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Century Foams Pvt. Ltd. vs Commissioner Of Income-Tax

High Court Of Judicature at Allahabad|31 January, 1994

JUDGMENT / ORDER

JUDGMENT R.K. Gulati, J.
1. This is an application under Section 256(2) of the Income-tax Act, 1961, seeking a direction to the Income-tax Appellate Tribunal, Delhi Bench "B", to refer the following five questions for the opinion of this court, which it is claimed, are questions of law and arise out of the order of the Income-tax Appellate Tribunal passed in appeal:
"1. Whether the order of the Tribunal was vitiated in law because it rejected the evidence without sufficient ground and failed to consider the material on the record ?
2. Whether the Tribunal was justified in basing its conclusion of confirming the addition of Rs. 38,747 on the basis of stock statement dated March 31, 1981, which was not signed by the assessee and rejecting the bank certificate dated December 18, 1989, and further not considering the other essential matters on the record ?
3. Whether, on the facts in the circumstances of the case, the decision of the Tribunal approving the addition for stock discrepancy in the case of CIT v. General Metal Works [1988] 172 ITR 173 (All) ?
4. Whether the finding of the Tribunal that the Uchanti loan of 1,240 kgs. of R. C. Lates is an unexplained investment is contrary to the rules of natural justice, arbitrary and perverse ?
5. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the attraction of Section 145(1) of the Income-tax Act, 1961, and consequently additions on this basis ?"
2. We have heard learned counsel for the parties.
3. We may state at the outset that learned counsel for the applicant-assessee did not address any argument in so far as questions Nos. 4 and 5 are concerned and, therefore, it is not necessary for us to advert to those questions. Learned counsel, however, argued that the Income-tax Appellate Tribunal misdirected itself in not making a reference to this court in so far as the other three questions are concerned. To appreciate the contentions addressed to this court on behalf of the assessee, it is necessary to refer to briefly to the relevant facts.
4. The relevant assessment year is 1981-82 with the previous year ending on March 31, 1981. From the balance-sheet drawn up as on the last day of the previous year, the Income-tax Officer found that the assessee had shown a bank loan of Rs. 32,102 taken from the Punjab National Bank, Navyug Market, Ghaziabad, against hypothecation of stocks and stores, the value of which was shown as Rs. 41,004 in the column of assets. Being suspicious of the fact, an Inspector was deputed by the Income-tax Officer to obtain the details of stocks hypothecated as on March 31, 1981. On comparing the details so obtained with the stock account of the assessee, the Income-tax Officer noticed that there was difference between the details filed before him and those furnished to the bank. He sought an explanation from the assessee. The assessee explained that the details of stocks furnished to the bank were inflated with the object of securing higher overdraft facility. To substantiate the plea that there was no stock with the assessee outside the account books, it placed reliance on the half-yearly returns which were filed on September 30, 1980, and March 31, 1981, before the Rubber Board for payment of excise duty. Reliance was also placed on the assessment made under the Sales Tax Act. The assessee tried to explain that the stocks accounted for in the account books represented the real stock position and the details of stocks submitted to the bank being inflated, the rough figures were of no consequence. An affidavit of the director of the assessee-company was also filed and he was cross-examined where he tried to explain the difference. The Income-tax Officer noticed that the stock position given to the bank as on May 31, 1980, and August 31, 1980, also varied and the stocks hypothecated with the bank did not tally with the stocks shown in the stock account of the assessee. The excess stock hypothecated to the bank, in terms of value, was to the tune of Rs. 16,274 and Rs. 13,650, respectively, on the said dates. The Income-tax Officer being not satisfied with the reply submitted by the assessee brought to tax Rs. 38,747 as unexplained investment in the stocks hypothecated with the bank which represented the value of peak difference of the excess hypothecated stock not recorded in the account books.
5. The successive appeals filed against the aforesaid addition to the Commissioner of Income-tax (Appeals), Meerut, and thereafter to the Income-tax Appellate Tribunal, were dismissed and brought no relief to the assessee. The assessee having failed to get a reference from the Income-tax Appellate Tribunal has come up to this court through this application for a direction to the Tribunal to refer the questions set out earlier.
6. The sum and substance of the questions which are sought to be referred is that the Income-tax Appellate Tribunal sustained the addition in question by rejecting the evidence on record without sufficient grounds and failed to take into consideration the material placed on the record, particularly the bank certificate dated December 18, 1984, and the reliance placed by the Income-tax Appellate Tribunal on the bank statement as on March 31, 1984, was misconceived as it had not been signed by the assessee. The order of the Tribunal is thus vitiated by misdirection in law. Learned counsel urged that once it is accepted that the stock statement submitted to the bank was inflated in order to get more overdraft facility then in that event the impugned addition could not be sustained by the Income-tax Appellate Tribunal. Learned counsel further contended that the material placed, that is, the returns filed before the Rubber Board, the order of the sales tax assessment and the audited balance-sheet of the assessee-com-pany, were not taken into consideration by the Income-tax Appellate Tribunal in upholding the addition in question and, therefore, the order of the Tribunal is vitiated and gives rise to the questions of law pressed before us.
7. We have considered these submissions carefully. In our opinion, the order of the Income-tax Appellate Tribunal is concluded by findings of fact and does not give rise to any question of law much less to any statable question of law. We may observe that for deciding "whether any question of law arises out of the Tribunal's order or not", one should intrinsically point out that there is misapplication of law in the order or there is an apparent error on the face of the record, or an unreasonable inference was drawn on the proved facts. It is true that a finding of fact can be attacked if it is found unreasonable or perverse and also if it is based on no evidence. In order to characterise a finding as unreasonable or perverse. It must be established that the view which has been taken, could not reasonably be entertained on the facts on record by any person acting judiciously, who is properly instructed with the relevant law. A question of fact does not become a question of law merely because a different view is possible than the one reached by the fact-finding authority so long as the finding is not inconsistent with the evidence and contrary to it.
8. In the instant case when the matter came to be heard before the Income-tax Appellate Tribunal, the assessee shifted itself from its previous stand which it had taken before the Income-tax Officer in the reply filed before him which the assessee also relied upon before the first appellate authority. The assessee produced a certificate from the bank, dated December 18, 1989, before the Tribunal for the first time saying that according to the audited balance-sheet as on March 31, 1981, which is on the record, the outstanding balance of the stocks and stores (certified by the directors) is of Rs. 41,094.35. It was also urged before the Tribunal that the assessee's director had filed an affidavit to the effect that the word "checked" written in the stock statement was not correct and actually nobody had signed on behalf of the company on the stock statement submitted to the bank. The Tribunal repelled these submissions and observed that it is not understandable how a certificate from the bank was obtained at that stage when an opportunity was available to the assessee earlier and it could have filed the certificate then. The Tribunal remarked that it was not open to the assessee to have resiled from its earlier stand and to urge that the stock statements filed before the bank had not been signed by anyone on its behalf when the same advocate who was arguing the case before it had given an explanation before the Commissioner of Income-tax (Appeals) regarding physical verification of the stocks hypothecated by the director coupled with the reply that such stocks shown in the statement were inflated in order to obtain higher overdraft. The Tribunal has referred the reply of the assessee and recorded a finding that the assessee had not disputed the submission of stock statements to the bank where the difference appeared and secondly, with regard to the word "checked" written on the statement, the explanation was that the word "checked" cannot be equated with the physical verification. It held that the stand now taken disputing the signature on the stock statement was an afterthought and the affidavit filed to that effect was only a self-serving document which does not fit into the facts and circumstances of the case. We may observe that the Commissioner of Income-tax (Appeals) in his order has pointed out that the statements of stocks submitted by the assessee were taken into account by the bank before allowing the overdraft facility. The bank authorities had also checked the stock statements not with regard to arithmetical accuracy but with regard to the items pledged with the bank on which overdraft was allowed. This finding was recorded after the matter was remanded by the Commissioner of Income-tax (Appeals) to the Income-tax Officer for further investigation. The returns submitted to the Rubber Board and the order of the sales tax authorities relied upon by the assessee have been discussed at length in the assessment order. There is a categorical finding that the returns filed before the Rubber Board have no evidentiary value as it has not been proved that any actual verification of the stock or its purchases was made by the Rubber Board. The Income-tax Officer also referred to the bank declaration filed by the assessee. The said declaration contained a statement, inter alia, to the effect that quantity, quality and weight given in the statement are correct and the stocks hypothecated belonged to the assessee which were unencumbered and were not subject to any other lien, claim or charge of any sort. It also contained the endorsement "checked" and was signed by the manager. As observed earlier, the assessment was confirmed by the appellate authority as well as by the Income-tax Appellate Tribunal.
9. It is evident from the above that the Tribunal examined the question of impugned addition on the basis of the explanation given by the assessee, the affidavit and other material that had been brought on the record and taking into account the circumstance emerging therefrom and the reasoning given by the income-tax authorities. It is not correct to say that the Tribunal has omitted to take into consideration the material that was placed before it on which reliance was placed on behalf of the assessee. At the cost of repetition it may be stated that in view of the categorical admission involved in the declaration filed before the bank and the quantity of the hypothecated stock, the Tribunal remarked that the assessee was not permitted to shift its stand that it had taken before the income-tax authorities and it entirely agrees with the finding given by the Commissioner of Income-tax (Appeals) for making the addition on account of undisclosed stock of Rs. 38,747.
10. The case of the assessee that there was some commercial practice in the trade to inflate the stock position to procure easy and higher loan facility, was not accepted as factually proved or of which judicial notice could be taken. Learned counsel for the assessee is not right when he argues that it is accepted by the Revenue that the stock position before the bank was inflated in order to get higher bank overdraft. It cannot be denied that the burden was squarely upon the assessee to show that the apparent tenor was not real as contained in the stock statement filed before the bank which the assessee failed to discharge. It is pertinent to observe that the difference was not only in the valuation of the stocks but also in the items of the stocks hypothecated which on solemn declaration by the assessee was certain as "checked" and acted upon by the bank after due verification. If there was actual discrepancy in the stocks hypothecated to the bank and that shown in the accounts which the assessee failed to explain by any acceptable explanation or material, no exception can be taken to the addition made by the authorities and it was open to the Tribunal to come to such a conclusion that the assessee had stocks outside the account books. The fact remains that the assessee did not succeed in explaining the discrepancy in the stocks hypothecated with the bank and that shown in the account books. The explanation of the assessee having been rejected, the question is whether the finding of the Tribunal sustaining the impugned addition is based on no material evidence. With regard to this question, we may refer to a decision of the Supreme Court in Newton Chikli Collieries Ltd. v. CIT [1962] 44 ITR 495 at page 499, where it was held :
" It was for the income-tax authorities to consider the correctness or otherwise of these explanations. If the income-tax authorities chose not to accept these explanations as correct, that does not mean that the finding as to inflation of wages at which they arrived was a finding based on no material."
11. In that case the assessee showed under the head "wages and salaries" a sum which was considerably more than the amount shown under that head in the previous year. The income-tax authorities rejected the explanation given by the assessee for the absence of the receipts for payment, and held that the wages had been inflated, and added back those amounts to the income. The Supreme Court held that in view of the findings of the authorities that the wages had been inflated, it was a finding of fact and that non-acceptance of the explanation given by the assessee would not convert the question of inflation of wages which is essentially a question of fact into a question of law nor can it be said that the finding was based on no material. We may observe that the discrepancy in the stock hypothecated with the bank and that found recorded in the account books was noticed not only on the last day of the previous year, that is, March 31, 1981, but also on two other dates, that is, May 31, 1980, and August 31, 1980, to which we have referred earlier. From the order of the appellate authorities it appears that the assessee gave no explanation about the discrepancies which were noticed on May 31, 1980, and August 31, 1980. The explanation furnished, it appears, was only with regard to the position which was at the end of the previous year with reference to the stock hypothecated with the bank and that disclosed in the books of account as on March 31, 1981. Reliance placed on behalf of the assessee on a Division Bench decision of this court in CIT v. General Metal Works [1988] 172 ITR 173, is misplaced. That authority is clearly distinguishable on the facts. In that case, the discrepancy in the stock hypothecated with the bank and that shown in the account books was explained to the satisfaction of the Income-tax Appellate Tribunal which is the final fact-finding authority. The Revenue moved an application to this court for a reference under Section 256(2) of the Act, The application was rejected by this court and it was held that the findings recorded by the Income-tax Appellate Tribunal were pure findings of fact which did not give rise to any question of law. In fact that decision supports the view which we have taken in the instant case that the order of the Income-tax Appellate Tribunal does not give rise to any question of law. Learned counsel for the parties had cited certain other authorities also at the Bar in support of their rival contentions, but we do not think it necessary to refer to them as each case turned on its own facts.
12. The application is devoid of merit and it is accordingly rejected with costs which we assess at Rs. 150.
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Title

Century Foams Pvt. Ltd. vs Commissioner Of Income-Tax

Court

High Court Of Judicature at Allahabad

JudgmentDate
31 January, 1994
Judges
  • R Gulati
  • S Verma