2022 (10) TMI 405 - HC - Income Tax

Court dismisses appeal, upholds ITAT decision on disallowance of transport creditors, criticizes AO's ad hoc addition.

PR. COMMISSIONER OF INCOME TAX, THE DEPUTY COMMISSIONER OF INCOME TAX Versus M/s ENNOBLE CONSTRUCTION

The High Court upheld the ITAT's decision to set aside the disallowance claimed as transport creditors. The Court emphasized the Assessee's inability to ... Right to appeal u/s 260A - Addition on account of transport creditors - Tribunal setting aside the disallowance - as per revenue ITAT erred deleting addition as credit worthiness of the transport creditors was not established by the assessee and not appreciating that the assessee had not provided even the identity of the Transport Creditors in the absence of which the assessing authority was not in a position to conduct further enquiries'? - HELD THAT:- The appeal, be it of the Revenue or the Assessee, lies only ' if the High Court is satisfied that the case involves a substantial question of law ' Sub-Section (7) of Section 260A states that the provisions of Code of Civil Procedure, 1908 relating to appeals to the High Court, as far as may be, apply to these appeals. This Section is analogous to Section 100 of CPC. Noticeably, both these Sections i.e., Section 260A of 1961 Act and Section 100 of CPC do not define the expression 'substantial question of law'. The substantial question of law on which an appeal shall be heard need not necessarily be a question of law of general importance. To be 'substantial', a question of law must be debatable and it must have a material bearing on the decision of the case in the sense that if answered either way insofar as the rights of the parties are concerned. The tests are stated to be illustrative and in no way exhaustive of the powers of the High Court to entertain an appeal, if there is other substantive ground of law. It hardly needs to be stated that a provision for appeal should be liberally construed and read in a reasonable & practical manner. Substantial question of law - The question on which the appeal is admitted involves, in the first place, the ascertainment of facts as to the business expenditure in question, and in the second, the application of the correct principle of law to the fact so ascertained. Therefore, essentially such a question is only a mixed question of fact & law as observed by the Apex Court in COMMISSIONER OF INCOME TAX vs. GREAVES COTTON [1967 (5) TMI 11 - SUPREME COURT]. Therefore, we are not sure if the Revenue could maintain this appeal on the subject question. Added, there is a certain difference between an ordinary question of law on the one hand and a mixed question of fact & law, on the other vide JANARDHANA RAO [2005 (1) TMI 14 - SUPREME COURT] Ordinarily, to answer a question of law of the kind, there is no need to consult the statute book; such a question can be answered just by turning the pages of evidentiary record of the Assessment Proceedings concerned. Therefore, the said question is miles away from the precincts of Section 260A which employs the expression 'substantial question of law'. Burden of proof and impossibility of its discharge - There is absolutely no explanation as to why the AO did not choose to invoke this provision in the fitness of things. Nothing prevented him from summoning the books of accounts/documents or at least copies thereof from the custody of CBI. AO having not done his duty, could not have recorded a finding that the claim of Assessee as to transport expenditure was not substantiated. There is yet another aspect, which merits a bit deliberation. The books of accounts & documents being in the exclusive custody of the CBI Police, the Assessee except pleading this could not have done anything beyond. Arguably, in a sense, the case of Assessee was one of lack of evidence for proving the expenditure. Absence of evidence at hands is not the evidence of absence. If the Assessee fails to produce cogent evidence to prove the entirety of the claim, it is the duty of the AO to assess the allowable part of the expenditure to the best of his judgment vide CIT vs. S.P. NAIK [1998 (1) TMI 518 - KERALA HIGH COURT]. It is more so because the Assessment Order was made under Section 143(3) without rejecting the books of account under Section 145. This Appeal being devoid of merits, is liable to be rejected and accordingly it is, costs having been made easy. Issues Involved:1. Justification of ITAT's decision to set aside the disallowance claimed as transport creditors.2. Evaluation of the substantial question of law under Section 260A of the Income Tax Act, 1961.3. Burden of proof and the impossibility of its discharge by the Assessee due to seizure of documents by CBI.Issue-wise Detailed Analysis:1. Justification of ITAT's Decision to Set Aside the Disallowance Claimed as Transport Creditors:The Revenue challenged the ITAT's order favoring the Assessee by setting aside the addition made by the Assessment Officer (AO) on account of transport creditors. The substantial question of law framed by the Revenue was whether the ITAT was justified in setting aside the disallowance of Rs. 5,89,49,503/- claimed as transport creditors. The ITAT had upheld the Assessee's contention that the AO could not make such an addition without rejecting the books of accounts under Section 145 of the Income Tax Act, 1961, and without conducting a best judgment assessment.2. Evaluation of the Substantial Question of Law under Section 260A of the Income Tax Act, 1961:The appeal under Section 260A of the Income Tax Act, 1961, can be entertained only if it involves a substantial question of law. The Kerala High Court in CIT vs. WOONDUR JUPITAR CHITS (P) LIMITED had highlighted the need for rationalization of the provisions for reference on a question of law arising out of an order of the Tribunal. The High Court noted that the substantial question of law must be debatable and have a material bearing on the decision of the case. The ITAT's decision was based on the fact that the Assessee's business premises were raided by the CBI, and all documents were seized, making it impossible for the Assessee to produce the required evidentiary material. The High Court observed that the AO failed to exercise his power under Section 131 of the Income Tax Act to summon the documents from the CBI, which was a dereliction of duty.3. Burden of Proof and the Impossibility of Its Discharge by the Assessee Due to Seizure of Documents by CBI:The burden of proving that the expenditure was incurred wholly and exclusively for business purposes lies with the Assessee. However, in this case, the Assessee was unable to produce the necessary documents due to the CBI raid and seizure. The High Court emphasized that the law does not compel a person to perform an impossible task. The AO should have used his powers to summon the documents from the CBI. The ITAT rightly observed that the AO's addition was ad hoc and without any basis, especially since the creditors were already scrutinized and accepted as genuine in the previous assessment year.Conclusion:The High Court concluded that the appeal lacked merit as the ITAT's decision was justified. The AO's failure to summon the documents from the CBI and the ad hoc nature of the addition were significant factors. The appeal was dismissed with no costs imposed.