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T. C. A. Ramanujam

T. C. A. Ramanujam highlights the problems faced by the I-T Department in tracking down black money

The Revenue Department is often at the receiving end for not playing its part fully in curbing tax evasion. No one for sure knows the extent of black money proliferation. It is both a fund and a flow, according to economists. Several causes have been attributed to the generation of black money. Committees have gone into this question in great detail and legislation has been enacted to provide deterrence. Commissions were set up to deal specially with bigger cases of fraud, and special courts for trying economic offences. The Government thought that tightening the law will in itself act as a deterrent.

But having inherited the Anglo-Saxon system of jurisprudence, one has to contend with the legal maxim that every man is presumed to be innocent unless the contrary is proved. Tax law was amended to get over the adverse consequences of this principle and distinction was drawn between assessment and penalty proceedings. Even in respect of penalty proceedings, the above principle was considered to be of doubtful value after the amendments to the law. A case which went up to the Supreme Court will highlight the problems faced by the Revenue in tracking down black money hoarders.

Abhishek Corpn case

In this case (255 ITR 45), Abhishek Corporation, a firm comprising two equal partners — Uday Janani and Arvind Patel — undertook the supervision work of two cooperative societies and was also involved in booking flats. Madhavji Patel was the architect and builder of the two cooperative societies. He was searched under Section 132(1) of the Income-Tax Act, 1961. The search papers revealed that two flats were sold to one Uttam Chand Jain at Rs 455 per sq feet. The documents, got ready by Banished Corporation, suggested a price of only Rs 265 per sq. ft. Confronted with this piece of evidence, Banished disclosed Rs 30 lakh as undisclosed income.

The Department felt that the undisclosed income should be Rs 1,58, 59,400, being the difference between the rates. The firm's case was that it was only entitled to supervision charges taking into consideration depreciation, salary, and so on. Such charges amounted to 1.31 per cent of the admitted receipts.

The Income Tax Appellate Tribunal did not accept the Department's calculation. It was of the view that the investments in land and construction work would be a big sum and there was no proof that such investments were made by Abhishek Corporation. The agreement did not refer to the price of Rs 465 per sq feet. Uttam Chand Jain denied having received any premium. No statement was recorded from other flat owners. The amount of sales by itself cannot represent income. Sales can represent only the price received by the seller of the goods for the acquisition of which cost had already been incurred. Profit is to be arrived as the difference between the cost and the sale.

Unless there is a finding to the effect that investment by way of incurring cost in acquiring goods which have been sold has been made by the assessed there can be no question of treating the entire sum of undisclosed sale proceeds as income.

With the Tribunal having allowed the appeal of Abhishek Corporation, the Department took up the matter before the Gujarat High Court. The court was of the view that the Tribunal's judgment was rendered on an appreciation of evidence found and, therefore, no referable question of law arose.

The Department went in further appeal to the Supreme Court, relying on Sections 68 and 132(4A) of the Act. The question posed before the apex court was whether the Tribunal was right in holding that the onus was on the Department to prove the receipt of on-money.

The Department pointed that the Tribunal itself had agreed that Banished received unaccounted receipts. This was obviously what was disclosed by the assessed. What the Tribunal wanted was that the Department should prove that the assessed had invested Rs1,58,59,400 out of the unaccounted monies received. The assessor's claim of having incurred extra expenditure was found to be incorrect.

The Supreme Court went through the ITAT's orders in this case and held that the matter required detailed consideration by the High Court. It shows to express no view on the merits of the case on either side. It set aside the High Court's order with a direction to hear the case afresh.

According to the principles of jurisprudence, as visualised by several appellate authorities, it is not enough if some material is seized indicating payment of black money in real-estate transactions. Obviously, the Deparment should catch the defaulters red-handed in the process of transferring cash as on-money.

Luckily, the Supreme Court has thought it fit to interfere. A restatement of the law on burden of proof in revenue cases is long overdue.

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