M/s Surya Bottles, Palakkad V. Income Tax Officer, Palakkad

ITA 182/COCH/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0846 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 07-04-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 06-04-2009
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Assessee Lawyers: SIVADAS CHETTOOR FCAAR
• Keywords: Gross profit estimation; Principle of natural justice; Assessment record; Onus to prove; Revised return; Reassessment proceedings
• Section: 143(3); 133A; 139(1); 139(4); 147; 148; 144; 139

Judgement Text

IN THE INCOME TAX APPELLAT E TRIBUNAL COCHIN BEN CH, COCHIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY AR ORA, AM I.T.A. NO. 182/COCH/2009 ASSESSMENT YEAR : 2002-03 M/S. SURYA BOTTLES, PARAPURAM, ONGALLUR, PATTAMBI, PALAKKAD. [PAN : AAYFS 3044C] VS. THE INCOME-TAX OFFICER, WARD-2, PALAKKAD. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI SIVADAS CHETTOOR, FCA-AR REVENUE BY SHRI T.J.VINCENT, DR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCHI (CIT(A) FOR SHORT) DATED 22.12 .2008, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2002-03. 2. BEFORE WE PROCEED TO DISCUSS AND ADJUDICATE THE ISSUES RAISED IN APPEAL, IT WOULD BE RELEVANT TO SET OUT THE BACKGROUND FACTS OF THE CASE. THE ASSESSEE, A PARTNERSHIP FIRM TRADING IN EMPTY BOTTLES, FILED ITS RETURN OF INCOM E FOR THE YEAR ON 20.4.2004, DECLARING INCOME AT ` 4880/-, I.E., AFTER CLAIMING DEDUCTION IN RESPECT O F INTEREST ( ` 12,000/-) AND SALARY ( ` 36,000/-) TO PARTNERS. AS THE RETURN WAS FILED AFT ER THE TIME LIMIT FOR FURNISHING A BELATED RETURN, AS SPECIFIED U/S. 139(4) OF THE INC OME-TAX ACT, 1961 ('THE ACT' HEREINAFTER) [WRONGLY MENTIONED BY THE ASSESSING OFFICER (A.O.) AS S. 139(5)], NOTICE U/S. 148(1) OF THE ACT WAS ISSUED TO IT ON 10.10.2004 (THOUGH WE H AVE NO MATERIAL TO HOLD SO, THE LD. AR, THE ASSESSEES COUNSEL, DURING HEARING MENTIONE D OF THE SAID DATE AS BEING ACTUALLY 10/11/2004). THE ASSESSEE RESPONDED BY WAY OF A LET TER ON 29.11.2004 STATING THAT THE RETURN FILED ON 20.4.2004 MAY BE TAKEN AS THE RETUR N FILED IN RESPONSE TO NOTICE U/S. 148. THEREAFTER, THE AO PROCEEDED TO FRAME THE ASSESSMEN T, WHICH HE DID VIDE ORDER U/S. 143(3) R.W.S 184(5) OF THE ACT DATED 30.3.2006, ASS ESSING IT AS AN ASSOCIATION OF PERSONS ITA.NO.182 /COCH/2009 2 (AOP) AT A TOTAL INCOME OF ` 8,46,510/-, INCLUDING, INTER ALIA , SALARY AND INTEREST TO PARTNERS (AT ` 48,000/-) BY INVOKING S. 184(5) R.W.S. 40(BA) OF TH E ACT. THE ASSESSMENT WAS CHALLENGED BEFORE THE FIRST APPELLATE AUTHORITY ON SEVERAL GROUNDS, WHICH, HOWEVER, STOOD DISMISSED VIDE THE IMPUGNED ORDER. AGGRIEVED , THE ASSESSEE IS IN APPEAL, CONTESTING THE SAME BY RAISING LEGAL ISSUES AS WELL AS ON QUANTUM. 3.1 ARGUING THE ASSESSEE CASE, IT WAS SUBMITTED BY THE LD. AR THAT EVEN THOUGH THE ASSESSEE HAD REQUESTED FOR A COPY OF THE REASONS RE CORDED U/S. 148(2) FOR THE ISSUE OF NOTICE U/S. 148(1) VIDE LETTER DATED 12.2.2006, I.E ., AFTER COMPLYING WITH THE NOTICE U/S. 148(1), THE SAME WAS NOT SUPPLIED TO IT, SO THAT TH E ASSESSMENT AS FRAMED IS IN CONTRAVENTION OF THE PROCEDURAL LAW LAID DOWN BY TH E APEX COURT IN THE CASE OF GKN DRIVESHAFTS LTD. VS. ITO (2002) 259 ITR 19 (SC), BESIDES BEING IN VIOLATION OF THE PRINCIPLES OF NATURAL JUSTICE. THE ASSESSMENT MERIT S BEING STRUCK DOWN ON THAT SCORE, AND RESORT TO SECTION 292B, AS MADE BY THE LD. CIT(A) I N REJECTING THE ASSESSEES SAID PLEA, IS NOT TENABLE. AS IT APPEARS, THE AO WANTED TO DISAL LOW THE INTEREST AND SALARY TO PARTNERS, AND WHICH HE DID BY INVOKING SECTION 184(5), WHICH IS NOT VALID IN-AS-MUCH AS THE DISALLOWANCES, AS MANDATED BY THE SAID SECTION, ARE PER THE AMENDED PROVISION, WHICH COMES INTO AFFECT FROM 1.4.2004, I.E., A.Y. 2004-05 ONWARDS, EVEN AS CONCEDED TO BY THE LD. CIT(A) VIDE HER IMPUGNED ORDER (REFER PARA 5.3 THEREOF). THE REVENUE MAY BE DIRECTED TO PRODUCE THE ASSESSMENT RECORD TO ENABLE THE ASSESSEE TO ASCERTAIN THE REASONS FOR THE ISSUE OF NOTICE U/S. 148(1) OF THE ACT. 3.2 THE LD. DR, ON THE OTHER HAND, WOULD SUBMIT THA T THERE IS NO INFIRMITY IN THE ASSUMPTION OF JURISDICTION U/S. 147, EVEN AS HELD B Y THE LD. CIT(A), WITH THE ASSESSMENT ORDER BEARING THE REASONS FOR ISSUE OF THE SAID NOT ICE, SO THAT THERE IS COMPLIANCE IN SUBSTANCE OF THE ASSESSEES REQUIREMENT. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ISSUE RAISED STANDS DEALT WITH BY THE LD. CIT(A) VIDE PARA 4 AND 5 OF HER IMPUGNED ORDER, AND WITH WHICH, EVEN AS OBSERVED DURING THE HEARING, WE ARE IN TOTAL AGREEMENT WITH. THE THIRD LINE OF THE ASSESSMENT ORDER READS AS UNDER (ALSO R EFER PARA 2 OF THE ORDER):- ITA.NO.182 /COCH/2009 3 AS THE RETURN WAS FILED AFTER THE TIME LIMIT U/S. 139(5), NOTICE U/S. 148 WAS ISSUED ON 10 TH OCTOBER, 2004. FURTHER, WHILE DISCUSSING THE ASSESSEES REQUEST FO R A COPY OF THE RECORDED REASONS, THE AO, VIDE PARA II(2) (PG. 4) OF THE ASSESSMENT O RDER, AGAIN CLARIFIES THAT THE NOTICE U/S. 148 STOOD ISSUED ON ACCOUNT OF THE BELATED FILING O F THE RETURN FOR THE YEAR, SO THAT THE ASSESSEES OBJECTION THERE-TO WAS NOT UNDERSTOOD BY HIM, AND CONSIDERED AS `BAFFLING. EXPLANATION 2(A) OF SECTION 147 READS AS UNDER:- ` FOR THE PURPOSE OF THIS SECTION, THE FOLLOWING SHAL L BE DEEMED TO BE A CASE WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, N AMELY:- A) WHERE NO RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME OF ANY OTHER PERSO N IN RESPECT OF WHICH HE IS ASSESSABLE UNDER THIS ACT DURING THE PREVIOUS EXCEE DED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME-TAX; B) . THAT IS, THE NON-FILING OF THE RETURN IS BY ITSELF DEEMED BY LAW TO BE A CASE OF INCOME CHARGEABLE TO TAX ESCAPING ASSESSMENT WHERE THE AO HAS GROUND/S TO BELIEVE THAT THE ASSESSEES INCOME FOR THE YEAR EXCEEDS THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO TAX. IN FACT, THE INFERENCE IS SO PATENT, AND THE PROPOSITION SO OBVIOUS, THAT IT WOULD BE SO EVEN WITHOUT A SPECIFIC PROVISION IN ITS RESPECT. HOW ELSE WOULD THE SAME (INCOME CHARGEABLE TO TAX WHICH STANDS NOT RETURNED) BE BRO UGHT TO TAX, OTHER THAN BY DEEMING IT TO BE A CASE OF INCOME ESCAPING ASSESSMENT ENABLING THE ASSESSING AUTHORITY TO ISSUE NOTICE QUA THE SAME ? IN THE INSTANT CASE, THAT THE ASSESSEE HAS TAXABL E INCOME FOR THE YEAR IS UNDISPUTED; IT ITSELF ADMITTING TO A TAXABLE INC OME PER THE RETURN FILED ON 20.4.2004. THE SAME, THOUGH NON EST IN THE EYES OF LAW, BEING BEYOND THE TIME PRESCRIBE D FOR A BELATED RETURN, YET CONSTITUTES `MATERIAL WITH THE AO TO ARRIVE AT A CONCLUSION THAT THE ASSESSEE HAS INCOME CHARGEABLE TO TAX FOR THE YEAR, SO THAT THERE HAS BEEN AN ESCAPEMENT FROM ASSESSMENT THEREOF. IN OTHER WORDS, THE FILING OF THE RETURN ON 20.4.2004 AT A TAXABLE INCOME OF ` 4880/- IS SUFFICIENT REASON FOR THE PURPOSE, VALIDA TING THE ISSUE OF NOTICE U/S. 148(1). THE ASSESSMENT ORDER IS EXPLICIT IN THE MA TTER, AND WE THEREFORE DO NOT CONSIDER THE ASSESSEES OBJECTION AS MAINTAINABLE. THE AO H AS NOT RECORDED ANY OTHER REASON FOR ITA.NO.182 /COCH/2009 4 THE ISSUE OF NOTICE U/S. 148, AND NEITHER IS HE REQ UIRED TO SUPPLEMENT THE SAME WITH ANY OTHER REASON, I.E., GIVEN THE LEGAL POSITION AND RE LEVANT AND ADMITTED FACTS. WITH REGARD TO THE ASSESSEES CONTENTION OF THE AO BEING MOTIVATED , I.E., IN ISSUING NOTICE U/S. 148, BY THE CONSIDERATION OF DISALLOWING INTEREST AND SALAR Y TO PARTNERS, WE FIND THE SAME AS PRESUMPTUOUS. THE SAID DISALLOWANCES, AGAIN, EVEN AS OBSERVED BY THE BENCH DURING THE HEARING, STAND MADE BY THE AO IN VIEW OF HIS HAVING ASSESSED THE ASSESSEE AS AN AOP BY APPLYING S. 184(5) (AS IT STOOD AT THE RELEVANT TIM E) R/W S. 40(BA) OF THE ACT. IN OTHER WORDS, THE SAID DISALLOWANCE/S IS CONSEQUENTIAL TO THE ASSESSEE BEING ASSESSED AS AN AOP, AND THERE HAS BEEN NO INVOCATION OF THE POST-AMENDE D SECTION 184(5) OF THE ACT BY THE AO. FURTHER, THE AO HAS ISSUED A PRE-ASSESSMENT NO TICE PROPOSING THE ASSESSMENT IN THE STATUS OF AN AOP (REFER PARA 5, PG. 2 OF THE ASSESS MENT ORDER), SO THAT THE ASSESSEES IMPUGNING THE SAME ON THE GROUND THAT IT HAD NOT BE EN PUT TO NOTICE AS TO THE PROPOSED AMENDMENTS TO ITS RETURN IS WITHOUT SUBSTANCE. FURT HER, THE CHALLENGE TO THE NOTICE U/S. 148 ON THE GROUND THAT THE SAME STOOD ISSUED IN THE NAME OF THE FIRM, THOUGH THE ASSESSMENT STANDS FRAMED AS AN AOP, IS, AGAIN, OF N O MOMENT. FIRSTLY, THERE IS NO CHANGE IN THE NAME, WHICH REMAINS THE SAME, CLEARLY IDENTI FYING THE ASSESSEE AS THE NOTICEE. SECONDLY, THE NOTICE U/S. 148 DOES NOT PURPORT TO D ETERMINE THE STATUS (OF THE ASSESSEE) UNDER WHICH THE ASSESSMENT WOULD BE FINALLY MADE. T HE ASSESSEE IS A PARTNERSHIP FIRM UNDER THE PARTNERSHIP LAW AND, ACCORDINGLY, FILED I TS `RETURN OF INCOME AS A FIRM. CONSEQUENTLY, NOTICE U/S. 148 STOOD ISSUED THERE-TO AS A FIRM, AND WHICH STOOD RESPONDED TO BY THE ASSESSEE-FIRM, REPORTING NO CHANGE IN ITS LEGAL STATUS. ITS SUBSEQUENT ASSESSMENT IN THE STATUS OF AN AOP IS ONLY FOR THE LIMITED PUR POSE OF ITS ASSESSMENT FOR THE YEAR, IN VIEW OF THE APPLICABLE PROVISIONS OF LAW, AND DOES NOT IN ANY MANNER IMPACT OR DETERMINE OR IS OTHERWISE INDICATIVE OF ITS ACTUAL LEGAL STAT US AS A PARTNERSHIP FIRM. IT IS THE SAME ASSESSEE, I.E., TO WHOM THE NOTICE U/S 148 STOOD IS SUED, WHICH STANDS ASSESSED FOR THE YEAR IN THE STATUS OF AN AOP PURSUANT TO SOME DEFINED FA ILURE/S ON ITS PART. THE IMPUGNED NOTICE WOULD, IN ANY CASE, BE SAVED BY THE PROVISIO N OF S. 292B OF THE ACT. THE ASSESSEES CASE ON THIS ISSUE IS WITHOUT MERIT. WE DECIDE ACCO RDINGLY, DISMISSING ITS GROUND NOS. 2 AND 3. ITA.NO.182 /COCH/2009 5 5. THE NEXT LEGAL ISSUE RAISED BY THE ASSESSEE IS T HAT IT COULD NOT BE ASSESSED AS AN AOP, I.E., IN TERMS OF SECTION 184(5), AS S.144 IS NOT ATTRACTED IN THE FACTS OF THE CASE. THIS IS CONTENDED ON THE BASIS THAT ONCE THE RETURN HAS BEEN FILED IN RESPONSE TO S. 148 (1), ALL THE PROVISIONS OF THIS ACT, SO FAR AS MAY BE, W OULD APPLY ACCORDINGLY, I.E., AS IF SUCH A RETURN WAS A RETURN AS REQUIRED TO BE FURNISHED U/S . 139. IN OTHER WORDS, THE ASSESSEE CANNOT BE CONSIDERED TO HAVE NOT COMPLIED WITH S. 1 39 OF THE ACT, FOR S. 144(1)(A) TO BE ATTRACTED AND, CONSEQUENTLY, FOR S. 184(5), WHEREUN DER THE ASSESSEE STANDS ASSESSED AS AN AOP, TO BECOME APPLICABLE. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ISSUE STANDS DECIDED BY THE LD. CIT(A) VIDE PARA 6 OF HER ORDER. IT WOULD BE RELEVANT TO EXTRACT THE RELEVANT PORTIONS OF THE ACT:- ASSESSMENT AS A FIRM `184(5) NOTWITHSTANDING ANYTHING CONTAINED IN THE FOREGOIN G PROVISIONS OF THIS SECTION, WHERE, IN RESPECT OF ANY ASSESSMENT YEAR, THERE IS ON THE PART OF A FIRM ANY SUCH FAILURE AS IS MENTIONED IN SECTION 144, THE FIRM SHALL NOT BE ASSESSED AS SUCH FOR THE SAID ASSESSMENT YEAR AND, THEREUPON, THE FIRM SHALL BE ASSESSED IN THE SAME MANNER AS AN ASSOCIATION OF PERSONS, AND ALL THE PROVISIONS OF THIS ACT SHALL A PPLY ACCORDINGLY. BEST JUDGMENT ASSESSMENT `144. (1) IF ANY PERSON - (A) FAILS TO MAKE THE PERSON REQUIRED UNDER SUB-SEC TION (1) OF SECTION 139 AND HAS NOT MADE A RETURN OR REVISED RETURN UNDER SUB-SECTION ( 4) OR SUB-SECTION (5) OF THAT SECTION, OR (B) .. THE ASSESSING OFFICER, AFTER TAKING INTO ACCOUNT AL L RELEVANT MATERIAL WHICH THE .... .. THAT NO RETURN OF INCOME STOOD FILED BY THE ASSESSE E U/S. 139(1) OR S.139(4) OR S.139(5) FOR THE YEAR, IS ADMITTED. CONSEQUENTLY, S. 144 OF THE ACT BECOMES APPLICABLE IN THE INSTANT CASE BY VIRTUE OF THE DEFAULT SPECIFIED U/S . 144(1)(A). FURTHER, S. 184(5) CLEARLY HOLDS THAT WHERE THERE HAS BEEN FOR ANY YEAR IN CAS E OF A `FIRM ANY FAILURE AS MENTIONED IN S. 144, IT SHALL BE ASSESSED AS AN AOP, AND ALL THE PROVISIONS OF THE ACT SHALL APPLY ACCORDINGLY. THAT IS, THE PROVISION OF S. 184(5) I S A DIRECT CONSEQUENCE OF THE FAILURE ON THE PART OF THE ASSESSEE-FIRM AS SPECIFIED U/S. 144 . WE ARE UNABLE TO FIND ANY CORRELATION ITA.NO.182 /COCH/2009 6 OF THE SAME WITH THE COMPLIANCE BY THE ASSESSEE WIT H THE NOTICE U/S. 148. THE RELIANCE ON THE PROVISION OF S. 148(1) IS CLEARLY MISPLACED IN- AS-MUCH AS THE SAME ONLY PRESCRIBES THAT THE OTHER PROVISIONS OF THE ACT SHALL APPLY TO SUCH RETURN FILED IN RESPONSE TO SECTION 148(1), AS IF IT WAS A RETURN REQUIRED TO BE FURNIS HED U/S. 139, E.G. THE SAME SHALL BE IN THE FORM AS PRESCRIBED U/S. 139; IT SHALL BE SIGNED AND VERIFIED IN THE MANNER PROVIDED U/S. 140; WOULD BE SUBJECT TO THE SAME ASSESSMENT PROCED URE AS PROVIDED UNDER THE ACT FOR S. 139 RETURN, ETC. THIS WOULD NOT IN ANY MANNER DETRA CT FROM THE FACT THAT THERE HAS BEEN A VIOLATION OF S. 139 OF THE ACT AND, ACCORDINGLY, S. 144 BECAME APPLICABLE. HOWEVER, IT MAY ALSO BE CLARIFIED THAT THE AO HAS NOT INVOKED O R FRAMED THE ASSESSMENT U/S. 144 BUT ONLY U/S. 143(3), AND NEITHER IS IT NECESSARY FOR H IM TO DO SO, I.E., IT IS NOT REQUIRED FOR A FIRM TO BE ASSESSED AS AN AOP IN TERMS OF S. 184(5) THAT ITS ASSESSMENT SHOULD BE U/S. 144. THE ONLY CONDITION TO BE FULFILLED IS THAT THERE IS A FAILURE BY THE FIRM AS MENTIONED IN S. 144, AND WHICH IS A MATTER OF FACT IN THE INSTANT C ASE. AS SUCH, WE FIND NO MERIT IN THE ASSESSEES CASE AND, ACCORDINGLY, REJECT GROUND NO. 4. 7. GROUND NOS. 5 & 6 (PER THE CONCISE GROUNDS) OF T HE APPEAL RELATES TO AN ADDITION IN THE SUM OF ` 427319/- ON ACCOUNT OF UNPROVED AND BOGUS CREDITORS . THE ASSESSEE, AS AFOREMENTIONED, IS IN THE TRADE OF EMPTY BOTTLES, B UYING THE SAME FROM STREET HAWKERS, WHICH ARE, AFTER CLEANING, SOLD TO DISTILLERIES. I T DOES NOT MAINTAIN ANY STOCK REGISTER, AND WAS UNABLE TO PRODUCE THE EXPENSE VOUCHERS, PURCHAS E BILLS AND STOCK INVENTORY AS CALLED FOR IN ASSESSMENT. THIS STATE OF AFFAIRS, I.E., THE NON-MAINTENANCE OF THE RELEVANT RECORDS, STANDS CONFIRMED PER THE AUDIT REPORT U/S. 44AB, FO RMING PART OF THE RETURN OF INCOME. THE ACCOUNTS FOR THE YEAR REFLECTED A GROSS PROFIT OF ` 296125/- ON A TURN OVER OF ` 66.24 LAKHS, I.E., AT THE RATE OF 4.47%. THE TRADE CREDI TORS AS AT THE YEAR-END, BEING IN RESPECT OF PURCHASE OF EMPTY BOTTLES, STOOD AT ` 793625/-. ON EXAMINING THE CREDITORS, THE AO FOUND THAT THEY WERE STREET HAWKERS AND, THUS, NOT IN A P OSITION TO EXTEND ANY CREDIT, WHICH RANGES FROM ` 20,000 TO ` 30,000/- FOR EACH CREDITOR. THEY MAKE PURCHASES FR OM DIFFERENT HOUSEHOLDS, IN CASH, AND ADMITTEDLY DO NOT MAINTAIN ANY ACCOUNTS, I.E., AS CONFIRMED ON THE EXAMINATION OF SOME OF THEM (FOUR), AS PRODUCED . FURTHER, THEY CONFIRMED THAT THEIR MONTHLY INCOME WAS TO THE TUNE OF 2000/-, WITH FAMI LY TO SUPPORT. AS SUCH, THEIR CAPACITY TO EXTEND CREDIT WAS DOUBTFUL. ALSO, THE PURCHASE OF EMPTY BOTTLES, EVIDENCED BY ITA.NO.182 /COCH/2009 7 OWN BOUGHT NOTES, BORE NO DETAILS OF THEIR ADDRESSE S OR THE QUANTITY AND DESCRIPTION OF THE PURCHASES. THE GENUINENESS OF THE PURCHASES WAS, TH US, ALSO UNDER CLOUD, AND STOOD BUTTRESSED BY THE FACT OF A LOWER G.P.; THAT DISCLO SED BY OTHER COMPARABLE CONCERNS IN THE TRADE, WHICH RANGED BETWEEN 10% TO 12% OF SALES. AC CORDINGLY, THE AO TREATED THE ENTIRE AMOUNT OF CREDIT AS UNPROVED AND BOGUS, THOUGH HE A LLOWED CREDIT IN RESPECT OF THE ADDITION SUSTAINED ON ACCOUNT OF LOW GROSS PROFIT, WHICH STOOD ASSESSED BY HIM AT 10%. THAT IS, HE TELESCOPED THE ADDITION ON ACCOUNT OF T HE LOWER TRADE MARGIN AGAINST THE INCOME ASSESSED ON ACCOUNT OF BOGUS TRADE CREDIT. THE SAME STOOD CONFIRMED IN APPEAL FOR THE SAME REASONS, WITH THE ASSESSEE BEING ALLOW ED FURTHER OPPORTUNITIES BY THE FIRST APPELLATE AUTHORITY TO PROVE ITS CASE BOTH IN RESPE CT OF TRADE CREDITORS AND TRADE PROFIT. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 8. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATE RIAL ON RECORD. 8.1 THE ASSESSEES CASE, AS PROJECTED BY THE LD. AR, IS THAT THE VERY NATURE OF THE TRADE DOES NOT ADMIT OF PROCUREMENT OF VOUCHERS, PURCHASE BILLS, ETC. THAT, HOWEVER, DOES NOT CONSTRAIN IT AND SHOULD NOT LEAD TO ANY ADVERSE INF ERENCE AS REGARDS THE GENUINENESS OF ITS PURCHASES; IT PREPARING - IN LIEU THEREOF - BOUGHT NOTES BEARING THE RELEVANT DETAILS. CONFIRMATIONS WERE PRODUCED FOR 19 OUT OF THE 30 VE NDORS, AND FOUR WHOM WERE ALSO PRODUCED. THEIR STATING THEIR INCOME AT A MARGINAL AMOUNT COULD BE ON ACCOUNT OF THEIR FEAR OF THE REVENUE PROCEEDING AGAINST THEM, I.E., IF THEY DECLARED THEIR CORRECT INCOME AND, IN ANY CASE, COULD NOT BE HELD AGAINST THE ASS ESSEE, PARTICULARLY WHERE IT STOOD DENIED AN OPPORTUNITY TO CROSS-EXAMINE THEM. THE COMPLETE DETAILS IN RESPECT OF PURCHASES AS WELL AS CLOSING INVENTORY STOOD SUBMITTED BEFORE TH E REVENUE AUTHORITIES. 8.2 THE ASSESSEES CASE IS BASED ON BALD ASSERTIO NS AND WITHOUT SUBSTANTIATION OR CORROBORATIVE MATERIAL. NO STOCK REGISTER IS MAINTA INED. IN ITS ABSENCE THE VERACITY OF THE BOOK FIGURES IS NOT POSSIBLE TO BE VERIFIED BY PHYS ICAL INSPECTION, AS HAPPENED DURING SURVEY. ITS FURNISHING DETAILS ARE ONLY THOSE AS CO MPILED FROM THE BOOKS AS MAINTAINED, WHILE WE ARE CONCERNED WITH THE CORRECTNESS AND THE COMPLETENESS OF THE RECORD AS MAINTAINED, I.E., AS A TRUE AND PROPER RECORD OF TH E TRANSACTIONS. THE ASSESSEE, NO DOUBT, CANNOT BE PREJUDICED FOR THE NON-MAINTENANCE OF THE BOOKS BY ITS SUPPLIERS, AND THE ITA.NO.182 /COCH/2009 8 PREPARATION OF THE BOUGHT-OUT NOTES IS AN EFFECTIVE ANSWER, WHICH, AS WE ARE GIVEN TO UNDERSTAND FROM THE LD. AR, IS ALSO THE STANDARD PR OCEDURE IN RESPECT OF TRANSACTIONS WITH UNREGISTERED DEALERS UNDER THE KERALA SALES TAX AND KERALA VALUE ADDED TAX LAWS. HOWEVER, THE SAME DOES NOT BEAR THE SIGNATURES OF T HE SELLERS AS WELL AS THEIR FULL ADDRESSES, SO THAT EVEN THEIR IDENTITY IS NOT PROVE D. FURTHER, NO RECEIPT IS OBTAINED FROM THE VENDORS ON PAYMENT THERE-TO, AND WHICH IS INCOM PREHENSIBLE, BEING A STANDARD (COMMERCIAL) PRACTICE, AND ONE WHICH BECOMES IMPERA TIVE IN FACE OF THE NON- MAINTENANCE OF THE BOOKS BY THE VENDORS. HOW ELSE, AND ON WHAT BASIS, WOULD THEY CLAIM THEIR DUES? RATHER, IN VIEW OF THE SAID NON-MAINTEN ANCE OF BOOKS BY THEM, THE RECEIPT ISSUED OUGHT TO I.E., AS PER THE ARRANGEMENT THEREW ITH, ALSO MENTION/CARRY THE BALANCE OUTSTANDING AS ON THAT DATE, TO ENABLE THE VENDOR T O VERIFY THE SAME AND ALSO CLAIM THE BALANCE ON ITS BASIS. IN FACT, THE BOUGHT-OUT NOTE AS WELL AS THE RECEIPT, WHERE BEARING HIS SIGNATURE, WOULD BY ITSELF CONSTITUTE THE RELEVANT MATERIAL WITH THE VENDOR TO VERIFY HIS CLAIMS, AND SERVE AS HIS RECORD OF THE TRANSACTIONS . THAT IS, THE SAME, UNDER THE CIRCUMSTANCES, WOULD SERVE AS A SURROGATE ACCOUNT S TATEMENT FOR THE VENDORS. NOT SURPRISINGLY, NONE OF THE VENDORS COULD STATE THE B ALANCE OUTSTANDING DUE TO HIM FROM THE ASSESSEE AS ON DATE (OF THEIR EXAMINATION). AS ALSO OBSERVED BY THE BENCH DURING THE HEARING, WHAT VALUE THEIR CONFIRMATIONS, WHEN THEY HAVE NO MATERIAL TO STATE THE OUTSTANDING BALANCES? FURTHER, AND QUITE APART FROM THE RECORD MAINTAINED BY THE ASSESSEE, THAT THE VENDORS ARE PEOPLE SUBSISTING AT A MARGINAL LEVEL OF EXISTENCE, BARELY EKING OUT A LIVING FOR THEMSELVES AND THEIR FAMILIE S, IS A MATTER OF COMMON KNOWLEDGE, AND ALSO APPARENT FROM THEIR TRADE AND THE MANNER I N WHICH THE SAME IS CARRIED OUT. AS SUCH, THERE NO BASIS TO DOUBT THE VERACITY OF THEIR STATEMENTS, STATING THEIR MONTHLY INCOME TO BE TO THE TUNE OF ` 2000/-, WITH FAMILY TO SUPPORT. EVEN IF A FACTOR OF 2 TO 3 IS APPLIED ON ACCOUNT FOR DEPARTMENTAL FEAR (OF WHICH THERE IS NO BASIS, AS IT WOULD STILL NOT YIELD ANY TAXABLE INCOME), THE SAME, AT ` 5000 TO ` 6000/- PER MONTH, WOULD HARDLY GIVE THEM THE CAPACITY TO EXTEND ANY CREDIT AGAINST SALES, WITH T HE ASSESSEE BEING ONE OF THE BUYERS. IN ANY CASE, THE EXTENSION OF CREDIT IMPLIES MAINTENAN CE OF RECORDS, AND IT CANNOT BE OTHERWISE, WHILE ADMITTEDLY NO RECORDS ARE BEING MA INTAINED BY THE CREDITORS, SO THAT THEY HAVE NO BASIS TO CLAIM THEIR DUES, IF ANY, AND, AC CORDINGLY, WERE UNABLE TO STATE THEIR CURRENT DUES FROM THE ASSESSEE ON EXAMINATION. THE ASSESSEES ACCOUNTS STAND ALSO ITA.NO.182 /COCH/2009 9 IMPUGNED ON ACCOUNT OF LOW TRADE PROFIT, WITH REFER ENCE TO THE STATE OF MAINTENANCE OF ITS RECORDS, AS ALSO ON COMPARISON WITH THE OTHER CONCE RNS IN THE TRADE, AND WHICH FINDING CORROBORATES THE INFERENCE OF THE CREDITORS HAVING BEEN ACTUALLY PAID UPFRONT, INASMUCH AS THE FUNDS FOR THE PURPOSE STAND GENERATED FROM INFL ATION OF PURCHASES. IT IS NOTABLE THAT NEITHER THE ASSESSEE NOR THE CREDITORS HAVE MENTION ED OF THE EXTENSION OF TRADE CREDIT BY THE VENDORS AS THE USUAL TRADE PRACTICE, WHICH WOUL D ALSO BE BORNE BY THE RECORDS OF OTHER CONCERNS. IT IS IN THIS CONTEXT THAT THE NON-MAINTE NANCE OF BOOKS BY THE CREDITORS AND THE NON-ISSUE OF RECEIPT, DISCUSSED EARLIER, ASSUMES AD DED SIGNIFICANCE. FURTHER ON, THE ASSESSEE WAS SUBJECT TO SURVEY U/S. 133A OF THE ACT , AND SURRENDERED AN INCOME OF ` 9 LAKHS AND ` 2.58 LAKHS FOR A.Y. 2005-06 AND 2006-07 RESPECTIVEL Y. THE SAME STANDS BROUGHT IN BOOKS BY WRITING BACK 20 OF THE 77 SUNDR Y CREDITOR BALANCES AS OUTSTANDING AS ON 31.3.2005 THE ASSESSEES ACTION IN DECLARING TH E INCOME ON BEING SURVEYED BY THE DEPARTMENT AND WRITING BACK THE CREDITS (TO THAT EX TENT) ALSO EFFECTIVELY DEFEATS IT CASE IN THE MATTER. THOUGH THE ONUS TO PROVE THE CREDITS ON THE PARAMETERS OF IDENTITY, GENUINENESS AND CAPACITY, IS ON THE ASSESSEE, AND W HICH IT HAS CLEARLY FAILED TO PROVE, EVEN IF IT WERE TO BE ARGUED THAT THE ADDITION IS U /S. 69/69B, AND THE ONUS TO SHOW THAT THE CREDITORS STAND PAID BY THE ASSESSEE IS ON THE REVE NUE, WE CONSIDER THE SAME AS DISCHARGED BY ESTABLISHING THE FACTS AND CIRCUMSTAN CES FROM WHICH A REASONABLE INFERENCE TO THAT EFFECT COULD BE DRAWN. REFERENCE IN THIS CO NTEXT BE MADE TO THE DECISION IN THE CARE OF SUDHAKARAN (C.K.) V. ITO , 279 ITR 533 (KER.). 8.3 WE MAY, NEXT, EXAMINE THE ASSESSEES PLEA A S TO DOUBLE TAXATION (GD. # 8), WHICH IT PLEADS QUA THE IMPUGNED CREDIT WITH REFERENCE TO THE WRITE BA CK OF TRADE CREDIT AS ON 31/3/2005 AT ` 9.0 LACS. THE SAME STANDS DEALT WITH BY THE LD. CIT (A) VIDE PARA 9 OF HER ORDER, STATING IT TO BE WITHOUT MERIT; THERE BEING NO CONCEPT OF AGREED ASSESSMENT UNDER THE ACT, I.E., BOTH THE ASSESSEE AND THE REVENUE AR E BOUND BY THE LAW. THE WRITE BACK OF THE CREDITORS IS QUA THOSE OUTSTANDING AS ON 31.3.2005. THERE IS NOTHI NG ON RECORD TO SHOW, AND NEITHER THE ASSESSEE CLAIMS THAT THE WHOL E OR A PART OF THE TRADE CREDIT AS ON 31.3.2003 CONTINUES TO OUTSTAND ON 31.3.2005 (WHICH BY ITSELF WOULD BE HIGHLY UNREALISTIC, GIVING RISE TO ANOTHER REASON TO SUSPE CT THE GENUINENESS OF THE IMPUGNED CREDIT) AND FORMED A PART OF THE CREDIT/S WRITTEN BACK, SO THA T THE ASSESSEES CLAIM IS ITA.NO.182 /COCH/2009 10 WITHOUT BASIS. ALSO, IT MAY BE APPRECIATED THAT IT IS NOT THE SUBSEQUENT ACTION OF THE WRITE BACK OF ITS CREDITOR BALANCES IN THE ACCOUNTS BY TH E ASSESSEE THAT IS DETERMINATIVE OF THE MATTER, BUT THE BASIS OF ITS SURRENDER OF ` 9 LAKHS FOR A.Y. 2005-06. THAT IS, UNLESS AND UNTIL IT IS SHOWN THAT THE SAID SURRENDER WAS MADE IN RESPECT OF THE IMPUGNED CREDITORS, BEING OUTSTANDING SINCE 31.3.2003 (THE WHOLE OF WHI CH STAND CONSIDERED AS BOGUS), THE ASSESSEES CLAIM IS NOT MAINTAINABLE. FURTHER, THE AO, WHILE DETERMINING THE INCOME FOR THE YEAR, TELESCOPED THE ADDITION ON ACCOUNT OF TRA DE PROFIT DETERMINED BY HIM IN EXCESS OF THAT DISCLOSED IN ACCOUNTS, AGAINST THE INCOME D EEMED ON ACCOUNT OF UNPROVED/BOGUS CREDITS, WHICH THUS IS FOR THE ENTIRE AMOUNT OF ` 7.93 LACS. THIS WOULD ALSO CLARIFY HIS USING THE TWO WORDS, I.E., UNPROVED AND BOGUS T O DESCRIBE THE BASIS FOR THE ADDITION MADE. WHILE THE WORD `UNPROVED WOULD BE LIMITED TO THE CREDIT BEING NOT ESTABLISHED, AND DOES NOT NECESSARILY IMPUGN THE VALIDITY OF THE UNDERLYING PURCHASE (BUT ONLY THE EXTENSION OF CREDIT THERE-AGAINST TO THE EXTENT CLA IMED), THE WORD `BOGUS SIGNIFIES THAT THE TRANSACTION GIVING RISE TO THE CREDIT, I.E., PURCHA SE OF BOTTLES, IS A SHAM TRANSACTION, I.E., TO THAT EXTENT. THAT BEING THE CASE, THERE IS NO GROUN D OR BASIS FOR THE ASSESSEE TO CONTEND DOUBLE TAXATION FOR THE CURRENT YEAR. WE MAY, NEVERTHELESS; THE ISSUE BEING INTEGRAL TO THE ASSESSEES CLAIM, CLARIFY THAT IF AND TO THE EXTENT THE SURRENDER OF INCOME FOR AY 2005-06 IS ON ACCOUNT OF BOGUS/UNPROVED TRADE CREDIT, SO AS TO RESULT IN THE WRITE BACK OF THE BALANCES IN THE ACCOUNTS OF TRADE CREDITORS AS ON 31/3/2005, TO THE EXTENT THE SAID BALANCE/S IS INCLUSIVE OF ANY CREDIT BALANCE OUTSTANDING IN THEIR ACCOUNTS, I F ANY, AS ON 31/3/2003, THE SAME RESULTS IN BRINGING THE SAME AMOUNT TO TAX IN A LATER YEAR. FOR THIS, ONE HAS ONLY TO CONSIDER THE CASE OF OR ENVISAGE A WRITE BACK OF THE CREDIT BALA NCE AS ON 31/3/2003 ON IT BEING SUBJECT TO TAX FOR THE CURRENT YEAR, SO THAT IT WOULD RESUL T IN AN AUTOMATIC DECLINE IN THE CREDIT BALANCE IN THE CREDITORS ACCOUNT AS ON 31/3/2005 T O THAT EXTENT, WHICH STANDS BROUGHT TO TAX FOR AY 2005-06 FOR THE REASON OF IT NOT REPRESE NTING AN EXISTING TRADE LIABILITY. ANY SUBSEQUENT DEBITS TO THE ACCOUNT FOR PAYMENT, LIQUI DATING THE CREDIT BALANCE IN ACCOUNT AS ON 31/3/2003, IS TO BE IGNORED FOR THE PURPOSE AS T HE SOLE PREMISE OF THE ADDITION FOR THE CURRENT YEAR IS OF THE SAME NOT REPRESENTING AN EXI STING LIABILITY AS ON 31/3/2003. AS SUCH, THERE IS SUBSTANCE, I.E., IN PRINCIPLE, IN THE ASSE SSEES CLAIM AS TO DOUBLE TAXATION TO THAT EXTENT, I.E., THE BALANCE AS ON 31/3/2003 IN THE AC COUNT OF THE SAID CREDITORS. WE ARE ITA.NO.182 /COCH/2009 11 CONSCIOUS THAT IN A GIVEN CASE, THE CREDIT BALANCE AS ON 31/3/2003 MAY EXCEED THE BALANCE IN THE CREDITORS ACCOUNT AS ON 31/3/2005. HOWEVER, THE PREMISE OF THE TELESCOPING IS THAT THE ASSESSEE HAS AN EXCESS CREDIT OR SECRET FUND TO THAT EXTENT AS ON 31/3/2003, NOT REFLECTED IN BOOKS, SO THAT, THE SAME HAVING BEEN B ROUGHT TO TAX FOR THAT YEAR, ITS REFLECTION IN ACCOUNTS FOR A SUBSEQUENT YEAR SHOULD NOT RESULT IN IT BEING BROUGHT TO TAX AGAIN ON THAT COUNT. THE INDIVIDUAL BALANCES WOULD BE OF LITTLE C ONSEQUENCE AS LONG AS THE TELESCOPING IS LIMITED TO THE CREDITORS WHOSE BALANCES AS ON 31 /3/2005 ARE WRITTEN BACK. THE MATTER IS PURELY FACTUAL, AND THE INFERENCE UNEXCEPTIONAL. WE ARE, THOUGH, CONSTRAINED FOR WANT OF THE RELEVANT MATERIALS, VIZ. THE TERMS OF SURRENDER ; THE DETAILS OF THE WRITE BACK, ALONG WITH THE COPY OF CREDITOR ACCOUNTS, BEGINNING PRIOR TO 3 1/3/2003, UP TO THE DATE OF THE WRITE BACK, TO ISSUE SPECIFIC FINDINGS OF FACT. SO HOWEVE R, AS WOULD BE APPARENT FROM THE FOREGOING, THE CREDIT IMPUGNED AND SHOWN AS NON-EXI STING, BEING AS ON 31/3/2003, THE CASE FOR DOUBLE TAXATION, IF SO, WOULD ARISE ONLY F OR THE SUBSEQUENT YEAR, I.E., THE YEAR ENDING 31/3/2005, ON ITS SURRENDER TO THE REVENUE, AND NOT FOR THE CURRENT YEAR. THE ASSESSEE, HOWEVER, COULD NOT AT THE RELEVANT TIME A NTICIPATE THE ISSUE OF REASSESSMENT PROCEEDINGS FOR THE CURRENT YEAR. IN OTHER WORDS, T HERE COULD BE A CASE FOR TELESCOPING OF THE TWO ADDITIONS FALLING IN DIFFERENT YEARS, AND W HICH IS WHAT THE ASSESSEE, IN ESSENCE, PRAYS FOR, MAKING ITS PLEA IN ITS RESPECT IN APPROP RIATE PROCEEDINGS, AND AT THE EARLIEST POINT IN TIME. THE ASSESSEE IS AT LIBERTY TO MOVE THE REVENUE IN THIS REGARD WITH THE REQUISITE DETAILS, WHICH SHOULD BE A SUBJECT MATTER OF, AND BORNE BY, ITS RECORDS AS WELL, AND IN WHICH CASE THE AO SHALL UPON VERIFICATION AL LOW THE ASSESSEE APPROPRIATE RELIEF (FOR AY 2005-06) AFTER HEARING, I.E., AS WARRANTED BY FA CTS AND IN LAW, IN LIGHT OF OUR FOREGOING OBSERVATIONS, PER A SPEAKING ORDER. WE MAY ALSO CLA RIFY THAT THE RELIEF, IF ANY, WOULD BE SUBJECT TO THE ADDITION FOR AY 2005-06 BEING TO THA T EXTENT NOT SUSTAINED ON ANY OTHER GROUND, AS AGAINST LOW TRADE PROFIT (PARTIALLY) FOR THE CURRENT YEAR. 8.4 WE ARE, UNDER THE CIRCUMSTANCES, IN AGREEMENT W ITH THE FINDING THAT NEITHER THE GENUINENESS NOR THE CAPACITY OF THE TRADE CREDITORS IS ESTABLISHED IN THE PRESENT CASE, AND FIND NO INFIRMITY IN THE REVENUES STAND OF THE SAM E BEING UNPROVED AND BOGUS AND, ACCORDINGLY, CONFIRM IT. WE DECIDE ACCORDINGLY. ITA.NO.182 /COCH/2009 12 9. THE LAST ISSUE IS QUA THE ADDITION ON THE GROUND OF LOW TRADE PROFIT. T HE BACKGROUND FACTS THEREOF STAND ALREADY NARRATED WHI LE DETAILING THE ISSUE IN RESPECT OF SUNDRY CREDITORS. THE ASSESSEE HAS BEEN ALLOWED SUF FICIENT OPPORTUNITY BY AND BEFORE BOTH THE REVENUE AUTHORITIES; THE LD. CIT(A) ALSO CALLIN G FOR A REMAND REPORT (AFTER AFFORDING OPPORTUNITY TO THE ASSESSEE TO ESTABLISH ITS CLAIM) FROM THE AO IN THE MATTER. IT WOULD, NEVERTHELESS, BE RELEVANT TO EMPHASIZE THAT THE BOU GHT-OUT NOTES DO NOT BEAR THE FULL PARTICULARS OF THE PURCHASES MADE AS ALSO THE SIGNA TURES OF THE SELLERS. AS SUCH, THE BOUGHT-OUT NOTE/S AS PREPARED, BEING SANS ITS BASIC INGREDIENTS AND/OR THE PARTICULARS OF THE SUBJECT MATTER OF THE TRANSACTION TO WHICH IT P URPORTS, I.E., THE QUANTITY, PRICE AND DESCRIPTION OF THE GOODS TRADED (`EMPTY BOTTLES, A S MENTIONED THERE-UNDER, BEING ONLY A GENERIC DESCRIPTION OF THE COMMODITY, WHICH WOULD H AVE SEVERAL DISTINCTIVE FEATURES FOR CATEGORISATION AS DISTINCT TRADABLE GOODS), IS NOT A VALID DOCUMENT EVEN UNDER THE STATE SALES TAX LEGISLATION. FURTHER, THEIR IMPORT UNDER THE ACT IS TOWARD EVIDENCING AND THUS ESTABLISHING THE GENUINENESS OF THE RECORDED TRANSA CTIONS, IN CONTRADISTINCTION TO THE RELEVANT TRANSACTION BEING SUBJECT TO TRADE TAX, SO THAT ONCE IT IS SO, THE SAME STANDS ACCEPTED UNDER THE RELEVANT LEGISLATION. THE PURCHA SES STAND SUCCESSFULLY IMPUGNED BY THE REVENUE, AND THE LOWER TRADE PROFIT FURTHER COR ROBORATES THE SAID FINDING. THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE OR SHOW ANY REASON FOR A LOWER TRADE PROFIT, I.E., VIS-- VIS THE NORMATIVE TRADE MARGIN, AS EXHIBITED WITH R EFERENCE TO THE OPERATING RESULTS OF OTHER CONCERNS IN THE TRADE FOR THE SAME PERIOD, OR JUSTIFY ITS BOOK RESULTS, WHICH ARE ADMITTEDLY LOWER THAN THAT OF OTHER CONCERNS IN THE TRADE. RATHER, THE DEPARTMENTS STAND GETS CONFIRMED BY THE ASSESSEES DECLARATION OF AD DITIONAL INCOME FOR THE SUBSEQUENT YEARS ON SURVEY AT ITS PREMISES, AND WHICH (INCOME) STANDS ALSO CAPITALIZED BY IT IN ITS BOOKS. ACCORDINGLY, WE FIND NO REASON FOR DISTURBIN G THE FINDINGS BY THE REVENUE IN THE MATTER, WHICH ARE ON THE BASIS OF THE MATERIAL ON R ECORD; TENABLE; AND COGENT. WE DECIDE ACCORDINGLY. ITA.NO.182 /COCH/2009 13 10. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISS ED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 07TH MARCH, 2011 GJ COPY TO: 1. M/S. SURYA BOTTLES, PARAPURAM, ONGALLUR, PATTAMB I, PALAKKAD. 2. THE INCOME-TAX OFFICER, WARD-2, PALAKKAD. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, KOCH I 4. THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSIST ANT REGISTRAR)