Commissioner of Income-Tax v. Chandravilas Hotel — 1986 DIGILAW 59 (GUJ)

JUDGMENT : R.C. Mankad, J. The assessee, a registered partnership firm, runs a hotel and a boarding house. The assessment years under consideration are 1972-73 and 1973-74, previous years being Samvat years 2027 and 2028, respectively. In the year of account relevant to the assessment year 1972-73, the assessee was alleged to have paid Rs. 29,337 by way of commission to one Ramkumar Kalyanji (hereinafter referred to as " Ramkumar ") for supplying coins in exchange for currency notes. In the year of account relevant to the assessment year 1973-74, the commission paid to Ramkumar was Rs. 7,812. In the course of the assessment proceedings, the assessee claimed that it had to pay this commission to get small coins as there was shortage of coins. It was the assessee's case that many customers who came to take snacks and tea in its hotel were required to be given coins and, therefore, it was necessary for the assessee to have small coins for the purpose of the business. It was, therefore, that the assessee claimed that the expenditure incurred by it by way of commission was business expenditure. The Income-tax Officer held an enquiry to find out whether the commission as claimed by the assessee was paid, In the course of inquiry, he found that Ramkumar was a hawker who was hardly able to maintain himself with the income which he earned. He was a mill employee turned into hawker when the mill was closed down. In the statement recorded by the Income-tax Officer, Ramkumar, while admitting the signatures on the vouchers or receipts produced by the assessee, denied having received Rs. 29,337 in the assessment year 1972-73 and Rs. 7,812 in the assessment year 1973-74. According to him, his Signatures were taken on the vouchers by the assessee without paying him the amount as stated in the vouchers. This statement of Ramkumar was recorded in the course of inquiry made by the Income-tax Officer as stated above, in the absence of the assessee. The assessee, however, was given an opportunity to cross-examine him, but the assessee refused to cross-examine unless his statement was recorded in its presence. Thus, the statement made by Ramkumar went unchallenged. The Income-tax Officer, therefore, refused to believe that the assessee had paid by way of commission to Ramkumar Rs. 29,337 in the assessment year 1972-73 and Rs. 7,812 in the assessment year 1973-74. Thus, the statement made by Ramkumar went unchallenged. The Income-tax Officer, therefore, refused to believe that the assessee had paid by way of commission to Ramkumar Rs. 29,337 in the assessment year 1972-73 and Rs. 7,812 in the assessment year 1973-74. In the result, he disallowed the deduction of these amounts as business expenditure. Other disallowances made by the Income-tax Officer are not relevant for our purpose. In the appeal by the assessee, the Appellate Assistant Commissioner gave relief of Rs. 3,000 out of the disallowance of Rs. 29,337 in respect of commission alleged to have been paid to Ramkumar in the assessment year 1972-73. So far as the assessment year 1973-74 was concerned, the Appellate Assistant Commissioner gave relief of Rs. 300 in lump sum out of the total disallowance made by the Income-tax Officer. It was stated that so far as the amount of Rs. 7,812 alleged to have been paid to Ramkumar in the assessment year 1973-74 was concerned, the entire amount was taken to have been disallowed by the Appellate Assistant Commissioner. In other words, the Appellate Assistant Commissioner confirmed the disallowance of the said amount of Rs. 7,812. 2. Being aggrieved by the order of the Appellate Assistant Commissioner, the assessee carried the matter in appeal before the Income-tax Appellate Tribunal (hereinafter referred to as " the Tribunal"). The Tribunal appears to have been impressed by the argument advanced on behalf of the assessee that Ramkumar was examined by the Income-tax Officer behind the back of the assessee. The Tribunal found that though Ramkumar admitted his signatures on the vouchers produced by the assessee, he denied having received the amounts mentioned in the vouchers. The Tribunal was of the view that since Ramkumar admitted his signatures on the vouchers, it should be presumed that he had received the amounts mentioned in the vouchers. According to the Tribunal, Ramkumar was denying the receipt of the amount " to save his own skin from the income-tax authorities ". In the result, the Tribunal allowed deduction of the amounts of Rs. 26,337 and Rs. 7,812 alleged to have been paid by way of commission to Ramkumar in the assessment years 1972-73 and 1973-74 as business expenditure. Thus, so far as the assessment year 1972-73 was concerned, the Tribunal allowed the deduction of Rs. 26,337 in addition to Rs. 3,000 allowed by the Appellate Assistant Commissioner. 26,337 and Rs. 7,812 alleged to have been paid by way of commission to Ramkumar in the assessment years 1972-73 and 1973-74 as business expenditure. Thus, so far as the assessment year 1972-73 was concerned, the Tribunal allowed the deduction of Rs. 26,337 in addition to Rs. 3,000 allowed by the Appellate Assistant Commissioner. The Revenue, being dissatisfied with the decision of the Tribunal, the following questions have been referred to us at its instance for our opinion: Assessment year 1972-73 : "1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in deleting the addition of Rs. 26,337 added by the Income-tax Officer claiming it to be payment made to Ramkumar Kalyanmalji and claimed under vatav expenditure ? 2. Whether the Tribunal was correct in law in presuming that the amount of Rs. 26,337 was affirmed to have been received by Ramkumar although he denied it because he admitted the signatures and that Ramkumar was backing out only with a view to save his skin from the income-tax authorities ? 3. Whether the decision of the Tribunal in deleting the addition of Rs. 26,337 added by the Income-tax Officer on account of disallowance of the claim of the assessee of payment to Ramkumar Kalyanmalji is correct in law and sustainable from the material on record ?" Assessment year 1973-74 : 4. " Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the claim of vatav of Rs. 7,812 paid to Ramkumar Kalyanmalji was an allowable deduction ?" 3. The entire approach of the Tribunal in appreciating the evidence on record is illegal. The Tribunal has completely ignored the settled position of law that rules of evidence do not apply to assessment proceedings under the Income-tax Act, 1961. As held by the Supreme Court in C. Vasantlal and Co. v. CIT (1962) 45 ITR 206, the Income-tax Officer is not bound by any technical rules of the law of evidence. It is open to him to collect materials to facilitate assessment even by private inquiry. If he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. It is open to him to collect materials to facilitate assessment even by private inquiry. If he desires to use the material so collected, the assessee must be informed of the material and must be given an adequate opportunity of explaining it. In the case before the Supreme Court, the Income-tax Officer examined two witnesses in the absence of the assessee but the Appellate Assistant Commissioner permitted the assessee to cross-examine those witnesses after summoning them. The Supreme Court held that the statements made by the witnesses before the Income-tax Officer were material upon which the Tribunal could act and it was open to the Tribunal to rely upon the statements made by them before the Income-tax Officer and disbelieve the statements made by them before the Appellate Assistant Commissioner. In view of the settled position of law, it was open to the Income-tax Officer to examine Ramkumar in the course of the inquiry made by him in the absence of the assessee. It is not disputed that the Income-tax Officer had given an opportunity to the assessee to cross-examine Ramkumar. The assessee, however, refused to avail of this opportunity and chose not to cross-examine Ramkumar. Thus, the statement made by Ramkumar went unchallenged. We fail to see how the Tribunal could have drawn an inference that Ramkumar was denying having received the amounts mentioned in the vouchers though admitting his signatures below the vouchers because he wanted to save his skin from the income-tax authorities when no suggestion to that effect was made to Ramkumar. In the absence of cross-examination by the assessee, no inference of the nature drawn by the Tribunal could have been drawn. As pointed out above, the statement made by Ramkumar has gone unchallenged and, therefore, there was absolutely no reason to discard it. In a given case, even the statement which is not challenged in the cross-examination may not be relied upon having regard to its intrinsic worth. In other words, if the statement made by a witness is on the face of it unbelievable, it may not be believed merely because it was not challenged in the cross-examination. In the instant case, however, the Tribunal has not totally discarded the statement made by Ramkumar since it relies upon his admission that the signatures below the vouchers were his signatures. In the instant case, however, the Tribunal has not totally discarded the statement made by Ramkumar since it relies upon his admission that the signatures below the vouchers were his signatures. Now, if the statement made by Ramkumar is disbelieved or discarded, there is no evidence to establish payment of commission of Rs. 26,337 to him. The Income-tax Officer had in the course of the assessment proceedings doubted the genuineness of the payment of commission to Ramkumar and called upon the assessee to prove it. The only evidence which can establish the claim of the assessee is the statement of Ramkumar, but if we discard his statement, as observed above, there is no evidence or material on record to prove payment of commission to Ramkumar. Mere production of vouchers in support of the claim for deduction of the expenditure by way of commission paid to Ramkumar would not prove the claim made by the assessee. It was its duty to prove payment to Ramkumar specially when the Income-tax Officer doubted the genuineness thereof. The assessee, however, did not lead any evidence to prove such payment. On the other hand, as pointed out above, Ramkumar, in his statement, denied having received the amounts mentioned in the vouchers though he admitted his signatures below the vouchers. Since the statement made by him has gone unchallenged, there is no reason to disbelieve him. The Tribunal's finding that the amounts as alleged by the assessee were paid by way of commission to Ramkumar is perverse and against all the accepted principles governing appreciation of evidence. In our opinion, the assessee has totally failed to establish its claim in respect of Rs. 26,337, deduction of which was allowed by the Tribunal as business expenditure in the assessment year 1972-73. Similarly, the assessee has failed to prove payment of commission of Rs. 7,812 to Ramkumar in the assessment year 1973-74. 4. In the result, the Revenue must succeed in these two references. We answer question No. 1 referred to us in Income-tax Reference No. 15 of 1979 in the negative and against the assessee. In view of our answer to question No. 1, we need not answer the other two questions referred to us in the said Reference No. 15 of 1979. We answer question No. 1 referred to us in Income-tax Reference No. 15 of 1979 in the negative and against the assessee. In view of our answer to question No. 1, we need not answer the other two questions referred to us in the said Reference No. 15 of 1979. So far as Income-tax Reference No. 138 of 1979 is concerned, we answer the question referred to us in the negative and against the assessee. 5. References answered accordingly with no order as to costs. 6. A copy of this judgment should be sent under the seal of this court and under the signature of the Registrar to the Income-tax Appellate Tribunal, Ahmedabad Bench, Ahmedabad.