Ita/226/2013 Of The Commissioner Of Income Tax, Thiruvananthapuram v. M/S.archana Trading Co., Ancal, Kollam

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 10TH DAY OF JULY 2018 / 19TH ASHADHA, 1940 ITA.No. 226 of 2013 --------------------- AGAINST THE ORDER/JUDGMENT IN ITA 351/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-02-2013 APPELLANT(S)/APPELLANT/RESPONDENT --------------------------------- THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/RESPONDENT/APPELLANT: ---------------------------------- M/S.ARCHANA TRADING CO., ANCHAL, KOLLAM-691 001. R BY ADV. SRI.T.M.SREEDHARAN (SR.) R BY ADV. SRI.V.P.NARAYANAN R BY ADV. SMT.DIVYA RAVINDRAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10-07-2018,ALONG WITH ITA NO.229/2013,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IT APPEAL NO. 226/2013 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A: TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3)/147 DT 30.12.2009 DT 30.12.2009 ANNEXURE B: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (A) DT 09.02.2011 DT 09.02.2011 ANNEXURE C: TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DT 28.02.2013 DT 28.02.2013 RESPONDENTS ANNEXURES: NIL TRUE COPY P.A TO JUDGE K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T Appeal No. 226 of 2013 & 229 of 2013 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 10[th] day of July, 2018 J U D G M E N T Vinod Chandran, J The question of law arising in the aforesaid case, is re-framed as follows: Whether the entire sales suppression detected on survey could be taken as taxable income whenthere was no suppression found on purchases? 2. The assessee in both the cases is a Bar attached hotel and a survey was conducted in its premises on 15.01.2009. Some incriminating materials were recovered and based on the same, it was found that the assessee had sold Indian Made ForeinLiquor (IMFL) in excess of the price shown, in the books of ITA Nos.226/2013& 229/2013 accounts and the returns. An estimate was made from thedocuments recovered and the books of accounts and turnoversuppression was determined on which the tax was directed to bepaid. 3. The First Appellate Authority and the Tribunal both relied on a decision of the High Court of Gujarat reported in2002 258 ITR 654 CIT v President Industriesto find that whenthere was no detection of any purchase suppression, there couldbe no income suppression alleged from sales. Here the asseseebeing a Bar Hotel purchased Indian made Foreign Liquor (IMFLfor brevity) only from the Kerala State Beverages Corporation(Corporation for brevity) and there is no allegation levelled ofother purchases. 4. The facts in the cited decision, in an applicationcompelling reference is not clear. What little is discernible is that ITA Nos.226/2013& 229/2013 the assessee was alleged to have moved finished goods from itsmanufacturing unit to its godown without disclosing it in thebooks of accounts and sold the same. The entire sale price of thegoods was taken as the income received. The High Court foundthat if at all there was a sales suppression, the taxable incomecould be only to the extent of the estimated profit embedded inthe sale. It was also found that having detected no investmentoutside the books of accounts, only the net profit of the salesuppressed can be taken. 5. We are not apprised of the exact business which was dealt with by the Gujarat High Court, but we presume that it wasof manufactured goods. In the present case, we are faced withthe purchase and sale of liquor carried on through a Bar Hotel.We are also faced with the unique situation of the State havinggranted monopoly to distribute IMFL to the Corporation. The 5. We are not apprised of the exact business which was dealt with by the Gujarat High Court, but we presume that it wasof manufactured goods. In the present case, we are faced withthe purchase and sale of liquor carried on through a Bar Hotel.We are also faced with the unique situation of the State havinggranted monopoly to distribute IMFL to the Corporation. The ITA Nos.226/2013& 229/2013 assessee-a Bar hotel could not have purchased IMFL from anyother source. The purchases from the Corporation is fullyaccounted. It is hence contented that the sale suppression fullycannot be taken as the income. 6. The specific allegation raised on survey as is disclosed from the assessment orders are available in theassessment orders. For the year 2006-07 we see that the surveyfound the sales between April 2005 to September 2006 andNovember 2005 to March 2006 at Rs.2,18,87,352/-. Based on thematerials recovered it was found that the sales for October wasvery low. This led to an estimation of Rs.19,89,760/-. The figuredisclosed on survey was based on loose sheets kept in a filerecovered at the time of survey, showing the Bar receipts andnight sales of IMFL. Here the purchase being of IMFL inwhole-sale, the sale carried out is in retail. More clearly put the ITA Nos.226/2013& 229/2013 bottles purchased in bulk are opened and liquor served in pegs; the price of which is at the discretion of the Bar hotel. Theallegation was that sales were made at a price far more than thatdisclosed in the books of accounts. Hence on the very samepurchase one sale price was reflected in the accounts while a farhigher price was disclosed from the material recovered on survey.This does not require any further investment on purchase and isessentially an allegation of more gross profit having beenobtained than that returned. 7. It was on the above basis that the sales turnover of IMFL was estimated at Rs.2,38,77,112/-. In addition to thatdisclosed in the return of income, which was only Rs.1,94,47,035/-.The difference being Rs.44,30,077/- was taken as income. This isthe additional income received as profit on sales, over and abovethat seen from the accounts. We need not labour on the figures in ITA Nos.226/2013& 229/2013 the next year; which alone differ and the principle on whichestimation was made is similar. The mere fact that there was noinvestment made outside the books of accounts would not helpthe assessee in the present case. As was noticed, the purchaseturnover does not alter at all since the purchases can only bemade from a State owned Corporation. There is no restrictionwith respect to the price for which liquor has to be sold by aperson holding licence to run Bars under the Abkari Act. Theprice being variable and the suppression being the actual pricefor which the liquor was sold; the entire suppression is income.The assessee having filed its return claiming deduction for theentire expenditure incurred, there is no warrant for makingfurther deduction for expenditure or computing the profit for thesuppressed sales turnover detected on survey. What was detectedon survey was added on as income and the assessment was ITA Nos.226/2013& 229/2013 ::7:: completed, which cannot be faulted. We answer the question of law for both years in favour of the Revenue and against the assessee. The appeals would stand allowed setting aside the orders of the appellate authorities and restoring that of the Asseessing Officer, leaving the parties tosuffer their respective costs. Sd/- K. Vinod Chandran, Judge Sd/-Ashok Menon, Judge jma