Income Tax Appellate Tribunal - Cochin
O.K. Pradeep And Co. vs Asstt. Cit on 3 August, 2005
Equivalent citations: [2008]110ITD509(COCH), [2008]296ITR1(COCH)
ORDER
R.S. Padvekar, Judicial Member
1. This appeal by the Assessee is directed against the order of the CIT(Appeals)-III, Kochi dated 19.11.2003 relevant for the Assessment Year 1992-93.
2. In the original Memo of appeal the Assessee had urged as many as seven grounds. The Assessee's Counsel was asked to file concise grounds of appeal. As per the directions of the Tribunal, the Assessee's Counsel has filed concise grounds, which is at page No. 1 of the paper book filed by the Assessee. In the concise grounds, the Assessee has urged three grounds, which are as under:
1. The CIT(A) ought to have allowed the appeal holding that the Tribunal had set aside the original order to make a denovo assessment and hence there was no apparent mistake warranting the inclusion of income of Rs. 2 lakhs.
2. The CIT(A) ought to have found that the amount of Rs. 2 lakhs and the kist interest considered in the original assessment were part of the abkari income and they cannot have independent existence when the income from it was estimated in the reassessment.
3. The CIT(A) ought to have cancelled the order as there was no apparent mistake, but only of a change of opinion.
3. The facts relating to the controversy before us are that the Assessee is a firm, which was running arrack shop. The Assessee filed its original return of income declaring a loss of Rs. 2266. Along with the original return of income, the assessee firm had filed audited statement of accounts along with the Tax Audit Report under Section 44AB of the Income tax Act. The Assessee's case was taken up for scrutiny Under Section 143 (2). The A.O. was of the opinion that for determining the income of the assessee-firm from the arrack business, Section 44AC of the Act, as then it was, was applicable. As per the provisions of Section 44AC, the income is to be computed on the basis of the purchases. The Assessee took objection for computing the income by the AO under Section 44AC of the Act by contending that purchases were not made by way of permits granted by the Excise authorities and hence the purchases were out of the purview of Section 44AC. The contention of the Assessee did not find favour with the AO. Moreover, for the earlier assessment year 1991-92 the CIT (Appeals) has upheld the, action of the AO for applying the provisions of Section 44AC of the Income-tax Act. Therefore, the AO computed the income of the assessee from arrack shop by applying the provisions of Section 44AC of the Act. As the assessee had declared purchases of arrack at Rs. 29,40,826, the AO computed the net income of the assessee at 40% of the purchase price. During the course of scrutiny it was found by the AO that on 1.4.1991 the Assessee had credited Rs. 17,97,300 in its books of accounts, being the bid amount which was deposited in the Treasury in March, 1991. The Assessee was asked to explain the source and accordingly the Assessee furnished the details regarding the said amount credited in the books. The Assessee has shown Rs. 2 lakhs as loan from one Shri C. Krishnan, but the assessee failed to produce any evidence. Moreover, it was found by the A.O. that the said Shri Krishnan was assessed to income-tax and he had also filed his return of income and statements of assets and liabilities up to assessment year 1993-94, but he had not shown any loan outstanding from the Assessee as on 31.3.1991. Moreover, the said Shri C. Krishnan had not disclosed an income of Rs. 2 lakhs during the year 1990-91, as claimed by the Assessee. The Assessee also did not produce any confirmation from Shri Krishnan for the loan credited in his name. On the totality of the facts, the A.O invoked the provisions of Section 68 of the IT. Act and made an addition of Rs. 2 lakhs in the assessee's income. It appears from the original assessment order dated 4.8.1994 that the Assessee's authorized representative also has agreed to make the said addition under Section 68 and to that effect he had filed a written consent to do so. Thereafter, the assessment of the assessee was completed under Section 143(3) by further making addition on account of interest accrued on the Kist deposit.
4. The Assessee challenged the impugned order of the AO before the CIT(Appeals), but it did not find favour and hence the assessee challenged the order of the CIT(Appeals) before the Tribunal. The Assessee had also filed appeal for the assessment year 1991-92. The Tribunal disposed of both the appeals, being ITA Nos. 248/Coch/94 and 515/Coch/95 for the assessment years 1991-92 and 1992-93 vide order-dated 19.3.1998. The Tribunal, held that in view of the judgment of the Hon'ble Supreme Court in the case of Union of India and Anr. v. Sanyasi Rao and Ors. the income of the assessee from liquor business should be computed as per the provisions of Sections 28 to 43C of the I.T. Act, 1961 and in accordance with the books of accounts, if any, maintained by the Assessee for his business. If no books of accounts are maintained, the Assessing Officer is at liberty to resort to estimate of profit. The Tribunal gave direction to the A.O to compute the profit of the assessee's arrack business as per the provisions of Section 28 to 43C of the Act and on the basis of the books of accounts, if any, maintained by the Assessee.
5. As per the directions of the Tribunal, the second assessment order for the assessment year 1992-93 was passed by the AO under Section 143(3) read with Section 154 of the I.T. Act. When the case was posted for hearing, it was contended by the Assessee before the AO that the books of accounts are not readily available and hence the assessee is not in a position to produce the same for examination. The Assessee's authorized representative represented that the income of the Assessee may be estimated in the absence of books of accounts. The AO noted that the original return furnished by the assessee was accompanied by statement of accounts, balance sheet, etc. As the books of accounts were not produced before the AO, the AO estimated the income of the assessee from arrack shop on the basis of the total quantity sold, i.e. 1,39,515 liters, estimating profit of Rs. 4 per liter. The AO did not make any other addition and accordingly the income of the assessee from the arrack business was recomputed by the AO as per the directions given by the Tribunal.
6. Subsequently, it was noticed by the AO that though the income is computed to comply with the directions of the Tribunal for the AY 1992-93 vide assessment order dated 30.3.2000, there was a mistake apparent from record that the sum of Rs. 2 lakhs which was added to the total income of the assessee being unexplained cash credit as agreed by the assessee's representative and accepted by the assessee in then original assessment was remained to be included. The AO passed an order under Section 154 for the AY 1992-93 rectifying the order of assessment dated 30th March, 2000 by making the following observations:
In the original assessment a sum of Rs. 2 lakhs was added to the total income being unexplained cash credits and this addition was agreed by the assessee's Authorized representative and was accepted by the assessee. The assessee filed an appeal against the assessment on some other grounds and the assessment was set aside by the ITAT allowing assessee's claim on the grounds raised by the assessee. When the reassessment was made on 30.3.2000 the addition made under Section 68 was not included in the total income as this was proposed to be added back. The objections made by the assessee to this proposal are "since the books were rejected, the credits in the capital account has no significance". The contention of the assessee is not acceptable for the reasons that the credit in the capital account originally assessed Under Section 68 was not challenged by the assessee at any stage. The estimation of the income made in the reassessment was clearly in respect of the business based on their turnover. Therefore, the income estimated is the income generated from business, the income estimated Under Section 68 is the credit introduced as initial capital. This has got no bearing on the income generated. This objection is, therefore, over-ruled. The second objection is that the amount has been telescoped with the estimated income. This is also not acceptable for the reason that the credit was introduced before the commencement of the business. The third objection is that the total income assessed is the total income of the firm and not the income for a separate head, this objection is also not relevant since this is a cash credit. In view of the above, the mistakes explained is a mistake apparent from records and I am convinced that the order dated 30.3.2000 requires to be rectified under Section 154 of the IT. Act
7. The assessee challenged the order of the AO passed Under Section 154 of the Act dated 9.4.2002 by filing appeal to the CIT(Appeals), but did not find favour as the appeal was dismissed and now the Assessee is before us.
8. We have heard the learned Counsel for the Assessee, Shri K.R. Sudhakaran Pillai, and the ld. Sr. DR, Shri V. Sreekumar, for the Revenue. The paper book filed by the Assessee's counsel is taken on record, which only contains the concise grounds and different orders, i.e. order of the Tribunal, original assessment order and assessment order giving effect to the Tribunal's directions. In respect of ground Nos. 1 and 2 (concise ground), the learned Counsel for the assessee submitted that once the assessment order was set aside de novo by this Tribunal and on the directions of the Tribunal the second assessment order framed by the AO was the correct one and rectifying the second order of assessment by making the addition of Rs. 2 lakhs Under Section 68 was not justified which was sustained by the CIT(Appeals). The ld. counsel further submitted that Section 68 contemplates that there should be credit entry in the books of accounts of the assessee and then only the provisions of Section 68 can be invoked. The ld. counsel further submitted that when the second assessment was framed by the AO, it is clear from the facts of the case that no books of accounts were produced before him. He therefore contended that there was no reason for making the rectification, as the second assessment was correctly framed by the AO. The ld. counsel taken us through the order of this Tribunal in ITA No. 248/Coch/94 and 515/Coch/95 dated 19.3.1998 and he vehemently submitted that this Tribunal has directed the AO to compute the profit of the assessee as per the provisions of Section 28 to 43C of the Act, and hence the entire assessment was set aside. He further submitted that the addition made by the AO in the original assessment in respect of the unexplained cash credit under Section 68 and estimation of the interest on kist deposit was nothing, but part of the business income. He therefore submitted that the CIT(Appeals) was not justified in confirming the order of the AO passed Under Section 154 of the Act.
9. The learned Departmental Representative, on the other hand, submitted that in the original assessment the addition Under Section 68 was made on the basis of the consent given by the Assessee as he failed to satisfy the AO in respect of the loan taken which were credited on the 1st of April 1931 from one Shri C. Krishan. The ld. DR further submitted that the issue of addition of Rs. 2 lakhs was never before the Hon'ble Tribunal and the correct issue before the Tribunal was in respect of the computation of the profit on the arrack business of the assessee. He further submitted that from the order of the Tribunal it is very clear that the assessee had never challenged the addition made by the AO under Section 68 of the Act. The ld. DR taken us to the order of the Tribunal and submitted that the issue before the Tribunal was only restricted regarding the applicability of Section 44AC for computing the profit of the assessee and no other issues were before the Tribunal and it is very clear from the observations of the Hon'ble Tribunal.
10. The learned DR further vehemently submitted that provisions of Section 68 are totally different. Whatever was computed under Section 68 had nothing to do with Sections 28 to 43C. The Hon'ble Tribunal has given the directions to compute the profit of the assessee Under Section 28 to 43C, but there is no mention of anything that the issue regarding the addition made Under Section 68 was before the Tribunal. The ld. DR further submitted that in respect of the estimation of the interest on the kist deposit, which was added in the original assessment order, is not added in the second order giving effect to the directions of the Hon'ble Tribunal. Hence he submitted that there is no substance in the argument of the learned Counsel that the additions made Under Section 68 were also before the Tribunal and the entire order of assessment was set aside. Hence, he submitted that grounds Nos. 1 and 2 raised by the assessee should be dismissed.
11. We have heard the rival submissions of the parties and carefully perused the orders before us. As far as the facts are concerned, there is no dispute that originally the income of the assessee was computed by applying the provisions of Section 44AC of the Act. It is also not disputed that the addition of Rs. 2 lakhs was made on agreed basis under Section 68 of the Act. It is also not disputed that the matter was taken to the Tribunal in respect of the first assessment order. Though it is contended by the ld. counsel that the entire assessment order was set aside by the Tribunal, on a careful perusal of the order of the Tribunal, the contention of the ld. Counsel appears to be wrong. As per the copy of the order before us, the issue before the Tribunal was whether the income of the assessee firm from the arrack business can be computed Under Section 44AC of the Act or it should be computed as per the provisions of Section 28 to 43C, provisions relating to the computation of the income under the head 'profit and gains of business or profession'. There is substance in the arguments of the learned DR that the issue before this Tribunal was very limited in respect of the applicability of Section 44AC in computing the income or profit of the assessee's arrack business. There is not even a whisper in the order of the Tribunal regarding the addition made under Section 68. If the issue of addition made Under Section 68 in respect of the unexplained cash credit would have been before the Tribunal, then the same would have been dealt with or at least discussed or would have been given some finding. From the perusal of the entire order of the Tribunal, we are of the considered opinion that only limited issue in respect of applicability of Section 44AC was before the Tribunal. There is substance in the argument of the ld. DR also that what the Tribunal has considered was computation of the income of the assessee's business under the provisions of Section 28 to 43C and there is no mention of Section 68. Moreover, the provisions of Section 68 are independent provisions totally different from Sections 28 to 43C. In our considered opinion, the entire assessment was never set aside by the Tribunal, but what was set aside was the issue regarding the computation of the profit of the assessee's arrack business without applying Section 44AC. Hence, there is no force in the argument of the ld. counsel that the entire assessment was set aside. We have also carefully considered the observations of the CIT(A). The CIT(Appeals) has made the following observations:
5. The original assessment, where addition of Rs. 2 lakhs Under Section 68 was made was on agreed basis and it was not agitated before the CIT(A)/ITAT and rightly say the assessee has agreed for accepting this addition made by the AO. The ITAT's direction covers only the computation of the income Under Section 143(3) pertaining to business income which originally was assessed Under Section 44AC. Section 68 is independent and not common and identical to the computation of business income Under Section 143(3). I have thoroughly and fully read over and considered all the contents of the order dtd. 9.4.2002 Under Section 154 as to include the income of Rs. 2 lakhs omitted to be recomputed in the reassessment order in compliance of ITAT's direction. The action of the AO to include Rs. 2 lakhs Under Section 68 by way of making rectification Under Section 154 is perfectly valid and in accordance with law. Accordingly, the action of the AO is confirmed.
12. In our opinion, the CIT(Appeals) has rightly observed that the ITAT's directions covers only the computation of income Under Section 143(3) pertaining to the business income which originally was assessed Under Section 44AC. We therefore uphold the order of the CIT(Appeals) on these two grounds and dismiss the issue in respect of the rectification made by making addition Under Section 68 which was remained to be made in the second assessment order passed as per the directions of this Tribunal.
13. In respect of the third ground, the assessee has challenged the jurisdiction of the AO passing the order Under Section 154, whereby making the addition of Rs. 2 lakhs Under Section 68 of the Act. The learned Counsel for the Assessee submitted that the AO has no jurisdiction to make the said addition, in view of the fact that it cannot be treated as a mistake apparent on record. He further submitted that the order of the Tribunal itself is a debatable one because the Tribunal has not specified whether that addition is to be made or not. The ld. AR submitted that the addition of Rs. 2 lakhs by invoking Section 154 is against the provisions of law. He vehemently submitted that the inclusion of the impugned addition is only a change of opinion, which will not fall Under Section 154 of the Act. The learned Counsel relied on the following decisions to substantiate his contention:
1. M.K. Venkatachalam v. Bombay Dyeing 34 ITR 143 SC
2. T.S. Balram v. Volkart Bros. 82-ITR-50-SC
14. The ld. DR submitted that the AO has rightly invoked the provisions of Section 154. The second assessment which was passed by the AO for carrying out the directions of the Tribunal were in respect of the limited issue and due to oversight or mistake the addition made in the original assessment was remained to be added. He therefore submitted that from a perusal of the order of this Tribunal it is clear that only limited issue of computation of profit from arrack business was before the Hon'ble Tribunal. He further vehemently submitted that there is no substance in the argument of the learned Counsel that the entire original order was set aside de novo. The ld. DR submitted that the second assessment order was passed for complying with the directions of the Hon'ble Tribunal and to that extent the directions were carried out. But due to mistakes the correct addition made in the original assessment was remained to be added, which was never the subject matter of any dispute before the Hon'ble Tribunal. The ld. DR therefore submitted that it is a well settled proposition of law that mistake which is apparent on the face of the record can be rectified by invoking the provisions of Section 154 of the Act. Hence he submitted that the CIT(Appeals) has rightly upheld the action of the AO and the order of the CIT(Appeals) may be sustained.
15. We have heard the rival submissions. The issue here is whether the AO was justified in rectifying the second assessment order. We have already expressed our opinion that the issue before the Tribunal was limited in respect of the application of Section 44AC for computing the profit from the arrack business. On a perusal of the order of this Tribunal we have also expressed our opinion that the entire assessment order was never set aside, but the original assessment order was set aside to the limited purpose. It is not also disputed that the original addition was made under Section 68 on agreed basis, which was never an issue of dispute for adjudication. A bare look at Section 154 makes it clear that a mistake apparent from the record is rectifiable. In order to attract the application of Section 154 mistake must exist and the same must be apparent from the record. Mistake means, to take or understand wrongly or inaccurately, to make an error in interpreting, it is an error, a 'fault', a misunderstanding or a misconception. The apparent means, visible, capable of being seen, obvious, plain. It is a well settled proposition of law that a mistake which can be rectified Under Section 154 is one which is patent, which is obvious and whose discovery is not dependent on argument or elaboration. We have carefully considered the precedents cited by the learned Counsel. The principles laid down in the said decisions are not at all disputed, but at the same time the said decisions are not helpful to the Assessee in the present facts of the case. We are of the considered opinion that the AO has rightly invoked the provisions of Section 154 for rectifying the order. We also find no infirmity in the order of the CIT(Appeals). We therefore uphold the order of the CIT(Appeals) on this issue also. Ground No. 3 regarding the jurisdiction of the AO to rectify the order is dismissed.
16. In the result, the Assessee's appeal stand dismissed. Order accordingly.