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The Commissioner Of Income Tax vs M/S.Mangalam Publications on 12 October, 2009

Kerala High Court
The Commissioner Of Income Tax vs M/S.Mangalam Publications on 12 October, 2009
       

  

  

 
 
  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.
               ....................................................................
                 I.T. Appeal Nos.400,557 & 558 of 2009
               ....................................................................
               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

2

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

4

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

5

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

7

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

8

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

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