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Arya Confectionery Works Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMadhya Pradesh High Court
Decided On
Case NumberMiscellaneous Civil Case No. 144 of 1979
Judge
Reported in[1983]143ITR814(MP)
ActsIncome Tax Act, 1961 - Sections 145(1) and 256(2)
AppellantArya Confectionery Works
RespondentCommissioner of Income-tax
Excerpt:
- - (vii) gopaldas in whose name the business was carried on and who was admittedly the son-in-law of the senior partner, jawaharlal, was not produced for examination in spite of several opportunities given to the assessee and even when a summons was served on him on the address of the assessee the said gopaldas failed to appear before the ito. with regard to a finding of the tribunal on the question of benami business, the following principles are well settled :(a) the burden of proof regarding benami is upon one who alleges benami......evidence on record in basing its conclusion in regard to the benami character of the business of gopal agencies ? (iii) whether, on the facts and in the circumstances of the case, the order of the tribunal is vitiated in law on the ground that it is based partly on relevant and partly on irrelevant materials and/or improper rejection of valid and relevant material ? (iv) whether the burden of proof regarding the benami character of the business of gopal agencies has been properly and legally discharged by the department ? (v) whether, on the facts and in the circumstances of the case, especially in the context of the statement of shri jawaharlal and the affidavit of gopaldas, the tribunal was justified in holding that the business of gopal agencies was the benami business of the.....
Judgment:

Shukla, J.

1. This is an application by the assessee under Section 256(2) of the I.T. Act for a direction to the Income-tax Appellate Tribunal, Indore, to state the case and refer to this court for opinion the following questions said to be questions of law :

' (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the proviso to Section 145(1) was rightly applied ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal misdirected itself in law and/or acted without evidence or in disregard of the most material evidence on record in basing its conclusion in regard to the benami character of the business of Gopal Agencies ?

(iii) Whether, on the facts and in the circumstances of the case, the order of the Tribunal is vitiated in law on the ground that it is based partly on relevant and partly on irrelevant materials and/or improper rejection of valid and relevant material ?

(iv) Whether the burden of proof regarding the benami character of the business of Gopal Agencies has been properly and legally discharged by the Department ?

(v) Whether, on the facts and in the circumstances of the case, especially in the context of the statement of Shri Jawaharlal and the affidavit of Gopaldas, the Tribunal was justified in holding that the business of Gopal Agencies was the benami business of the assessee-firm ?

(vi) Whether, on the facts and in the circumstances of the case, the business of Gopal Agencies could have been at the most held to be the benami business of Jawaharlal in his individual capacity or as a partner of another firm, M/s. Jawaharlal Daryabuxmal, and not that of the assessee-firm '

2. Although the applicant has formulated as many as six questions, it was stated by learned counsel for the assessee that only two questions are contemplated by the assessee. These are :

' (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the proviso to Section 145(1) was rightly applied ?

(ii) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the business of M/s. Gopal Agencies was the benami business of the assessee-firm '

3. Material facts may be briefly stated. The assessee is a registered firm deriving income from manufacture and sale of confectionery and biscuits. The accounting period followed by the assessee is the financial year and assessment year in question is 1972-73. The assessse had disclosed its turnover at Rs. 21,10,606 on which gross profit was shown at 14.2%. The ITO rejected the book results on the ground that no day-to-day stock account of consumption of raw material or output of finished products was maintained nor purchases or sales were fully vouched, The ITO also noted that in the preceding assessment year a higher rate of gross profit was shown. The assessee explained reasons for fall in the rate of gross profit but the ITO did not accept the same. Further, the ITO found that the Sales Tax Dept. had conducted a raid in the premises where the assessee carried on its business. The books of account in the name of M/s. Gopal Agencies for the period July 1, 1971, to September 21, 1971, were seized by the sales tax authorities. These books, according to the ITO, showed that the assessee carried on business benami in the name of M/s. Gopal Agencies and the profits were not reflected in the books of the assessee. He, therefore, estimated the assessee's sales at Rs. 21,50,000 and applied a gross profit @ 16.2%. This led to an addition of Rs. 46,680. In appeals, the AAC and the Appellate Tribunal held that the application of the proviso to Section 145(1) of the I.T. Act was justified in the circumstances but the addition was reduced to Rs. 20,880.

4. As noted earlier, the ITO had held after examining various circumstances that the assessee-firm carried on a benami business in the name of M/s. Gopal Agencies and the profits estimated at Rs. 12,500 earned in the name of M/s. Gopal Agencies were added in the income of the assessee. In the appeals, the AAC and the Tribunal confirmed the finding and the addition made by the ITO holding that the assessee carried on benami business in the name of M/s. Gopal Agencies.

5. An application under Section 256(1) of the I.T. Act was filed before the Tribunal but the same was rejected on the ground that the finding was one of fact and no question of law arose from the order of the Tribunal.

6. Learned counsel for the assessee, Shri Choudhary, contended that the Tribunal erred in holding that the proviso to Section 145(1) of the I.T. Act was rightly applied by the ITO. According to the learned counsel the accounts maintained by the assessee were correct and income could be properly deduced therefrom. As such, according to him, the ITO had no jurisdiction to reject the book results and determine the income in some other manner.

7. Paragraphs 4 and 5 of the Tribunal's order contain the necessary material for recording a finding that the nature of the account books maintained by the assessee was such that the income could not be properly determined by the ITO. In para. 4 the Tribunal in great detail reproduced the arguments of the assessee on the point. Thereafter, in para. 5 the Tribunal observed as follows :

' We hnd from the assessee's explanation which was furnished before the ITO and the AAC from time to time that the plea of having maintained a day-to-day record of consumption of raw material and production of finished goods was never taken in the past. In fact the assessee's only contention was that complete quantitative details have been kept. The mere maintenance of quantitative details does not establish the fact that the assessee has maintained a day-to-day record indicating the consumption of each variety of raw material and the production of finished goods therefrom during the process of manufacture. The assessee could not produce these production records before us in spite of our specific requisition. '

8. Thus the Appellate Tribunal recorded a finding of fact that the method employed by the assessee in the maintenance of its accounts was such that the ITO was justified in applying the proviso to Section 145(1) of the I.T. Act on the ground that the income could not be properly deduced from the accounts as maintained by the assessee. In S. N. Namasivayam Chettiar v. CIT : [1960]38ITR579(SC) , their Lordships of the Supreme Court, while considering a similar proviso to Section 13 of the 1922 Act, oberved (p. 584):

' In other words, even if the assessee has regularly employed a method of accounting it can be discarded under the proviso if the method does not show correct profits of the year.'

9. Learned counsel for the assessee cited a decision of the Kerala High Court, S. Veeriah Reddiar v. C1T : [1960]38ITR152(Ker) . In the Kerala case, the assessee was a wholesale and retail dealer in piece goods on a large scale. The Department had accepted the figures in his books relating to the opening stock purchases and sales and had disallowed some items of deduction claimed by the assessee. The Kerala High Court on those facts and circumstances observed that merely low profits and absence of a variety-wise stock register were not sufficient reasons for rejecting the accounts and invoking the proviso to Section 13 of the Indian I.T. Act, 1922. The ratio, therefore, will not apply to the case of the present assessee which is a manufacturing unit and has to show through account books the stock of raw material and its daily consumption by reference to the manufactured products. In Chhabildas Tribhuvandas Shah v. CIT : [1966]59ITR733(SC) , their Lordships of the Supreme Court observed as follows (p. 734):

'Held, that there was material to support the finding of the Appellate Tribunal and no question of law arose out of its order. In cases involving the applicability of the proviso to Section 13 of the IndianIncome-tax Act, 1922, the question to be determined by the Income-tax Officer was a question of fact, namely, whether the income, profits and gains could or could not be properly deduced from the method of accounting regularly adopted by the assessee. There was nothing special about this question of fact, and generally the only question of law that could possibly arise was whether there was any material for the finding. '

10. It is clear to us that no question of law could arise out of the Tribunal's order because there was sufficient material before the Appellate Tribunal for taking the view that the book results could not be accepted in view of the defects mentioned by the Tribunal and the proviso to Section 145(1) of the I.T. Act was applicable. This is a finding of fact and no question of law arises therefrom.

11. Next question relates to the Tribunal's finding that the assessee carried on business benami in the name of M/s. Gopal Agencies and the income therefrom was, in fact, the income of the assessee. This finding resulted in an addition of Rs. 12,500 to the income of the assessee. A few facts which led the ITO, the AAC and finally the Bench of the Appellate Tribunal to reach this conclusion may be briefly stated.

12. The flying squad of the Sales Tax Dept. conducted a raid at the business premises at 12, Siyaganj, Indore, which is the address of the assessee-firm. It was found that a business in the name of M/s. Gopal Agencies was carried on in these premises. On enquiry it was found that the premises were taken on rent by Jawaharlal, a partner of the assessee-firm. The assessee-firm also carried on its business in the same premises. The account books seized from these premises and maintained in the name of M/s. Gopal Agencies showed that business in the name had commenced on July 1, 1971, and it continued till September 21, 1976, the date on which the flying squad conducted the raid. The Tribunal confirmed the finding of the ITO and the AAC on this question on the basis of the following facts:

(i) Business in the name of M/s. Gopal Agencies was carried on from the same premises where the assessee also carried on its business.

(ii) Account books in the name of M/s. Gopal Agencies were found in the premises of the assessee.

(iii) The account books of M/s. Gopal Agencies revealed that purchases to the extent of Rs. 49,657 were made by M/s. Gopal Agencies from the assessee-firm without bills.

(iv) M/s. Gopal Agencies carried on the same business which was the business of the assessee, namely, sale of confectionery, biscuits, etc. The sale proceeds as per the books were handed over daily by Gopaldas to Jawaharlal, senior partner of the assessee-firm, who initialled the cashbooks of M/s. Gopal Agencies in token of having received the sale proceeds.

(v) No rent or shop expenses were recovered by the assessee from M/s. Gopal Agencies.

(vi) Gopaldas had no capital of his own and he was an employee either of the assessee-firm or of the sister concern, M/s. Jawaharlal Daryabuxmal, in both of which Jawaharlal, father-in-law of Gopaldas, was a partner.

(vii) Gopaldas in whose name the business was carried on and who was admittedly the son-in-law of the senior partner, Jawaharlal, was not produced for examination in spite of several opportunities given to the assessee and even when a summons was served on him on the address of the assessee the said Gopaldas failed to appear before the ITO. An affidavit said to be in the name of Gopaldas was filed but Gopaldas was never produced. So much so that Jawaharlal, his father-in-law, stated before the ITO that he had no knowledge about the whereabouts of Gopaldas.

13. On the above material the Appellate Tribunal came to the conclusion that the business carried on in the premises of the assessee in the name of M/s. Gopal Agencies was the benami business of the assessee-firm. Learned counsel for the assessee, Shri Choudhary, contended that the circumstances listed above might raise a presumption that the business was the benami of Jawaharlal but this material could not constitute sufficient evidence to prove that the business in the name of M/s. Gopal Agencies was the benami business of the assessee. He relied on certain observations in CIT v. Daulat Ram Rawatmull : [1973]87ITR349(SC) , Kishinchand Chellaram v. CIT : [1980]125ITR713(SC) (both of Supreme Court) and Prakash Narain v. CIT : [1982]134ITR364(All) .

14. We have gone through these decisions. From time to time in several decisions their Lordships of the Supreme Court have made observations inviting the attention of the courts in respect of the jurisdiction under Section 256 of the I.T. Act. With regard to a finding of the Tribunal on the question of benami business, the following principles are well settled :

(a) The burden of proof regarding benami is upon one who alleges benami.

(b) To prove benami the most important point is to examine the source of consideration and along with that there are certain other criteria which could be taken into account.

(c) A finding regarding benami is a finding of fact.

(d) A finding of fact cannot be questioned in the reference proceedings unless it is :

(i) without any evidence in support of it, or

(ii) is perverse in the sense that 'no person acting judicially and properly instructed as to the relevant law' would reasonably come to such a finding.

Sree Meenakshi Mills Ltd. v. C1T : [1957]31ITR28(SC) , Rai Bahadur Mohan Singh Oberoi v. CIT : [1973]88ITR53(SC) and CIT v. Daulat Ram Rawatmull : [1973]87ITR349(SC) .

15. Keeping the above principles in mind we note that the finding of the Tribunal was based on sufficient material and it could not be said that the finding was such which no reasonable person could have arrived at. Among other things the Tribunal noted that capital for the business in M/s. Gopal Agencies came from the coffers of the firm and the sale proceeds were handed over to the senior partner of the firm, Jawaharlal. Besides these facts, other circumstances were also taken into consideration which have been narrated earlier. The Tribunal while considering this question noted the conduct of the assessee in trying to withhold Gopaldas and in not bringing all the facts to the notice of the ITO. The cumulative effect of the aforesaid material could permit a reasonable inference that the business was benami. Merely because on these very facts a different inference was also possible, it will not be open to this court to convert this finding of fact into one of law because the twin requirements pointed out by the Lordships of the Supreme Court for treating a finding of fact as one of law are not present in the present case.

16. We, therefore, hold that the findings on both the questions formulated by the assessee were findings of fact based on relevant material and no question of law could arise out of the order of the Tribunal.

17. The application under Section 256(2) of the I.T. Act is, therefore, dismissed with costs. Advocate's fee Rs. 150.


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