Ita/226/2010 Of The Commissioner Of Income Tax v. M/S.cordial Company, Thiruvananthapuram

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 31ST DAY OF JANUARY 2019 / 11TH MAGHA, 1940 ITA. No.211 of 2010 AGAINST THE ORDER IN ITA NO.827/2008 OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH DATED 25-09-2009 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAXTHIRUVANANTHAPURAM. BY ADV.SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S.CORDIAL COMPANYNARAYANA BHAVAN, THIRUVANANTHAPURAM. TC-9/2196, KURUP'S LANE, SASTHAMANGALAM, BY ADVS.SMT. NIVEDITA A.KAMATHSRI.ANIL D. NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 31.01.2019,ALONG WITH ITA NOS.226/2010 & 366/2010, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: ITA. Nos.211, 226 & 366 of 2010 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 31ST DAY OF JANUARY 2019 / 11TH MAGHA, 1940 ITA. No.226 of 2010 AGAINST THE ORDER IN ITA NO.755/2008 OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH DATED 25-09-2009 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAXTHIRUVANANTHAPURAM. BY ADV.SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S.CORDIAL COMPANYNARAYANA BHAVAN, THIRUVANANTHAPURAM. TC-9/2196, KURUP'S LANE, SASTHAMANGALAM P.O., BY ADVS.SMT. NIVEDITA A.KAMATHSRI.ANIL D. NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 31.01.2019,ALONG WITH ITA NOS.211/2010 & 366/2010, THE COURT ON THE SAMEDAY DELIVERED THE FOLLOWING: ITA. Nos.211, 226 & 366 of 2010 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON THURSDAY, THE 31ST DAY OF JANUARY 2019 / 11TH MAGHA, 1940 ITA. No.366 of 2010 AGAINST THE ORDER IN ITA NO.824/2008 OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH DATED 25-09-2009 APPELLANT/APPELLANT: THE COMMISSIONER OF INCOME TAXTHIRUVANANTHAPURAM. BY ADV.SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: M/S.CORDIAL COMPANYNARAYANA BHAVAN, TC-9/2196, KURUP'S LANE, SASTHAMANGALAM, THIRUVANANTHAPURAM-695 010. BY ADVS.SMT. NIVEDITA A.KAMATHSRI.ANIL D. NAIR THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 31.01.2019,ALONG WITH ITA NOS.211/2010 & 226/2010, THE COURT ON THE SAMEDAY DELIVERED THE FOLLOWING: JUDGMENT K. Vinod Chandran, J. These income tax appeals are connectedfor reason of the respondent-assessees beingsister concerns having more or less the samepartners. The issue in ITA Nos.211 and 366 of2010 relating respectively to M/s.CordialCompany and M/s.Cordial Developers, is withrespect to undisclosed investment found on thebasis of documents recovered in search of oneanother firm's premises. The investment wassaid to be on account of purchase of certainlanded properties for the purpose of buildingmultistoreyed complexes in a project namedCordial Regency. Assessment was made onM/s.Cordial Developers and on a protectivebasis, it was made on M/s.Cordial Company, bothof which were set aside by the first appellateauthority, which order stood confirmed by theIncome Tax Appellate Tribunal. 2. The questions of law are re-framed as follows: (1) Whether, on the facts and in the circumstances of the case, the documentrecovered on search can be presumed to betrue and correct under Section 292C of theIncome Tax Act, 1961 (Act for short)? (2) Has not the Tribunal committedan error insofar as putting the burden ofproof on the Department? (3) Whether the first appellateauthority erred in not having remanded thematter to the Assessing Officer in thecontext of fresh materials, by way of saledeeds with reference to which the undisclosed investments were found, havingbeen produced by the assessee before thefirst appellate authority? 3. The proceedings were a direct 2. The questions of law are re-framed as follows: (1) Whether, on the facts and in the circumstances of the case, the documentrecovered on search can be presumed to betrue and correct under Section 292C of theIncome Tax Act, 1961 (Act for short)? (2) Has not the Tribunal committedan error insofar as putting the burden ofproof on the Department? (3) Whether the first appellateauthority erred in not having remanded thematter to the Assessing Officer in thecontext of fresh materials, by way of saledeeds with reference to which the undisclosed investments were found, havingbeen produced by the assessee before thefirst appellate authority? 3. The proceedings were a direct consequence of the search conducted in thebusiness premises and the residential houses ofthe partners of one M/s.Artech Group which hadclose connections with the assessee-firms. One of the partners of M/s.Artech Group was also apartner in the assessee-firms. Documents wererecovered in the search conducted in that otherfirm which related to the assessee-firms asalso its partners. On the basis of thosedocuments, notice was issued under Section 153Cread with Section 153A. The assessee's firstfailed to respond, but however later on, on asubsequent notice, filed a nil return. 4. The Assessing Officer (AO) foundthat the documents recovered showed both blackand white payments having been made toM/s.Artech Group, obviously in pursuance of thepurchases made of landed properties for thepurpose of the assessees' project, M/s.CordialRegency. The AO found that there were entriesin the books of accounts and the bankstatements with respect to the amounts shown aswhite. The AO also found that the documentshad handwritten recitals which tallied with the handwriting of one of the partners of theassessee-firms being Sri.N Ayyappan Unnithan. The AO, hence, made an addition ofRs.80,34,100/- as undisclosed investmentsunder Section 69. Notice was initially issuedunder Section 68, proposing addition ofunexplained credits; but eventually theadditions were made under Section 69 asundisclosed investments. There was a furtheraddition made of Rs.7,48,750/-, which was acheque payment made by one of the assessee-firms to T.S.Asok, one of its partners, whichwas said to be refund of advance paid on aproperty. The same was added on as unexplainedcredit. 5. The learned Standing Counsel,Government of India (Taxes) would contend thatthe white payments corresponding to the blackpayments as found from the documents were veryevident from the books of accounts and the bank statements. Section 292C is also relied on tocontend that there is a presumption in favourof the Department, insofar as the documentsrecovered on search, and hence it was for theassessee-firms to specifically prove that therenever was an investment in excess of that shownin their books of accounts. It is also arguedthat the assessee-firms had never challengedthe documents as such and their contention wasmerely that there were no investments made asseen from the said documents. 6. The learned counsel for the assessee, however, would submit that there wasabsolutely no material as disclosed from theorder of the assessing authority to corroboratethe documents recovered from that another firm.It is also pointed out that the assesseethemselves have voluntarily produced the saledeeds with respect to the transactions revealedfrom their books of accounts before the first 9 appellate authority. The sale deeds were executed in three different years while theassessments were carried out only in the year2005-06. It is argued that there is absolutelyno question of law arising from the order ofthe Tribunal. It is also pointed out that thefirst appellate authority had, in fact, calledfor a remand report from the AO and then setaside the additions made. 7. Having gone through the assessment assessee, however, would submit that there wasabsolutely no material as disclosed from theorder of the assessing authority to corroboratethe documents recovered from that another firm.It is also pointed out that the assesseethemselves have voluntarily produced the saledeeds with respect to the transactions revealedfrom their books of accounts before the first 9 appellate authority. The sale deeds were executed in three different years while theassessments were carried out only in the year2005-06. It is argued that there is absolutelyno question of law arising from the order ofthe Tribunal. It is also pointed out that thefirst appellate authority had, in fact, calledfor a remand report from the AO and then setaside the additions made. 7. Having gone through the assessment orders, we cannot but agree with the appellateauthority that there is absolutely nocorroborative evidence disclosed from the saidorders. The proposal as extracted in theassessment orders would indicate that the AOhad been relying on certain handwritten notesmade by one of the partners of the assessee-firms (Sri.Ayyappan Unnithan) as an evidenceagainst the assessee-firms. However, it is notclear as to what was the admitted handwritten document, which was verified by the AO to findthat the documents seized from another firmshowed the handwriting of one of the partnersof the assessee-firms. The learned StandingCounsel would argue that such strict rules ofevidence may not apply in the case ofassessment for income tax. We do not find anystrict rule being applied herein, since what wehave indicated is only the fundamental aspectwhich has to be verified when a handwriting issaid to be of one of the partners of theassessee-firms. It has to be verifiednecessarily from an admitted document, wherethe handwriting of that partner appears. Thelearned Standing Counsel has referred to thedocument produced along with ITA No.366/10 asAnnexure-A3 which is a cheque said to have beenissued by the said partner. However we do notsee any cross verification having been made bythe AO with Annexure-A5 notes produced along with ITA No.366/10, as evident from theassessment orders. It is trite that theRevenue cannot supplement reasoning, by acounter-affidavit or arguments addresseddirectly; which does not find a place in theorder of the AO. 8. Further, the AO has alsocategorically stated that the payments shown aswhite have been disclosed in the books ofaccounts. The assessee-firms admit to suchpayments and also have produced some documentsrelating to the transactions before the firstappellate authority. At least when a remandreport was called for, it was only proper forthe AO to have verified the fair price as fixedunder the Kerala Stamp Act, 1959. Though weagree with the learned Standing Counsel that attimes no purpose would have been served byissuing notice to the sellers themselves, thatwas also a mode of verification, which the AO ITA. Nos.211, 226 & 366 of 2010 had not resorted to. It cannot also be saidthat in all instances the sellers would supportthe purchasers. We cannot, nor can the A.Oassume that the sellers or their circumstances,would not disclose payments having been made inexcess of that shown in the sale deeds. 9. Again we also observe that thespecific bank transactions referred to by theAO, have not been cross verified with the exactamounts shown as investments in the documentsseized from M/s.Atech Group. We cannot butfind that the assessment has been carried outin a slip-shod manner especially noticing thefact that the firm and the partnersindividually are seen to have made investmentsin black in the document recovered from thatother firm. There are no proceedings takenagainst the partners individually. But however,a protective assessment has been made in the name of one another firm, where the partnersare almost identical. 9. Again we also observe that thespecific bank transactions referred to by theAO, have not been cross verified with the exactamounts shown as investments in the documentsseized from M/s.Atech Group. We cannot butfind that the assessment has been carried outin a slip-shod manner especially noticing thefact that the firm and the partnersindividually are seen to have made investmentsin black in the document recovered from thatother firm. There are no proceedings takenagainst the partners individually. But however,a protective assessment has been made in the name of one another firm, where the partnersare almost identical. 10. Section 292C speaks of apresumption insofar as books of accounts, otherdocuments, money, bullion, jewellery or othervaluable article or thing recovered in thecourse of a search under Section 132 or surveyunder Section 133A; as belonging to such personwhose premises were searched and the contentsof such books of accounts and other documentsas being true. This presumption wouldessentially apply against the person in whosepremises the search is conducted and thereshould be something more insofar as anassessment against any other person on thebasis of the documents recovered in search fromthat person whose premises was searched. Theinitial burden necessarily has to be dischargedby the department especially when the additionsare proposed on one, other than the person whose premises were searched from where thedocuments were recovered. 11. As to the addition made ofRs.7,48,750/- the assessee had no satisfactoryexplanation was the finding of the A.O. Thefact that the amounts were paid to Sri.T.S.Asok by way of cheque was admitted by theassessee firm. The explanation was that it wasrefund of excess amounts paid by the said Asok.The A.O found that if the transaction was alegitimate one the credit and the debit wouldboth be disclosed in the accounts. Here thepayment alone was reflected in the accounts ofthe assesssee. The explanation offered by theassesssee as to the credit was not credibleand hence disbelieved by the A.O. The firstappellate authority rightly found that thecheque payment was a debit as seen from theaccounts of the assessee and there was noreason to assume an unexplained credit. We ITA. Nos.211, 226 & 366 of 2010 perfectly agree with that and find no questionof law arising therefrom. 12. The first two questions of law hasto be answered against the Revenue and infavour of the assessee. Insofar as the firstappellate authority having not remanded thematter, on facts it is seen that the firstappellate authority specifically called for aremand report from the AO; along with thedocuments produced by the assessee-firms beforethe first appellate authority. The AO eventhen did not carry out a proper enquiry. We,hence, find that the third question of law doesnot arise at all from the order of theTribunal. 13. I.T.A. Nos.211 & 226 of 2010 arefiled with the Cordial Company as the respondent-assessee. In addition to the questions alreadyanswered in favour of the assessee in I.T.A. 12. The first two questions of law hasto be answered against the Revenue and infavour of the assessee. Insofar as the firstappellate authority having not remanded thematter, on facts it is seen that the firstappellate authority specifically called for aremand report from the AO; along with thedocuments produced by the assessee-firms beforethe first appellate authority. The AO eventhen did not carry out a proper enquiry. We,hence, find that the third question of law doesnot arise at all from the order of theTribunal. 13. I.T.A. Nos.211 & 226 of 2010 arefiled with the Cordial Company as the respondent-assessee. In addition to the questions alreadyanswered in favour of the assessee in I.T.A. No.211 of 2010, there is one another questionarising, with respect to the addition made on aregular basis against the assessee firm. Thequestion of law, as we noticed earlier is,similar and is on application of Section 292C ofthe Act. We would not frame a seperate questionsince it is identical to that framed as (i) inthe other appeals.14. Pursuant to the search conducted inArtech group, certain documents were recoveredand a search was conducted also in the businesspremises of Cordial Company. Based on certaindocuments recovered from the assessee firm, anaddition of Rs.64,22,800/- was made. The additionmade were with respect to the undisclosed income,which is the balance consideration received fromfive purchasers of apartments in the assesseefirm's project 'Cordial Tower'. Against theaddition, the assessee was in appeal before theFirst Appellate Authority. One of the purchasers gave a confirmation letter that there was no suchadditional amount given in cash. The FirstAppellate Authority deleted the addition made ofRs.40 lakhs with respect to that purchaser, byname Smt.Valsala Raj. The addition with respectto the other four purchasers were confirmed. 15. Both the Revenue and the assesseewere in appeal before the Tribunal. The Tribunalset aside the entire addition on the ground thatthere was absolutely no corroborative evidence tofind any additional sum having been received bythe assessee firm. 16. Here we find Section 292C of the Actto be squarely applicable, since the documentrelied on was with respect to the assessee firmitself. One of the seized documents A34 [page 33and page 4] showed that Smt.Valsala Raj paidRs.40 lakhs by cash and the actual purchase priceof the flat was Rs.1,33,06,300/-. The actualprice was evidenced by seized document [A33 page 72], which is a printed sheet giving the detailsregarding payments received for flat booking ofCordial Tower. In that particular sheet, theamount received by cheque is clearly shown andthe balance to be received is worked out. Fromthe initial balance amount shown outstanding ofRs.59,21,300/-, an amount of Rs.40 lakhs wassubtractedandthebalanceshownisRs.19,21,300/-. Similar workings were seen in thecase of the other four persons also. The total ofthe amounts subtracted in each of the 5purchasers came to Rs.64,22,800/-. The figurestallied to the last pie. These were the documentsrecovered from the asessee's premises and thereis presumption in so far as such documents, whichsquarely applies as against the assessee underSection 292C of the Act. 17. The statement made by one of thepurchasers, we find, is a self serving statement,which would not dispel the fact of receipt, of excess amounts, evidenced by documents recovered from the assessee's premise itself. On thespecific transactions for which addition was madeof Rs.64,22,800/- and the documents relied on bythe Department, we answer the question framed infavour of the Revenue and against the assessee.TheorderoftheTribunal,deletingRs.64,22,800/-, is set aside and the order of theAssessing Officer, making such addition, isrestored. 17. The statement made by one of thepurchasers, we find, is a self serving statement,which would not dispel the fact of receipt, of excess amounts, evidenced by documents recovered from the assessee's premise itself. On thespecific transactions for which addition was madeof Rs.64,22,800/- and the documents relied on bythe Department, we answer the question framed infavour of the Revenue and against the assessee.TheorderoftheTribunal,deletingRs.64,22,800/-, is set aside and the order of theAssessing Officer, making such addition, isrestored. 18. I.T.A. No.366 of 2010 would standrejected. I.T.A. No.226 of 2010 is allowed.I.T.A. No.211 of 2010 is partly allowed. Sd/- K. VINOD CHANDRAN, JUDGE. Sd/- sp/01/02/19 ASHOK MENON, JUDGE. //True Copy//P.A. To Judge APPENDIX OF ITA NO.211/2010 PETITIONER'S EXHIBITS: ANNEXURE A TRUE COPY OF THE ORDER U/S. 153 A READ WITHSECTION 143(3) OF THE ASSESSING OFFICER DATED 24.12.2007. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 09/04/2008. ANNEXURE CTRUE COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 25/09/2009. APPENDIX OF ITA NO.226/2010 PETITIONER'S EXHIBITS: ANNEXURE A TRUE COPY OF THE ORDER U/S 153A READ WITH SECTION 143(3) OF THE ASSESSING OFFICER DATED 24/12/2007. ANNEXURE B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX DATED 09/04/2008. ANNEXURE C TRUE COPY OF THE ORDER OF THE APPELLATE TRIBUNAL DATED 25/09/2009. APPENDIX OF ITA NO.366/2010 PETITIONER'S EXHIBITS: ANNEXURE-ATRUE COPY OF THE RELEVANT SHEETS OF SEIZED MATERIAL ANNEXURE A63 & ATVI.MATERIAL ANNEXURE A63 & ATVI. ANNEXURE-BTRUE COPY OF THE RELEVANT SHEET OF SEIZED MATERIAL IN ANNEXURE A 108.MATERIAL IN ANNEXURE A 108. ANNEXURE-CTRUE COPY OF THE ASSESSMENT ORDER U/S. 153AOF THE ASSESSING OFFICER DATED 21/12/2007.OF THE ASSESSING OFFICER DATED 21/12/2007. ANNEXURE-DTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 08/04/2008.OF INCOME TAX (APPEALS) DATED 08/04/2008. ANNEXURE-ETRUE COPY OF THE APPEAL MEMORANDUM.ANNEXURE-FTRUE COPY OF THE ORDER OF THE ITAT DATED 23/04/2010.ANNEXURE-FTRUE COPY OF THE ORDER OF THE ITAT DATED 23/04/2010. ANNEXURE-A TRUE COPY OF THE RELEVANT SHEETS OF SEIZED MATERIAL ANNEXURE A63 & ATVI.MATERIAL ANNEXURE A63 & ATVI. ANNEXURE-B1TRUE COPY OF THE RELEVANT SHEET OF SEIZED MATERIAL IN ANNEXURE A 108.MATERIAL IN ANNEXURE A 108. ANNEXURE-B2TRUE COPY OF THE RELEVANT SHEET OF SEIZED MATERIAL IN ANNEXURE A 108.MATERIAL IN ANNEXURE A 108. ANNEXURE-CTRUE COPY OF THE ASSESSMENT ORDER U/S. 153AOF THE ASSESSING OFFICER DATED 21/12/2007.OF THE ASSESSING OFFICER DATED 21/12/2007. ANNEXURE-DTRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 08/04/2008.OF INCOME TAX (APPEALS) DATED 08/04/2008. ANNEXURE-ETRUE COPY OF THE APPEAL MEMORANDUM.ANNEXURE-FTRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 23/04/2010.ANNEXURE-FTRUE COPY OF THE ORDER OF THE TRIBUNAL DATED 23/04/2010.