High Court Of Kerala
CIT vs. Popular Automobiles
Sections 4, 69
Asst. Year 1987-88
Arijit Pasayat, C.J. & K.S. Radhakrishnan, J.
IT Ref. No. 59 of 1997
19th November, 1999
P.K. Ravindranatha Menon & George K. George, for the Revenue : P. Balachandran, for the Assessee
Arijit Pasayat, C.J. :
Pursuant to the direction given by this Court in O.P. No. 3020 of 1993, the following questions have been referred for opinion under s. 256(2) of the IT Act, 1961 (in short “the Act”) : “1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in coming to the conclusion that the debit of Rs. 52,66,963 in the P&L a/c for the year ended 30th April, 1986, relevant to the asst. yrs. 1987-88 represented the amount offered for assessment under the amnesty scheme for the earlier years in respect of understatement of stock as corrected and included in the value of closing stock as on 30th April, 1986 ? Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in admitting the redrafted trading and P&L a/c for the year ended 30th April, 1986; the description of which was changed by the assessee in accordance with his plea that the income declared under the amnesty scheme for the asst. yrs. 1984-85 to 1986-87 was with respect to understatement of stock ? Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the accumulated income which remained escaped was hidden under stock ?”
2. The background facts necessary for adjudication of questions as referred to by the Income-tax Appellate Tribunal, Cochin Bench (in short “the Tribunal”), are as follows : The assessee is a partnership firm. For the asst. yr. 1987-88, its previous year ended on 30th April, 1986, in the P&L a/c originally filed along with a return of income for the said assessment year, three items were found debited as relating to income declared in the returns filed under the amnesty scheme for the previous years ending on 30th April, 1983, 30th April, 1984 and 30th April, 1985, totalling Rs. 52,66,963 and the net profit was transferred to the appropriation account for the purpose of computing the total income. The AO took the net profit as per account and added the aforesaid sum of Rs. 52,66,963 which was debited in the P&L a/c. The reasons indicated by the AO for making such addition are as follows : “(a) the assessee had not stated that the income declared under the amnesty scheme in its letter dt. 28th Oct., 1985, represented under-statement of stocks; (b) there was no independent evidence to show that the amount was represented by stocks; and (c) it was against the accounting principles to debit the amount offered for assessment in the earlier years to the P&L a/c.” The assesseeâs explanation was that the aforesaid amount offered for assessment under the amnesty scheme was corroborated and included in the value of closing stock as on 30th April, 1986. Such plea was not accepted by the AO who also did not accept the explanation that the additional stock representing income declared was included in the accounts only in the year ended 30th April, 1986. The assessee preferred as appeal before the Commissioner of Income-tax (Appeals) (in short “the CIT(A)”). Before the said authority, it was submitted that under the provisions of the amnesty scheme, it was under no obligation to satisfy the manner or form in which the additional income offered for assessment was held by it. It was also indicated that the assessee had made necessary entries in its account for the previous year ending 30th April,1986, immediately after filing the amnesty petitions and the additional income declared under the amnesty scheme did not exist in any other form with the firm or with partners either in the form of cash or other assets except in the form of stock. The CIT(A) maintained the additions holding that there was no material to show that the closing stock declared was inclusive of the unaccounted stock of the earlier years and there was no justification for the assessee to treat the income declared for the earlier years under the amnesty scheme as an outgoing in the P&L a/c for a subsequent year. The affidavit filed by Shri John Paul, son of K.P. Paul, reiterating the contention of the firm that the undeclared income was in the form of stock was held to be without any supportable material. The matter was carried in appeal before the Tribunal.
It was noticed by the Tribunal that no new figures were introduced in the redrafted account. The only change that had taken in the redrafted statement was to put the three items amounting to Rs. 52,66,963 in the trading account instead of its original place in the P&L a/c, i.e., above the line as against below the line. Another change is that originally these items were described as income declared under the amnesty scheme in the P&L a/c. But in the redrafted account, these were stated specifically as stocks in the years ended on 30th April, 1983. 30th April, 1984 and 30th April, 1985. The change in the description is in accordance with the plea of the assessee that the income declared under the amnesty scheme for the assessment years in question was in respect of understatement of stock. Besides such understated stocks have been duly reflected by entries in the journal. The Revenueâs stand was that in the revised returns filed with the Department for the asst. yrs. 1984-85, 1985-86 and 1986-87, there is no mention about any understatement of stocks. Therefore, it was pleaded that the plea of the assessee should be dismissed as a convenient afterthought. The Tribunal noticed that in the petition dt. 20th July, 1985, offering Rs. 60 lakhs under the amensty scheme, the following was described : “As our accounting year closes on 30th April, and the offer being made hereby takes into account the income that has accumulated up to the time of the offer, the disclosure will bring within its amplitude the asst. yr. 1987-88 also, the previous year relevant to which commences on 1st May, 1985, and ends on 30th April, 1986. This aspect will be taken care of when estimate for the payment of advance tax is filed for the asst. yr. 1987-88.” With reference to the materials on record more particularly the format in which the declaration for the amnesty scheme was to be given, it was observed that the assessee was entitled to deletion of the addition made by the Revenue authorities.
Learned counsel for the Revenue submitted that the assesseeâs stand was prevaricating and particular stress is laid on a letter dt. 20th Jan., 1990, addressed to the Asstt. Commr. of Assessment, Circle-II, Ernakulam, which inter alia, stated that no records relating to stocks which represented income declared under the amnesty scheme have been kept or are available now. It is further submitted that in the revised returns filed for the asst. yrs. 1984-85, 1985-86 and 198687, the assessee had not taken the present stand. Therefore, it is submitted that the Tribunal was not justified in holding that the accumulated income which remained escaped, was hidden under stock. Learned counsel for the assessee submitted that the case of the assessee was not dealt with by the AO and the first appellate authority in the proper perspective. In any event, the Tribunal has come to a conclusion on the facts afteranalysing the factual position and, therefore, no question of law arises. For appreciating the rival submissions, it is relevant to take note of certain factual aspects highlighted by the assessee. The Tribunal has noticed that in or around October, 1985, the assessee submitted a proposal before the CIT for declaration of higher income under the amnesty scheme for a total amount of Rs. 60 lakhs and pleaded for its consideration for the asst. yrs. 1983-84 to 1987-88. Pursuant to the filing of the petition to the CIT on 28th Oct., 1985, discussions took place and the assessee furnished a statement on 4th Nov., 1985, discussions took place and the assessee furnished a statement on 4th Nov., 1985, indicating the years in which higher income is to be assessed and that was for the asst. yrs. 1984-85 to 1987-88. It is to be noted that unlike the Voluntary Disclosure Scheme, 1975, there was no stipulation in the amnesty scheme for indicating the manner in which the concealed income is kept. That being the position, the assessee had not indicated details when the petition was placed before the CIT on 28th Oct., 1985. Afterdiscussion and, according to the assessee, at the suggestion of the CIT, the spread over was limited from the asst. yr. 1984-85 onwards. When the assessment for the asst. yr. 1984-85 was taken out by the IAC (Assessment), the assessee specifically stated that the declared income was in the form of stock. A copy of the letter is annexure-F in the paper book and under the heading “Disclosure of income” details have been given. Again, in the course of assessment, the assessee had clearly stated that the records were not maintained for stocks and no details were kept which necessitated disclosure to be noted. The Tribunal also noticed that in the journal entries for bringing into record under statement had been effected. An affidavit was also filed to the effect that there was understatement of stock and, therefore, income had escaped assessment which necessitated disclosure under the amnesty scheme. The Tribunal has referred to Form No. A under r. 3 of the Voluntary Disclosure Scheme, 1975, where in serial No. 5 certain details were required to be given. It compared relevant details which were required to be given under the said scheme and the amnesty scheme. Reference was also made to Circular No. 423, dt. 26th June, 1985, and Nos. 432, 439, 440 and 441, dt. 15th Nov., 1985, more particularly question No. 31 and the answer thereto which read as follows : “(Q) If an assessee has declared income, would he be required to give evidence of entries in the books of account, etc. ? (A) He would be well advised to do so.”
5. Obviously, till the clarification was issued, as has been rightly observed by the Tribunal, there was no requirement on the part of the assessee to declare the form or the manner in which the voluntarily disclosed income was kept. Letter dt. 17th Feb., 1987, clearly indicated the factual position. By that time entries in the journal had been made. Certain other factual aspects have been noticed by the Tribunal more particularly the fact that more than 90,000 items were being dealt with by the assessee which rendered maintenance of day-to-day stock register impracticable. It was further noticed that on an estimate basis or otherwise, inventories were prepared; but no regular records were maintained. That precisely was the reason why the assessee felt that there had been escapement of income in the form of understatement of stock and filed the return under the amnesty scheme. The question and answer in respect of Circular No. 441, dt. 15th Nov., 1985, were not available to the assessee and therefore, the stand of the assessee that it could not indicate the form in which understatement had taken place appears plausible and has been accepted by the Tribunal. The return for the asst. yr. 1986-87 was filed on 3rd July, 1987, and by that time, the clarification had come. The returns for the asst. yrs. 1984-85 and 1985-86 were filed on 21st Jan., 1986. Entries were passed in the books of account bringing on record the understatement of stock on 30th April, 1986, relevant to the asst. yrs. 1987-88. When the petition was given to the CIT on 25th Oct., 1985, some details were available and with bona fide impression the statements were filed. As the recital of the factual position would go to show, the Tribunal had considered relevant materials. The conclusions arrived at by it are factual. It cannot be said to be a case where relevant materials were kept out of consideration and/or irrelevant materials were taken into account for arriving at a conclusion. That being the position, no question of law arises. We, therefore, decline to answer the questions which are factual in nature. They are to be treated as answered in favour of the assessee and against the Revenue.
[Citation : 248 ITR 597]