TMI Blog1993 (11) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer noticed that the figures originally entered in the journal regarding the cost of raw nuts purchases were found to have been corrected or changed into figures of higher value and such corrections were found to have been made in a number of cases in the period from 1st April, 1986 to 2nd June, 1986. He gave a list of such corrections as Annexure A to the assessment order. The assessee was called upon to explain the corrections found in the journal. The assessee contended that it was not itself purchasing cashew nuts in northern Kerala but was effecting purchases through M.C. Narayanan Nair, Calicut, K.M. Abdulla, Calicut, K.P. Mohammed Sali, Cannanore and K.P. Abdul Sathar, Kanhangad, who were acting as brokers/sub-licensees for the assessee and when they sent the goods to the assessee's factory in Kollam only approximate prices were informed and the accountant of the assessee had entered such approximate prices originally in the journal. Subsequently, when prices were settled, the normal course would have been to pass another journal entry, but, instead the accountant had committed the mistake in correcting the original entries themselves. Hence, there was no reason to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d reiterated the same contentions before the first appellate authority and also produced correspondence between the assessee and M.C.N. Nair, Abdulla and others in support of the contention that these people were acting for him as brokers/sub-licensees and thus contested the statements of Sri M.C.N. Nair and Sri Abdulla made before the ADI. It was also pointed out that no opportunity was given to the assessee to cross-examine those persons. The CIT(A) felt that the addition could be sustained without depending upon the depositions given by Sri M.C.N. Nair and Sri Abdulla before the ADI. Then he referred to the particulars given in Annexures A to D of the assessment order and said that in the light of the details gathered by the Assessing Officer the addition was to be upheld. The argument of the assessee was that his purchase price was comparable with the purchase price of different concerns and the further argument that the average cost of raw nuts shown by the assessee after the alleged inflation was favourably comparable with other organisations was rejected by the CIT(A) with the following observation: "In short, it only means that he purchased at even lower prices than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to purchase and store raw cashew nuts on behalf of the assessee and the sub-licensee order is countersigned by Special Officer for Cashew Industry, Quilon. Having held that the corrections made in the journal entries were not with a view to deliberately inflate the purchases and having held that the statements given by Sri M.C.N. Nair and Sri K.M. Abdulla before the ADI are fit to be rejected and cannot be relied upon, we proceed to examine whether payment had been made or not for the value of the purchases covered by the corrections in the journal. 5.1 This takes us to a scrutiny of the ledger account of the concerned parties. Sri Abdul Sathar's account is at page 19 of the paper book filed by the Departmental Representative. Even if all the purchases from this party in the month of April, 1986 are taken into account, the balance in his account only shows a credit balance of Rs. 24,89,549.70. This credit balance included the opening balance of Rs. 1,49,000 only as all the payments in the account have been effected only though T.T. No payment in cash has been made in respect of the purchases in the month of April. Going further, it is seen that the account has witnessed payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom whom or through whom purchases have been effected is established. The payments are also found to have been established through the accounts. The payment by T.T. is a vital piece of evidence as also the payment through cheque. Cash payments are there but they do not embrace all the transactions. Hence, the genuineness of the purchases and the payments therefor cannot be called to question. A mere correction in the journal account cannot ipso facto lead to the conclusion that there was inflation. The evidence is to the contrary. 6. The Assessing Officer has made a comparison of the purchase rates obtaining in the northern parts of Kerala and such comparisons are found in the Annexures B and D to the assessment order. 7. We have carefully heard rival submissions and perused the records. No doubt, the learned Assessing Officer has taken pains to cull out the figures and compare the same to support his version of inflation in purchases. While appreciating his efforts, we straightaway reject the figures contained in Annexure C as obviously they relate to the purchase price prevailing prior to 1st April, 1986. Turning to Annexure B, we find that from Sri Abdul Sathar, Kanhangad, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the purchases were effected by one L. Kunjukunju and K. Thankachen on certain dates in the month of April, 1986 is compared with the assessee's rate and an adverse inference was drawn by the learned Assessing Officer. It has not been shown that the cashew purchases are of the same quality. For example, in the case of K. Thankachen on 2nd April, 1986, he has purchased raw nuts at Rs. 12.75 per kg. as against Rs. 12.10 per kg. in the case of the assessee. The figure of Rs. 12.10 per kg. in the assessee's book is before correction in the journal and according to the Assessing Officer this figure is the genuine rate. Even here there is a difference of Rs. 0.65 per kg. and Sri Nair pleads that this difference will show that there is no uniform price for different lots of cashew nuts purchased and that was probably due to the factors like quality, supply conditions, etc. It is not known whether the conditions in regard to purchase or the method of purchase or the place of purchase are one and the same in the cases taken up for comparison. Therefore, no adverse inference can be drawn against the assessee by virtue of the figures found in Annexure D to the assessment order. The assessee' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of this amount and, therefore, he asked the assessee to furnish a copy of the cash flow statement on 17th Feb., 1992. Subsequently, it was filed on 10th March, 1992. From the cash flow statement, the Assessing Officer noticed that the assessee had withdrawn Rs. 6.5 lakhs from M/s D.K.B. Co. after 1st April, 1986. The assessee was asked to give the details of the withdrawals from M/s D.K.B. Co. The assessee did not give any specific answer but replied that the cash of Rs. 3,50,000 was kept in his safe. In the sworn statement taken on 19th March, 1992, Sri Krishnan, deposed that this cash was received about two to three years back and the Assessing Officer felt that in view of the sworn statement the withdrawals cannot be anterior to 1989. It was explained that the assessee was handling the cash of firm's business and it came out of the sale proceeds of the firm's business. As the firm did not carry on any business after 31st March, 1986, the Assessing Officer concluded that either the assessee should have received the money prior to 31st March, 1986 or he might not have received any amount. Further it was Shri Bharathan one of the managing partners (who was in-charge of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee. Hence, no addition can be made in respect of the sum of Rs. 3,00,000. The Revenue is aggrieved against this part of the order of the CIT(A). 10. Having regard to rival submissions, we decline to interfere. The assessee was a partner in M/s D.K.B. Co., prior to its dissolution and then became a partner in M/s D.K.B Co. The assets and liabilities were transferred by the former to the latter. In the process, the capital account of the assessee in the books of the former got transferred. This is evident from the extract of the assessee's capital account in the books of M/s D.K.B. Co. which is as follows: "Folio I . CR 1986 : . Rs. April : 1 By transfer from D.K.B. Co. on 5th March, 1986 3,00,000.00 1987 : . DR. March : 31 To share of loss transferred from P L account 22,492.05" In view of this, the learned CIT(A) had deleted the addition of Rs. 3,00,000. The Revenue's grievance is that since the assessee has not produced the books of accounts of those firms in which he was a partner, the CIT(A) should not have acted on the statement furnished by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount of Rs. 3,50,000 was credited in the cashew business books of the assessee as on 25th March, 1987.It was contended before the Assessing Officer that, in as much as, the closing cash balance of Rs. 3,75,000 was assessed to wealth-tax, it was not open to the Assessing Officer to doubt the statement of the assessee regarding the source of funds for Rs. 3,50,000. This argument was rightly repelled by the Assessing Officer that the wealth-tax statement was not accompanied by the above cash flow statement and that the acceptance of cash balance of Rs. 3,75,000 in the wealth-tax assessment will not preclude him from enquiring into the veracity of the assessee's claim. As the sum of Rs. 3,75,000 found its way into the business books of the assessee, the assessee was liable to explain the source of the funds. His explanation that it came from M/s D.K.B. Co. was not acceptable as no evidence was produced in effect for the same. Thus, the Assessing Officer rejected the contention and made an addition of Rs. 3,21,845. The first appellate authority did not find any merit in the contention of the assessee to take a different view. The assessee is on appeal against the addition of Rs. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al can certainly proceed to deal with the plea and render its decision thereon. We draw support for this proposition in the decision of the Supreme Court in the case of Jute Corporation of India vs. CIT Anr. (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) and also the decision of the jurisdictional High Court in the case of CIT vs. Kerala State Co-operative Marketing Federation (1991) 100 CTR (Ker) 230 : (1992) 193 ITR 624 (Ker). From the WT assessment records available before us, it is seen that the learned Asstt. CWT, Investigation Circle, I, Trivandrum had assessed to wealth-tax a sum of Rs. 3,75,000 as the cash balance as on 31st March, 1986, relevant to the asst. yr. 1986-87 and that the said sum consisted of two items, viz., Rs. 3,15,000 as cash balance and agricultural account balance of Rs. 60,000. This sum of Rs. 3,15,000 is the opening cash balance for the asst. yr. 1987-88 and this cannot be disputed by the Revenue. The alternate plea of Sri Nair is that this sum of Rs. 3,15,000 should be considered as available for introduction in the accounts of the assessee, in the wake of the objection of the Assessing Officer that the WT return for the asst. yr. 1987-88 was not ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icultural income and assessments were completed. He referred to pages 37 to 49 of the paper book II in support of his submissions. Sri Abraham, on the other hand, submitted that it has not been shown that the trust was owning agricultural lands and there was only a tile factory taken on lease by the trust from the assessee. Further, the mere fact that the beneficiaries of the trust had come forward to be assessed in respect of the one-third share of business income and agricultural income and were assessed as such does not preclude the Assessing Officer from examining the issue afresh in the hands of the assessee. In our view the case of the assessee is not that the trust owned agricultural lands but the case is that it had income from coconut garden surrounding the tile factory. To this extent we accept the contention of the assessee in view of the amnesty assessments after scrutiny. But the mere completion of the assessments under the amnesty scheme even after calling for details of income, etc., copies of which have been furnished before us, does not preclude the Assessing Officer from examining the issue of availability of funds afresh when the amount is said to have found its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an, but had stated later that her affairs are managed by her husband, and could not give the details. Smt. Chandramathy is not a literate person and it is a normal feature in any household that the estate of the wife and the financial matters connected therewith are usually managed by the husband. The Department has not disputed that Smt. Chandramathy had the source to advance the loan. She was having a rubber estate. It is also seen from the details of the wealth statement (though subsequently filed) that she had accounts with Federal Bank Ltd., Punjab National Bank, Vijay Bank Ltd., recurring deposit with Federal Bank Ltd., investments in chitty subscriptions, maturity of LIC policies and agricultural income. Further she has investment in M/s Quilon Electricals and Hardware and had income from fishing boat and sale of fishing boat in the year 1984. She had also agricultural income from the estate. Therefore, it is not unreasonable to hold that she had the wherewithals to make the advance. Even assuming that the amount available as on 31st March, 1984 was utilised for starting cashew business by her son, it is seen that she had gifted only Rs. 25,000 to her son for starting the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23. Now we proceed to deal with the additional grounds of appeal filed by the assessee's learned counsel Sri C.K. Nair. The additional grounds are as follows: "1. The assessment order passed on 30th March, 1992 under s. 143(3) r/w s. 147(a) is barred by limitation. The return of income was filed on 20th Nov., 1989 and is within the time allowed under s. 139(4). There was no notice under s. 139(2) or 142(1). The officer ought to have completed the assessment before 20th Nov., 1990. Since the assessment is completed only on 30th March, 1992 the assessment order is barred by limitation. The issue of a notice under s. 148 on 8th Nov., 1989, will not give the extended time limit of two years, since the return of income is filed under s. 139(4). The so-called notice under s. 148 said to have been issued on 8th Nov., 1989 is also not seen served on the appellant. 2. The assessment purported to have been made under s. 147(a) is really not under s. 147(a) but only an ordinary assessment in the normal course of a return filed under s. 139(4). 3. The learned Asstt. CIT, had no materials to state that he had reason to believe that income escaped assessment on the ground that no retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the provisions of s. 153(2) cannot be invoked in the case of the assessee and as the assessment was completed on 13th March, 1992 in contravention of the provisions of s. 153(1) of the Act, the entire assessment was made without jurisdiction and should be declared as void ab initio. 27. Sri Abraham, on the other hand, contended that the failure to furnish the return of income resulted in escapement of income to be assessed. In the case of the assessee, notice under s. 139(2) was not issued within the assessment year. Therefore, the Assessing Officer is free to take action under s. 147 at any time after the end of the assessment year. Filing of the return under s. 139(4) after the issue of notice under s. 148 would not rob the Assessing Officer of his right to complete the assessment under s. 147 in accordance with the provisions of ss. 148 to 153 of the IT Act. He also placed reliance on the decision of the Calcutta High Court in the case of Amarnath Mehra vs. ITO Anr. (1977) 110 ITR 376 (Cal). Sri Nair joined the issue stating that in that case a notice under s. 139(2) was served on the assessee imposing an obligation on him to file the return within the time mentioned and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... belated one, their Lordships of the Supreme Court have held in a number of decisions that action under s. 34 (corresponding to s. 147 of the IT Act, 1961) cannot be taken against the assessee. The reason is that so long as a return (though filed belatedly) but within the time allowed under the statute, was pending before the IT authorities, it cannot be said that there was failure or omission to file the return and, hence, action under s. 34 (corresponding to s. 147 of the IT Act, 1961) is said to be vitiated in such circumstances. Useful reference may be made to the following decisions of the Supreme Court in this behalf: 1. Ghanshyamdas vs. Regional Asstt. Commr. of ST (1964) 51 ITR 557 (SC); 2. CIT vs. Soorajmull Nagarmall (1981) 23 CTR (Cal) 259 : (1983) 141 ITR 140 (Cal); 3. Balchand vs. ITO (1969) 72 ITR 197 (SC); 4. CIT vs. Ranchodadas Kersondas (1959) 36 ITR 569 (SC); 5. Bhagvandas Sitaram (HUF) vs. CIT (1984) 39 CTR (SC) 351 : (1984) 146 ITR 563 (SC). 30. In this case, there was no return under s. 139(1). There was no notice under s. 139(2) of the IT Act. But there was notice under s. 148 issued after the completion of the assessment year. In Ghanshyam Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich limited such power to the end of the assessment year and Sri Nair's grievance might be well founded. But we are not concerned with the asst. yr. 1989-90. 32. No doubt, even after the issue of notice under s. 148, the assessee has got a right to file a return under s. 139(4) at any time before the completion of the assessment, but in such a case, the time limit for the completion of the assessment should be under s. 153(2) of the IT Act and not under s. 153(1) of the IT Act. Our view is supported by the decision of the Supreme Court in the case of State of Assam Anr. vs. D.C. Choudhuri Anr. It was held therein that where the assessee does not file a return of income in respect of the agricultural income pursuant to a general notice under s. 19(1) of the Assam Agrl. IT Act, 1939, assessment can be made only after due notice under s. 19(2) or by initiating proceedings under s. 30 for assessing income escaping assessment. The Agrl. ITO cannot proceed directly to assess to the best of his judgment under s. 20(4) without serving a notice under s. 19(2) within the financial year or by having resort to the provisions of s. 30. In that case, it was observed at page 711 of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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