I. T. A. NO. 60/KB OF 1982-83 DECIDED ON 9TH SEPTEMBER, 1985. Versus I. T. A. NO. 60/KB OF 1982-83 DECIDED ON 9TH SEPTEMBER, 1985.
ORDER
1. FARHAT ALA KHAN (MEMBER). ‑The facts of this appeal are quite in teresting. The respondent, a Private Limited Company, tiled its return relat ing to assessment year 1978‑79 and on 26th May, 1979 its total income was determined at Rs. 2,62,108. It had shown in its accounting period via. 1st January, 1,177 to 31st December, 1977 a cash credit of Rs. 1,00,000 from one Mr. 5uleman Adam residing at Mustajab Mansion, New Challi, Karachi. A certificate from aforesaid Suleman Adam was tiled to support the cash credit. The assessing officer, therefore, accepted it. Never theless, as a prudent officer tie referred the matter to Income‑tax Officer, Circle, 'O', East Zone, Karachi in whose jurisdiction Mr. Suleman Adam was being assessed. The Income‑tax Officer of Circle `O' examined the wealth tax statement and discovered that aforesaid Suleman Adam had not shown Rs. 1,00,000 receivable from the respondent in its wealth statement as it stood on 30th June, 1978 lie therefore, conducted enquiry and found that aforesaid Suleman Adam neither had financial capacity to advance such loan, nor hr did advance it in fact. He also obtained an affidavit from aforesaid Suleman Adam wherein lie again deposed that he did not advance any loan to respondent but only gave a certificate of loan for a consideration of Rs. 4,500. The Income‑tax Officer Circle `O' then sent the entire record to his counter‑part who issued notice to the respondent under section 65 with the prior approval of his inspecting Assistant Commissioner. The respondent again declared the same income which was disclosed in the original return but the Income‑tax Officer proceeded with the matter. The aforesaid Suleman Adam was summoned under section l48 of the Income‑tax Ordinance, 1979, hereinafter referred to as the " Ordinance" and was examined on 26th March, 1981. He again appeared before assessing officer on 8th April, 1981 on which date he was cross‑examined by the learned counsel far the respondent. He maintained throughout his stand that lie was not a money‑lender but only used to lend his name by giving bogus certificate to other parties for Income‑tax purposes on receipt of certain commission. His case in nutshell was that on 15th August, 1977 the respondent executed a promote in his favour and he wrote back a receipt in favour of the respondent on the wine date. According to him, on the same date he also issued receipt of interest amounting to Rs. 13,000 charged on Rs. 1,00,000. He further stated that on 18th August, 1977 the respondent deposited Rs. 1,00,000 to his bank account to recover the cheque to be issued by him which lie did issue on the 'same date. The Income‑tax Officer then issued it notice under section 62 of the Ordinance to the respondent disclosing all the relevant facts emerging out of the examination and cross‑examination of aforesaid Suleman Adam and wanted it to show cause as to why an amount of Rs. 1,00,000 should not he treated as unexplained sum credited to its books of account and added to the total income for purposes of additional assessment to be done under section 65 of the Ordinance. The respondent instead of filing its reply to the notice tiled another Affidavit duly sworn by aforesaid Suleman Adam, whereby lie reverse, his statement made earlier and admitted that he had advanced Rs. 1,00,000 to the respondent as stated by him. Before Income‑tax Officer could fragment he received another letter dated 27th August; 1981 written by aforesaid Suleman Adam. In this letter he stated that he had Rs. 7,00,000 with, him which were deposited as Amanat by one Haji Umer of Messrs Yousuf Corporation Limited, in pursuance of an arbitration award given by Mr. Faruq Ali, F. C. A. in a dispute referred to him by Messrs Italo Umer and Messrs Yousuf Corporation Limited. Along with the letter not only copy of the award but a copy of the affidavit of Haji Umer of Yousuf Corporation Ltd., was also attaches. The contents of letter dated 27th August, 1981 along with the award and the affidavit mentioned above have been reproduced by learned Commissioner of Income‑tax (Appeals) in. his order which we need not quote again for the sake of brevity. However, the assessing officer was not convinced and he recorded the following order:‑
2. "The sum of Rs. 1,00,000 credited to the books of accounts of the assessee is therefore added as unexplained sutra credited to books of accounts of the assessee Company and added towards total income oft the following grounds
(1) The Alleged creditor Mr. Suleman Adam has denied to have extended any loan to the assessee.
(2) It is trite law that in order to be genuine, the party extending the credit must have the financial capacity to extend the same. The assessee in the present case teas failed to prove the financial capacity of Mr. Suleman Adam, which they were under legal obligation to prove. They have failed to discharge the onus of proof.
(3) The assessee has failed to reply to notice under section 62. More so the discrepancies regarding the execution of promissory note in favour of Mr. Suleman Adam, before receiving the credit from him and the payment of interest at Rs. 13,000 not being recorded on 15‑8‑1977 in the books of accounts of the assessee as claimed to have been paid ride interest bill dated 15‑8‑1977, remain unanswered in reply to the notice under section 62 of the Income‑tax Ordinance.
(4) As regards the documents submitted on 27‑8‑1981 relating to "Amanat" available with Suleman Adam. These cannot be relied upon in view of the arguments mentioned above whereby it has been, proved that this alleged fact as narrated in these docu ments cannot be co‑related with the manner in which the transac tion has been allegedly arranged by the assessee. As such these documents cannot destroy the evidence of Suleman Adam, already recorded on 26‑3‑1981 and 8‑4‑1981 when he had categorically denied to have advanced any loan and instead admitted to have issued in this regard a bogus certificate. The amount of Rs. 1,00,000 is, therefore, treated as unexplained sum credited to the books of accounts and accordingly is added towards total income for the charge year 1978‑79. Income is computed as under:
3. Income as per original assessment revised in view of the
4. Income‑tax Appellate Tribunal's Order No. I. T. A. No. 714/KB of 1979‑80 dated 7‑2‑1981
5. Rs. 2,46,230
6. Add: Concealed income as discussed above.
7. Rs. 1,00,000
8. Total income
9. Rs. 3,46,230.
10. The respondent naturally should have felt dissatisfied and aggrieved; it therefore, went tip in appeal. Tile learned Commissioner of Income‑tax (Appeals), however, by his order recorded oh 24th April, 1982 in Income -tax Appeal No. C. I. T./(Appeals)/Z2/320, vacated the order of Income -tax Officer and ordered deletion of addition of Rs. 1,00,OOOaccordingly. The reasons advanced by the learned Commissioner of Income‑tax (Appeals) in support of his order have been summed up by him in the following words:‑
11. "A combined reading of the three documents reproduced above, which have been brushed aide by the learned assessing officer as after thought leaves no doubt to my mind that Mr. Suleman Adam made a false statement before the learned assessing Officer on 21‑3‑1981 and to justify his false statement he gave false replies in his cross -examination on 8‑4‑1981, to save his own skits. This fact goes in favour of the appellant, Even otherwise, in view of contradictory statements made by Suleman Adam, the evidence led by him against the appellant become of doubtful nature and the same cannot be utilised against the appellant."
12. This time the Department felt aggrieved and has brought up this second appeal before us.
13. Mr. Amin‑e‑Ajam, the learned Departmental Representative, support ing the appeal vehemently argued before us that aforesaid Suleman Adam was not a mail of means and was incapable of advancing Rs. 1,00,000 to the respondent on the relevant date. He pointed out that the Income- tax Inspector by his report submitted to Income‑tax Officer of Circle 'O' had stated that aforesaid Suleman Adam had no house of his own and had retired as a partner of a firm in 1969‑70. HP further reported that aforesaid Suleman Adam was at the relevant time earning his livelihood from brokerage commission. The learned Departmental Representative, therefore, contended that the affidavit filed by aforesaid Suleman Adam before Income‑tax Officer of Circle 'O' was correct and true affidavit, which was also subsequently supported by his statement made before the respondent and was subjected to the test of cross‑examination. Referring to the affidavit and letter the learned Departmental Representative submitted that there was no evidence on record to show that they were genuine documents. He further argued that the respondent was un reliable because in assessment year 1980‑81 it consented to an agreed assessment whereby .art addition .of Rs. 2;00,000 was made to its total income. In reply to a question fiat by us Mr. Amin‑e‑Ajam conceded that a notice under section 3‑I was given to aforesaid Suleman Adam, which was subsequently withdrawn.
14. Mr. Ebrahim, F. C., A., the learned authorised representative for the respondent, oil the contrary', argued trial tile respondent had the means of advancing Rs. 1,00,000 as loan to the respondent. In order to fortify his submission the learned Authorised Representative submitted trial afore said Suleman Adam had advanced a loan of Rs. 4,00,000 to Messrs S. B. Corporation Limited during the relevant period watch was accepted by the Income‑tax Officer, Companies Circle A‑2 who was assessing Officer of aforesaid S. B. Corporation Limited. He further argued that the letter and affidavit and award tiled subsequently also lent credence to his submission, which were discarded by Income‑tax Officer for no reason worth the name. Referring to the bank account submitted by the respondent before the Income‑tax Officer Mr. Ebrahim argued that it showed the frequency of transaction with the bunk and which also belied the contention of aforesaid Suleman Adam that the respondent bad deposited Rs. 1,00,000 in his bank account before issuance of the cheque for the same amount in favour of the respondent. He also argued that aforesaid Suleman Adam had advanced Rs. 50,000 to the respondent in the past, and he was carrying on business of advancing loans on interest. The learned Authorised Representative concluded that the subsequent statement of aforesaid Suleman Adam wits true and reliable as it was supported by documentary evidence about which no comments were offered by the assessing officer.
15. We have heard both the learned Departmental Representatives as well as learned Authorised Representative for the respondent at length acid have also gone through the assessment as well as impugned orders. Surely aforesaid Suleman Adam has been sole cause of the entire mischief. He gave one statement to Income‑tax Officer Companies Circle 'O', but took a somersault in reversing his original stand before Income‑tax Companies Circle B‑3. In our judgment tile fate of this appeal hinges on the principle of appreciation of evidence under the facts and circumstances obtaining In this case. But, for this purpose, we would have to take resort to the relevant law of Evidence as contained in the evidence Act, 1872, which has been interpreted from time to time by superior courts. Let us mention here that the principles of appreciation of evidence to which we are going to refer hereinafter emerge out front the criminal matters but we think that they would apply with Lull force in proceedings of fiscal matters before revenue officers as well.
16. The first principle with which we start our discussion is regarding the appreciation of the evidence of a 'hostile witness. A witness who gives one statement oil one occasion or before one authority but subsequently takes just a contrary stand in Court of law which has to finally decide tile matter is generally called to be hostile witness. But strictly speaking a witness is hostile if by the manner in which he gives evidence he shows that he is not desirous of telling the truth. Please see Permeshwar Dayal v. K. E. 1926 p.
163. However let Lis mention that the expression "hostile witness" has not defined by the Evidence Act. Now if we revert to facts it appears that aforesaid Suleman Adam firstly stated before the Income- tax Officer, Companies Circle 'O' that he neither had the means to advance it loan nor did advance it to the respondent He reiterated his statement before the income‑tax Officer, Companies Circle B‑3. But, subsequently, for reasons best know to him lie nest only took a just opposite stand in his affidavit but also produced some documents in support thereof, His testimony, therefore, could be put at par with that of a hostile witness. It t is true that the evidence of hostile witness is not necessarily to be discarded. (Please see Talib v. State (P L D 1967 S C 16). However, it is trite law that it should be looked into with great caution. As pointed out by Federal Court in the case of Adalat v. Crown (P L D 1956 F C 171), it is open to a Court of fact either to reject tile whole of be evidence of such witness as untrustworthy or to rely upon the portion which in its view appears to be balanced with the probabilities and the facts arid circumstances present in the case. The contradictory statement itself indicated oil its face that the witness has been of two minds on the subject, either because he had some defect of intelligence or his honesty err impartiality had been questionable, tit the same time it is also conceivable that the inconsistency of statements by itself may turn out to be only superficial or that the error may have been based not on dishonesty or poor memory but upon a temporary mis- understanding. It is, therefore, both logical and just that the explanatory circumstances, if any, should be carefully bat cautiously analysed and examined.
17. Again, the evidence of aforesaid Suleman Adam could be treated as evidence of an accomplice. Section 133 of the Evidence Act, 1872 deals with testimony of accomplice evidence. It reads
18. "133. Accomplice.‑An accomplice shall be a competent witness against an accused person ; and a conviction is not illegal merely because it proceeds upon the uncorroborated testimony of an accomplice."
19. However, centuries old experience of the Courts has been crystalised in the principle that evidence of an accomplice leas to be looked upon with "great suspicion". Our Supreme Court in Ramzan Ali v. State (P L D 1967 S C 45), has f laid down the same law. Let us also mention here yet another very important principle of law of evidence arid it is that a witness may tell lies but circumstances do not.
20. Now, keeping into consideration the above noted legal principles, when we revert back to the facts and circumstances of tire case before us, we find that either the testimony of aforesaid Suleman Adam is taken to be evidence of a hostile witness or a testimony of an accomplice; in any case tile probabilities, emerging out of tile facts and the circumstances obtaining, play vital role. Explaining his affidavit given to Income‑tax Officer, Companies Circle 'O' aforesaid Suleman Adam stated that he made the statement that lie gave no loan, to tile respondent simply of save his own skin as lie lead not shown the interest of Rs. 13,000 as his income. Since it is admitted by Mr. Amin‑e‑Ajam that notice under section 34 of tile repealed Income‑tax Act, was served oil him, his statement appears to be very much plausible and probable. Again, when he deposed in the Affidavit that lie lead in fact advanced the loan of Rs. 1,00,000 to the respondent and had received the interest of Rs. 13.000 he again appears to be correct. This tulle he is supported by not only an award but Affidavit of Haji Omer also. The assessing officer had additional evidence before him and tie could have made further probes to find out the truth or otherwise of the alleged award and the duly sworn affidavit of Haji Omer. Moreover, the respondent had also produced the Bank Statement of the account of the respondent which shoved that the aforesaid Suleman Adam was having normal business transaction involving withdrawal and deposits of laws of rupees. It is pertinent to note that the respondent could not have obtained the statement of Bank Account aforesaid Suleman Adam. Naturally it should have come in their hands from aforesaid Suleman Adam himself. Moreover, Mr. Amin‑e‑Ajam has also admitted that the notice under section 34 of the repealed Act was subsequently withdrawn. Although the learned Departmental Representative hay not given tire dates of issuance and withdrawal of notice under section 34 of the repealed Income‑tax Act, but the fact that aforesaid Suleman Adam made one statement at one point of time and then made just the opposite statement at another point of tune gives indication about both dates. We think that aforesaid Suleman Adam filed his affidavit oil 'on 26 th June, 19151 and sent letter dated 27th August, 1951 along with tile award and the affidavit of Haji Omer after withdrawal of the notice. He thus could successfully run with the hound and hide with the hare. The Assessing; Officer did not believe his explanation 'fur several reasons, Firstly, he was of the view that since Rs. 7,00,000 were Amanat with Suleman Adam, he could trot have disposes of that amount in the manner except that for which the Amanat was kept with him. He further was of the, view that if aforesaid Suleman Adam had cash in hand, what was the necessity for him for depositing Rs. 1,00.00!0 in the bank and then issuing a cheque for the same amount. But the Assessing Officer appears to be looking at one side of the coin only. However, the other side of it was also shown to hint but he declined to local; into. It is true that aforesaid Suleman Adam was not supposed to dispose of the money kept with as Amanat for hiss own benefit. He has accepted this when stated that he slid not disclose the fact of lending Its. 1,00,00" to respondent out of the Amanat of Rs. 7,00,000 because lie feared that it would be taken to be breach or Amanat. He further explained that lie did not state the truth earlier because he was afraid of the consequences of the tax evasion regarding his income from interest which was earned by misuse of the Amanat. Bolls these fact, appear to be highly probable under the facts and circumstances of the case and in our judgment have been rightly relied, upon by the 'earned Commissioner of Income‑tax (Appeals). As to other objection of the Income‑tax we think it is also devoid of any merit. It is true that according to aforesaid Suleman Adam, he had Rs. 7,00,000 cash in band and he could have lent Rs. 1,00,000 it cash without depositing it in his bank account But firstly respondent would not have accepted cash receipt to avoid future trouble and at the same time aforesaid Suleman Adam would also have preferred back transac tion in Mown interest. But, in any case, when the bank account of aforesaid Suleman Adam was produced before the Income‑tax Officer he should have looked into it to find out as to whether the deposit of Rs. 1,00,000 on 18th August, 1977 was not appearing to be a normal banking transaction which tie did not. Thus, In face of the fact that the same Sideman Adam had ad, anted Rs.4.00,000 to Messrs S. B. Corporation during the carne accounting period the transaction in dispute appears to he quite probable. Had aforesaid Adam given Rs. 1,00,00 in cash, it would hate been argued by the Income-tax Officer as to why the did not given through cheque.
21. Looking at the statement of aforesaid Sideman Adam as testimony of an‑ accomplice it again requires appreciation of all the attending circumstances to seek corroboration. to his statement in some material particulars, which unfortunately is again lacking. He has admitted that he was not a money‑lender but only lent his name by giving bogus certificate to needy parties for Income‑tax purposes in return for certain commission to be charged by him. This undoubtedly proves that he acted as an accomplice in illegal act of tax evasion.
22. Thus, whatever view is taken under tile totality of tile circumstances the explanation Offered by Suleman Adam subsequently by his affidavit and letter is very much probable and, of course, plausible under the facts and circumstances of the case and tile learned Commissioner of Income‑tax' (Appeals) has very rightly relied upon it. We, therefore, find no force lit this departmental appeal and it is rejected accordingly. But before parting with this case let us mention here that Mr. Amin‑e‑Ajam, the learned Departmental Representative cited Modowell & Co. Ltd. v. Commercial Tax Officer ((1985) 154 I T R 148), to show that it was the duty of a Court to expose avoidance of tax and refuse to approve it. With due respect to him, we do not think that it is relevant for the disposal of this appeal. We, therefore, refrain to dilate upon it. Every case revolves round its own facts.
23. M. Y. H. Appeal dismissed.