JUDGMENT R.K. Agrawal, J.
1. The Income Tax Appellate Tribunal has referred the following question of law under Section 256(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for opinion to this Court:
Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in refusing the assessee's right to cross examine the persons whose statements were relied for making the addition of Rs. 1,18,799/- and in not following the principles of natural justice and the Supreme Court judgment in 125 ITR 713?
2. The reference relates to the Assessment Year 1975-76.
3. Briefly stated, the facts giving rise to the present reference are as follow:
The assessee is a company. Besides other activities of business, it was also manufacturing vanaspati oil. It had been supplying vegetable oil to the traders including M/s Vishwakarma Oil Traders, Kanpur. The said firm was having wholesale licence for holding the vansapati oil. The Income Tax Department had conducted a search in the premises of Gopal Das Gupta and a rough cash book was seized, which contained certain transactions. It was found that Gopal Das alongwith Kanhaiya Lal and Badri Prasad were carrying on business in vansapati oil under the name and style of M/s Vishwakarma Oil Traders. The rough cash book found during the search operation was for the period from 2.1.1974 to 29.3.1974. The cash book was examined by the Income Tax Officer and he found the following payments had been made by M/s Vishwakarma Oil Traders to the assessee company and these payments were made as on money:
4. The Income Tax Officer had issued a notice to the assessee to show cause why an amount of Rs. 1,25,559/- received as 'on money' from M/s Vishwakarma Oil Traders in addition to the purchase price of vegetable oil sold to the said party during the period 2.1.1974 to 29.3.1974 be not assessed in its hands. The assessee was also intimated that the rough cash book was found during the search conducted at the premises of Gopal Das. The assessee had requested for issue of a copy of the rough cash book as also statement of Gopal Das, Kanhaiya Lal and Badri Prasad, which were supplied to it. The assessee filed written reply dated 13.6.1977 and 12.8.1977 wherein it had contended that the rough cash book found at the time of search was not a document to be relied upon at all because the same is incomplete in all respects and even all the sales made by the assessee to M/s Vishwakarma Oil Traders had not been accounted for therein. It was also contended that Gopal Das did not own this cash book nor Badri Prasad in whose name the licence in the name of M/s Vishwakarma Oil Traders was issued, had explained all the entries appearing in the cash book. Thus, it was the case of the assessee that the material obtained from this cash book cannot be used to the disadvantage of the assessee unless and until these parties had affirmed the payment 'on money' alleged to have been received by the assessee. The Income Tax Officer was not satisfied by the explanation offered by the assessee. He held the amount of Rs. 1,25,559/- to be the part of the receipt of the sale price of vanaspati oil which was sold by the assessee and treated the same as its income. In coming to this conclusion, he had made the following observations:
A perusal of the cash book which was found at the time of raid and cash entry written therein clearly shows that the payments of on money has been recorded with complete details and on money has also been calculated on the basis of tins which ranges between Rs. 14/- to Rs. 16/- per tin and its actual payment to the assessee company on different dates has been recorded in that cash book. The question of affirming either the payment or the receipt of on money by either of the two parties when the transactions were effected outside the books, therefore, cannot arise at all because it is No. 2 affair for both the parties. Since the cash book in question found at the time of raid is an original record of transaction which must be relied upon because no body would write these transactions separately, it is not a secret affair for their personal gains and this rough cash book was never intended to be for either income tax or sales tax purposes. Had it not been found in raid the whole matter would have been gone unnoticed either in the assessment of Gopal Das or in the case of the assessee. The amount of Rs. 1,25,559/- is, therefore, held to be the part of the receipt of the sale price of vanaspati ghee which was sold by the assessee. This amount is, therefore, the income of the assessee and assessed in its hands as such.
5. The assessee being aggrieved filed an appeal before the Commissioner of Income Tax (Appeals). The assessee contended that it was maintaining regular accounts which were audited and the vegetable oil product was governed by vegetable oil product control order and there was no question of any price being charged in excess of the price fixed by the Government. It was alleged that the rough cash book was scrap book which should not be relied upon. The Commissioner of Income Tax (Appeals) deleted the addition and set aside the order of the Income Tax Officer on that point. Being aggrieved, the Revenue filed an appeal before the Tribunal. The contention of the Revenue before the Tribunal was that M/s Vishwakarma Oil Traders were having regular business transactions with the assessee company and, therefore, the entries made in rough cash book could not have been disbelieved particularly when the same was not intended to be produced before the tax authorities and was seized during the search operations. It was further pointed out that the number of entries were found to have been recorded in the regular books of the assessee company as well as in the rough cash book which was recovered during the search operation and that fact by itself proved that the seized rough cash book was a genuine piece of evidence. It was further contended that payment of on money to the assessee cannot be disbelieved only for the reason that the account books of the assessee had been accepted in the past, inasmuch as the fact of receiving on money by the assessee had come to the knowledge of the Department only after the search was conducted at the premises of Gopal Das. The mere fact that the price of vanaspati oil was controlled by the Government could be of no assistance to the assessee for it is a hard fact that the charging of on money takes place only when an item becomes scarce and its supplies are controlled by the Government.
6. The assessee contended that vide letter dated 13.6.1977 the assessee had requested the Assessing Officer to summon the partners of M/s Vishwakarma Oil Traders and provide an opportunity the assessee to cross examine each of them. According to him, no such opportunity had been provided to the assessee and as such the rough cash book and the statement of the said persons could not be used against the assessee. The relevant part of the said letter, which contained such prayer, reads as under:
(c) Copies of the statements of the partners and employees of M/s Vishwakarma Oil Traders and of any other persons as recorded by the department in the case of the said M/s Vishwakarma Oil Traders may please be furnished to us. If no such statements have already been recorded it is requested that the parties, including the partners and employees of the said M/s Vishwakarma Oil Traders may be summoned and their statements on oath should be recorded and made available to us. Due and proper opportunity must also be allowed to us to cross examine each of them. We shall meet the cost for alongwith a copy of the said application this purpose and shall be glad to deposit the same on hearing from you.
(Underlined by us)
7. After hearing the parties and perusing the contents of the prayer, the Tribunal had concluded that the prayer indicated that the assessee had desired that the statements of the partners and the employees of M/s Vishwakarma Oil Traders and of any other person, as recorded by the department, may be furnished to the assessee and if no such statement have been recorded, then the said persons may be summoned and their statement recorded on oath and due opportunity should also be provided to the assessee to cross examine each of them. The Tribunal has also held that as the statement had been recorded during the assessment proceedings of M/s Vishwakarma Oil Traders and the copies of such statements have been provided to the assessee, no question arises for summoning the said persons for providing the assessee an opportunity to cross examine them. Consequently, after rejecting the said prayer and considering all the arguments of the parties and appreciating the evidence on record, allowed the appeal and set aside the order of the Commissioner of Income Tax (Appeals) and restored that of the Income Tax Officer.
8. We have heard Sri Ravi Kant, learned senior counsel, assisted by Sri R.S. Agrawal, Advocate, on behalf of the petitioner, and Sri Shambhoo Chopra, learned Standing Counsel, for the Revenue.
9. Sri Ravi Kant, learned senior counsel, submitted that the applicant in its letter dated 13.6.1977 addressed to the Income Tax Officer had requested to summon the partners of M/s Vishwakarma Oil Traders, Kanpur and afford an opportunity to it to cross examine each of them. As no such opportunity had been provided, the rough cash book and the statements of the said persons could not be used against it. He submitted that any evidence which is sought to be used against the applicant, which has not been recovered from the applicant's premises, but instead is based on the statements given by a third person, can be used to the disadvantage of the applicant only when an opportunity to controvert the same is given to the applicant and not otherwise. The opportunity to controvert also includes an opportunity to cross examine such person. As in the present case the opportunity of cross examination was not afforded, the Assessing Authority was not justified in drawing an adverse inference against the applicant on the basis of the entries found in the account book and the statement of the partners of M/s Vishwakarma Oil Traders. In support of his aforesaid plea, he has relied upon a decision of the Apex Court in the case of Kishinchand Chellaram v. Commissioner of Income Tax, Bombay City-II .
10. Sri Shambhoo Chopra, learned Standing Counsel, on the other hand, submitted that the applicant was having regular business transaction with M/s Vishwakarma Oil Traders and, therefore, the entries made in the rough cash book of M/s Vishwakarma Oil Traders could not have been disbelieved particularly when it was seized during the search operation. A number of entries were found to have been recorded in the regular book of the applicant, which showed that it was a genuine piece of evidence. According to him, in the letter dated 13.6.1977 the applicant had only prayed for providing the copies of the statement of the partners and the employees of M/s Vishwakarma Oil Traders and of any other person as recorded by the Department. The applicant had requested for summoning the partners and the employees of M/s Vishwakarma Oil Traders for recording the statements on oath and for giving an opportunity to cross examine each of them. According to Sri Chopra, as the statement had already been recorded and no fresh statements were to be recorded, the Assessing Authority had provided the copies of the statements and had given full opportunity to the applicant to meet the same. It is incorrect to state that the applicant had asked for an opportunity to cross examine the person whose statement had already been recorded before 30.6.1977. In the circumstances, he submitted that the Tribunal had rightly held that no question arose for summoning the persons for providing an opportunity to cross examine them.
11. We have given our anxious consideration to various pleas raised by the learned Counsel for the parties.
12. It is not in dispute that the adverse material which was found by the Income Tax Authorities during the course of search in the business premises of M/s Vishwakarma Oil Traders had been confronted to the applicant. The applicant was having regular business dealing with the said firm. Some of the entries recorded in the rough cash book seized during the search operation, tallied with the entries recorded in the regular books of account of the applicant as also that of M/s Vishwakarma Oil Traders. The applicant was issued the copy of the rough cash book as also the statements of Gopal Das, Kanhaiya Lal and Badri Prasad. It had submitted its reply by letter dated 13.6.1977 and 12.8.1977. The explanation furnished by the applicant had been disbelieved. In the letter dated 13.6.1977, the relevant part which has been underlined by us, had already been reproduced hereinbefore, we find that the opportunity to cross examine the partners and the employees of M/s Vishwakarma Oil Traders was sought for in the event their statements have not already been recorded with a request that they may be summoned and their statements on oath be recorded in their presence. This request was made in the event the statements had not already been recorded earlier. As the statement had already been recorded, the opportunity to cross examine the said persons did not arise. The applicant had ample opportunity to explain the things.
13. In the case of Kishinchand Chellaram (supra) the facts were that the assessee therein had two offices - one at Bombay and the other at Madras. Some information was received by the Assessing Authority that the assessee had remitted a sum of Rs. 1,07,350/- by two telegraphic transfer from Madras to Bombay through Bank. Enquiries were made vide letter dated 14.1.1955 and 10.2.1955. The Manager of the Bank, vide letter dated 18.2.1955, replied that the telegraphic transfer of Rs. 1,07,350/- sent by the assessee from Madras was received by the Bank at Bombay on 16.10.1946 and the amount was paid to an employee of the assessee on the same day. This letter was not disclosed to the assessee. The application for telegraphic transfer was signed by a person giving the address as "c/o the assessee". Another letter dated 9.3.1957 was addressed by the Bank to the assessee wherein it was stated by the Manager that the Bank had received a telegraphic transfer from the Madras office on 16.10.1946 favouring the same employee and this was remitted by the assessee through their Madras office. In this letter, there was an endorsement referring to a summon dated 5.3.1957 issued by the Income Tax Officer, This letter was also not disclosed to the assessee. The Tribunal relied upon the two letters dated 18.2.1955 and 9.3.1957 and held that the sum of Rs. 1,07,350/- was the undisclosed income of the assessee. The Apex Court, on these facts, had held that the proceedings under the income-tax law are not governed by the strict rules of evidence and, therefore, it might be said that even without calling the manager of the Bank in evidence to prove this letter, it could be taken into account as evidence, But before the Income Tax authorities could rely upon it, they were bound to produce it before the assessee so that the assessee could controvert the statements contained in it by asking for an opportunity to cross-examine the manager of the Bank with reference to the statements made by him.
14. In the present case we find that the copies of the rough cash books and the statements of the partners of M/s Vishwakarma Oil Traders which were recorded, have been provided to the applicant and, in fact, the applicant had also submitted its reply. In the letter dated 13.6.1957, an opportunity to cross examine was asked for only in case the statements have not been recorded. As, in the present case, we find that the applicant had proper opportunity to controvert the material gathered by the Assessing Authority and used against it, there has been compliance of the principle of natural justice. The decision of the Apex Court, referred to above, in the facts of the present case, is not applicable.
15. In view of the foregoing discussions, we are of the considered opinion that the Tribunal was fully justified in the view it had taken.
16. We accordingly answer the question referred to us in the affirmative, i.e., in favour of the Revenue and against the assessee. There shall be no order as to costs.