Sri Sakthimyil Finance P Ltd., Namakkal V. DCIT, Salem

ITA 1544/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8643 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 06-06-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 04-06-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SAHADEVAN
• Assessee Lawyers: G BASKAR
• Keywords: Block assessment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.1539, 1540, 1541, 1542, 1543 & 1544/MDS/201 4 ( )( / ASSESSMENT YEARS : 1997-98, 1999-2000, 2000-01, 2 002-03, 2003-04 & 2005-06 M/S SRI SAKTHIMYIL FINANCE PVT. LTD., C-4, KONGU COMPLEX, 6-D, PARAMATHI ROAD, NAMAKKAL 637 001. PAN : AAECS 8968 G V. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, SALEM. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI G. BASKAR, ADVOCATE -.+, / 0 / RESPONDENT BY : SHRI SAHADEVAN, JCIT 1 / 2% / DATE OF HEARING : 06.06.2016 3') / 2% / DATE OF PRONOUNCEMENT : 18.08.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE APPEALS OF THE ASSESSEE ARE DIRECTED AGA INST THE RESPECTIVE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM, FOR THE ASSESSMENT YEARS 1997-98, 1999-2000, 2000-01, 2 I.T.A. NOS.1539 TO 1544/MDS/14 2002-03, 2003-04 AND 2005-06. SINCE COMMON ISSUE A RISES FOR CONSIDERATION IN ALL THESE APPEALS, WE HEARD THESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE MAIN GRIEVANCE OF THE ASSESSEE BEFORE THIS TRIBUNAL IS THAT THE ASSESSING OFFICER HAS NOT MADE ANY INDEPENDENT EXAMINATION OF THE FACT RELATING TO EACH YEAR. REFERRING TO TH E ORDER OF THIS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1997-98, 1996-97 AND 1998-99 IN I.T.A. NOS.1308/MDS/2000, 12 8 & 842/MDS/01 DATED 31.08.2007, A COPY OF WHICH IS AVA ILABLE AT PAGE 57 OF THE PAPER-BOOK, THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THAT THIS TRIBUNAL DIRECTED THE ASSESSING OFFICER T O EXAMINE THE ISSUE AFTER CONSIDERING THE ORDER OF THIS TRIBUNAL IN BLOCK ASSESSMENT AS WELL AS IN THE CASE OF VARIOUS DEPOSI T HOLDERS WHICH HAVE ALREADY BEEN CONFIRMED AS INCOME OF THE ASSESS EE AND THEREAFTER DECIDE THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE. INSPITE OF THIS DIRECTION, THE ASSESSING OFFICER HAS NOT CONSIDERED THE ORDER OF T HIS TRIBUNAL FOR BLOCK ASSESSMENT. A COPY OF THE ORDER PASSED BY TH IS TRIBUNAL IN THE ASSESSEE'S OWN CASE FOR BLOCK ASSESSMENT IS AVA ILABLE AT PAGE 3 I.T.A. NOS.1539 TO 1544/MDS/14 28 OF THE PAPER-BOOK. MOREOVER, ACCORDING TO THE L D. COUNSEL, THE ASSESSING OFFICER HAS ALSO MADE AN ADDITION TOWARDS STICKY LOAN. ACCORDING TO THE LD. COUNSEL, THERE WAS DOUBT WITH REGARD TO RECOVERY OF STICKY LOAN, THEREFORE, THERE CANNOT BE ANY ADDITION WITH REGARD TO UNPROVEN INTEREST. 3. ON THE CONTRARY, SHRI SAHADEVAN, THE LD. DEPARTM ENTAL REPRESENTATIVE, SUBMITTED THAT IN THE BLOCK ASSESSM ENT PROCEEDING, THE ADDITION MADE BY THE ASSESSING OFFICER WAS CONF IRMED BY THIS TRIBUNAL IN I.T.A. NOS.1308/MDS/2000, 128 & 842/MDS /01. BY ORDER DATED 31.08.2007, THIS TRIBUNAL REMITTED BACK TO TH E FILE OF THE ASSESSING OFFICER IN THE LIGHT OF ACCOUNTING SYSTEM FOLLOWED BY THE ASSESSEE AND TO ASCERTAIN WHETHER THE CHANGE OF MET HOD IS BONAFIDE OR NOT. ACCORDINGLY, THE ASSESSING OFFICE R EXAMINED THE ISSUE. AFTER CONSIDERING THE SYSTEM OF ACCOUNTING AND REASON FOR CHANGING OVER THE METHOD FROM MERCANTILE TO CASH SY STEM, THE ASSESSING OFFICER FOUND THAT THERE WAS NO BONAFIDE REASON FOR CHANGING THE SYSTEM OF ACCOUNTING. REFERRING TO TH E DISALLOWANCE OF INTEREST ON THE UNPROVED CAPITAL, THE LD. D.R. P OINTED OUT THAT THIS TRIBUNAL IN I.T.(SS) A. NO. 41/MDS/1997 DATED 09.04 .2002 EXAMINED 4 I.T.A. NOS.1539 TO 1544/MDS/14 THE ISSUE AND DISALLOWED A SUM OF ` 35,0,000/- AS UNPROVEN FIXED DEPOSIT AND INTEREST THEREON. 4. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER SUBM ITTED THAT THE ORDER OF THIS TRIBUNAL WAS SUBJECT MATTER OF AP PEAL BEFORE THE HIGH COURT AND THE HIGH COURT, IN FACT, CONFIRMED T HE ORDER OF THIS TRIBUNAL. THE ASSESSEE FURTHER PROCEEDED BEFORE TH E APEX COURT. IN FACT, THE SPECIAL LEAVE PETITION FILED BY THE AS SESSEE WAS DISMISSED BY THE APEX COURT. THEREFORE, ACCORDING TO THE LD. D.R., IT IS OBVIOUS THAT THE ISSUE OF UNPROVEN PROFIT AND UNPROVEN FIXED DEPOSIT AND DISALLOWANCE OF INTEREST ON THE FIXED D EPOSIT HAS REACHED FINALITY. HENCE, ACCORDING TO THE LD. D. R., THE APEX COURT CONFIRMED THE ORDER OF THIS TRIBUNAL BY HOLDING THA T ON THE UNPROVEN FIXED DEPOSIT THERE CANNOT BE ANY ALLOWANCE ON THE INTEREST. REFERRING TO THE SUBMISSION OF THE ASSESSEE BEFORE THE CIT(APPEALS), THE LD. D.R. SUBMITTED THAT THE ASSES SEE IS IN THE BUSINESS OF HIRE PURCHASE AND FINANCE. AS PER THE DIRECTIONS OF THIS TRIBUNAL, THE ASSESSING OFFICER EXAMINED THE BOOKS OF THE ASSESSEE AND METHOD OF ACCOUNTING FOLLOWED, REASON FOR SWITC HING OVER THE ACCOUNTING SYSTEM, ETC. AFTER CAREFUL EXAMINATION OF THE MATERIAL FACTS, AS DIRECTED BY THE TRIBUNAL, THE ASSESSING O FFICER FOUND THAT 5 I.T.A. NOS.1539 TO 1544/MDS/14 ALMOST 88.81% OF LOAN ADVANCED BY THE ASSESSEE WAS LOCKED UP WITH THE DIRECTORS IN THE GUISE OF RELATED FIRMS AN D RELATIVES. THE ASSESSING OFFICER HAS ALSO DISALLOWED THE INTEREST ON THE UNPROVEN FIXED DEPOSIT AFTER VERIFICATION AS PER THE DIRECTI ON OF THE TRIBUNAL. THEREFORE, ACCORDING TO THE LD. D.R., IT IS NOT COR RECT TO SAY THAT THE DIRECTIONS OF THIS TRIBUNAL WERE NOT CARRIED ON. A CCORDING TO THE LD. D.R., THE ASSESSEE COULD NOT PROVE OR ESTABLISH THA T THE FIXED DEPOSIT ON WHICH THE INTEREST WAS PAID IS A GENUINE DEPOSIT. WHEN THE FIXED DEPOSIT ITSELF IS DOUBTFUL AND IT IS NOT IN EXISTENCE, ACCORDING TO THE LD. D.R., THERE IS NO QUESTION OF ANY PAYMENT OF INTEREST ON SUCH NON-EXISTING FIXED DEPOSIT. THERE FORE, ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER HAS RIGHTLY DIS ALLOWED THE PAYMENT OF INTEREST ON THE SO-CALLED UNPROVEN FIXED DEPOSIT. 4. REFERRING TO STICKY LOAN, THE LD. D.R. SUBMITTED THAT THE COMPANY HAS TO MAINTAIN ITS BOOKS OF ACCOUNT ON MERCANTILE SYSTEM ONLY. THERE IS NO CHOICE FOR THE COMPANY. THEREFORE, ACCORDING TO THE LD. D.R., SWITCHING OVER OF METHOD OF ACCOUNTING TO CASH SYSTEM IS NOT JUSTIFIED. REFERRING TO SCHEDUL E 9 OF BALANCE SHEET, WHICH WAS EXTRACTED BY THE CIT(APPEALS) AT P ARA 5 OF IMPUGNED ORDER, THE LD. D.R. SUBMITTED THAT THE BAL ANCE OF 6 I.T.A. NOS.1539 TO 1544/MDS/14 ` 2,76,47,673/- AS ON 31.03.1996 WAS ACTUALLY ` 3,41,00,675/- AS ON 31.03.1997. ACCORDING TO THE LD. D.R., IN FACT, T HE ASSESSEE HAS EXTENDED THE LOAN/ADVANCE TO THE PERSONS WHO ARE RE LATED TO DIRECTORS OF THE ASSESSEE-COMPANY. THE ASSESSEE HA S ALSO EXTENDED LOAN TO THE RELATED FIRMS AND COMPANIES. THE LD. D.R. FURTHER SUBMITTED THAT THE RELATED PARTIES AND THE COMPANIES TO WHOM THE AMOUNT WAS ADVANCED, WERE NOT PAYING THE I NTEREST. THE ASSESSING OFFICER, AFTER EXAMINING THE ACCOUNTS OF THE ASSESSEE, FOUND THAT THERE WAS NO REASON FOR SHIFTING THE SYS TEM OF ACCOUNTING FROM MERCANTILE SYSTEM TO CASH SYSTEM. THE LD. D.R . FURTHER POINTED OUT THAT ONLY TO EVADE THE PAYMENT OF TAX, THE ASSESSEE HAS SHIFTED THE SYSTEM OF ACCOUNTING. THEREFORE, THE C IT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICE R BY PLACING RELIANCE ON THE JUDGMENT OF APEX COURT IN SOUTHERN TECHNOLOGIES LTD. V. JCIT (2010) 320 ITR 577. THIS WAS IN FACT FOLLOWED BY THE MADRAS HIGH COURT IN THE ASSESSEE'S OWN CASE IN THE JUDGMENT DATED 12.02.2013. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN ALL THE APPEALS, THE FIRST ISSUE ARISES FOR CONSIDERATION I S DISALLOWANCE OF 7 I.T.A. NOS.1539 TO 1544/MDS/14 INTEREST ON THE FIXED DEPOSIT. THE ASSESSEE CLAIME D PAYMENT OF INTEREST ON THE FIXED DEPOSIT AS EXPENDITURE. THE ASSESSING OFFICER FOUND THAT THE ISSUES OF ASSESSMENT OF UNPROVEN SHA RE CAPITAL AND UNPROVEN FIXED DEPOSITS HAVE REACHED FINALITY IN TH E BLOCK ASSESSMENT PROCEEDING. IN FACT, THIS TRIBUNAL EXAM INED THE ISSUE OF INVESTMENT IN THE CAPITAL AND FIXED DEPOSIT IN THE BLOCK ASSESSMENT AND FOUND THAT THE ASSESSEE ITSELF ADMITTED THAT TH E INVESTMENTS IN SHARE CAPITAL AND FIXED DEPOSITS ARE THEIR OWN INCO ME. WHEN THE FIXED DEPOSIT AND INVESTMENT IN SHARE CAPITAL WAS T AKEN AS INCOME OF THE ASSESSEE BY THE ORDER OF THIS TRIBUNAL IN TH E BLOCK ASSESSMENT, WHICH WAS ADMITTEDLY CONFIRMED BY THE H IGH COURT AND APEX COURT, THIS TRIBUNAL IS OF THE CONSIDERED OPIN ION THAT CLAIMING FURTHER INTEREST ON SUCH FIXED DEPOSITS CANNOT BE A LLOWED WHILE COMPUTING THE TAXABLE INCOME. THEREFORE, THIS TRIB UNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 6. NOW COMING TO THE ISSUE OF STICKY LOAN, THE ASSE SSEE ADVANCED LOAN TO RELATIVES AND RELATED COMPANIES. THE ASSESSEE BY SHIFTING THE METHOD OF ACCOUNTING FROM MERCANTIL E SYSTEM TO CASH SYSTEM, CLAIMS THAT THE INTEREST WAS NOT RECEIVED F ROM SO-CALLED 8 I.T.A. NOS.1539 TO 1544/MDS/14 PERSONS WHO ARE RELATED TO THE DIRECTORS OF THE ASS ESSEE-COMPANY. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT AS RIGHTLY FOUND BY THE CIT(APPEALS), UNDER THE COMPANIES ACT, THE ASSE SSEE HAS TO MANDATORILY MAINTAIN THE BOOKS OF ACCOUNT ON MERCAN TILE BASIS. THE SHIFTING OF ACCOUNTING SYSTEM FROM MERCANTILE SYSTE M TO CASH SYSTEM IS NOT BONAFIDE AS RIGHTLY FOUND BY BOTH THE AUTHORITIES BELOW. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THERE WAS ANY DI FFICULTY IN PROVING PAYMENT AMOUNT AND INTEREST ACCRUED THEREON. IN TH E ABSENCE OF ANY EVIDENCE, AND ASSESSEE ADMITTEDLY ADVANCED THE MONEY TO THE RELATIVES OF THE DIRECTORS, THIS TRIBUNAL DO NOT FI ND ANY REASON TO FIND FAULT WITH THE ORDERS OF THE LOWER AUTHORITIES. TH EREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT( APPEALS) HAS RIGHTLY CONFIRMED THE ADDITION MADE BY THE ASSESSIN G OFFICER. ACCORDINGLY, THE SAME IS CONFIRMED. 7. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSE SSEE STAND DISMISSED. 9 I.T.A. NOS.1539 TO 1544/MDS/14 ORDER PRONOUNCED ON 18 TH AUGUST, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 18 TH AUGUST, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A), SALEM 4. 1 92 /CIT, SALEM 5. 7: -2 /DR 6. ;( < /GF.