The Commissioner of Income Tax vs Shri Ram Pher, Bhagwati Steels

Devi Prasad Singh, J.—Heard Sri D. D. Chopra learned Counsel for the appellant and perused record. None appears for the respondent.

In the present appeal, filed u/s 260A of Income Tax Act (In short the Act), the Division Bench of this Court, vide order dated 24.1.2008, framed the following substantial questions of law:

(1) Whether the learned Income Tax Appellate Tribunal was justified in allowing relief in appeal preferred by the assessee while overlooking the appeal before it preferred the Revenue on the same addition thereby rendering the Revenue''s appeal ineffective and otiose.

(2) Whether the learned Income Tax Appellate Tribunal was justified in law and on the facts of the case in allowing a relief of Rs. 10,21,000/-.

(3) Whether the learned Income Tax Appellate Tribunal was justified in estimating the value of unexplained stock at Rs. 5.00 Lacs as against Rs. 20,21,095.00 valued by the Assessing Officer assessed on the basis of physical verification of stock during the course of survey of the assessee''s premises u/s 133A of the Income Tax Act.

The brief matrix of the controversy involved, relates to assessment year 1998-99 based on survey of the business establishment of the assessee in pursuance of powers conferred u/s 133A of the Act. The assessee is a iron and hardware merchant carrying on business in town area of Shahjadpur Tehsil Akbarpur, District Ambedkarnagar. On 9.8.1998, survey was conducted u/s 133A of the Act. Statement of assessee was recorded by the Income Tax Inspector wherein, the assessee stated that he was having total stock of Rs. 2 lacs to Rs. 2.5 lacs. It was noted by the Assessing Officer that total stock was based on inventories A and B prepared on the spot which was to the tune of Rs. 22,71,091.00. The difference between the stock found by the Revenue and in the assessee, comes to Rs. 20,21,092.00. The assessee was called on to file objection. After considering objection filed by the assessee, the Assessing Officer made addition of Rs. 20,21,095.00.

At the appellate stage, the assessee filed an affidavit and stated that records were interpolated and the stock shown by the Income Tax Inspector while doing survey, is based on incorrect facts. In the affidavit, the assessee specifically given reference to various items which were not found in the stock but have been shown by the interpolation of record. The Tribunal has discussed this aspect in para-3 of its order.

The Commissioner of Income Tax (Appeals)-III, Lucknow (CIT) recorded a finding that the testimony of Revenue, was not credible and lacks confidence. It has been noted by the CIT (Appeals) that Revenue has not acted fairly while making addition as above. Accordingly, the CIT (Appeals) further observed that even for two items, the amount comes to Rs. 9,60,000.00. Though, the CIT (Appeals) disbelieved the version of the assessee to some extent as well as the Revenue and recorded finding that the department has not acted fairly but after considering the difference of two items namely, strips and round bar of Rs. 9,60,000.00, relief of Rs. 5,00,000.00 was given to the assessee.

It may be noted that though the list given by the assessee, relates to several items marked from A to J but CIT (Appeals) has considered the interpolation with regard to the two items only (supra). Once the assessee has filed affidavit with specific plea that Revenue has acted unfairly and has incorrectly shown certain items in its list while calculating stock, then it was incumbent on the appellate authority to consider each and every item with regard to which the assessee raised objection. Deciding the matter by the appellate authority after considering the difference of only two items that too, against the finding of Revenue, seems to be not correct. The appellate authority has failed to exercise jurisdiction vested in it.

On appeal though, the Tribunal has noted that an affidavit was filed by the assessee pointing out several items marked from A to J (Annexure No. 3 of the order) but has not dealt with individually. However, the Tribunal arrived at the conclusion that there was interpolation in the list of inventories prepared at the time of survey as alleged by the assessee. The Tribunal also observed that affidavit filed by the assessee, has neither been discussed nor rebutted. The Tribunal held that the increase of escaped bearing from 18 pcs. to 418 pcs. and increase of round bar from 65 to 265 qtls., with similar instance with regard to other items, renders the case of the Revenue untrustworthy. The Tribunal declined to place reliance on the inventories and the amount of stock arrived at by the Assessing Officer. Virtually, the finding recorded by the CIT (Appeals) and Tribunal, seems to be correct though, entire record has not been taken into account.

No material has been pointed out by the learned Counsel for the appellant which may falsify the factual observations made by the CIT (Appeals) as well as the Tribunal. Once the finding recorded by the two authorities with regard to interpolation of record is not disputed, then no finding can be recorded by this Court contrary to the observations made by the two appellate authorities.

Needless to say that in case, finding recorded by the two appellate authorities with regard to interpolation or fabrication of record or incorrect entry made in the inventories by the Assessing Officer and the same is not disputed, then there appears to be no doubt that the Assessing Officer, Income Tax Inspector or the Officer who has done the survey in the establishment in question, has committed fraud.

"Fraud" means an intention to deceive. The expression "fraud" involves two elements, deceit and injury to the person deceived. Even if in some cases there is not benefit to the deceiver, in appropriate case, the second condition shall be deemed to be satisfied. Vide Dr. Vimla Vs. Delhi Administration, and Indian Bank Vs. M/s. Satyam Fibres (India) Pvt. Ltd.,

The collusion or conspiracy to deprive the right of others in relation to a property shall render transaction ab initio void. Fraud and deception are synonymous. Fraud is anathema to all equitable principles and any affair tainted with fraud cannot be perpetuated or saved by the application of any equitable doctrine including res judicata. Vide Ram Chandra Singh Vs. Savitri Devi and Others, Fraud is proved when it is shown that a false representation has been made knowingly, or in disbelief in its truth, or recklessly and carelessly whether it is true or false. Fraud avoids all judicial acts ecclesiastical or temporal. Vide S.P. Chengalvaraya Naidu (dead) by L.Rs. Vs. Jagannath (dead) by L.Rs. and others, In Lazarus Estate Ltd. v. Besalay 1956 All.E.R. 349, the Court observed without equivocation that no judgment of a Court, no order of a Minister can be allowed to stand if it has been obtained by fraud, for fraud unravels everything.

Their lordships of Hon''ble Supreme Court in the case reported in Andhra Pradesh State Financial Corporation Vs. M/s. GAR Re-Rolling Mills and another, and (1994) 2 SCC : State of Maharashtra and Ors. v. Prabhu, has observed that a writ Court, while exercising its equitable jurisdiction, should not act as to prevent perpetration of a legal fraud as the Courts are obliged to do justice by promotion of good faith. Equity is also known to prevent the law from the crafty evasions and sub-letties invented to evade law.

In United India Insurance Co. Ltd. Vs. Rajendra Singh and Others, their lordships of Hon''ble Supreme Court observed to quote:

"Fraud and justice never dwell together" (fraus et jus nunquam cohabitant) and it is a pristine maxim which has never lost its temper over all these centuries.

In the case reported in Smt. Shrisht Dhawan Vs. M/s. Shaw Brothers, Hon''ble Supreme Court observed as under:

Fraud and collusion vitiate even the most solemn proceedings in any civilized system of jurisprudence. It is a concept descriptive of human conduct.

In a recent judgment of Hon''ble Supreme Court reported in 2010 AIR SCW 50: Dalip Singh. v. State of U.P. and Ors., their lordships after considering earlier judgment, has deprecated the conduct of such litigants who approach the Court by concealing material facts.

It has been vehemently argued by Sri D.D. Chopra that the departmental appeal was also pending before the Tribunal which was dismissed at later stage. In case the department was having any grievance against the order of the Tribunal, then the Revenue could have filed another appeal raising substantial question of law in pursuance of power conferred u/s 260A of the Act. Since no appeal was preferred by the appellant against the order passed by the Tribunal, in other connected appeal, it cannot be looked into by this Court in the present appeal.

Thus, in the event of commission of fraud in the form of manipulation or interpolation of record, even solemn act of the authorities while discharging their duties, vitiates. The Tribunal is the last authority to record finding of fact. Keeping in view the finding of fact recorded by the two forums, the conclusive finding recorded with regard to commission of fraud in the form of interpolation of record, seems to be well established fact. While exercising jurisdiction conferred u/s 260A of the Act, it is not open by this Court to disturb the finding of fact recorded by the two forums with regard to commission of fraud. Accordingly, the present appeal preferred by the Revenue, lacks merit.

Before parting with the case, we would like to observe that the allegation raised by the assessee is serious. It appears that the Revenue by hook or crook tried to persecute the assessee for some unforeseen reason while interpolating record by increasing the stock of various items including strips and round bar. Such action on the part of Revenue, erodes people''s faith in the system. Disciplinary proceeding should have been conducted against the officers, who tried to impose tax by interpolating records with major penalty.

In view of the above, we answer the question framed in the appeal as under:

(i) Since the Revenue has not preferred any appeal against the Tribunal order, it cannot be taken into account while deciding the present controversy.

(ii) The Tribunal''s order is well considered and justified in allowing the relief since there is concurrent finding of fact with regard to commission of fraud in the form of interpolation of record.

(iii) Since the Income Tax Inspector while preparing the stock list, has interpolated the record and enhanced the quantity of stock, the Tribunal''s order seems to be justified and is decided against the Revenue.

In view of the above, we dismiss the appeal and the questions framed therein, are answered against the Revenue appellant.