2017 (3) TMI 898 - HC - Income Tax

Application under Section 256 (1) rejected - admitting additional evidence - payments as per information submitted by the assessee - peak deficit addition - Held that - The Tribunal referred to each of the questions separately and gave convincing reasons for refusing to refer the same. The Tribunal held that though it was the case of the Department in the appeal before the Tribunal that the assessee had tendered additional evidence and no opportunity was granted to the Department to refute the same, the Tribunal found as a matter of fact that no additional evidence was admitted before the Tribunal in the appeal filed by the assessee. The Tribunal recorded that the Counsel for the Department was not able to demonstrate before the Tribunal while hearing the application under Section 256 (1) of the Act that any additional evidence was considered by the Tribunal. In regard to the other questions Tribunal held that on a scrutiny of the Note Book, D14 it was apparent that all the entries mentioned therein did not pertain to the receipts and several entries pertain to expenditure and therefore, it was rightly observed by the Tribunal that it was dangerous to accept the statement of the Managing Director of the Company that was initially made on 4.8.1995. The Tribunal held that it could not be said after considering the Note Book, D14 that there was a contradiction in the statement made by the Managing Director as the subsequent statement of the Managing Director was an explanatory statement that was substantiated by the Managing Director, on the basis of the Note Book, D14. The Tribunal has, in the order dated 21.03.1997 recorded reasons for reducing the peak deficit and quantifying the undisclosed income by referring to the material available before the Tribunal. In the order under Section 256 (1) while refusing to refer question no.4, the items from the peak deficit of ₹ 55,52,042/are recorded and it is observed that the Tribunal had given sufficient reasons for reducing the peak deficit. While refusing to refer the questions that were sought to be referred, after recording convincing reasons it is observed by the Tribunal that no question of law would arise for being referred to the High Court. We find on a reading of the orders of the Tribunal, dated 21.03.1997 and 10.09.1997 that the order of the Tribunal, dated 21.03.1997 is based on the material on record and no legal principles are applied, that would give rise to a question of law that would require a reference being made to the High Court. We find that the order of the Tribunal dismissing the application under Section 256 (1) of the Act is just and proper and the jurisdiction under Section 256 (2) of the Act is not exercisable in the facts of the case. - Decided against revenue

Summary

Issues Involved:
1. Admission of additional evidence without affording opportunity to the department.
2. Acceptance of payments without identifying the parties.
3. Weightage given to the statement of the Managing Director over another statement.
4. Reduction of peak deficit by the Tribunal.
5. Calculation of peak deficit on total receipts and payments instead of on a day-to-day basis.
6. Quantification of undisclosed income without valid evidence.

Issue-wise Detailed Analysis:

1. Admission of Additional Evidence Without Affording Opportunity to the Department:
The Department contended that the Tribunal admitted additional evidence regarding expenditure without allowing the Department to examine it. The Tribunal, however, found no additional evidence was admitted in the appeal filed by the assessee. The Tribunal noted that the Department's counsel could not demonstrate the consideration of any additional evidence.

2. Acceptance of Payments Without Identifying the Parties:
The Department questioned the Tribunal's acceptance of payments based on information submitted by the assessee without identifying the parties. The Tribunal, after scrutinizing the Note Book, D14, observed that the entries included both receipts and expenditures. The Tribunal found that the assessee had adequately explained the transactions, including payments to regular suppliers, which were also recorded in the regular books of accounts.

3. Weightage Given to the Statement of the Managing Director Over Another Statement:
The Department argued that the Tribunal gave undue weightage to the Managing Director's statement on 21.8.1996 over the earlier statement on 4.8.1995. The Tribunal, however, found that the initial statement could not be accepted in its totality as the Note Book, D14, contained entries of both receipts and expenditures. The Tribunal considered the subsequent statement as an explanatory one, substantiated by the Note Book, D14.

4. Reduction of Peak Deficit by the Tribunal:
The Department contended that the Tribunal unjustifiably reduced the peak deficit from ?55,52,042 to ?33,48,560. The Tribunal explained that the reduction was based on a detailed examination of the entries in the Note Book, D14, and other material evidence. The Tribunal provided sufficient reasons for the reduction, including the consideration of the cash balance in the books of the company and the sale proceeds.

5. Calculation of Peak Deficit on Total Receipts and Payments Instead of on a Day-to-Day Basis:
The Department argued that the Tribunal incorrectly calculated the peak deficit based on total receipts and payments instead of on a day-to-day basis. The Tribunal, however, found that the calculation method used was appropriate based on the material evidence and the nature of the entries in the Note Book, D14.

6. Quantification of Undisclosed Income Without Valid Evidence:
The Department claimed that the Tribunal's quantification of undisclosed income was not supported by valid evidence. The Tribunal, however, meticulously examined the Note Book, D14, and other relevant materials, concluding that the undisclosed income amounted to ?61,20,114. The Tribunal relied on a Supreme Court judgment to assert that it was improper to treat the entire receipts as the income of the assessee.

Conclusion:
The High Court found that the Tribunal's orders dated 21.03.1997 and 10.09.1997 were based on material evidence and did not involve the application of legal principles that would give rise to a question of law. The High Court dismissed the Department's application under Section 256 (2) of the Income Tax Act, 1961, as the Tribunal's findings were factual and did not warrant a reference to the High Court. The judgment emphasized that the Tribunal's decision was just and proper, and the jurisdiction under Section 256 (2) was not exercisable in this case.