Revenue filed SLPs under Section 260A challenging ITAT deletions of income additions. Court held no substantial question of law arose as findings were not perverse and no challenge to fact-finding was framed. Appeals dismissed.
The appeals filed by the Revenue appellant are dismissed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH
DATED THIS THE 13TH DAY OF JULY, 2016
PRESENT
THE HON’BLE MR.JUSTICE ANAND BYRAREDDY
AND
THE HON’BLE MR.JUSTICE RAGHVENDRA S. CHAUHAN
INCOME TAX APPEAL NO. 5026/2011 C/W INCOME TAX APPEAL NO. 5025/2011
INCOME TAX APPEAL NO.5026/2011:
BETWEEN:
… APPELLANTS
(Shri Ameet Kumar Deshpande, Advocate)
AND:
M/s. Bahubali Neminath Muttin Main Road at Post Chandachan
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Taluk Indi, District Bijapur – 586 205.
… RESPONDENT
(Shri Ashok Kulkarni & Shri K.R. Prasad, Advocates)
This Income Tax Appeal is filed Under Section 260A of the Income-Tax Act, 1961 against order passed in Income Tax Appeal No.169/PNJ/2010 dated 06-06-2011 on the file of the Income Tax Appellate Tribunal, Panaji Bench, Panaji, dismissing the appeal filed by the Revenue.
INCOME TAX APPEAL NO.5025/2011:
BETWEEN:
… APPELLANTS
(Shri Ameet Kumar Deshpande, Advocate)
AND:
M/s. Bahubali Neminath Muttin Main Road at Post Chandachan Taluk Indi, District Bijapur – 586 205.
… RESPONDENT (Shri Ashok Kulkarni & Shri K.R. Prasad, Advocates)
This Income Tax Appeal is filed Under Section 260A of the Income-Tax Act, 1961 against order passed in Income Tax Appeal
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No.159/PNJ/2010 dated 06-06-2011 on the file of the Income Tax Appellate Tribunal, Panaji Bench, Panaji, dismissing the appeal filed by the Revenue.
These appeals having been reserved on 14.6.2016 and coming on for ‘Pronouncement of Judgement’ this day, Anand Byrareddy J., delivered the following:
JUDGMENT
These appeals are disposed of by this common judgment in
view of the fact that these appeals are filed by the revenue aggrieved by the common order of the Income Tax Appellate Tribunal (ITAT) passed on appeals filed by the assessee as well as the Revenue in ITA No.159/2010 and ITA 169/2010, respectively, the former filed by the assessee and the latter by the Revenue and in
view of the questions arising for consideration being similar.
2. The facts are as follows:
The respondent assessee is said to be a partnership firm carrying on business as wholesale cloth merchants. Consequent upon a search conducted under Section 132 of the Income Tax Act, 1961 (Hereinafter referred to as the ‘I.T. Act’, for brevity) the assessee is said to have filed a return of income declaring a total
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income of Rs.7,60,000/-. However, based on the material seized by
the assessing authority and on completion of the assessment, the following additions were said to have been made:
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Appellate authority had increased the addition to Rs.90,96,818/-. It was observed that the Assessing Officer had erred in adopting the closing stock of Rs.1,89,25,248/- as against the amount disclosed in the audited statement of accounts at Rs.2,80,21,787/-.
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(Appeals), the Tribunal held that no interference was required as regards those findings. As regards the addition made as gross profit on account of suppressed sales at Rs.13,33,242/- which was increased to Rs.90,96,818/- by the CIT (Appeals), the Tribunal held that the sales declared by the assessee and the unaccounted sales worked out by the Assessing Officer had not been disputed by the CIT (Appeals). It was further observed that when the Gross Profit Rate is applied, there was a clear explanation and hence there was no need for the scrutiny of the amount incurred on purchases by the assessee.
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estimated the income in a just and proper manner and hence confirmed the addition made by the Assessing Officer. It is against those findings, that the present appeals are filed by the revenue.
Revenue are as follows:
“1. Whether the ITAT is justified in deleting the amount on account of difference in trade creditors account, ignoring the fact that the assessing officer has brought on record the ledger extract of the assesse as appearing in the books of the supplies in whose books no such outstanding balance is reflected?
2. Whether the ITAT is justified in not upholding the addition made on account of ‘unaccounted purchases’, by ignoring the provisions of section 69B of the Income Tax Act, 1961?
3. Whether the ITAT is justified in deleting the addition made by the CIT(A) on account of ‘unaccounted sales/suppressed sales’, when the ITAT has not disbelieved the amount of closing stock arrived at by the CIT(A)?”
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confirming the order of the CIT (Appeals) deleting the addition of Rs.50,18,173/- on account of unaccounted purchases. It ought to have been noted by the Tribunal that from the records it was
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evident that the assessee had indulged in unaccounted purchases and sales, year after year, as evident during the course of the search.
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contended that the Tribunal was also in error in holding that when gross profit rate is applied there is a clear explanation for discrepancies. In that, there was no need for the Assessing Officer to scrutinize the amounts incurred on purchases and thereby concluded that there was no factual or legal justification in the CIT (Appeals) having enhanced the income at Rs.90,96,818/-. It is in this vein that the learned Counsel would seek to urge grounds in support of the substantial questions of law as framed by the revenue.
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Profit Rate of 8.63% on the unaccounted sales over and above the declared sales and determined the income accordingly to the best of his judgment in the manner provided under the I.T. Act. It is pointed out that the rejection of the books of account under Section 145 (3) of the I.T. Act the total sales determination and the gross profit rate at 8.63% adopted by the Assessing Officer has not been disputed by the respondents and therefore has attained finality. Pursuant to the appeals before the CIT (Appeals) and the further appeals before the ITAT and the present appeals having been filed by the Revenue, the substantial questions of law that have been framed in the present appeals would have to be viewed in the background that the appellate Tribunal on a scrutiny of the entire factual material on record has passed the impugned order and now an attempt is being made by the Revenue to seek re-appreciation of the evidence on factual aspects and the conclusions drawn in the order of the appellate tribunal, which according to the learned Counsel is impermissible under Section 260A of the I.T. Act.
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objections raised above, he would submit that, on merits it should be noted that admittedly the books of accounts of the respondent have been rejected by the assessing authority. The profit of the respondent is estimated as provided under Section 145 (3) of the I.T. Act. When the gross profit rate is applied, it would cover any infirmity and there was no need for the Assessing Officer to make a scrutiny of the amounts incurred on the purchases by the respondent. In any event, the revenue would not be in a position to rely on the rejected books of accounts for making the additions on account of trade creditors and also for the purpose of arriving at a closing stock. This is the view taken by atleast four High Courts in the following reported judgments:
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considered. But that the expression “a substantial question of law,” is not defined in the I.T. Act. However, it has acquired a definite connotation through various judicial pronouncements. In Shri Chunilal V. Mehta and Sons Ltd. vs. Century Spinning and Manufacturing Company Limited , AIR 1962 SC 1314 , a Constitution Bench of the Apex Court has held as follows:
“18. The proper test for determining whether a question of law raised in the case is substantial would, in our opinion, be whether it is of general public importance or whether it directly and substantially affects the rights of the parties and if so whether it is either an open question in the sense that it is not finally settled by this court or by the Privy Council or by the Federal Court or is not free from difficulty or calls for discussion of alternative views. If the question is settled by the highest court or the general principles to be applied in determining the question are well settled and there is a mere question of applying those principles or that the plea raised is palpably absurd the question would not be a substantial question of law.”
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18. Similarly, in Santosh Hazari vs. Purushottam Tiwari [2001]
3 SCC 179, a three-judge Bench of the Apex Court has observed that:
“A point of law which admits of no two opinions may be a proposition of law but cannot be a substantial question of law. To be ‘substantial’ a question of law must be debatable, not previously settled by law of the land or a binding precedent, and must have a material bearing on the decision of the case, if answered either way, insofar as the rights of the parties before it are concerned. To be a question of law ‘involving in the case’ there must be first a foundation for it laid in the pleadings and the question should emerge from the sustainable findings of fact arrived at by court of facts and it must be necessary to decide that question of law for a just and proper decision of the case. An entirely new point raised for the first time before the High Court is not a question involved in the case unless it goes to the root of the matter. It will, therefore, depend on the facts and circumstance of each case whether a question of law is a substantial one and involved in the case, or not; the paramount overall consideration being the need for striking a judicious balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis.”
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"The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well-recognised exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to ‘decision based on no evidence’, it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding.”
20. In Vijay Kumar Talwar’s case the Supreme Court has observed thus:
“21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible evidence has been taken into consideration or legal principles have not been
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applied in appreciating the evidence, or when the evidence has been misread. (See: Madan Lal Vs. Mst. Gopi & Anr. [19800 4 SCC 255; Narendra Gopal Vidyarthi Vs. Rajat Vidyarthi [2009] 3 SCC 287; Commissioner of Customs (Preventive) Vs. Vijay Dasharath Patel [2007] 4 SCC 118; Metroark Ltd. Vs. Commissioner of Central Excise, Calcutta [2004] 12 SCC 505; West Bengal Electricity Regulatory Commission Vs. CESC Ltd. [2002] 8 SCC 715).”
21. Further, in Mangalore Ganesh Beedi works case supra the
Supreme Court has held as follows:
“19. xxx There is a clear finding of fact by the Tribunal that the legal expenses incurred by the assessee were for protecting its business and that the expenses were incurred after November 18, 1994. There is no reason to reverse this finding of fact particularly since nothing has been shown to us to conclude that the finding of fact was perverse in any manner whatsoever. That apart, if the finding of fact arrived at by the Tribunal were to be set aside, a specific question regarding a perverse finding of fact ought to have been framed by the High Court. The Revenue did not seek the framing of any such question. In this regard, reference may be made to K. Ravindranathan
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Nair v. Commissioner of Income Tax [2001] 247 ITR 178, 181 (SC) wherein it was observed:
“The High Court overlooked the cardinal principle that it is the Tribunal which is the final fact-finding authority. A decision on fact of the Tribunal can be gone into by the High Court only if a question has been referred to it which says that the finding of the Tribunal on facts is perverse, in the sense that it is such as could not reasonably have been arrived at on the material placed before the Tribunal. In this case, there was no such question before the High Court. Unless and until a finding of act reached by the Tribunal is canvassed before the High Court in the manner set out above, the High Court is obliged to proceed upon the findings of fact reached by the Tribunal and to give an answer in law to the question of law that is before it.”
20. Accordingly, we hold that the High Court was not justified in upsetting a finding of fact arrived at by the Tribunal, particularly in the absence of a substantial question of law being framed in this regard. Therefore, we set aside the conclusion arrived at by the High Court on this question and restore the view of the Tribunal and answer the question in favour of the Assessee and against the Revenue.”
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Consequently, the appeals are dismissed.
Sd/JUDGE
Sd/JUDGE
swk
3 issues framed by the court
Whether the ITAT is justified in deleting additions regarding trade creditors and unaccounted purchases?
Whether a substantial question of law arises regarding the judicial review of Tribunal findings on fact?
Whether the High Court can interfere with Tribunal findings when no question of perverse finding is framed?
Colour shows how this judgement treated each authority
Vijay Kumar Talwar vs. Commissioner of Income TaxReferred¶83
330 ITR 1 (SC)
Mangalore Ganesh Beedi Works vs. Commissioner of Income TaxReferred¶83
378 ITR 640 (SC)
M. Janardhan Rao vs. Joint Commissioner of Income TaxReferred¶83
273 ITR 50 (SC)
Sudarshan Silks and Sarees vs. Commissioner of Income TaxReferred¶83
300 ITR 205 (SC)
K. Ravindranathan Nair vs. Commissioner of Income TaxReferred¶83
247 ITR 178 (SC)
Shri Chunilal V. Mehta and Sons Ltd. vs. Century Spinning and Manufacturing Company LimitedReferred¶78
Shri Chunilal V. Mehta and Sons Ltd. vs. Century Spinning and Manufacturing Company Limited, AIR 1962 SC 1314 · Who else cites this
Santosh Hazari vs. Purushottam TiwariReferred¶79
Santosh Hazari vs. Purushottam Tiwari [2001] 3 SCC 179 · Who else cites this
Hero Vinoth (Minor) Vs. SeshammalReferred¶84
Hero Vinoth (Minor) Vs. Seshammal, [2006] 5 SCC 545 · Who else cites this
Indwell Constructions vs. Commissioner of Income TaxReferred¶87
Indwell Constructions vs. Commissioner of Income Tax, 232 ITR 776 (AP)
Commissioner of Income Tax vs. Banwari Lal BanshidharReferred¶88
Commissioner of Income Tax vs. Banwari Lal Banshidhar, 229 ITR 229 (All)
3 provisions across 1 enactments
Commissioner of Income Tax
Assistant Commissioner of Income Tax
M/s. Bahubali Neminath Mutt
Anand Byrareddy
Raghavendra S. Chauhan
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
