Ita/8/2012 Of Malanadu Tourist Home v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAMPRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 12TH DAY OF NOVEMBER 2018 / 21ST KARTHIKA, 1940 ITA.No. 8 of 2012 AGAINST THE ORDER/JUDGMENT IN ITA 484/COCH/2009 ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 19.8.2011 APPELLANT/S:/APPELLANT/ASSESSEE: MALANADU TOURIST HOMEKOTTACHERRY, KANHANGAD BY ADVS.SMT.PREETHA S.NAIRSRI.K.JOHN MATHAISRI.M.GOPIKRISHNAN NAMBIARSRI.P.BENNY THOMASSRI.P.GOPINATH RESPONDENT/S:/RESPONDENT/REVENUE: COMMISSIONER OF INCOME TAXSAHANA BUILDING, MELLECHOVVA, KANNUR-670006 BY ADVS.SRI.PKR MENON, SR. COUNSEL, GOI (TAXES)SRI.JOSE JOSEPH SC FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.11.2018, ALONG WITH ITA NO.20/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: K.VINOD CHANDRAN & ASHOK MENON, JJ. -------------------------------------------ITA Nos. 8 and 20 of 2012 ------------------------------------------- Dated this the 12[th] day of November, 2018 J U D G M E N T Ashok Menon, J. Aggrieved by the common order of the IncomeTax Appellate Tribunal, the assessee has approachedthis Court with these appeals. The assessee isinvolved in conducting a bar attached hotel. He filedreturn of income for the assessment year 2006-07 on31.10.2006 declaring a total income of Rs.21,56,870/-.The case was selected for scrutiny and notice underSection 143(2) of the Income Tax Act, 1961 ('Act', forshort) was served on the assessee on 23.10.2007. Inthe survey conducted under Section 133A of the Act atthe business premises of the assessee on 13.03.2006 bythe Assistant Director of Income Tax (Investigation),Kannur, incriminating documents and evidences werenoticed, which clearly established that the GrossProfit as a percentage of sales turnover of theassessee's business was higher than the return filed over the years. The daily statement and sale voucherswere found to be destroyed by burning after reportingthe sale amount of liquor to the Managing Partner. Theassessee offered an additional amount of Rs.23,00,000/-for assessment consequent to the survey proceedings,which was found to be insufficient and the AssessingOfficer (AO) added a sum of Rs.14,00,000/- to make goodthe shortfall. The assessee agreed to that. Certainamounts towards expenditure pertaining to vehicles weredisallowed and the ultimate assessment was made as perAnnexure-A. The penalty proceedings were dropped by theAO vide order at Annexure-B in ITA No.20/2010. 2.The Commissioner of Income Tax exercisinghis revisional jurisdiction under Section 263 of theAct proceeded against the assessee and two orders werepassed respectively on 02.07.2009 and 29.06.2009 inrespect of the quantum and penalty proceedings. TheCommissioner observed that, having found that the GrossProfit ranged between 32% and 57%, the average was 42%,and on giving a margin of 5%, the gross profit shouldnot have been worked at less than 37%. The sum ofRs.64.83 lakhs worked out to only 23.63%. Hence, the Commissioner directed the AO to make a freshassessment. The Commissioner also did not approve theaction of the AO in letting of the assessee from theliability to pay penalty. It was found that this is afit case for imposing a maximum penalty of 300% on theaddition of Rs.14 lakhs. 3.Aggrieved by these orders of the Commissioner of Income Tax, the assessee approached theIncome Tax Appellate Tribunal and vide the common orderdated 19.08.2011, it upheld the assessment and alsojustified the penalty, but reduced the penalty from300% of the tax on the admitted income ofRs.14,00,000/- to 200%. This order is impugned. 4.The following questions of law arise forconsideration, as re-framed by us:- Commissioner directed the AO to make a freshassessment. The Commissioner also did not approve theaction of the AO in letting of the assessee from theliability to pay penalty. It was found that this is afit case for imposing a maximum penalty of 300% on theaddition of Rs.14 lakhs. 3.Aggrieved by these orders of the Commissioner of Income Tax, the assessee approached theIncome Tax Appellate Tribunal and vide the common orderdated 19.08.2011, it upheld the assessment and alsojustified the penalty, but reduced the penalty from300% of the tax on the admitted income ofRs.14,00,000/- to 200%. This order is impugned. 4.The following questions of law arise forconsideration, as re-framed by us:- (1)Was the Tribunal justified in finding thatthe assessment made by the AO was erroneous andprejudicial to the interest of Revenue and thatthere was sufficient reason for the Commissionerto invoke the provisions of Section 263 of theAct? (2)Was the Tribunal justified in upholding theorder of penalty imposed by the Commissioner underSection 271(1)(c) of the Act, and limiting theorder of penalty to only 200% despite havingformed an opinion that there was error incalculating the gross profit and computation ofincome by the AO? 5.We heard the learned counsel for theappellant-assessee and the learned Senior Counsel,Government of India (Taxes) for the Department. 6.Regarding the error in calculation of thegross profit, the Commissioner has stated that GrossProfit of Rs.64.83 lakhs on a turnover of Rs.2.75crores worked out to be only 23.63%. Additional amountof Rs.23 lakhs comes to 8%. The AO made an addition ofRs.14 lakhs which would come to 5% more. The totalwould be 36%. The Appellate Authority found that theaverage being 42%, the AO should not have made anassessment at less than 37%. It was also observed thatthere was admission of hidden expenditure, which provesadditional income. The assessee had spent a sum ofRs.28 lakhs on the construction of a building regarding which, no verification was made by the AO. Penalty at300% of the addition was also made. 7.The Tribunal has endorsed the findings ofthe Appellate Authority except in respect to thefinding regarding the hidden expenditure, and the rateof penalty. 8.It was found by the AO that furtheradditions were to be made following the scrutiny andtherefore, the penalty proceedings under Section 271(1)(c) of the Act was dropped. The Commissioner has givenhis reasons for interference pertaining to theimposition of penalty, which was upheld by theTribunal, except that the percentage was reduced. 9.We find that the Tribunal could not havesubstituted its own reasoning which were required to berecorded by the AO and if the AO did not record thereason, the assessee could not have found fault withit. The learned counsel for the assessee relies on thedecision in (2008) 306 ITR 52 (SC) [Toyota MotorCorporation v. Commissioner of Income Tax] in supportof the contention. There can be no doubt that so longas the view taken by the AO is a possible view, the same ought not to be interfered with by theCommissioner under Section 263 of the Act merely on theground that there is another possible view of thematter. Permitting exercise of revisional power in asituation where two views are possible, would reallyamount to conferring some kind of an appellate power inthe revisional authority. This is a course of actionthat must be desisted from. The calculation of theGross Profit was made by the AO, and the assesseeagreed to the additions made. We are, therefore, ofthe view that the changes suggested by the CIT invokingthe revisional jurisdiction under Section 263 of theAct is not sustainable. same ought not to be interfered with by theCommissioner under Section 263 of the Act merely on theground that there is another possible view of thematter. Permitting exercise of revisional power in asituation where two views are possible, would reallyamount to conferring some kind of an appellate power inthe revisional authority. This is a course of actionthat must be desisted from. The calculation of theGross Profit was made by the AO, and the assesseeagreed to the additions made. We are, therefore, ofthe view that the changes suggested by the CIT invokingthe revisional jurisdiction under Section 263 of theAct is not sustainable. 10.Regarding the penalty proceedings, theCIT has found that the assessee had made an attempt toconceal the income and had also attempted to falsifyaccounts. It is only consequent to the survey that theassessee had filed return of income and shown anadditional income of Rs.23 lakhs. Even that was notfound to be sufficient, and the AO had made a furtheraddition of Rs.14 lakhs. It was held that there was aconscious attempt on the part of the assessee to destroy accounts. The CIT concluded that this was acase fit for imposing of maximum penalty of 300%. 11.The Tribunal agreed with the abovefinding of the CIT on imposing of penalty, but reducedthe penalty to 200%, in view of the fact that theassessee had readily agreed to the additions suggested.12.Section 271(1)(c) of the Act imposesstrict liability on the assessee for concealment ofincome. There is no doubt that in the instant case,there was concealment by the assessee. The mere factthat he had consented to the additions made would notexonerate the assessee from the liability to paypenalty. The penalty has been reduced to 200% by theTribunal. We do not intend to interfere with thatfinding of the Tribunal. 13.The question of law raised pertaining tothe assessment proceedings is answered in favour of theassessee; and that of imposition of penalty is answeredin favour of the Revenue and against the assessee. In the result, ITA No.8 of 2012, the appealpertaining to the assessment proceedings is allowed and 9 ITA No.20 of 2012, pertaining to the penaltyproceedings is rejected. No costs. Sd/-K.VINOD CHANDRANJUDGESd/-ASHOK MENONJUDGE APPENDIX ITA NO.8/12 APPELLANT'S EXHIBITS: ANNEXURE ATRUE COPY OF THE ASSESSMENT ORDER FOR 2006-07 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 14.09.2008. ANNEXURE BTRUE COPY OF THE ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX TO THE APPELLANT DATED 02.07.2009. ANNEXURE CTRUE COPY OF THE TRIBUNAL ORDER DATED 19.08.2011 ISSUED TO THE APPELLANT. jg [True Copy]