9911796707
TMI Blog2009 (8) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... income and personal expenses etc. 3. The only issue raised by the Revenue before the Tribunal is as in ground No. 2 which is reproduced below: "2. The CIT(A) erred in holding that the undisclosed income from toddy and arrack business is not includible in assessee's total income. The CIT(A) failed to note that assessee has not produced details like PAN, name and designation of AO of M/s Malabar Associates, though it was promised to do so at the time of assessment. The CIT(A) ought to have verified whether the income from toddy and arrack business was actually included in the income-tax assessment of Malabar Associates." 4. The reproduction of the ground is more important as the ground is argumentative and surrounded on facts. The CIT(A) failed to note that the assessee had not produced details like PAN, name and designation of the AO of the Malabar Associates. In our humble opinion, this kind of ground of appeal will not serve any purpose unless they reflected actual point in dispute between the parties. 5. The only issue as arrived in the ground is the treatment of undisclosed income from toddy and arrack business which according to the CIT(A) is not included in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown in assessee's paper book page No. 35, trading and P&L a/e as in assessee's paper book page No. 36, P&L a/c for the year ended on 31st March, 1995 as in page No. 37 of the assessee's paper book and page Nos. 38, 39 and 40 show the expenses statement. These are all the seized materials at the residence of Shri K.K. Sasi. These seized materials, as rightly contended by the learned counsel for the assessee, reflect and prove that these are all profit sharing documents of the partners including the assessee in respect of Malabar Associates as well as M/s Associated Liquors. M/s Associated Liquors was not agitated by the Department only M/s Malabar Associates is being agitated against the order of the CIT(A). The learned counsel for the assessee contended that as far as M/s Malabar Associates is concerned, it is not the income of the assessee. If at all, it is the profit ratio by the assessee in the firm, as he contended, M/s Malabar Associates. 9. On the other hand, the learned CIT-Departmental Representative refuted the contentions and submitted that the assessee is not co-operating and the seized material suggests profit sharing at a higher rate than one disclosed by the so-ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.M.: 2nd June, 2009 I have had the privilege of going through the order proposed by, the learned JM. I am unable to agree with the findings arrived at by the learned JM and his consequential order dismissing the appeal filed by the Revenue. Hence, this dissenting order. 2. I have to state in brief the facts of the case and the arguments advanced from either side. 3. The assessee, Shri K.T. Joseph, is a partner in the firm, M/s Hotel Amrutha & Bar and also in various other firms belonging to Amrutha Group of concerns. The business of the group is liquor, bar hotels and restaurants. The group is carrying on business from North to South of Kerala in different places from Iritty to Thiruvalla. 4. A search under s. 132 was conducted in the residential premises of the assessee on 29th July, 1999. This search was conducted in combination with the search carried out in various business premises of the group concerns. In consequence of the search, block assessment proceedings under s. 158BC were initiated against the assessee and accordingly a notice was issued on 6th Jan., 2000. The notice was responded by the assessee on 14th Feb., 2000 by filing a block return declaring undisclo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. In respect of Calicut IVth Group (Arrack) share of the assessee was 50 per cent and an income of Rs. 8,54,817 has been added in the hands of the assessee. Again, for the asst. yr. 1996-97, the income from Tiruvambadi toddy shop Nos. 68, 69 and 70 and shop No. 78, was worked out at Rs. 2,62,098. 6. On the basis of the above items of income computed by the AO in respect of toddy and arrack business, the cash flow statement filed by the assessee was recast. The AO observed that cash deficiency existed for the asst. yrs. 1990-91, 1991-92, 1992-93, 1993-94 and 1997-98. Those cash deficiencies have been treated as undisclosed income of the assessee. For the asst. yrs. 1995-96 and 1996-97. the AO has added the actual share of the assessee as a partner in arrack and toddy business. Altogether, the total undisclosed income of the assessee has been determined at Rs. 50,40,490. 7. The block assessment was taken in first appeal before the CIT(A)-I at Kochi. 8. The first ground raised before the CIT(A) was against the reduction made by the assessing authority in the opening cash balance claimed by the assessee. The disallowance made by the assessing authority was modified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iates and not in the hands of the assessee who is only a partner. 8.4 Regarding the income from Calicut IVth Group (arrack), the CIT(A) deleted the addition on the ground that the said business was carried on by the firm M/s Associated Liquors and the assessee was only a partner in the said firm having a share of 5 per cent. 50 per cent of the income was added by the AO in the hands of the assessee and 50 per cent was assessed in the case of the other partner, one Shri D. Rajkumar, Quilon. The CIT(A) found that the additions made in the hands of Shri D. Rajkumar have been deleted by the CIT(A), Trivandrum, holding that the business was carried on by the partnership firm, M/s Associated Liquors. On the above grounds, the CIT(A) deleted the addition of Rs. 8,48,817 in the hands of the assessee as well. 8.5 In respect of the additions made by the AO towards income from toddy business, the additions have been deleted by the CIT(A) on the ground that the toddy business was carried on by Shri K.K. Sasi, the accountant of the assessee's group concerns and assessment has been made in the name of Shri K.K. Sasi. The CIT(A) found that the assessment in the name of Shri K.K. Sasi was made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrack and toddy business was carried on by the firms, viz. M/s Malabar Associates and M/s Associated Liquors and those firms have already filed returns of income and therefore these items cannot be considered as undisclosed income in the hands of the assessee. The CIT(A) has overlooked the important fact that these firms have filed untrue returns and they have produced fabricated accounts and the income returned by those firms is not the correct income and as a partner of those firms, the assessee has also responsibility and the same has not been discharged by the assessee. The CIT(A) has deleted the additions made in the hands of the assessee on a feeble technical ground that these firms, which carried on arrack and toddy business, have filed their own returns of income. The CIT(A) has overlooked all other relevant evidences available on record and he accepted the contentions of the assessee only on a technical ground. 12. The learned CIT further argued that the assessee has not furnished details before the AO from which the AO could have come to a conclusion that the income arising out of the arrack and toddy business has already been disclosed to the Department through the ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the AO in the hands of the assessee in respect of Tiruvambadi arrack Group business for the asst. yrs. 1995-96 and 1996697 and the business of Calicut IVth Group (arrack) for the asst. yr. 1996-97. In respect of the above two firms, all the necessary details were furnished before the AO which included the copies of the returns filed by those firms, partnership deeds, books of accounts etc. All these particulars were furnished before the AO in the proceedings arising out of the search conducted in the premises of Shri K.K. Sasi. The details and documents furnished before the AO clearly showed that those firms have already filed their returns of income in which the income from the business of arrack and toddy has already been disclosed and the share attributable to the assessee has been disclosed. When all these matters were disclosed before the AO, he should have come to a conclusion that there cannot be a case of any undisclosed income in the hands of the assessee as all these matters have already been disclosed in the hands of those firms. As the AO has not accepted the above binding situation, the CIT(A) has naturally held that the assessee could not be called upon to exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re all cancelled by the CIT(A) on similar grounds, the order of the CIT(A) should prevail in the present case as well. 19. The facts of the case as briefly narrated in the above paras when examined in the light of the rival contentions, it is seen that the CIT(A) has deleted the undisclosed profits added in the hands of the assessee arising from carrying of the business of dealing in arrack and toddy, on the ground that the income whether disclosed or undisclosed related to those firms and if a step further gone to Shri K.K. Sasi. According to the CIT(A), there is no personal accountability cast on the assessee in the case of any income earned by the firms, viz. M/s Malabar Associates and M/s Associated Liquors. 20. Before going to the correctness of the above conclusion arrived at by the CIT(A), it is necessary to go through the details available from the statement furnished by the assessee under s. 132(4), in the course of search. The relevant admissions are summarized below: (i) Over a period of time, the assessee was a partner in more than 20 firms engaged in the business of toddy, arrack, bar attached hotels and restaurants. The assessee was also a partner in the firms, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales suppression at different rates depending upon the situations as decided then and thereby the partners who were in-charge of those firms. The assessee has also stated that unaccounted profit generated by the partnership firms were periodically quantified by the partners and shared in cash. There were periodical settlements of undisclosed accounts by the partners. 22. It is also clear from the seized records that the profit sharing ratio of the assessee reflected in the partnership deeds filed along with the returns of income was not the correct and actual share. The apparent profit sharing ratio reflected in the partnership deed ranged from 5 per cent to 10 per cent in favour of the assessee. But that is not real. The seized records have shown the actual profit sharing ratio and the quantum of profit enjoyed by the assessee. The actual share of profit enjoyed by the assessee ranged from 50 per cent to 70 per cent. In the case of the same firm the assessee has different profit sharing ratio for different assessment years. 23. These facts have been admitted by the assessee in his statement made under s. 132(4) which are not refuted so far. 24. The inevitable conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the coffers of the firms. We have already seen the relationship of the firm and its partners. In such a case, where the undisclosed income has been distributed to the partners without bringing into the accounts of the firm, the partners are liable for answering the undisclosed income, as they are the recipients of that undisclosed income. The unaccounted profits have reached the partners directly from the business and not through the allocation of account maintained by the firm. As per the materials collected in the course of search the partners have received their shares of undisclosed income from time to time. As the unaccounted profits have been shared by the partners outside the partnerships, the partners are liable to account for the said shares of unaccounted profits siphoned by them. 28. Therefore, in law as well as in facts, as far as this case is concerned, the partners are liable for answering the undisclosed income generated in the liquor business carried on by the firms. This is applicable to M/s Malabar Associates and M/s Associated Liquors. 29. Now the question is on the rate of undisclosed income to be considered in the hands of the assessee. A search has been ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irm is answerable to the share of profit allotted to a partner in its accounts. A firm has to state in its accounts the allocation of profit or loss to the accounts of the partners in the profit sharing ratio. The share of profit or loss attributable to a partner stands disclosed and explained only to the extent of the allocation made in the accounts of the firms. Where allocation of any profit is not reflected in the accounts of a firm, the partner cannot plead the alibi that he only being a partner of the firm, his share of accounted profits as well as unaccounted profits should be considered only in the hands of the firm. The firm is answerable only to the extent of the profits reflected in its allocation account. The firm is not answerable to that share of profit attributable to a partner but not reflected in its allocation account. Therefore, the assessee himself is responsible for explaining the nature of the unaccounted profits received by him. Whether that unaccounted share of profit received by the assessee was disclosed or undisclosed is a matter to be explained by the assessee himself. 32. In the present case, the partners including the assessee have appropriated the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome only for the reason that these two firms have filed the returns. What is disclosed in the returns filed by those firms is only a part of that income. The unaccounted income always remained undisclosed. So, the filing of the returns by the two firms has no bearing in deciding the question whether the share of the assessee in the unaccounted income of these firms is disclosed or undisclosed. Needless to say it is undisclosed. 35. Therefore, in my view, the assessing authority is justified in adding the proportionate unaccounted income of the firms in the hands of the assessee as part of his undisclosed income. The CIT(A) is not justified in deleting those additions only on the ground that the two firms have filed their returns of income. The filing of returns by those two firms has not made the entire income disclosed. Therefore, the order of the CIT(A) has to be set aside on this issue. 36. But at the same time the AO cannot take the entire share of the profit of the assessee in the firms, as his undisclosed income. The AO has to find out to what extent the firms have disclosed income in their returns. The balance of unreturned income alone will take the character of undiscl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers who heard the appeal, the following question is referred to the Hon'ble President, Tribunal: "Whether in the fact and circumstances of the case, the CIT(A) is justified in holding that no addition can be made in the hands of the assessee towards undisclosed income from the liquor business carried on by the firm M/s Malabar Associates?" VIMAL GANDHI, PRESIDENT (AS THIRD MEMBER): 14th Aug., 2009 On account of difference of opinion between the learned Members of Tribunal, Cochin Bench, the following question has been referred to me: "Whether, in the facts and circumstances of the case, the CIT(A) is justified in holding that no addition can be made in the hands of the assessee towards undisclosed income from the liquor business carried on by the firm M/s Malabar Associates?" 2. In my view the answer to the question is self-evident as it is a question of addition of undisclosed income from business admittedly "carried on by the firm M/s Malabar Associates". If the business is carried on by the firm, then whether it is disclosed income or undisclosed income, is to be assessed in the hands of the firm and not in the hands of the partners. In spite of the above short answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. On appeal, learned CIT(A) deleted the addition with the following observations: "Income from toddy and arrack business: The appellant is a partner with 10 per cent share in a partnership concern Malabar Associates with 11 partners including the appellant. This partnership is consisting of partners who are not in any way related to the appellant. The license for doing business in arrack is in the name of a partner other than the appellant and the firm Malabar Associates was carrying on the business for the asst. yrs. 1995-96 and 1996-97. The firm Malabar Associates is preparing P&L a/c and balance sheet of the firm based on the books of accounts regularly maintained and the return of income were filed before the date of search. The return of income for the asst. yr. 1995-96 was filed on 24th Nov., 1995 and 1996697 was filed on 21st Feb., 1996. Copy of the partnership deed, P&L a/c and balance sheet of the firm, copy of the IT return and copies of acknowledgment of IT returns are filed by the appellant. It is the appellant's contention that the undisclosed income of the firm is not assessable in the case of the appellant and has to be considered in case of Malabar Associate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the residential premises of the assessee. It is only from the residential premises of Shri K.K. Sasi on the very same day. Further, the question and answer, which we have reproduced, clearly negatives the addition made by the AO and the CIT(A) is perfectly justified in deleting the addition in the hands of the assessee as it is not the undisclosed income of the assessee. Therefore, we confirm the order of the CIT(A) by dismissing the ground of the Revenue as devoid of merits." 7. The learned AM did not agree with the above conclusion. He allowed the appeal of the Revenue. He, however, made pertinent observations in his proposed order and some of which are relevant, and are noted hereunder: "The AO computed the profits of various firms engaged in the business of arrack known as Tiruvambadi Group, and Calicut IVth Group and from different shops at Calicut and Tiruvambadi, on the basis of seized materials. The profits computed by the AO were more than the profits disclosed by the respective firms for the reason that in the impugned block assessment, the profits of those firms have been computed on the basis of seized materials whereas the profits returned by those firms for inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income were also not entered in the accounts (answer to question Nos. 5 and 6). (iii) Different ratio of sales suppressions is adopted in different firms. In the case of M/s Hotel Amrutha, sales suppression was to the extent of 25 per cent. There are no fixed parameters for deciding the quantum of suppression to be made in the sales of individual firms. The decisions are taken by those persons, who are in-charge of those firms. Sales suppression took place not only in liquor but also in respect of the sales of food items, soda, snacks, etc. The rate of suppression in the sales of such other items is 33 per cent to 50 per cent (answer to question Nos. 7 and 8). (iv) Actual profits earned by the firms are not reflected in the accounts. Therefore, the partners of the firms used to verify the actual account of the business of the firms and find out the quantum of unaccounted profit. Once the quantum of unaccounted profit is determined, the profits were distributed to the partners in cash (answer to question No. 9). (v) All the firms in which the assessee was a partner have not disclosed true profit of those firms, in the returns of income filed from time to time. All the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed the appeal of the Revenue. 8. The case, to resolve the difference, was fixed for hearing. I have heard both parties. With the help of the learned representatives of the parties, I have also examined the materials available on record. As noted earlier, in the present appeal I am only concerned with the income, which has been held to be undisclosed income of the firm, M/s Malabar Associates, in which the assessee was a partner. The income of other 21 concerns is not the subject-matter of dispute before me. 9. The learned CIT(A) has recorded that the firm, M/s Malabar Associates, filed its return for asst. yrs. 1995-96 and 1996-97 on 24th Nov., 1995 and 21st Feb., 1996 respectively. These findings are established on record and are not in dispute. Of course, in the return only the income as per the books of accounts was disclosed. Undisclosed income was to be assessed as per the provisions of Chapter XIV-B of the IT Act, 1961. 10. The share income of a partner is not assessed separately and assessment is made only on firm w.e.f. 1st April, 1993. This is on account of introduction of cl. (2A) in s. 10 of the IT Act, 1961. The aforesaid scheme relating to the disclosed inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter has not been challenged before the Tribunal. Why no proceedings were taken in the hands of M/s Malabar Associates under Chapter XIV-B is not clear from the record. Even if the assessee did not furnish the requisite details regarding above firm that would not be a ground to make the assessment of alleged share of undisclosed (or disclosed) income in the hands of the firm (sic-assessee). As per the settled law, income has to be assessed in the hands to which it belongs. 13. The learned representative of the assessee during the course of hearing has also pointed out errors in the proposed order of learned AM. He rightly said that observations that firm M/s Malabar Associates is not in existence or defunct or dissolved, are factually incorrect. Legal inference drawn by learned AM was also not correct. On his own showing that in the case of firm, partners have joint and several liability, the firm M/s Malabar Associates could have been assessed through the assessee partner and liability of that firm recovered from the assessee and other partners in accordance with law. It was further not possible or permissible under the law to make assessment of income of firm in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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