DCIT, Thiruvalla V. Mar Gregorious Memorial muthoot medical centre, Kozhencherry

ITA 71/COCH/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58176 (ITAT-COCHIN)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 21-01-2011
• Court: TRIBUNAL
• Assessee Lawyers: S VIJAYAPRABHA
• Keywords: Proportionate interest

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE: SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NOS. 588-591/COCH/2010 ASSESSMENT YEARS : 2002-03-2004-05 & 2007-08 M/S. MAR GREGORIOUS MEMORIAL MUTHOOT MEDICAL CENTRE, COLLEGE ROAD, KOZHENCHERRY [PAN: AACFM 7331E] THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, THIRUVALLA. (APPELLANT) VS. (RESPONDENT) ITA NOS. 68-71/COCH/2011 ASSESSMENT YEARS : 2002-03-2004-05 & 2007-08 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, THIRUVALLA. M/S. MAR GREGORIOUS MEMORIAL MUTHOOT MEDICAL CENTRE, COLLEGE ROAD, KOZHENCHERRY [PAN: AACFM 7331E] (APPELLANT) VS. (RESPONDENT) ITA NOS. 66-67/COCH/2011 ASSESSMENT YEARS : 2002-03 & 2003-04 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, THIRUVALLA. M/S. MUTHOOT PROPERTIES & INVESTMENTS, MUTHOOT BUILDING, KOZHENCHERRY [PAN: AACFM 7321G] (APPELLANT) VS. (RESPONDENT) ITA NOS. 592 & 593/COCH/2010 ASSESSMENT YEARS : 2002-03 & 2003-04 M/S. MUTHOOT PROPERTIES & INVESTMENTS, MUTHOOT BUILDING, KOZHENCHERRY [PAN: AACFM 7321G] THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-1, THIRUVALLA. (APPELLANT) VS. (RESPONDENT) I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 2 APPELLANT BY: SHRI R.SREENIVASAN, CA RESPONDENT BY: MS. S.VIJAYAPRABHA, JR. DR DATE OF HEARING: 05/01/2012 DATE OF PRONOUNCEMENT: 06/01/2012 ORDER PER SHRI B.R.BASKARAN, ACCOUNTANT MEMBER:- ALL THESE CROSS APPEALS ARE DIRECTED AGAINST THE S EPARATE ORDERS PASSED BY LD CIT(A) IN THEIR RESPECTIVE HANDS FOR THE ASSE SSMENT YEARS MENTIONED AGAINST THEIR RESPECTIVE NAMES. SINCE THE ISSUES UR GED IN THESE APPEALS ARE IDENTICAL IN NATURE, THEY WERE HEARD TOGETHER AND A RE BEING DISPOSED OF BY THIS COMMON ORDER, FOR THE SAKE OF CONVENIENCE. 2. IN THE APPEALS FILED BY THE ASSESSEE, THE DE CISION OF LD CIT(A) IN CONFIRMING THE ENHANCEMENT OF INTEREST INCOME MADE BY THE ASSESSING OFFICER IS BEING CHALLENGED. IN THE APPEALS OF THE REVENUE , THE DECISION OF LD CIT(A) IN DELETING THE PROTECTIVE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE IS BEING CHALLENGED. 3. WE TAKE UP THE CASE OF M/S MUTHOOT PROPERTIE S & INVESTMENTS AS THE LEAD CASE. THE FACTS NECESSARY FOR THE DISPOSAL OF THESE TWO ISSUES ARE SET OUT IN BRIEF. THE ASSESSEE IS A PARTNERSHIP FIRM FORME D UNDER THE INDIAN PARTNERSHIP ACT, 1932. IT APPEARS THAT THE SAID FIR M WAS FORMED WITH THE OBJECTIVE OF TRADING IN IMMOVABLE PROPERTIES, DEVEL OPMENT OF IMMOVABLE PROPERTIES ETC. THE FIRM COLLECTED DEPOSITS OF HUG E AMOUNT FROM THE PUBLIC AND THE FUNDS SO COLLECTED WERE WITHDRAWN BY THE PA RTNERS. IT IS STATED THAT THE FIRM PAID INTEREST ON THE DEPOSITS SO COLLECTED @ THE RATES RANGING FROM 5.5% TO 12% P.A. AND COLLECTED INTEREST FROM THE PA RTNERS @ 12% P.A. IT IS ALSO STATED THAT THE INSTANT ASSESSEE IS A GROUP CO NCERN OF MUTHOOT GROUP, WHICH IS PRIMARILY ENGAGED IN THE MONEY LENDING BUS INESS. I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 3 3.1 SINCE THE PARTNERS HAVE WITHDRAWN ALMOST EN TIRE AMOUNT OF PUBLIC DEPOSITS COLLECTED BY THE ASSESSEE FIRM, THE ASSESS ING OFFICER TOOK THE VIEW THE MONEY LENDING BUSINESS CARRIED ON BY THE PARTNE RS BY WITHDRAWING FUNDS FROM THE ASSESSEE FIRM SHOULD BE CONSIDERED AS BELO NGING TO THE ASSESSEE FIRM ONLY. ACCORDINGLY, HE OPINED THAT THE INCOME EARNED FROM SUCH MONEY LENDING BUSINESS SHOULD BE ASSESSED IN THE HANDS OF THE ASSESSEE FIRM. SINCE THE ASSESSEE FIRM HAS COLLECTED INTEREST FROM THE P ARTNERS ON THEIR EXCESS DRAWINGS ONLY @ 12%, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE TRUE INCOME ASSESSABLE IN THE HANDS OF THE ASSESSEE FIRM HAS BEEN UNDERSTATED. ACCORDINGLY HE REJECTED THE BOOK RESU LTS DECLARED BY THE ASSESSEE FIRM AND PROCEEDED TO ESTIMATE THE INCOME OF THE ASSESSEE. AFTER CONSIDERING THE DETAILS OF INTEREST COLLECTED IN OT HER CONCERNS ENGAGED IN MONEY LENDING BUSINESS, THE ASSESSING OFFICER ESTIM ATED THE INTEREST INCOME @ 20% P.A. ON THE AMOUNT UTILIZED BY THE PARTNERS A ND ACCORDINGLY ADDED THE DIFFERENCE TO THE TOTAL INCOME OF THE ASSESSEE. 3.2 THE ASSESSING OFFICER ALSO TOOK AN ALTERNAT IVE STAND THAT IF THE AMOUNT WITHDRAWN BY THE PARTNERS IS NOT CONSIDERED AS MON EY LENDING ACTIVITIES, THEN SUCH WITHDRAWALS SHOULD BE CONSIDERED AS WITHD RAWALS FOR PERSONAL PURPOSES. SINCE THE INTEREST BEARING PUBLIC DEPOSI TS WERE NOT UTILIZED FOR BUSINESS PURPOSES, BUT FOR PERSONAL PURPOSES, THE I NTEREST ON SUCH DEPOSITS IS NOT ALLOWABLE AS A DEDUCTION. ACCORDINGLY, BY PLAC ING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MADHAV PRAS AD JATIA (1979) (118 ITR 200), THE ASSESSING OFFICER CAME TO THE CONCLUS ION THAT THE SAID INTEREST CLAIM HAS TO BE DISALLOWED. ACCORDINGLY HE WORKED OUT THE PROPORTIONATE INTEREST EXPENDITURE RELATABLE TO THE WITHDRAWALS O F THE PARTNERS AND DISALLOWED THE SAME AS A PROTECTIVE MEASURE. 4. IN THE APPEALS FILED BEFORE LD CIT(A), THE F IRST APPELLATE AUTHORITY CONFIRMED THE ACTION OF THE ASSESSING OFFICER IN RE JECTING BOOK RESULTS AND ESTIMATING THE INCOME. IN THIS REGARD, LD CIT(A) PLA CED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MC DOWELS REPORTED IN 159 I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 4 ITR 148. HOWEVER, HE DELETED THE DISALLOWANCE OF I NTEREST EXPENDITURE MADE AS A PROTECTIVE MEASURE. AGGRIEVED BY THE ORDERS O F LD CIT(A), BOTH THE PARTIES ARE IN APPEAL BEFORE US. 5. THE LD COUNSEL FOR THE ASSESSEE SUBMITTED TH AT THE ASSESSEE FIRM HAS ACTUALLY EARNED INCOME IN THE ACTIVITIES CARRIED ON BY IT, I.E., IT HAS COLLECTED INTEREST @ 12% P.A. ON THE WITHDRAWALS MADE BY THE PARTNERS AND PAID INTEREST ON PUBLIC DEPOSITS AT AN AVERAGE RATE OF 9 %. HE FURTHER SUBMITTED THAT THE PARTNERS HAVE ONLY INVESTED THE FUNDS WITH DRAWN FROM THE FIRM IN OTHER CONCERNS AND SUCH KIND OF WITHDRAWALS ARE NOT PROHIBITED UNDER THE PARTNERSHIP ACT. HE PLACED RELIANCE HEAVILY ON THE DECISION DATED 20-10-2010 PASSED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE F OR ASSESSMENT YEAR 2006- 07 AND SUBMITTED THAT THE SAID DECISION OF TRIBUNAL SQUARELY APPLIES TO THE INSTANT APPEALS AS THE FACTS ARE IDENTICAL IN ALL T HE YEARS. 6. ON THE CONTRARY, THE LD D.R SUBMITTED THAT TH E ASSESSEE FIRM DID NOT HAVE MONEY LENDING LICENCE AND FURTHER THERE ARE RESTRICTIONS AS PER THE RESERVE BANK OF INDIA REGULATIONS. HENCE THE IMPUG NED ACTIVITIES ARE IN VIOLATION OF STATUTORY PROVISIONS. SHE FURTHER SUB MITTED THAT THE PUBLIC DEPOSITS COLLECTED BY THE ASSESSEE FIRM HAS ACTUALL Y BEEN UTILIZED BY THE PARTNERS FOR CARRYING OUT MONEY LENDING ACTIVITIES, IN WHICH CASE, THE INCOME EARNED FROM THE SAID ACTIVITIES SHOULD HAVE BEEN AC COUNTED FOR BY THE PARTNERS IN THE HANDS OF THE FIRM. AS THEY HAVE FA ILED TO DO SO AND FURTHER SINCE THE ASSESSEE FAILED TO FURNISH DETAILS THAT W ERE CALLED FOR, THE ASSESSING OFFICER HAS RESORTED TO REJECT THE BOOK RESULTS AND PROCEEDED TO ESTIMATE THE INCOME FROM MONEY LENDING ACTIVITIES. AS A ALTERNA TIVE MEASURE, THE ASSESSING OFFICER HAS ALSO PROCEEDED TO DISALLOW TH E INTEREST EXPENDITURE AS THE INTEREST BEARING FUNDS HAVE BEEN WITHDRAWN BY T HE PARTNERS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. FROM THE ASSESSMENT ORDER, WE NOTICE THAT THE ASSES SING OFFICER HAS TAKEN CONTRADICTORY STANDS VIZ., I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 5 (A) THE BUSINESS OF MONEY LENDING CARRIED ON BY THE PARTNERS BY WITHDRAWING FUNDS FROM THE ASSESSEE FIRM, SHOULD BE CONSIDERED AS THAT OF ASSESSEE FIRM ONLY. (B) IF SUCH MONEY LENDING ACTIVITY IS CONSIDERED A S THAT OF PARTNERS PERSONAL BUSINESS ACTIVITIES, THEN THE MERE WITHDRA WALS OF THE FUNDS FROM THE ASSESSEE FIRM BY THE PARTNERS CANNOT BE CO NSIDERED AS THE BUSINESS ACTIVITY OF THE FIRM, IN WHICH CASE, THE I NTEREST EXPENDITURE CLAIMED BY THE ASSESSEE CANNOT BE ALLOWED AS A DEDU CTION. IN OUR VIEW, THE ASSESSING OFFICER COULD HAVE TAKEN ONLY ONE OF THE TWO STANDS, I.E., EITHER HE SHOULD LIFT THE VEIL AND CO NSIDER THE MONEY LENDING ACTIVITIES CARRIED ON BY THE PARTNERS AS THAT OF TH E FIRM, IN WHICH CASE, THERE IS NO NECESSITY TO DISALLOW THE INTEREST EXPENDITURE O N THE PUBLIC DEPOSITS. OR, IF THE PARTNERS WITHDRAWALS ARE NOT CONSIDERED AS BUS INESS ACTIVITIES, THEN THERE IS NO QUESTION OF ANY ESTIMATION OF INCOME IN THE H ANDS OF THE FIRM. ACCORDINGLY, THE LD CIT(A) HAS UPHELD THE ESTIMATIO N OF MONEY LENDING INCOME AND DELETED THE DISALLOWANCE OF INTEREST EXP ENDITURE. 8. HOWEVER, IN OUR VIEW, THE TAX AUTHORITIES HA VE NOT PROPERLY CONSIDERED THE BASIC FACTS, WHICH ARE VITAL AND NECESSARY FOR PROPER DISPOSAL OF THE IMPUGNED ISSUES, WHICH ARE NARRATED BELOW: (A) THE ASSESSEE FIRM IS GOVERNED BY THE PROVISION S OF INDIAN PARTNERSHIP ACT. UNDER THE PROVISIONS OF THE PARTN ERSHIP ACT, THE PARTNERS AND FIRM ARE INSEPARABLE AND THE PARTNER I S OBLIGED TO REPORT AND ACCOUNT FOR THE INCOME EARNED OUT OF THE FUNDS OF THE FIRM. HOWEVER THE TERMS AND TYPES OF RELATIONSHIP OF THE PARTNERS ARE GOVERNED BY THE CLAUSES AGREED TO BY THE PARTNERS I N THE PARTNERSHIP DEED. SIMILARLY THE NATURE OF RELATIONSHIP AND OTH ER STATUTORY INTERPRETATIONS GIVEN IN THE PARTNERSHIP ACT CAN BE MODIFIED BY REDUCING SUCH MODIFICATIONS IN THE PARTNERSHIP DEED . THE TAX AUTHORITIES, HAVE, NO WHERE, BROUGHT OUT THE DETAIL S OF CLAUSES OF THE PARTNERSHIP DEED IN THEIR RESPECTIVE ORDERS. IT IS ALSO NOT KNOWN, WHETHER THEY HAVE EXAMINED THE PARTNERSHIP DEED, WH ICH IS A VITAL EXERCISE TO BE TAKEN BEFORE DRAWING ADVERSE INFEREN CES. (B) THE OBJECTS FOR WHICH THE PARTNERSHIP FIRM IS FORMED IS STATED IN THE OBJECT CLAUSE OF THE PARTNERSHIP DEED. THE D ETAILS OF OBJECT CLAUSE OF THE ASSESSEE FIRM HAVE NOT BEEN DISCUSSED ANY WHERE. (C) THE PARTNERSHIP DEED INVARIABLY CONTAINS CLAUS ES PERTAINING TO PAYMENT OF INTEREST ON THE CAPITAL OF THE PARTNERS AND ALSO CLAUSES FOR I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 6 COLLECTING INTEREST ON THEIR WITHDRAWALS. THE SAID PROVISIONS HAVE NOT BEEN TAKEN INTO ACCOUNT BY THE ASSESSING OFFICER. THE PAYMENT/RECEIPT OF INTEREST IS GOVERNED BY SUCH CLAUSES. (D) ACCORDING TO LD A.R, THE ASSESSEE HAS ONLY INV ESTED THE SAID WITHDRAWALS IN OTHER CONCERNS, WHICH FACT COULD NOT BE VERIFIED AT THE END OF ASSESSING OFFICER, AS ACCORDING TO HIM THE A SSESSEE HAS FAILED TO FURNISH THE INVESTMENT DETAILS. IN OUR VIEW, THE TAX AUTHORITIES SHOULD HAVE EXAMINE D THESE ASPECTS BEFORE TAKING ADVERSE INFERENCES AGAINST THE ASSESSEE. TH OUGH THE TAX AUTHORITIES ARE ENTITLED TO LIFT THE VEIL OF THE PARTNERSHIP FI RM, YET THEIR ACTION SHOULD BE BASED ON PROPER INVESTIGATION, BUT NOT ON SURMISES. SINCE THE TAX AUTHORITIES HAVE FAILED TO CARRY OUT THE SAID EXERCISE, WE ARE UNABLE TO COMMENT UPON THE DECISIONS REACHED BY THE TAX AUTHORITIES. BESI DES THE ABOVE, (A) THE TAX AUTHORITIES HAVE STATED IN MORE THAN ONE PLACE THAT THE ASSESSEE HAS REFUSED TO FURNISH THE DETAILS OF UTIL IZATION OF FUNDS WITHDRAWN BY THE PARTNERS. (B) BOTH THE PARTIES HAVE FAILED TO PRODUCE THE COPIES OF BALANCE SHEET AND INCOME STATEMENTS BEFORE US IN SUPPORT OF THEIR RESPECTIVE CONTENTIONS. IN OUR VIEW, ONE CANNOT FO RM ANY OPINION WITHOUT EXAMINING THE FINANCIAL DOCUMENTS. (C) AS OBSERVED BY THE LD CIT(A), THE PROVISIONS OF SEC. 40(B) OF THE ACT PLACES RESTRICTION ON THE ADMISSIBILITY OF QUAN TUM OF INTEREST PAYABLE TO A PARTNER FOR THE PURPOSES OF INCOME TAX. THERE CANNOT BE ANY DOUBT THAT THE PARTNERS MAY DECIDE THE RATE OF INTEREST PAYABLE INTER SE, IRRESPECTIVE OF THE RATE PRESCRIBED UNDER SEC. 40(B) OF THE ACT. 9. IN VIEW OF THE FOREGOING DISCUSSIONS, WE ARE OF THE VIEW THAT THE MATTER HAS TO BE EXAMINED AFRESH AT THE END OF ASSESSING O FFICER, AS THE TAX AUTHORITIES HAVE DRAWN ADVERSE INFERENCES WITHOUT V ERIFYING THE BASIC DETAILS AS NARRATED ABOVE. IN OUR VIEW, THE DEPARTMENT IS E NTITLED TO DRAW SUPPORT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F MCDOWELS (159 ITR 148), ONLY IF IT MAKES OUT A PROPER CASE FOR LIFTIN G THE VEIL OF THE PARTNERSHIP FIRM. 10. THE ASSESSEE HAS PLACED HEAVY RELIANCE ON TH E ORDER OF THE TRIBUNAL PASSED IN ITS HAND IN SOME OTHER YEAR. HOWEVER, IN THE SAID ORDER, IT IS I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 7 SPECIFICALLY STATED THAT THE ASSESSEE HAS FILED DET AILS OF SOURCES AND INVESTMENTS, WHICH FACT IS MISSING IN THE INSTANT A PPEALS. BESIDES THE ABOVE, THE TRIBUNAL HAS RENDERED ITS DECISION IN THAT CASE ON FACTUAL MATTERS ON THE BASIS OF SOME SET OF FACTS PRESENTED BEFORE IT. HO WEVER, THERE CANNOT BE ANY DISPUTE THAT THE STAND TAKEN BY THE DEPARTMENT TO L IFT THE VEIL OF THE ASSESSEE FIRM GOES TO THE ROOT OF THE ISSUES. HENCE, IN OUR VIEW, IT IS VERY MUCH NECESSARY TO EXAMINE THE BASIS FACTS AND OTHER VITA L DETAILS WHICH WERE NARRATED SUPRA, SO THAT TAX AUTHORITIES COULD TAKE A JUST VIEW OF THE MATTER WITHOUT CAUSING INJUSTICE TO THE ASSESSEE. 11. ACCORDINGLY, WE SET ASIDE THE IMPUGNED ORDE RS OF LD CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSIN G OFFICER WITH A DIRECTION TO EXAMINE THE ISSUES AFRESH IN ACCORDANCE WITH THE LA W BY CARRYING PROPER VERIFICATION OF NECESSARY DETAILS. THE ASSESSEE IS ALSO DIRECTED TO CO-OPERATE WITH THE ASSESSING OFFICER AND FURNISH ALL THE DETA ILS WHICH MAY BE CALLED FOR BY THE ASSESSING OFFICER. 12. IT IS STATED THAT THE FACTS OF THE ISSUES U NDER DISPUTE IN THE CASES OF M/S MAR GREGORIOUS MEMORIAL MUTHOOT MEDICAL CENTRE ARE IDENTICAL IN NATURE WITH THE CASE DISCUSSED IN THE PRECEDING PARAGRAPHS . ACCORDINGLY, CONSISTENT WITH THE VIEW TAKEN THEREIN, WE SET ASIDE THE ORDER S OF LD CIT(A) AND RESTORE ALL THE ISSUES TO THE FILE OF THE ASSESSING OFFICER WITH SIMILAR DIRECTIONS. 13. IN THE RESULT, THE APPEALS OF THE ASSESSEE AS WELL AS THE APPEALS OF THE REVENUE ARE TREATED AS ALLOWED FOR STATISTICAL PURP OSES. PRONOUNCED ON 6.1.12 SD/- SD/- (N.R.S.GANESAN) (BR BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER COCHIN, DATED 6.1.2012 GJ I.T.A. NOS. 588/COCH/2010 & ORS. MUTHOOT VS. DCIT, THIRUVALLA 8 COPY TO 1 DCIT. CIRCLE-1, THIRUVALLA. 2 M/S. MAR GREGORIOUS MEMORIAL MUTHOOT MEDICAL CENT RE, COLLEGE ROAD, KOZHENCHERRY. 3 M/S. MUTHOOT PROPERTIES & INVESTMENTS, MUTHOOT BU ILDING, KOZHENCHERRY. 4 THE CIT(A)-I, TRIVANDRUM. 5. THE CIT, TRIVANDRUM. 6 THE DR, ITAT, COCHIN BENCH. 7. GUARD FILE. BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH