in the cases of other persons in whose names the entries are passed in those books and who represent the other sides of the transactions mentioned in those books?"

T. VENKATAPPA, V.P.

This matter has been referred to me under s. 255(4) by the President, Tribunal in view of the difference of opinion between the learned Judicial Member and learned Accountant Member of Patna Bench. The learned Judicial Member has framed the following three questions and the learned Accountant Member has framed the following two questions:

Questions framed by Judicial Member

"1. Whether on the facts and in the circumstances of the case, the ITO was authorised to rely upon presumption referred in sub-s. (4A) of s. 132 in course of regular assessment and call upon the assessee a third party to disprove the entries in his alleged account appearing in the books of M/s Raj Trading Co. from whose premises the said books of account had been recovered and seized during the search under s. 132?

Questions framed by A.M.

"(1) whether in the facts of the case the additions of Rs. 21,170 + Rs. 24,540 = Rs. 45,710 were correctly confirmed by the CIT(A) and whether his order on this issue is fit to be upheld?

The following question would be the proper question:

"Whether, on the facts and in the circumstances of the case, presumption under s. 132(4A) can be drawn against a third party also and whether the Tribunal would be justified in sending the case back to the ITO to consider the matter afresh with regard to the addition of Rs. 45,710?"

2. The dispute is with regard to the additions of Rs. 47,710. During the course of search under s. 132(1) at the business premises of Raj Trading Co. certain books were seized. It was found that the assessee had made purchases to the tune of Rs. 10,87,306 but in the books of the assessee purchases to the extent of Rs. 28,797 from M/s Raj Trading Co. alone was accounted. The ITO asked explanation why the difference of Rs. 10,58,509 was not accounted in the assessee's books. The assessee filed an explanation stating that there was no other transaction made with M/s Raj Trading Co. except to the extent of Rs. 28,797. The ITO did not accept this explanation. He estimated profit at 2 per cent on Rs. 10,58,509 and made addition of Rs. 21,170. The ITO also found that the assessee had made payment to the tune of Rs. 1,92,069 up to 28th Dec., 1977 as against goods purchased at Rs. 1,05,448. Even after adding the profit on the sale of Rs. 1,05,448 at 2per cent the excess payment worked out to Rs.24,540 which the ITO treated as unexplained investment and added the same. Thus the total addition came to Rs. 45,710.

3. On appeal, the CIT(A) upheld the same. The assessee appealed to the Tribunal which was heard by the learned J.M. Shri D.S. Dhusia and the learned A.M. Shri B. Nath of Patna Bench. The learned Judicial Member held that the onus of proving the entries in the books of M/s Raj Trading Co. was on the Revenue but the Revenue had failed to prove and support the entries. The Revenue could not in course of regular assessment depend upon sub-s. (4A) of s. 132 to draw presumption against the assessee who is a third party. Thus the addition has to be deleted. The learned Accountant Member did not agree with this view. He held that the presumption under s. 132(4A) would hold good in the case of other persons who are concerned with the entries in those books. Presumption is a rebuttable one. The assessee was given two days' time to state its view point and thus no reasonable opportunity was given. Hence the matter has to be sent back to the ITO to decide the issue afresh after affording reasonable opportunity of hearing to the assessee. In view of the above difference of opinion, the matter has been referred to me.

4. The learned counsel for the assessee strongly urged that under s. 132(4A) a presumption can be raised only against a person from whom books are seized and no such presumption can be raised against any other person. The said section is a self-contained code. The addition made is unwarranted as the Revenue has no proof that the entries in the books seized to the extent of Rs. 10,58,509 relate to the assessee. He further submitted that no businessman would pay excess payment than actual purchases. Hence the addition made on that account is unwarranted. Thus he urged that the entire addition of Rs. 45,710 is unwarranted. The Departmental Representative submitted that the entries to the extent of Rs. 10,58,509 have not been found in the assessee's books. Hence the ITO was justified in making the addition on the basis of the entries in the seized books. Since the source in respect of the excess payment has not been proved the addition is justified.

5. I have considered the rival submissions. It is no doubt true that under s. 132(4A) presumption can be drawn only against person from whom books are seized and no such presumption can be drawn against any other person. But at the same time since the purchases to the extent of Rs. 10,87,306 by the assessee have been found in the books of Raj Trading Co. it may be necessary to make necessary enquiries in the assessment proceeding with regard to this transaction after giving a proper opportunity of being heard to the assessee. In the assessee's books purchases of Rs. 28,797 from M/s Raj Trading Co. have been recorded. It may also be necessary to summon M/s Raj Trading Co. to know the truth with regard to the purchases of Rs. 10,87,306 shown in the seized books. It may be necessary to find out what was done in their assessment. The ITO has only given two days' time to the assessee to offer the explanation and thus no reasonable opportunity of being heard has been given.. Hence the matter has to be sent back to the ITO to decide the issue afresh after giving a reasonable opportunity of being heard to the assessee. After making the necessary enquiries and after giving full opportunity to the assessee a fresh assessment has to be made. Thus I am of the view that this matter should be sent back to the ITO for considering the issue on merits instead of merely relying on presumption. Thus the order of the CIT(A) and the assessment order should be set aside regarding the addition of Rs. 45,710 and remitted to the file of the ITO for fresh consideration in accordance with law.

6. Now the matter will go back before the Bench for passing necessary orders.

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