Kerala High Court
The Commissioner Of Income-Tax vs Sri.P.P.Jose (Late) on 17 February, 2025
Author: A.K.Jayasankaran Nambiar
Bench: A.K.Jayasankaran Nambiar
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 1 2025:KER:13254
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
MONDAY, THE 17TH DAY OF FEBRUARY 2025 / 28TH MAGHA, 1946
ITA NO. 136 OF 2009
AGAINST THE ORDER DATED 27.02.2004 IN I.T.(S&S)A.
NO.31&32/COCH/2003 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN
BENCH,COCHIN
APPELLANT/RESPONDENT:
THE COMMISSIONER OF INCOME-TAX
(CENTRAL), COCHIN.
BY ADVS.
SRI.JOSE JOSEPH, SC, INCOME TAX DEPARTMENT, KERALA
SRI.CHRISTOPHER ABRAHAM, INCOME TAX DEPARTMENT
SRI.NAVANEETH.N.NATH
SRI.SUSIE B VARGHESE(K/1300/2019)
RESPONDENT/APPELLANT:
1 P.P.JOSE (LATE),
ALAPPAT JEWELLERY, TRIVANDRUM, REPRESENTED BY HIS SON
SHRI. SUNNY P. JOSE.
2 ADDL.R2. SMT. MARY SUNNY (WIFE)
ALAPATT PALATHINGAL, TC.11/1415-1 CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR P.O.-695 003, THIRUVANANTHAPURAM.
3 ADDL.R3.SHRI JONY(SON)
ALAPATT PALATHINGAL, TC.11/1415-1 CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR P.O., -695 003,
THIRUVANANTHAPURAM.
4 ADDL.R4.RUBY LITTO (DAUGHTER)
ALAPATT PALATHINGAL, TC.11/1415-1 CLIFF HOUSE ROAD,
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 2 2025:KER:13254
NANTHANCODE, KOWDIAR P.O., -695 003,
THIRUVANANTHAPURAM. (ADDITIONAL R2 TO R4 ARE IMPLEADED
AS PER ORDER DATED 29/01/2019 IN IA NO.3//2019 IN ITA
NO.136/2009)
5 SUSAN PAUL,W/O P.J. PAUL,
TC26/2126,TUTORS LANE STATUE,ALAPATT
PALATHINGAL,TC.11/1415-1.,CLIFF HOUSE ROAD, KOWDIAR PO-
695003, THIRUVANANTHAPURAM
6 BOOBY PAUL, S /O P.J.PAUL,
TC26/2126,TUTORS LANE STATUE,ALAPATT
PALATHINGAL,TC.11/1415-1.,CLIFF HOUSE ROAD, KOWDIAR PO-
695003, THIRUVANANTHAPURAM
7 BONY PAUL, S/O.P.J.PAUL,
TC26/2126,TUTORS LANE STATUE,ALAPATT
PALATHINGAL,TC.11/1415-1.,CLIFF HOUSE ROAD, KOWDIAR PO-
695003, THIRUVANANTHAPURAM
8 P.J.LEELA,
NO. 92,VIDYANAGAR HOUSING COLONY, COCHIN UNIVERSITY
P.O., SOUTH KALAMASSERY, ERNAKULAM. (ADDITIONAL R5 TO
R8 ARE IMPLEADED AS PER ORDER DATED 10/04/2019 IN IA
4/2019 IN ITA 136/2009)
BY ADVS.
SRI.ANIL D. NAIR, SR
SRI.MATHEW BOB KURIAN
SMT.TELMA RAJU
SMT.CHRISTINA ANNA PAUL
SANGEETH JOSEPH JACOB
SRI.ARAVIND SREEKUMAR
SRI.EDATHARA VINEETA KRISHNAN
SRI.P.K.BIJU
SRI.K.T.THOMAS
THIS INCOME TAX APPEAL HAVING COME UP FOR FINAL HEARING ON
17.02.2025, ALONG WITH ITA.74/2011, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 3 2025:KER:13254
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR
&
THE HONOURABLE MR. JUSTICE EASWARAN S.
MONDAY, THE 17TH DAY OF FEBRUARY 2025 / 28TH MAGHA, 1946
ITA NO. 74 OF 2011
AGAINST THE ORDER DATED 27.02.2004 IN I.T.(S&S)A.
NO.31&32/COCH/2003 OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN
BENCH,COCHIN
APPELLANT/RESPONDENT:
THE COMMISSIONER OF INCOME-TAX,
COCHIN
BY ADVS.
JOSE JOSEPH, SC, INCOME TAX DEPARTMENT, KERALA
CHRISTOPHER ABRAHAM
NAVANEETH.N.NATH
SUSIE B VARGHESE(K/1300/2019)
RESPONDENT/APPELLANT:
1 SRI.P.P.JOSE (LATE)
ALAPPAT JEWELLERY, TRIVANDRUM, REPRESENTED BY HIS SON
SHRI. SUNNY P. JOSE.
2 ADDL.R2 TO R4 IMPLEADED SMT.MARY SUNNY (WIFE)
ALAPATT PALATHINGAL, TC.11/1415-1, CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR P.O.-695 003, THIRUVANANTHAPURAM.
3 SHRI.JONY SUNNY (SON)
ALAPATT PALATHINGAL, TC.11/1415-1, CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR P.O., -695 003,
THIRUVANANTHAPURAM.
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 4 2025:KER:13254
4 RUBY LITTO (DAUGHTER)
ALAPATT PALATHINGAL, TC.11/1415-1, CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR P.O., -695 003,
THIRUVANANTHAPURAM. (ADDITIONAL R2 TO R4 ARE IMPLEADED
AS PER ORDER DATED 29/01/2019 IN IA NO.3//2019 IN ITA
NO.136/2009)
5 ADDL.R5 TO R8 IMPLEADED SUSAN PAUL
W/O.P.J.PAUL, TC 26/2126, TUTORS LANE STATUE, ALAPATT
PALATHINGAL, TC.11/1415-1,CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR PO-695003, THIRUVANANTHAPURAM
6 BOOBY PAUL
S/O. P.J. PAUL, TC 26/2126, TUTORS LANE STATUE, ALAPATT
PALATHINGAL, TC.11/1415-1, CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR PO-695003, THIRUVANANTHAPURAM
7 BONY PAUL
S/O. P.J. PAUL, TC 26/2126, TUTORS LANE STATUE, ALAPATT
PALATHINGAL, TC.11/1415-1, CLIFF HOUSE ROAD,
NANTHANCODE, KOWDIAR PO-695003, THIRUVANANTHAPURAM
8 P.J. LEELA
NO. 92,VIDYANAGAR HOUSING COLONY, COCHIN UNIVERSITY
P.O., SOUTH KALAMASSERY, ERNAKULAM. (ADDITIONAL R5 TO
R8 ARE IMPLEADED AS PER ORDER DATED 10/04/2019 IN IA
4/2019 IN ITA 136/2009 & ITA 74/2011)
BY ADVS.
SRI.ANIL D. NAIR, SR
SMT.TELMA RAJU
SMT.CHRISTINA ANNA PAUL
SRI.SANGEETH JOSEPH JACOB
SRI.ARAVIND SREEKUMAR
SRI.EDATHARA VINEETA KRISHNAN(K/1088/2021)
SRI.P.K.BIJU(K/000364/2022)
THIS INCOME TAX APPEAL HAVING COME UP FOR FINAL HEARING ON
17.02.2025, ALONG WITH ITA.136/2009, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 5 2025:KER:13254
(CR))
JUDGMENT
Dr. A.K.Jayasankaran Nambiar, J.
Both these Income Tax Appeals by the revenue impugn the order dated
27.02.2004 in ITA No.31/Coch/2003 and ITA No.32/Coch/2003 respectively.
The Appellate Tribunal by the aforesaid order had disposed the appeals
preferred by the assessee and the Revenue against the order of the First
Appellate Authority in an appeal preferred by the assessee against an order of
assessment under Section158BC read with Section 143 of the Income Tax Act
for the block period 01.04.1989 to 23.12.1999.
2. The brief facts necessary for the disposal of these Income Tax Appeals
are as follows:
Consequent to a search and seizure action under Section 132 of the
Income Tax Act at the business and residential premises of the respondent
assessee on 23.12.1999, an assessment for the block period from 01.04.1989
to 23.12.1999 was completed against the respondent assessee under Section
158BC read with Section 143(3) of the Income Tax Act on 31.12.2001. The
Assessing Authority had by the said order rejected the books of accounts
maintained by the assessee during the aforementioned block period and had
proceeded to estimate the income of the assessee for the entire block period
on the basis of the average running stock of the assessee for the various years
covered by the block period. The rejection of the books of accounts was based
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 6 2025:KER:13254
on material that was unearthed during the search on 23.12.1999 and
statements recorded from various persons including the assessee's son, who
was in charge of the business of the assessee, and certain customers, who had
visited the business premises of the assessee. The undisclosed income
generated for the entire block period was computed at Rs.5,86,52,026/- and
tax thereon was demanded from the respondent assessee.
3. Aggrieved by the order of assessment, the assessee preferred an
appeal before the First Appellate Authority. The First Appellate Authority
while susbtantially confirming the demand of the Assessing Officer, modified
the demand by fixing the undisclosed income at two times the running stock
of the assessee during the various assessment years covered in the block
period, as against three times the running stock that was taken by the
Assessing Officer. The First Appellate Authority also restricted the said
addition to only five of the 10 years covered by the block period on the finding
that incriminatory material recovered during the time of search pertained
only to those five years and not to the other years covered under the block
period. The five years in respect of which the undisclosed income was
directed to be computed were 1995-1996, 1997-1998, 1998-1999, 1999-2000,
and 2000-2001. The First Appellate Authority also confirmed the disallowance
made by the Assessing Officer in relation to the expenditure claimed under
Section 40(A)(3) and added back these amounts to the calculation of the
undisclosed income. The assessment order was, therefore, modified by the
First Appellate Authority only to a limited extent.
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 7 2025:KER:13254
4. It was aggrieved by the order of the First appellate authority that
both the respondent assessee as also the revenue preferred appeals before
the Income Tax Appellate Tribunal. The Appellate Tribunal by the order
impugned in these appeals upheld the finding of the First appellate Authority
that the estimation could be done only in respect of those years where there
was material to suggest that there was a suppression of the income by the
assessee. The Tribunal however deprecated the practice of estimating the
undisclosed income based on the average running stock method that was
adopted by the Assessing Authority as also the First Appellate Authority.
Relying on the submissions made on behalf of the assessee, the Appellate
Tribunal directed the estimation of undisclosed income to be computed at the
rate of six times the suppressed sales turnover for the respective years in
which material was available with the Department to suggest actual
suppression. The Tribunal also proceeded to restore the gross profit that was
taken by the Assessing Authority at the rate of 18.59% for all the assessment
years in which suppression was detected. On the aspect of disallowance
under Section 40A(3) of the Income Tax Act, the Tribunal found that a
disallowance under Section 40A(3) could not be considered while completing
a block assessment since the said disallowance would ordinarily be
considered by an Assessing Authority at the time of regular assessment for
each of the assessment years covered by the block period. In arriving at the
said conclusion, the Tribunal relied on its own earlier judgment in the case of
Eastern Retreads (I) Limited [66 TTJ 695] where it had held that the
disallowance in a regular assessment under Section 40A(3) cannot be
considered again while framing a block assessment. In effect, therefore, the
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 8 2025:KER:13254
Tribunal modified the order of the First Appellate Authority granting
substantial relief to the respondent assesee.
5. The effect of the Tribunal order has been captured in the
proceedings dated 30.04.2004 of the Deputy Commissioner of Income Tax,
Central Circle, Thiruvananthapuram, who was required to pass consequential
orders giving effect to the order of the Tribunal. It is seen from a perusal of
the said order that the undisclosed income was computed in the manner
suggested by the Tribunal, only for the years 1995-1996, 1998-1999, 2000-
2001, and 1993-1994. In the computation of tax, the total tax payable was
found to be Rs.17,25,111/-, and after giving credit to the tax of Rs.53,58,000/-
already paid by the assessee, he was held entitled to a total refund of
Rs.37,23,709/- inclusive of interest under Section 244A(1)(b) of the Income
Tax Act.
6. It is aggrieved by the said order of the Tribunal that the revenue
has come up before us in these appeals raising the following substantial
questions of law.
1. Whether, on the facts and in the circumstances of the case
and also in the light of the Kerala High Court decisions relied on
by the Revenue before the Tribunal,-
i) the Tribunal is justified in not taking the running
stock method adopted by the Assessing Officer in fixing the
sales turnover?
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 9 2025:KER:13254
ii) should not the Tribunal have adopted the sales turnover
at three times of the running stock?
2. Whether, on the facts and in the circumstances of the case
and in the light of the observation of the Accountant Member in
his separate order that "estimation of turnover in the case of a
Jewellery business on the basis of average running method is not
unjust or unfair, estimating the sales turnover on the average
running method is a time tested method in estimating the sales
turnover in this line of business" the Tribunal is right in law and
fact and also justified in restricting the addition to 6 times the
suppressed sales found for the respective assessment years and
is not the method in estimating the sales turnover,
i) Against law and practice?
ii) Against the decision of the Kerala High Court?
iii) Conflicting in view of the difference indicated by the
Accountant Member in his separate order?
3. Whether, on the facts and in the circumstances of the case and
also in view of the separate order of the Accountant Member on
the question of the method in estimating the sales turnover, can
the view expressed in the main order be said to be the order of
the Tribunal at all?
4. (a) Whether, on the facts and in the circumstances of the case
and for the reasons given in the order of the Tribunal, the
Tribunal is right in law and fact in deleting the disallowance
made under section 40A(3) of the I.T. Act?
b) Whether, on the facts and in the circumstances of the case,
the Tribunal is right in law in holding that disallowance under
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 10 2025:KER:13254
section 40A(3) cannot be made in block assessments and
accordingly deleting the entire disallowance?
c) Whether, on the facts and in the circumstances of the case
and also for the reasons given. in the appeal memorandum and
grounds raised, the Tribunal is right in law and fact in holding
that the disallowance under Section 40A(3) cannot be made in
block assessments because these are reflected in the accounts
as revealed from seized records? And is not the finding, wrong,
baseless, against facts and unsupported by materials?
5. Whether, on the facts and in the circumstances of the
case and also in the light of the reasons given in the appeal
Memorandum and the grounds raised, the Tribunal is justified
in confirming the deletion of a sum of Rs.2,71,689/- relating to
assessment year 1994-03 by the Commissioner of Income tax
(Appeals) on the ground that a higher disallowance of
Rs.6,34,087/- was made in the regular assessment and are not
the finding and the deletion against facts highlighted in the
memorandum of appeal and hence wrong and baseless?
6. Whether, on the facts and in the circumstances of the case
and also for the reasons given in the Memorandum of appeal
and the grounds raised, the tribunal is right in law and fact in
allowing set off of a sum of Rs.50,00,000/ declared under VDIS.
In addition to the above questions of law the following question was also
allowed to be incorporated as an additional question of law in the IT Appeal
vide our order dated 07.03.2023.
7. Whether, on the facts and in the circumstances of the
case, the Tribunal is right in holding that the estimation of
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 11 2025:KER:13254
undisclosed income for the block period could be made only
for those years for which incriminating materials are seized
and is not such a finding and approach is against law and the
decision of the Hon'ble High Court of Kerala in Hotel Meriya's
case (332 ITR 537)?
7. We have heard Sri. Jose Joseph the learned Standing counsel for the
Income Tax Department and the learned Senior counsel Sri.Anil D. Nair
assisted by Smt.Telma Raju the learned counsel for the respondent assessee.
8. On a consideration of the rival submissions and before going into
the merits of the submissions made before us by the learned counsel, we
might point out that under the provisions of Section 260A of the Income Tax
Act, an appeal lies before this Court only on substantial questions of law that
arise from the order of the Income Tax Appellate Tribunal. The question as
to what qualifies as a 'substantial question of law' for the purposes of
Section 260A has been considered by the Supreme Court in a catena of
judgments over the last five decades and more. The principles that can be
culled out from a perusal of the said judgments briefly stated are as follows:
i. An inference of fact from the recitals or contents of a
document is a question of fact. However the legal effect of the
terms of the document is a question of law. Construction of a
document involving the application of any principle of law is
also a question of law. Therefore, when there is a
misconstruction of a document or wrong application of a
principle of law in construing a document, it gives rise to a
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 12 2025:KER:13254
question of law. However all questions of law do not become
substantial questions of law.
ii. A question of law, the answer to which affects the
rights of the parties to the litigation, will be a substantial
question of law, if it is not covered by the specific provision of
law or binding precedents and involves a debatable legal
issue.
iii. A substantial question of law will also arise if the
legal position is clear, either on account of express provisions
of law or binding precedents but the court below has decided
the matter, either ignoring or acting contrary to such legal
principles.
vi. Findings of facts arrived at by the court below will not
ordinarily be interfered with unless
(a) the court below has ignored material evidence or
acted on no evidence,
(b) the court had drawn wrong inferences from true
facts by applying the law erroneously or
(c) the court has wrongly cast the burden of proof.
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 13 2025:KER:13254
v. For a substantial question of law to arise from the
order of the Tribunal, it must have been raised before or
decided by the Tribunal.
(See: Chandrabhan (Deceased) Through Lrs. And Others v. Saraswati
and Others [2022 SCC Online SC 1273], Chunilal v Mehta & Sons v
Century Spg. & Wvg. Mills - [AIR 1962 SC 1314], Santhosh Hazari v.
Purushottam Tiwari (Deceased) by Lrs. [(2001) 3 SCC 179], Vijay
Kumar Talwar v. Commissioner of Income Tax, Delhi [(2011) 1 SCC
673], Meenakshi Mills Ltd v CIT - [AIR 1957 SC 49], C.I.T. (Central),
Calcutta v. Daulat Ram Rawatmull [1973 3 SCC 133], The
Commissioner of Income Tax, Bihar and Orrisa, Patna v. S.P. Jain
[1973 3 SCC 824], Commissioner of Income Tax, Calcutta v. Biju
Patnaik [(1986) 3 SCC 310], M/s.Lalchand Bhagat Ambica Ram v.
Commissioner of Income-tax [AIR 1959 SC 1295], and Hero Vinoth
(Minor) v. Seshammal [(2006) 5 SCC 545].
9. On an application of the above principles to the facts arising in the
instant appeals, we find that merely because the Appellate Tribunal had
chosen a different method for estimation of the undisclosed income of the
assessee during the block period, from the methodology that was adopted by
the Assessing Authority and the First Appellate Authority, it cannot be said
that the findings of the Appellate Tribunal give rise to a substantial question
of law. This is more so because the methodologies adopted by the Assessing
Authority and the First Appellate Authority on the one hand, and the
Appellate Tribunal on the other, are merely different modes by which an
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 14 2025:KER:13254
estimation is done of the extent of the suppression of income detected by the
authorities. Since any estimation involves an element of guess work, one
cannot state with any degree of conviction that a particular methodology is
the only one that can be legally adopted in a given case. We also find that a
Division Bench of this Court in C.C Jacob v. State of Kerala [1997
Taxman.com 1659 (Kerala)] has found that, the choice of methods to be
adopted for the purposes of estimation of turnover is a matter for an
Assessing Authority to decide on the basis of the materials on record. It will
always depend on the facts and circumstances of each case. It was also
found that in the case of an assessee carrying on the business of jewellery,
whose business premises are inspected by the Department and the
difference in weighment and the number of items of gold ornaments is found
to be minimal, as compared to the stock held on the date of inspection, or
where the difference in the number of items is not very substantial, the
method of determining turnover on average running stock basis is not
reliable. Thus, there is no fixed method for arriving at the undisclosed
income in cases such as the present, and it all depends upon the subjective
satisfaction of the adjudicating authority concerned. We are therefore not
persuaded to find that the methodology adopted by Appellate Tribunal was
legally incorrect, or that the finding of the Appellate Tribunal on the said
issue gives rise to a substantial question of law for our consideration in these
appeals preferred by the revenue.
10. As regards the questions raised in relation to the disallowance
under Section 40A(3) of the Income Tax Act, we find that the Appellate
Tribunal had only relied on its own earlier order in Eastern Retreads (I)
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Limited [66 TTJ 695] while arriving at a conclusion in favour of the
respondent assessee. It is not in dispute before us that the revenue did not
choose to carry the said order of the Appellate Tribunal in appeal before this
Court in any proceedings. Under the said circumstances, we cannot sustain
an argument to the contrary by the revenue in these appeals before us.
Resultantly, these appeals fail and are accordingly dismissed.
Sd/-
DR. A.K.JAYASANKARAN NAMBIAR
JUDGE
Sd/-
EASWARAN S.
JUDGE
mns
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 16 2025:KER:13254
PETITIONER ANNEXURES
Annexure A TRUE COPY OF ASSESSMENT ORDER DATED
31.12.2001.
Annexure B TRUE COPY OF THE COMMISSIONER O INCOME TAX
(APPEALS) ORDER DATED 24.03.2003.
Annexure C TRUE COPY OF THE COMMISSIONER OF INCOME TAX
(APPEALS) ORDER U/S. 154 DATED 12.05.2003.
Annexure D TRUE COPY OF THE GROUNDS OF APPEALS FILED BY
THE REVENUE BEFORE THE INCOME TAX APPELLATE
TRIBUNAL.
Annexure E CERTIFIED COPY OF THE ORDER OF THE TRIBUNAL
COCHIN BENCH DATED 27.02.2004.
ITA NO. 136 OF 2009
ITA NO. 74 OF 2011 17 2025:KER:13254
PETITIONER ANNEXURES
ANNEXURE A TRUE COPY OF ASSESSMENT ORDER DATED
31/12/2001.
ANNEXURE B TRUE COPY OF THE COMMISSIONER OF INCOME
TAX(APPEAL)'S ORDER DATED 24/3/2003
ANNEXURE C TRUE COPY OF THE COMMISSIONER OF INCOME TAX
(APPEAL)'S ORDER U/S.154 DATED 12/5/2003.
ANNEXURE D TRUE COPY OF THE GROUNDS OF APPEAL FILED BY
THE REVENUE BEFORE THE INCOME TAX APPELLATE
TRIBUNAL
ANNEXURE E CERTIFIED COPY OF THE ORDER OF THE TRIBUNAL,
COCHIN BENCH DATED 27/2/2004
