Commissioner of Income Tax and Another vs Sri Lakshmi Narasimha Distilleries P. Ltd.

B. Manohar, J.—The Revenue preferred this appeal u/s 260A of the income tax Act 1961, challenging the order dated September 8, 2006, made in I.T. (SS) A No. 154/Bang/2004 passed by the income tax Appellate Tribunal, Bangalore (hereinafter referred to as "the Appellate Tribunal" for short) for the block assessment year from April 1, 1991, to April 27, 2001. The respondent-assessee is a limited company engaged in the business of manufacturing of rectified spirit. Search was conducted in the premises of the assessee on April 27, 2001, u/s 132 of the income tax Act, 1961 (for short "the Act"). During the course of search, the evidences with regard to unaccounted sale of rectified spirit and other incriminating documents were seized. On the basis of the said documents, notice u/s 158BC of the Act was issued to the assessee directing him to file the return of income for the block period from April 1, 1991, to April 27, 2001, in a prescribed form.

In pursuance of the notice, the assessee filed the return of income for the block period on March 4, 2002, declaring the undisclosed income of Rs. 49,47,000. Subsequently, notices u/s 143(2) and section 142(1) were issued on the assessee. In response to the said notices, the authorised representative of the assessee appeared before the Assessing Officer. During the course of assessment proceedings, the authorized representative was asked to furnish the basis for declaration of the undisclosed income of Rs. 49,47,000 and also set off of Rs. 31,95,000 towards miscellaneous receipts as recorded in the books. The assesses failed to produce any evidence with regard to set off amount claimed by him. Accordingly, the assessing authority rejected the claim for set off and issued demand notice as per the assessment order dated April 30, 2003. Being aggrieved by the assessment order dated April 30, 2003, the assessee preferred an appeal before the Commissioner of income tax (Appeals) Bangalore (hereinafter referred to as the appellate authority), contending that rejection of the claim of the assessee for set off Rs. 31,95,000 is contrary to law. The appellate authority by its order dated September 28, 2004, after considering the matter in detail rejected the appeal in so far as set off/reduction of a sum of Rs. 31,95,000. Being aggrieved by the order passed by the first appellate authority, the assessee preferred an appeal before the income tax Appellate Tribunal, Bangalore. The Appellate Tribunal, relying upon the earlier order passed by it in J.P. Narayanaswamy''s case made in I.T. (SS)A No. 154/B/2004 allowed the appeal in part by its order dated September 8, 2006, and held that the miscellaneous receipts represented the income and such income is to be reduced from undisclosed income determined on unaccounted sale of rectified spirit. The appellant-Revenue being aggrieved by the order passed by the Appellate Tribunal, has preferred this appeal.

The present appeal was admitted for considering the following substantial question of law:

Whether the Tribunal was correct in holding that miscellaneous receipts of Rs. 31,95,000 discovered in the course of search cannot be treated as the undisclosed income of the assessee during the block period as the same should be presumed as unaccounted sale of rectified spirit even though these unaccounted sales had been correctly reflected in the books discovered in the course of search?

Sri G. Kamaladhar, learned counsel appearing for the appellants-Revenue, contended that the order passed by the Appellate Tribunal is contrary to law. The search of premises of the assessee was conducted on April 27, 2001, and seized some materials which disclose that 240 loads of rectified spirits were dispatched by the assessee, each load having carrying capacity of 12,000 litres of rectified spirit. Out of the same, 84 loads were accounted and 154 loads were not accounted by the assessee. The profit margin on the sale of rectified spirit was admitted at Rs. 3 per litre. Adopting the same, value of 156 loads of rectified spirit comes to Rs. 56,16,000. The assessee themselves have admitted that, apart from manufacturing the rectified spirit they are not doing any business. Hence, the question of redaction of Rs. 31,95,000 from the undisclosed amount does not arise. No material has been produced before the assessing authority or the appellate authority with regard to parallel business. However, the Tribunal without considering all these aspects of the matter relying upon the earlier order dated May 26, 2005, passed by the Appellate Tribunal in I.T. (SS) A. No. 152/B/2004 made in J.P. Narayanaswamy''s case, allowed the appeal in part, which is contrary to law. Further, the Revenue has preferred an appeal against the order dated May 26, 2005, in I.T. (SS)A No. 152/B/2004 made in J.P. Narayanaswamy''s case in I.T.A. No. 3136/2005. The Division Bench of this court in a judgment reported in J.P. Narayanaswamy v. Deputy CIT [2012] 340 ITR 193 (Karn.) allowed the appeal filed by the appellant and set aside the order passed by the appellate authority. Hence, the order passed by the Appellate Tribunal cannot be sustainable and sought for allowing the appeal.

On the other hand, Sri K.R. Prasad, learned counsel appearing for the respondent-assessee, argued in support of the order passed by the Appellate Tribunal and contended that the authorities below without considering the contentions raised by the assessee refused to deduct a sum of Rs. 31,95,000 towards miscellaneous receipts out of the undisclosed income of Rs. 49,47,000. The Appellate Tribunal after considering the matter in detail allowed the appeal allowed the set off of Rs. 31,95,000 which does not call for interference. Hence, sought for dismissal of the appeal.

We have carefully considered the arguments addressed by the learned counsel for the parties.

The records clearly disclose that the assessee had filed return of income on March 4, 2002, declaring the undisclosed income of Rs. 49,47,000. However, they claimed reduction of Rs. 31,95,000 as miscellaneous receipts. During the course of assessment proceedings, the assessee had admitted that except the business of rectified spirit, they are not doing any other business. No document has been produced with regard to miscellaneous receipts. The assessing authority after considering the matter in detail passed fresh assessment order and the same was confirmed by the appellate authority. The Appellate Tribunal without any material before it, has set aside the order solely on the basis of the earlier order made by it in I.T. (SS)A No. 152/B/2004 and the said order was set aside by the court on an appeal filed by the Revenue in I.T.A. No. 3136/2005, dated August 11, 2011. The assessee has failed to produce any materials or evidence to support the claim with regard to miscellaneous receipts and also failed to maintain the true and correct account. Hence, the order passed by the Appellate Tribunal cannot be sustained. Accordingly, the appeal is allowed, the set off allowed by the Tribunal in favour of the assessee is set aside and the substantial question of law framed in this appeal is held in favour of the appellants-Revenue.