R. Dalmia v. Cit

T.P.S Chawla, J.:— This is an application under section 66 (2) of the Income-Tax Act, 1922. The petitioner is R. Dalmia, the assessee. He prays for an order to be made requiring the Appellate Tribunal to state a case and refer to this court certain questions of law said to arise out of its order dated 28th March 1970 made in I.T.A No. 19601 of 1967-68, and another order dated 13th December, 1971 rectifying paragraph 34 of the former order. Briefly, the matter has arisen as follows.

2. At all material times the assessee was in control of a number of companies, in particular, Jaipur Traders Limited (‘J.T’) and Bharat Union Agencies (P) Limited (‘B.U.A’). In the course of the assessment proceedings for the assessment year 1954-55, relevant to the previous year ended 30th September 1953, the Income-Tax Officer Page: 567noticed that the assessee had received a sum of Rs. 13,65,000 from B.U.A in cash on 3rd August 1953, and had paid a sum of Rs. 13,64,250 to J.T on 7th August 1953, also in cash. When asked to disclose the source from which this money came, the assessee said that earlier, in May 1953, he had sold 3 A-class preference shares of Bennett Coleman & Co. Ltd. (another company controlled by him) to J.T for Rs. 14,02,019. Of this amount, a sum of Rs. 14 lacs was paid in cash by J.T to B.U.A on 6th May 1953 to be held by the latter to the credit of the assessee's account, and the balance of Rs. 2,019 was paid in cash directly to him on the same day. According to the assessee, he drew a sum of Rs. 13,65,000 in cash on 3rd August 1953 from B.U.A out of the amount thus lying with that company to his credit, and utilised it to pay Rs. 13,64,250 to J.T in cash on 7th August 1953 for the purchase of 2,14,000 ordinary shares of Dalmia Jain Aviation Limited.

3. In support of this explanation the assessee produced some vouchers and correspondence in addition to his own account books. The account books of J.T were not produced as they were said to have been destroyed and the company had gone into liquidation. Those of B.U.A were not available as they were with the Commission of Inquiry appointed to inquire into the affairs of the companies controlled by the assessee. The Income-Tax Officer did not accept the explanation given by the assessee and treated the amount received by him as his income. There were some other items also in respect of which the assessee's explanation was not believed, but they are not relevant for the present purpose. In all, the Income-Tax Officer treated unexplained cash credits amounting to Rs. 20,50,000 as the income of the assessee and made an assessment on 26th March 1959 on that basis.

4. On appeal by the assessee the Appellate Assistant Commissioner set aside the assessment by an order of 3rd November 1961. He formed the opinion that the assessment had been completed in haste ‘without proper verification’ as it was going to be barred by time, so much so, that the Income-tax Officer did not even have time to secure the books of B.U.A from the Commission of Inquiry. The Income-Tax Officer was ‘directed to make a fresh assessment in accordance with law’.

5. After the remit the Income-Tax Officer obtained and examined the books of B.U.A As was to be expected the entries therein tallied with those in the assessee's account books. It was maintained by the assessee that the 3-A class preference shares of Bennett Coleman & Co. Ltd. which he had sold to J.T on 3rd May 1953 for Rs. 14,02,019 had been sold by J.T to B.U.A on 23rd June 1953 for Rs. 3,00,000. B.U.A, in turn, had sold them to Sahu Jain Limited on 4th October Page: 5681955 for Rs. 6,90,000. But, it was admitted before the Income-Tax Officer that in the register of members of Bennett Coleman & Co. Ltd. the only transfer recorded was that in favour of Sahu Jain Limited on 4th October 1955. Prior to that date the shares continued to stand in the name of the assessee. The shares were never registered in the name of J.T or B.U.A It was said by the assessee that the sale to J.T, and by that company to B.U.A, were effected by blank transfer deeds which were effective to pass title, and for reasons of their own the transferees had not obtained registration.

6. Two witnesses were sought to be examined on behalf of the assessee before the Income-Tax Officer. One of them, R.P Gurha, disavowed all knowledge about the transactions in question, and so was not examined. The other, S.N Dudani, the Accountant of the assessee, was examined. He proved some correspondence pertaining to the transactions. However, when questioned by the Income-Tax Officer, he was unable to say how the amount of Rs. 14,02,019 had been brought in cash from Sawai Madhopur, where the head office of J.T was situated, to Delhi for being delivered to B.U.A As regards the sum of Rs. 2,019 alleged to have been received in cash by the assessee directly from J.T, Dudani said that he had received it from R. Sharma, a Director of J.T It transpired that R. Sharma had already died, and so could not be examined.

7. The Income-Tax Officer considered all the material placed before him and, in an order dated 23rd August 1963, again held that the sources of the cash credits in the assessee's books, which were previously added to his income, had not been satisfactorily explained. Consequently, he substantially maintained the earlier assessment except as regards an item of Rs. 7,15,533 with which we are not presently concerned. But in making the computation he mistakenly included a sum of Rs. 14,00,000 in the income of the assessee instead of Rs. 14,02,019, which was the amount actually received by the assessee from J.T

8. Again, the assessee appealed to the Appellate Assistant Commissioner. One of the contentions of the assessee was that R.P Gurha should have been examined by the Income-Tax Officer. This contention found favour with the Appellate Assistant Commissioner, and by an order dated 30th April 1965 he directed the Income-Tax Officer to examine R.P Gurha and submit a report. The appeal was kept pending meanwhile. Before the Income-Tax Officer it was agreed by the parties that the statement of R.P Gurha, which had since been recorded in connection with some proceedings for imposing a penalty, be read as evidence in the case. In his report dated 25th July 1966 the Page: 569Income-Tax Officer stigmatised the testimony of R.P Gurha as ‘unreliable’.

9. The Appellate Assistant Commissioner then took up the appeal, and after hearing the parties rejected it by an order dated 23rd December 1967. Having noticed the error made by the Income-Tax Officer, he corrected the figure of Rs. 14,00,000, included in the computation of the income of the assessee, to Rs. 14,02,019. It was contended before the Appellate Assistant Commissioner that, as in the first assessment order the Income-Tax Officer had included as income a sum of Rs. 13,65,000 being the amount received by the assessee on 3rd August 1953 from B.U.A, it was not open to him after the remit to include a different amount of Rs. 14,02,019. By doing so, it was said, he had transgressed the bounds of the original assessment and the limits implicit in the appellate order. The contention was rejected on the ground that after the remit the Income-Tax Officer was free to make a fresh assessment in such manner as he thought right.

10. The assessee then appealed to the Appellate Tribunal. At the very commencement of the hearing of the appeal, counsel for the Revenue sought the permission of the Tribunal to place on record the balance sheets and profit and loss accounts of J.T for the periods ending 30th April 1953 and 15th October 1953 as additional evidence in the case. The request was vehemently opposed by counsel for the assessee. However, the Tribunal was of the opinion that the additional evidence sought to be adduced was relevant to the points at issue and would be of assistance to it in deciding the appeal. By an order of 22nd February 1969 the objection of counsel for the assessee was overruled and the additional evidence was admitted. At the same time the Tribunal thought that it was only fair that the assessee should be given an opportunity to explain the additional evidence and also certain other matters which it narrated in its order. The Appellate Assistant Commissioner was, therefore, directed to record such further evidence as the assessee may wish to produce and forward it to the Tribunal.

11. Pursuant to this direction, the Appellate Assistant Commissioner submitted his report dated 24th May 1969. No evidence was tendered before him, but it was contended that the copies of the balance sheets and profit and loss accounts of J.T, admitted as additional evidence, were not authentic. After examining the assessment record of J.T, where the original documents had been filed, the Appellate Assistant Commissioner held that the documents were genuine. Furthermore, he found from a scrutiny of the balance sheets and assessment orders for the earlier years that J.T had carried on no business at all, and, in particular, had never dealt in shares. He, therefore, concluded that Page: 570there was no such transaction of sale of shares to J.T as was alleged by the assessee.

12. The assessee's appeal was then heard by the Tribunal. In an elaborate order dated 28th March 1970 the Tribunal partly allowed the appeal in respect of some items. But as regards the cash credit of Rs. 14,02,019 the appeal was rejected. The Tribunal considered at great length all the material on record and the arguments advanced before it and came to the definite conclusion that the source of this cash credit had not been satisfactorily explained. Hence, it held, that the conclusion of this amount in the income of the assessee was justified.

13. On 6th July 1970 the assessee moved an application under section 66 (1) of the Income-Tax Act 1922 before the Tribunal requiring it to refer to the High Court eight questions of law said to arise out of its order. A second such application was moved on 24th September 1970 raising two more questions, and yet a third application was moved on 15th October 1970 raising a further two questions. Thus, in all, reference was sought of twelve questions of law.

14. Whilst these three applications were still pending, the assessee moved an application on 2nd January 1971 seeking rectification of a passage in paragraph 34 of the Tribunal's order deciding the appeal. In that paragraph the Tribunal had said that the balance sheets and profit and loss accounts of J.T, which had been admitted as additional evidence, were ‘certified by Shri R.L Sharma, the Auditor of the Company and signed by M.R Rathi for the Liquidator of the Company.’ It was now pointed out by the assessee that the originals of these documents on the assessment file of J.T did not bear the signatures of these two persons, and that every one, including the Tribunal, had proceeded on a misapprehension. The Tribunal disposed of this application by an order dated 13th December 1971. It agreed that there had been a mistake in thinking that the documents on the assessment record of J.T were signed by the said two persons, but found that they had been sent to the Income-Tax Officer with a covering letter signed by M.R Rathi. On a re-appraisal of all the circumstances the Tribunal again held that the documents were genuine. However, it amended its order in appeal by substituting a new paragraph 34 for the old one so as to set out the correct position. Nevertheless, its decision on the merits remained in every way intact.

15. This led to further applications for referring questions of law to the High Court. On 10th March 1972 the assessee moved an application asking for the reference of five questions of law said to arise out of the order of the Tribunal made on 13th December 1971. By Page: 571another application dated 5th August 1972, three more questions were sought to be raised. In this way the total number of questions swelled to twenty.

16. All the applications for referring questions of law to the High Court were dismissed by the Tribunal by its order dated 24th February, 1973. Question No. 8 in the application of 6th July, 1970 was not pressed by the assessee. The Tribunal held that the other questions formulated in this application were not questions of law and could not therefore be referred. The applications of 24th September, 1970 and 15th October, 1970 were found to be barred by time and were rejected on that ground. Even otherwise it was held that the questions stated in these applications were not of a kind as could be referred. For similar reasons the application of 5th August, 1972 was also dismissed. As regards the application of 10th March, 1972 it was held that it was not maintainable as the rectification order of 13th December, 1971, to which it pertained, was not an order of the kind from which a reference could be made. Moreover, the questions proposed were either questions of fact or did not arise out of the Tribunal's order.

17. In September, 1973 the application now before us was filed in this Court. Most of the nineteen questions it asks to be referred relate to the cash credit of Rs. 14,02,019. The argument addressed to us was concentrated wholly on that item, and its purpose was to extract, if possible, a question of law out of the Tribunal's order regarding the same.

18. Whether the source of a cash credit in the account books of an assessee has been satisfactorily explained is patently a question of fact. The burden is on the assessee to establish the source, and also to prove that it was not income: See Kale Khan Mohammad Hanif v. Commissioner of Income-Tax, Madhya Pradesh and Bhopal, (1963) 50 I.T.R 1 (S.C) (1). For, when the receipt of money is admitted by the assessee, as it is when a credit entry is made in his books, that itself is evidence against him, which, unless cogently rebutted, leads to an adverse inference: See Sreelekha Banerjee and others v. Commissioner of Income-Tax, Bihar and Orissa, (1963) 49 I.T.R 112 (S.C) (2). These principles are well-settled and admit of no doubt. Of course, the manner in which they are applied to a given case will necessarily be conditioned by the facts.

19. Counsel for the assessee referred to K.S Kannan Kunhi v. Commissioner Of Income-Tax, Kerala, Kerala, (1969) 72 I.T.R 757 (3), Commissioner of Income-Tax, Bombay City II v. Deviprasad Khandelwal and Co. Ltd., (1971) 81 I.T.R 460 (4), and Page: 572Commissioner of Income-Tax (Central), Calcutta v. Daulat Ram Rawatmull, (1973) 87 I.T.R 349 (S.C) (5), and maintained that even after the explanation for the source of the credit had been rejected, the taxing authorities were yet bound, as a matter of law, to consider the further and different question whether the receipt represented income. He said that in the present case the Tribunal had not done so, and that gave rise to a question of law.

20. In our opinion, this submission by counsel for the assessee is not an accurate statement of the rationes decidendi of the cases on which he relied. In the relevant passage in K.S Kannan Kunhi v. Commissioner Of Income-Tax, Kerala, Kerala, (1969) 72 I.T.R 757 (3), the court started by emphasising that ‘the question whether a receipt is to be treated as income or not must depend very largely on the facts and circumstances of each case’. True, in the next sentence it was said: ‘It is not the law that, when once the explanation is rejected, it automatically follows that the receipts are income’, but this must be understood in the light of the next two sentences, which read:

“Whether an explanation is acceptable, and if not, whether it should be inferred that the receipts constitute income, are different aspects of the same question. Both these aspects are interrelated, and the question whether such receipts constitute income or not has to be decided on a consideration of all the relevant facts and circumstances of the case.”

Far from showing that there are two separate and distinct questions, this case decides that there is only one, albeit multifaceted.

21. Perhaps, what the court really meant emerges more clearly from the succeeding passage which is as follows:

‘It is quite legitimate in the case of an assessee who is known to be carrying on several activities of an income-earning character or who can be reasonably be found to be involved in such activities, to draw the inference that the amounts found with him constitute income from undisclosed sources, in the absence of satisfactory explanation regarding their source. Such an inference should not be readily made in the case of a person, who has no known business or other source of income, or who cannot even be reasonably suspected as engaged in any income earning activities. In the latter case, there must be more substantial reasons to reject the assessee's explanation, and draw the inference that the amounts found with him constitute income.’ Page: 573There, the assessee was a Hindu Undivided Family which had newly started a business and had brought in some cash credits. The explanation for the source of these credits was disbelieved. But the assessee had no known source of income before it started business. It was in these circumstances that the court said that the inference that the credits were the assessee's income ‘should not be readily’ drawn and that ‘there must be more substantial reasons’. So the case was really concerned with drawing the appropriate inference from the facts. An appeal by special leave to the Supreme Court against the judgment of the High Court was dismissed on the ground that the justice of the case did not require any interference: See Commissioner of Income-Tax, Kerala v. K.S Kannan Kunhi, (1973) 87 I.T.R 395 (6).

22. The other two cases cited by counsel for the assessee are of the same kind. In Commissioner of Income-Tax, Bombay City II v. Deviprasad Khandelwal and Co. Ltd., (1971) 81 I.T.R 460 (4), two cash credits in the books of the assessee, which was a company, were not satisfactorily explained. The Tribunal came to the conclusion that ‘these amounts represented secret cash of one or the other of the shareholders’. Before the High Court it was argued that this ‘was an inference without any supporting evidence on record’. It was held that there was sufficient evidence before the Tribunal to enable it to reach such a conclusion and the finding was not perverse. The court said:

‘Merely because the Tribunal had not accepted the explanation of the assessee-company in connection with the cash credit entries in respect of this amount, it was not obligatory on the Tribunal to accept the case of the revenue that this cash credit was the income of the assessee-company from undisclosed sources.’

Again, it will be noticed, that the court was adverting to the question whether the Tribunal's conclusion on the facts was right.

23. In Commissioner of Income-Tax (Central), Calcutta v. Daulat Ram Rawatmull, (1973) 87 I.T.R 349 (5), (S.C) the assessee was a firm. As collaterals security for the overdraft account of the firm with a Bank, Biswanath, the son of a partner of the firm, had furnished a fixed deposit receipt for Rs. 5,00,000/-. The source of this money was not satisfactorily explained, and was treated by the taxing authorities as the income of the assessee firm. The High Court held that there was no material before the Tribunal on the basis of which such Page: 574an inference could be sustained. Affirming the judgment of the High Court, the Supreme Court said:

‘The falsity of the above explanation of Biswanath, in the opinion of the High Court, did not warrant the conclusion that the amount of Rs. 5,00,000/- belonged to the assessee. We can find no flaw or infirmity in the above reasoning of the High Court. The question which arose for determination in this case was not whether the amount of Rs. 5,00,000/- belonged to Biswanath, but whether it belonged to the respondent-firm. The fact that Biswanath was not able to give a satisfactory explanation regarding the source of Rs. 5,00,000/- would not be decisive even of the matter as to whether Biswanath was or was not the owner of that amount. A person can still be held to be the owner of a sum of money even though the explanation furnished by him regarding the source of that money is found to be not correct. From the simple fact that the explanation regarding the source of money furnished by A, in whose name the money is lying in deposit, has been found to be false, it would be a remote and fan-fetched conclusion to hold that the money belongs to B. There would be in such a case no direct nexus between the facts found and the conclusion drawn therefrom.’

This is reasoning on, and about, the facts. There is no proposition of law to be derived from this passage.

24. These cases exemplify two obvious propositions: first, that though money may be received by one person, it may be the income of another, and, second, that from the fact that the source of a cash credit is unexplained it does not follow that the money does not belong to the recipient. Neither of these is a principle of law. They are commonsense to be applied to the facts. The real, and only, question is whether a cash credit is the assessee's income. Notwithstanding that it is the cash credit which originates this question, the inquiry into its source is only a part of the process of finding the answer. When the source is unexplained, it depends upon the facts whether the conclusion that it is the assessee's income can be immediately drawn.

25. In the present case there was ample material before the Tribunal to hold that the cash credit of Rs. 14,02,019/- was the income of the assessee. He himself admitted that he had received it, and on his own account. It was never suggested before the Tribunal that it Page: 575was the income of someone else. Nor was any such hypothesis put before us. There was no one else on the scene whose income it possibly could be. As the source of the credit was not proven, the inevitable conclusion was that it was the assessee's income. The question which counsel for the assessee tried to vivify did not in this case exist even in embryo. In our opinion, no such question arises, out of the order of the Tribunal. And, even supposing it did, it would be a question of fact.

26. Counsel for the assessee also tried to argue that there was no evidence before the Tribunal on the basis of which it could hold that the cash credit represented the income of the assessee. Alternatively, he said that the decision of the Tribunal was perverse, in that, it had relied on irrelevant material and failed to take notice of material which was relevant. If this were true there would be ground for requiring the Tribunal to make a reference: see Commissioner of Income-Tax (Central). Calcutta v. Daulat Ram Rawatmull, (1973) 87 I.T.R 349 (S.C) (5). But beyond making these assertions counsel for the assessee could point to nothing in support of his submissions. We were not told what was the irrelevant material that the Tribunal had considered or the relevant material which it had ignored. A cursory reading of the Tribunal's order is enough to show that there was a vast mass of material before it, which it dealt with thoroughly. If there is some evidence before the Tribunal to support its finding, the High Court has no power to require a reference even though it does not concur in the conclusion: see Commissioner of Income-Tax, (Central) Calcutta v. Daulat Ram Rawatmull, (1964) 53 I.T.R 574 (S.C) (7). Here the material was overwhelming and the conclusion irresistible.

27. Although these were the main points argued on behalf of the assessee, in passing it was submitted, that after the first assessment order was set aside by the Appellate Assistant Commissioner, the Income-Tax Officer could not travel beyond the confines of the earlier assessment. It was said that in the first assessment order a sum of Rs. 13,65,000/- received by the assessee from B.U.A had been treated as income, and, therefore, after the remit it was not permissible for the Income-Tax Officer to include the different figure of Rs. 14,02,019. In support of this argument the principle that an appellate authority cannot bring to charge any item not included' within the assessment was invoked. By analogy, it was suggested, that after the remit the Income-Tax Officer could only do what the appellate authority might have done, and no more.

Page: 57628. The whole argument on behalf of the assessee is built upon a misapprehension by the Appellate Assistant Commissioner as to the way in which the final figure of taxable income had been arrived at in the first assessment. In paragraph 25 of its order, the Tribunal has demonstrated the mistake made by the Appellate Assistant Commissioner, and shown that even in the first assessment a sum of Rs. 14,02,019/- was treated as a part of the income of the assessee. In those circumstances the submission made on behalf of the assessee is devoid of foundation. Furthermore, when we pointed out that the limits to the jurisdiction of an appellate authority were not germane to an assessment after a remit, counsel for the assessee frankly admitted that his point was ‘weak’. He left the matter there.

29. Lastly, it was submitted, again, merely in passing, and as an adjunct to the main submission on which we have already dwelt, that the Tribunal was in error in admitting the balance sheets and profit and loss accounts of J.T as additional evidence at the hearing of the appeal. It was conceded that the Tribunal had the power to admit additional evidence, and also that the Evidence Act 1872 did not apply to its proceedings. There is no question of law which arises out of the course which the Tribunal followed, and the grievance of the assessee is simply that the additional evidence was admitted. No prejudice whatsoever was caused to him because the matter was remitted to the Appellate Assistant Commissioner for recording such further evidence as the assessee might care to offer. He chose to produce none. Whether to admit the additional evidence or not was for the Tribunal to decide. It had a discretion, and it was not suggested that it had acted on any wrong principle.

30. No other point was argued before us. For the reasons which we have given we are satisfied that no question of law arises out of the order dated 28th March, 1970 made by the Tribunal. Accordingly, this application is dismissed, but in the circumstances we will leave the parties to bear their own costs.

Application dismissed.