Apex Court In S. N. Namasivayam Chettiar v. Commissioner Of Income Tax, Madras

ITA 20/2006BEFORETHE HON’BLE MR. JUSTICE RANJAN GOGOI, THE HON’BLE MR. JUSTICE A. C. UPADHYAYJUDGMENT & ORDER Ranjan Gogoi, J. All the three appeals being directed against identical, though separate,orders each dated 2.8.2006 passed by the Income Tax Appellate Tribunal, Guwahati Bench, (hereinafter referred to as the Tribunal) were heard together and are being decided by the present common judgment and order. 2.A recital of the facts involved in Income Tax Appeal No.21/2006 would adequately sum up the fact involved in the other two cases. Income Tax Appeal No.21 of 2006 3.For the assessment year 1994-95 the assessment of the appellant was completed on 28.3.98. In the appeal filed by the assessee the Commissioner of IncomeTax (Appeals), by order dated 19.5.98, set aside the assessment order of the primary authority with the direction to re-do the same in accordance with the directions contained in the appellate order dated 19.5.98. Thereafter, the AssessingOfficer completed the assessment by order dated 20.9.98 adding a sum of Rs.44,75,930/- to the income of the assessee as unexplained investments under Section 69 of the Income Tax Act, 1961 (hereinafter referred to as the Act). 4.It will be necessary to take note of the fact that during the financial year in question a sum of Rs.68,53,343/- was deposited in the Savings Account No.2520 of the assessee maintained with the State Bank of India, Abhayapuri Branch. The assessee explained the aforesaid deposits by contending the same to be hisaccumulated agricultural income from the year 1981 onwards. In support the assessee produced all his books of accounts right from the financial year 1978-79 and had also produced a number of documents and certificates from concerned State Government officers and other authorities in support of his agricultural income. The assessee also filed before the Assessing Officer his year-wise statement ofaffairs starting from the year 1978-79. The Assessing took the view that as it was the assessee’s case that the books of accounts were under seizure in connection with a case registered by the Vigilance and Anti-corruption Department of the Government of Assam, the books of accounts as well as the vouchers and receipts produced by the assessee, which was identical to those seized, have been prepared subsequently. The Assessing Officer furthermore relied on a judgment of the Apex Court in S. N. Namasivayam Chettiar vs. Commissioner of Income Tax, Madras,reported in (1960) 38 I.T.R. 579, to come to the conclusion that the books of accounts produced by the assessee should be rejected as the assessee had not maintained any stock register. In this regard, the Assessing Officer held that the stock register was the core record for verifying the assessee’s accounts by having a quantitative tally of the transactions made. Accordingly, after allowing credit under different heads to the assessee in the light of the explanations furnished, the Assessing Officer determined an amount of Rs.44,75,930/- to be the quantum of unexplained investments. Consequently, the said amount of Rs.44,75,930/-was added to the taxable income of the assessee. 5.Aggrieved by the aforesaid order the assessee preferred an appeal beforethe learned Commissioner of Income Tax (Appeals). The Appellate Commissioner ona reading of the judgment of the Apex Court in S. N. Namasivayam Chettiar (supra) took the view that the law laid down in the said case was not applicable to the case of the assessee and the rejection of the books of accounts of the assessee by the Assessing Officer on that basis was wrong. The learned Commissioner, thereafter, accepted that the assessee had accumulated agricultural income to hiscredit. The aforesaid conclusion was reached primarily on the basis that no fin 5.Aggrieved by the aforesaid order the assessee preferred an appeal beforethe learned Commissioner of Income Tax (Appeals). The Appellate Commissioner ona reading of the judgment of the Apex Court in S. N. Namasivayam Chettiar (supra) took the view that the law laid down in the said case was not applicable to the case of the assessee and the rejection of the books of accounts of the assessee by the Assessing Officer on that basis was wrong. The learned Commissioner, thereafter, accepted that the assessee had accumulated agricultural income to hiscredit. The aforesaid conclusion was reached primarily on the basis that no fin ding was recorded by the Assessing Officer that the assessee did not have any agricultural income. Furthermore, the learned Commissioner, after holding that theAssessing Officer had also not expressed any disagreement with the quantum of agricultural income claimed by the assessee, proceeded to quantify the same at Rs.41,83,671/-, as claimed by the assessee. Accordingly, the appeal filed by the assessee was allowed with the direction for modification of the order of assessment by treating the unexplained investments to be to the extent of Rs.2,92,259/- (Rs.44,75,930/- minus Rs.41,83,671/-). 6.The facts involved in Income Tax Appeal No.22/2006 (assessment year 1994-945) and Income Tax Appeal No.20/2006 (assessment year 1995-96) are largely similar to those involved in Income Tax Appeal No.21/2006. The appellant assessee in the aforesaid two cases is the wife of the appellant in Income Tax Appeal No.21/2006. The additional facts that will be required to be noticed is that the unexplained investments added by the Assessing Officer to the taxable income of theassessee consisted of bank deposits as well as investments in land and vehicles. While for the assessment year 1994-95 the assessee had tried to explain the aforesaid unexplained investments on the basis of accumulated agricultural income of her own, in Income Tax Appeal No.20/2006, pertaining to the assessment year 1995-96, a part of the unexplained deposits i.e. to the extent of Rs.8,50,000/- was sought to be explained by the assessee by means of a cash loan obtained by her from her husband i.e. the appellant-assessee in Income Tax Appeal No.21/2006. In both the aforesaid two cases the primary as well as the first appellate authority proceeded on a similar reasoning as in Income Tax Appeal No.21/2006. 7.Aggrieved, the Revenue had filed Income Tax Appeal No.164(Gauhati)/2000 (out of which Income Tax Appeal No.21/2006 has arisen) as well as Income Tax Appeal Nos. 162(Gauhati)/2000 and 163(Gauhati)/2000 (out of which Income Tax AppealNos.20/2006 and 22/2006 have arisen) before the learned Tribunal. 8.The learned Tribunal, by two separate but identical orders dated 2.8.2006, disposed of the appeals in question in favour of the Revenue by reversing theorders of the Commissioner of Income Tax (Appeals) challenged before it. While deciding the appeals in the above manner the learned Tribunal after taking note of the detailed facts of the case including the claim of the assessees and the documents and certificates in support of the claims made came to the conclusion that the attempt on the part of the assessees to explain the investments by projecting a case of accumulated agricultural income is an afterthought which is not worthy of credence and hence of acceptance. In doing so, the learned Tribunal laid emphasis on the fact that though the assessees claimed to have earned the agricultural income in the previous years leading to accumulation of a huge amount,the assessees had not filed any return(s) of agricultural income for the years in question. Such non-disclosure on the part of the assessees of the purported agricultural income was considered by the learned Tribunal to be a significant and relevant fact to hold the claim of the assessees to be an afterthought. Aggrieved by the aforesaid conclusion of the learned Tribunal, the assessees have instituted the present appeals before this Court. 9.The substantial question of law framed by this Court while admitting theappeals centers around the question as to whether the learned Tribunal was right in coming to the aforesaid conclusion merely on the ground that the assessees had not filed any return of agricultural income under the provisions of the Assam Agricultural Income Tax Act, 1939? 10.We have heard Dr. A. K. Saraf, learned counsel appearing for the appellants and Sri U. Bhuyan, learned Standing Counsel, Income Tax Department. 11.Dr. Saraf, in the course of a long and elaborate argument, has contendedthat the assessees had placed before the Assessing Officer several documents insupport of the claims made that the bank deposits and other investments were re latable to the accumulated agricultural income of the assessees. Such documents and certificates were issued by authorized officers of the State Government. Dr.Saraf has contended that the Assessing Officer had wrongly placed reliance on the judgment of the Apex Court in S. N. Namasivayam Chettiar (supra) in rejectingthe books of accounts of the assessees and further that the Assessing Officer had accepted the agricultural income of the assessee in Income Tax Appeal No.21/2006 to the extent of Rs.5,25,848/- which were reflected in the very same books of accounts. Similarly, in the case of the assessee in Income Tax Appeal No.22/2006 the Assessing Officer had accepted the agricultural income to the extent of Rs.3,69,960/- reflected in the books of accounts of the assessee. The agricultural incomes of the assessees accepted by the Assessing Officer pertains to the very same year involved in assessment proceedings under the Income Tax Act. Dr. Saraf has, therefore, argued that the acceptance of agricultural income of the assessees for a particular year and rejection of accumulated agricultural income forthe previous years is wholly incorrect. It is the further contention of Dr. Saraf that the Assessing Officer did not disbelieve that the assessees had agricultural income nor any dispute was raised with regard to the quantum thereof, as claimed by the assessees. In such a situation, once the learned Commissioner of Income Tax (Appeals) found the rejection of the books of accounts of the assesseesto have been wrongly made was perfectly justified in determining the agricultural income of the assessees at the amounts so quantified and to direct for modification of the assessment orders in that light. 12.Continuing, Dr. Saraf has argued that the sole ground on which the learned Tribunal had reversed the order of the Commissioner of Income Tax (Appeals) is the absence of any return(s) under the Assam Agricultural Income Tax Act for the years in which accumulated income was claimed to have accrued. In this regard, Dr. Saraf has argued that the absence of return(s) was not one of the grounds urged before the learned Tribunal. In any case, according to Dr. Saraf, the saidground could not have been the sole basis for reversing the order of the learned Commissioner of Income Tax (Appeals) and it was the bounden duty of the learned Tribunal to consider the documents and certificates placed before the Assessing Officer and the Commissioner of Income Tax in this regard by the assessees. Dr. Saraf has pointed out that the non-filing of return of agricultural income, atbest, could be a suspicious circumstance which circumstance had to be weighed and considered along with the details submitted by the assessees including the documents and certificates filed. Such a course of action not having been adopted by the learned Tribunal, according to Dr. Saraf, the learned Tribunal had committed a manifest error of law in coming to the impugned conclusion. 13.Controverting the submissions advanced on behalf of the appellants-assessees, Sri Bhuyan, learned Standing Counsel, Income Tax Department, has submittedthat the details and materials placed on record by the assessees including the documents and certificates issued by different authorities were duly considered by the learned Tribunal as indicated by the orders under challenge. The credibility of the assessees’ version in the light of the documents brought on record were weighed by the learned Tribunal along with the fact that the assessees had not filed any return(s) of the agricultural income at any earlier point of time, notwithstanding which accumulated agricultural income over the years was claimed.In this regard, Sri Bhuyan has pointed out that for the assessment year 1994-95the assessees had filed copies of the assessment orders under the Assam Agricultural Income Tax Act which was duly accepted by the Assessing Officer and incomefrom agriculture as assessed by the authorities under the local Act were excluded while making the additions to the taxable income of the assessees. In this regard, Sri Bhuyan has also referred to the provisions contained in Sections 6 and19 of the Assam Agricultural Income Tax Act under which there is a duty and obligation on the part of an assessee earning agricultural income to file returns to enable the authority under the Assam Agricultural Income Tax Act to make assessments of agricultural income. It is further contended by Sri Bhuyan that the aforesaid provisions of the Assam Act were not followed by the assessees though they claim to have income from agriculture to explain the unexplained investments 14.We have considered the rival submissions advanced on behalf of the parties; the orders passed by the primary as well as the learned first appellate authority; the documents and certificates brought on record before the said authorities by the assesses and all other relevant facts and circumstances of the case. 15.We have noticed that the Assessing Officer after rejecting the books of accounts, on the grounds recorded, did not feel the necessity of any further discussion or consideration of the documents and certificates submitted by the assesses. The learned first appellate authority found such rejection to be wrong andthe reliance placed on the judgment of the Apex Court in S. N. Namasivayam Chettiar (supra) to be somewhat misplaced. Thereafter, the first appellate authorityproceeded to determine the question as to whether the assessees had agricultural income or not. Such consideration of the first appellate authority, however, revolved around the fact that the Assessing Officer did not hold that the assessees did not have any agricultural income. Thereafter, the first appellate authority proceeded to determine the quantum of such agricultural income and accepted what was claimed by the assessees on the ground that the figures so claimed were not disputed by the department. 16.We have considered the judgment of the Apex Court in S.N. Namasivayam Chettiar (supra). In the aforesaid case the issue before the Apex Court was as towhether the rejection of the claim of profits of the assessee by the Income TaxAppellate Tribunal was correct. The appellate Tribunal had held that such profits could not be deduced from the books of accounts produced by the assessee in support of which conclusion several reasons were cited. It is in that context that the Apex Court had held that �keeping of a stock register was of great importance because that was a means of verifying the assessees’ accounts by having a �quantitative tally �. The Apex Court in S. N. Namasivayam Chettiar (supra) further held that �If after taking into account all the materials including the want of a stock register, it was found that from the method of accounting the correct profits of the business were not deducible, the operation of the proviso to Section 13 of the Income Tax Act would be attracted. � No law was laid down by the Apex Court that if in a given case the stock register is not maintained the only consequence thereof should be rejection of the books of accounts of the assessee. We are, therefore, of the view that the Assessing Officer was wrong in rejecting the books of accounts of the assessee. The case projected by the assessee, therefore, ought to have been considered on its own merits. However, the AssessingOfficer had no occasion to do so. In appeal, the learned Commissioner proceeded on the basis that no adverse conclusion regarding agricultural income of the assessee or the quantum thereof was recorded by the Assessing Officer and therefore it could be taken to have been established that the assesses had agricultural income the quantum of which was as claimed by them. 17.We do not think that the manner in which the learned Commissioner had proceeded is correct. The absence of any adverse finding of the Assessing Officereither with regard to availability of agricultural income or the quantum thereof was but natural in a situation where the Assessing Officer, after rejecting the books of the assessees did not proceed any further in the matter. It is our considered opinion that the correct approach that should have been adopted by thelearned Commissioner was to consider the acceptability or otherwise of the assessees’ claim in the light of all relevant facts and circumstances as evidenced by the materials brought on record. In this regard, the fact that the assessee, though had claimed accumulated agricultural income from the year 1981 onwards, and yet, had not filed any return as required by the Assam Act was certainly a fact that should have received consideration of the first appellate authority. In f act, it has been admitted by the learned counsel for the appellants that the fact that no returns were filed could give rise a suspicious circumstance. If that be so, the said suspicious circumstance had to be viewed in its proper perspective i.e. in the light of other relevant facts and the proper conclusion ought to have been reached after such consideration. The learned Commissioner of Income Tax (Appeals) did not so proceed and so act. act, it has been admitted by the learned counsel for the appellants that the fact that no returns were filed could give rise a suspicious circumstance. If that be so, the said suspicious circumstance had to be viewed in its proper perspective i.e. in the light of other relevant facts and the proper conclusion ought to have been reached after such consideration. The learned Commissioner of Income Tax (Appeals) did not so proceed and so act. 18.In the further appeal by the Revenue the learned Tribunal took due notice of the documents and certificates on which the claims of the assessees were founded and the extent of accumulated agricultural income that was claimed by the assessees. Along with the aforesaid facts the non-filing of return(s) by the assessees under the Assam Agricultural Income Tax Act was also taken note of. To this extent the learned Tribunal proceeded correctly. However, the learned Tribunal failed to consider the issue on the basis of the books of accounts of the assessees and the documents and certificates filed by the assessees. No finding was recorded by the learned Tribunal on such consideration. Rather, the fact that noreturns were filed was the only basis for the eventual conclusion recorded by the learned Tribunal that the explanation offered by the assesses i.e. availability of accumulated agricultural income was an afterthought. What was required to be done was a judicious determination of the issue on a balanced consideration of the two aspects of the case. Instead one set of material facts was overlooked/ignored and reliance was placed exclusively on the other. In doing so, the learned Tribunal can very well be understood to have held that since no returns were filed the assessees could not have had any agricultural income. Such a proposition will not be supported by any sound principle of law. The learned Tribunal, therefore, clearly acted with material irregularity in the exercise of its jurisdiction vested by law. Consequently and in fitness of things the exercise will be required to be performed by the learned Tribunal once again. 19.In the result, all the appeals filed by the assessees will have to be allowed. Accordingly, the impugned orders dated 2.8.2006 passed by the Income Tax Appellate Tribunal are set aside and the matters are remitted to the learned Tribunal for a fresh decision in accordance with the directions contained in the present order.