2001 (3) TMI 68 - HC - Income Tax

Finding that purchases were genuine was untenable; sums correctly treated as undisclosed income under Section 68

HC held the Tribunal's finding that alleged purchases were genuine was untenable: relevant material showing the alleged sellers lacked means and the ... Income From Undisclosed Sources - non-existent purchasers - voluntary disclosure statements made by HUF and a letter addressed to the Commissioner of income-tax explaining the purchases - Whether, the Tribunal had material to come to the conclusion that the sum could not be treated as the assessee's income from undisclosed sources? - HELD THAT:- There is no appearance on behalf of the assessee in spite of notice. Though essentially the conclusions of the Tribunal have the colour of factual findings, still we find that the Tribunal has not taken into consideration relevant materials and has also acted on irrelevant materials. The fact that the alleged sellers have been found to be persons with no means to effect purchases or to carry on business is a factor which does not appear to have been considered by the Tribunal in its proper perspective. The materials on record clearly establish that Chedi Lal was a petty employee of a concern of which Satya Pal Jain was a partner. In fact Satya Pal Jain was a partner of Medipac, one of the sister concerns of the assessee-firm. On enquiries conducted by the authorities after due notice to the assessee it was found that there was no such concern called Kalpana Enterprises at either 71, Canning Street, Calcutta, or 479, Bartan Market, Sadar Bazar, Delhi. Additionally, Chedi Lal opened the bank account with the introduction of Satya Pal Jain and the amounts were withdrawn. If the purchases were really effected from Kalpana Enterprises it is not understood as to how some other person, namely, Inder Sain Jain (HUF), accepted that the materials were supplied by it. The question before the Tribunal was not whether the purchases were made from another concern. What was under consideration was whether the purchases were made from Kalpana Enterprises as was claimed by the assessee. Ample material has been brought on record by the Revenue to show that the purchases were in fact not made from Kalpana Enterprises. These are some of the relevant materials which have not been considered by the Tribunal. The Tribunal's conclusion that even if it is accepted that Chedi Lal was only an instrument used by Satya Pal Jain, the assessee was not involved in it, is a conclusion arrived at without any foundation. On the contrary it has been established by materials on record that the assessee knew that the whole thing was a fictitious arrangement. Once it is accepted that the supplies were not made by Kalpana Enterprises to whom payments were alleged to have been made, the question whether the purchases were made from some other source ought not to have weighed with the Tribunal as a factor in favour of the assessee. The conclusions of the Tribunal are, therefore. clearly erroneous. contrary to the materials on record and have been arrived at without taking into consideration relevant material and placing reliance on irrelevant materials. It is to be noted that the assessee's stand was not that it had effected purchases from anybody else. Its stand throughout was that it had effected purchases from Kalpana Enterprises. It was not open to the Tribunal to make out a third case, which was not even the case of the assessee, to hold that the transactions were real and not fictitious as claimed by the Revenue. The answer to the question, therefore, is in the negative, in favour of the Revenue and against the assessee. Issues involved:The judgment involves the issue of whether a sum of Rs. 3,82,750 could be treated as the assessee's income from undisclosed sources for the assessment year 1971-72.Factual Position and Tribunal's Findings:The assessee claimed to have purchased raw material from Kalpana Enterprises, but investigations revealed discrepancies. The alleged seller could not be produced, and inquiries indicated non-existence of Kalpana Enterprises at the provided address. The bank account opened by Chedi Lal, who withdrew the amount, was linked to a different address than the one on the bills. Despite suspicions, the Tribunal held that the purchases were genuine based on the materials presented.High Court's Analysis:The High Court observed that relevant materials were not considered by the Tribunal. It highlighted that the alleged sellers were found to be non-existent entities and that Chedi Lal was a petty employee introduced by Satya Pal Jain. The Court emphasized that the purchases were not made from Kalpana Enterprises as claimed by the assessee, and the Tribunal's conclusions were erroneous and contrary to the evidence on record.Legal Principles and Conclusion:Citing legal precedents, the Court stated that a question of law arises when a finding is based on improper rejection of evidence or is contrary to the facts. It noted that the Tribunal's reliance on partly irrelevant materials vitiated the decision. Ultimately, the Court ruled in favor of the Revenue, concluding that the Tribunal's decision was not based on relevant material and was against the assessee.Judgment Outcome:The reference application was disposed of in favor of the Revenue, upholding the treatment of the sum of Rs. 3,82,750 as the assessee's income from undisclosed sources for the assessment year 1971-72.