>>CASH CREDIT, UNEXPLAINED
INVESTMENTS, ETC.
LAW RELATING TO SUMMONS
K. Gopal
Advocate
Addition under sections 68, 69, 69A, 69B & 69C may be
made if assessee makes no explanation or explanation is not satisfactory in the opinion of
Assessing Office. In arriving at satisfaction, the Assessing Officer is often called upon
to exercise power of investigation u/s 131.
The article discusses the subject in detail referring to provisions of
Civil Procedure Code. The author also discusses the consequence of assessee requesting
Assessing Officer to exercise such powers.
1. Introduction
The various authorities mentioned in Section 116 of the Income-tax
Act, 1961 have been vested with powers to carry on investigations. To facilitate effective
investigations, sub-section (1) to section 131 provides that the authorities mentioned
therein shall, for the purposes of this Act, have the same powers as are vested in a
court, under the Code of Civil Procedure, 1908, when trying a suit, in respect of any of
the following matters, namely :
Discovery and Inspection;
Enforcing the attendance of any person, including any officer of a
banking company, and examining him on oath.
Compelling the production of books of account and other documents,
and
Issuing of commissions.
The word ‘Summons’ is defined neither under the Income-tax
Act, 1961 nor under the Code of Civil Procedure, 1908. The Law Lexicon, compiled and
edited by P. Ramanath Aiyer (1990 Ed.) gives the meaning of the word ‘summons’
as a process issued from the office of a Court of Justice requiring the person to whom it
is addressed to attend the court, for the purpose therein stated. ‘Summons’ is
the name of a writ, commanding the sheriff or other authorized officer, to notify the
party to appear in the court to answer a complaint made against him, on a day therein
specified. Summons is an instrument issued by a Court having jurisdiction of the action,
directed to the ministerial officer, commanding him to execute the same. However, it is
interesting to note that the word ‘summons’ does not appear in Act, Income Tax
1961.
1.1 A reading of section 131(1) makes it apparent that
the power of the authority concerned under this section is co-extensive with that of a
civil court trying a suit under section 30 of the Code of Civil Procedure, 1908, read with
rules 12, 14 and 15 of Order XI. (Dwijendralal Brahmachari vs. Central Jute Mills Co.
Ltd. (1978) 112 ITR 568, 573 Cal.). The powers of the authorities concerned are not
larger than those of a civil court. (Registrar of Restrictive Trade Practices
Commission vs. Escorts Ltd. (1977) Tax LR 2097, 2100 (MRTP Commissions)
2. Relevant provisions
Section 131(1) of the Income-tax Act, 1961 refers to the Code of
Civil Procedure, 1908 to define the scope of powers vested in the authorities mentioned
therein. The scope and procedure of this section is laid down in Orders XI, XII, XVI and
XIX. Order XI contains rules of discovery and inspection; Order XII contains rules for
issuing notice and admission. Orders XIV and XVI contain rules for summoning and
attendance of witnesses.
2.1 Brief summary of the provisions of CPC with regard
to Summons
Section 27 of CPC provides that when a suit has been duly instituted, a
summons may be issued to the defendant to appear and answer the claim, and such summons is
to be served in the prescribed manner. Section 28 lays down the procedure for service of
summons in another state wherein it is provided that where the person to whom the summons
had been addressed resides or carries his business from another place which is not under
the jurisdiction of the court issuing such summons, summons may be sent to a court having
similar jurisdiction in such area and upon receipt of such summons, the court to which it
is sent is to proceed as if it had been issued by that court itself, and must return the
summons to the court of issue with the record of its proceedings with regard thereto.
2.2 Whereas section 29 provides for foreign summons or
other processes and how they should be served, section 30 provides that subject to such
conditions and limitations as may be prescribed, the court may, at any time, either of its
own motion or on the application of any party,
make such orders, as may be necessary or reasonable, in all matters
relating to the delivery and answering of interrogatories, the admission of documents and
facts, and the discovery, inspection, production, impounding and return of documents or
other material objects producible as evidence;
issue summons to persons whose attendance is required either to give
evidence or to produce documents or such other objects as aforesaid.
Order any fact to be provided by affidavit.
2.3 These provisions laid down under section 30 of the
Code of Civil Procedure, in effect are instruments in the hands of the officers mentioned
in section 131 of the Income-tax Act, 1961 in dealing with matters mentioned therein.
Any person in response to the summons issued u/s.131 may appear –
in person, or
by a duly instructed pleader, who is able to answer all material
questions relating to the suit, or
by a pleader, accompanied by a person able to answer all such
questions.
2.4 However, if the Assessing Officer sees reason to
require the personal appearance of any person, the summons can order him to appear in
person on the specified day. As per the CPC, personal attendance can be ordered provided
such a person resides –
within the local limits of the ordinary original jurisdiction of the
court, or
within fifty miles from the court. In cases where he resides outside
such jurisdiction and where there is a railway, steamer or any other established public
conveyance for five-sixths of the distance, a defendant could be called in for personal
appearance where the distance is within 200 miles. However, as far as witnesses are
concerned, personal appearance could be made mandatory by the court, if the witness
resides within 100 Kms. or where there is a railway, steamer or any other established
public conveyance, for 5/6ths of the distance, the distance could be 500 Kms.
2.5 Section 32 deals with penalty for default. The
penal provision for default of summons aims at compelling the attendance of any person to
whom summons has been issued. By virtue of section 32, court enforces attendance by
imposition of penalty. Penalty cannot be imposed however, where there is an order for
production of document.
However, there is a distinction of consequence for disobedience of
summons between sections 27 and 30. No penal consequence follows for disobedience under
section 27 while penal consequence shall follow for disobedience under section 30.
Another important provision dealt under Code of Civil Procedure which
is relevant to the Income-tax Act, 1961 is provision relating to the issue of Commissions,
contained in sections 75 to 78, Order XXVI. Under the Code of Civil Procedure, commissions
are issued in respect of the following two categories of persons resident within the local
limits of the court’s jurisdiction:
persons exempted under the Code from attending the court, and
persons unable to attend the court on account of sickness or
infirmity.
Such an order for the issue of a commission may be issued by the court suo
moto or on the application of any party. Commission for the examination on
interrogatories or otherwise may be issued to –
any person resident beyond the local limits of its jurisdiction
any person who is about to leave such limits before the date on which
he is required to be examined in court, and
any person in the service of the Govt. who cannot, in the opinion of
the court, attend without detriment to the public service.
2.6 Section 245U(1), which defines the scope of the
power of the authority of Advance Ruling refers to section 131 of the Act. Similarly,
sub-section 6 to section 255 provides that the Appellate Tribunal shall, for the purpose
of discharging its functions, have all the powers which are vested in the Income Tax
Authorities referred to, in section 131. According to section 269M, the competent
authority and as per the provisions of section 269UI, the Appropriate Authority, for the
purposes of chapter XXA and Chapter XXC respectively, shall have all the powers that a
Commissioner has, for the purposes of the Act, under section 131.
3. Powers can be exercised suo moto.
3.1 In a proper case, the Assessing Officer should
exercise all his powers to collate all material before coming to proper conclusion. This
is the legal duty of the officer who is vested under section 131, with certain powers, in
respect to certain matters. It would be failure to exercise the jurisdiction particularly
when a party to the proceedings requests for summoning evidence from a particular person.
Section 131 vests the power to issue summons to initiate or carry out investigations. The
provisions of the section provide for a procedure to facilitate investigations. The
authorities specified in the section can carry out the investigations. The Assessing
Officer is empowered to ask for the production of the documents, etc., if the same are
necessary for the purpose of making an assessment under the Act. Before making an order
under section 131(1) however, there must be an application of mind by the Assessing
Officer concerned, as to the requirement of the documents for the purpose of assessment.
The Hon’ble Calcutta High Court, in the case of Dwijendralal Brahmachari vs.
Central Jute Mills Co. Ltd. (1978) 112 ITR 568 (Cal) has observed that the Assessing
Officer did not apply his mind to the question of relevance of the documents in
determining any issue required to be determined by him. For that reason, the summons was
held to be bad, and was struck down.
The Board issued a circular under the provisions of the Act, in which
it was clarified that the Income Tax Officers are advised that the banks cannot be
compelled to produce information which is not available in the taxable territories.
However, the Calcutta High Court held that the above circular is of no help to a bank
which is required to produce books, information etc., in connection with its own
assessment. [Grindlays Bank Ltd. vs. ITO (1978) 115 ITR 799 (Cal)].
3.2 The words occurring in this section "for the
purposes of this Act" were subject matter of judicial scrutiny. Provisions under
section 131(1) can be invoked when certain proceedings under the Act are pending. It is
not necessary that the proceedings pending should be in the case of the assessee only and
the same should be assessment proceedings. The purpose of the Act is not only to make
assessments, but also to conduct various proceedings incidental thereto, including
proceedings for investigations relating to re-opening of assessments. Section 131(1)
requires pendency of proceedings against a person, not necessarily the one against whom
action is taken. The Hon’ble Calcutta High Court, in the case of New Central Jute
Mills vs. Dwijendralal Brahmachari (1973) 90 ITR 467, 472 (Cal) has held that if an
Assessing Officer issues summons not for the purpose of proceedings under Income Tax Act,
but solely for the purpose of facilitating investigation by any other department or
agency, the issue of summons will be mala fide. However, this may not be true, when the
notice is not related to assessment, but to some other purpose of the Act. (Calcutta
Chromotype Pvt. Ltd. vs. ITO (1971) 79 ITR 442 (Cal). Prior to the insertion of
section 131(1A) with effect from 1-10-1975 and its amendment thereafter with effect from
1-4-1988, the courts interpreted the provisions of section 131(1) and held that the powers
vested under section 131(1) can be exercised by the authority concerned, only if a
proceeding is pending before such authority: Rima Sen vs. CIT (1999) 235 ITR 219,
225-26 (Pat.). Summons issued with a view to investigate whether the completed
assessment should be re-opened under section 147 is liable to be quashed if no proceeding
was pending at the time of issuing such summons. (Jamnadas Madhavji & Co. vs. ITO
(1986) 162 ITR 331 (Bom).
4. Issue of summons at the request of the assessee
4.1 An application may be made by the assessee to
the Assessing Officer for issuing summons under section 131, to enforce the attendance of
a witness. Where in the books of account of the assessee, a credit entry stands in the
name of a 3rd party, the burden of proof lies on the assessee to prove the genuineness of
the same; in such a case, the assessee may be required to produce either the pass books
and other relevant documentary evidence, including affidavits or the party itself, to
verify the genuineness or the existence of such party.
4.2 Sometimes, it becomes very difficult for an
assessee to compel the creditors to attend before the Assessing Officer for verification
of their creditworthiness. The assessee, at the most, can request the creditors to attend
before the Assessing Officer, but cannot compel or force the creditors to attend before
the Assessing Officer; in such cases, the assessee is helpless and hence, the Assessing
Officer may issue summons to creditors and compel them to attend before him, in order to
verify the genuineness of the credit entry found in the books of the assessee.
4.3 If, at the request of the assessee, the creditor
is not willing to attend before the Assessing Officer, or is not willing to produce his
books of accounts, then, at the instance of the assessee, the Assessing Officer may
exercise his powers under section 131, thus enforcing attendance of a creditor before him.
Where an application made by the assessee in this behalf was rejected summarily and the
assessment completed with the addition of cash credit entries to the income of the
assessee, the action of the Assessing Officer was held to be without jurisdiction. (Nathuram
Premchand vs. CIT (1963) 49 ITR 650 (All).
4.4 If an application is made by the assessee to the
Assessing Officer for issuing summons under section 131, enforcing the attendance of a
witness and if the Assessing Officer does not properly exercise his powers under the
section for enforcing the attendance of a witness, he shall not be justified in fastening
the blame at the door of the assessee and in disbelieving the assessee’s version of
the facts. (49 ITR 561 All.) (supra).
4.5 It is the duty of the Assessing Officer to enforce
attendance of a witness if his evidence is material. Thus, if the Assessing Officer does
not exercise his powers to call the witness and examine him, he cannot treat the deposits
in the name of the witness, as assesse's suppressed income. (Nathuram Premchand vs. CIT
(1963) 49 ITR 650 (All). It would be failure to exercise the jurisdiction particularly
when a party to the proceedings requests for summoning evidence from a particular person.
At the same time, to enforce attendance of a witness or any other person, in case the
other person is reluctant to co-operate with the assessee, the assessee must furnish the
complete address of such person and must take full steps to summon him; where the assessee
fails to furnish the address to the Assessing Officer and the assessee’s request to
issue summons is not acted upon, it cannot be said that the Assessing Officer has failed
to issue summons illegally. In other words, where the assessee does not furnish the
address of such person, there is no duty on the Assessing Officer to issue summons.
[Shri Jagdish Sharan Shukla vs. CIT (1988) 171 ITR 694, 693-698
(All)]
4.6 In CIT vs. C.P. Adam (1976) 105 ITR 465 (Ker),
the assessee explained cash credits as being loans advanced by 3 creditors – V, M
& K. At the request of the assessee, summons were issued for the attendance of V, M
& K. There upon V was served and V appeared. He denied having advanced loans and was
cross-examined by the assessee. The summons issued to M & K were returned unserved.
These two creditors were however, examined at Madras, but in the absence of the assessee.
They too denied having advanced loans. The assessee requested the Assessing Officer to
call M & K for cross-examination, but no summons were issued. It was held that there
was no failure of natural justice and the Income Tax Officer was entitled to draw an
inference that the cash credits in the names of M & K were assessable as
assessee’s income.
4.7 Similarly, in Ram Kumar Jalan vs. CIT (1976)
106 ITR 331(Bom), the summons addressed to the creditor named in the assessee’s
books was retuned with a postal remark ‘not known’. The assessee prayed for the
issue of a second summons to be sent to the same address. Without doing that, the Income
Tax Officer treated the credit as assessee’s income from undisclosed sources. It was
held that the addition could not be treated as unjustified because the postal endorsement
indicated that the addressee could not be traced. A fresh summons could be issued if the
address given in the first summons sent was erroneous.
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