Ita/18/2010 Of The Commissioner Of Income Tax, Cochin v. M/S.kamadhenu Milk Products, Kochi

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN WEDNESDAY, THE 11TH DAY OF JANUARY 2012/21ST POUSHA 1933 ITA.No. 18 of 2010 ( ) ================== I.T(SS)A. NO.152/COCH/2004 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. ................. APPELLANT/RESPONDENT: ======================== THE COMMISSIONER OF INCOME TAX,COCHIN. BY ADV.SRI.JOSE JOSEPH, SC, INCOME TAX. RESPONDENT/APPELLANT: ======================== M/S.KAMADHENU MILK PRODUCTS,WARRIAM ROAD,KOCHI-16. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE, ADV. SMT.NISHA JOHN, SRI.V.P.NARAYANAN, SMT.BOBY M.SEKHAR. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16-12-2011, ALONG WITH ITA.NO.72 OF 2010 AND CONNECTED CASES,THE COURT ON 11/01/2012 DELIVERED THE FOLLOWING: rs APPENDIX APPELLANT'S ANNEXURES:- RESPONDENT'S ANNEXURES:- NIL. //TRUE COPY// P.S. TO JUDGE C.N. RAMACHANDRAN NAIR, &K. VINOD CHANDRAN, JJ ---------------------------------------------------- ITA Nos.18 of 2010, 72 of 201073 of 2010, 77 of 2010, 83 of 2010, 102 of 2010 & 103 of 2010 ---------------------------------------------------- Dated this the 11[th] day of January, 2012 J U D G M E N T K. Vinod Chandran, J The above appeals arise from a common order of theTribunal in the appeal of the assesse firm, its three partnersand also the Revenue. ITA No.18/2010 is against the order ofthe Tribunal in the assessee firm's appeal. The other sixappeals arise from the orders in the appeals filed by the threepartners as also the appeals of the Revenue from the modifiedorder of the first appellate authority. 2. We shall first deal with the appeal of the Revenue,ITA 18/2010 with respect to the assessee firm M/s.Kamadhenu Milk Products. M/s Kamadhenu Milk Productswas a partnership firm consisting of 3 partners Sri.GeorgePaul, David George Vettath and K.M Stephen. The firm,engaged in the business of trading of milk and milk products,filed returns up to 1999-2000. Consequent to a search ITA Nos. 18/2010 and connections : 2 : conducted in the business premises of the firm and theresidence of the partners, seizure of documents and books ofaccounts were effected and notice under section 158BC of theIncome Tax Act was issued. The assessee filed return ofincome in Form 2B declaring NIL undisclosed income. Duringthe course of search in the residence of Sri David George, onesale agreement dated 23.5.2000 regarding sale of thepartnership firm to three persons namely Bindu David George,S.Thenrajam and T. Nandakumar was seized. Pausing for amoment it is useful to mention that Smt. Bindu David George,one of the purchasers is the wife of Sri. David George, one ofthe erstwhile partners. The total consideration for sale as perthe said agreement was Rs.2 crores and the assessee havingfiled no return of income after assessment year 1999-2000 thecapital gains on sale of the firm was found to be undisclosed.When liability to short term capital gains tax wascommunicated to the assessee, it was objected to, on theground that the sale as per the said agreement dated23.5.2000 has not occurred and actual sale was in pursuanceto a subsequent agreement dated 1.6.2000. ITA Nos. 18/2010 and connections ITA Nos. 18/2010 and connections 3. The assessee's claim was that the actual sale asagainst the later agreement was for an amount ofRs.1,32,40,000/- and not for Rs.2 crores as is revealed fromthe earlier agreement. The reasons for the reduction in saleconsideration was projected to be due to the fall in processingof milk in the intervening period. The Assessing Officerrejected the explanation offered by the erstwhile partners andrelying on the agreement dated 23.5.2000 as also receipt ofsum of Rs.118 lakhs dated 10.7.2000 signed by all theerstwhile partners, the resolution passed by the purchasers totake over the firm for Rs.2 crores appended along with anapplication made to People Urban Co-operative Bank,Thripunithura, the minutes of the Board of Directors of KMPDairy Industry (P)Ltd and the balance sheet of the firm on31.5.2000; all documents seized on search, as also a statementof the husband of Smt.Thenrajam and Sri. Nandakumar, two ofthe purchasers; found that the agreement dated 23.5.2000 isto be considered as a genuine one. On the basis of suchfinding the sale consideration was taken to be Rs.2 crores asper the agreement dated 23.5.2000 and the profit on sale of ITA Nos. 18/2010 and connections business was computed at Rs.81,33,546/-. The AssessingOfficer also made additions coming to 20% of expenditureincurred violating the provisions of Section 40A(3) of the Act.The amount of Rs.90,101/- shown in the block return ofincome for the year 2000-01 though sought to be treated asregular return for the year allowing set off of carried forwardloss; was treated as undisclosed income for the year 2000-01since no set off is permissible for block assessments. 4. The assessee filed first appeal which was disallowed.On further appeal before the Tribunal, the Tribunal onesoteric principles purportedly based on the Contract Actinterpreted the concept of “agreement” and found that theseized agreement dated 23.5.2000 has no binding value andhence deleted the said addition on the finding that theagreement and balance sheet recovered on search contained“boosted figures” and are merely “cooked up” for the purposeof availing loan from a Bank. We fail to understand on whatmaterials Tribunal came to such conclusion, but for the mereassertion of the parties. There is nothing on record todiscredit or disbelieve the agreement dated 23.5.2000 and ITA Nos. 18/2010 and connections seized records, attendant circumstances as also thestatements of the erstwhile and new partners would onlyclearly indicate the actual consideration to be Rs.2 crores ashas been found by the Assessing Officer. 5. The Assessing Officer has noticed that the Stamppaper used for the agreement dated 23.5.2000 and 1.6.2000has both been purchased on 23.5.2000 from the very samevendor. This belies the contention of the assessee firm thatthe second agreement for a lesser consideration was executeddue to a fall in the processing of milk in the interveningperiod. Such fall could not have been predicted and thepurchase of two sets of stamp papers reveal the intention ofthe parties to camouflage the actual terms of the agreement.On facts the Assessing Officer would further examine thecontention put forward by the assessee with reference to thesale of milk before and after the agreements and discredit thesale by clear figures. The seized documents also wouldestablish that the agreement dated 23.5.2000 disclosing thesale consideration of Rs.2 crores was the genuine one. Thereceipt of Rs.118 lakhs dated 10.7.2000 signed by all the ITA Nos. 18/2010 and connections ITA Nos. 18/2010 and connections partners recovered from the residence of Sri David GeorgeVettath is in consonance with the agreement dated 23.5.2000.The resolution passed by the purchasers appended along withthe application made to the Bank would also show the saleconsideration to be Rs. 2 crores. The minutes of the Board ofDirectors of the KMP Dairy Industries (P)Ltd., comprising ofthe erstwhile directors, seized from the residence of Sri. K.M.Stephen, would also indicate the sale to have been completedon 31.5.2000. The advance payment of Rs.5.5lakhs mentionedof in the agreement dated 23.5.2000 was also admitted to byone of the purchasers and the husband of another purchaser.The said advance is also not made mention of in the secondagreement dated 1.6.2000. Even accepting the plea of theassessees that the consideration was lowered taking intoaccount the fall in processing, necessarily the advance madeon 23.5.2000 would have found a mention in the lateragreement. Sri. David George Vettath, one of the erstwhilepartners, would contend that Sri. George Paul, anotherpartner, was handling the affairs of the business as also thesale transactions and he is not aware of the amounts passed ITA Nos. 18/2010 and connections by way of sale. The ignorance displayed by Sri. David GeorgeVettath assumes significance in the context of his wife beingone of the purchasers. Sri George Paul also does not have aconsistent stand on the actual amounts passed. It is evidentthat the wife of David George Vettath has no independentsource of income to make the investment/purchase and theignorance displayed by David George Vettath only would lendto an adverse inference in the matter of the actualconsideration of sale. 6. On the veracity of the agreement dated 1.6.2000, theAssessing Officer has noticed in Annexure A order that theadvance of Rs.75 lakhs as per the said agreement iscategorically stated to be by pay order from Peoples UrbanCo-operative Bank Thripunithura; while the application forloan itself was made to the Bank only on 24.6.2000. Asnoticed earlier the glaring absence of Rs. 5.5 lakhs as per thefirst agreement also raises valid doubts about the genuinenessof the agreement dated 1.6.2000. On behalf of the assesseefirm it was also submitted by the erstwhile partners that theamount actually received even as per the second agreement ITA Nos. 18/2010 and connections dated 1.6.2000 is only Rs.7 lakhs which clearly goes againstthe endorsement of receipt of Rs.75 lakhs in the agreementdated 1.6.2000. But for the unsubstantiated claim of theassessee there was absolutely nothing on record to supportthe second agreement dated 1.6.2000. The Tribunal, we aresurprised to find ignored the overwhelming evidence insupport of the agreement dated 23.5.2000 and the actual saleconsideration of Rs.2 crores. It is not clear as to how theTribunal came to the finding that the agreement dated23.5.2000 was one which was not enforceable and we areafraid that no reasonable person could reach the conclusionsarrived at by the Tribunal. The documents seized on search asalso the statement recorded under section 132(4) providesample evidence to support the actual consideration of Rs.2crores and we answer the question of law raised by therevenue in favour of the revenue since the deletion made bythe Tribunal was without adverting to the material seized andconclusion of the Tribunal with respect to the actual saleconsideration is unreasonable and perverse. 7. On the question of the disallowance of Rs.8,31,036/- ITA Nos. 18/2010 and connections 7. On the question of the disallowance of Rs.8,31,036/- ITA Nos. 18/2010 and connections made by the Assessing Officer under Section 40A(3) theTribunal considered the issue on the basis of the factsregarding the nature of the business carried on by theassessee and deleted the same, which in our opinion requiresno interference. We refuse to answer the question raised bythe Revenue regarding the said addition since the same doesnot lead to any question of law. 8. The remaining issue in the firm's appeal is withrespect to the addition of Rs.90,101/-which was shown inForm 2B for the year 2000-01, showing set off of carriedforward loss from the assessment year 1999-2000. TheAssessing Officer as well as the 1[st] appellate authority treatedthe same as undisclosed income for the assessment year 2000- 01. The Tribunal merely found that set off can be grantedonly in regular assessment which is running parallel to theblock assessment and allowed claim of the assessee. We findfrom the order of the Assessing Officer as well as the 1[st]appellate authority that no such parallel assessment is goingon. The assessee failed to file a return in the assessment year2000-01 and only after the search on 4.10.2001 and notice ITA Nos. 18/2010 and connections : 10 : under Section 158BC dated 9.10.2002 filed a return ofincome in Form No.2B for the block period 1.4.1995 to4.10.2001 that too on 19.2.2003. It was in the blockassessment that set off was claimed and we are of the viewthat the Tribunal was not correct in presuming a regularassessment; which was not there. The question raised by theRevenue is answered in their favour and against the assessee.The addition made by the Assessing Officer as confirmed bythe 1[st] appellate authority is restored. 9. We are now confronted with the appeals of theRevenue filed against the order of the Tribunal in the appealsfiled by the Revenue as well as the assessee against the 1[st]appellate order modifying the assessments made against theindividual assessees. One common ground in the Revenue'sappeals before the Tribunal was with respect to surchargeunder Section 113 which is decided in favour of the Revenueby the Tribunal. There is no appeal of the assessee to thisCourt on the said issue. The individual assessments have tobe dealt with separately. 10. ITA 73 and 77 of 2010 are the appeals relating to ITA Nos. 18/2010 and connections one of the partners viz., Sri. George Paul. The additions madeby the Assessing Officer in its entirety on the basis of thetransaction of sale of M/s.Kamadhenu Milk Products atUdyogamandal and the chilling plant M/s.KMP DairyIndustries (P) Ltd. at Salem, were deleted by the Tribunalfollowing the order of the Tribunal in the firm's appeal. Wehave today reversed the findings of the Tribunal in the firm'scase and sustained the addition made by the Assessing Officerbased on the sale agreement dated 23.5.2000 disclosing aconsideration of Rs.2 crores. Hence the Tribunal, being thelast fact finding authority has to consider the issues afreshbased on our findings in the appeal filed by the Revenueagainst the firm. We also notice that the Tribunal, withrespect to additions made on the basis of the statement underSection 132(4) has deleted it. This has been done on thepremise that no additions can be made based on statementunder Section 132(4) without any seized materials especially,since it has been retracted.We have held in ITA 1288 of 2009dated 23.12.2011 (The Commissioner of Income Tax, CalicutVs. Abdul Razak) that the statement under Section 132(4) ITA Nos. 18/2010 and connections : 12 : constitutes clear admissions having evidentiary value and self-serving retractions alone cannot be the basis of deletingadditions made on the basis of such statements. The Tribunalhence has to consider the said aspects on the basis of the lawdeclared by this court. ITA Nos. 18/2010 and connections : 12 : constitutes clear admissions having evidentiary value and self-serving retractions alone cannot be the basis of deletingadditions made on the basis of such statements. The Tribunalhence has to consider the said aspects on the basis of the lawdeclared by this court. 11. ITA 102 and 72 of 2010 are appeals in the case ofone another partner David George Vettath. Apart from theissue of surcharge and remand of the addition ofRs.18,81,275/- all the grounds in the Revenue's appeals andthe assessee's appeal have been decided following the findingsof the Tribunal in the firms appeal; which we have reversed inthe earlier part of this order. This also requires freshconsideration by the Tribunal. 12. ITA 83 and 103 of 2010 are appeals in the case ofthe third partner viz., K.M. Stephen, which also has beendecided on the basis of the findings of the Tribunal in thefirm's appeals and hence requires a de novo consideration.The deletion of the other additions are again done in a casualmanner and on the ground that 132(4) statement alone cannotbe relied on to make additions. Our observations in ITA 73 and ITA Nos. 18/2010 and connections 77 of 2010 would apply here too. In the circumstances ITA 18 of 2010 is partly allowedsustaining the additions made on the firm based on theagreement dated 23.5.2000, disclosing the actual saleconsideration of Rs.2 crores, as also the undisclosed income ofRs.90,101/- for the year 2000-01. The appeals in the case ofthe individual partners, except to the extent of the issue ofsurcharge and remand on one issue, are all remanded to theTribunal for fresh consideration. The Tribunal shall restorethe appeals of the Revenue and the assessees to the extentnoticed above and shall consider the same afresh inaccordance with law and the observations made above. Nocosts. Sd/-C.N. RAMACHANDRAN NAIR(Judge) Sd/- K. VINOD CHANDRAN (Judge) jma //true copy// P.A to Judge