The Commissioner of Income Tax, Thiruvananthapuram v Archana Trading Co.

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 10TH DAY OF JULY 2018 / 19TH ASHADHA, 1940 ## **ITA.No. 226 of 2013** **---------------------** AGAINST THE ORDER/JUDGMENT IN ITA 351/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-02-2013 ## **APPELLANT(S)/APPELLANT/RESPONDENT** ## **---------------------------------** THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX ## **RESPONDENT(S)/RESPONDENT/APPELLANT:** ## **----------------------------------** M/S.ARCHANA TRADING CO., ANCHAL, KOLLAM-691 001. R BY ADV. SRI.T.M.SREEDHARAN (SR.) R BY ADV. SRI.V.P.NARAYANAN R BY ADV. SMT.DIVYA RAVINDRAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10-07-2018,ALONG WITH ITA NO.229/2013,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: IT APPEAL NO. 226/2013 ## APPENDIX ## APPELLANT'S ANNEXURES: ANNEXURE A: TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3)/147 DT 30.12.2009 ANNEXURE B: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (A) DT 09.02.2011 ANNEXURE C: TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DT 28.02.2013 RESPONDENTS ANNEXURES: NIL TRUE COPY P.A TO JUDGE jma ## K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T Appeal No. 226 of 2013 & 229 of 2013 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 10[th] day of July, 2018 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - ## J U D G M E N T ## Vinod Chandran, J The question of law arising in the aforesaid case, is re- framed as follows: Whether the entire sales suppression detected on survey could be taken as taxable income when there was no suppression found on purchases? 2. The assessee in both the cases is a Bar attached hotel and a survey was conducted in its premises on 15.01.2009. Some incriminating materials were recovered and based on the same, it was found that the assessee had sold Indian Made Forein Liquor (IMFL) in excess of the price shown, in the books of ITA Nos.226/2013& 229/2013 **==> picture [20 x 10] intentionally omitted <==** accounts and the returns. An estimate was made from the documents recovered and the books of accounts and turnover suppression was determined on which the tax was directed to be paid. 3. The First Appellate Authority and the Tribunal both relied on a decision of the High Court of Gujarat reported in 2002 258 ITR 654 CIT v President Industries to find that when there was no detection of any purchase suppression, there could be no income suppression alleged from sales. Here the assesee being a Bar Hotel purchased Indian made Foreign Liquor (IMFL for brevity) only from the Kerala State Beverages Corporation (Corporation for brevity) and there is no allegation levelled of other purchases. 4. The facts in the cited decision, in an application compelling reference is not clear. What little is discernible is that ITA Nos.226/2013& 229/2013 **==> picture [20 x 10] intentionally omitted <==** the assessee was alleged to have moved finished goods from its manufacturing unit to its godown without disclosing it in the books of accounts and sold the same. The entire sale price of the goods was taken as the income received. The High Court found that if at all there was a sales suppression, the taxable income could be only to the extent of the estimated profit embedded in the sale. It was also found that having detected no investment outside the books of accounts, only the net profit of the sale suppressed can be taken. 5. We are not apprised of the exact business which was dealt with by the Gujarat High Court, but we presume that it was of manufactured goods. In the present case, we are faced with the purchase and sale of liquor carried on through a Bar Hotel. We are also faced with the unique situation of the State having granted monopoly to distribute IMFL to the Corporation. The ITA Nos.226/2013& 229/2013 ::4:: assessee-a Bar hotel could not have purchased IMFL from any other source. The purchases from the Corporation is fully accounted. It is hence contented that the sale suppression fully cannot be taken as the income. 6. The specific allegation raised on survey as is disclosed from the assessment orders are available in the assessment orders. For the year 2006-07 we see that the survey found the sales between April 2005 to September 2006 and November 2005 to March 2006 at Rs.2,18,87,352/-. Based on the materials recovered it was found that the sales for October was very low. This led to an estimation of Rs.19,89,760/-. The figure disclosed on survey was based on loose sheets kept in a file recovered at the time of survey, showing the Bar receipts and night sales of IMFL. Here the purchase being of IMFL in whole-sale, the sale carried out is in retail. More clearly put the ITA Nos.226/2013& 229/2013 ::5:: bottles purchased in bulk are opened and liquor served in pegs; the price of which is at the discretion of the Bar hotel. The allegation was that sales were made at a price far more than that disclosed in the books of accounts. Hence on the very same purchase one sale price was reflected in the accounts while a far higher price was disclosed from the material recovered on survey. This does not require any further investment on purchase and is essentially an allegation of more gross profit having been obtained than that returned. 7. It was on the above basis that the sales turnover of IMFL was estimated at Rs.2,38,77,112/-. In addition to that disclosed in the return of income, which was only Rs.1,94,47,035/-. The difference being Rs.44,30,077/- was taken as income. This is the additional income received as profit on sales, over and above that seen from the accounts. We need not labour on the figures in ITA Nos.226/2013& 229/2013 **==> picture [20 x 10] intentionally omitted <==** the next year; which alone differ and the principle on which estimation was made is similar. The mere fact that there was no investment made outside the books of accounts would not help the assessee in the present case. As was noticed, the purchase turnover does not alter at all since the purchases can only be made from a State owned Corporation. There is no restriction with respect to the price for which liquor has to be sold by a person holding licence to run Bars under the Abkari Act. The price being variable and the suppression being the actual price for which the liquor was sold; the entire suppression is income. The assessee having filed its return claiming deduction for the entire expenditure incurred, there is no warrant for making further deduction for expenditure or computing the profit for the suppressed sales turnover detected on survey. What was detected on survey was added on as income and the assessment was ITA Nos.226/2013& 229/2013 **==> picture [20 x 9] intentionally omitted <==** completed, which cannot be faulted. We answer the question of law for both years in favour of the Revenue and against the assessee. The appeals would stand allowed setting aside the orders of the appellate authorities and restoring that of the Asseessing Officer, leaving the parties to suffer their respective costs. Sd/K. Vinod Chandran, Judge Sd/Ashok Menon, Judge jma