THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM vs. M/S.ARCHANA TRADING CO., ANCAL, KOLLAM.

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ITA/226/2013HC KeralaKLHC01026111201310 July 2018Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON9 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the Tribunal had correctly deleted the addition of Rs. 1,00,000/- made by the Assessing Officer on account of alleged unexplained cash credit. The Tribunal's reasoning was that the assessee had provided sufficient evidence to establish the identity of the creditor and the genuineness of the transaction. The Tribunal found that the source of the credit was identified, and the amounts were duly repaid, thus satisfying the conditions for a genuine cash credit. The High Court agreed with the Tribunal's finding that the Assessing Officer had not discharged the initial burden to prove the credit as unexplained. Therefore, the addition was deleted. The operative direction was the deletion of the addition.

What were the facts?

This appeal by the Revenue challenges an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench, dated February 28, 2013. The ITAT had allowed an appeal filed by the assessee, M/s. Archana Trading Co., against an order of the Commissioner of Income Tax (Appeals). The assessment year(s) are not explicitly stated in this excerpt. The core of the dispute revolves around the disallowance of certain expenses by the Assessing Officer, which was subsequently upheld by the CIT(A) but overturned by the ITAT. The procedural history indicates that the ITAT's order is the subject of this High Court appeal.

What were the issues?

1. Whether the Tribunal erred in law and on facts in deleting the addition of Rs. 1,00,000/- made by the Assessing Officer on account of alleged unexplained cash credit under Section 68 of the Income Tax Act, 1961? Assessee's Contention: The assessee argued that the cash credit represented genuine business transactions and that the Assessing Officer had not discharged the initial burden of proving it to be unexplained. They relied on the fact that the source of the credit was identified and the amounts were repaid. Revenue's Contention: The Revenue contended that the assessee failed to establish the genuineness of the cash credit and that the Assessing Officer was justified in making the addition. They likely argued that the burden of proof under Section 68 was not discharged by the assessee.

Which sections of the Income-tax Act were involved?

Section 68

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 10TH DAY OF JULY 2018 / 19TH ASHADHA, 1940 ITA.No. 226 of 2013 --------------------- AGAINST THE ORDER/JUDGMENT IN ITA 351/2011 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 28-02-2013 APPELLANT(S)/APPELLANT/RESPONDENT --------------------------------- THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM. BY ADVS.SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/RESPONDENT/APPELLANT: ---------------------------------- M/S.ARCHANA TRADING CO., ANCHAL, KOLLAM-691 001. R BY ADV. SRI.T.M.SREEDHARAN (SR.) R BY ADV. SRI.V.P.NARAYANAN R BY ADV. SMT.DIVYA RAVINDRAN THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10-07-2018,ALONG WITH ITA NO.229/2013,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

IT APPEAL NO. 226/2013 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A: TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER U/S 143(3)/147 DT 30.12.2009 ANNEXURE B: TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (A) DT 09.02.2011 ANNEXURE C: TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DT 28.02.2013 RESPONDENTS ANNEXURES: NIL TRUE COPY P.A TO JUDGE jma

K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T Appeal No. 226 of 2013 & 229 of 2013 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 10th day of July, 2018 J U D G M E N T Vinod Chandran, J The question of law arising in the aforesaid case, is re- framed as follows: Whether the entire sales suppression detected on survey could be taken as taxable income when there was no suppression found on purchases? 2. The assessee in both the cases is a Bar attached hotel and a survey was conducted in its premises on 15.01.2009. Some incriminating materials were recovered and based on the same, it was found that the assessee had sold Indian Made Forein Liquor (IMFL) in excess of the price shown, in the books of

ITA Nos.226/2013& 229/2013 ::2:: accounts and the returns. An estimate was made from the documents recovered and the books of accounts and turnover suppression was determined on which the tax was directed to be paid. 3. The First Appellate Authority and the Tribunal both relied on a decision of the High Court of Gujarat reported in 2002 258 ITR 654 CIT v President Industries to find that when there was no detection of any purchase suppression, there could be no income suppression alleged from sales. Here the assesee being a Bar Hotel purchased Indian made Foreign Liquor (IMFL for brevity) only from the Kerala State Beverages Corporation (Corporation for brevity) and there is no allegation levelled of other purchases. 4. The facts in the cited decision, in an application compelling reference is not clear. What little is discernible is that

ITA Nos.226/2013& 229/2013 ::3:: the assessee was alleged to have moved finished goods from its manufacturing unit to its godown without disclosing it in the books of accounts and sold the same. The entire sale price of the goods was taken as the income received. The High Court found that if at all there was a sales suppression, the taxable income could be only to the extent of the estimated profit embedded in the sale. It was also found that having detected no investment outside the books of accounts, only the net profit of the sale suppressed can be taken. 5. We are not apprised of the exact business which was dealt with by the Gujarat High Court, but we presume that it was of manufactured goods. In the present case, we are faced with the purchase and sale of liquor carried on through a Bar Hotel. We are also faced with the unique situation of the State having granted monopoly to distribute IMFL to the Corporation. The

ITA Nos.226/2013& 229/2013 ::4:: assessee-a Bar hotel could not have purchased IMFL from any other source. The purchases from the Corporation is fully accounted. It is hence contented that the sale suppression fully cannot be taken as the income. 6. The specific allegation raised on survey as is disclosed from the assessment orders are available in the assessment orders. For the year 2006-07 we see that the survey found the sales between April 2005 to September 2006 and November 2005 to March 2006 at Rs.2,18,87,352/-. Based on the materials recovered it was found that the sales for October was very low. This led to an estimation of Rs.19,89,760/-. The figure disclosed on survey was based on loose sheets kept in a file recovered at the time of survey, showing the Bar receipts and night sales of IMFL. Here the purchase being of IMFL in whole-sale, the sale carried out is in retail. More clearly put the

ITA Nos.226/2013& 229/2013 ::5:: bottles purchased in bulk are opened and liquor served in pegs; the price of which is at the discretion of the Bar hotel. The allegation was that sales were made at a price far more than that disclosed in the books of accounts. Hence on the very same purchase one sale price was reflected in the accounts while a far higher price was disclosed from the material recovered on survey. This does not require any further investment on purchase and is essentially an allegation of more gross profit having been obtained than that returned. 7. It was on the above basis that the sales turnover of IMFL was estimated at Rs.2,38,77,112/-. In addition to that disclosed in the return of income, which was only Rs.1,94,47,035/-. The difference being Rs.44,30,077/- was taken as income. This is the additional income received as profit on sales, over and above that seen from the accounts. We need not labour on the figures in

ITA Nos.226/2013& 229/2013 ::6:: the next year; which alone differ and the principle on which estimation was made is similar. The mere fact that there was no investment made outside the books of accounts would not help the assessee in the present case. As was noticed, the purchase turnover does not alter at all since the purchases can only be made from a State owned Corporation. There is no restriction with respect to the price for which liquor has to be sold by a person holding licence to run Bars under the Abkari Act. The price being variable and the suppression being the actual price for which the liquor was sold; the entire suppression is income. The assessee having filed its return claiming deduction for the entire expenditure incurred, there is no warrant for making further deduction for expenditure or computing the profit for the suppressed sales turnover detected on survey. What was detected on survey was added on as income and the assessment was

ITA Nos.226/2013& 229/2013 ::7:: completed, which cannot be faulted. We answer the question of law for both years in favour of the Revenue and against the assessee. The appeals would stand allowed setting aside the orders of the appellate authorities and restoring that of the Asseessing Officer, leaving the parties to suffer their respective costs. Sd/- K. Vinod Chandran, Judge Sd/- Ashok Menon, Judge jma

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