The Principal Commissioner Of Income Taxi v. Shri Pukhraj Soni

1 HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017 -The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni HIGH COURT OF MADHYA PRADESH : BENCH AT INDORED.B.: Hon'ble Shri S. C. Sharma andHon'ble Shri Virender Singh JJ. Income Tax Appeal No.53 of 2017 The Principal Commissioner of Income Tax-IVersusShri Pukhraj Soni*************** Ms. Veena Mandlik, learned Counsel for the appellant. Shri Sumit Nema, learned Senior Counsel with Shri A.Gupta, learned Counsel for the respondent. * * * * * J U D G M E N T(Delivered on06/ 02/2019) Per S. C. Sharma, J. 1.The present appeal has been filed by PrincipalCommissioner of Income Tax-I, Indore against orderdated 21.9.2016 passed in Income Tax AppellateTribunal in I.T.A. No.585/Ind/2015 for the assessmentyear 2009-10. 2.The facts of the case reveal that the respondent-assessee has filed his return of income for theassessment year 2009-10 on 29.9.2009 declaring totalincome as Rs.2,05,230/-. There is no dispute about theaforesaid fact. Facts further reveal that a searchoperation was carried out on 19.11.2009 by theInvestigation Wing, Indore of the Income Tax HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni Department on the Satellite Group of companies andone of the assessees M/s. Phoenix Devcons Pvt. Ltd.was also subject to proceedings under Section 132.Several incriminating documents were recovered fromthe premises of the M/s. Phoenix Devcons Pvt. Ltd.,Indore in which there was a reference of Mr. PukhrajSoni. In a diary there was an entry in respect of amountgiven to Mr. Pukhraj Soni and, therefore, a notice wasissued under Section 148 to the assessee and the casewas re-opened as there was a reason to believeescapement of income of Rs.2,50,00,000.00 and theinterest thereon amounting to Rs.9,37,500/-. Afterconcluding the assessment, the Assessing Officer hasissued an order dated 28.3.2014 and the assessee,thereafter, preferred an appeal before theCommissioner of Income Tax (Appeal). The appeal wasagainst the assessment order passed under Section 148of the Act and the appeal was allowed by an order dated27.4.2015. 3.The department being aggrieved by the orderpassed by the Commissioner of Income Tax (Appeal)preferred an appeal before the Income Tax AppellateTribunal, Indore Bench, Indore and the Tribunal hasdismissed the appeal preferred by the Department.Now the present appeal has been filed before this Court HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni under Section 260-A of the Income Tax Act, 1961.Paragraph 8 of the order passed by the Tribunal readsas under:- 3.The department being aggrieved by the orderpassed by the Commissioner of Income Tax (Appeal)preferred an appeal before the Income Tax AppellateTribunal, Indore Bench, Indore and the Tribunal hasdismissed the appeal preferred by the Department.Now the present appeal has been filed before this Court HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni under Section 260-A of the Income Tax Act, 1961.Paragraph 8 of the order passed by the Tribunal readsas under:- “8.We have considered the facts and materials available onrecord. On consideration of above facts and circumstances, wefind that no search was carried out in the premises of ShriPukhrajSoniandnoloosepaper/hundi/documents/promissory note/cash book or cashflow statement were found or seized, which could prove themovement of cash to & fro between Shri Pukhraj Soni & ShriNilesh Ajmera with respect to interest and loans. We find thatthe AO failed to bring on record any corroborative andconcrete evidence against the assessee which could prove thatthe assessee has advanced to Shri Nilesh Ajmera. Theinference of the AO that the assessee has advanced the moneyis merely based on suspicion, surmises and conjectures andthere was no material to support the conclusion of the AO thatthe assessee has advanced the money. We drive support fromthe decision of Hon'ble Supreme Court in the case ofDhakeshwari Cotton Mill Pvt. Ltd. Vs. CIT, (1954) 26ITR 775 (S.C.), wherein it was held that while making anassessment there must be something more than the baresuspicion to support the assessment. In another case of K. P.Varghese Vs. ITO, (1981) 131 ITR 597 (S.C.), theHon'ble Supreme Court has held that mere seizure of notebooks of documents at the personal residence of an employeewould not conclude the issue against the employer companythat the on money has been received by the employercompany. The onus of proving the charging of on money lieson the Revenue. Further, the Hon'ble Bombay High Court inthe case of ACIT Vs. Lata Mangeshkar (Miss) (1974) 97ITR 696 (Bom), has held that no addition could be made inthe hands of the assessee on the basis of notings found in thebooks of third person.” 4.The Tribunal has held that the Commissioner (Appeal) was justified in allowing the appeal as theAssessing Officer has done the addition on the basis ofnotings found in the books of third person. It is againan undisputed fact that the assessment has been doneon the basis of notings found in the books of third HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni person. 5.Shri Sumit Nema, learned Senior Counsel withShri A. Gupta, learned Counsel for the respondent hasplaced reliance upon a judgment delivered in the caseof Central Bureau of Investigation Versus V. C.Shukla and others reported in (1998) 3 SCC 410.Paras 17, 18, 24, 25, 26, 27, 34, 37 and 39 reads asunder:- 4.The Tribunal has held that the Commissioner (Appeal) was justified in allowing the appeal as theAssessing Officer has done the addition on the basis ofnotings found in the books of third person. It is againan undisputed fact that the assessment has been doneon the basis of notings found in the books of third HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni person. 5.Shri Sumit Nema, learned Senior Counsel withShri A. Gupta, learned Counsel for the respondent hasplaced reliance upon a judgment delivered in the caseof Central Bureau of Investigation Versus V. C.Shukla and others reported in (1998) 3 SCC 410.Paras 17, 18, 24, 25, 26, 27, 34, 37 and 39 reads asunder:- 17.From a plain reading of the Section it is manifest that to make anentry relevant thereunder it must be shown that it has been made in abook, that book is a book of account and that book of account has beenregularly kept in the course of business. From the above Section it is alsomanifest that even if the above requirements are fulfilled and the entrybecomes admissible as relevant evidence, still, the statement made thereinshall not alone be sufficient evidence, still, the statement made thereinshall not along be sufficient evidence to charge any person with liability.It is thus seen that while the first part of the section speaks of therelevancy of the entry as evidence, the second park speaks, in a negativeway, of its evidentiary value for charging a person with a liability. It will,therefore, be necessary for us to first ascertain whether the entries in thedocuments, with which we are concerned, fulfil the requirements of theabove section so as to be admissible in evidence and if this question isanswered in the affirmative then only its probative value need be assessed.18.'Book' ordinarily means a collection of sheets of paper or othermaterial, blank, written, or printed, fastened or bound together so as toform a material whole. Loose sheets or scraps of paper cannot be termedas 'book' for they can be easily detached and replaced. In dealing with thework 'book' appearing in Section 34in Mukundram vs. Dayaram [AIR1914 Nagpur 44], a decision on which both sides have placed reliance, theCourt observed:- " In its ordinary sense it signifies a collection of sheets of paper boundtogether in a manner which cannot be disturbed or altered except by tearingapart. The binding is of a kind which is not intended to the moveable in thesense of being undone and put together again. A collection of papers in aportfolio, or clip, or strung together on a piece of twine which is intended tobe untied at will, would not, in ordinary English, be called a book.......I thinkthe term "book" in S. 34aforesaid may properly' be taken to signify,ordinarily, a collection of sheets of paper bound together with the intentionthat such binding shall be permanent and the papers used collectively in onevolume. It is easier however to say what is not a book for the purposes of S.34, and I have no hesitation in holding that unbound sheets of paper inwhatever quantity, though filled up with one continuous account, are not a HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni book of account within the purview of S. 34." We must observe that the aforesaid approach is in accord with goodreasoning and we are in full agreement with it. Applying the above tests itmust be held that the two spiral note books (MR 68/91 and 71/91) and thetwo spiral pads (MR 69/91 and MR 70/91) are "books" within themeaning of Section 34, but not the loose sheets of papers contained in thetwo files (MR 72/91 and MR 73/91). HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni book of account within the purview of S. 34." We must observe that the aforesaid approach is in accord with goodreasoning and we are in full agreement with it. Applying the above tests itmust be held that the two spiral note books (MR 68/91 and 71/91) and thetwo spiral pads (MR 69/91 and MR 70/91) are "books" within themeaning of Section 34, but not the loose sheets of papers contained in thetwo files (MR 72/91 and MR 73/91). 24.It cannot be gainsaid that the words 'account', 'books of account','business' and 'regularly kept' appearing in Section 34are of generalimport. necessarily, therefore, such words must receive a generalconstruction unless there is something in the Act itself, such as the subjectmatter with which the Act is dealing, or the context in which the words areused, to show the intention of the legislature that they must be given arestrictive meaning. 25.Indubitably, the Act lays down the rules of evidence to be appliedand followed in all judicial proceedings in or before any Court includingsome Courts - martial. Keep in view the purpose for which the Act wasbrought into the statute book and its sweep, the words appearing inSection 34have got to be given their ordinary, natural and grammaticalmeaning, more so, when neither the context nor any principle ofconstruction requires their restrictive meaning. While on this point wemay refer to Section 209 of the Companies Act, 1956 which expresslylays down what 'books of account' to be maintained thereunder mustcontain and, therefore, the general meaning of the above words under theAct may not be applicable there. 26.In Mukundram (supra) after dealing with the word 'book' (to whichwe have earlier referred) the Court proceeded to consider what is meantby a 'book of account' under Section 34and stated as under: " To account is to reckon, and I an unable to conceive any accounting whichdoes not involve either addition or subtraction or both of these operations ofarithmetic. A book which contains successive entries of items may be agood memorandum book; but until those entries are totalled or balanced, orboth, as the case may be, there is no reckoning and no account. In themaking of totals and striking of balances from time to time lies the chiefsafeguard under which books of account have been distinguished from otherprivate records as capable of containing substantive evidence on whichreliance may be placed." (emphasis supplied) We have no hesitation in adopting the reasoning adumbrated in theabove observations. The underlined portion of the above passage supportsthe contention of Mr. Altaf Ahmed and rebuts that of mr. Sibal that Mr71/91 is only a memorandum for the entries made therein are totalled andbalanced. We are, therefore, of the opinion that MR71/91 is a 'book ofaccount' as it records monetary transactions duly reckoned. 27.Coming now to the word ' business' , we need not search for itsmeaning in Black's Law Dictionary, or words and Phrases for this Court HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni (emphasis supplied) We have no hesitation in adopting the reasoning adumbrated in theabove observations. The underlined portion of the above passage supportsthe contention of Mr. Altaf Ahmed and rebuts that of mr. Sibal that Mr71/91 is only a memorandum for the entries made therein are totalled andbalanced. We are, therefore, of the opinion that MR71/91 is a 'book ofaccount' as it records monetary transactions duly reckoned. 27.Coming now to the word ' business' , we need not search for itsmeaning in Black's Law Dictionary, or words and Phrases for this Court HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni has dealt with the word in a number of cases. In Narain Swadesh WeavingMills vs. The Commissioner of Excess profits Tax [ 1955 (1) SCR 952], afive judge bench of this Court held that the word 'business' connotes somereal, substantial and systematic or organised course of activity or conductwith a set purpose' and the above interpretation was quoted with approvalin Mazagaon Dock Ltd. vs. The Commissioner of Income Tax and ExcessProfits Tax[1959 SCR 848]. Again in Barendra Prasad Ray vs. I.T.O.[1981 92) SCC 693] this court observed that the word 'business' is one ofwide import ad it means an activity carried on continuously andsystematically by a person by the application of his labour or skill with aview to earning an income. The activities of the Jain brothers, as sought tobe projected by the prosecution now on the basis of the materialscollected during investigation (detailed earlier) would, therefore, be'business' for they were being carried on continuously in an organisedmanner, with a set purpose (be it illegal) to augment their own resources.mr. 71/91 is, therefore, a book of account kept in the course of business. 34.The rationale behind admissibility of parties' books of account asevidence is that the regularity of habit, the difficulty of falsification andthe fair certainty of ultimate detection give them in a sufficient degree aprobability of trustworthiness (wigmore on evidence $ 1546). Since,however, an element of self interest and partisanship of the entrant tomake a person - behind whose back and without whose knowledge theentry is made - liable cannot be ruled out the additional safeguard ofinsistence upon other independent evidence to fasten him with suchliability, aha been provided for in Section 34by incorporating the wordssuch statements shall not alone be sufficient to charge any person withliability. 34.The rationale behind admissibility of parties' books of account asevidence is that the regularity of habit, the difficulty of falsification andthe fair certainty of ultimate detection give them in a sufficient degree aprobability of trustworthiness (wigmore on evidence $ 1546). Since,however, an element of self interest and partisanship of the entrant tomake a person - behind whose back and without whose knowledge theentry is made - liable cannot be ruled out the additional safeguard ofinsistence upon other independent evidence to fasten him with suchliability, aha been provided for in Section 34by incorporating the wordssuch statements shall not alone be sufficient to charge any person withliability. 37.In Beni Vs. Bisan Dayal [ A. I. R 1925 Nagpur 445] it wasobserved tat entries in book s of account are not by themselves sufficientto charge any person with liability, the reason being that a man cannot beallowed to make evidence for himself by what he chooses to write in hisown books behind the back of the parties. There must be independentevidence of the transaction to which the entries relate an din absence ofsuch evidence no relief can be given to the party who relies upon suchentries to support his claim against another. In Hira Lal Vs. Ram Rakha[ A. I. R. 1953 Pepsu 113] the High Court, while negativing a contentionthat it having been proved that the books of account were regularly kept inthe ordinary course of business and that, therefore, all entries thereinshould be considered to be relevant and to have been prove, said that therule as laid down in Section 34 of the Act that entries in the books ofaccount regularly kept in the course of business re relevant whenever theyrefer to a matter in which the court has to enquire was subject to thesalient proviso that such entries shall not alone be sufficient evidence tocharge any person with liability. It is not, therefore, enough merely toprove that the books have been regularly kept in the course of businessand the entries therein are correct. It is further incumbent upon the personrelying upon those entries to prove that the were in accordance with facts. 39.A conspectus of the above decisions makes it evident that evencorrect and authentic entries in books of account cannot without HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni independent evidence of their trustworthiness, fix a liability upon aperson. Keeping in view the above principles, even if we proceed on theassumption that the entries made in MR 71/91 are correct and the entriesin the other books and loose sheets which we have already found to be notadmissible in evidence under Section 34) are admissible under Section 9of the Act to support an inference about the formers' correctness still thoseentries would not be sufficient to charge Shri Advani and Shri Shukla withthe accusations levelled against them for there is not an iota ofindependent evidence in support thereof. In that view of the matter weneed not discuss, deleve into or decide upon the contention raised by Mr.Altaf Ahmed in this regard. Suffice it to say that the statements of the forwitnesses, who have admitted receipts of the payments as shown againstthem in MR 71/91, can at best be proof of reliability of the entries so farthey are concerned and not others. In other words, the statements of theabove witnesses cannot be independent evidence under Section 34asagainst the above two respondents. So far as Shri Advani is concernedSection 34 would not come in aid of the prosecution for another reasonalso. According to the prosecution case itself his name finds place only inone of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, inview of our earlier discussion, section 34cannot at all be pressed intoservice against him.” 6.The Tribunal has considered the aforesaidjudgment while dismissing the appeal of the Revenue.The Apex Court in the case of Common Cause (ARegistered Society) Versus Union of Indiareported in [2017] 77 taxmann.com 245 (SC) 22, 24 and 27 has held as under:- 22.In case of Sahara, in addition we have theadjudication by the Income Tax Settlement Commission.The order has been placed on record along withI.A.No.4. The Settlement Commission has observed thatthe scrutiny of entries on loose papers, computer prints,hard disk, pen drives etc. have revealed that thetransactions noted on documents were not genuine andhave no evidentiary value and that details in these loosepapers, computer print outs, hard disk and pen drive etc.do not comply with the requirement of the IndianEvidence Act and are not admissible evidence. It further HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni observed that the department has no evidence to provethat entries in these loose papers and electronic datawere kept regularly during the course of business of theconcerned business house and the fact that these entrieswere fabricated, non-genuine was proved. It held as wellthat the PCIT/DR have not been able to show andsubstantiate the nature and source of receipts as well asnature and reason of payments and have failed to proveevidentiary value of loose papers and electronicdocuments within the legal parameters. The Commissionhas also observed that Department has not been able tomake out a clear case of taxing such income in thehands of the applicant firm on the basis of thesedocuments. 24. Since it is not disputed that for entries relied on inthese loose papers and electronic data were notregularly kept during course of business, such entrieswere discussed in the order dated 11.11.2016 passed inSahara's case by the Settlement Commission and thedocuments have not been relied upon by theCommission against assessee, and thus suchdocuments have no evidentiary value against thirdparties. On the basis of the materials which have beenplaced on record, we are of the considered opinion thatno case is made out to direct investigation against any ofthe persons named in the Birla's documents or in thedocuments A-8, A-9 and A- 10 etc. of Sahara. 27. Considering the aforesaid principles which have beenlaid down, we are of the opinion that the materials inquestion are not good enough to constitute offences todirect the registration of F.I.R. and investigation therein.The materials should qualify the test as per the aforesaiddecision. The complaint should not be improbable and pp/ HIGH COURT OF MADHYA PRADESH : BENCH AT INDOREI.T.A. No.53 of 2017-The Principal Commissioner of Income TaxI Vs. Shri Pukhraj Soni must show sufficient ground and commission of offenceon the basis of which registration of a case can beordered. The materials in question are not only irrelevantbut are also legally inadmissible under Section 34 of theEvidence Act, more so with respect to third parties andconsidering the explanation which have been made bythe Birla Group and Sahara Group, we are of the opinionthat it would not be legally justified, safe, just and properto direct investigation, keeping in view principles laiddown in the cases of Bhajan Lal and V.C. Shukla (supra). 7.The Apex Court has taken into account in similarcircumstances the incriminating materials in form ofrandom sheets, loose papers, computer prints, harddisk and pen drive etc. and has held that they areinadmissible in evidence, as they are in the form ofloose papers. 8.In the present case also entries found duringsearch and seizure which are on loose papers are beingmade the basis to add income of this respondent. 7.The Apex Court has taken into account in similarcircumstances the incriminating materials in form ofrandom sheets, loose papers, computer prints, harddisk and pen drive etc. and has held that they areinadmissible in evidence, as they are in the form ofloose papers. 8.In the present case also entries found duringsearch and seizure which are on loose papers are beingmade the basis to add income of this respondent. 9.Resultantly, in light of the Supreme Courtjudgments, referred above, no case for interference ismade out with the order passed by the Tribunal.Moreover no substantial question of law arises in thepresent appeal, the appeal is dismissed. (S. C. Sharma)Judge (Virender Singh) Judge