Commissioner of Income Tax, Trivandrum v. Meenakshi Lucky Centre

# **IN THE HIGH COURT OF KERALA AT ERNAKULAM** # **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **TUESDAY ,THE 27TH DAY OF NOVEMBER 2018 / 6TH AGRAHAYANA, 1940** **ITA.No. 69 of 2001** **AGAINST THE ORDER/JUDGMENT IN OTHERS 7/2000 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 30-11-2000** ## **APPELLANT/S:** **THE COMMISSIONER OF INCOME TAX, TRIVANDRUM.** **BY ADVS. SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT SRI.GEORGE K. GEORGE SC FOR IT SRI.JOSE JOSEPH SC FOR INCOME TAX** ## **RESPONDENT/S:** **M/S.MEENAKSHI LUCKY CENTRE ,Y M C A ROAD, KOTTAYAM** **BY ADV. SRI.ANIL D. NAIR** ## **OTHER PRESENT:** **SRI PKR MENON SR FOR GOI TAXES, SRI JOSE JOSEPH SC** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 27.11.2018, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ITA No.69/2001 ::2:: ## **J U D G M E N T** ## **Vinod Chandran, J** **The assessee respondent carried on business in lottery as authorised agents of the Kerala State and many other States. A search was conducted under Section 132 of the Income-Tax Act, 1961 in the business premise of the assessee on 19.03.1996. A notice under Section 158 BC was issued on 6.2.1997 The block return was filed on 26.03.1997 pursuant to which the Assessing Officer carried out the block assessment for the period 01.04.1984 to 19.03.1996 assessing a total undisclosed income of Rs.1,57,30,590/-. The assessee went up to the Tribunal which remanded the matter for further verification by the Assessing Officer.** **2. The Tribunal in its earlier order as seen from the extracts, in the present impugned order, spoke of the assessee not being given a** ITA No.69/2001 ::3:: **reasonable opportunity to defend the various additions proposed especially in the context of the limitation fast approaching. The assessee's request to produce further evidence, made through an affidavit was also declined by the Assessing Officer. The Assessing Officer was hence directed to carry out a fresh assessment. The Assessing Officer then, determined an undisclosed income of Rs.1,46,20,170/-.** ## **3. The major heads under which the undisclosed income was proposed were as follows:-** |1|Understatement of sundry debtors|49,83,287| |---|---|---| |2|Discrepancy in cash balance|65,58,110| |3|Unexplained bank deposit|23,27,089| |4|Undisclosed income from sale of<br>lottery|5,70,00,000| **We see from the order of the Tribunal that each of the separate heads were considered with reference to the grounds raised by the assessee and arguments advanced by the Department as also reconciliation** ITA No.69/2001 ::4:: **made of the various statements as produced by the assessee before the Tribunal. The assessee had filed as many as 11 paper books and argument note running to 22 pages exclusive of the schedules. The Tribunal pertinently noticed that the case in point is one illustrating the extent of damage that can be done by an ill informed and possibly overworked part-time accountant. The Tribunal reconciled the figures as projected by the assessee under each of the heads and arrived at a finding that the determination of undisclosed income by the Assessing Officer was on the higher side. The Tribunal also found that the books of accounts were not properly kept and there was definitely discrepancies in the accounts as maintained by the assessee. It was in such circumstances, that a lump sum estimation was made of Rs.20,00,000/-** **4. We see from the memorandum of appeal that all the questions raised are on facts. We have** ITA No.69/2001 ::5:: **gone through the entire order of the Tribunal, which indicates that each of these aspects have been considered by the Tribunal and reconciled with the argument addressed on behalf of the assessee. Out of the total un-disclosed income determined by the A.O.,substantial portion ie: Rs.1,15,41,397 relates to the assessment year 1995-96, for which year the assessee had filed its return before the due date itself and the assessment was not completed in accordance with the statute. Even in the order passed after remand the A.O has verbatim reproduced the earlier order and reiterated the earlier additions made, except an addition of Rs.10 lakhs. The accounts were found to be maintained in a haphazard manner, some under the English system and some under the Indian system, creating a confusion as to the credits and debits figuring in the ledgers maintained. The cash balance shown by the assessee in its books included not only cash in** ITA No.69/2001 ::6:: **hand but also the prize winning lotteries. The assessee explained that this was because for small prizes of value less than Rs. 100/-, it was not economical for the winner to claim the prize directly from the Government who runs the lottery and the assessee paid up the same and later collected it from the respective Governments. This was not the income of the assessee though shown as cash-in-hand.** **5. The books of accounts relied on for the assessment year 1995-96 was a personal memorandum which had not been accounted and written up properly in a ledger format. The discrepancy found in the closing balance of the previous year and the opening balance of the subject year was argued to be due to proper reconciliation having not been carried out of the various right-offs and discounts. This accounted for almost Rs. 50 lakhs income determined for 1995-96, as undisclosed. The** ITA No.69/2001 **==> picture [20 x 9] intentionally omitted <==** **other major addition for that year, of a little more than Rs. 65 lakhs, was under the head “understatement of cash balance”. This again occurred due to the Accountant having included the receipt of prize winning tickets, but having not debited those winning tickets issued to others. The blunder was noticed by the Accountant later and there was a rectification made by the assessee in the day books maintained for the respective years which was not properly appreciated by the A.O. The A.O had also relied, selectively on the seized ledgers, acting upon some and ignoring others.** **6. Individual entries were wrongly made and there also occurred jumbling of figures, major instances of which were noticed by the Tribunal. Instances also were pointed out when the Accountant failed to enter even Demand Drafts deposited with the banks in the day book leading to allegation of unexplained credits in Banks. On facts the** ITA No.69/2001 ::8:: **aggregate understated debit of Rs. 40,08,241 was found to match the under stated credits of two Agencies. The Tribunal has dealt with each of the additions made by the A.O with reference to the explanation offered by the assessee and the reconciliation statements produced, as the last fact finding authority. The A.O did not at all carry out any enquiry with respect to the affidavits filed by the sub-agents as to the amounts receivable from them, which the A.O determined wrongly from entries in a rough-book which did not show the receipts as such. The discrepancies noticed by the Assessing Officer were found to be arising only on account of the shabby manner in which various transactions were carried out and the same accounted in the books.** **7. The Tribunal after extracting the figures available for the various years in the block period, made an estimation of the lump sum** ITA No.69/2001 ::9:: **addition on a fair basis on sound accounting principles in the following manner:** **It may be noticed that the rate of gross surplus return on the turnover(Sl.No.7) has come down from 3.13%. In the assessment year 1991-92 to 1.37% in the asstt.year 1994-95, for which there is no specific reason given before us. If we estimate the gross profit rate at .5% over the gross surplus rate on the consolidated turnover** **for these years of Rs.46,10,42,011/-, it would give a figure of Rs.1,03,73,495/(Sl.No.13_. It is in excess of the gross surplus disclosed for these years of Rs.80,92,824/-(Sl.No.6 of the above table) by Rs.22,80,635/-.** ITA No.69/2001 ::10:: **Taking an overall view of the matter, we determine the undisclosed income for the block period at Rs.20,00,000/-(Rs. Twenty lakhs). Needless to mention that this is over and above the income returned/assesseed in the regular assessment for the block period. The assessee gets a relief of Rs.1,26,20,170/- (Rs.1,46,20,170 - Rs.20,00,000).** **The estimate made is on a fair basis and does not warrant interference in this appeal. We hence are of the opinion that the questions raised in the memorandum of appeal are on facts.** **8. Then, the learned Senior Counsel, Government of India (Taxes) raised a question of law which according to him is as below:** ITA No.69/2001 **==> picture [26 x 10] intentionally omitted <==** **Whether on the facts and circumstances of the case, the Tribunal having found the books of accounts to be not properly maintained, ought not the Tribunal have referred back the question of estimation to the Assessing Officer?** **9. The learned Senior Counsel also relied on the decision of the Hon'ble Supreme Court in** _**CIT v. McMillan And Company[1958(33) ITR 182]**_ **. The learned Senior Counsel would specifically take us to page 191, wherein the power conferred on the Assessing Officer and that on the Appellate Authority were discussed. The Hon'ble Supreme Court found** **10. ... It is true that the decision as to the method of accounting is to be arrived at first by the Income Tax Officer after a careful scrutiny of the accounts whether they are simple or complicated, and the power is to be reasonably and** ITA No.69/2001 ::12:: **judicially exercised, which excludes any subjective or arbitrary decision by the Income Tax Officer. It cannot, however, be said that a power so exercised is clothed with finality and would be excluded from review by the Appellate Assistant Commissioner; and in reviewing the order the Appellate Authority can exercise the same powers which the Income Tax Officer could exercise. Our attention has been drawn to the difference in language in which the two conditions for the application of the proviso have been expressed; the first condition is fulfilled if no method of accounting is regularly employed; the second condition, however, requires an opinion viz. the opinion of the Income Tax Officer that the income, profits and gains cannot be properly deduced from the method of accounting regularly employed. It is pointed out that the first condition involves an objective determination — not by any** _**named**_ **authority but by any and every authority which may have to consider whether the condition as to the regularity of the method employed** ITA No.69/2001 ::13:: **has been fulfilled or not; whereas the second condition involves a determination by a** _**named**_ **authority. The argument is that by reason of the aforesaid difference in language, the legislature clearly intended that the opinion of no other officer can be substituted for the opinion of the named authority viz. the Income Tax Officer, with regard to the fulfilment of the second condition; therefore, once the Income Tax Officer accepts the method of accounting as proper, the Appellate Assistant Commissioner has no jurisdiction to go behind that opinion. We are unable to accept this argument as correct. It is to be remembered that with regard to** _**both**_ **conditions, the first and initial duty is that of the Income Tax Officer to determine whether the conditions or any of them are fulfilled; secondly, if the opinion of the Income Tax Officer with regard to the second condition is to be inviolate by reason of the difference in language, then it should be inviolate in** _**all**_ **cases. Why should it be inviolate** _**in one case**_ **and** _**not**_ **so when the assessee appeals against a** ITA No.69/2001 ::14:: **determination made adverse to him? We feel that the second condition is expressed in the terms in which it has been expressed, because it involves an inferential process and the expression “in the opinion of the Income Tax Officer” is aptly used as that officer must in the first instance make the determination. It does not necessarily follow that the Appellate Assistant Commissioner cannot revise the determination and exercise the power which the Income Tax Officer could exercise.** **10. It is the contention of the learned Senior Counsel that estimation is the exclusive premise of the Income-Tax Officer and that at the first instance, it has to be done by the ITO. In the present case, in fact, the A.O had made the estimation and the Appellate Tribunal interfered with it and made a lump sum estimation finding that the method of accounting followed by the assessee was one from which the income, profits and gains** ITA No.69/2001 ::15:: **cannot be properly deduced therefrom. The determination of undisclosed income as made by the A.O was found to be faulty by the Tribunal and that is a question on facts which we would not venture into in an income-tax appeal, the contours of which are clearly defined confining it to answering the questions of law, unless there is a perverse finding on facts. There can be no perversity found in the order of the Tribunal which is based on sound accounting principles and the reconciliation statements as also the explanations submitted by the assessee before the Tribunal. Insofar as the question as framed by us, on persuasion of the learned Senior Counsel, we find that the decision relied on only commends affirmation of the Tribunals order. The decision is an authority for the proposition that though the issue as to whether there is a method of accounting employed by the assessee and it is possible therefrom to deduce the** ITA No.69/2001 ::16:: **income, profits and gains has to be first considered by the A.O, the same is subject and open to review on both counts by the appellate authorities under the Income Tax Act. The A.O when finding the accounting to be not proper also, in the first instance, has to decide on the manner in which the computation has to be made to determine the income brought to tax, which also the appellate authorities can interfere with. In the present case the same has been done by the A.O at the first instance and it has been interfered with by the Tribunal and an estimation carried out, from the figures as available in the records of the respective years. We also notice that the last of the years assessed in the block period was 1996 and the appeal is of the year 2001. When there arise no question of law and the clear finding of the Tribunal is that the haphazard manner in which the books of accounts are maintained make it difficult** ITA No.69/2001 ::17:: **to ferret out properly and determine the actual undisclosed income; we do not find any reason to now remand the matter. In such circumstance we do not think that a remand has to be made to permit the Assessing Officer to make a fresh estimation in the aforesaid case. We also notice that once a remand was made by the Tribunal finding violation of principles of natural justice and lack of application of mind; upon which the A.O reiterated the entire additions earlier made; except an addition of Rs.1O lakhs.** **We hence reject the appeal. There is no order as to costs.** **Sd/K. Vinod Chandran, Judge** **jma** **Sd/Ashok Menon, Judge** ITA No.69/2001 ::18:: ## **APPENDIX** **PETITIONER'S/S EXHIBITS:** **ANNEXURE A(1) TRUE COPY OF THE STATEMENT OF SUNDRY DEBTORS ON 31.3.1995.** **ANNEXURE A(2) TRUE COPY OF THE STATEMENT OF THE ASSESSEE.** **ANNEXURE A(3) TRUE COPY OF THE STATEMENT FILED BY THE ASSESSEE RECONCILING THE CASH BALANCE.** **ANNEXURE A(4) TRUE COPY OF THE DETAILS OF UNDISCLOSED INCOME AND THE DETAILS OF INCOME ASSESSED/RETURNED.** **ANNEXURE A TRUE COPY OF ITAT'S ORDER DATED 18.11.1997.** **ANNEXURE B TRUE COPY OF ASSESSING OFFICER'S ORDER DATED 28.3.2000.** **ANNEXURE C TRUE COPY OF ITAT'S ORDER DATED 30.11.2000.**