Income-tax---

----Reference---Income from undisclosed sources---Finding that there was no income from undisclosed sources---Finding of fact---No question of law arose---Indian Income Tax Act, 1961, S.256(2).

The assessee, a Government company, was a manufacturer of country liquor. The entire produce of its distillery unit was sold to the State Government pursuant to an agreement that it held with the State Government and at a price which was fixed by the State Government. As per" the agreement, the price of. liquor was fixed at the rate of rupee one per litre. However, the Inspecting Assistant Commissioner (Assessment) found that provisionally the rate of liquor was fixed at Rs.1.24 per litre which had been finally fixed at Re. 1 per litre and that made him presume that the price must have been reduced to Re. 1 per litre just to avoid taxes. Fixing the rate at the rate of Rs.1.24 per litre he made the addition of Rs.24 lakhs in the trading results and this addition was confirmed by the Commissioner (Appeals). The Tribunal ultimately found that the Department had failed to furnish proper materials despite opportunities granted to it to support the note of the Financial Controller, dated January 2, 1980 wherein the assessee suggested the reduction in the rates for the year 1978-79 only to reduce the profits for the purpose of avoiding the income-tax which it had otherwise earned from the retail trade of country liquor shops at Jaipur, Kota and Alwar, amounting to Rs. 1 crore. That really formed the main substratum of the order for the Inspecting Assistant Commissioner (Assessment), so as to form a view that the reduction of rate from Rs.1.24 per litre to Re. 1 per litre had only been done for the purpose of evading income-tax. However, the Tribunal found that the note of the Financial Controller was not by itself sufficient to support the addition in the assessment specially when the assessee was itself a Government company and where no question of personal taxes was involved. Considering the profits earned by the assessee with the help of the State Government from the three country liquor shops at three different places, the Tribunal took the ultimate view that there could be no taxation on imaginary profitswhichere not earned by the company and in that context, the addition to the total income wasdeleted by the Tribunal,. On an application to direct reference:

Held, dismissing the application, that taking the total magnitude of evidence as it was, a finding of fact was made by the Tribunal on the basis of materials available on record and there was really no misplacement of the burden of proof. The documents were impounded earlier and thereafter, the documents were lying in the custody of the Revenue. The assessee really called for the documents through its representative and such documents were not really furnished by way of actual production by the Revenue, Which held custody after the impounding was so done. If on the entire gamut of evidence, whatever might have been the evidence about observations made by the Financial Controller or those in the management, it was not proved as to how tax was evaded. Just because another view might be taken on such facts a reference would not be justified.

Anant Kasliwal for the Commissioner.

T: C. Jain for the Assessee.

JUDGMENT

An application for reference under section 256(2) of the Income Tax Act, 1961, has been filed, by the Commissioner of Income-tax, Jaipur, against Ganganagar Sugar Mills Ltd., in respect of the assessment yea 1980-81 arising out of the Income-tax Appeal No. 482/Jp of 1987, dated June 27, 1990. The Tribunal rejected the application of the Commissioner of Income-tax under section 256(1) of the Income-tax Act vide its order, dated April 25, 1991, which was communicated to the petitioner, vide diary No 30, dated June 3, 1991.

Hence, this application under section 256(2) of the Income tax Act, 1961.

The case of the petitioner, inter alia, is that during the course of assessment, proceedings for the year 1980-81 the assessing authority found that the rate for supply of country liquor to the Government for the period July 1, 1978, to June 30, 1979, was Rs.1.24 per litre. The assessee, Ganganagar Sugar Mills Ltd., which was a Government company,, claimed that the Government has allowed the payment at the rate of Rs. 1 per litre only. On going through the accounts, the assessing authority found that the amount of Rs.1.24 was 'bifurcated and the amount of Re. l per litre was paid by the Government as the cost of liquor and the balance of 24 paisa per litre was paid to the company in the shape of share capital. According to Note No.76, dated November 8, 1979, recorded by the Financial Controller of the company it was observed: "On the other side, the Finance Department has also held up sanction for issue of share capital of Rs.24 lakhs as promised by Ex-PC in lieu of accepting the rate of country liquor at Rs. 1 per L. P. S. in place of ks.1.24."

The General Manager, after the said note, has further recorded on December 21, 1979, and mentioned that:

"We have requested the Government to allow payment of Rs.1.24 per L.P. litre. This was on the basis of cost structure during thepreceding year during which period the Government had allowed only Rs. 1 per L.P. litre, but at that titre our profits on account of country liquor retail shops was fairly good and we did not mind the payment which was below our manufacturing cost."

There was yet a third relevant entry in the records of the company in the shape of a note by the Financial Controller, dated January 2, 1980, which reads as under:

"I have noted that Government has been sanctioning the rate of country liquor on the basis of last years finalised accounts which is not a correct policy because in case there was slump in last year, the company has to bear the loss for the current year as would appear from the fact that d0ring the period July 1, 1978, to June 30, 1979, the company had supplied 87.31 lakhs of L. P. L. of country liquor to the Government licensees. The actual cost of production for this country liquor on the basis of actual expenditure incurred on purchase of material, labour wages during the period July 1, 1978, to June 30, 1979, comes to Rs. 1.58 per L.P.L. whereas the Government had allowed the rate of Rs. 1.24 (actual rate allowed Re. l and 0.24 paisa was given in the form of share capital).thus, in fact the company has been put to a loss of Rs.33 lakhs (calculated at the rate of Rs.1.58 (-) Rs.1.24 = 34 paisa for 517-31 lakhsL.P.L.). We may, therefore, request the Government to reimburse the loss of Rs.33 lakhs."

The Financial Controller also prepared a brief in support of his note, dated January 2, 1980, and para. 2 of the said note reads as under:

"The company had suggested reduction in rate in the year 1978-79 to reduce the profits in order to save income-tax which it had earned from retail trade of country liquor at Jaipur, Kota and Alwar amounting to Rs.1 crore."

According to the contention raised by the petitioner, the cost price in the assessment year 1978-79 was Rs.1.30 per litre and the issue price was fixed at Rs.1.51 per litre. In the assessment year 1979-80, 'the cost was Rs.122 and the issue price was fixed at Its 1.37 per litre. In the present assessment year, the cost was 0.99 paisa per litre and 25 paisa were demanded as issue rate of Rs.1.24. From the letter written by the Director in-charge to, the Secretary to the Government, Finance (Excise Department), Government of Rajasthan, dated October 8, 1979, it revealed that: "it was recommended by this company that a final rate of Rs.1.24 per L. P. litre may be sanctioned for sale of country liquor 78-79" but later on a meeting was held between the' ex-Director In-charge and the ex-Financial Commissioner and it was decided that looking to the heavy profits of, the company the rate of country liquor be sanctioned finally at Rs.1 per L.P.L. instead of Rs.1.24.

The assessing authority came to the conclusion that the amount received at the rate of 24 paisa per litre is actually the price of the liquor and the amount of Rs.24 lakhs was added as an income by way of undisclosed sale proceeds of country made liquor. The assessee was directed to produce the complete record relating to fixation of the issue price for the assessment years 1976-77 to 1979-80 on March 2, 1983. On March 3, 1983, it was found that one of the files which were produced on March 2, 1983, was not produced and, therefore, the rest of the files were impounded by the assessing authority on March 3, 1983, after recording the reasons.

The assessee preferred as appeal to the Commissioner of Income-tax (Appeals) and the said addition was upheld as per order of the appellate authority. The assessee preferred an appeal before the Tribunal, which held that the price was fixed at Rs. 1 per litre. It, accordingly, directed the Department to, bring the, relevant' material or the file about the note of the Financial Controller for, getting the file which was in the possession of the assessee and it was contended by the Revenue that it was the assessee's burden to prove what actual consideration was received by it and that it was at the rate of Rs. 1 per litre and not at the rate of Rs.1.24 per litre. The contention of the assessee was that all the documents have been impounded and the records were lying with the Revenue Department and not with it. The Tribunal ultimately deleted-the addition of Rs.24 lakhs. It was contended by the Revenue that the Tribunal did not take note of the fact that the price of the previous year was more than Rs. 1 acid that the cost itself was 99 paisa which was around Rs. 1 and the amount of Rs. I was not the real price and the assessing. authority had the jurisdiction to determine the real price/income. It was the further case of the Revenue that the amount which was received by the company to the tune of Rs.24 lakhs, has not been properly explained so as to indicate for what consideration the said amount was received. It was the further contention of the Revenue that as to why the price in the current assessment year was agreed to be reduced by the assessee-company when in the previous year the prices were charged at a higher amount was not determined and in the cost the profit element was not clearly clinched.

The petitioner submitted an application to the Income-tax Appellate Tribunal to make a reference of the following questions of law.

"(1) Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in deleting the addition of Rs.24 lakhs made by the Assessing Officer as undisclosed sale proceeds of country made liquor?

(2)Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that note of the Financial Controller was not sufficient to hold that the reduction in rate was meant to avoid income tax notwithstanding that the Assessing Officer had incorporated in the assessment order excerpts from correspondence between the company's officials and the State Government and notes of the company's officials on its records which provided positive evidence regarding maneuvering in order to reduce the profit and incidence of tax?

(3)Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that the profits earned by the assessee from the three shops allotted by the State Government was a consideration for reducing the rate of country liquor by the State Government and, therefore, deleting the addition of Rs:24 lakhs on this ground?

(4)Whether, on the facts and in the circumstances of the case and in law, the Tribunal was right in holding that when the State Government has right to decide the price, the company cannot be punished or burdened with the tax on the imaginary profits which has not been earned by the company notwithstanding the fact that the piece was initially fixed at Rs.1.24 per litre and the Inspecting Assistant Commissioner (Assessment) had brought on record sufficient material to prove that the device adopted .by the State Government and the company to fix the issue price at Rs. 1 per litre and diverting Rs.24 lakhs in the shape of share capital was diversion of income?"

The Tribunal rejected the reference application under section 256(1) of the Income-tax Act, on the ground that the questions raised were more or less questions of fact, by passing an order, dated April 25, 1991. It is the contention of the petitioner that the said order is not in accordance with law because the Tribunal has placed the burden of proof on the Revenue but it ought to have been on the assessee and the Tribunal wrongly directed the Revenue to produce a copy of the file and notes which were in the possession of the assessee and that apart the Tribunal has ignored the material evidence duly recorded in the assessment records. The Tribunal also ignored the fact that the assessee deliberately withheld the file on March 3, 1983, which was produced on March 2, 1983, and, therefore, the assessing authority was forced to impound the record of the company. It was the duty of the assessee produce the documents from which it could be proved that the amount of Rs.24 lakhs was not received by the assessee-company. Last but not least; it was contended that the order of the Tribunal was based on surmises and conjectures and material evidence on the record was ignored and the price in the past was also ignored and it was lost sight of that it was a device adopted by the assessee-company so as to evade taxes.

The main contention is whether substantial questions of law are involved in the matter or not.

It should not be lost sight of that the assessee despite being a manufacturer of country liquor, as regards its distillery unit, the entire produce was sold to the State government pursuant to an agreement that it held with the State Government and at a price which was fixed, by the State Government. As per the agreement, the price of liquor was fixed at-the rate of Rs. 1 per litre. However, the Inspecting Assistant Commissioner (Assessment) found that provisionally the rate of liquor was fixed at ks.1.24. per litre which has been finally fixed at Re.1 per litre and that made, him presume that the price must have been reduced to Re. l per litre just to avoid taxes. Fixing the rate at the rate of Rs,1.24 per litre he made the addition of Rs.24 lakhs in the trading results and this addition was confirmed by the Commissioner (Appeals). The Tribunal ultimately found that the Department had failed to furnish proper materials despite opportunities granted to it to support the note of the Financial Controller, dated January 2, 1980, wherein the assessee suggested the reduction in the rates for the year 1978-79 only to reduce the profits for the purpose of avoiding the income-tax which it had otherwise earned from the retail trade of country liquor shops at Jaipur, Kota and Alwar, amounting to Rs. 1 crore. That really formed the main substratum of the order for-the Inspecting Assistant Commissioner (Assessment), so as to form a view that the reduction of rate from Rs.1.24 per litre to Rs. 1 per litre has only been done for the purpose of evading income-tax. However, the Tribunal found that the note of the Financial Controller was not by itself sufficient to support the addition in the total assessment specially when the assessee was itself a Government company and where no question of personal taxes was involved. Considering the profits earned by the assessee with the help of the State Government from the three country liquor shops at three different places, the Tribunal took the ultimate view that there could be no taxation on imaginary profits which were not earned by the company and in that context, the addition to the total income was deleted by the Tribunal as the final assessment authority onfacts.

We are of the considered opinion that taking the total magnitude of evidence as they are, a finding of fact was made by the Tribunal on the basis of materials available on, recordthere was really no misplacement of the burden of proof. The documents were pounded earlier and since thereafter the documents were lying in the custody of the venue. The assessee really called for the documents through its representative and such documents were not really furnished by way of actual production by the Revenue, which held its custody after the impounding was so done. If on the entire gamut of evidence, whatever might have been the evidence about observations made by the Financial controller or those in the management, the matter was not clinched as to how tax was evaded and there was a final finding of facts made by the Tribunal, we cannot make any further probe on the same and -determine the sufficiency or otherwise of the said materials just because another view might he taken on such facts, we do not think that any reference under section 256(2) of the Income Tax Act, 1961, would be justified in the instant case would have to be borne in mind that everything received is not income and what was theexact quantum derived by the assessee has to, be clinched and ,nothing should be drawnresumption or a prior assumption. We do not think that any of the four grounds really makes out a substantial question of law for redirecting a reference under section 256(2) of he, Income-tax Act. In that view, we reject this application. There will be no order as to costs.

M.B.A./3188/FCApplication rejected.