Ita/90/2013 Of M/S/ Sunny Jacob v. Deputy Commissione Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE THURSDAY, THE 2ND DAY OF JANUARY 2014/12TH POUSHA, 1935 ITA.No. 90 of 2013 () ---------------------- APPELLANT/RESPONDENT/ASSESSEE:------------------------------------------- M/S. SUNNY JACOB JEWELLERS & WEDDING CENTRE, CHANDHAMUKKU, KOTTARAKKARA REPRESENTED BY ITS MANAGING PARTNER SRI.SUNNY JACOB, PAN-ABCFS 1711R. BY ADVS.SRI.RAJU JOSEPH (SR.) SRI.K.T.POULOSE (KORATTY) RESPONDENT/RESPONDENT/APPELLANT/RESPONDENT: ------------------------------------------------------------- DEPUTY COMMISSIONER OF INCOME TAX, CENTRE CIRCLE, KOTTAYAM. BY STANDING COUNSEL SRI.JOSE JOSEPH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02-01-2014, ALONGWITH ITA. 91/2013, ITA. 92/2013, ITA. 93/2013, ITA. 124/2013, ITA. 125/2013, ITA.126/2013, ITA. 133/2013, ITA. 136/2013, ITA. 142/2013, ITA. 143/2013, ITA. 144/2013, ITA.146/2013, ITA. 147/2013, ITA. 148/2013, ITA. 149/2013, ITA. 150/2013, ITA. 152/2013, ITA.157/2013, ITA. 158/2013, ITA. 159/2013, ITA. 160/2013, ITA. 163/2013, ITA. 164/2013, ITA.165/2013, ITA. 168/2013, ITA. 169/2013, ITA. 187/2013, THE COURT ON THE SAME DAYDELIVERED THE FOLLOWING: MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = I.T.A. Nos.90,91,92,93,133,136,142,126,143,144,146,147,124,125,158,159,157,152,150,149,165,164,163,160,169,168,148 and 187 of 2013 = = = = = = = = = = = = = = = = = = = = = Dated this the 2nd day of January, 2013 Manjula Chellur,CJ JUDGMENT These appeals are filed challenging the common judgment of the Tribunal dated 16.11.2012. By consent of both sidesappeals are heard and disposed of by a common order.Following substantial questions of law were raised for consideration:- i.Has not the Tribunal gone wrong in not considering theaspect as to whether materials detected in a searchconducted under Section 132 of the Income Tax Act, 1961in the business premises of another assessee could be areason or basis for best judgment assessment against theassessee?aspect as to whether materials detected in a searchconducted under Section 132 of the Income Tax Act, 1961in the business premises of another assessee could be areason or basis for best judgment assessment against theassessee? ii.Can suppression of Income in any year could be the solereason for rejecting the return of any previous year and solebasis to resort to best judgment assessment under Section144 of the Income Tax Act 1961?reason for rejecting the return of any previous year and solebasis to resort to best judgment assessment under Section144 of the Income Tax Act 1961? I.T.A. No.90 of 2013 & con.cases iii.The unit of assessment under the Income Tax Act beingprevious year to assessment year, can be suppression ofIncome during any other year be a basis for estimation ofincome in any other year?previous year to assessment year, can be suppression ofIncome during any other year be a basis for estimation ofincome in any other year? iv.Whether the authorities below had gone wrong in relyingon the proceedings of the Commercial Tax Department thattoo before the same had attained finality for the purpose ofcoming to the conclusion that the assessee had been issuingestimate slips instead of sale bills?on the proceedings of the Commercial Tax Department thattoo before the same had attained finality for the purpose ofcoming to the conclusion that the assessee had been issuingestimate slips instead of sale bills? 2. The undisputed facts that led to filing of the aboveappeals are as under: iv.Whether the authorities below had gone wrong in relyingon the proceedings of the Commercial Tax Department thattoo before the same had attained finality for the purpose ofcoming to the conclusion that the assessee had been issuingestimate slips instead of sale bills?on the proceedings of the Commercial Tax Department thattoo before the same had attained finality for the purpose ofcoming to the conclusion that the assessee had been issuingestimate slips instead of sale bills? 2. The undisputed facts that led to filing of the aboveappeals are as under: There were six jewellery business concerns of theappellants which are admittedly sister concerns. There were twoshops at Thiruvananthapuram, two shops at Kottayam, one atKollam and another at Kottarakkara. All the six businessconcerns pertain to Sunny Jacob & family. So far as assessmentfor income tax and Commercial Tax, all the six are differententities, though the partners of all the six business concernsbelong to one and the same family. In this background, one hasto appreciate the challenge made by the appellant assessee sofar as order of the Tribunal. 3. The entire litigation arises on account of searchconducted by the Revenue on 21.08.2007 in the businessconcerns of the appellant assessee, apart from variousresidential houses. Based on the pre-search enquiry conductedon 24.07.2007, by purchase of gold ornament by the personnelfrom the Investigation wing of the department, the entireprocess commenced. Said purchases from two shops of theappellants, one pertains to purchase of 2.040 grams of goldvaluing about 1940/- and another was 1.540 grams of gold.However, no sale bills were issued. During the search operation,apart from examining the partners of the business Mr.SunnyJacob, statements of Cashier Mr.Joshy Abraham and anotherstaff by name Pintu T Jacob, Computer operator at M/s.SunnyJacob 916 Jewellery Pazhavangadi, Thiruvananthapuram came tobe recorded. It is also borne on record, from M/s.Sunny JacobHyper Market, Kollam, during the search three note booksmarked as MSB-1, MSB-2 and MSB-3 were found and seized.The details from the computer maintained in the assessee’s shopthat is M/s.Sunny Jacob 916 Jewellery Pazhavangadi, Thiruvananthapuram were examined to see the log on time andall the entries in the computer for the day. So far as sales, theyindicate sales were done within two to five minutes. During thesearch operation daily summary sheet relating to previous dayi.e.20.08.2007 was also seized. 4. Based on the above material, notices were issued. Inresponse to the same, fresh returns were filed. However, theincome shown in the fresh returns was the income earlier shownby them for the previous six years for which already theassessments were completed in respect of six business concerns.The assessing officer based on the above material and thematerial during inspection of the tax payer’s premises on24.02.2006, which revealed that the tax payers were selling goldornaments only through estimate slips and were not in the habitof issuing sales bills, proceeded with the assessment for theassessment year 2008-09 and passed orders of re-assessment forthe previous six years. So far as additions made by the assessingofficer in respect of previous six years, it became the subjectmatter of challenge before the CIT(Appeals) along with the assessment made for 2008-09. CIT(Appeals) deleted all theadditions made so far as previous six years and confirmed theassessment made for assessment year 2008-09. Aggrieved bythe same, revenue preferred appeals before the AppellateTribunal. So far as 2008-09 assessment year, assessee alsoapproached the Appellate Tribunal. All the appeals were heardand disposed of by a common order dated 16.11.2012. 5. The Tribunal by above said order categorized the order assessment made for 2008-09. CIT(Appeals) deleted all theadditions made so far as previous six years and confirmed theassessment made for assessment year 2008-09. Aggrieved bythe same, revenue preferred appeals before the AppellateTribunal. So far as 2008-09 assessment year, assessee alsoapproached the Appellate Tribunal. All the appeals were heardand disposed of by a common order dated 16.11.2012. 5. The Tribunal by above said order categorized the order into three portions. One portion was with reference to sixprevious years assessments prior to the assessment year inwhich search was made. Second portion was with reference toassessment year 2008-09 during which a search was made andthe last portion was with reference to assessment year 2001-02in ITA No.692 of 2010 pertaining to alleged gift of Rs.3,47,580/-received from Sri.George Joseph through banking channel. 6. The Tribunal, so far as previous six years assessmentfrom 2002-03 to 2007-08, opined that the statements of cashierand other persons, so also other material collected from theCommercial Tax department needs to be examined after giving an opportunity to the tax payer, since the tax payer had nooccasion to explain the material collected by Sales TaxDepartment during their inspection on 22.04.2006. It alsoopined that as the proceedings initiated were under Section153A, the assessing officer can take into account all evidence,including the material found during the course of searchoperation. Therefore, in all fairness, one more opportunityshould be given to the appellant assessee to present their casebefore the assessing officer. Hence, the orders of the assessingofficer pertaining to assessment years 2002-03 to 2007-08 wereset aside and the entire issue with regard to addition ofsuppressed sale was remitted back to the file of assessing officerwith a direction to consider the issue afresh in the light ofobservations made by the Tribunal. 7. Then coming to assessment year 2008-09, the Tribunalopined that the decision that may be taken for the previous sixyears assessments (2002-03 to 2007-08) would have an impacton the assessment year 2008-09, it would be just and proper tohave a comprehensive adjudication of the matter. Therefore, the assessment for the year 2008-09 was also set aside and thematter was remitted back to the assessing officer to decide thematter afresh in the light of observations made so far asassessment years 2002-03 to 2007-08. 8. Then coming to the assessment year 2001-02, receipt of gift of three lakhs and odd from one Mr.George Joseph throughbanking channel, the Tribunal opined that, except the entries inthe bank pass book and other details no other material wasforthcoming indicating the capacity and other details of thedonor Mr. George Joseph, therefore in the absence ofconfirmation letter, there was no justification to place relianceon the transaction made through banking channel and opinedthat one more opportunity may be given to the tax payer to provethe identity of the donor, so also genuineness of the transaction.In other words, all the orders were set aside and matters wereremitted back for fresh consideration in the light of observationsmade by the Tribunal. Aggrieved by the said order of theTribunal, the appellant assessee is before us. gift of three lakhs and odd from one Mr.George Joseph throughbanking channel, the Tribunal opined that, except the entries inthe bank pass book and other details no other material wasforthcoming indicating the capacity and other details of thedonor Mr. George Joseph, therefore in the absence ofconfirmation letter, there was no justification to place relianceon the transaction made through banking channel and opinedthat one more opportunity may be given to the tax payer to provethe identity of the donor, so also genuineness of the transaction.In other words, all the orders were set aside and matters wereremitted back for fresh consideration in the light of observationsmade by the Tribunal. Aggrieved by the said order of theTribunal, the appellant assessee is before us. 9. According to learned counsel appearing for the appellantassessee, so far as assessment year 2008-09 he has no grievancein remitting back the matter for fresh consideration as it pertainsto relevant year in which the search was made and certaininformation was gathered. But, according to him, theinformation gathered during the course of search and so also thepre-enquiry information as well as information from Commercialtax department cannot become basis for reopening the previoussix year's assessments from 2002-03 to 2007-08 as none of thematerial pinpoint any transactions of like nature in the previousyears. Therefore, in the absence of any material with referenceto any particular year in the previous six years, there was nojustification for remitting back the matter to the assessingofficer. Hence this opinion of the tribunal deserves to be setaside and orders of the CIT(Appeals) deserves to be confirmed. 10. During the course of arguments, he also contendedthat, though all the six shops are sister concerns, informationcollected from one of the shops cannot be the information forother sister concerns. Therefore, there is no justification in placing reliance on the information collected during pre-searchenquiry for all the six business concerns of the tax payers.According to him, wherever the information was collected suchinformation has to be considered with reference to thatparticular assessee and not other assesses. This is in addition tothe argument that whatever information collected during thecourse of search proceedings cannot be made relevant for theprevious six years by initiating action under Section 153A. 11. As against this, learned Standing Counsel for thedepartment contends that proceedings under Section 153A alsohas to be concluded based on best judgment after proceedingwith the matter in accordance with the procedure contemplatedunder Section 153A of the Act. According to him once a reply isgiven to the show cause notice issued by the department, theproceedings have to be considered in accordance with theprocedure contemplated for regular assessment treating thereturns as if it is a return filed under Section 139 of the Act. 12. He also contends that there is vast difference betweenthe proceedings under Chapter XIVB and the proceedings under Section 153A, though basis for both the proceedings could besearch operations. Chapter XIVB refers to undisclosed incomeand Section 153A refers to assessment or re-assessmentdepending upon the facts and circumstances of each case. Hefurther contends, even if the assessment was not completed forany of the years in the previous six years they shall abate and theproceedings under Section 153A would overtake suchassessment. 12. He also contends that there is vast difference betweenthe proceedings under Chapter XIVB and the proceedings under Section 153A, though basis for both the proceedings could besearch operations. Chapter XIVB refers to undisclosed incomeand Section 153A refers to assessment or re-assessmentdepending upon the facts and circumstances of each case. Hefurther contends, even if the assessment was not completed forany of the years in the previous six years they shall abate and theproceedings under Section 153A would overtake suchassessment. 13. In other words, Section 153A proceedings have to befollowed as if it is a regular assessment by following theprocedure. He also places reliance on Commissioner ofIncome Tax v. Hotel Meriya(2011 332 ITR 537). He placesreliance on this judgment to substantiate his contention that theinformation gathered during the search need not be relevant toany particular previous year as there is no mandate that formaking re-assessment or assessment for previous six years thatmaterial has to be found for each and every year. In other words,according to him, the materials found during the searchoperations would be good enough with reference to previous sixyears proceedings under Section 153A of the Act. I.T.A. No.90 of 2013 & con.cases 14.We have gone through the orders of the tribunal andalso the contentions raised in the present appeals. Earlier tosearch on 21.08.2007 when the personnel of the investigationwing of the department purchased some gold ornaments fromtwo business concerns, except issuing estimate slip no sale billswere given. This gave rise to suspicion regarding bona fides inmaintaining correct accounts by the business concern of theappellant assessees. Therefore, according to the department,they conducted search in all the six business concerns and alsoresidential places of the partners concerned. During the courseof search, statement of Mr.Sunny Jacob was recorded by theAssistant Director of the Income Tax. The estimate slipscollectedfromshopsofKottayam,KollamandThiruvananthapuram were shown to him. This was withreference to question No.5 during the statement of Mr.SunnyJacob recorded as stated above. According to Mr.Sunny Jacob,the estimate slips were issued for showing the customer, butthey issue bills on finalization of the sales. This statement ofMr.Sunny Jacob was considered with reference to other information collected. Daily summary sheet pertaining tobusiness transactions a day prior to the search, that is20.08.2007, was recovered and seized during the searchoperations. There were 37 sales as per the daily summary sheet.The actual sales recorded in the day book were much less thanthe details recorded in the summary sheet. In other words only30.84% of the real sales were recorded. Mr.Bijimon, Manager ofthe Kottarakkara showroom was not able to give any explanationfor the above discrepancy as per the observations of theAssessing Officer. 15. During the course of search at the premises of SunnyJacob 916 Jewellery, Pazhavangadi, Thiruvananthapuram,Mr.Joshy Abraham, Cashier gave statement explaining thedifference in the sale bill and the sales effected through estimateslips. He replied that, when customers select particular item forpurchase, estimate slips are prepared through the computer.However, as per the estimate slip given to the customer,ornaments would be handed over to the customer. Mr.MathewEapen, Floor Supervisor of the shop has stated that sale bills I.T.A. No.90 of 2013 & con.cases were not issued for all the sales effected though estimate slipswere issued to the customer. He also admitted that in the cashbook maintained, all the sales effected in the shop were notrecorded. 15. During the course of search at the premises of SunnyJacob 916 Jewellery, Pazhavangadi, Thiruvananthapuram,Mr.Joshy Abraham, Cashier gave statement explaining thedifference in the sale bill and the sales effected through estimateslips. He replied that, when customers select particular item forpurchase, estimate slips are prepared through the computer.However, as per the estimate slip given to the customer,ornaments would be handed over to the customer. Mr.MathewEapen, Floor Supervisor of the shop has stated that sale bills I.T.A. No.90 of 2013 & con.cases were not issued for all the sales effected though estimate slipswere issued to the customer. He also admitted that in the cashbook maintained, all the sales effected in the shop were notrecorded. 16.Computer Operator Mr.Pintu T Jacob pointed out thathe was not aware whether bill was prepared for the sales as perthe estimate slips. However, he admitted that actual sales werenot recorded in the hard disk of the computer. No purchase billswere issued for exchanging old gold ornament but the purchaseswere recorded in the estimate slips only. This was fromM/s.SunnyJacob916Jewellery,Pazhavangadi,Thiruvananthapuram. 17.The three note books marked as MSP(1), MSP(2) andMSP(3) from Gold Hyper Market contained accounts of purchaseand issue of gold ornaments. When the details of these bookscompared with the regular stock register maintained by them,there was vast variance in accounting purchases and sales as perthe registers. The Assessing Officer at page 6 of the order hasindicated date wise the total details found in these books anddifference in grams was about 1018.93 of gold. The computer also showed sales were recorded within two to five minutes asnoted at page 3 of the order and according to the AssessingOfficer it was improbable situation if the sales were recordedwhen the sales were actually effected. 18.The above material was the basis for reassessmentsfor six years and assessement for the year 2008-09. As noticedabove, estimate slips were recovered from five business concernsas indicated in the assessment order. Pre-search enquirypurchases refers to two concerns of the assessee. Note bookswere seized from one of the business concerns of the appellantassessee. All the partners or the proprietary concerns whereSunny Jacob is running Jewellery business are members of onefamily, but with different combination of partners in all the sixbusiness concerns. Two of the partners are common in all thebusiness concerns. 19. In this background whether the material recovered on21.08.2007 and also other information during the course ofsearch could be the material for previous six years to initiateproceedings under Section 153A of the Act has to be seen. It is clear that in the pre-search enquiry and course of searchproceedings the information collected was mostly with referenceto assessment year 2008-09. However, the information gatheredduring the search proceedings with reference to Commercial Taxdepartment pertains to 2006. Inspection by Commercial Taxdepartment was on 24.02.2006. Commercial Tax departmentalso found similar deficits in the maintenance of accounts andthe records by the appellant assessee. Commercial TaxDepartment also opined, sales bills were not issued for the entiresales made by them though estimate slips was prepared for theactual sales. 20. In other words, though the estimate slip reflects theactual purchase and sale of gold made in the businessconcerns of appellant assessees, the sale bill was always forlesser quantity than the details reflected in the estimate slip.By this process actual sales were not reflected was theinformation gathered during 2006 by the Commercial TaxDepartment. Search was in 2007. There was material inblack and white at least for these two years. Therefore, there 20. In other words, though the estimate slip reflects theactual purchase and sale of gold made in the businessconcerns of appellant assessees, the sale bill was always forlesser quantity than the details reflected in the estimate slip.By this process actual sales were not reflected was theinformation gathered during 2006 by the Commercial TaxDepartment. Search was in 2007. There was material inblack and white at least for these two years. Therefore, there was enough information and material to presume the natureof accounting and also modus operandi in maintaining therecords by the assessee. 21. In the case of Hotel Meriya it was held that none ofthe provisions under Chapter XIVB mandates, for makingblock assessment there shall be evidence regarding theconcealment of income for every year for the block period.Though technically we are not concerned with the blockassessment, based on the information as stated above for sixprevious assessment years, under Section 153A thedepartment can assess or reassess in accordance with theprocedure contemplated. Therefore, there is no prohibitionor embargo on the department to consider this information forassessment or reassessments contemplated under Section153A. There is also no requirement under Section 153A andother provisions requiring the department to collectinformation and evidence for each and every year for the sixprevious years under Section 153A. Therefore, argument of learned counsel for the appellant assessee that the information gathered either during pre-search enquiry orduring the course of search cannot be made use so far as sixprevious assessment years, is unsustainable. 22. Then coming to the assessment year of 2008-09, learned counsel fairly concedes that he has no grievance sofar as order of remittance of the matter back to the assessingauthority by the Tribunal . 23. As a matter of fact department has not challenged the orders of the Tribunal seeking confirmation of theassessing authority’s order which was very much within theirdiscretion to question. The fact remains only the appellantassessee is before us. Therefore, we have to consider onlywhether the order of the tribunal in remitting back matters tothe assessing officer is justified or not. 24. In the above circumstances, as there was noexplanation called for from the assessees, so far as thematerials collected from statement of the employees of the assessee and also the other material, in all fairness, we are ofthe opinion that the Tribunal exercised its jurisdiction with allmagnanimity in remitting back the matter to the assessingofficer giving opportunity to the assesees to explain andsubstantiate their stand before the assessing authority. Thiswould mean that the assessee has one more opportunity toconvince the department regarding their stand by explainingthe controversies raised by the department based on theinformation gathered by them during the search. We find no good ground to interfere with the order ofthe Tribunal. Accordingly, appeals are dismissed. MANJULA CHELLUR,CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE.