THE COMMISSIONER OF INCOME TAX, vs. M/S BAHUBALI NEMINATH MUTTIN,

1 IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 13TH DAY OF JULY, 2016 PRESENT THE HON’BLE MR.JUSTICE ANAND BYRAREDDY AND THE HON’BLE MR.JUSTICE RAGHVENDRA S. CHAUHAN INCOME TAX APPEAL NO. 5029/2011 C/W INCOME TAX APPEAL NO. 5030/2011 INCOME TAX APPEAL NO.5029/2011: BETWEEN: 1. The Commissioner of Income Tax Khemjibai Complex, Dr. Ambedakar Road, Belgaum. 2. Assistant Commissioner of Income Tax Central Circle –1, Belgaum. … APPELLANTS (Shri Ameet Kumar Deshpande, Advocate) AND: M/s. Bahubali Neminath Muttin Main Road at Post Chandachan

2 Taluk Indi, District Bijapur – 586 205. … RESPONDENT (Shri Ashok Kulkarni & Shri K.R. Prasad, Advocates) This Income Tax Appeal is filed Under Section 260A of the Income-Tax Act, 1961 against order passed in Income Tax Appeal No.161/PNJ/2010 dated 08-07-2011 on the file of the Income Tax Appellate Tribunal, Panaji Bench, Panaji, allowing the appeal filed by an assessee. INCOME TAX APPEAL NO.5030/2011: BETWEEN: 1. The Commissioner of Income Tax Khemjibai Complex, Dr. Ambedakar Road, Belgaum. 2. Deputy Commissioner of Income Tax Central Circle –1, Belgaum. … APPELLANTS (Shri Ameet Kumar Deshpande, Advocate) AND: M/s. Bahubali Neminath Muttin Main Road at Post Chandachan Taluk Indi, District Bijapur – 586 205. … RESPONDENT (Shri Ashok Kulkarni & Shri K.R. Prasad, Advocates)

3 This Income Tax Appeal is filed Under Section 260A of the Income-Tax Act, 1961 against order passed in Income Tax Appeal No.161/PNJ/2010 dated 08-07-2011 on the file of the Income Tax Appellate Tribunal, Panaji Bench, Panaji, dismissing the appeal filed by a revenue. These appeals having been reserved on 14.6.2016 and coming on for ‘Pronouncement of Judgement’ this day, Anand Byrareddy J., delivered the following: JUDGMENT These appeals are disposed of by this common judgment in view of the questions arising for consideration being similar. 2. The facts are that the assessee is a partnership firm carrying the business as wholesale cloth merchants. The Revenue having conducted a search under Section 132 of the Income Tax Act, 1961 (Hereinafter referred to as the ‘I.T. Act’ for brevity) on 26.12.2007, the assessee had filed e-return of income for the assessment year 2007-2008 declaring an income of Rs.1,05,22,030/-. Proceeding on the basis of material seized by the assessing authority at the search,

4 the assessment was completed in terms of Section 143 (3) of the I.T. Act in making the following additions: (i) Unexplained income on account of purchases under Section 69B of the I.T. Act at Rs.23,59,133/- (ii) Difference in stock being undisclosed income of Rs.1,32,73,013/- (iii) Undisclosed credits under Section 68 of the I.T. Act being the undisclosed income of Rs.10,72,247/- (iv) Disallowance under Section 40A (3) of the I.T. Act being undisclosed income Rs.24,216/- (v) Gross profit on suppressed sales being undisclosed income at Rs.19,45,509/- (vi) Addition on account of cessation of liability under Section 41 (1) of the I.T. Act at Rs.2,37,818/-. 3. The assessee had filed an appeal before the Commissioner of Income Tax (Appeals). The said authority had deleted the addition under Section 69B and confirmed the addition in stock at Rs.64,28,166/- as against addition made by the assessing authority at Rs.1,32,72,013/-. The addition for undisclosed credits under Section 68 of the I.T. Act at Rs.10,72,247/- was confirmed. The addition on account of gross profit on suppressed sales was deleted

5 and the addition under Section 41 (1) was confirmed. That order was challenged by both, the assessee as well as the Revenue before the Income Tax Appellate Tribunal (ITAT). The assessee had raised an additional ground on the validity of assessment completed under Section 143 (3) of the I.T. Act and since it was an action brought pursuant to a search under Section 132 of the I.T. Act, the assessment, it was contended, ought to have been completed under Section 153A of the I.T. Act and not under the usual provisions of the I.T. Act. The Tribunal had accepted the said contention and held that the order of assessment was vitiated. On merits, the Tribunal deleted the entire additions made by the Assessing Officer and those confirmed by the appellate authority and therefore the present appeals. 4. The following substantial questions of law have been framed by Shri Ameet Kumar Deshpande, the learned Counsel for the Revenue as on 14.06.2016 in variance with the substantial questions of law that were framed in the memorandum of appeal,

6 and as framed by this Court at the time of admission of these appeals as follows: “1. Whether the ITAT is justified in holding that the assessment was required to be done under section 153A of the Income Tax Act, 1961 and not under section 143 of the Income Tax Act, 1961? 2. Whether the ITAT is justified in not upholding the addition made on account of ‘unaccounted purchases’, by ignoring the provisions of section 69B of the Income Tax Act, 1961? 3. Whether the ITAT is justified in deleting the addition made by the CIT(A) on account of ‘unaccounted sales/suppressed sales’, when the ITAT has not disbelieved the amount of closing stock arrived at by the CIT(A)?” 5. It is contended by the learned Counsel for the Revenue that the assessment having been held to be bad in law since it ought to have been concluded under Section 153A read with Section 153B of the I.T. Act as being erroneous. It is contended that the Tribunal has failed to note, from a reading of Section 153A (1) (b) of the I.T. Act, that the assessing officer has to finalise the assessment under

7 Section 153A alone in respect of each assessment year falling within such six assessment years and it is nowhere provided that he is empowered to issue notice under Section 153A of the I.T. Act for the year in which the search is conducted or would be vested with jurisdiction to finalise the assessment under Section 153A of the I.T. Act. 6. It is also contended that in view of Section 292B of the I.T. Act notice or summons of proceedings is not rendered invalid if the proceedings, in substance and effect, are in conformity with or according to the intent and purpose of the I.T. Act. It is further urged that the provisions of Section 292BB of the I.T. Act are also applicable to the present case on hand as the assessee had participated in the proceedings and as such it ought to be deemed that notice under the provisions of the Act had been duly served upon the assessee. The learned Counsel would specifically urge on merits as to the Tribunal having committed an error in reversing the orders of the CIT (Appeals) as well as the Assessing Officer and

8 therefore he seeks that the substantial questions of law raised be answered in favour of the revenue. 7. On the other hand, Shri Ashok Kulkarni, learned Counsel for the assessee has pointed out that in so far as the first question that is raised as a substantial question of law, it is contended that the Tribunal has applied and followed the decision of the Income Tax Appellate Tribunal, Indore Bench in the case of Ujjain vs. Sushil Kumar Jain in IT(SS) Appeal No.54 (INDORE) of 2007 dated 20.01.2010, (a copy of the said decision is produced) wherein the issue for adjudication was “Whether assessment for the previous year in which search is initiated under Section 132 of the Act or requisition under Section 132A is made has to be done in accordance with the provisions of Section 153A/153B of the Act?” It is contended by the learned Counsel for the respondent that after a detailed consideration of the provisions of the Act, the Tribunal has allowed the appeal filed by the Revenue therein, and therefore while construing a Central legislation, like the Income

9 Tax Act, which has an All-India application, there ought to be uniformity in the interpretation of the provisions, by the several benches of the Tribunal. Therefore the interpretation of the provision as canvassed and acted upon by the Department in one jurisdiction should not be departed from to the extent reasonably possible in other jurisdictions governed by the same law. 8. The further contention on behalf of the Revenue that in the light of Section 292B of the I.T. Act any irregularity in that regard by the authorities should be ignored as a mere technical defect is not tenable, as it is a question of jurisdiction and not a mere technicality. It is contended by the learned Counsel for the respondent that in any event the question is purely academic as the Tribunal has decided the appeal in favour of the respondent on merits and hence the question does not really arise for consideration. 9. In so far as the second and third questions of law are concerned, it is contended by the learned Counsel for the assessee

10 that pursuant to the appeals before the CIT (Appeals) and the further appeals before the ITAT and the present appeals having been filed by the Revenue, the substantial questions of law that have been framed in the present appeals would have to be viewed in the background that the appellate Tribunal on a scrutiny of the entire factual material on record has passed the impugned order and now an attempt is being made by the Revenue to seek re- appreciation of the evidence on factual aspects and the conclusions drawn in the order of the appellate tribunal, which according to the learned Counsel is impermissible under Section 260A of the I.T. Act. 10. It is further contended that there is a clear finding of fact by the ITAT on all the issues raised in the present appeals. It is significant that no additional material is placed before this Court to demonstrate that the findings of fact arrived at by the Tribunal are perverse. It is emphasized that the cardinal principle is that the Tribunal which is the final fact finding authority and if such

11 findings of fact are to be assailed, it would require a substantial question as to there being a perverse finding of fact by the Tribunal to have been raised. In the absence of any such question having been raised, it cannot be said that any question of law arises for consideration and much less a substantial question of law as contemplated under Section 260A of the I.T. Act. Reliance is placed on the following authorities by the learned Counsel for the above propositions: 1. 330 ITR 1 (SC) @ 7-9 (Vijay Kumar Talwar vs. Commissioner of Income Tax) 2. 378 ITR 640 (SC) @ 648 (Mangalore Ganesh Beedi Works vs. Commissioner of Income Tax and Another) 3. 273 ITR 50 (SC) @ 55 (M. Janardhan Rao vs. Joint Commissioner of Income Tax) 4. 300 ITR 205 (SC) @ 211,212 (Sudarshan Silks and Sarees vs. Commissioner of Income Tax) 5. 247 ITR 178 @ 180, 181, 182 (K. Ravindranathan Nair vs. Commissioner of Income Tax) 11. Alternatively, and without prejudice to the preliminary objections raised above, he would submit that, on merits it should

12 be noted that admittedly the books of accounts of the respondent have been rejected by the assessing authority. The profit of the respondent is estimated as provided under Section 145 (3) of the I.T. Act. When the gross profit rate is applied, it would cover any infirmity and there was no need for the Assessing Officer to make a scrutiny of the amounts incurred on the purchases by the respondent. In any event, the revenue would not be in a position to rely on the rejected books of accounts for making the additions on account of trade creditors and also for the purpose of arriving at a closing stock. This is the view taken by atleast four High Courts in the following reported judgments: 1. 232 ITR 776 (AP) @ 778, 779 (Indwell Constructions vs. Commissioner of Income Tax) 2. 229 ITR 229 (All) @ 232 (Commissioner of Income Tax vs. Banwari Lal Banshidhar) 3. 302 ITR 246 (P & H) @ 249 (Commissioner of Income Tax vs. Aggarwal Engineering Company) 4. 377 ITR 568 @ 580 (Commissioner of Income Tax vs. Amman Steel and Allied Industries)

13 12. In the light of the above contentions and on a perusal of the impugned orders, we notice that the learned Counsel for the appellants had re-worded the substantial questions of law as framed in the appeal memoranda and as framed by this Court at the stage of final hearing as on 14.06.2016 as above. It is evident from a reading of Section 260A of the I.T. Act that the appeal would lie to this Court from an order of the ITAT only if there is a substantial question of law that arises for consideration. In Vijay Kumar Talwar’s case supra, the Supreme Court has held that it is mandatory for the High Court to formulate the substantial question of law on which the appeal would be considered. But that the expression “a substantial question of law” is not defined in the I.T. Act. However, it has acquired a definite connotation through various judicial pronouncements. The learned Counsel has drawn attention to the judgment of Shri Chunilal V. Mehta and Sons Ltd. vs. Century Spinning and Manufacturing Compay Limited reported in AIR 1962 SC 1314, a Constitution Bench of the Apex Court has held as follows:

14 “18. The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.” 19. Similarly, in Santosh Hazari vs. Purushottam Tiwari [2001] 3 SCC 179, a three-judge Bench of this Court observed that: “A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be ‘substantial’ a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law ‘involving in the case’ there must be first a foundation for it laid in the pleadings and the question

15 should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.” 20. In Hero Vinoth (Minor) Vs. Seshammal reported in [2006] 5 SCC 545, 556 this Court has observed that: "The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to ‘decision based on no evidence’, it not only refers to cases where there is a total dearth of evidence, but also refers to

16 any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.” 21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been applied in appreciating the evidence, or when the evidence has been misread. (See: Madan Lal Vs. Mst. Gopi & Anr. [19800 4 SCC 255; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi [2009] 3 SCC 287; Commissioner of Customs (Preventive) Vs. Vijay Dasharath Patel [2007] 4 SCC 118; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta [2004] 12 SCC 505; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. [2002] 8 SCC 715).” 13. Further, in Mangalore Ganesh Beedi works case supra the Supreme Court has held as follows: “19. xxx There is a clear finding of fact by the Tribunal that the legal expenses incurred by the assessee were for protecting its business and that the expenses were incurred after November 18, 1994. There is no reason to reverse this finding of fact particularly since nothing has been

17 shown to us to conclude that the finding of fact was perverse in any manner whatsoever. That apart, if the finding of fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court. The Revenue did not seek the framing of any such question. In this regard, reference may be made to K. Ravindranathan Nair v. Commissioner of Income Tax [2001] 247 ITR 178, 181 (SC) wherein it was observed: “The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of act reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.” 20. Accordingly, we hold that the High Court was not justified in upsetting a finding of fact arrived at by the Tribunal, particularly in the absence of a substantial question of law being framed in this regard. Therefore, we

18 set aside the conclusion arrived at by the High Court on this question and restore the view of the Tribunal and answer the question in favour of the Assessee and against the Revenue.” 14. In M. Janardhan Rao’s case, Sudarshan Silks and Sarees case and K. Ravindranathan Nair’s case supra, the Apex Court has again reiterated the principles laid down in the aforesaid decisions. 15. The principle that if a finding of fact is not challenged as being perverse, the High Court is bound to accept such finding. Therefore, as no such substantial question of law has been framed and the questions pertain to findings of fact, which cannot be said to be perverse as it is evident that the books of accounts of the respondent had been rejected by the assessing authority, in which case the same books of accounts could not be relied upon in an addition on account of trade creditors and also for arriving at the closing stock. This is an established principle as has been held in the decisions relied upon by the respondent namely Indwell Constructions case, Banwari Lal Banshidhar’s case, Aggarwal

19 Engineering Company’s case and Amman Steel and Allied Industries, case supra. 16. In the light of the above, there is no substantial question of law that arises for consideration and the findings of the Tribunal cannot be said to be perverse, as the reasons assigned by the Tribunal are certainly acceptable and do not warrant interference. Consequently, the appeals are dismissed. Sd/- JUDGE Sd/- JUDGE swk