Muthoot Bankers, Kollam v. ACIT, Kollam

ITA 584/COCH/2010 | 2005-2006
Pronouncement Date: 29-03-2012 | Result: Allowed

Appeal Details

RSA Number 58421914 RSA 2010
Assessee PAN AADFM6221G
Bench Cochin
Appeal Number ITA 584/COCH/2010
Duration Of Justice 1 year(s) 4 month(s) 14 day(s)
Appellant Muthoot Bankers, Kollam
Respondent ACIT, Kollam
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2012
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 29-03-2012
Assessment Year 2005-2006
Appeal Filed On 15-11-2010
Judgment Text
1 ITA NO.584 585 & 586/COCH/2010 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKARA N(AM) I.T.A NO. 584/COCH/2010 (ASSESSMENT YEAR 2005-06) M/S MUTHOOT BANKERS VS A.C.I.T. CIR.1 SAKTHIKULANGARA KOLLAM KOLLAM PAN : AADFM6221G (APPELLANT) (RESPONDENT) I.T.A NO. 585/COCH/2010 (ASSESSMENT YEAR 2005-06) M/S MUTHOOT FINANCE CO VS A.C.I.T. CIR.1 MAIN ROAD KOLLAM KOLLAM PAN : AADFM0989K (APPELLANT) (RESPONDENT) I.T.A NO. 586/COCH/2010 (ASSESSMENT YEAR 2005-06) M/S MUTHOOT BANKERS VS A.C.I.T. CIR.1 SAKTHIKULANGARA KOLLAM KOLLAM PAN : AABFM7438H (APPELLANT) (RESPONDENT) APPELLANTS BY : SHRI R SRINIVASAN RESPONDENT BY : SMT. VIJAYAPRABHA DATE OF HEARING : 19-03-2012 DATE OF PRONOUNCEMENT : 29-03-2012 2 ITA NO.584 585 & 586/COCH/2010 O R D E R PER N.R.S. GANESAN (JM) THESE THREE APPEALS BY THREE DIFFERENT ASSESSEES A RE DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-I TRIV ANDRUM ALL DATED 19-10- 2010 FOR THE ASSESSMENT YEAR 2005-06. SINCE ALL THE THREE APPEALS CARRY COMMON ISSUE FOR THE SAKE OF CONVENIENCE THEY WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS COMMON ORDER. 2. THE SOLE ISSUE THAT ARISES FOR CONSIDERATION IN ALL THE APPEALS IS DISALLOWANCE OF INTEREST TO PARTNER. 3. THE LD.REPRESENTATIVE FOR THE ASSESSEE SHRI R SR EENIVASAN SUBMITTED THAT THE INTEREST PAID TO THE PARTNER WAS DISALLOWED BY THE ASSESSING OFFICER AS ACCORDING TO HIM THERE WAS NO BUSINESS TRANSACTION DURING THE FINANCIAL YEAR UNDER CONSIDERATION BY DISREGARDING THE EXPLANATION OF THE ASSESSEE THAT THE BUSINESS ASSETS OF THE ASSESSEE WERE TAKENOVER BY A COMPANY M/S MUTHOOT FINCORP LTD A NON-BANKING FINANCE COMPANY AND THEREF ORE AFTER THE TAKEOVER THERE WAS NO BUSINESS TRANSACTION WITH THE PUBLIC. HOWEVER INTEREST HAS BEEN RECEIVED FROM M/S MUTHOOT FINCOROP LTD TOWARDS PURC HASE CONSIDERATION DUE AND ALSO INTEREST ON THE GOLD LOAN IN RESPECT OF GO LD LOAN TAKENOVER BY THE SAID COMPANY. ACCORDING TO THE LD.REPRESENTATIVE THIS BEING THE BUSINESS INCOME TO THE ASSESSEE INTEREST TO PARTNER HAS BEEN RIGHTLY GIVEN. THE LD.REPRESENTATIVE FURTHER SUBMITTED THAT THE ASSESSING OFFICER TREATE D THE INTEREST RECEIVED FROM MUTHOOT FINCORP LTD AS INCOME FROM OTHER SOURCE A ND THE INTEREST RECEIVED ON THE GOLD LOAN AS MISCELLANEOUS INCOME. THE LD.RE PRESENTATIVE SUBMITTED THAT VIDE AN AGREEMENT FOR SALE EXECUTED ON 01-04-2004 TH E ASESSEES HAD SOLD THEIR BUSINESS ASSETS TO M/S MUTHOOT FINCORP LTD (COPY OF THE AGREEMENT IS PLACED IN 3 ITA NO.584 585 & 586/COCH/2010 THE PAPER BOOK). CLAUSE 2 OF THE AGREEMENT SPECIFIE D THE CONSIDERATION OF SALE TIME OF SETTLEMENT AND COMPENSATION FOR DELAY IN SE TTLEMENT. SINCE THE PURCHASER DID NOT PAY THE CONSIDERATION ON THE STIP ULATED TIME THE ASSESSEES WERE COMPENSATED WITH BY PAYING INTEREST. THE NATU RE AND CHARACTER OF INTEREST RECEIVED BY THE ASSESSEES IS COMPENSATION TOWARDS A BUSINESS TRANSACTION AND THEREFORE IS A BUSINESS RECEIPT. THEREFORE THE L D.REPRESENTATIVE ARGUED THAT THE INTEREST RECEIVED IS PURELY BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES WHICH CANNOT BE EQUATED WITH ANY RECEIPT AGAINST PA RKING IDLE FUNDS TO EARN INTEREST. AS SUCH ACCORDING TO THE LD.REPRESENTAT IVE THE JUDGMENT OF THE APEX COURT IN COMMISSIONER OF INCOME-TAX VS HINDUSTAN LIV ERS 239 ITR 297 (SC) RELIED UPON BY THE ASSESSING OFFICER IS NOT APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEES. THE LD.REPRESENTATIVE HAS ALSO SUBMITTE D THAT INTEREST PAID BY THE PURCHASER COMPANY TO THE ASSESSEES ON THE GOLD LOAN TAKENOVER WHICH IS INCLUSIVE OF INTEREST. AS SUCH THE SAME IS CLOSELY RELATED TO THE BUSINESS OF THE ASSESSEES. AS SUCH THE INTEREST RECEIVED FROM MUTH OOT FINCORP LTD HAS TO BE ASSESSED AS BUSINESS INCOME AS THE BUSINESS OF THE ASSESSEE IS FINANCING AGAINST GOLD. THE LD. REPRESENTATIVE FURTHER SUBMITTED THA T THOUGH THE COMMISSIONER OF INCOME-TAX(A) RIGHTLY FOUND THAT THE INTEREST RECEIV ED BY THE ASSESSEES IS BUSINESS INCOME; HOWEVER HELD THAT THE INTEREST PA ID TO THE PARTNER IS NOT ALLOWABLE AS ACCORDING TO HIM THOUGH THE ENTIRE PA RTNERS OF THE ASSESSEE FIRMS WERE HAVING CREDIT BALANCES ONLY ONE PARTNER HAS B EEN ALLOWED INTEREST. THE LD. REPRESENTATIVE THUS CONCLUDED BY PRAYING THAT THE I NTEREST PAID TO THE PARTNER MAY BE HELD AS A BUSINESS EXPENDITURE AS ACCORDING TO THE LD.REPRESENTATIVE IT IS AT THE PREROGATIVE OF THE ASSESSEE FIRMS TO DECIDE WHETHER INTEREST SHOULD BE PAID TO ALL PARTNERS OR TO SOME OF THE PARTNERS. A ND THAT IF IT WERE TO BE ALLOWED TO ALL THE PARTNERS THE INCOME OF THE ASSESSEES WO ULD HAVE BEEN REDUCED FURTHER. THE LD.REPRESENTATIVE FOR THE ASSESSEE SU BMITTED THAT IN M/S MUTHOOT 4 ITA NO.584 585 & 586/COCH/2010 BANKERS PUNALUR KOLLAM VS A.C.I.T. IN ITA 582/COCH/ 2010 WHERE IDENTICAL ISSUE WAS CONSIDERED BY THE TRIBUNAL VIDE DATED 16-12-2011 HAS RESTORED THE ISSUE TO THE FILE OF THE COMMISSIONER OF INCOME-TAX(A) FOR FR ESH CONSIDERATION IN LINE WITH THE DIRECTIONS ISSUED BY THE TRIBUNAL IN THAT ORDER . 4. THE LD.DR MS. VIJAYAPRABHA ON THE CONTRARY SU BMITTED THAT SECTION 40(B)(III) CLEARLY SAYS THAT THE PAYMENT WHICH WAS NOT AUTHORIZED BY THE PARTNERSHIP DEED CANNOT BE ALLOWED WHILE COMPUTING TOTAL INCOME OF THE ASSESSEE. ACCORDING TO THE LD.DR WHEN THE PAYMENT WAS NOT IN ACCORDANCE WITH THE PARTNERSHIP DEED IT CANNOT BE ALLOWED WHILE CO MPUTING THE TOTAL INCOME OF THE ASSESSEE. IN THESE CASE THE LD.DR SUBMITTED THAT THE ASSESSEE HAVE PAID INTEREST TO ONLY ONE PARTNER. THE OTHER PARTNERS W ERE NOT PAID. THEREFORE THE PAYMENT WAS NOT MADE IN ACCORDANCE WITH THE PARTNER SHIP DEED. ACCORDING TO THE LD.DR THE COMMISSIONER OF INCOME-TAX(A) HAS RIG HTLY CONFIRMED THE DISALLOWANCE. HOWEVER THE LD.DR FAIRLY AGREED TH AT THE ISSUE IS COVERED BY THE DECISION OF THIS TRIBUNAL IN M/S MUTHOOT BANKERS PU NALUR KOLLAM VS A.C.I.T. IN ITA 582/COCH/2010 DATED 16-12-2011. 5. WE HAVE CONSIDERED THE SUBMISSIONS ON EITHER SID E AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ISSUE FOR CONSID ERATION IN THESE APPEALS IS AKIN TO THE ONE DECIDED BY THIS BENCH OF THE TRIBUNAL (S MC) IN M/S MUTHOOT BANKERS PUNALUR KOLLAM (SUPRA) VIDE ORDER DATED 16/12/2011. THE TRIBUNAL AFTER DEALING WITH THE ISSUE IN DETAIL HAS REMITTED THE MATTER BA CK TO THE FILE OF THE COMMISSIONER OF INCOME-TAX(A) TO RE-CONSIDER THE ISSU E. FOR THE SAKE OF CLARITY WE EXTRACT BELOW THE FINDINGS OF THE TRIBUNAL IN TH E CASE OF M/S MUTHOOT BANKERS PUNALUR KOLLA (SUPRA): 5 ITA NO.584 585 & 586/COCH/2010 4. THE RIVAL CONTENTIONS ON EITHER SIDE ARE CONSID ERED IN THE LIGHT OF THE MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMI TTED BY THE LD. DEPARTMENTAL REPRESENTATIVE THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE H AS NOT CARRIED ON ANY BUSINESS DURING THE YEAR UNDER CONSIDERATION. HOWEV ER THE CIT(A) FOUND THAT THE ASSESSEE WAS CARRYING ON BUSINESS ACTIVIT Y. FROM THE ORDERS OF THE BOTH THE AUTHORITIES BELOW IT APPEARS THAT THE ENTIRE ASSETS AND LIABILITIES OF THE ASSESSEE -FIRM WAS TAKEN OVER BY M /S. MUTHOOT FINCORP LTD.. SINCE THERE WAS A DELAY IN THE PAYMENT OF DU ES TO THE ASSESSEE-FIRM MUTHOOT BANKERS PAID INTREST TO THE ASSESSEE AS COM PENSATION FOR THE DELAYED PAYMENT. THE CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE FOR THE REASONS APPARENTLY STATED IN THE ARGUMENT NOTES FIL ED BEFORE THE CIT(A). HOWEVER THE COPIES OF THE ARGUMENT NOTES SAID TO B E FILED BEFORE THE CIT(A) HAS NOT BEEN FILED BEFORE THIS TRIBUNAL. TH EREFORE IT IS NOT KNOWN FOR WHAT REASON THE CIT(A) CAME TO THE CONCLUSION T HAT THE ASSESSEE WAS CARRYING ON ITS BUSINESS ACTIVITY FOR THE YEAR UNDE R CONSIDERATION. ADMITTEDLY THE PROCEEDINGS UNDER THE INCOME TAX AC T ARE JUDICIAL PROCEEDINGS THEREFORE THE ASSESSING OFFICER AS WE LL AS THE FIRST APPELLATE AUTHORITY IS BOUND TO GIVE REASONS FOR THEIR CONCLU SION SO AS TO ENABLE THE APPELLATE FORUM TO APPRECIATE THE REASON FOR ARRIVI NG AT A PARTICULAR CONCLUSION. SIMPLY BY SAYING THAT FOR THE REASONS STATED IN THE ARGUMENT NOTES THE CIT(A) AGREED WITH THE LD. REPRESENTATIV E WITHOUT BRINGING ON RECORD WHAT IS STATED IN THE ARGUMENT NOTES. AND W HAT FOR THE CIT(A) AGREED WITH THE LD. REPRESENTATIVE OF THE ASSESSEE. THIS TRIBUNAL IS OF THE OPINION THAT THE CIT(A) IS DUTY BOUND TO BRING ON R ECORD THE REASONS FOR COMING TO A PARTICULAR CONCLUSION. UNFORTUNATELY THE CIT(A) HAS NOT RECORDED SUCH A REASON FOR COMING TO THE CONCLUSION . THE CIT(A) FURTHER FOUND THAT THE ASSESSEE HAS NOT PRODUCED THE PARTN ERSHIP DEED WHICH AUTHORISES THE PAYMENT OF INTEREST. IN THE NEXT L INE THE CIT(A) SAYS THAT FROM THE ASSESSMENT RECORD SHE FOUND THE PARTNERSH IP DEED DATED 1.4.2004 AT PARA 5 AND SOME CLAUSE ENABLES THE ASS ESSEE TO PAY INTEREST AT THE RATE OF 12% ON ALL CREDIT BALANCES IN THE CA PITAL ACCOUNT OF THE PARTNERS. THE CIT(A) HOWEVER FOUND THAT THERE IS N O JUSTIFICATION FOR MAKING THE PAYMENT TO ONLY ONE PARTNER WHEN THERE AR E OTHER CREDIT BALANCES IN THE CAPITAL ACCOUNT OF THE OTHER PARTNE RS. THE CIT(A) HAS ALSO FOUND THAT THE ASSESSEE HAS NOT PRODUCED THE DETAI LS OF INTEREST PAID TO THE PARTNER AS PER THE PARTNERSHIP DEED. THE SPECI FIC CASE OF THE ASSESSEE IS THAT INTEREST IS PAID AT THE RATE OF 12% AS AUTH ORISED BY THE PARTNERSHIP DEED. WHEN THE CIT(A) FOUND THAT THE PARTNERSHIP D EED WHICH WAS AVAILABLE ON THE ASSESSMENT RECORDS AUTHORISED THE ASSESSEE TO PAY 6 ITA NO.584 585 & 586/COCH/2010 INTEREST AT 12% AND THE CREDIT BALANCES OF EACH PAR TNER ARE AVAILABLE ON RECORD IT IS NOT KNOWN WHAT PARTICULARS WAS NOT PRO DUCED BY THE ASSESSEE. IF THE CIT(A) SAYS THAT THE CREDIT BALANCES ARE NOT AVAILABLE OR THE RATE OF INTEREST IS AVAILABLE ON RECORD THE MATTER MAY STA ND ON DIFFERENT FOOTING. THE CIT(A) HERSELF ADMITTED THAT THERE ARE CREDIT B ALANCES IN THE ACCOUNT OF ALL THE PARTNERS THEREFORE THE CIT(A) IS WITH IN HER KNOWLEDGE ABOUT THE CREDIT BALANCES AVAILABLE IN THE ACCOUNTS OF EACH OF THE PARTNERS. IN VIEW OF THE CONTRADICTORY FINDING RECORDED BY THE C IT(A) WITH REGARD TO THE DETAILS AVAILABLE ON RECORD THIS TRIBUNAL IS OF TH E OPINION THAT THE MATTER NEEDS TO BE RECONSIDERED BY THE CIT(A). THE CIT(A) SHALL CALL FOR DETAILS IF ANY REQUIRED FOR COMPLETING THE ASSESSMENT EITHER F ROM THE ASSESSEE OR FROM THE ASSESSING OFFICER. IF THE ASSESSEE FURNI SHES ANY OTHER MATERIAL WHICH WAS NOT PRODUCED BEFORE THE ASSESSING OFFICER EARLIER THEN IT IS OPEN FOR THE CIT(A) TO CALL FOR REMAND REPORT FROM THE ASSESSING OFFICER BEFORE TAKING ANY DECISION. HOWEVER FOR WANT OF PA RTICULARS WHEN THE DETAILS OF THE CREDIT BALANCES AND THE RATE OF INTE REST ARE AVAILABLE ON RECORD THE CIT(A) CANNOT REJECT THE APPEAL OF THE ASSESSEE. 5. IN VIEW OF THE ABOVE FINDING THE ORDER OF THE C IT(A) IS SET ASIDE AND THE ISSUE OF PAYMENT OF INTEREST TO THE PARTNERS IS REMITTED BACK TO THE FILE OF THE CIT(A). THE CIT(A) SHALL RECONSIDER THE ISSU E AND RECORD THE REASONING FOR THE CONCLUSION REACHED ONE WAY OR THE OTHER. THE CIT(A) SHALL GIVE REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WITH THE ABOVE OBSERVATIONS THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. THE FACTS AND CIRCUMSTANCES BEING IDENTICAL AND THE ISSUE INVOLVED ALSO IS SAME CONSISTENT WITH THE EARLIER DECISION OF THIS TRIBUN AL WE REMIT BACK THE ISSUE TO THE FILE OF THE COMMISSIONER OF INCOME-TAX(A) WITH SAME DIREC TIONS. THE COMMISSIONER OF INCOME-TAX(A) SHALL RECONSIDER THE ISSUE IN LIGHT OF DIRECTIONS CONTAINED IN THE ORDER OF THIS TRIBUNAL IN THE CASE OF MUTHOOT BANKERS PUNALO OR KOLLAM AFTER GIVING REASONABLE OPPORTUNITY TO THE ASSESSEE. 7 ITA NO.584 585 & 586/COCH/2010 6. IN THE RESULT THE APPEALS OF THE ASSESSEES ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 29 TH DAY OF MARCH 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN DT : 29 TH MARCH 2012 PK/- COPY TO: 1. M/S MUTHOOT FINANCE CO MAIN ROAD KOLLAM 2. THE ITO WD.2 KOLLAM 3. COMMISSIONER OF INCOME-TAX(A)-I TRIVANDRUM 4. THE COMMISSIONER OF INCOME-TAX TRIVANDRUM 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR INCOME-TAX APPELLATE TRIBUNAL COCHIN BENCH