assessee is eligible for set off of intangible additions made in the past on acc

[pawansingla]

2011-TIOL-247-HC-KOL-IT

IN THE HIGH COURT AT CALCUTTA

ITA No.319 of 2003

BALARAM SAHA

Vs

COMMISSIONER OF INCOME-TAX, KOLKATA-IV

Bhaskar Bhattacharya and Sambuddha Chakrabarti, JJ

Dated : April 19, 2011

Appellant Rep. by : Mr. R Bharaddwaj
Respondent Rep. by : Mr. Prabir Kumar Bhowmick

Income Tax - Sections 131, 133A, 148 - Whether assessee is eligible for set off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey.

A survey u/s 133A was conducted on the business premises of the assessee and some books of accounts and documents were impounded u/s 131(3). The assessment for the A.Y 1995-96 was reopened u/s 148, and after scrutinizing the impounded books, the AO found that there was suppression of sales to the tune of Rs.27,36,906/-. The AO applied the gross profit ratio of 5.25% thereon and made an intangible addition amounting to Rs.1,43,688/-. The CIT (A) and the Tribunal confirmed the addition.

Similarly, in respect of the A.Y 1996-97, the AO made estimated addition on account of gross profit to the tune of Rs.8,19,704/- and the appellate authority reduced the gross profit addition of Rs.8,19,704/- made by the AO to Rs.2,84,699/- thereby giving relief of Rs.5,35,005/-. In respect of the A.Y in question, the AO found the total suppressed sales at Rs.1,23,98,705/- and applied the gross profit ratio of 7% thereby making an addition of Rs.8,67,910/- as estimated gross profit on suppressed sales. The CIT(A) reduced the addition on suppressed sales from Rs.8,67,910/- to Rs.7,77,400/- and allowed the set-off of the same against the unexplained investment in stock. The Tribunal dismissed the appeal.

Appeal was filed in the High Court where Assessee Counsel raised a pure question of law regarding non-consideration of set-off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey and contended that neither the appellate authority nor the Tribunal considered the question of set-off for those periods. Revenue Counsel contended that both the Tribunal below and the CIT(A) rightly turned down the claim of the assessee as in respect of reassessment in the years 1995-96 and 1996-97, the assessee has accepted such reassessment. Therefore, the same cannot be reopened.

Having heard the parties the High Court held that,

++ undisputedly in the previous two A.Y's, there was reassessment and the undisclosed income of the assessee was disclosed and the assessee made payment of tax on those undisclosed incomes. There is substance in the contention of assessee. While considering the assessment for the year 1997-98, it was the duty of the AO to consider the question of set-off on account of intangible additions made in the past against unexplained income of the assessee over which he paid tax. It appears that the Tribunal did not consider the aforesaid aspect of the matter at all;

++ the order passed by the Tribunal set aside and the AO directed to give effect to the principle of set-off on account of intangible additions after considering the final reassessment of the previous two A.Y. The assessee has paid tax on the undisclosed income detected by way of survey for those two A.Y, while considering the assessment of the subsequent A.Y, the AO should consider the question of set-off of the amount which has been legalized by payment of tax.

Assessee's Appeal allowed

JUDGEMENT

Per: Bhaskar Bhattacharya:

This appeal under Section 260A of the Income-tax Act, 1961 is at the instance of an assessee and is directed against an order dated July 21, 2003 passed by the Income-tax Appellate Tribunal, "D" Bench, Kolkata, in Income-tax Appeal No.132/Calcutta/2001 relating to the Assessment Year 1997-98 thereby confirming the order passed by the Commissioner of Income-tax (Appeals).

Being dissatisfied, the assessee has come up with the present appeal.

A Division Bench of this Court, at the time of admission of this appeal, formulated the following substantial questions of law:

"a) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in not obtaining the set off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey.

"b) Whether on the facts and in the circumstances of the case the Learned Tribunal was justified in law in holding that there is no infirmity in the offer of the CIT(A) in confirming the discrepancy accounted for through disclosure of unaccounted stock as well as unaccounted sales on the ground that the calculation of stock as well as sales pertaining to the assessment year 1997-1998 has been worked out in details."

The facts giving rise to filing of this appeal may be summed up thus:

a) A survey under Section 133A was conducted in the business premises of the assessee on January 09, 1997 and some books of accounts and documents were impounded under Section 131(3) of the Act. The assessment for the Assessment Year 1995-96 was reopened under Section 148 of the Act and after scrutinizing the impounded books, the Assessing Officer found that there was suppression of sales to the tune of Rs.27,36,906/-. The Assessing Officer applied the gross profit ratio of 5.25% thereon and made an intangible addition amounting to Rs.1,43,688/-.

b) Being dissatisfied with the said order of the assessment, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) objecting to the addition of Rs.1,43,688/- made by the Assessing Officer as gross profit ratio. The Commissioner of Income-tax (Appeals), however, confirmed the said order of addition.

c) Being dissatisfied, the assessee preferred an appeal before the Income-tax Appellate Tribunal and the said Tribunal has dismissed the appeal of confirming the order of the Commissioner of Incometax (Appeals).

d) Similarly, in respect of the Assessment Year 1996-97, the Assessing Officer made estimated addition on account of gross profit to the tune of Rs.8,19,704/- and on an appeal being preferred, the appellate authority reduced the gross profit addition of Rs.8,19,704/- made by the Assessing Officer to Rs.2,84,699/- thereby giving relief of Rs.5,35,005/-.

e) In respect of the Assessment Year in question, i.e. the Assessment Year 1997-98, the Assessing Officer found the total suppressed sales at Rs.1,23,98,705/- and applied the gross profit ratio of 7% thereby making an addition of Rs.8,67,910/- as estimated gross profit on suppressed sales.

f) Being dissatisfied, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the Commissioner of Income-tax (Appeals) reduced the addition on suppressed sales from Rs.8,67,910/- to Rs.7,77,400/- and allowed the set-off of the same against the unexplained investment in stock.

g) Being aggrieved by the said order of the Commissioner of Income-tax (Appeals) for not allowing the full set-off of the G.P. additions on suppressed sales sustained in the Assessment Years 1995-96 and 1996-97 amounting to Rs.1,43,688/- and Rs.2,84,699/- respectively, against the unaccounted stock disclosed or found, the assessee preferred an appeal before the Income-tax Appellate Tribunal and by the order impugned herein, the said Tribunal dismissed the appeal.

h) Being dissatisfied, the assessee has come up with the present appeal.

Mr. Bharaddwaj, the learned Advocate appearing on behalf of the appellant, has taken a pure question of law regarding non-consideration of set-off of intangible additions made in the past on account of suppressed sales with the excess stock detected at the time of survey. According to Mr. Bharaddwaj, in this case, for the survey in the office of the assessee, there being reopening of the assessment for the previous Assessment Years 1995-96 and 1996-97 and the Assessing Officer having imposed tax and penalty for the alleged undisclosed income, those undisclosed incomes became lawful property of the assessee in view of payment of tax and as such, it was the duty of the Assessing Officer and the authorities below to allow deduction of the amount on account of intangible additions made in the past against unexplained cash of the assessee. Mr. Bharaddwaj contends that neither the appellate authority nor the Tribunal below considered the question of set-off for those periods. According to Mr. Bharaddwaj once the secret profit had been assessed to tax in respect of two previous Assessment Years, it would be open to his client to bring those profits into the books and distribute them, or what remained after the payment of tax subject to the provision of the Act. Mr. Bharaddwaj contends that having assessed the assessee on a large sum as its undisclosed income, it could not in the same breath be said that those profits did not, in fact, exist because they did not appear from the assessee's books of account. Mr. Bharaddwaj contends that there is no escape from the proposition that the secret profit or undisclosed income of the assessee earned in an earlier Assessment Year may constitute a fund and even though concealed, from the said amount, the assessee may draw subsequently for meeting expenditure or introducing amounts in his account books.

Mr. Bhowmick, the learned counsel appearing on behalf of the Revenue, has, on the other hand, opposed the aforesaid contention of Mr. Bharaddwaj and has contended that both the Tribunal below and the Commissioner of Income-tax (Appeals) rightly turned down the claim of the assessee as in respect of reassessment in the years 1995-96 and 1996-97, the assessee has accepted such reassessment. Therefore, the same cannot be reopened.

After hearing the learned counsel for the parties and after going through the materials on record, we find that undisputedly in the previous two Assessment Years, viz. 1995-96 and 1996-97, there was reassessment and the undisclosed income of the assessee was disclosed and the assessee made payment of tax on those undisclosed incomes. Once such fact is established and is not in dispute, we find substance in the contention of Mr. Bharaddwaj, the learned Advocate appearing on behalf of the assessee, that while considering the assessment for the year 1997-98, it was the duty of the Assessing Officer to consider the question of set-off on account of intangible additions made in the past against unexplained income of the assessee over which he paid tax. It appears that the Tribunal did not consider the aforesaid aspect of the matter at all.

In such view of the matter, we set aside the order passed by the Tribunal and direct the Assessing Officer to give effect to the principle of set-off on account of intangible additions after considering the final reassessment of the previous two Assessment Years, viz. 1995-96 and 1996-97. If it appears that the assessee has paid tax on the undisclosed income detected by way of survey for those two Assessment Years, while considering the assessment of the subsequent Assessment Year, viz. 1997-98, the Assessing Officer should consider the question of set-off of the amount which has been legalized by payment of tax.

We, thus, allow the appeal and set aside the order of the Tribunal and pass the aforesaid direction to the Assessing Officer.

We, thus, answer both the formulated questions in the negative against the Revenue and in favour of the assessee.

In the facts and circumstances, there will be, however, no order as to costs.