THE COMMISSIONER OF INCOME TAX vs. U.V.ZUHARA

ITA/1417/2009HC KeralaKLHC01026178200930 March 2010Author: HONOURABLE MR.JUSTICE M.L.JOSEPH FRANCIS,HONOURABLE MR.JUSTICE K.M.JOSEPH19 pages
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What were the facts?

The respondent, Smt. Zuhara U.V., proprietor of Palakki Medicals, a retail medicine business, was subjected to search under Section 132 of the Income Tax Act on August 29, 2002, and subsequent dates. The search at her business premises, located within Manzoor Hospital owned by her daughter, and her residential premises, revealed documents indicating large-scale suppression of income. Proceedings under Chapter XIVB were initiated. The assessee filed a return declaring undisclosed income of Rs. 13,96,680 for assessment years 1997-98 to 2002-03 (block period 1.4.1996 to 31.3.2002). The Assessing Officer determined the total undisclosed income at Rs. 54,66,280. The assessee's appeal to the Commissioner (Appeals) was dismissed. The Income Tax Appellate Tribunal (ITAT) partly allowed the assessee's appeal, directing the deletion of an addition of Rs. 7,35,562 for the broken period from April 1, 2002, to August 29, 2002.

What did the High Court hold?

The High Court held that the Tribunal's reasoning for deleting the addition of Rs. 7,35,562/- for the broken period was unsustainable and contrary to the provisions of Section 158BB(1)(d) of the Income Tax Act. The Tribunal's reliance on the fact that the assessee had time to file a return under Section 139(1) and subsequently filed it within the due date, which was accepted under Section 143(3), was considered irrelevant. The Court emphasized that the Assessing Officer's finding, which was not overturned by the first appellate authority or the Tribunal, was that the respondent was not maintaining regular Books of Account. The existence of suppressed purchase bills amounting to over Rs. 35 lakhs for the period 1.4.2002 to 29.8.2002 was undisputed. The Court found it difficult to treat rough cash books as Books of Account normally kept in the course of business. Therefore, if no Books of Account were maintained in the normal course, there was no scope for reducing the ascertained undisclosed income. The Tribunal acted without legal basis by reasoning that the income would have been disclosed simply because there was time to file the return. This reasoning would allow the assessee to defeat the object of the Act. The High Court allowed the appeal and restored the order of the Assessing Officer.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and fact in deleting the addition of Rs. 7,35,562/- made for the broken period from April 1, 2002, to August 29, 2002, in light of the finding in paragraph 2 of the assessment order under Section 143(3) for AY 2003-04? Assessee's contentions: The income relating to unaccounted purchases for the period April 1, 2002, to August 29, 2002, should not be considered undisclosed income under Section 158BB(1)(d) because the due date for filing the return had not expired as of the search date, and the purchases were reflected in seized records. The assessee also contended that all purchases were accounted for in the Books of Account and that medical shops attached to hospitals are exempted from sales tax, thus no monthly sales tax returns were filed. The Tribunal found favour with the contention that since there was time to file the return under Section 139(1) and the assessee filed it within the due date, which was accepted under Section 143(3) with slight disallowances, the income for the broken period should not be treated as undisclosed. Revenue's contentions: The Assessing Officer rejected the assessee's contention, finding no regular Books of Account were maintained for the period. Purchase bills for cash purchases were in respect of Rs. 35,71,007, and corroborative evidence was obtained from dealers. The assessee failed to produce evidence that cash purchases were reflected in regular Books of Account or monthly sales tax returns. The High Court found the Tribunal's reasoning unsustainable, stating it was patently opposed to Section 158BB(1)(d).

Which sections of the Income-tax Act were involved?

Section 132,Section 143(3),Section 139(1),Section 158BB(1)(d)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH & THE HONOURABLE MR. JUSTICE M.L.JOSEPH FRANCIS TUE AY, THE 30TH MARCH 2010 / 9TH CHAITHRA 1932 ITA.No. 1417 of 2009 ---------------------------- IT(S&S) A.85/COCH/2005 DT.22.8.2008 of I.T.A.TRIBUNAL, COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX, KANNUR. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): APPELLANT ------------------------ SMT.ZUHARA.U.V,PROPRIETRIX,PALAKKI MEDICALS,MANSOOR HOSPITAL COMPLEX,KANHANGAD, KASARAGOD. BY

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