Crystal Networks P. Ltd. v. Commissioner Of Income-Tax

1. This appeal was admitted by this court on the following substantial questions of law:

“I. Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in confirming the addition of Rs. 8,50,000 as unexplained cash credit made by the Assessing Officer solely relying on an entry made in the order sheet which has no direct nexus with the present issue and while completely ignoring all the relevant materials and evidence available?

II. Whether the addition of Rs. 8,50,000 to the income of the assessee as unexplained cash credit by the Tribunal is sustainable in law and/or is not unreasonable and perverse?”

2. This appeal relates to the assessment year 1994–95. The facts of the case is summarised as follows:

The assessee-appellant at the relevant point of time has been trading bidis and as such used to sell and distribute to various customers situates at different parts of the country. In the course of business the assessee used to receive from time to time cash from the customers by way of advance. In the relevant assessment year in the return a sum of Rs. 8,50,000 was shown to have been received cash advances. As such the deduction of the said sum from the income was sought for.

3. The Income-tax Officer, however, did not accept the claim of the appellant rather added to the income and so it was assessed. It was held by the Income-tax Officer that the assessee under section 68 of the Income-tax Act, 1961, failed to establish the identity of the creditors of this cash advance. Initially the assessee was asked to bring those creditors who are alleged to have advanced the amount of cash as against the supply of bidis. On failure of production of those creditors summons were issued under section 131 by the Income-tax Officer. Despite issuance of summons none of the creditors turned up and even some cases summons returned back with the endorsement made by the postal authority “no such person concerned was found”. In view of such circumstances, the Income-tax Officer disbelieved the case of cash credit under section 68. Hence, the claim of deduction was disallowed.

4. The matter was taken to appeal and the Commissioner of Income-tax (Appeals) after going through the evidence and materials on record came to the fact finding that there are sufficient materials to hold that the said cash credit received by the assessee was genuine and these were received as against the supply of bidis. During the same assessment year or subsequent assessment year the necessary challans, vouchers and other confirmatory letters were also considered by the Commissioner of Income-tax (Appeals). After analysing everything the Commissioner of Income-tax (Appeals) accepted the explanation and also evidence of the creditworthiness of the creditors. Hence, relief was granted.

5. The Revenue being aggrieved by the said decision approached the learned Tribunal who came to the fact finding that the Commissioner of Income-tax (Appeals) has erroneously held that the summons were issued after assessment was done. Only on that ground it was held that the assessee could not establish by producing evidence that the credit was received from the various customers. As such the case of the appellant is that the cash credit was received as against the sale and supply of bidis was not accepted. Hence, the order of the Commissioner of Income-tax (Appeals) was reversed and the order of the Income-tax Officer was restored.

6. Despite notice no one appears for the respondent.

7. Assailing the said judgment of the learned Tribunal learned counsel for the appellant submits that Income-tax Officer did not consider the material evidence showing the creditworthiness and also other documents, viz., confirmatory statements of the persons, of having advanced cash amount as against the supply of bidis. These evidence were duly considered by the Commissioner of Income-tax (Appeals). Therefore, the failure of the person to turn up pursuant to the summons issued to any witness is immaterial when the material documents made available, should have been accepted and indeed in subsequent year the same explanation was accepted by the Income-tax Officer. He further contended that when the Tribunal has relied on the entire judgment of the Commissioner of Income-tax (Appeals), therefore, it was not proper to take up some portion of the judgment of the Commissioner of Income-tax (Appeals) and to ignore the other portion of the same. The judicial propriety and fairness demands that the entire judgment both favourable and unfavourable should have been considered. By not doing so the Tribunal committed grave error in law in upsetting the judgment in the order of the Commissioner of Income-tax (Appeals).

8. In this connection he has drawn our attention to a decision of the Supreme Court in the case of Udhavdas Kewalram v. CIT reported in [1967] 66 ITR 462 (SC). In this judgment it is noticed that the Supreme Court as proposition of law held that the Tribunal must in deciding an appeal, consider with due care, all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner in the light of the evidence and the relevant law.

9. We find considerable force of the submissions of the learned counsel for the appellant that the Tribunal has merely noticed that since the summons issued before assessment returned unserved and no one came forward to prove. Therefore, it shall be assumed that the assessee failed to prove the existence of the creditors or for that matter the creditworthiness. As rightly pointed out by the learned counsel that the Commissioner of Income-tax (Appeals) has taken the trouble of examining of all other materials and documents, viz., confirmatory statements, invoices, challans and vouchers showing supply of bidis as against the advance. Therefore, the attendance of the witnesses pursuant to the summons issued, in our view, is not important. The important is to prove as to whether the said cash credit was received as against the future sale of the product of the assessee or not. When it was found by the Commissioner of Income-tax (Appeals) on facts having examined the documents that the advance given by the creditors have been established the Tribunal should not have ignored this fact finding. Indeed the Tribunal did not really touch the aforesaid fact finding of the Commissioner of Income-tax (Appeals) as rightly pointed out by the learned counsel. The Supreme Court has already stated as to what should be the duty of the learned Tribunal to decide in this situation. In the said judgment noted by us at page 464, the Supreme Court has observed as follows:

“The Income-tax Appellate Tribunal performs a judicial function under the Indian Income-tax Act; it is invested with authority to determine finally all questions of fact. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all the contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law.”

10. The Tribunal must, in deciding an appeal, consider with due care all the material facts and record its finding on all contentions raised by the assessee and the Commissioner, in the light of the evidence and the relevant law. It is also ruled in the said judgment at page 465 that if the Tribunal does not discharge the duty in the manner as above then it shall be assumed the judgment of the Tribunal suffers from manifest infirmity.

11. Taking inspiration from the Supreme Court observations we are constrained to hold in this matter that the Tribunal has not adjudicated upon the case of the assessee in the light of the evidence as found by the Commissioner of Income-tax (Appeals). We also found no single word has been spared to up set the fact finding of the Commissioner of Income-tax (Appeals) that there are materials to show the cash credit was received from various persons and supply as against cash credit also made.

12. Hence, the judgment and order of the Tribunal is not sustainable. Accordingly, the same is set aside. We restore the judgment and order of the Commissioner of Income-tax (Appeals). The appeal is allowed. There will be no order as to costs:

13. Let xerox certified copy of this order be given to the parties, if applied for, upon compliance with all formalities.