MANKAD,J. - (1.) 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 asst. 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 asst. 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 ITO 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 ITO, Ramkumar, while admitting the signatures on the vouchers or receipts produced by the assessee, denied having received Rs. 29,337 in the asst. year 1972 73 and Rs. 7,812 in the asst. 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 ITO 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 ITO, therefore, refused to believe that the assessee had paid by way of commission to Ramkumar Rs. 29,337 in the asst. year 1972 73 and Rs. 7,812 in the asst. year 1973 74. In the result, he disallowed the deduction of these amounts as business expenditure. Other disallowances made by the ITO are not relevant for our purpose. In the appeal by the assessee, the AAC 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 asst. year 1972 73. So far as the asst. year 1973 74 was concerned, the AAC gave relief of Rs. 300 in lump sum out of the total disallowance made by the ITO. It was stated that so far as the amount of Rs. 7,812 alleged to have been paid to Ramkumar in the asst. year 1973 74 was concerned, the entire amount was taken to have been disallowed by the AAC. In other words, the AAC confirmed the disallowance of the said amount of Rs. 7,812.
(2.) BEING aggrieved by the order of the AAC, the assessee carried the matter in appeal before the 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 ITO 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 asst. yrs. 1972 73 and 1973 74 as business expenditure. Thus, so far as the asst. year 1972 73 was concerned, the Tribunal allowed the deduction of Rs. 26,337 in addition to Rs. 3,000 allowed by the AAC. The Revenue, being dissatisfied with the decision of the Tribunal, the following questions have been referred to us at its instance for our opinion: 3. Assessment year 1972 73 : " 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in deleting the addition of Rs. 26,337 added by the ITO 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 ? Whether the decision of the Tribunal in deleting the addition of Rs. 26,337 added by the ITO 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 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 IT Act, 1961. As held by the Supreme Court in C. Vasantlal & Co. vs. CIT (1962) 45 ITR 206, the ITO 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. In the case before the Supreme Court, the ITO examined two witnesses in the absence of the assessee but the AAC permitted the assessee to cross examine those witnesses after summoning them. The Supreme Court held that the statements made by the witnesses before the ITO 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 ITO and disbelieve the statements made by them before the AAC. In view of the settled position of law, it was open to the ITO to examine Ramkumar in the course of the inquiry made by him in the absence of the assessee. It is not disputed that the ITO 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 IT 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. 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 ITO 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 ITO 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 asst. year 1973 74.;