THE COMMR OF INCOME TAX V. M/S SANU FAMILY TRUST

ITA/1326/2006

AI Insights

The case involves the Commissioner of Income Tax and the Income Tax Officer, Mangalore as appellants, against M/s. Sanu Family Trust as the respondent. The dispute centered on the assessment year 1997-98, where the respondent did not file income returns, leading to a survey and subsequent assessments by the Income Tax Department. The Assessing Officer treated certain investments and credits as unexplained, which were contested by the respondent and partially relieved by the CIT (Appeals) and the Appellate Tribunal. The Revenue's appeal to the High Court challenged these reliefs, arguing that the assessments were based on proper legal grounds and evidence, which the High Court found unconvincing.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 733469 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 04-09-2012
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Respondent
• Court: HIGH COURT
• Department Lawyers: A SHANKAR; M LAVA
• Assessee Lawyers: M THIRUMALESH
• Keywords: Assessment Year 1997-98; Construction; Family trust; Income Tax; Unexplained cash credit; Unexplained investment
• Section: 142(1); 143(2); 139(1); 68; 69B; 260A; 148A; 133-A

Judgement Text

"1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 04TH DAY OF SEPTEMBER 2012 PRESENT THE HON’BLE MR.JUSTICE K.SREEDHAR RAO AND THE HON’BLE MR.JUSTICE B. MANOHAR I.T.A.NO.1326/2006 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX, MANGALORE. 2. THE INCOME TAX OFFICER WARD – 1(3), MANGALORE. … APPELLANTS (BY SRI.M.THIRUMALESH, ADV) AND: M/S.SANU FAMILY TRUST SANU PALACE PVS CIRCLE, KODIALBAIL, MANGALORE. … RESPONDENT (BY SRI.A SHANKAR & M.LAVA, ADVS) THIS ITA IS FILED U/S 260A OF THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH-B IN ITA NOs.1488 & 1489/Bang/2003 DATED 17-04-2006 AND CONFIRM THE ORDER PASSED BY THE ASSESSING OFFICER. THIS ITA IS COMING ON FOR HEARING THIS DAY, B.MANOHAR J., DELIVERED THE FOLLOWING: 2 J U D G M E N T The Revenue has filed this appeal under Section 260A of the Income Tax Act, 1961 (for short ‘the Act’) being aggrieved by the order dated 17-04-2006 made in ITA Nos.1488 & 1489 (Bang)/2003 passed by the Income Tax Appellate Tribunal, Bangalore Bench-B confirming the order dated 28-08-2003 passed by the Commissioner of Income Tax (Appeals), Mangalore for the assessment year 1997-98. 2. The respondent is a Family Trust registered under the provisions of Trust Act carrying on the business of construction of commercial complexes and letting out the same for the purpose of shops, offices etc., along with the services and amenities. Though the respondent-Trust constructed the building in the assessment year 1997-98, the assessee has not filed the returns of income under Section 139(1) of the Income Tax Act. A survey was conducted under Section 133-A on 12-02-2001 and seized some incriminating documents. Notice has been issued under Section 148A on 13-02-2001 calling upon the Trust to file the returns of income. The respondent-Trust filed the NIL returns of income on 29-11-2001. A notice was issued under Sections 142(1) and 143(2) of the Act directing the respondent-assessee to produce the records. In pursuance to the notice issued, the authorised representative of the assessee appeared before the Assessing Officer and produced the records. The Assessing Authority after considering the matter found that the 3 respondent-Trust has completed the construction of building known as “SANU PALACE” at Kodialbail, Mangalore. In the Balance Sheet, the cost of construction has been shown as Rs.2,03,62,411/- as on 01-03-1997 apart from the land cost of Rs.12,53,000/-. However, in the valuation report, value of the building has been shown as Rs.3,51,08,000/- including the cost of land as Rs.85,50,000/-. The Assessing Officer found that the assessee has undervalued the cost of building by Rs.61,95,589/- and the same has been treated as unexplained investment under Section 69B of the Act. Further, the assessee has shown M/s.P.V.Sanu Jewellers as creditor to the extent of Rs.2,23,694-50. However, M/s.P.V.Sanu Jewellers, a partnership firm was constituted w.e.f. 1-4-1999, hence, the question of showing the non-existing firm as a creditor does not arise. Accordingly, the said amount has been treated as unexplained cash credit under Section 68 of the Act. Accordingly, the Assessing Authority by its order dated 27-03-2002 assessed the total income of Rs.64,19,284/- after imposing the penalty and interest and called upon the assessee to pay Rs.73,93,472/-. 3. The assessee being aggrieved by the assessment order dated 27-03-2002 preferred an appeal before the Commissioner of Income Tax (Appeals), Mangalore contending that the order passed by the Assessing Authority is contrary to law. The construction of the building was completed on 01-02-1997. The application for grant of occupancy 4 certificate was made on 01-02-1997. Mangalore City Corporation issued an occupancy certificate on 28-5-1997 itself. The Engineer has made valuation of the building on 05-05-2000. However, it is contended that valuation of the building cannot be considered as the cost of construction of the building. Further, the partnership firm known as M/s. P.V.Sanu Jewellers was constituted on 01-04-1999. However, P.V.Sanu Jewellers was in existence prior to 1999 and the said Jewellers have credited a sum of Rs.2,23,695/- prior to the completion of the building itself. The said amount cannot be treated as unexplained cash credit. The CIT (Appeals) after considering the matter in detail by its order dated 28-08-2003 allowed the appeal in part and granted a relief of Rs.62,29,698/-. The revenue being aggrieved by the order dated 28-08-2003 passed by the CIT (Appeals) filed ITA Nos.1488 and 1489/2003 before the Income Tax Appellate Tribunal, Bangalore. The Appellate Tribunal concurring with the view expressed by the CIT (Appeals) dismissed the appeal by its order dated 17-04-2006. The revenue being aggrieved by the said orders preferred this appeal. 4. Sri.M.Thirumalesh, learned counsel appearing for the appellants contended that the order passed by the Income Tax Appellate Tribunal is contrary to law. The respondent-Trust has not filed the returns of income for the assessment year 1997-98. During the survey, some incriminating 5 documents have been seized and the Respondent has not cooperated during the survey. Thereafter, a notice has been issued under Section 148 of the Act. The assessee has not responded for the same. After a long lapse of nine months, NIL income returns has been filed. Thereafter, notice was issued under Sections 142(1) and 143(2) of the Act. The assessee has not maintained the books of accounts, vouchers and other evidences in respect of the business activities, though they are doing the business of construction of buildings and letting out the same. The market value of the building has to be taken as cost of construction of the building. The finding recorded by the CIT (Appeals) as well as the Appellate Tribunal is contrary to law. On the basis of the records available, the Assessing Officer concluded the assessment. The entire approach made by the CIT (Appeals) as well as the Appellate Tribunal is contrary to law. 5. On the other hand, Sri.A.Shankar, learned counsel appearing for the respondent argued in support of the orders passed by the CIT (Appeals) as well as the Appellate Tribunal and contended that both the authorities after examining the matter in detail came to the concurrent conclusion that the assessment of income made by the Assessing Authority is contrary to law and sought for dismissal of the appeal. 6 6. The following substantial questions of law have been raised by the appellant: (i) Whether the Commissioner of Income Tax (Appeals) was correct in deleting the addition towards investment in building as unexplained investment under Section 69B? (ii) Whether the First Appellate Authority and the Tribunal were correct in not relying upon the completion certificate issued by the Municipal Corporation of Mangalore? (iii) Whether the Tribunal was justified in confirming the unexplained investment added towards the value of the building by the Assessing Officer under Section 69B of the Income Tax Act, 1961? 7. We have carefully considered the arguments addressed by the parties and perused the orders passed by the Appellate Authority as well as the Appellate Tribunal. 8. It is not in dispute that the respondent-Trust constructed the building in the year 1997. After completion of the building, an application was made for issue of occupancy certificate on 01-02-1997. The Mangalore City Corporation issued occupancy certificate on 28-05-1997. In the balance sheet, the cost of construction is shown as Rs.2,03,62,411/- excluding the cost of land. The assessee has not properly maintained the records and vouchers. However, the said building was valued by the 7 Engineer on 05-05-2000 in order to avail loan from the Bank. In the said valuation report, value of the building is shown as Rs.3,51,08,000/- including the cost of land. The Assessing Officer based on the cost of construction and value of the building taken Rs.61,95,589/- as unexplained investment and Rs.2,23,695/- as unexplained cash credit on the ground that M/s. P.V.Sanu Jewellers, a partnership firm was not in existence as on 1997. The records produced by the assessee clearly disclose that the building has been completed in the month of February 1997 itself. Valuation of the building has been done after 3 years of completion of the building in order to avail loan from the Bank and for the said purpose, the value of the building was shown as Rs.3,51,08,000/- as on 5-5-2000. Hence, the value of the building cannot be treated as cost of construction, which was completed on 01-02-1997 itself. No document has been produced before the Assessing Officer to come to that conclusion. Usually for the purpose of availing loan from the Bank, inflated value of the building is shown and that cannot be the basis to treat the cost of construction of the building. With regard to unexplained cash credit is concerned, P.V.Sanu Jewellers was in existence prior to 01-04-1997 and they had advanced a loan of Rs.2,23,695/-. The said Jewellers constituted a partnership firm in the year 1999. Hence, the amount advanced by P.V.Sanu Jewellers cannot be treated as unexplained cash credit under Section 68 of the Act. 8 9. We find that the Appellate Authority as well as the Appellate Tribunal have come to the correct conclusion based on the materials available on record. The appellant has not made out a case to interfere with the concurrent finding recorded by both the authorities concerned. The substantial questions of law framed in this appeal are to be held against the revenue in view of the above finding. Hence, the appeal is liable to be dismissed. Accordingly, we pass the following: ORDER The appeal is dismissed. Sd/- JUDGE Sd/- JUDGE mpk/-* "