THE COMMISSIONER OF INCOME TAX vs. THE MATHRUBHUMI PRINTING AND PUBLISHING

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUESDAY, THE 24TH DAY OF JULY 2018 / 2ND SRAVANA, 1940 ITA.No. 107 of 2010 AGAINST THE ORDER/JUDGMENT IN ITA 144/COCH/2006 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 25-09-2009 APPELLANT(S)/RESPONDENT THE COMMISSIONER OF INCOME TAX, KOZHIKODE. BY ADV. SRI.P.K.R.MENON, SR.COUNSEL (GOI) TAXES, SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S)/APPELLANT: M/S.THE MATHRUBHUMI PRINTING AND PUBLISHING CO.LTD., K.P.K.MENON ROAD, CALICUT. BY ADV. SRI.E.K.NANDAKUMAR (SR.) BY ADV. SRI.P.BENNY THOMAS BY ADV. SRI.P.GOPINATH BY ADV. SRI.K.JOHN MATHAI THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24-07-2018, ALONG WITH ITA NO.135/2010, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

ITA 107/2010 APPENDIX APPELLANT'S EXHIBITS ANNEXURE-A : COPY OF ASST. ORDER DATED 23.3.2005. ANNEXURE-B : COPY OF CIT (A)'S ORDER DATED 21.12.2005. ANNEXURE-C : COPY OF THE ITAT'S ORDER DATED 25.9.2009. //TRUE COPY// PS TO JUDGE. jg-3/8

K.VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------- ITA Nos.107 and 135 of 2010 ------------------------------------------- Dated this the 24th day of July, 2018 J U D G M E N T Vinod Chandran, J. The questions of law arising in the aforesaid appeals relating to the assessment years 1999-2000 and 2001-2002 are re-framed as follows:- (1) Whether the Tribunal was correct in having applied a rule of probability to delete the additions made under Section 68 of the Income Tax Act, 1961 ('Act' for short), finding that since majority of the deposits received from the public and the agents have been proved by the assessee, the once in which proof was not offered also has to be taken as being sourced from the public or agents? (2) Whether the Tribunal was correct in finding that the source is proved as being deposit collected from the public and is not the finding perverse on the facts and circumstances as disclosed from the records?

ITA107&135/10 -2- 2. The assessee, a printing and publishing Company, had accepted deposits from the public as was permitted under the Companies Act, 1956. There were also deposits received from agents of the Company, who are engaged in distribution of publications by the Company. The Assessing Officer (AO) sought to treat the same as unexplained cash credits under Section 68. The assessee proffered evidence in the nature of confirmation received from the depositors and the agents. Wherever there was evidence produced to the satisfaction of the AO, there was no addition made to income. On those cash credits, which could not be supported by sufficient evidence, addition was made by the AO. 3. Before the first appellate authority also, certain other materials were produced, specifically with respect to four depositors and four agents for the year 1999-2000 and six depositors and four agents for the year 2001-2002. The first appellate authority refused to consider the same under Rule 46A of the Income Tax Rules, where there was an obligation on the assessee to produce it before the AO. The first

ITA107&135/10 -3- appellate authority also from the records found that the case was posted on many days before the AO and there was failure on the part of the assessee to produce the same. 4. The Tribunal, however, found that the most important aspect to be borne in mind, in examining the issue, is whether the assessee has rightly proved the sources of the deposits reflected in the books of accounts as credits. The Tribunal then relied on the provisions of the Companies Act and the permission granted for accepting deposits from the public to find that there is no dispute as to the deposits having been accepted from the public. Merely because there was a permission granted under the Companies Act to accept deposits from the public, it does not necessarily follow that the deposits shown are really those received from the members of the public or from the agents. Section 68 is a provision which seeks to ensure that the income received by an assessee is not fully disclosed, by a ruse employed of showing it as credits from depositors which are not genuine and the identity of such depositors are not verifiable.

ITA107&135/10 -4- 5. The Tribunal has erred insofar as the finding that the fundamental fact of the assessee having collected deposits from the public stands proved with respect to the entire cash credits so recovered. It can be said to have been proved, only with respect to the verifiable materials produced before the AO and on which the AO had entered a satisfaction. There could hence be no rule of probability applied as against the specific provision under Section 68 of the Act. We are of the opinion that the Tribunal acted erroneously and in a perverse manner insofar as directing deletion of the addition not proved before the AO; applying the rule of probability, which is alien to the Act. We also find that there is absolutely no proof offered with respect to the additions made. However, we notice that before the first appellate authority, the assessee had produced proof of four depositors and four agents for the year 1999-2000 and six depositors and four agents for the year 2001-2002. The same shall be produced before the AO, who shall consider its veracity and enter a finding on the same. The remand is

ITA107&135/10 -5- confined to that aspect, and with respect to the other, the assessee would have to satisfy the tax due. The Income tax appeals are allowed with the limited remand as above, finding the questions of law in favour of the Revenue and against the assessee. No order as to costs.

Sd/- K.VINOD CHANDRAN JUDGE

Sd/- ASHOK MENON JUDGE jg