Equivalent citations: 1985 152 ITR 507 Delhi

Author: Kapur
Bench: D Kapur, D Wadhwa

1. The following question was directed by this court to be referred to this court as per order passed in I.T.C No. 5 of 1973, dated 18th October, 1973:

"Whether, on the facts and in the circumstances of the case, the finding of the Tribunal that the amount of Rs. 16,551 represented the assessed's income from undisclosed sources is based upon any evidence?"

2. The facts of the case as set out in the statement of case submitted to this court can now be summarised. The assessment year was 1967-68 and the relevant previous year ended on 31st March, 1967. The assessed had supplied goods to M/s. Hind Electric Stores, Chandni Chowk, Delhi, as per Bill No. 1458, dated 6th February, 1967. These goods, were worth Rs. 16,551.09. According to the assessed, this amount was received in cash as follows:

Rs. (1) On 23rd February, 1967 10,000.00 (2) On 14th March, 1967 3,000.00 (3) On 22nd March,1967 3,551.09

3. However, the account books of M/s. Hind Electric Stores showed that the payment of the bill was made by cheque No. 11090 C.B. drawn on Central Bank of India on 27th July, 1967, and this cheque was encashed on that every day, i.e., 27th July, 1967. Thus, the discrepancy had to be explained.

4. The ITO examined Shri Sunder Lal, a partner of M/s. Hind Electric Stores, who insisted that the payment was made on 27th July, 1967 and not on the dates mentioned by the assessed. It was also stated that cash payment had been recorded on the bill in question by Shri Brij Mohan, a brother of Shri M. M. Gupta, partner of the assessed-firm. According to Shri Sardari Lal, accountant of M/s. Hind Electric Stores, payment was made by cheque which was a bearer cheque, it was got encashed by himself for the assessed.

5. The ITO concluded that the statement in M/s. Hind Electric Stores' books was correct and the assessed had introduced its own cash on the three dates which was, therefore, income from undisclosed sources.

6. The AAC rejected the appeal and the Tribunal also affirmed the ITO's decision. The facts relied upon by the Tribunal were that the bearer cheque was got encashed by Shri Sardari in July, 1967, the signature on the bill by Shri Brij Mohan, and the failure of the assessed to cross-examine Shri Sunder Lal and Shri Sardari Lal.

7. The Tribunal rejected the application under s. 256(1) of the I.T. Act, 1961, but per order dated 18th October, 1973, this court directed a reference in I.T.C. No. 5 of 1973. Though this is not part of the statement of case, it is necessary to quote from the High Court judgment, where it is stated as follows:

"We do not wish to express our opinion at this stage whether these contentions of the assessed are borne out from the records. But if, as is alleged by the assessed, it was not given an opportunity of cross-examining Sardari Lal, then the statement of Sardari Lal could not be acted upon by the Tribunal and if the finding of the Tribunal is based upon Sardari Lal's statement, it would be a finding which is not based upon any evidence. Similarly, if the assessed's contention that the endorsement by Shri Brij Mohan on the bill was undated is correct, then the finding of the Tribunal based upon the assumption that Shri Brij Mohan had acknowledged the receipt of the amounts on July 27, 1967, would be a finding which is not based upon any evidence. Whether the finding of the Tribunal is based upon any evidence is a question of law."

8. This then is the basis on which this court directed the Tribunal to refer the question. Learned counsel for the assessed had pointed out various documents filed on the record which include the accounts of the assessed in relation to M/s. Hind Electric Stores. This account shows that there were six bills issued buy the assessed in respect of supplies made to M/s. Sona Electric Company during the period 4th January to March 28, 1967. In the following assessment year, there seems to be several other transactions. The manner of settlement of the account is indicated from the bills. The bill dated 11th January was settled by a cheque payment on 12th January. The bill dated 13th January is for a trivial amount. The bill dated February 6, 1967, amounting to Rs. 16,551.09 was settled by cash payment in February and March. The bills dated 24th and 28th March were settled by a cheque payment on 14th April. The bill dated 6th June was settled by a cheque dated 8th June. The bill of 27th June was settled on 28th June. Bills of July 27, 1967, and 1st August were settled by cash payment on 1st August and 14th September 1967. The bill of 25th September was settled on 27th September and the bill of February 10, 1968, was settled by cash payments partly on the same date and partly on February 7, 1967. It does not appear that there was much delay payment of bills.

9. If M/s. Hind Electric Stores are correct, then the payment was received almost five months later by a bearer cheque and this payment was made in July, 1967, when there was another bill of 27th July for Rs. 9,475.30, according to the assessed's account books. There is thus a difference between the assessed's books and those of M/s. Sona Electric Company.

10. It was open to the ITO and the Department to accept one set of books as correct and not the other, but it seems unusual for the assessed to record payment in February and March for an amount of Rs. 16,551.09, When in fact that amount was paid in July. An entry in the books in favor of a creditor is an acknowledgment of payment which would not readily be made by an unpaid creditor. However, we are not to see the correctness or otherwise of the decision by the income-tax authorities considered from the factual point of view. The only question we have to decide is whether there is evidence in support of the Tribunal's finding.

11. It has been contended before us that the finding is based on no evidence for three reasons.Firstly, the Tribunal has relied on the bearer cheque issued by M/s. Hind Electric Stores which was got encashed by Shri Sardari Lal, the accountant of M/s. Hind Electric Stores. It is submitted that this is no evidence in law. The fact that the cheque was encashed by Shri Sardari Lal, the accountant of M/s. Hind Electric Stores, and not by the assessed shows that this circumstance is of no avail.

Secondly, the Tribunal has relied on the statement made by Shri Sunder Lal, one of the partner of M/s. Hind Electric Stores stating that the payment in cash was acknowledged by Shri Brij Mohan. This bill and the acknowledgment recorded thereon is unfortunately not on the record, but the statement of Shri Sunder Lal shows that the only words written were "received cash" and no date appears under this as per record before us; nor is there any mention of any date in any orders passed by the income-tax authorities. This acknowledgment is of no avail for establishing that the payment was in fact made in July and no in February and March as recorded in the assessed's books. Admittedly, the payment was made in cash. The only difference between the parties is regarding the date of the payment. we agree that the absence of a date on the writing makes all the difference. The Tribunal noted as follows :

"There is absolutely no explanation whatsoever as to why Brij Mohan should have signed the bill in token of the payment, if the payments were already received by the assessed five months earlier."

12. This shows that the Tribunal was under the impression that the signature and acknowledgment were written five months after the payment. This fact is certainly not borne out by the writing and shows that the Tribunal has acted without evidence.

13. Then, there is, finally, the third question which requires to be examined. the statement of Shri Sardari Lal was recorded on 23rd August, 1969, in the absence of the assessed. On that date, a letter had been submitted on behalf of the assessed to state that the grandmother of Shri Madan Mohan Gupta, managing partner of the assessed, had died and some other date after a fortnight should be fixed. It seems that the ITO recorded the statement in the absence of the assessed thus excluding cross-examination by the assessed. This shows that the statement of Shri Sardari Lal has to excluded from consideration. Significantly, one of the questions put to Shri Sardari Lal by the ITO was as to what was the explanation for all other payments being made either by an account payee cheque or against receipted vouchers and even against a bearer cheque, a signature had been taken on the counterfoil. The witness was unable to explain why the assessed had been treated differently.

14. If the so-called receipt signed by Shri Brij Mohan and the statement of shri Sardari Lal as well as the cheque dated 27th July, 1967, are excluded from consideration, we would be left with a case with no evidence.

15. Learned counsel for the assessed relied on numerous judgments concerning question whether a case is one of no evidence or evidence, but we think that we need not elaborate this point as we feel that if the evidence just mentioned above is excluded, then nothing would be left to show that the entry in the books of the assessed is wrong.

16. Significantly, it may be mentioned that it is equally possible to make the view that the entry of M/s. Hind Electric Stores is wrong because they could have made the payment for February and March from undisclosed sources and then issued a cheque in the name of the assessed and encashed it themselves to make a later entry. However, a decision either way would be based on conjectures and surmises and this would not be proper.

17. Learned counsel for the Department urged that this was a case to which s. 68 of the I.T. Act, 1961, appealed, and a presumption should be drawn against the assessed for not proving the correctness of the entry in the books of account. We think that the section makes it clear that the entry can be rejected if the explanation offered by the assessed can be rejected by the ITO on cogent grounds. When such grounds are themselves based on no evidence, the question of presumption does not arise. In the case of an admitted supply of goods against which admitted payment has been made, the only question for consideration is whether the payment was actually made later than what was shown in the books of account, and as this cannot be established, the case would be one based on no evidence and thus we have to answer the question referred to us in the negative to hold that the finding was not based on evidence. Parties are left to bear their own costs.


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