Case Law Details
PCIT Vs Pukhraj Soni (Madhya Pradesh High Court)
The case of PCIT vs Pukhraj Soni, heard in the Madhya Pradesh High Court, revolves around the appeal filed by the Principal Commissioner of Income Tax-I, Indore. The appeal challenges the order dated 21.9.2016 passed in Income Tax Appellate Tribunal in I.T.A. No.585/Ind/2015 for the assessment year 2009-10.
Background: The respondent-assessee, Mr. Pukhraj Soni, filed his return of income for the assessment year 2009-10 on 29.9.2009, declaring a total income of Rs.2,05,230/-. Subsequently, a search operation was conducted by the Investigation Wing, Indore of the Income Tax Department on the Satellite Group of companies, leading to the recovery of incriminating documents from M/s. Phoenix Devcons Pvt. Ltd. Among these documents was a diary containing an entry regarding an amount given to Mr. Pukhraj Soni. This prompted the issuance of a notice under Section 148, reopening the case on the grounds of income escapement amounting to Rs.2,50,00,000.00 and interest thereon totaling Rs.9,37,500/-. The Assessing Officer concluded the assessment, leading to an appeal before the Commissioner of Income Tax (Appeal). The appeal, challenging the assessment under Section 148, was allowed by an order dated 27.4.2015.
Appeal to Income Tax Appellate Tribunal: The department, dissatisfied with the Commissioner’s decision, appealed to the Income Tax Appellate Tribunal, Indore Bench. The Tribunal, in its order, emphasized the lack of evidence linking Mr. Pukhraj Soni to the alleged transactions, stating that no search was conducted at his premises, and no incriminating loose papers or documents were found or seized. The Tribunal, drawing support from legal precedents, highlighted the absence of concrete evidence supporting the AO’s conclusion that Mr. Pukhraj Soni had advanced money. It emphasized the need for more than mere suspicion to support an assessment, citing relevant cases such as Dhakeshwari Cotton Mill Pvt. Ltd. Vs. CIT, K. P. Varghese Vs. ITO, and ACIT Vs. Lata Mangeshkar.
Judgment of the Tribunal: The Tribunal, echoing the Commissioner’s decision, found that the AO’s addition to the income based on notings found in the books of a third party was unjustified. The judgment referred to the principles laid down in Central Bureau of Investigation Versus V. C. Shukla and others, emphasizing the importance of admissibility of entries in books of account and the need for independent evidence to support them. The Tribunal concluded that the AO’s reliance on loose papers and notings from a third party lacked the necessary corroboration and concrete evidence.
Legal Precedents and Analysis: The judgment extensively referred to legal precedents to establish that correct and authentic entries in books of account, even if admissible, require independent evidence to fix liability. The analysis delved into the interpretation of terms such as ‘book,’ ‘business,’ and ‘regularly kept’ under Section 34 of the Evidence Act. The Tribunal, drawing from past judgments, stressed that entries in books of account, even if correct, cannot alone be sufficient evidence to charge a person with liability.
Supreme Court Judgments: The Tribunal’s decision was fortified by the Supreme Court’s judgments in Common Cause (A Registered Society) Versus Union of India, where the Court held that entries on loose papers and electronic data, lacking regularity and evidentiary value, are inadmissible under Section 34 of the Evidence Act. The Court emphasized the need for materials to qualify the test and not be legally unjustified, considering the principles laid down in the cases of Bhajan Lal and V.C. Shukla.
Conclusion: The Madhya Pradesh High Court, considering the arguments and legal precedents, upheld the Tribunal’s decision. It dismissed the appeal, stating that no case for interference was made out, and no substantial question of law arose in the matter. The judgment reinforces the importance of admissible evidence and the necessity for independent corroboration to support additions to income based on notings found in the books of third parties. The case contributes to the jurisprudence surrounding the admissibility and evidentiary value of entries in books of account, particularly in the absence of concrete and corroborative evidence.
FULL TEXT OF THE JUDGMENT/ORDER OF MADHYA PRADESH HIGH COURT
1. The present appeal has been filed by Principal Commissioner of Income Tax-I, Indore against order dated 21.9.2016 passed in Income Tax Appellate Tribunal in I.T.A. No.585/Ind/2015 for the assessment year 2009-10.
2. The facts of the case reveal that the respondent assessee has filed his return of income for the assessment year 2009-10 on 29.9.2009 declaring total income as Rs.2,05,230/-. There is no dispute about the aforesaid fact. Facts further reveal that a search operation was carried out on 19.11.2009 by the Investigation Wing, Indore of the Income Tax Department on the Satellite Group of companies and one of the assessees M/s. Phoenix Devcons Pvt. Ltd. was also subject to proceedings under Section 132. Several incriminating documents were recovered from the premises of the M/s. Phoenix Devcons Pvt. Ltd., Indore in which there was a reference of Mr. Pukhraj Soni. In a diary there was an entry in respect of amount given to Mr. Pukhraj Soni and, therefore, a notice was issued under Section 148 to the assessee and the case was re-opened as there was a reason to believe escapement of income of Rs.2,50,00,000.00 and the interest thereon amounting to Rs.9,37,500/-. After concluding the assessment, the Assessing Officer has issued an order dated 28.3.2014 and the assessee, thereafter, preferred an appeal before the Commissioner of Income Tax (Appeal). The appeal was against the assessment order passed under Section 148 of the Act and the appeal was allowed by an order dated 27.4.2015.
3. The department being aggrieved by the order passed by the Commissioner of Income Tax (Appeal) preferred an appeal before the Income Tax Appellate Tribunal, Indore Bench, Indore and the Tribunal has dismissed the appeal preferred by the Department. Now the present appeal has been filed before this Court under Section 260-A of the Income Tax Act, 1961. Paragraph 8 of the order passed by the Tribunal reads as under:-
“8. We have considered the facts and materials available on record. On consideration of above facts and circumstances, we find that no search was carried out in the premises of Shri Pukhraj Soni and no loose paper/hundi/documents/promissory note/cash book or cash flow statement were found or seized, which could prove the movement of cash to & for between Shri Pukhraj Soni & Shri Nilesh Ajmera with respect to interest and loans. We find that the AO failed to bring on record any corroborative and concrete evidence against the assessee which could prove that the assessee has advanced to Shri Nilesh Ajmera. The inference of the AO that the assessee has advanced the money is merely based on suspicion, surmises and conjectures and there was no material to support the conclusion of the AO that the assessee has advanced the money. We drive support from the decision of Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mill Pvt. Ltd. Vs. CIT, (1954) 26 ITR 775 (S.C.), wherein it was held that while making an assessment there must be something more than the bare suspicion to support the assessment. In another case of K. P. Varghese Vs. ITO, (1981) 131 ITR 597 (S.C.), the Hon’ble Supreme Court has held that mere seizure of note books of documents at the personal residence of an employee would not conclude the issue against the employer company that the on money has been received by the employer company. The onus of proving the charging of on money lies on the Revenue. Further, the Hon’ble Bombay High Court in the case of ACIT Vs. Lata Mangeshkar (Miss) (1974) 97 ITR 696 (Bom), has held that no addition could be made in the hands of the assessee on the basis of notings found in the books of third person.”
4. The Tribunal has held that the Commissioner (Appeal) was justified in allowing the appeal as the Assessing Officer has done the addition on the basis of notings found in the books of third person. It is again an undisputed fact that the assessment has been done on the basis of notings found in the books of third person.
5. Shri Sumit Nema, learned Senior Counsel with Shri A. Gupta, learned Counsel for the respondent has placed reliance upon a judgment delivered in the case of Central Bureau of Investigation Versus V. C. Shukla and others reported in (1998) 3 SCC 410. Paras 17, 18, 24, 25, 26, 27, 34, 37 and 39 reads as under:-
17. From a plain reading of the Section it is manifest that to make an entry relevant thereunder it must be shown that it has been made in a book, that book is a book of account and that book of account has been regularly kept in the course of business. From the above Section it is also manifest that even if the above requirements are fulfilled and the entry becomes admissible as relevant evidence, still, the statement made therein shall not alone be sufficient evidence, still, the statement made therein shall not along be sufficient evidence to charge any person with liability. It is thus seen that while the first part of the section speaks of the relevancy of the entry as evidence, the second park speaks, in a negative way, of its evidentiary value for charging a person with a liability. It will, therefore, be necessary for us to first ascertain whether the entries in the documents, with which we are concerned, fulfil the requirements of the above section so as to be admissible in evidence and if this question is answered in the affirmative then only its probative value need be assessed.
18. ‘Book’ ordinarily means a collection of sheets of paper or other material, blank, written, or printed, fastened or bound together so as to form a material whole. Loose sheets or scraps of paper cannot be termed as ‘book’ for they can be easily detached and replaced. In dealing with the work ‘book’ appearing in Section 34 in Mukund ram vs. Dayaram [AIR 1914 Nagpur 44], a decision on which both sides have placed reliance, the Court observed:-
” In its ordinary sense it signifies a collection of sheets of paper bound together in a manner which cannot be disturbed or altered except by tearing apart. The binding is of a kind which is not intended to the moveable in the sense of being undone and put together again. A collection of papers in a portfolio, or clip, or strung together on a piece of twine which is intended to be untied at will, would not, in ordinary English, be called a book…… I think the term “book” in S. 34 aforesaid may properly’ be taken to signify, ordinarily, a collection of sheets of paper bound together with the intention that such binding shall be permanent and the papers used collectively in one volume. It is easier however to say what is not a book for the purposes of S. 34, and I have no hesitation in holding that unbound sheets of paper in whatever quantity, though filled up with one continuous account, are not a book of account within the purview of S. 34.”
We must observe that the aforesaid approach is in accord with good reasoning and we are in full agreement with it. Applying the above tests it must be held that the two spiral note books (MR 68/91 and 71/91) and the two spiral pads (MR 69/91 and MR 70/91) are “books” within the meaning of Section 34, but not the loose sheets of papers contained in the two files (MR 72/9 1 and MR 73/91).
24. It cannot be gainsaid that the words ‘account’, ‘books of account’, ‘business’ and ‘regularly kept’ appearing in Section 34 are of general necessarily, therefore, such words must receive a general construction unless there is something in the Act itself, such as the subject matter with which the Act is dealing, or the context in which the words are used, to show the intention of the legislature that they must be given a restrictive meaning.
25. Indubitably, the Act lays down the rules of evidence to be applied and followed in all judicial proceedings in or before any Court including some Courts – martial. Keep in view the purpose for which the Act was brought into the statute book and its sweep, the words appearing in Section 34 have got to be given their ordinary, natural and grammatical meaning, more so, when neither the context nor any principle of construction requires their restrictive meaning. While on this point we may refer to Section 209 of the Companies Act, 1956 which expressly lays down what ‘books of account’ to be maintained thereunder must contain and, therefore, the general meaning of the above words under the Act may not be applicable there.
26. In Mukundram (supra) after dealing with the word ‘book’ (to which we have earlier referred) the Court proceeded to consider what is meant by a ‘book of account’ under Section 34 and stated as under:
“To account is to reckon, and I an unable to conceive any accounting which does not involve either addition or subtraction or both of these operations of arithmetic. A book which contains successive entries of items may be a good memorandum book; but until those entries are totalled or balanced, or both, as the case may be, there is no reckoning and no account. In the making of totals and striking of balances from time to time lies the chief safeguard under which books of account have been distinguished from other private records as capable of containing substantive evidence on which reliance may be placed.”
(emphasis supplied)
We have no hesitation in adopting the reasoning adumbrated in the above observations. The underlined portion of the above passage supports the contention of Mr. Altaf Ahmed and rebuts that of mr. Sibal that Mr 71/91 is only a memorandum for the entries made therein are totalled and balanced. We are, therefore, of the opinion that MR71/91 is a ‘book of account’ as it records monetary transactions duly reckoned.
27. Coming now to the word ‘ business’ , we need not search for its meaning in Black’s Law Dictionary, or words and Phrases for this Court has dealt with the word in a number of cases. In Narain Swadesh Weaving Mills vs. The Commissioner of Excess profits Tax [ 1955 (1) SCR 952], a five judge bench of this Court held that the word ‘business’ connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose’ and the above interpretation was quoted with approval in Mazagaon Dock Ltd. vs. The Commissioner of Income Tax and Excess Profits Tax [1959 SCR 848]. Again in Barendra Prasad Ray vs. I.T.O. [1981 92) SCC 693] this court observed that the word ‘business’ is one of wide import ad it means an activity carried on continuously and systematically by a person by the application of his labour or skill with a view to earning an income. The activities of the Jain brothers, as sought to be projected by the prosecution now on the basis of the materials collected during investigation (detailed earlier) would, therefore, be ‘business’ for they were being carried on continuously in an organised manner, with a set purpose (be it illegal) to augment their own resources. mr. 71/91 is, therefore, a book of account kept in the course of business.
34. The rationale behind admissibility of parties’ books of account as evidence is that the regularity of habit, the difficulty of falsification and the fair certainty of ultimate detection give them in a sufficient degree a probability of trustworthiness (wigmore on evidence $ 1546). Since, however, an element of self interest and partisanship of the entrant to make a person – behind whose back and without whose knowledge the entry is made – liable cannot be ruled out the additional safeguard of insistence upon other independent evidence to fasten him with such liability, aha been provided for in Section 34 by incorporating the words such statements shall not alone be sufficient to charge any person with liability.
37. In Beni Vs. Bisan Dayal [ A. I. R 1925 Nagpur 445] it was observed tat entries in book s of account are not by themselves sufficient to charge any person with liability, the reason being that a man cannot be allowed to make evidence for himself by what he chooses to write in his own books behind the back of the parties. There must be independent evidence of the transaction to which the entries relate an din absence of such evidence no relief can be given to the party who relies upon such entries to support his claim against another. In Hira Lal Vs. Ram Rakha [ A. I. R. 1953 Pepsu 113] the High Court, while negativing a contention that it having been proved that the books of account were regularly kept in the ordinary course of business and that, therefore, all entries therein should be considered to be relevant and to have been prove, said that the rule as laid down in Section 34 of the Act that entries in the books of account regularly kept in the course of business re relevant whenever they refer to a matter in which the court has to enquire was subject to the salient proviso that such entries shall not alone be sufficient evidence to charge any person with liability. It is not, therefore, enough merely to prove that the books have been regularly kept in the course of business and the entries therein are correct. It is further incumbent upon the person relying upon those entries to prove that the were in accordance with facts.
39. A conspectus of the above decisions makes it evident that even correct and authentic entries in books of account cannot without independent evidence of their trustworthiness, fix a liability upon a person. Keeping in view the above principles, even if we proceed on the assumption that the entries made in MR 71/91 are correct and the entries in the other books and loose sheets which we have already found to be not admissible in evidence under Section 34) are admissible under Section 9 of the Act to support an inference about the formers’ correctness still those entries would not be sufficient to charge Shri Advani and Shri Shukla with the accusations levelled against them for there is not an iota of independent evidence in support thereof. In that view of the matter we need not discuss, deleve into or decide upon the contention raised by Mr. Altaf Ahmed in this regard. Suffice it to say that the statements of the for witnesses, who have admitted receipts of the payments as shown against them in MR 71/91, can at best be proof of reliability of the entries so far they are concerned and not others. In other words, the statements of the above witnesses cannot be independent evidence under Section 34 as against the above two respondents. So far as Shri Advani is concerned Section 34 would not come in aid of the prosecution for another reason also. According to the prosecution case itself his name finds place only in one of the loose sheets (sheet No. 8) and not in MR 71/91. Resultantly, in view of our earlier discussion, section 34 cannot at all be pressed into service against him.”
6. The Tribunal has considered the aforesaid judgment while dismissing the appeal of the Revenue. The Apex Court in the case of Common Cause (A Registered Society) Versus Union of India reported in [2017] 77 taxmann.com 245 (SC) 22, 24 and 27 has held as under:-
22. In case of Sahara, in addition we have the adjudication by the Income Tax Settlement Commission. The order has been placed on record along with I.A.No.4. The Settlement Commission has observed that the scrutiny of entries on loose papers, computer prints, hard disk, pen drives etc. have revealed that the transactions noted on documents were not genuine and have no evidentiary value and that details in these loose papers, computer print outs, hard disk and pen drive etc. do not comply with the requirement of the Indian Evidence Act and are not admissible evidence. It further observed that the department has no evidence to prove that entries in these loose papers and electronic data were kept regularly during the course of business of the concerned business house and the fact that these entries were fabricated, non-genuine was proved. It held as well that the PCIT/DR have not been able to show and substantiate the nature and source of receipts as well as nature and reason of payments and have failed to prove evidentiary value of loose papers and electronic documents within the legal parameters. The Commission has also observed that Department has not been able to make out a clear case of taxing such income in the hands of the applicant firm on the basis of these documents.
24. Since it is not disputed that for entries relied on in these loose papers and electronic data were not regularly kept during course of business, such entries were discussed in the order dated 11.11.2016 passed in Sahara’s case by the Settlement Commission and the documents have not been relied upon by the Commission against assessee, and thus such documents have no evidentiary value against third parties. On the basis of the materials which have been placed on record, we are of the considered opinion that no case is made out to direct investigation against any of the persons named in the Birla’s documents or in the documents A-8, A-9 and A- 10 etc. of Sahara.
27. Considering the aforesaid principles which have been laid down, we are of the opinion that the materials in question are not good enough to constitute offences to direct the registration of F.I.R. and investigation therein. The materials should qualify the test as per the aforesaid decision. The complaint should not be improbable and must show sufficient ground and commission of offence on the basis of which registration of a case can be ordered. The materials in question are not only irrelevant but are also legally inadmissible under Section 34 of the Evidence Act, more so with respect to third parties and considering the explanation which have been made by the Birla Group and Sahara Group, we are of the opinion that it would not be legally justified, safe, just and proper to direct investigation, keeping in view principles laid down in the cases of Bhajan Lal and V.C. Shukla (supra).
7. The Apex Court has taken into account in similar circumstances the incriminating materials in form of random sheets, loose papers, computer prints, hard disk and pen drive etc. and has held that they are inadmissible in evidence, as they are in the form of loose papers.
8. In the present case also entries found during search and seizure which are on loose papers are being made the basis to add income of this respondent.
9. Resultantly, in light of the Supreme Court judgments, referred above, no case for interference is made out with the order passed by the Tribunal. Moreover no substantial question of law arises in the present appeal, the appeal is dismissed.
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