Itr/287/1994 Of Ushakant N Patel v. Commissioner Of Income Tax

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD INCOME TAX REFERENCE No. 287 of 1994 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA HONOURABLE MS.JUSTICE H.N.DEVANI ============================================================== ============================================================== USHAKANT N PATEL - Applicant(s) Versus COMMISSIONER OF INCOME TAX - Respondent(s) ============================================================== Appearance : MR KH KAJIfor Applicant(s) : 1, MR MANISH R BHATT for Respondent(s) : 1, ================================================================== CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MS.JUSTICE H.N.DEVANI Date : 22/12/2005 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1.The applicant-assessee has proposed the following eight questions. 1.Whether, in the facts and circumstances of the case, the Tribunal was right in law in holding that sec. 132(4A) was applicable in the course of assessmentproceedings and presumptions created by it would place burden on theassessee to establish to the contrary the rebuttable presumptions raised bythe above section and in further ignoring the decision of the Calcutta High Court in that behalf ?1.Whether, in the facts and circumstances of the case, the Tribunal was rightin law in throwing on the assessee a negative burden to establish that thehand-writings in the note-book and the slips were not his or any of hispersons, relying on the rebuttable presumptions provided by sec. 132(4A)which was not applicable? 2.Whether, in the facts and circumstances of the case, the Tribunal was rightin law in ignoring a very material fact mentioned and accepted by the CIT (A)that the Assessing Officer had taken the writings of the assessee and otherpersons connected with him and none of such persons were examined bythe Assessing Officer before coming to the conclusion that the hand-writingbelonged to the assessee? 3.Whether, in the facts and circumstances of the case, the Tribunal was rightin law in holding that the order of CIT (A) was also erroneous as regards theAccounting year found by the Assessing Officer as relatable to A.Y. 1983-84when there is no mention at all of any year in the said papers and theprovisions of sec.69 were not applicable as it was not a case of unexplainedinvestment being found ? 4.Whether, in the facts and circumstances of the case, the Tribunal was rightin law in holding that the order of the CIT (A) was erroneous as he did notcomment in detail on the reasons enumerated by the Assessing Officer forincluding the said amounts as income of the assessee ? 5.Whether, in the facts and circumstances of the case the Tribunal erred in notconsidering that the CIT (A) having found that the said writing did not belongto the assessee, the question of examining the details of the cash-book, theledger and the five loose sheets and there was no occasion for the CIT (A)to go into the details of the reasonings of the Assessing Officer with regardto the various amounts mentioned therein ? 6.Whether, in the facts and circumstances of the case, the Tribunal was rightin law in observing that the CIT (A) had not commented upon applicability ofsec. 132(4A) and sec. 69 which are purely law points and should have beendecided by the Tribunal ? 7.Whether, in the facts and circumstances of the case, the Tribunal erred insummarily reversing the findings of the CIT (A) without any justifiable basisand instead of going through the legal and factual aspects of the matter,erred in remanding the matter to the CIT (A) ? 1.However, the Income Tax Appellate Tribunal, Ahmedabad Bench-C hasreferred the following question under Section 256 (1) of the Income Tax Act,1961 (the Act) after reframing the same to bring out the real controversy andobserving that question Nos. 1 to 7 as proposed are mere arguments andfacets of reframed question No.8. “Whether, on the facts and circumstances of the case and material on record, the Tribunal was justified in remanding the matter to the CIT (A) ?” 1.For assessment year 1983-84 the relevant accounting period is financialyear ended on 31[st] March, 1983 and for assessment year 1984-85 therelevant accounting period is financial year ended on 31[st] March, 1984.The Assessing Officer made an addition of Rs.48,14,727/= for assessmentyear 1983-84 on the ground that the same were unexplained investmentsas per note-books and loose papers which were seized during proceedingsunder Section 132 of the Act carried out on 3-6-1983. Similar addition ofRs.32,000/= was made for assessment year 1984-85. The additions weremade after rejecting the explanation tendered by the assessee and castingonus on the assessee by raising statutory presumptions prescribed underSection 132(4A) of the Act. 2.The assessee carried the matter in appeal before Commissioner (Appeals)for both the years. The Commissioner (Appeals) allowed the appeals of theassessee holding that the Assessing Officer had not established that thediaries and the loose papers seized in the course of search and seizureproceedings belonged to the assessee. The Commissioner (Appeals) alsorecorded that there was no evidence to show that the documents containedthe hand-writing of the assessee. Lastly it was held that there was no basisfor the Assessing Officer to conclude from the seized documents that theassessee had made investments to the tune of Rs.48,14,727/=, and thatthe investments, if any, were made in the financial year corresponding toassessment year 1983-84, and hence, the Assessing Officer could not haveinvoked Section 69 of the Act. 3.The revenue preferred appeals before the Tribunal. The order ofCommissioner (Appeals) was faulted with by the Tribunal and the appeal was restored to the file of Commissioner (Appeals). In the process theTribunal held that the burden was on the assessee in view of provisions ofSection 132(4A) of the Act to lead evidence to rebut the presumptionsraised by the said Section. The Tribunal further held that the Commissioner(Appeals) had no basis for recording a finding that the hand-writing in thebooks seized was not that of the assessee. Ultimately after holding that allthe findings of Commissioner (Appeals) were baseless and useless, theTribunal finally remanded the matter to the first appellate authority for afresh decision after taking note of the observations made by the Tribunal. 4.Mr. K.H.Kaji, the learned advocate appearing on behalf of the applicant-assessee assailed the order of Tribunal on various counts. However, hisprincipal grievance was that the Tribunal had erred in reading provisions ofsection 132(4A) of the Act by holding that the said provision was applicableeven during the course of regular assessment proceeding. According to himthe said provision had limited applicability and the presumptions raised bythe Section were only for the purpose of retention of the assets etc. asspecified in Section 132(5) of the Act. He also made a grievance that incase the Tribunal was inclined to restore the appeals to the file ofCommissioner (Appeals), the Tribunal ought not to have recorded anyfindings/observations in relation to applicability or otherwise of provisions ofSection 132(4A) of the Act. He lastly urged that the issue as to whetherSection 132(4A) of the Act can be invoked beyond Section 132(5) order ornot, may be decided by the Court. In support of the submissions made byhim he placed reliance on a decision of the Delhi High Court in the case ofDaya Chand v. Commissioner of Income Tax, (2001) 250 ITR 327 andAllahabad High Court in the case of Pushkar Narain Sarraf v.Commissioner of Income Tax, (1990) 183 ITR 388. The submission wasthat provisions of Section 132(4A) of the Act are not available during courseof regular assessment proceedings because otherwise, it would lead to aartificial distinction, not warranted by the scheme of the Act, betweenpersons who are subjected to search proceedings, and those persons whoare not subjected to search proceedings. Mr. Kaji submitted that there wasno rationale or logic in creating such a distinction. It was further submittedthat,on a plain reading of Section 132(4A) of the Act there was an inherentindication that the said Section was restricted in application upto the pointof time the order under Section 132(5) of the Act came to be made,because the Section dealt with not only documents, but also assets. 5.Mr. M.R.Bhatt, the learned Senior Standing Counsel appearing on behalf ofthe respondents submitted that Section 132(4A) applies to all proceedingsand the Section only relates to a rule of evidence not warranting anyrestrictive application. Referring to the legislative history it was submittedthat Section 132(5) of the Act came on the statute book in 1965 and came to be deleted in 1995, while Section 132(4A) of the Act came on the statutebook in 1975 and has not been deleted. That Section 132(4A) of the Acthas to be read as a part of Section 132(4) of the Act ; that both theprovisions fall within the chapter dealing with powers of authorities.According to Mr. Bhatt, Section 132(4A) of the Act only lays down rule ofevidence, and prescribes only the starting point namely, the date of searchfor applicability of the provision with no closing point or limitation on theapplicability. He placed reliance on the decision of the Karnataka HighCourt in case of Commissioner of Income Tax vs. P.R.Metrani (2001 ) 251ITR 244 to submit that the presumptions arising under Section 132(4A) ofthe Act are only raising rebuttable presumptions and cannot be restrictedfor the only purpose of passing an order under Section 132(5) of the Act.He also placed reliance on a decision of this Court in the case ofKhandubhai Vasanji Desai and others v. Deputy Commissioner of IncomeTax and another (1999) 236 ITR 73 with special reference to theobservations made at page 95. Mr. Bhatt also made a submission that if theCourt was inclined to concur with the final conclusion of the Tribunal,namely restoring the appeals to the file of Commissioner (Appeals), theCourt may clarify the position and leave all the issues open, includingapplicability of Section 132(4A) of the Act. 6.The Tribunal while passing the impugned order dated 27[th]April,1993 hascome to the conclusion that “In our considered view all the reasonsemployed by the learned first appellate authority are baseless and useless.In fact the matter should have been decided on the basis of the materialplaced on record and the relevant provisions and the facts established onbehalf of the parties. This exactly is seen not to have been done.” Whenone reads the order of the Tribunal as a whole, one cannot but observe thatthe aforesaid remarks made by the Tribunal in relation to the order of thefirst appellate authority are equally applicable to the order made by theTribunal. Even if one proceeds on the assumption that the Commissioner(Appeals) had committed an error while passing the order, the Tribunal hascommitted the same error while passing the impugned order. 7.The principal ground on which the Tribunal finds fault with the order of thefirst appellate authority is applicability of Section 132(4A) of the Act.According to the Tribunal once the said Section raises statutorypresumptions, nothing more was required to be done and addition made bythe Assessing Officer under Section 69 of the Act had to proceed as anatural corollary. The entire premise adopted by the Tribunal is fallacious.In the facts of the present case it is not possible to delink applicability ofSection 132(4A) of the Act and provisions of Section 69 of the Act. 8.Section 132(4A) of the Act lays down that during the course of searchwhere any books of accounts, other documents, money etc. are or is found 7.The principal ground on which the Tribunal finds fault with the order of thefirst appellate authority is applicability of Section 132(4A) of the Act.According to the Tribunal once the said Section raises statutorypresumptions, nothing more was required to be done and addition made bythe Assessing Officer under Section 69 of the Act had to proceed as anatural corollary. The entire premise adopted by the Tribunal is fallacious.In the facts of the present case it is not possible to delink applicability ofSection 132(4A) of the Act and provisions of Section 69 of the Act. 8.Section 132(4A) of the Act lays down that during the course of searchwhere any books of accounts, other documents, money etc. are or is found in the possession or control of any person, it may be presumed:- (1) thatsuch books of account etc. belong to such person ; (2) that the contents ofsuch books of account and other documents are true ; and (3) that thesignature and every other part of such books of account and otherdocuments which purport to be in the hand-writing of any particular person,or which may reasonably be assumed to have been signed by, or to be inthe hand-writing of, any particular person, are in that person's hand-writingetc. On a plain reading of the aforesaid provision it is apparent that clauses(i) and (ii) raise a presumption that the books of account belong to theperson searched, or the person from whose possession or control thebooks are recovered or found, and that the contents of such books are true.However, when it comes to clause (iii) of Section 132(4A) of the Act, itraises a presumption in relation to the signature and the hand-writing to beof the person in whose hand-writing the books etc. are purported to be, or areasonable assumption may be raised that the books etc. are signed by orare in the hand-writing of any particular person. The distinguishing featureis, the clause does not necessarily raise a presumption qua the personsearched or from whose possession the books are found. The languageemployed in clauses (i) and (ii) is “such person”, meaning thereby theperson searched or from whose possession or control the books are found.As against that, the language employed by clause (iii) talks of raising apresumption in relation to “any particular person”, who may be the personsearched, or may not necessarily be the person searched. In a given case,the books might bear the name of the owner and yet they may be found inpossession of, or control of another person. Then, in such an eventualitythe presumption as to the signature and hand-writing would arise againstthe person in whose name the books stand. By way of illustration, judicialnote can be taken note of the fact that books of account are handed over topersons who work as part time accountants, and in such circumstances, thepresumption has to be in relation to the person whose transactions arereflected in the books and such transactions cannot be presumed to havebeen carried out by the person who writes the accounts. 9.Applying the aforesaid provision to the facts of the case, at best theauthorities and the Tribunal could have raised presumption that the bookshave been recovered from the possession of the assessee (thoughdisputed by the assessee ), and belong to the assessee and the contentsthereof are true ; but from that, it does not necessarily follow that apresumption would arise as to the books or the documents being in thehand-writing of the assessee. The Tribunal, has brushed aside the findingrecorded by the Commissioner (Appeals) regarding the books/documentsnot being in the hand-writing of assessee, by a sweeping statement withouttaking note of the finding recorded by Commissioner (Appeals) in paragraph No. 23. The Tribunal has committed this error only because itproceeded on the footing that clause (iii) of Section 132(4A) of the Actraises a presumption qua the person searched or the person from whosepossession or control the books or documents are recovered when thelanguage does not indicate it to be so in all cases. 10. paragraph No. 23. The Tribunal has committed this error only because itproceeded on the footing that clause (iii) of Section 132(4A) of the Actraises a presumption qua the person searched or the person from whosepossession or control the books or documents are recovered when thelanguage does not indicate it to be so in all cases. 10. What is more material is that the Assessing Officer made an addition underSection 69 of the Act and the Commissioner (Appeals) found that there wasno basis to hold that the investments, if any, were made in the financialyear corresponding to the assessment year under consideration. TheTribunal has dealt with this issue in a very cursory manner when itobserved “The learned CIT (A) also found fault with the Assessing Officer'saction on account of the difficulty of financial year. Such difficulty was to befinalised in accordance with the provisions and the date of search andseizure. The observations in this respect of the learned C.I.T. (A) has againmislead him to arrive at a wrong conclusion.” 11.The Tribunal lost sight of the fact that Section 69 of the Act opens with thewords “Where in the financial year immediately preceding the assessmentyear, the assessee has made investment .....” Therefore, in the first instance it was incumbent upon the authority to establish that there wereinvestments made by the assessee ; that such investments were notrecorded in the books of account maintained by the assessee ; and that,such investments had been made in the financial year immediatelypreceding the assessment year in question. Unfortunately, despite theCommissioner (Appeals) having recorded a categorical finding, the Tribunalhas failed to appreciate the said finding and dealt with the same withoutgiving cogent reasons. If the Tribunal found that the said finding was notcorrect, it was necessary for the Tribunal to have recorded reasons forreversing the same. The observation of the Tribunal that the difficulty as tofinancial year had to be finalised in accordance with the provisions and thedate of search and seizure is too general and vague. It does not indicateanything. When the provision requires fulfillment of certain prerequisiteconditions before the assessee can be called upon to explain, the Tribunalhas to record its finding on this issue in a specific manner, because the case ofthe assessee all along has been that in the first place the seized documents donot reflect any investments, in the second place, even if the entries could betreated as investments made by the assessee, it was further necessary to showthat such investments have been made by the assessee in the financial yearimmediately preceding the assessment year and are not recorded in the booksmaintained by the assessee. The Tribunal's order does not record any findings.In fact, the Tribunal is hardly aware, it appears, as to what the requirements ofSection 69 are, and if it is aware, it has consciously chosen to ignore the same. Itcould not have done so in face of the finding recorded by Commissioner (Appeals) on this issue. (Appeals) on this issue. 12.Even if the contention of revenue that provisions of Section 132(4A) of the Actare available to revenue during course of regular assessment proceedings isaccepted for the sake of argument, yet none the less, the prerequisite conditionsof Section 69 of the Act cannot be given a go by and have to be met with. Theview expressed by this Court derives support from the ratio of the Apex Courtdecision in case of Prem Dass v. Income Tax Officer (1999)236 ITR 683. Whiledealing with a case relating to prosecution under Sections 276C and 277 of theAct, it was laid down by the Apex Court that the presumptions under Section132(4A) of the Act would not establish the ingredients contemplated by Sections276C and 277 of the Act, and that the High Court was not justified in settingaside the order of acquittal on the basis of Section 132(4A) of the Act. Therefore,even if, the presumption available under Section 132(4A) of the Act can beraised against the assessee the ingredients, by way of prerequisite conditions, ofSection 69 of the Act have to be satisfied and cannot be presumed to have beenestablished on the basis of Section 132(4A) of the Act simplicitor. 13.In light of what is stated hereinbefore the impugned order of Tribunal is held tobe incorrect in law, in the facts and circumstances of the case and material onrecord. The Tribunal was not justified in remanding the matter to theCommissioner (Appeals). It was necessary for the Tribunal to have dealt with theapplicability of provisions of Section 69 together with provisions of Section132(4A) of the Act after dealing with the reasons given by Commissioner(Appeals) instead of recording “we are also at a loss to understand as to what todo with the issue at hand “as recorded in paragraph No. 20 of the impugnedorder. 14.The question referred is therefore answered in the negative i.e. in favour of theassessee and against the revenue. The appeal shall stand restored to the file ofthe Tribunal and in light of the judgment of this Court, the Tribunal shall rehearthe appeal after giving adequate opportunity of hearing to both the sides. 15.The reference stands disposed of accordingly. There shall be no order as tocosts. ( D.A.MEHTA, J.) (HARSHA DEVANI, J.)