Ita/69/2001 Of The Commissioner Of Income Tax v. M/S.meenakshi Lucky Centre

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY ,THE 27TH DAY OF NOVEMBER 2018 / 6TH AGRAHAYANA,1940 ITA.No. 69 of 2001 AGAINST THE ORDER/JUDGMENT IN OTHERS 7/2000 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 30-11-2000 APPELLANT/S: THE COMMISSIONER OF INCOME TAX,TRIVANDRUM. BY ADVS.SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR ITSRI.GEORGE K. GEORGE SC FOR ITSRI.JOSE JOSEPH SC FOR INCOME TAX RESPONDENT/S: M/S.MEENAKSHI LUCKY CENTRE,Y M C A ROAD, KOTTAYAM BY ADV. SRI.ANIL D. NAIR OTHER PRESENT: SRI PKR MENON SR FOR GOI TAXES, SRI JOSE JOSEPHSC THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 27.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: J U D G M E N T Vinod Chandran, J The assessee respondent carried on businessin lottery as authorised agents of the Kerala Stateand many other States. A search was conductedunder Section 132 of the Income-Tax Act, 1961 inthe business premise of the assessee on 19.03.1996.A notice under Section 158 BC was issued on6.2.1997 The block return was filed on 26.03.1997pursuant to which the Assessing Officer carried outthe block assessment for the period 01.04.1984 to19.03.1996 assessing a total undisclosed income ofRs.1,57,30,590/-. The assessee went up to theTribunal which remanded the matter for furtherverification by the Assessing Officer. 2. The Tribunal in its earlier order asseen from the extracts, in the present impugnedorder, spoke of the assessee not being given a reasonable opportunity to defend the variousadditions proposed especially in the context of thelimitation fast approaching. The assessee's requestto produce further evidence, made through anaffidavit was also declined by the AssessingOfficer. The Assessing Officer was hence directedto carry out a fresh assessment. The AssessingOfficer then, determined an undisclosed income ofRs.1,46,20,170/-. 3. The major heads under which the undisclosed income was proposed were as follows:- We see from the order of the Tribunal that each ofthe separate heads were considered with referenceto the grounds raised by the assessee and argumentsadvanced by the Department as also reconciliation made of the various statements as produced by theassessee before the Tribunal. The assessee hadfiled as many as 11 paper books and argument noterunning to 22 pages exclusive of the schedules.The Tribunal pertinently noticed that the case inpoint is one illustrating the extent of damage thatcan be done by an ill informed and possiblyoverworked part-time accountant. The Tribunalreconciled the figures as projected by the assesseeunder each of the heads and arrived at a findingthat the determination of undisclosed income by theAssessing Officer was on the higher side. TheTribunal also found that the books of accounts werenot properly kept and there was definitelydiscrepancies in the accounts as maintained by theassessee. It was in such circumstances, that alump sum estimation was made of Rs.20,00,000/- 4. We see from the memorandum of appealthat all the questions raised are on facts. We have 4. We see from the memorandum of appealthat all the questions raised are on facts. We have gone through the entire order of the Tribunal,which indicates that each of these aspects havebeen considered by the Tribunal and reconciled withthe argument addressed on behalf of the assessee.Out of the total un-disclosed income determined bythe A.O.,substantial portion ie: Rs.1,15,41,397relates to the assessment year 1995-96, for whichyear the assessee had filed its return before thedue date itself and the assessment was notcompleted in accordance with the statute. Even inthe order passed after remand the A.O has verbatimreproduced the earlier order and reiterated theearlier additions made, except an addition of Rs.10lakhs. The accounts were found to be maintained ina haphazard manner, some under the English systemand some under the Indian system, creating aconfusion as to the credits and debits figuring inthe ledgers maintained. The cash balance shown bythe assessee in its books included not only cash in hand but also the prize winning lotteries. Theassessee explained that this was because for smallprizes of value less than Rs. 100/-, it was noteconomical for the winner to claim the prizedirectly from the Government who runs the lotteryand the assessee paid up the same and latercollected it from the respective Governments. Thiswas not the income of the assessee though shown ascash-in-hand. 5. The books of accounts relied on for theassessment year 1995-96 was a personal memorandumwhich had not been accounted and written upproperly in a ledger format. The discrepancy foundin the closing balance of the previous year and theopening balance of the subject year was argued tobe due to proper reconciliation having not beencarried out of the various right-offs anddiscounts. This accounted for almost Rs. 50 lakhsincome determined for 1995-96, as undisclosed. The other major addition for that year, of a littlemore than Rs. 65 lakhs, was under the head“understatement of cash balance”. This againoccurred due to the Accountant having included thereceipt of prize winning tickets, but having notdebited those winning tickets issued to others. Theblunder was noticed by the Accountant later andthere was a rectification made by the assessee inthe day books maintained for the respective yearswhich was not properly appreciated by the A.O. TheA.O had also relied, selectively on the seizedledgers, acting upon some and ignoring others. 6. Individual entries were wrongly made andthere also occurred jumbling of figures, majorinstances of which were noticed by the Tribunal.Instances also were pointed out when the Accountantfailed to enter even Demand Drafts deposited withthe banks in the day book leading to allegation ofunexplained credits in Banks. On facts the aggregate understated debit of Rs. 40,08,241 wasfound to match the under stated credits of twoAgencies. The Tribunal has dealt with each of theadditions made by the A.O with reference to theexplanation offered by the assessee and thereconciliation statements produced, as the lastfact finding authority. The A.O did not at allcarry out any enquiry with respect to theaffidavits filed by the sub-agents as to theamounts receivable from them, which the A.Odetermined wrongly from entries in a rough-bookwhich did not show the receipts as such. Thediscrepancies noticed by the Assessing Officer werefound to be arising only on account of the shabbymanner in which various transactions were carriedout and the same accounted in the books. 7. The Tribunal after extracting thefigures available for the various years in theblock period, made an estimation of the lump sum addition on a fair basis on sound accountingprinciples in the following manner: It may be noticed that the rate of 7. The Tribunal after extracting thefigures available for the various years in theblock period, made an estimation of the lump sum addition on a fair basis on sound accountingprinciples in the following manner: It may be noticed that the rate of gross surplus return on theturnover(Sl.No.7) has come downfrom 3.13%. In the assessment year1991-92 to 1.37% in the asstt.year1994-95, for which there is nospecific reason given before us.If we estimate the gross profitrate at .5% over the gross surplusrate on the consolidated turnoverfortheseyearsofRs.46,10,42,011/-, it would give a figureofRs.1,03,73,495/-(Sl.No.13_. It is in excess of thegross surplus disclosed for theseyears of Rs.80,92,824/-(Sl.No.6 ofthe above table) by Rs.22,80,635/-. ::10:: Taking an overall view of thematter,wedeterminethe undisclosed income for the blockperiod at Rs.20,00,000/-(Rs. Twenty lakhs). Needless to mention that this is over and above the incomereturned/assesseed in the regular assessment for the block period. The assessee gets a relief of Rs.1,26,20,170/- (Rs.1,46,20,170 - Rs.20,00,000). The estimate made is on a fair basis and does not warrant interference in this appeal. We hence are of the opinion that the questions raised in thememorandum of appeal are on facts. 8. Then, the learned Senior Counsel, Government of India (Taxes) raised a question oflaw which according to him is as below: Whether on the facts and circumstances ofthe case, the Tribunal having found thebooks of accounts to be not properlymaintained, ought not the Tribunal havereferred back the question of estimationto the Assessing Officer? 9. The learned Senior Counsel also relied on the decision of the Hon'ble Supreme Court inCIT v. McMillan And Company[1958(33) ITR 182]. Thelearned Senior Counsel would specifically take usto page 191, wherein the power conferred on theAssessing Officer and that on the AppellateAuthority were discussed. The Hon'ble SupremeCourt found 10. ... It is true that the decision asto the method of accounting is to bearrived at first by the Income Tax Officerafter a careful scrutiny of the accountswhether they are simple or complicated, andthe power is to be reasonably and judicially exercised, which excludes anysubjective or arbitrary decision by theIncome Tax Officer. It cannot, however, besaid that a power so exercised is clothedwith finality and would be excluded fromreview by the Appellate AssistantCommissioner; and in reviewing the orderthe Appellate Authority can exercise thesame powers which the Income Tax Officercould exercise. Our attention has beendrawn to the difference in language inwhich the two conditions for theapplication of the proviso have beenexpressed; the first condition is fulfilledif no method of accounting is regularlyemployed; the second condition, however,requires an opinion viz. the opinion of theIncome Tax Officer that the income, profitsand gains cannot be properly deduced fromthe method of accounting regularlyemployed. It is pointed out that the firstconditioninvolvesanobjectivedetermination — not by any named authoritybut by any and every authority which mayhave to consider whether the condition asto the regularity of the method employed has been fulfilled or not; whereas thesecond condition involves a determinationby a named authority. The argument is thatby reason of the aforesaid difference inlanguage, the legislature clearly intendedthat the opinion of no other officer can besubstituted for the opinion of the namedauthority viz. the Income Tax Officer, withregard to the fulfilment of the secondcondition; therefore, once the Income TaxOfficer accepts the method of accounting asproper,theAppellateAssistantCommissioner has no jurisdiction to gobehind that opinion. We are unable toaccept this argument as correct. It is tobe remembered that with regard to bothconditions, the first and initial duty isthat of the Income Tax Officer to determinewhether the conditions or any of them arefulfilled; secondly, if the opinion of theIncome Tax Officer with regard to thesecond condition is to be inviolate byreason of the difference in language, thenit should be inviolate in all cases. Whyshould it be inviolate in one case and notso when the assessee appeals against a determination made adverse to him? We feelthat the second condition is expressed inthe terms in which it has been expressed,because it involves an inferential processand the expression “in the opinion of theIncome Tax Officer” is aptly used as thatofficer must in the first instance make thedetermination. It does not necessarilyfollow that the Appellate AssistantCommissionercannotrevisethedetermination and exercise the power whichthe Income Tax Officer could exercise. 10. It is the contention of the learnedSenior Counsel that estimation is the exclusivepremise of the Income-Tax Officer and that at thefirst instance, it has to be done by the ITO. Inthe present case, in fact, the A.O had made theestimation and the Appellate Tribunal interferedwith it and made a lump sum estimation finding thatthe method of accounting followed by the assesseewas one from which the income, profits and gains cannot be properly deduced therefrom. Thedetermination of undisclosed income as made by theA.O was found to be faulty by the Tribunal and thatis a question on facts which we would not ventureinto in an income-tax appeal, the contours of whichare clearly defined confining it to answering thequestions of law, unless there is a perversefinding on facts. There can be no perversity foundin the order of the Tribunal which is based onsound accounting principles and the reconciliationstatements as also the explanations submitted bythe assessee before the Tribunal. Insofar as thequestion as framed by us, on persuasion of thelearned Senior Counsel, we find that the decisionrelied on only commends affirmation of theTribunals order. The decision is an authority forthe proposition that though the issue as to whetherthere is a method of accounting employed by theassessee and it is possible therefrom to deduce the income, profits and gains has to be firstconsidered by the A.O, the same is subject and opento review on both counts by the appellateauthorities under the Income Tax Act. The A.O whenfinding the accounting to be not proper also, inthe first instance, has to decide on the manner inwhich the computation has to be made to determinethe income brought to tax, which also the appellateauthorities can interfere with. In the present casethe same has been done by the A.O at the firstinstance and it has been interfered with by theTribunal and an estimation carried out, from thefigures as available in the records of therespective years. We also notice that the last ofthe years assessed in the block period was 1996 andthe appeal is of the year 2001. When there ariseno question of law and the clear finding of theTribunal is that the haphazard manner in which thebooks of accounts are maintained make it difficult to ferret out properly and determine the actualundisclosed income; we do not find any reason tonow remand the matter. In such circumstance we donot think that a remand has to be made to permitthe Assessing Officer to make a fresh estimation inthe aforesaid case. We also notice that once aremand was made by the Tribunal finding violationof principles of natural justice and lack ofapplication of mind; upon which the A.O reiteratedthe entire additions earlier made; except anaddition of Rs.1O lakhs. We hence reject the appeal. There is noorder as to costs. Sd/- K. Vinod Chandran, Judge jma Sd/- Ashok Menon, Judge APPENDIX PETITIONER'S/S EXHIBITS: ANNEXURE A(1)TRUE COPY OF THE STATEMENT OF SUNDRY DEBTORS ON 31.3.1995. ANNEXURE A(2)TRUE COPY OF THE STATEMENT OF THE ASSESSEE.ASSESSEE. ANNEXURE A(3)TRUE COPY OF THE STATEMENT FILED BY THEASSESSEE RECONCILING THE CASH BALANCE.ASSESSEE RECONCILING THE CASH BALANCE. ANNEXURE A(4)TRUE COPY OF THE DETAILS OF UNDISCLOSEDINCOME AND THE DETAILS OF INCOME ASSESSED/RETURNED.INCOME AND THE DETAILS OF INCOME ASSESSED/RETURNED. ANNEXURE ATRUE COPY OF ITAT'S ORDER DATED 18.11.1997.18.11.1997. ANNEXURE BTRUE COPY OF ASSESSING OFFICER'S ORDER DATED 28.3.2000.DATED 28.3.2000. ANNEXURE CTRUE COPY OF ITAT'S ORDER DATED 30.11.2000.