HIGH COURT OF KERALA
CIT v/s. A.M. Fazil
IT Appeal No. 1583 of 2009
FEBRUARY 10, 2012
C.N. Ramachandran Nair, J. – The respondent-assessee is engaged in film production and direction. Several of the films produced or directed by the respondent-assessee were distributed through Sri. P.D. Abraham alias Sri. Appachan, Swargachitra Films. The Income-tax Department conducted search under Section 132 of the Income Tax Act (hereinafter called “the Act”)in the residence and business premises of Sri. Appachan as well as the respondent-assessee and another film producer by name Sri. A.H. Khais who is the brother of the respondent-assessee from 24.7.1997 to 29.7.1997. During search, incriminating documents and accounts were seized from all the assessees which led to block assessment under Section 158BC of the Act in the name of three assessees namely, Sri. P.D. Abraham alias Appachan, respondent-assessee and also his brother Sri. A.H. Khais for the block period 1988-89 to 1997-98. We have heard the appeals relating to all the three assessees together and are disposing of the same by separate judgments.
2. Search was conducted in the premises of the respondent-assessee on 29.7.1997 wherein several documents and accounts were seized by the Income Tax department. Pursuant to notice under Section 158BC of the Act, assessee filed return in Form 2B returning undisclosed income for the entire block period totaling Rs.38.58 lakhs. However, the Assessing Officer based on materials received during search in the premises of the respondent-assessee as well as the distributor namely, Sri. P.D. Abraham, Swargachitra Films, completed assessment on a total undisclosed income of Rs.1,29,43,770/-. On appeal filed by the assessee, the first appellate authority substantially allowed the appeal by deleting most of the additions made in the assessment. The Revenue as well as the assessee filed appeals against the orders of the first appellate authority. The Tribunal by dismissing appeal filed by both sides sustained the order of the first appellate authority. It is against this order of the Tribunal, Revenue is in appeal before us. We have heard Senior counsel Sri. P.K.R. Menon appearing for the Revenue and Adv. Sri. Arun Raj appearing for the respondent-assessee.
3. The Revenue has challenged the deletion of entire additions made by the first appellate authority which are sustained by the Tribunal. Specific questions are raised with reference to each and every addition deleted by the Tribunal and the entire order of the Tribunal is challenged by raising a general question with reference to presumption available on the correctness of contents of books of accounts, documents etc. recovered during the course of search and also based on the evidentiary value of statements recorded under Section 132(4) of the Act.
4. Before proceeding to consider the various questions raised in the appeal, we have to consider the preliminary objection raised by the learned counsel for the respondent that no substantial question of law arises for consideration by this court with regard to the concurrent findings on fact recorded by the first appellate authority and confirmed by the Tribunal. Senior counsel appearing for the Revenue on the other hand contended that the appeal has to be considered by keeping in mind the special provisions of the Act contained in Chapter XIVB of the Act which specifically provide in Section 158BB that a block assessment has to be completed on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence. We have to certainly consider the salient features of block assessment contemplated under Chapter XIVB which provides for block assessment for a maximum period of 10 years ending with the date of search. While Section 158BC provides for block assessment of the assessees searched under Section 132 of the Act or whose books of account are called under Section 132A of the Act, Section 158BD provides for block assessment of assessees other than searched assessees based on evidence or materials received in the course of search. The peculiar feature of this case is that the respondent-assessee is a film producer and director, while the other assessee simultaneously searched namely, Sri. P.D. Abraham @ Appachan of Swargachitra Films is the film distributor and both these persons have so much of extensive business connections and, therefore, the records seized from both the assessees and the statements recorded from both of them relate to one and the same transaction i.e. the income and expenditure from film making, direction and in distribution. We are very conscious of the fact that the appellate jurisdiction of this court under Section 260A is limited to substantial questions of law arising from orders of the Tribunal. The contention raised by counsel for the assessee that concurrent findings on appreciation of evidence recorded by two appellate authorities normally should not be interfered by this court to reach a different conclusion again by reappraising the evidence is quite a sound principle of law. However, the contention raised by Senior counsel for the Revenue is that when assessment of undisclosed income is based on concrete evidence received from the documents and accounts seized from the residence of assessee and the film distributor above-referred, the Tribunal’s refusal to uphold the assessment without any basis or material is a perverse finding which gives rise to a question of law. We find force in this contention because when block assessment of any item is made based on evidence collected in the course of search, the assessment under Section 158BC read with Section 158BD is supported by statutory provision namely, Section 158BB of the Act. The Tribunal cannot cancel the assessment of undisclosed income if the same is based on tenable and acceptable evidence recovered in the course of search and which is not disproved by the assessee. Keeping this in mind we proceed to consider the appeal on the various grounds raised and the questions raised with reference to specific additions.
5. It is seen from the assessment order that the Assessing Officer computed undisclosed income movie-wise and the basis of addition is that the film distributor namely, Sri. P.D. Abraham of Swargachitra Films for whom assessee produced the film, has accounted payment of higher amount than what is shown as received by the assessee in his books of account. The Assessing Officer has relied on the accounts seized, evidence collected from the film distributor namely, Sri. P.D. Abraham and the statements recorded from him and compared the same with the receipts recorded in the accounts of the respondent-assessee and his statements and found that respondent has short-accounted the payments received from the distributor and, therefore, the difference is treated as undisclosed income of the respondent-assessee. The assessee’s counsel raised the contention that since the assessment is exclusively completed under Section 158BC, there is no scope for considering evidence received from the film distributor namely, Sri. P.D. Abraham in the course of search. We are unable to accept this contention raised by the counsel for the assessee because in the first place, validity of assessment under Section 158BC is not affected by making a combined assessment under Section 158BC read with Section 158BD. Secondly, even though assessment under Section 158BC is to be made based on the evidence collected in the course of search of the assessee, the evidence received in the course of search of the related assessee namely, the film distributor for whom the film is produced/directed by the assessee, is also admissible as evidence under Section 158BB of the Act. This is because Section 158BB states that not only the evidence found in the course of search could be relied on, but the Assessing Officer can also rely on other materials or information as are available with the Assessing Officer and relatable to such evidence. In other words, the evidence received in the course of search from the assessee can be combined with other evidence collected by the Assessing Officer which is relatable to the evidence recovered in search. We have already noticed that the evidence recovered from the distributor namely, Sri. P.D. Abraham and the evidence recovered from the assessee in search conducted on both of them under Section 132 of the Act relate to the transactions between them and pertain to production, direction and distribution of the same movies which are several in number specifically stated in the assessment orders of both the assessees.
6. Even though every item of undisclosed income assessed but deleted by the Tribunal is separately contested in this appeal, we feel there is no scope for interference with Tribunal’s order cancelling estimation of profit or disallowance of expenditure made. In our view, these are in the realm of appreciation of evidence and materials and we do not want to sit in appeal over Tribunal’s orders on appraisal of evidence and the conclusions drawn by them therefrom. We, therefore, confine our consideration only in respect of items of undisclosed income deleted by the Tribunal assessed based on concrete and reliable documentary evidence received in the course of search and corroboratory statements given by the assessee and the distributor in their sworn statements which were ignored by the Tribunal by stating that assessee has not admitted it. In other words we propose to correct only fundamental errors committed by the Tribunal ignoring the scope of Section 158BB of the Act.
7. The first addition which we feel deserves to be considered is the addition of Rs.10 lakhs being the undisclosed income received by the assessee from the film “Manathevellitheru”. Admittedly the major finance for this film which is produced by the assesssee for the distributor Sri. P.D. Abraham was provided by the said distributor. As per the accounts produced by assessee, only Rs.65 lakhs was credited to the account of Sri. Abraham. However, the realisation statement recovered from the assessee’s premises in search shows that assessee had received Rs.85 lakhs from the distributor namely, Sri. Abraham. The records seized from the assessee revealed unaccounted transaction between the distributor namely, Sri. Abraham and the assessee and the details of receipts in cash for the two movies for the assessment years 1995-96 and 1996-97 were also found. The department clearly found that cash receipts were not recorded in the books of account. It is seen that the realisation statement recovered from the assessee’s premises was sent by the distributor Sri. P.D. Abraham. Though the payments made by the distributor to assessee was Rs. 85 lakhs, assessee has recorded only Rs. 65 lakhs as advance. Inspite of undisclosed income of Rs. 20 lakhs received by the assessee for the above film, taking into account the assessee’s contention that there will be unaccounted payment to artists, the Assessing Officer has taken only 50% of the undisclosed income for assessment under Section 158BC. It is this addition that was challenged by the assessee before the first appellate authority as well as before the Tribunal which deleted the same. The first appellate authority as well as the Tribunal deleted the addition for the reason that assessee’s name does not appear in the seized paper and the department has not got any corroborative statement from the assessee. We are unable to uphold the reasoning and logic adopted by the first appellate authority and the Tribunal which expect clandestine accounts maintained by the assessee and the distributor to contain their names and addresses for believing it. Further, they also expect a confirmation statement by the assessee against his own interest. It is one thing to say that sworn statement given can be relied on as evidence under Section 132(4) of the Act and another thing to say that documentary evidence requires confirmation from the assessee against his own interest for the officer to make assessment. In our view, the approach of the first appellate authority as well as the Tribunal is absolutely contrary to the scheme of block assessment under Chapter XIVB which can be made based on convincing evidence recovered in the course of search as provided under Section 158BB of the Act. There can be no controversy that both were engaged in massive suppression of income and they themselves conceded the same by disclosing undisclosed income of Rs. 43 lakhs by the distributor and Rs. 38.75 lakhs by the assessee for the block period. It is in this context correctness of assessment has to be considered. The assumption by the C.I.T.(Appeals) as well as by the Tribunal that without the confirmation statement by the assessees undisclosed income cannot be assessed based on evidence gathered on search is wholly unrealistic and contrary to statutory scheme for assessment of undisclosed income under Chapter XIV B of the Act. We, therefore, set aside the order of the Tribunal and that of the first appellate authority and restore the addition of Rs. 10 lakhs being the undisclosed income from the film “Manathevellitheru”.
8. The next issue relates to the addition of Rs. 10 lakhs deleted by the first appellate authority as well as the Tribunal which is the undisclosed income determined by the Assessing Officer from the film “No.1 Snehatheeram Bangalore North”. We notice that the facts pertaining to this addition is exactly similar to the facts stated above with regard to assessment of undisclosed income from the other film. As in the other case the film was produced for Sri. P.D. Abraham @ Appachan. As per the Profit and Loss Account the assessee disclosed an advance of Rs. 66 lakhs from the distributor. However, it was seen from the realisation statement recovered from the assessee’s premises that the advance received by the assessee was Rs. 82 lakhs, difference being Rs. 16 lakhs. The Assessing Officer found that another production company namely, Khais production which is also an assessee simultaneously searched and proceeded against for block assessment had advanced Rs. 6 lakhs. After taking into account the accounted amount and Rs. 6 lakhs advanced by Khais Production, the Assessing Officer made an addition of Rs. 10 lakhs. As already stated by us, assessment is based on documentary evidence received from the assessee which is realisation statement sent by the distributor containing accounted and unaccounted payment of advance totalling Rs. 82 lakhs as against Rs. 66 lakhs accounted by the assessee. The first appellate authority as well as the Tribunal deleted the addition by stating that assessee has not given statement to corroborate the unaccounted income. We do not know what more evidence is required other than the clandestine account received from the assessee which is sent by the distributor showing the entire financial transactions. It may be noticed that vide judgment in I.T.A. No.323/2002 filed by the Department against Sri. P.D. Abraham, we have disallowed the department’s claim and sustained deletion of the additions in the case of the distributor by accepting the contention that unaccounted payment to film producer namely, respondent herein stands established by evidence recovered during search and statements recorded from the said assessee. Going by our findings in that case we have to necessarily conclude that assessee is paid actual amount stated in the realisation statement sent by the said distributor and recovered from the assessee’s premises. We, therefore, do not find any justification for the first appellate authority or the Tribunal to cancel the addition. We, therefore, allow the appeal on this issue by reversing the order of the Tribunal and that of the first appellate authority and by restoring the addition of Rs. 10 lakhs towards undisclosed income in respect of the film “No.1 Snehatheeram Bangalore North”.
9. Even though Revenue has serious objection against several additions deleted by the Tribunal, we feel there is no scope for interfering with the concurrent findings of the two appellate authorities. Further, the dispute with regard to the deletion of main addition Rs.24,35,528/-, we notice the finding of the first appellate authority as well as Tribunal is that the said income deserves to be excluded as the time for filing return for the assessment year 1997-98 was not over as on the date of search. We, therefore, do not find any ground to interfere with the Tribunal’s order on this issue. The next effective ground that deserves to be considered is the addition of Rs.2,20,959/- for the assessment year 1994-95 and Rs.62,611/- for the assessment year 1995-96 being the extra income received for the film “Pappayude Sontham Appoose”. Since the amount involved for 1995-96 is very small, we do not propose to consider the same. However, the addition of Rs.2,20,959/- for 1994-95 deserves to be considered because evidence available by way of realisation statement clearly establish undisclosed income received by the assessee. The clear finding is that the realisation statement recovered from the assessee’s premises with the same date showed recovery of Rs.1,26,61,856/- and Rs.1,72,87,353/-. Even though both realisation statements dated 30.9.1996 disclose realisation amounts substantially different leaving a margin of around Rs.56 lakhs, the assessee could not explain as to which is the correct one. However, corroboration was rendered in the statement given by the distributor namely, Sri. P.D. Abraham who stated that actual realisation was Rs.1,72,87,353/-. It is seen that the Assessing Officer was very considerate in accepting another statement of the said distributor who said that Rs.55 lakhs was spent for printing and publicity and the same was, therefore, allowed by the Assessing Officer leaving only a balance of Rs.4,73,103/-. The Assessing Officer gave a further deduction of Rs.1,69,532/- being the amount declared by the assessee in the return filed. The addition of Rs.2,20,959/- is the undisclosed income from this film attributable for the assessment year 1994-95. The first appellate authority as well as the Tribunal deleted the addition by merely stating that there is no corroboration from the assessee. We are unable to uphold the order of the CIT(Appeals) or the Tribunal confirming it because the distributor who is the author of the realisation statement recovered from the assessee’s premises gave clear-cut statement that actual amount realised was Rs.1,72,87,353/- and not the lower amount found in another statement of the same date. In fact, from out of this, the officer allowed Rs.55 lakhs as claimed by the distributor towards print and publicity expenses. Assessee’s 20% income from the balance distributed income is only assessed as undisclosed income for the year 1994-95. We do not find any justification for the Tribunal to ignore the documentary evidence recovered which is corroborated by the statement given by the distributor. We, therefore, reverse the orders of the first appellate authority and that of the Tribunal on this issue and restore the addition of Rs.2,20,959/- towards undisclosed income from the film “Pappayude Sontham Appoose” for the year 1994-95.
10. No other ground raised by the Revenue gives rise to any substantial question of law. In the result, we allow the appeal in part by sustaining a total addition of Rs.22,20,959/- and confirming the order of the Tribunal cancelling the balance addition of Rs.78,64,811/-. Before parting with the matter, we are constrained to observe about the effort made by us to persuade the Central Government to take steps to prevent generation and circulation of black money. Through a detailed interim order we appraised the Central Government that unless prohibition is introduced against cash transactions particularly in sale of property, in film industry and the like at least for payments over a certain limit in cash, black money generation and circulation cannot be controlled because the disincentives on cash dealings contained under the various provisions of the Income-tax Act have failed to achieve the objective. Further, by prohibiting use of cash in major transactions terror and mafia funding and corruption could be arrested to a large extent. Above all, the worst enemy of our economy that is, circulation of high denomination counterfeit currencies presently estimated over Rs.7000/- crores could be prevented to a large extent. Unfortunately, the response of the Central Finance Ministry is not at all encouraging inasmuch as Government wants status quo to continue to the detriment of the interest of the country and the people as a whole. Our limitation while exercising appellate jurisdiction under Section 260A of the Act inhibit us from initiating any proceedings or issuing direction against the Central Government. However, we express our anguish towards the attitude of the Central Government to have created and allowed this vicious situation to continue.