M/S. JYOTI WIRE INDUSTRIES LTD. vs. THE C.I.T.CENTRAL-II.

SNC 1 ITR 38-97.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.38 OF 1997 M/s. Jyoti Wire Industries Ltd. ...Applicant. Vs. Commissioner of Income Tax, Central - II, Bombay. ...Respondent. Dr. K. Shivaram, senior counsel with Mr. Paras Savla for the Applicant. Mr. Suresh Kumar for the Respondent. CORAM : S.J.VAZIFDAR & M.S. SANKLECHA, JJ.

DATE : 25th September, 2012 JUDGMENT . (Per M.S. Sanklecha, J.) This is a Reference under Section 256(1) of the Income Tax Act, 1961(the Act) at the instance of the applicant-assessee for the Assessment Year 1989-90. This reference arises out of an Order dated 18.10.1993 of CNR No : HCBM020049421995 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 2 ITR 38-97.doc the Income Tax Appellate Tribunal (the Tribunal) in ITA No.1273/B/93 relating to assessment year 1989-90. 2 The following question has been referred by the Tribunal for the opinion of this Court: Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in upholding a part of the addition made to the assessee’s income amounting to Rs.7,00,000/-? 3 The brief facts relating to the case are as under: (a) The applicant-assessee had constructed industrial galas at Jyoti Wire House, Andheri, Mumbai. The applicant-assessee had sold six galas in the assessment year 1989-90 and seven galas in the assessment year 1990-91. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 3 ITR 38-97.doc (b) On 24.01.1990 the premises of the applicant- assessee were searched by the respondent-revenue. At that time the applicant-assessee had disclosed that it had received ’on money’ of Rs.348/-per square feet on the sale of gala during the assessment year 1990-91. Thus the total consideration received was Rs.1119/- per square feet comprising of Rs.771/- per square feet (declared) and Rs.348/- per square feet (‘on money’). (c) In view of the above confession of receipt of on money for sale of galas during the assessment year 1990-91, the respondent-revenue took the view the above practice of receiving ‘on money’ would also have been in existence even in the earlier assessment year i.e. assessment year 1989-90. Therefore the Assessing Officer added an amount of Rs.22,75,224/- as amount of ‘on money’ being attributable to sale of six galas admeasuring in the aggregate 6538 sq. ft. during the assessment year 1989-90. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 4 ITR 38-97.doc (d) In appeal, the Commissioner of Income Tax(Appeal) by his order dated 24.12.1992 upheld the order of the Assessing Officer dated 31.03.1992. The Commissioner of Income Tax (Appeals) after having held that no incriminating documents were found pertaining to the assessment year 1989-90 upheld the addition of Rs. 22,75,224/-( Rs.348/- per sq. ft.) as ‘on money’ for sale of galas. This was on the basis of his finding that the price disclosed for sale of galas during the assessment year 1989-90 was Rs.575/- per sq. ft. while during the assessment year 1990-91, the consideration received by the assessee was Rs.1119/- per sq. ft. i.e. almost 100% appreciation in price of industrial galas within a period of few months which was not believable. Consequently, the difference in prices is explainable only if the ‘on money’ of Rs.348 per square feet is added to the declared consideration for sale of galas in the assessment year 1989-90. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 5 ITR 38-97.doc (e) In second appeal, the Tribunal by its order dated 18.10.1993 partly allowed the appeal of the applicant- assessee by giving the following finding: “19. We have considered the matter carefully. As regards the facts, there is no dispute that the assessee declared the receipt of on money of Rs.348/- per sq. ft. in the assessment year 1990-91 i.e. the actual sale coming to at Rs.1111/- per sq. ft. as against Rs.763/- declared by them. There is also equally no dispute that this declaration of the receipt of the ‘on money’ by the assessee came only as a equal to the search proceedings. Similarly there is no quarrel that no independent material or evidence existed or brought on record by the department to prove that ‘on money’ was received by the assessee during the current year too. As is evident from the order impugned before us in the opinion of the learned Commissioner since the assessee had already confessed having received ‘on money’ during the accounting period relevant to the assessment year 1990-91, it automatically follows that he had received on money on sale of gala during the accounting period relevant to assessment year 1989-90 also. We are, afraid, we cannot totally subscribe ton o this rule of automation. A person who may be found to be dishonest on the 25th of a particular month cannot necessarily be said to be equally dishonest say on the 20th of that every month and vice versa. The details of the persons to Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 6 ITR 38-97.doc whom the industrial units were sold by the assessee during the year under consideration were undeniably available and that being so a minimum enquiry was called for to reach any conclusion in which the Assessing Officer had failed as an investigator in collection and collating the details, not even comparable cost of sales of similar construction of contemporary period. However, we also find some force in the submissions made by the learned departmental representative that the receipt of ‘on money’ had neatly become a sort of condition precedent for the completion of property transaction in the urban areas, more particularly mega and metropolitan cities. Even that being so it could at best burden the assessee only with an adhoc addition rather than an addition on the same scale as was confessed by them during the assessment year 1990-91. If it is the question of taking a judicial notice, we may not express much hesitation on saying that in case where search action is taken, the assessee fell scared and with a view to maintain harmonious celation with the department sometimes react over-enthusiastically, whether or not the Departmental officers make any attempt of oversmarting them. It is in this peculiar background of the case and taking into consideration that not an iota of material existed on record about the receipt of ‘on money’ by the assessee during the current year that we make an adhoc addition which we estimate at Rs.7 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 7 ITR 38-97.doc lakhs.” 4 Dr. Shivram, the learned counsel, in support of the appeal submits as under : (a) The ad-hoc addition of Rs.7,00,000/- by the Tribunal is arbitrary. This is so as the above figure is arrived at without any reasons. Consequently, the same is perverse and not sustainable in law; (b) The Tribunal, after having negatived the finding of the Assessing Officer and the Commissioner of Income- tax(Appeals) on the ground that merely because a person has been “…. found to dishonest on 25th of a particular month cannot necessarily be said to be equally dishonest say on the 20th of that very month and vice- versa” could not have made an ad-hoc addition of Rs.7,00,000/-; and (c) The addition of ad-hoc amount of Rs.7,00,000/- by the Tribunal is merely on the basis of suspicion without any evidence in respect of assessment year 1989-90. 5 As against the above, Mr. Suresh Kumar, the learned counsel appearing on behalf of the respondent-revenue Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 8 ITR 38-97.doc submits as under: (a) The Tribunal has reached a finding of fact and added an amount of Rs.7,00,000/- to the income declared by the applicant-assessee. This finding of fact does not raise any question of law and, therefore, should not be disturbed. (b) In matters such as these, it is impossible to have evidence establishing the fact that the applicant-assessee received `on money' beyond reasonable doubt. The evidence available for the assessment year 1990-91 would certainly indicate the normal conduct of the applicant-assessee and has justifiably been applied to an earlier assessment year 1989-90, and (c) From a reading of the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals), it would be clear that the addition made by them was correct in law. 6 We have considered the submissions. The respondent-Revenue has accepted the order of the Tribunal and has not preferred any application seeking to raise a question of law to the effect that the orders of the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 9 ITR 38-97.doc Assessing Officer and the Commissioner of Income-tax (Appeals) were correct in law and that the Tribunal ought not to have disturbed their findings. Therefore, the only question framed for our opinion is in the context of the Tribunal adding an ad-hoc amount of Rs.7,00,000/-. In the circumstances, the reliance upon the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals) by the respondent is of no avail. In other words, we are not called upon to consider the correctness of the orders of the Assessing Officer and the Commissioner of Income-tax (Appeals). 7 The issue raised by the respondent's counsel viz. that the finding of fact by the Tribunal should not be disturbed, is also not sustainable for the reasons that the Tribunal was conscious of the same while submitting the question of law under section 256(1) of the Act to the High Court for it's opinion. 8 On merits, it is clear that the Tribunal has reached a finding of fact that there is no material evidence on record for the assessment year 1989-90 to establish that any `on money' was received by the applicant-assessee during the year 1989-90. Further, the Tribunal has, in terms, rejected the finding of the lower authorities that Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 10 ITR 38-97.doc merely because the applicant-assessee had received `on money' during the assessment year 1990-91, it follows that the applicant-assessee had also received `on money' for the assessment year 1989-90. The Tribunal, after having reached the aforesaid finding, without giving any reasons whatsoever, has arbitrarily concluded that an ad- hoc addition of Rs.7,00,000/- has to be made on the basis of an estimate. The conclusion is bereft of any reasons whatsoever. Therefore, the conclusion arrived at by the Tribunal is clearly without supporting reasons. A sine qua non for a judicial order by the Tribunal is a reasoned order. A reasoned order would imply examination of the evidence placed before the authority and some nexus between the evidence and the conclusion reached. In this case, the Tribunal holds that there is no evidence and it seeks to add Rs.7,00,000/- on an ad-hoc basis to the income declared by the applicant-assessee. However, suspicion by itself is not enough to reach the conclusion that `on money' was received by the applicant-assessee for the assessment year 1989-90. The Tribunal has not approved the reasoning adopted by the Assessing Officer or the Commissioner of Income-tax (Appeals). Had that been so, it may have been another matter with which we are not concerned in this Reference. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:55:21

SNC 11 ITR 38-97.doc 9 In view of the above, in the peculiar facts and circumstances of the case, we answer the question framed for our opinion in the negative i.e. in favour of the applicant-assessee and against the respondent-Revenue. 10 The Reference is, accordingly, disposed of. There shall, however, be no order as to costs. (M. S. SANKLECHA, J. ) (S. J. VAZIFDAR, J.)

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