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M.M. Nagalinga Nadar Sons Vs. Assistant Commissioner of Income - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Cochin
Decided On
Reported in(2000)66TTJ(Coch.)271
AppellantM.M. Nagalinga Nadar Sons
RespondentAssistant Commissioner of Income
Excerpt:
.....rajasabai appeared before the assessing officer and submitted that he was not able to produce the books of accounts as they were in the custody of the erstwhile partner shri kanagasabai. in view of the serious dispute and litigation between the two groups of partners, he expressed his inability to get the books of account from shri kanagasabai. he also made a request to the assessing officer to issue summons under section 131 for producing the books of account. the assessing officer was of the view that it was the duty of the assessee to produce the books of account and to prove the loss as claimed in the return filed on behalf of the firm. as the books of account had not been produced by the assessee, the assessing officer proceeded to make the assessment under section 144 of the.....
Judgment:
In the circumstances of the case, the assessing officer was not correct in making the ex parte assessment without complying with the assessee's request to issue summons for getting the accounts from the erstwhile partner.

The question to be considered is whether when the assessee expressed inability to get the books of account from the estranged partner on account of the serious dispute and quarrel between them, was not it the duty of the assessing officer to comply with the assessee's request to issue summons under section 131 of the Income Tax Act? Was the assessing officer justified in ignoring the assessee's request and to proceed with an ex parte assessment as if the failure to produce the accounts was without reasonable cause? The fact that earlier the assessee had produced the accounts before the Deputy Commissioner (Appeals), would indicate that the assessee had no intention to deliberately avoid producing the accounts for verification by the assessing officer. Suffice it to say that in the circumstances of this case the assessing officer was not correct in making the ex parte assessment without complying with the assessee's request to issue summons for getting the accounts from the erstwhile partner. Even in an ex parte assessment the assessing officer is bound to make a proper assessment of the income or loss. In this case there is also a specific direction of the Commissioner (Appeals) in the order in ITA No.63/Q/92-93, dated 21-1-1993 to determine the loss correctly. The assessing officer has not made use of that report for the purpose of assessment. The assessing officer could have also made a comparison of the result of the business as shown in the audited statements with the result for the preceding year. Instead of making such a comparison, the assessing officer made the assessment on nil income ignoring the loss.

In the circumstances discussed above, it is necessary to set aside the assessment. The assessing officer is directed to comply with the assessee's request to issue summons under section 131.

EMC (Works) (P) Ltd. v. ITO (1963) 49 ITR 650 (All) and Munna Lal Murlidhar v. CIT (1971) 79 ITR 540 (All) relied on.

This is an appeal by the assessee, Shri Nagalinga Nadar Sons, Kollam, against the order passed by the Commissioner (Appeals), Trivandrum for the assessment year 1986-87. The assessee has filed this appeal with the plea that the Commissioner (Appeals) erred in confirming the assessment completed under section 144 of the Income Tax Act.

2. The assessee filed the return for the assessment year 1986-87 on 2nd Aug., 1988, showing a loss of Rs. 16,20,830. Though the assessing officer first treated the return as nonest under section 139(10), in appeal, the Commissioner (Appeals) directed him to treat the same as a valid return under section 139(4) and to determine the loss (vide appellate order in ITA No. 63-Q/92-93 dt. 21st Jan., 1993). In accordance with the directions of the Commissioner (Appeals), the assessing officer took up the case for determining the loss. When the case was posted for hearing, partner of the assessee-firm, Shri Rajasabai appeared before the assessing officer and submitted that he was not able to produce the books of accounts as they were in the custody of the erstwhile partner Shri Kanagasabai. In view of the serious dispute and litigation between the two groups of partners, he expressed his inability to get the books of account from Shri Kanagasabai. He also made a request to the assessing officer to issue summons under section 131 for producing the books of account. The assessing officer was of the view that it was the duty of the assessee to produce the books of account and to prove the loss as claimed in the return filed on behalf of the firm. As the books of account had not been produced by the assessee, the assessing officer proceeded to make the assessment under section 144 of the Income Tax Act and accordingly he completed the assessment on nil income. In the assessee's appeal, the Commissioner (Appeals) concurred with the assessing officer that the onus was on the assessee to prove the loss by producing the books of account and held that the assessing officer was justified in making the assessment on nil income without allowing the loss, depreciation, investment allowance, etc. as claimed by the assessee. The assessee is in further appeal before the Tribunal with the plea that the Revenue authorities were not justified in law in making the exparte assessment ignoring the loss and allowances as claimed in the return of income.

3. We have heard the assessee's representative, Shri A. Jayakumar and Shri C.D. Nair, the learned departmental Representative. Shri Jayakumar submitted before us that the assessee had earlier produced the books of accounts before the Dy. CIT(Asst.), Trivandrum when the case was posted for hearing on 20th Jan., 1989, and that the assessee had no intention to avoid the production of the books but for the reasons beyond their control. He explained that Shri M.M.N.D. Kanagasabai was a partner in the firm during the previous year ending on 16th Aug., 1985, relevant for the assessment year 1986-87 and that he retired from the partnership with effect from 30th Sept., 1991. It was stated that the books of account of the business for the year ending 16th Sept., 1985, were with the retired partner and that after his retirement Shri Kanagasabai had filed a suit against the firm and the continuing partners. Shri Jayakumar drew our attention to the letter issued by Shri Rajasabai, partner of the assessee on 11th Aug., 1993, requesting the assessing officer to issue summons under section 131 to Shri Kanagasabai for producing the books of account. A copy of the letter is available in the paper book filed before us by the learned representative at page No. 24. From that letter it is clear that the books of accounts had been produced before the assessing officer on 20th Jan., 1989. In the letter it is also made clear as to why the assessee-firm could not produce the books of account as required by the assessing officer. There is also the specific request by the assessee to the assessing officer to issue summons under section 131 to Shri Kanagasabai. In his letter dt. 18th Aug., 1993, addressed to the assessee the assessing officer refused to comply with the request to issue summons. The relevant portion of the letter from the assessing officer reads as under : "Since it is your duty to establish that you had actually incurred loss during the relevant accounting year and that the statements of accounts furnished by you are correct and complete, you may produce the books and relevant documents and establish your claim. It is not my duty to summon other partner and establish your claim of loss." When the assessee has given reason why he could not produce the books of accounts, the assessing officer ought to have helped him in getting the books of account from Shri Kanagasabi by issuing summons as requested by the assessee. We do not think that the assessing officer was correct in rejecting the assessee's request on the ground that it was the duty of the assessee to produce the books of account. But when owning to the circumstances beyond his control the assessee is not able to produce the account, is it not the duty of the assessing officer to assist the assessee by issuing summons under section 131? In this connection, the learned representative, Shri A. Jayakumar, has brought to our notice two decisions of the Allahabad High Court EMC (Works) (P) Ltd. v. Income Tax Officer (1963) 49 ITR 650 (All) and Munna Lal Murlidhar v. CIT (1971) 79 ITR 540 (AD). In the case of EMC (Works) (P) Ltd. (supra) the High Court observed as under ..

"It was the duty of the Income Tax Officer, in the absence of a notice under section 22(4) to assist the assessee when it required his assistance by exercising his powers under section 37 of the Act and thus enable the petitioner to have access or procure the books of accounts which were required to support to return made by it. This application was rejected summarily as already stated but by rejecting this application the Income Tax Officer could not clutch at jurisdiction to make the assessment under section 23(4), which the law does not give him. The action of the Income Tax Officer, therefore, in making the assessment under section 23(4) was clearly without jurisdiction, in the facts and circumstances of this case, and therefore, that assessment order requires to be quashed." Again in the case of Munnalal Murlidhar (supra) the High Court held that the assessing officer was bound to give the assessee a reasonable time and opportunity to produce evidence and the failure on his part to do so would vitiate the entire proceedings of assessment.

4. The Commissioner (Appeals) has considered the provisions of the deed of family arrangement and found that the assessee could have asked for the accounts of the relevant period from the erstwhile partner, Shri Kanagasabai and that if he refused to give the books of accounts, the assessee would have been justified in requesting the assessing officer to issue summons. The question is not as to whether in terms of the family agreement the assessee was entitled to get the books of account or not. The question to be considered is whether when the assessee expressed inability to get to books of account from the estranged partner on account of the serious dispute and quarrel between them, was not it the duty of the assessing officer to comply with the assessee's request to issue summons under section 131 of the Income Tax Act? Was the assessing officer justified in ignoring the assessee's request and to proceed with an ex parte assessment as if the failure to produce the accounts was without reasonable cause? The fact that earlier the assessee had produced the accounts before the Dy. CIT, Trivandrum would indicate that the assessee had no intention to deliberately avoid producing the accounts for verification by the assessing officer.

Suffice it to say that in the circumstances of this case the assessing officer was not correct in making the ex parte assessment without complying with the assessee's request to issue summons for getting the accounts from the erstwhile partner, Shri Kanagasabai. In view of the decisions of the Allahabad High Court, the failure to issue the summons to the other partner, Shri Kanagasabai for producing the accounts would vitiate the proceedings of assessment.

5. We also find merit in the contention of the learned representative that even in an ex parte assessment the assessing officer is bound to make a proper assessment of the income or loss. In this case there is also a specific direction of the Commissioner (Appeals) in the order in ITA No. 63/Q/92-93, dt. 21st Jan., 1993 to determine the loss correctly. It was pointed out by Shri Jayakumar that the accounts for the relevant previous year had been subjected to compulsory audit under section 44AB by a qualified C.A. and the statutory audit report had been filed along with the return of income. The assessing officer has not made use of that report for the purpose of assessment. The assessing officer could have also made a comparison of the result of the business as shown in the audited statements with the result for the preceding year. Instead of making such a comparison, the assessing officer made the assessment on nil income ignoring the loss.

But there was the claim of depreciation, investment allowance, etc. The assessing officer was aware of the fact that the business was carried on during the previous year. Then there was no justification for denying depreciation at least on the written down value of the assets.

The learned representative makes a further submission that the assessee's claim of investment allowance is supported by relevant bills and vouchers to show the cost of the new machinery. If the assessee is in a position to prove the cost of the new assets with necessary bills and vouchers, we see no justification for considering the claim for investment allowance. Evidently the assessing officer has not made a proper assessment in this case in accordance with law.

6. There is also another contention raised before us by the learned representative to the effect that the assessee had been unjustifiably denied interest under section 214 of the Income Tax Act on the excess payment advance tax. The Commissioner (Appeals) has dealt with this ground stating that if the assessee was really aggrieved, they could have taken up the matter when the appeal had been filed earlier before the Commissioner (Appeals). We do not think that the appellate authority is justified in summarily rejecting the claim that the ground relating to interest under section 214 should have been raised in the appeal filed originally against the assessment. Sec. 214 of the Income Tax Act provides that the Central Government shall pay simple interest on the amount by which the aggregate sum of any instalments of advance tax paid during any financial year in which they are payable exceeds the amount of the assessed tax from the first day of April next following the said financial year to the date of regular assessment for the assessment year immediately following the said financial year. When the assessment was made, whether under section 144 or otherwise, in accordance with the direction of the Commissioner (Appeals), the assessing officer ought to have allowed interest on the excess payment of advance tax in accordance with the provisions of s. 214.

7. In the circumstances discussed above, we find it necessary to set aside the assessment. We direct the assessing officer to comply with the assessee's request to issue summons under section 131 to Shri Kangasabai for producing the books of account. If the accounts are produced, the assessment should be made after verifying the same and in accordance with law. In case the accounts are not available now, the assessing officer may proceed to make the assessment after going through the audited statements of account and after making comparison with the result for the earlier years and also for the subsequent years. In any case, there was no justification for denying depreciation and other allowances if proved with necessary evidence. The assessee will also be entitled to interest on excess payment of advance tax if any in accordance with law. The assessing officer will redo the assessment accordingly.


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