Ita/11/2002 Of The Commissioner Of Income Tax, Tvm v. M/S.t.george & M.syed Alavi, Vithura

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 17TH JUNE 2008 / 27TH JYAISHTA 1930 ITA.No. 11 of 2002() -------------------- ITA.487/COCH/1999 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT: ----------------- THE COMMISSIONER OF INCOME TAX, TRIVANDRUM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL,GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENTS: ------------- M/S. T.GEORGE & M.SYED ALAVI, VITHURA, TRIVANDRUM. BY ADV. SRI.P.BALAKRISHNAN (E) SRI.K.C.KIRAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17/06/2008, ALONG WITH ITA NO. 9 OF 2008 ITA NO. 10 OF 2008 ITA NO. 13 OF 2008 ITR NO. 87 OF 2000 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR &V.K. MOHANAN, JJ. ------------------------------------------------- I.T.A. Nos.11/2002 & 9, 10 & 13/2008 &I.T.R. 87 OF 2000 -------------------------------------------------- Dated this the 17th day of June, 2008 JUDGMENT Ramachandran Nair,J. The question involved in the connected appeals and referencecase is one and the same. The appeals and reference case are thereforegrouped together and disposed of by this common judgment. We haveheard senior counsel appearing for the revenue and counsel appearingfor the respondents-assessees. 2. The residential premises of one Sri. T. George and Sri. M.Syed Alavi, were searched by the Department on 25.6.1987. Duringsearch, statements were recorded from these persons under Section 132(4) of the I.T. Act. From the seized records it was found that these twopersons were engaged in contract work for slaughter tapping and saleof rubber trees from two rubber estates, namely, Vijaya Estate, andMukkattumala Estate. The assessees did not co-operate in theassessments, which is clear from the findings recorded by the assessing officer. Assessments were made based on entries in the seized recordsand available evidence including statements recorded from theassessees. When Section 147 notice was issued for making incomeescaping assessment in the hands of AOP constituting T George and M.Syed Alavi, both of them filed individual returns denying existence ofAOP. Therefore separate assessments were made as protective measurein the hands of both the persons. Three appeals, ITA 9, 10 and 13 of2008 arise from the orders of the Tribunal pertaining to individualassessments of one of the members of the AOP by name M. SyedAlavi. The department does not appear to have pursued individualassessments against the other member of the AOP, namely, T. George.However, the appeal mainly pressed by the department before us is ITA11 of 2002 pertaining to assessment of AOP completed under Section147 of the I.T. Act for the assessment year 1986-87. The incomeassessed at the hands of AOP is from two contracts of slaughter tappingundertaken for Vijaya and Mukkattumala Estates and income underboth the contracts was assessed in the hands of AOP. Therefore if ITANo. 11 of 2002 is allowed by this Court, then department cannot pressITA Nos. 9, 10 & 13 of 2008 pertaining to individual assessment of one of the members of the AOP assessing the income from the verysame contracts. Similarly ITR 87 of 2000 also cannot be pressed by thedepartment wherein the only question involved is the validity ofSection 263 proceedings in the case of assessment completed in thename of AOP for the assessment year 1987-88. We therefore proceedto consider the main case, that is, I.T.A.No. 11 of 2002 pertaining toassessment of AOP for the assessment year 1986-87. one of the members of the AOP assessing the income from the verysame contracts. Similarly ITR 87 of 2000 also cannot be pressed by thedepartment wherein the only question involved is the validity ofSection 263 proceedings in the case of assessment completed in thename of AOP for the assessment year 1987-88. We therefore proceedto consider the main case, that is, I.T.A.No. 11 of 2002 pertaining toassessment of AOP for the assessment year 1986-87. 3. The basis for making income escaping assessment is thesearch carried out in the residential premises of two persons, namely, T.George and M. Syed Alavi. Even though the Tribunal has notconsidered the documents seized on search containing entriespertaining to income and expenditure in contract work undertaken byrespondents-assessees, the same is discussed in the order of assessmentas well as in the first appellate order. We notice from the orders of theassessing officer and that of the CIT (Appeals) that when individualassessments were contested in first appeals, the assessees concernedreported that income should be assessed in the hands of AOPconsisting of T George and M. Syed Alavi. In fact statement was madebefore the CIT (Appeals) while contesting individual assessment of M. Syed Alavi that return was filed disclosing the income from the verysame business in the hands of AOP. While considering appeal filed bythe AOP against income escaping assessment for 1986-87, the CIT(Appeals) noticed that the assessees took a stand contrary to therepresentation made before the CIT (Appeals) while challengingindividual assessment order. In other words, contrary to the statementmade before the CIT (Appeals), based on which individual assessmentwas cancelled by the first appellate authority, the assesees had notoffered the income for assessment in the hands of AOP. Therefore theCIT (Appeals), decided the case on merits. The seized documentscontained details of investments made in the slaughter tappingbusiness, sale proceeds received for sale of rubber latex and rubbertrees and the periodical payments made to the estate owner pursuant tothe contracts undertaken for slaughter tapping. The case put forwardby one of the AOP that is Mr. M. Syed Alavi that he was an employeeof Mukkattumala Estate assisting the management for slaughter tappingstands discredited by reasoned order issued by the assessing officer andthe first appellate authority. In fact the first appellate authority referredto the seized notices issued by the owner of the Estate against one of the members of the AOP prohibiting him from entering the Estate fordefault in payment of agreed instalments. Even after concretedocumentary evidence was recovered by the department, which led toassessment of income from business of slaughter tapping undertaken bythe assessees, the assessees denied the transactions by proving withorders of Agrl. Income Tax Tribunal that slaughter tapping was doneby the owner of the Estate himself. It is to be noted that accountsseized from both members of AOP are mutually complementary in asmuch as both these documents prove investments in slaughter tappingand receipt on sale of rubber latex and timber. Besides this, bothmembers of the AOP admitted before department that they hadundertaken slaughter tapping of one Estate, namely, Vijaya Estate on29.9.1985. In fact, while challenging individual assessments beforeCIT (Appeals), the assessees had admitted before the first appellateauthority that slaughter tapping of Vijaya Estate was undertaken bythem together as AOP. Above all, the authentic statutory documentsissued by the sales tax department under the KGST Act namelydelivery notes were used by the assessees to transport rubber to thepurchasing company, namely, Supersonic Rubber Industrial unit, to which they sold the rubber received on slaughter tapping. The mainpoint canvassed by respondents-assessees is that no agreement forslaughter tapping of Mukkattumala Estate is recovered during thecourse of search. Failure on the part of the department to recoverwritten agreement does not affect the validity of assessment, because inthis case accounts which are seized from both the assessees andcomplementary to each other conclusively establish the slaughtertapping done by the assessees togehther in Mukkattumala Estate,whereunder they have made periodical payments to the estate ownerand default is reflected in the notice issued to them which is also seizedby the department. On the whole, we find that the case of slaughter oftapping by the assessees is established beyond any doubt. Even thoughTribunal has held that there is nothing to indicate the intention of themembers of AOP to carry on the business together, the accounts seizedfrom the assessees prove beyond doubt that both undertook businesstogether, carried on the business together and shared the profit. Statusof AOP need not be proved through an agreement. Moreover, since inthis case, business carried on by members together is proved throughaccounts recovered on search, the assessment of assessees in that status is perfectly justified. We find the Tribunal has allowed the appeal ontwo grounds, that is for want of proof of AOP which is established bythe department from the seized records and therefore we have toreverse the order of the Tribunal on this issue. The next ground onwhich the Tribunal allowed the appeal is that written agreement forslaughter tapping of Mukkattumala Estate is not recovered by thedepartment. However, it is already found by us that the department hasestablished from the entries in the seized records beyond doubt thatslaughter tapping was undertaken and carried on by the assesseestogether. So far as the validity of income escaping assessment underSection 147 is concerned, the issue is not seen raised by the assesseesbefore the first appellate authority. We fail to understand the basis onwhich the Tribunal set aside the income escaping assessment. In anycase, income escaping assessment is made on the basis of documentsseized in the course of search and it's validity is beyond challenge. Weare surprised to note that the Tribunal has disposed of the appealwithout considering the details recorded and the findings on facts bythe first appellate authority based on seized records in his order. 4.In view of the above findings, we reverse the order of the Tribunal and restore the assessment confirmed in first appeal.Accordingly I.T.A.No. 11 of 2002 is allowed. In the light of the above order, we do not think the questionraised in ITR 87 of 2000 requires to be answered. We thereforedispose of the reference by declining to answer the question. Similarly,in view of the above decision in ITA 11 of 2002, ITA Nos. 9, 10 and13 of 2008 are also dismissed as infructuous. A copy of this judgment under the seal of the High Court andsignature of Registrar Generall shall be forwarded to the Income TaxAppellate Tribunal, Cochin Bench, Cochin. (C.N.RAMACHANDRAN NAIR)Judge. (V. K. MOHANAN) Judge. kk