IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE P.S.GOPINATHAN TUESDAY, THE 2ND FEBRUARY 2010 / 13TH MAGHA 1931 ITA.No. 915 of 2009() --------------------- ITA.337/COCH//2005 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT: ----------------------------- THE COMMISSIONER OF INCOME TAX, THRISSUR. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/RESPONDENT: --------------- SHRI. P.KUMARAN, PARAKOTIL HOUSE, KOTTAPURAM, MANNARKKAD, PALAKKAD DIST. ADV. SRI.KMV.PANDALAI FOR R1 SMT.S.HEMALATHA FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02/02/2010, ALONG WITH ITA NO.1124 OF 2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR & P.S.GOPINATHAN, JJ. .................................................................... I.T. Appeal Nos.915 & 1124 of 2009 .................................................................... Dated this the 2nd day of February, 2010. JUDGMENT Ramachandran Nair, J. The appeals are filed by the Revenue against the orders of the Tribunal cancelling the entire additions made in the respondent- assessee's assessment for 2001-2002. We have heard Standing Counsel appearing for the appellant and Adv. Sri.K.M.V.Pandalai appearing for the respondent and have gone through the orders of the Tribunal and that of the lower authorities. 2. Assessee was engaged in Abkari business during the previous year relevant for the assessment year 2001-2002. Even though he was in regular business for several years, the details of previous assessments are not discussed in any of the orders for this year. In the course of a survey conducted in the previous year it is seen that assessee had offered Rs.25 lakhs for assessment from a Hotel by name Hotel Relax Park and a Bar Hotel by name Ragam Bar. However, even after offering Rs.25 lakhs towards income from other sources, the ITA 915&1124/09 2 assessee has claimed set off against loss from several business concerns including two retail outlets of Indian made foreign liquor. The Assessing Officer, however, after verifying the accounts noticed that assessee never maintained any credible accounts and the only option to him is to make to a best judgment assessment under Section 145 of the Income Tax Act. The loss declared in the two liquor shops were rejected by the Assessing Officer and additions were made for sales tax, Employees' Provident Fund etc., which were claimed as deduction without actual payment which was hit by Section 43B of the Income Tax Act. Even though the net result of computation of taxable income was Rs.51,30,060/- and the same was only partly modified in first appeal, the Tribunal cancelled the specific addition of Rs.7 lakhs being the unexplained credit found in assessee's own accounts in three concerns and directed to accept the book results in respect of the two liquor shops. The major grievance of the Revenue is against the Tribunal's direction to accept loss returned from two liquor shops. However, the Tribunal has partly sustained disallowances of various claims of deduction which were hit by Section 43B of the Act. ITA 915&1124/09 3 3. The assessee was engaged in retail sale of liquor at two places, one at Mukkom where the assessee returned a turnover of Rs.2,35,92,162/-. However, the assessee returned a loss of Rs.4,60,217/- from this shop. When the Assessing Officer sought for reasons for the loss, assessee claimed that payment of kist was one reason and the remaining being sale of liquor at below the market price on account of the year being the last year of promotion for private trade in liquor. However, on examining the purchase register, Assessing Officer found that there is nothing to indicate that the assessee had even reduced purchases towards the end of the financial year, which obviously means that assessee had sales. So far as assessee's claim of sale of liquor at below market price is concerned, no evidence was produced to substantiate the same. Based on the findings on all these and in view of the declaration of Rs.25 lakhs towards income from two other Bar Hotels, though under the head "income from other sources" in the course of survey, the Assessing Officer rejected the claim of loss. However, the Assessing Officer did not estimate any profit. Even though facts in respect of the other shop at Thiruvambadi are identical, ITA 915&1124/09 4 the Assessing Officer did not estimate any income from liquor trade in those two shops. On the other hand what he found was that assessee's claim for massive loss cannot be set off against income disclosed from two Hotels. Additions made were only in respect of tax, GPF etc., which were claimed as deduction, but without making payment, in violation of Section 43B of the Act. We are unable to sustain the Tribunal's order directing the Assessing Officer to accept the massive loss returned by the assessee from the two liquor shops because Tribunal has no material and they have not even gone through the accounts of the assessee or found it reliable to accept the loss returned by the assessee. We notice that the assessee's claim of sale of liquor at below market price stands demolished by reasoned order issued by the officer. 4. The next important issue pertains to Rs.38,00,810/- seen credited in the three business concerns of the assessee in his own name. On going through the orders we find that in the toddy section assessee has credited Rs.15 lakhs, in one liquor shop account assessee has credited Rs.11,75,680/- and in the case of an International Centre for ITA 915&1124/09 5 Information Tech. assessee credited Rs.11,25,130/-. When asked to explain about the source of these credits, assessee though submitted that he had withdrawn various amounts from several firms of which he was a partner, the Assessing Officer on verifying the accounts of such firms noticed that though there were withdrawals, they were periodical deposits made by the assessee in the accounts of the same firm. We do not know on what basis Tribunal can accept assessee's explanation without verifying and being satisfied about the time and date of withdrawal of particular amounts from various firms and corresponding credits in the capital accounts of various business concerns of the assessee. In fact, we notice that the Assessing Officer has been very lenient in reckoning the amount of Rs.25 lakhs offered by the assessee towards income from other sources and the assessee's explanation of Rs.6 lakhs towards agricultural income available with him for setting off the total amount of Rs.31 lakhs from out of the cash credits of Rs.38 lakhs and limiting the addition to only Rs.7,00,810/-. Even though we do not find any justification for the Tribunal accepting the assessee's explanation for loss returned by him based on accounts ITA 915&1124/09 6 which even Tribunal has not found to be reliable, we do not think we should remand the matter to the Tribunal or to the lower authorities because in the course of survey, assessee himself offered Rs.25 lakhs towards income from other sources. It is seen from the assessment order itself that the income offered is from two hotels namely, Hotel Relax Park and Ragam Bar and therefore, assessee could not declare business income from hotels as income from other sources. In any case after having declared Rs.25 lakhs voluntarily in the course of survey under Section 133A, we do not think assessee can neutralise income offered by declaring loss from other hotels and retail sales counters of liquor maintained by him. For the sake of finality, we feel the offer made by the assessee for assessment of Rs.25 lakhs should have been accepted by the department and the assessment could have been completed without undergoing the exercise of a detailed assessment which now stands virtually cancelled by the Tribunal. We, therefore, allow the appeals by vacating the orders of the Tribunal and that of the lower authorities and direct the Assessing Officer to just assess Rs.25 lakhs as net income without any deduction whatsoever based on the ITA 915&1124/09 7 offer made by the assessee in the course of survey under Section 133A of the Act in the place of the addition sustained by the Tribunal. The assessment should be completed without any addition whatsoever to Rs.25 lakhs offered by the assessee as income from other sources pursuant to survey conducted in the relevant previous year. C.N.RAMACHANDRAN NAIR Judge P.S.GOPINATHAN Judge pms