Commissioner of Income Tax vs R. Bharathan

Om Prakash, C.J.—At the instance of the revenue, the Tribunal referred the following questions relating to the assessment year 1982-83 for the opinion of this Court:

Whether, on the facts and in the circumstances of the case, the Tribunal is right and had materials in considering and in holding income assessed under the head ''Business'' as income from ''Other sources''?

If the answer to the first question is in the affirmative should not the Tribunal have, for the reasons given in the assessment order, determined the income from other sources at Rs. 19,05,898 (agreed variation, if any)?

If the answer to the first question is in the negative, should not the Tribunal have, for the reasons given in the assessment order, considered and sustained the addition of Rs. 11,50,774 (agreed variation, if any) under the head ''Other sources''?

Whether, on the facts and in the circumstances of the case and the total investment and accretion to wealth according to assessment order being Rs. 19,05,989 and the income of Rs. 7,55,124 assessed under the head ''Business'' having been set-off in the assessment and the balance having been brought to assessment only under the head ''Other sources'', the Tribunal is right in law and fact in reducing the addition from Rs. 19,05,898 to Rs. 8,21,233 by confining its consideration to Rs. 8,21,233 assessed only under the head ''Other sources'' and holding that "the submission... that it should be assessed under the head ''Other sources'' is safer and more reliable". Is not the above approach and order with reference to the addition not sustained by the Tribunal wrong and unsustainable in law and fact

Whether, on the facts and in the circumstances of the case --

(a) the premise on which the Tribunal considered the question telescoping Rs. 7,55,124 to Rs. 8,21,233 in paragraph 12 is right and sustainable in law and fact?

(b) should not the Tribunal have fixed the investments and accretions to wealth at Rs. 19,05,898 and determined the additions both under the head ''Business'' and ''Other sources'' for the entire addition of Rs. 19,05,898 under ''Other sources''?

Whether, on the facts and in the circumstances of the case, and considering the reasons and evidence on the basis of which the Officer determined the profit margin of the liquor sold outside the books of account, the Tribunal had materials to interfere with the margin of business income?

The facts as found by the Tribunal are that the assessee - an individual - carried on abkari business, both in arrack and toddy. The assessee showed in return that he had received 58,950 litres of arrack. The stock register of the assessee showed consumption of arrack to the extent of 1,27,798 litres, the break-up of which was as follows:

"Receipts from Thiruvalla

66,220 litres

Receipts from Pandalam

54,183 litres

Receipts from Puliyoorsala

10,394 litres

1,30,797litres."

As against the above consumption, the assessee accounted for only 58,950 litres. The Assessing Officer, therefore, held that unaccounted sales were to the extent of 68,848 litres. He further held that net profit from the arrack brought from Puliyoorsala was at the rate of Rs. 16 per litre and the profit in regard to purchases was at the rate of Rs. 10 per litre. The Assessing Officer, thus, assessed total profits on unaccounted sales of arrack at Rs. 7,50,124.

The Assessing Officer then noticed fixed deposits aggregating to Rs. 16,57,019 made in banks. The assessee was called upon to explain the source. The Assessing Officer found that the explanation was not satisfactory. He, thus, treated the peak credit as on 31-3-1982 amounting to Rs. 16,57,109 as the assessee''s income from undisclosed sources. Besides, the Assessing Officer found unaccounted wealth accretion to the extent of Rs. 2,48,879. The two items of Rs. 16,57,019 and Rs. 2,48,879 totalled up to Rs. 19,05,898, which the Assessing Officer found to be the income assessable under the head ''Other sources''.

The Assessing Officer then found as follows:

Since I am making an addition to business income by Rs. 7,55,124, this is given credit to while computing the income from undisclosed sources. Thus, the income from undisclosed sources is fixed at Rs. 11,50,774 as under:

Total undisclosed income

:

Rs.

19,05,898

Less: Business income

:

Rs.

7,55,124

Net undisclosed income

:

Rs.

11,50,774"

The Assessing Officer further put a rider as follows:

If it is held in the appeal stage that addition to business income is not required, income from undisclosed sources will have to be considered at Rs. 19,05,898.

Aggrieved, the assessee went in appeal before the Commissioner (Appeals). The Tribunal reproduced the material findings of the Commissioner (Appeals) in para 8 of its order thus:

Shri Panicker has obviously not disputed this figure except that be claimed that a further allowance of Rs. 1,10,000 must be granted in view of the position that the appellant had claimed that he had a cash balance of that magnitude on 1st April, 1981. The income tax Officer had ignored this balance on the ground that the amount should have been utilised in the construction of certain buildings at Rajamundry in Andhra Pradesh. The learned representative points out that the construction of the buildings in Rajamundry had been done in 1977 and should not be confused with the drawal of Rs. 1,10,000 made by the appellant from the Federal Bank in 1981. It will accept the representative''s claim and determine the net increase in the wealth to be explained at Rs. 7,11,233.

In a preceding paragraph, I have confirmed the I.T.O.''s conclusion that the appellant had made Rs. 7,50,124 on sales not recorded in the books. I will grant the appellant the facility of setting of the unexplained increase in wealth against the income from business calculated in the preceding paragraph. Since the increase in wealth at Rs. 7,11,233 is lower than the additional profits brought to tax at Rs. 7,50,124,1 do not think a separate addition is called for under the head ''Other sources''.

This is how the Commissioner (Appeals) upheld the addition only to the extent of Rs. 7,50,124.

Both the assessee as well as the revenue then filed appeal before the Tribunal. The Tribunal found as under:

As against this, the existence of investments made during this year and accretion during this year amounting to Rs. 8,21,233 is undeniable. There is no proper explanation which can be accepted and which can be verified to the satisfaction of the department by reasonable and acceptable piece of evidence. Therefore, the accretion to wealth should be considered as income under the head ''Other sources''. In our opinion, therefore, the submission of Shri C.K. Nair that it should be assessed under the head ''Other sources'' is safer and more reliable. We, therefore, accept his submission.

******

We now take up the departmental appeal. The first point urged is the deletion of Rs. 1,10,000 representing the opening cash balance as per the cash flow statement. Since we find that the cash flow statement is entirely imaginary this amount deleted by the Commissioner (Appeals) has to be restored.

The second point is the submission that the income from business of Rs. 7,50,124 must be assessed apart from the income assessable under other sources representing the accretion to wealth. We are unable to accept this submission for the reasons stated above.

From the order of the Assessing Officer it is amply clear that he added profits of unaccounted sales of arrack at Rs. 7,55,124. Besides, he made addition of Rs. 11,50,774 on account of accretion of wealth as income from other sources. The Tribunal rejected the case of the revenue in para 22 of its order in regard to the addition of the income assessed under the head ''Business'' saying that "we are unable to accept the submission for the reasons stated above".

We have carefully gone through the order of the Tribunal. We do not find anywhere in the Tribunal''s order reasons in support of the proposition that profits added by the Assessing Officer under the head ''Income from business'' were not liable to be assessed.

The main contention of the learned senior standing counsel before us is that the Tribunal seriously erred in not sustaining the addition of Rs. 7,50,124 under the head ''Income from business''. This contention was clearly raised before the Tribunal. It was the duty of the Tribunal to record reasons as to why addition of Rs. 7,50,124 made by the Assessing Officer under the head ''Income from business'', was not liable to be sustained. No reasons have been given by the Tribunal in this behalf and, therefore, this vital question requires consideration. Another submission of the learned senior standing counsel before us is that addition of Rs. 7,50,124 on account of unaccounted sales of arrack could not be allowed to be set-off from the accretion of total wealth taken at Rs. 8,21,233. In this regard, the Tribunal accepted the findings of the Commissioner (Appeals) with the modification that deletion of Rs. 1,10,000 as ordered by the Commissioner (Appeals) was set aside by the Tribunal and the total accretion was maintained by the Tribunal at Rs. 8,21,233. The Commissioner (Appeals), as already reproduced above, after deleting the item of Rs. 1,10,000 representing cash flow, held as under:

I will grant the appellant the facility of setting off the unexplained increase in wealth against the income from business calculated in the preceding paragraph. Since the increase in wealth at Rs. 7,11,233 is lower than the additional profits brought to tax at Rs. 7,50,124, I do not think a separate addition is called for under the head ''Other sources''.

From the order of the Commissioner (Appeals), it is clear that he maintained addition under the head ''Income from business'' to the extent of Rs. 7,50,124, but did not sustain any addition under the head ''Other sources''. No reason whatsoever has been given by the Appellate Tribunal as to whether set-off of the addition of Rs. 7,50,124 under the head ''Income from business'', could be allowed from the accretion in wealth assessable under the head ''Other sources''. This being the state of affairs, we are unable to answer the questions referred to this Court, much less with clarity.

For the above reasons, we return all the questions unanswered and direct the Tribunal to record clear findings on the submissions made by the senior standing counsel before us. The Tribunal''s order to that extent is set aside.