Db Income Tax Reference Application v. Shri Sobhrajmal

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR *** DB Income Tax Reference Application No.34/1994Commissioner of Income Tax, JaipurVs. Shri Sobhrajmal Date of Order :- 17/09/2014 HON'BLE MR. JUSTICE AJAY RASTOGI.HON'BLE MR. JUSTICE J.K. RANKA. Smt. Parinitoo Jain, for the petitionerMr. PK Kasliwal, for the respondent By the Court : (Per Hon'ble Ranka,J.) 1.This reference application u/s 256(2) of the Income TaxAct (for short, 'IT Act') is directed against the order of theIncome Tax Appellate Tribunal (for short, 'ITAT') dt.21/05/1993by which the reference application of the revenue u/s 256(1) ofthe IT Act was dismissed by the ITAT and it relates to theassessment year 1986-87. 2.The revenue has proposed following questions for theopinion of the High Court arising out of RA No.17/JP/1993:- “1. Whether on the facts and in thecircumstances of the case and in law, the Tribunalwas justified in deleting the addition of Rs.12,381/-made on the basis of seized document, markedAnnex. A-1 notwithstanding the fact that thisaddition made in the hands of the firm onsubstantive basis, has been deleted by theTribunal? 2.Whether on the facts and in thecircumstances of the case and in law, the Tribunal was justified in deleting the addition of Rs.88,000/-made on account of unexplained advances as perseized pronotes notwithstanding the fact thatadditions of Rs.77,000/- in the asstt. year 1986-87and Rs.11,000/- in the asstt. year 1985-86respectively made on substantive basis in the caseof the firm have been deleted? 3.Whatever on the facts and in thecircumstances of the case, the Tribunal wasjustified in deleting the addition of Rs.8600/- onaccount of entries in diary marked as Annexure A-4made on protective basis in the case of theassessee notwithstanding the fact that this additionhas been deleted from the hands of the firm madeon substantive basis? 4.Whether on the facts and circumstances ofthe case and in law, the Tribunal was justified indeleting the addition of Rs.2500/- made on thebasis of three pronotes as per Annexure A-1 onaccount of interest on advances of Rs.17,000/-notwithstanding the fact that the said addition madeon substantive basis in the hands of the firm hasbeen deleted by the Tribunal? 3.The brief facts, which can be noticed on perusal of theorder passed u/s 256(1) and the order passed by the ITATwhile deciding the matter, are that a search and seizureoperation was carried out in the case of partnership firm M/sGhindmal Kauromal on 05/09/1985 and the respondent-assessee happened to be the partner of firm M/s GhindmalKauromal and was also subjected to search, the other partnerswere also subjected to search. During the course of search, certain books of accounts, documents and other incriminatingdocuments/material were found and seized. During the courseof assessment proceedings, the Assessing Officer (for short,'AO') scrutinized the said documents and had made additionson account of some of the documents and it was claimed thatthese documents pertained to the assessee. The AO also madeadditions on account of some papers/documents in the case offirm M/s Ghindmal Kauromal on substantive basis but since theassessee being a partner and the documents having beenfound in the possession and custody and at the residence ofthe assessee, therefore, on protective basis, the addition wasalso made in the hands of the assessee as well. certain books of accounts, documents and other incriminatingdocuments/material were found and seized. During the courseof assessment proceedings, the Assessing Officer (for short,'AO') scrutinized the said documents and had made additionson account of some of the documents and it was claimed thatthese documents pertained to the assessee. The AO also madeadditions on account of some papers/documents in the case offirm M/s Ghindmal Kauromal on substantive basis but since theassessee being a partner and the documents having beenfound in the possession and custody and at the residence ofthe assessee, therefore, on protective basis, the addition wasalso made in the hands of the assessee as well. 4.The matter was carried in appeal before the CIT(A) andbefore the CIT(A) it was pleaded that the additions are made onprotective basis and the main substantive addition stands madein the case of firm and same addition based on samedocuments cannot be made in the case of the assessee as wellas the partnership firm. The CIT(A) vide its order dt. 12/04/1990has observed that the (i) addition of Rs.12,381/- on account ofAnnexure-1; (ii) addition of Rs.88,000/- as per documents No.5, 6, 7, 8 and 9 of Annexure-A-1; (iii) addition of Rs.8,600/- onaccount of Annexure-A-4 and (iv) addition of Rs.2,500/- onaccount of three pro-notes as per Annexure-1 had already beenconfirmed in the case of firm and therefore, all the additionswere deleted in the case of the assessee. 5.The revenue carried the matter in appeal before the ITATand the ITAT vide order dt.29/10/1992, after appreciation ofevidence on record and on account of factual finding, (i) in sofar as the addition of Rs.12,381/- is concerned, came to theconclusion that in the case of the firm, the said amount washeld to be relatable to one Nanak Ram (a mental sick person)through his wife Smt. Dropadi Devi and the said document hadbeen recovered from the room and in possession of Smt.Dropadi Devi and therefore, by following the order of the ITATin the case of the firm, the addition was deleted; (ii) in so far asthe addition of Rs.88,000/- is concerned, the ITAT observedthat since the addition out of this addition comprised of twofigures, one of Rs.11,000/- relating to assessment year 1985-86which was made in the case of firm but the same was deleted inthe case of firm by the ITAT but was confirmed in the case ofone Roop Chand for the assessment year 1985-86 (ITA757/JP/89) and another addition of Rs.77,000/- has been madein the assessment year 1986-87 on the basis of same pro-noteand thus when the addition has already been made on accountof the same pro-notes in the case of Roop Chand for theassessment year 1986-87 then the ITAT deleted the addition onthese terms; (iii) in so far as the addition of Rs.8,600/- isconcerned, this addition although was deleted in the case of thefirm but was sustained in the case of one Roop Chand (ITA)456/JP/89 and 771/JP/89) and in view of this factual finding, when the addition had already been made, the same wasdeleted in the case of assessee; (iv) in so far as the addition ofRs.2,500/- is concerned, the ITAT has observed that theaddition though in the case of the firm was deleted (ITA456/JP/89) but stands confirmed in the case of Roop Chand(ITA 771/JP/89) thus deleted the addition in the present case. 6.In view of this factual backdrop, the ITAT, while rejectingthe reference application, was of the view that the abovefindings do not lead to involving of any question of law and thusare essentially findings of fact and accordingly rejected thereference application. when the addition had already been made, the same wasdeleted in the case of assessee; (iv) in so far as the addition ofRs.2,500/- is concerned, the ITAT has observed that theaddition though in the case of the firm was deleted (ITA456/JP/89) but stands confirmed in the case of Roop Chand(ITA 771/JP/89) thus deleted the addition in the present case. 6.In view of this factual backdrop, the ITAT, while rejectingthe reference application, was of the view that the abovefindings do not lead to involving of any question of law and thusare essentially findings of fact and accordingly rejected thereference application. 7.Ld. counsel for the revenue vehemently contended thatsubstantial questions of law arise out of the order of the ITAT.She contended that all these incriminating documents werefound in the custody, control and possession and at theresidence of the assessee and thus the revenue authoritieswere correct and justified in treating and making addition of theamount in the hands of the assessee. She contended that theassessee was unable to prove as to how these documentscame in the possession of the assessee and since these weredocuments in his possession, it was primary duty of theassessee to explain the nature of the transactions. Shecontended that the assessee merely conveyed that thesepertained to either firm or if not pertaining to the firm, then toNanak Ram & Roop Chand. She contended that no evidence was led by the assessee by placing evidence or material onrecord to justify shifting of the burden which lay heavily on theassessee and since it was not discharged by the assessee,therefore, she contended that addition was rightly to be made inthe case of assessee and questions of law arise forconsideration of the court. 8.Ld. counsel for the respondent-assessee, on the otherhand, contended that when these very additions have beenmade in other cases and even the AO in the assessment orderhimself held that the additions are being made on protectivebasis, then when additions have already been made in otherhands, the addition cannot be made in the case of theassessee again. He further contended that the order of ITAT isbased essentially on finding of fact and does not lead to anyquestion of law. 9.We have considered the arguments advanced by counselfor the parties and perused the order passed by the ITAT inreference application so also the order dated 29/10/1992 wherethe additions have been considered by the ITAT. In our view,when all these very additions were considered by the ITAT andhave been confirmed or considered in the case of firm M/sGhindmal Kauromal or/and in the case of Roop Chand or/and inthe case of Nanak Ram (Dropadi Devi), then in our view, theaddition cannot be made again in the hands of the assessee.Though the documents were found in the custody and control of the assessee but when the assessee conveyed that either itpertains to firm or to other persons namely Nanak Ram orRoop Chand, and when both CIT (A) and ITAT have acceptedthis plea then we feel that initial burden was discharged. Whenthese very documents have already been considered by theITAT in the aforesaid cases, then certainly double addition, onein the hand of the person in whose custody the documents arefound and secondly in the case of the other person wheresubstantive addition is made, is not permitted under the IT Act,It is an admitted fact that even the AO had considered all thesedocuments and the addition ,if any, was made on protectivebasis merely because the documents were found in the custodyand control of the assessee but once the addition has beensustained in the hands of the persons to whom the documentsrelated/belonged, in our view, the addition again cannot bemade on the same documents/loose papers in the hands of theassessee and the ITAT rightly came to the aforesaidconclusion. Same addition on the basis of same documentcannot be made in the hands of two persons. 10. Under the Income Tax Act though there is no such wordas substantive addition/assessment or protective addition/assessment, however, the courts have held that in case whereit appears to the income tax authorities that certain income hasbeen received during the relevant year or for that matterdocuments/loose papers have been found and it is not clear to whom it pertains or it is not clear who has received that incomeand prima-facie it appears that the income or/anddocuments/loose papers pertains to either A or B or by bothtogether and thus it will be open to the relevant income taxauthority to determine the said question by taking appropriateproceedings both against A and B. 11.Under the law, it is open for the department to makeassessments on two person of the same income where thereis some ambiguity as to the liability to charge or to make anaddition on the basis of incriminating documents or loosepapers or other material or other income in respect whereof Asays, it pertains to B and B says it pertains to A but in thatcase, to safeguard the interest of the revenue, the AssessingOfficer has liberty to pass order on protective basis or onsubstantive basis in one hand and vise-versa. 12.It is only to protect the interest of the revenue as, if theaction is not taken in the case of A who says that it pertains toB and addition is made in the case of B and later on, on thebasis of evidence it is found that it pertained to A and if noaction is taken in the case of A, then possibly the assessmentor the proceedings may get time barred. Therefore, to avoidsuch eventualities, the revenue has authority and right tomake protective assessment as well as substantiveassessment in another case, however, with the rider thatultimately and finally, the income/transaction/addition, if at all would be in the hands of A or B but it cannot be sustained inboth the hands. 13.When we peruse the facts in the present referenceapplication, then it is an admitted fact and the revenue alsodoes not deny that protective addition was made in the caseof assessee whereas substantive addition was either made inthe case of M/s Ghindmal Kauromal or/and in the case ofRoop Chand or/and in the case of Nanak Ram (DropadiDevi) and when the above additions have finally beensustained, as observed by the ITAT in the case of M/sGhindmal Kauromal or/and in the case of Roop Chand or/andNanak Ram (Dropadi Devi), then it is a finding of fact and noquestion of law can be said to arise with the facts found bythe ITAT. When ultimately, the addition of these verydocuments had been sustained in some other case relating tothe search or other partners or in the case of M/s GhindmalKauromal or/and in the case of Roop Chand or/and NanakRam (Dropadi Devi), then the ITAT had rightly deleted theaddition as the same cannot be or could not have been madein two hands. The revenue should not have been aggrievedas the additions on the basis of loose papers/documents hasultimately been made/sustained in other cases of the group.14.We are also in conformity with the view of the ITAT thatthe ITAT, while passing the order dt.29/10/1992, decided thecase on the basis of appreciation of relevant facts and evidence on record and thus are essentially finding of fact and in ourview, the ITAT rightly rejected the reference application as itdoes not give rise to any question of law fit for reference to thisCourt. It is also a finding of fact that the ITAT has also observedthat the case of firm M/s Ghindmal Kauromal or the othercases have become final as the revenue did not even soughtany reference in the main case. 15.In view of what we have observed herein above, thereference application does not involve any question of law andaccordingly the same stands rejected. No costs. [J.K. RANKA],J. ,J. Raghu/p.10/ Certificate:All corrections made in the judgment/order havebeen incorporated in the judgment/order being e-mailed.Raghu, Sr. PA.