Ita/196/2012 Of M/S Muthoot Bankers & Financiers v. The Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY, THE 16TH DAY OF JANUARY 2019 / 26TH POUSHA, 1940 ITA. No.196 of 2012 AGAINST THE ORDER IN ITA NO.788/2008 OF THE INCOME TAX APPELLATETRIBUNAL, COCHIN BENCH DATED 27.04.2012 APPELLANT/RESPONDENT/ASSESSEE: M/S.MUTHOOT BANKERS & FINANCIERSMUTHOOT BUILDINGS, PUNNEN ROAD, THIRUVANANTHAPURAM REPRESENTED BY SHRI.THOMAS JOHN, PARTNER. BY ADVS.SRI.T.M.SREEDHARAN (SR.)SMT.BOBY M.SEKHARSRI.V.P.NARAYANAN RESPONDENT/APPELLANT/REVENUE: THE COMMISSIONER OF INCOME TAXAYYAKKAR BHAVAN, THIRUVANANTHAPURAM - 695001. BY ADVS.SRI.JOSE JOSEPH, SC, FOR INCOME TAXSRI.P.K.R.MENON,SR.COUNSEL, G.O.I THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 16.01.2019, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA. No.196 of 2012 JUDGMENT K. Vinod Chandran, J. In the income-tax appeal, another DivisionBench raised the following questions of law byorder dated 05.11.2013: “1) Whether the Appellate Tribunal is justified and right in law inrestoring the addition of Rs.66,09,167/-being the balance in the interestreceivable in the gold loan account asthe income for the Assessment Year 2005-06 on cash system of accounting? 2) Is the Appellate Tribunal'sfinding and conclusions that there was“constructive receipts” of the interestamount on the date of the agreementAnnexure-B, legal, is valid andsustainable,whentheinterestreceivable account is subject to actualrealization and governed by otherclauses of agreement? 3) Should not the Appellate Tribunalhave found that in the cash system ofaccounting followed by the appellant interest became taxable only on actualreceipt basis and not on the basis ofthe so called constructive receipt basisand is not the contrary finding taken bythe Appellate Tribunal, erroneous andlegally unsustainable? 4) Is not the finding of theAppellateTribunalthatinterestreceivable account became an interestreceived account on the date of theagreement contrary to the conditions ofthe agreement and the system ofaccounting followed by the appellant? 5) Is the finding of the AppellateTribunal disputed herein legally validand sustainable on the facts and inlaw?” 2. All the questions of law concern onesingle credit made by the Assessing Officer ofan amount of Rs.66,09,167/-. There were otheradditions made by the Assessing Officer, whichwere interfered with by the First AppellateAuthority. The Tribunal also confirmed suchorder of the First Appellate Authority. The interference by the Tribunal in an appeal filedby the Revenue was only with respect to theinterest receivable of Rs.66,09,167/-. 3. The assessment completed was for theyear 2005-2006, when the assessee firm had beentaken over by a Company, M/s.Muthoot FincorpLtd. The take over was on consideration paid tothe firm. We are only concerned with theinterest accrued in the loans granted by theassessee firm, which is said to have been takenover by the Company along with the assets andliabilities of the assessee firm. Theassessee's contention was that the assessee hadbeen following the cash system of accountingand for reason of the interest having not beenreceived, the assessee was not liable to showit as income. However, the Tribunal found thatthe moment, the buyer agreed to compensate theassessee for the interest accrued in the loanaccounts; up to the date of transfer, there is ITA. No.196 of 2012 constructive receipt of the interest by theassessee, even in cash system of accounting.The addition to income made by the AssessingOfficer was upheld, reversing the order of theFirst Appellate Authority. We agree with thereasoning of the Tribunal but the assesseepoints out a further fact, by way of additionaldocuments. ITA. No.196 of 2012 constructive receipt of the interest by theassessee, even in cash system of accounting.The addition to income made by the AssessingOfficer was upheld, reversing the order of theFirst Appellate Authority. We agree with thereasoning of the Tribunal but the assesseepoints out a further fact, by way of additionaldocuments. 4. The assessee produced the additionaldocuments as Annexure-E to Annexure-G alongwith an affidavit dated 03.01.2019. The Profit& Loss Account for the year ended 31.03.2005 isproduced as Annexure-E. There is a credit shownof interest on gold loans at Rs.65,95,681.19.This is shown as interest received on goldloans. The assessee submits that the losscomputed in the P&L account of the subject yearwas after crediting such interest. This is theinterest income, now made addition of, is theargument. 5. At the outset, we have to notice thatthe figures do not tally, because the addition madebytheAssessingOfficerisRs.66,09,167/-. Further, we also notice aCertificateproducedbytheChatteredAccountant as seen at Annexure-F. Therein it isstated that Rs.65,95,681.19 has been offered asinterest receivable on gold loan in the accountof the assessee firm for the year ending31.03.2005. It is also stated that this amountrepresents interest collected by the Company ontake over of the business of the firm. Further,it is stated that the Company had taken overfrom the firm an amount of Rs.66,09,167/- asinterest receivable, which was later collectedand handed over to the firm by the Company.Hence the duplication is not in the AssessingOfficer having made the addition, but in theCompany having received the payments in thecourse of the year in addition to theconsideration. We have our own doubts about the ITA. No.196 of 2012 interest credited to the P&L account and theinterest receivable, collected and handed overto the firm by the Company; whether they areone and the same. This is essentially aquestion of fact and the assessing officer willexamine whether there was a duplication in sofar as the addition made. We hence refuse toanswer the questions of law for reason of thereexisting a warrant for further examination ofthe figures as revealed from the P&L Account.We remand the matter for verification of thissingle aspect. Sd/- K.VINOD CHANDRAN JUDGE Sd/- ASHOK MENON JUDGE sp/19.01.19 //True Copy//P.A. To Judge ITA. No.196 of 2012 PETITIONER'S EXHIBITS: APPENDIX ANNEXURE-A TRUE COPY OF ASSESSMENT ORDER DATED 31/12/2007 ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1, THIRUVANANTHAPURAM FOR THE A.Y. 2005-06.31/12/2007 ISSUED BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE-1, THIRUVANANTHAPURAM FOR THE A.Y. 2005-06. ANNEXURE-BTRUE COPY OF THE AGREEMENT DATED 01/04/2004EXECUTED BETWEEN THE APPELLANT AND M/S.MUTHOOT FINCORP LTD.EXECUTED BETWEEN THE APPELLANT AND M/S.MUTHOOT FINCORP LTD. ANNEXURE-CTRUE COPY OF THE ORDER DATED 15/02/2008 IN I.T.A. NO.110/T/07-08 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, THIRUVANANTHPAURAM.I.T.A. NO.110/T/07-08 ISSUED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, THIRUVANANTHPAURAM. ANNEXURE-DORIGINAL ORDER OF THE APPELLATE TRIBUNAL INI.T.A. NO.788/COCH/2008 DATED 27/04/2012.I.T.A. NO.788/COCH/2008 DATED 27/04/2012. ANNEXURE-ETRUE COPY OF THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FOR THE YEAR ENDED 31/03/2005.AND BALANCE SHEET FOR THE YEAR ENDED 31/03/2005. ANNEXURE-FTRUE COPY OF THE CERTIFICATE ISSUED BY RANGAMANI AND CO., CHARTERED ACCOUNTANTS, DATED 19/11/2013.RANGAMANI AND CO., CHARTERED ACCOUNTANTS, DATED 19/11/2013. ANNEXURE-G COPY OF STATEMENT OF TOTAL INCOME FOR THE ASSESSMENT YEAR 2005-2006.ASSESSMENT YEAR 2005-2006.