Vildirect: IncomeTax-caselaws-1996-VIL-19-KER-DT

1996-VIL-19-KER-DT

Equivalent Citation: [1997] 228 ITR 664, 142 CTR 1

KERALA HIGH COURT

Date: 25.10.1996

COMMISSIONER OF INCOME-TAX

G. ANANDARAJAN

BENCH

Judge(s) : K. NARAYANA KURUP., V. V. KAMAT

JUDGMENT

The judgment of the court was delivered by

V. V. KAMAT J.---For the assessment year 1981-82 with reference to the accounting year ending on April 1, 1980 (sic), both the Income-tax Officer as well as the first appellate authority acting under section 69 of the Income-tax Act, 1961, added an amount of Rs. 1,72,761 and taxed the assessee accordingly, However, the Income-tax Appellate Tribunal deleted the said addition requiring the Revenue to approach us to expect answers to the following questions :

" 1. Whether, on the facts and in the circumstances of the case and also in the light of the facts repeated in the enclosures to the reference application the Tribunal is justified in deleting the addition of Rs. 1,72,761 ?

2. Whether, on the facts and in the circumstances of the case and in the light of the facts repeated in the enclosure the example given by Tribunal is correct and is not the reliance on the example misplaced and the deletion based on a wrong understanding of facts, amounts and accountancy ? "

The factual matrix is very plain and requires only common sense to understand the situation which has been rightly appreciated by the Income-tax Officer as well as the first appellate authority.

As stated above, the accounting year commenced on April 1, 1980. The opening balance was shown as Rs. 18,962 with regard to the two shops of the assessee who is a wholesale dealer in liquor. When this was the position it was seen that on April 5, 1980, the assessee had sold liquor to the tune of Rs. 2,00,361. Obviously, if this was so, those required explanation in regard to the amount from which the sales were realised in view of the day light position that for selling one must lawfully purchase and if one lawfully purchases there has to be an account to explain properly the transaction of sale to the tune of Rs. 2,00,361.

The Income-tax Officer acted under section 143(3) of the Income-tax Act, 1961. He has pinpointed the situation in the following manner :

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Foreign liquor Foreign liquor Total

wholesale shop wholesale shop

Thampanoor East Fort

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(Rs.) (Rs.) (Rs.)

Liquor actually sold from 1,16,032 84,329 2,00,361

1-4-1980 to 5-4-1980

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It would be seen that this could not have been possible because the first purchase of liquor during the year in question reached Trivandrum not on April 5, 1980, but on the next day on April 6, 1980. This is evident from the perusal of annexures (1) and (2) to the assessment order, specifying the seal and initials of the sales tax check post at Perumanoor and Aroor.

In view of this situation, the Income-tax Officer held it to be beyond doubt that the assessee had sold liquor in excess of the quantity available with him as per the books of account and records.

Even then the Income-tax Officer took into account the opening stock of Rs. 18,962 and reached the figure of Rs. 1,81,399 required to be explained. Even thereafter the Income-tax Officer deducted profit at the rate of 5 per cent. and called upon the assessee to explain in regard to Rs. 1,72,761 as is necessary under the provisions of section 69 of the Income-tax Act on the basis of inevitable inference that the amount would have to be understood as concealed income.

The Commissioner of Income-tax (Appeals), Trivandrum, also confirmed this conclusion. He has taken into consideration that the assessee runs two wholesale liquor shops in Trivandrum and one in Ernakulam. At both these places, the appellate authority recorded that the opening stock was Rs. 9,100 and Rs. 9,862. It is also emphasised thereafter that no purchases were made for the year before April 6, 1980. In spite of this situation, the accounted sales for the first five days of the year came to Rs. 2,00,361 and the particulars in regard thereto have been specified by the appellate authority in its order. The first appellate authority also considered the material on record noting that the officer had already deducted the amount of opening stock and also profit at the rate of 5 per cent. to determine the amount to be explained at Rs. 1,72,761. It is also emphasised that from the material on record in the nature of annexure to the Income-tax Officer's order it was found that there are check post initials made on April 5, 1980, and April 6, 1980, to confirm the conclusion that the stocks were received only on April 6, 1980. A conclusion is recorded that the assessee did not receive any stock before April 6, 1980. This conclusion is, as a result of the examination of the required procedure, as sales are controlled under the provisions of the Abkari Act. The inevitable conclusion is reached that obviously such stocks should have been received only in a manner not revealed by the books. In the process of reasoning, the first appellate authority confirmed the conclusion by a detailed and satisfactory discussion in regard thereto in paragraphs 3 and 4 of the order.

The Income-tax Appellate Tribunal did not agree with the said conclusions. In fact, the situation is of a natural by-product of common sense reasoning.

Even a bare perusal of the statutory requirements of section 69 of the Income-tax Act, 1961, would be more than sufficient in the context. If the assessee is required to maintain books of account showing transactions of income and sales and if in a financial year it is found that there is no record in the books of account with reference to any transaction which could be a source of income and in regard thereto the assessee is not in a position to offer any explanation, about the nature and source of investment, it then follows that the value of the investment is to be deemed to be the income of the assessee with reference to the financial year in question. In other words, with reference to the factual matrix, if the books of account reveal sales and in regard thereto there is no material of a corresponding nature that the assessee could purchase the commodity for the purpose of offering for sale, the situation becomes an invitation for the assessee to explain and as to how and from what source he had the amount if the commodity with regard to its purchase before it is offered for sale. Naturally, in the absence of an explanation, the deeming provision of section 69 would come into effect whereby the officer would be justified to understand the situation corresponding to the amount of sale to take it as the amount of income not explained by the concerned assessee.

The factual matrix makes it abundantly clear. It will have to be observed that even the Tribunal has accepted the situation and has observed that where no purchases are shown in the accounts, the entire sale proceeds would be shown as income. It is then the Tribunal proceeds to observe that how this income consists of purchase consideration which was not disclosed plus the profit. The Tribunal further observes that when the assessee is offering the entire sale proceeds as income, the amount invested in the purchase of goods get automatically taxed as income. It is difficult to accept the reasoning because it is obvious from the factual matrix that the assessee has not shown the entire sale proceeds as income as is floating on the surface of the record of account books. What is clear is that there are sales during the period from April 1, 1980, to April 5, 1980, without there being a stock sufficient enough for purchasing the quantity which is admittedly sold. The situation gets more than affixed when there is material that the first consignment was received thereafter on the next day on April 6, 1980. It is not possible to accept the reasoning of the Tribunal that when the amount is invested in the purchase of goods it gets automatically taxed as income. It is obvious that unless there is income there cannot be any expenditure and because there is expenditure it cannot be presumed that the income gets taxed. In our judgment, the reasoning of the Tribunal is an error of law and is unsustainable on any count.

For the above reasons, we answer question No. 1 in the negative, in favour of the Revenue and against the assessee. In view of our answer to question No. 1, it is unnecessary to record any answer for question No. 2 and we decline to do so.

A copy of the judgment under the seal of this court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.

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