Commissioner of Income Tax vs Hotel Samrat

C.N. Ramachandran Nair, J.—The question raised in the connected appeals filed by the Revenue is whether the Tribunal was justified in allowing the miscellaneous petition to recall the earlier order and dismiss the appeals filed by the Revenue. The respondent-assessee was engaged in the business of running a bar hotel as a partnership firm. During the survey conducted various records were recovered including the price list maintained by the bar hotel for retail sale of liquor. Statements were recorded from the managing partner, the hotel manager and also a supplier. The Assessing Officer found from the recovered materials and the statements that the gross profit conceded was incorrect and the gross profit received by the assessee was 60 per cent. for the year 1997-98, 70 per cent. for the year 1998-99 and 75 per cent. for the year 1999-2000. Assessments were accordingly completed on an estimation basis u/s 144 of the Income Tax Act, 1961. On appeal, the Commissioner of Income Tax (Appeals) reiving on the judgment of this Court in Paul Mathews and Sons Vs. Commissioner of Income Tax, held that the statements recorded u/s 133A(3)(iii) of the Income Tax Act have no evidentiary value and, therefore, he cancelled the estimation made by the Assessing Officer and refixed the gross profit at 35 per cent. In the appeals filed by the Department, the assessee did not appear during hearing. The Tribunal, however, heard the appellant-Department, perused the records and partly allowed the appeals by refixing the gross profit at 40 per cent. for the first year, 45 per cent, for the next year and at 50 per cent. for the last year. The assessee thereafter filed an application to set aside the ex parte order and for rehearing, which was allowed by the Tribunal. However, after rehearing the parties the Tribunal also following the judgment of this Court above referred to, recalled their earlier order and dismissed the Department''s appeals against which these appeals are filed.

We have heard standing counsel appearing for the appellant and advocate Sri V.S. Jayakumar appearing along with advocate Sri S. Arun Raj for the respondent-assessee. During hearing, we felt that the decision of this Court in Paul Mathews and Sons Vs. Commissioner of Income Tax, above referred to does not lay down the correct position of law because, in our view, statement recorded u/s 133A(3)(iii) though cannot be treated as independent evidence like evidence recorded u/s 132(4), has corroboratory value in assessment and statement recorded under the said provision can be even relied on by the assessee. In other words, the decision of this Court that the statement recorded under the above provision does not have evidentiary value, in our view, does not lay down the correct law. However, since counsel for the respondent-assessee does not rely on the above decision, we proceed to consider these cases on the merits without referring the matter for consideration to a Full Bench because by the operation of the latter part of the section, such statement has relevance for assessment and other proceeding under the Act.

This is a case where during survey the Department recovered certain account books, price list, etc. Statements were also recorded from the managing partner, from the manager of the hotel and also a supplier, all of whom have confirmed the Department''s stand that accounts written are not full and complete and do not reflect the actual receipts on sales. Therefore, best judgment assessment u/s 144 was the only course open to the Assessing Officer. In fact, in principle, even the first appellate authority who modified the assessment has not directed acceptance of books of account. All that he has done is to fix the gross profit at a uniform rate of 35 per cent. for all the years. In doing so he has relied on the fact that in subsequent assessments even in the assessee''s own case gross profit assessed is only up to 34 per cent. and in comparable cases gross profit adopted is not as high as the percentage estimated for the three years in the assessee''s case. We notice from the Tribunal''s first order that even though it was passed without hearing the assessee, the Tribunal has elaborately considered the documents produced and the statements recorded. However, the Tribunal was in fact considerate in refixing the gross profit from 40 per cent. to 50 per cent. for the three years. After going through the impugned order of the Tribunal issued after filing of the miscellaneous petition, we feel the Tribunal has based on the judgment of this Court not only rejected the statements as having no evidentiary value, but has not even considered the contents of the documents seized by the Department, the most important of which is the price list. When the contents of the documents seized are proved through corroboratory evidence of the managing partner, the manager and the sales boy, we see no reason to reject it. However, at this distance of time remand again to the lower authority will cause hardship to the assessee and also to the Department. For the sake of finality, we feel the gross profit estimated by the Tribunal in the first round at 40 per cent. for the year 1997-98 can be applied for all the years. Accordingly, we allow the appeals in part by vacating orders of the Tribunal and the Commissioner of Income Tax (Appeals) and by directing the Department to accept gross profit at 40 per cent. for all the years as fixed by the Tribunal in the first round of appeals. The Assessing Officer will revise the assessments accordingly.