The ACIT, Thiruvalla V. M/s. Mar Gregorious Memorial Muthoot Medical Centre, Calicut

ITA 481/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7649 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-01-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 22-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Section: 143(3); 37; 263; 63; 15

Judgement Text

ITA NO S 480 TO 483/C/2015 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO S. 480 TO 483/COCH/2015 . (ASST YEAR S 2002 - 03 TO 2004 - 05 & 2007 - 08 ) THE ASST COMMR OF INCOME TAX CIRCLE 1 THIRUVALLA VS M/S MAR GREGORIOUS MEMORIAL MUTHOOT MEDICAL CENTRE KOZHENCHERRY 689 641 ( APPELLANT) (RESPONDENT) PAN NO. AACFM7331E ASSESSEE BY SH R SREENIVASAN REVENUE BY SH K PGOPAKUMAR, SR DR DATE OF HEARING 5 TH DEC 2015 DATE OF PRONOUNCEMENT 6 TH , JAN 2016 OR D ER PER BENCH : THESE FOUR APPEALS, AT THE INSTANCE OF THE REVENUE, ARE DIRECTED AGAINST CONSOLIDATED ORDER OF THE CIT(A) DATED 29 TH JULY 2015. THE RELEVANT ASSESSMENT YEARS ARE 2002 - 03 TO 2004 - 05 AND 2007 - 08. 2 THOUGH IDENTICAL SEVEN GROUNDS ARE RAISED IN EACH OF THE APPEAL, ALL THE GROUNDS RELATE TO THE SOLITARY ISSUE NAMELY WHETHER THE CIT(A) IS JUSTIGYING IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE AO AS UNDER: SL NO. ASST YEAR DISALLOWANCE MADE (RS) 1 2002 - 03 7,45,07,387 2 2003 - 0 4 6,74,34,147 3 2004 - 05 4,39,16,543 3 2007 - 08 4,61,21,342 ITA NO S 480 TO 483/C/2015 2 3 BRIEFLY STATED THE FACTS OF THE CASE ARE AS FOLLOWS: THE ASSESSEE IS A FIRM. IT IS ENGAGED IN THE BUSINESS OF RUNNING A HOSPITAL. THE ASSESSMENT FOR THE RELEVANT ASSESSMENTS YEARS 2002 - 03 TO 2004 - 05 AND 2007 - 08 WERE COMPLETED U/S 143(3) R.W.S 147 OF THE I T ACT ON VARIOUS DAYS WHICH WERE SUBJECTED TO APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) GAVE PARTIAL RELIEF VIDE ORDER DATED 19.10.2010. THE CITIA)S ORDER WAS SUBJECT MATTER OF APPEAL BY BOTH THE ASSESSEE AND THE REVENUE TO THE TRIBUNAL. THE TRIBUNAL, VIDE ITS ORDER DATED 6.1.2012 (PLACED AT PAGES 86 TO 93 OF THE PAPER BOOK) REMANDED THE MATTER BACK TO THE AO FOR DE - NOVO CONSIDERATION. 4 THE SET ASIDE ASSESSMENT WAS RE - DONE BY THE AO BY DISALLOWING THE INTEREST EXPENDITURE . ACCORDING TO THE AO THE FINANCIAL S TATEMENTS FILED ALONG WITH THE RETURN, ON EXAMINATION REVEALS THAT THE ASSESSEE FIRM HAS A RESOURCE DIVISION WHICH ACCEPTS DEPOSITS FROM THE PUBLIC. IT WAS NOTICED THAT T HE AMOUNT SO COLLECTED WAS WITHDRA WN BY THE PARTNERS , WHO IN - TURN PA ID INTEREST TO THE FIRM AND THE FIR M PA ID INTEREST TO THE PUBLIC, AS DEBITED IN THE PROFIT & LOSS ACCOUNT. FURTHER, A CCORDING TO THE AO, THE DEPOSITS WERE RAISED FROM THE PUBLIC AT LARGE AND ACTIVITY OF RECEIVING DEPOSITS FROM THE PUBLIC DOES NO T HAVE ANY CONNECTION WITH THE STATED OBJECTIVE OF THE FIRM NAMELY, OPERATING A HOSPITAL . THE AO ALSO P RESUMED THAT THESE WITHDRAWALS ARE MERELY BOOKS ENTRIES, AND THE AMOUNT SO TRANSFERRED FROM THE ASSESSEE FIRM TO THE SISTER CONC ERNS , WHICH ARE ENGAGED I N MONEY ITA NO S 480 TO 483/C/2015 3 LENDING , AND ON A LOGICAL THEORY, THE AO CONCLUDED THAT THE DEPOSITS COLLECTED FROM THE PUBLIC WERE SOLELY WITH THE INTENTION TO ROUTE THEM TO THE MONEY LENDING BUSINESS CARRIED OUT BY OTHER CONCERNS OF THIS GROUP. IT WAS ALSO NOTICED BY THE AO THAT THE PARTNERS HAVE DRAWN IN BET WEEN ONLY T O IMPART AN AURA OF LEGITIMACY TO THIS ARRANGEMEN T TO CONCEAL THE ACTUAL INCOME EARNED THROUGH THESE TRANSACTIONS. DURING THE ASSESSMENT PROCEEDINGS, THE AO HAS ALSO MADE REFERENCE TO SECTION 45S OF THE RBI ACT 1935 WHERE IN IT IS PRESCRIBED THAT NO PERSON, BEING AN I NDIVIDUAL OR A FIRM OR AN UNINCORPORATED ASSOCIATION OF INDIVIDUALS SHALL AT ANY TIME HAVE DEPOSITS FROM MORE THAN THE NUMBER OF DEPOSITORS SPECIFIED. ACCORDING TO THE AO , THE MAXIMUM NUMBER OF DEPOSITORS PERMISSIBLE FOR A FIRM IS 250 ONLY AND IN THE ASSESSEE 'S CASE , IT IS MORE THAN THE NUMBER OF THE DEPOSITORS THAN WHAT WAS PERMITTED , THEREBY FLOUTING THE PROVISIONS OF RBI ACT 1934. ACCORDINGLY, THE A O WAS OF THE VIEW THAT THE EXPENSES INCURRED ON ACCEPTING PUBLIC DEPOSITS IS NOTHING BUT AN EXPENSE INCURRED FOR A PURPOSE , WHICH IS PROHIBITED BY LAW AND EXPLANATION TO SECTION 37 (1 ) STATES THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCT I ON CAN BE MADE IN RESPEC T OF SUCH EXPENSES. APART FROM THAT , THE AO WAS OF THE OP I NION THAT I F THE ACT I V I TY OF WITHDRAWA L OF FUNDS B Y PARTNERS I S CLA I MED T O BE A B U S IN ESS ACTIVITY , THEN IT WOULD IMPLY THAT THE FIRM IS DOING BUSINESS WITH ITS ITA NO S 480 TO 483/C/2015 4 PARTNERS, THUS VIOLATING THE PROVISIONS OF THE PARTNERSHIP ACT , WHEREIN ALSO THE EXPLANATION TO SECTION 37 (1) W IL L COME I N THE WAY. ACCORDINGLY , THE AO H A S CONCLUDED THAT THE ENTIRE INTEREST PAYMENT MADE ON PUBL I C DEPOSIT IS NOT AN ALLOWABLE EXPENDITURE . 5 AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL TO THE FIRST APPELLATE AUTHORITY. THE CIT(A) . THE CIT(A) ALLOWED THE APPEALS OF THE ASSESSEE AND DELETED THE DISALLOWANCE OF INTEREST MADE BY THE AO. 6 BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US FOR THE AYS 2002 - 03 TO 2004 - 05 & 2 007 - 08 AGAINST THE COMMON ORDER OF THE CIT(A). THE LD DR HAS FURNISHED A BRIEF NOTE WHICH READS AS UNDER: A. THE APPELLATE COMMISSIONER HAS, FROM PARA 1 OF HIS ORDER TO PARA13 OF HIS ORDER DISCUSSED THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THIS HON BLE TRIBUNAL WHICH HAD SET ASIDE THE EARLIER ASSESSMENT TO THE FILE OF THE AO. B. IN THE PARA 14, OF THE APPELLATE ORDER, THE LD CIT(A) HAS MENTIONED THREE THINGS VIZ.. (A) THE ASSESSING OFFICER HAS DEVIATED FROM THE SP ECI FIC F I ND IN G S GIV E N BY THE ITAT AND HAS TAKEN A STAND T HA T TH E A C TIVIT I E S O F THE ASSE S SEE ARE ILL E GAL . ( B) TH E ABOVE STAND OF INVOCATION OF SECTION 3 7( 1) HAD NO T BE E N TAK E N IN THE EA R LIER ASSESSMENT . (C) A P P ELLANT HAS A DD U CED E VID E NC E IN T H E FOR M O F CLA R I F ICATI O N FRO M THE FINAN C E MINISTER. ( D) ON A SIMILAR IS S UE, ACTION U/S 263 HAD BEEN DR O PP ED . C . IT I S SUBMITTE D THAT ALL THE FOUR OBSERVA T IO N S OF T HE CI T {A} A S REPRODUCED I N SU B - P ARA B ABOVE ARE B ASI C AL L Y I N C OR REC T . D . (A) ...... THE ASSESSING OFFICER HAS NOT DE V IAT ED F RO M T H E DIRECTIONS OF ITA NO S 480 TO 483/C/2015 5 THE HON. ITAT. HE HAS VERY SI N CE REL Y CO M P L IE D WIT H THE DIRE CTIO NS O F TH E HON . TR I BUN AL W H ICH HA D, VI DE PA RA. 8 AND 9 OF THEIR ORDER DIRECTED AND ORDERED THAT AO TO LIFT THE V E IL OF THE PARTNERSHIP AND ALSO TO UTILIZE THE DECISION OF MCDOWELL, IF THE VEIL IS LIFTED. (B) . LN THE EARLIER ASSES S MEN T AL S O , T HE I SS UE O F DIS A LLOWANCE HAD BEEN A SUBJECT MATTER W H ICH H AS BE E N CO M MENTED U P ON BY T HE HON. ITAT IN PA R A. 8 {{ C L A USE ( C ) THEREIN}}}. (C) ..... THE SO CLAIMED 'CLARIFICATION O F F I N ANC E M I N I S T ER ' BROUGHT IN BY THE ASSESSEE AND HE A VILY RE LIE D UP O N BY T H E APPELLATE COMMISSIONER IS NOT AT ALL A DI RE CTI ON OR A CLA R IFICATION, ALBEIT A PIECE OF RELEVANCE A S F A R AS TH E P RESE N T ISSUE IS CONCE R NED. THIS LETTER IS A CO M MU N IC A T IO N BET W EE N T H E THE N FM AND AN EX MP, ON THE CHIT FU N D S . ( D ) ....... WITH O UT PREJUDICE TO THE FA C T TH A T TH E O RDE R U / S 2 6 3 P L A C ED I N T HE PA P ER B OO K I S NO T CO NNECT E D W I T H T H E PRE S EN T ISS U E, IT IS HUMBLY S UBMI T TED THAT AN O R D E R U/ S 2 63 I N A CA S E B Y ANOTHER COMMISSIONER DOES NOT DEPIC T THE LAW O R COMPREHENSIVELY INTERPRET THE LAW. HENCE, U N DUE R EL EVAN C E MAY KINDLY NOT BE GIVEN TO THAT O R DER. E. WITHOUT PREJUDICE TO THE SUBMISSION S A S A BOV E , T H E H ON . TR I BUNA L M AY KIN DL Y OB SER VE THA T THE AP P E LLA T E C OM MI SS I O N E R H AS NOT A DJU DICA TE D ON AN Y O F T HE LEG A L POINT S IN H IS O RD E R A N D HA S ALLOWED THE APPEAL ,VIDE PARA 15 OF H I S O RD ER ST A T ING T HA T THE ASSESSING O FFICER HAS '' BROUGHT A NE W C A S E ' ' . T H I S IS FA R FROM THE REAL L AY OF F ACT S . THE AO HA S BROU G H T I N A LL M A T E R I A L T O LIFT THE VEIL OF THE MATTER, AS DIRECTED AND E M P OWE R E D BY T H E HON. ITAT. THE R E IS NO '' BRINGING OF A NEW CA S E ' ' . TH E L EARN E D CIT{A} S HOUL D H AV E AD JUD ICA T ED ON T HE LEGA L IS SUE S INV O L V E D RATHER THAN ALL OW TH E AP P EAL ON SUPER F L U O U S G RO U N DS . 6 .1 THE LD AR REITERATED HIS SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND RELIED ON THE FINDINGS OF THE CIT(A). ITA NO S 480 TO 483/C/2015 6 7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS RIGHTLY POINTED OUT BY THE LD DR, THE CIT(A) IN PARAS 1 TO 13 OF HIS ORDER HAS DISCUSSED THE FACTS AND THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE. THE FINDINGS OF THE CIT (A) ARE ONLY AT PARA S 14 & 15 OF THE IMPUGNED ORDER. IT IS PERTINENT TO REPRODUCE THE SAME, WHICH READ AS UNDER: 14. AS STATED BY THE APPELLANT EVEN IN THE PRESENT PROCEEDINGS IN MY VIEW THE ASSESSING OFFIC ER HAS DEVIATED FROM THE SPECIFIC DIRECTIONS GIVEN BY THE APPELLATE TRIBUNAL AND TAKEN A STAND THAT ACTIVITIES OF THE APPELLANT ARE ILLEGAL , SO MUCH SO THE EXPENDITURE INCURRED THERETO CANNOT BE ALLOWABLE, IN VIEW OF THE EXPLANATION TO SECTION 37 ( 1 ). TH IS HAS BEEN, NEVERTHELESS THE STAND IN THE ORIGINAL ASSESSMENT NOR BEFORE THE FIRST APPELLATE AUTHORITY OR BEFORE THE TRIBUNAL AS BOTH THE PARTIES WERE IN APPEAL BEFORE THE HONBLE INCOME TAX APPELLATE TRIBUNAL . THE APPELLANT HAS ALSO ADDUCED ENOUGH EVIDEN CE BY WAY OF CLARIFICATIONS FROM THE FORMER FINANCE MINISTRY AND BY WAY OF DROPPING 263 PROCEEDINGS ON A SIMILAR ISSUE OF AN ASSOCIATE CONCERN. 15 THEREFORE, ACCORDING TO ME THE ASSESSING OFFICER AS TRAVELLED BEYOND THE DIRECTIONS GIVEN BY THE HONBLE INCO ME TAX APPELLATE TRIBUNAL Y BRINGING OUT A NEW CASE WHICH WAS NOT ON RECORD EARLIER AND WHICH ACCORDING TO ME IS NOT PERMISSIBLE IN TUNE WITH THE PROVISIONS OF INCOME TAX ACT. IN VIEW OF THE ABOVE REASONS, I HEREBY DIRECT THE AO TO DELETE THE ADDITIONS MAD E BY WAY OF DISALLOWING INTEREST IN ALL THE FOUR YEARS 8 THE CIT(A) HAS STATED THAT THE AO HAS DEVIATED FROM THE SPECIFIC DIRECTIONS GIVEN BY THE TRIBUNAL WHILE REMANDING THE CASE. ON PERUSAL OF THE ORDER OF THE TRIBUNAL DATED 6.1.2012, WE NOTICE THAT T HE DIRECTIONS OF THE TRIBUNAL ARE TO RE - DO THE ASSESSMENT AFRESH CONSIDERING THE FACTS AND CIRCUMSTANCES OF ITA NO S 480 TO 483/C/2015 7 THE CASE AND APPLY THE PRINCIPLE LAID DOWN BY THE HON BLE APEX COURT IN THE CASE OF MCDOWELL REPORTED IN 159 ITR 148 . THE AO , WHILE RE - DOING THE ASSESSMENT , PURSUANT TO THE DIRECTIONS OF THE TRIBUNAL HAS NOT DEVIATED OR EXPANDED THE S COPE OF EXAMINATION OF THE ISSUE S . THE TRIBUNAL ORDER DATED 6.1.2012 IS A OPEN REMAND AND THE AO WAS FREE TO EXAMINE ALL ASPECT OF THE CASE. ON C ONTRARY, THE CIT(A)S ORDER IS DEVOID OF ANY REASONING AND IS A NON - SPEAKING ORDER WHILE GRANTING RELIEF TO THE ASSESSEE. T HE ISSUE NEEDS FRESH ADJUDICATION AT THE LEVEL OF CIT (A) , SINCE THE IMPUGNED ORDER IS NON - SPEAKING ORDER. THEREFORE, THE MATTER IS REMANDED TO THE CIT (A). THE CIT(A) SHALL DISPOSE OF THE MATTER AFTER TAKING INTO CONSIDERATION ALL THE RELEVANT MATERIAL AND SHALL TAKE A DECI SION IN ACCORDANCE WITH LAW AFTER AFFORDING REASONABLE OPPORTUNITIES OF HEARING TO THE ASSESSEE. IT IS ORDERED ACCORDINGLY. 9 IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE ORDER PRONOUNCED IN THE OPEN COURT ON THIS 6 TH DAY OF JAN 2016 . SD/ - SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTAN T MEMBER JUDICIAL MEMBER COCHIN: DATED 6 TH JAN 2016 RAJ* ITA NO S 480 TO 483/C/2015 8 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT , 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN