By Advs. Harisankar v. Menon Meera V.menon

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 14 DAY OF MARCH 2022 / 23RD PHALGUNA, 1943 ITA NO. 69 OF 2018 AGAINST THE ORDER IN ITA 419/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. NILAMBUR TRADERS, INDUSTRIAL ESTATE, CALICUT. BY ADVS. HARISANKAR V. MENON MEERA V.MENON RESPONDENT/S: COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOCHI - 682013. SC JOSE JOSEPH THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.03.2022, ALONG WITH ITA.70/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. Nos.69 & 70/2018 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE S.V.BHATTI & THE HONOURABLE MR.JUSTICE BASANT BALAJI MONDAY, THE 14 DAY OF MARCH 2022 / 23RD PHALGUNA, 1943 ITA NO. 70 OF 2018 AGAINST THE ORDER IN ITA 420/2016 OF I.T.A.TRIBUNAL,COCHIN BENCH APPELLANT/S: M/S. NILAMBUR TRADERS, INDUSTRIAL ESTATE, CALICUT, REP BY ITS MANAGING PARTNER K.A.RAUF. BY ADVS. HARISANKAR V. MENON MEERA V.MENON RESPONDENT/S: COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE, KOCHI 682013. SC JOSE JOSEPH THIS INCOME TAX APPEAL HAVING COME UP FOR HEARING ON 14.03.2022, ALONG WITH ITA.69/2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A. Nos.69 & 70/2018 -3- J U D G M E N T [ITA No.69/2018; 70/2018] S.V. Bhatti, J. Heard Adv. Meera V Menon and Adv. Jose Joseph for the parties. 2. M/s. Nilambur Traders, Calicut/assessee is the appellant. The Commissioner of Income Tax, Central Circle, Kochi/Revenue is the respondent. The assessee, aggrieved by the common order dated 23.04.2018, filed two appeals under Section 260A of the Income Tax Act 1961 (for short ‘the Act’). The details of the year of assessment, date of orders etc., are stated in the following table: I.T.A. Nos.69 & 70/2018 2.1On 05.11.2009 search was undertaken at the residential premises of one K.A. Rouf and his associates. The Revenue seized a few documents from the business premises of the assessee. The documents recovered from the search are the Profit and Loss account allegedly maintained by the assessee, which shows a net profit of Rs.37,55,858/- for the Assessment Year 2009-10. The assessee for the same Assessment Year filed return showing an income of Rs.7,65,303/-. The documents/accounts seized from the assessee reflected exaggeration of expenses, and the purchase value is shown more than the actual rate at which the materials are received. The details furnished under various heads, to briefly state, the heads under which the assessment has been made are stated thus: 2.2 The assessee was put on notice, and from the material, it appears the documents/accounts seized from the assessee are stated as unaudited/draft accounts, therefore cannot form a conclusive basis for disallowing the claim for expenses. The Assessing Officer, after hearing the Advocate appearing for the assessee, rejected the explanation for the Assessment Year 2009-2010, assessed the assessee’s total income at Rs.16,46,618/- and Rs.4,45,425/- for the Assessment Year 2004-05. On appeal by the assessee, the I.T.A. Nos.69 & 70/2018 Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal confirmed the assessments. Hence, the appeals at the instance of the assessee. 3. The appeals are admitted on the following questions of law: “I.T.A. No.69/2018 A: WHETHER the Appellate Tribunal was justified in rejecting the claim of appellant that the assessing authority has not rejected the audit report and final statement of accounts based on valid materials? B: WHETHER the Appellate Tribunal was right in holding that the assessment has been finalized on the draft profit and loss account found at the time of the search when he himself had made adjustments before arriving at the net income? I.T.A. Nos.69 & 70/2018 Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal confirmed the assessments. Hence, the appeals at the instance of the assessee. 3. The appeals are admitted on the following questions of law: “I.T.A. No.69/2018 A: WHETHER the Appellate Tribunal was justified in rejecting the claim of appellant that the assessing authority has not rejected the audit report and final statement of accounts based on valid materials? B: WHETHER the Appellate Tribunal was right in holding that the assessment has been finalized on the draft profit and loss account found at the time of the search when he himself had made adjustments before arriving at the net income? C: WHETHER the assessing authority should not have called for the specific explanations with regard to the differences noticed between the final audited statements and the draft statement found at the time of search? I.T.A. No.70/2018 I.T.A. Nos.69 & 70/2018 A: WHETHER the Appellate Tribunal was justified in rejecting the claim of appellant that the assessing authority has not rejected the audit report and final statement of accounts based on valid materials? B: WHETHER the Appellate Tribunal was right in upholding the finding that there was "inflation of expenses to the extent of 10%" when the seized materials had sufficient evidence to find that the same was only a "Provisional Trading and Profit and Loss Account and when the first appellate authority had specifically found that "The AO does not seem to have applied any sound basis to have worked out the disallowance of expenditure" after observing that the seized materials disclosed higher figures in certain heads when compared to the figures submitted in the Return? C: WHETHER the Appellate Tribunal was right in ignoring the alternate plea of the Appellants that the Assessing Authority should have only "restricted the disallowance to the difference under those heads in the two statements"? 4. Adv. Meera V Menon argues that the material seized in search of the assessee’s premises cannot and could not be treated as contradictory to any of the inputs stated by the I.T.A. Nos.69 & 70/2018 assessee in the regular return. The details mentioned in the very material seized by the Department are not audited statements. In other words, the reassessment is undertaken on alleged excessive booking of expenditure and higher purchase value of raw materials. There is no material supporting either of the grounds on which the assessment orders are made. Therefore, the disallowance and the addition in respect of the years are vitiated, liable to be interfered with and set aside. 5. Mr Jose Joseph argues that the basis for the addition is the material seized from the business premises of the assessee. The assessee is not disputing the source or custody of the documents. The material was put to the assessee to explain the figures already relied on and the actual amount under these two heads noted in the material seized from the business premises. The material seized has presumption under Section 132 of the Act. The assessee was called upon to explain the I.T.A. Nos.69 & 70/2018 contradictory figures. There is no reply from the assessee. Under those circumstances, the Assessing Officer is justified in making the best judgment on the material seized from the custody of the assessee. No exception could be taken to the view expressed by the authorities under the Act and the Tribunal. Apart from the above, the assessee did not place material before the Assessing Officer. The questions of law raised cannot merit consideration as substantial questions of law, in the jurisdiction conferred on it by Section 260A of the Act, ought not to disturb the findings of fact recorded by the Assessing Officer and the Tribunal. 6. We have taken note of the rival contentions and whether, in the circumstances as excerpted above, Section 260A of the Act is made out or not; to what extent this Court could review the findings recorded by the authorities under the Act. 6. We have taken note of the rival contentions and whether, in the circumstances as excerpted above, Section 260A of the Act is made out or not; to what extent this Court could review the findings recorded by the authorities under the Act. I.T.A. Nos.69 & 70/2018 -10- 6.1 Briefly reiterated, the business premises of assessee as part of search carried out at the premises of the assessee’s partner disclosed documents/accounts. The documents/ accounts are at variance with the declaration made by the assessee in the returns. The difference between the actual and the declared amounts under all the heads is on the higher side. The assessing authority gave an opportunity to justify the claim under the respective heads. It is at this juncture the appreciation of the issue comes for our consideration. 6.2 The resistance to the notice by the assessee is very informal. As already noted, the said reply did not convince the assessing authority. No exception to the findings of fact recorded in this behalf is argued. We have independently perused the conclusions recorded by the Assessing Officer, Commissioner of Income Tax (Appeals) and the Tribunal. What arises first for consideration of this Court is whether an error is -11- committed by the Tribunal and the Authorities under the Act; then, this Court can embark upon the merits of the matter. The assessee failed to demonstrate any error in law for our examination. Under those circumstances, having independently considered the issue, we are of the view that the orders under appeal do not warrant our interference. Substantial questions of law framed are unavailable. The findings recorded are simple findings of fact. Questions are answered in favour of the Revenue and against the assessee. Income Tax Appeals are dismissed accordingly. No order as to costs. Sd/- S.V.BHATTI JUDGE Sd/- BASANT BALAJI JUDGE PETITIONER ANNEXURES ANNEXURE A ANNEXURE B ANNEXURE C APPENDIX OF ITA 70/2018 PHOTOCOPY OF ASSESSMENT ORDER DATED 30.12.2011 PHOTOCOPY OF ORDER OF CIT(A) DATED 31.3.2016 IN ITA-C-140-146/CIT(A)IV/11.12(COMMON ORDER) PHOTOCOPY OF ORDER OF ITAT DATED 23.4.2018 IN ITA.NO.418-419/C/2015(COMMON ORDER) I.T.A. Nos.69 & 70/2018 APPENDIX OF ITA 69/2018 PETITIONER ANNEXURES ANNEXURE A PHOTOCOPY OF ASSESSMENT ORDER DATED 30.12.2011 ANNEXURE B PHOTOCOPY OF ORDER OF CIT(A) DT.31.3.2016 IN ITA-C-140/146/CIT(A)IV/11.12 (COMMON ORDER) ANNEXURE C PHOTOCOPY OF ORDER OF ITAT DT.23.4.2018 IN I.T.A. NO.418-419/C/2016 (COMMON ORDER)