High Court Of Madras
CIT vs. Ambika Appalam Depot
Section : 132, 158BC
Elipe Dharma Rao And M. Venugopal, JJ.
Tax Case (Appeal) No. 151 Of 2008
July 7, 2011
Elipe Dharma Rao, J. – The present appeal is preferred against the order of the Income-tax Appellate Tribunal, Madras “A” Bench, dated January 19, 2007, in IT (SS)A. No. 60/Mds/2003 for the assessment year : block period April 1, 1989, to March 16, 1999.
2. The following substantial question of law has been formulated at the time of admission of the appeal :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in deleting the addition made by the Assessing Officer on account of purchase of land by the assessee, when incriminating documents found during the search, is showing a higher value when the documents relating to the purchase, showing a lesser figure ?”
3. The facts in brief are as follows :
The assessee is a firm engaged in the business of selling homelink products such as pappads under the brand name “Ambika Appalam”. It is a partnership firm. The partners of the firm are (i) Mr. K. A. Velayudhan ; (ii) Mr. K. V. Sukumaran ; and (iii) Mr. K. V. Vijayaraghavan, the latter two being the sons of the first named. It also manufacturers various items of eatables and sells it through their branches. Search and seizure action under section 132 of the Income-tax Act, 1961, (in short “the Act”), were conducted on March 16, 1999, in the business premises of the assessee as well as the residential premises of the partners. Simultaneously, survey operations under section 133A of the Act were also initiated in seven branches of the assessee. During the course of the search, it was found from the seized material that the partners of the firm had acquired certain immovable and movable properties. In one of the partners’ diary it was found that a property was purchased for Rs. 29 lakhs, but it was stated by the assessee that the property was purchased for Rs. 14.32 lakhs only, but the Assessing Officer proceeded to include the difference being Rs. 16.30 lakhs as unexplained investment in the block assessment. Aggrieved by the order of the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals), who, by order dated December 12, 2002, held that the Assessing Officer was not justified in treating the amount of Rs. 16.30 lakhs as undisclosed income of the assessee. Against the aforesaid order, the Revenue took the matter in appeal before the Income-tax Appellate Tribunal “A” Bench (in short “the Tribunal”), by raising a issue that the deletion of addition of money payment of Rs. 16.30 lakhs being the difference in the cost of purchase of lands at Trichur as shown in the books of account and the seized material found during the course of search being the diary of one Vishnu. The Tribunal by its order dated January 19, 2007, confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed the appeal filed by the Revenue. Aggrieved by the order of the Tribunal, the Revenue has come forward with the present appeal.
4. Learned standing counsel for the Revenue contended that on account of purchase of land by the assessee, when there are incriminating documents found during the search showing a higher value when the documents relating to the purchase showing a lesser figure, the Tribunal ought not to have deleted the addition made by the Assessing Officer. It is the specific case of the learned standing counsel that the diary seized at the time of search had disclosed that the Trichur property had been purchased for Rs.29 lakhs, whereas in the assessment order relating to the block period a lesser value has been shown, i.e., Rs. 14 lakhs and, therefore, on the basis of the aforesaid diary, the Assessing Officer has correctly assessed the difference sum of Rs. 16.30 lakhs as addition and passed the order to the said effects. According to him, since the order passed by the Assessing Officer is based on the materials on record and a finding on facts it ought not to have been interfered by the Commissioner of Income-tax (Appeals) and the Tribunal. He has further contended that as per section 132(4A), where any books of account or other document is found in the possession of any person in the course of a search, it has to be presumed that such document belongs the said person and the contents of such document are true and the handwriting found in such document should reasonably be assumed to have been signed the said person. In support of the aforesaid contention the learned standing counsel has relied on the decisions of the apex court reported as P. R. Metrani v. CIT  287 ITR 209/157 Taxman 325 and CIT v. Mukundray K. Shah  290 ITR 433/160 Taxman 276 (SC). In this context, it is also contended that the Tribunal while passing the impugned order has not taken into consideration the effect of section 132(4A) of the Act.
5. Learned counsel for the respondent-assessee has contended that when the purchase of the lands were already declared by the partners of the firm, namely, Shri K. A. Velayudhan, K. V. Sukumaran and K. V. Vijayaraghavan in their respective returns of income for the assessment years 1992-93 and 1993-94, there is no occasion for the Assessing Officer to add the difference amount as found in the diary seized in the search. It is also contended by him that the extent of the land and the sale consideration found in the seized diary are not correct when it is compared to the actual extent and price and, therefore, the seized diary should not be considered as document under section 132(4A) of the Act. Learned counsel has also contended that the property has been purchased by the partners in their names in individual status and the assessee as a firm is no way connected to the purchase and, therefore, the order of the Tribunal as well as the Commissioner of Income-tax (Appeals) is to be confirmed. He has also contended that the diary seized is from one Vishnu, who is no way connected with the assessee’s firm. According to the counsel, the concurrent finding of the Tribunal and the appellate authority has to be confirmed.
6. From the contentions raised, the first and foremost question to be decided is as to whether the diary seized from one Vishnu is in no way connected with the assessee-firm and, if it is connected, whether the entries found in such diary can be dealt against the assessee and such diary can be treated as a document as contemplated under section 132(4A) of the Act ?
7. From the materials on record, it is seen that the assessee is a partnership firm of which (1) Mr. K. A. Velayudhan, (2) Mr. K. V. Sukumaran, and (3)Mr. K. V. Vijayaraghavan, the former being the father and the latter being the sons, are partners. Till 1970’s, the firm used to manufacture its own appalams and sell them, but, presently, the appalams are manufactured by individuals and brought to them and the assessee-firm sells the same with their name and logo. Apart from the trade in appalams the concern also manufactures various eatables and sells them through their outlets. While so, by action under section 132 of the Act, on March 16, 1999, the residential premises of the partners of the firm and other business concerns were searched and various acquisitions made by the partners of the firm relating to both movable and immovable properties were brought to light. Thereafter, a notice dated July 26, 1999, under section 158BC of the Act was served on the firm on July 28, 1999, calling for the block return under section XIV-B of the Act. Since there was no response to the notice, the assessee was requested to file the block return by letter dated October 26, 1999. Block return admitting an undisclosed income of Rs. 90 lakhs was furnished by the assessee on January 24, 2000. In such letter it seems the assessee had admitted the above income on the basis of the investments made by the partners during the block period ending with March, 1999. Though the claim was made by the Assessing Officer under different heads, in the present appeal, we are concerned only with the dispute relating to Trichur lands, which is dealt with by the Assessing Officer in paragraph 6 of the assessment order.
8. The Assessing Officer, on the basis of the diary seized in view of the search made on March 16, 1999, called upon the assessee to explain the entries found in the diary, a copy of which had also been enclosed along with the notice, wherein it is indicated as follows :
|“Cost of the land (29 cents)||29,00,000|
9. On the hearing held on February 7, 2000, one of the partners of the assessee-firm, namely, Mr. Vijayaraghavan, father of the other partners along with the chartered accountant appeared before the Assessing Officer and stated that the amount should not be taken as Rs. 29 lakhs against Rs.14 lakhs. In the letter dated February 16, 2000, the assessee had stated that the documents reflect only Rs. 14.32 lakhs and the scribbling in the diary have no connection with the transaction. However, in the letter dated June 21, 2001, the assessee was informed that the entries in the diary are not merely scribbling and it gives the real picture of the transaction with regard to the construction of Ambika Arcade by drawing the attention of the assessee to various transactions made in the diary with supporting documents. After coming to such a conclusion, the Assessing Officer proceeded to treat the unexplained investment of Rs. 16,30,000 as undisclosed income under Chapter XIV-B of the Act.
10.Learned counsel for the assessee sought to challenge the aforesaid finding of the Assessing Officer mainly on the ground that the assessee is a firm, whereas the property was brought by the partners in their individual capacity and in their returns the property had already been assessed. It is true that the property had been purchased in the name of the partners. But, that does not mean that the assessee-firm has nothing to do with the purchase of the property. This ground now raised by the assessee was not raised either before the Commissioner of Income-tax (Appeals) or before the Tribunal. The transactions being done by the partners of the firm should be treated as the transactions being done by the firm. Therefore, the contention that the assessee-firm is not liable to be assessed cannot be accepted and it is liable to be rejected.
11. The allied contention of the assessee that the partners have shown the transaction in their individual returns also cannot be accepted for the reason that the Assessing Officer has individually gone into the returns submitted by the partners and calculating the assessee’s share and in corroboration with the entries found in that seized diary had come to a factual conclusion that the assessee had not disclosed the actual value of the lands purchased. This finding of the Assessing Officer was sought to be distinguished by the Commissioner of Income-tax (Appeals) that since the assessee had admitted the total undisclosed income of Rs. 90 lakhs though he had declared the undisclosed income to the extent of Rs. 74,85,015, the assessee is not liable to pay the addition arrived at by the Assessing Officer. The Commissioner of Income-tax (Appeals) or the Tribunal had not brushed aside the finding of the Assessing Officer with regard to the difference amount in sale consideration, on the other hand, they came to a conclusion that since the assessee had admitted an excess amount than the actual undisclosed income, the assessee is not liable to pay tax on the addition amount. Therefore, for the reasons stated above, we are confirming the conclusion arrived at by the Assessing Officer in this regard and the contention of the learned counsel for the assessee that the assessee is not liable to pay tax on the addition as the same had already been disclosed in the return submitted by the partners cannot be accepted.
12. Coming to the contention with regard to the entries in the seized diary, it is the case of the assessee that the author of the diary is no way connected with the assessee-firm and since there is difference in the actual extent and the value of the land, the entries made therein should be treated as scribbling and should not be taken as an evidence as contemplated under the Indian Evidence Act. In this connection, he has also submitted that since the Assessing Officer has not tested the notings made in the diary by an enquiry with the sellers, it should not be taken as an incriminating evidence to warrant addition of any amount as undisclosed investment.
13. The main reason for denying the entries made in the diary with regard to purchase of the land by the Commissioner of Income-tax (Appeals) and the Tribunal is that no enquiry was made by the Intelligence Wing with the seller to prove the alleged passing on of the money, which had violated the principles of natural justice. Further, the appellate authority as well as the Tribunal had opined that the proper course of action in this regard would have been to reopen the assessment under section 147 of the Act, namely, regular assessment proceedings as against the block assessment proceedings. For coming to such conclusion the appellate authority as well as the Tribunal had treated the declared undisclosed income under section 132(4) of the Act.
14. In order to appreciate the contentions raised by the assessee, one has to see whether the Income-tax Act, 1961, contemplates any enquiry to be conducted by the Assessing Officer with the sellers before confirming the entries made in the diary or a presumption can be drawn without conducting an enquiry. Learned standing counsel for the Revenue by drawing our attention to section 132(4A) of the Act the contention that as per section 132(4A) a presumption can be drawn that the contents of the diary are true, when such diary is seized from the possession of any person in the course of search. Section 132(4A) which came into effect on October 1, 1975, is to the following effect :
“(4A) Where any books of account, other documents, money, bullion, jewellery or other valuable article or thing are or is found in the possession or control of any person in the course of a search, it may be presumed –
(i) that such books of account, other documents, money bullion, jewellery or other valuable article or thing belong or belongs to such person ;
(ii) that the contents of such books of account and other documents are true ; and
(iii) that the signature and every other part of such books of account 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, and in the case of a document stamped, executed or attested, that it was duly stamped and executed or attested by the person by whom it purports to have been so executed or attested.”
15. The aforesaid provision enables the assessing authority to raise a rebuttable presumption that such books of account money, bullion, etc., belonged to such person ; that the contents of such books of account and other documents are true, and that the signatures and every other part of such books of account and other documents are signed by such person or are in the handwriting of that particular person.
16. The nature, scope and object of section 132(4A) has been elaborately dealt with by the apex court in P. R. Metrani (supra) as under (pages 220 to 222) :
“A presumption is an inference of fact drawn from other known or proved facts. It is a rule of law under which courts are authorised to draw a particular inference from a particular fact. It is of three types, (i) ‘may presume’, (ii) ‘shall presume’, and (iii) ‘conclusive proof’. ‘May presume’ leaves it to the discretion of the court to make the presumption according to the circumstances of the case. ‘Shall presume’ leaves no option with the court not to make the presumption. The court is bound to take the fact as proved until evidence is given to disprove it. In this sense such presumption is also rebuttable. ‘Conclusive proof’ gives an artificial probative effect by the law to certain facts. No evidence is allowed to be produced with a view to combatting that effect. In this sense, this is an irrebuttable presumption.
The words in sub-section (4A) are ‘may be presumed’. The presumption under sub-section (4A), therefore, is a rebuttable presumption. The finding recorded by the High Court in the impugned judgment that the presumption under sub-section (4A) is an irrebuttable presumption in so far as it relates to the passing of an order under sub-section (5) of section 132 and a rebuttable presumption for the purpose of framing a regular assessment is not correct. There is nothing either in section 132 or any other provisions of the Act which could warrant such an inference or finding.
The presumption under sub-section (4A) would not be available for the purpose of framing a regular assessment. There is nothing either in section 132 or any other provision of the Act to indicate that the presumption provided under section 132 which is a self-contained code for search and seizure and retention of books, etc., can be raised for the purposes of framing of the regular assessment as well. Wherever the Legislature intended the presumption to continue, it has provided so. Reference may made to section 278D of the Act which provides that where during the course of any search under section 132, any money, bullion, jewellery or other valuable articles or things or any books of account, etc., are tendered by the prosecution in evidence against the person concerned, then the provisions of sub-section (4A) of section 132 shall, so far as may be, apply in relation to such assets or books of account or other documents. This clearly spells out the intention of the Legislature that wherever the Legislature intended to continue the presumption under sub-section (4A) of section 132, it has provided so. It has not been provided that the presumption available under section 132(4A) would be available for framing the regular assessment under section 143 as well.
This is also evident from the fact that whereas the Legislature under section 132(4) has provided that the books of account, money, bullion, jewellery and other valuable articles or things and any statement made by such person during examination may thereafter be used as evidence in any other proceedings under the Act it has not provided so under sub-section (4A) of section 132. It does not provide that the presumption under section 132(4A) would be available while framing the regular assessment or for that matter under any other proceeding under the Act except under section 278D.
Section 132 being a complete code in itself cannot intrude into any other provision of the Act. Similarly, other provisions of the Act cannot interfere with the scheme or the working of section 132 or its provisions.
The presumption under section 132(4A) is available only in regard to the proceedings for search and seizure and for the purpose of retaining the assets under section 132(5) and their application under section 132B. It is not available for any other proceeding except where it is provided that the presumption under section 132(4A) would be available.”
17. In CIT v. Mukundray K. Shah (supra), the Supreme Court approved the act of the Assessing Officer to the effect that the information collected from the diary seized under the search proceedings can be used as a valid document under the provisions of the Act.
18. Applying the aforesaid principle laid down by the Supreme Court to the present case on hand it can be held that the presumption, raised by the Assessing Officer with regard to the seized diary is a valid one and it was very much available to be raised under section 132(4A) as the presumption under section 132(4A) is available only in regard to the proceedings for search and seizure. The appellate authority as well as the Tribunal had travelled beyond the scope of section 132(4A). The appellate authority as well as the Tribunal had failed to take note of the applicability of section 132(4A) to the present case as it was specifically enacted to the purpose of search and seizure, instead they had relied on the general provision of section 132(4) of the Act. Section 132(4A) does not prohibit the Assessing Officer from drawing a presumption when the case falls under the case of search and seizure. Therefore, by applying the principle laid down by the Supreme Court in the aforesaid decisions, we do not see any infirmity in the order passed by the Assessing Officer. On the other hand, the impugned order passed by the Tribunal confirming the order of the appellate authority is liable to be set aside as they had not gone into the applicability of section 132(4A) to the case on hand.
19. The contention of the assessee that the author of the diary is no way connected with the transaction in question also cannot be accepted. From the materials on record it is seen that Shri Vishnu, the author of the diary, is none other than the son of one of the partners and it is stated that on the instructions of the father, the son had written them in the diary. Since the presumption drawn by the Assessing Officer is valid as per section 132(4A), we are not in a position to accept the contention of the assessee in this regard.
20. In view of the above, the substantial question of law raised is answered in favour of the Revenue and the tax case appeal is allowed. No costs.
[Citation : 340 ITR 497]