Commissioner of Income Tax vs S. Pritam Singh

D.K. Jain, J.—This appeal by the Revenue u/s 260A of the Income Tax Act, 1961 (for short "the Act"), is directed against the order dated June 26, 2002, passed by the Income Tax Appellate Tribunal, Delhi Bench "B", New Delhi (for short "the Tribunal"), in I. T. A. No. 6092/Delhi of 1996, pertaining to the block period 1986-87 to 1995-96 and latest block period from April 1, 1985, to October 13, 1995. According to the Revenue, the order involves the following substantial questions of law :

"(a) Whether, on the facts and in the circumstances of the case, the Tribunal was correct, both on facts and in law, in deleting the addition of Rs. 9,10,000 ?

(b) Whether the learned Income Tax Appellate Tribunal was correct in law and on the facts and circumstances of the case in allowing the relief to the assessed on assumption that profits made on unaccounted sales have partly been invested in stocks and partly was available as cash, recovered during the course of search ?

(c) Whether the learned Income Tax Appellate Tribunal has erred in law and in facts to ignore/consider the entire document on the basis of which the finding was recorded by the Assessing Officer ?

(d) Whether the order of the learned Income Tax Appellate Tribunal is perverse as it has ignored the findings of the Assessing Officer and the evidence brought on record ?

(e) Whether the order passed by the learned Income Tax Appellate Tribunal is perverse in facts in law ?"

The background facts, leading to the present appeal are as follows :

Search and seizure operations u/s 132 of the Act were conducted at the residential and business premises of the respondent (hereinafter referred to as "the assessed"), on October 13, 1995. Seizure of some incriminating material, including cash of Rs. 12,42,950, during the course of the search resulted in the issue of a notice to the assessed on March 15, 1996, u/s 158BC of the Act. The assessed was called upon to file a return of his income for the aforementioned block period.

Pursuant thereto, the assessed filed his return for the said period on August 27, 1996, declaring undisclosed income at Rs. 14 lakhs. The break up of the undisclosed income was as under :

Rs. "(a) Undisclosed cash 5,13,650 (b) Excessive stock 6,07,900 (c) On account of incriminating loose papers, expenses, undis:- closed assets, marriage expenses 2,78,450 ---------- 14,00,000" ----------

After making detailed enquiries, the Assessing Officer computed the total undisclosed income for the block period at Rs. 37,81,647. One of the undisclosed income so determined, with which we are directly concerned in the present appeal, was an amount of Rs. 9,10,000, computed as profits on sales outside the books of account. The other two additions which have a direct bearing on the issue involved were two amounts of Rs. 10,10,000 and Rs. 8,84,127, respectively, on account of unexplained cash and unexplained investment in stocks.

Aggrieved, the assessed preferred an appeal to the Tribunal. The Tribunal has deleted the addition of Rs. 9,10,000 made on account of alleged profits earned by the assessed on sales outside the books of account by observing thus :

"Having heard the rival submissions and perused the material placed on our files and also considering the specific submissions made by the assessed before the Assessing Officer and that a surrender to the tune of Rs. 5 lakhs odd has been made on account of cash found at the time of the search and a surrender of Rs. 6 lakhs odd has been made on account of excessive stock in the return filed by the assessed for the block period as such, we are of the opinion that the addition estimating the income of the assessed on account of sales made outside the books of account is not warranted in the peculiar facts and circumstances. Accordingly, the addition made is deleted,

Hence, the present appeal.

We have heard Mr. J. R. Goel, learned senior standing counsel for the Revenue, and Mr. C. S. Aggarwal, learned counsel for the assessed.

Assailing the order of the Tribunal, Mr. Goel has strenuously urged that while deleting the subject addition the Tribunal has lost sight of the vital fact that it has itself either deleted or set aside and restored back to the file of the Assessing Officer for reconsideration the additions made on account of unexplained cash or unexplained investment in stocks. The submission is that till the quantum additions on account of unexplained cash recovered from the residence of the assessed and the value of the undisclosed stocks are finally determined, it could not be said that the profit earned on sales outside the books of account formed part of the amounts surrendered by the assessed, as has been held by the Tribunal.

Mr. Aggarwal, learned counsel for the assessed, on the other hand, 10 while supporting the order of the Tribunal, has submitted that additions having been made on account of unexplained cash and the value of undisclosed assets, a further addition on account of profits on sales outside the books amounted to double taxation inasmuch as the unexplained cash and the stocks would obviously come out of the profits on sales allegedly made by the assessed outside the books of account. It is pleaded that the decision of the Tribunal being reasonable, it does not involve any substantial question of law and, Therefore, this court should decline to entertain the appeal.

True that the jurisdiction of this court u/s 260A of the Act is 11 limited. It is confined to entertaining only such appeals against orders of the Tribunal which involve a substantial question of law. Though the expression "substantial question of law" is not defined in the Act or any other statute, where a similar expression appears, it has acquired a definite connotation through a catena of judicial pronouncements. Recently in Santosh Hazari Vs. Purushottam Tiwai (Dead) by Lrs., dealing with an analogous provision contained in section 100 of the Code of Civil Procedure, their Lordships of the Supreme Court have reiterated the tests laid down by the Constitution Bench in Sir Chunilal V. Mehta and Sons, Ltd. Vs. The Century Spinning and Manufacturing Co., Ltd., , for determining whether a question raised in a case is a "substantial question of law" or not. It has been said that usually the proper tests would be, whether : (i) it is of general public importance ; or (ii) it directly or substantially affects the rights of the parties; or (iii) it is an open question in the sense that it is not finally settled by the Supreme Court; or (iv) is not free from difficulty; and (v) it calls for discussion for alternative views.

Applying the above tests to the facts in hand, we are of the view that the 12 issue raised by the appellant deserves consideration. As noted supra on the one hand, after noticing that though at the time of search the assessed had surrendered an amount of Rs. 10,10,000 odd while filing the return for the block period the assessed had returned only an amount of Rs. 5 lakhs odd as undisclosed income, the Tribunal has restored the addition on this account to the file of the Assessing Officer for verification whether specific withdrawals as claimed by the assessed were reflected in various business accounts or not. Obviously, the co-relation of these withdrawals with the cash recovered and the Assessing Officer''s satisfaction thereon may have a direct nexus with the addition made on account of profits allegedly earned on undisclosed sales, as is sought to be pleaded by learned counsel for the assessed. The same would be the position in respect of the addition made as unexplained investment in stocks, which issue again has been restored to the file of the Assessing Officer. We are, Therefore, of the view that if the a fore-extracted conclusion drawn by the Tribunal is allowed to attain finality, it would directly and substantially affect the rights of the Revenue in so far as the issue of addition in question is concerned. In our opinion, in the afore-projected factual scenario, the order of the Tribunal involves a substantial question of law. We accordingly admit the appeal.

The following question is framed for adjudication :

"Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the addition of Rs. 9,10,000 made on account of profits earned on unaccounted sales, notwithstanding the fact the additions on account of unexplained cash and unexplained investments in stocks had been restored to the file of the Assessing Officer for further investigations ?"

The appellant shall file within three months ten copies of the cyclostyled paper books, containing all documents on which reliance was placed before the Tribunal, including any order/orders, either in the case of the assessed itself or in the case of any other assessed, which had been followed by the Tribunal.

The appeal shall be/listed for hearing in the regular course.