I.T.O. vs. BHARAT A. MEHTA

Since all the appeals arising out of common substantial question of law, they are heard together and disposed of by this common judgment.

As all the appeals involve same and identical facts and law except to the extent of the amount and assessment year, they are decided together by taking into consideration facts of Tax Appeal No.429 of 2000 as base in the matters.

The appellant – Revenue, being aggrieved by the order dated 17.05.2000 passed by the Income Tax Appellate Tribunal in I.T.A. No.1683/Ahd/1999, order dated 01.03.2001 passed in I.T.A. No.832/Ahd/2000 and order dated 01.06.2001 passed in I.T.A. No.833/Ahd/2000 for the A.Y. 1992-1993, has preferred the present appeals under Section 260A of the Income Tax Act, 1961 (for short, the ‘Act’) proposing the following common question of law, as formulated in Tax Appeal No.429 of 2000, for determination of this Court in all the three appeals, which reads as under:- “Whether the Appellate Tribunal is right in law and on facts in deleting the addition of Rs.5,22,500/- made u/s.69 of the Act for payment of “on money” to the builders for acquisition of bunglow?”

The brief facts leading to present appeals can be summarized thus:-

On 27.03.1992, a search was carried out under Section 132 of the Act at the residential premises of Shri Dilipkumar Damodardas Desai and Shri Bharatbhai S. Desai. Both the said persons were partners in M/s.Desai Brothers and Mahadevia Associates, engaged in development of bunglows under the Scheme ‘Tulip-I and Tulip II’ near Doordarshan, Ahmedabad. Simultaneously, the premises of the said firm were surveyed under Section 133A of the Act. During the proceedings, the said two persons admitted to have received ‘on money’ while selling bunglow in the said ‘Tulip’ Scheme and they categorically stated that 60% of consideration was received by cheque and 40% in cash. Accordingly, they have disclosed Rs.150 lacs on account of ‘on money’ received and not recorded in the books of accounts. In light of the said material, the Assessing Officer drew inference that the respective respondents paid specific sum as ‘on money’. In the case of Assessee of Tax Appeal No.429 of 2000, the cost of the bunglow sold to the Assessee (inclusive of ‘on money’) was taken by the Assessing Officer at Rs.11,35,000/-. Whereas, the respondent – Assessee denied that he has paid anything over and above Rs.6,12,500/- to the builder and, therefore, hotly contested the notice issued under Section 148 of the Act and the respondent – Assessee filed revised return of income declaring the same income as was disclosed in the original return. At the end, the Assessing Officer came to the conclusion that the amount of Rs.5,22,500/- being unexplained investment made by the respondent – Assessee for acquiring the bunglow in ‘Tulip-II’ Scheme, the said amount was added as the Assessee’s income under Section 69 of the Act.

On appeal before the Commissioner of Income Tax (Appeals-II), Ahmedabad, the Commissioner of Income Tax dismissed the appeals preferred by the respondent – Assessee and, therefore, the respondent – Assessee preferred the above appeals before the Tribunal.

As can be seen from the order of the Tribunal while allowing the appeal preferred by the respondent of Tax Appeal No.429 of 2000, the Tribunal found that addition of ‘on money’ in case of appellant – Assessee was unjustified in the following manner:- “7. We have careful through to the rival submissions of the parties. In consequence to the search, Desai Brothers and their associate concern through their partners clearly admitted that they received on money on sale of bungalow on project Tulip-I and Tulip-II. These concerns also surrendered Rs.1.50 crores on account of on money as concealed income. Thus, as far as Desai Brothers are concerned, their own admission corroborated by disclosure made by them fully binds them, and therefore, there can be no challenge to the assessment of on money in their hands. However, the question involved, in the present appeal, is as to what extent the statement/admission of Desai Brothers and their disclosure binds the assessee or can be used to justify assesment of on money in the hands of the assessee.

It is now well settled principle of natural justice that any material which is to be used to against the assessee for purposes of assessment is to be put to the assessee and he is also to be allowed an opportunity to rebut the same. Use of any material or information without notice to the asessee is prohibited and any illegal use of material vitiates the whole assessment and renders it void. There are catena of authorities supporting the above proposition. We may usefully quote the following obserations of the Hon’ble Supreme Court in the case of Kishanchand Chellaram V/s. CIT 125 ITR 713 at 714 (head notes):- “Held, reversing the decision of the High Court, (i) on the facts, that the two letters dated February 18, 1995 and March 9, 1957, did not constitute any material evidence which the Tribunal could take into account for the purpose of arriving at the finding that the sum of Rs.1,07,350/- was remitted by the assessee from Madras, and if these two letters were eliminated, there was no material evidence at all which could support its finding, the statements of the manager in those two letters were based on heresay, as, in the absence of evidence,it could not be taken that he must have been in charge of the Madras Office on October 16, 1946, so as to have personal knowledge. The department and papers on the basis of which he made the statements and confronted the assessee with those documents and papers. It was true that proceedings under the Income- Tax law were not governed that even without calling the manager of the bank in evidence to prove the letter dated February 19, 1955, it could be taken into account as evidence. But before the Income-tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross- examine that manager of the bank with reference to the statements made by him. Nor was there any explanation regarding what happened when the manager appeared in obedience to the summons referred to in the letter dated March 9, 1957, and what statement he had made.”

The Assessing Officer being fully aware of above principles and not rely on the admission made by Desai Brothers during the course of search in their premises or thereafter as also on the material subsequently collected in their assessment under the Income-tax Act bur tried to meet the requirement of law. He summoned Desai Brothers and recorded their statement in presence of the assessee/his representative and allowed an opportunity to cross examine them to bring the assessee. We have already referred to statement of Desai Brothers dated 07.10.1998 and extracted questions and answers given by them in the examination, cross examination and the re-examination. In the said cross-examination, Desai Brothers clearly admitted that value of bungalow sold to the assessee was agreed to be sold at Rs.6,12,000/- as per allotment letter dated 27.05.1993. It is further admitted that possession of the building was delivered to the assessee on receipt of Rs.6 lacs. Desai Brothers also admitted receipt of payment of Rs.12,000/- besides Rs.6 lacs as part of sale consideration. The answer to question No.6 is as under:- “It is true that no additional amount has been paid (underlined by us to emphasis). The Assessing Officer with a view to establish his case carried out further examination of the witness which technically speaking under the Evidence Act was “re-examination”. The re-examination should normally have been followed by further cross examination by the assessee but it appears that no such further cross-examination was carried, it not being clear whether assessee’s representative insisted for such cross-examination or not. At any rate, in the re-examination, the witnesses did not state that they received any on money from the assessee for sale of bungalow. The statement further established firstly that as per allotment letter dated 27.05.1993 and other documentary evidence, the assessee had shown to have paid only Rs.6 lacs and Rs.12,000/- for acquiring the bungalow, Secondly, inspite of search, the revenue Authorities could not lay hand on any document which could show that the assessee had paid on money. Thirdly, the Assessing officer could not extract from the witness that assessee had paid on money inspite of concealed threat in question No.4 of the re-examination. The position that emerges is that witnesses when they were examined in presence of the assessee (as required by tune of natural justice) did not say that the assessee paid any on money but on the contrary, stated in reply to question No.4 referred to and quoted above on money other than Rs.6,12,000/- was paid to them.”

Learned advocate Mrs.Mauna Bhatt appearing for the appellant – Revenue contended that the order of the Tribunal is based on findings which are perverse in nature and, therefore, interference under Section 260A of the Act is required in the present proceedings. According to her, the Tribunal has erred in deleting the addition of Rs.5,22,500/- made under Section 69 of the Act for payment of ‘on money’ to the builders for acquisition of bungalow. After referring to the findings of fact recorded in para 7 of the order of the Tribunal and also after drawing our attention to the findings of fact recorded by the Assessing Officer in para 11 of the assessment order, it has been contended that the said builders have disclosed unaccounted income of Rs.150 lacs and they have also disclosed that they have received 60% of consideration by cheque and 40% in cash as ‘on money’ towards the cost of bunglow in ‘Tulip-I and Tulip-II’ Scheme. After relying upon the further examination of Shri Dilipkumar at the hand of Assessing Officer, it was found that the builders were not in a position to say whether any ‘on money’ has been received from the Assessee in absence of any account maintained by them member-vise. According to her, the Tribunal has not considered further examination of the builder which was undertaken by the Assessing Officer after cross-examination of the said witness at the hand of respondent – Assessee. In support of her submissions, learned advocate Mrs.Bhatt relied upon the decision rendered in the case of M. Janardhana Rao V/s. Joint Commissioner of Income-Tax reported in 273 ITR 50 wherein, it is held that the tests for determining whether a substantial question of law is involved in an appeal are: (i) Whether directly or indirectly it affects substantial rights of the parties, or (ii) the question is of general public importance, or (iii) whether it is an open question in the sense that the issue is not settled by a pronouncement of the Supreme Court or the Privy Council or by the Federal Court, or (iv) the issue is not free from difficulty, or (v) it calls for a discussion for alternative view.”

Lastly, learned advocate Mrs.Bhatt relied upon the decision rendered in the case of Bhanuvijaysingh M. Vaghela (Decd.) (through LRs.) V/s. Income Tax Officer reported in 353 ITR 146 so as to contend that in the impugned order passed by the Tribunal, the findings of fact arrived at are perverse in nature and, therefore, it would be a ground for interference with the impugned order in exercise of powers under Section 260A of the Act.

Per contra, learned advocate Mr.M.J. Shah appearing for learned advocate Mr.J.P. Shah for the respondent – Assessee in all the appeals supported the findings leading to deletion of addition under Section 69 of the Act on the basis of the statement and further cross-examination of said witness Mr.Desai, who did not support the claim that ‘on money’ was paid by the respondent – Assessee. According to him, there was no iota of evidence to show that any of the respondent- Assessee paid ‘on money’ and made unexplained investment and, therefore, considering the findings of facts recorded by the Tribunal, there is no question, much less substantial question of law, involved in the present group of appeals and, therefore, the same cannot be entertained in light of the decisions rendered in the case of (i) Commissioner of Income- Tax, Salem V/s. P.V. Kalyanasundaram reported in 294 ITR 49(SC); (ii) Additional Commissioner of Income-Tax, Bombay City-I V/s. Miss Lata Mangeshkar reported in 97 ITR 696 (Bom); (iii) Commissioner of Income-Tax V/s. M.K. Brothers reported in 163 ITR 249 (Guj) and; (iv) Krishna Textiles V/s. Commissioner of Income Tax reported in 310 ITR 227 (Guj.).

We have heard the submissions made at bar and examined the order passed by the Tribunal in all the three appeals and also minutely examined the principles laid-down in the case-laws cited at bar as well as the provisions contained in Sections 260A and 69 of the Act.

Sub-Section (1) of Section 260A provides for appeal against the order of Tribunal only on substantial question of law. Substantial means ‘having substance, important or essential’. To be a ‘substantial’, a question of law must be debatable, not previously settled by the law of land or a binding precedent. Therefore, the moot question involved in the present appeals is whether any ground or reason arises to interfere with the order of the Tribunal. On due consideration of the submissions made at bar, it would not be possible to uphold the contention of learned advocate Mrs.Bhatt appearing for the appellant – Revenue. The Tribunal gave elaborate reasonings to assail the order of the Commissioner of Income Tax (Appeals) and the Assessing Officer. Thus, the fact remains that the entire issue is based on factual aspects and the Tribunal by giving cogent reasons, came to the conclusion that addition of ‘on money’ in case of respondent – Assessee is unjustified and accordingly, directed the addition of ‘on money’ to be deleted. Learned advocate Mrs.Bhatt for the appellant – Revenue made a futile attempt to demonstrate before this Court that the findings of fact recorded by the Tribunal are perverse inasmuch as the Tribunal ought not to have overlooked further examination of witness – Mr.Desai undertaken by the Assessing Officer. In our opinion, this is nothing but an attempt to see that this Court undertakes an exercise to find out whether the Tribunal has committed any error in appreciating the evidence/facts while taking departure on the findings of fact recorded by the Assessing Officer. Needless to say that the first Appellate Court or the second Appellate Court are within their powers to find out whether the evidence led before the Assessing Officer was genuine and they are also empowered to examine the factual background of the issue with a view to examine whether the evidence led by the assessee was reliable, adjudicated properly. But, by virtue of specific language employed in Section 260A of the Act, this Court cannot undertake such exercise. In the background of the present case, under these circumstances, there does not exist any ground or reason to interfere with the order of the Tribunal as no question of law, much less any substantial question of law, arises for our consideration and no perversity in the conclusion arrived at which give rise to interfere with the impugned orders has been pointed out that any of the findings are perverse in its nature. Therefore, the findings of fact recorded by the Tribunal are based on appreciation of fact and the appeals deserve no further consideration, more particularly, in light of various case-laws cited at bar by learned advocate Mr.Shah for the respondent – Assessee on the scope of appeal under Section 260A of the Act.

Under the circumstances, the finding recorded by the Tribunal to the effect that the Revenue failed to prove that Assessee made undisclosed investment in the bungalows of ‘Tulip’ Scheme does not give rise to any substantial question of law. The finding regarding non-payment of ‘on money’ by the Assessee is a question of fact and no substantial question of law arises and consequently, the Tribunal’s order deleting addition to income under Section 69 of the Act does not raise any question of law where, the Tribunal did not find any material evidence to establish that the Assessee made investment over and above what was recorded in the return of income filed by the Asessee. Therefore, the case-laws cited at bar by learned advocate Mrs.Bhatt for the Revenue are not helpful to the Revenue in view of the peculiar facts of the present case.

Since identical facts exist in case of Assessee against whom, the Revenue has preferred Tax Appeal Nos.366 and 367 of 2001, no case is made out to interfere with the findings of fact recorded by the Tribunal in view of foregoing discussion.

In view of the above, no interference is called for in the present appeals and the same are hereby dismissed. (JAYANT PATEL, J.) (S.H.VORA, J.) Hitesh