COMMISSIONER OF INCOME TAX, vs. THE MATHRUBHUMI PRINTING AND PUBLISHING CO. LTD.,

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ITA/504/2009HC KeralaKLHC01025265200922 October 2018Bench: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON7 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that there was no warrant for re-assessment proceedings, especially after the expiry of four years. The Court agreed with the Tribunal's finding that there was no absence of full and true disclosure of material facts. The Assessing Officer had completed the initial assessments without calling for cash-based accounts, and a rectification order for assessment year 1997-98 explicitly acknowledged the assessee's practice of maintaining accounts for income tax purposes on a cash basis. In such circumstances, the allegation of non-disclosure of full and true material facts necessary for assessment could not be sustained. The Court found that re-assessment proceedings initiated after four years require such non-disclosure, which was absent here. Therefore, the appeals filed by the Revenue were rejected, and the questions of law were answered in favour of the assessee.

What were the facts?

The appeals concern assessment years 1997-98 and 1998-99. The assessee, The Mathrubhumi Printing and Publishing Co. Ltd., maintained accounts as per the mercantile system but filed income tax returns based on the cash system, as permitted by Section 145 of the Income Tax Act, 1961. However, the assessee did not maintain separate accounts under the cash system. Re-assessment proceedings under Section 147 read with Section 143(3) were initiated after four years. The Assessing Officer initially completed assessments without calling for cash-based accounts. A rectification order under Section 154 for assessment year 1997-98 explicitly noted the assessee's practice of maintaining accounts for income tax purposes on a cash basis.

What were the issues?

1. Whether re-assessment proceedings initiated after four years under Section 147 are valid when there was no alleged absence of full and true disclosure of material facts necessary for assessment, particularly when the assessee's accounting method (mercantile for Companies Act, cash for IT returns) was known to the Assessing Officer. Assessee's Contention: The assessee argued that the Assessing Officer was aware of their accounting practices, as evidenced by the initial assessments and a subsequent rectification order which acknowledged the cash basis for income tax purposes. They contended that no full and true disclosure was absent, and therefore, re-assessment after four years was not warranted. They also pointed to a change in the Companies Act mandating mercantile accounting, which led to the dual system. Revenue's Contention: The revenue, through the Commissioner of Income Tax, argued that Section 44AA obligates an assessee to maintain accounts on the system based on which income tax is computed and returns are filed. Since no accounts were maintained as per the cash system, re-assessment proceedings were initiated.

Which sections of the Income-tax Act were involved?

Section 145,Section 147,Section 143(3),Section 44AA,Section 154

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 MONDAY ,THE 22ND DAY OF OCTOBER 2018 / 30TH ASWINA, 1940 ITA.No. 504 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 100/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 12-11-2008 APPELLANT/S: COMMISSIONER OF INCOME TAX, CALICUT. BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/S: THE MATHRUBHUMI PRINTING AND PUBLISHING CO. LTD., KOZHIKODE. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR SRI.P.BENNY THOMAS OTHER PRESENT: THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.10.2018, ALONG WITH ITA.538/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.504 & 538 of 2009 2 IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY ,THE 22ND DAY OF OCTOBER 2018 / 30TH ASWINA, 1940 ITA.No. 538 of 2009 AGAINST THE ORDER/JUDGMENT IN ITA 99/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 12-11-2008 APPELLANT/S: THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT/S: THE MATHRUBHUMI PRINTING AND PUBLISHING CO. LTD., CALICUT. BY ADVS. SRI.E.K.NANDAKUMAR (SR.) SRI.ANIL D. NAIR SRI.P.BENNY THOMAS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 22.10.2018, ALONG WITH ITA.504/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA Nos.504 & 538 of 2009 3 JUDGMENT [ ITA 504/2009 ,ITA.538/2009 ] Vinod Chandran, J. The appeals are against the common order of the Tribunal for two assessment years, ie., 1997-98 and 1998-99. The assessee was maintaining the accounts as per the mercantile system. The income tax returns were filed based on cash system of accounting as is permissible under Section 145 of the Income Tax Act, 1961. However, the assessee had not been maintaining any accounts as per the cash system. The assessments were completed and re-assessment proceedings were taken under Section 147 read with Section 143(3), after four years of completion of the assessments. 2. The learned Standing Counsel, Government of India (Taxes), submits that under Section 44AA, the assessee, though entitled to maintain accounts as per the mercantile or cash system, is also obliged to maintain accounts on the system based on which the income tax is computed and returns filed. In the present case there

ITA Nos.504 & 538 of 2009 4 were no accounts maintained as per the cash system and hence re-assessment proceedings were initiated. 3. We have to first consider whether there is any absence of full and true disclosure of all the material facts necessary for assessment. The Assessing Officer had initially considered the returns filed by the assessee, which specifically indicated that the assessee had been maintaining accounts as per the mercantile system and had computed income tax in accordance with cash system. No accounts were called for and the assessments were completed. It is also submitted by the learned Counsel for the respondent-assessee that in altogether four years the above problem arose. The problem arose also because of the change in the Companies Act, which mandated maintenance of accounts as per the mercantile system. The assessee had hence maintained the accounts as per the mercantile system for the purpose of the Companies Act and had computed income tax in accordance with the cash system of accounting. For the earlier two years wherein re-assessment proceedings were taken; the same was dropped for reason of the income returned as per the cash

ITA Nos.504 & 538 of 2009 5 system being in excess of that which would have been computed under the mercantile system. These two years the re-assessment was taken up and completed on the basis of the mercantile system of accounting. 4. It is also submitted that for the year 1997-98, there was a rectification proceedings under Section 154, which is handed over across the Bar by the learned Counsel for the respondent. The recitals in the order dated 07.07.1999 is extracted below:- “While processing the return of income, out of the total TDS claims, credit for an amount of Rs.73,970/- was not allowed because as per the date of payment shown in the certificate, they were not relating to the assessment year. The assessee by their letter dated 24-5-99 has clarified that they are maintaining accounts for I.T. purposes on cash basis and out of the total receipts for advertisement and interest, a sum of Rs.3,13,520/- was received during April/May 1996 and such receipts were offered for assessment for A.Y. 1997-98. Since the assessee has clarified the position, the TDS made from the above mentioned Rs.3,13,520/- amounting to Rs.58,513/- is allowable for this year. The assessment is revised as under to allow credit for TDS. xx xx ” 5. It is pertinent that even in the rectification order, the Assessing Officer specifically notices that

ITA Nos.504 & 538 of 2009 6 the assessee had been maintaining accounts for income tax purposes under the cash system. There was no accounts called for by the Assessing Officer, who completed the assessment proceedings. In such circumstances, we are of the opinion that there could be no allegation raised of non-disclosure of full and true material facts. The re- assessment proceedings having been attempted after a period of four years as prescribed under Section 147, there should be non-disclosure of full and true material facts. We agree with the Tribunal that there was no warrant for re-assessment especially after the expiry of four years. We reject the I.T.Appeals, answering the questions of law in favour of the assessee and against the Revenue. No order as to costs. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON dkr JUDGE

ITA Nos.504 & 538 of 2009 7 APPENDIX OF ITA 504/2009 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ASSESSMENT ORDER ANNEXURE B COPY OF CIT(A)'S ORDER ANNEXURE C COPY OF THE ITAT'S ORDER APPENDIX OF ITA 538/2009 PETITIONER'S/S EXHIBITS: ANNEXURE A COPY OF ASSESSMENT ORDER ANNEXURE B COPY OF CIT (A)'S ORDER ANNEXURE C COPY OF THE ITAT'S ORDER

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