Malanadu Tourist Home Kottacherry, Kanhangad v. Commissioner of Income Tax

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN** **&** **THE HONOURABLE MR. JUSTICE ASHOK MENON** **MONDAY ,THE 12TH DAY OF NOVEMBER 2018 / 21ST KARTHIKA, 1940** ## **ITA.No. 20 of 2012** **AGAINST THE ORDER/JUDGMENT IN ITA 485/COCH/2009 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 19.8.2011** **APPELLANT/S:/APPELLANT/ASSESSEE** **MALANADU TOURIST HOME KOTTACHERRY, KANHANGAD.** **BY ADVS. SMT.PREETHA S.NAIR SRI.K.JOHN MATHAI SRI.M.GOPIKRISHNAN NAMBIAR SRI.P.BENNY THOMAS SRI.P.GOPINATH** ## **RESPONDENT/S:/RESPONDENT/REVENUE:** **COMMISSIONER OF INCOME TAX SAHANA BUILDING, MELECHOVVA, KANNUR-670006.** **BY ADVS.** **SRI PKR MENON, SR. COUNSEL FOR GOI (TAXES) SRI.JOSE JOSEPH SC FOR INCOME TAX** **THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12.11.2018, ALONG WITH ITA NO.8/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** ITA 20/12 2 K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------ITA Nos. 8 and 20 of 2012 ------------------------------------------Dated this the 12[th] day of November, 2018 ## J U D G M E N T ## Ashok Menon, J. Aggrieved by the common order of the Income Tax Appellate Tribunal, the assessee has approached this Court with these appeals. The assessee is involved in conducting a bar attached hotel. He filed return of income for the assessment year 2006-07 on 31.10.2006 declaring a total income of Rs.21,56,870/-. The case was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 ('Act', for short) was served on the assessee on 23.10.2007. In the survey conducted under Section 133A of the Act at the business premises of the assessee on 13.03.2006 by the Assistant Director of Income Tax (Investigation), Kannur, incriminating documents and evidences were noticed, which clearly established that the Gross Profit as a percentage of sales turnover of the assessee's business was higher than the return filed ITA 20/12 3 over the years. The daily statement and sale vouchers were found to be destroyed by burning after reporting the sale amount of liquor to the Managing Partner. The assessee offered an additional amount of Rs.23,00,000/for assessment consequent to the survey proceedings, which was found to be insufficient and the Assessing Officer (AO) added a sum of Rs.14,00,000/- to make good the shortfall. The assessee agreed to that. Certain amounts towards expenditure pertaining to vehicles were disallowed and the ultimate assessment was made as per Annexure-A. The penalty proceedings were dropped by the AO vide order at Annexure-B in ITA No.20/2010. 2. The Commissioner of Income Tax exercising his revisional jurisdiction under Section 263 of the Act proceeded against the assessee and two orders were passed respectively on 02.07.2009 and 29.06.2009 in respect of the quantum and penalty proceedings. The Commissioner observed that, having found that the Gross Profit ranged between 32% and 57%, the average was 42%, and on giving a margin of 5%, the gross profit should not have been worked at less than 37%. The sum of Rs.64.83 lakhs worked out to only 23.63%. Hence, the ITA 20/12 4 Commissioner directed the AO to make a fresh assessment. The Commissioner also did not approve the action of the AO in letting of the assessee from the liability to pay penalty. It was found that this is a fit case for imposing a maximum penalty of 300% on the addition of Rs.14 lakhs. 3. Aggrieved by these orders of the Commissioner of Income Tax, the assessee approached the Income Tax Appellate Tribunal and vide the common order dated 19.08.2011, it upheld the assessment and also justified the penalty, but reduced the penalty from 300% of the tax on the admitted income of Rs.14,00,000/- to 200%. This order is impugned. 4. The following questions of law arise for consideration, as re-framed by us:- (1) Was the Tribunal justified in finding that the assessment made by the AO was erroneous and prejudicial to the interest of Revenue and that there was sufficient reason for the Commissioner to invoke the provisions of Section 263 of the Act? ITA 20/12 5 (2) Was the Tribunal justified in upholding the order of penalty imposed by the Commissioner under Section 271(1)(c) of the Act, and limiting the order of penalty to only 200% despite having formed an opinion that there was error in calculating the gross profit and computation of income by the AO? 5. We heard the learned counsel for the appellant-assessee and the learned Senior Counsel, Government of India (Taxes) for the Department. 6. Regarding the error in calculation of the gross profit, the Commissioner has stated that Gross Profit of Rs.64.83 lakhs on a turnover of Rs.2.75 crores worked out to be only 23.63%. Additional amount of Rs.23 lakhs comes to 8%. The AO made an addition of Rs.14 lakhs which would come to 5% more. The total would be 36%. The Appellate Authority found that the average being 42%, the AO should not have made an assessment at less than 37%. It was also observed that there was admission of hidden expenditure, which proves additional income. The assessee had spent a sum of Rs.28 lakhs on the construction of a building regarding ITA 20/12 6 which, no verification was made by the AO. Penalty at 300% of the addition was also made. 7. The Tribunal has endorsed the findings of the Appellate Authority except in respect to the finding regarding the hidden expenditure, and the rate of penalty. 8. It was found by the AO that further additions were to be made following the scrutiny and therefore, the penalty proceedings under Section 271(1) (c) of the Act was dropped. The Commissioner has given his reasons for interference pertaining to the imposition of penalty, which was upheld by the Tribunal, except that the percentage was reduced. 9. We find that the Tribunal could not have substituted its own reasoning which were required to be recorded by the AO and if the AO did not record the reason, the assessee could not have found fault with it. The learned counsel for the assessee relies on the decision in (2008) 306 ITR 52 (SC) [Toyota Motor Corporation v. Commissioner of Income Tax] in support of the contention. There can be no doubt that so long as the view taken by the AO is a possible view, the ITA 20/12 7 same ought not to be interfered with by the Commissioner under Section 263 of the Act merely on the ground that there is another possible view of the matter. Permitting exercise of revisional power in a situation where two views are possible, would really amount to conferring some kind of an appellate power in the revisional authority. This is a course of action that must be desisted from. The calculation of the Gross Profit was made by the AO, and the assessee agreed to the additions made. We are, therefore, of the view that the changes suggested by the CIT invoking the revisional jurisdiction under Section 263 of the Act is not sustainable. 10. Regarding the penalty proceedings, the CIT has found that the assessee had made an attempt to conceal the income and had also attempted to falsify accounts. It is only consequent to the survey that the assessee had filed return of income and shown an additional income of Rs.23 lakhs. Even that was not found to be sufficient, and the AO had made a further addition of Rs.14 lakhs. It was held that there was a conscious attempt on the part of the assessee to ITA 20/12 8 destroy accounts. The CIT concluded that this was a case fit for imposing of maximum penalty of 300%. 11. The Tribunal agreed with the above finding of the CIT on imposing of penalty, but reduced the penalty to 200%, in view of the fact that the assessee had readily agreed to the additions suggested. 12. Section 271(1)(c) of the Act imposes strict liability on the assessee for concealment of income. There is no doubt that in the instant case, there was concealment by the assessee. The mere fact that he had consented to the additions made would not exonerate the assessee from the liability to pay penalty. The penalty has been reduced to 200% by the Tribunal. We do not intend to interfere with that finding of the Tribunal. 13. The question of law raised pertaining to the assessment proceedings is answered in favour of the assessee; and that of imposition of penalty is answered in favour of the Revenue and against the assessee. In the result, ITA No.8 of 2012, the appeal pertaining to the assessment proceedings is allowed and ITA 20/12 9 ITA No.20 of 2012, pertaining to the penalty proceedings is rejected. No costs. ## **Sd/-** **K.VINOD CHANDRAN** **JUDGE** **Sd/-** **ASHOK MENON JUDGE** ITA 20/12 10 ## **APPENDIX IN ITA NO.20/12** ## **APPELLANT'S EXHIBITS:** ## **ANNEXURE A** **TRUE COPY OF THE ASSESSMENT ORDER FOR 2006-07 ISSUED BY THE INCOME TAX DEPARTMENT TO THE APPELLANT DATED 14.9.2008.** **ANNEXURE B TRUE COPY OF THE ORDER U/S. 271(1) (C) OF THE ASSISTANT COMMISSIONER OF INCOME TAX, KANNUR FOR THE ASSESSMENT YEAR 2006-07 DATED 25.3.2009.** **ANNEXURE C TRUE COPY OF THE PENALTY ORDER ISSUED BY THE COMMISSIONER OF INCOME TAX TO THE APPELLANT DATED 29.6.2009.** **ANNEXURE D TRUE COPY OF THE TRIBUNAL ORDER DATED 19.8.2011 ISSUED TO THE APPELLANT.** [True Copy] jg