Commissioner of Income Tax Vs. Kishanchand (Also Cit V. - Court Judgment

Excerpt:
both these reference applications have been filed by the cit, jaipur.they involve inter-related issues and are in respect of a registered firm (r. a. no. 87/jp/1992) and its partner shri kishanchand (r. a. no.86/jp/1992). they are, therefore, being disposed of by a common order for the sake of convenience.2. in the r. a. no. 87/jp/1992 the cit has requested the tribunal to refer the following questions to the honble high court under s. 256(1) of the it act : "(1) whether on the facts and in the circumstances of the case and in law, the tribunal was correct in holding that sahi bahi marked as ex-c-28 did not belong to the assessee-firm, but the ownership vested with shri kishanchand, partner and consequently deleting the addition of rs. 4,60,290 notwithstanding the fact that the sahi bahi was found and recovered from the business premises of the firm m/s. kishanchand sobhrajmal? (2) whether on the facts and in the circumstances of the case and in law, the tribunal was justified in holding that the documents marked as ann. c-1/46 were not found and recovered from the possession and control of the assessee, during the course of search of the assessees premises on 5th sept., 1985, despite clear mention of the said facts in the panchnama of this date? (3) whether on facts and on proper construction of s. 132(4a) of the it act, 1961, the tribunal was correct in holding that the documents marked as ex-c-1/46 did not belong to the assessee firm but belonged to m/s. sobhraj cold storage and consequently deleting the addition of rs. 6,87,240? (4) whether, on the facts and in the circumstances of the case and in law, the tribunal was justified in deleting the addition of rs. 24,000 upheld by the cit(a) on account of unrecorded transactions as per ann.c-26 of the seized documents and further holding that s. 69 of the act, did not apply as it is not a case where the assessee had made investments which were not recorded in the books of account, but it is a case where the investments are recorded in the books of account maintained by the assessee for its regular source of income? (5) whether, on the facts and in the circumstances of the case and in law, the tribunal was justified in deleting the additions of rs. 1 lakh and rs. 1,02,988 on account of estimated interest income on unrecorded sale transactions of potatoes and money advanced, on the ground that the additions for such unrecorded transactions have been deleted?" in the r. a. no. 86/jp/1992 the following three questions have been framed by the cit, jaipur with the request that they may be referred to the honble high court under s. 256(1) : "(1) whether on the facts and in the circumstances of the case and on proper construction of s. 132(4a) of the act, the tribunal was correct in holding that the sahi bahi which was recovered from the business premises of the firm styled m/s. kishanchand sobhrajmal, jaipur, belonged to the assessee and not to the firm, of which shri kishanchand is a partner? (2) whether on the facts and in the circumstances of the case, the tribunal was justified in holding that the assessee has not made investment of rs. 4,60,290 but it was only circulation of the amount of rs. 1,82,000? (3) whether the tribunal was justified in holding that the assessee had satisfactorily proved the investment of rs. 1,82,000 and consequently deleting the addition of the above amount from the total income of the assessee?" however, in our opinion, no referable question of law arises in either case from the orders of the tribunal and hence we decline to accede to the request of the cit for reasons given in the following paragraphs.3. m/s. kishanchand sobhrajmal is a registered firm having two partners, i.e., shri kishan chand having 60 per cent and smt. savitri devi having 40 per cent. there were some other firms also in which members of the same family were partners and some business was carried on at ajmer also. the department had conducted a search under s. 132 of the it act on 5th sept., 1985 at the premises of all the firms and also at the residential premises of the partners of this group of firms. the claim of the revenue was that it had inter alia recovered certain documents from the premises of the assessee firm which were marked as under : the case of the revenue was that ex-c-28 contained transactions showing payments made to various persons aggregating to rs. 4,60,290 which were not recorded in the regular books of account of the assessee. the revenue rejected the claim of the partner shri kishanchand that it belonged to him personally and not to the firm. the revenue thereafter added this amount to the income of the firm on a substantive basis as income from undisclosed sources. it also added the same amount in the income of shri kishan chand on a protective basis. in the appeal before the cit(a), the cit(a) confirmed the addition on a substantive basis in the hands of the firm. the cit(a) deleted it from the income of shri kishan chand because he had confirmed it in the case of the firm. in both the cases the assessees came in appeal before the tribunal. the tribunal deleted the addition from the income on the firm accepting the contention of the assessee that the sahi bahi marked ex-c-28 did not belong to the assessee but belonged to shri kishanchand, partner. in the case of the shri kishanchand, the tribunal held that shri kishanchand had not made the investment of rs. 4,60,290 but it was only rs. 1,82,000 which was in circulation. the tribunal further held that the investment of rs. 1,82,000 had been satisfactorily explained by shri kishanchand with reference to rs. 1,22,000 available to him from smt. draupadi devi w/o nanak ram and rs. 60,000 from five different persons. it is on the basis of this decision of tribunal that question no. 1 in the case of the firm and all the three questions in the case of the partner shri kishanchand have been framed by the cit.4. we have heard both the sides. we find that tribunal has taken into account all the facts and circumstances and evidence on record before giving its finding in both the cases. it pointed out in para 7 of its order in the case of the firm that the presumption under s. 132(4a) is a rebutable presumption. the tribunal has taken into account the fact that shri kishanchand was the only male working partner in the firm and it believed that he could have kept his individual or personal documents in the premises of the firm and hence merely because those documents were found from the premises of the firm would not be a conclusive proof of the fact that all those transactions belonged to the firm only. the tribunal also took into account the evidence which was examined by the tribunal and on that basis held that those entries pertain to the transactions of shri kishanchand in his individual capacity. the tribunal finally wrote that while on the one hand shri kishanchand had adduced sufficient documentary evidence, including his statements on oath recorded on different occasions, to prove those entries to be his, the revenue had adduced no evidence to support its suspicion. in the case of kishanchand, the tribunal had also taken into account and had discussed in detail the mental illness of nanak ram who is brother of shri kishanchand and the statements of smt. draupadi devi and her affidavit to the effect that she had given money to shri kishanchand to invest it on interest for the livelihood of nanak ram and his family in view of his mental condition. the tribunal had also considered the affidavits filed from five different parties to establish that they had given rs. 60,000 to shri kishanchand which he was utilising by circulating it in money-lending business. it was on this basis that the tribunal had come to the finding in the case of kishanchand that entries regarding the amount of rs. 4,60,290 pertained to his business in his individual capacity, that the total amount involved was rs. 1,82,000 and that this amount of rs. 1,82,000 had been satisfactorily explained. in these circumstances in the first instance the cases are on facts and based on evidence on record and have been discussed in detail by the tribunal in its order and hence do not give rise to any question of law. however, even if the contentions of the learned departmental representative that they involved the question of presumption under s. 134(4a) are taken into account, they do not help the revenue because as per the decision of the honble rajasthan high court in the case of addl. cit vs. noor mohd. & co. (1974) 97 itr 705 (raj) the question whether a statutory presumption had been rebutted by evidence in a given case is always a question of fact, and does not give rise to a question of law. moreover, whether an investment is satisfactorily explained or not with evidence in a given case is a question of facts and does not require a reference to the honble high court. in this way all the questions in r. a. no. 86/jp/1992 and question no. 1 in r. a. no. 87/jp/1992 are rejected.5. in the case of the firm question no. 2 is obviously a question of fact as to whether the document marked as annexure-c-1/46 was or was not found and recovered from the possession and control of the assessee firm during the course of the search and does not give rise to any question of law. even then we may mention that in para 11 on page 15 of its order the tribunal has mentioned the specific assertion of the learned counsel for the assessee that a copy of panchnama had not been given to the assessee and he had made a specific request that a copy of that panchnama may be given to him even at the stage when the hearing before the tribunal was going on. but neither a copy was given to the counsel for the assessee nor was panchnama available to be produced before the tribunal. the learned counsel for the assessee had specifically asserted that it was factually incorrect that the documents marked as c-1/46 were found from the business premises of the assessee firm and the revenue has not filed an affidavit contradicting this assertion till date. the tribunal had thereafter discussed in para 17 that there was no satisfactory evidence brought on record by revenue to establish that papers marked as c-1/46 were recovered from the business premises of the assessee, while the counsel for the assessee had repeatedly and emphatically affirmed that these papers were not recovered from the premises of the assessee firm but were recovered from the premises of a sister concern m/s. sobhraj cold storage where also simultaneous search proceedings were conducted. thereafter in para 18 of its order which runs from page 28 to page 35 of its order, the tribunal has discussed in detail the merits of the documents with reference to the explanations and documentary evidence available on record, and with reference to some further enquiries which were ordered to be made by the cit(a) through the asstt. cit and in the concluding lines of that para the tribunal had observed that those transactions could not belong to the assessee firm who was doing adat business but might belong to m/s. sobhraj cold storage which was running a cold storage. thus taking all the material facts and evidence on record, the tribunal had given its finding in para 19 of its order to the effect that firstly the revenue had not been able to establish with any evidence that documents mentioned in c-1/46 were found in the possession or control of the assessee as provided in s. 132(4a) and hence the additions made on that basis could not be sustained. it further held that secondly even if they are presumed to be belonging to the assessee, the assessee had given a reasonable explanation about them, all be it on behalf of m/s. sobhraj cold storage, and on that basis also the presumption and inferences drawn against the assessee by the revenue could not be sustained. in this way it is obvious that firstly it is a question of fact and secondly since the investments worked out in that document had been reasonably explained, the question as proposed by the revenue has become irrelevant and is rejected.6. question no. 3 is on the same issue and in addition to what we had mentioned in preceding para, in view of ratio of decision in the case of addl. cit vs. noor mohd. & co. (supra) as mentioned earlier, has to be rejected because whether a statutory presumption has been discharged or not with the evidence in a given case is always a question of fact.question no. 3 is, therefore, also rejected.7. question no. 4 arises from the issue discussed by the tribunal in detail in paras 8 and 9 of its order. the case of the revenue was that during the course of search another sahi bahi marked ex-c-26 had been found. most of the transactions were admittedly verifiable with reference to other books of account except a few items. the assessing officer had made an addition of rs. 68,597 under s. 69 of the it act.in the first appellate proceedings after the cit(a) got those entries verified through the asstt. cit, he allowed a relief of rs. 44,597 and an addition of only rs. 24,000 was confirmed. in the appeal before the tribunal, after examining the facts of the case and evidence on record the tribunal held that it was a book of account maintained by the assessee and since the impugned entries were found recorded therein, the provisions of s. 69 did not apply because the provisions of s. 69 would apply only when some investments were not found recorded in the books of account maintained by an assessee. the tribunal further mentioned that the assessing officer had not required the assessee to explain the nature and source of these investments and for that reason these additions could not be upheld. the tribunal had also taken into account the fact that the assessee had already got a large number of entries verified with reference to other books of account regularly maintained by it and only three entries remained to be verified and they had not been verified because the books of account had not been returned to the assessee in spite of the orders of the honble high court. taking all the facts and circumstances of the case and evidence on record, the tribunal had given a finding of fact that even if it is taken that those investments are not recorded in the regular books of account, they have been satisfactorily explained and hence the addition of rs. 24,000 was deleted. it is obvious that in the first instance the answer to the question proposed by revenue is obvious and hence it cannot be referred to the honble high court in view of the ratio of decision in the case of cit vs. anand gum industries (1985) 154 itr 680 (raj) and secondly, it deals with only a question of fact and cannot be referred to the honble high court. this question, therefore, is also rejected.8. the answer to question no. 5 is obvious. it deals with the deletion of an amount of rs. 1 lakh and rs. 1,02,988 on account of estimated interest income on money advanced and unrecorded sale transaction of potatoes on the ground that the addition for such unrecorded transactions had been deleted. it is obvious that when the additions regarding alleged investment or alleged unrecorded sales themselves have been deleted, there would be no question of sustaining any addition by way of interest on that investment or profits from unrecorded sales. hence, this question is also rejected.9. accordingly both the reference applications filed by the revenue are dismissed.

Judgment:
Both these reference applications have been filed by the CIT, Jaipur.

They involve inter-related issues and are in respect of a registered firm (R. A. No. 87/Jp/1992) and its partner Shri Kishanchand (R. A. No.86/Jp/1992). They are, therefore, being disposed of by a common order for the sake of convenience.

2. In the R. A. No. 87/Jp/1992 the CIT has requested the Tribunal to refer the following questions to the Honble High Court under S. 256(1) of the IT Act : "(1) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in holding that Sahi Bahi marked as Ex-C-28 did not belong to the assessee-firm, but the ownership vested with Shri Kishanchand, partner and consequently deleting the addition of Rs. 4,60,290 notwithstanding the fact that the Sahi Bahi was found and recovered from the business premises of the firm M/s. Kishanchand Sobhrajmal? (2) Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the documents marked as Ann. C-1/46 were not found and recovered from the possession and control of the assessee, during the course of search of the assessees premises on 5th Sept., 1985, despite clear mention of the said facts in the panchnama of this date? (3) Whether on facts and on proper construction of S. 132(4A) of the IT Act, 1961, the Tribunal was correct in holding that the documents marked as Ex-C-1/46 did not belong to the assessee firm but belonged to M/s. Sobhraj Cold Storage and consequently deleting the addition of Rs. 6,87,240? (4) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the addition of Rs. 24,000 upheld by the CIT(A) on account of unrecorded transactions as per Ann.

C-26 of the seized documents and further holding that S. 69 of the Act, did not apply as it is not a case where the assessee had made investments which were not recorded in the books of account, but it is a case where the investments are recorded in the books of account maintained by the assessee for its regular source of income? (5) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was justified in deleting the additions of Rs. 1 lakh and Rs. 1,02,988 on account of estimated interest income on unrecorded sale transactions of potatoes and money advanced, on the ground that the additions for such unrecorded transactions have been deleted?" In the R. A. No. 86/Jp/1992 the following three questions have been framed by the CIT, Jaipur with the request that they may be referred to the Honble High Court under S. 256(1) : "(1) Whether on the facts and in the circumstances of the case and on proper construction of S. 132(4A) of the Act, the Tribunal was correct in holding that the Sahi Bahi which was recovered from the business premises of the firm styled M/s. Kishanchand Sobhrajmal, Jaipur, belonged to the assessee and not to the firm, of which Shri Kishanchand is a partner? (2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessee has not made investment of Rs. 4,60,290 but it was only circulation of the amount of Rs. 1,82,000? (3) Whether the Tribunal was justified in holding that the assessee had satisfactorily proved the investment of Rs. 1,82,000 and consequently deleting the addition of the above amount from the total income of the assessee?" However, in our opinion, no referable question of law arises in either case from the orders of the Tribunal and hence we decline to accede to the request of the CIT for reasons given in the following paragraphs.

3. M/s. Kishanchand Sobhrajmal is a registered firm having two partners, i.e., Shri Kishan Chand having 60 per cent and Smt. Savitri Devi having 40 per cent. There were some other firms also in which members of the same family were partners and some business was carried on at Ajmer also. The Department had conducted a search under S. 132 of the IT Act on 5th Sept., 1985 at the premises of all the firms and also at the residential premises of the partners of this group of firms. The claim of the Revenue was that it had inter alia recovered certain documents from the premises of the assessee firm which were marked as under : The case of the Revenue was that Ex-C-28 contained transactions showing payments made to various persons aggregating to Rs. 4,60,290 which were not recorded in the regular books of account of the assessee. The Revenue rejected the claim of the partner Shri Kishanchand that it belonged to him personally and not to the firm. The Revenue thereafter added this amount to the income of the firm on a substantive basis as income from undisclosed sources. It also added the same amount in the income of Shri Kishan Chand on a protective basis. In the appeal before the CIT(A), the CIT(A) confirmed the addition on a substantive basis in the hands of the firm. The CIT(A) deleted it from the income of Shri Kishan Chand because he had confirmed it in the case of the firm. In both the cases the assessees came in appeal before the Tribunal. The Tribunal deleted the addition from the income on the firm accepting the contention of the assessee that the Sahi Bahi marked Ex-C-28 did not belong to the assessee but belonged to Shri Kishanchand, partner. In the case of the Shri Kishanchand, the Tribunal held that Shri Kishanchand had not made the investment of Rs. 4,60,290 but it was only Rs. 1,82,000 which was in circulation. The Tribunal further held that the investment of Rs. 1,82,000 had been satisfactorily explained by Shri Kishanchand with reference to Rs. 1,22,000 available to him from Smt. Draupadi Devi w/o Nanak Ram and Rs. 60,000 from five different persons. It is on the basis of this decision of Tribunal that question No. 1 in the case of the firm and all the three questions in the case of the partner Shri Kishanchand have been framed by the CIT.4. We have heard both the sides. We find that Tribunal has taken into account all the facts and circumstances and evidence on record before giving its finding in both the cases. It pointed out in para 7 of its order in the case of the firm that the presumption under S. 132(4A) is a rebutable presumption. The Tribunal has taken into account the fact that Shri Kishanchand was the only male working partner in the firm and it believed that he could have kept his individual or personal documents in the premises of the firm and hence merely because those documents were found from the premises of the firm would not be a conclusive proof of the fact that all those transactions belonged to the firm only. The Tribunal also took into account the evidence which was examined by the Tribunal and on that basis held that those entries pertain to the transactions of Shri Kishanchand in his individual capacity. The Tribunal finally wrote that while on the one hand Shri Kishanchand had adduced sufficient documentary evidence, including his statements on oath recorded on different occasions, to prove those entries to be his, the Revenue had adduced no evidence to support its suspicion. In the case of Kishanchand, the Tribunal had also taken into account and had discussed in detail the mental illness of Nanak Ram who is brother of Shri Kishanchand and the statements of Smt. Draupadi Devi and her affidavit to the effect that she had given money to Shri Kishanchand to invest it on interest for the livelihood of Nanak Ram and his family in view of his mental condition. The Tribunal had also considered the affidavits filed from five different parties to establish that they had given Rs. 60,000 to Shri Kishanchand which he was utilising by circulating it in money-lending business. It was on this basis that the Tribunal had come to the finding in the case of Kishanchand that entries regarding the amount of Rs. 4,60,290 pertained to his business in his individual capacity, that the total amount involved was Rs. 1,82,000 and that this amount of Rs. 1,82,000 had been satisfactorily explained. In these circumstances in the first instance the cases are on facts and based on evidence on record and have been discussed in detail by the Tribunal in its order and hence do not give rise to any question of law. However, even if the contentions of the learned Departmental Representative that they involved the question of presumption under S. 134(4A) are taken into account, they do not help the Revenue because as per the decision of the Honble Rajasthan High Court in the case of Addl. CIT vs. Noor Mohd. & Co. (1974) 97 ITR 705 (Raj) the question whether a statutory presumption had been rebutted by evidence in a given case is always a question of fact, and does not give rise to a question of law. Moreover, whether an investment is satisfactorily explained or not with evidence in a given case is a question of facts and does not require a reference to the Honble High Court. In this way all the questions in R. A. No. 86/JP/1992 and question No. 1 in R. A. No. 87/JP/1992 are rejected.

5. In the case of the firm question No. 2 is obviously a question of fact as to whether the document marked as Annexure-C-1/46 was or was not found and recovered from the possession and control of the assessee firm during the course of the search and does not give rise to any question of law. Even then we may mention that in Para 11 on page 15 of its order the Tribunal has mentioned the specific assertion of the learned counsel for the assessee that a copy of panchnama had not been given to the assessee and he had made a specific request that a copy of that panchnama may be given to him even at the stage when the hearing before the Tribunal was going on. But neither a copy was given to the counsel for the assessee nor was panchnama available to be produced before the Tribunal. The learned counsel for the assessee had specifically asserted that it was factually incorrect that the documents marked as C-1/46 were found from the business premises of the assessee firm and the Revenue has not filed an affidavit contradicting this assertion till date. The Tribunal had thereafter discussed in para 17 that there was no satisfactory evidence brought on record by Revenue to establish that papers marked as C-1/46 were recovered from the business premises of the assessee, while the counsel for the assessee had repeatedly and emphatically affirmed that these papers were not recovered from the premises of the assessee firm but were recovered from the premises of a sister concern M/s. Sobhraj Cold Storage where also simultaneous search proceedings were conducted. Thereafter in para 18 of its order which runs from page 28 to page 35 of its order, the Tribunal has discussed in detail the merits of the documents with reference to the explanations and documentary evidence available on record, and with reference to some further enquiries which were ordered to be made by the CIT(A) through the Asstt. CIT and in the concluding lines of that para the Tribunal had observed that those transactions could not belong to the assessee firm who was doing Adat business but might belong to M/s. Sobhraj Cold Storage which was running a cold storage. Thus taking all the material facts and evidence on record, the Tribunal had given its finding in para 19 of its order to the effect that firstly the Revenue had not been able to establish with any evidence that documents mentioned in C-1/46 were found in the possession or control of the assessee as provided in S. 132(4A) and hence the additions made on that basis could not be sustained. It further held that secondly even if they are presumed to be belonging to the assessee, the assessee had given a reasonable explanation about them, all be it on behalf of M/s. Sobhraj Cold Storage, and on that basis also the presumption and inferences drawn against the assessee by the Revenue could not be sustained. In this way it is obvious that firstly it is a question of fact and secondly since the investments worked out in that document had been reasonably explained, the question as proposed by the Revenue has become irrelevant and is rejected.

6. Question No. 3 is on the same issue and in addition to what we had mentioned in preceding para, in view of ratio of decision in the case of Addl. CIT vs. Noor Mohd. & Co. (supra) as mentioned earlier, has to be rejected because whether a statutory presumption has been discharged or not with the evidence in a given case is always a question of fact.

Question No. 3 is, therefore, also rejected.

7. Question No. 4 arises from the issue discussed by the Tribunal in detail in paras 8 and 9 of its order. The case of the Revenue was that during the course of search another Sahi Bahi marked Ex-C-26 had been found. Most of the transactions were admittedly verifiable with reference to other books of account except a few items. The Assessing Officer had made an addition of Rs. 68,597 under S. 69 of the IT Act.

In the first appellate proceedings after the CIT(A) got those entries verified through the Asstt. CIT, he allowed a relief of Rs. 44,597 and an addition of only Rs. 24,000 was confirmed. In the appeal before the Tribunal, after examining the facts of the case and evidence on record the Tribunal held that it was a book of account maintained by the assessee and since the impugned entries were found recorded therein, the provisions of S. 69 did not apply because the provisions of S. 69 would apply only when some investments were not found recorded in the books of account maintained by an assessee. The Tribunal further mentioned that the Assessing Officer had not required the assessee to explain the nature and source of these investments and for that reason these additions could not be upheld. The Tribunal had also taken into account the fact that the assessee had already got a large number of entries verified with reference to other books of account regularly maintained by it and only three entries remained to be verified and they had not been verified because the books of account had not been returned to the assessee in spite of the orders of the Honble High Court. Taking all the facts and circumstances of the case and evidence on record, the Tribunal had given a finding of fact that even if it is taken that those investments are not recorded in the regular books of account, they have been satisfactorily explained and hence the addition of Rs. 24,000 was deleted. It is obvious that in the first instance the answer to the question proposed by Revenue is obvious and hence it cannot be referred to the Honble High Court in view of the ratio of decision in the case of CIT vs. Anand Gum Industries (1985) 154 ITR 680 (Raj) and secondly, it deals with only a question of fact and cannot be referred to the Honble High Court. This question, therefore, is also rejected.

8. The answer to question No. 5 is obvious. It deals with the deletion of an amount of Rs. 1 lakh and Rs. 1,02,988 on account of estimated interest income on money advanced and unrecorded sale transaction of potatoes on the ground that the addition for such unrecorded transactions had been deleted. It is obvious that when the additions regarding alleged investment or alleged unrecorded sales themselves have been deleted, there would be no question of sustaining any addition by way of interest on that investment or profits from unrecorded sales. Hence, this question is also rejected.

9. Accordingly both the reference applications filed by the Revenue are dismissed.