I) Commissioner Of Income-Tax, Panaji, Goa v. Zuari Industries11Ltd

1 Santosh IN THE HIGH COURT OF BOMBAY AT GOA TAX APPEAL NO.9/2014 Commissioner of Income TaxKarnataka (Central) Bangalore,Controlling Office of Central Circle,Panaji). ….. Appellant. VersusM/s. Mukhtar Minerals Private Limited, having its office at B-2, B-3,Phase IA, Verna Industrial Estate,Verna, Goa. .….. Respondent. Ms. Amira Abdul Razaq, Standing Counsel for the Appellant. Mr. P. S. Rao, Advocate for the Respondent. Coram : M.S. Sonak & Dama Seshadri Naidu, JJ. Dated : 28th September, 2020. ORAL JUDGMENT: (Per M.S. SONAK, J.) Heard Ms. Razaq, the learned Standing Counsel for theAppellant and Mr. P. Rao, the learned Counsel for the Respondent. 2.This Appeal was tagged along with Tax Appeal No.26/2014,and by a common order dated 3rd September, 2014, the followingsubstantial question of law was framed therein: “Whether on that facts and circumstances of the case, the 2 Tribunal is right in law in accepting the contentions of theAssessee without giving an opportunity to the AssessingOfficer by way of a remand, particularly, when the Assesseehas withdrawn the statement unsuccessfully without legalbasis ? 3.However, today, Ms. Razaq, the learned Standing Counselfor the Appellant points out that the aforesaid substantial question oflaw does not even arise in Tax Appeal No.9/2014 since, for theAssessment Year 2008-09, which is the subject matter of the presentAppeal, there was no revised return filed by the Assessee. She,however, submits that the substantial questions of law to be found atparagraph 5A and 5B arise in this matter and having regard to theprovisions of Section 260(5) of the Income Tax Act, 1961, thisCourt should now frame these questions and dispose of this Appealby answering such questions in favour of the Revenue and against theAssessee. 4.Ms. Razaq points out that in the facts and circumstances ofthe present case, the provisions of Section 35E of the Income Tax Act,were not at all applicable. In any case, she points out that thefindings recorded by the Commissioner of Income-tax (CIT)(Appeals) and the Income Tax Appellate Tribunal (ITAT) that anamount of Rs.5,00,00,000/- paid by the Assessee to the mininglessees constitutes revenue expenditure, are vitiated by total perversity.She points out that this amount of Rs.5,00,00,000/- was towards 3 obtaining right to mine and, therefore, this amount, under nocircumstances, could be regarded as any revenue expenditure. Shepoints out that the works like building of roads, offices, etc. hadalready been undertaken by the mining lessees and, therefore, itcannot be said that the Assessee had spent any amounts for thesepurposes. She submits that since the findings recorded by the CIT(Appeals) and the ITAT are vitiated by perversity and misreading ofclear evidence on record, the substantial question of law at 5.A arisesand the same is required to be answered in favour of the Revenue andagainst the Assessee. 5.Ms. Razaq then submits that both, the CIT(Appeals) andthe ITAT, had misconstrued the provisions in Section 68 of theIncome Tax Act. She points out that the material on recordestablishes that M/s. Balaji Minerals and M/s. Matha Minerals werefictitious entities and despite opportunities, the Assessee failed toproduce proprietors of such entities to whom huge amounts arealleged to have been paid by the Assessee. She points out that thereis no material on record that Lokayukta of Karnataka had made anyorders against the entities, on account of which the proprietors ofthese entities had made themselves scarce. She points out thatmerely because any payments made to these entities by cheques, doesnot mean that the Assessee were exempted from explaining theprecise nature of such payments by adducing credible evidence. Forall these reasons, she submits that the substantial question of law at paragraph 5.B is required to be framed and answered in favour of theRevenue and against the Assessee. 6.Ms. Razaq, in support of her contentions, relied upon thefollowing decisions : paragraph 5.B is required to be framed and answered in favour of theRevenue and against the Assessee. 6.Ms. Razaq, in support of her contentions, relied upon thefollowing decisions : (I) Commissioner of Income-tax, Panaji, Goa vs. Zuari Industries11Ltd. ; (II) Sumati Dayal vs. Commissioner of Income-tax2; and (III)Killick Nixon Ltd. vs. Deputy Commissioner of Income,33Central Circle (3). 7.Mr. Rao, the learned Counsel for the Respondent pointsout that since the substantial questions of law at paragraph 5.A and5.B were never framed by this Court at the time of admission of theAppeal, the same are deemed to have been rejected. In any case, hepoints out that the issues now raised by the Revenue, are the issues inrespect of which there are concurrent findings recorded by theCIT(Appeals) and the ITAT. He points out that such concurrentfindings are consistent with the evidence on record and, therefore, nocase of perversity has been made out, so as to raise any substantialquestion of law. He relies upon the reasonings in the orders of theCIT (Appeals) and the ITAT and submits that this Appeal may bedismissed. 1[2020] 115 taxmann.com 337 (Bombay) 2[1995] 80 TAXMAN 89 (SC) 3[2012] 20 taxmann.com 703 (Bom.) 5 8.The rival contentions now fall for our determination. 9.In this case, rather than going by the technical objectionsraised by Mr. Rao, we propose to examine whether the substantialquestions of law at paragraph 5.A and 5.B in fact arise in the factsand circumstances of the present case. 10.The two substantial questions of law, now proposed by Ms.Razaq, read as follows : 5.A. Whether on the facts and circumstances of the case theTribunal is right in law in allowing an amount of Rs.50,00,000/- under Section 35E of the Income Tax Act ? 5.B. Whether on the facts and circumstances of the case,the Tribunal is right in law in deleting the addition ofRs.13,66,35,554/- made by the Assessing Officer underSection 68 of the Income Tax Act ? 11.The material on record, does indicate that the amount ofRs.5,00,00,000/- paid by the Assessee to the mining lessees, was nottowards acquisition of right in the mine, but was basically towardsthe expenditure undertaken by the said lessees for the purpose ofdevelopments like roads and trenches, temporary huts, drilling, etc.In addition to this amount, the agreement provided that the Assessee,upon extraction of the ore, had to share 40% of the extracted orewith the mining lessees. Both, the CIT (Appeals), as well as the 6 ITAT, have examined, in some details, the scope of the agreementbetween the parties, as well as the nature of this payment ofRs.5,00,00,000/-. 12.Both, the CIT (Appeals), as well as the ITAT, concurrentlyheld that in view of the agreement and the transactions between theparties, the provisions of Section 35E of the Income Tax Act, wereindeed attracted. Consequent thereof, some benefits have beenextended to the Assessee. In fact, the benefit extended to theAssessee is much lesser than what was applied for by the Assessee.This is on the basis of a correct reading of the provisions in Section35E of the Income Tax Act. 13.Therefore, this is basically the case, where both the CIT(Appeals), as well as the ITAT have recorded the concurrent findingsof fact as to the nature of payment made by the Assessee. Taking intoconsideration the material on record, it is not possible to say thatthese findings of fact suffer from any perversity, so as to give rise tothe substantial question of law at paragraph 5.A, as proposed by Ms.Razaq. 14.Similarly, in so far as addition under Section 68 of theIncome Tax Act is concerned, it is necessary to note at the out set,that, Section 68 applies to a situation where any sum is foundcredited in the books of an Assessee maintained for any previous year, 7 13.Therefore, this is basically the case, where both the CIT(Appeals), as well as the ITAT have recorded the concurrent findingsof fact as to the nature of payment made by the Assessee. Taking intoconsideration the material on record, it is not possible to say thatthese findings of fact suffer from any perversity, so as to give rise tothe substantial question of law at paragraph 5.A, as proposed by Ms.Razaq. 14.Similarly, in so far as addition under Section 68 of theIncome Tax Act is concerned, it is necessary to note at the out set,that, Section 68 applies to a situation where any sum is foundcredited in the books of an Assessee maintained for any previous year, 7 and the Assessee offers no explanation about the nature and sourcethereof or the explanation offered by him is not, in the opinion of theAssessing Officer, satisfactory, the sum so credited may be charged toincome-tax as the income of the Assessee of that previous year. 15.In this case, the AO, no doubt, recorded that he is notsatisfied with the explanation furnished by the Assessee. However,the said dissatisfaction was on the sole basis that the two entitiesM/s. Balaji Minerals and M/s. Matha Minerals did not respond to thenotices or otherwise appear and confirm the purpose for which suchpayments were made. The CIT (Appeals), as well as the ITAT, onthe other hand, have held that the AO could not have arrived atsuch a satisfaction focusing almost entirely on this sole circumstance,but rather, several other circumstances emanating from the record,were also required to be taken into consideration by the AO fordeciding whether the explanation offered by the Assessee deservedacceptance. 16.Both, the CIT (Appeals) as well as the ITAT, held thatthe Assessee in this case had offered explanation as to why twoentities or their proprietors could not give any statement in theseproceedings. The two authorities have pointed out that the paymentswere made to these two entities by cheques. The two authorities havealso pointed out that even the Revenue has accepted that thepurchases were made by the Assessee from such entities and it is in 8 respect of such purchases that the Assessee made payments to thesaid parties. Therefore, by taking into consideration these aspects,including the quantum of profits which the Assessee had derived outof the purchases from these parties, concurrent findings came to berecorded that the explanation offered by the Assessee was indeedsatisfactory and could not have been rejected. 17.According to us, it cannot be said that the concurrentfindings on the second issues suffer from any perversity. The twoauthorities were quite justified in observing that the AO should nothave focused almost entirely on the solitary circumstance andthereby failed to even look into several other circumstances on record,which rendered the Assessee's version plausible. 18.The decision in Zuari Industries Ltd. (supra) cannot be saidto be applicable to the facts and circumstances of the present case.In the said case, there was overwhelming evidence that the paymentsmade were for acquisition of mining lease. 19.In Sumati Dayal (supra), the Hon'ble Supreme Court heldthat where any sum is found credited in the books of the Assessee forany previous year, the same may be charged to income-tax as theincome of the Assessee of that previous year if the explanationoffered by the Assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such case, thereis prima facie evidence against the Assessee, viz., the receipt of moneyand if he fails to rebut the same, the said evidence being unrebutted,can be used against him by holding that it is a receipt of an incomenature. The Hon'ble Supreme Court has further held that whileconsidering the explanation of the Assessee, the department cannot,however, act unreasonably and the matter has to be considered in the light of human probabilities. opinion of the Assessing Officer, not satisfactory. In such case, thereis prima facie evidence against the Assessee, viz., the receipt of moneyand if he fails to rebut the same, the said evidence being unrebutted,can be used against him by holding that it is a receipt of an incomenature. The Hon'ble Supreme Court has further held that whileconsidering the explanation of the Assessee, the department cannot,however, act unreasonably and the matter has to be considered in the light of human probabilities. 20.In this case, as noted earlier, both the CIT (Appeals), as wellas the ITAT have considered the explanation offered by the Assesseein the light of several circumstances to which they have adverted to.Upon consideration of such several circumstances borne out from therecord, the two authorities have concurrently held that theexplanation offered by the Assessee was more than probabilized.These are concurrent findings of fact. Besides, as held by the Hon'bleSupreme Court in Sumati Dayal (supra), the explanations in thecontext of Section 68 of the Income Tax Act have to be considered inthe light of human probabilities and the explanations cannot beunreasonably rejected. Thus, the decision in Sumati Dayal (supra), toa certain extent, supports the case of the Assessee rather than theRevenue. 21. The decision in Killick Nixon Ltd. (supra) also turns on its peculiar facts where there were concurrent finding of fact that thetransaction in question was a sham and not genuine transaction. Inthese circumstances, it was held that there was no question of law tobe considered. In the present case, there are concurrent findings offact. Since no case of perversity has been made out, there arises nosubstantial question of law which would warrant consideration in thepresent case. 22.For all the aforesaid reasons, we dismiss this Appeal as,according to us, it raises no substantial question of law forconsideration 23.There shall, however, be no order as to costs. Dama Seshadri Naidu, J. M.S. Sonak, J.