Ishwardas Sons, Cochin V. ACIT, Ernakulam

ITA 208/COCH/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52216 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 23-06-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 20-04-2009
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: P K SASIDHARAN CAAR
• Keywords: Business income; Opportunity of being heard; Assessment record; Revised return
• Section: 143(3); 139(5); 147; 6

Judgement Text

ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 1 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.208 /COCH/2009 ASSESSMENT YEAR:1999-2000 ISHWARDASSONS, BAZAR ROAD, KOCHI - 682 002. [PAN: AAAFI 6748M] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE - RESPONDENT) ASSESSEE BY SHRI P.K.SASIDHARAN, CA-AR REVENUE BY SHRI S.R.SENAPATI, SR. DR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE CONTESTS THE ORDER OF REVISION PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 ('THE ACT' HEREINAFTER) BY THE COMMISSIONER OF INCOME-TAX, KOCHI (CIT FOR SHORT) DATED 11.3.2009 FOR THE ASSESSMEN T YEAR (A.Y.) 1999- 2000. 2.1 THE APPEAL RAISES SEVERAL ISSUES, EACH OF WHICH WE SHALL DEAL WITH IN SERIATIM. SO, HOWEVER, IT WOULD BE RELEVANT TO, BEFORE DOING SO, RECOUNT THE BACKGROUND FACTS OF THE CASE. THE ASSESSEE IS A PARTNERSHIP FIRM, BASED AT KOCHI, ENGAGED IN THE BUSINESS OF RUBBER TRADING AND COMMISSION AGENTS. IT DID NOT FI LE ANY RETURN OF INCOME FOR THE RELEVANT ASSESSMENT YEAR. FURTHER, IT WAS OBSERVED BY THE AS SESSING OFFICER (AO) THAT THE ASSESSEE HAD HUGE FIXED DEPOSITS WITH VARIOUS BANKS ON WHICH INTEREST ACCRUED/RECEIVED HAD NOT BEEN OFFERED FOR TAX. ACCORDINGLY, HE ISSUED NOTIC E U/S. 148(1) AFTER RECORDING REASON/S U/S. 148(2) AND OBTAINING PRIOR APPROVAL IN TERMS O F S. 151, WHICH WAS SERVED ON THE ASSESSEE ON 1.8.2005. IN RESPONSE, THE ASSESSEE F ILED ITS RETURN OF INCOME ON 31.3.2006, DECLARING AN INCOME OF ` 2,92,423/- . THE SAME WAS SUBJECT TO SCRUTINY BY IS SUE OF NOTICE ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 2 U/S. 143(2) OF THE ACT. IT WAS EXPLAINED BY THE AS SESSEE THAT IT IS UNABLE TO SUBSTANTIATE ITS INCOME, RETURNED ON AN ESTIMATE BASIS, WITH ANY MAT ERIAL, AS ALL ITS BOOKS OF ACCOUNTS, VOUCHERS/BILLS AND OTHER SUPPORTING DOCUMENTS FOR T HE RELEVANT YEAR, WERE DESTROYED IN A FIRE ACCIDENT IN ITS MAIN OFFICE ON 12.3.2000, THE DETAILS OF WHICH STAND ALREADY FILED ALONG WITH ITS RETURN FOR THE FOLLOWING YEAR, I.E., AY 20 00-01. THE AO, CONSEQUENTLY, PROCEEDED TO ASSESS THE INCOME FOR THE YEAR ON AN ESTIMATE BA SIS. THE RETURN FOR THE PRECEDING TWO YEARS WAS OBSERVED BY HIM TO WORK TO 0.17% AND 0.37 % OF THE GROSS TURNOVER. HE, THEREFORE, ESTIMATED THE SAME FOR THE RELEVANT YEAR AT THE AVERAGE OF 0.26% FOR THE PRECEDING TWO YEARS, WHICH WORKED TO ` 4 LAKHS; THE TURNOVER FOR THE YEAR BEING AT ` 15.4 CRORES, VIDE ORDER DATED 30.6.2006. 2.2 ON A SUBSEQUENT VERIFICATION OF THE ASSESSMENT RECORDS, IT WAS OBSERVED BY THE LD. CIT FROM THE P&L ACCOUNT FURNISHED BY THE ASSESSEE ALONG WITH ITS RETURN THAT IT WAS IN RECEIPT OF COMMISSION AND INTEREST INCOME FOR THE R ELEVANT YEAR AT ` 6.42 LAKHS AND ` 40.59 LAKHS RESPECTIVELY. THE SAME HAVING NOT BEEN CONSID ERED SEPARATELY BY THE AO IN ASSESSING THE ASSESSEES INCOME, THE ASSESSMENT AS FRAMED WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. THE ASSESSEE HAD I N FACT NOT FILED THE RETURN FOR THE YEAR U/S. 139 AND, ACCORDINGLY, OUGHT TO HAVE BEEN ASSES SED AS AN ASSOCIATION OF PERSONS. THE ASSESSEE SUBMITTED THE DETAILS REQUIRED, SEEKING TO MEET EACH OF THE OBJECTIONS RAISED BY THE LD. CIT, AND WHICH FORM THE SUBJECT MATTER OF I TS GROUNDS BEFORE US AS WELL. 3. THE FIRST ISSUE RAISED IS QUA THE MAINTAINABILITY OF THE ASSUMPTION OF JURISDICT ION U/S. 263 OF THE ACT. TWO REASONS INFORM THE SAME. FIRSTLY, THE NON-FILING OF ANY RETURN OF INCOME U/S. 139 FOR THE RELEVANT YEAR, SO THAT ASSE SSEE WAS TO BE ASSESSED IN THE STATUS OF AN ASSOCIATION OF PERSONS (AOP), WITH THE CONSEQUEN T DISALLOWANCE OF INTEREST TO PARTNERS, WHICH STANDS CLAIMED IN THE SUM OF ` 6 LAKHS. SECONDLY, THE AO HAD NOT CONSIDERED THE RECEIPT OF COMMISSION AND THE INTERE ST INCOME IN ESTIMATING THE ASSESSEES INCOME FOR THE YEAR, WHICH IS ASSESSED ONLY ON THE BASIS OF GROSS TURNOVER REPORTED FOR THE YEAR. WE FIND, THE MERITS OF THE ISSUE INVOLVED APA RT, A COMPLETE ABSENCE OF ANY DISCUSSION BY THE AO IN THE MATTER WHILE FRAMING TH E ASSESSMENT ORDER. AS SUCH, THE ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 3 ASSESSEES OBJECTION IS NOT MAINTAINABLE; LACK OF P ROPER ENQUIRY OR APPLICATION OF MIND, WHERE THE SAME IS WARRANTED, AS IN RESPECT OF THE A FORESAID TWO AREAS, AS POINTED OUT BY THE LD. CIT, WOULD ITSELF DEEM THE ASSESSMENT ORDER AS ERRONEOUS INSOFAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, IN TER MS OF THE TRITE LAW, AND TOWARD WHICH WE MAY, FOR READY REFERENCE, QUOTE THE DECISIONS IN TH E CASE OF MALABAR INDUSTRIAL CO. LTD. V. CIT (2000) 243 ITR 83 (SC); SWARUP VEGETABLE PRODUCTS V. CIT , 187 ITR 412 (ALL.); GEE VEE ENTERPRISES V. CIT (ADDL.) , 99 ITR 375 (DEL.); AND RAJALAKSHMI MILLS LTD. V. ITO , 121 ITD 343 (CHENNAI) (SB), (2010) 5 ITR (TRIB) 8 01 ( CHENNAI ), TO CITE A FEW. 4. THE NEXT ISSUE RAISED IS WITH REGARD TO THE DIRE CTION BY THE LD. CIT FOR FRAMING A FRESH ASSESSEMENT - HAVING SET ASIDE THAT FRAMED - BY TREATING THE ASSESSEE-FIRM AS AN AOP, WITH THE CONSEQUENT APPLICATION OF THE PROVISI ON OF S. 40(BA). TOWARD THIS, THE THRUST OF THE ARGUMENT BY THE LD. AR, THE ASSESSEE S COUNSEL, WAS THAT THE OBSERVATION THAT NO RETURN U/S. 139 HAD BEEN FILED IS NOT CORRECT. THE LAW ITSELF DEEMS THE RETURN FILED U/S. 148 AS A RETURN FILED PURSUANT TO THE PROVISION OF S. 139. FURTHER, THE ASSESSMENT HAS NOT BEEN FRAMED U/S. 144 BUT ONLY U/S. 143(3) R/W S. 14 7, SO THAT THERE IS NO QUESTION OF APPLICATION OF S. 184(5), WITH REFERENCE TO WHICH O NLY THE LD. CIT HAS HELD THE STATUS OF THE ASSESSEE FOR THE RELEVANT YEAR AS AN AOP. 4.1 WE SHALL TAKE UP ALL THE OBJECTIONS BY THE ASSE SSEE. IT CLAIMS THAT THE RETURN FOR THE YEAR HAD BEEN FILED ON 31.3.2005 IN FORM 2D, QUOTING THE ACKNOWLEDGMENT NUMBER, SO THAT THE NON-FILING OF THE RETURN U/S. 139 IS FACTU ALLY INCORRECT. THE SAME STANDS DEALT WITH, TO NO REBUTTAL BEFORE US, BY THE LD. CIT VIDE PARA 4 OF THE IMPUGNED ORDER. THE QUOTED RECEIPT NO. IS FOR A RETURN FILED FOR THE AS SESSMENT YEAR 2003-04. FURTHER, THE SAID RETURN - ADMITTEDLY FILED ON 31.3.2005 - WOULD NOT QUALIFY TO BE A VALID RETURN UNDER ANY OF THE SUB-SECTIONS OF S. 139. THE ASSESSEES OBJE CTION IS, THUS, WHOLLY WITHOUT MERIT. 4.2 THE SECOND ARGUMENT OF THE ASSESSEE, I.E., OF T HE RETURN FILED IN RESPONSE TO NOTICE U/S. 148 AS BEING A RETURN FURNISHED U/S. 139, EVEN AS MANDATED BY S. 148(1), IS ALSO NOT TENABLE. WHAT ALL S. 148(1) STATES IS THAT WHERE A RETURN IS FILED IN RESPONSE TO A NOTICE U/S. ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 4 148(1), THE PROVISIONS OF THE ACT SHALL, SO FAR AS MAY BE, APPLY AS IF SUCH A RETURN WERE A RETURN REQUIRED TO BE FURNISHED U/S. 139. IN OTHER WORDS, ALL THE OTHER PROVISIONS OF THE ACT WOULD HOLD IN RESPECT OF SUCH A RETURN. FOR EX AMPLE, THE SAME SHALL HAVE TO BE IN THE FORM AS PRESCRIBED U/S. 139; IT SHALL BE REQUIRED T O BE SIGNED AND VERIFIED IN THE MANNER PROVIDED U/S. 140; WOULD BE SUBJECT TO THE SAME ASS ESSMENT PROCEDURE AS PROVIDED UNDER THE ACT FOR A SEC. 139 RETURN, ET. AL. IT WOULD NO T IN ANY MANNER BE IN SUBSTITUTION OR IN LIEU OF A RETURN REQUIRED TO BE FILED U/S. 139. IN FACT, EXPLANATION 2(A) TO S. 147 PROVIDES THAT WHERE ANY RETURN HAS NOT BEEN FURNISHED BY THE ASSESSEE, ALTHOUGH HIS TOTAL INCOME FOR THE YEAR EXCEEDS THE MAXIMUM AMOUNT WHICH IS NO T CHARGEABLE TO TAX, THE SAME WOULD BE DEEMED TO BE A CASE WHERE INCOME CHARGEABL E TO TAX HAS ESCAPED ASSESSMENT. THAT IS, THE LAW DEEMS THE NON-FILING OF THE RETURN , WHERE THERE IS GROUND/S TO BELIEVE THAT THE ASSESSEES INCOME FOR THE YEAR EXCEEDS THE MAXI MUM AMOUNT NOT CHARGEABLE TO TAX, AS IS ADMITTEDLY THE CASE IN THE INSTANT CASE, AS A CA SE OF INCOME ESCAPING ASSESSMENT, ENTITLING THE ASSESSING AUTHORITY TO ISSUE NOTICE U /S. 148. THE ASSESSEES OBJECTION IS WITHOUT MERIT AND INVALID. 4.3 PER ITS THIRD OBJECTION, THE ASSESSEE CONTENDS THAT THE ASSESSMENT IN ITS CASE BEING MADE U/S. 143(3), AND NOT U/S. 144, THE PROVISION O F S. 184(5) WOULD NOT APPLY AND, CONSEQUENTLY, IT IS NOT LIABLE TO BE ASSESSED IN TH E SAME MANNER AS AN `ASSOCIATION OF PERSONS. TOWARD THIS, IT CITES THE DECISIONS IN TH E CASE OF ABDUL KHADER (C.K.) & CO. VS I.T.O. , 141 ITR 159 (KER) AND CIT VS. KESAVA PRABHU AND SONS , 197 ITR 618 (KER.). IT WOULD BE RELEVANT FOR THE PURPOSE OF THE ENSUING DI SCUSSION TO EXTRACT THE RELEVANT PORTIONS OF THE SAID PROVISIONS OF THE ACT, AS UNDE R: 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. [EMPHASIS OURS] BEST JUDGMENT ASSESSMENT ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 5 `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) ., OR (C) HAVING MADE A RETURN, FAILS TO COMPLY WITH ALL THE TERMS OF A NOTICE ISSUED UNDER SUB- SECTION (2) OF SECTION 143, THE ASSESSING OFFICER, AFTER TAKING INTO ACCOUNT AL L RELEVANT MATERIAL WHICH THE ASSESSING OFFICER HAS GATHERED, SHALL, AFTER GIVING THE ASSES SEE AN OPPORTUNITY OF BEING HEARD, MAKE AN ASSESSMENT OF THE TOTAL INCOME OR LOSS TO THE BE ST OF HIS JUDGEMENT AND DETERMINE THE TAX PAYABLE BY THE ASSESSEE ON THE BASIS OF SUCH AS SESSMENT;.. 4.4 WE ARE UNABLE TO BE IN AGREEMENT WITH THE ASSESSEES STAND. ADMITTEDLY, NO RETURN U/SS. 139(1), 139(4) OR 139(5) HAS BEEN FILED FOR T HE RELEVANT YEAR. CONSEQUENTLY, SEC. 144(1)(A) OF THE ACT BECOMES APPLICABLE, AND IT WAS OPEN FOR THE AO TO FRAME THE BEST JUDGMENT ASSESSMENT UNDER THE SAID SECTION. HOWEVE R, NO SUCH STEPS WERE TAKEN BY THE REVENUE IN THE FACTS OF THE CASE, AND THE ASSESSMEN T WAS SUBSEQUENTLY MADE U/S. 143(3) AFTER INITIATION OF PROCEEDINGS U/S. 147 ON THE BAS IS OF THE INFORMATION TO THE EFFECT THAT THE ASSESSEE HAS INCOME CHARGEABLE TO TAX WHICH HAD NOT BEEN SUBJECT TO ASSESSMENT. HOW WOULD THAT, ONE MAY ASK, IN ANY MANNER DETRACT FROM THE FACT THAT THERE HAS BEEN A NON-COMPLIANCE OF S. 139 AND, CONSEQUENTLY, A DEFAU LT AS MENTIONED IN S. 144(1) OF THE ACT BY THE ASSESSEE ? SECTION 184(5), WHICH IS A NON OBSTANTE CLAUSE, DOES NOT REQUIRE THAT THE ASSESSMENT SHOULD NECESSARILY BE MADE U/S. 144. IT ONLY STATES THAT WHERE IN THE CASE OF A FIRM THERE HAS BEEN A FAILURE AS MENTIONED U/S . 144, IT SHALL BE ASSESSED FOR THE RELEVANT YEAR IN THE SAME MANNER AS AN AOP - NOTHIN G MORE AND NOTHING LESS. AS AN EXAMPLE, THOUGH INDIRECT, SEC. 145(3) ENABLES THE A O TO FRAME THE ASSESSMENT IN THE MANNER PROVIDED IN SEC. 144, BUT THAT DOES NOT IMPL Y THAT AN ASSESSMENT MADE ON THE INVOCATION OF THE SAID PROVISION HAS NECESSARILY TO BE U/S. 144. WHAT THE ASSESSEE SAYS, I.E., THAT IT COULD BE SO ASSESSED ONLY WHERE THE A SSESSMENT IS MADE U/S. 144, APART FROM BEING NOT BORNE OUT BY THE LANGUAGE OF THE RELEVANT PROVISION OR THE SCHEME OF THE ACT, IS EVEN OTHERWISE PERVERSE. THAT IS, THAT THE ASSESSMENT U/S. 144 IS A NECESSAR Y CONDITION FOR THE APPLICABILITY OF S. 184(5) OR, CONVERSELY, NOT APPLY WHERE THE ASSESSMENT IS FRAMED ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 6 U/S. 143(3), EVEN THOUGH ITS CONDITION/S, POSTULATI NG THE ASSESSMENT OF THE FIRM IN THE SAME MANNER AS AN AOP, IS MET ? GOING BY ITS STAND, THE SAME DEFAULT, I.E., THE NON-FILING OF ANY RETURN UNDER THE RELEVANT PROVISIONS OF S. 139 BY A FIRM, WOULD OPERATE DIFFERENTLY FOR DIFFERENT ASSESSES, WHICH CANNOT BE. WE ARE UNABLE TO ASCRIBE SUCH AN OBLIQUE AND PROLIX INTERPRETATION TO A CLEAR PROVISION OF LAW. WOULD IT MATTER, ONE MAY ASK, IF INSTEAD OF SEC. 184(5) MAKING A REFERENCE TO THE DEFAULT/S OR CONDI TION/S LISTED IN SEC. 144, SATISFACTION OF WHICH WOULD RESULT IN ITS APPLICABILITY, INCLUDED T HOSE CONDITION/S AS A PART THEREOF, I.E., WERE INCORPORATED IN THE SECTION 184(5) ITSELF ? IN FACT, ALL THAT WAS REQUIRED TO DO, IF THAT WAS THE INTENTION OF THE LEGISLATURE, WAS TO STATE SO; SUCH A COURSE BEING UNDERSTANDABLE ONLY WHERE THE AO WAS BY LAW OBLIGED TO FRAME THE A SSESSMENT ONLY U/S. 144, WHICH IS NOT THE CASE. THE SAID DEFAULT, AS AFORE-STATED, AL SO ATTRACTS EXPLANATION 2 TO S. 147, SO THAT THE SAID PROVISION ALSO BECOMES APPLICABLE. THERE B EING NO PRIOR ASSESSMENT, THE LEGAL BASIS FOR THE NOTICE OF REASSESSMENT, SUBSEQUENTLY ISSUED, IS ONLY THE SAID EXPLANATION , ON RECORDING THE REASONS FOR INFERRING INCOME FOR THE YEAR IN EXCESS OF THE MAXIMUM AMOUNT NOT CHARGEABLE TO TAX, WHICH IS IN FACT NIL IN THE CASE OF A FIRM. AS SUCH, THE AO RIGHTLY PROCEEDED TO FRAME THE ASSESSMENT U/S. 143(3) R/W S . 147. SECTIONS 144 AND 147 ARE BOTH ENABLING SECTIONS, INDEPENDENT OF EACH OTHER, ALLOW ING THE AO TO PROCEED IN THE MANNER AS APPROPRIATE UNDER THE CIRCUMSTANCES. THE DEFAULT OF NON-FILING OF THE RETURN U/S. 139 HAVING BEEN COMMITTED, CONSEQUENTIAL ACTION PROVIDE D BY LAW WOULD MANDATORILY FOLLOW, IRRESPECTIVE OF THE SECTION UNDER WHICH THE ASSESSM ENT IS FRAMED. THE AO, THUS, HAS ONLY ACTED ACCORDING TO THE PROVISIONS OF LAW, WHICH ENV ISAGE THE COURSE FOLLOWED. WITHOUT PREJUDICE TO THE FOREGOING, TH E ARGUMENT IS ALSO INVALID IN THE FACTS OF THE CASE INASMUCH AS THE ASSESSEE HAVING FAILED TO SUBS TANTIATE ITS RETURN IN ANY MANNER, CLAIMING OF ITS RECORDS HAVING BEEN DESTROYED IN FI RE, THERE IS A CLEAR NON-COMPLIANCE OF S. 143(2), AND THE AO CONSTRAINED TO FRAME THE ASSESSM ENT ONLY BY RELYING ON THE MATERIALS BEFORE HIM, I.E., IT IS A CASE TO WHICH THE PROVISI ON OF SEC. 144(1)(C) IS APPLICABLE. THAT IS, THE PROVISION OF S. 184(5) IS APPLICABLE ON TWO COU NTS, AND THE ASSESSEES STATING OF THE ASSESSMENT HAVING NOT BEEN FRAMED AS A BEST JUDGEME NT ASSESSMENT AS A SAVING FACTOR, IS A CASE OF ONE SEEKING TO TAKE ADVANTAGE OF ITS OWN DEFAULT, A COURSE, AGAIN, PROSCRIBED BY ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 7 LAW. TWO, IT WOULD THUS NOT BE INCORRECT TO SAY THA T THE ASSESSMENT AS FRAMED IS ESSENTIALLY OR DE FACTO A SECTION 144 ASSESSMENT, INVALIDATING THE ASSESSE ES ARGUMENT. 4.5 THE NEXT LEGAL OBJECTION RAISED BY THE ASSESS EE IS WITH REGARD TO THE NON- MAINTAINABILITY OF THE DIRECTION BY THE LD. CIT AS THE NOTICE U/S. 263 STOOD ISSUED TO IT AS A FIRM, I.E., IN VIEW THEREOF THE DIRECTION FOR THE A SSESSMENT IN THE STATUS OF AN AOP WOULD NOT HOLD, BEING A STATUS DIFFERENT FROM ONE QUA WHICH REVISIONARY PROCEEDINGS STOOD INITIATED. TOWARD THE SAME, IT CITES THE DECISION IN THE CASE OF CIT VS. ASHOK KUMAR BHARATI & OTHRS. , 282 ITR 496 (ALL.). 4.6 WE ARE UNABLE TO AGREE. THE ASSESSEE IS A PARTN ERSHIP FIRM UNDER THE PARTNERSHIP LAW AND, ACCORDINGLY, STOOD ISSUED NOTICES UNDER SE CTION 148 AND 263, AND FILED ITS RETURN, AS WELL AS ITS REPLY THERE-TO, AS A FIRM, REPORTING NO CHANGE IN ITS LEGAL STATUS. THE SUBSEQUENT DIRECTION FOR BEING ASSESSED IN THE STAT US OF AN AOP, IS ONLY FOR THE LIMITED PURPOSE OF ITS ASSESSMENT FOR THE YEAR, IN VIEW OF THE APPLICABLE PROVISION OF LAW, AND DOES NOT IN ANY MANNER IMPACT OR DETERMINE OR IS EV EN OTHERWISE INDICATIVE OF ITS ACTUAL LEGAL STATUS AS A PARTNERSHIP FIRM. THERE IS A COM PLETE DIFFERENCE BETWEEN THE `PERSON WHO IS BEING ASSESSED AND THE STATUS IN WHICH IT (T HE PERSON) IS SO. IT NEEDS TO BE APPRECIATED THAT IN THE INSTANT CASE IT IS THE SAME ASSESSEE, THAT IS, A FIRM, TO WHOM THE NOTICE U/S. 148 STOOD ISSUED, WHICH IS DIRECTED TO BE ASSESSED IN THE STATUS OF AN AOP PURSUANT TO SOME DEFINED FAILURE/S OR DEFAULT ON IT S PART. IN FACT, THERE IS NO CHANGE OF STATUS AS SUCH, BUT ONLY A CHANGE IN THE MANNER OF ASSESSMENT TO AS IN THE CASE OF AN AOP . THE TRIBUNAL (COCHIN BENCH) HAS IN THE CASE OF SURYA BOTTLES, PALAKKAD VS. I.T.O. (IN I.T.A. NO. 182/COCH/2009 DATED 07.3.2011 FOR A. Y. 2002-03 / COPY ON RECORD) DEALT WITH THE ISSUE, WHEREIN ALL SUCH CONTENTIONS WERE R AISED AND MET. EVEN AS STATED IN THE SAID ORDER, A NOTICE U/S. 148 OR U/S. 263 DOES NOT PURPORT TO DETERMINE THE STATUS UNDER WHICH THE ASSESSMENT WOULD BE FINALLY MADE, WHICH I S PURSUANT TO THE FINDING OF THE APPLICABILITY OF A SPECIFIC PROVISION OF LAW. WE, A CCORDINGLY, FIND NO MERIT IN THE ASSESSEES THIS CLAIM AS WELL (ALSO REFER PARA 4.7( C)). ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 8 4.7(A) IT WOULD BE RELEVANT ON OUR PART TO DISCUSS THE CASE LAW BY THE HONBLE JURISDICTIONAL HIGH COURT RELIED UPON BY THE ASSESS EE. BOTH THE DECISIONS CITED SUPRA (REFER PARA 4.3) RELATE TO THE REGIME WHERE A PARTNERSHIP FIRM WAS EITHER ASSESSED AS A REGISTERED FIRM OR AS AN UNREGISTERED FIRM, BOTH ENTAILING DIF FERENT RATES OF TAX. IT WAS UNDER SUCH CIRCUMSTANCES THAT IT WAS HELD BY THE HONBLE COURT THAT A DEFAULT OF THE NATURE DESCRIBED U/S. 144 WOULD NOT AUTOMATICALLY LEAD TO A REFUSAL OR CANCELLATION OF THE REGISTRATION, WHICH WAS ONLY PROBABLY FOR EXERCISE OF POWERS BY T HE AO U/S. 186(2). WE FIND NO PARALLEL OR PARITY EITHER ON FACTS OR IN LAW APPLIC ABLE IN THE PRESENT CASE. THE REGISTRATION OF THE FIRM STANDS SINCE DISPENSED WITH, AND THE LA W, PER A SPECIFIC CHAPTER (CH. XVI) CONTAINING THE PROVISIONS APPLICABLE TO FIRMS STIPU LATES THE CONDITIONS SUBJECT TO WHICH THE FIRM WOULD BE ASSESSED AS A FIRM; THE CONSEQUEN CES FOR NOT COMPLYING THEREWITH, AS WELL AS THE MATTERS DEALING WITH CHANGE IN THE CONS TITUTION/SUCCESSION OF THE FIRM. PER THE NON OBSTANTE PROVISION OF S. 184(5), THE ACT SPECIFICALLY MANDA TES FOR THE ASSESSMENT OF THE FIRM IN THE SAME MANNER AS AN AOP WHERE FOR ANY YEAR THERE HAS BEEN A FAILURE BY IT AS SPECIFIED U/S. 144. THE CHAPTER (AND S. 184(5)) IS APPLICABLE ONLY TO A FIRM, THOUGH PRESCRIBES THE CONDITIONS SUBJECT TO WHICH ONLY IT WOULD BE ASSESSED AS SUCH. BY FINANCE ACT, 2003 WITH EFFECT FROM 1.4.2004, THE PROVISION OF S. 184(5) STANDS MODIFIED BY PROVIDING FOR THE ASSESSMENT OF THE FIRM WITHOUT AL LOWING ANY DEDUCTION IN RESPECT OF CHARGES TO THE PARTNERS IN THE COMPUTATION OF ITS I NCOME ASSESSABLE U/C IV-D, I.E., IT CONTEMPLATES NO CHANGE IN STATUS, THOUGH TO NO CONS EQUENCE, INASMUCH AS THE DEDUCTION ON ACCOUNT OF INTEREST AND SALARY TO PARTNERS WOULD NO LONGER BE PERMISSIBLE, AS IS THE CASE OF AN AOP, BRINGING, IN EFFECT, THE ASSESSMENT OF THE TWO ENTITIES AT PAR. IT MAY BE NOTED THAT S. 40(BA) BARS THE ALLOWANCE OF DEDUCTIO N IN THE COMPUTATION OF INCOME UNDER CHAPTER IV-D IN RESPECT OF SPECIFIED PAYMENTS TO IT S MEMBERS BY, AMONG OTHERS, AN AOP. (B) THE SECOND DECISION RELIED UPON BY THE ASSE SSEE, I.E., CIT VS. KESAVA PRABHU AND SONS , 197 ITR 618 (KER.), IS ALSO CLEARLY DISTINGUISHAB LE ON FACTS, WHEREIN, IT WAS FOUND, AS A FACT THAT THE NOTICE UNDER SECTION 148 ISSUED WAS TO AN AOP DIFFERENT FROM THAT ON WHICH THE ASSESSMENT HAS BEEN SUBSEQUENTLY FRAMED. THE AOP BEING A LEGAL ENTITY, DEFINED BY ITS MEMBERS, THERE WAS, THUS, NO JURISDI CTION TO FRAME AN ASSESSMENT ON THE ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 9 AOP, ON WHICH THE ASSESSMENT WAS FINALLY FRAMED. T HE QUESTION, IN THAT CASE, AS IN THE PRESENT ONE, IS BASICALLY ONE OF FACT, WITH THE LAW FOLLOWING AS A MATTER OF COURSE. THE NON-FILING OF THE RETURN UNDER THE RELEVANT PROVISI ONS OF S. 139, WHICH IS ADMITTEDLY A MATTER OF FACT, AND WHICH RESULTS IN THE APPLICATIO N OF S. 184(5) INASMUCH AS THE SAME IS LISTED AS A QUALIFYING CONDITION U/S. 144(1)(A) OF THE ACT. THE SAID DECISION, THUS, WOULD NOT BE APPLICABLE IN THE FACTS OF THE PRESENT CASE (ALSO REFER PARA 4.6). (C) THE RELIANCE ON THE DECISION IN THE CASE OF CIT VS. ASHOK KUMAR BHARATI & OTHRS. (SUPRA) IS, AGAIN, MISPLACED. IN THAT CASE, THE NOT ICE U/S. 148(1) WAS ISSUED SEPARATELY TO THREE PERSONS IN THEIR CAPACITY AS MEMBERS OF AN AS SOCIATION OF PERSONS (AOP), WHILE THE ASSESSMENT WAS FINALLY MADE ONLY ON THE AOP. WITHO UT DOUBT, ASSESSMENT PROCEEDINGS IN THE CASE OF ONE CAN NOT LEAD TO THE ASSESSMENT O F ANOTHER, HOWSOEVER INTIMATE OR CLOSE THEIR CONNECTION MAY BE; THE INDIVIDUAL MEMBER OF A N AOP AND THE AOP BEING DIFFERENT PERSONS UNDER THE ACT. IN THE INSTANT CASE, THE AS SESSMENT IS OF THE FIRM ONLY, THOUGH BY ACCORDING IT A STATUS OF, OR TREATING IT AS, AN AOP . HOW COULD, ONE MAY ASK, THE PROVISION OF SEC. 184(5) BE APPLIED TO THE ASSESSEE, IF IT IS NOT RECOGNIZED AS A FIRM IN THE FIRST PLACE ? ACCORDING IT A DIFFERENT STATUS, IT NEEDS TO BE E MPHASIZED AND APPRECIATED, IN ONLY IN CONSEQUENCE OF AND IN TERMS OF A SPECIFIC PROVIS ION OF LAW, AND WHICH RATHER HAS BEEN GIVEN AN OVERRIDING EFFECT. FURTHER, WOULD NOT, ASS UMING SO, A NOTICE TO THE ASSESSEE IN THE SET ASIDE PROCEEDINGS AS AN AOP EFFECTIVELY MEET IT S OBJECTION? (ALSO REFER PARA 4.6). 4.8 THE LAST ISSUE RAISED BY THE ASSESSEE QUA ITS THIS OBJECTION IS THAT ITS ASSESSMENT HAVING BEEN FRAMED ON AN ESTIMATE BASIS, NO DISALLO WANCE ON ANY GROUND COULD BE MADE, SO THAT THE DIRECTION BY THE LD. CIT FOR DISALLOWAN CE OF THE CLAIM QUA INTEREST TO PARTNERS WOULD NOT HOLD. WE, HOWEVER, ARE UNABLE TO BE PERS UADED WITH THE SAID LINE OF ARGUMENT. WITHOUT DOUBT, THE AO HAS MADE A GLOBAL ESTIMATE OF THE ASSESSEES INCOME, IN VIEW OF THE ABSENCE OF THE UNDERLYING RECORDS, SO THAT NO D ISALLOWANCE WITH REFERENCE TO THE MERITS OF ANY PARTICULAR EXPENDITURE CLAIMED BY THE ASSESSEE PER ITS ACCOUNTS/RETURN IS PERMISSIBLE. SO, HOWEVER, EQUALLY, IT CANNOT BE DEN IED THAT THE INTEREST TO PARTNERS HAS BEEN CLAIMED BY THE ASSESSEE FOR BOTH THE EARLIER Y EARS, RELYING ON THE REPORTED INCOME FOR ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 10 WHICH THE AO HAS BASED HIS ESTIMATE FOR THE YEAR; T HE ASSESSEE HAVING BEEN ASSESSED AS A FIRM FOR THE SAID YEARS. THE SAME CONDITION BEING NOT APPLICABLE FOR THE CURRENT YEAR, IT WOULD DIRECTLY IMPACT THE ESTIMATION OF INCOME FOR THE CURRENT YEAR FOR THE SIMPLE REASON THAT ONLY LIKE CAN BE COMPARED WITH THE LIKE. PUT D IFFERENTLY, THOUGH, GIVEN THE BASIS ASSUMED FOR ESTIMATING THE INCOME BY THE AO, AND WH ICH HAS NOT BEEN DISTURBED BY THE LD. CIT (EXCEPT TO THE EXTENT OF NON-CONSIDERATION OF SOME INCOMES VIZ., COMMISSION AND INTEREST, WHICH, BEING INDEPENDENT INCOMES NEED TO BE SEPARATELY EXAMINED), PRECLUDES THE ESTIMATION OF ANY EXPENDITURE SEPARATELY, SO TH AT THE ASSESSEES ARGUMENT IS VALID TO A CERTAIN EXTENT, IT (THE MANNER IN WHICH THE ASSESSM ENT IS TO BE MADE) IMPACTS THE SAME INDIRECTLY INASMUCH AS THERE IS A CHANGE IN THE COM PARATIVE TERMS/BASIS WITH REFERENCE TO THE PRECEDING YEARS, ON WHICH THE ESTIMATE FOR THE CURRENT YEAR IS FOUNDED. AS SUCH, THE OBSERVATION BY THE LD. CIT IS NOT WITHOUT MERIT. AC CORDINGLY, WHILE IT WOULD NOT RESULT IN THE DISALLOWANCE PER SE OF THE INTEREST TO PARTNERS CLAIMED PER THE RETURN , IT WOULD DEFINITELY WARRANT BEING FACTORED INTO OR RECKONED WITH WHILE ESTIMATING THE ASSESSEES INCOME FOR THE YEAR WITH REFERENCE TO THAT OBTAININ G, AT AN AVERAGE, FOR THE IMMEDIATELY PRECEDING TWO YEARS, I.E., THE BASIS ADOPTED BY THE AO (AND CONFIRMED BY THE LD. CIT), WHICH WOULD THUS HAVE TO BE CONSIDERED - FOR COMPAR ISON PURPOSES - PRIOR TO THE CHARGE OF INTEREST TO PARTNERS. WE DECIDE ACCORDINGLY, AND THE DIRECTIONS BY THE LD. CIT WOULD STAND MODIFIED TO THAT EXTENT. IT WOULD HOWEVER BE IN ORDER TO MENTION THAT THIS WOULD ALSO IMPACT THE INDIVIDUAL ASSESSMENTS OF THE PARTN ERS FOR THE CURRENT YEAR. 5. THE NEXT ISSUE BEING AGITATED IS THE SEPAR ATE CONSIDERATION OF THE COMMISSION AND INTEREST INCOME, WHILE ESTIMATING THE ASSESSEES IN COME FOR THE YEAR. WE CONSIDER IT TO BE A VALID ARGUMENT, INASMUCH AS THE TWO, WHICH FORM A SIGNIFICANT COMPONENT OF THE INCOME FOR THE YEAR, ARE INDEPENDENT INCOMES, AND C ANNOT BE, BY ANY STRETCH OF IMAGINATION, BE CONSIDERED AS EITHER A PART OF OR A T PAR WITH THE ASSESSEES INCOME FROM ITS BUSINESS IN RUBBER TRADING, WHICH YIELDS IT A PROFI T RATIO AT AN AVERAGE OF 0.26%, I.E., ABOUT ONE QUARTER OF A PERCENT. SO, HOWEVER, THE ONLY IM PACT WOULD BE THAT, AS ONLY LIKE CAN BE COMPARED WITH THE LIKE, THE ESTIMATE FOR THE YEAR I S MADE BY ALSO ISOLATING THE EFFECT OF SUCH INCOMES AS ARISING IN THE PAST (I.E., THE IMME DIATELY PRECEDING TWO YEARS THE ITA NO.208/COCH/2009 (ASTT. YEAR: 1999-00) 11 REFERENCE PERIOD), AND ARRIVE AT THE ESTIMATE FOR T HE CURRENT YEAR ACCORDINGLY. THE TWO INCOMES, I.E., COMMISSION AND INTEREST (WHICH PRESU MABLY IS ON THE BANK DEPOSITS REFERRED TO IN THE REASONS RECORDED U/S. 148(2)), BEING ADM ITTED, WOULD HAVE TO BE BROUGHT TO TAX SEPARATELY AS BUSINESS INCOME OR, FOR BANK INTEREST , AS INCOME FROM OTHER SOURCES. FURTHER, AS THESE INCOMES MAY ALSO ENTAIL SOME EXPE NDITURE, THE SAME IN THE ABSENCE OF ANY CLEAR EVIDENCE/S WITH REGARD THERETO, CAN BE CO NSIDERED AT TEN PER CENT THEREOF, ALSO MAKING A CORRESPONDING ADJUSTMENT IN RESPECT OF THE SUCH (ESTIMATED) EXPENDITURE TOWARD THE EXPENDITURE ESTIMATED AGAINST THE TURNOVER OF T HE TRADE (AT ` 15.4 CRORES FOR THE YEAR), AS SUCH EXPENDITURE WOULD OSTENSIBLY FIND REFLECTIO N IN, AND CAN ONLY BE CONSIDERED AS INCLUDED IN THE P&L A/C OF THE BUSINESS FOR BOTH TH E CURRENT YEAR AND THE REFERENCE PERIOD. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 19TH AUGUST, 2011 GJ COPY TO: 1. M/S. ISHWARDASSONS, BAZAR ROAD, KOCHI - 682 002. 2. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(1 ), KOCHI. 3. THE COMMISSIONER OF INCOME-TAX, KOCHI 4. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 5. GUARD FILE .