COMMISSIONER OF INCOME-TAX, KERALA v. M/S. MANICK SONS
[Citation -1969-LL-0214-3]

Citation 1969-LL-0214-3
Appellant Name COMMISSIONER OF INCOME-TAX, KERALA
Respondent Name M/S. MANICK SONS
Court SUPREME COURT
Relevant Act Income-tax
Date of Order 14/02/1969
Assessment Year 1952-53
Judgment View Judgment
Keyword Tags cash credit • intangible addition • undisclosed income • income form undisclosed sources • unexplained cash credits • amalgamation of income for two years • power of tribunal
Bot Summary: The Income-tax Appellate Tribunal when considering the appeal for 1953-54 took the view that since the income assessed in 1952-53 was much less than in earlier years some of the undisclosed income of that year must have gone into the cash credits disclosed in 1953-54. 712 E-F In the present case the Tribunal was entitled to enquire whether the source of cash credits was explained : if it held that they represented capital or income of earlier years it could exclude them from income liable to be taxed in the year to which the appeal related. The Tribunal had no power to find on amalgamation of income an average of more years than one, and to divide it for the purpose of assessment between the two years 1952-53 and 1953-54-equally. The Tribunal then aggregated the income for 710 the assessment years 1952-53 and 1953-54 for the two years, which he rounded off at Rs. 1,00,000 and apportioned in equal shares in the two years. The Tribunal thought that because in the assessment year 1952-53 the total income of Rs. 15,331 was comparatively small compared to the 711 income of the earlier years some of that year s profits must have come into the profits of the next year. Rs. 6,000 21,000 29,620 ----- Assessable for both the year 91,838 and observed The assessee has undertaken to file a voluntary return for assessment year 1952-53 on the basis of a total income of Rs. 50,000. For reasons already set out the Tribunal had no jurisdiction to proceed to combine the income for the two years 195253 and 1953-54 and to divide it for the purpose of assessment between the two years equally.


http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6 PETITIONER: COMMISSIONER OF INCOME-TAX, KERALA Vs. RESPONDENT: M/S. MANICK SONS DATE OF JUDGMENT: 14/02/1969 BENCH: SHAH, J.C. BENCH: SHAH, J.C. RAMASWAMI, V. GROVER, A.N. CITATION: 1969 AIR 1122 1969 SCR (3) 708 1969 SCC (1) 671 ACT: Income-tax Act, 1922, s. 33-Tribunal s powers--Tribunal cannot amalgamate income of two assessment years and divide it equally between them--Cannot take undertaking from assessee to file fresh return for earlier year and direct Income-tax Officer to make assessment accordingly-Cannot make allowance for intangible additions without giving reasons. HEADNOTE: For assessment year 1952-53 Income-tax Officer added certain amount to assessee s returned income as income from undisclosed sources. For assessment year 1953-54 still larger amount was added on account of unexplained cash credits. Income-tax Appellate Tribunal when considering appeal for 1953-54 took view that since income assessed in 1952-53 was much less than in earlier years some of undisclosed income of that year must have gone into cash credits disclosed in 1953-54. It therefore calculated income for both assessment years 1952-53 and 1953-54 together and after making some allowance for intangible additions in each year, determined amalgamated income for two years at Rs. 1,00,000 as round figure. On this basis assessment for 1953-54 was reduced to Rs. 50,000 from higher figure determined by Appellate Assistant Commissioner. In respect of year 1952-53 undertaking was taken from assessee to file fresh voluntary return for Rs. 50,000 in place of much lower income originally assessed. At instance of department reference was made to High Court, and Tailing there, department appealed to this Court. HELD : appeal must be allowed. Under s. 33(4) of Income-tax Act, 1922, Income-tax Appellate Tribunal may after giving both parties to appeal opportunity of being heard, pass such orders thereon as it thinks fit. power conferred by that sub- section is wide, but it is still judicial power which must be exercised in respect of matters that arise in appeal and according to law. Tribunal in deciding appeal before it must deal with questions of law and fact which http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6 arise out of order of assessment made by Income-tax Officer and order of Appellate Assistant Commissioner. It cannot assume powers which are inconsistent with express provisions of Act or its scheme. [712 E-F] In present case Tribunal was entitled to enquire whether source of cash credits was explained : if it held that they represented capital or income of earlier years it could exclude them from income liable to be taxed in year to which appeal related. But Tribunal had no power to find on amalgamation of income average of more years than one, and to divide it for purpose of assessment between two years 1952-53 and 1953-54--equally. [712 G; 714 D] In working out amalgamated income for two assessment years in question Tribunal could not without giving any reasons, and without supporting evidence, make allowance as it did for "intangible add tions". [714 G] 709 Tribunal hearing appeal may give directions for reopening assessment of year to which appeal relates : it cannot give any directions to reassess in case of period not covered by that year. There was no sanction in law to enforce undertaking given by respondent when urging his appeal in respect of year 1953-54, to make voluntary return for year 1952-53; and even if respondent carried out that undertaking assessment of 1952-53 could not be reopened otherwise than in manner prescribed by Act. undertaking must therefore be ignored. implied direction given by Tribunal to Income-tax Officer to reassess income for year 1952-53 was without jurisdiction. [712 D-E; 714 A] questions raised on behalf of revenue clearly flowed from contentions raised before Tribunal and enquiry into those questions was not barred. [712 D-E; 714 A] Commissioner of Income-tax, Madras v. S. Nelliappan, 66 I.T.R. 722, distinguished. JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2459 of 1966. Appeal by special leave from judgment and order dated August 2, 1965 of Kerala High Court in Income-tax Referred Case No. 20 of 1964. Sukumar Mitra and B. D. Sharma, for appellant. S. Swaminathan and R. Gopalakrishnan, for respondent. Judgment of Court was delivered by Shah, J. For assessment year 1952-53 respondents M/s. Manick & Sons were assessed to tax in status of registered firm and their income was computed at Rs. 15,331 inclusive of Rs. 15,000 being undisclosed income. For assessment year 1953-54 respondents returned Rs. 40,887 as their income from business. Income-tax Officer discovered aggregate amount of Rs. 74,692 as "cash credits" which, in his view, were not satisfactorily explained by respondents. Income-tax Officer accordingly brought to tax total income of Rs. 1,31,179 being Rs. 56,487 as income from business and Rs. 74,692 as income from "other sources" and assessed respondents as unregistered firm. Appellate Assistant Commissioner in appeal reduced income of respondents from business to Rs. 38,420 and income from "other sources" to Rs. 46,620. In second appeal Tribunal reduced http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6 income from business to Rs. 28,820 and confirmed finding that source of cash credits aggregating to Rs. 46,620 had remained unexplained. But Tribunal observed that "there were certain special features in case which needed proper consideration in determining final assessment." Tribunal then aggregated income for 710 assessment years 1952-53 and 1953-54 for two years, which he rounded off at Rs. 1,00,000 and apportioned in equal shares in two years. For assessment year 1952-53, Tribunal recorded that respondents had given undertaking to file voluntary return for assessment on basis of total income of- Rs. 50,000. At instance of Commissioner of Income-tax, four questions were referred to High Court of Kerala : "(1) Whether it was not beyond jurisdiction of Appellate Tribunal to reopen concluded assessment for assessment year 1952-53 and to direct that income should, be revised in that year at Rs. 50,000 as against Rs. 15,331 already fixed ? (2) Whether on facts and circumstances of case and evidence on record, Tribunal was justified in directing that any portion of cash credits be assessed to income-tax in any year other than assess- ment year 1953-54 ? (3) Whether on facts and circumstances of case and evidence on record, Tribunal was-,justified in finding that portion of cash credits were covered by intangible additions made in 1952-53 and 195354 assessment ? (4) Whether on facts and circumstances of case and evidence on record, Tribunal *as justified in directing that income under head business for assessment year 1953-54 be reduced to Rs. 50,000 ?" High Court declined to answer questions (1)_& (2) and answered questions (3) & (4) in affirmative. Commissioner appeals with special leave. judgment of Tribunal is not reasoned decision on questions arising before it; it is cryptic and in parts obscure, and gives no grounds for its conclusion. judgment again lends countenance to method of assessment which Indian Income-tax Officer aggregated to Rs. 74692 which amount was Tribunal observed that cash credits discovered by Income-tax Officer aggregated to Rs. 74692 which amount was reduced by Appellate Assistant Commissioner to Rs. 50,620. (It is common ground that correct figure should be Rs. 46,620.) Tribunal then observed that on evidence on record "these residuary items must remain unexplained." But Tribunal thought that because in assessment year 1952-53 total income of Rs. 15,331 was comparatively small compared to 711 income of earlier years "some of that year s profits must have come into profits of next year". Tribunal then set out consolidated statement of account for two years : "1. Trade profits assessed for assessment Rs. year 1952-53 15,331 2. Trade profits on basis of books and without estimates and additions impugned http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6 in this appeal (Rs. 56,487 less Rs. 45,600)40,887 3. Trading deficiency: (a) Palluruthy branch 1,000 (b) Pavaratty branch 5,000 6,000 4. Unexplained cash Credits 50,620 Less set off- Intangible addition for 1952-53 Rs. 15,000 Intangible addition for 1953-54 as above. Rs. 6,000 21,000 29,620 ---------- Assessable for both year 91,838" and observed assessee has undertaken to file voluntary return for assessment year 1952-53 on basis of total income of Rs. 50,000. In these circumstances, total business income of assessee for year under appeal is reduced to Rs. 50,000 only." unexplained cash credits found by Appellate Assistant Commissioner and accepted by Tribunal were Rs. 46,620. total income of two years on basis adopted by Tribunal was therefore Rs. 87,838. But income of two years was rounded off at Rs. 1,00,000 and divided equally between two years. For making up consolidated statement of account Tribunal gave no reasons nor did it give any reasons "for debiting intangible additions" of Rs. 15,000 and Rs. 6,000 against cash credits. Counsel for respondents suggested that Tribunal was presumably of view that Rs. 15,000 brought to tax as business income in assessment in 1952- 53 must have been entered in books of account of next year and that Rs. 6,000 called "trading deficiency" in two branches was entered as cash credit. appeal before Tribunal raised simple question-- whether cash credits aggregating to Rs. 46,620 or any part thereof were liable to be taxed as income of respondents in 712 year 1953-54. For that purpose the, Tribunal had to consider whether respondents furnished any explanation leading to justifiable inference that amount or part thereof did not represent income of respondents In view of Tribunal cash credits had remained unexplained. But Tribunal still reduced cash credits by Rs. 21,000, and then proceeded to amalgamate income for two years and to divide it equally. For reducing cash credits by Rs. 21,000 no reasons have been given, and amalgamation of income for two years and apportionment is without authority of law. assessment which has become final may be reopened in appeal by Appellate Assistant Commissioner or Tribunal or in revision by Commissioner, or under order of rectification of mistake, or pursuant to notice of reassessment. Tribunal hearing appeal may give directions for reopening assessment of year to which appeal relates : it cannot give any directions to reassess in case of period not covered by that year. There is no sanction in law to enforce undertaking given by respondent-when urging his appeal in respect of year 1953-54, to make voluntary return for year 1952-53; and even if respondents carried out that undertaking assessment of 1952-53 could not be reopened otherwise than in manner prescribed by law. undertaking must therefore be ignored. Under S. 33(4) of Income-tax Act, 1922, Income-tax Appellate Tribunal may, after giving http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6 both parties to appeal opportunity of being heard, pass such orders thereon as it thinks fit. power conferred by that sub-section is wide, but it is still judicial power which must be exercised in respect of matters that arise in appeal and according to law. Tribunal in deciding appeal before it must deal with questions of law and fact which arise out of order of assessment made by Income-tax Officer and order of Appellate Assistant Commissioner. It cannot assume powers which are inconsistent with express provisions of Act or its scheme. Tribunal was entitled to enquire whether source of cash credits was explained: if it held that they represented capital or income of earlier years, it could exclude them from income liable to be taxed in year to which appeal related. But Tribunal had no power to find on amalgamation of income average of more years than one, or to give credit for what is called intangible additions, without explaining why credit was given. There is no warrant for claim made by counsel for respondents that order passed by Tribunal was by consent. Tribunal has not stated so, and if order was made by consent of departmental authorities and respondents, 713 objection should have been prominently raised when Commissioner asked for reference to High Court. Counsel urged that final order passed by Tribunal operates to prejudice of respondents, and Commissioner is not aggrieved by that order. Counsel said that even though Tribunal has found that total income for two years in question was approximately Rs. 91,838 (which if correction account had been made would have been Rs. 87,838), Tribunal has directed assessment of Rs. 50,000 in year 1952-53 and another Rs. 50,000 in year 1953-54. But this is only superficial way of looking at matter. In assessment year 195253 respondents were assessed in status of registered firm and income of firm had to be distributed amongst partners, and shares of partners could be assessed to tax in their hands. rate of tax on this income unless partners have large individual income would be comparatively low. In year 1953-54 respondents were unregistered firm and total income of unregistered firm was liable to be taxed. It was also coin-tended that arguments raised before this Court were never set up either before Tribunal or before High Court and should not be permitted to be raised. question raised clearly flow from contentions raised before Tribunal and contemplate enquiry into matters urged by counsel by Commissioner. decision of this Court Commissioner of Income-tax, Madras v. S. Nelliappan(1) on which reliance was placed by counsel for respondents has little bearing in this case. In S. Nelliappan s case(2) it was held that conclusion whether cash credit in books of account of assessee is properly explained is one on question of fact on which no reference can be made to High Court under s. 66 of Indian Income-tax Act. Court in that case did not lay down that it is open to Tribunal to make consolidated assessment of tax in respect of assessment of income for two years and then divide income in equal shares. Turning then to questions : counsel for http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6 respondents conceded that Tribunal had no Jurisdiction to direct Income-tax Officer to reopen assessment for year 195253. He submitted however that Tribunal did not give any such directions : it merely recorded undertaking given by respondents that they will voluntarily submit return for Rs. 50,000 for year 1952-53. But context in which statement recording undertaking occurs in paragraph 7 of (1) 66 I.T.R. 722. 714 judgment of Tribunal and direction given in paragraph 8 leave no room for doubt that Tribunal did give direction to Income-tax Officer to reassess income for year 1952-53. On answer to first question no further enquiry need be made on second question. Tribunal has given no reasons in support of view that "intangible additions" of Rs. 21,000 covered part of cash credits. Our attention has also not been invited to any evidence which establishes connection between cash credits for Rs. 21,000 and additions of Rs. 15,000 made in assessment for 1952-5.3 and Rs. 6,000 added in 1953-54. fourth question contemplates inquiry whether Tribunal was justified in directing that income under head " business" for assessment year 1953-54 be reduced to Rs. 50,000. question is somewhat misleading. direction of Tribunal was that total income of respondents be reduced to Rs. 50,000 for year 1953- 54, business income being Rs. 28,820 and balance being income from other sources. For reasons already set out Tribunal had no jurisdiction to proceed to combine income for two years 195253 and 1953-54 and to divide it for purpose of assessment between two years equally. Tribunal had to assess income for year in question. appeal is allowed, and answers to questions re- corded by High Court are discharged. answers to questions will be as follows : Q. (1)-Tribunal had no jurisdiction. Q. (2)-Tribunal had no jurisdiction. Q. (3)-in negative. Q. (4)-in negative. There will be no order as to costs in this appeal. G.C. Appeal allowed. 715 COMMISSIONER OF INCOME-TAX, KERALA v. M/S. MANICK SONS
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