THE COMMISSIONER OF INCOME TAX MANGALORE V. P M NARAYANA

ITA/174/2007

AI Insights

The case involves two appeals by the Commissioner of Income Tax and the Assistant Commissioner of Income Tax against P M Narayana, a transport operator associated with M/s Nishmitha Motors. The appeals challenged the orders of the Income Tax Appellate Tribunal, which had set aside the additions made by the Assessing Officer following a search operation under Section 132 of the Income Tax Act. The additions were based on voluntary admissions by the assessee, which the appellate authorities found to be projections for obtaining bank loans and not actual undisclosed income. The High Court examined whether the Assessing Officer's reliance on these admissions was valid, given that the entities involved were separately assessed and the income could not be attributed to the assessee personally.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 728995 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 25-07-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S PARTHASARATHI
• Assessee Lawyers: K V ARAVIND
• Keywords: Appeal; Assessment; Income Tax; Search and seizure; Undisclosed income; Voluntary Admissions; Legal Entities
• Section: 158BC; 132(4); 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 25TH DAY OF JULY, 2014 PRESENT HON' BLE MR. JUSTICE N.KUMAR AND HON' BLE MR. JUSTICE B.MANOHAR ITA NO. 174 OF 2007 C/W ITA NO.175 OF 2007 BETWEEN 1.THE COMMISSIONER OF INCOME TAX, MANGALORE 2.THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-2(1) MANGALORE ... APPELLANTS (COMMON) (By Sri. K V ARAVIND – ADV. ) AND P M NARAYANA TRANSPORT OPERATOR M/S NISHMITHA MOTORS NEAR BUS STAND MOODABIDRI DAKSHINA KANNADA .. RESPONDENT (COMMON) (By Sri.S PARTHASARATHI – ADV. 2 ITA 174/2007 IS FILED U/S.260-A OF I.T.ACT 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH ‘A’ IN I.T.(SS) A NO.55/BANG/2003 DATED 25.5.2006 AND CONFIRM THE ORDER PASSED BY THE ASSESSING OFFICER. ITA 175/2007 IS FILED U/S.260-A OF I.T.ACT 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH ‘A’ IN I.T.(SS) A NO.66/BANG/2003 DATED 26.5.2006 AND CONFIRM THE ORDER PASSED BY THE ASSESSING OFFICER. THESE APPEALS COMING ON FOR HEARING THIS DAY, N.KUMAR J., DELIVERED THE FOLLOWING: J U D G M E N T These two appeals are preferred by the revenue challenging the concurrent findings recorded by the two Appellate Authorities that additions made by the Assessing Authority is incorrect and directing deletion. 2. The assessee is carrying on the business in transport, lodging and liquor. The residential premises of the assessee was searched. Thereafter a notice under Section 158BC was served on him to file a return of income. The Assessing Authority made certain 3 additions as undisclosed income on the strength of the statement recorded u/s.132(4) of the Income Tax Act which was the voluntary admissions of the assessee. However, the Commissioner of Income Tax (Appeals) set aside the same on the ground that the assessee’s statements were only projected profit and loss account amongst others. The Tribunal confirmed the order of the Commissioner of Income Tax (Appeals) on the ground that the revenue could not bring in material to controvert the order of the Commissioner of Income Tax (Appeals). Aggrieved by the said order, the Revenue is in appeal. 3. The substantial question of law that arises for our consideration in these appeals is :- ‘Whether the order passed by the Assessing Authority on the basis of the admissions made by the assessee under Section 132(4) of the Income Tax Act was valid and proper? 4 4. The material on record disclose Shringar Bar, Swetha Wine Yard and Shifa Wines are all separate legal entities and they were assessed to income tax. The statement recorded during the course of search of the assessee’s premises discloses that the profit and loss account of the assessee was prepared showing a higher sales for the purpose of obtaining loan from the Banks. The material on record also discloses the assessee has maintained books of accounts., The higher sales shown in the profit and loss account do not find a place in the books of accounts. It is for a period of six months. The so called admissions shows that the sales in respect of the aforesaid three business was more than what is reflected in the returns. If that is so, the said three legal entities should have been held liable to pay tax on the undisclosed income. Merely because the assessee is connected to those three firms and he has an active role to play in carrying on the business and on the basis of admission, the income of those legal entities could not 5 be assessed in the hands of the assessee. That is precisely what the two Appellate Authorities on careful consideration of the entire material on record have held. When once it is admitted that the aforesaid three legal entities are assessed to income tax and their income is sought to be assessed in the hands of the assessee, the Appellate Authorities were right in setting aside the said order as the income of those persons cannot be assessed in the hands of the assessee. If at all proceedings should have been initiated against those three entities and in their hands, the said income ought to have been assessed to the extent not disclosed by them. In that view of the matter we do not see any merit in these appeals. The substantial question of law is answered in favour of the assessee and against the revenue. Accordingly, both the appeals are dismissed. Sd/- JUDGE Sd/- JUDGE rs "