Malabar institute of Medical Sciences Ltd, Calicut V. ACIT, Calicut

ITA 470/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58214 (ITAT-COCHIN)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 04-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 11-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA
• Assessee Lawyers: K GOPI
• Keywords: Unexplained cash credit; Business income; Income from undisclosed sources; Audit objection
• Section: 147; 68; 69; 263

Judgement Text

1 ITA 470/COCH/2009 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) & SHRI B.R. BASKARA N (AM) ITA NO.470/COCH/2009 (ASSESSMENT YEAR 2005-06) M/S MALABAR INSTITUTE OF MEDICAL : A.C.I.T., CIR. 1(1) SCIENCES LTD, GOVINDAPURAM, CALICUT CALICUT PAN : AACCM3480H (APPLICANT) (RESPONDENT) ASSESSEE BY : SHRI K GOPI RESPONDENT BY: MS. VIJAYAPRABHA DATE OF HEARING : 04-01-2012 DATE OF PRONOUNCEMENT : 06-01-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE ADMINISTRATIVE COMMISSIONER U/S 263 OF THE INCOME-T AX ACT DATED 11-06-2009 FOR THE ASSESSMENT YEAR 2005-06. 2. SHRI K GOPI, THE LD.REPRESENTATIVE FOR THE ASSES SEE SUBMITTED THAT THE ADMINISTRATIVE COMMISSIONER ON THE BASIS OF THE INT ERNAL AUDIT OBJECTION EXERCISED HIS POWER U/S 263 OF THE INCOME-TAX ACT. REFERRING TO THE JUDGMENT OF THE PUNJAB & HARYANA HIGH COURT IN COMMISSIONER OF I NCOME-TAX VS SOHANA WOOLLEN MILLS 296 ITR 238 (P&H), THE LD.REPRESENTAT IVE SUBMITTED THAT A MERE AUDIT OBJECTION AND THE FACT THAT A DIFFERENT VIEW C AN BE TAKEN SHOULD NOT BE 2 ITA 470/COCH/2009 ENOUGH TO SAY THAT THE ORDER OF THE ASSESSING OFFIC ER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. REFERRI NG TO THE JUDGMENT OF THE APEX COURT IN LAKMICHAND BAIJNATH VS COMMISSIONER OF INCO ME-TAX 35 ITR 416 (SC) AND THE JUDGMENT OF THE CALCUTTA HIGH COURT IN DAULATRAM RAWATMULL VS COMMISSIONER OF INCOME-TAX 64 ITR 593(CAL) AND MANS FIELD & SONS VS COMMISSIONER OF INCOME-TAX 48 ITR 254 (CAL) AND THE JUDGMENT OF KERALA HIGH COURT IN ANNAMALAI REDDIAR VS COMMISSIONER OF INCOM E-TAX 53 ITR 601, THE LD. REPRESENTATIVE SUBMITTED THAT WHEN THE ONLY SOURCE OF INCOME OF THE ASSESSEE IS BUSINESS, THE UNEXPLAINED CREDIT HAS TO BE ASSESSED ONLY AS BUSINESS RECEIPT. REFERRING TO THE JUDGMENT OF THE MADRAS HIGH COURT I N CHUNSING VENTURES 291 ITR 258 (MAD) THE LD.REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS ENTITLED TO SET OFF OF LOSSES U/S 71 OF THE INCOME-TAX ACT IN RESPECT O F INCOME DECLARED U/S 69 OF THE ACT. THE LD.REPRESENTATIVE HAS ALSO PLACED HIS REL IANCE ON THE JUDGMENT OF THE APEX COURT IN COMMISSIONER OF INCOME-TAX VS MAX IND IA LTD 295 ITR 282 (SC) AND MALABAR INDUSTRIAL CO LTD VS COMMISSIONER OF INCOME -TAX 243 ITR 84 (SC) AND SUBMITTED THAT WHEN THE ASSESSING OFFICER HAS TAKEN ONE VIEW ON THE BASIS OF THE MATERIAL AVAILABLE ON RECORD, IT CANNOT BE SAID THA T THE ORDER OF THE ASSESSING OFFICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERES T OF THE REVENUE. ACCORDING TO THE LD.REPRESENTATIVE, BOTH THE TWIN CONDITIONS HAS TO BE SATISFIED WHILE INITIATING PROCEEDINGS U/S 263 OF THE ACT. IN THIS CASE, ACCO RDING TO THE LD.REPRESENTATIVE, THE ORDER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO TH E INTEREST OF THE REVENUE. 3. ON THE CONTRARY, MS. VIJAYAPRABHA, THE LD.DR SUBM ITTED THAT AUDIT OBJECTION CAN BE A BASIS FOR REOPENING THE ASSESSMEN T U/S 147 OF THE ACT. ON THE SAME LINE, THE AUDIT REPORT CAN BE A BASIS FOR REVI SING THE ORDER OF THE ASSESSING 3 ITA 470/COCH/2009 OFFICER U/S 263 OF THE ACT IF IT IS FOUND THAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. REFERRI NG TO THE ORDER OF THE ADMINISTRATIVE COMMISSIONER, THE LD.REPRESENTATIVE SUBMITTED THAT THE COMMISSIONER ONLY REMANDED BACK THE MATTER TO THE F ILE OF THE ASSESSING OFFICER FOR RECONSIDERATION IN THE LIGHT OF THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMED HAJI HASSAN V COMMISSIONER OF INCOME-TAX 247 ITR 290 (GUJ). THEREFORE, ACCORDING TO THE LD.DR, THE ASSES SEE CAN VERY WELL EXPLAIN THE MATTER BEFORE THE ASSESSING OFFICER UNDER WHICH HEA D THE INCOME WAS TO BE ASSESSED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY THERE WAS ADDITION U/S 68 OF THE INCOME-TAX ACT. THE ASSESSING OFFICER BY TAKING IN TO CONSIDERATION THE BUSINESS OF THE ASSESSEE TREATED THE ADDITION AS BUSINESS INCOM E. HOWEVER, THE INTERNAL AUDIT PARTY HAS RAISED OBJECTION WITH REGARD TO THE HEAD OF INCOME UNDER WHICH THE ADDITION MADE U/S 68 HAS TO BE ASSESSED. THE A DMINISTRATIVE COMMISSIONER, AFTER REFERRING TO THE OBJECTION RAISED BY THE AUDIT PARTY, SIMPLY SAYS THAT HE IS ACCEPTING THE OBJECTION. THE QUESTION ARISES FOR CO NSIDERATION IS CAN THE ADMINISTRATIVE COMMISSIONER EXERCISE HIS POWERS U/S 263 ON THE BASIS OF THE INTERNAL AUDIT OBJECTION? THIS ISSUE WAS CONSIDERED BY THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF SOHANA WOLLEN MILLS (SUPRA). AFTER REFERRING TO THE PROVISIONS OF SECTION 263 OF THE INCOME-TAX ACT THE HIGH COURT FOUND THAT MERE AUDIT OBJECTION AND BRECAUSE OF DIFFERENT VIEW COULD BE TA KEN ARE NOT ENOUGH TO SAY THAT THE ORDER OF THE ASSESSING OFFICER WAS ERRONEO US OR PREJUDICIAL TO THE INTEREST 4 ITA 470/COCH/2009 OF THE REVENUE. IN FACT, THE PUNJAB & HARYANA HIGH COURT AT PAGE 241 OF THE ITR, HAS OBSERVED AS FOLLOWS: A REFERENCE TO THE PROVISIONS OF SECTION 263 OF T HE ACT SHOWS THAT JURISDICTION THEREUNDER CAN BE EXERCISED IF THE COMMISSIONER OF INCOME-TAX FINDS THAT THE ORDER OF THE ASSESSING OF FICER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE RE VENUE. MERE AUDIT OBJECTION AND BECAUSE A DIFFERENT VIEW COULD B E TAKEN, ARE NOT ENOUGH TO SAY THAT THE ORDER OF THE ASSESSING OFFIC ER WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE JURISDICTION COULD BE EXERCISED IF THE COMMISSIONER OF INCOME-TAX WAS SATISFIED THAT THE BASIS FOR EXERCISE OF JURISDICTION EXISTED. NO RIGI D RULE COULD BE LAID DOWN ABOUT THE SITUATION WHEN THE JURISDICTION CAN B E EXERCISED. WHETHER SATISFACTION OF THE COMMISSIONER OF INCOME- TAX FOR EXERCISING JURISDICTION WAS CALLED FOR OR NOT, HAS T O BE DECIDED HAVING REGARD TO A GIVEN FACT SITUATION. 5. WHEREAS, IN THE CASE UNDER CONSIDERATION, THE AS SESSING OFFICER IN THE COURSE OF ASSESSMENT PROCEEDINGS, FOUND THAT THE AS SESSEE COULD NOT EXPLAIN THE FUNDS RAISED OUT OF THE SHARES AND DEBENTURES. THE REFORE, AN ADDITION OF RS.2,13,50,000 WAS MADE U/S 68 OF THE INCOME-TAX AC T AND THE ASSESSING OFFICER TREATED THE SAME AS BUSINESS INCOME. HOWEVER, THE ADMINISTRATIVE COMMISSIONER, IN EXERCISE OF HIS REVISIONAL POWER U /S 263 OF THE ACT FOUND THAT IT IS NOT INCOME FROM BUSINESS OR INCOME FROM OTHER SOURCES BUT IT WAS INCOME ASSESSABLE ON STAND ALONE BASIS. THE ADMINISTRATIV E COMMISSIONER PLACED RELIANCE ON THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMED HAJI HASSAN V COMMISSIONER OF INCOME-TAX (S UPRA). 5 ITA 470/COCH/2009 6. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THE ASSESSING OFFICER AND THE JUDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHAMMED HAJI HASSAN V COMMISSIONER OF INCOME-TAX (SUPRA). IN TH E CASE BEFORE THE GUJARAT HIGH COURT IN FAKIR MOHAMMED HAJI HASSAN V COMMISSIO NER OF INCOME-TAX (SUPRA) THE ASSESSEE DERIVED INCOME FROM PARTNERSHI P FIRM IN WHICH HE WAS A PARTNER. THE INCOME-TAX OFFICER CALLED UPON THE ASS ESSEE TO GIVE PARTICULARS ABOUT THE SEIZURE OF GOLD WORTH RS.48,72,000 BY THE CUSTOMS AUTHORITIES. THE ASSESSEE EXPLAINED TO THE INCOME-TAX OFFICE R THAT THE CUSTOMS DEPARTMENT HAD CONFISCATED THE GOLD IN QUESTION AND THE PROCEEDS U NDER THE CUSTOMS ACT WERE PENDING AGAINST THE ASSESSEE. THE COLLECTOR OF CUS TOMS IMPOSED PENALTY OF RS.25 LAKHS ON THE ASSESSEE U/S 112 OF THE CUSTOMS ACT. THE INCOME-TAX OFFICER FOUND THAT THE VALUE OF THE GOLD CONFISCATED BY THE CUSTOMS AUTHORITIES WAS LIABLE TO BE ADDED IN THE HAND OF THE ASSESSEE U/S 69A OF THE ACT. ACCORDINGLY AN ADDITION WAS MADE. IN THOSE CIRCUMSTANCES, THE GUJAR AT HIGH COURT HELD THAT WHEN THE ASSESSEE HAS NO EXPLANATION ABOUT THE NATU RE AND SOURCE OF INVESTMENT OR ACQUISITION OF THE GOLD VALUE OF SUCH GOLD WAS DEEMED TO BE THE INCOME OF THE ASSESSEE AND THERE WAS NO QUESTION OF TREATING THE VALUE AS A DEDUCTIBLE TRADING LOSS ON ITS CONFISCATION BECAUSE SUCH INCOME DID NOT FALL UNDER THE HEAD INCOME FROM PROFIT & GAINS OF BUSINESS OR PROFESSION. IN FACT, THE GUJARAT HIGH COURT HAS OBSERVED AS FOLLOWS AT PAGE 2 94 OF THE ITR: IT IS, THEREFORE, CLEAR THAT, WHEN THE INVESTMENT IN OR ACQUISITION OF GOLD, WHICH WAS RECOVERED FROM THE A SSESSEE WAS NOT RECORDED IN THE BOOKS OF ACCOUNT AND THE ASSESSEE O FFERED NO EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH INV ESTMENT OR ACQUISITION AND THE VALUE OF SUCH GOLD WAS NOT RECO RDED IN THE BOOKS OF ACCOUNT, NOR THE NATURE AND SOURCE OF THE ACQUIS ITION EXPLAINED, 6 ITA 470/COCH/2009 THERE COULD ARISE NO QUESTION OF TREATING THE VALUE OF SUCH GOLD, WHICH WAS DEEMED TO BE THE INCOME OF THE ASSESSEE, AS A DEDUCTIBLE TRADING LOSS ON ITS CONFISCATION, BECAUSE, SUCH DEE MED INCOME DID NOT FALL UNDER THE HEAD OF INCOME PROFITS AND GAIN S OF BUSINESS OR PROFESSION. IN VIEW OF THE ABOVE JUDGMENT OF THE GUJARAT HIGH COU RT IT IS OBVIOUS THAT THE CASE BEFORE THE GUJARAT HIGH COURT WAS IN RESPECT OF INVESTMENT MADE BY THE ASSESSEE IN SMUGGLED GOLD WHICH WAS CONFISCATED BY THE CUSTOMS AUTHORITIES. THE INVESTMENT IN GOLD IS NOT THE REGULAR BUSINESS OF THE ASSESSEE. THE REGULAR BUSINESS IS AS A PARTNER IN THE PARTNERSHIP FIRM WH ICH HAS NO CONNECTION WITH SALE OF GOLD. HOWEVER, THE ASSESSEE WAS FOUND IN POSSES SION OF THE GOLD BY THE CUSTOMS AUTHORITY WHICH WAS CONFISCATED. IN THOSE FACTUAL CIRCUMSTANCES, IN THE ABSENCE OF ANY EXPLANATION ABOUT THE INVESTMENT MAD E BY THE ASSESSEE, THE GUJARAT HIGH COURT FOUND THAT THE LOSS SUFFERED BY T HE ASSESSEE ON CONFISCATION OF GOLD BY THE CUSTOMS AUTHORITIES CANNOT BE DEDUCT IBLE AS TRADING LOSS. 7. IN THE CASE BEFORE US, THE ISSUE IS ENTIRELY ON A DIFFERENT FOOTING. THE ASSESSEE, ADMITTEDLY RUNNING A HOSPITAL. THE ASSES SEE RAISED FUNDS BY ISSUING SHARES AND DEBENTURES. THE INVESTMENT IN THE SHARE S AND DEBENTURES BY RESPECTIVE PERSON WAS DOUBTED AND THE ADDITION WAS MADE U/S 68 OF THE INCOME- TAX . THE QUESTION ARISES FOR CONSIDERATION IS WHE N THE ADDITION WAS MADE U/S 68 OF THE ACT, IN THE ABSENCE OF SATISFACTORY EXPLANAT ION REGARDING THE SOURCE OF THE CREDITOR IN THE SHARES AND DEBENTURES, CAN WE SAY T HAT THE CREDIT IS NOT A BUSINESS INCOME. ADMITTEDLY, THE ASSESSEE IS A REG ISTERED COMPANY. IT HAS NO OTHER SOURCE OF INCOME. IT IS NOT THE CASE OF THE REVENUE THAT THE DIRECTORS OR OTHER SHAREHOLDERS INVESTED THEIR PERSONAL FUNDS. IF THAT IS SO, THERE CANNOT BE 7 ITA 470/COCH/2009 ANY ADDITION IN THE CASE OF THE PRESENT ASSESSEE. THE VERY FACT THAT THE ADDITION WAS MADE IN THE HANDS OF THE PRESENT ASSESSEE SHOWS THAT THE ASSESSEE HAS GENERATED UNACCOUNTED INCOME IN THE COURSE OF ITS B USINESS ACTIVITY. THE REVENUE HAS NOT FOUND ANY OTHER MATERIAL OR INVESTM ENT AS IN THE CASE BEFORE THE GUJARAT HIGH COURT. IN THE CASE BEFORE THE GUJARAT H IGH COURT, THE INVESTMENT IN GOLD WHICH WAS CONFISCATED BY THE CUSTOMS AUTHORITY WAS CONSIDERED AND FOUND THAT IN THE ABSENCE OF ANY OTHER MATERIAL, THE PRES UMPTION IS THAT THE INCOME WAS GENERATED FROM BUSINESS ACTIVITY OF THE ASSESSE E. 8. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF TH E APEX COURT IN THE CASE OF LAKHMICHAND BAIJNATH VS COMMISSIONER OF INCOME-T AX (SUPRA). IN THE CASE BEFORE THE APEX COURT, THE ASSESSEE, AN HUF CARRYIN G ON BUSINESS AS PIECE GOODS MERCHANT. DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, THE ASSESSING OFFICER FOUND SIX CREDITS TO THE EXTENT OF RS.2,30,346 SHOW N IN THE ACCOUNTS AS SALE PROCEEDS OF ORNAMENTS. THE ASSESSEE EXPLAINED BEFO RE THE LOWER AUTHORITIES THAT AFTER PARTITION OF THE JEWELLERY OF THE FAMILY IT WAS SOLD IN SIX LOTS AND THE AMOUNTS REALIZED WERE INVESTED IN THE BUSINESS. TH E ITO REJECTED THE EXPLANATION OF THE ASSESSEE AND FOUND THAT THE CRED IT FOUND IN THE ACCOUNTS WERE BUSINESS INCOME OF THE ASSESSEE. ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL FOUND THAT THE CREDIT FOUND IN THE ACCOUNTS TO THE EXTENT OF RS. 2,30,346 DID NOT REPRESENT THE PARTICULARS OF THE FAMILY JEWELLERIES SOLD BUT IT WAS CONCEALED BUSINESS PROFIT. ON FURTHER APPEAL BEFORE THE HIGH COURT, THE FINDING OF THE TRIBUNAL WAS CONFIRMED. THE ASSESSEE TOOK THE MATT ER BEFORE THE APEX COURT. THE APEX COURT, AFTER CONSIDERING THE FACTS OF THE CASE FOUND THAT THERE WAS NO EVIDENCE TO SHOW THAT THE FINDING OF THE TRIBUNAL WAS NOT SUPPORTED BY ANY 8 ITA 470/COCH/2009 EVIDENCE OR IT WAS PERVERSE. ACCORDINGLY, THE FIND ING OF THE TRIBUNAL WAS CONFIRMED BY THE APEX COURT. THE APEX COURT SUMMAR IZED ITS FINDINGS ON PAGE 424 OF THE ITR AS FOLLOWS: THE POSITION MAY THUS BE SUMMED UP : IN THE BUSIN ESS ACCOUNTS OF THE APPELLANT WE FIND CERTAIN SUMS CRED ITED. THE EXPLANATION GIVEN BY THE APPELLANT AS TO HOW THE AM OUNTS CAME TO BE RECEIVED IS REJECTED BY ALL THE INCOME-TAX AUTHOR ITIES AS UNTENABLE. THE CREDITS ARE ACCORDINGLY TREATED AS BUSINESS REC EIPTS WHICH ARE CHARGEABLE TO TAX. IN GOVINDARAJULU MUDALIAR V. COM MISSIONER OF INCOME-TAX, THIS COURT OBSERVED: THERE IS AMPLE AUTHORITY FOR THE POSITION THAT WH ERE AN ASSESSEE FAILS TO PROVE SATISFACTORILY THE SOURCE A ND NATURE OF CERTAIN AMOUNT OF CASH RECEIVED DURING THE ACCOUNTING YEAR, THE INCOME-TAX OFFICER IS ENTITLED TO DRAW THE INFERENCE THAT THE RECEIPTS ARE OF AN ASSESSABLE NATURE. THAT IS PRECISELY WHAT THE INCOME-TAX AUTHORITIES HAVE DONE IN THE PRESENT CASE, AND WE DO NOT FIND ANY GROUNDS FO R HOLDING THAT THEIR FINDING IS OPEN TO ATTACK AS ERRONEOUS IN LAW . (3) LASTLY, THE QUESTION WAS SOUGHT TO BE RAISED T HAT EVEN IF THE CREDITS AGGREGATING TO RS.2,30,346 ARE HELD TO BE CONCEALED INCOME, NO LEVY OF EXCESS PROFITS TAX CAN BE MADE O N THEM WITHOUT A FURTHER FINDING THAT THEY REPRESENTED BUSINESS INCO ME, AND THAT THERE IS NO SUCH FINDING. WHEN AN AMOUNT IS CREDIT ED IN BUSINESS BOOKS, IT IS NOT AN UNREASONABLE INFERENCE TO DRAW THAT IT IS A RECEIPT FROM BUSINESS. IT IS UNNECESSARY TO PURSUE THE MAT TER FURTHER, AS THIS IS NOT ONE OF THE QUESTIONS REFERRED UNDER SECTION 66(2). 9. IN VIEW OF THE ABOVE OBSERVATION OF THE APEX COU RT IT IS NOT AN UNREASONABLE INFERENCE TO DRAW THAT THE ADDITION MA DE U/S 68 IS A RECEIPT FROM BUSINESS OF THE ASSESSEE. THEREFORE, THIS TRIBUNAL IS OF THE OPINION THAT THERE IS NO 9 ITA 470/COCH/2009 JUSTIFICATION ON THE PART OF THE COMMISSIONER OF INC OME-TAX(A) TO REVISE THE ORDER IN EXERCISE OF HIS JURISDICTION U/S 263 OF I.T. ACT. ACCORDINGLY, THE ORDER OF THE ADMINISTRATIVE COMMISSIONER IS HEREBY QUASHED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 06 TH DAY OF JANUARY, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 06 TH JANUARY, 2012 PK/- COPY TO: 1. M/S MALABAR INSTITUTE OF MEDICAL SCIENCES LTD, GOVI NDAPURAM, CALICUT 2. ASSIST.COMMISSIONER OF INCOME-TAX, CIR.1(1), CALIC UT 3. THE COMMISSIONER OF INCOME-TAX, CALICUT 4. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, C OCHIN BENCH