Income Tax Appellate Tribunal - Bangalore
J.P. Narayanaswamy, Bangalore vs Asst.C.I.T., Bangalore on 14 September, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER
IT(SS)A No.04/Bang/2016
Assessment year : Block period 1.4.1991 to 27.4.2001
Shri J.P. Sudhakara, Vs. The Assistant Commissioner of
L/R Late Sri J.P. Narayanaswamy, Income Tax,
No.219, 3rd & 4th Floor, J.P. Corp, Circle 8(1),
Bellary Road, Sadashivanagar, Bangalore.
Bangalore - 560 080.
PAN: AATPN 4281F
APPELLANT RESPONDENT
Appellant by : Shri C. Ramesh, CA
Respondent by : Ms. Neera Malhotra, CIT(DR)(ITAT), Bengaluru.
Date of hearing : 16.07.2018
Date of Pronouncement : 14.09.2018
ORDER
Per N.V. Vasudevan, Judicial Member
This is an appeal by the assessee against the order dated 9.2.2016 of the CIT(Appeals), Bengaluru-6, Bengaluru relating to the block period 1.4.1991 to 27.7.2001. The revised grounds of appeal raised by the assessee reads as follows:-
"1. The order of the learned Commissioner of Income Tax (Appeals) is opposed to the facts of the case and law applicable to it.
2. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.41,56,587/- made in the order IT(SS)A No.04/Bang/2016 Page 2 of 10 U/s.154 of the act, ignoring the finding of Hon'ble Tribunal in its order dated 26.05.2005 that the alleged unaccounted expenditure of Rs.41,56,587/- taxed in the original assessment is telescoped against undisclosed income confirmed by the tribunal for the block period and therefore no separate addition warranted in respect of such alleged undisclosed expenses.
3. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that, there was no mistake apparent from records in the order of the Assessing Officer dated 22.03.2002 giving effect to the order of the High Court dated 11.08.2011 and therefore there was no order U/s.154 of the act warranted.
4. The learned Commissioner of Income Tax (Appeals) erred in ignoring the fact that. the order U/s.154 of the act, dated 09.10.2012 was passed by the Assessing Officer without issue of notice U/s.154 of the act and hence the same was bad in law and was to be annulled.
5. The learned Commissioner of Income Tax (Appeals) erred in giving a finding that, since the Hon'ble High Court of Karnataka in its order in ITA No.3136/2005 did not give a finding on a ground of appeal filed by the revenue, it is to be presumed that, such ground is allowed in favour of revenue.
6. The appellant craves permission to add, delete or alter any of the grounds at the time of hearing.
Prayer The appellant prays the Hon'ble Tribunal to kindly
i) Delete the addition of Rs.41,56,587/- made in order U/s.154 of the act, dated 09.10.2012.
ii) Annul the order U/s.154 of the act, dated 09.10.2012 as the same is passed without providing opportunity of hearing to the appellant and hence bad in law, without jurisdiction."
IT(SS)A No.04/Bang/2016 Page 3 of 10
2. The assessee is an individual. He is engaged in liquor business in Karnataka. The assessee is a recognized arrack vending contractor. He is a license holder from the Excise Department for retail vending of arrack. His territory comprises of 10 taluks which may be called as 'own territory' for the sake of convenience. The assessee also sells arrack outside his own territory at Shimoga, Sagar, Udupi and Bangalore Taluks, which may be called as sale outside his own territory. There was a search conduct u/s.132 of the Income Tax Act, 1961 (Act) on 27.4.2001 in the case of the Assessee. At the time of search, materials were seized in support of sale of arrack outside the books of account. The assessee explained before the assessing officer (AO) at the time of assessment on the basis of seized materials that 1,97,74,000 sachets were sold as unaccounted sales. Each sachet contained 100 ML of arrack. Out of the aforesaid quantity, 1,03,52,000 sachets were sold in its own licensed territory and 94,22,000 sachets were sold to other contractors/dealers outside his Own territory.
3. The AO at the time of framing block assessment, accepted the aforesaid figures of sale on the basis of seized materials. The main dispute that arose in the assessment was regarding rate to be adopted for each sachet of sale outside the books of accounts for the purpose of computing the undisclosed income. Another dispute was regarding set off of miscellaneous income with the undisclosed income computed for block period. According to the assessee, this undisclosed income from arrack is required to be set off from the miscellaneous income shown by him for the assessment year 2001-02 in the regular return of income. The miscellaneous receipts shown by the assessee includes the receipt from sale of arrack which was not disclosed as business income. The contention of the assessee was not accepted by the AO and accordingly set-off was not allowed. The third dispute that arose was that at the time of filing return IT(SS)A No.04/Bang/2016 Page 4 of 10 for the block period, the assessee. had disclosed income of Rs.57,50,199. As to whether this sum so disclosed required to be adjusted before computing the undisclosed income for the block period or not was the third issue that arose for consideration. This contention of the assessee was also not accepted by the Assessing Officer.
4. As far as the issue of adjusting the income disclosed in the return of income filed against the undisclosed income determined by the AO for the block period is concerned, the sum of Rs.57,50,199 was undisclosed income for the block period from 1.4.1991 to 27.4.2001 declared by the assessee in the return of income. The sum of Rs.41,56,587 which is given in the grounds of appeal by the assessee is undisclosed income declared by the assessee for AY 2001-02. Therefore, the sum of Rs.41,56,587 which is disputed in grounds of appeal by the assessee in this appeal is part of sum of Rs.57,50,199.
5. The above 4 disputes were considered and decided by the ITAT in the assessee's case for the block period 1.4.2001 to 27.4.2001 in IT(SS)A No.152/Bang/2004 by order dated 26.05.2005. The Tribunal held that :
(i) The rate to be adopted in the case of sale of arrack in own territory was to be adopted at Rs.9 per sachet and sale of arrack outside assessee's own territory was to be adopted at Rs.3.60 per sachet;
(ii) Regarding set-off of miscellaneous receipts against undisclosed income determined by the AO in the block assessment proceedings, the assessee had claimed set-off of a sum of Rs.8,76,75,000. The Tribunal held that sum of Rs.6 crores is to be adjusted against undisclosed income of arrack business (para 14 of the order of Tribunal).
IT(SS)A No.04/Bang/2016 Page 5 of 10
(iii) Regarding set off of undisclosed income declared for the block period against undisclosed income determined by the AO, the Tribunal allowed set off observing as follows:-
"15. Lastly, it was submitted by the learned counsel appearing on behalf of assessee that at the time of search the assessee had declared undisclosed income of Rs.57,50,199 for the block period. 'Therefore, this amount may be directed to be set of from the undisclosed income.
16. After hearing both the sides, we find that the breakup of undisclosed income was supplied by the assessee at the time of assessment which shows that for the assessment year 2001-02, Rs.41,56,587/- was declared as undisclosed income. We are of the view that the assessing officer shall compute the undisclosed income for-the assessment year 2001-02 after giving set off of this amount."
(iv) Regarding levy of surcharge, the Tribunal held that surcharge cannot be levied.
3. Against the aforesaid decision of the Tribunal, the assessee as well as the revenue preferred appeal before the Hon'ble High Court of Karnataka in ITA No.3027/Bang/2005 (assessee's appeal) and ITA No.3136/2005 (revenue's appeal). The Hon'ble High Court framed various questions of law. As far as set off of undisclosed income for AY 2001-02 of Rs.41,56,587 is concerned, the High Court framed the following question of law:-
"8. Whether the Tribunal committed an error in directing the Assessing Officer to compute the undisclosed income for the assessment year 2001-02 after giving set off of Rs.41,56,587/-?"
4. As far as the aforesaid question of law is concerned which is in dispute in the present appeal, the Hon'ble High Court did not render any IT(SS)A No.04/Bang/2016 Page 6 of 10 decision in its common judgment rendered in both the appeals dated 11.08.2011. As far as the rate to be adopted on account of undisclosed sale of liquor is concerned, the Hon'ble High Court upheld the order of ITAT. As far as the set off of Rs.6 crores of miscellaneous income against undisclosed income determined for the block period is concerned, the Hon'ble High Court reversed the order of the Tribunal. The AO gave effect to the order of High Court by his order dated 22.3.2012 in which he added the sum of Rs.6 crores, consequent to reversal of Tribunal's order by the Hon'ble High Court. Following was the order passed by the AO:-
" Order Giving Effect to High Court's order Consequent upon giving effect to Hon'ble High Court's order Vide ITA No.3027/2005 C/W ITA No.336/2005 dtd.11.08.2011, the Block Asst. Order Passed u/s. 158BC r.w.s 143(3) dated. 30.04.2003 is modified as under:
Rs. Rs.
INCOME AS PER ORDER
DATED 09.12.2005 44,355,612
Add: As per order of High Court
of Karnataka 60,000,000
----------------
104,355,612"
----------------
5. Thereafter the AO issued a notice u/s. 154 of the Act seeking to amend the order dated 22.3.2012 passed by him. According to the AO, the Hon'ble High Court has also allowed the claim of the department that undisclosed income in the return of income for the block period should be set off against undisclosed income ultimately determined by the AO. The following was the show cause notice issued by the AO in this regard:-
IT(SS)A No.04/Bang/2016 Page 7 of 10 "While giving effect vide order dated 22.03.2012 to the Hon'ble High Court's order the undisclosed income of Rs. 57,50,199/- as per block return filed in response to notice u/s 154BC was omitted. Since this is a mistake apparent from records, the same will be rectified."
6. The AO thereafter passed an order u/s. 154 of the Act dated 09.10.2012 observing as follows:-
"While giving effect to the order of Hon'ble High Court's order dated 22.03.2012, the income of Rs.41,56,587/- which was set off as per ITAT's order dated 26.05.2005 was omitted to be added back as per Hon'ble High Court's order. The assessee has filed objections stating this income has already been considered in the original assessment order. However, as per Hon'ble High Court's order, the setoff allowed by the Tribunal in favour of the assessee is set aside and the order passed by the appellate authority and the Assessing Officer rejecting the claim of the assessee for set off is restored. Since this is a mistake apparent from records the same has been rectified as under:
Income as per order dated 09.12.2005 4,43,55,612 Add: As per order of High Court of Karnataka Misc. receipts 6,00,00,000
---------------
10,43,55,612 Add: Undisclosed income which was setoff as per ITAT's Order dated 26.05.2005 41,56,587
----------------
Total Income 10,85,12,199"
----------------
7. Aggrieved by the aforesaid order passed u/s. 154 of the Act, the assessee preferred an appeal before the CIT(Appeals). Before the CIT(Appeals), the assessee specifically pointed out that insofar as the set off of income of Rs.41,56,587 disclosed in the return of income filed for the block period by the assessee against undisclosed income determined for the block period by the AO is concerned, the Tribunal in its order dated IT(SS)A No.04/Bang/2016 Page 8 of 10 26.05.2005 clearly held that the AO should set off the undisclosed income declared in the return of income for the block period. The Hon'ble High Court while deciding the issue formulated question No.8 for consideration on the grievance of the revenue in this regard against the order of the Tribunal. The Hon'ble High Court did not render any decision on question No.8 framed by it. The assessee contended that the order of Tribunal therefore holds good. Consequently, the assessee submitted that the impugned rectification done by the AO was in contravention of the Tribunal's order dated 26.5.2005 which continues to hold good even after the judgment of the Hon'ble High Court in appeal by the revenue.
8. The CIT(Appeals) on a consideration of the above submission accepted the fact that the Hon'ble High Court of Karnataka did not render any decision on question No.8 framed by it for consideration in the appeals against the order of the Tribunal. The CIT(Appeals), however, came to the conclusion that the Hon'ble High Court has not rejected question No.8 and therefore the order of AO as originally framed u/s. 158BC r.w.s. 143(3) of the Act should be deemed to have been confirmed by the Hon'ble High Court. Following was the relevant observation of the CIT(Appeals) in this regard:-
"6. Perusal of details filed revealed that the directions of Hon'ble ITAT Bangalore granting set off of Rs.41,56,587/- to the appellant vide its order IT(SS)A No.152/BANG/04 dated 26/05/2005 was challenged by revenue in Hon'ble High Court of Karnataka vide ground no 8 in ITA No. 3136/2005. Perusal of decision of Hon'ble High Court of Karnataka in ITA No. 3136/2005 also reveal that there is no allusion to this issue in its decision dated 11/08/2011. However non allusion does not mean that the revenue's appeal on the issue of Hon'ble ITAT granting set off to appellant has been rejected by Hon'ble High Court. On the contrary it means that original assessment order of AO dated 30/04/2003 passed u/s 158BC rws 143(3) now stands confirmed.
IT(SS)A No.04/Bang/2016 Page 9 of 10 Therefore in view of the facts and circumstances of the case, it is held that no anomaly arose on account of rectification order dated 09/10/2010 u/s 154 by the AO. Hence appeal is dismissed."
9. Aggrieved by the aforesaid order of the CIT(Appeals) the assessee has preferred the present appeal before the Tribunal. We have heard the submissions of the ld. counsel for the assessee, who reiterated the submissions as were made before the CIT(Appeals). The ld. DR relied on the order of CIT(Appeals) and further prayed that in the event of Tribunal accepting the assessee's claim, the revenue should be directed to seek remedies before the Hon'ble High Court on the non-adjudication of the issue with regard to set off of Rs.41,56,587.
10. We have considered the rival submissions. It is clear from the sequence of events that the Tribunal in its order has allowed the claim of the Assessee for set off and has directed the AO to allow set off of a sum of Rs.41,56,587 which is the income declared by the assessee for the AY 2001-02 in the return of income filed for the block period against undisclosed income determined by the AO for the block period in his order of assessment u/s. 158BC of the Act. This order of the Tribunal dated 26.5.2005 continues to hold the field and has not been disturbed by the Hon'ble High Court in the appeal filed by the revenue. In such circumstances, we are of the view that the rectification done by the AO was contrary to the order of Tribunal dated 26.5.2005. It is an accepted position that question No.8 framed by the Hon'ble High Court on the above issue was not adjudicated by the Hon'ble High Court. In such circumstances, the AO cannot infer that the Hon'ble High Court has reversed the order of Tribunal on the issue of set off. The issue of set off of miscellaneous receipts of Rs.6 crores was a totally different issue and had nothing to do with the set off of undisclosed income of Rs.41,56,587. In the given facts IT(SS)A No.04/Bang/2016 Page 10 of 10 and circumstances of the case, we are of the view that the order passed u/s. 154 of the Act cannot be sustained. The aforesaid addition of Rs.41,56,587/- made in the order u/s. 154 of the Act is therefore directed to be deleted and the appeal of the assessee is allowed.
11. In the result, the appeal of assessee is allowed.
Pronounced in the open court on this 14th day of September, 2018.
Sd/- Sd/-
( INTURI RAMA RAO ) ( N.V. VASUDEVAN)
Accountant Member Judicial Member
Bangalore,
Dated, the 14th September, 2018.
/ Desai Smurthy /
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file
By order
Senior Private Secretary
ITAT, Bangalore.