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TMI Blog1994 (8) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... of the family are also individually assessed to income-tax. During the search, undisclosed stock, money, jewellery, etc., were found. However, they had no nexus to the business of these firms. We were told that the excess stock, money, jewellery, etc., came to be assessed in the individual assessment of the partners/family members. 5. One Vasanthkumar is a partner of Devi Silks and Sri Ranga Silks. He is not a partner in Devi Ranga Sarees. Sworn statement of Vasanthkumar was first recorded by the ITO (Survey) on 11th Oct., 1990. Further statement was recorded on 12th Oct., 1990 and it was finally concluded on 18th Oct., 1990. We will mention about the details at a later stage when it becomes appropriate. Suffice it to say that statement of Vasanthkumar disclosed that trade credits, of all the firms, as they stood on 31st March, 1990 as per record, were, in fact, not subsisting as the payments had been made before the end of the accounting year, namely, 31st March, 1990. The statement further revealed that payments to trade creditors had been made by the family members (including partners) out of their personal funds. This fact stood confirmed in writing from some of the partners ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade under s. 69 in each of the assessments. The gravamen of Shri Venkatesan is that the authorities below were not right in accepting the statement of Vasanth Kumar in portions to make an addition under s. 69. His further complaint was that the said statement recorded at a time when the search was in operation had put all the members of the family, including partners, in a fear complex which had taken out their free mind to deprive exercise while answering questions. It was suggested that the authorities had every chance to wield undue influence over the persons searched because of the heavy weight they could lend by virtue of their power and position and this aspect should not be brushed aside while appraising the statement of Vasanth Kumar. 11. For the Revenue, the learned senior representative, Shri Puniha, replied to the various objections taken to accepting the statement of Vasanth Kumar. His endeavours were to show that circumstances themselves will explain that Vasanth Kumar (or other family members) were in their full freedom and fear, if any, had wilted away because of the fair deal given by the searching authority. Before examination of these rival contentions we will p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of account showed that credit balances were outstanding as on 31st March, 1990. But Vasanthkumar came to confess that payments to all the weavers had been made earlier to 31st March, 1990, though the books of account were otherwise. 15. On 12th Oct., 1990, Vasanthkumar, in his further sworn statement, stated that not only the several partners of the three firms but also some members of the family had advanced from their individual account to make payments to weavers. The number of such persons were twenty one and the percentage of advance by each person was also given. Vasanthkumar admitted that he was making the above statement after deliberations with all the family members who must have authorised him to make that declaration. 16. On 18th Oct., 1990, Vasanthkumar varied his earlier declaration to some extent. He, while confirming the disclosure, stated that four partners of Devi Silks, five partners of Sri Ranga Silks and eight partners of Devi Ranga Sarees had paid from their individual account. According to that, the persons who had advanced were eighteen in number and the amount advanced by each of them was specified. 17. He made certain declarations in regard to indivi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etails necessary to show how creditors had been paid before 31st March, 1990. The individual partners could not have applied to the Dy. Director (Inv.) on 19th Oct., 1990 and that was a time when they were certainly free from any sort of official influence. The search had been over on the previous day and the parties had their power of action. 19th Oct., 1990 would have been the earliest day to retract if really the earlier declarations had been procured by any means. Any doubt it is completely removed by the joint application the parties sent on 16th Nov., 1990 to the Director of Investigation and that too with the advice of their chartered accountants in the matter. We have no doubt in our minds that admissions made by Vasanthkumar and other partners were free and voluntary. We are also of the opinion that the other partners had consciously confirmed the declaration made by Vasanthkumar. The same has to be said of the letters sent to the Dy. Director (Inv.) and the Director (Inv.). The question is what inferences would consequently follow as a result of this conclusion. 20. The Assessing Officer had called upon the firms to establish the trade credits. It is true that some orig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the evidence of the sellers and, in the assessment order, at one stage, he states "creditors are also not genuine". 24. If the Revenue should say that the creditors are bogus, then it follows that there were no credits at all; and the assesses were not required to pay. It is one thing to say that the credits were true but the creditors were false. That is not the finding of the Assessing Officer. At one stage he remarks: "The most important ingredients of the discharge of onus of creditors are to identify the creditors; the capacity of the creditors; and the genuineness of the transaction. Though the assessee has produced some of the creditors, as their statements are not convincing none of these conditions have been satisfied." This is not a case of cash credit. If the Assessing Officer should dismiss the purchases on the reason that the creditors are not genuine, then the sales also should be equally false. All these disputed credit purchases had been taken into account as can be seen from the balance sheet. In the P&L account, opening stock, purchases during the year and sales of the year are referred to. Purchases include these disputed items. It is on that basis return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' obligation till continued and this was the alternative plea of Shri Venkatesan. 27. The learned senior representative Shri Puniha cited the decision of the Supreme Court in Narayan Bhagwantrao Gosavi Balajiwale vs. Gopal Vinayak Gosavi & Ors. AIR 1960 SC 100 wherein it is pointed out: "An admission is the best evidence that an opposing party can rely upon, and though not conclusive, is decisive of the matter, unless successfully withdrawn or proved erroneous." To say that strict rules of evidence do not apply in a tax proceeding, the decision of the Calcutta High Court in the case of Mriganka Mohan Sur vs. CIT (1979) 120 ITR 529 (Cal) was brought to our notice. The further submission was that a party cannot get away by merely stating that it was given only to get rid of the fear of prosecution and penalty and, in this regard, the observations of the Karnataka High Court in the case of Addl. CIT vs. Chikkaveerayya Linggiah (1986) 51 CTR (Kar) 95 : (1987) 164 ITR 41 (Kar) were pressed into service. 28. There could be no dispute with regard to legal proposition. Strict rules of evidence or the provisions of the Evidence Act do not apply to a tax proceeding. But salutary pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required to show that the creditors were genuine. The Assessing Officer disbelieves credit purchase themselves. Reading the assessment order it is not possible to think that the Assessing Officer treated all the credit purchases as cash purchases. If the transactions are disbelieved then the supply of the goods is itself in doubt. If what the Assessing Officer infers be true, then that would disturb the closing balance too. According to the stand taken at the time of assessment, and maintained before us also the creditors were paid after 31st March, 1990. In the assessment for the next year (1991-92), for instance, in the case of Devi Silks, an addition of Rs. 8,17,000 has been made under the caption "claimed as out of OD balance creditors at the time of search and now claimed as representing credit purchases and paid later". Besides, an addition of Rs. 14,41,563 has been made for reasons of cash payments. The account books, otherwise, have been accepted in asst. yr. 1991-92. In other words, that trade credits which stood on 31st March, 1990 have been paid subsequently stand established from the assessment of the next year. In the set of circumstances, the addition is unsupporta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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