TMI Blog1991 (3) TMI 207X X X X Extracts X X X X X X X X Extracts X X X X ..... on 18-5-1985 the cheque issued by the assessee in repayment of the debt at credit was encashed. This account was eventually closed on 19-11-1985. The Income-tax Officer further found that the amount credited to his account was withdrawn by self cheque and on the reverse side of the self cheque, Sri M.A. Qayyum, Accountant of the assessee-firm, signed in token of having received cash of Rs. 2 lakhs from the bank. When Sri Qayyum was examined on 1-3-1988, he stated that the amount withdrawn by him by signing the self cheque was handed over to Sri G. Aravinda Reddy, partner of the firm. In a statement recorded from Sri Aravinda Reddy, he stated that the sum of Rs. 2 lakhs received from Sri Qayyum was immediately passed on to one Sri Udayabhanu, who is said to be an accountant of Babu Khan Estate, and at that time the creditor was also present in the room. Sri Udyabhanu is stated to have paid the money to the creditors. Though he said that he could remember the face of this creditor, he was not sure whether he could produce the person. The Income-tax Officer also found that the creditor was introduced to the bank by Sri M.A.R. Krishnam Raju, Chartered Accountant. When the Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed sources under section 68 of the Income-tax Act, 1961. 4. On appeal, the Commissioner of Income-tax (Appeals) held that the responsibility of establishing the genuineness of the transactions recorded in the books of account of the assessee squarely lay on the assessee itself. As the assessee had not been able to establish the identity of the persons, an attempt at judging their creditworthiness or the genuineness of the actual transactions would be a superfluous exercise. In the circumstances, the CIT (Appeals) confirmed the addition of Rs. 3.50 lakhs made by the Income-tax Officer. 5. Aggrieved with the above decision of the CIT (Appeals), the assessee came in appeal before the Tribunal. During the course of appeal before the Tribunal, the assessee, amongst other grounds, took two grounds, viz., grounds 3 and 5, regarding the addition of Rs. 3.50 lakhs under section 68, which ran as follows :--- 3. "The Assessment Order was passed without giving any opportunity to the Appellant for rebuttal and answer for the proposed additions which were made on the basis of the material gathered by ITO privately behind the back of the Appellant. The Assessment Order is thus clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... making the assessment, the Income-tax Officer relied on the Inspector's report. It is also not disputed that copies of the Inspector's enquiry report and sworn statements were not provided to the assessee. It was found from the records that the assessee made a request for the issuance of notice under section 131 and the request of the assessee was not complied with. Having regard to the facts and circumstances of the case, he was of the opinion that there was failure of natural justice on the part of the Assessing Officer. He, therefore, thought it fit to "set aside the order and restore it to the file of the Assessing Officer with direction to redo the assessment after providing adequate opportunity to the assessee of being heard". In the circumstances, he was of the opinion that the appeal should be treated as allowed for statistical purposes. 8. The learned Accountant Member, however, did not agree with the views of the learned Judicial Member. He, however, agreed with the finding of the learned Judicial Member that the enquiry report and the sworn statements were not provided to the assessee and in spite of a specific request made by the assessee for the issuance of summons u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Third Member :--- "(1) In a case where the assessee is on appeal against the additions by way of cash credits only and the other additions are not under challenge, whether the Tribunal would be justified in setting aside the entire order of assessment instead of the additions? (2) Whether the additions made by the Assessing Officer in violation of the principles of natural justice should be set aside as void ab initio and thus deleted or should the case be restored to the ITO with directions for redoing? (3) Where an assessee has assailed additions on the failure of natural justice and also on the merits of each addition, whether it would be just and proper to deal with only the question of natural justice and to restore the issue to the Assessing Officer without considering the merits of each addition?" 12. Sri Swamy, learned counsel for the appellant, contends that the learned Judicial Member is not correct in setting aside the entire order of assessment instead of those additions which are vitiated by failure to observe principles of natural justice. According to him, the setting aside of the entire assessment would mean setting aside even the relief obtained by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to lead his own evidence, both oral and documentary, in his defence. In the present case, there is clear violation of principles of natural justice inasmuch as the assessee was not given a copy of the Inspector's report, copies of the statements recorded were not furnished to it and its request for examination of the creditors under section 131 was denied. Sri Swamy also points out that both the Members have agreed that there was a failure of observance of principles of natural justice. Once this is accepted, the only course open to the Tribunal is to strike down the additions or quash the order only to the extent it deals with the addition of Rs. 3.50 lakhs. This is exactly what the learned Accountant Member has done. Once the additions are quashed, there is nothing to be gone into and the learned Judicial Member is not correct in observing that further opportunity should be given to the revenue to examine the credits afresh after observing the principles of natural justice. He relies in this connection on the decision of the Supreme Court in B. R. Singh v. Union of India AIR 1990 SC 1, and the commentary of the learned authors Chaturvedi and Pithisaria in Vol. 3 at pages 2803 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon". The power of the Tribunal to remand is only incidental to its power to hear and dispose of the appeal. If in an appeal the Tribunal could interfere in favour of the appellant, a remand could be made as incidental to that power for the purpose of giving relief to the assessee, but the power of remand could not be exercised so as to exceed the jurisdiction of the Tribunal under section 33(1) [of the old Act]. It cannot exercise the power of remand for the purpose of enhancing the tax. It would appear from this decision that while the power of remand is implicit in the powers of the Tribunal to pass "such orders on the appeal" and is also incidental to its powers to hear and dispose of the appeal, it cannot be exercised for the purpose of enhancing the tax which it is prohibited to do by Statute. 18. The Mysore high Court in the case of Pathikonda Balasubba Setty, held that the powers of the Tribunal are limited to the subject matter of appeal and the Tribunal has no power to make an enhancement beyond the figure fixed by the Department. It was held that the Tribunal could only deal with the additions in dispute but not with other parts of the order which are not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of natural justice should be set aside as void ab initio. The second segment is as to whether the addition should be deleted or should the case be restored to the Income-tax Officer with a direction for redoing. 21. Now, let us take the first segment of the second question. As it has been discussed in the earlier paragraphs, there is plethora of cases holding that violation of principles of natural justice makes the decision void as in every other case ultra vires. The rules of natural justice operate as implied mandatory requirement, non-observance of which amounts to arbitrariness and discrimination. The principles of natural justice have been elevated to the status of Fundamental Rights guaranteed in the Constitution of India as is evident from the decision of the Full Bench of the Honourable Supreme Court in the case of Union of India v. Tulsiram Patel AIR 1985 SC 1416 at 1460, holding that the principles of natural justice have thus come to be recognised as being a part of the guarantee contained in Article 14 of the Constitution of India because of the new and dynamic interpretation given by the Supreme Court to the concept of equality which is the subject matter of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings are not terminated. (b) In Guduthur Bros.' case, the Honourable Supreme Court was dealing with a case where penalty was levied without affording the assessee an opportunity of being heard. There the penalty proceedings were validly initiated. The penalty imposed without giving opportunity of hearing was set aside. The question arose as to whether the proceedings could be continued from the stage of notice and was it so permissible. It was held that "as the Appellate Assistant Commissioner pointed out only to an illegality which vitiated the proceedings after they were lawfully initiated, the notice issued under section 28(1)(a) did not cease to be operative and it was open to the Income-tax Officer to take up the matter at the point at which the illegality supervened and to correct his proceedings. The notice under section 28(1)(a) having remained still to be, disposed of, the proceedings started after the order passed by the Appellate Assistant Commissioner could be described as during the course of the assessment proceedings, because the action would relate back to the time when the first notice was issued. The Income-tax Officer had jurisdiction to continue the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y opportunity to the appellant for rebuttal and answer for the proposed additions which were made on the basis of the material gathered by ITO privately behind the back of the appellant. The assessment order is thus clearly in violation of the mandatory provisions of section 142(3) of the IT Act, 1961 the rules of natural justice and rules of evidence. The assessment order was therefore clearly illegal and void and liable to be quashed by the appellate authority. (5) The learned first appellate authority ought to have deleted the addition made by the Assessing Officer under section 68 since he (Assessing Officer) failed to issue summons and examine the lenders under section 131 of the Act. This tantamounts to valuation of essential rules of Natural Justice and the additions ought to have been deleted, by the first appellate authority." 3. We first propose to discuss in brief the facts of the case. The business of the appellant is to acquire land and to construct housing colony for individual purchasers of house after developing the land. Accounting year of the assessee ends on 31-3-1985. During the relevant assessment year the housing colony was under construction. No house was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In regard to Shri A. Ravigopal, the assessee filed confirmatory letter before the ITO during the assessment proceedings for the assessment year 1984-85 to the effect that he has paid as loan a sum of Rs. 50,000 on 20-1-1984 and Rs. 1,50,000 on 4-4-1984 by way of cash to the assessee. Details of bank accounts of all the loan creditors was obtained from the banks, since all the amounts of loans were returned by the assessee before the accounting year relevant for this assessment year. 7. In order to ascertain the veracity of the credits, ITO made certain enquiries. Inspector was deputed and his report was relied upon. Sworn statements were taken into consideration. 8. Learned counsel invited our attention to a letter dated 16-3-1988 given to the Income-tax Officer apropos the enquiry. A xerox copy of the said letter was appended in the paper book filed by the assessee at page 38. The evidence of filing this letter is recorded on the face of it which bears receipt No. 120126 dated 16-3-88. The relevant portion of the letter is reproduced here as under :--- "You also know, Sir, that we do not have any power, authority or force to produce persons or compel their personal appearan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided to the assessee and request for the issuance of summons under section 131 was not complied with the order of assessment is violative of the principles of natural justice. 13. Shri M.K. Rao, learned D.R. submitted that in the facts and circumstances of the case it cannot be said that adequate opportunity was not provided to the assessee. Since the case was getting time barred the Assessing Officer had some difficulty in complying with some of the requests made by the assessee for the issuance of summons etc. it is not correct to say that assessing officer has not followed the principles of natural justice. Learned D.R. relied on the orders of the revenue authorities and submitted that the additions made were just and proper and perfectly in consonance with the canons of law. 14. We have heard the rival submissions in the light of material placed before us. We have examined all the relevant papers and documents. We have also gone through the decisions relied on by the parties in course of hearing. It is not disputed that in making the assessment, the ITO relied on the Inspector's report. It is also not disputed that the copy of the Inspector's report, enquiry report and sw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deem fit if otherwise permissible under law as has been held by the Supreme Court in M. Chockalingam and M. Meyyappan v. CIT [1963] 48 ITR 34. Further my learned brother's order is silent on the merits of the case, though the appellant has assailed the additions not only on grounds of violations of natural justice. but also on the merits of such additions. Hence, with very great respects to my learned brother I am constrained to pass a dissenting order. 2. Natural Justice --- In Ponkunnam Traders' case it was held by the Kerala High Court that the failure to conform to the principle of natural justice of audi alteram partem would make a judicial or quasi-judicial order void. Justice K.K. Mathew of the Kerala High Court as he then was before his elevation to the Supreme Court dealt at length on the principles of natural justice and the consequences flowing from the violation of such principles by referring to a number of decisions at pages 512 to 518 in the case cited supra. The learned Judge approvingly quoted the decision of the Privy Council in Annamunthodo v. Oilfields Workers' Trade Union [1961] 13 All ER 621 page 521 where Lord Denning said: "Counsel for the respondent un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... guarantee that any law or State action violating them will be struck down. The principles of natural justice, however, apply not only to legislation and State action but also where any Tribunal, authority or body of men, not coming within the definition of 'State' in Article 12, is charged with the duty of deciding a matter. In such a case, the principles of natural justice require that it must decide such matter fairly and impartially". 5. The learned Judges proceeded to state further that "the rule of natural justice in the appeals and writ petitions, namely. the audi alteram partem rule, in its fullest amplitude means that a person against whom an order to his prejudice may be passed should be informed of the allegations and charges against him, be given an opportunity of submitting his explanation thereto, have the right to know the evidence, both oral or documentary, by which the matter is proposed to be decided against him, and to inspect the documents which are relied upon for the purpose of being used against him, to have the witnesses who are to give evidence against him examined in his presence and have the right to cross-examine them, and to lead his own evidence, bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1984 15-1-1985 7. Srinivas N. 50,000 29-5-1984 50,000 7-6-1984 6-2-1985 --------------- 3,50,000 --------------- 9. The Income-tax Officer obtained account copies of Shri A. Ravi Gopal and Shri A. Suman Kumar, S.B. A/c Nos. 2025 and 2026 in the Bank of Tamil Nadu Ltd. He found that these two accounts were opened on 8-4-1985 with Rs. 50 as deposit and on 18-5-1985 Rs. 2,00,000 was credited to this account by transfer and the same was withdrawn by self-cheque on the same day and as on 19-11-1985 when the accounts were closed the balance was Rs. 51 only. He also found that the address given in the Account Opening Forms, Account Nos. 2025 and 2026 in the Bank of Tamil Nadu Ltd. and the address given in the confirmation letters were one and same. Then he went on to give details of the credits obtained by the firm as follows: "Sri A. Ravigopal and Sri A. Suman Kumar allegedly gave the loan to M/s The Colonisers as follows : (1) Sri A. Suman Kumar Rs. 2,00,000 on 20-1-1984 By cash (2) Sri A Ravi Gopal Rs. 50,000 on 20-1-1984 By cash Rs. 1,50,000 on 4-4-1984 By cash" Passing for a moment I am compelled to remark that the credit in the name of Shri A. Suman Kumar does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well called for the income-tax records from the concerned Circle and tested the veracity of the credit. He did not do that. However, he deputed an Inspector after considerable lapse of time. The Inspector's report, if at all it can be called a report, runs as follows : "As directed by ITO, I have served summons on Shri A. Ram Mohan, H.No. 10-1-462, West Maffedapally, Sec'bad today. As regards the whereabouts of Shri A. Ravi Kumar and Shri A. Suman Kumar, I made some enquiries, in the above premises (including tenant' sportion and also neighbouring houses) but nobody could tell anything about these persons." 10. Shri A. Ram Mohan is not a creditor and whatever statement was recorded from him was not put to the assessee. Shri A. Ravi Kumar is not the concerned creditor in the impugned assessment year. The name of the creditor in the impugned assessment year is Shri A. Ravi Gopal but not Shri A. Ravi Kumar. Shri A. Suman Kumar is not a creditor in the sense that his name does not appear as a creditor in the impugned assessment year. Therefore, one fails to understand how a report about Ravi Kumar and Suman Kumar (whatever be the content of the report) could be attributed to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vings Accounts. Thus, the physical existence of Shri Ravi Gopal and Suman Kumar cannot be doubted merely because of a vague report by the Income-tax Inspector. A responsible member of Institute of Chartered Accountants of India had deposed that he was instrumental in getting the loan from Shri Ravi Gopal and Suman Kumar. Even if one were to brush aside the evidence of Shri Reddy, Khayum and Uday Bhanu, it would do well to remember that the cheques were issued to these persons on 31-3-1985 but it was found to be encashed only in May 1985. This is a circumstance to show that the assessee did not have control over the cheque after it was issued in favour of these persons. The assessee's accountant might have assisted these persons in encashing the cheques but that does not mean that the proceeds remained with the assessee or his accountant. What the creditors did with the moneys thus received is not the concern of the assessee nor the assessee can be called upon to explain why those persons withdrew the money without keeping it in their accounts. At best, there, might be a room of suspicion but suspicion cannot take place of proof. Besides. Ravi Gopal had in his confirmative letter cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y material to show that the cheque by which the repayment was made was encashed by the assessee or by his nominee. In the absence of any such investigation, mere suspicion cannot take the place of proof and, therefore, the addition on this count is fit to be deleted. 14. Shri G.S. Subba Rao is stated to have advanced a sum of Rs. 10,000 on 9-5-1984 which was said to be repaid on 15-1-1985. He has given a confirmation letter dated 14-12-1987 in his own hand in his letter pad. The confirmation letter contains his address and speaks to the factum of making the advance and also its repayment. Further, the letter says that he made the advance of Rs. 10,000 out of his professional income and that he is assessed to income-tax in J-Ward, Circle-II, Hyderabad, and P.A.No. is allotted to him. Thus the assessee has discharged the primary onus, by filing the confirmation letter. 15. There is no material before the Income-tax Officer to doubt the veracity of the statement of Shri Subba Rao. When the Income-tax Officer demanded the presence of the creditors, the assessee wrote to Subba Rao to be available before the Income-tax Officer on 17-3-1988 and Shri Subba Rao in his letter dated 14-3- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come-tax Officer to say whether the address was wrong or whether it did not exist. There is no material to show that the Cheque No. 353979 by which the repayment was made was funnelled back to the assessee. Therefore, it cannot be held that the assessee has not discharged the initial onus about this credit. In the absence of any material to the contrary, there is no justification for treating the sum of Rs. 20,000 as the income of the assessee. 18. Mr. Sreenivas has advanced a sum of Rs. 50,000 on 29-5-1984 and also another sum of Rs. 50,000 on 7-6-1984 and the amounts were repaid on 6-2-1985. He has declared that he has given these sums to the assessee out of the sale proceeds of his plot at Road No. 2, Banjara Hills, Hyderabad - 34. He has also given his address. The Income-tax Officer did not bring anything on record to show that the statement of the creditor was false or otherwise fit to be rejected. The creditor has not only given his address but also indicated the source from which he got this amount. In the circumstances, to treat the loan as income is manifestly unjust. 19. It is to be emphasised that the ITO enquired about Ravi Gopal, one of the several creditors, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditions as cash credits should be set aside, lock, stock and barrel. On the facts and in the circumstances of the case, there is no justification to restore the issue to the file of the Income-tax Officer for further enquiry, as in that case the remedy would be worse than the malady because of efflux of time also. The Assessing Officer made certain additions and disallowances in framing the assessment. One of the additions was made under section 68. The assessee carried the matter in appeal against the additions and disallowances. The first appellate authority has partly allowed the appeal but sustained the additions towards cash credit. The assessee is in second appeal against the additions under section 68, The assessee has made out a case for failure of natural justice so far as cash credit additions are concerned. The Judicial Member, who proposed the order has recorded a finding that there was violation of the principles of natural justice in collecting the materials behind the back of the assessee and in not putting the same to the assessee. The Accountant Member concurs with this finding of the learned Judicial Member. However, the learned Judicial Member set aside the or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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