High Court Of Patna
Ganesh Foundry & Casting Ltd. vs. Income Tax Appellate Tribunal & Anr.
Sudhir Kumar Katriar & Kishore Kumar Mandal, JJ.
Misc. Appeal No. 338 of 2002
4th December, 2009
Counsel Appeared :
D.V. Pathy, for the Appellant : Harshwardhan Prasad & Mrs. Archana Sinha, for the Respondents
JUDGMENT
S.K. Katriar, J. :
The assessee has preferred this appeal under the provisions of s. 260A of the IT Act, 1961 (hereinafter referred to as “the Act”), and is aggrieved by the order dt. 28th Sept., 2001, passed by the Tribunal, Patna Bench, Patna, in ITA(SS) No. 21/Pat/1997, for the block assessment period 1st April, 1994 to 31st March, 1995 and 1st April, 1995 to 7th Feb., 1996.
A brief statement of facts essential for the disposal of this appeal may be indicated. The appellant is a company with its foundry and casting unit at Muzaffarpur in the State of Bihar. It had submitted its return for the period 1994-95 on 30th Nov., 1995. While the return awaited application of the mind and order of assessment by the learned assessing authority, there was a search and seizure in the appellant’s premises at Surat (Gujarat) on 15th Dec., 1995 and 7th Feb., 1996. Consequently, the respondent-authorities issued notice under s. 142(1) r/w s. 158BC of the Act to the appellant. In response to the show-cause notice, the appellant filed returns for the block period 1995-96 and 1996-97 on 5th Aug., 1996. On a consideration of the materials on record and the submissions of learned counsel for the parties, the learned Asstt. CIT, Muzaffarpur, passed a composite order of assessment on 20th Feb., 1997 (Annex. 1), whereby certain investments in shares found during the course of search were treated to be undisclosed income of the assessee. Secondly, it disallowed certain unexplained expenditure on the basis of materials which have come on record during the course of search and seizure, and treated them to be undisclosed income.
Aggrieved by the order of the learned AO, the appellant preferred an appeal before the Tribunal, which has been allowed in part by the impugned order. In so far as the first issue is concerned, the learned Tribunal has held that the learned AO was not justified in treating the ownership of the shares as undisclosed income of the asst. yr. 1995- 96. The assessment order to that extent has been set aside and the matter has been remitted back to the learned AO for a fresh consideration in accordance with law. Learned counsel for the appellant does not contest this proposition and submits that he shall contest the matter before the learned AO.
In so far as the second issue is concerned, the learned Tribunal has agreed with the finding of the learned AO and has in substance held that the business expenditure for which deduction is being claimed were fictitious transactions, inter alia, for two reasons. A show was made of issuance of account-payee cheques. The same were later on with the help of interpolations converted into bearer cheque(s) which is in violation of s. 40A(3) of the Act. It has also been found that the amounts were credited to different accounts other than the names of the payee written on the cheques, cash were withdrawn from the accounts, and returned to the assessee. By order dt. 19th Oct., 2006, this Court formulated the following substantial questions of law :
“(i) Whether the Tribunal was correct in law in holding that an expenditure incurred in contravention to the provisions of sub-s. (3) of s. 40A of the Act would be an undisclosed income within the meaning of sub-cl. (b) of s. 158B of the Act ?
(ii) Whether the Tribunal was correct in law in holding that an expenditure incurred in contravention to the provisions of sub-s. (3) of s. 40A of the Act would be an undisclosed income within the meaning of sub-cl. (b) of s. 158B of the Act even though the transactions in respect thereof were found entered in the books of account prior to the date of search and no material in respect of such expenditure were found in the course of search ?
(iii) Whether the Tribunal was correct in law in confirming the addition in relation to undisclosed expenditure treated as undisclosed income even though the condition precedent to the exercise of jurisdiction under the provisions of Chapter XIV-B of the Act were conspicuously absent ?”
6. While assailing the validity of the impugned order, learned counsel for the appellant submits that, in order to invoke the provisions of s. 158BB of the Act, it must be shown to the satisfaction of the learned assessing authority that such undisclosed income is relatable to the materials which have been found during the course of search and seizure, failing which the same cannot be the subject-matter of block assessment under Chapter XIV-B of the Act. The same can be part of regular assessment proceedings. He relies on the following reported judgments : (i) Dy. CIT vs. Shaw Wallace & Co. Ltd. (2001) 165 CTR (Cal) 489 : (2001) 248 ITR 81 (Cal); (ii) Bhagwati Prasad Kedia vs. CIT (2001) 167 CTR (Cal) 336 : (2001) 248 ITR 562 (Cal); (iii) CIT vs. Ravi Kant Jain (2001) 167 CTR (Del) 566 : (2001) 250 ITR 141 (Del); and (iv) CIT vs. Vikram A. Doshi (2002) 256 ITR 129 (Bom).
7. In his submission, “such evidence” occurring in s. 158BB of the Act is relatable to the materials found during the course of search and seizure alone. He relies on the following reported judgments : (i) CIT vs. G.K. Senniappan (2006) 203 CTR (Mad) 447 : (2006) 284 ITR 220 (Mad); and (ii) CIT vs. Chandra Chemoux (2008) 215 CTR (Raj) 43 : (2008) 298 ITR 98 (Raj).
The learned standing counsel for the Department has supported the impugned order. He submits that s. 158BB was amended w.e.f. 1st July, 1995. He has taken me through various materials on record in an effort to establish that the learned Tribunal has taken into account materials which have come during the course of search and seizure. He next submits that, in view of the findings of facts recorded by the learned AO and the learned Tribunal that account-payee cheques exceeding rupees twenty thousand were by manipulation converted into the bearer cheques, such transactions are violative of s. 40A(3) of the Act. He relies on the judgment reported in CIT vs. A.D. Jayaveerapandia Nadar & Sons (2007) 207 CTR (Mad) 428 : (2007) 162 Taxman 195 (Mad).
We have perused the materials on record and considered the submissions of learned counsel for the parties. We would at the very inception like to notice the kind of transaction the appellant has engaged itself and the finding of fact recorded by the two learned authorities below. It is evident that the appellant had issued two cheques amounting to Rs. 4,00,000 and Rs. 4,30,000 which were initially issued as account-payee cheques but were manipulated to be converted into bearer cheques, the amounts were credited to the accounts other than those of the two payees, and were later on returned to the appellant. The net result is that it was a case of issuance of bearer cheques beyond rupees twenty thousand and were also acts of fraud. It is patently violative of s. 40A(3) of the Act which reads as follows : “40A(3) Where the assessee incurs any expenditure in respect of which payment is made, after such date (not being later than the 31st March, 1969) as may be specified in this behalf by the Central Government by notification in the Official Gazette, in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, twenty per cent of such expenditure shall not be allowed as deduction : Provided that where an allowance has been made in the assessment for any year not being an assessment year commencing prior to the 1st April, 1969, in respect of any liability incurred by the assessee for any expenditure and subsequently during any previous year the assessee makes any payment in respect thereof in a sum exceeding twenty thousand rupees otherwise than by an account payee cheque drawn on a bank or account payee bank draft, the allowance originally made shall be deemed to have been wrongly made and the AO may recompute the total income of the assessee for the previous year in which such liability was incurred and make the necessary amendment, and the provisions of s. 154 shall, so far as may be, apply thereto, the period of fouryears specified in sub-s. (7) of that section being reckoned from the end of the assessment year next following the previous year in which the payment was so made : Provided further that no disallowance under this sub-section shall be made where any payment in a sum exceeding twenty thousand rupees is made otherwise than by an account payee cheque drawn on a bank or account payee bank draft, in such cases and under such circumstances as may be prescribed, having regard to the nature and extent of banking facilities available, considerations of business expediency and other relevant factors.”
10. It is evident on a plain reading of the provisions that any claim for deduction exceeding rupees twenty thousand in a manner otherwise than by a crossed cheque or a crossed bank draft shall deprive the assessee of the benefit of deduction of the whole amount. We are satisfied that the transaction in question is hit by the bar of s. 40A(3) of the Act which disentitles the appellant to the claim of deduction.
11. There is yet another aspect of the matter. Law is well settled that fraud unravels everything. We are satisfied that the materials on record disclose that the appellant engaged itself in acts of fraud indicated hereinabove and the same by itself will defeat the appellant’s claim for deduction. Reference may be made to the judgment of the Court of appeal in England reported in Lazarus Estates Ltd. vs. Beasley (1956) 1 All ER 341 (CA). Speaking for the Court Lord Denning observed as follows (p. 345) : “If this argument is correct, the landlords would profit greatly from their fraud. The increase in rent would pay the fine many times over. I cannot accede to this argument for a moment. No Court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a Court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The Court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved it vitiates judgments, contracts and all transactions whatsoever;”
12. Elaborate submissions have been advanced on behalf of the appellants that computation of undisclosed income has to be exclusively relatable to the materials which have been noticed on the basis of the materials found during the course of search and seizure. The assessment order and the order of the Tribunal on the appellant’s review application, are replete with references to the materials found during the course of search and seizure. The appellant has indeed advanced a chimerical submission without any basis whatsoever. Furthermore, it is relevant to notice the order dt. 19th March, 2002, passed by the learned Tribunal on the appellant’s review application which notes as follows : “This transaction relating to the issuance of the aforesaid cheques, though recorded in the books of account by the assessee, yet was not shown in its return filed on 30th Nov., 1995. It is not the case of the assessee that this income was shown in the regular returns. The AO had noted at great length that transaction relating to the issuance of cheques was not a genuine explanation and a hide and seek game was played. Therefore, it emerges that the assessee had not disclosed this income in its regular returns . . .”. (emphasis, printed in italics, added)
13. We are thus convinced that the transactions in question are violative of s. 40A(3) of the Act, were acts of fraud, and are directly and clearly relatable to the materials which have been found during the course of search and seizure. The assessee had not disclosed this income in its original returns.
In view of the foregoing discussion, we answer the three substantial questions of law against the appellant and in favour of the Department.
In the result, this appeal is dismissed with costs quantified at Rs. 10,000 which shall form part of the demand notice.
Kishore K. Mandal, J.
I agree.
[Citation : 328 ITR 202]
