Ita/5030/2011 Of The Commissioner Of Income Tax v. M/S Bahubali Neminath Muttin

IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 13 DAY OF JULY, 2016 PRESENT THE HON’BLE MR.JUSTICE ANAND BYRAREDDY AND THE HON’BLE MR.JUSTICE RAGHVENDRA S. CHAUHAN INCOME TAX APPEAL NO. 5029/2011 C/WINCOME TAX APPEAL NO. 5030/2011 INCOME TAX APPEAL NO.5029/2011: BETWEEN: 1.The Commissioner of Income TaxKhemjibai Complex,Khemjibai Complex, Dr. Ambedakar Road, Belgaum. 2.Assistant Commissioner of Income TaxCentral Circle –1, Belgaum.Central Circle –1, Belgaum. (Shri Ameet Kumar Deshpande, Advocate) … APPELLANTS AND: M/s. Bahubali Neminath MuttinMain Road at Post Chandachan Taluk Indi, District Bijapur – 586 205. … RESPONDENT (Shri Ashok Kulkarni & Shri K.R. Prasad, Advocates) This Income Tax Appeal is filed Under Section 260A of theIncome-Tax Act, 1961 against order passed in Income Tax AppealNo.161/PNJ/2010 dated 08-07-2011 on the file of the Income TaxAppellate Tribunal, Panaji Bench, Panaji, allowing the appeal filedby an assessee. INCOME TAX APPEAL NO.5030/2011: BETWEEN: 1. The Commissioner of Income TaxKhemjibai Complex,Dr. Ambedakar Road,Belgaum.Khemjibai Complex,Dr. Ambedakar Road,Belgaum. 2. Deputy Commissioner of Income TaxCentral Circle –1, Belgaum.Central Circle –1, Belgaum. (Shri Ameet Kumar Deshpande, Advocate) … APPELLANTS AND: M/s. Bahubali Neminath MuttinMain Road at Post Chandachan Taluk Indi, District Bijapur – 586 205. … RESPONDENT (Shri Ashok Kulkarni & Shri K.R. Prasad, Advocates) This Income Tax Appeal is filed Under Section 260A of theIncome-Tax Act, 1961 against order passed in Income Tax AppealNo.161/PNJ/2010 dated 08-07-2011 on the file of the Income TaxAppellate Tribunal, Panaji Bench, Panaji, dismissing the appealfiled by a revenue. These appeals having been reserved on 14.6.2016 andcoming on for ‘Pronouncement of Judgement’ this day, AnandByrareddy J., delivered the following: JUDGMENT These appeals are disposed of by this common judgment inview of the questions arising for consideration being similar. 2.The facts are that the assessee is a partnership firm carryingthe business as wholesale cloth merchants. The Revenue havingconducted a search under Section 132 of the Income Tax Act, 1961(Hereinafter referred to as the ‘I.T. Act’ for brevity) on 26.12.2007,the assessee had filed e-return of income for the assessment year2007-2008 declaring an income of Rs.1,05,22,030/-. Proceeding onthe basis of material seized by the assessing authority at the search, the assessment was completed in terms of Section 143 (3) of the I.T. Act in making the following additions: (i)Unexplained income on account of purchases underSection 69B of the I.T. Act at Rs.23,59,133/-Section 69B of the I.T. Act at Rs.23,59,133/- (ii)Difference in stock being undisclosed income ofRs.1,32,73,013/-Rs.1,32,73,013/- (iii)Undisclosed credits under Section 68 of the I.T. Actbeing the undisclosed income of Rs.10,72,247/-being the undisclosed income of Rs.10,72,247/- (iv)Disallowance under Section 40A (3) of the I.T. Actbeing undisclosed income Rs.24,216/-being undisclosed income Rs.24,216/- (v)Gross profit on suppressed sales being undisclosedincome at Rs.19,45,509/-income at Rs.19,45,509/- (vi)Addition on account of cessation of liability underSection 41 (1) of the I.T. Act at Rs.2,37,818/-.Section 41 (1) of the I.T. Act at Rs.2,37,818/-. 3.The assessee had filed an appeal before the Commissioner of Income Tax (Appeals). The said authority had deleted the additionunder Section 69B and confirmed the addition in stock atRs.64,28,166/- as against addition made by the assessing authorityat Rs.1,32,72,013/-. The addition for undisclosed credits underSection 68 of the I.T. Act at Rs.10,72,247/- was confirmed. Theaddition on account of gross profit on suppressed sales was deleted (v)Gross profit on suppressed sales being undisclosedincome at Rs.19,45,509/-income at Rs.19,45,509/- (vi)Addition on account of cessation of liability underSection 41 (1) of the I.T. Act at Rs.2,37,818/-.Section 41 (1) of the I.T. Act at Rs.2,37,818/-. 3.The assessee had filed an appeal before the Commissioner of Income Tax (Appeals). The said authority had deleted the additionunder Section 69B and confirmed the addition in stock atRs.64,28,166/- as against addition made by the assessing authorityat Rs.1,32,72,013/-. The addition for undisclosed credits underSection 68 of the I.T. Act at Rs.10,72,247/- was confirmed. Theaddition on account of gross profit on suppressed sales was deleted and the addition under Section 41 (1) was confirmed. That orderwas challenged by both, the assessee as well as the Revenue beforethe Income Tax Appellate Tribunal (ITAT). The assessee hadraised an additional ground on the validity of assessment completedunder Section 143 (3) of the I.T. Act and since it was an actionbrought pursuant to a search under Section 132 of the I.T. Act, theassessment, it was contended, ought to have been completed underSection 153A of the I.T. Act and not under the usual provisions ofthe I.T. Act. The Tribunal had accepted the said contention andheld that the order of assessment was vitiated. On merits, theTribunal deleted the entire additions made by the Assessing Officerand those confirmed by the appellate authority and therefore thepresent appeals. 4.The following substantial questions of law have been framedby Shri Ameet Kumar Deshpande, the learned Counsel for theRevenue as on 14.06.2016 in variance with the substantialquestions of law that were framed in the memorandum of appeal, and as framed by this Court at the time of admission of theseappeals as follows: “1. Whether the ITAT is justified in holding that theassessment was required to be done under section 153A ofthe Income Tax Act, 1961 and not under section 143 of theIncome Tax Act, 1961? 2. Whether the ITAT is justified in not upholding theaddition made on account of ‘unaccounted purchases’, byignoring the provisions of section 69B of the Income TaxAct, 1961? 3. Whether the ITAT is justified in deleting the additionmade by the CIT(A) on account of ‘unaccountedsales/suppressed sales’, when the ITAT has not disbelievedthe amount of closing stock arrived at by the CIT(A)?” 5.It is contended by the learned Counsel for the Revenue thatthe assessment having been held to be bad in law since it ought tohave been concluded under Section 153A read with Section 153Bof the I.T. Act as being erroneous. It is contended that the Tribunalhas failed to note, from a reading of Section 153A (1) (b) of the I.T.Act, that the assessing officer has to finalise the assessment under Section 153A alone in respect of each assessment year fallingwithin such six assessment years and it is nowhere provided that heis empowered to issue notice under Section 153A of the I.T. Act forthe year in which the search is conducted or would be vested withjurisdiction to finalise the assessment under Section 153A of theI.T. Act. 6.It is also contended that in view of Section 292B of the I.T.Act notice or summons of proceedings is not rendered invalid if theproceedings, in substance and effect, are in conformity with oraccording to the intent and purpose of the I.T. Act. It is furtherurged that the provisions of Section 292BB of the I.T. Act are alsoapplicable to the present case on hand as the assessee hadparticipated in the proceedings and as such it ought to be deemedthat notice under the provisions of the Act had been duly servedupon the assessee. The learned Counsel would specifically urge onmerits as to the Tribunal having committed an error in reversing theorders of the CIT (Appeals) as well as the Assessing Officer and therefore he seeks that the substantial questions of law raised beanswered in favour of the revenue. 6.It is also contended that in view of Section 292B of the I.T.Act notice or summons of proceedings is not rendered invalid if theproceedings, in substance and effect, are in conformity with oraccording to the intent and purpose of the I.T. Act. It is furtherurged that the provisions of Section 292BB of the I.T. Act are alsoapplicable to the present case on hand as the assessee hadparticipated in the proceedings and as such it ought to be deemedthat notice under the provisions of the Act had been duly servedupon the assessee. The learned Counsel would specifically urge onmerits as to the Tribunal having committed an error in reversing theorders of the CIT (Appeals) as well as the Assessing Officer and therefore he seeks that the substantial questions of law raised beanswered in favour of the revenue. 7.On the other hand, Shri Ashok Kulkarni, learned Counsel forthe assessee has pointed out that in so far as the first question that israised as a substantial question of law, it is contended that theTribunal has applied and followed the decision of the Income TaxAppellate Tribunal, Indore Bench in the case of Ujjain vs. SushilKumar Jain in IT(SS) Appeal No.54 (INDORE) of 2007 dated20.01.2010, (a copy of the said decision is produced) wherein theissue for adjudication was “Whether assessment for the previous year in which searchis initiated under Section 132 of the Act or requisitionunder Section 132A is made has to be done in accordancewith the provisions of Section 153A/153B of the Act?” It is contended by the learned Counsel for the respondent thatafter a detailed consideration of the provisions of the Act, theTribunal has allowed the appeal filed by the Revenue therein, andtherefore while construing a Central legislation, like the Income Tax Act, which has an All-India application, there ought to beuniformity in the interpretation of the provisions, by the severalbenches of the Tribunal. Therefore the interpretation of theprovision as canvassed and acted upon by the Department in onejurisdiction should not be departed from to the extent reasonablypossible in other jurisdictions governed by the same law. 8.The further contention on behalf of the Revenue that in thelight of Section 292B of the I.T. Act any irregularity in that regardby the authorities should be ignored as a mere technical defect isnot tenable, as it is a question of jurisdiction and not a meretechnicality. It is contended by the learned Counsel for therespondent that in any event the question is purely academic as theTribunal has decided the appeal in favour of the respondent onmerits and hence the question does not really arise forconsideration. 9.In so far as the second and third questions of law areconcerned, it is contended by the learned Counsel for the assessee that pursuant to the appeals before the CIT (Appeals) and thefurther appeals before the ITAT and the present appeals havingbeen filed by the Revenue, the substantial questions of law thathave been framed in the present appeals would have to be viewedin the background that the appellate Tribunal on a scrutiny of theentire factual material on record has passed the impugned order andnow an attempt is being made by the Revenue to seek re-appreciation of the evidence on factual aspects and the conclusionsdrawn in the order of the appellate tribunal, which according to thelearned Counsel is impermissible under Section 260A of the I.T.Act. 10.It is further contended that there is a clear finding of fact bythe ITAT on all the issues raised in the present appeals. It issignificant that no additional material is placed before this Court todemonstrate that the findings of fact arrived at by the Tribunal areperverse. It is emphasized that the cardinal principle is that theTribunal which is the final fact finding authority and if such 10.It is further contended that there is a clear finding of fact bythe ITAT on all the issues raised in the present appeals. It issignificant that no additional material is placed before this Court todemonstrate that the findings of fact arrived at by the Tribunal areperverse. It is emphasized that the cardinal principle is that theTribunal which is the final fact finding authority and if such findings of fact are to be assailed, it would require a substantialquestion as to there being a perverse finding of fact by the Tribunalto have been raised. In the absence of any such question havingbeen raised, it cannot be said that any question of law arises forconsideration and much less a substantial question of law ascontemplated under Section 260A of the I.T. Act. Reliance isplaced on the following authorities by the learned Counsel for theabove propositions: 1.330 ITR 1 (SC) @ 7-9 (Vijay Kumar Talwar vs.Commissioner of Income Tax)Commissioner of Income Tax) 2.378 ITR 640 (SC) @ 648 (Mangalore Ganesh BeediWorks vs. Commissioner of Income Tax and Another)Works vs. Commissioner of Income Tax and Another) 3.273 ITR 50 (SC) @ 55 (M. Janardhan Rao vs. JointCommissioner of Income Tax)Commissioner of Income Tax) 4.300 ITR 205 (SC) @ 211,212 (Sudarshan Silks andSarees vs. Commissioner of Income Tax)Sarees vs. Commissioner of Income Tax) 5.247 ITR 178 @ 180, 181, 182 (K. Ravindranathan Nairvs. Commissioner of Income Tax)vs. Commissioner of Income Tax) 11.Alternatively, and without prejudice to the preliminaryobjections raised above, he would submit that, on merits it should be noted that admittedly the books of accounts of the respondenthave been rejected by the assessing authority. The profit of therespondent is estimated as provided under Section 145 (3) of theI.T. Act. When the gross profit rate is applied, it would cover anyinfirmity and there was no need for the Assessing Officer to make ascrutiny of the amounts incurred on the purchases by therespondent. In any event, the revenue would not be in a position torely on the rejected books of accounts for making the additions onaccount of trade creditors and also for the purpose of arriving at aclosing stock. This is the view taken by atleast four High Courts inthe following reported judgments: 1.232 ITR 776 (AP) @ 778, 779 (Indwell Constructionsvs. Commissioner of Income Tax)vs. Commissioner of Income Tax) 2.229 ITR 229 (All) @ 232 (Commissioner of IncomeTax vs. Banwari Lal Banshidhar)Tax vs. Banwari Lal Banshidhar) 3.302 ITR 246 (P & H) @ 249 (Commissioner of IncomeTax vs. Aggarwal Engineering Company)Tax vs. Aggarwal Engineering Company) 4.377 ITR 568 @ 580 (Commissioner of Income Tax vs.Amman Steel and Allied Industries)Amman Steel and Allied Industries) 12.In the light of the above contentions and on a perusal of theimpugned orders, we notice that the learned Counsel for theappellants had re-worded the substantial questions of law as framedin the appeal memoranda and as framed by this Court at the stage offinal hearing as on 14.06.2016 as above. It is evident from areading of Section 260A of the I.T. Act that the appeal would lie tothis Court from an order of the ITAT only if there is a substantialquestion of law that arises for consideration. In Vijay KumarTalwar’s case supra, the Supreme Court has held that it ismandatory for the High Court to formulate the substantial questionof law on which the appeal would be considered. But that theexpression “a substantial question of law” is not defined in the I.T.Act. However, it has acquired a definite connotation throughvarious judicial pronouncements. The learned Counsel has drawnattention to the judgment of Shri Chunilal V. Mehta and Sons Ltd.vs. Century Spinning and Manufacturing Compay Limited reportedin AIR 1962 SC 1314, a Constitution Bench of the Apex Court hasheld as follows: “18. The proper test for determining whether a question oflaw raised in the case is substantial would, in our opinion,be whether it is of general public importance or whether itdirectly and substantially affects the rights of the partiesand if so whether it is either an open question in the sensethat it is not finally settled by this court or by the PrivyCouncil or by the Federal Court or is not free fromdifficulty or calls for discussion of alternative views. If thequestion is settled by the highest court or the generalprinciples to be applied in determining the question arewell settled and there is a mere question of applying thoseprinciples or that the plea raised is palpably absurd thequestion would not be a substantial question of law.” 19. Similarly, in Santosh Hazari vs. Purushottam Tiwari[2001] 3 SCC 179, a three-judge Bench of this Courtobserved that: “A point of law which admits of no two opinionsmay be a proposition of law but cannot be a substantialquestion of law. To be ‘substantial’ a question of law mustbe debatable, not previously settled by law of the land or abinding precedent, and must have a material bearing onthe decision of the case, if answered either way, insofar asthe rights of the parties before it are concerned. To be aquestion of law ‘involving in the case’ there must be first afoundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrivedat by court of facts and it must be necessary to decide thatquestion of law for a just and proper decision of the case.An entirely new point raised for the first time before theHigh Court is not a question involved in the case unless itgoes to the root of the matter. It will, therefore, depend onthe facts and circumstance of each case whether a questionof law is a substantial one and involved in the case, or not;the paramount overall consideration being the need forstriking a judicious balance between the indispensableobligation to do justice at all stages and impellingnecessity of avoiding prolongation in the life of any lis.” 20. In Hero Vinoth (Minor) Vs. Seshammal reported in[2006] 5 SCC 545, 556 this Court has observed that: "The general rule is that High Court will notinterfere with the concurrent findings of the courts below.But it is not an absolute rule. Some of the well-recognisedexceptions are where (i) the courts below have ignoredmaterial evidence or acted on no evidence; (ii) the courtshave drawn wrong inferences from proved facts byapplying the law erroneously; or (iii) the courts havewrongly cast the burden of proof. When we refer to‘decision based on no evidence’, it not only refers to caseswhere there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is notreasonably capable of supporting the finding.” 21. A finding of fact may give rise to a substantial questionof law, inter alia, in the event the findings are based on noevidence and/or while arriving at the said finding, relevantadmissible evidence has not been taken into considerationor inadmissible evidence has been taken into considerationor legal principles have not been applied in appreciatingthe evidence, or when the evidence has been misread. (See:Madan Lal Vs. Mst. Gopi & Anr. [19800 4 SCC 255;Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi [2009] 3SCC 287; Commissioner of Customs (Preventive) Vs. VijayDasharath Patel [2007] 4 SCC 118; Metroark Ltd. Vs.Commissioner of Central Excise, Calcutta [2004] 12 SCC505; West Bengal Electricity Regulatory Commission Vs.CESC Ltd. [2002] 8 SCC 715).” 13.Further, in Mangalore Ganesh Beedi works case supra theSupreme Court has held as follows: “19. xxx There is a clear finding of fact by the Tribunalthat the legal expenses incurred by the assessee were forprotecting its business and that the expenses were incurredafter November 18, 1994. There is no reason to reversethis finding of fact particularly since nothing has been 13.Further, in Mangalore Ganesh Beedi works case supra theSupreme Court has held as follows: “19. xxx There is a clear finding of fact by the Tribunalthat the legal expenses incurred by the assessee were forprotecting its business and that the expenses were incurredafter November 18, 1994. There is no reason to reversethis finding of fact particularly since nothing has been shown to us to conclude that the finding of fact wasperverse in any manner whatsoever. That apart, if thefinding of fact arrived at by the Tribunal were to be setaside, a specific question regarding a perverse finding offact ought to have been framed by the High Court. TheRevenue did not seek the framing of any such question. Inthis regard, reference may be made to K. RavindranathanNair v. Commissioner of Income Tax [2001] 247 ITR 178, 181 (SC) wherein it was observed: “The High Court overlooked the cardinalprinciple that it is the Tribunal which is thefinal fact-finding authority. A decision onfact of the Tribunal can be gone into by theHigh Court only if a question has beenreferred to it which says that the finding ofthe Tribunal on facts is perverse, in the sensethat it is such as could not reasonably havebeen arrived at on the material placed beforethe Tribunal. In this case, there was no suchquestion before the High Court. Unless anduntil a finding of act reached by the Tribunalis canvassed before the High Court in themanner set out above, the High Court isobliged to proceed upon the findings of factreached by the Tribunal and to give ananswer in law to the question of law that isbefore it.” 20. Accordingly, we hold that the High Court was notjustified in upsetting a finding of fact arrived at by theTribunal, particularly in the absence of a substantialquestion of law being framed in this regard. Therefore, we set aside the conclusion arrived at by the High Court onthis question and restore the view of the Tribunal andanswer the question in favour of the Assessee and againstthe Revenue.” 14.In M. Janardhan Rao’s case, Sudarshan Silks and Sarees caseand K. Ravindranathan Nair’s case supra, the Apex Court has againreiterated the principles laid down in the aforesaid decisions. 15.The principle that if a finding of fact is not challenged asbeing perverse, the High Court is bound to accept such finding.Therefore, as no such substantial question of law has been framedand the questions pertain to findings of fact, which cannot be saidto be perverse as it is evident that the books of accounts of therespondent had been rejected by the assessing authority, in whichcase the same books of accounts could not be relied upon in anaddition on account of trade creditors and also for arriving at theclosing stock. This is an established principle as has been held inthe decisions relied upon by the respondent namely IndwellConstructions case, Banwari Lal Banshidhar’s case, Aggarwal Engineering Company’s case and Amman Steel and AlliedIndustries,case supra. 16.In the light of the above, there is no substantial question oflaw that arises for consideration and the findings of the Tribunalcannot be said to be perverse, as the reasons assigned by theTribunal are certainly acceptable and do not warrant interference.Consequently, the appeals are dismissed. Sd/- JUDGE swk Sd/- JUDGE