The Kerala State Financial Enterprises Ltd, Trichur V. The ACIT, Trichur

ITA 327/COCH/2013

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4599 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2013
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 06-08-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 23-05-2013
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRBHA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 326-328/COCH/2013 ASSESSMENT YEARS : 2004-05, 2008-09 & 2009-10 THE KERALA STATE FINANCIAL ENTERPRISES LTD., BHADRATHI, MUSEUM ROAD, THRISSUR-680 020. [PAN:AABCT 3817A] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1), THRISSUR. (ASSESSEE -APPELLANT) (REVENUE-RES PONDENT) ASSESSEE BY NONE REVENUE BY SMT. S. VIJAYAPRBHA, JR. DR DATE OF HEARING 06/08/2013 DATE OF PRONOUNCEMENT 08 /08/2013 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: ALL THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDERS PASSED BY THE LD. CIT(A)-V, KOCHI AND THEY RELATE TO THE ASSE SSMENT YEARS 2004-05, 2008-09 AND 2009-10. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE EVE N THOUGH THE CASES WERE ADJOURNED AT THE SPECIFIC REQUEST MADE BY IT. HENCE, WE PROC EED TO DISPOSE OF THE APPEALS- EX PARTE. 3. THE SOLITARY ISSUE URGED IN ALL THESE APPEALS IS WHETHER THE LD. CIT(A) WAS JUSTIFIED IN CONFIRMING THE ASSESSMENT OF UNDISTRI BUTED VETHAPALISA (UNDISTRIBUTED KURIE DISCOUNT AMOUNT) AS INCOME OF THE ASSESSEE IN ALL THESE THREE YEARS. I.T.A. NOS. 326-328/COCH/2013 2 4. WE HAVE HEARD THE LD. DR, WHO SUBMITTED THAT THI S BENCH OF TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE IN THE ASSESSEES OWN CASE IN I.T.A. NOS. 131/COCH/2009, 43/COCH/2009 AND 01&02/COCH/2012 RELATING TO THE AS SESSMENT YEARS 2005-06 TO 2007-08 AND THIS TRIBUNAL, VIDE ITS ORDER DATED 07- 06-2013, HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH. THE LD. DR HAS ALSO FILED A COPY OF THE ORDER PASSED BY THE TRIBUNAL, REFERRED SUPRA. 5. WE HAVE HEARD THE LD. DR AND ALSO CONSIDERED THE ORDER PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE, REFERRED SUPRA. WE NOT ICE THAT THE TRIBUNAL HAS CONSIDERED AN IDENTICAL ISSUE AND HAS DISCUSSED ABOUT THE TREA TMENT TO BE GIVEN TO THE UNDISTRIBUTED VETHAPALISA AMOUNT IN DIFFERENT KIN D OF SITUATION. AFTER SUCH DISCUSSIONS, THE TRIBUNAL HAS SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE RELEVANT OBSERVATIONS MADE BY THE TRIBUNA L IN THE ABOVE SAID ORDER: 7. THE NEXT ISSUE RELATES TO THE ASSESSMENT OF UNDISTRIBUTED VETHAPALISA AMOUNT. THIS ISSUE IS COMMON IN ALL THE THREE YEAR S UNDER CONSIDERATION. THE FACTS RELATING TO THE SAME ARE DISCUSSED IN BRIEF. UNDER THE CHIT FUND SCHEME, THE CHIT AMOUNT IS PUT TO AUCTION EVERY MONTH AMONGST T HE SUBSCRIBERS TO THE CHIT AND THE SAME WILL BE ALLOTTED TO THE SUBSCRIBER WHO OFF ERS MAXIMUM PERMISSIBLE DISCOUNT. FOR EXAMPLE, IN A CHIT FUND SCHEME OF RS .1.00 LAC, THE MAXIMUM DISCOUNT OFFERED IS SAY, RS.25,000/-, THE SUCCESSFU L BIDDER WILL BE GIVEN THE BID AMOUNT OF RS.75,000/-. OUT OF THE DISCOUNT AMOUNT OF RS.25,000/-, THE FOREMAN SHALL TAKE HIS COMMISSION, SAY RS.5,000/- AND THE B ALANCE AMOUNT OF RS.20,000/- SHALL BE DISTRIBUTED AMONGST ALL THE SUBSCRIBERS. THE DISCOUNT AMOUNT SO DISTRIBUTED BETWEEN THE SUBSCRIBERS IS CALLED VETH APALISA. THE SUBSCRIBERS SHALL ADJUST THEIR SHARE OF VETHAPALISA AGAINST THE INSTA LMENTS DUE FROM THEM, EITHER AGAINST THE CURRENT INSTALMENT OR AGAINST THE SUCCE EDING MONTHS INSTALMENT, DEPENDING UPON THE TERMS OF CHIT SCHEME. SINCE TH E VETHAPALISA IS PAYABLE TO THE SUBSCRIBERS, IT IS SHOWN AS A CURRENT LIABILITY I N THE BOOKS OF THE ASSESSEE. IT WAS SUBMITTED THAT THE UNDISTRIBUTED VETHAPALISA GOT AC CUMULATED OVER THE YEARS AND WERE CONTINUED TO BE SHOWN AS CURRENT LIABILITY IN THE BOOKS OF THE ASSESSEE, EVEN AFTER THE TERMINATION OF A CHIT SCHEME. 8. THE ASSESSING OFFICER TOOK THE VIEW THAT THE UNDISTRIBUTED VETHAPALISA ON TERMINATED CHITTIES PARTAKES THE CHARACTER OF INCOM E IN THE HANDS OF THE ASSESSEE. FOR THIS PROPOSITION, THE AO PLACED RELIANCE ON THE FOLLOWING CASE LAW:- I.T.A. NOS. 326-328/COCH/2013 3 (A) POPULAR KURIES LTD (COCHIN BENCH OF ITAT) (B) CIT VS. SUNDARAM IYENGAR & SONS LTD (SC) (C) CIT VS. KARAMCHAND THAPAR (1996)(222 ITR 113) (SC) (D) PROTOS ENGG. CO. P LTD VS. CIT (1995)(211 ITR 9 19)(BOM) BEFORE THE ASSESSING OFFICER, THE ASSESSEE CONTEND ED THAT THE BALANCE SHOWN UNDER THE HEAD VETHAPALISA A/C REPRESENTS AMOUNTS ACCUM ULATED OVER THE YEARS. THE ASSESSEE FURTHER CONTENDED THAT THE UNDISTRIBUTED V ETHAPALISA ON THE TERMINATED CHITS CONTINUE TO REMAIN AS A LIABILITY IN THE HAND S OF THE ASSESSEE, SINCE IT IS PAYABLE TO THE CONCERNED CHIT SUBSCRIBER. IN THIS REGARD, THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF KS FE VS. JACOB ALEXANDER 1976 AIR 1552. HOWEVER, THE AO REJECTED THE CLAIM OF TH E ASSESSEE BY PLACING RELIANCE ON THE DECISIONS REFERRED SUPRA AND ACCORDINGLY HEL D THAT THE UNDISTRIBUTED VETHAPALISA ON THE TERMINATED CHITTIES HAS TO BE AS SESSED AS INCOME IN THE HANDS OF THE ASSESSEE. SINCE THE AMOUNT SHOWN AS LIABILITY UNDER THE VETHAPALISA ACCOUNT WAS ACCUMULATED OVER THE YEARS, THE AO ESTIMATED TH E INCOME AT RS.10.00 CRORES FOR THE ASSESSMENT YEAR 2005-06. FOR THE ASSESSMEN T YEARS 2006-07, THE AO ASSESSED THE ANNUAL ACCRETION MADE TO THIS ACCOUNT. IN EFFECT, THE AO ASSESSED FOLLOWING AMOUNTS AS THE INCOME OF THE ASSESSEE IN ALL THE THREE YEARS:- ASSESSMENT YEAR 2005-06 - RS.10.00 CRORES ASSESSMENT YEAR 2006-07 - RS. 5.20 CRORES ASSESSMENT YEAR 2007-08 - RS. 1.85 CRORES 9. IN THE APPELLATE PROCEEDINGS, THE LD CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE THAT THE VETHAPALISA IS A LIABILITY IN THE HANDS OF THE ASSESSEE. HOWEVER, THE LD CIT(A) NOTICED THAT THE ASSESSEE DID NOT MAK E ANY PAYMENT OUT OF THE SAID LIABILITY EXCEPT IN THE CASE OF JACOB ALEXANDER, AS PER THE DECISION RENDERED BY HONBLE SUPREME COURT IN THE SUIT FILED BY HIM.. T HE LD CIT(A) NOTICED THAT THE ASSESSEE, HOWEVER, COULD NOT PINPOINT OR PROVE THAT THERE ACTUALLY EXISTED A LIABILITY TO PAY THE AMOUNT TO THE INDIVIDUAL DEPOS ITORS. ACCORDINGLY, THE LD CIT(A) AFFIRMED THE VIEW TAKEN BY THE AO THAT THE UNDISTRI BUTED VETHAPALISA AMOUNT HAS PARTAKEN THE CHARACTER OF INCOME IN THE HANDS OF TH E ASSESSEE. HOWEVER, THE LD CIT(A) DID NOT ACCEPT THE ESTIMATE OF RS.10.00 CROR ES MADE BY THE ASSESSING OFFICER IN ASSESSMENT YEAR 2005-06. THE LD CIT(A) TOOK THE VIEW THAT THE ANNUAL ACCRETION MADE TO THE VETHAPALISA ACCOUNT SHOULD BE CONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE. IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2005-06, THE ANNUAL ACCRETION WORKED OUT TO RS.4.29 CRORES A ND ACCORDINGLY, THE LD CIT(A) DIRECTED THE AO TO ASSESS RS.4.29 CRORES IN THE PLA CE OF RS.10.00 CRORES ASSESSED BY HIM. IN THE ASSESSMENT YEARS 2006-07 AND 2007-0 8, SINCE THE ASSESSING OFFICER HAS ACTUALLY ASSESSED THE ANNUAL ACCRETION, THE LD CIT(A) CONFIRMED THE SAME. I.T.A. NOS. 326-328/COCH/2013 4 AGGRIEVED, THE ASSESSEE HAS COME UP ON APPEAL BEFOR E US CHALLENGING THE DECISION OF LD CIT(A). 10. BEFORE US, THE LD COUNSEL APPEARING FOR TH E ASSESSEE REITERATED THE CONTENTIONS THAT THE VETHAPALISA ACCOUNT REPRESENTS A LIABILITY IN THE HANDS OF THE ASSESSEE, BY PLACING RELIANCE ON THE DECISION OF HO NBLE SUPREME COURT IN THE CASE OF JACOB ALEXANDER. ON THE CONTRARY, THE LD D.R ST RONGLY PLACED RELIANCE ON THE DECISION RENDERED BY LD CIT(A). PRIMA FACIE, IT CA NNOT BE DENIED THAT THE VETHAPALISA DOES NOT CONSTITUTE INCOME IN THE HANDS OF THE ASSESSEE HEREIN. AS STATED EARLIER, THE VETHAPALISA DETERMINED AT THE E ND OF EACH BID IS REQUIRED TO BE DISTRIBUTED TO THE ELIGIBLE SUBSCRIBERS TO THE CHIT . THE PAYMENT IS USUALLY MADE BY WAY OF ADJUSTMENT AGAINST THE MONTHLY CHIT INSTALME NT PAYABLE BY THE SUBSCRIBERS, I.E., THE SUBSCRIBERS USUALLY MAKE PAYMENT AFTER AD JUSTING THE VETHAPALISA AMOUNT. FOR EXAMPLE, IF THE MONTHLY INSTALMENT IS SAY RS.5, 000/- AND THE VETHAPALISA AMOUNT DISTRIBUTED TO HIM IS RS.1,000/-, HE USUALLY MAKES PAYMENT OF RS.4,000/- ONLY TO THE ASSESSEE. THE ADJUSTMENT IS PERMITTED EITHER IN THE SAME MONTHS INSTALMENT OR IN THE SUCCEEDING MONTHS INSTALMENT, DEPENDING UPON THE TERMS OF CONCERNED CHIT SCHEME. HENCE IT CONSTITUTES A LIAB ILITY IN THE HANDS OF THE ASSESSEE TILL ITS PAYMENT TO THE CONCERNED SUBSCRIB ER. SINCE THE VETHAPALISA IS USUALLY ADJUSTED AGAINST THE PAYMENT DUE FROM THE S UBSCRIBERS, ITS NON-DISTRIBUTION WOULD NORMALLY SIGNIFY THAT THERE IS SOME AMOUNT DU E FROM THE CONCERNED SUBSCRIBER (DEFAULTING SUBSCRIBER), I.E., THE ASSES SEE WOULD BE WITHHOLDING THE VETHAPALISA AMOUNT ONLY WHEN SOME AMOUNT IS DUE FRO M A SUBSCRIBER. 11. EACH CHIT GROUP SCHEME FLOATED BY THE ASSES SEE SHALL HAVE FIXED MONTHLY SPAN, SAY 20 MONTHS, 40 MONTHS ETC., MEANING THEREB Y, THE CHIT FUND SCHEME SHALL AUTOMATICALLY COME TO AN END AFTER COMPLETION OF TH E CONCERNED TIME PERIOD. THUS, AFTER THE COMPLETION OF THE TIME PERIOD, THE ASSESSEE WOULD BE IN A POSITION TO DETERMINE THE UNDISTRIBUTED VETHAPALISA ACCOUNT AND ALSO THE AMOUNT DUE FROM THE DEFAULTING SUBSCRIBER. THE ACCOUNTING SYSTEM F OLLOWED BY THE ASSESSEE IN THIS REGARD WAS NOT BROUGHT ON RECORD. WE SHALL TAKE AN EXAMPLE TO UNDERSTAND THE POSITION OF VETHAPALISA AFTER THE TERMINATION OF A CHIT FUND SCHEME. LET US SAY THAT IN A CHIT FUND SCHEME, MR. X HAS DEFAULTED IN MAKING PAYMENT OF RS.10,000/-. THE ASSESSEE WOULD ALSO NORMALLY WITHHOLD THE VETHA PALISA AMOUNT PAYABLE TO HIM AND LET US ASSUME THAT THE AMOUNT SO WITHHELD WAS R S.2,000/-. THEN IT IS POSSIBLE THAT THE ASSESSEE WOULD BE SHOWING RS.2,000/- AS A LIABILITY IN THE VETHAPALISA ACCOUNT AND RS.10,000/- IN THE DEBTORS ACCOUNT. IF THIS ACCOUNTING SYSTEM IS FOLLOWED, THEN THE AMOUNT OF RS.2,000/- CANNOT BE C ONSIDERED AS INCOME IN THE HANDS OF THE ASSESSEE TILL THE DEFAULTED AMOUNT OF RS.10,000/- IS COLLECTED FROM THE CONCERNED SUBSCRIBER. NORMALLY, IT IS EXPECTED THAT THE CONCERNED DEBTOR WOULD PAY ONLY THE NET AMOUNT OF RS.8,000/- (RS.10, 000/- (-) RS.2,000/-) IN SETTLEMENT OF HIS ACCOUNT. 12. IF THE ASSESSEE COLLECTS ONLY RS.8000/- FR OM MR. X, THEN THE QUESTION OF TAXABILITY OF RS.2,000/- DOES NOT ARISE AT ALL. HO WEVER, IF THE ASSESSEE COLLECTS RS.10,000/- AND DID NOT ALLOW THE ADJUSTMENT OF VET HAPALISA AMOUNT OF RS.2,000/-, I.T.A. NOS. 326-328/COCH/2013 5 THEN THE SAID AMOUNT HAS TO BE NECESSARILY TREATED AS THE INCOME OF THE ASSESSEE, SINCE THE LIABILITY IN RESPECT OF THE VETHAPALISA A UTOMATICALLY CEASES ON THE SETTLEMENT OF ACCOUNTS. IF THE ASSESSEE WRITES OFF OF THE WHOLE OR PART OF THE AMOUNT DUE FROM MR. X, THEN ALSO THE VETHAPALISA AM OUNT RELATABLE TO MR. X AND WHICH REMAINS UNADJUSTED WOULD BECOME THE INCOME OF THE ASSESSEE. THUS, IT OUR VIEW, THE VETHAPALISA AMOUNT OF A SUBSCRIBER CAN BE TREATED AS THE INCOME OF THE ASSESSEE ONLY UPON SETTLEMENT OF THE ACCOUNT OF THE CONCERNED SUBSCRIBER. 13. IN THE INSTANT CASE, THE ACCOUNTING TREATM ENT ADOPTED BY THE ASSESSEE, THE STATUS OF THE SETTLEMENT OF ACCOUNTS OF THE CONCERN ED SUBSCRIBER, THE TERMS AND CONDITIONS REGARDING PAYMENT OF VETHAPALISA AMOUNT TO THE SUBSCRIBER, PARTICULARLY WHEN THERE IS A DEFAULT IN PAYMENT OF INSTALMENT/IN STALMENTS, ANY OTHER TERMS AND CONDITIONS RELATING TO PAYMENT OF VETHAPALISA ETC., WERE NOT BROUGHT ON RECORD. IN OUR VIEW, THE TAXABILITY OF VETHAPALISA AMOUNT C AN BE DETERMINED ONLY UPON EXAMINATION OF THE VARIOUS FACTORS DISCUSSED SUPRA. HENCE, WE ARE UNABLE TO AGREE WITH THE VIEW TAKEN BY LD CIT(A) THAT THE ANN UAL ACCRETION TO VETHAPALISA ACCOUNT WOULD AUTOMATICALLY BECOME INCOME OF THE AS SESSEE. THE VIEW TAKEN BY LD CIT(A), IN OUR VIEW, WOULD BE CORRECT ONLY IF TH E TRANSFER TO THE VETHAPALISA ACCOUNT IS RELATED TO THE SETTLED ACCOUNTS. SINCE THE FACTS SURROUNDING THE VETHAPALISA ACCOUNT WERE NOT BROUGHT ON RECORD, IN OUR VIEW, THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFIC ER IN THE LIGHT OF DISCUSSIONS MADE SUPRA, BY DULY CONSIDERING THE TERMS AND CONDI TIONS AND THE RELEVANT ACCOUNTING TREATMENT FOLLOWED BY THE ASSESSEE. ACC ORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE IN ALL THE THREE Y EARS AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO EXAMINE THE ISSUE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH THE LAW. T HE ASSESSEE IS ALSO DIRECTED TO CO-OPERATE WITH THE AO AND FURNISH ALL THE INFORMAT ION AND EXPLANATION THAT MAY BE CALLED FOR BY THE ASSESSING OFFICER. 6. IN THE YEARS UNDER CONSIDERATION, THE ASSESS ING OFFICER HAS TREATED THE ACCRETION TO THE UNDISTRIBUTED VETHAPALISA ACCOUNT AS THE INCOME OF THE ASSESSEE AND THE SAME WAS ALSO CONFIRMED BY LD CIT(A). THE METHOD ADOPTED BY THE AO IS NOT IN ACCORDANCE WITH THE DISCUSSIONS MADE BY THE TRIBUNAL, REFERRED SUPR A. HENCE, THE INSTANT ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE ASSESSING OFFIC ER IN THE LIGHT OF DISCUSSIONS MADE IN THE ORDER OF THE TRIBUNAL, EXTRACTED ABOVE. ACCORD INGLY, WE SET ASIDE THE ORDERS PASSED BY THE LD. CIT(A) ON THIS ISSUE IN ALL THE THREE YE ARS UNDER CONSIDERATION AND RESTORE THE SAME TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH AND TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LA W. I.T.A. NOS. 326-328/COCH/2013 6 7. IN THE RESULT, ALL THE APPEALS FILED BY THE ASSE SSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 08-08-2013. SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 8TH AUGUST, 2013 GJ COPY TO: 1. THE KERALA STATE FINANCIAL ENTERPRISES LTD., BHA DRATHI, MUSEUM ROAD, THRISSUR-680 020. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1), THRISSUR. 3 THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI. 4.THE COMMISSIONER OF INCOME-TAX, THRISSUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN