G.SANTHANAM, A.M. : -
(1.) THE assessee is a partnership firm of Abkari contractors. We are concerned with the appeal for the asst. yr. 1981-82 for which the previous year ended on 31st March, 1981. As seen from the assessment order, mercantile method of accounting is said to have been adopted. THE assessment was originally completed on 27th March, 1984 determining the total income at Rs. 15,15,113. By a separate order, registration of the firm was refused. THE assessee challenged the orders in appeal before the CIT(A), who by his order dt. 26th Sept., 1984 set aside the assessment. THE assessment was completed afresh on 17th March, 1987 fixing the total income at Rs. 47,40,130 while simultaneously refusing registration of the firm. On 13th Nov., 1987, the CIT(A) confirmed the order refusing registration of the firm and the appeal of the assessee against the assessment was partly allowed fixing the income at Rs. 7 lakhs with a direction to ascertain the interest payable by the assessee on kist and to add the same to the taxable income. This order of the CIT(A) was challenged in appeal before the Tribunal by the assessee as well as by the Department. THE Tribunal vide its order dt. 27th March, 1989 confirmed the order refusing registration to the firm but at the same time set aside the assessment to & be made afresh after obtaining the books of accounts from the custody of the Court and examining the same. THE present assessment was made after obtaining the books of amounts of the firm from the custody of the Court of Honble District & Session Judge, Ernakulam. In framing the present assessment, the Assessing Officer had just took the profit as disclosed in the accounts in a sum of Rs. 7,66,253 and made certain disallowances to the extent of Rs. 2,80,995 and thus determined the income from arrack shops at Rs. 10,47,248. In so doing the expenditure on the kist payment in a sum of Rs. 26,37,661 was taken into account without taking into account the kist payable in respect of the previous year in a sum of Rs. 8,63,046. THE latter amount was not taken into account because the liability towards the kist payment in such sum was not found debited to the accounts of the assessee. He took the arrack duty at Rs. 3,30,045 instead of Rs. 4,77,376. He did not allow depreciation in respect of the assets employed in business. He had also made certain other additions and disallowances.
(2.) In his appeal to the CIT(A), the assessee objected to the additions and the disallowance made by the Assessing Officer and also the non-deduction of the amount of kist outstanding as at the end of the year and short deduction in respect of arrack duty of Rs. 1,47,331 (Rs. 4,77,376 -Rs. 3,30,045) and the failure to grant depreciation on the assets employed in business. The learned CIT(A) gave part relief in respect of additions and disallowances. He did not grant any relief in respect of the assessees claim for deduction of the kist payable to the Government but unpaid as at the end of the year. Similarly no deduction was allowed on arrack duty of Rs. 1,47,331. Nor did he grant any depreciation in respect of the assets.
The assessee is in appeal before us against the relief denied by the CIT(A). There are several grounds before us. But Shri Krishna Iyer submitted that he would be pressing only the failure to grant deduction for the kist payable in a sum of Rs. 8,63,406 and short deduction in respect of arrack duty of Rs. 1,47,331 and the failure to grant depreciation in a sum of Rs. 42,700 and that he would not be pressing other grounds of appeal.
(3.) IN regard to the kist payable during the previous year relevant to the asst. yr. 1981-82 but remained unpaid at the end of the previous year, Shri Krishna Iyer submitted that there is no dispute about on the quantum of the amount payable. It has been ascertained at Rs. 8,63,406 and had been allowed as a deduction in the assessment order dt. 27th March, 1984 at para 3 (page 3 of the paper book). Similarly the depreciation of Rs. 42,700 was allowed as deduction in the same paragraph. Again in the order passed on 17th March, 1987 under S. 143(3) r/w S. 260, for the same assessment year, the Assessing Officer at para 16 had allowed the kist payable in a sum of Rs. 8,63,406 and depreciation of Rs. 42,700 (page 18 of the paper book). This latter assessment was ultimately set aside by the Tribunal in its consolidated order dt. 27th March, 1989 in relation to the appeals both by the assessee and the Revenue and the matter was again restored to the Assessing Officer with the following observations : "From the facts discussed above, it would be clear that for the year under appeal, viz. the year ended on 31st March, 1981, the assessee-firm had maintained books of accounts and other records for the business carried on by it, and that these books and records are available in the custody of the Court in connection with some criminal proceedings against the partners of the assessee-firm in respect of certain events that had taken place long after the year under appeal. At the same time, it is also equally clear that neither the assessee nor the Department is able to have any access to these accounts and records in the custody of the Court to enable the income-tax authorities to make a proper assessment and for the assessee to meet the case put forward by the Departmental authorities by offering a proper explanation with reference to the figures recorded in the books of accounts and other relevant records in the Courts custody. This difficulty was already noticed by the CIT(A) when he set aside the assessment on 26th Sept., 1984 from which we have already quoted supra. The position has not improved even today as could be seen from the fact that even in the present assessment proceedings, the IAC could only take an extract of certain figures from the books of accounts with the help of the INcome-tax INspector who was accompanied by the assessees representative, from which the P&L a/c which is annexed to the assessment order, was prepared. IN our view, when proper accounts are available, the assessment should be made only on the basis of those accounts unless it is found that these books of accounts are unreliable. For this purpose, it is necessary for the assessee and the Department to get those books of accounts and records, before a proper assessment is made. The CIT(A) himself accepts in the order that there is no means of verification of the assessees explanation or the Department could not reject the explanation offered by the assessee as unbelievable. The estimate made by the CIT(A) of the assessees income at Rs. 7 lakhs is as much arbitrary as the estimate of income made by the IAC at Rs. 47,40,130. IN the interest of justice we, therefore, consider it fair and proper to set aside the orders of the authorities below and restore the matter to the file of the Assessing Officer with a direction to him to make a fresh assessment in accordance with law after obtaining the relevant books of accounts and other records from the Court by making a proper petition to the Court under the relevant provisions of law with the help of the assessee. The learned counsel for the assessee stated that the assessee would also make the necessary petition to the Court for the return of the account books and the relevant documents to the assessee or to the Assessing Officer or at-least for taking out the copies of the relevant accounts by the assessees representative or for giving them to the Assessing Officer, as the Court may think fit. IN fact the CIT(A) himself says in his order that the Department may also make a request to the Court for the release of these account books and documents for the purpose of making the assessment and for returning the same to the custody of the Court after the said assessment is completed. IN the above circumstances, we have no other alternative but to set aside the orders of the authorities below and restore the matter to the file of the Assessing Officer for making a fresh assessment in accordance with law, after giving a reasonable opportunity of being heard to the assessee to offer its explanation on the various points that may be raised by the Assessing Officer in the course of the fresh assessment proceedings, in the light of our directions given above." It is as a result of the above directions that the impugned assessment order was passed on 27th March, 1991 under S. 143(3) r/w S. 254 of the IT Act, 1961 and in this assessment, the Assessing Officer had not given deduction for the kist payable in a sum of Rs. 8,63,406 and had also not given deduction for depreciation in a sum of Rs. 42,700. These was short deduction in respect of arrack duty. The CIT(A) declined to grant these deductions for the simple reason that the Tribunal had directed the Assessing Officer to compute the income on the basis of the books of accounts after procuring the same from the custody of the Court. A comprehensive reading of the order of the Tribunal cannot lead to such a literal interpretation of its order. The system of accounting followed by the assessee is admittedly the mercantile system of accounting, as has been mentioned in the assessment order itself - first, second and third (the present) assessment orders. Once the assessee is found to be following mercantile system of accounting whether or not the kist payable in respect of the relevant previous year is debited in the accounts or not, kist amount is to be allowed on accrual basis. This principle has been over-looked. Further he submitted that in respect of depreciation, there is no statutory compulsion unlike in the case of investment allowance to debit the accounts of the assessee with the amount of depreciation. It is not in dispute that the assessee had furnished the particulars of depreciation and the same had been quantified in a sum of Rs. 42,700 in all the previous assessment orders, in relation to the same year and in respect of the same assessee. Therefore, the non-deduction of depreciation merely because it was not debited in the accounts was totally unjustified.;