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I.T.A. No.1818/KB of 1984-85, decided on 24th March, 1987.
--Burden of proof--Categories--Question as to whether certain receipt was taxable--Burden of proof on the department--Burden for proving an expenditure on assessee--Discharge of such burden by department or assessee illustrated.
The burden of proof could be put 'under two broad categories. The first is known as legal burden and it rests always on the shoulders of a party according to the legislative wish manifested by any legislation. For example, whether a person has committed an offence is a question regarding involvement of legal burden of proof. The prosecution would have to prove beyond any reasonable doubt that the accused person committed the offence he is charged with. Similarly, whether a particular receipt is taxable is a question the burden of which would squarely rest on the shoulders of the Income-tax authorities.
Similarly, the other category of burden of proof is known as shifting burden of proof. It is the off-shoot of the general principle that one who alleges must prove- Both the legal burden of proof and shifting burden of proof play decisive role in disposal of various disputes when the evidence- PRO and CON is so evenly balanced that a Court or Tribunal faces difficulty in arriving at some finding of fact.
The burden of proving an expenditure by relevant evidence is always on the shoulders of an assessee:
Initial burden to prove the expenditure rested squarely on the shoulders of the assessee but they discharged it the moment they gave the detailed addresses of the transporters to whom they paid the amount in dispute. The burden of, proof, therefore, shifted on the shoulders of the Department and instead of discharging it in a reasonable manner the officers side-tracked the main issue by taking refuge in using stock phrases of not being traceable on the given addresses
Thus, if the names of all the parties were not traceable in the Telephone Directory, the inference that they were not in existence or 'not traceable cannot be relied upon. Similarly, if they have been avoiding payment of tax and are not existing on the National Tax Register, it also does not disprove their existence. When the assessee had given the full addresses, it was the duty of the Inspector to go to the place or otherwise contact them and then report to his Income-tax Officer that such parties were not found on the given addresses. Had he done so one might attach some weight to his report. If in any case, they were not traceable the Income-tax Officer should have called upon the assessee to produce them. The Income-tax Officer has failed to discharge burden of, proof, which rested squarely on his shoulders.
Udhay Das Kevalram v. CIT (1967) 66-ITR-462: Robins v. National Trust (1927) A C 515 and CIT v. Calcutta Agency (1951) 19 I T R 191 ref.
---Ss. 61, 148, 145, 146, 149 & 150--Examination of witnesses--Powers of Income-tax Officer--Procedure.
The Income-tax Officer may serve a notice, under section 61 of Income-tax Ordinance, 1979 upon any person who "has furnished a return", to attend his office, or to cause to be produced any evidence on which he wishes to rely. Section 148 deals with the power of the Income-tax Officer and other officers of the tax hierarchy alongwith Tribunal about enforcing the attendance of any person and his examination on oath, compelling the production of any account books, or documents, receiving evidence on affidavit and issuing commission for examination of witnesses.
Section 148 of Income-tax Ordinance, 1979, vests the Income-tax Officer with the power of examining any third party. Here, he acts as a Court having all the powers of a civil Court given to it under Code of Civil Procedure, 1908 (V of 1908). Apart from this the Income-tax Officer has also been given power of calling for any information under section 144(b) from any dealer, broker 'or agent, etc.
In addition to this, sections 145, 146, 149 and 150 of Income-tax Ordinance, 1979 further vest some more powers of making survey, entering and searching business premises, impounding and retaining of books of account and calling upon public servants to disclose certain information. Thus, it is clear that the legislature has spelt out in very clear and unambiguous terms the powers it wanted an Income-tax Officer to be empowered with. One cannot concede any other or so-called general power, which has not been given by the Ordinance.
Section 148 does not cast any obligation on the shoulders of an Income-tax Officer to administer oath necessarily. On the other hand, any statement' even recorded without administering any oath is admissible.
It was the duty of the Income-tax Officer to cross-check the veracity of the statement made by these witnesses.
Where the witnesses have motive to tell lie, their evidence cannot be accepted without further corroboration from some other sources.
If the assessee has not cross-examined witnesses any adverse inference could not be drawn in favour of the Department.
Dinshaw Darashaw Shroff v. CIT (1943) I T R 172 and Chowk Chand Bala Baksh v. C.I.T. (1961) 41 ITR 465 ref.
Jai Dayal v. Bibi Hajra A I R 1974 SC 171 and Gangs Dhar Ayyar v. Subraminium A I R 1949 FC 88 distinguished.
----S. 32--Department had been accepting certain method--Department, held, had to give some convincing reason for departing from its earlier practice.
--Rejection of accounts--Presumption of good faith is attached in favour of assessee regarding his accounts--Accounts of assessee cannot be discarded merely on conjectures and surmises--Entries made in books of account regularly maintained in course of business on day-to-day basis carry sanctity in law and could not be rejected or whimsical grounds--Duty of Income-tax Officer highlighted.
Jumbo Das v. Assessee 1927 Nag. 336 ref.
Saeed A. Shaikh and A.K. Nomani I.T.P. for Appellant.
Muhammad Farid, D.R. with Wasi Haider Rizvi, I.T.O. for Respondent.
Date of hearing: 21st to 25th February, 1987.
--This appeal is directed against the order of learned Commissioner of Income-tax (Appeals), Zone-I, arising out of his order recorded by him on 3rd February 1985, relating to assessment year 1981-82. .
2. The brief facts giving rise to this appeal are that the appellant, a private limited company, derived its income during assessment year 1981-82 from assembling and sale of auto-rickshaws and Vespa scooters imported by them in completely knocked down condition. They declared their sales amounting to Rs.14,19,65,802 with GP rate of 9% during the relevant assessment year. The case of the appellant however, was selected for detailed scrutiny on 5th November, 1981 and the Income-tax Officer vide his letter, dated 17th November, 1981, informed the appellant accordingly.
3. On scrutiny of the books of account of the appellant the income-tax Officer discovered that the appellant had shown the sale price of rickshaw and scooter at Rs.24,000 and Rs.l'2,000 per unit respectively, but the amount realised from the customer was shown at Rs.24,600 and Rs.12,250 per unit respectively. It was further detected by the Income-tax Officer that the appellant debited sales account at Rs.600 and Rs.250 recovered from the customer for every unit sold of rickshaw and scooter respectively and then credited the same amount to "Packing & Forwarding Account". The Income-tax Officer further found that the amount credited to Packing and Forwarding Account was subsequently shown to have been paid to various persons. He, therefore, by his notice issued under section 62 on 14th February, 1984, informed the appellant that firstly keeping in view the established principles of accounting the expenses relating to Packing and Forwarding Account should have been charged to Profit and Loss Account instead of reducing the sales and that secondly on examination of the following parties it was discovered by him that all of them incurred transportation expenses themselves. He, therefore, wanted the appellant to explain as to why he should' not make an addition of Rs.31,34,550 which was claimed as expenditure on account of transportation charges but was nothing but a bogus claim. The Income-tax Officer mentioned the following 8 parties in his notice:-
(1) M/s. Karachi Exchange Centre, Karachi.
(2) M/s. Nadeem International Autos, Karachi.
(3) M/s. AI-Imran Autos, Karachi.
(4) M/s. A1-Karam Autos, Karachi.
(5) M/s. United Autos, Karachi.
(6) M/s. Qaisar Autos, Karachi.
(7) M/s. Auto Corporation., Karachi.,
(8) M/s. Phoenix Autos, Karachi.
4. It further appears that the Income-tax Officer by the same notice wanted the appellant to explain as to why he should not make addition of Rs.14,76,000 on account of bogus sales of 1200 rickshaws @ Rs.24,600 per rickshaw allegedly made to the following dealers:
| (1) M/s. Decent Autos | 100 |
| (2) M/s. Star Autos | 300 |
| (3) M/s. Sun Autos | 148 |
| (4) M/s. Golden Autos | 452 |
| (5) M/s. Elahi Autos | 200 |
| TOTAL | 1200 |
According to the Income-tax Officer all these dealers sold Auto Rickshaw, for and on behalf of the appellant, at an average price of Rs.25,830 as against the declared price of Rs.24.600. According to him, ex-factory price of 1200 motor-rickshaws at the rate of Rs.24,600 came to Rs.2,95,20,000, whereas retail price of the same number of rickshaws at the rate of Rs.25,830 came to Rs.3.09.96,000. While deducting the former figures from the latter figures, he arrived at the amount of Rs.14,76,000. The appellant offered explanation vide their reply dated 6th March, 1984. But the Income-tax Officer did not find it satisfactory and made addition of Rs.31,34,550 and Rs.14;76,000 for the various reasons discussed by him in details in his assessment order. Having been aggrieved and dissatisfied the appellant went up in appeal but the learned Commissioner of Income-tax (Appeals) by his impugned order confirmed both the additions. The appellant still feels aggrieved and has, come up in appeal before us.
5. Mr. Saeed A. Shaikh, the learned counsel for the appellant, argued the case of the appellant at length whereas the Department was represented by Mr. Muhammad Farid, the learned Departmental Representative who was assisted all along by the assessing Officer himself. We have heard both the learned counsel for the appellant and the learned Departmental Representative for five days have also gone through the material available on the departmental file which we shall be referring from time to time while discussing both the issues before us. We have also perused the case cited at Bar in addition to other cases which we found relevant for the purposes of our decision.
6. Before dilating on this issue let us point out that the Income-tax Officer has proposed the addition of Rs.31,34,550 by his notice mentioned above, but while making addition he, in fact, added Rs.31,34,350. The learned Commissioner of Income-tax (Appeals) however, has corrected the income-tax Officer though he has confirmed the addition. This point, therefore, should not detain us any more. Let us also point out at this very stage that Mr. Saeed A. Shaikh, the learned counsel for the appellant, did not dispute the finding of income-tax Officer that amount of Rs.11,440 paid to M/s. United Goods Transport, Karachi, M/s. Motor Palace, Lahore and M/s. Sethi Commercial Agency, Karachi, was not connected with the transportation of the rickshaws. We therefore confirm the finding of both the officers below regarding this amount. Now before adverting to the submissions made by the learned counsel for the appellant as well as learned Departmental Representative regarding this issue let us firstly deal with the question regarding burden of proof as both the parties have referred to it during the course of their respective arguments.
7. In law the burden of proof could be put under two broad categories. The first is known as legal burden and it rests always on the shoulders of a party according to the legislative wish manifested by any legislation. For example, whether a person has committed an offence is a question regarding involvement of legal burden of proof. The prosecution would have to prove beyond any' reasonable doubt that the accused persons committed the offence he is charged with. Similarly, whether a particular receipt is taxable is a question the burden of which would squarely rest on the shoulders of the Income-tax authorities. We are very much fortified in our view by no less then an authority than Indian Supreme Court and relay on the observation of their Lordships made in (1967) 66-ITR-462 at page 464, Udhay, Das Kevalram v. 'made Similarly, the other category of burden of proof is known as shifting burden of proof.' It is the off-shoot of the general principle that one who alleges must prove. Both the legal burden of proof and shifting burden of proof play decisive role in r disposal of various disputes when the evidence PRO and CON is so evenly balanced that a Court or Tribunal faces difficulty in arriving at some finding of fact. For this proposition of law we put our reliance on a decision coming from British Court of appeal and reported as (.19271 A.C. 515 at page 520, Robins v. National Trust. Let us also mention at this very stage that the burden of proving an expenditure by relevant evidence is always on the shoulders of an assessee.' This position of law has been well enunciated by their Lordships of Indian Supreme Court in a case reported as (1951) 19 ITR 191, CIT v Calcutta Agency. Now with this discussion in mind let us revert to the submissions of learned counsel for the appellant as well as the learned Departmental Representative.
8. The learned counsel for the appellant vehemently argued that the finding of both the officers below that efforts were made by the assessing officer to locate the transporters failed since none of them was available at the addresses appearing in the cash memo and bills produced by the assessee, was wholly incorrect and baseless. We find considerable force in this submission. From 'perusal of the report of the Income-tax Inspector, it appears that he went through the National Tax Register as well as Telephone Directory to find out as to whether the transporters mentioned hereinbelow were traceable at their addresses. Their names and particulars are-.-
(1) M/s. United Goods Transport, Aga Khan Road, Bombay Bazar, Kharadar, Karachi. .
(2) M/s. Motor Palace, Lahore.
(3) M/s. Sethi Commercial Agency 2/15, Al-Yusuf Chambers, New Challi, Karachi.
(4) M/s. Naulakha Transport, 180, Mohanpura, Rawalpindi.
(5) M/s. Globe Transport Co. Saghir Centre, Rashid Minhas Road. F.B. Area, Karachi.
(6) M/s. Kohinoor Transport, Mauripur Road, Karachi.
(7) M/s. S. Mirza Transport, Badri Building, Talpur Road, Karachi.
(8) M/s. Bahawalpur Goods Transport Co., Near Crown Cinema, Mauripur Road, Karachi.
(9) M/s. Yadgar Transport Co., Gulab Manzil, Mithadar, Karachi.
(10) M/s. Bukhari Transport Co., Hasanali Affandi Road, Karachi.
The first three transporters and the amount paid to them are not in dispute as mentioned above. However, as far as rest of them are concerned we think that their addresses ace more than sufficient to locate them. Instead of going to their offices at the addresses mentioned above, the wiseman of the Department preferred to play the Sherlockholmes while sitting on the armed chair and going through the National Tax Register and the Telephone Directory. We are of the view that initial burden to prove the expenditure rested squarely on the shoulders of the appellant but they discharged it the moment they gave the detailed addresses of the transporters to whom they paid the amount in dispute. The burden of proof, therefore, shifted on the shoulders of the Department and instead of discharging it in a reasonable manner both the officers, below side-tracked, the main issue by taking refuge in using stock phrases of not being traceable on the given addresses. As far as telephone numbers are concerned, we all know that in Karachi telephone connections are illegally transferred. They remain in the name of someone whereas they are used by others. Thus, if the names of all the transporters mentioned above were not traceable in the Telephone Directory, the inference that they were not in existence or not traceable cannot be relied upon in view of the discussion made above. Similarly, if they have been avoiding payment of tax and are not existing on the National Tax Register, it also does not disprove their existence. When the appellant had given the full addresses, it was the duty of the Inspector to go to the place or otherwise contact "them and then report to his Income-tax Officer that such transporters were not found on the I given addresses. Had he done so, we might have attached some weight to his report. Presently the submission of Mr. Saeed A. Sheikh that if, in any case, they were not traceable the Income-tax Officer should have called upon the appellant to produce them carries much weight. We are, therefore, of the view that the Income-tax Officer has failed to discharge burden of proof, which rested squarely on his shoulders. However, this is not the end of the matter. The Income-tax Officer went a step further and examined certain dealers of Karachi in support of his conclusion. Let us, therefore, now turn our attention to this aspect, of the matter.
9. Mr. Saeed A. Sheikh, the learned counsel for the appellant invited our attention, to the statement of the witnesses recorded by the Income-tax Officer and the cross-examination conducted by the learned counsel for the appellant and submitted that since they were not examined on oath, therefore, no reliance could have been placed on such evidence. The learned counsel concluded that any reliance placed by the Income-tax Officer was nothing but an incurable illegality. Mr. Muhammad and, the learned Departmental Representative facing this argument submitted that the witnesses were not examined by the Income-tax Officer under section 148 of the income-tax Ordinance, hereinafter referred to as "the Ordinance". Firstly, he contended that they were examined under section 61 of the Ordinance, but when his attention was invited to the text of the section, he contended that they were examined under the general, powers of investigation of the Income-tax Officer.
10. We have heard both the learned counsel for the appellant as well as learned Departmental Representative at length. In our judgment the submission of Mr. Mohammad Farid, the learned Departmental Representative, carries no weight. As far as section 61 is concerned, it deals with the power of the Income-Tax Officer regarding production of books of accounts etc., by an assessee. It reads:
.-- The Income-Tax Officer may serve upon any person who has furnished a return of total income for any income year, or upon whom a notice has been served to furnish such return, a notice requiring him, on a date specified therein, to attend at the Income-tax Officer's office or to produce, or cause to be produced any evidence on which such person may rely in support of the return, if furnished and such accounts, documents or evidence (including accounts or documents relating to any period prior or subsequent to the said" income year) as the Income-tax Officer may require:
Provided that the Income-tax Officer shall not require the production of any accounts relating to a period more than three years prior to the income year."
It is thus clear that the Income-tax Officer may serve a notice, under this section upon any person who "has furnished a return", to attend his office, or to cause to be produced any evidence on which he wishes to rely. It, therefore, does not come to the rescue of the learned Departmental Representative. Now turning to section 148, we find that it deals with the power of the Income-tax Officer and other officers of the tax hierarchy along with this Tribunal about enforcing the attendance of any person and his examination on oath, compelling the production of any account books, or documents, receiving evidence on affidavit and issuing commission for examination of witnesses. This section reads:
"
(1) The Income-tax Officer, the Inspecting Assistant Commissioner, the Appellate Assistant Commissioner, the Commissioner and any other officer under the administrative control of the Central Board of Revenue authorised by it in this behalf, and the Appellate Tribunal shall, for the purposes; of this Ordinance, have the same powers as are vested iii a Court under the Code of Civil Procedure, 1908 (V of 1908), when trying a suit in respect of the following matters, namely:
(a) enforcing the attendance of any person and examining him on oath or affirmation,
(b) compelling the production of any accounts or documents;
(c) receiving evidence on affidavit; and
(d) issuing commissions for the examination of witnesses
(2) where a person to whom a summon is issued under sub-section (1) either to attend to give evidence or to produce accounts or documents at the place and time specified in such summons fails to do so without any reasonable cause, the authority issuing such summons may, without prejudice to the provisions of any other law for the time being in force, impose upon him such fine not exceeding one thousand rupees as it thinks lit, and the fine so imposed may be recovered in the manner provided in Chapter IX.
(3) The provisions of subsection (3) of section 111 shall mutatis mutandis apply in the case of an order made under subsection (2) by any authority (other than the Income-tax Officer) as they apply to an order made under subsection (1) of the said section 111."
It is, therefore, clear that Section 148 vests the Income-tax Officer with the power of examining any third party under section 148. Here, he acts as a court having all the powers of a civil court given to it under Code of Civil Procedure, 1908 (Act V of 1908). Apart from this the Income-tax Officer has also been given power of calling for any information under section 144 (b) from any dealer, broker or agent, etc. Section 144 is as follows:
The Income-tax Officer, the Inspecting Assistant Commissioner, the Commissioner, or any other officer authorised in this behalf by the Commissioner or the Central Board of Revenue, may, by notice in writing, require: -
(a) an assessee to furnish within such time as may be specified in such notice a statement showing the names and addresses of all persons to whom he has paid in any income year rent, interest, commission, royalty or brokerage, or any annuity amounting to not less than four hundred rupees together with particulars of all such payments;
(b) any dealer, broker or agent or any person concerned in the management of a Stock or Commodity Exchange to furnish within such time as may be specified in such notice, a statement showing the names and addresses of all persons to or from whom he, or the Exchange, has paid or received in any income year any sum amounting to not less than five thousand rupees in the aggregate, in connection with the transfer of assets, together with particulars of all such payments and receipts;
(c) any person, including a banking company, to furnish such information or such statement or accounts as may be specified in such notice:
Provided that no such notice shall be issued to any banking company as respects any client, except with the prior approval of the Commissioner in the case of an Income-tax Officer, the Central Board of Revenue or any other income-tax authority authorised by it in this behalf in the case of the other officer."
In addition to this, sections 145, 146, 149 and 150 further vest some more powers of making survey, entering and searching business premises, impounding and retaining of books of account and calling upon public servants to disclose certain information. Thus, it is clear that the legislature has spelt out in very clear and unambiguous, terms the powers it wanted to an Income-tax Officer to be empowered with. We are not prepared to concede any other or so-called general power, which has not been given by the Ordinance. However in this appeal the controversy is very much narrowed down by the admission of both the officers below themselves. Both of them have stated that they have examined:-
(1) H/s. Karachi Exchange Centre, Karachi,
(2) M /s. Nadeem International, Karachi,
(3) M/s. A1-Imran Autos, Karachi,
(4) M/s. AI-Karam Autos, Karachi,
(5) M/s. United Autos, Karachi.
(6) M/s. Qaiser Autos, Karachi,
(7) M/s. Auto Corporation, Karachi, and
(8) M/s. Phoenix Autos, Karachi,
under section 148 of the Ordinance. The argument of Mr. Muhammad Farid that the Income-tax Officer examined them under general power of investigation is, therefore, untenable as it appears to have been advanced to save the face of the Income-tax Officer. Mr. Farid the learned Departmental Representative, further argued that the income-tax Officer did not act as a Court; therefore, it was not necessary for him to examine witnesses on oath. Mr. Saeed A. Shaikh vehemently argued that the entire proceedings before the Income-tax Officer were null and void as no oath was administered to the witnesses examined by him under section 148. Let us, therefore, examine the merits of this argument.
11. In (1943) ITR 172-177, Dinshaw Darashaw Shroff v. CIT, a Division Bench of Bombay High Court dealing with section 37 of the repealed Income-tax Act, which is the predecessor of section 148, observed that it demonstrated that Income-tax Officer was not a Court of law but acted in quasi-judicial capacity. However, it was further observed by their Lordships that, in any case, the Income-tax Officer must conform with elementary rules of judicial procedures. In view of observation made above, we do not subscribe, with due respect, to the view of learned counsel for the appellant that the Income-tax Officer acted as a civil Court and should have administered oath to the witnesses. In our judgment, section 148 does not cast any obligation on the shoulders of an Income-tax Officer to administer oath necessarily. On the other hand, any statement even recorded without administering any oath is admissible. We are very much fortified in our view by a Division Bench of Assam High Court which took the same line of reasoning in a case reported as (1961) 41-ITR-4659 Chowk Chanda Bala Baksh v. CIT. On top of it, if we read section 13 of the Oaths Act (Act X of 1873), it appears that any proceedings without oath are not vitiated or invalidated. It reads: -
"13-- No omission to take any oath or make any affirmation, no substitution of any one for any other of them, and no irregularity whatever, in the form in which any one of them is administered, shall invalidate any proceeding or render inadmissible any evidence whatever, in or in respect of which such omission, substitution or irregularity took place, or shall affect the obligation of a witness to state the truth.'
Nevertheless when we turn to the record, we find the table turned in favour of Mr. Saeed A. Shaikh. It appears that the Income-Tax Officer examined Mohammad Zafar, Muhammad Saeed, Shafiq Anwer, Hassan Ali, Nawaz Malik and Malik Ghulam Hussain. It also appears that Malik Ghulam Hussain, representing M/s. Al-Karam Autos, was examined on 31st December, 1983 on oath, and was cross-examined on 3rd April, 1984. From perusal of this statement it appears that the oath was administered to this witness and his statement was recorded in question-answer form which was also signed by the witness. Thus, this statement conforms with the elementary rules of judicial procedure, as required by their Lordships of Bombay High Court in DINSHAW's case (supra). But, strangely enough, when the same Income-Tax Officer examined Mohammad Zafar, representing M/s. Karachi Exchange Centre and M/s. Nadeem International, he departed from the procedure followed by him on the same date while recording the statement of Malik Ghulam Hussain representing Ms. Al-Karam Autos. In the case of Mohammad Zafar, he has simply prepared a memorandum of the statement of Mohammad Zafar on 24th March, 1984 regarding a statement allegedly made by him on 31st December, 1983. It is neither signed by Mohammad Zafar, nor appears to have been made on oath. Similarly the Income-Tax Officer has further prepared the memoranda of the statements of Mohammad Saeed representing M/s. Phoenix, Hassan Ali representing M/s. Qaiser Autos and Nawaz Malik representing M/s. United Autos. It appears from the perusal of the memoranda of all these witnesses, allegedly examined by Income-Tax Officer under section 148 that they were examined on 14th January, 1984, 4th January, 1984, 3rd January, 1984 and 2nd January, 1984, but the memoranda of their statements was prepared by the Income-Tax Officer on 24th March, 1984. The alleged statement of Mohammad Saeed, Hassan Ali, and Nawaz Malik are neither on oath nor signed by them. It further appears that Shafiq Anwer representing M/s. AI-Imran was not examined at all under section 148, nor any memorandum of his statement was prepared, but he was allowed to be cross-examined on 31st March, 1984. The other witnesses were also cross-examined on 31st March, 1984 and 3rd April, 1984. Another strange feature of this whole exercise is that for M/s. A1-Imran Autos, Karachi, Mr. Laliwala was examined on 9th January, 1984, but his memorandum was also prepared on 24th March, 1984. In other words, Mr. Laliwala was examined but Mr. Shafiq Anwer was cross-examined. Thus, in view of discussion made above, it appears that the Income-Tax Officer examined the witnesses under section 148 on dates mentioned above. Since he had examined Malik Ghulam Hussain on 31st December, 1983, on oath and had obtained his signatures, therefore, it can be presumed that he should have examined other witnesses also on oath on the dates mentioned above and also should have obtained their signatures thereon. However, instead of producing the original statement of other witnesses, he had simply presented the memoranda of their statement prepared by him on 24th March. 1984, whereas the original statement of Malik Ghulam Hussain has been produced. Under these circumstances, although we are of the view that the statements of witness under section 148 would be admissible notwithstanding the fact that they are not recorded on oath but the circumstances as discussed above reveal that the Income-Tax Officer has not perhaps produced before us all the material which he ought to have. The memoranda of the statements prepared by him do not carry any weight at all as they are allegedly recorded much after the date of the statements. Now, as far as the statements of these witnesses on cross-examination are concerned, we do not find any thing damaging the case of the appellant in them. The Income-Tax Officer has relied upon these statements for three purposes, namely,
(1) that there was no uniform selling rate throughout the country,
(2) that the sale was made on allocation basis, and
(3) that the witnesses got the delivery of the scooters after making payment of the price which included transportation charges as well but subsequently paid transport charges themselves.
In his cross-examination Mohammad Zafar has admitted that the price was uniform throughout the country. He has further admitted that the sales were made on basis of allocation and without allocation. Explaining the transport charges he has stated that since he required the delivery urgently, therefore, he paid the transport charges himself. Similarly, Shafiq Anwer, Hassan Ali, Mohammad Nawaz Malik and Malik Ghulam Hussain have admitted that the prices of scooter were uniform throughout the country and that the sales were made on both allocation and without allocation. They have further admitted that they paid transport charges because of the exigencies of their business. -The only witness who has denied the uniformity of price is Mr. Mohammad Saeed. It is true that in his examination-in-chief he has admitted that transport charges were always paid by his company and not by the appellant. However, we cannot put any reliance either on his examination-in-chief, or cross-examination and for that matter the statements and the cross-examination of all the witnesses have no value in the eye of law as we have discussed above. As such, both the officers below have misdirected themselves in putting reliance on the statement of these witnesses as mentioned above.
12. In addition to the points discussed above, the Income-Tax Officer further relied upon certain more circumstances in order to support addition, for example, according to him the payment in round figure to transporters was indicating something wrong. However, with due respect to him, we do not see any force in it. Had it been in round figure he could have said why it was so. The other ground taken by him and relied upon by the learned Commissioner of Income-Tax (Appeals) is regarding the 'SILTY' system. Every transporter issues goods receipt, which is commonly known as "SILTY" in business circles. According to Income-Tax Officer, since there was no evidence regarding 'SILTY' system, therefore, the addition was justified. Here again we feel that before making any reliance on the so-called. 'SILTY' system, he should have evolved some basis for it by examining some transporters regarding the 'SILTY' system prevalent in Karachi. Since he has not done so his reliance is based merely on his conjectures.
13. It further appears that the appellant had given a detailed chart of all deliveries made during the relevant assessment year vide their letter dated 5th May, 1984, in reply to Income-Tax Officer's letter dated 2nd May, . 1984.. It appears that total deliveries made were of 4,255 scooters to places scattered all over the country. How they reached the places was a question which the Income-Tax officer should have also answered. It is important to note that the number of scooters sold in Karachi was 1,644 only.
14. The Income-Tax Officer wanted reconciliation of payment vouchers and bills of the transporters but the appellant explained vide their letter, dated 18th April, 1984, that since all the bills of the transporters and the payment vouchers were in possession of Income-Tax Officer himself, therefore, they were not in a position to comply with his direction. The Income-tax Officer has not discarded this explanation in his order. Thus, his objection also does not hold water. Let us also mention here that the Income-tax Officer by his letter, dated 2nd May, 1984 acknowledged the receipt of statement of reconciliation of sale with payments made to the transporters in 1980.
15. The next objection taken by the learned Commissioner of Income-Tax (Appeals) in his impugned order is that according to Principles of Accountancy the 'Packing and Forwarding' expenses could not be deducted from sales. Mr. Saeed A. Shaikh, the learned counsel for the appellants, however, pointed out that in all the earlier years the same method had been acceptable to the Department, hence should be accepted in the relevant assessment year as well. Mr. Mohammad Farid, the learned Departmental Representative, argued that principle of res judicata was not applicable in income-tax proceedings. He contended that if the Department accepted the method of accounting of the appellant for earlier years. It did not mean that it should be accepted for the relevant assessment year also. However, we feed that if the Department had been accepting a certain method, it should have given some convincing reason for departing from its earlier practice. If the learned Commissioner of Income-tax (Appeals) was of the view that the packing and forwarding expenses could not be deducted from sales, he should have cited some authority for his proposition. We, therefore, feel that the Department should also accept it in the relevant assessment year.
16. Thus, in view of discussion made above, we find force in this appeal and order deletion of Rs.31,31,550.
ADDITION OF Rs. 14,76,000:
17. It appears from perusal of the record that during the relevant assessment year 2,751 rickshaws were sold in Karachi, out of which 1200 rickshaws were sold to five parties mentioned herein below:
| Name | No. of | |
| 1. M/s. Decent Autos | 100 | 22-11-80 to 23-1-80 |
| 2. M/s. Star Autos | 300 | 01-09-80 to 28-09-80 |
| 3. M / s . Sun Autos | 148 | 06-11-80 to 15-11-80 |
| 4. M/s Golden Autos | 452 | 29-09-80 to 08-11-80 |
| 5. M/s Elahi Autos | 200 | 20-07-80 to 03-09-80 |
| 1200 | ||
The Income-Tax Officer was of the view that these persons had actually sold 1, 200 rickshaws for and on behalf of the appellant at the rate of Rs.25,830 each unit as against the fixed price of Rs.24,600 and thus he multiplied the difference of Rs.1,230 with 1200 and arrived at the figure of Rs.14,76,000 and then added it to the total income of the appellant. Here again, he relied upon the statement of Mohammad Rafiq, Ishtiaq Ahmed, Mohammad Ibrahim, Raja Mohammad Bashir and Mohammad Aslam but recorded on oath under section 148 of the Ordinance. According to him these persons were persons of no means and could not have carried on the transactions within the period as indicated above. Since they were not cross-examined by the appellant, he drew an adverse inference in support of his conclusion. Mr. Saeed A. Shaikh and Mr. Mohammad Farid both have relied upon the statements of these persons, of course, in support of their respective cases. However, we feel that here again, the Income-Tax Officer has not taken enough pains to justify the addition of Rs.14,76,000. Surely, nobody would like to reveal his income before Income-Tax 'Officer. As such, it was the duty of the Income-Tax Officer to cross-check the veracity of the statement made by these witnesses. The Income-Tax Officer has not tried to find out the places of residence of these witnesses with the result that he could not say anything about their status and standard of living. It is also strange that none of them could produce his Identity Card except Raja Mohammad Bashir, but that too carried his address of his village of District Gujrat. If these persons were persons of no means and brief-case businessmen, how Income-Tax Officer could serve notices under section 148 on them is also a mystery. Apart from all this if we go through statements of these witnesses, we find nothing on record to justify the addition made by the Income-Tax Officer. Mohammad Rafiq has stated that he started his career in very modest way. However, what is his status and standard of living now is not known. Moreover, he has stated that he was supported by the Manager of the appellant Raja Aslam who arranged supply of scooter rickshaws to him. Similarly, Ishtiaq Ahmed has also stated that a former General Manager of the appellant called Akhter Sahib helped him in getting delivery of auto-rickshaws, which he sold to various customers. Mohammad Ibrahim has also testified that Raja Aslam helped him in getting delivery of auto-rickshaws. Raja Mohammad Bashir has also mentioned Raja Mohammad Aslam, the- Sales Manager of the appellant who helped him in getting delivery of auto-rickshaws for selling them in the market. He stated that he knew Subedar Bashir Ahmed, Security Officer of the appellant, who introduced him to Raja Mohammad Aslam. Mohammad Aslam has stated that he worked in the office of the appellant as a Despatch Clerk then subsequently started his own business of earning commission on sale of auto-rickshaws. Thus, from the statement of these witnesses it is established beyond any shadow of doubt that all of them had the favour of some persons who arranged the delivery of rickshaws to them. Thus, if any profit was- earned on selling the rickshaws over and above the fixed price, it should have gone in all probability, to the pockets of these witnesses as well as their patrons who organized the delivery of auto-rickshaws. We wonder, how this so-called profit could be added to the total income of the appellant Since all these witnesses have motive to tell lie, their evidence cannot be accepted without further corroboration from some other sources. Had the Income-Tax officer cross-checked their statements, perhaps he might have found out the correct persons who earned the profits and yet did not pay tiny tax thereon. Under these circumstances we do not think that if the appellant has not cross-examined them any adverse inference could be drawn in favour of the Department. 18. Mr. Saeed A. Shaikh inviting our attention to AIR 1974 SC 171, JAI DAYAL v. BIBI HAJRA and AIR 1949 FC 88, GANGA DHAR AYYAR v. SUBRA MINUM, contended that if these witnesses acted as agents of the appellant, the entire transactions could have been taken to be Benami transactions. According to him, these cases laid down the requirements of proof in law regarding such type of transactions, which according to the learned counsel the Department had failed to meet. With due respect to him, we do not think that these cases are relevant for our purposes. We have already indicated that since these persons have motive to tell lie, therefore, we cannot rely upon their evidence without any other supporting evidence emerging from some other independent sources. There remains room for several possibilities, which the Income-Tax Officer has overlooked. We have already pointed out that the employees of the appellant did show favour to these witnesses in getting the deliveries without any allocation. As such, there remains room that these persons also might have shared the profits with these witnesses. Moreover, since these persons one way or the other are linked with Akbar Road the big market of rickshaws the other possibility that they sold auto-rickshaws to various dealers of that place as and when they got some customer can also not be overruled. Even the fact that these witnesses actually owned some business at Akber Road cannot be overruled in absence of any evidence to the contrary. It is just possible that as and when any customer came to them, they got the money from him and after paying it to the appellant got the delivery and thus earned profit. When there are so many possibilities which remained unadverted to, how this liability of Rs.14,76,000 could be fixed on the appellant simply on the statement of these witnesses who -have got every motive for telling a lie.
19. Mr. Saeed A. Shaikh, the learned counsel for the appellant also invited our attention to a considerable old authority coming from the Judicial Commissioner's Court of Nagpur, which is reported as AIR 1927 NAG., 336, JUMBO DAS v. ASSESSEE, and submitted that there is always a presumption of good faith in favour of an assessee regarding his accounts. Elaborating his arguments further the learned counsel for appellant contended that the accounts of the appellant should not be discarded merely on conjectures and surmises. We agree with him. The entries made in books of account regularly maintained in course of business on day-to-day basis carry sanctity in law and could not be rejected on whimsical grounds. As we have pointed out above, the law required much to be done by the Income-Tax Officer but he felt contended by recording the statement of the witnesses mentioned above. In view of discussion made above. We feel that this addition is also not sustainable in law.
20. Now before parting with this appeal, we feet that we should also deal with the arguments of Mr. Mohammad Farid regarding the Circular of the appellant dated 16th June, 1979. The following paragraph appears in it:
"Delivery of the scooters and rickshaws shall be made simultaneously after receipt of payment thereof. Dealers are requested to lift the goods from the factory within 5 days from the date of the Delivery Order. Retail sales price of rickshaw and scooter remains the same, i.e. Rs.24,250 and Rs.12,075 respectively".
Mr. Mohammad Farid argued that since the word "lift" was used in this circular it indicated that the transport charges were to be incurred by the purchaser. However, it appears that the income year of the appellant for assessment year 1981-82 ended on 31st December, 1980. Since the circular is dated 16th June, 1979, it is unconnected with the relevant income year of the appellant. Moreover, if the whole circular is read, it would appear that it also mentions the word "delivery". The whole sentence reads as under:
"Delivery to such dealers shall be made for the full quantity at a time in this case Rs.250 per scooter shall be given as special incentive discount."
Thus, if the paragraph reproduced above is read in the context of and with reference to the whole circular, the only and irresistible conclusion would not be that which Mr. Farid wants us to arrive at.
21. Let us also mention here that Mr. Mohammad Farid persuaded us to reject the book version as against the rejection of the account books. He took pains in explaining to us the difference between rejection of book version and rejection of account rooks. However, in view of the discussion made above, we do not think that it would be proper occasion for us to go into merits of his submission. In our view the evidence on record does not inspire our confidence and cannot be relied upon in support of the additions made by Income-Tat Officer. Mr. Farid also cited before us (1971) 80-ITR-78, SHRI RAM AROR.A v. CIT, and (1962) 44-ITR-49. We respectfully agree with the law laid down by both the authorities. However, this 1ppeal revolves round its own facts and evidence on record, which we have discussed in detail. As such, we do not think it necessary to dilate upon the rulings cited by learned Departmental Representative. Let us also mention that the learned Departmental Representative took us through pages and pages of Sampat Ayengar's text-book on Income-Tax, but we need not reproduce them here as we have already discussed all the points mentioned therein. Finally, let us also mention here that Mr. Farid filed before us an agreement entered into between Directors of the appellant and Member of Central Board of Revenue on 24th September, 1981, whereby Rs.82,30,000 were added to the declared income of the Directors of the appellant regarding assessment year 1976-77 to 1979-80. This piece of evidence is wholly irrelevant for our purposes and we decline to look into if.
22. Thus, in view of discussion made above, we find force in this appeal and it is allowed. Both the additions of Rs.31,31,550 minus Rs.11,440 and Rs.14,76,000 are hereby ordered to be deleted. In other words the addition of Rs.11,440 is allowed to Stand. The appeal stands disposed of accordingly.
M.B.A./396/T Appeal allowed.
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