Ita/92/2012 Of Mamatha Motels v. The Assistant Commissioner Of Income Tax,Thrissur

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 3RD DAY OF OCTOBER 2013/11TH ASWINA, 1935 ITA.No. 92 of 2012 () ---------------------- I.T.(SS)A NO.6/COCH/2008 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH. ....... APPELLANT/APPELLANT/ASSESSEE: -------------------------------------------------------- MAMATHA MOTELS, BY K.R. SETHUMADHAVAN, ERSTWHILE PARTNER, KOZHIPARA, P.O. PONNUKKARA, THRISSUR - 680 306. BY SRI.T.M.SREEDHARAN, SENIOR ADVOCATE. ADVS. SMT.NISHA JOHN, SRI.V.P.NARAYANAN, SMT.BOBY M.SEKHAR. RESPONDENT/RESPONDENT/REVENUE: ------------------------------------------------------------ THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 2(1), RANGE - 2, THRISSUR. BY ADV. SRI.JOSE JOSEPH, SC, INCOME TAX. THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 03-10-2013, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: rs. ITA.No. 92 of 2012 APPENDIX PETITIONER'S ANNEXURES:- ANNEXURE ACOPY OF THE ASSESSMENT ORDER DATED 25/03/2002PASSED BY THE ASSISTANT COMMISSIONER OF INCOMETAX, CIRCLE-2(1), RANGE-2, THRISSUR.PASSED BY THE ASSISTANT COMMISSIONER OF INCOMETAX, CIRCLE-2(1), RANGE-2, THRISSUR. ANNEXURE BCOPY OF THE ORDER IN IT (S&S) A NO.5/COCH/2002DATED 28/03/2007 PASSED BY THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH.DATED 28/03/2007 PASSED BY THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH. ANNEXURE CCOPY OF THE ASSESSMENT ORDER DATED 11/12/2007PASSED BY THE ASSESSING OFFICER.PASSED BY THE ASSESSING OFFICER. ANNEXURE DCOPY OF THE ORDER IT (S&S) A NO.06/COCH/2008DATED 09/12/2011 PASSED BY THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH.DATED 09/12/2011 PASSED BY THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH. ANNEXURE ECOPY OF THE ASSESSMENT ORDER DATED 26/08/1998PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE-1, TRICHUR.PASSED BY THE ASSISTANT COMMISSIONER OF INCOME TAX, INVESTIGATION CIRCLE-1, TRICHUR. ANNEXURE FCOPY OF THE ORDER IN M.P. NO.28/2007 DATED 16/11/2007IN IT(S&S)A NO.05/C/2002.IN IT(S&S)A NO.05/C/2002. ANNEXURE GCOPY OF THE TRADING AND PROFIT AND LOSS ACCOUNTPREPARED FROM THE SEIZURE BOOK FOR THE YEAR ENDED 31/03/1995.PREPARED FROM THE SEIZURE BOOK FOR THE YEAR ENDED 31/03/1995. ANNEXURE G1COPY OF THE TRADING AND PROFIT AND LOSS ACCOUNTPREPARED FROM THE SEIZURE BOOK FOR THE YEAR ENDED 31/03/1996.PREPARED FROM THE SEIZURE BOOK FOR THE YEAR ENDED 31/03/1996. RESPONDENT'S ANNEXURES:-NIL. //TRUE COPY// P.S. TO JUDGE rs. MANJULA CHELLUR, C.J. & A.M. SHAFFIQUE, J. = = = = = = = = = = = = = = = = = = = I.T.A. NO. 92 OF 2012 = = = = = == = = = = = = = = = = = = = Dated this the 3[rd] day of October 2013 JUDGMENT A.M. SHAFFIQUE, J This is an appeal filed by the assessee challenging the orderpassed by the Income Tax Appellate Tribunal with reference toblock assessment for the period from 01.04.1986 to 12.12.1996.2. The appellant is a firm running Bar attached Hotel andRestaurant. A search was conducted under Section 132 of theIncome Tax Act at the business premises of the appellant on12.12.1996. Thereafter, the assessment proceedings wereinitiated under Section 158BC of the Income Tax Act for theblock period from 1.4.1986 to 12.12.1996. The assessment wascompleted for the said period as per order dated 26.08.1998fixing the undisclosed income for the assessment years 1993-'94to 1997-'98 as Rs.1,06,62,370/-. The matter was taken inappeal before the Income Tax Appellate Tribunal, Cochin Bench This is an appeal filed by the assessee challenging the orderpassed by the Income Tax Appellate Tribunal with reference toblock assessment for the period from 01.04.1986 to 12.12.1996.2. The appellant is a firm running Bar attached Hotel andRestaurant. A search was conducted under Section 132 of theIncome Tax Act at the business premises of the appellant on12.12.1996. Thereafter, the assessment proceedings wereinitiated under Section 158BC of the Income Tax Act for theblock period from 1.4.1986 to 12.12.1996. The assessment wascompleted for the said period as per order dated 26.08.1998fixing the undisclosed income for the assessment years 1993-'94to 1997-'98 as Rs.1,06,62,370/-. The matter was taken inappeal before the Income Tax Appellate Tribunal, Cochin Bench by way of first appeal as per the relevant law for appealprevailing at the time of search by virtue of Section 253(1)(b) ofthe Income Tax Act as the search was before 1[st] January 1997.The Appellate Tribunal set aside the block assessment order witha direction to consider the matter afresh after giving anopportunity to the erstwhile partners of the firm. Thereafter, afresh assessment was made for the block period as per orderdated 25.3.2002 and determining the undisclosed income atRs.1,06,62,370/-. Annexure A is the assessment order dated25.3.2002. The appellant preferred an appeal before theAppellate Tribunal. The Appellate Tribunal directed the assessingofficer to allow deduction of Rs.3 lakhs in respect of Bar licencefee from the undisclosed income determined. In respect of theassessment year 1994-95, determination of undisclosed incomewas set aside and the issue was remitted to the Assessing Officer.In respect of assessment year 1995-96 and 1996-97, the samedirection was issued. In respect of assessment year 1997-98,the determination of undisclosed income was confirmed.Annexure B is the said order. The Assessing Officer thereafter made fresh assessments pursuant to the directions contained inAnnexure B appellate order for the assessment years 1993-94,1994-95, 1995-96 and 1996-97 and determining the undisclosedincome for the block period as Rs.91,04,290/-. Annexure C isthe said order dated 11.12.2007. The appellant preferred anappeal before the Income Tax Appellate Tribunal and the Tribunalsustained the disputed additions as per order dated 9.12.2011and produced as Annexure-D. 3. It is, inter alia, contended by the appellant that theAppellate Tribunal did not appreciate and consider the grievanceof the appellant in the light of the facts brought on record as perthe original assessment order and the previous orders of theAppellate Tribunal. It was contended that the Appellate Tribunalshould have found that the quantification of Rs.4 lakhs is not onthe basis of any material or seized document. That apart, it iscontended that the Tribunal ought to have found that theestimate of undisclosed income in the block assessment orderwas not legal and not sustainable under the provisions of the Act.The appellant raised the following questions of law: i)Whether on the facts and in the circumstances of thecase, the Appellate Tribunal was justified in itsimpugned order ignoring the directions as per theprevious appellate orders of the Income Tax AppellateTribunal and contrary to the directions therein? ii)Is the Appellate Tribunal justified in ignoring thefindings in the assessment order with regard to theassessment year 1993-94 that the computation ofundisclosed income furnished by the appellant basedon the seized materials was to be adopted as againstthe estimate made by the assessing officer? i)Whether on the facts and in the circumstances of thecase, the Appellate Tribunal was justified in itsimpugned order ignoring the directions as per theprevious appellate orders of the Income Tax AppellateTribunal and contrary to the directions therein? ii)Is the Appellate Tribunal justified in ignoring thefindings in the assessment order with regard to theassessment year 1993-94 that the computation ofundisclosed income furnished by the appellant basedon the seized materials was to be adopted as againstthe estimate made by the assessing officer? iii)Is not the Appellate Tribunal unjustified inconfirming the estimate of undisclosed income for theassessment year 1994-95 and computation ofundisclosed income for the assessment years 1995-96and 1996-97 included in the block assessment withoutreference to the seized documents and the evidenceon record. Are not the estimates of undisclosedincome made for these years arbitrary andunjustifiable and unsupported by any material? iv)Should not the appellate Tribunal have set asidethe additions which are contrary to the statutory provisions and unsupported by seized material? v) Is not the contrary decision taken by the Appellate Tribunal unsustainable? vi)Is the order of the Appellate Order legal, valid andsustainable in law? 4. The main contention urged by the learned counsel for the appellant was the manner in which the assessment had beenmade by the Assessing Officer. It is clear that in respect ofassessment year 1993-94, the contention raised by the assesseewas that there has been a mistake in recording the figure ofpurchase and its income. In fact, the Assessing Officer computedthe income for the year on the basis of the seized material, i.e.the profit and loss account for the period from 12.10.1992 to31.3.1993. The purchase of liquor debited to the said account isat Rs.12,50,865/- when total amount comes to Rs.13,93,882/- asevident from the copy of the ledger account. After referring tothe Tribunal's order dated 28.3.2007, it is found that the Tribunalhas confirmed the assessment and the remand was only to consider the transaction with reference to the payment of licencefee of Rs.3,00,000/- and whether it would be deducted or not. Inother words, as far as the determination of total income for theassessment year 1993-94 is concerned, Rs.7,23,754/- wasdeclared as undisclosed income. Therefore, we do not think thatthere is any further matter to be considered as far as theassessment year 1993-94 is concerned. 5. With reference to assessment year 1994-95, theassessing officer has estimated the assessee's income asRs.4,00,000/-. In the order dated 28.3.2007 of the Tribunal, itwas found that no opportunity was given to cross examineSmt.E.L.Gracy, who was the previous partner of the firm. Afterremand, the assessee was permitted to cross examineSmt.E.L.Gracy, the Ex-Managing Partner from whose residenceprofit and loss account was seized. She confirmed her earlierstatement dated 12.2.1996 and 15.02.2002 confirming the saidaccount to be that of the assessee and further clarifying that shehas signed the statement only after reading the contents thereof.The Tribunal found that when the assessee has challenged the 5. With reference to assessment year 1994-95, theassessing officer has estimated the assessee's income asRs.4,00,000/-. In the order dated 28.3.2007 of the Tribunal, itwas found that no opportunity was given to cross examineSmt.E.L.Gracy, who was the previous partner of the firm. Afterremand, the assessee was permitted to cross examineSmt.E.L.Gracy, the Ex-Managing Partner from whose residenceprofit and loss account was seized. She confirmed her earlierstatement dated 12.2.1996 and 15.02.2002 confirming the saidaccount to be that of the assessee and further clarifying that shehas signed the statement only after reading the contents thereof.The Tribunal found that when the assessee has challenged the assessment based on evidence found during search and furthermaterials in relation to that evidence and having ignored theprofit and loss account as being not reliable for the purpose, theassessing officer thus had no option other than to make thebest assessment. The Tribunal further found that thecomputation of undisclosed income has necessarily to be on thebasis of evidence found as a result of search and othermaterials or information available with the Assessing Officer inrelation to the said evidence. It was found that the firm did notfile any return of income with the Income-tax Department uptothe date of search, that is for the assessment years 1992-93 to1994-95, even when it was assessed to sales tax and was alsopaying excise duty as well as Bar licence fee for those years. Itsfirst return was filed for the assessment year 1995-96 only on22.02.1996 showing a loss of Rs.56,330/-. Even thereafter noreturns were filed by the assessee. It was found that theundisclosed income for all the years including assessment year1995-96 has been arrived at primarily on the basis of theassessee-firm's profit and loss account compiled from the seized documents, viz. day book and ledger. The same were found andseized from the residence of Smt.E.L.Gracy, its Managing Partnerfor the relevant years. She confirmed the same as being the fullaccount of the firm's business for the relevant years, though notdisclosed to the Department. This fact was not disputed. Theassessee also had admitted the same and even adopted theentire net profit as disclosed thereby as representing the firm'sincome. There was also material to show that there is nodiscrepancy with regard to the primary facts and the sales aswell as the profit for the assessment year matches with that ofthe preceding and succeeding years. Therefore, it was found thateven going by the adopted turnover of Rs.18.79 lakhs, there hasbeen an omission to disclose the same to the Revenue. Hence,the suppression of sales for the year at least to the extent ofRs.18.79 lakhs, was proved which came to surface only as aresult of search. Therefore, the Assessing Officer could not befaulted for estimating the undisclosed income for the year at Rs.4lakhs, (computed at 21.29%) which works out to less than theratio of net profit as found to have been earned for the other years, which stand assessed and in fact accepted. The assessee has not brought any material on record to show that it had notearned its normal average ratio of profit (which varies from 22%to 36%). Having regard to the aforesaid facts andcircumstances, the Tribunal also concurred with the viewexpressed by the Assessing Officer in restricting the profit atRs.4 lakhs as against Rs.14.85 lakhs as reflected from P & Laccount statement. 6. In respect of assessment year 1995-96, though theassessee had shown the net profit as Rs.15,59,869/-, it is foundthat there were several mistakes in the statement and finally theundisclosed income was quantified at Rs.18,11,480/- years, which stand assessed and in fact accepted. The assessee has not brought any material on record to show that it had notearned its normal average ratio of profit (which varies from 22%to 36%). Having regard to the aforesaid facts andcircumstances, the Tribunal also concurred with the viewexpressed by the Assessing Officer in restricting the profit atRs.4 lakhs as against Rs.14.85 lakhs as reflected from P & Laccount statement. 6. In respect of assessment year 1995-96, though theassessee had shown the net profit as Rs.15,59,869/-, it is foundthat there were several mistakes in the statement and finally theundisclosed income was quantified at Rs.18,11,480/- 7. In regard to the assessment year 1996-97 also, it isfound by the Assessing Officer that the undisclosed incomewould come to Rs.32,51,910/. That finding is confirmed by theTribunal in its order dated 28.3.2007 which has become final.The matter was remanded only for limited purpose of claimingdeduction of the licence fee. Therefore, the Tribunal accepted thefinding of the Assessing Officer in this regard. 8. Having gone through the orders passed by the AssessingOfficer and the Tribunal on different occasions, we do not thinkthat none of the questions of law raised by the learned counselfor the appellant arises for consideration. The jurisdiction of theAssessing Officer to make block assessment for the undisclosedincome cannot be found fault with. The assessments were madebased on the materials seized during search and seizure. Thatapart as far as two assessment periods are concerned, theassessment orders had become final even when the Tribunal haspassed the order on 28.3.2007. The entire matter had been fairlyconsidered on the basis of evidence on record and the Tribunalhas reconsidered the entire issue and confirmed the viewexpressed by the Assessing Officer. Though the learned counselfor the appellant has raised several contentions based on thequestions of law formulated, we do not think that any of thequestions of law arises for consideration. The Assessing Officerand the Tribunal have passed orders purely on the basis of thematerial on records. It being a consideration based on facts, thisCourt cannot reappreciate such facts to render a different finding. In that view of the matter, we do not think that anyinterference is called for with reference to the order passed bythe Tribunal. Accordingly the appeal is dismissed. Sd/-MANJULA CHELLUR, CHIEF JUSTICE Sd/-A.M. SHAFFIQUE, JUDGE ks True copy P.S.TO JUDGE