KERALA LIQUOR CORPORATION VS COMMISSIONER OF INCOME-TAX
1998 P T D 2784
[222 I T R 333]
[Kerala High Court (India)]
Before V. V. Kamat and G. Sivarajan, JJ
KERALA LIQUOR CORPORATION
Versus
COMMISSIONER OF INCOME-TAX
Income-tax References Nos.93, 94 and 95 of 1991 and Original. Petitions Nos. 3558 and 12726 of 1992-S, decided on 04/03/1996.
Income-tax---
----Firm---Registration---Genuineness of firm---Search of premises of managing partner---Seizure of documents showing concealment of income by firm and division of profits among persons who were not partners---Tribunal justified in holding that concealed amounts belonged to firm and in canceling its registration---Income Tax Act, 1961, Ss. 132, 185 & 186.
The assessee filed returns for 1978-79 showing an income of Rs.49,370 and for 1979-80, a loss of Rs.6,24,030. In May, 1983, the premises of the then managing partner of the assessee, B, were searched under the provisions of section 132 of the Income Tax Act, 1961, and during the search a copy purporting to be the profit and loss account for the two years was found. As it was found that there were several discrepancies in the accounts submitted to the Revenue, reassessment proceedings were taken and penalty proceedings were also taken. It was also found that the profits had been divided among persons who were not partners. The assessing authority, the Appellate Authority and the Tribunal considered the question on the basis of five blatant circumstances, which were that: (1) B was the then managing partner of the assessee-firm alongwith other partners. (2) The documents were seized in pursuance of action under section 132 of the Act from his place of residence. (3) The documents showed as many as 19 items of identities as compared with the profit and loss account filed alongwith the return. (4) None of the partners participated in pursuance of the action taken by the Income-tax Officer. (5) As far as B, the then managing partner, was concerned, the material on record did not show any step taken by him immediately after the search, and even in pursuance of the proposal initiated by the Income-tax Officer, there was no participation in regard thereto. The Tribunal cancelled the registration of the firm. On a reference:
Held, that the provisions of section 132(4-A) of the Act spelt out the presumption that the documents belonged to the person from whom they are seized and that their contents are true. In addition, it must be stated that these aspects were not denied. The facts were very clear and did not require the aid of any presumption. The Tribunal was right in law in holding that there was no genuine firm in existence during the relevant previous year as registered in terms of the earlier order granting registration and that the registration already granted was liable to be cancelled under section 186 of the Income Tax Act.
Pushkar Narain Saraf v. CIT (1990) 183 ITR 388 (All.) ref.
P.G.K. Warrier for the Assessee.
P.K.R. Menon for the Commissioner.
JUDGMENT
V.V. KAMAT, J.---The assessment years relating to these proceedings would be 1978-79, 1979-80 and 1980-81. To illustrate further Income-tax References Nos.93 and 94 of 1991 relate to the year 1978-79, whereas Original Petition No.3558 of 1992 and Income-tax Reference No.95 of 1991 relate to the assessment year 1979-80 and as distinguished it as Original Petition No. 12726 of 1992 that relates to the assessment year 1980 81. The following three questions would be the concern of these proceedings and they are as follows:
"Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that there was no genuine firm in existence during the relevant previous year as registered in terms of the earlier, order granting registration and that the registration already granted is liable to be cancelled under section 186 of the Income Tax Act, 1961?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in coming to the conclusion that the profit and loss account belongs to the assessee's firm and that the cancellation of the registration and estimated income solely based on the said profit and loss account is justified?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in coming to the conclusion that the profit and loss account seized from the premises of Bhaskaran relates to the assessee's firm?"
However, it would appear from the statement of case that question Nos.2 and 3, it is considered by the assessee, would not arise with regard to the assessment year 1978-79. In other words, as far as Income-tax References Nos.93 and 94 of 1991 only question No. l would be required to be considered.
It would also be necessary to state that the Income-tax Appellate Tribunal, Cochin Bench, also has referred accordingly only question No. l out of the above three questions. However, the other two questions would be the subject-matter of Original Petitions Nos. 3558 of 1992 and 12726 of 1992, whereby with regard to the said questions, there is a prayer for a direction, and as this judgment would decide all these proceedings, all the three questions are reproduced at the outset. The three questions relate to the factual matrix which would be in a very narrow compass.
It is already stated that the references relate to the two years 1978-79 and 1979-80. The question came up for consideration initially before the Income-tax Officer and is separately decided by separate orders (Annexures "A" and "B", respectively)
The assessee, Kerala Liquor Corporation, has filed a return on July 31, 1978, for the assessment year to question (1978-79, ending on March 31, 1978). Rupees 49,370 was declared as the income from the arrack business on the basis of the profit and loss account, a copy of which was annexed to the return. This assessment was completed by the Department on June 23, 1981, and in regard thereto the total income of Rs.2,87,870 was assessed and in regard threto a sum of Rs.2,38,500 was the sum found suppressed from the sale of arrack. This decision with regard to the completion of assessment got modified before the first appellate authority (the Commissioner of Income-tax (Appeals)) and the addition was sustained at Rs.1,50,000. This was further reduced before the Appellate Tribunal in second appeal at Rs.75,000.
At the other end during this time on May 27, 1983, the premises of the then managing partner of the assessee, one Sri K. Bhaskaran were searched under the provisions of section 132 of the Income Tax Act and during the search a copy question to be the profit and loss account with regard to the year in question ending on March 31,1978, was seized, showing Rs.1,74,319 as the income and not Rs.49,370 as shown in the return filed as stated above.
It was on the basis of the documents seized in pursuance of the search of the premises of the then managing partner, a notice under the provisions of section 148 of the Income Tax Act, 1961, came to be issued with the prior sanction of the Commissioner of Income-tax placing on record the charge of concealment of income as per the provisions of section 147(a) of the Act. It is necessary to state that the assessee-partnership firm had nine partners. However, in pursuance of the notice under section 148 only one of them Sri P.K. Sanjeev filed a return showing the same A shown in the original return.
It was, thereafter, a proposal dated August 7, 1987, was issued to the remaining partners, by way of an opportunity as they did not respond to the notice under section 148. To this notice also none replied.
Sri Venugopala Menon, chartered accountant, represented the firm and communicated by the letter, dated August 13, 1987, reiterating that the accounts maintained and submitted for and on behalf of the assessee-firm are the correct ones and it was further contended that the seized documents purported to be the profit and loss accounts are not signed by any one and might have been prepared for some personal purpose of the late Sri Bhaskaran.
With regard to the year in question, the Income-tax Officer found identity of figures seen from the seized documents as compared with the profit and loss account filed by the assessee. The Income-tax Officer with regard to the year in question found 11 items showing identical figures in regard thereto which would be available in the following Table in the order of the Income tax Officer.
| Particulars | Figures as per profits and loss account filed by the assessee | Figures as per the seized profit and loss account |
| | Rs. | Rs. |
| 1. Kist amount | 26,26,000 | 26,26,000 |
| 2. Newspaper charges | 1,307 | 1,307 |
| 3. Current charges | 4,157 | 4,157 |
| 4. Value of cork | 1,42,127 | 1,42,127 |
| 5. Salary paid | 2,05,020 | 2,05,020 |
| 6. Interest paid | 53,063 | 53.063 |
| 7. Cooly paid | 16,180 | 16,180 |
| 8. Value of empty bottles | 31,565 | 31,565 |
| 9. Capital of A.K. Paulose | 1,00,000 | 1,00,000 |
| 10. Kist arrears | 8,29,177 | 8,29,177 |
| 11. Value of jeeps | 1,31,500 | 1,31,500 |
It would be convenient at this stage to refer to the second order with regard to the subsequent assessment year 1979-80 in regard to which the items of identical figures are 19 and they are as follows:
1. Kist
2. Newspaper charges
3. Stationery charges
4. Bata paid
5. Current charges
6. Licence fees paid
7. Interest paid
8. Vattachilavu
9. Telephone
10. Gunny bags
11. Bonus paid
12. Bank charges
13. Profession tax
14. Accounting charges
15. Taxes paid
16. Depreciation claimed on vehicles
17. Depreciation on Machinery
18. Kist arrears
19. Capital of the firm
Additionally, the Income-tax Officer found some items absent in the original profit and loss account to have been included for the purpose of account in the seized document. The first such item showed that no claim for excise vattachilavu was made in the profit and loss account filed to the extent of Rs.50,054. The difference was also found in the real sale price of arrack, to the extent of Rs.3 lakhs approximately and in particular, the real sale price as per the seized document is found to be Rs.45,25,536 as against Rs.42,13,500 in the accounts filed, There is yet a third aspect which was noticed in regard thereto. In the accounts filed an amount of Rs.54,058 towards calculated interest on the Kist security deposit of Rs.9,09,800 was not included. It is on the basis of the able aspects that the Income-tax Officer, finding that the assessee, including all partners thereof, did not file returns of income in response to the notice issued under section 147 of the Act requiring issuance of the proposal, dated September 16, 1987, recorded that there was no response to this further step also. Therefore, the Incometax Officer with regard to the year 1978-79 by the order (Annexure "A") made a demand for Rs.1,49,102. In the same process by the order (Annexure "B") with regard to the subsequent assessment year 1979-80, the demand is for Rs.2,71,900. Needless to state that the Income-tax Officer initiated penalty action under section 271(1)(c) and section 273(1)(a) which were already initiated.
Thus, up to this stage, it would be clear that there was no participation in pursuance of the proceedings of notice under section 148 of the Act and proceedings thereafter under section 147(a) of the said Act. It is already stated that after the search of May 27, 1983, there was no attempt to participate in the consequential proceedings and what is found is a representation on behalf of the firm to contend' by way of reiteration that the accounts already filed alongwith the returns are correct ones and the document seized does not appear to have been signed by anybody and a further contention that the statement might have been prepared for some personal purpose of the late Sri Bhaskaran, the managing partner of the assessee-firm.
A further travel of the proceedings before the first appellate authority is available in regard thereto in the two orders (Annexures "C" and "D" respectively). The appellate authority has specified that there were nine partners of the firm. The search was not only of the residential premises but also of the business premises of the then managing partner, Sri K. Bhaskaran, and from the documents seized as a result it was revealed that the profits of the firm were divided among the four partners only as against the legitimate share of the nine partners of the firm. It is also emphasised with reference to Form No.ll-A pinpointed by the Income-tax Officer revealed that the partners were different from those registered as such before the Department, leading the Income-tax Officer to the conclusion that the firm registered with the Department was not a genuine one. The appellate authority has also referred to the contentions taken up. It is stated in regard thereto that the seized documents were not the real papers on the basis of which the conclusions should be drawn because the papers might have been prepared by the late Sri K. Bhaskaran for certain other purposes. It was also contended that the papers not being signed by anyone could not be relied upon for inference in regard thereto. The appellate authority also considered the situation on its own and in regard thereto it is emphasised that the fact that the papers were seized from the residential premises of Sri Bhaskaran, the then managing partner, shown to be the partner of the firm is not denied in any manner. It is also emphasised thereafter that the purported profit and loss account seized from the residential premises of the late Sri Bhaskaran as compared with the profit and loss account filed alongwith the return revealed difference when referred to the particulars of the registration available from Form No.ll-A. The appellate authority has recorded confirming the conclusion that several aspects showing relationship would reveal that the seized documents belonged to the profit and loss account of the assessee firm. As a result thereof, since the benefits of registration can be granted only on fulfillment of certain conditions, even the cancellation of registration under section 186 was consequently confirmed. The order (Annexure "D") with regard to the subsequent year is a replica. The paper book contains orders under section 186 of the Act canceling the registration as a matter of consequence of the conclusions reached earlier.
The matter arrived at the second appellate stage before the Income tax Appellate Tribunal, Cochin Bench. The Tribunal has considered the aspect in paragraph 3.6 of its order and dealt with the contention of the assessee that the Department was not justified to take into cognizance the profit and loss ~ account seized from the premises of Sri Bhaskaran. It is observed that Sri Bhaskaran was the managing partner of the assessee-firm at the time in question and it was during the course of the search that the documents exhibiting the characteristics of profit and loss account and balance-sheet were taken charge of. The Tribunal also likewise observed 19 aspects of identities referred to in the earlier part of this judgment and on the basis a reinforcing conclusion is recorded that it becomes obvious that the profit and loss account seized from the premises of Sri Bhaskaran who was then the managing partner of the assessee would have to be understood as belonging to the assessee-firm. The Tribunal emphasised that identities with regard to 19 items could not be understood as sheer coincidence. The Tribunal also observed that the assessee has given any justification as to why the seized profit and loss account should not be taken to be in respect of his business activity. The Tribunal endorsed the view of the first two authorities discussed above.
In addition thereto, the Tribunal has also considered the items in regard to which there was no claim in the profit and loss account filed to observe that the said item such as excise vattachilavu and vattachilavu when details relating to Rs.59,744 and Rs.50,900 are not verifiable. In regard thereto, on the merits one-fourth of the above items was allowed by the Tribunal as being in the course of the normal carrying on of the business.
With regard to the distribution of the share in the profits, the Tribunal has observed that factually the profit was found to have been distributed amongst the four partners named below in the following manner:
| 1. A.K. Paulose | 1/8th |
| 2. P.K. Sanjeev & Sons | 1/4th |
| 3. Bhaskaran & Co. | 2/7th of 5/8th |
| 4. Friends liquors | 5/7th of 5/8th. |
In regard thereto the Tribunal found that the partners who got share in the profit distributed as per the document seized were different from the partners mentioned therein. In the process of reasoning, the Tribunal justified the action under section 186(1) of the Act regarding cancellation of registration.
As stated above with regard to the assessment year 1980-81 (the subject-matter of Original Petition No., 12726 of 1992) the return was filed on October 21, 1980, showing a net loss of Rs.6,24,030 in regard to which the assessment was completed on March 21, 1983, against which there was no appeal whatsoever.
In the same search, dated May 27, 1983, referred to above, there was a document purporting to be a profit and loss account pertaining to the accounting year ending on March 31, 1980--the subject matter of this petition. The situation is also similar to the extent that in pursuance of the notice under section 142(1) of the Act, dated July 5, 1988, the assessee filed the return in the original form reiterating a total loss of Rs.6,24,030. The Income-tax Officer relying on the document seized arrived at the ascertainment of the total income to Rs.4,15,880. This order was upheld by the first appellate authority--the Commissioner of Income-tax (Appeals) as well as by the second appellate authority--the Income-tax Appellate Tribunal.
The petitioner's application under section 256(1) of the Income Tax Act, 1961, praying for reference of only two questions (Questions Nos.2 and 3) spelt out at the outset of this judgment which was rejected by the impugned order in the said petition annexed at Annexure "E".
Hearing learned counsel in all these proceedings, it will have to be clearly seen that the answers to the questions would depend on the answer to the basic question. The basic question is whether the profit and loss account filed by the assessee alongwith his return could be said to be genuine and acceptable leading to the resulting situation as to whether the firm registered with the Department would have to be considered as genuine or otherwise. The answer to the questions again in turn would depend on the examination of the conclusions reached by the three authorities in regard thereto. It is for this reason that the reasoning has been elaborately discussed and placed on the fabric of this judgment. The staring feature is that the documents with regard to the years of assessment in question are found in pursuance of a search under section 132 of the Act. What is revealed from the documents seized in the above circumstances and the several factors of identities, which are also specified in detail hereinbefore. Another aspect which is staring in the face of the record is that those who are concerned did not participate not only in response to the notices and actions taken as a result thereof, but also on their own. The three authorities have considered the question on the basis broadly of five staring circumstances in regard thereto. They are:
(1)Sri K. Bhaskaran was the then managing partner of the assessee-firm alongwith other partners.
(2)The documents were seized in pursuance of action under section 132 of the Act from his place of residence.
(3)The document showed as many as 19 items of identities as compared with the profit and loss account alongwith the return.
(4)None of the partners participated in pursuance of the actions taken by the Income-tax Officer.
(5)As far as Sri K. Bhaskaran, the then managing partner is concerned, the material on record does not show any step taken by him immediately after the search, and even in pursuance of the proposal initiated by the Income-tax Officer, there was no participation in regard thereto.
Apart from the presence of these factors on record, it will also have to be seen that what was contended before the lower fact-finding authorities was that documents might have been prepared by Sri Bhaskaran for some other purpose. It must be stated that not only that as to what the said purpose could have been has not been even whispered remotely. The answer was not available and any speculation in regard thereto would be an exercise in futility. It is necessary to record that with 19 identities, the least that can be stated is that the three fact-finding authorities could not be blamed to have committed any error in regard thereto.
Learned counsel took us through the provisions of section 132 of the Income Tax Act, 1961, more specifically to two subsections (4) and (4-A) thereof. Referring to the provisions of section 132(4) of the Act , learned counsel submitted with all the strength at his command that when any person is found in possession of documents, the authorised officer has to examine such person to make use of such statement in subsequent proceedings based thereupon. Learned counsel submitted that the word "may" will have to be understood in the context of the provision itself which is in the nature of an invasion of the normal situation that the house arid the place is the castle of the man. Learned counsel sought an aid to the above submission by referring to the provisions of section 278-D of the Act relating to the importance of the proceedings under section 122 of the Act. It was urged by learned counsel that section 132(4-A) speaks of the consequences of the finding of the documents on seizure in possession and control of the person raising presumption at once, that the documents belonged to such person who has control over the premises and that the contents of the documents are true, and learned counsel contended that this floats on the surface of the provisions of section 132(4-A) of the Act by reason of the two clauses which are necessary for discussion in the context. Learned counsel urges that the importance of section 132(4) of the Act has to be appreciated and in regard thereto tote provisions of section 278-D of the Act would be of much help in the process.
Learned counsel referring to the said provision of section 278-D contends that the provisions of subsection (4-A) of section 132 applied in a mandatory way in the course of the prosecution in relation to such documents.
Firstly, in our judgment, the question does not arise for consideration because on the reasoning of the three Courts below, the circumstances that are spelt out hereinbefore, the facts speak for themselves and do not require the aid of any help to raise presumption as such although it arises out of the statutory provision. As stated above, the finding of the documents has no challenge whatsoever from anyone. The finding from the residential premises of the then managing partner has also no dent whatsoever. The 19 aspects of identity float on the surface of the record to show the consequences on the basis of circumstances spelt out as a result thereof. Even without the aid of the provisions of section 132(4) and (4-A) of the Act, the situation is of immediate and inevitable inferences, and if need be, the provisions of section 132(4-A) of the Act spelt out the presumption that the documents belonged to the person from whom they are seized and that their contents are true. In addition it must be stated that these aspects are not even denied. It is for the above reasons it becomes more than difficult for us to consider the submissions sought to be tendered in the context. It is for the above reasons also, reliance on the decision of the Allahabad High Court in Pushkar Narain Surraf v. CIT (1990) 183 ITR 388 by learned counsel for the assessee would not have any decisive impact. The assessee therein did not file any return for the assessment years in question and this resulted in the raiding of his premises and seizure of documents for the years 1968 to 1976. This resulted in the initiation of action under section 68 of the Income Tax Act. It is well-known that the provisions of section 68 of the Act create situation independently by itself whereunder the assessee has to establish on his own whereas presumption under section 132(4-a) applies only to the proceedings of the search and the seizure. Going through the judgment it would have to be stated that it would be of no help to the assessee having regard to the peculiarities circumscribed by concurrent findings specified hereinbefore.
For the above reasons the two original petitions (Original Petitions Nos.3558 and 12726 of 1992) would stand dismissed. As far as Income-tax References Nos.93 to 95 of 1991 are concerned, the question will have to be answered in the affirmative, i.e., against the assessee and in favour of the Revenue. Ordered accordingly.
A copy of this judgment under the seal of the Court and the signature of the Registrar shall be forwarded to the Income-tax Appellate Tribunal, Cochin Bench, as required by law.
M.B.A./1549/FCOrder accordingly.