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Lokenath Tolaram Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax References Nos. 255 of 1973 and 82 of 1974
Judge
Reported in(1986)50CTR(Bom)237; [1986]161ITR82(Bom); [1986]24TAXMAN486(Bom)
ActsIncome Tax Act, 1922 - Sections 31(3)
AppellantLokenath Tolaram
RespondentCommissioner of Income-tax
Excerpt:
direct taxation - enhancement - section 31 (3) of income tax act, 1922 - appellate assistant commissioner (aac) enhanced income of assessee - power of enhancement conferred upon aac restricted to subject-matter of assessment or source of income which had been considered expressly by income-tax officer (ito) from point of view of taxability of assessee - ito should have applied his mind to particular subject-matter and not to any incidental connection - enhancement by aac not made by traveling beyond record - enhancement made by aac sustained. - - he recommended that the surplus in its account and withdrawals by 'self' cheques should also be treated as the concealed income of the assessee. in his remand report, therefore, he recommended that enhancement be made in the assessee's..........sums of rs. 3,74,283 and rs. 82,611 as excess sale proceeds credited in the bank account of ganesh trading company and mahavir trading company, respectively ?(2) whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal was justified in confirming the enhancement to the income made by the appellate assistant commissioner by including the two sums of rs. 2,84,819 and rs. 93,431 as unexplained cash credits appearing in the accounts of mahavir trading company and ganesh trading company, respectively ?'3. in the latter reference, the question is raised at the instance of the revenue. it reads as follows :'whether, on the facts and in the circumstances of the case, the income-tax appellate tribunal erred in holding that the enhancement of the income o the.....
Judgment:

Bharucha, J.

1. These are cross-references under the provisions of section 66(1) of the Indian Income-tax Act, 1922.

2. In the earlier reference, the questions raised are at the instance of the assessee. They read as follows :

'(1) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in confirming the enhancement to the income made by the Appellate Assistant Commissioner by the two sums of Rs. 3,74,283 and Rs. 82,611 as excess sale proceeds credited in the bank account of Ganesh Trading Company and Mahavir Trading Company, respectively ?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in confirming the enhancement to the income made by the Appellate Assistant Commissioner by including the two sums of Rs. 2,84,819 and Rs. 93,431 as unexplained cash credits appearing in the accounts of Mahavir Trading Company and Ganesh Trading Company, respectively ?'

3. In the latter reference, the question is raised at the instance of the Revenue. It reads as follows :

'Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal erred in holding that the enhancement of the income o the assessee by the Appellate Assistant Commissioner to the extent of Rs. 1,11,900 in the case of M/s. Shivshankar & Co. was made by travelling beyond the source of the income disclosed in the assessment order or by travelling outside the record ?'

4. The year of assessment concerned is 1951-52, the 'previous year' being Samvat year 2007.

5. The assessee dealt in yarn and cloth. The Income-tax Officer, in the course of the assessment of the assessee's income, found the profit disclosed to be lower than that of others in the same line of business. He found that a large proportion of the total sales of yarn by the assessee had been made to two concerns, namely, Ganesh Trading Company and Mahavir Trading Company He found, on examining the accounts of these two concerns in the assessee's books of account, that there were deposits by Ganesh Trading Company of Rs. 10,49,319 against sales to it of Rs. 8,53,699 and that there were deposits by Mahavir Trading Company of Rs. 3,09,430 against sales to it of Rs. 1,61,727. The assessee's explanation of the surplus deposits was found to be unsatisfactory. Inquiries made by the Income-tax Officer showed that Ganesh Trading Company and Mahavir Trading Company were not traceable at the addresses given by the assessee and that they had never been there. The Income-tax Officer was, there-fore, 'led to believe that the surplus deposits made in these accounts are not genuine loans but are really suppressed sale proceeds of yarn and cloth. I, therefore, treat the deposit of Rs. 1,47,703 in the account of Mahavir Trading Co. and the deposit of Rs. 1,95,620 in the account of Ganesh Trading Co. as suppressed profits of the assessee'.

6. The assessee went in appeal to the Appellate Assistant Commissioner. Having heard the assessee and the Income-tax Officer on the various contentions raised, the Appellate Assistant Commissioner was of the view that 'the appeal should go back to the Income-tax Officer' in respect of, inter alia, the transactions with Ganesh Trading Co. and Mahavir Trading Company. He observed that if these two concerns were not genuine, then there was no case for limiting the addition of income to the excess amounts realised from them but the entire amounts realised could be treated as the assessee's income from an undisclosed source. He directed the Income-tax Officer to investigate further. He stated that it would be open to the assessee and the Income-tax Officer to bring on record material on which they relied. After receipt of the remand report, the Appellate Assistant Commissioner said he would consider the question regarding the treatment to be meted to the deposits credited in the accounts of these two concerns and also to the sales said to have been made to them. The Appellate Assistant Commissioner concluded by ordering that pending the receipt of the remand report 'this appeal will stand by'.

7. In his remand report, the Income-tax Officer, on the basis of the evidence that he had gathered, concluded that Ganesh Trading Company and Mahavir Trading Company were brought into existence by the assessee itself to divert a part of the profits earned in its dealings in imported art silk yarn. The assessment would have to be enhanced because receipts from these two concerns had not been accounted for by the assessee and represented excess sale proceeds. Since these two concerns were benami of the assessee, the withdrawals from their accounts made by 'self' cheques would also have to be treated as the concealed income of the assessee. The Income-tax Officer suggested that the Appellate Assistant Commissioner should take necessary steps in this behalf.

8. In the course of his inquiry, the Income-tax Officer came upon transactions in yarn between the assessee and Shivshankar and Company. He noted in his remand report the evidence upon which he found that Shivshankar and Company was as such a benami concern of the assessee as were Ganesh Trading Co. and Mahavir Trading Company. He recommended that the surplus in its account and withdrawals by 'self' cheques should also be treated as the concealed income of the assessee.

9. Upon the basis of the material contained in the remand report, the Appellate Assistant Commissioner enhanced the income of the assessee in the sum of Rs. 5,30,22l and directed the Income-tax Officer to modify the assessment accordingly. The enhancement took into account the concealed income of the assessee in relation to the three benami concerns, Ganesh Trading Company, Mahavir Trading Company and Shivshankar & Co.

10. The assessee appealed to the Income-tax Appellate Tribunal. The Tribunal held that the totality of the evidence, oral and documentary was conclusive to hold that Ganesh Trading Company and Mahavir Trading Company were brought into existence by the assessee itself to divert a part of its profits earned in its dealings in imported silk yarn. These two concerns were benamidars of the assessee. The enhancement, in so far as it related to these two concerns, was upheld by the Tribunal.

11. In so far as Shivshankar and Company was concerned, the Tribunal noted that the Income-tax Officer had not in the assessment order dealt with its account in the assessee's books of account and that the Appellate Assistant Commissioner had not in its remand order directed the Income-tax Officer to consider and deal with it. The Tribunal was, therefore, of the opinion that the Appellate Assistant Commissioner, by assessing the income of the assessee on the basis of the account of Shivshankar and Company, had assumed the jurisdiction to assess a source of income which was not discussed in the assessment order. The order of enhancement on the basis of account of Shivshankar and Company could not, therefore, be sustained.

12. Mr. Dalvi, learned counsel for the assessee, submitted before us that the Appellate Assistant Commissioner could have gone into only those items as were considered by the Income-tax Officer from the point of view of their taxability and that it was not open to the Appellate Assistant Commissioner to go outside the record of assessment which comprised the return and the assessment order. In his submission, therefore, no enhancement could have been ordered by the Appellate Assistant Commissioner in respect of the accounts of Ganesh Trading Company and Mahavir Trading Company in the books of account of the assessee.

13. We note in passing that this argument was not advanced before the Tribunal nor is it reflected in the questions referred at the instance of the assessee.

14. Mr. Dalvi placed reliance upon the decision of the Supreme Court in CIT v. Rai Bahadur Hardutroy Motilal Chamaria : [1967]66ITR443(SC) . The Supreme Court in that decision relied upon its earlier decision in CIT v. Shapoorji Pallonji Mistry : [1962]44ITR891(SC) . It noted that it was held in Shapoorji Pallonji Mistry's case : [1962]44ITR891(SC) , that the powers of enhancement conferred upon the Appellate Assistant Commissioner extended only to matters considered by the Income-tax Officer; if a new source of income had to be considered, then the power of remand should be exercised and the Income-tax Officer be required to deal therewith. It held that the principle that emerged was that the Appellate Assistant Commissioner had no jurisdiction to assess a source of income which had not been processed by the Income-tax Officer and which was not disclosed either in the returns filed by the assessee or in the assessment order and that, therefore, the Appellate Assistant Commissioner could not travel beyond the subject-matter of assessment. In other words, the power of enhancement conferred upon the Appellate Assistant Commissioner was restricted to the subject-matter of assessment or the source of income which had been considered expressly or by clear implication by the Income-tax Officer from the point of view of the taxability of the assessee. There had to be something in the assessment order to show that the Income-tax Officer had applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or non-taxability and not to any incidental connection.

15. The particular subject-matter we are here concerned with is the account of Ganesh Trading Company and of Mahavir Trading Company in the books of account of the assessee. This subject-matter was, as we have set out above, in terms considered by the Income-tax Officer with a view to its taxability. Upon the basis of that consideration, the Income-tax Officer made an assessment of the assessee's income. In his remand order, the Appellate Assistant Commissioner directed the Income-tax Officer to make further inquiries regarding Ganesh Trading Company and Mahavir Trading Company. The enhancement of the assessee's income by the Appellate Assistant Commissioner based upon the accounts of these two concerns in the books of account of the assessee was, therefore, not made by travelling beyond the record.

16. In any event, the Supreme Court said in Shapoorji, Pallonji Mistry's case : [1962]44ITR891(SC) and Chamaria's case : [1967]66ITR443(SC) , that if a new source of income had to be considered by the Appellate Assistant Commissioner, then the power of assessment should be exercised and the Income-tax Officer should be required to deal with that new source of income. In the instant case, the Appellate Assistant Commissioner did remand to the Income-tax Officer, the matter in so far as it concerned Ganesh Trading Company and Mahavir Trading Company.

17. Mr. Dalvi relied upon the decision of the Madras High Court in M. R. M. Periannan Chettiar v. CIT : [1960]39ITR159(Mad) . The Madras High Court was considering an order of remand made by the Income-tax Appellate Tribunal. With reference to the applicable rule and the provisions of O. XLI, r. 23 of the Code of Civil Procedure, 1908, the court observed that the power of remand should not be exercised without the Tribunal coming to the conclusion that the order of the Appellate Assistant Commissioner had to be set aside, for a remand implied the termination of the procedure so far as the appellate authority was concerned and no question would arise about the continuation of the appeal thereafter.

18. Mr. Dalvi pointed out that in the instant case the appeal before the Appellate Assistant Commissioner was kept alive pending receipt of the remand report. There was, in his submission, no remand to the Income-tax Officer.

19. The Supreme Court noted in Shapoorji Pallonji Mistry's case : [1962]44ITR891(SC) and Chamaria's case : [1967]66ITR443(SC) , that the powers of enhancement conferred on the Appellate Assistant Commissioner only extended to the matters considered by the Income-tax Officer and if a new source had to be considered, then the power of remand should be exercised. In the former case it noted, 'by the exercise of the power to assess fresh sources of income, the assessee was deprived of a finding by two Tribunals and one right of appeal'. In the instant case, the Appellate Assistant Commissioner remanded the matter in so far as, inter alia, the accounts of Ganesh Trading Co. and Mahavir Trading Company were concerned to enable the Income-tax Officer to make a detailed investigation. He gave directions that the assessee and the Income-tax Officer would be entitled to produce material in support of their respective contentions. By making this order, the Appellate Assistant Commissioner ensured that the assessee would not be 'deprived of the finding by two Tribunals and one right of appeal.'

20. In the result, we hold that the enhancement made by the Appellate Assistant Commissioner pertaining to the accounts of Ganesh Trading Co. and Mahavir Trading Company in the assessee's books of account is sustained.

21. This brings us to the enhancement made by the Appellate Assistant Commissioner in relation to the account of Shivshankar and Company in the assessee's books of account. In the submission of Mr. Jetly, learned counsel for the Revenue, the Income-tax Officer had considered the income of the assessee from its yarn business. The transactions between the asses - see and Shivshankar and Company were in respect of the yarn business. When, therefore, the Appellate Assistant Commissioner enhanced the assessment in relation to the account of Shivshankar and Company, he was not dealing with a new source of income or subject. Alternatively, Mr. Jetly contended that the Appellate Assistant Commissioner had made a remand to the Income-tax Officer and in view of the observations in Shapoorji Pallonji Mistry's case : [1962]44ITR891(SC) , the enhancement on this account was sustainable.

22. In our view, the proper way of looking at it is to consider the subject-matter to be not the assessee's income from yarn but the accounts of Ganesh Trading Company and Mahavir Trading Co. in the assessee's books of account.

23. The subject-matter was in terms considered by the Income-tax Officer. The remand order specifically remanded this subject. In considering this subject on remand, the Income-tax Officer came across the account of Shivshankar and Company. He found Shivshankar and Company to be similar to Ganesh Trading Company and Mahavir Trading Company. In his remand report, therefore, he recommended that enhancement be made in the assessee's income in relation also to the account of Shivshankar and Company in the assessee's books of account. The Appellate Assistant Commissioner acted upon that recommendation. The Appellate Assistant Commissioner, therefore, went beyond the record when he did so. The remand by him related to specific items. These did not include the account of Shivshankar and Company.

24. It cannot, therefore, be held that the Appellate Assistant Commissioner was entitled to enhance the income of the assessee in relation to the account in its books of Shivshankar and Company.

25. We answer the assessee's questions thus :

Question No. 1 : In the affirmative.

Question No. 2 : In the affirmative.

26. We answer the Revenue's question in the negative.

27. There shall be no order as to costs.


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