IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 400 of 2009()
1. THE COMMISSIONER OF INCOME TAX,
... Petitioner
Vs
1. M/S.MANGALAM PUBLICATIONS, KOTTAYAM.
... Respondent
For Petitioner :SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES)
For Respondent :SRI.P.BALAKRISHNAN (E)
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice V.K.MOHANAN
Dated :12/10/2009
O R D E R
C.R.
C.N.RAMACHANDRAN NAIR &
V.K.MOHANAN, JJ.
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I.T. Appeal Nos.400,557 & 558 of 2009
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Dated this the 12th day of October, 2009.
JUDGMENT
Ramachandran Nair, J.
The question raised in the connected appeals filed by the
department for the assessment years 1990-91, 1991-92 and 1992-93 is
whether the Tribunal was justified in cancelling the assessments
completed under Section 147 of the Income Tax Act as time barred for
the reason that the re-assessments were not completed within four
years from the end of the relevant assessment year in terms of the
proviso to Section 147 of the Act. We have heard Senior Standing
Counsel Sri.P.K.R. Menon appearing for the appellants and
Sri.P.Balakrishnan appearing for the respondent.
2. The assessee is engaged in publication of newspaper,
periodicals, etc. Assessee did not maintain any books of accounts and
the returns for all the assessment years were filed without being
accompanied by balance sheet and statement of accounts. From the
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extracts pertaining to the income returned by the assessee it is seen that
even advertisement receipts are returned by the assessee on estimation
basis obviously showing that the assessee did not maintain proper
books of accounts. The original assessments were, however,
completed under Section 144 estimating the income. It is found by the
Tribunal that though the assessments were completed by estimation of
income which is at substantial variance with the income returned,
assessee substantially accepted the addition of Rs.1,55,15,550/- for the
assessment years 1989-90 to 1993-94. After completion of the
assessments, the Assessing Officer got copies of balance sheet
furnished by the firm to South Indian Bank which showed substantial
increase in the capital and current accounts of the partners. The
Assessing Officer inferred that the increase in the capital accounts and
current accounts of the partners of the respondent-firm is obviously
share income from the respondent-firm which escaped assessment in
the original assessments of the firm completed under Section 147 of the
Act. After issuing notice to the respondent-assessee, the original
assessments were completed under Section 147.
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3. The assessee challenged the assessment on ground of
limitation as well as on merits before the C.I.T.(Appeal). On facts, the
C.I.T.(Appeal) found that the assessee had not maintained any books of
accounts and disclosed fully and truly all material facts necessary for
completion of assessments and so much so, the limitation of four years
provided under proviso to Section 147 does not apply. He, therefore,
rejected the plea of limitation raised by the assessee. On the merits of
the case, he noticed that the Assessing Officer had granted excess relief
in the estimation of income and therefore, after issuing notice to the
assessee, he enhanced the income by some amounts. Then the assessee
filed second appeals before the Tribunal. The Tribunal has accepted
the assessee’s appeals on ground of limitation and set aside the order of
the C.I.T.(Appeal), against which these appeals are filed before us.
4. On going through the orders of the Tribunal, we find that
going by their own reasoning, their finding that the assessee has
disclosed fully and truly all material facts necessary for the completion
of original assessment is not tenable. Tribunal itself admits that the
assessee was not maintaining any books of accounts. It is the further
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finding of the Tribunal that even in the absence of full books of
accounts, the assessee had not furnished the documents as required in
terms of Section 139(f) of the Income Tax Act, which is as follows:
“Where regular books of account are not maintained by
the assessee, the return is accompanied by a statement
indicating the amounts of turnover or, as the case may be,
gross receipts, gross profit, expenses and net profit of the
business or profession and the basis on which such amounts
have been computed and also disclosing the amounts of total
sundry debtors, sundry creditors, stock-in-trade and cash
balance as at the end of the previous year.”
In fact, the C.I.T.(Appeal) upheld the assessment as within time for the
reason that even in the absence of regular books of accounts, the
assessee is bound to give the information required under the above
clause and the assessee who has not disclosed the above information
cannot be said to have made full disclosure of all material facts
necessary for completion of assessment. Even before the Tribunal,
assessee has no case that the assessee had maintained books of
accounts or furnished particulars required for the assessment in terms
of Section 139(f) of the Act. Even though counsel appearing for the
respondent contended that books of accounts were with the department
after seizure, we do not think this is a ground for the Tribunal to allow
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the assessee’s appeals. Further, if books of accounts were retained by
the department, we see no reason why assessee could not collect copies,
prepare proper statement of accounts including Profit and Loss
Account and Balance Sheet before the department for the purpose of
assessment. In any case the reopening is admittedly not based on any
information collected by the department from the seized records which
were available at the time of assessment. On the other hand, the
partners of the respondent-assessee submitted balance sheets of the
respondent-assessee before the Bank which disclosed increase in
current accounts and capital accounts of the partners which do not tally
with the profits returned by the firm. There is no need for us to
consider the explanation of the partners pertaining to the increase in
current accounts and capital accounts as not relatable to the
unaccounted income of the firm because that is on the merits of the
case not considered and decided by the Tribunal. The only question to
be considered is whether the assessee had for the purpose of
completing the original assessment made full disclosure of all material
facts necessary for their assessment and if it is proved so, then the re-
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assessment under Section 147 beyond four years from the end of the
year will get time barred.
5. As already found by us, the Tribunal does not anywhere state
in their order that the assessee had made full disclosure of all materials
before completion of original assessment. On the other hand, even
though original assessments were completed at substantial variance
with the income returned on estimation basis, it is stated in the
Tribunal’s order that from 1989-90 to 1993-94 the assessee has without
contest accepted the addition of Rs.1,55,15,550/-. In fact, in
paragraph 20 of the Tribunal’s order in the argument for the assessee,
assessee concedes that they were not maintaining formal set of books
of accounts for preparing balance sheet. Even though assessee claimed
that all materials necessary for completion of assessments were
furnished by them, they have not stated what are the materials
furnished by them for completion of original assessments. As already
pointed out by us, they don’t have even accounts pertaining to
advertisement receipts which is the major source of income of a
publication company and the assessee had in fact chosen to return
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income from advertisement on estimation basis. We notice that the
Tribunal has mixed up the limitation issue with the merits of
assessment and without finding that the assessee has made full
disclosure of materials for completion of assessments, the Tribunal
declared the assessments as invalid which in our view, is not
sustainable. In fact, in order to challenge a re-assessment on ground of
limitation, it is for the assessee to prove that they have furnished all
material facts necessary for completion of the original assessment.
Section 145(1) among other things states that income from profits of
business shall be computed in accordance with the cash, mercantile or
any other system of accounting regularly employed by the assessee.
Sub-section (2) of the said Section authorises the Government to
prescribe accounting standards to be followed by assessees. A best
judgment assessment under Section 144 is authorised under Section
145(3) only when the Assessing Officer is satisfied that accounts
maintained by the assessee are not correct or complete. Since
business income is to be computed based on method of accounting
followed by the assessee and based on the books of accounts
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maintained by the assessee, the assessee is required to produce the
books of accounts and when books of accounts are not available, in our
view, atleast minimum statements as shown in Section 139(f) should
be made available by the assessee to the officer. An assessee who is
required to maintain books of accounts returns income on estimation
basis cannot claim that it has fully and truly disclosed all material facts
required for the assessment. We do not find any material for the
Tribunal to hold that the assessee had disclosed fully and truly all
material facts required for completion of the original assessment. We,
therefore, allow the departmental appeals by vacating the order of the
Tribunal and remand the matter to the Tribunal to consider the case on
merits after issuing notice to the parties.
C.N.RAMACHANDRAN NAIR
Judge
V.K.MOHANAN
Judge
pms