Assistant Commissioner of Income-tax v. Sri Radheshyam Poddar

Per Abdul Razack, JM - This is an appeal filed by the Assistant Commissioner of Income-tax, Comp. Circle-II(I), Calcutta against the order of the CIT (Appeals) dated 26-7-1988. The grievance of the revenue in this appeal is about the deletion of Rs. 4,93,000 on account of extra salary and deletion of Rs. 49,500 added by the ITO as income from undisclosed sources.

2. The brief facts of the case are that the assessee filed his return of income declaring an income of Rs. 65,320. There was a search under section 132 in the residential premises of the assessee on 28-1-1987. During the course of search the authorised officer found an unsigned typed sheet of paper styled as "Memorandum of Understanding" (for short MOU) the gist of which is as under:

(1) Date of joining - around 1-10-1982

(2) Salary

(a) Rs. 5000 p.m. + reimbursement of medical expenses

(b) Rs. 13,750 extra p.m. togather with 2(a)

(c) Annual leave as per company’s rule

(3) Car with chauffeur at company’s cost

(4) Residential facilities at Kyd St., Calcutta - transfer of tenancy to be arranged. Monthly rent to be recovered from 2(a) and extra for Rs. 3 lakhs from (5)

(5) Share in G.P.

The Assessing Officer noted that the assessee joined Naihati Jute Mills Co. on 12-10-1982 on a monthly salary of Rs. 5,000 and also shifted his residence to No. 1, Kyd Street, Calcutta. The Assessing Officer added a sum of Rs. 1,65,000 as extra salary for the same on the basis of 2(b) above of MOU. The Assessing Officer also added a sum of Rs. 5,400 as the value of motor car with chauffer .Towards rent free accommodation of sum of Rs. 23,500 was added in the assessment order. A round sum of Rs. 3 lacs was added as share in the profit of the company. All these additions were made by the Assessing Officer on the basis of the said unsigned typed sheet styled as ‘memorandum of Understanding". The Assessing Officer also added a sum of Rs. 40,000 as income from undisclosed sources which was loan from Smt. Sumitra Poddar, wife of the assessee. A further sum of Rs. 9,500 was also added as income from undisclosed sources of the assessee which represented the loan obtained by the assessee from Shri Jugol Kishore Bhotra. The Assessing Officer also made certain other additions, but the same are not subject-matter of this appeal. The assessee being aggrieved with the additions appealed to the CIT (Appeals) who deleted all the additions. Being aggrieved the Assessing Officer has filed a second appeal before us.

3. The learned revenue’s representative, Sri S.C. Sen, submits that as per the provisions of section 132(4A)(ii) of the Income-tax Act it may be presumed that the contents of the MOU are true. The assessee has not led any conclusive proof or evidence that the contents of MOU are not true. In short, according to the learned departmental representative the assessee has not rebutted the presumption as laid down under section 132(4A)(ii). It is also submitted by Sri Sen that the CIT(Appeals) is not correct in stating in the impugned order that the assessee was not questioned on the date of search regarding MOU. He has drawn our attention to question No. 15 in the statement recorded by the authorised officer on the date of search and which is at page 3 of the paper book filed. He submits that the terms of employment of the assessee with Naihati Jute Mills Co. tally with the terms contained in MOU found during the course of search. The power of CIT (Appeals) is co-terminus with that of the ITO and the CIT (Appeals) himself ought to have suo motu verified the profits of the Naihati Jute Mills. The learned departmental representative has relied upon the decisions in Cit v. Durga Prasad More [1971] 82 ITR 540 (SC) and Workmen of Associated Rubber Industry Ltd. v. Associated Rubber Industry Ltd. [1986] 157 ITR 77 (SC). The learned departmental representative has also relied upon the order of the Assessing Officer and submits that the order of the CIT (Appeals) in this regard should be reversed.

4. The learned counsel for the assessee, Sri M. Banerjee, submits that the Assessing Officer ought not to have placed reliance or given credence to the unsigned typed sheet of paper styled as "Memorandum of Understanding". The assessee on the date of search had denied about the contents of the MOU. The assessee had also filed a copy of the letter dated 9-2-1982 addressed to him by Naihati Jute Mills Co. confirming his appointment and stating that apart from salary of Rs. 5,000 per month no extra salary was paid to the assessee. It is also mentioned in the said letter by the Company that there was no understanding whatsoever for payment of any other remuneration apart from the salary of Rs. 5,000 per month. The assessee had also filed copy of letter of appointment as President of Naihati Jute Mills dated 30-9-1982 before the Assessing Officer. Copies of the said letters have also been filed in the paper book before us and our attention has been drawn by the assessee’s counsel to those letters. The learned counsel for the assessee submits that the said sheet of paper styled as "Memorandum of Understanding" did not mention any names either of the employer or of the employee and the same is not signed by any party or person. In such an event it would be preposterous to attach credence to such paper and make huge addition to the income returned. There is no presumption whatsoever under section 132(4A) that if any unsigned paper or document is found in the course of search it may be presumed that the same is signed. According to Shri Banerjee any paper or document not having signature is of no value and consequence. It is the signature he further submits, which gives life and validity in law, to any paper or document. The assessee, contends Shri Banerjee, cannot enforce his rights under such an unsigned sheet of paper under the general laws of the land in any court of law, nor any court of law will accept, admit or entertain any plea of the assessee based on such unsigned sheet of paper. The unsigned paper, therefore, having no enforceability in, the eyes of law cannot he relied upon by the Assessing Officer to make huge additions on the terms contained in the said sheet of paper (MOU). The assessee has led ample evidence by way of letters dated 30-9-1982 and 9-2-1982 from Naihati Jute Mills to rebut the presumption which has been strongly relied upon by the Assessing Officer and the learned departmental representative. Sri Banerjee further submits that when no income has accrued, arisen or received by the assessee it will be too inequitable and harsh to tax the assessee on such hypothetical income placing strong reliance on the unsigned MOU. The Assessing Officer has assessed the assessee ‘on hypothetical income and not on real income whereas in law a person is to be assessed on real income and not on hypothetical income or income which could have been earned but not earned. He has relied upon the order of the CIT (Appeals) and urges that the CIT (Appeals) was correct in deleting the addition of Rs. 4,93,900 made by the Assessing Officer.

5. After hearing the rival submissions we are of the opinion that the assessee should succeed in this regard. It is no doubt true that as per the provisions of section 132(4A)(ii), when any document is seized pursuant to search it may be presumed that the contents of such documents are true. We have examined a copy of MOU filed before us in this appeal and we find that the same is not signed either by the assessee or by any person for and on behalf of Naihati Jute Mills. No names whatsoever are also mentioned in the said MOU on the basis of which the Assessing Officer has made the addition of Rs. 4,93,900. We entirely agree with the assessee’s counsel that under section 132(4A) there is no presumption that if an unsigned paper or document is found during the course of search it has to be presumed that it is signed. We find in section 132(4A)(ii) that if there is signature on any document or account books recovered during the course of search then it has to be presumed that the signature and every other part of such account books and other documents which purport to be in the handwriting of any particular person or which may reasonably be assumed to have been signed by or to be in the handwriting of any particular person are in that person’s handwriting. Needless to say that in law no document or paper can have any validity or enforcibility until the same bears signature of concerned parties. Signature is the soul and any paper, notice or document is a body. Body without a soul is of no use, value or consequence. What is the significance and importance of a signature on any document can be found in the judgment of Hon’ble Calcutta High Court in the case of B.K Gooyee v. Commissioner Of Income-Tax [1966] 62 ITR 109 . In that case the Assessing Officer issued a notice under section 34 of the Income-tax Act, 1922 but did not sign it. When the matter came up before the Hon’ble High Court at Calcutta it was held by their Lordships that the unsigned notice issued by the ITO was invalid and consequently equal to no notice. If we are to agree with the contention of the revenue that though the MOU is unsigned the same should form the basis for making additions as per the presumptive provision contained in section 132(4A)(ii) of the Income-tax Act, 1961 then there will be harsh, high-pitched and unreasonable assessments leading to absurd results and miserable consequences on the taxpayers. The provisions of section 132(4A) will become oppressive if applied in this manner and surely this is not the purpose or intention of the Legislature in enacting section 132(4A) in Income-tax Act. Like any other provision of a statute the provisions of section 132(4A) also have to be applied and interpreted in very reasonable manner and in consonance with justice. We say so on the basis of judgment of Hon’ble Supreme Court in the case of R.B. Jodha Mal Kuthiala v. CIT [1971] 82 ITR 570 at p. 575.

6. A reading of section 132(4A) reveals that the words used therein are "may be presumed". It is thus clear that the drawing of presumption in such cases depends upon particular facts and circumstances of each case. The officer is not justified to draw such presumption in all cases without application of mind judiciously to the facts of a particular case. Even if such presumption is drawn against an assessee the same is rebuttable and the person against whom such presumption is drawn is free to lead evidence to rebut such presumption and when that is done, the officer or authority shall consider all the evidence and facts judiciously. Now the question is what quantum of evidence is required to rebut such presumption in a given case or set of facts ? In our opinion, no hard or fast rule can be laid down nor has been laid down by any courts. The evidence for rebutting presumption may be either direct or indirect or may be both. And in some cases perhaps even the statement of the assessee may be enough to rebut such presumption drawn by the officer or authority. To say so we draw support from the decision of the Rajasthan High Court in the case of Addl. CIT v. Thahrayamal Balchand [1980] 124 ITR 111 at page 117. In the instant case the assessee has denied the said unsigned MOU during the course of search. The assessee has led evidence by way of letters dated 30-9-1982 and 9-2-1982 from Naihati Jute Mills Co. which, in our opinion, in sufficient to relevant the presumption relied upon by the assessing officer or making addition. The Naihati Jute Mills have emphatically stated that there has been no understanding whatsoever with the assessee and that the salary of the assessee had fixed at Rs. 5,000 per month with perquisites as mentioned in its letter dated 30-9-1982. All these letters are on record. We also find much force in the contention of the assessee’s counsel that in law no cause of action can lie in any court of law on the basis of such unsigned MOU. The Hon’ble Calcutta High Court has laid down in the case of CIT v. Burlop Commercial (P.) Ltd. [1988] 173 ITR 522 p. 525 that if in law the cause of action does not arise it cannot be said that the liability to pay has accrued. Apparently no cause of action can lie between the assessee and Naihati Jute Mills Co. on the basis of such unsigned MOU and, therefore, there is no obligation or liability on the part of the company to pay to the assessee all those amounts mentioned in the unsigned MOU nor the assessee is entitled to claim from the company all those amounts mentioned in that unsigned MOU. We are also inclined to agree with the assessee’s counsel that when no income has resulted at all on the basis of unsigned MOU then there is neither accrual nor receipt of income. Under the provisions of the Income-tax Act it is the real income which has to be taxed and not hypothetical income. In this connection we draw support from the decision of the Hon’ble Supreme Court in CIT v. Shoorji Vallabhdas & Co. [1962] 46 ITR 144 . The Supreme Court has also laid down in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 at p. 155 that the concept of real income is certainly applicable in judging whether there has been income or not. The Hon’ble Supreme Court again in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 at p. 605 has clearly stated that it would indeed be most harsh and inequitable to tax an assessee on income which has neither arisen to him nor is received by him. Apart from the unsigned MOU the Assessing Officer has not led any cogent and reliable evidence to establish that the assessee earned or received the amounts mentioned in the said unsigned MOU. As held by us earlier the assessee has rebutted the presumption by way of ample evidence which is on record. The case laws cited by the learned departmental representative do not support the case of the revenue. We are, therefore, of the view that the CIT (Appeals) was perfectly justified in deleting the addition of Rs. 4,93,900 made by the Assessing Officer on the basis of unsigned MOU. We, therefore, affirm the finding of the CIT (Appeals) in this regard.

7. to 10. [These paras are not reproduced here, as they involve minor issues].