M/S MUTHOOT CHITTY FUND KOAZHENCHERY V. THE COMMISSIONER OF INCOME TAX

ITA/64/2009

AI Insights

The case involves M/s Muthoot Chitty Fund, a partnership firm engaged in money lending, which appealed against the order of the Income Tax Appellate Tribunal, Cochin Bench. The dispute centered on the treatment of an unexplained cash credit of Rs.2,08,00,000 in the current account of a deceased partner, Mathew M. Thomas. Initially, the Assessing Officer allowed the set-off of this credit against the business loss. However, the Commissioner, under Section 263, found this decision erroneous and prejudicial to the interest of the Revenue, directing a reassessment. The Tribunal upheld the Commissioner's order, leading to this appeal.

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 755540 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 24-05-2016
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH; P K R MENON
• Assessee Lawyers: P BALAKRISHNAN
• Keywords: Business income; Jurisdiction under section 263; Reassessment; Unexplained cash credit
• Section: 263; 68; 69

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE ANTONY DOMINIC & THE HONOURABLE MR. JUSTICE DAMA SESHADRI NAIDU TUESDAY, THE 24TH DAY OF MAY 2016/3RD JYAISHT A, 1938 ITA.No. 64 of 2009 AGAINST THE ORDER IN ITA 374/2007 of I.T.A.TRIBUNAL,COCHIN BENCH, DATED 16-10-2008 APPELLANT/APPELLANT: M/S MUTHOOT CHITTY FUND, KOZHENCHERRY. REP. BY PARTNER THOMAS JOHN MUTHOOT. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT/RESPONDENT: THE COMMISSIONER OF INCOME TAX, KOTTAYM. R, BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX R, BY ADV. SRI.P.K.R.MENON, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 24-05-2016, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: I.T.A.No.64 of 2009 APPENDIX PETITIONER'S ANNEXURES: ANNEXURE A: TRUE COPY OF THE ORDER IN FILE C.NO.CIT- KTM/263/2006-07 DATED 21.3.2007 OF THE RESPONDENT. ANNEXURE B: CERTIFIED COPY OF THE ORDER IN ITA 374/COCH/2007, DATED 16.10.2008 OF THE INCOME TAX APPELLATE TRIBUNAL. ANNEXURE D: TRUE COPY OF THE ORDER DATED 16.12.2004 OF THE ASSESSING OFFICER. // TRUE COPY // P.A. TO JUDGE ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.No.64 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 24th day of May, 2016 JUDGMENT Antony Dominic, J. This appeal is filed by the assessee challenging the order passed by the Income Tax Appellate Tribunal, Cochin Bench in I.T.A.No.374/07. 2. The relevant assessment year is 2000-2001. The appellant, which is the partnership firm, is engaged in the business of money lending/banking. On the facts as disclosed in the order of the Tribunal, it would appear that while computing the business income of the assessee, the original return of the income computation showed loss from business to the tune of Rs.2,08,50,952/- against that the appellant set off the unexplained cash credit of Rs.2,08,00,000/- shown in the current account of its partner late Mathew M. Thomas. After setting off, the net business loss was reduced to Rs.50,952/-. I.T.A.No.64 of 2009 : 2 : 3. In the reassessment proceedings, the Assessing Officer accepted the claim of set off. Finding the order to be erroneous and prejudicial to the interest of the Revenue, the Commissioner assumed the jurisdiction under Section 263 of the Income Tax Act and directed the Assessing Officer to arrive at the business loss of the firm with set off of unexplained cash credit which was shown in the current account of its partner. It was this order which was challenged before the Tribunal. The Tribunal, by the impugned order, confirmed the order of the Commissioner. It is challenging this order, this appeal is filed by the assessee framing the following questions of law for the consideration of this court: “A. Whether on the facts and in the circumstances of the case the Tribunal is correct in law and fact in upholding the Annexure B order dated 21-3-2007 of the respondent passed under Section 263 of the Act? B. Is the Tribunal correct in law and fact in holding that the credit which is appearing in the books of the appellant firm is assessable in the hands of the creditor and not in accordance with the provisions of Section 68? I.T.A.No.64 of 2009 : 3 : C. Whether the Tribunal is correct in law and fact in holding that the assessing officer wrongly taken this unexplained cash credit in the assessee's firm, without recording a finding as to what was the error that the assessing officer has committed in so doing when the action of the assessing officer was strictly in conformity with the provisions of section 68? D. Whether on the facts and in the circumstances of the case the Tribunal correct in law and fact in holding that application of Section 68 by the assessing officer in the hands of the appellant firm is totally wrong which was set right by the Commissioner under Section 263, otherwise there will be an adverse effect of interest of revenue?” 4. We heard the counsel for the assessee and the learned Senior Counsel appearing for the respondent Revenue. 5. Reading of the order passed by the Tribunal shows that the only question that was raised before the Tribunal was regarding the correctness of the Commissioner assuming jurisdiction under Section 263 of the Income Tax Act. I.T.A.No.64 of 2009 : 4 : 6. Section 263 of the Income Tax Act empowers the Commissioner to call for and examine the record of any proceeding under the Act, and if he considers that any order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. 7. In so far as this case is concerned, admittedly Rs.2,08,00,000/- was credited in the current account of the partner of the appellant firm. Such an amount credited in the partner of the firm was assessed as income of the firm under Section 68 of the Act, which clearly is an erroneous exercise of power. On the other hand, this amount should have been treated as the income of the I.T.A.No.64 of 2009 : 5 : partner and assessed under Section 69 of the Act. The case, therefore, disclosed both error and prejudice which are the two elements required for the exercise of power under Section 263 of the Act. The Commissioner, therefore, rightly exercised the power under Section 263 of the Act and the order of the Tribunal confirming the Commissioners order does not suffer from any illegality. We do not find any illegality in the orders impugned nor we do find any question of law arising out of the orders impugned for consideration of this court. Appeal fails and it is dismissed accordingly. Sd/- ANTONY DOMINIC JUDGE Sd/- DAMA SESHADRI NAIDU JUDGE jes "