The ACIT, Thiruvalla V. M/s.Muthoot Properties & Investments, Kozhencherry

ITA 488/COCH/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7691 (ITAT-COCHIN)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 06-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 30-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Section: 143(3); 37; 263; 63; 15

Judgement Text

ITA NOS 486 TO 488 /C/2015 1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI B P JAIN , A M & GEORGE GEORGE.K , J M ITA NO S. 486 TO 488/COCH/2015 . (ASST YEAR S 2002 - 03, 2003 - 04 & 2005 - 06 ) THE ASST COMMR OF INCOME TAX CIRCLE 1 THIRUVALLA VS M/S MUTHOOT PROPER TIES & INVESTMENTS, MUTHOOT BLDG., KOZHENCHERRY 689 641 ( APPELLANT) (RESPONDENT) PAN NO. AACFM7321G ASSESSEE BY SH R SREENIVASAN REVENUE BY SH K PGOPAKUMAR, SR DR DATE OF HEARING 6 TH DEC 2015 DATE OF PRONOUNCEMENT 7 TH , J AN 2016 ORDER PER BENCH : THESE THREE APPEALS, AT THE INSTANCE OF THE REVENUE, ARE DIRECTED AGAINST CONSOLIDATED ORDER OF THE CIT(A) DATED 13 TH AUG 2015. THE RELEVANT ASSESSMENT YEARS ARE 2002 - 03 , 2003 - 04 AND 2005 - 06. 2 THOUGH IDENTICAL SEVEN GROUNDS ARE RAISED IN E ACH OF THE APPEAL, ALL THE GROUNDS RELATE TO THE SOLITARY ISSUE NAMELY WHETHER THE CIT(A) IS JUSTIFYING IN DELETING THE DISALLOWANCE OF INTEREST MADE BY THE AO AS UNDER: SL NO. ASST YEAR DISALLOWANCE MADE (RS) 1 2002 - 03 2,71,31,694 2 2003 - 04 2,44,46,80 3 3 200 5 - 06 75,97,389 ITA NOS 486 TO 488 /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 & 2003 - 04 WERE COMPLETED U/S 143(3) R.W. S 147 OF THE I T ACT ON 28.12.2009 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 TR IBUNAL. THE TRIBUNAL, VIDE ITS ORDER DATED 6.1.2012 SET ASIDE THE ORDER OF THE CIT(A) AND REMANDED THE ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO EXAMINE THE ISSUE AFRESH . 4 THE SET ASIDE ASSESSMENT FOR THE AYS 2002 - 03 AND 2003 - 04 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 DEPOSIT S FROM THE PUBLIC. IT WAS NOTICED THAT THE AMOUNT SO COLLECTED WAS WITHDRA WN BY THE PARTNERS, WHO IN - TURN PAID INTEREST TO THE FIRM AND THE FIR M PAID INTEREST TO THE PUBLIC, AS DEBITED IN THE PROFIT & LOSS ACCOUNT. FURTHER, ACCORDING TO THE AO, THE DEPOSIT S WERE RAISED FROM THE PUBLIC AT LARGE AND ACTIVITY OF RECEIVING DEPOSITS FROM THE PUBLIC DOES NOT HAVE ANY CONNECTION WITH THE STATED OBJECTIVE OF THE FIRM NAMELY, DEVELOPMENT OF LAND AND CONSTRUCTIONS . THE AO ALSO P RESUMED THAT THESE WITHDRAWALS ARE MERELY BOOKS ENTRI ES, AND THE AMOUNT SO TRANSFERRED FROM THE ASSESSEE FIRM TO THE ITA NOS 486 TO 488 /C/2015 3 SISTER CONC ERNS, WHICH ARE ENGAGED IN MONEY 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 M ONEY 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 TO 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 INDIVIDUAL 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 T HE PROVISIONS OF RBI ACT 1934. ACCORDINGLY, THE AO 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 EXPEN DITURE 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 BY PARTNERS I S CLA I MED T O BE A B U S IN ESS ACTIVITY , ITA NOS 486 TO 488 /C/2015 4 THEN IT WOULD IMPLY THAT THE FIRM IS DOING BUSINESS WITH ITS 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 HAS 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 FOR THE AYS 2002 - 03 & 2003 - 04. FOR T HE ASSESSMENT FOR THE ASSESSMENT YEAR 2005 - 06 WAS COMPLETED ORIGINAL LY U/S 143(3) VIDE ORDER DATED 30.11.2007 ACCEPTING THE INCOME RETURNED. SUBSEQUENTLY, THE ASSESSMENT WAS REOPENED AND COMPLETED U/S 143(3) R.W.S 147 OF THE ACT ON 28.3.2013 DISALLOWING THE INTEREST EXPENDITURE AGAINST WHICH THE ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AUTHORITY. T HE CIT(A) PASSED A CONSOLIDATED ORDER FOR THE AYS 2002 - 03 , 2003 - 04 AND 2005 - 06. THE CIT(A) ALLOWED THE APPEALS FILED BY THE ASSESSEE BY DELETING THE DISALLOWANCE OF INTEREST MADE BY THE AO. 6 BEING AGGRIEVED, THE REVENUE IS IN APPEA L BEFORE US FOR THE AYS 2002 - 03 , 2003 - 04 & 2005 - 06 AGAINST THE COMMON ORDER OF THE CIT(A). THE LD DR HAS FU RNISHED A BRIEF NOTE WHICH READS AS UNDER: A. THE APPELLATE COMMISSIONER HAS, FROM PARA 1 OF HIS ORDER TO PARA1 5 OF HIS ORDER DISCUSSED THE SUBMISSIONS OF THE ASSESSEE AND THE ORDER OF THIS HONBLE TRIBUNAL WHICH HAD SET ASIDE THE EARLIER ASSESSMENT FOR AY S 2002 - 03 AND 2003 - 04 TO THE FILE OF THE AO. B. IN THE PARA 1 6 & 17 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 ITA NOS 486 TO 488 /C/2015 5 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 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 VEIL OF THE PARTNERSHIP AND ALSO TO UTILIZE THE DECISION OF MCDOWELL, IF THE VEIL IS LIFTED. (B) . LN THE EARL IER 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 VIL Y 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 THE CASE MENTIONED BY THE CIT(A) IN HIS ORDER AT THE BOTTOM LINE OF PARA 17 (PAGE 10), 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 D EPIC 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 M ATTER, AS DIRECTED AND E M P OWE R E D BY T H E ITA NOS 486 TO 488 /C/2015 6 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 . F. THE LD CIT(A) HAD MADE A COMBINED O RDER FOR THREE YEARS OUT OF WHICH ONLY TWO WERE CONSEQUENTIAL RESULTS OF THE IMPUGNED ORDER OF THE HON ITAT, BEING AYS 2002 - 03 & 2003 - 04.AT THE SAME TIME, THE ASSESSMENT FOR AY 2005 - 06 HAD BEEN A TOTALLY INDEPENDENT ASSESSMENT WHICH INVARIABLY WARRANTED AN INDEPENDENT ADJUDICATION. PARA 18 OF THE ORDER OF THE LD CIT(A), WHICH APPLIES TO AY 2005 - 06 TOO, IS, THEREFORE ILLOGICAL IMPROPER AND TECHNICALLY INCORRECT. 6.1 THE LD AR REITERATED HIS SUBMISSIONS MADE BEFORE THE INCOME TAX AUTHORITIES AND RELIED ON T HE FINDINGS OF THE CIT(A). 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 1 5 OF HIS ORDER HAS DISCUSSED THE FACTS AND THE SUBMISSIONS MADE ON BEHALF OF TH E ASSESSEE. THE FINDINGS OF THE CIT(A) ARE AT PARAS 1 6 TO 1 8 OF THE IMPUGNED ORDER. IT IS PERTINENT TO REPRODUCE THE SAME, WHICH READ AS UNDER: 16 . AS STATED BY THE APPELLANT EVEN IN THE PRESENT PROCEEDINGS IN MY VIEW THE ASSESSING OFFICER HAS DEVIATED FROM T HE 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 EXPLANAT I ON TO SECTION 37(1 ). 17 THIS HAS BEEN, NEVERTH ELESS 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 HONOURABLE INCOME TAX APPELLATE TRIBUNAL . THE APPELLANT HAS ALSO ADDUCED ENOUGH ITA NOS 486 TO 488 /C/2015 7 EVIDENCE BY WAY OF CLAR IFICATIONS FROM THE FORMER FINANCE MINISTER AND BY WAY OF DROPPING OF 263 PROCEEDINGS ON A SIMILAR ISSUE OF AN ASSOCIATE CONCERN (MIS MAR GREGORIOUS MUTHOOT MEDICAL CENTRE) . 18 . THEREFORE , ACCORDING TO ME THE ASSESSING OFF I CER HAS TRAVE L LED BEYOND THE DIRECT IONS GIVEN BY THE HONOURABLE INCOME TAX APPELLATE TR I BUNAL BY BRINGING OUT A NEW CASE WHICH WAS NOT O N RECORD EARLIER AND WHICH ACCORDING TO ME IS NO T PERM I SS I BLE I N T UNE WITH THE PROVISIONS OF INCOME TAX ACT . IN VIEW OF THE ABOVE REASONS , I HEREBY DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIONS MADE BY WAY OF DISALLOW I NG INTEREST I N ALL THE THREE 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 ORD ER OF THE TRIBUNAL DATED 6.1.2012, WE NOTICE THAT THE DIRECTIONS OF THE TRIBUNAL ARE TO RE - DO THE ASSESSMENT AFRESH FOR THE AY S 2002 - 03 & 2003 - 04 CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND APPLY THE PRINCIPLE LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF M CDOWELL 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 SCOPE OF EXAMINATION OF THE ISSUES. THE TRIBUNAL ORDER DATED 6.1.2012 IS A OPEN REMA ND AND THE AO WAS FREE TO EXAMINE ALL ASPECT OF THE CASE. ON CONTRARY, THE CIT(A)S ORDER IS DEVOID OF ANY REASONING AND IS A NON - SPEAKING ORDER WHILE GRANTING RELIEF TO THE ASSESSEE. THE 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) FOR CONSIDERING THE ISSUE AFRESH IN ACCORDANCE WITH LAW. ITA NOS 486 TO 488 /C/2015 8 8.1 AS RIGHTLY POINTED OUT BY THE LD DR, THE ASSESSMENT FOR AY 2005 - 06 IS AN INDEPENDENT ASSESSMENT WHICH NEEDS INDEPENDENT ADJUDICATION AT THE LEVEL OF THE CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) FOR THE AY 2005 - 06 ALSO FOR ADJUDICATING THE MATER AFRESH. THE CIT(A) SHALL DISPOSE OF THE MATTER AFTER TAKING INTO CONSIDERATION ALL THE RELEVANT MAT ERIAL AND SHALL TAKE A DECISION 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 7 TH DAY OF JAN 2016 . SD/ SD/ - ( B P JAIN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 7 TH , JAN 2016 RAJ* ITA NOS 486 TO 488 /C/2015 9 COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN