Ita/81/2008 Of The Commissioner Of Income Tax v. Shri S Rudramuniyappa

IN THER HIGH COURT OF KARNATAKDHARWAD BENCH ON THE 30 DAY OF JULY, 2015) BEEBEO THE HON’BLE MR.JUSTICE RAVI MALIMATH AND THE HON’BLE MR.JUSTICE P.S.DINESH KUMAR LT.A. NO.81/2008:! LT.A. NO.81/2008C/WLT.A. NO.83/2008 BETWERE 1.THE COMMISSIONER OF INCOME TAXFEROZ KHIMJIBHAI COMMERCIAL COMPLEX,OPP. CIVIL HOSPITAL,DR. AMBEDKAR ROAD, BELGAUM 590 001 2.THER ASST COMMISSIONER OF INCOME TAFEROZ KHIMJIBHAI COMMERCIAL COMPLEX,OPP. CIVIL HOSPITAL,DR. AMBEDKAR ROAD, BELGAUM 590 001. ... APPELLANTS (BY SRI. Y V RAVIRAJ, ADV.) ANI SHRI S RUDRAMUNIYAPPA,OPP KEB OFFICE, TYAGARAJANAGAR,CHITRADURGA ROAD, CHALLAKERE, CHITRADURGA DIST. .. RESPONDENT (BY SRI.SHASHANK HEGDE, ADV. FORSRI. A SHANKAR, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF IT ACT, 1961ARISING OUT OF ORDER DATED 13.08.2007 PASSED IN II(SS)ANO.2/PNJ/2006, FOR THE BLOCK ASSESSMENT PERIOD 1/4/1990 TO7/9/2000, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASEDTO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATERDTHRREIN AND EIC, LT.A. NO.83/2008: BETWEEN 1.THR COMMISSIONER OF INCOME TAXFEROZ KHIMJIBHAI COMMERCIAL COMPLEX,OPP. CIVIL HOSPITAL,DR. AMBEDKAR ROAD, BELGAUM,2 THER ASSISTANT COMMISSIONER OF INCOME TACENTRAL CIRCLE-2,FEROZ KHIMJIBHAI COMMERCIAL COMPLEX,OPP. CIVIL HOSPITAL, DR. AMBEDKAR ROAD,BELGAUM 590 OO1. .. APPELLANTS (BY SRI. Y V RAVIRAJ, ADV.) ANIM/S RAVI WINES TRADERSNEAR MARKET YARIBANGALORE ROAICHALIL_LAKCHITRADURGA DIST — RESPONDENT (BY SRILSHASHANK HEGDE, ADV. FORSRI. A SHANKAR, ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF IT ACT, 1961ARISING OUT OF ORDER DATED 13/08/2007 PASSED IN IT(SS)ANO.3/PNJ/2006, FOR THE BLOCK PERIOD 1/4/1990 TO 7/9/2000,PRAYING THAT THIS HON’BLE COURT MAY BERK PLEASKD FORMULATE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN,ALLOW THR APPRKAL AND SET ASIDE THER ORDER PASSED BY TITAT BANGALORE IN IT(SS) A NO.3/PNJ/2006, DATED 13/08/2007CONFIRM THR ORDERS OF THER APPELLATE COMMISSIONER ANASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE —- 2BELGAUM, RESERVED ON 09.06.2015 PRONOUNCED ON 30.07.2015 THESE APPEALS COMING ON THIS DAY, P.S.DINESH KUMARJ., PROUNCED THE FOLLOWING: JUDGMENT Revenue has preferred these appeals challenging the orderdated 13.08.2007 passed by the Income Tax Appellate Tribunal,Bangalore,in|TT(SS)ANo.2/PNJ/2006andITSS)ANo.3/PNJ/2006. The ITA No.81/2008 is by an individualITA No.83/2008 is by a firm in which the son of respondent in ITANo.81/2008 is a partner. Common questions of law and fact areinvolved in these appeals and hence, they are heard and disposed offby this common judgement ? The appeal in LT.A.No.83/2008 was admitted on 23.03.2009 to consider the following substantial questions of law; “Z)Whether the tribunal was correct in holding that theaddition made of Rs.5,38,145/- and Rs.3,01,027/- omthe papers seized in the course of search had not stoodcorroborated by other evidence and therefore the adattioncannot be added back?addition made of Rs.5,38,145/- and Rs.3,01,027/- omthe papers seized in the course of search had not stoodcorroborated by other evidence and therefore the adattioncannot be added back? Whether the tribunal was correct in holding that theaddition ofRs.8,14,907/- was made on the correspondingaddition ofRs.8,14,907/- was made on the corresponding unaccounted sale and not based on any materials othenthan the documents seized? >>>(Whether the tribunal was correct in holding that theadditionofRs.27,28,815/-madeagainstreceivable/ debtors cannot be added back as the AssessinOfficer had not established by examining the person shownin thepapers to corroborate the same?”additionofRs.27,28,815/-madeagainstreceivable/ debtors cannot be added back as the AssessinOfficer had not established by examining the person shownin thepapers to corroborate the same?” 4 The appeal in LT.A.No.81/2008 was admitted on 06.06.2011 to consider the following substantial questions of law; Whether the tribunal was correct in holding that theaddition ofRs.8,14,907/- was made on the correspondingaddition ofRs.8,14,907/- was made on the corresponding unaccounted sale and not based on any materials othenthan the documents seized? >>>(Whether the tribunal was correct in holding that theadditionofRs.27,28,815/-madeagainstreceivable/ debtors cannot be added back as the AssessinOfficer had not established by examining the person shownin thepapers to corroborate the same?”additionofRs.27,28,815/-madeagainstreceivable/ debtors cannot be added back as the AssessinOfficer had not established by examining the person shownin thepapers to corroborate the same?” 4 The appeal in LT.A.No.81/2008 was admitted on 06.06.2011 to consider the following substantial questions of law; OF|Whether the finding of Iribunat in deleting the adattionmaae by the Assessing Officer of)C5,609,878/- andC.1,52,832/- based on various loose sheets of papers,(117 in number) marked as ARW/6, is perverse andarbitrary and unsustainable in lawémaae by the Assessing Officer of)C5,609,878/- andC.1,52,832/- based on various loose sheets of papers,(117 in number) marked as ARW/6, is perverse andarbitrary and unsustainable in lawé 2Whether the finding of the Inbunal that a sum ofa.13,84,050/- is lable to be deleted, is perverse andarbitrary and contrary to law?”a.13,84,050/- is lable to be deleted, is perverse andarbitrary and contrary to law?” A The case of the revenue in these appeals 1s that therespondents/assessees are in the business of wholesale liquor trading.A seatch was conducted under Section 132 of the Income Tax Act,1961 (hereinafter referred to as ‘the Act’, for short) in the premisesbelonging to the assessees on 07.09.2000 and certain incriminating documents were seized. Consequently, proceedings under Section158(B)(C) of the Act were initiated. Pursuant to proceedings underSection 132, notice under Section 158 BC was issued to the assesseesfor returns in respect of undisclosed income in Form No.2B within 45days from the date of service of notice. Assessees did not file thereturns, but requested for copies of seized documents. Assessees filedreturns belatedly on 10.07.2001 declaring undisclosed income ofRs.NIL. During the course of seizure, large bunch of loose sheetsnumbering 117 pages in a file captioned “Paramount Double Extra”was seized from the business premises of the assessees. Page 1 to 89of the file contained cash receipts and payments for the period09.01.2000 to 19.08.2000. Writing on these papers was in vernacularlanouage ‘Kannada’. S.Rudramuntyappa (respondent in ITA 81/2008)while recording his statement on oath on 07.09.2000 stated that thefile pertained to M/s. Ravi Wine Traders (respondent in ITA83/2008) and contained cash statement which was either written byhim or his son S.R.Satish Babu or their accountant Yallppa. Firstand the second columns in the loose account sheets pertain toamount in figures and third column is the description. The firstcolumn reflects cash receipt, second column reflects payment and the third column reflects the purpose for which the amount 1s eitherreceived of paid. third column reflects the purpose for which the amount 1s eitherreceived of paid. 5.The Assessing Authority observed that there were largenumber of entries in the file. To re-confirm the correctness of figuresmentioned in the sheets, efforts were made to correlate entries withother entries in the seized documents. A bunch of loose sheetspertained to Surya Bar which is owned by his son S.R.Satish Babu andmanaged by a salesman. The sheets seized revealed that the stock ofliquor, receipt of stock, sale of liquor in units, payment receipts, payouts and payment towards rent, taxes, salary etc., were recorded.During the course of search, as also during the block assessmentproceedings, the assessees did not give any convincing explanationinspite of several opportunities. In the reply filed on variousoccasions, the assessees maintained a consistent stand that inferencedrawn is on imaginary basis and not on facts. Based on the admissionsof S.Rudramuntyappa on oath that the assessees were not maintainingany cash book ledger other than a stock register which was alsoconfirmed by the accountant, the Assessing Officer started correlatingthe figures and also collected information from the Commercial ‘TaDepartment with regard to the turn over declared by the assessees in respect of various concerns. Papers found during the search relate tothe period between 09.01.2000 and 19.08.2000. Loose sheets and theyellow coloured file disclosed that the cash was recetved not onlyfrom various retail shops and bars, but also from various personscalled Swamy, Shiva, Balraj etc., to whom assessees sold liquor onwholesale basis. In nutshell, what was found in the sheets and theyellow file was details of unaccounted sale to outside person likeShiva, Balraj, A.V.Ravi etc. and receipt of money from sistersconcerns of S.Rudramuniyappa like M/s.Ravi Wine Traders, VinayakWines. In sum and substance, the amounts recetved represented thesales made by the assessees which were not brought on the record,Based on these figures, a total turn over for the period January 2000to March 2000 was computed at Rs.34,32,140/-. The turn over for theperiod April 2000 to August 2000 was computed at Rs.48,41,150/-,There was gross discrepancy between the turn over declared to thesales ‘Tax Department and the Income Tax Department. A turn ovefor a three months period declared before the Sales Tax Authoritieswas comparable with the turn over declared by the assessees for theentire year to the Income Tax Department. Therefore, the AssessingAuthority took the turn over as mentioned herein above based on the loose sheets and the yellow file and arrived at an average figure atRs.12,00,000/- per month. Further for the year 1999-2000, turn overwas worked out on pro rata basis by taking January 2000 to March2000 as bench mark figures and estimated a turn over ofRs.1,53,19,064/-. In the returns filed, it was observed that theassessees for the year 2000-01 had declared a turn over ofRs.76,31,265/- for the year 2000 to 2001. Based on this figure, theAssessing /\uthority came to the conclusion that turn over oRs.76,87,799/- (Rs.1,53,19,064 - 76,31,265) was with regard to salesoutside the books of accounts which was not disclosed by theassessees. The turn over for the period 09.01.2000 to 19.08.2000 ascould be gathered from the loose sheets and yellow colour fileaccounted for Rs.82,73,290/-. The details such as information aboutwithdrawal by the assessees’ personal expenses, bribes paid were alsofound in the loose sheets. Therefore, the Assessing Authorityconsidered the withdrawals and bribes as profit which worked out toRs.13,78,640/- against the turn over of Rs.82,73,290/- for the period09.01.2000 to 19.08.2000. During the block assessment, the assesseeswere called upon to furnish details with regard to purchase of a SantroCar bearing No.KA-04 MA-9549 registered on 24.05.2000. The assessee claimed that the said car belonged to his_ brotheS.somashekharappa. Thus the statement of the assessee completelycorroborated the department’s claim that transactions recorded in theloose sheets were true but not disclosed to the Department. Thus, ona reasonable estimate, turn over was computed at Rs.76,87,799/- foryear 1999-2000 after giving due credit to turn over declared by theassessee in the return of income for the year ending 2001-02 whichincluded period from 01.04.2000 to 07.09.2000. Therefore, Section158BB(1)(d) was invoked for the said period and the turn over ofRs.48,41,150/- was arrived at. Invoices for sale of goods ofRs.5,40,765/- were found during the search. Therefore, the saidamount was deducted from unaccounted turn over of Rs.48,41,150/-and the balance amount of Rs.43,00,385/- was treated as unaccountedtutn over and a margin of 7% applied on the turn over for the year2001-02 and income on the undisclosed turn over was worked out atRs.3,01,027/-. The capital required for undisclosed turn over wasestimated based on stock turn over ratio and the initial capitalcalculated at 10.6% worked out to Rs.8,14,907/- and the same wasbrought to tax] 6,A proposition notice was issued to the assessee whichwas feplied on 09.08.2002 and 16.08.2002, wherein the assesseedisputed the estimated turn over for the year 2000-01. At the sametime, the assessees wete not able to establish that the turn overdeclared by him was correct. Assessing Authority made a fair andreasonable estimation. The documents found during the search alsorevealed that the assessees were due to receive money from variouspersons to whom the liquor was sold. Accounts were systematicallymaintained in the loose sheets with respect to each of the parties towhom supply of liquors was made. Assessee filed his explanations on09.08.2002 and 16.08.2002 before the Assessing Authority contendingthat even if the details contained in loose sheet Nos.67 and 68 pertainto debtors, the same could not be considered as out of books, as theywete covered and included in the regular books of accounts.Therefore, an opportunity was given to prove this stand. Theassessees and the Chartered Accountant who appeared on 16.08.2002were unable to substantiate their stand and expressed their inability toproduce the books of accounts for the year 2000-01 and 2001-02.Thus, though assessee took a categorical stand that the names foundin the loose sheets were included in the regular books of accounts, they miserably failed to establish their stand when an opportunity wasgiven. Since no convincing explanation was forthcoming and theassessee as also his Chartered Account failed to substantiate theirclaim, it was held by the Assessing Authority that the assessees hadnot discharged their burden to prove that the case made out againstthem by the appellants was untenable. Therefore, the balanceappearing in loose sheets amounting to Rs.21,18,615/- was includedin the regular books of accounts and brought to tax for the year 2000-O1. TIn the result, the Assessing Authority determined the taxin the following manner: 6SUMMARY OF UNDISCLOSBRD INCOMER FOR TBLOCK PHRRIO and held total tax payable at Rs.27,58,035/-. The order of AssessingAuthority was challenged before the Commissioner of Income Taxand the same was allowed in part vide order dated 29.12.2005 in appeal No. ITA No.325/CC-Belgaum/CIT(A)-VI/2002-03. The ordeof Commissioner of Income Tax was challenged before the IncomeTax Appellate Tribunal in No.IT(SS)A No.3/PNJ/2006 (ITAT forshort). The [TAT by its order dated 13.08.2007 allowed the appeal.Hence, these appeals, 8.Heard Shri Y.V.Raviraj, learned counsel for theappellants and Shri Shashank Heede for Shri A.Shankar, learnedCounsel for the respondents. TIn the result, the Assessing Authority determined the taxin the following manner: 6SUMMARY OF UNDISCLOSBRD INCOMER FOR TBLOCK PHRRIO and held total tax payable at Rs.27,58,035/-. The order of AssessingAuthority was challenged before the Commissioner of Income Taxand the same was allowed in part vide order dated 29.12.2005 in appeal No. ITA No.325/CC-Belgaum/CIT(A)-VI/2002-03. The ordeof Commissioner of Income Tax was challenged before the IncomeTax Appellate Tribunal in No.IT(SS)A No.3/PNJ/2006 (ITAT forshort). The [TAT by its order dated 13.08.2007 allowed the appeal.Hence, these appeals, 8.Heard Shri Y.V.Raviraj, learned counsel for theappellants and Shri Shashank Heede for Shri A.Shankar, learnedCounsel for the respondents. Q Learned counsel for the revenue taking this Courtthrough the orders of Assessing Authority, the Commissioner ofIncome Tax (Appeals) and the ITAT, submits that the Tribunalcommitted an error in holding that the addition of Rs.5,38,145/- andRs.3,01,027/- based on the papers seized in the course of search werenot corroborated by other evidence. He submits that Tribunal wasalso in error in holding that addition of Rs.8,14,907/- was based onmaterial other than the seized documents. He further submits that theview of the Tribunal with regard to the addition of Rs.21,28,815/-against receivable is also erroneous. He submits that the search andseizure Operation was conducted in the normal course of the official business. Respondent in ITA 81/2008, S.Rudramuniyappa hasadmitted on oath with regard to correctness of entries whileanswering the questions posed to him during the search. The detailsof entries found in the loose sheets were co-related with transactionheld with sisters concerns. The purchase of Santro Car was alsodisclosed in the very loose sheets and the assessee has admitted thatthe said Car belonged to his brother. This is a sufficient circumstanceto hold that the contents of loose sheets were correct. He furthersubmits that though several opportunities were given, the assesseesand the Chartered Accountant were unable to substantiate theirspecific stand that the receivables had found their place in the regularbooks of accounts. Under these circumstances, the AssessingAuthority was correct in coming to the conclusion which have beenerroneously set aside by the ITAT. Hence, he prays for allowing theseappeals. 10,Per contra, learned counsel appearing for therespondents vehemently contends that the block assessment 1s basedon some loose sheets and the yellow file. He submits that the law 1sfairly well settled as to how the block assessment 1s to be conducted 1nthe circumstances akin to the case on hand. He submits that the variousjudicialpronouncements unequivocallydeclare:34:assessment cannot be done based on estimated figures, 11,We have given our anxious considerations to thesubmissions made by the learned Counsels and perused the records. 1?)The erievance of the Revenue in these appeals 1s that theTribunal has allowed the appeals on the ground that other than thepapers seized by the Department, there was no direct or indirectdocuments to prove that the assessees indulged in unaccounted sales.Therefore, the financial figures arrived by the revenue are result of acuess work and bereft of any documentary evidence. On the otherhand, the assessees’ contention before the Appellate Authority thatentries recorded in the seized documents are true, but they relate tothe person from whose possession the documents were seized and thepresumption that it relates to assessee is rebuttable. However, theAppellate Authority while dealing with this aspect of the matter hascome to the conclusion that it is not the case of the assessees that theentries recorded are untrue and they do not relate to the assessees andaccordingly held that Section 292C would not come in aid of theDepartment to draw an inference that all entries relate to sale. The Tribunal has further come to the conclusion that there is nothing itthe seized material to show that unaccounted sales were found in thecourse of search. This finding of the ITAT is factually incorrect. Asobsetved supra, the Assessing Authority has referred to the saleinvoices to an extent of Rs.5,40,765/- and deducted the said amountas can be gathered form para 6.17 of the assessment order. 13,The next premise on which the Appellate Authorityallowed the appeals is that there was no variation in stock at the timeof search and that is a strong evidence to show that there was nounaccounted trading. It 1s to be noted that the respondentS.Rudramuntyappa in the reply statement has admitted with regard toseveral aspects including the Santro Car. The order of the AssessingAuthority is cogent and well reasoned. Every minute detail 1sreflecting in the said order. In a case of search of seizure, therevenue may discover assessees’ failure to account several transactionswhich|oughtTO|havebeen broughtTOTax.It is only in such circumstances that the provisions of search andseizure are invoked. Assessee took a definite stand that the entriesfound in the loose sheets were reflecting in the regular books. Theassessees were given a fair and reasonable opportunity to substantiate their stand. Both the assessee and the chartered accountant failed tosubstantiate the same. There is no doubt with regard to thepossession of documents in question. It 1s clearly recorded in theorder of assessment that the partner S.Rudramuniyappa and theChartered Accountant who accompanied him miserably failed tosubstantiate their claim. Further, the information gathered from thepartner in the reply gtven by him on oath has been used to assess theundisclosed income and the same has been brought to tax. There isno dispute with regard to the proposition of law that tax cannot belevied on rough estimates made on whims and fancies of theAssessing Officer. But in the cases where an assessee suppressesmaterial and conducts business in a camouflaged manner, theauthorities are clothed with powers to conduct search and seizureOperations and bring the undisclosed income to tax. We hasten to addthat while assessing the undisclosed income, the strict discipline thatneeds to be scrupulously followed is to accord a fair opportunity tothe assessee from whose possession the documents are seized. Onfacts, we ate convinced that there 1s no dispute with regard to theseizure of documents and the assessee as well as the CharteredAccountant were given sufficient opportunity to substantiate their clam but they miserably failed justify their stand. In thecircumstances, the orders of Commissioner of Income Tax (Appeals)partly allowing the appeal as well as the order of ITAT areunsustainable in law. Consequently, the appeals filed by the Revenue merits consideration. Hence, we pass the following: ORDER '>(Appeals are allowed. '>>(The substantial questions of law raised in theseappeals are answered 1n favour of the revenue.appeals are answered 1n favour of the revenue. '>>>(Order.dated13.08.2007in|17|(SS) ANo.2/PNJ/2006 and Order dated 13.08.2007 inIT (SS) A No.3/PNJ/2006 are set aside,No.2/PNJ/2006 and Order dated 13.08.2007 inIT (SS) A No.3/PNJ/2006 are set aside, '>0(Ordered accordingly. No costs. Sd/-JUDGE Rsh Sd/-JUDGE