VELJI DEORAJ AND CO Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following two question, which arise out of the Tribunal's order relating to the reassessment of the assessee under section 34 of the Indian Income -tax Act in respect of the assessment year 1950 -51, have been referred to this court by the Tribunal on a requisition under section 66(2) of the Indian Income -tax Act : '(1) Whether, on the facts and under the circumstances of the case, the discretion of the Tribunal was judicially exercised in refusing to admit the important evidence in the form of the bank certificate produced by the assessee in respect of this case, that the money had been received by the assessee from Aden in approved manner ? and (2) Whether there is any evidence on the record to justify the finding of the Tribunal to the effect that the sum of Rs. 95,483 (Rupees ninety -five thousand for hundred and eighty -three) forming part of the moneys credited in the account of the non -resident, Maneklal Bhanji of Aden, in S. Y. 2005 in the assessee's books of account is the assessee's own money representing his income from an undisclosed source ?'

(2.) THE assessee is a partnership firm consisting of a father and son as partners and is carrying on business as exporters and commission agents. On of the foreign parities to which goods are export by the assessee -firm is a firm called 'Maneklal Bhanji' at Aden. The assessment of the firm for the assessment year 1950 -51, for which the relevant previous year was the S. Y. 2005 ending on 21st October, 1949, was originally made by the Income -tax Officer on 14th June, 1951, determining a total income of Rs. 46,836. The assessee -firm, it may be stated, is registered under section 26A of the Indian Income -tax Act. During the assessment proceedings for the assessment year 1955 -56, corresponding to the previous year S. Y. 2010, the Income -tax Officer noticed that the account of Maneklal Bhanji of Aden in the account books of the assessee showed an opening credit balance of Rs. 95,483. He also found that no interest had been credit to this account. He, therefore, called upon the assessee furnish statement of account of Maneklal Bhanji during the previous six years. In response thereto, the assessee furnished the statement of the accounts as were required but produced the account books and the invoices, etc., only for the years subsequent to S. Y. 2005 and stated that the account books for the S. Y. 2005 were not available. The Income -tax Officer found that, so far as the accounts for the S. Y. 2006 to 2010 were concerned, they were quite satisfactory. He was not, however, satisfied with regard to the credit entires in favour of Maneklal Bhanji in the account for the S. Y. 2005, for which no account books were produced and had reason to believer that a part of the income of the assessee for the year, as represented by certain credits, had escaped assessment. After obtaining the necessary sanction from the Commissioner of Income -tax, he started reassessment proceedings against the assessee under section 34(1) in respect of the assessment for the assessment year 1950 -51. In the course of this assessment proceeding. the assessee was called upon to produce the account books for the S. Y. 2005 and for the subsequent years. The assessee declined to produce the account books for the S. Y. 2005 on the ground that the said account books not traceable. The Income -tax Officer took the view that the explanation of the assessee that the account books were not traceable was not genuine and he was deliberately not producing the account books for the said year. He, therefore, decided to make the assessment under section 23(4) of the Act. By his letter dated 6th August, 1956, he intimated to the assessee his intention to make an assessment under section 23(4) and called upon him to supply the explanation as to why an amount of Rs. 95,483 credited in the account of Maneklal Bhanji of Aden during the course of the assessment year should not be treated as the concealed income of the assessee himself. In the said letter the Income -tax Officer pointed out to the assessee that the statement of account which it has produced, when examined along with the account books for the S. Y. 2006 to 2010, showed that tin the account of Manaklal Bhanji of Aden for the S. Y. 2005 there was a total debit of Rs. 1,90,211 as the price of the goods exported to him. These debits included the value of the goods amounting to RS. 1,26,452, which were shipped at the end of the accounting year and for which the price was received from Maneklal Bhanji during the subsequent S. Y. 2006. For the remaining goods shipped during the year which were valued at Rs. 63,759 payments were received from Maneklal Bhanji during the court of the year. It was, however, shown in this account that the total credits in favour of Maneklal Bhanji during the S. Y. 2005 were Rs. 1,59,242. The total of credits in favour of Maneklal Bhanji, therefore, exceeded the price of the goods received by him during the course of the year an amount of Rs. 95,483. It was pointed out to the assessee that at the time when these credits were made in favour of Maneklal Bhanji, there were exchange restrictions between India and Aden and it was not normally possible for the Aden party to remit monies to India except to the extent of the value of the goods exported to him. It was, therefore, likely that the excess of credits over the price of the goods exported to Maneklal Bhanji represented the deposit of the secret profits of the assessee in the account of the non -resident. The Income -tax Officer further pointed out to the assessee that, since no repayment out of this amount had been made to Maneklal Bhanji during the six years and no interest had been credited to the account for all these years, it may as well be that Maneklal Bhanji may be unaware of this excess credit in his account and it is also likely that to the extent to which this excess amount is credited in the said account, it is a benami account of the assessee. In conclusion, the Income -tax Officer called upon the assessee to submit his explanation, if any, with regard to the said credits of Rs. 95,483. In reply to this letter the assessee wrote to the said credits of Rs. 95,483. In reply to this letter the assessee wrote to the Income -tax Officer on 11th August, 1956, submitting its explanation for the queries made by him. As to the Income -tax Officer's complaint that the account books for the S. Y. 2005 were being suppressed, it was stated that the said inference was incorrect and the truth of the matter was that the account books had not been traced by the assessee. It was pointed out in that connection that there was no reason for the assessee to suppress the account books and that the same had been produced before the Income -tax Officer on the earlier occasion when they were available. The assessee further stated that the amounts of credits totaling to Rs. 95,483 appearing in the account of Maneklal Bhanji in the S. Y. 2005 really belonged to the said party; that all those amounts had been received after the 1st of September, 1947, and could, therefore, have been received by it only in a manner approved under the Foreign Exchange Regulations. Since part of the price of the goods supplied to the party during the course of the year was remitted during the subsequent year, the amounts sent by Maneklal Bhanji during the S. Y. 2005 may have had a reference to certain dealings made prior to S. Y. 2005. As to the Income -tax Officer's suspicion that the Aden party may not be aware of its credits in its accounts, the assessee produced along with its reply a letter and an affidavit from the Aden party. As to the fact that no prepayments had been made out of that account and the fact that no interest was charged on the amounts the assessee relied that the repayments could not be made because of the exchange regulations and as to interest not being charged, it was because no interest was claimed by the assessee from the Aden party when there was a debit balance in the account of the Aden party and, therefore, no interest was credited for the excess credit in his favour. The Income -tax Officer was not satisfied with the explanation submitted by the assessee and did not accept the assessee's case that the amount belonged to the foreign party. According to him, having regard to the exchange regulations, it was not likely that the Reserve Bank would allowed remittances in excess of the of the value of the goods shipped as mentioned in the invoices. The assessee no doubt has stated that these were remittances made in an approved manner, but it has not substantiated it by producing any proof. As to the explanation given by the assessee that remittances may have reference to payments for goods of earlier years, the Income -tax Officer had held that the said explanation was absolutely untrue as at the beginning of S. Y. 2005 there was an opening credit balance in favour of the Aden party. Moreover, he was pointed out that the assessee in its explanation had submitted that some of the remittances may have some connection with goods supplied during the earlier years, at another stage it stated that these payments were in respect of advance payments, which had remained to be repaid because of the exchange regulations and restriction. The circumstances that the explanations give by the assessee were in consistent and contradictory indicated, according to the Income -tax Officer, that neither of them was true. In the absence of the foreign party having been produced before him, the Income -tax Officer was prepared to give any importance to the letter or the affidavit of the Aden Party, which were sought to be produced by the assessee. Having regard to the facts and circumstances of the case, the Income -tax Officer held that the assessee had failed to satisfy him that the amount of Rs. 95,483 belonged to the Aden party and in view of the several circumstances discussed by him, he held that the said mount represented the concealed profits of the assessee and, therefore, liable to be included in the income of the assessee -firm. The decision of the Income -tax Officer was confirmed in appeal by the Appellate Assistant Commissioner. In the second appeal before the Tribunal, two contentions were raised by the assessee. One was that the assessment made under section 34(1) of the Indian Income -tax Act was invalid and the other was that inclusion of the amount of Rs. 95,483 in the income of the assessee as income from an undisclosed source was erroneous. The Tribunal negatived both these contentions and agreed with the decision taken by the Income -tax Officer and the Appellate Assistant Commissioner and dismissed the assessee's appeal. During the course of the appeal before the Tribunal the assessee sought to produce a certificate from the Amalgamated Bank of National and Grindlays, certifying that the entire amount of credits has been received from the Aden party through the bank during the S. Y. 2005. The admission of this additional evidence at the appellate stage was objected to by the department and the Tribunal sustained the said objections and refused to admit the same. On the material on record the Tribunal held that the conclusion arrived at by the Income -tax Officer and the Appellate Assistant Commissioner with regard to the said amount of Rs. 95,483 was correct and agreeing with the department it upheld the addition of Rs. 95,483 as the assessee's own money representing its income from an undisclosed source. It further held that the nature of this income from undisclosed source was also business income. The assessee applied under section 66(1) of the Indian Income -tax Act for a reference to this court but the said application was rejected by the Tribunal on the ground that no question of law arose out of its order. The assessee then applied to this court under section 66(2) requesting this court to require the Tribunal to draw up a statement and refers to this court a number of question of law said to be arising out of the Tribunal's order. This court, however, allowed the application only in respect of the two questions, which we have already set out above.

(3.) NOW , the power of the Tribunal to admit additional evidence in appeal is governed by rule 29 of the rules and orders relating to the Appellate Tribunal. That rule is similar in terms to Order 41, rule 27, of the Code of Civil Procedure. Now, it is well settled that the admissibility of additional evidence in appeal under the provisions of Order 41, rule 27 of the Civil Procedure Code is made to depend not upon the relevancy or materiality to the issue before the court of the evidence sought to be admitted or upon the fact whether or not the applicant had sufficient opportunity of adducing the evidence at an earlier stage, but upon whether or not the appellate court requires the evidence to enable it to pronounce judgment or for any other substantial cause. The admission of additional evidence at the appellate stage is not referable to any right of the party to produce the evidence but is dependent solely on the requirement of the court and it is for the court to decide whether for pronouncing its judgment or for any other substantial cause it is necessary to have the additional evidence before it. The mere fact that the evidence sought to be produced it vital and important does not provide a substantial clause to allow its admission at the appellate stage especially when the evidence was available to the party at the initial stage and had not been produced by him. As has been observed by the Privy Council in Parsotim v. Lal Mohar the rule is not intended to allow a litigant who has been unsuccessful in the lower courts to patch up the weak parts of his case and fill up commission in the court of appeal. Mr. Metha referred to the observations of Ameer Ali J. in the Privy Council case, Indrajit Pratap Bhadur Sahi v. Amar Singh viz, that the jurisdiction of an appellate court under Order 41, rule 27, of the Code of Civil Procedure, 1908, to admit additional evidence is not confined to cases in which the court itself discovers a lacuna or defect and requires evidence to fill up or remedy it. Under the words 'or for any other substantial cause' an appellate court was a discretion to admit further evidence upon the application of a party. It may, however, be pointed out that these observations have been considered and discussed in the later decision of the Privy Council in Parsotim v. Lal Mohar where is has been held : 'By the terms of Order XLI, rule 27(b), it is only where an appellate court ' requires' it (the is, finds it needful) that additional evidence can be admitted. It may be required to enable the court to pronounce judgment, or for any other substantial cause, but it must be the court that requires it. The power cannot be exercised on an application by a party before the appeal is heard.'