Shri P.Chellappan and Others Legal heirs of Late Shri S.M.Palaniappa Chettiar, CHENNAI V. ACIT, Trichy

ITA 1123/CHNY/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7435 (ITAT-CHENNAI)
• Duration Of Justice: 8 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 01-03-2012
• Assessment Year: 1995-1996
• Appeal Filed On: 23-05-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A C JOSEPH
• Assessee Lawyers: V D GOPAL
• Section: 147; 139

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI C BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NOS. 1123, 1124 AND 1125/MDS/2003 ASSESSMENT YEARS: 1995-96, 1998-99 AND 1999-2000 SHRI P. CHELLAPPAN & OTHERS, (L/H OF LATE SHRI S.M. PALANIAPPA CHETTIAR), C/O M/S. PALANIAPPA BROS, N.S.B. ROAD, TRICHY 2. [PAN/G.I.NO.: 101 PP3] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I, TIRUCHIRAPALLI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI V.D. GOPAL, ADVOCATE REVENUE BY : SHRI A.C. JOSEPH, JCIT DR DATE OF HEARING : 01 . 0 3 .201 2 DATE OF PRONOUNCEMENT : 01.03.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINS T THE ORDER OF THE LD. CIT, TIRUCHIRAPPALLI ALL DATED 27.03.2003 FOR T HE ASSESSMENT YEARS 1995- 96, 1998-99 AND 1999-2000. SHRI V.D. GOPAL, ADVOCAT E REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI A.C. JOSEPH, JCIT-D R REPRESENTED ON BEHALF OF THE REVENUE. 2. THE FACTS AND THE GROUNDS RAISED IN ALL THE APP EALS ARE COMMON, HEARD TOGETHER, AND ARE BEING DISPOSED OF BY THIS S INGLE ORDER FOR THE SAKE OF CONVENIENCE. 3. GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS G ENERAL IN NATURE AND I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1123 1123 1123 1123- -- -1125/M/03 1125/M/03 1125/M/03 1125/M/03 2 HENCE REQUIRES NO ADJUDICATION BY US. 4. GROUND NO. II AND III OF THE APPEALS ARE AS FOL LOWS: II. (A) THE LEARNED CIT(A), IN THE FACTS AND CIRC UMSTANCES OF THE CASE SHOULD HAVE HELD THAT THE ASSESSING OFFICER DID NOT HAVE THE JURISDICTIONAL FACTS NECESSARY TO ASSUME JURISDICTI ON U/S 147 READ WITH S-148 OF THE IT ACT. (B) THE LEARNED CIT(A) SHOULD HAVE BEEN PLEASED TO HOLD THAT THE CONCLUDED ASSESSMENT WAS REOPENED ON THE BASIS OF M ERE SUSPICION AND SURMISE IN THE ADMITTED ABSENCE OF ANY ATTEMPT ON THE PART OF THE ASSESSING OFFICER TO ESTABLISH THAT HE CAME TO BE IN POSSESSION OF MATERIALS SUBSEQUENT TO THE COMPLETION OF THE OR IGINAL ASSESSMENT, THAT SUCH MATERIALS HAD RATIONAL NEXUS WITH THE BELIEF, IF ANY, ENTERTAINED BY HIM THAT INCOME HAD ESCAPED ASSESSMENT. (C) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E SO CALLED INFORMATION GATHERED IN THE COURSE OF SCRUTINY ASSE SSMENT OF ANOTHER CO OWNER WAS ALREADY AVAILABLE WHEN THE ASS ESSMENT WAS PENDING DUE TO FIRST REOPENING. (C) THE LEARNED CIT(A) GROSSLY ERRED IN STATING THA T THE ALLEGED ESCAPEMENT WAS ATTRIBUTABLE TO THE ALLEGED FAILURE OF THE APPELLANT TO PRODUCE DETAILS AND EVIDENCES REGARDING UTILISAT ION OF BORROWED FUNDS AND FILING OF BALANCE SHEET, AS WILL BE EVIDE NT FROM HIS OWN EXTRACT OF ASSESSMENT ORDER FOR ASSESSMENT YEAR 198 1-82, IN PARAH 11.2, OF HIS ORDER DATED 23.01.2003, WHEREIN THERE IS A CONSCIOUS DECISION REGARDING CLAIM OF INTEREST DEDUCTION. (D) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT WHAT WAS COMMUNICA TED BY THE ASSESSING OFFICER WAS HIS CONCLUSION THAT INCOME HA D ESCAPED ASSESSMENT AND NOT THE REASONS RECORDED WHICH ENABL ED HIM TO COME TO A CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT. (D) THE LEARNED CIT(A) FAILED TO APPRECIATE THAT WH AT WAS COMMUNICATED BY THE ASSESSING OFFICER WAS HIS CONCL USION THAT INCOME HAD ESCAPED ASSESSMENT AND NOT THE REASONS RECORDED WHICH ENABLED HIM TO COME TO A CONCLUSION THAT INCOME HAD ESCAPED ASSESSMENT. (E) THE LEARNED CIT(A) ERRED IN NOT FOLLOWING THE R ATIO OF THE DECISIONS OF THEIR LORDSHIPS OF THE SUPREME COURT RENDERED IN THE CASE OF COMMUNIDADO OF CHICALIM VS ITO 247 ITR 271 SC AND G .K.N. DRIVESHAFTS (INDIA) LTD., VS ITO 259 ITR 195 SC AND THE DECISION OF I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1123 1123 1123 1123- -- -1125/M/03 1125/M/03 1125/M/03 1125/M/03 3 THEIR LORDSHIP OF THE MADRAS HIGH COURT IN WP 8832 TO 8835 AND 8916 TO 8919 OF 2002 IN THE CASE OF R.K. INDUSTRIES , A COPY OF WHICH WAS FURNISHED TO HIM. (F) THE LEARNED CIT(A) ERRED IN STATING THAT NO RET URN WAS FILED IN RESPONSE TO S 148 THAT THE OBJECTION TO REOPENING W AS NOT RAISED BEFORE THE ASSESSING OFFICER AND THAT THEREFORE THE APPELLANT HAD LOST THE RIGHT TO ASSAIL THE REOPENING AS BAD IN LAW BEF ORE CIT(A). III. (A) IN THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LEARNED CIT(A) SHOULD HAVE BEEN PLEASED TO HOLD THE ASSESSMENT ORD ERS ARE VOID AB- INITIO SINCE ADMITTEDLY NO NOTICE U/S 143(2) WAS ISSUED WITH IN THE TIME PROVIDED U/S 143(2). (B) THE LEARNED CIT(A) SHOULD HAVE ACCEPTED THE POS ITION, THAT CONCEPTUALLY A.143(3) ASSESSMENT IS NOT POSSIBLE WI TH OUT AN EARLIER S143(2) NOTICE. (C) THE LEARNED CIT(A) SHOULD HAVE BEEN PLEASED TO APPRECIATE THAT S.148 INCORPORATES A DEEMING CLAUSE DEEMING A RETUR N FILED IN RESPONSE TO S 148 NOTICE AS A RETURN FILED U/S 139 AND IN THE LIGHT OF SUPREME COURT DECISION REGARDING THE SCOPE OF THE D EEMING PROVISION RENDERED IN THE CASE GURUPADA MAGDUM VS KANDAPPA MA GDUM 129 ITR 440 AT 446 BOTTOM, SHOULD HAVE HELD THAT FAILUR E TO ISSUE S.143(2) NOTICE AS PROVIDED IN THE PROVISIONS RENDERS THE AS SESSMENT ILLEGAL. (D) IN THE LIGHT OF THE APPELLANT'S WRITTEN SUBMISS ION THE LEARNED CIT(A) SHOULD HAVE HELD THAT 79 ITO 639 WAS RENDERE D PER INCURIUM AS AGAINST THE LANGUAGE OF S2(8) AND S.148 OF THE I T ACT 1961. 5. THE LD. AR OF THE ASSESSEE SUBMITTED THAT HE IS WITHDRAWING THESE GROUNDS OF APPEAL AND MADE AN ENDORSEMENT TO THE EF FECT IN THE GROUNDS OF APPEAL ATTACHED WITH FORM 36. THEREFORE, THESE GROU NDS OF APPEAL OF THE ASSESSEE ARE DISMISSED AS WITHDRAWN. 6. GROUND NO. IV READS AS UNDER: IV (A) THE LEARNED CIT(A) AFTER APPRECIATING THE POSITION THAT THERE WAS DEBIT BALANCES ONLY IN SOME CO- OWNERS ACCOUNTS AND SUCH DEBIT BALANCES WERE NOT AUGMENTED BY DIVERSION OF BORROWE D FUNDS ON I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1123 1123 1123 1123- -- -1125/M/03 1125/M/03 1125/M/03 1125/M/03 4 WHICH INTEREST IS CLAIMED TO PARTIES PERSONAL PURPO SES, SHOULD HAVE COME TO THE LOGICAL CONCLUSION THAT THE APPELLANT'S CLAIM FOR DEDUCTION OF INTEREST AS CLAIMED IS PROPER AND ALLOWABLE. (B) THE LEARNED CIT(A) ERRED IN NOT PROPERLY APPREC IATING THE APPELLATE ORDER OF HIS PREDECESSOR'S RENDERED FOR T HE ASSESSMENT YEAR 1997-98 IN THE CASE OF C.PALANIAPPAN WHEREIN THE LE ARNED CIT(A) PRACTICALLY HELD THAT BORROWED FUNDS HAVE NOT BEEN UTILISED FOR CO- OWNERS PERSONAL PURPOSES, WHICH WAS THE ONLY REASON FOR REOPENING THE ASSESSMENT. (C) THE LEARNED CIT(A) SHOULD HAVE AT LEAST FOLLOWE D HIS PREDECESSOR'S ORDER ON IDENTICAL FACTS IN THE LIGHT OF MADRAS HIG H COURT JUDGEMENT IN L.G. RAMAMURTHY'S CASE 110JTR 453 MADRAS. 7. THE LD. CIT(A) HAS DECIDED THIS ISSUE AS UNDER: 7. COMING TO THE SUBSTANTIVE ISSUE, THE MAIN ARGU MENT OF THE APPELLANT IS THAT ALL THE BORROWED FUNDS WITH REFERENCE TO WHICH DEDUCTION OF INTEREST HAD BEEN CLAIMED U/S.24(1)(VI) HAD BEEN UTILISED SOLELY AND EXCLUSIVELY FOR THE CONSTRUCTION OF THE KANNAMMAI BUILDING OR FOR THE R EPAYMENT OF THE ORIGINAL LOANS TAKEN FOR AND UTILISED IN SUCH CONSTRUCTION. THE APPELLANT HAS ALSO ARGUED THAT NO PART OF SUCH BORROWED FUNDS WAS EVER DIVERT ED FOR ANY OTHER PURPOSE.THE DEBIT BALANCES APPEARING IN T HE CO-OWNERS' ACCOUNTS, WHICH MADE THE ASSESSING OFFICER SUSPECT THAT THE B ORROWALS MADE ON THE BUILDING ACCOUNT HAD BEEN DIVERTED TO THE CO-OWNERS FOR THEIR PERSONAL PURPOSE, HAD ACTUALLY ARISEN AS A RESULT OF THE LOS SES SUFFERED BY THE CO-OWNERS ON THE BUILDING ACCOUNT. THE ASSESSING OFFICER SHOU LD NOT HAVE DRAWN ADVERSE INFERENCE WITH REFERENCE TO THE SHEER VOLUME OF THE CREDITS BECAUSE THE CREDITS HAD GOT ENLARGED PRIMARILY DUE TO PROVISION ING OF INTERESTS AT EVERY YEAR-END. 7.1 IDENTICAL OBJECTIONS / ARGUMENTS HAD BEEN RAIS ED BY THE APPELLANT IN CONNECTION WITH THE ASSESSMENTS MADE F OR THE ASSESSMENT YEARS 1989-90 TO 1994-95, 1996-97 AND 1997-98. IN T HE APPELLATE ORDER DATED 23/1/2003 REFERRED TO SUPRA, SUCH OBJECTIONS / ARGUMENTS HAVE BEEN DEALT WITH ELABORATELY. IT HAS BEEN HELD IN TH E SAID APPELLATE ORDER THAT NOT ONLY THAT THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THE NEXUS, IF ANY, BETWEEN THE BORROWED FUNDS WITH REFERENCE T O WHICH INTEREST HAS BEEN CLAIMED AS DEDUCTION ON THE ONE HAND AND THE C ONSTRUCTION OF THE KANNAMMAI BUILDING ON THE OTHER, THE APPELLANT HAS ALSO NOT BEEN ABLE TO ESTABLISH, EVEN IN A SINGLE INSTANCE, THAT THE C O-OWNERS HAD RESORTED TO FRESH BORROWALS EXCLUSIVELY FOR THE PURPOSE OF R EPAYING THE ORIGINAL I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1123 1123 1123 1123- -- -1125/M/03 1125/M/03 1125/M/03 1125/M/03 5 BORROWED CAPITAL AND THAT THE FRESH BORROWALS HAD B EEN ACTUALLY SO UTILISED. IT HAS ALSO BEEN MENTIONED IN THE AFORE-C ITED ORDER THAT CONTRARY TO THE PLEA RAISED BY THE CO-OWNERS THAT T HE BORROWED FUNDS HAD NOTHING TO DO WITH THE DEBIT BALANCES IN THE CO -OWNERS' ACCOUNTS, THE FACTS AVAILABLE ON RECORDS GIVE A STRONG INDICA TION THAT THE DEBIT BALANCE HAD RESULTED, AMONG OTHERS, FROM THE WITHDR AWALS MADE FROM OUT OF THE BORROWED FUNDS AND NOTHING HAS BEEN ADDU CED BY THE APPELLANT OR THE OTHER CO-OWNERS TO DISPROVE THE AB OVE INDICATION. IT HAS BEEN ACCORDINGLY HELD IN THE CITED ORDER THAT, STRICTLY SPEAKING, THE APPELLANT IS NOT ENTITLED TO ANY DEDUCTION U/S.24(L )(VI) WITH REFERENCE TO THE BORROWALS STATED TO HAVE BEEN TAKEN FOR AND UTI LISED IN THE CONSTRUCTION OF THE KANNAMMAI BUILDING. NEVERTHELES S, THE ACTION OF THE ASSESSING OFFICER FOR THE CONCERNED ASSESSMENT YEARS IN RESTRICTING THE ADMISSIBLE INTEREST TO RS.7,20,000 HAS NOT BEEN INTERFERED WITH PRIMARILY BY GIVING THE APPELLANT CERTAIN BENEFIT O F DOUBT AND ALSO TAKING NOTE OF THE FACTOR OF EFFLUX OF TIME. INSOFA R AS FACTS ARE CONCERNED, THE PRESENT ASSESSMENT YEAR HAS NOT BEEN SHOWN TO BE ANY THE DIFFERENT. THEREFORE, THE FINDINGS GIVEN IN THE APPELLATE ORDER DATED 23/1/2003 WILL HAVE TO BE TREATED AS SQUARELY APPLI CABLE TO THE PRESENT ASSESSMENT YEAR AS WELL. FOLLOWING THE SAID FINDING , THE CO-OWNERS ENTITLEMENT TO DEDUCTION U/S.24(1)(VI) FOR THE PRES ENT ASSESSMENT YEAR IS HEREBY TAKEN AT RS.7,20,000 AND THE ACTION OF THE A SSESSING OFFICER IN WORKING OUT THE APPELLANTS SHARE IN THE INCOME FRO M THE KANNAMMAI BUILDING ON THE ABOVE BASIS CONFIRMED. 8. AT THE TIME OF HEARING, THE LD. AR OF THE ASSES SEE FILED BEFORE US A COPY OF THE CONSOLIDATED ORDER OF THE TRIBUNAL IN T HE CASE OF OTHER CO-OWNERS OF THE PROPERTY NAMELY MR. C. PALANIAPPAN, MR. P.L. GANDHI, MR. M. CHELLAPPAN, MR. G.PALANIAPPAN IN I.T.A. NOS. 1057, 2187 & 922, 2188 & 921 & 1056/MDS/2007 DATED 08.04.2009 AND SUBMITTED THAT IN THOSE CASES, THE MATTER WAS REMANDED BACK TO THE FILE OF THE ASSESSI NG OFFICER FOR FRESH ADJUDICATION. HE, THEREFORE, PRAYED THAT FOLLOWING THE SAME, THE ISSUE MAY BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR READJUDICATION AFRESH IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNA L IN PARA 6 OF THE ORDER DATED I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1123 1123 1123 1123- -- -1125/M/03 1125/M/03 1125/M/03 1125/M/03 6 08.04.2009 IN THE CASES OF OTHER CO-OWNERS. 9. THE LD. DR DID NOT HAVE ANY OBJECTION TO THE SA ME. 10. WE FIND THAT THE TRIBUNAL VIDE ORDER DATED 08. 04.2009 IN THE CASE OF OTHER CO-OWNERS NAMELY MR. C. PALANIAPPAN, MR. P.L. GANDHI, MR. M. CHELLAPPAN, MR. G.PALANIAPPAN HAS HELD AS UNDER: 6. IN THE FACTS OF THE GIVEN CASE WE FIND THAT A PROPER ENQUIRY WAS NOT MADE. IT IS NECESSARY TO EXAMINE WHETHER THE AS SESSEE DERIVED ANY BUSINESS ADVANTAGE OUT OF ADVANCING MONEY AT A LESS ER RATE AND WHETHER THE MONEY BORROWED FOR THE PURPOSE OF BUILD ING WAS SUBJECT TO ANY AGREEMENT BEARING STIPULATIONS AS TO THE REFUND OF MONEY AND PAYMENT OF INTEREST, ETC. WHETHER THE TRANSACTION I N QUESTION WAS A GENUINE TRANSACTION OR IT WAS A SUBTERFUGE TO HOODW INK THE REVENUE? IF THE TRANSACTION IS NOT A GENUINE TRANSACTION THEN T HE REASONS FOR HOLDING THE TRANSACTION NEED TO BE GIVEN. THIS EXER CISE WAS NOT DONE BY THE ASSESSING OFFICER. WE, THEREFORE, IN THE INTERE ST OF THE REVENUE SET ASIDE THE IMPUGNED ORDER AND RESTORE IT TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE IT DE NOVO IN A CCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSE E OF BEING HEARD. 11. AS BOTH THE PARTIES BEFORE US HAS AGREED THAT THE ISSUE SHOULD BE REMANDED BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE OBSERVATIONS OF THE TRIBUNALS ORD ER IN THE CASE OF OTHER CO- OWNERS NAMELY MR. C. PALANIAPPAN, MR. P.L. GANDHI, MR. M. CHELLAPPAN, MR. G.PALANIAPPAN, AS QUOTED ABOVE, WE SET ASIDE THE OR DERS OF LOWER AUTHORITIES IN ALL THE YEARS UNDER APPEAL AND RESTO RE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER AND DIRECT HIM TO REA DJUDICATE THE ISSUE IN THE LIGHT OF THE DIRECTIONS GIVEN BY THE TRIBUNAL AS QU OTED ABOVE IN THIS ORDER. THEREFORE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES FOR ALL THE YEARS UNDER APPEAL. I.T.A. I.T.A. I.T.A. I.T.A. NO NONO NOS SS S. .. .1123 1123 1123 1123- -- -1125/M/03 1125/M/03 1125/M/03 1125/M/03 7 12. NO OTHER POINT HAS BEEN URGED BY THE REVENUE E XCEPT THE ABOVE POINT. 13. IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED AT THE CLOSE OF THE HEARING IN THE PRESENCE OF THE PARTIES ON 01.03.2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 01.03.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.