1. This is an appeal from the order dated 22-5-1991 whereby the learned CIT(A) Rajasthan-II, Jaipur confirmed certain additions/disallowances.
2. The assessee is a Registered Firm engaged in the business of manufacture and export of precious/semi-precious stones, gold and silver jewellery, silk and woollen carpets, ivory and handicraft goods.
It also deals in shares.
3. Being a registered exporter of the export products the assessee-firm had been granted on 28-6-1985 by the Government of India, Ministry of Commerce and Industry an Import Licence No. 3085023/C/XX/96/2/86 under Import (Control) Order, 1955 dated 7-12-1955 issued under the Imports and Exports (Control) Act, 1947. The Licence authorised the assessee-firm to import (a) rough diamonds, uncut and unset precious or semi-precious stones, uncut and unset rough synthetic stones and other imitation stones and (b) pearls, real or caliored/undrilled against the goods exported by it. According to the Import Policy for Registered Exporters the assessee-firm could have become eligible for import replenishment of a specified percentage of the licence value (REP entitlement) of the material of import. As per provisions of the Import & Export (Central) Act, 1947 and the Import (Central) Order, 1955 issued thereunder the REP licence were transferable.
4. For the year under consideration, ending on Diwali 1985, the assessee-firm returned an income of Rs. 1, 37, 623 which included business income of Rs. 2, 69, 278 only against which deductions amounting to Rs. 1, 31, 655 were claimed. Of the total turn-over of Rs. 87, 47, 649 inclusive of sale of shares at Rs. 1, 19, 500, 98. 77% pertained to counter sales in foreign exchange to foreign tourists and direct sales to foreign countries against which the assessee-firm duly received REP licenses. The assessee sold such import licences to various parties of Bombay, Delhi and Jaipur.
5. On examining the Profit & Loss A/c of the assessee-firm the Assessing Officer (AO) noted that premium (sale consideration) on sale of the REP licences during the year under consideration was shown at Rs. 1, 24, 467 though the value of such licences was Rs. 33, 66, 900.
The details furnished by the assessee of the sale of REP licences showed the following position: -Name of the Value of PremiumPurchasers REP Licence shown in booksM/s. Duggar Exam Rs. 15, 10, 800 Rs. 45, 635Linkers, Jaipur.and Delhi Rs. 23, 56, 500 Rs. 78, 832 ---------------- ---------------- Total: Rs. 38, 67. 300 Rs. 1. 24, 467 ---------------- ---------------- 6. With a view to verify the authenticity of the transactions of the REP licences the AO issued letters to the concerned purchasers. Whereas the parties at Bombay and Delhi confirmed the purchases of import licences by them from the assessee, Mr. K. K. Duggar, Prop. M/s. Duggar Exim Linkers, Jaipur expressed his inability to confirm the purchases, made by him from the assessee-firm, on the ground that his books of accounts and other relevant documents were in possession of the department having been seized on 19-6-1986 in the course of a search of his business/ residential premises. The AO called for the relevant record and the concerned Asstt. Commissioner, Circle-I, Jaipur sent to him a photostat copy of page 33 of a diary seized from the possession of Sri K. K. Duggar in the course of search in his case. The photostat copy contained the details of the REP licences sold to/through M/s.
Duggar Exim Linkers, Jaipur by the assessee in the following manner:255670 691000 90, 000 Cash 13-9-1985 37 75, 000 Cash 20-9-19856660 18000 50, 000 Cash 24-9-1985 373202 18300 25, 000 Cash 12-10-1985 17150 14, 546 Cheque 7. On a study of the entries made at page 33 of the diary, in the manner extracted above, the AO formed the opinion that the REP licences worth Rs. 6, 91, 000 and Rs. 18, 000 were sold at a premium of 37% each and that worth Rs. 18, 300 @ 17. 50% against which total sale consideration of Rs. 2, 65, 532 was receivable out of which the assessee received Rs. 2, 46, 397 in cash and only a sum of Rs. 14, 546 by cheque. The AO noted that the amount received by cheques @ 2. 5% premium only was reflected in the books. Being of that opinion the AO summoned Sri K. K. Duggar, Prop. M/s. Duggar Exim Linkers, Jaipur for being examined. In his statement recorded on 27-3-1989 Sri Duggar admitted of having paid a sum of Rs. 2, 46, 397 in cash in addition of Rs. 14, 546 by cheques to the assessee on account of the sale consideration of the three transactions described above.
8. On study of the accounts of the assessee in the books of M/s. Duggar Exim Linkers, Jaipur, the AO further noted that REP licences worth Rs. 7, 83, 500 were sold by the assessee to that concern during the months from January 1985 to March 1985 at premiums ranging between 2. 5% to 7.
5% and the receipt of sale consideration by cheque at those rates only had been reflected in assessee's books. The AO formed the opinion that REP licences might have been sold in those months @ 37% premium, a part of which, i. e., Rs. 31, 089 only was reflected in the books. The AO thus concluded that a sum of Rs. 2, 89, 895 charged in cash in respect of sales made during that period was not reflected in the books of the assessee. He, therefore, made addition of Rs. 5, 09, 792 in the following manner: -Particulars Value of Premium as Premium Additions Licence per books as per AO madeTransactions Rs. 7, 27, 300 Rs. 14, 546 Rs. 2, 65, 532 Rs. 2, 50, 896reflected inOther Rs. 7, 83, 500 Rs. 31, 089 Rs. 2, 89, 895 Rs. 2, 58, 806transactions --------------- ----------- --------------- --------------- Rs. 15, 10, 800 Rs. 45, 635 Rs. 5, 55, 427 Rs. 5, 09, 792 9. In appeal the Id. CIT(A) examined the issue in sufficient detail and agreed with the AO that looking to the conditions prevailing in the market relating to the sale of REP licences the AO was fully justified in making the disputed addition. He accordingly confirmed the addition of Rs. 5, 09, 792.
10. In its appeal before the Tribunal the assessee-firm challenged the addition of Rs. 5, 09, 792 aforementioned in ground Nos. 1, 2 & 3 as also disallowance of Rs. 1, 000 out of telephone expenses and another disallowance of Rs. 2, 000 out of advertisement expenses in ground Nos.
4 & 5 respectively. At the hearing, however, ground Nos. 4 & 5 were not pressed and those are accordingly dismissed.
11. In regard to the disputed addition of Rs. 5, 09, 792 challenged in ground Nos. 1, 2 & 3 Mr. O. P. Vaish, the Id. counsel for the assessee-firm vehemently urged that all the sales of REP licences were duly documented and the rates of premium charged by the assessee were verified by the AO from other different parties and found correct. It was submitted that sales to M/s. Duggar Exim Linkers, Jaipur were made roughly at the same rates of premium and thus the rates charged were quite comparable. Mr. Vaish further contended that there exists no regular market for sale of REP licences and the premium varied partly according to demand and supply and partly based on nature of licence and the Govt. Policy notified from time to time. Mr. Vaish further submitted that all along the results declared by the assessee were accepted by the Department and the part history of assessee's case represented its clear record and simply because that certain purchasers/sellers of REP licences had declared their unaccounted incomes from such sales under Amnesty Schemes, no adverse inference or presumption can be drawn or made against the assessee. It was submitted that though a search at the premises of the assessee -firm was made on 28-10-1986 yet neither any unexplained cash nor any incriminating evidence was found in its possession. Regarding the worth and value of the entries at page 33 of the diary seized from the possession of Sri K. K. Duggar, Prop. M/s. Duggar Exim Linkers, Jaipur, Mr. Vaish submitted that such evidence cannot be relied upon for fastening any pecuniary liability upon the assessee. It was submitted that the entries were not only made by some unknown person in a stray diary but also that Sri Duggar himself denied to have charged premium @ 37% of the value of the REP licences pertaining to other transactions not found entered in the diary. Mr. Vaish thus contended that the addition in question was made on very infirm basis, and was required to be deleted as being quite immaterial and unjustified.
12. The Id. D/R, on the other hand, heavily relied upon the order of the I. T. authorities and further submitted that whatever might have been the history of assessments made in the case of assessee in earlier years, the assessee is proved to have received huge unaccounted money in cash on the sale of REP licences to/through Sri K. K. Duggar and the addition made was fully justified. The Id. D/R further submitted that in appreciating the facts of the case the conditions prevailing in the market at Jaipur are required to be kept in mind and when that is done the entries found made in the diary of Mr. K. K. Duggar got good corroboration. The learned D/R stressed that the contents in the diary not only incriminated the assessee but also Mr. Duggar and he specifically pointed out that Sri Duggar admitted the payment of sale consideration @ 37% in cash to the assessee and when called upon the assessee declined to cross-examine Sri Duggar on the point. The Id. D/R further submitted that in view of similarity in transactions the AO was fully justified in applying the same rate of premium in respect of 'other transactions' of sale of REP licences to Mr. K. K. Duggar but not reflected in the diary. The Id. D/R thus submitted that the addition in question must be considered in the totality of the facts and circumstances of the case.
13. We have carefully considered the rival submissions of the parties and perused the material on our record. While we appreciate the various submissions of Mr. Vaish, we find ourselves unable to agree with him that the entire addition deserves to be deleted.
14. The addition of Rs. 5, 09, 792 comprises of two parts, viz., Rs. 2, 50, 896 and Rs. 2, 58, 806. The former addition is based on the statement of Sri K. K. Duggar, Prop. M/s. Duggar Exim Linkers, Jaipur as corroborated by the entries at page 33 of the diary seized from his possession. The basis of addition of Rs. 2, 58, 806 made on account of other transactions of sale of REP licences to Sri Duggar by the assessee is the assumption or presumption made by inferences drawn from the instances of the transaction of similar sales at similar rates leading to the addition of Rs. 2, 50, 896. The nature of the basis of the two additions, materially differs from each other and the two additions are, therefore, required to be considered in different perspectives.
15. Insofar as the addition of Rs. 2, 50, 896 is concerned, we are of the opinion that it has a good and firm basis. It is the admitted case of the parties that during the year under consideration the assessee-firm did sell certain REP licences to Sri Duggar. The transactions of such sales were also admittedly recorded in the books of the assessee. The difference between the parties is in respect of the premium as actually received by the assessee and as that recorded in the books. There is no dispute that an amount of Rs. 14, 546 was received by the assessee from Sri K. K. Duggar through A/c payee cheques in respect to the transactions of transfer of REP licences to or through him. The case of Revenue is that the balance of Rs. 2, 50, 876 was received in cash by the assessee but that was not reflected in the books. In support of such assertion the statement of Sri Duggar as recorded by the AO on 27-3-1989 and corroborated by the entries in the blue diary seized from his possession on 19-6-1986 has been relied upon.
16. Sri K. K. Duggar is a 39 years aged Proprietor of M/s. Duggar Exim Linkers, Jaipur. In the course of a search conducted on 19-6-1986 at his business/residential premises a blue diary was seized. This diary contained the account of certain transactions. On being examined on oath on 27-3-1989 under Section 131 of the Act in the course of present proceedings Sri Duggar stated that the transactions related to the purchases and sales of REP licences of various parties and that on page 33 of the said diary there was the account of the purchase of REP licences from the assessee-firm. He further stated that on the credit side of the page of the three entries of Rs. 6, 91, 000, Rs. 18, 000 and Rs. 18, 300 appear to represent the value of the REP licences purchased and the entries of 37, 37, 17. 50 below them respectively represent the rates at which the REP licences were purchased. He further stated that the entries on debit side with mention of dates thereunder appear to represent the amounts of payments made towards the sale consideration of the REP licences purchased as also the dates of such payments. He told that the use of the word 'cheque' in front of the amount of Rs. 14, 546 tells that the said amount was paid through cheque. In answer to question No. 5, he stated that the difference of Rs. 4, 589 between the amount payable at Rs. 2, 65, 532 and the amount paid at Rs. 2, 60, 945 had resulted from some fluctuations in rates of the REP licences and the dispute relating to that difference was settled between him and the assessee. In answer to question No. 6 he stated that he did not remember the name of the assessee's man to whom he had made the payment in cash for and on behalf of the assessee. In answer to question No. 11 he denied to have written the entries on page 33 in his own handwriting but admitted that the entries were made by some of his employees. He admitted that the diary belonged to him.
17. Mr. Vaish vehemently objected against the admissibility, reliability and acceptability of evidence tendered through the statement of Sri Duggar and the entries at page 33 of the diary belonging to him. He submitted that the evidence led through the statement of a third person much less through a document not written by him cannot cast any pecuniary liability on the assessee. It was also submitted that when demanded the copy of the statement of Sri Duggar was not supplied to the assessee and, therefore, the assessee was prejudiced in its defence. We find no force in the objections raised by Sri Vaish.
18. It is well-settled by now that the technical rules of the Indian Evidence Act do not apply to the proceedings under the Act. But the principles underlying various provisions of the Indian Evidence Act, particularly those which relate to appreciation of evidence and help the decision-making authorities under the Act in the administration of tax justice to the taxpayers do apply to the proceedings under the Act.
It is the fundamental principle of appreciation of evidence that only such evidence should be used against a person which such person has had an opportunity to meet and explain. In other words, only that evidence can be used against him which has been put to him at the trial of the case and which he has had an opportunity to explain, oppose and rebut.
Evidence collected behind the back of a party cannot be used against him, unless it has been put to him and he has had an opportunity of meeting such evidence. When such evidence is sought to be tendered against him through the oral testimony of some person then the party against whom such testimony is intended to be read and used in evidence must be given an opportunity to cross-examine such person and if the party so chooses he must be allowed to tender oral or documentary evidence in rebuttal to that of such person.
19. In the administration of tax justice evidence may well be collected by the Tax Officer behind the back of the taxpayer. But if the Tax Officer intends to use and rely upon such evidence against the tax-payer in the assessment proceedings then the taxpayer must be confronted with such evidence and he must be given proper opportunity to meet and explain the evidence collected behind his back but intended to be used against him. Once that is done such evidence can be used against the taxpayer.
20. Here it would be worthwhile to clarify one more aspect of another rule of evidence. Primary evidence is the best evidence that can be tendered in a case. Secondary evidence, when admissible, substitutes primary evidence in value and worth. Primary or, in its absence, secondary evidence, if relevant and admissible, makes substantive evidence when it is tendered at the trial of the case against a party.
All other evidence which gives support to the substantive evidence is corroborative evidence. The corroborative evidence may be in the form of some earlier statement of a person in a document, entries in some record or account books, notes made in some diary etc. etc. Where the issue in a case relates to the existence or non-existence of a fact, then the statement of that person who has the direct knowledge of the existence or non-existence of such fact would make the substantive evidence in the case. The earlier statement of that person, if any, may be used by him for refreshing his memory and by the adversary to contradict him. Since technical rules of Indian Evidence Act are not applicable to the proceedings under the Act the statement of the assessee or other person recorded at some earlier occasion or stage, may be used against the assessee at the assessment proceedings as substantive evidence provided such evidence has been put to the assessee and he has had an opportunity to explain the facts or circumstances appearing in or disclosed by such statement.
21. Now coming to the value and worth of the evidence led by Revenue against the assessee through the statement of Sri Duggar it may be observed that admittedly the assessee had business dealings with Sri Duggar and had transferred certain REP licences to/through him. Sri Duggar could have made some entries in a diary in respect of such transactions. His keeping a record of such transactions for refreshing his memory was not an unusual or abnormal behaviour on his part. His statement on oath that he had paid part consideration to the assessee in cash and part through cheques get support from not only the entries made in the diary but also from assessee's account in his books and his account in assessee's books wherein the payment & receipts of the part consideration through cheques had been duly reflected. It is the statement of Sri Duggar that makes substantive evidence in this case and the entries at page 33 of the seized diary simply makes corroborative evidence in the sense that such entries were utilised for refreshing Sri Duggar's memory on a particular fact. The value of the statement of Sri Duggar against the assessee assumes much importance due to the very fact that such statement not only goes against his own interest but may also expose him to other sorts of liabilities, civil or criminal. Since Sri Duggar clearly admitted the ownership of the diary to him and the entries therein as having been made by some of his employees it matters not that the entries were not made in his own handwriting. The purpose of the entries made in the diary was in their use for refreshing the memory and that was done by Sri Duggar. He did not state a fact which was not supported by the entries in the diary.
His testimony on the point on hand can therefore be successfully relied upon against the assessee.
22. On going through the orders of the Assessing Authorities we find that assessee's counsel was very much present when Sri Duggar was examined on 27-3-1989 by the AO and when asked to cross-examine Sri Duggar, the counsel of the assessee declined to do so. The evidence consisting of Sri Duggar's statement was thus put to the assessee for explanation and rebuttal but the assessee chose not to exercise its such rights. It cannot now object against the admissibility and acceptability of Sri Duggar's statement against it. The copy of the statement of Sri Duggar was sought after the close of the proceedings before the AO and, therefore, the assessee was not prejudiced in its defence.
23. The statement of Sri Duggar clearly proves that the assessee had received a sum of Rs. 2, 50, 896 in cash in addition to Rs. 14, 546 received through cheque towards the consideration of the REP licences transferred by it to/through Sri Duggar. Since the assessee did not show the receipt of Rs. 2, 50, 896 in cash in its books, the same was rightly treated as assessee's income from undisclosed sources and added to its total income. Accordingly we uphold the addition of Rs. 2, 50, 896 as undisclosed income of the assessee.
24. Insofar as the addition of the balance amount of Rs. 2, 58, 806 is concerned, we do not find sufficient evidence to sustain this addition.
This amount is stated to have been charged in cash by the assessee from Sri Duggar in connection with other transactions of transfer of REP licences during the period between January 1985 and March 1985. The basis of this addition is the assumption of the AO that when Sri Duggar had paid consideration @ 37% or 17. 5% on the transfer of other REP licences by the assessee to him, he must have also paid consideration at the same rate in respect of the transfers of the REP licences in the months from January 1985 to March 1985. From the conduct of the parties and the conditions prevailing in the market at the relevant time the AO could have viewed at these transactions from that angle but such thinking on his part, howsoever true or justified it might be, do not go beyond conjecture or surmise in the absence of any corroborative or supporting evidence either from the statement of Sri Duggar or from other source. Sri Duggar has emphatically denied to have paid any amount in cash in addition to that paid through cheque and duly reflected in books, in respect to these transactions. Notings in the seized diary also do not support the suggestion. There is no other corroborative evidence from other source including the trend in the market at the relevant time. Moreover, whereas the AO specifically called the assessee to explain the proposed addition of Rs. 2, 50, 896, he did not require the assessee to explain the intended addition of Rs. 2, 58, 806. This difference in the degree of evidence in respect to the addition of Rs. 2, 50, 896 discussed and upheld above, and of Rs. 2, 58, 806 places these two types of additions on different footings. This addition of Rs. 2, 58, 806 cannot, therefore, be sustained and is hereby deleted.