Ramachandran Nair, J v. M/S.hotel Samart, Malappuram

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN WEDNESDAY, THE 25TH NOVEMBER 2009 / 4TH AGRAHAYANA 1931 ITA.No. 1305 of 2009(C) ----------------------- AGAINST THE ORDER IN ITA.6/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH. .................... APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): RESPONDENT ------------------------- M/S.HOTEL SAMRAT, EDAKKARA, MALAPPURAM. ADV. SRI.S.ARUN RAJ FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ALONG WITH ITA NOS.1066 & 1321/2009 ON 25/11/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. ....................................................................I.T. Appeal Nos.1305, 1066 & 1321 of 2009 ....................................................................Dated this the 25th day of November, 2009. JUDGMENT Ramachandran Nair, J. Question raised in the connected appeals filed by the Revenue iswhether the Tribunal was justified in allowing the MiscellaneousPetition to recall the earlier order and dismiss the appeals filed by theRevenue. Respondent-assessee was engaged in the business ofrunning a Bar Hotel as a partnership firm. During survey conducted,various records were recovered including the price list maintained bythe Bar Hotel for retail sale of liquor. Statements were recorded fromthe Managing Partner, the Hotel Manager and also a supplier. TheAssessing Officer found from the recovered materials and thestatements that the gross profit conceded was incorrect and the grossprofit received by the assessee was 60% for the year 1997-98, 70% forthe year 1998-99 and 75% for the year 1999-2000. Assessments wereaccordingly completed on an estimation basis under Section 144 of theIncome Tax Act. On appeal, the C.I.T. (Appeal) relying on the judgment of this court in PAUL MATHEWS AND SONS VS.COMMISSIONER OF INCOME-TAX reported in (2003) 263 ITR 101held that the statements recorded under Section 133A(3)(iii) of theIncome Tax Act have no evidentiary value and therefore, he cancelledthe estimation made by the Assessing Officer and refixed the grossprofit at 35%. In the appeals filed by the department, the assessee didnot appear during hearing. The Tribunal, however, heard the appellant-department, perused the records and partly allowed the appeals byrefixing gross profit at 40% for the first year, 45% for the next year andat 50% for the last year. The assessee thereafter filed an application toset aside the exparte order and for rehearing, which was allowed by theTribunal. However, after rehearing the party the Tribunal alsofollowing the judgment of this court abovereferred recalled their earlierorder and dismissed the department appeals against which theseappeals are filed. 2. We have heard Standing Counsel appearing for the appellantand Adv. Sri.V.S.Jayakumar appearing along with Adv. Sri.S.Arun Rajfor the respondent-assessee. During hearing, we felt that the decisionof this court in PAUL MATHEWS' case abovereferred does not lay 2. We have heard Standing Counsel appearing for the appellantand Adv. Sri.V.S.Jayakumar appearing along with Adv. Sri.S.Arun Rajfor the respondent-assessee. During hearing, we felt that the decisionof this court in PAUL MATHEWS' case abovereferred does not lay down the correct position of law because in our view, statementrecorded under Section 133A(3)(iii), though cannot be treated asindependent evidence like evidence recorded under Section 132(4), hascorroboratory value in assessment and statement recorded under thesaid provision can be even relied on by the assessee. In other words,the decision of this court that the statement recorded under the aboveprovision does not have evidentiary value, in our view, does not laydown the correct law. However, since counsel for the respondent-assessee does not rely on the above decision, we proceed to considerthese cases on merits without referring the matter for consideration toFull Bench because by the operation of the latter part of the Section,such statement has relevance for assessment and other proceedingunder the Act. 3. This is a case where during survey the department recoveredcertain account books, price list etc. Statements were also recordedfrom the Managing Partner, from the Manager of the Hotel and also asupplier, all of whom have confirmed to the department's stand thataccounts written are not full and complete and do not reflect the actualreceipts on sales. Therefore, best judgment assessment under Section 144 was the only course open to the Assessing Officer. In fact, inprinciple, even the first appellate authority who modified theassessment has not directed acceptance of books of accounts. All whathe has done is to fix the gross profit at a uniform rate of 35% for all theyears. In doing so he has relied on the fact that in subsequentassessments even in assessee's own case gross profit assessed is onlyupto 34% and in comparable cases gross profit adopted is not as highas the percentage estimated for the three years in the assessee's case.We notice from the Tribunal's first order that even though it was passedwithout hearing the assessee, the Tribunal has elaborately consideredthe documents produced and the statements recorded. However, theTribunal was in fact considerate in refixing the gross profit from 40%to 50% for the three years. After going through the impugned order ofthe Tribunal issued after filing of the Miscellaneous Petition, we feelthe Tribunal has based on the judgment of this court not only rejectedthe statements as having no evidenciary value, but has not evenconsidered the contents of the documents seized by the department, themost important of which is the price list. When the contents of thedocuments seized are proved through corroboratory evidence of the Managing Partner, the Manager and the sales boy, we see no reason toreject it. However, at this distance of time remand again to the lowerauthority will cause hardship to the assessee and also to the department.For the sake of finality, we feel the gross profit estimated by theTribunal in the first round at 40% for the year 1997-98 can be appliedfor all the years. Accordingly we allow the appeals in part by vacatingorders of the Tribunal and C.I.T.(Appeals) and by directing thedepartment to accept gross profit at 40% for all the years as fixed bythe Tribunal in the first round of appeals. The Assessing Officer willrevise the assessments accordingly. C.N.RAMACHANDRAN NAIRJudge pms V.K.MOHANANJudge