Ita/1583/2009 Of Commissioner Of Income Tax Kottayam v. Shri.a.m.faizal

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN FRIDAY, THE 10TH DAY OF FEBRUARY 2012/21ST MAGHA 1933 ITA.No. 1583 of 2009 ( ) ------------------------(IT(S&S)A.17/COCH/2001 of I.T.A.TRIBUNAL,COCHIN BENCH) APPELLANT/APPELLANT: ---------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT:-------------- SHRI.A.M.FAZIL, ALAPPUZHA. BY ADV. SRI.S.ARUN RAJ THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 08-12-2011, THE COURT ON 10-02-2012 DELIVERED THE FOLLOWING: ANNEXURE A: TRUE COPY OF ORDER OF THE ASSESSING OFFICER DT.30.7.99.ANNEXURE B: COPY OF ORDER OF THE CIT(APPEALS) DT.27.3.2001.ANNEXURE C: COPY OF ITAT'S ORDER DT.31.10.2002. TRUE COPY P.S. TO JUDGE C.N.RAMACHANDRAN NAIR, &K.VINOD CHANDRAN, JJ. .................................................................... I.T. Appeal No.1583 of 2009 ....................................................................Dated this the 10[th] day of February, 2012. C.R. JUDGMENT Ramachandran Nair, J. The respondent-assessee is engaged in film production anddirection. Several of the films produced or directed by the respondent-assessee were distributed through Sri.P.D.Abraham alias Sri.Appachan,Swargachitra Films. The Income Tax Department conducted searchunder Section 132 of the Income Tax Act (hereinafter called “the Act”)in the residence and business premises of Sri.Appachan as well as therespondent-assessee and another film producer by name Sri.A.H.Khaiswho is the brother of the respondent-assessee from 24.7.1997 to29.7.1997. During search, incriminating documents and accounts wereseized from all the assessees which led to block assessment underSection 158BC of the Act in the name of three assessees namely,Sri.P.D.Abraham alias Appachan, respondent-assessee and also hisbrother Sri.A.H.Khais for the block period 1988-89 to 1997-98. We have heard the appeals relating to all the three assessees together andare disposing of the same by separate judgments. 2. Search was conducted in the premises of the respondent-assessee on 29.7.1997 wherein several documents and accounts wereseized by the Income Tax department. Pursuant to notice under Section158BC of the Act, assessee filed return in Form 2B returningundisclosed income for the entire block period totaling Rs.38.58 lakhs.However, the Assessing Officer based on materials received duringsearch in the premises of the respondent-assessee as well as thedistributor namely, Sri.P.D.Abraham, Swargachitra Films, completedassessment on a total undisclosed income of Rs.1,29,43,770/-. Onappeal filed by the assessee, the first appellate authority substantiallyallowed the appeal by deleting most of the additions made in theassessment. The Revenue as well as the assessee filed appeals againstthe orders of the first appellate authority. The Tribunal by dismissingappeal filed by both sides sustained the order of the first appellateauthority. It is against this order of the Tribunal, Revenue is in appealbefore us. We have heard Senior counsel Sri.P.K.R.Menon appearing ITA 1583/09 for the Revenue and Adv. Sri.Arun Raj appearing for the respondent-assessee. 3. The Revenue has challenged the deletion of entire additionsmade by the first appellate authority which are sustained by theTribunal. Specific questions are raised with reference to each andevery addition deleted by the Tribunal and the entire order of theTribunal is challenged by raising a general question with reference topresumption available on the correctness of contents of books ofaccounts, documents etc. recovered during the course of search andalso based on the evidentiary value of statements recorded underSection 132(4) of the Act. ITA 1583/09 for the Revenue and Adv. Sri.Arun Raj appearing for the respondent-assessee. 3. The Revenue has challenged the deletion of entire additionsmade by the first appellate authority which are sustained by theTribunal. Specific questions are raised with reference to each andevery addition deleted by the Tribunal and the entire order of theTribunal is challenged by raising a general question with reference topresumption available on the correctness of contents of books ofaccounts, documents etc. recovered during the course of search andalso based on the evidentiary value of statements recorded underSection 132(4) of the Act. 4. Before proceeding to consider the various questions raised inthe appeal, we have to consider the preliminary objection raised by thelearned counsel for the respondent that no substantial question of lawarises for consideration by this court with regard to the concurrentfindings on fact recorded by the first appellate authority and confirmedby the Tribunal. Senior counsel appearing for the Revenue on the otherhand contended that the appeal has to be considered by keeping in ITA 1583/09 mind the special provisions of the Act contained in Chapter XIVB ofthe Act which specifically provide in Section 158BB that a blockassessment has to be completed on the basis of evidence found as aresult of search or requisition of books of account or other documentsand such other materials or information as are available with theAssessing Officer and relatable to such evidence. We have to certainlyconsider the salient features of block assessment contemplated underChapter XIVB which provides for block assessment for a maximumperiod of 10 years ending with the date of search. While Section158BC provides for block assessment of the assessees searched underSection 132 of the Act or whose books of accounts are called underSection 132A of the Act, Section 158BD provides for block assessmentof assessees other than searched assessees based on evidence ormaterials received in the course of search. The peculiar feature of thiscase is that the respondent-assessee is a film producer and director,while the other assessee simultaneously searched namely,Sri.P.D.Abraham @ Appachan of Swargachitra Films is the filmdistributor and both these persons have so much of extensive business ITA 1583/09 connections and, therefore, the records seized from both the assesseesand the statements recorded from both of them relate to one and thesame transaction i.e. the income and expenditure from film making,direction and in distribution. We are very conscious of the fact that theappellate jurisdiction of this court under Section 260A is limited tosubstantial questions of law arising from orders of the Tribunal. Thecontention raised by counsel for the assessee that concurrent findingson appreciation of evidence recorded by two appellate authoritiesnormally should not be interfered by this court to reach a differentconclusion again by reappraising the evidence is quite a soundprinciple of law. However, the contention raised by Senior counselfor the Revenue is that when assessment of undisclosed income isbased on concrete evidence received from the documents and accountsseized from the residence of assessee and the film distributor abovereferred, the Tribunal's refusal to uphold the assessment without anybasis or material is a perverse finding which gives rise to a question oflaw. We find force in this contention because when block assessmentof any item is made based on evidence collected in the course of ITA 1583/09 ITA 1583/09 search, the assessment under Section 158BC read with Section 158BDis supported by statutory provision namely, Section 158BB of the Act.The Tribunal cannot cancel the assessment of undisclosed income if thesame is based on tenable and acceptable evidence recovered in thecourse of search and which is not disproved by the assessee. Keepingthis in mind we proceed to consider the appeal on the various groundsraised and the questions raised with reference to specific additions. 5. It is seen from the assessment order that the Assessing Officercomputed undisclosed income movie-wise and the basis of addition isthat the film distributor namely, Sri.P.D.Abraham of SwargachitraFilms for whom assessee produced the film, has accounted payment ofhigher amount than what is shown as received by the assessee in hisbooks of accounts. The Assessing Officer has relied on the accountsseized, evidence collected from the film distributor namely,Sri.P.D.Abraham and the statements recorded from him and comparedthe same with the receipts recorded in the accounts of the respondent-assessee and his statements and found that respondent has short-accounted the payments received from the distributor and, therefore, ITA 1583/09 the difference is treated as undisclosed income of the respondent-assessee. The assessee's counsel raised the contention that since theassessment is exclusively completed under Section 158BC, there is noscope for considering evidence received from the film distributornamely, Sri.P.D.Abraham in the course of search. We are unable toaccept this contention raised by the counsel for the assessee because inthe first place, validity of assessment under Section 158BC is notaffected by making a combined assessment under Section 158BC readwith Section 158BD. Secondly, even though assessment under Section158BC is to be made based on the evidence collected in the course ofsearch of the assessee, the evidence received in the course of search ofthe related assessee namely, the film distributor for whom the film isproduced/directed by the assessee, is also admissible as evidence underSection 158BB of the Act. This is because Section 158BB states thatnot only the evidence found in the course of search could be relied on,but the Assessing Officer can also rely on other materials orinformation as are available with the Assessing Officer and relatable tosuch evidence. In other words, the evidence received in the course of ITA 1583/09 search from the assessee can be combined with other evidencecollected by the Assessing Officer which is relatable to the evidencerecovered in search. We have already noticed that the evidencerecovered from the distributor namely, Sri.P.D.Abraham and theevidence recovered from the assessee in search conducted on both ofthem under Section 132 of the Act relate to the transactions betweenthem and pertain to production, direction and distribution of the samemovies which are several in number specifically stated in theassessment orders of both the assessees. 6. Even though every item of undisclosed income assessed butdeleted by the Tribunal is separately contested in this appeal, we feelthere is no scope for interference with Tribunal's order cancellingestimation of profit or disallowance of expenditure made. In our view,these are in the realm of appreciation of evidence and materials and wedo not want to sit in appeal over Tribunal's orders on appraisal ofevidence and the conclusions drawn by them therefrom. We, therefore,confine our consideration only in respect of items of undisclosedincome deleted by the Tribunal assessed based on concrete and reliable ITA 1583/09 6. Even though every item of undisclosed income assessed butdeleted by the Tribunal is separately contested in this appeal, we feelthere is no scope for interference with Tribunal's order cancellingestimation of profit or disallowance of expenditure made. In our view,these are in the realm of appreciation of evidence and materials and wedo not want to sit in appeal over Tribunal's orders on appraisal ofevidence and the conclusions drawn by them therefrom. We, therefore,confine our consideration only in respect of items of undisclosedincome deleted by the Tribunal assessed based on concrete and reliable ITA 1583/09 documentary evidence received in the course of search andcorroboratory statements given by the assessee and the distributor intheir sworn statements which were ignored by the Tribunal by statingthat assessee has not admitted it. In other words we propose to correctonly fundamental errors committed by the Tribunal ignoring the scopeof Section 158BB of the Act. 7. The first addition which we feel deserves to be considered isthe addition of Rs.10 lakhs being the undisclosed income received bythe assessee from the film “Manathevellitheru”. Admittedly the majorfinance for this film which is produced by the assesssee for thedistributor Sri.P.D.Abraham was provided by the said distributor. Asper the accounts produced by assessee, only Rs.65 lakhs was creditedto the account of Sri.Abraham. However, the realisation statementrecovered from the assessee's premises in search shows that assesseehad received Rs.85 lakhs from the distributor namely, Sri.Abraham.The records seized from the assessee revealed unaccounted transactionbetween the distributor namely, Sri.Abraham and the assessee and thedetails of receipts in cash for the two movies for the assessment years 1995-96 and 1996-97 were also found. The department clearly foundthat cash receipts were not recorded in the books of accounts. It isseen that the realisation statement recovered from the assessee'spremises was sent by the distributor Sri.P.D.Abraham. Though thepayments made by the distributor to assessee was Rs.85 lakhs, assesseehas recorded only Rs.65 lakhs as advance. Inspite of undisclosedincome of Rs.20 lakhs received by the assessee for the above film,taking into account the assessee's contention that there will beunaccounted payment to artists, the Assessing Officer has taken only50% of the undisclosed income for assessment under Section 158BC.It is this addition that was challenged by the assessee before the firstappellate authority as well as before the Tribunal which deleted thesame. The first appellate authority as well as the Tribunal deleted theaddition for the reason that assessee's name does not appear in theseized paper and the department has not got any corroborativestatement from the assessee. We are unable to uphold the reasoningand logic adopted by the first appellate authority and the Tribunalwhich expect clandestine accounts maintained by the assessee and the ITA 1583/09 ITA 1583/09 distributor to contain their names and addresses for believing it.Further, they also expect a confirmation statement by the assesseeagainst his own interest. It is one thing to say that sworn statementgiven can be relied on as evidence under Section 132(4) of the Act andanother thing to say that documentary evidence requires confirmationfrom the assessee against his own interest for the officer to makeassessment. In our view, the approach of the first appellate authority aswell as the Tribunal is absolutely contrary to the scheme of blockassessment under Chapter XIVB which can be made based onconvincing evidence recovered in the course of search as providedunder Section 158BB of the Act. There can be no controversy thatboth were engaged in massive suppression of income and theythemselves conceded the same by disclosing undisclosed income ofRs.43 lakhs by the distributor and Rs.38.75 lakhs by the assessee forthe block period. It is in this context correctness of assessment has tobe considered. The assumption by the C.I.T.(Appeals) as well as by theTribunal that without the confirmation statement by the assesseesundisclosed income cannot be assessed based on evidence gathered on search is wholly unrealistic and contrary to statutory scheme forassessment of undisclosed income under Chapter XIV B of the Act.We, therefore, set aside the order of the Tribunal and that of the firstappellate authority and restore the addition of Rs.10 lakhs being theundisclosed income from the film “Manathevellitheru”. 8. The next issue relates to the addition of Rs.10 lakhs deleted bythe first appellate authority as well as the Tribunal which is theundisclosed income determined by the Assessing Officer from the film“No.1 Snehatheeram Bangalore North”. We notice that the factspertaining to this addition is exactly similar to the facts stated abovewith regard to assessment of undisclosed income from the other film.As in the other case the film was produced for Sri.P.D.Abraham @Appachan. As per the Profit and Loss Account the assessee disclosedan advance of Rs.66 lakhs from the distributor. However, it was seenfrom the realisation statement recovered from the assessee's premisesthat the advance received by the assessee was Rs.82 lakhs, differencebeing Rs.16 lakhs. The Assessing Officer found that anotherproduction company namely, Khais production which is also an assessee simultaneously searched and proceeded against for blockassessment had advanced Rs.6 lakhs. After taking into account theaccounted amount and Rs.6 lakhs advanced by Khais Production, theAssessing Officer made an addition of Rs.10 lakhs. As already statedby us, assessment is based on documentary evidence received from theassessee which is realisation statement sent by the distributorcontaining accounted and unaccounted payment of advance totalingRs.82 lakhs as against Rs.66 lakhs accounted by the assessee. The firstappellate authority as well as the Tribunal deleted the addition bystating that assessee has not given statement to corroborate theunaccounted income. We do not know what more evidence is requiredother than the clandestine account received from the assessee which issent by the distributor showing the entire financial transactions. It maybe noticed that vide judgment in I.T.A. No.323/2002 filed by theDepartment against Sri.P.D.Abraham, we have disallowed thedepartment's claim and sustained deletion of the additions in the case ofthe distributor by accepting the contention that unaccounted payment tofilm producer namely, respondent herein stands established by evidence recovered during search and statements recorded from thesaid assessee. Going by our findings in that case we have tonecessarily conclude that assessee is paid actual amount stated in therealisation statement sent by the said distributor and recovered from theassessee's premises. We, therefore, do not find any justification forthe first appellate authority or the Tribunal to cancel the addition. We,therefore, allow the appeal on this issue by reversing the order of theTribunal and that of the first appellate authority and by restoring theaddition of Rs.10 lakhs towards undisclosed income in respect of thefilm “No.1 Snehatheeram Bangalor North”. 9. Even though Revenue has serious objection against severaladditions deleted by the Tribunal, we feel there is no scope forinterfering with the concurrent findings of the two appellate authorities.Further, the dispute with regard to the deletion of main additionRs.24,35,528/-, we notice the finding of the first appellate authority aswell as Tribunal is that the said income deserves to be excluded as thetime for filing return for the assessment year 1997-98 was not over ason the date of search. We, therefore, do not find any ground to interfere with the Tribunal's order on this issue. The next effectiveground that deserves to be considered is the addition of Rs.2,20959/-for the assessment year 1994-95 and Rs.62,611/- for the assessmentyear 1995-96 being the extra income received for the film “PappayudeSontham Appoose”. Since the amount involved for 1995-96 is verysmall, we do not propose to consider the same. However, the additionof Rs.2,20,959/- for 1994-95 deserves to be considered becauseevidence available by way of realisation statement clearly establishundisclosed income received by the assessee. The clear finding is thatthe realisation statement recovered from the assessee's premises withthe same date showed recovery of Rs.1,26,61,856/- andRs.1,72,87,353/-. Even though both realisation statements dated30.9.1996 disclose realisation amounts substantially different leaving amargin of around Rs.56 lakhs, the assessee could not explain as towhich is the correct one. However, corroboration was rendered in thestatement given by the distributor namely, Sri.P.D.Abraham who statedthat actual realisation was Rs.1,72,87,353/-. It is seen that theAssessing Officer was very considerate in accepting another statement of the said distributor who said that Rs.55 lakhs was spent for printingand publicity and the same was, therefore, allowed by the AssessingOfficer leaving only a balance of Rs.4,73,103/-. The AssessingOfficer gave a further deduction of Rs.1,69,532/- being the amountdeclared by the assessee in the return filed. The addition ofRs.2,20,959/- is the undisclosed income from this film attributable forthe assessment year 1994-95. The first appellate authority as well asthe Tribunal deleted the addition by merely stating that there is nocorroboration from the assessee. We are unable to uphold the order ofthe CIT(Appeals) or the Tribunal confirming it because the distributorwho is the author of the realisation statement recovered from theassessee's premises gave clearcut statement that actual amount realisedwas Rs.1,72,87,353/- and not the lower amount found in anotherstatement of the same date. In fact, from out of this, the officer allowedRs.55 lakhs as claimed by the distributor towards print and publicityexpenses. Assessee's 20% income from the balance distributed incomeis only assessed as undisclosed income for the year 1994-95. We donot find any justification for the Tribunal to ignore the documentary ITA 1583/09 evidence recovered which is corroborated by the statement given by thedistributor. We, therefore, reverse the orders of the first appellateauthority and that of the Tribunal on this issue and restore the additionof Rs.2,20,959/- towards undisclosed income from the film “PappayudeSontham Appoose” for the year 1994-95. ITA 1583/09 evidence recovered which is corroborated by the statement given by thedistributor. We, therefore, reverse the orders of the first appellateauthority and that of the Tribunal on this issue and restore the additionof Rs.2,20,959/- towards undisclosed income from the film “PappayudeSontham Appoose” for the year 1994-95. 10. No other ground raised by the Revenue gives rise to anysubstantial question of law. In the result, we allow the appeal in partby sustaining a total addition of Rs.22,20,959/- and confirming theorder of the Tribunal cancelling the balance addition of Rs.78,64,811/-. Before parting with the matter, we are constrained to observeabout the effort made by us to persuade the Central Government to takesteps to prevent generation and circulation of black money. Through adetailed interim order we appraised the Central Government that unlessprohibition is introduced against cash transactions particularly in saleof property, in film industry and the like atleast for payments over acertain limit in cash, black money generation and circulation cannot becontrolled because the disincentives on cash dealings contained underthe various provisions of the Income Tax Act have failed to achieve the objective. Further, by prohibiting use of cash in major transactionsterror and mafia funding and corruption could be arrested to a largeextent. Above all, the worst enemy of our economy that is, circulationof high denomination counterfeit currencies presently estimated overRs.7000/- crores could be prevented to a large extent. Unfortunately,the response of the Central Finance Ministry is not at all encouraging inas much as Government wants status quo to continue to the detrimentof the interest of the country and the people as a whole. Our limitationwhile exercising appellate jurisdiction under Section 260A of the Actinhibit us from initiating any proceedings or issuing direction againstthe Central Government. However, we express our anguish towardsthe attitude of the Central Government to have created and allowed thisvicious situation to continue. C.N.RAMACHANDRAN NAIRJudge K.VINOD CHANDRANJudge