Commissioner of Income Tax vs T. George and M. Syed Alavi

C.N. Ramachandran Nair, J.—The question involved in the connected appeals and reference case is one and the same. The appeals and reference case are therefore grouped together and disposed of by this common judgment. We have heard senior counsel appearing for the revenue and counsel appearing for the respondents-assessees.

The residential premises of one Sri T. George and Sri M. Syed Alavi, were searched by the department on 25-6-1987. During search, statements were recorded from these persons u/s 132(4) of the Income Tax Act. From the seized records it was found that these two persons were engaged in contract work for slaughter tapping and sale of rubber trees from two rubber estates namely, Vijaya Estate, and Mukkattumala Estate. The assessees did not co-operate in the assessments, which is clear from the findings recorded by the Assessing Officer. Assessments were made based on entries in the seized records and available evidence including statements recorded from the assessees. When Section 147 notice was issued for making income escaping assessment in the hands of AOP constituting T. George and M. Syed Alavi, both of them filed individual returns denying existence of AOP. Therefore separate assessments were made as protective measure in the hands of both the persons. Three appeals, ITA Nos. 9,10 and 13 of 2008 arise from the orders of the Tribunal pertaining to individual assessments of one of the members of the AOP by name M. Syed Alavi. The department does not appear to have pursued individual assessments against the other member of the AOP, namely, T. George. However, the appeal mainly pressed by the department before us is ITA No. 11 of 2002 pertaining to assessment of AOP completed u/s 147 of the Income Tax Act for the assessment year 1986-87. The income assessed at the hands of AOP is from two contracts of slaughter tapping undertaken for Vijaya and Mukkattumala Estates and income under both the contracts was assessed in the hands of AOP. Therefore, if ITA No. 11 of 2002 is allowed by this Court, then department cannot press ITA Nos. 9,10 and 13 of 2008 pertaining to individual assessment of one of the members of the AOP assessing the income from the very same contracts. Similarly IT Reference No. 87 of 2000 also cannot be pressed by the department wherein the only question involved is the validity of Section 263 proceedings in the case of assessment completed in the name of AOP for the assessment year 1987-88. We therefore proceed to consider the main case, that is, ITA No. 11 of 2002 pertaining to assessment of AOP for the assessment year 1986-87,

The basis for making income escaping assessment is the search carried out in the residential premises of two persons, namely T. George and M. Syed Alavi. Even though the Tribunal has not considered the documents seized on search containing entries pertaining to income and expenditure in contract work undertaken by respondents-assessees, the same is discussed in the order of assessment as well as in the first appellate order. We notice from the orders of the Assessing Officer and that of the CIT (Appeals) that when individual assessments were contested in first appeals, the assessees concerned reported that income should be assessed in the hands of AOP consisting of T. George and M. Syed Alavi. In fact statement was made before the CIT (Appeals) while contesting individual assessment of M. Syed Alavi that return was filed disclosing the income from the very same business in the hands of AOP. While considering appeal filed by the AOP against income escaping assessment for 1986-87, the CIT (Appeals) noticed that the assessees took a stand contrary to the representation made before the CIT (Appeals) while challenging individual assessment order. In other words, contrary to the statement made before the CIT (Appeals), based on which individual assessment was cancelled by the first appellate authority, the assessees had not offered the income for assessment in the hands of AOP. Therefore, the CIT (Appeals), decided the case on merits. The seized documents contained details of investments made in the slaughter tapping business, sale proceeds received for sale of rubber latex and rubber trees and the periodical payments made to the estate owner pursuant to the contracts undertaken for slaughter tapping. The case put forward by one of the AOP that is Mr. M. Syed Alavi that he was an employee of Mukkattumala Estate assisting the management for slaughter tapping stands discredited by reasoned order issued by the Assessing Officer and the first appellate authority. In fact the first appellate authority referred to the seized notices issued by the owner of the Estate against one of the members of the AOP prohibiting him from entering the Estate for default in payment of agreed instalments. Even after concrete documentary evidence was recovered by the department, which led to assessment of income from business of slaughter tapping undertaken by the assessees, the assessees denied the transactions by proving with orders of Agrl. Income Tax Tribunal that slaughter tapping was done by the owner of the Estate himself. It is to be noted that accounts seized from both members of AOP are mutually complementary inasmuch as both these documents prove investments in slaughter tapping and receipt on sale of rubber latex and timber. Besides this, both members of the AOP admitted before department that they had undertaken slaughter tapping of one Estate, namely, Vijaya Estate on 29-9-1985. In fact, while challenging individual assessments before CIT (Appeals), the assessees had admitted before the first appellate authority that slaughter tapping of Vijaya Estate was undertaken by them together as AOP. Above all, the authentic statutory documents issued by the sales tax department under the KGST Act, namely, delivery notes were used by the assessees to transport rubber to the purchasing company, namely, Supersonic Rubber Industrial unit, to which they sold the rubber received on slaughter tapping. The main point canvassed by respondents-assessees is that no agreement for slaughter tapping of Mukkattumala Estate is recovered during the course of search. Failure on the part of the department to recover written agreement does not affect the validity of assessment, because in this case accounts which are seized from both the assessees and complementary to each other conclusively establish the slaughter tapping done by the assessees together in Mukkattumala Estate, whereunder they have made periodical payments to the estate owner and default is reflected in the notice issued to them which is also seized by the department. On the whole, we find that the case of slaughter of tapping by the assessees is established beyond any doubt. Even though Tribunal has held that there is nothing to indicate the intention of the members of AOP to carry on the business together, the accounts seized from the assessees prove beyond doubt that both undertook business together, carried on the business together, and shared the profit. Status of AOP need not be proved through an agreement. Moreover, since in this case, business carried on by members together is proved through accounts recovered on search the assessment of assessees in that status is perfectly justified. We find the Tribunal has allowed the appeal on two grounds, that is for want of proof of AOP which is established by the department from the seized records and therefore we have to reverse the order of the Tribunal on this issue. The next ground on which the Tribunal allowed the appeal is that writ ten agreement for slaughter tapping of Mukkattumala Estate is not recovered by the department.

However, it is already found by us that the department has established from the entries in the seized records beyond doubt that slaughter tapping was undertaken and carried on by the assessees together. So far as the validity of income escaping assessment u/s 147 is concerned, the issue is not seen raised by the assessees before the first appellate authority. We fail to understand the basis on which the Tribunal set aside the income escaping assessment. In any case, income escaping assessment is made on the basis of documents seized in the course of search and its validity is beyond challenge. We are surprised to note that the Tribunal has disposed of the appeal without considering the details recorded and the findings on facts by the first appellate authority based on seized records in his order.

In view of the above findings, we reverse the order of the Tribunal and restore the assessment confirmed in first appeal. Accordingly ITA No. 11 of 2002 is allowed.

In the light of the above order, we do not think the question raised in ITR 87 of 2000 requires to be answered. We therefore dispose of the reference by declining to answer the question. Similarly, in view of the above decision in ITA No. 11 of 2002, ITA Nos. 9, 10 and 13 of 2008 are also dismissed as infructuous.