1997-VIL-101-ITAT-CHD

Equivalent Citation: ITD 066, 441, TTJ 061, 466,

Income Tax Appellate Tribunal CHANDIGARH

Date: 28.11.1997

INCOME-TAX OFFICER.

Vs

SADHU RAM GUPTA.

BENCH

Member(s)  : R. M. MEHTA.

JUDGMENT

1. The following ground is raised in the revenue's appeal directed against the order passed by the DC(A):-

"On the facts and in the circumstances of the case, Id DC(A) has erred in deleting the addition of Rs. 50,000 made by the Assessing Officer. It is prayed that the order of Id. DC(A) be set aside and that of the AO be restored.'

2. I have heard both the parties and have also perused the orders passed by the tax authorities. To state in short the facts of the case, original assessment in the case of the respondent was completed under section 143(1) vide order dated 14-11-1988 on a total income of Rs Subsequent information was received from file A.D.I. to the effect that the partner of the firm, i.e., Sh. Subash Gupta had purchased a draft for Rs. 50,000 on 30-1-1988 from the State Bank of Patiala in the name of one Sh. Gulshan Kumar Gupta. Statement of Sh. Subash Gupta was recorded on 13-7-1989 on two occasions and it was categorically stated by him on a query about the source of investment in the purchase of draft that the same was purchased out of the funds of the respondent-firm but relevant entry in the books of account was not recorded inadvertently. The ITO initiated proceedings under section 148 with a view to assess the 'unexplained investment' the purchase of draft. In response to notice under section 148, the assessee filed its return of income declaring the income originally assessed.

3. In the course of reassessment proceedings, Sh. Subash Gupta was specifically confronted with the facts pertaining to the purchase of the draft in question and at this stage he contended that the draft had been purchased from the funds belonging to Sh. GuIshan Kumar Gupta. It may be mentioned that the statement of Sh. Gulshan Kumar Gupta was also recorded by the ADI on 16-8-1989, during the course of which he stated that the drafts of Rs. 3.00 to Rs. 3.50 lakhs had been purchased by Sh. Subash Gupta and one Sh. Navin Kumar on his behalf with his money, the latter representing the sale proceeds of onions and other scrap items. According to the ITO, Sh. GuIshan Kumar Gupta had nowhere pointed out any of the drafts purchased by Sh. Subash Gupta or Sh. Navin Kumar on his behalf and neither was any proof tendered about the sale proceeds of various items purported to have been sold on his behalf as also the consequential collection of sale proceeds on his behalf and the purchase of drafts to the extent as stated. A perusal of the assessment order shows that on being confronted r with the aforesaid facts aside order sheet entry dated 22-10-1990, the assessee had no answer to this. The ITO afforded an other opportunity asking Sh. Subash Gupta to prove the availability of the money in his hands for the purchase of the draft as also the goods stated to have been supplied by Sh. Gulshan Kumar Gupta for being sold on his behalf. As per observations in the assessment order, Sh. Subash Gupta expressed his inability to adduce any sort of evidence such as octroi receipt, barrier stamped paper, etc. In conclusion, the ITO observed that after confessional statement or Sh. Subash Gupta before the ADI on 13-7-1989, a different stand had been taken, vis-a-vis statements of Sh. Subash Kumar Gupta, brother of Sh. Subash Gupta, recorded subsequently on 16-8-1989, wherein he stated that the drafts amounting to Rs. 3.00 to Rs. 2.50 lakhs had been purchased by his brother, i.e., Sh. Subash Gupta and nephew, i.e., Sh. Navin Kumar on his behalf out of the sale proceeds of his goods. According to the ITO, the latter version was an 'afterthought' and he, therefore, treated the sum of Rs. 50,000 as the concealed income of the assessee and added it to the returned figure.

4. Being aggrieved, the assessee came up in appeal before the DC(A) and at, which stage the stand taken was to the same effect as before the ITO, i.e., draft having been purchased by Sh. Subash Gupta out the funds belonging to Sh. GuIshan Kumar Gupta, who was running his independent business. It was noted that Sh. GuIshan Kumar Gupta was a resident of Bhav Nagar, Gujarat during the relevant period. The plea of the assessee's counsel before the DC(A) was to the effect that the specific confirmation of Sh. GuIshan Kumar Gupta owning the funds in question had been ignored by the ITO and that apart the statement of Sh. Navin Kumar, an employee of the respondent-firm, recorded on the same date as that of Sh. Subash Gupta had been accepted and a contrary view taken in the case of the respondent by not accepting the statement of Sh. Gulshan Kumar Gupta. It was also contended before the DC(A) that the statement of Sh. Subash Gupta had been made under confusion and tension and it was ample justification to change the stand subsequently by relying upon the statement of Sh. Gulshan Kumar Gupta. It was further stated that the items in which Sh. Gulshan Kumar Gupta dealt with were not at all related to the business of the firm. In support of various arguments, reliance was placed on the decision of the Hon'ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala [1973] 91 ITR 18 and a judgment of Hon'ble Punjab and Haryana High Court in Krishan Lal Shiv Chand Rai v. CIT[1973] 88 ITR 293. A decision of the Hon'ble Himachal Pradesh High Court in Satinder Kumar (HUF) v. CIT [1977] 106 ITR 64 was also relied upon.

5. It may be mentioned that the DC(A) also allowed an opportunity to the ITO to state the revenue's case and this is brought out in para 4 of the appellate order. The ITO relied upon the reasoning recorded in the assessment order and referred to the statement of Sh. Subash Gupta, wherein he had categorically stated that the draft had been purchased out of the funds of the respondent-firm but which had inadvertently not been recorded in the books of account. A reference was also made to the non-production of evidence in respect of the goods purported to have been sold on behalf of Sh. Gulshan Kumar Gupta. I may also mention that another plea was taken by the assessee's counsel and this was to the effect that the money, in any case, could not be said to belong to the firm and it could be attributed to Sh. Subash Gupta himself. The argument was to the effect that the provisions of section 69 could not be made applicable to the respondent-firm, on the basis of the aforesaid facts. The DC(A), after considering the aforesaid submissions, proceeded to delete the addition of Rs. 50,000 and observed in the process as under:-

"6. After considering the facts of the case, I am unable to sustain the addition of Rs. 50,000 as made by the AO on account of purchase of draft by one Sh. Subash Gupta, who was one of the two partners of the appellant-firm during that period. The mere reliance on the first statement of Sh. Subash Gupta is not justified to arrive at the conclusion that Rs. 50,000 represented the income of the appellant for the year under reference. In the later statements by the purchaser of the draft as well as by the party to whom the draft was sent, it was admitted that the money belonged to the person to whom the draft was sent. The very fact that the position has been accepted in the case of Sh. Navin Kumar Gupta, who also purchased two drafts on the same day, proves the contention of the appellant that the person to whom the drafts were sent by Sh. Subash Gupta and Sh. Navin Kumar Gupta was, in fact, the owner of the money. Sh. Subash Gupta being related to Sh. Gulshan Kumar Gupta could have sent the money by draft. This issue has not been thoroughly examined by the Assessing Officer. There is no justification for not accepting the later statements and it cannot be said without proper verification and investigation of the facts that the later statements were only an afterthought. There is no presumption of law that only the first statement is true and the later statements are false. Moreover, the addition has been made under a deeming provision of law. The provisions of section 69 apply only in the case of assessee who has made the investments. The AO has not brought any material on record to show that the investment was made by the firm. The very fact that the firm did not have any business transaction with Sh. Gulshan Kumar Gupta also supports the contention of the appellant that Rs. 50,000 could not be treated as the income of the assessee for the year under reference. I, therefore, after considering the factual and legal position, delete the addition of Rs. 50,000."

6. Before me, Id D.R. on behalf of the revenue strongly supported the order of the ITO and the subsequent arguments advanced by her were a reiteration of the reasons recorded by the ITO in making the impugned addition. According to her, the assessee had changed its stand after a categorical admission by the partner Sh. Subash Gupta in his initial statement recorded on oath. It was contended that even the statement of Sh. Gulshan Kumar Gupta was not supported by any evidence, in spite of specific opportunity given for that purpose by the ITO. It was pointed out that the assessee had not been able to adduce any evidence about the sale of goods purported to have been belonging to Sh. Gulshan Kumar Gupta as also the purchase of specific drafts out of the sale proceeds and forwarding these to Sh. Gulshan Kumar Gupta. Ld D.R. also referred to the non-furnishing of any cogent reasons by the assessee about the change in stand in the course of assessment proceedings, vis-a-vis statement made by Sh. Subash Gupta in the first statement recorded under oath. On the ground that the DC(A) had not given any sound basis for allowing the relief, it was urged that the addition of Rs. 50,000 be confirmed.

7. Ld. counsel for the respondent, on the other hand, vehemently supported the order of the DC(A) and arguments subsequently advanced by him were the same as tendered before the first appellate authority. It was argued that admission was not a conclusive proof, although it was admitted that it was a good proof. According to Id. counsel, statement of Sh. Subash Gupta was dislodged by the subsequent statement of Sh. Gulshan Kumar Gupta and so far as section 69 was concerned, the onus was on the department to prove that the amount invested in the purchase of draft belonged to the firm and this was all the necessary since statement of other partner of the respondent-firm was not recorded.

8. In a short reply, Id. D.R. sought to distinguish the decisions relied upon by Id. counsel for the respondent. According to her, the ITO had not merely relied upon the statement of Sh. Subash Gupta but had also given due and reasonable opportunity to the assessee to furnish evidence in respect of the second statement, i.e., of Sh. Gulshan Kumar Gupta but it was not done. The argument, therefore, was to the effect that the onus which lay on the department stood discharged and thus  shifted to the assessee.

9. I have examined the rival contentions and would, at the outset, refer to the decisions relied upon by Id. counsel for the respondent in support of the view-point canvassed. First of these is the judgment of Hon'ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. . The facts were to the effect that the assessee had made entries in the books of account, treating a part of the expenditure as being capital in nature but subsequently claimed it as revenue expenditure. On the matter reaching Hon'ble Supreme Court by way of an appeal by Special Leave, their Lordships took the view that the entries made in the books of account amounted to an admission that the amount in question was expended on capital account and although this was an extremely important piece of evidence, it could not be said that it is conclusive. According to their Lordships, it was open to the assessee to show subsequently that the entries were incorrect and that the books of account did not disclose the correct state of facts. In the matter before their Lordships of Hon'ble Punjab and Haryana High Court in the case of Krishan Lal Shiv Chand Rai , the question was one of penalty under section 271 (1)(c), the assessee having surrendered certain credits in his books of account in the course of proceedings under section 143(3)/148-and the ITO accepting the surrender and framing orders of reassessment. In the penalty proceedings, the assessee contended that the amounts surrendered were in fact credits of genuine parties and sought opportunity to prove his case. The IAC refused to give such opportunity and levied penalty and the further appeals filed by the assessee were dismissed by the Tribunal. On the matter being carried to Hon'ble High Court, their Lordship took the view that the levy of penalty was not justified inasmuch as it was an established principle of law that an assessee was entitled to show and prove that an admission made by him previously was in fact not correct and true. Even on the presumption that the surrender tantamounted to an admission of concealment of undisclosed income, their Lordships took the view that the assessee could not be denied his right to prove that the fact of surrender was no such admission and that the so-called admission was wrong and the surrender was made solely to avoid botheration. According to their Lordships, penalty proceedings were district from the assessment proceedings, the former being in the nature of quasi-criminal proceedings.

10. In the case of Satinder Kumar (HUF) referred to in the order of the DC(A), although not cited before us by Id. counsel for the respondent, the facts were to the effect that the assessee was an HUF, whose 'karta' was a partner in a firm and the share income thereof was assessed in the hands of the HUF. The assessment year concerned was 1963-64 and on 14-1-1966, the karta and some others started a partnership firm doing the same business as the firm in which the karta was a partner. For assessment year 1967-68 and 1968-69, the HUF filed returns showing loss from the new firm. Later on, however, the HUF filed a revised return for assessment year 1968-69, in which the share income from the new firm was omitted and, instead, the said share income was included in the return filed by the karta of the HUF in his individual status. It may be mentioned that the said share income was also shown in the returns of the individual for assessment years 1969-70 and 1970-71. The ITO accepted the stand in the individual case but the Addl. CIT acting under section 263 passed an order for assessment years 1968-69 to 1970-71 holding that the share income from the firm was to be included in the assessments of the HUF. Further appeals to the Tribunal were dismissed and the Tribunal observed that as the business of the karta prior to joining the new firm was the same as that of the earlier firm and the modus operandi was also the same as also the location and the principal place of the business, the same must be treated as an extension of the business carried on by the family. The Tribunal also relied on the circumstances that the karta had earlier treated the business as that of the assessee family. It was in the aforesaid circumstances that their Lordships of Hon'ble Himachal Pradesh took the view that if the income from a source/property was assessed as the income of the HUF in one assessment year, it was still open to the assessee in a subsequent year to prove that the income did not belong to the family but to the assessee as an individual. The observation of their Lordships, reproduced by the DC(A) in his appellate order, was made in the light of the aforsaid facts.

11. In case facts of the present case are looked into, then what one finds is that these are entirely distinguishable and none of the aforesaid judgments would apply. An entry in the books of account, an admission made during the course of assessment proceedings, vis-a-vis penalty proceedings under section 271(1)(c) and a stand about the source of income taken in one assessment year as compared to another assessment year cannot be put at the same level or equated with the statement made on oath by a person who is closely involved in managing the day-to-day affairs airs of a business either in the capacity of a partner of a registered firm or in any other capacity. It needs no long deliberation to state that the initial statement made by a person about a particular state of affairs carries more weight and a subsequent statement made retracting from the earlier position should be on good ground, supported by cogent and relevant evidence. It may be another case that a person claims an expenditure on capital account but later on proper advice converts it into revenue account and once again on proper legal advice, he may include/exclude a particular source of income from a return in one year as compared to any other year or even with reference to another assessee altogether. None of these facts or propositions exist in the present case where two statements of Sh. Subash Gupta were recorded and he categorically stated that the draft of Rs. 50,000 had been purchased out of the funds belonging to the firm but not accounted for in the books of account. Question No. 2 and its answer are reproduced as under:-

"Q. 2 What was the source of investment in the purchase of abovesaid bank draft?

Ans. The above draft was purchased out of the funds of M/s. Sadhu Ram Gupta Steels and inadvertently the relevant entry could not be made in the books of account."

His statements were recorded on 13-7-1989 along with the statement of Sh. Navin Kumar, stated to be an employee of the firm. Much has been said by the assessee's counsel and undue importance has been given to the statement of the said employee even by the DC(A). All that the employee stated was that the two drafts aggregating Rs. 1,10,000 had been purchased by him out of the funds belonging to Sh. Gulshan Kumar Gupta. There was no categorical admission that these funds belonged to the respondent-firm, as was the statement of Sh. Subash Gupta. The statement of Sh. Gulshan Kumar Gupta was recorded much later on, i.e., on 16-8-1989 and reading of the relevant answer at page 5 of the statement does not tilt the balance in favour of the respondent as no specific facts were mentioned but only a general statement was given. In other words, he did not categorically state that the draft of Rs. 50,000 had been purchased out of his funds. Then again, the argument of Id. counsel before me to the effect that the statement of Sh. Gulshan Kumar Gupta dislodged the earlier statement of Sh. Subash Gupta, is without any force and this proposition of Id. counsel has been erroneously accepted by the DC(A). It is one question that a person makes a statement and retracts the same thereafter but the position in the present case is that the partner of the firm makes a statement and an outsider subsequently states something else as per the assessee's version although, as already stated by me, statement of Sh. Gulshan Kumar Gupta is not at all categorical and does not support the changed stand of the assessee. The ITO even on the basis of the statement of Sh. Gulshan Kumar Gupta allowed due opportunity to the assessee to prove that the sum of Rs. 50,000 represented the sale proceeds of the goods/ items which were being dealt with by Sh. GuIshan Kumar Gupta but as the orders of the tax authorities show no such evidence was tendered and the position before the Tribunal remains the same. In my opinion, the onus which lay on the department stood fully discharged. Before me it is for the first time that an argument has been raised by Id. counsel that the other partner of the firm should have also been examined. In my opinion, it is a little late in the day to come up with such an argument and that apart Sh. Subash Gupta is found to be a partner holding 7596 share and obviously in control of the things. He made the statement knowing fully well the implications and it has been rightly argued by Id. D.R. before me that a statement made on oath carries sanctity and subsequent retraction should not be treated lightly. In the final analysis, I set aside the order passed by the DC(A) and restore the addition of Rs. 50,000 made by the ITO.

12. In the result, the appeal is allowed.

 

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