Anaikar Trades And Estates (P.) Ltd. (No. 2) v. Commissioner Of Income-Tax.

Tax Case No. 113 of 1979 (Reference No. 63 of 1979)

Decided on February 23, 1990

The Judgment of the Court was delivered by

Ratnam, J.:— The assessee is a private limited company and had acquired certain properties in June, 1967. During the accounting year ending on July 31, 1973, in respect of the assessment year 1974-75, the assessee sold to thirteen parties different plots measuring in all about 15 grounds and 1,580 sq. ft. The value as shown in the documents of sale was Rs. 2,58,338. The Income-tax Officer was of the view that the sale value disclosed was rather low and made a reference to the Valuation Officer under section 55A of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), who estimated the market value of the properties sold at Rs. 4,17,000. On the basis of that valuation, the Income-tax Officer came to the conclusion that the fair market value of the transferred assets exceeded the consideration declared by the assessee by more than 15 per cent. and invoked the provisions of section 52(2) of the Act with the prior approval of the Inspecting Assistant Commissioner and fixed the value of the properties sold by the assessee at Rs. 4,17,000. The cost of acquisition of the properties sold by the assessee was determined at Rs. 9,000 per ground and on that footing, the cost of acquisition of the properties sold by the assessee was fixed at Rs. 1,40,934 and the difference of Rs. 2,76,066 was brought to tax as capital gains. On appeal by the assessee before the Appellate Assistant Commissioner, it was contended by the assessee that section 52(2) of the Act could not be invoked so long as it was not shown that more than the disclosed sale consideration had either accrued or could be deemed to have accrued or is shown to have been received and that the difference of Rs. 2,76,066 could not be treated as part of the assessable long-term capital gains. This contention was upheld by the Appellate Assistant Commissioner on the ground that it had not been established that anything more than the disclosed consideration had been received or could be deemed to have been received by the assessee and the circumstance that the value of the properties sold by the assessee had been fixed by the Departmental Valuation Officer under section 55A of the Act would not preclude the assessee from claiming relief on the footing that section 52(2) of the Act did not create any charge in respect of the difference. In the view so taken, the Appellate Assistant Commissioner directed the Income-tax Officer to rework the assessable capital gains taking the sale consideration at Rs. 2,58,338 as disclosed in the deeds of sale executed by the assessee. Against the order of the Appellate Assistant Commissioner, the Department preferred an appeal to the Tribunal urging that the Appellate Assistant Commissioner was in error in holding that the provisions of section 52(2) of the Act were not applicable. During the course of the hearing of the appeal, reliance was sought to be placed on behalf of the Revenue on certain affidavits given by five of the purchasers from the assessee to the effect that the sale of the plots was effected by the assessee at Rs. 22,000 per ground, though shown in the document at Rs. 16,500 per ground, and the difference was paid by the purchasers to the seller without bringing that into records. The affidavits further proceeded to state that the deponents had declared the difference amount paid by them in respect of the lands purchased under the Voluntary Disclosure of Income and Wealth Ordinance, 1975. This was objected to by the assessee on the ground that though these affidavits were available at the time of the assessment proceedings and also at the time of the consideration of the appeal by the Appellate Assistant Commissioner, the Revenue did not make use of that material and, therefore, the reliance on such affidavits should not be permitted. The Tribunal took the view that in order to decide the question of the applicability of section 52(2) of the Act which was the subject-matter of the appeal before it, it would be necessary in the interests of justice to consider these affidavits and in that view directed the restoration of the matter before the Appellate Assistant Commissioner, after setting aside his finding, with a further direction that he should afford a full and fair opportunity to both the assessee and the Income-tax Officer to make such submissions as may be considered relevant and also to examine the deponents and adduce other permissible evidence. That is how the following question of law, under section 256(1) of the Act, has been referred to this court for its opinion:

“Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in restoring to the Appellate Assistant Commissioner for decision afresh the point whether the provisions of section 52(2) of the Income-tax Act, 1961, were applicable or not after examination by him of the evidence in the form of affidavits dated September 13, 1976, referred to which was filed before the Tribunal by the Revenue for the first time after affording full opportunity both to the assessee and the Revenue?”

2. Learned counsel for the assessee strenuously contended that the affidavits relied on by the Revenue were available even at the initial stages of the proceedings and had not been produced and the mere circumstance that the affidavits are now filed to ascertain the applicability of section 52(2) of the Act is not sufficient to allow their admission at the stage of the appeal before the Tribunal.

3. Reliance in this connection was also placed upon the decision reported in Velji Deoraj and Co. v. CIT, [1968] 68 ITR 708 (Bom). On the other hand, learned counsel for the Revenue submitted that the appeal before the Tribunal involved a determination of the question of the applicability of section 52(2) of the Act to the assessee and that was the subject-matter of the appeal and the Tribunal, in accordance with the powers vested in it under rule 29 of the Income-tax (Appellate Tribunal) Rules, 1963 (hereinafter referred to as “the Rules”), exercising the discretion vested in it, properly, had felt that it would be necessary to consider the materials disclosed in the affidavits to ascertain the applicability of section 52(2) of the Act and had remitted the matter to the Appellate Assistant Commissioner for that purpose and, therefore, no exception could be taken to the order of the Tribunal. In support of the stand so taken, reliance was placed upon the decisions reported in CIT v. Indian Express (Madurai) Pvt. Ltd., [1983] 140 ITR 705 (Mad), R.S.S Shanmugam Pillai & Sons v. Commissioner Of Income-Tax, Madras, [1974] 95 ITR 109 (Mad) and CIT v. Kum. Satya Setia, [1983] 143 ITR 486 (MP).

4. It is not in dispute that five persons who had purchased lands from the assessee had, on September 13, 1976, sworn to affidavits to the effect that over and above the consideration recited in the sale deeds, additional consideration had been paid by them to the extent of Rs. 5,500 per ground. These affidavits had been filed by the five purchasers in the course of the proceedings under the Voluntary Disclosure of Income and Wealth Ordinance, 1975. No doubt, at the time when the assessment was completed on February 28, 1977, as well as the disposal of the appeal by the Appellate Assistant Commissioner on July 22, 1977, these affidavits were in the possession of the Department. Even so, presumably owing to lack of co-ordination between the two different sections of the Department, these affidavits were not placed before the Income-tax Officer at the time when the assessments were made or even by the time the appeal was decided by the Appellate Assistant Commissioner and the Revenue could not, therefore, make use of these affidavits at those stages. However, the main contention on behalf of the Revenue in its appeal before the Tribunal was regarding the applicability of section 52(2) of the Act and, in order to establish that that provision stood attracted, reliance was placed by the Revenue on the affidavits. It is in this context that we may refer to the decision in CIT v. Indian Express (Madurai) Pvt. Ltd., [1983] 140 ITR 705 (Mad) where it has been pointed out, after referring to several decisions of the Supreme Court, that authorities sitting in appeal in a tax case cannot be regarded as deciding any lis inter partes, but they should be considered as engaged in an act of adjusting the taxpayer's liability and the appellate authorities perform the same functions as the assessing authorities, as an appeal is nothing but a continuation of the process of assessment and an assessment is just another name for adjustment of tax liability. Viewed thus, the appeal preferred by the Revenue before the Tribunal was only to ascertain precisely the tax liability of the assessee with reference to the provisions of section 52(2) of the Act and under those circumstances, it cannot be said that the Tribunal did not have the power to direct the reception of the affidavits with a view to ascertain the applicability of section 52(2) of the Act to the assessee and in directing the Appellate Assistant Commissioner to consider that after affording an opportunity to the assessee as well as the Revenue and the deponents of the affidavits. We are of the view that having regard to the scope of the appeal involving, as it did, the applicability of section 52(2) of the Act to the assessee, it was necessary for the Tribunal to ascertain the facts justifying such application or otherwise and only in that view, the Tribunal felt that in the interest of justice and in order to correctly adjust the liability of the assessee for payment of tax, it would be necessary to remit the matter to the Appellate Assistant Commissioner for a fresh consideration on the basis of the affidavits. We may also observe that under rule 29 of the Rules, if the Tribunal required any document to be produced or affidavit to be filed to enable it to pass orders or for any other substantial cause, it may allow the document to be produced or the affidavits to be filed. This power of the Tribunal has been, in this case, properly exercised, as could be seen from paragraph 30 of the order of the Tribunal. Therein, the Tribunal felt that the affidavits are all of such a nature that they merited pausing, pondering and then processing and that the interest of justice required that the contents of the affidavits should be established by proof in order to arrive at the correct state of facts, when alone it can be decided whether section 52(2) of the Act stood attracted or not. Our attention has not been drawn to any material to show that the failure on the part of the Revenue to rely upon the affidavits at the earlier stages of the proceedings was deliberate. We have earlier pointed out that these affidavits were available, though in a different section of the Department, but they were not made available to the assessing authority or even the first appellate authority and the assessee cannot be permitted to take advantage of an inadvertent omission on the part of the Department to rely on these affidavits even at the earliest stage or at the appellate stage. We may in this connection refer to the scope of the powers of the Tribunal under rule 29 of the Rules. In R.S.S Shanmugam Pillai & Sons v. Commissioner Of Income-Tax, Madras, [1974] 95 ITR 109, this court had occasion to go into the question of the powers of the Tribunal to entertain or reject evidence. While accepting that the Tribunal has got a wide discretion to admit or reject documents at the stage of appeal, it was pointed out that such discretion cannot be exercised in an arbitrary manner and that if the Tribunal found that the documents filed are quite relevant for the purpose of deciding the issue arising before it, it would be well within its powers to admit the evidence, consider the same or remit the matter to the lower authorities for such consideration. On the facts of this case, the Tribunal felt that in the interest of justice in order to decide the question of the applicability of section 52(2) of the Act to the assessee which was agitated before it, it would be necessary to investigate and ascertain the facts in that regard, especially when certain affidavits had been relied on, which, to some extent, prima facie made out that more than the stated consideration had passed under the sale deeds. These affidavits would be relevant and necessary for deciding the question of the application of section 52(2) of the Act and that was the reason why the Tribunal, in the exercise of its discretion, directed the Appellate Assistant Commissioner to consider the issue afresh after taking into account the evidence in the shape of affidavits. We are of the view that the Tribunal, on the facts of this case, properly exercised its discretion. We may also refer to CIT v. Kum. Satya Setia, [1983] 143 ITR 486 (MP), where it has been laid down that under rule 29 of the Rules, it was within the discretion of the Tribunal to allow the production of additional evidence and even if there was a failure to produce the documents before the Income-tax Officer and the Appellate Assistant Commissioner, the Tribunal had the jurisdiction in the interest of justice to allow the production of such vital documents. That leaves for consideration the decision in Velji Deoraj and Co. v. CIT, [1968] 68 ITR 708 (Bom). In that case, while exercising its discretion, the Tribunal found that the additional evidence was unnecessary and, therefore, the refusal by the Tribunal to allow additional evidence was held to be neither illegal nor improper. We have earlier pointed out that in the course of the order, the Tribunal had clearly expressed the view that the interest of justice requires the investigation of the contents of the affidavits in order to determine the applicability or otherwise of section 52(2) of the Act and on such a conclusion, the contention of learned counsel for the assessee that the Tribunal was in error in entertaining the affidavits in evidence and remitting the matter based on the decision in Velji Deoraj and Co. v. CIT, [1968] 68 ITR 708 (Bom) is unacceptable. We, therefore, answer the question referred to us “in the affirmative and against the assessee. The Revenue will be entitled to the costs of this reference. Counsel's fee Rs. 500.