Itta/77/2007 Of Kermex Micro Systems [India] Ltd v. Deputy Commissioner Of Income Tax

*THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR + ITTA No.77 OF 2007% Dated 02-01-2014# Kernex Micro Systems (India) Ltd., Hyderabad. AppellantVERSUS$ Deputy Commissioner of Income Tax, Circle-2(1), Hyderabad.Respondent! Counsel for Petitioner : Sri P. Murali Krishna^ Counsel for the respondent : Sri S.R. Ashok<GIST:> HEAD NOTE:? Cases referred IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH ATHYDERABAD THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTISENGUPTA ANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR I.T.T.A. No. 77 OF 2007 DATE: 02.01.2014 Between: Kernex Micro Systems (India) Ltd.,Hyderabad. … Petitioner And Deputy Commissioner of Income Tax,Circle-2(1), Hyderabad. … Respondent This Court made the following: THE HON’BLE THE CHIEF JUSTICE SRI KALYAN JYOTI SENGUPTAANDTHE HON’BLE SRI JUSTICE SANJAY KUMAR ITTA No. 77 of 2007 JUDGMENT:(Per the Hon’ble The Chief Justice Sri Kalyan Jyoti Sengupta) This appeal is directed against the judgment and order dated22.02.2006 of the learned Tribunal in relation to assessment year 1998-99and is sought to be admitted on as many as eight suggested questions of law,which are as follows: “5.1. Whether on the facts and circumstances of the case, the Hon’bleITAT was justified in reversing the order of the learned CIT (Appeals)and restoring the addition of Rs.20 lakhs?ITAT was justified in reversing the order of the learned CIT (Appeals)and restoring the addition of Rs.20 lakhs? 5.2. Whether on the facts and circumstances of the case, the Hon’bleITAT was justified in holding that the appellant company could notretract from its admission before the learned CIT (Appeals), who isalso a departmental authority and whose powers are co- evalwith those of the assessing officer?ITAT was justified in holding that the appellant company could notretract from its admission before the learned CIT (Appeals), who isalso a departmental authority and whose powers are co- evalwith those of the assessing officer? 5.3. Whether the Hon’ble ITAT the ultimate fact finding body, wasjustified in refusing to look into the facts relating to the expendituresinvolved in the so called defective vouchers listed by the assessingofficer?justified in refusing to look into the facts relating to the expendituresinvolved in the so called defective vouchers listed by the assessingofficer? 5.4. Whether there is any basis for the conjecture and suspicion of theHon’ble ITAT that the appellant company could manipulate itsevidence in the face of the fact that most of the expenditures werecovered by either cheque payments or TDS provisions of the Income TaxAct?Hon’ble ITAT that the appellant company could manipulate itsevidence in the face of the fact that most of the expenditures werecovered by either cheque payments or TDS provisions of the Income TaxAct? 5.5. Whether the Hon’ble ITAT was justified in restoring the addition ofRs.20 lakhs solely basing itself on the statement recorded by theassessing officer under Section 133A of the Income Tax Act fromthe Managing Director of the appellant company, which statementcannot be put on par with a sworn statement under Section 133 (1) or133 (4) of the Income Tax Act?Rs.20 lakhs solely basing itself on the statement recorded by theassessing officer under Section 133A of the Income Tax Act fromthe Managing Director of the appellant company, which statementcannot be put on par with a sworn statement under Section 133 (1) or133 (4) of the Income Tax Act? 5.5. Whether the Hon’ble ITAT was justified in restoring the addition ofRs.20 lakhs solely basing itself on the statement recorded by theassessing officer under Section 133A of the Income Tax Act fromthe Managing Director of the appellant company, which statementcannot be put on par with a sworn statement under Section 133 (1) or133 (4) of the Income Tax Act?Rs.20 lakhs solely basing itself on the statement recorded by theassessing officer under Section 133A of the Income Tax Act fromthe Managing Director of the appellant company, which statementcannot be put on par with a sworn statement under Section 133 (1) or133 (4) of the Income Tax Act? 5.6. Whether the canons of natural justice are not violated as no showcause notice was issued by the assessing officer and the list of thedefective vouchers was not furnished and not even a copy of thestatement recorded from the Managing Director was furnished to theappellant company before the assessment has been completed?cause notice was issued by the assessing officer and the list of thedefective vouchers was not furnished and not even a copy of thestatement recorded from the Managing Director was furnished to theappellant company before the assessment has been completed? 5.7. Whether the Hon’ble ITAT was justified in sustaining the additionwhen the Central Board of Direct Taxes itself in its instructionsF.No.286/2/2003-IT(Inv), dated 23.03.2003 had instructed the officersnot to force confessions of undisclosed income during search andsurvey operations and stated that such confessions, as in thepresent case, which are not based on credible evidence, did notserve any purpose?when the Central Board of Direct Taxes itself in its instructionsF.No.286/2/2003-IT(Inv), dated 23.03.2003 had instructed the officersnot to force confessions of undisclosed income during search andsurvey operations and stated that such confessions, as in thepresent case, which are not based on credible evidence, did notserve any purpose? 5.8. Whether the Hon’ble Tribunal was justified in calling upon the appellant company to prove the negative by way of showing proofthat the statement of the Managing Director had not been furnished to it?” At the first instance, from a reading of the aforesaid suggestedquestions of law, we are of the view that those questions are not thequestions of law rather argument in the form of question. Therefore, we donot want to look into those questions. However, when the matter has comeup for hearing, it is the duty of the Court to formulate the substantial questionof law, if the Court decided to admit the appeal for hearing. The relevant factsare as follows: The Assessing Officer has made an assessment order on the basis ofthe voluntary statement made by the Managing Director of the appellantdisclosing of income of Rs.20 lakhs. The said statement, which wasreproduced by the learned Tribunal in its judgment, is reproduced hereunder. “I admit that the above defects persist in maintenance of expensevouchers. The payments are not properly recorded. Taking into account theabove deficiencies, which are not deliberate and to cover up any otheromissions and commissions, I voluntarily offer Rs.20.00 lakhs as additionalincome in respect of training and development divisions of the company andEOU division of the company. The lapses being common to both thedivisions, i.e., training and development and EOU, I offer Rs.10.00 lakhs foreach of the division. This offer has been made voluntarily to close thematter. This does not cover any disallowance on any legal issue. I wouldrequest the department not to initiate any penalty proceedings. I undertakethat the company pay the taxes after it receives the assessment order.” “I admit that the above defects persist in maintenance of expensevouchers. The payments are not properly recorded. Taking into account theabove deficiencies, which are not deliberate and to cover up any otheromissions and commissions, I voluntarily offer Rs.20.00 lakhs as additionalincome in respect of training and development divisions of the company andEOU division of the company. The lapses being common to both thedivisions, i.e., training and development and EOU, I offer Rs.10.00 lakhs foreach of the division. This offer has been made voluntarily to close thematter. This does not cover any disallowance on any legal issue. I wouldrequest the department not to initiate any penalty proceedings. I undertakethat the company pay the taxes after it receives the assessment order.” The fact shows that at the time of assessment the assessee did notretract the aforesaid admission making voluntary disclosure. Even theassessee on the basis of the assessment has paid the tax and after that anappeal was preferred before the Commissioner of Income Tax (Appeals). Inthe said appeal we do not find that the appellant has made out any case thatthe aforesaid admission was not made voluntarily and it was made bymistake or anything else. It appears from the record that only the learned lawyer appearingbefore the Commissioner of Income Tax (Appeals) took up the factual point,which was not stated in the grounds of appeal, that the aforesaid admissionwas recorded under mistaken belief of fact and law. Taking note of thisargument, perhaps and without verifying whether such ground has beenmade out or not, the Commissioner of Income Tax (Appeals) observed asfollows: “Before going into the legal intricacy whether income offered duringthe course of survey can be agitated before the appeal proceedings or not, Iwant to state that an addition made by the AO should stand on its own legsirrespective of the fact whether it is accepted or not accepted by theassessee. I agree that in this case, the MD of the appellant-company hadoffered a sum of Rs.20 lakhs at the time of survey. It is also a fact that hehas not disputed the same during the course of assessment proceedings. Itis also a crucial fact that the appellant had even paid taxes on the incomeoffered. But can he sustain an addition only on the basis of admissions andacquiscences, particularly, when the appellant has gone back on theadmission? The answer is an emphatic “No” as, if an addition can be madeon the basis of admission, the same has to be deleted on the basis ofretraction.” We fail to understand from where the case of retraction has beendiscovered by the Commissioner of Income Tax (Appeals) when theappellant has not stated in the grounds of appeal before it that it hasretracted. Notwithstanding above, the learned counsel before us verystrenuously argues that there has been retraction of admission before theCommissioner of Income Tax (Appeals) and the Commissioner has takeninto consideration of the same. Therefore, the learned Tribunal should nothave set aside the order of the Commissioner, but at the most it should haveremanded the matter. According to him, the Commissioner of Income Tax(Appeals) has extensive power and he has rightly exercised the same. We fail to understand from where the case of retraction has beendiscovered by the Commissioner of Income Tax (Appeals) when theappellant has not stated in the grounds of appeal before it that it hasretracted. Notwithstanding above, the learned counsel before us verystrenuously argues that there has been retraction of admission before theCommissioner of Income Tax (Appeals) and the Commissioner has takeninto consideration of the same. Therefore, the learned Tribunal should nothave set aside the order of the Commissioner, but at the most it should haveremanded the matter. According to him, the Commissioner of Income Tax(Appeals) has extensive power and he has rightly exercised the same. We are of the view that the argument of the learned counsel isabsolutely misplaced on fact as before the Commissioner of Income Tax(Appeals) there was no case of retraction. Factually, he perhaps noted oralarguments of the lawyer. According to us, it is not permissible under law asretraction of admission is purely a matter of fact, which must be madeavailable before the Court of law or Tribunal, which then can consider thesame. It is settled position of law that admission is a very important piece ofevidence, unless it is explained or retracted. Here the assessee has notmade any attempt to explain before the Commissioner of Income Tax(Appeals) suggesting not to accept the same. Here instead of retracting theassessee called upon to act upon the same to pass assessment order andaccordingly it was done and the tax was duly paid. We fail to understand whychallenge should be made at a later stage. The learned counsel thereafter argues that the admission cannot belooked into under the law, as it is a material collected during the period ofsurvey and this is not a valid piece of evidence. We think there must bedistinction between the admission and the evidence collected during thecourse of survey. This is a voluntary act of the assessee and if the assesseeaccepts the liability, there is no point or scope to collect further evidence ormaking any enquiry. Here exercising of power by the Commissioner was notcalled for. Exercise of power evaluating legal implication of admission wasnot called for because no case was made out factually. Therefore, thedecisions cited by the learned counsel for the appellant before us areabsolutely inappropriate. Hence, we ignore all these decisions. The learned Tribunal has taken a correct decision and we areconstrained to comment on the decision taken by the Commissioner ofIncome Tax (Appeals), even basing on his own recording that the same iswithout any factual basis and further unsupported by law. When a case is notmade out before the Commissioner, he should not have made out so to sayhis own case basing on a lawyer’s argument. A lawyer cannot improve thecase of the litigant on fact unlike in case of law. Such an act is withoutjurisdiction. The appeal is accordingly dismissed. We are of the view that for filing such a frivolous appeal an exemplarycost has to be imposed. Accordingly, we impose costs estimated atRs.10,000/- (Rupees Ten thousand only), to be paid by the appellant to theA.P. Legal Services Authority within a period of two weeks from date. ___________________ K.J. SENGUPTA, CJ ___________________ SANJAY KUMAR, J Date: 02.01.2014ES LR copies to be marked.