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TMI Blog2017 (8) TMI 119X X X X Extracts X X X X X X X X Extracts X X X X ..... l-books accord with the statements of account he submitted to the authorities. Nor has he sustained his defence that the bill-books contained commission transactions, given the tax difference between the State of Kerala and the Union Territory of Pondicherry. Further, important is that any accommodation by way of issuing bills at Mahe to the traders of Kerala for the transactions held only in Kerala is against public policy. The authorities-even if they were to believe the assessee's version-have rightly refused to recognise those illegal transactions. Indeed, emphatic is the judicial dictum of Abdulali [1973 (4) TMI 49 - SUPREME Court] that the Assessing Officer's best judgment did carry an element of speculation and approximation. As against the initial turnover of ₹ 2.31 crores, the Tribunal has found it to be ₹ 1,95,49,077 based on the Assessing Officer's remand report. As a result, the Tribunal has sustained the net profit rate at 5 per cent. of the turnover. We reckon that the method of calculation and the procedure adopted by the authorities arriving at the undisclosed income has accorded with the statutory mandate under sections 68 to 69C of the Act. We, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax (Appeals)-1, Kochi, in I. T. A. No. C-236/CIT(A)-I/09-10, which along with other appeals was disposed of on December 14, 2010. The appellate authority called for a remand report from the Assessing Officer ( AO ), considered the assessee's defence, and allowed the appeal in part through annexure B order, dated December 14, 2010. So were the other appeals for the remaining assessment years, too. 6. Further aggrieved, the assessee filed a second appeal before the Income- tax Appellate Tribunal, Cochin Bench ( the Tribunal ), in ITA No. 208/Coch/2011. Eventually, the Tribunal disposed of all the appeals through annexure C common order, dated September 22, 2011, in ITA Nos. 208 to 214/Coch/2011. 7. Under the above circumstances, the assessee filed these Income-tax appeals before this court : Table of cases : I.T. Appeal Arises from Assessment year 106 of 2012 ITA No. 208/Coch/2011 2002-03 108 of 2012 ITA No. 209/Coch/2011 2003-04 109 of 2012 ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Kerala v. C. Velukutty [1966] 60 ITR 239 (SC). On the proposition laid down in Hotel Meriya, relied on by the Revenue, the learned senior counsel in his reply submits that it was decided based on the assessee's admission. Revenue's : 12. Sri P. K. Ravindranatha Menon, the learned senior counsel for the Revenue, has submitted that sections 153A and 153C of the Act empower the Assessing Officer to reopen and reassess the accounts of any assessing year up to six years. He has taken us through Hotel Meriya, rendered by a Division Bench of this court, to hammer home his contention that block assessment is eminently sustainable. He has further submitted that the Assessing Officer's computation of the undisclosed income is unassailable. On the ratio of Velukutty and Padamchand Ramgopal, the learned senior counsel contends that the propositions are entirely fact based. 13. The learned senior counsel for the Revenue has relied on CIT v. Hotel Meriya [2011] 332 ITR 537 (Ker), CST v. H. M. Esufali H. H. Abdulali [1973] 90 ITR 271 (SC) Issues raised : I.T. Appeal Questions of Law 106 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4-05 7,10,199 1,68,39,900 1,42,51,277 2005-06 11,23,463 1,87,11,000 1,58,34,752 2006-07 19,98,934 2,07,90,000 1,75,94,169 2007-08 19,15,914 2,31,00,000 1,95,49,077 2008-09 53,96,593 2,54,10,000 2,15,03,985 Declared income, assessed income, and demanded tax : AY Income declared initially (Rs.) Revised AO s reassessment (Rs.) Total tax demanded 2002-03 1,05,314 2,32,480 14,06,190 7,12,610 2003-04 1,00,605 1,88,800 24,55,550 11,87,940 2004-05 1,24,140 2,54,470 53,54,340 27,78,570 2005-06 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9B, if the investment in a financial year is more than the recorded amount, the excess amount will be treated as the assessee's income for that financial year. Section 69C, on the other hand, covers unexplained expenditure which, too, will be treated as the assessee's income. 20. As seen from section 131, the Assessing Officer has the same powers as a court has under the Code of Civil Procedure, 1908. The powers concern (a) discovery and inspection, (b) enforcing the attendance of any person, including any officer of a banking company and examining him on oath, and (c) compelling the production of books of account and other documents. More importantly, section 132 of the Act confers on the Income-tax authorities wide powers of search and seizure. Here it needs no elaboration for, concerning the search conducted in the assessee's house, there is no issue raised about its legality. 21. The Explanation to section 132(4) of the Act clarifies that the evidence so collected would be relevant for any investigation connected with any proceeding under the Act. A person's examination is not only regarding any books of account, other documents, or assets found because of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the search or from the books of account or other documents requisitioned. The amount will be reduced by the aggregate of the total income , or increased by the aggregate of the losses of the previous years. 26. The different contingent circumstances for computing the amount are as follows : (a) If assessments under section 143 or section 144 or section 147 have been concluded before the search or requisition, those assess ments will form the basis ; (b) If returns of income have been filed under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148, but assessments have not been made till the date of search or requisition, the assessment must be based on the income disclosed in those returns ; (c) If the due date for filing a return of income has expired, but no return of income has been filed, the following are the options : (A) based on entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition, if those entries result in the computation of loss for any previous year falling in the block period ; or (B) based on entries as rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made a best judgment assessment for five assessment years and arrived at escaped income. In his order, he gave no reasons why he did not rely on the assessee's accounts. When challenged, the apex court has held that insignificant mistakes found in the accounting of one year cannot be a basis for the authority to reject the accounts relating to other assessment years. The court has felt that the method Income-tax Officer adopted for determining escaped income to be highly capricious. It is pertinent to note that, on facts, the court has observed that none of the authorities have found any mistake in the accounts relating to other accounting years. 31. In C. Velukutty, the apex court has quoted with approval the Privy Council decision in CIT v. Laxminarain Badridas [1937] 5 ITR 170, 180 (PC) to exposit the expression to the best of his judgment under section 12(2)(b) of the Travancore-Cochin General Sales tax Act, 1125 M.E. (XI of 1125) (page 244 of 60 ITR) : He (the assessing authority) must not act dishonestly, or vindictively or capriciously because he must exercise judgment in the mat ter. He must make what he honestly believes to be a fair estimate of the proper fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him, as well as on the surrounding circumstances of the case. It concludes that the assessments made based on the assessee's accounts and those made on best judgment basis are totally different. 35. In H. M. Abdulali the Supreme Court further observes that if the estimate made by the Assessing Officer is not arbitrary and has nexus with facts discovered, it cannot be questioned. In the very nature of the things, the estimate made may be an over-estimate or an under-estimate. But that is no ground for interfering with the Assessing Officer's best judgment . The court, however, cautions that the basis adopted by the officer should relate to the estimate made. 36. Let us examine H. M. Abdulali deeper. On facts, Abdulali holds that the assessee has neither pleaded nor established any justifiable reason for his not entering in the accounts the transactions noted in the bill-book seized. In such a situation, it was not possible for the Sales Tax Officer to find out precisely the suppressed turnover ; he could only estimate it based on the material before him. 37. H. M. Abdulali disapproves of an approach that insists on the assessing authority's having material be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he alleged investment in Koothparamba property is not justified. This finding has attained finality. For the assessment year 2006-07 : 41. For the assessment year 2006-07, the issue concerns the alleged unexplained investment of ₹ 76,90,320 in Mahe property. The Tribunal has found that the issue had already been dealt with in ITA Nos. 724 and 725/Coch/2010 involving Mr. Ashraf. As the issue is identical, the findings rendered in ITA No. 724/Coch/2010 and batch, the Tribunal has felt, that the assessment by the Assessing Officer and the order of the appellate authority could not be sustained. This finding, too, has attained finality. 42. The bill-books found during the search pertain to the period from April 1, 2006 to July 30, 2007. From them the Assessing Officer found the total sales to be at ₹ 2.31 crores. Since the assessee had not included the sales in the trading account filed along with the return of income, the Assessing Officer reassessed the sales backwards in the entire block period from the assessment year 2002-03. Estimation of turnover of sales-net profit-addition of 5 per cent. 43. The learned senior counsel for the assessee has empha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have rightly refused to recognise those illegal transactions. Indeed, emphatic is the judicial dictum of Abdulali that the Assessing Officer's best judgment did carry an element of speculation and approximation. 46. As against the initial turnover of ₹ 2.31 crores, the Tribunal has found it to be ₹ 1,95,49,077 based on the Assessing Officer's remand report. As a result, the Tribunal has sustained the net profit rate at 5 per cent. of the turnover. We reckon that the method of calculation and the procedure adopted by the authorities arriving at the undisclosed income has accorded with the statutory mandate under sections 68 to 69C of the Act. We, therefore, find no reason to interfere with the Tribunal's confirming the Assessing Officer's adopting the undisclosed income at 5 per cent. on the revised suppressed turnover. For the assessment year 2008-09 : 47. Now we may focus on another issue : the agricultural income taken as income from other sources, for the assessment year 2008-09. The appellant owns 21 cents of land on which a house, too, exists. The Commissioner of Income-tax (Appeals) has agreed with the Assessing Officer's findings. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment year 2004-05. Leaving aside the minor discrepancies in the assessee's explanation about his lending the amounts to various persons, presumably his friends, we may bear in mind that the assessee is a businessman with considerable turnover. For a businessman, having a turnover of a couple of crores, short-term lending to friends-without interest at that-is neither uncommon nor abnormal. 52. True, the Assessing Officer's assessment and the adjudicatory authorities' findings are, perhaps, matters of fact. But the facts to fructify into findings need the application of law. If that application of law is flawed, this court can interfere, without causing violence to the established principle of law that there needs no interference on the questions of fact. 53. Even going by the ratio of H. M. Abdulali, we reckon that the Assessing Officer's findings on this issue are on unsure foundations. The speculative aspect overshadows the aspect of the established business practices. Given the assessee's explanation, we hold that he ought to have been given the benefit of doubt. In other words, there can be no quarrel on the Assessing Officer's conclusion t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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