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Anraj Narain Dass v. Commissioner Of Income-Tax, Delhi
Concise Analytical Summary of the Opinion (Civil Misc. No. 86 of 1950)
Factual and Procedural Background
The application was made under Section 66(2) of the Indian Income-tax Act, 1922, seeking an order that the Income-tax Appellate Tribunal (the Tribunal) state a case and refer specified questions of law to this Court.
For the assessment year 1945–46 the assessee returned net assessable income of Rs. 16,373 (profits declared Rs. 32,373 less Rs.16,000 claimed as loss on account of alleged embezzlement by an employee). The Income-tax Officer rejected the assessee's accounts and made additions including unexplained cash credits (Rs. 55,000), unexplained cash credits in Mani Ram's account plus interest (total Rs. 23,229), a difference attributed by the assessee to defalcation by Sedh Mal (Rs. 16,000), and an estimated income from undisclosed sources (Rs. 20,000).
On appeal the Appellate Assistant Commissioner deleted the Rs. 20,000 estimate and accepted much of the assessee's explanations, reducing unexplained items to Rs. 12,300. The assessee appealed under Section 33 seeking deletion of Rs. 12,300 and Rs. 16,000; the Department cross-appealed on cash-credit issues.
The Tribunal, in Income-tax Appeals Nos. 761 and 775 of 1948–49, concluded that the profit returned was "ridiculously low" and, after considering the accounts and other materials (including material from criminal proceedings), estimated an addition of Rs. 50,000.
Legal Issues Presented
- Whether the grounds of decision of a criminal Court are admissible evidence in Income-tax proceedings?
- Whether the reasons of decisions of criminal Court are conclusive evidence against the assessee in Income-tax proceedings?
- If the first two questions are answered in favour of the assessee, was there any evidence or was the evidence legally sufficient for the Tribunal to hold that the wrong totals in the assessee's cash book resulting in the shortage of Rs. 16,000 was done in this case at the instance of the partners of the assessee?
- Did the wrong totals in any way affect or were likely to affect the incidence of income-tax?
- Was the law of onus in regard to cash credits correctly laid down by the Tribunal in deciding this case and whether on the evidence produced by the assessee in this case, the primary onus of proving the genuineness of the credits in the various accounts challenged in the Income-tax proceedings had been legally discharged by the assessee?
- Whether on the facts and evidence adduced in the case an inference against the genuineness of the credits could be legally drawn?
- Whether the Tribunal in appeal did make a new case for the Department and whether on the evidence it could be held that the assessee made any additional income on the sale (sic) of Rs. 1,50,000 from cloth business during the account year?
- Whether there was any evidence from which an inference of negligence on the part of the assessee in regard to the embezzlement of Rs. 16,000 could legally be drawn?
Arguments of the Parties
Appellant's Arguments (as presented by Shri Gauri Dayal)
- Pressed that questions Nos. (1), (2) and (5) were questions of law arising from the Tribunal's orders and should be referred to this Court.
- Contended that the Indian Evidence Act, 1872, applies to Income-tax proceedings and therefore grounds/reasons of criminal Court decisions should not be admissible or relied upon in the Income-tax proceedings under Sections 23, 31 or 33 of the Income-tax Act.
- Challenged the Tribunal's approach on the onus regarding cash credits, arguing it was wrong in law to treat the onus as lying heavily on the assessee (i.e., the Tribunal imposed an unduly heavy burden).
- Conceded, however, that the initial onus of explaining cash credits lay on the assessee.
Respondent / Department
The opinion does not contain a detailed account of the Department's specific legal arguments; it records only that the Department appealed against the Appellate Assistant Commissioner on the cash-credit findings.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab [1944] 12 I.T.R. 393 | Set out principles concerning the legal status of Income-tax proceedings and permissible sources of material: (1) Income-tax proceedings are not judicial proceedings in the ordinary sense; the Indian Evidence Act does not apply generally. (2) An Income-tax Officer is not bound to rely on evidence considered false. (3) An officer may make estimates under the proviso to Section 13 even when rejecting accounts. (4) Where an estimate is made in disregard of the assessee's evidence, fairness requires disclosure of material relied upon. (5) The officer may rely on private information (not always disclosed), but if he proposes to use private enquiries against the assessee, he must communicate their substance sufficiently to enable a response. | The Court relied on this authority to conclude that the Indian Evidence Act does not apply to proceedings under the Income-tax Act in the ordinary sense, and to uphold the Tribunal's competency to base its decision in part on material derived from the judgments of criminal Courts (as information/private sources), subject to the fairness principles stated in the precedent. |
Court's Reasoning and Analysis
The Court proceeded in several discernible steps, each tied to material in the record and to the submissions made:
- Characterisation of the Tribunal's findings: The Court observed the Tribunal's decision (adding Rs. 50,000) was primarily factual—addressing whether the assessee's books disclosed true profits—and therefore mostly raised questions of fact rather than questions of law arising from the Tribunal's order.
- Narrowing of legal questions: The applicant (Shri Gauri Dayal) argued that questions (1), (2) and (5) were legal issues. The Court examined whether the Tribunal had in fact treated criminal Court decisions as conclusive evidence. It found that the Tribunal expressly did not treat criminal judgments as conclusive; the Tribunal had said there "could be no question of defalcation by Sedh Mal in view of the order of the Magistrate" but then added the item was the assessee's profit according to his books and that the Tribunal examined accounts and statements of witnesses. Accordingly, question No. 2 (whether criminal decisions are conclusive) did not arise from the Tribunal's orders.
- Whether the Indian Evidence Act applies to Income-tax proceedings: The Court analysed the submission that the Evidence Act applies to Income-tax proceedings. It concluded—following the reasoning in Seth Gurmukh Singh—that the Indian Evidence Act does not generally apply because proceedings under the Income-tax Act are not "judicial proceedings" in the ordinary sense; only specified powers and sections confer civil-court-like powers in limited contexts.
- Permissibility of relying on criminal-court material: Having held the Evidence Act inapplicable in the ordinary sense, the Court considered whether the Tribunal could base its decision in part on judgments of criminal Courts. Relying on the principles stated in Seth Gurmukh Singh, the Court held it was within the Tribunal's competence to use such material (i.e., information derived from criminal judgments) as part of its assessment. The Court emphasised that the Tribunal had not treated those judgments as conclusive, but had used them as material alongside accounts and witness statements.
- Onus on the assessee regarding cash credits: The Court reviewed the Tribunal's statements on burden of proof: the Tribunal and the Appellate Assistant Commissioner had discussed whether the assessee had discharged the onus of explaining cash credits. The Court noted that the appellant conceded the initial onus was on the assessee. The Tribunal's conclusion was that, on the facts and circumstances (including concerns about bogus accounts, false names of customers, and the assessee's general dishonesty), the assessee had failed to discharge that initial onus. Therefore the legal question posed in No. (5) (as formulated by the applicant) did not properly arise.
- Outcome explained as application of existing principles to the facts: The Court repeatedly treated the matters as factual determinations, applying the principles from the cited precedent to hold that the Tribunal's methodology—examining accounts, witness statements and criminal-court material as part of the available information—was legally permissible.
Holding and Implications
APPLICATION DISMISSED — The Court dismissed Civil Miscellaneous No. 86 of 1950 and awarded costs of Rs. 100 to the respondent.
Direct consequences for the parties:
- The application to have the Tribunal state a case on the specified questions was refused; the Tribunal's factual conclusions (including the Rs. 50,000 addition) were not disturbed by this application.
- The applicant must pay costs assessed at Rs. 100.
Legal implications (as stated in the opinion):
- The Court held that proceedings under the Income-tax Act are not "judicial proceedings" in the ordinary sense for the purpose of the Indian Evidence Act, 1872; therefore the Evidence Act does not generally apply to such proceedings.
- The Tribunal is competent to rely upon material appearing in judgments of criminal Courts (treated as information/private sources) as part of the evidential material in income-tax proceedings, provided that the Tribunal does not treat such criminal judgments as conclusive and applies the relevant fairness principles (as articulated in Seth Gurmukh Singh) when material derived from private enquiries is to be used against the assessee.
- The Court did not treat these holdings as establishing any broader novel precedent beyond the application of the cited authority to the facts; it applied existing authority to uphold the Tribunal's approach in this case.
Disposition: Application dismissed; costs Rs. 100. (Khosla, J. agreed.)
1. This is an application under Section 66(2) of the Indian Income-tax Act, 1922, hereinafter referred to as the Act, asking this Court to require the Income-tax Appellate Tribunal, hereinafter referred to as the Tribunal, to state the case and refer for the decision of this Court the questions specified hereunder:—
(1) Whether the grounds of decision of a criminal Court are admissible evidence in Income-tax proceedings?
(2) Whether the reasons of decisions of criminal Court are conclusive evidence against the assessee in Income-tax proceedings?
(3) If the first two questions are answered in favour of the assessee, was there any evidence or was the evidence - legally sufficient for the Tribunal to hold that the wrong totals in the assessee's cash book resulting in the shortage of Rs. 16,000 was done in this case at the instance of the partners of the asiessee?
(4) Did the wrong totals in any way affect or were likely to affect the incidence of income-tax?
(5) Was the law of onus in regard to cash credits correctly laid down by the Tribunal in deciding this case and whether on the evidence produced by the assessee in this case, the primary onus of proving the genuineness of the credits in the various accounts challenged in the Income-tax proceedings had been legally discharged by the assessee?
(6) Whether on the facts and evidence adduced in the case an inference against the genuineness of the credits could be legally drawn?
(7) Whether the Tribunal in appeal did make a new case for the Department and whether on the evidence it could be held that the assessee made any additional income on the sale (sic) of Rs. 1,50,000 from cloth business during the account year?
(8) Whether there was any evidence from which an inference of negligence on the part of the assessee in regard to the embezzlement of Rs. 16,000 could legally be drawn?
2. Briefly summarised, the material facts are these. For the assessment year 1945–46 the assessee declared the net assessable income at Rs. 16,373. The profits for the relevant account period were declared to be Rs. 32,373, but the assessee claimed a deduction of Rs. 16,000 on account of loss suffered by the assessee by reason of the embezzlement of that amount by Sedh Mal Cashier, an employee of the assessee. The Income-tax Officer did not accept the accounts of the assessee and made the following additions:—
(1) Unexplained cash credits Rs. 55,000 (2) Unexplained cash credits in the account of Mani Ram and interest of Rs. 2,029 credited to this account ” 23,229 (3) Difference in totals stated by the assessee to be due to defalcation by Sedh Mal munib ” 16,000 (4) Estimated income from undisclosed sources in addition to those mentioned above ” 20,000
3. On appeal the Appellate Assistant Commissioner deleted the estimated income of Rs. 20,000 set out at (4) above and accepted the assessee's explanation in regard to most of the cash credits and reduced the unexplained items to Rs. 12,300. From the decision of the Appellate Assistant Commissioner the assessee appealed under Section 33 of the Act, claiming that the items of Rs. 12,300 and Rs. 16,000 retained by the Appellate Assistant Commissioner be also deleted. On the other hand, the Department appealed against the decision of the Appellate Assistant Commissioner objecting to that decision in regard to cash credits.
4. In deciding Income-tax Appeals Nos. 761 and 775 of 1948–49 the Tribunal said:—
“Considering the volume of the business shown to have been done by the assessee, the fact that false names of customers are written in the books and the market conditions prevailing in the year of account, we think that the profit returned by the assessee was ridiculously low and that the assessee's books did not disclose his true profits. After taking into account the explanations given by the assessee and other relevant facts, we think that an addition of Rs. 50,000 to the income as returned by the assessee would meet the ends of justice.”
5. In the proceedings before the Tribunal the questions that arose for decision were—
(i) Whether the profits of the assessee could be properly deduced from the books of account maintained by the assessee firm; and
(ii) If not, what should be the estimated profit of the assessee firm?
6. In deciding the questions that arose before the Tribunal, the Tribunal has used inter alia the material on the record of the criminal case and come to the conclusion stated above. Prima facie the questions decided by the Tribunal are questions of fact and no question of law arises out of the orders of the Tribunal.
7. In arguing the case Shri Gauri Dayal pressed for our consideration questions Nos. (1), (2) and (5) set out above and maintained that questions Nos. (1), (2) and (5) were questions of law arising from the orders of the Tribunal. Now, the Tribunal has not decided that the reasons of decisions of the criminal Courts were conclusive evidence against the assessee in proceedings under the income-tax Act. In giving a decision on the item of Rs. 16,000 the Tribunal said:—
“Regarding the item of Rs. 16,000 there could be no question of defalcation by Sedh Mal in view of the order of the Magistrate. The assessee filed his return after the date of the order of the Magistrate and still he did not delete this item from the profits and loss account. He perhaps thought that the Income-tax Officer will not come into possession of the facts in connection with complaint before the Magistrate. This item is the assessee's profit according to his books of account. Here we may state that in arriving at the estimate of profit we have examined the accounts and also the various statements of the persons who appeared before the Income-tax Officer.”
8. Clearly, the Tribunal has not treated the judgments given by the criminal Courts as conclusive evidence on the points dealt with in those judgments. That being so, question No. 2 does not arise from the orders of the Tribunal.
9. Having made these observations, I pass on to consider whether the grounds of decision of a criminal Court are admissible in evidence in Income-tax proceedings. Shri Gauri Dayal argues that the Indian Evidence Act, 1872, applies to Income-tax proceedings and, in any case, judgments of criminal Courts used by the Tribunal do not furnish material for decision under Section 23, 31 or 33 of the Act.
10. Dealing with the first point first, I find that there is no substance in the argument raised. Section 1 of the Indian Evidence Act, 1872, provides inter alia that the Indian Evidence Act applies to all judicial proceedings in or before any Court. Under Section 3 of the Indian Evidence Act the expression “Court” includes all Judges and Magistrates and all persons except arbitrators legally authorised to take evidence. That being so, the sole question for decision is whether proceedings under the Act are judicial proceedings.
11. In my judgment, proceedings under the Act are not judicial proceedings in the sense in which the phrase “judicial proceedings” is ordinarily used. A similar point arose in Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab [1944] 12 I.T.R 393.. In that case Din Mohammad, J., (Harries, C.J, Sale, Abdur Rahman and Muhammad Munir, JJ., concurring) said:—
“It is obvious that it is only in respect of certain specified matters that the Income-tax authorities are invested with the powers exercisable by a civil Court and it is only for a limited purpose that a proceeding before them is declared to be deemed to be a judicial proceeding. It naturally follows that in all other matters, not covered by the section, the Income-tax authorities cannot exercise the powers of a civil Court, nor can the proceedings before them be deemed to be judicial proceedings. Had the Legislature intended that the Income-tax authorities should in every matter conduct themselves as a Court of law, bound by the rules, evidence and the procedure of a civil Court, the wording of Section 37 would have been different. Under some of the provisions contained in Chapter IV it was necessary for the Income-tax authorities to examine persons on oath or affirmation, to compel them to produce documents and to issue commission for the examination of witnesses and it was essential, therefore with a view to facilitate the discharge of their functions to confer upon them the ‘powers of a civil Court. Similarly, with a view to check perjury or the use of false or fabricated evidence and to maintain the dignity of the office the proceedings were to be declared judicial proceedings, otherwise Section 193 and Section 228 of the Indian Penal Code could not have come into play at all.”
12. For the reasons given in Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab, I find that the Indian Evidence Act, 1872, does not apply to proceedings under the Act.
13. The question, however, remains whether the Tribunal was right in basing its decision inter alia on the judgments of criminal Courts. In considering the material upon which the Income-tax authorities can in law base their decision, Din Mohammad, J. (Harries, C.J, Sale, Abdur Rahman and Muhammad Munir, JJ., concurring) in Seth Gurmukh Singh v. Commissioner of Income-tax, Punjab said:—
“(1) An Income-tax Officer is not bound to rely on such evidence produced by the assessee as he considers to be false.
(2) He can have recourse to the proviso to Section 13 even in those cases where he rejects the accounts produced by the assessee on the grounds that they are not genuine, and thus fail to represent truly his income and profits.
(3) If he proposes to make an estimate in disregard of the evidence, oral or documentary, led by the assessee, he should in fairness disclose to the assessee the material on which he is going to found that estimate.
(4) He is not, however, debarred from relying on private sources of information, which sources he may not disclose to the assessee at all
(5) In case he proposes to use against the assessee the result of any private enquiries made by him, he must communicate to the asses-see the substance of the information so proposed to be utilized to such an extent as to put the assessee in possession of full particulars of the case he is expected to meet and should further give him ample opportunity to meet it, if possible.”
14. That being the position of law, I have no doubt that it was within the competency of the Tribunal to rest their decision inter alia on the information gathered by the Tribunal from the judgments of the criminal Courts referred to in that order.
15. Before leaving this part of the judgment I wish to mention that Muhammad Munir, J., agreed that with the exception of the answer to question No. 2 in the second set, the answers to the questions referred to the Full Bench should be as proposed by Din Mohammad, J.
16. Shri Gauri Dayal then urges that the Tribunal was wrong in law that the onus of explaining cash credits lay heavily on the assessee. Dealing with cash credits the Appellate Assistant Comim??? said:—
“Both the Income-tax Officers seem to have failed to not ??? very essential point that the onus on the appellant was in-resp??? proving the genuineness of the objectionable cash credits, and ??? discharged that onus by producing a First Class Magistrate's ??? cate of identity and by producing the man himself to admit ??? sactions ascribed to him.”
17. In deciding whether the assessee had explained cash c??? Tribunal said:—
“If the Appellate Assistant Commissioner means that if a ??? was produced who admits having paid the amounts, the Inco??? Officer has no reason to make further inquiries, we must say ??? entirely wrong. A person may claim to have received from his sweeper??? rupees five lacs. He will produce the sweeper who may admit having paid the amount. Does it mean that the explanation should be accepted and the account treated as a genuine account? The Income-tax Officer was dealing with a thoroughly dishonest assessee. The burden of proof in this case would be much greater than in the case of any other assessee. Most of the advances shown in the books of account have come from non-residents. The Income-tax Officer held that the accounts were bogus and in order to substantiate his point of view he has given various reasons as to the financial capacity of the persons depositing the amounts. It is a perfectly legitimate inquiry which he should have made in the case of an assessee of the type in this case. We therefore think that the Appellate Assistant Commissioner's approach was very defective and the finding given by him, which has resulted in this heavy reduction in the appellant's assessment, is not justified.”
18. Shri Gauri Dayal concedes that the initial onus of explaining cash credits lay on the assessee. That is all what the Tribunal has said. From the decision of the Tribunal that on the facts and the circumstances of the case the assessee has failed to discharge that onus, question No. (5) set out above does not arise. Indeed it is assumed in question No. (5) that the intitial onus of proving the genuineness of the credits in the various accounts challenged by the Income-tax Officer ‘lay on the assessee. No other point was raised in these proceedings.
19. For the foregoing reasons, I dismiss Civil Miscellaneous No. 86 of 1950 with costs which I assess at rupees one hundred.
Khosla, J.— I agree.
20. Application dismissed.
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