Ita/400/2009 Of Commissioner Of Income Tax v. M/S.mangalam Publications

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN MONDAY, THE 12TH OCTOBER 2009 / 20TH ASWINA 1931 ITA.No. 400 of 2009() --------------------- ITA.243/COCH/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX, KOTTAYAM. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- M/S.MANGALAM PUBLICATIONS, KOTTAYAM. ADV. SRI.P.BALAKRISHNAN (E) FOR R THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ALONG WITH ITA NOS.557 & 558/2009 ON 12/10/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. .................................................................... I.T. Appeal Nos.400,557 & 558 of 2009 ....................................................................Dated this the 12th day of October, 2009. C.R. JUDGMENT Ramachandran Nair, J. The question raised in the connected appeals filed by thedepartment for the assessment years 1990-91, 1991-92 and 1992-93 is whether the Tribunal was justified in cancelling the assessmentscompleted under Section 147 of the Income Tax Act as time barred for the reason that the re-assessments were not completed within fouryears from the end of the relevant assessment year in terms of theproviso to Section 147 of the Act. We have heard Senior StandingCounsel Sri.P.K.R. Menon appearing for the appellants andSri.P.Balakrishnan appearing for the respondent. 2. The assessee is engaged in publication of newspaper, periodicals, etc. Assessee did not maintain any books of accounts andthe returns for all the assessment years were filed without beingaccompanied by balance sheet and statement of accounts. From the extracts pertaining to the income returned by the assessee it is seen thateven advertisement receipts are returned by the assessee on estimationbasis obviously showing that the assessee did not maintain properbooks of accounts. The original assessments were, however,completed under Section 144 estimating the income. It is found by theTribunal that though the assessments were completed by estimation ofincome which is at substantial variance with the income returned,assessee substantially accepted the addition of Rs.1,55,15,550/- for theassessment years 1989-90 to 1993-94.After completion of theassessments, the Assessing Officer got copies of balance sheetfurnished by the firm to South Indian Bank which showed substantialincrease in the capital and current accounts of the partners. TheAssessing Officer inferred that the increase in the capital accounts andcurrent accounts of the partners of the respondent-firm is obviouslyshare income from the respondent-firm which escaped assessment inthe original assessments of the firm completed under Section 147 of theAct. After issuing notice to the respondent-assessee, the originalassessments were completed under Section 147. 3. The assessee challenged the assessment on ground oflimitation as well as on merits before the C.I.T.(Appeal). On facts, theC.I.T.(Appeal) found that the assessee had not maintained any books ofaccounts and disclosed fully and truly all material facts necessary forcompletion of assessments and so much so, the limitation of four yearsprovided under proviso to Section 147 does not apply. He, therefore,rejected the plea of limitation raised by the assessee. On the merits ofthe case, he noticed that the Assessing Officer had granted excess reliefin the estimation of income and therefore, after issuing notice to theassessee, he enhanced the income by some amounts. Then the assesseefiled second appeals before the Tribunal. The Tribunal has acceptedthe assessee's appeals on ground of limitation and set aside the order ofthe C.I.T.(Appeal), against which these appeals are filed before us. 4. On going through the orders of the Tribunal, we find thatgoing by their own reasoning, their finding that the assessee hasdisclosed fully and truly all material facts necessary for the completionof original assessment is not tenable. Tribunal itself admits that theassessee was not maintaining any books of accounts. It is the further finding of the Tribunal that even in the absence of full books ofaccounts, the assessee had not furnished the documents as required interms of Section 139(f) of the Income Tax Act, which is as follows: "Where regular books of account are not maintained bythe assessee, the return is accompanied by a statementindicating the amounts of turnover or, as the case may be,gross receipts, gross profit, expenses and net profit of thebusiness or profession and the basis on which such amountshave been computed and also disclosing the amounts of totalsundry debtors, sundry creditors, stock-in-trade and cashbalance as at the end of the previous year." In fact, the C.I.T.(Appeal) upheld the assessment as within time for thereason that even in the absence of regular books of accounts, theassessee is bound to give the information required under the aboveclause and the assessee who has not disclosed the above informationcannot be said to have made full disclosure of all material factsnecessary for completion of assessment. Even before the Tribunal,assessee has no case that the assessee had maintained books ofaccounts or furnished particulars required for the assessment in termsof Section 139(f) of the Act. Even though counsel appearing for therespondent contended that books of accounts were with the departmentafter seizure, we do not think this is a ground for the Tribunal to allow the assessee's appeals. Further, if books of accounts were retained bythe department, we see no reason why assessee could not collect copies,prepare proper statement of accounts including Profit and LossAccount and Balance Sheet before the department for the purpose ofassessment. In any case the reopening is admittedly not based on anyinformation collected by the department from the seized records whichwere available at the time of assessment. On the other hand, thepartners of the respondent-assessee submitted balance sheets of therespondent-assessee before the Bank which disclosed increase incurrent accounts and capital accounts of the partners which do not tallywith the profits returned by the firm. There is no need for us toconsider the explanation of the partners pertaining to the increase incurrent accounts and capital accounts as not relatable to theunaccounted income of the firm because that is on the merits of thecase not considered and decided by the Tribunal. The only question tobe considered is whether the assessee had for the purpose ofcompleting the original assessment made full disclosure of all materialfacts necessary for their assessment and if it is proved so, then the re- assessment under Section 147 beyond four years from the end of theyear will get time barred. assessment under Section 147 beyond four years from the end of theyear will get time barred. 5. As already found by us, the Tribunal does not anywhere statein their order that the assessee had made full disclosure of all materialsbefore completion of original assessment. On the other hand, eventhough original assessments were completed at substantial variancewith the income returned on estimation basis, it is stated in theTribunal's order that from 1989-90 to 1993-94 the assessee has withoutcontest accepted the addition of Rs.1,55,15,550/-. In fact, inparagraph 20 of the Tribunal's order in the argument for the assessee,assessee concedes that they were not maintaining formal set of booksof accounts for preparing balance sheet. Even though assessee claimedthat all materials necessary for completion of assessments werefurnished by them, they have not stated what are the materialsfurnished by them for completion of original assessments. As alreadypointed out by us, they don't have even accounts pertaining toadvertisement receipts which is the major source of income of apublication company and the assessee had in fact chosen to return income from advertisement on estimation basis. We notice that theTribunal has mixed up the limitation issue with the merits ofassessment and without finding that the assessee has made fulldisclosure of materials for completion of assessments, the Tribunaldeclared the assessments as invalid which in our view, is notsustainable. In fact, in order to challenge a re-assessment on ground oflimitation, it is for the assessee to prove that they have furnished allmaterial facts necessary for completion of the original assessment.Section 145(1) among other things states that income from profits ofbusiness shall be computed in accordance with the cash, mercantile orany other system of accounting regularly employed by the assessee.Sub-section (2) of the said Section authorises the Government toprescribe accounting standards to be followed by assessees. A bestjudgment assessment under Section 144 is authorised under Section145(3) only when the Assessing Officer is satisfied that accountsmaintained by the assessee are not correct or complete. Sincebusiness income is to be computed based on method of accountingfollowed by the assessee and based on the books of accounts maintained by the assessee, the assessee is required to produce thebooks of accounts and when books of accounts are not available, in ourview, atleast minimum statements as shown in Section 139(f) shouldbe made available by the assessee to the officer. An assessee who isrequired to maintain books of accounts returns income on estimationbasis cannot claim that it has fully and truly disclosed all material factsrequired for the assessment. We do not find any material for theTribunal to hold that the assessee had disclosed fully and truly allmaterial facts required for completion of the original assessment. We,therefore, allow the departmental appeals by vacating the order of theTribunal and remand the matter to the Tribunal to consider the case onmerits after issuing notice to the parties. C.N.RAMACHANDRAN NAIRJudge V.K.MOHANANJudge