Y.V. Narayana, J.
1. This is a petition under Section 256(2) of the Income-tax Act, 1961, against the decision of the Income-tax Appellate Tribunal, Hyderabad, in R. A. Nos. 430, 431, 250 and 251/Hyd. of 1991, dated December 20, 1991, praying to direct the Appellate Tribunal to state a case andrefer the following questions formulated by the Revenue for the opinion of the High Court :
'1. Whether the Tribunal is justified in holding that statement of Shri K. V. R. Chowdary, dated February 10, 1988, and February 11, 1988, cannot be said to be one recorded under Section 132(4) of the Act on the mere ground of he having no physical possession of valuable articles or tangible things of the assessee-company ?
2. Whether the Appellate Tribunal is justified in holding that constructive possession or control of things by the managing director does not suffice for invoking Section 132(4) of the Act ?
3. Whether the interpretation of the Appellate Tribunal as regards the scope and ambit under Section 132(4) is correct ?
4. Whether the Appellate Tribunal is justified in holding that Explanation to Section 132(4) is prospective in nature though the said Explanation laid down only rule of evidence and in that sense it is only procedural in nature ?
5. Whether the finding of the Appellate Tribunal that the authorised dealers are real and are not conduits created for the purpose of syphoning off the profits of the assessee-company is based on material on record ?
6. Whether the above finding of the Appellate Tribunal is vitiated by non-consideration of relevant material on record ?
7. Whether the Appellate Tribunal's finding that K. V. R. Chowdary's statement does not bind the assessee-company notwithstanding he being the managing director, is valid in law ?
8. Whether the Appellate Tribunal is justified in readily accepting the plea of the assessee as regards the existence of purported trade practice of payment of heavy commission merely on furnishing of alleged sale invoices issued by other men in trade, even without verification of truth and genuineness of the same ?
9. Whether the Appellate Tribunal is justified in placing the burdenof examining the persons figuring in incriminating material and drawingadverse inference against the Revenue overlooking that such persons arethe employees of the assessee-company and the burden of contradictingthe same is on the assessee ?
10. Whether the Appellate Tribunal is justified in holding that commission expended by the assessee was wholly laid out for the business of the company ?
11. Whether the order of the Appellate Tribunal can be said to be the majority view of the Tribunal ?'
2. Brief facts.--The assessee-company was carrying on business as dealer of trucks and Voltas products as well as in manufacture and sale of automobile spares besides running a lorry service. For the assessment year 1984-85, the assessee filed returns based on its audited and publishedaccounts, wherein it claimed deduction of a sum of Rs. 86,76,463 being the commission paid on sale of spare parts to various commission agents. The Income-tax Officer, however, rejected the said claim. On appeal, the Com-missioner (Appeals) sustained the disallowance of a sum of Rs. 10,00,000. For the next assessment year, i.e., 1985-86, the assessment was done under Section 143(3) of the Income-tax Act. While so, on February 10, 1988, and February 11, 1988, the Department conducted the search in the premises of the assessee-company, the managing director and the other directors of the company and assessment for the said year was completed basing on the materials gathered in the course of the search. During this year, the assessee claimed deduction of a sum of Rs. 97,67,302 being the commission on sale of spare parts. But, the Income-tax Officer, relying upon the statements of the managing director of the assessee and other partners of the firms to whom commissions were allegedly paid, recorded during the course of the search, disallowed a sum of Rs. 56,16,426. The names of the firms which were allegedly paid commission are :
1. Sri Bhanu Enterprises, Kakinada,
2. Sri Bhaskara Auto Services, Kakinada,
3. Sri Prabhakar Enterprises, Kakinada,
4. Mehta Trading Company, Bombay,
3. On appeal, the Commissioner (Appeals) sustained a disallowance of a sum of Rs. 21,29,278. Aggrieved by the said orders, both the assessee and the Revenue filed separate appeals before the Income-tax Appellate Tribunal in respect of both the assessment years.
4. Although the contention of the Revenue is that the commissions paid to the four partnership firms were benami and that the said amounts were ultimately ploughed back to the assessee-firm, in a well considered order, the Accountant Member dismissed the appeals of the Revenue and allowed the appeals of the assessee-firm. The Accountant Member held that, (1) the evidence of Sri K. V. R. Chowdary is inadmissible in evidence because the question put to him was in excess of the power granted under Section 132(4) of the Act; (2) his statement cannot also be used in evidence as he was not the person in control of the affairs of the assessee-firm and that his statement was also not corroborated with any other evidence. He accordingly held that there was no evidence to establish the inference of the Revenue that the commissions paid to the three firms in Kakinada had been received back by the company. It is relevant to mention here that there was no dispute with regard to the commission paid to Mehta Trading Company, Bombay. While so, the Judicial Member differed with the view taken by the Accountant Member. The matter was subsequently referred to a Third Member under Section 255(4) of the Act for disposal. The Third Member concurred with the Accountant Member. Thus, the appeals filed by the Revenue were dismissed and the appeals of the asses-see were allowed by the Appellate Tribunal by passing a consolidated order dated January 31, 1991. Thereafter, since the applications in R. A. Nos. 430, 431, 250 and 251 of 1991, filed for referring the questions formulated for the opinion of the High Court, were rejected by the Appellate Tribunal by order dated December 20, 1991, this I. T. C. is filed by the Revenue.
5. Questions Nos. 5, 6, 8, 9 and 10.--The issues raised in these questions are purely factual in nature. We are satisfied that the findings recorded by the Appellate Tribunal on these issues are based on the material adduced on record and on a correct appreciation of the evidence. We, therefore, do not think that these questions raise any question of law which requires reference under Section 256(2) of the Act. In fact, there was not much argument on these questions. Hence, these questions do not require any reference under Section 256(2).
6. Question No. 11.--Except raising bare ground in the I. T. C. that the Third Member has not answered the reference as contemplated under Section 255(4) of the Act, no argument is advanced before us as to how the order of the Third Member is unsustainable in law. We have, however, perused the order passed by the Third Member. He was called upon to answer three questions on which there was a difference of opinion among the two Members. The Third Member in a well considered order, answered the reference by giving sound and valid reasons agreeing with the Accountant Member. Thus, the majority view was in favour of the assessee and a consolidated order was accordingly passed by the Tribunal in accordance with the provisions of Section 255(4) of the Act. Therefore, we are not ready to accept the contention that the order of the Appellate Tribunal does not represent the majority view. There is absolutely no question of law involved in this point. We, therefore, decline to refer this question also.
7. Questions Nos. 1 to 3.--The issue covered by these questions mainly revolves around Section 132(4) of the Act. Lengthy arguments were advanced on behalf of the Revenue on this aspect. It is mainly contended by learned standing counsel that the managing director of the assessee-company, which was established under the Companies Act, is said to be the person in actual physical control of the affairs of the company and that the Tribunal erred in law in holding that he is not a person in control of the affairs of the assessee and thereby in not construing his statement as recorded under Section 132(4) of the Act. An answer to this contention requires narration of some factual background. In this case, the Department, during the course of their search of the assessee-company, examined the managing director of the assessee-company and recorded his statement. Question No. 48 put by the searching officer is pertinent to be mentioned here.
8. It is extracted hereunder :
Question No. 48.--At this point of time, may I invite your attention to Section 132(4) of the Income-tax Act, 1961, which states that any disclosure made during the course of search operation voluntarily would not amount to concealment of income. Would you make any disclosure volun-, tarily ?
Answers : I, in my capacity of the managing director of SRMT Ltd., would like to make some admissions. There are three firms of authorised dealers of the said company at Kakinada, namely, Sri Bhaskara Auto Service, Sri Bhanu Enterprises and Sri Prabhakar Enterprises. These are partnership firms, which from their conception, and till date, have been receiving commissions from the said company at the rate of 15 per cent, of net sales turnover a portion of which, roughly 50 per cent., is given away to the retail dealers as overriding commission as per agreement on the sales effected by him, of the products of SRMT Ltd. After deducting the overriding commission, given away to the retail dealers the net income in the hands of the abovesaid three partnership firms, has suffered tax, as income of said three firms. I would like to state and affirm that the net income of the said three firms as referred to above is in reality the additional income during the respective years of the SRMT Ltd. over and above the income assessed to tax or disclosed in the return of income or figuring in the books of account of SRMT Ltd. Right now, I am not in a position to exactly state the said additional income relevant for each of the concerned years. However, taking an overall view, certain expenditure incurred, etc., I would state and affirm that the total amount of additional income of SRMT Ltd. for the abovesaid years of payment of commission to the above-said three firms, and till date would be about Rs. 260 lakhs (rupees two hundred sixty lakhs). Therefore, SRMT Ltd. is liable to pay additional tax on the said additional income for the concerned years . . .'
9. Similarly, the authorised officer recorded statements from the partners of the three Kakinada firms. The Tribunal, however, held that those statements do not have any evidentiary value. In our opinion, this finding of the Tribunal is sustainable in law in view of the provisions of Section 132 of the Act. Section 132 of the Act deals with search and seizure. Under the provisions of this Section, the authorised officer is empowered to enter and search any building, place, vessel, vehicle or aircraft where he has reason to suspect that any undisclosed books of account, other documents, money, bullion, jewellery or other valuable articles or things are kept and to seize such of those undisclosed items which are found during the course of search. Under Sub-section (4), the authorised officer may examine any person who is found to be in possession or control of any books of account, money, etc., and such statement can be used in evidence thereafter in any proceeding under the Act. For the purpose ofconvenience, Sub-section (4) along with its Explanation is extracted here-under :
'(4) The authorised officer may, during the course of the search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.
Explanation.--For the removal of doubts, it is hereby declared that the examination of any person under this sub-section may be not merely in respect of any books of account, other documents or assets found as a result of the search, but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Indian Income-tax Act, 1922 (11 of 1922), or under this Act.'
10. A plain reading of Sub-section (4} shows that the authorised officer during the course of raid is empowered to examine any person if he is found to be in possession or control of any undisclosed books of account, documents, money or other valuable articles or things, elicit information from such person with regard to such account books or money which are in his possession and can record a statement to that effect. Under this provision, such statements can be used in evidence in any subsequent proceeding . initiated against such person under the Act. Thus, the question of examining any person by the authorised officer arises only when he found such person to be in possession of any undisclosed money or books of account. But, in this case, it is admitted by the Revenue that on the dates of search, the Department was not able to find any unaccounted money, unaccounted bullion nor any other valuable articles or things, nor any unaccounted documents nor any such incriminating material either from the premises of the company or from the residential houses of the managing director and other directors. In such a case, when the managing director or any other persons were found to be not in possession of any incriminating material, the question of examining them by the authorised officer during the course of search and recording any statement from them by invoking the powers under Section 132(4) of the Act, does not arise, Therefore, the statement of the managing director of the assessee, recorded patently under Section 132(4) of the Act, does not have any evidentiary value. This provision embedded in Sub-section (4) is obviously based on the well established rule of evidence that mere confessional statement without there being any documentary proof shall not be used in evidence against the person who made such statement. The finding of the Tribunal was based on the above well settled principle. We do not see any question of law in this issue.
11. Question No. 4.--When coining to this question, the contention of learned standing counsel is that the Explanation to Section 132(4) is in the realm of procedural field ; that it has retrospective force and that, therefore, the said Explanation was very much applicable to the assessment year in question. It is, therefore, contended that the Tribunal grossly erred in law in holding that the said Explanation has no retrospective operation. It is, no doubt, true that by inserting the Explanation to Section 132(4), the powers of the inspecting officers are widened. Under the Explanation, the authorised officer is now empowered to examine any person not only in respect of any books of account, etc., but also in respect of all matters relevant for the purposes of any investigation connected with any proceeding under the Act. Thus, the authorised officer is now empowered to examine any person, irrespective of the fact whether such person is found to be in possession of any incriminating material or valuable things or not, and record a statement from such person if he is of the opinion that the examination of such person is useful for the purposes of his investigation and the statement of such person can as well be used in evidence in the subsequent proceedings initiated against him, or against the assessee under whom he is working, under the Act. But this Explanation was not in existence as on the date of conducting search by the Income-tax Department (i.e., February 10, 1988, and February 11, 1988) in this case. It was introduced with effect from April 1, 1989, through the Direct Tax Laws (Amendment) Act, 1987. The contention, therefore, is that the Explanation has got retrospective effect and so the statement of the managing director recorded prior to the introduction of the Explanation could well be used in evidence. But, the Appellate Tribunal below recorded a finding of fact to the effect that the statement of the managing director or that of other partners have no evidentiary value as they are not supported by any documentary proof. In the light of the finding that the statements have got no evidentiary value, adjudication of the question whether such statement falls under the Explanation to Sub-section (4) of Section 132 and, if so, whether or not such Explanation has got any retrospective effect, absolutely serves no useful purpose and that such an attempt, in our view, would be a futile exercise. Because, even if it is to be held on reference that the statement falls under the Explanation and the Explanation has got retrospective effect, such statement does not improve the case of the Revenue in the light of the finding of fact recorded by the Appellate Tribunal. Therefore, we are of the view that the question became purely academic and it does not deserve reference.
12. Question No. 7.--The answer to this question depends upon the answer that is given to questions Nos. 1 to 4 as all these questions are interconnected. Adjudication of this question arises when the statement of the managing director is first held to be admissible in evidence. In questionsNos. 1 to 4, it was already noticed, quoting the finding of fact recorded by the Appellate Tribunal, that the statement itself has no evidentiary value. When the statement of a particular person itself is found to be inadmissible in evidence, the question whether or not such statement binds that person or any other person becomes irrelevant. We are, therefore, of the view that this question whether the statement of the managing director binds the assessee also does not deserve any reference. Hence, we decline to refer this question also.
13. Learned standing counsel, Sri S. R. Ashok, made strenuous efforts in contending that the Appellate Tribunal's finding is perverse since it is rendered excluding a major part of the evidence on record and is solely based on some evidence. He, therefore, sought to contend that the approach of the Tribunal amounts to misdirection in law and the finding would give rise to a question liable to be referred to the court. In support of his contentions, reliance is placed upon the decisions in CIT v. Indian Woollen Textiles Mills : [1964]51ITR291(SC) , Homi Jehangir Gheesta v. CIT : [1961]41ITR135(SC) and also CIT v. Biju Patnaik . There is no quarrel with regard to the well settled propositions laid down in those cases. But, the question is--to what extent the said decisions are useful to the case on hand. We have perused the orders passed by all the three Members of the Tribunal with utmost care, but we have not noticed any instance where the Tribunal has misdirected itself in appreciating the voluminous evidence that is placed on record. In fact, the Tribunal's approach in this case in appreciating the evidence is highly qualitative and satisfactory. Therefore, we are of the view that the contentions raised by learned standing counsel, placing reliance upon the above cited decisions, are untenable and liable to be rejected.
14. In the result, as we do not find any question of law in any of the questions formulated by the Revenue, this I. T. C. is rejected. No costs.