THE COMMISSIONER OF INCOME TAX, COCHIN vs. M/S.KAMADHENU MILK PRODUCTS, KOCHI

We shall first deal with the appeal of the Revenue, ITA 18/2010 with respect to the assessee firm M/s. Kamadhenu Milk Products. M/s Kamadhenu Milk Products was a partnership firm consisting of 3 partners Sri.George Paul, David George Vettath and K.M Stephen. The firm, engaged in the business of trading of milk and milk products, filed returns up to 1999-2000. Consequent to a search : 2 : conducted in the business premises of the firm and the residence of the partners, seizure of documents and books of accounts were effected and notice under section 158BC of the Income Tax Act was issued. The assessee filed return of income in Form 2B declaring NIL undisclosed income. During the course of search in the residence of Sri David George, one sale agreement dated 23.5.2000 regarding sale of the partnership firm to three persons namely Bindu David George, S.Thenrajam and T. Nandakumar was seized. Pausing for a moment it is useful to mention that Smt. Bindu David George, one of the purchasers is the wife of Sri. David George, one of the erstwhile partners. The total consideration for sale as per the said agreement was Rs.2 crores and the assessee having filed no return of income after assessment year 1999-2000 the capital gains on sale of the firm was found to be undisclosed. When liability to short term capital gains tax was communicated to the assessee, it was objected to, on the ground that the sale as per the said agreement dated 23.5.2000 has not occurred and actual sale was in pursuance to a subsequent agreement dated 1.6.2000. : 3 :

The assessee's claim was that the actual sale as against the later agreement was for an amount of Rs.1,32,40,000/- and not for Rs.2 crores as is revealed from the earlier agreement. The reasons for the reduction in sale consideration was projected to be due to the fall in processing of milk in the intervening period. The Assessing Officer rejected the explanation offered by the erstwhile partners and relying on the agreement dated 23.5.2000 as also receipt of sum of Rs.118 lakhs dated 10.7.2000 signed by all the erstwhile partners, the resolution passed by the purchasers to take over the firm for Rs.2 crores appended along with an application made to People Urban Co-operative Bank, Thripunithura, the minutes of the Board of Directors of KMP Dairy Industry (P)Ltd and the balance sheet of the firm on 31.5.2000; all documents seized on search, as also a statement of the husband of Smt.Thenrajam and Sri. Nandakumar, two of the purchasers; found that the agreement dated 23.5.2000 is to be considered as a genuine one. On the basis of such finding the sale consideration was taken to be Rs.2 crores as per the agreement dated 23.5.2000 and the profit on sale of : 4 : business was computed at Rs.81,33,546/-. The Assessing Officer also made additions coming to 20% of expenditure incurred violating the provisions of Section 40A(3) of the Act. The amount of Rs.90,101/- shown in the block return of income for the year 2000-01 though sought to be treated as regular return for the year allowing set off of carried forward loss; was treated as undisclosed income for the year 2000-01 since no set off is permissible for block assessments.

The assessee filed first appeal which was disallowed. On further appeal before the Tribunal, the Tribunal on esoteric principles purportedly based on the Contract Act interpreted the concept of “agreement” and found that the seized agreement dated 23.5.2000 has no binding value and hence deleted the said addition on the finding that the agreement and balance sheet recovered on search contained “boosted figures” and are merely “cooked up” for the purpose of availing loan from a Bank. We fail to understand on what materials Tribunal came to such conclusion, but for the mere assertion of the parties. There is nothing on record to discredit or disbelieve the agreement dated 23.5.2000 and : 5 : seized records, attendant circumstances as also the statements of the erstwhile and new partners would only clearly indicate the actual consideration to be Rs.2 crores as has been found by the Assessing Officer.

The Assessing Officer has noticed that the Stamp paper used for the agreement dated 23.5.2000 and 1.6.2000 has both been purchased on 23.5.2000 from the very same vendor. This belies the contention of the assessee firm that the second agreement for a lesser consideration was executed due to a fall in the processing of milk in the intervening period. Such fall could not have been predicted and the purchase of two sets of stamp papers reveal the intention of the parties to camouflage the actual terms of the agreement. On facts the Assessing Officer would further examine the contention put forward by the assessee with reference to the sale of milk before and after the agreements and discredit the sale by clear figures. The seized documents also would establish that the agreement dated 23.5.2000 disclosing the sale consideration of Rs.2 crores was the genuine one. The receipt of Rs.118 lakhs dated 10.7.2000 signed by all the : 6 : partners recovered from the residence of Sri David George Vettath is in consonance with the agreement dated 23.5.2000. The resolution passed by the purchasers appended along with the application made to the Bank would also show the sale consideration to be Rs. 2 crores. The minutes of the Board of Directors of the KMP Dairy Industries (P)Ltd., comprising of the erstwhile directors, seized from the residence of Sri. K.M. Stephen, would also indicate the sale to have been completed on 31.5.2000. The advance payment of Rs.5.5lakhs mentioned of in the agreement dated 23.5.2000 was also admitted to by one of the purchasers and the husband of another purchaser. The said advance is also not made mention of in the second agreement dated 1.6.2000. Even accepting the plea of the assessees that the consideration was lowered taking into account the fall in processing, necessarily the advance made on 23.5.2000 would have found a mention in the later agreement. Sri. David George Vettath, one of the erstwhile partners, would contend that Sri. George Paul, another partner, was handling the affairs of the business as also the sale transactions and he is not aware of the amounts passed : 7 : by way of sale. The ignorance displayed by Sri. David George Vettath assumes significance in the context of his wife being one of the purchasers. Sri George Paul also does not have a consistent stand on the actual amounts passed. It is evident that the wife of David George Vettath has no independent source of income to make the investment/purchase and the ignorance displayed by David George Vettath only would lend to an adverse inference in the matter of the actual consideration of sale.

On the veracity of the agreement dated 1.6.2000, the Assessing Officer has noticed in Annexure A order that the advance of Rs.75 lakhs as per the said agreement is categorically stated to be by pay order from Peoples Urban Co-operative Bank Thripunithura; while the application for loan itself was made to the Bank only on 24.6.2000. As noticed earlier the glaring absence of Rs. 5.5 lakhs as per the first agreement also raises valid doubts about the genuineness of the agreement dated 1.6.2000. On behalf of the assessee firm it was also submitted by the erstwhile partners that the amount actually received even as per the second agreement : 8 : dated 1.6.2000 is only Rs.7 lakhs which clearly goes against the endorsement of receipt of Rs.75 lakhs in the agreement dated 1.6.2000. But for the unsubstantiated claim of the assessee there was absolutely nothing on record to support the second agreement dated 1.6.2000. The Tribunal, we are surprised to find ignored the overwhelming evidence in support of the agreement dated 23.5.2000 and the actual sale consideration of Rs.2 crores. It is not clear as to how the Tribunal came to the finding that the agreement dated 23.5.2000 was one which was not enforceable and we are afraid that no reasonable person could reach the conclusions arrived at by the Tribunal. The documents seized on search as also the statement recorded under section 132(4) provides ample evidence to support the actual consideration of Rs.2 crores and we answer the question of law raised by the revenue in favour of the revenue since the deletion made by the Tribunal was without adverting to the material seized and conclusion of the Tribunal with respect to the actual sale consideration is unreasonable and perverse.

On the question of the disallowance of Rs.8,31,036/- : 9 : made by the Assessing Officer under Section 40A(3) the Tribunal considered the issue on the basis of the facts regarding the nature of the business carried on by the assessee and deleted the same, which in our opinion requires no interference. We refuse to answer the question raised by the Revenue regarding the said addition since the same does not lead to any question of law.

The remaining issue in the firm's appeal is with respect to the addition of Rs.90,101/-which was shown in Form 2B for the year 2000-01, showing set off of carried forward loss from the assessment year 1999-2000. The Assessing Officer as well as the 1st appellate authority treated the same as undisclosed income for the assessment year 2000-

The Tribunal merely found that set off can be granted only in regular assessment which is running parallel to the block assessment and allowed claim of the assessee. We find from the order of the Assessing Officer as well as the 1st appellate authority that no such parallel assessment is going on. The assessee failed to file a return in the assessment year 2000-01 and only after the search on 4.10.2001 and notice : 10 : under Section 158BC dated 9.10.2002 filed a return of income in Form No.2B for the block period 1.4.1995 to 4.10.2001 that too on 19.2.2003. It was in the block assessment that set off was claimed and we are of the view that the Tribunal was not correct in presuming a regular assessment; which was not there. The question raised by the Revenue is answered in their favour and against the assessee. The addition made by the Assessing Officer as confirmed by the 1st appellate authority is restored.

We are now confronted with the appeals of the Revenue filed against the order of the Tribunal in the appeals filed by the Revenue as well as the assessee against the 1st appellate order modifying the assessments made against the individual assessees. One common ground in the Revenue's appeals before the Tribunal was with respect to surcharge under Section 113 which is decided in favour of the Revenue by the Tribunal. There is no appeal of the assessee to this Court on the said issue. The individual assessments have to be dealt with separately.

ITA 73 and 77 of 2010 are the appeals relating to : 11 : one of the partners viz., Sri. George Paul. The additions made by the Assessing Officer in its entirety on the basis of the transaction of sale of M/s.Kamadhenu Milk Products at Udyogamandal and the chilling plant M/s.KMP Dairy Industries (P) Ltd. at Salem, were deleted by the Tribunal following the order of the Tribunal in the firm's appeal. We have today reversed the findings of the Tribunal in the firm's : 12 : constitutes clear admissions having evidentiary value and self- serving retractions alone cannot be the basis of deleting additions made on the basis of such statements. The Tribunal

ITA 102 and 72 of 2010 are appeals in the case of one another partner David George Vettath. Apart from the issue of surcharge and remand of the addition of Rs.18,81,275/- all the grounds in the Revenue's appeals and the assessee's appeal have been decided following the findings of the Tribunal in the firms appeal; which we have reversed in the earlier part of this order. This also requires fresh consideration by the Tribunal.

ITA 83 and 103 of 2010 are appeals in the case of the third partner viz., K.M. Stephen, which also has been decided on the basis of the findings of the Tribunal in the firm's appeals and hence requires a de novo consideration. The deletion of the other additions are again done in a casual manner and on the ground that 132(4) statement alone cannot be relied on to make additions. Our observations in ITA 73 and : 13 : 77 of 2010 would apply here too. In the circumstances ITA 18 of 2010 is partly allowed sustaining the additions made on the firm based on the agreement dated 23.5.2000, disclosing the actual sale consideration of Rs.2 crores, as also the undisclosed income of Rs.90,101/- for the year 2000-01. The appeals in the case of the individual partners, except to the extent of the issue of surcharge and remand on one issue, are all remanded to the Tribunal for fresh consideration. The Tribunal shall restore the appeals of the Revenue and the assessees to the extent noticed above and shall consider the same afresh in accordance with law and the observations made above. No costs. C.N. RAMACHANDRAN NAIR (Judge) K. VINOD CHANDRAN (Judge) jma //// P.A to Judge