CHANANA ASSOCIATES VS COMMISSIONER OF INCOME-TAX
1999 P T D 145
[225 1 T R 72]
[Punjab and Haryana High Court (India)]
Before Ashok Bhan and NK. Agrawal, JJ
CHANANA ASSOCIATES
Versus
COMMISSIONER OF INCOME-TAX
.T.C. No. 191 of 1994, decided on 29/07/1996.
Income-tax---
----Reference---Business expenditure---Payment in cash exceeding Rs.2,500-- Disallowance---Assessment done estimating income and separate addition for cash payments above Rs.2,500 under S.40(A)(3)---Claim that payment was due to exceptional circumstances or each payment was less than Rs.2,500-- Not accepted by Tribunal in absence of evidence---Finding of Tribunal based on appreciation of evidence---No question of law arises---Whether disallowance of cash payments permissible where income estimated---Does not arise out of Tribunal's order---Application under S.256(2) rejected-- Indian Income Tax Act, 1961, Ss.40(a)(3) & 256(2).
The assessee-firm executed contract works. As vouchers for expenditure or muster rolls were not produced the Assessing Officer determined the profit at a percentage of the gross receipts and also made a separate addition on account of payments made in cash in excess of Rs.2,500 under section 40(a)(3) of the Income Tax Act, 1961. The appeal against the addition was dismissed by the Tribunal and it declined to make a reference to the High Court. On a reference application under section 256(2) of the Income Tax Act, 1961:
Held. (i) that the assessee did not produce any material to show that the plea that section 40(a)(3) was not attracted where profit was determined on estimate basis after rejecting the book results of the assessee, had been raised before the Commissioner of Income-tax (Appeals) or the Tribunal. These questions were distinct and different questions not considered by the Tribunal. They were not merely different aspects of the questions raised before the Tribunal. No reference thereof could be directed.
(ii) that when the pleas of the assessee that cash payments in excess of Rs.2,500 had been made on account of certain exceptional circumstances or that each-cash payment was below Rs.2,500 though in the aggregate in a day, total payments did exceed that amount, were- not supported by sufficient evidence, the finding given by the Tribunal was based on appreciation of the evidence and no question of law arose for reference to the High Court for its opinion.
Agha Abdul Jabbar Khan v. CIT (1971) 82 ITR 872 (SC); CIT v. Aloo Supply Co. (1980) 121 ITR 680 (Orissa); CIT v. Birad Kanwarji (H.H.) (1979) 119 ITR 96 (Raj.); CIT v. Indian Mollasses Co. Pvt. Ltd., (1970) 78 ITR 474 (SC); CIT v. Krishna & Sons (1968) 70 ITR 733 (SC); CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589 (SC); CIT v, Surinder Sugar Store (1989) 177 ITR 511 (P & H); CWT v. Purshottam N. Amersey (1969) 71 ITR 180 (Bom.); Highway Motors Pvt. Ltd. v. State of Punjab (1982) 51 STC 133 (P & H); Omprakash v. CIT (Addl.) (1979) 119 ITR 251 (MP); Rekhchand Gopaldas Mohta Spinning and Weaving Mills Ltd. v. CIT (1960) 60 ITR 699 (Bom.) and Venkataraman (C.P.) v. CIT (1970) 75 ITR 65 (Mad.) ref.
B.S. Gupta, Senior Advocate and Sanjay Barisal for Applicant
R.P. Sawhney and Sanjay Goyal for Respondent.
JUDGMENT
N.K. AGRAWAL, J.---This is an application by the assessee under section 256(2) of the Income Tax Act, 1961 (for short "the Act"), seeking a direction to the Income-tax Appellate Tribunal (for short, "the Appellate Tribunal"), to state the case and refer the following questions of law to this Court for opinion:
"(1) Whether the finding recorded by the Income-tax Appellate Tribunal that each payment made by the assessee in cash has not been proved to be of less than Rs.2,500 is vitiated in law because of its failure to take into account material relevant evidence consisting of entries recorded in the cash book regularly maintained by the assessee in the normal course of its business ?
(2) Whether, on the facts and in the circumstances of the case, emerging from the evidence on record, particularly the cash book maintained by the assessee showing that each payment made for purchasing bricks, etc., was of less than Rs.2,500 though the aggregate of such payments made during the day exceeded the statutory limit of Rs.2,500, was the Income-tax Appellate Tribunal correct both on facts and in law in sustaining the additions made under section 40-A(3) of the Income Tax Act, 1961 ?
(3) Whether on a proper interpretation of the provisions of section 40-A(3) of the Income Tax Act, 1961, does it apply to a case where assessment is made on an income determined of the basis of estimate/best judgment by applying gross profit rate and not computed in accordance with the provisions of the Act relating to computation of income under the head :Profits and gains of business or profession '?
(4) Whether, in view of the fact that assessment was made on an income or profits determined on the basis of estimate by applying a gross profit rate, was the Income-tax Appellate Tribunal right in law in invoking the provisions of section 40-A(3) of the Income Tax Act, 1961, and sustaining the addition of Rs.1,58,965 thereunder?"
The assessee-firm derived its income from the execution of contract work. The net profit was shown on the basis of the profit and loss account prepared by the assessee at Rs.95,990 for the assessment year 1986-87. The accounting period of the firm ended on November 30, 1985. The Assessing Officer noticed during the assessment proceedings that there were no vouchers in respect of the expenditures. It was also seen that the amount of Rs.1,51,310 representing 75 per cent of the total value of the materials supplied to various Government agencies had been shown by the assessee as receipts but, as against the said receipts, the total expenditure had been shown at Rs.1,35,415 only whereas it should have been at Rs.2,01,748. The assessee had shown the gross profits at less than 10 per cent. Since the assessee had not maintained vouchers in respect of the expenditure nor produced the muster rolls, the declared profit was not accepted and the Assessing Officer proceeded to determine the gross profit at 12 per cent. of the total receipts. Thus, the profit was determined at Rs.1,61,328 as against Rs.95,990 declared by the assessee. Further addition of Rs.1,58,965 was also on account of payment made by the assessee-firm in cash in excess of Rs.2,500. Since it was a violation of section 40-A(3) of the Act, this addition was separately made. The assessee went in the appeal and got part relief at the hands of the Commissioner of Income-tax (Appeals). The gross profit rate adopted by the Assessing Officer at 12 per cent was reduced to 10 per cent of the total contract receipts. The addition of Rs.1,58,965 was, however, sustained.
The assessee as well as the Department went before the Appellate Tribunal in appeal. The Department had challenged the relief given by the Commissioner by reducing the gross profit rate and the assessee felt aggrieved by the addition of Rs.1,58,965 made under section 40-A(3) of the Act. Both the appeals were dismissed by the Appellate Tribunal.
The assessee sought the following four questions claiming these to be questions of law for being referred to this Court under section 256(1) of the Act
"(1) Whether, on the facts and circumstances of the case, the Tribunal was justified in law in invoking the provisions of section 40-A(3) of the Income Tax Act, in the case of the applicant in disbelieving the expenditure recorded in the books of account in which no payment in a sum exceeds Rs.2,500?
(2) Whether, the interpretation of section 40-A(3) in the manner denies equal remedial right to the applicant by making it impossible for him to enjoy the relaxation of rigour of section 40-A(3) read with the rule 6-DD of the Income Tax Act, 1961
(3) Whether, the Tribunal was justified in law in not providing a reasonable opportunity of being heard to the applicant who is pursuing a matter under a bona fide mistake of law as to the applicability of the provisions of section 40-A(3) ?
(4) Whether the learned Tribunal was justified in law in believing and disbelieving the evidence under similar set of circumstances ?"
The case of the assessee is that the Assessing Officer as well as the appellate authorities failed to look into the entries of the cash book showing cash payments by the assessee-firm. As. per those entries, cash payments were made in one transaction at less than Rs.2,500 though in the aggregate in a day the cash payments exceeded the said limit prescribed in section 40-A(3) of the Act. The assessee-firm had purchased bricks from truck-drivers and operators and steel from the open market. Those suppliers did not maintain bank accounts and, therefore, it became necessary for the assessee-firm to make payments in cash. Since cash payment at a time on one occasion did not exceed the limit of Rs.2,500, it was not a case falling within the purview of section 40-A(3) of the Act. Though vouchers may not be available so as to show that each cash payment was below Rs.2,500 in a day, the entries in the cash book did amply prove that payment at a time was below Rs.2,500. Therefore, there was no violation of section 40-A(3) of the Act.
Learned counsel for the respondent has at the outset raised on objection that questions Nos.3 and 4 now sought for reference were not at all proposed before the Appellate Tribunal, nor these questions arise from the order of the Tribunal. The assessee never raised the point that, since the income had been determined on estimate basis, section 40-A(3) of the Act was not applicable at all and had been wrongly invoked. This point does not find mention in the discussion in the appellate order of the Commissioner as well as the order of the Appellate Tribunal. In the application under section 256(1) of the Act, these two questions, namely, questions Nos.3 and 4 were never raised.
Learned counsel for the petitioner has raised argument that questions Nos.3 and 4, now sought to be raised, do arise from the Tribunal's order inasmuch as these were merely different aspects of the same questions which had been sought to be referred under section 256(1) of the Act. It is stated that section 40-A(3) of the Act could not be applied when the book results had not been accepted and the profits had been determined on the basis of estimate. The issue had been raised before the Commissioner of Income-tax (Appeals) as well as the Appellate Tribunal but it was not considered nor decided. Even if this aspect of the question is treated as having been not raised at all earlier, the assessee is not debarred from raising these questions in view of the nature of the issue regarding the applicability of section 40-A(3) of the Act.
Questions Nos.3 and 4 are said to be not new questions. They incorporate different aspect of the primary question raised before the Appellate Tribunal under section 256(1) of the Act. A similar matter had been examined by the Bombay High Court in Rekhchand Gopaldas Mohta Spinning and Weaving Mills Ltd. v. CIT (1966) 60 ITR 699. The assessee has, in that case, claimed deduction on account of payment of interest on capital borrowed. The claim was disallowed. The assessee raised an alternative contention before the High Court that the claim is allowable as business expenditure. It was held that the question whether the claim was allowable under section 10(2)(xv) of the Indian Income-tax Act, 1922, could be raised before the High Court though it was not raised before the Tribunal inasmuch as it was not a different question but only another aspect of the question whether the deduction was permissible, which was raised before and considered by the Tribunal with reference to section 10(2)(iii) of the Indian Income-tax Act, 1922. In a similar matter, the Bombay High Court had again an occasion to examine a question which was sought to be raised before the High Court. In CWT v. Purshottam N. Amersey (1969) 71 ITR 180 (Bom.) it has been observed that a new aspect of the question which was argued before the Tribunal could be considered by the High Court in a reference.
The Madras High Court in C.P. Venkataraman v. CIT (1970) 75 ITR 65, was examining a question whether the levy of penalty was justified. It was noticed that one aspect of that question would be whether the factual elements to attract section 28(1)(c) of the Indian Income-tax Act, 1922, were present and another aspect may be whether, in view of the fact that the appellant before the Tribunal was not the appellant himself, the penalty could be levied on him. That was not a case where a question has not been raised before the Tribunal and was raised for the first time in the reference. Therefore, the Court proceeded to decide the question.
In CIT v H.H. Birad Kanwarji (1979) 119 ITR 96, the Rajasthan High Court was examining a situation where the Tribunal had refused to refer a question on the ground that the Commissioner of Income-tax had not challenged the alternative ground that the allowance received by the assessee would be allowable under section 10(2) of the Act. It was held that a question of law which is referred for decision must be the question which was in issue before the Tribunal. It was observed that it will be an over refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of Act. The Madhya Pradesh High Court in Omprakash v. Addl. CIT (1979) 119 ITR 251, was also examining a matter whether each aspect of a question was itself a distinct question. In that matter, the identity of the status of the assessee was in dispute. This was treated to be only one aspect of the question whether loss allowed in an earlier year could be charged to tax in a subsequent year. The Tribunal had refused to refer the question on the ground that the question of status of the assessee in relation to section 41(1) of Act was not argued before the Tribunal. The High Court, on an application by the assessee, directed the Tribunal to submit a supplementary statement of the case, taking the view that it was only an aspect of a question already raised before the Tribunal. The Supreme Court in CIT v. Scindia Steam Navigation Co. Ltd. (1961) 42 ITR 589, has examined the matter in detail. The power of the High Court to issue a direction to the Tribunal under section 66(2) of the Indian Income Tax Act, 1922, was under examination. It was held that the High Court cannot direct the Tribunal to refer a question unless it is one which arises out of the order of the Tribunal and was specified by the applicant in his application under section 66(1) of the Indian Income Tax Act, 1922. When a question of law is neither raised before the Tribunal nor considered by it, it will not be a question arising out of its order, notwithstanding that it may arise on the findings given by it. Learned counsel for the petitioner before us has taken support from the observation of the Supreme Court, which read as under (headnote):
"Where the question itself was under issue, there is not further limitation imposed by the section that the reference should be limited to those aspects of the question which had been argued before the Tribunal, and it will be an over-refinement of the position to hold that each aspect of a question is itself a distinct question for the purpose of section 66(1) of the Act."
Learned counsel for the respondent has, on the other hand, sought aid from the observations of the Supreme Court that where a question is neither raised before the Tribunal nor considered, there would be no question arising out of its order. In the case of the petitioner here, no question was raised at all that section 40-A(3) of the Act was not applicable where profit is determined on estimate basis after rejecting the book -results of the assessee. The assessee did raise the question that no addition could be made under section 40-A (3) of the Act inasmuch as, from the entries in the cash-book, each cash payment was below Rs.2,500 though in a day the aggregate of such payments might exceed that limit. The questions raised before the Appellate Tribunal were, therefore, very specific and confined to the nature of the cash payments made by the assessee to the suppliers of bricks and steel. No plea was ever raised that section 40-A(3) was not attracted where profit is determined on the basis of estimate.
The Supreme Court in CIT v. Indian Molasses Co., Pvt., Ltd. (1970) 78 ITR 474, has observed that the expression "question of law arising out of such order" in section 66(1) of the Indian Income-tax Act, 1992 was not restricted to take in only those questions which had been expressly argued and decided by the Tribunal. If a question of law was raised before the Tribunal, even if an aspect of that question was not raised that aspect may be argued before the High Court. Learned counsel for petitioner has sought support from the said observations of the Supreme Court and has urged that the question of applicability of section 40-A (3) of the Act was raised touching various aspects and, therefore, questions Nos.3 and 4 now sought to be raised were not different and distinct questions but different aspects of the same question.
Learned counsel for the respondent has put forward the plea that questions Nos.3 and 4 sought to be raised were not dealt with by the Tribunal at all in its order and, therefore, these questions do not arise out of the Tribunal's order. In Highway Motors Pvt., Ltd., v. State of Punjab (1982) 51 STC 133, a Full Bench of this Court was examining section 22(1) of the Punjab General Sales Tax Act, 1948. It was observed as under (headnote):
"It is well-established that what is not adjudicated upon or noticed by the Tribunal would be initially presumed to have not been raised before it. However, this presumption is not conclusive though the burden is heavy on the party to establish the contrary. Consequently, where a number of points of law find mention in the grounds of appeal or revision, but only some of them are expressly noticed or adjudicated upon by the Tribunal in its order, the presumption must be raised that the rest were given up expressly or impliedly. It cannot be in the reverse that unless it is positively shown that they were given up, they must be deemed to have been both raised before the Tribunal and further presumed that they were deliberately or inadvertently ignored by it in dereliction of the duties laid by law. Therefore, merely taking a point of law in the grounds of appeal or revision but itself cannot per se amount to raising it before the Tribunal."
In CIT v. Krishna & Sons (1968) 70 ITR 733, the Supreme Court was examining a matter regarding its own jurisdiction in appeal. It was observed that the jurisdiction of the Supreme Court arising in appeal over the judgment of the High Court on a reference under the Income Tax Act was also advisory and the Supreme Court only record its opinion on question which are referred, not on questions which could have been, but have not been, referred.
A similar view has been expressed by the Supreme Court in Agha Abdul Jabbar Khan v. CIT (1971) 82 ITR 872, and learned counsel for the respondent has contended, on the basis of the following observations of the Supreme Court, that a new question of law cannot be allowed to be raised (at page 875):
"In our opinion the High Court had no jurisdiction to raise new questions of law. The questions raised by it do not flow from the question referred to it for its opinion. The High Court's power under the Act is only to give its opinion on the questions of law referred to it by the Tribunal. It cannot take into consideration questions of law which have not been referred to it for its opinion. If the High Court thought that the question referred to it did not bring out the real point in issue, it was open to it to call for a fresh statement of the case and direct the Tribunal to submit for its opinion the real question arising for
decision. The High Court did not do so. On the other hand, the High Court dealt with the reference as if it was dealing with an appeal before it. It failed to realize the limits of its jurisdiction in references under section 66(1). "
Questions Nos.3 and 4 sought to be raised by the petitioner do not appear to be different aspects of the same questions, which had earlier been raised before the Appellate Tribunal. The petitioner did not produce any material to show that the plea that section 40-A(3) was not attracted where profit was determined on estimate basis after rejecting the book results of the assessee, had been raised before the Commissioner of Income-tax (Appeals) or before the Appellate Tribunal. Even if the plea had been raised but the authorities failed to consider the plea and give decision thereon, the petitioner could very well move an application before the Commissioner as well as the Appellate Tribunal for rectification of the order. Again, when the petitioner moved the application under section 256(1) of the Act before the Tribunal, questions Nos.3 and 4, as now sought to be referred, were never raised. There is, therefore, no force in the plea of the petitioner that questions Nos.3 and 4, now sought to be raised, did arise from the Tribunal's order. These two questions are distinct and different question which had never been considered by the Appellate Tribunal. Therefore, questions Nos.3 and 4 do not arise from the Tribunal's order nor do they appear to be merely different aspects of the questions raised by the assessee before the Tribunal.
Questions Nos. l and 2 relate to the addition made under section 40-A(3) on the ground that cash payments were made by the assessee- firm in excess of Rs.2,500. The plea of the petitioner is that no cash payment in one transaction exceeded Rs.2,500 though in one day the aggregate of the cash payments did exceed the said limit. This plea was not accepted by the Assessing Officer because the names and addresses of the recipients had not been mentioned in the books of account. Supporting vouchers were also not produced. There was no evidence to show that bricks had been purchased by the assessee-firm from truck drivers or operators. Details of payments were also not shown. Iron and steel had been purchased from the open market but r here also no details were furnished. No exceptional circumstances were shown to justify cash payments exceeding Rs.2,500. The Tribunal also did not accept the plea after noticing that the plea was not supported by any evidence. The assessee had admittedly not maintained any vouchers.
Since the assessee's plea that payments were made in cash because the recipients did not have bank accounts and were mere truck drivers and operators was not supported by sufficient material or evidence, the Tribunal gave a finding of fact that there was no reasonable ground to allow such payments. The assessee did not prove payments in cash under exceptional circumstances also. In the absence of vouchers and on account on non availability of the names and addresses of the recipients, the Tribunal reached a finding that section 40-A(3) of the Act attracted. There was no evidence to establish the plea that each payment was below Rs.2,500.
In CIT v. Aloo Supply Co.(1980) 121 ITR 680, the Orissa High Court was looking into a transaction where the assessee had made payment at different times during the day. It was held that the statutory limit of Rs.2,500 under section 40-A(3) of the Act applied to payments made to a party at a time and not to the aggregate of the payments made to a party in the course of the day as recorded in the cash book. Drawing strength from this decision, learned counsel for the petitioner has argued that the cash book entries show that each transaction representing cash payment was for less than Rs.2,500 and, therefore, section 40-A(3) of the Act was not attracted at all. In our view, this plea cannot be accepted because the assessee failed to lead sufficient evidence as has been held by the Tribunal.
In CIT v. Surinder Sugar Store (1989) 177 ITR 511, this Court was examining a matter relating to addition made under section 40-A(3) of the Act. It was held that the Tribunal had deleted the addition made by the Income-tax Officer under section 40-A(3) of the Act. A question of law did arise. Learned counsel for the petitioner has, on the basis of this decision, argued that questions Nos. l and 2 are required to be referred to this Court for opinion. This plea is also not found to be acceptable because, as has been stated earlier, the assessee failed to lead evidence in support of the plea that cash payments had been made in excess of Rs.2,500 on account of certain exceptional circumstances or that each cash payment was below Rs.2,500 though, in the aggregate in a day, total payments did exceed that amount. Neither of the two pleas was supported by sufficient evidence. The finding given by the Tribunal is found to be based on the appreciation of the evidence. Therefore, questions Nos.l and 2 are also not required to be referred to this Court for opinion.
In the result, the application filed by the petitioner under section 256(2) of the Act is dismissed. No order as to costs.
M.B.A./1656/FCApplication dismissed.