Ita/2/2023 Of Muthoot Credits & Investments v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE DR. JUSTICE A.K.JAYASANKARAN NAMBIAR & THE HONOURABLE MR.JUSTICE MOHAMMED NIAS C.P. TUESDAY, THE 22 DAY OF AUGUST 2023 / 31ST SRAVANA, 1945 ITA NO. 2 OF 2023AGAINST THE ORDER DATED 27.10.2022 IN ITA 257/2020 OF INCOME TAXAPPELLATE TRIBUNAL,COCHIN BENCH APPELLANT/APPELLANT: MUTHOOT CREDITS & INVESTMENTSGROUND FLOOR, NORTH BLOCK, MUTHOOT FLOORS, OPP. WOMEN & CHILD HOSPITAL THYCAUD, THIRUVANANTHAPURAM [PAN : MVFM 9492P], PIN – 695014BY ADVS.ABRAHAM JOSEPH MARKOS SRI.ISAAC THOMAS SRI.ALEXANDER JOSEPH MARKOS SRI.SHARAD JOSEPH KODANTHARA SRI.V.ABRAHAM MARKOS SRI. AIBEL MATHEW SIBY RESPONDENT/RESPONDENT: THE DEPUTY COMMISSIONER OF INCOME TAXCIRCLE-1 (2), THIRUVANANTHAPURAM, PIN – 695003 BY ADV SRI.CHRISTOPHER ABRAHAM,SC THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 22.08.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: JUDGMENT Dr. A.K.Jayasankaran Nambiar, J. This I.T Appeal arises out of an order dated 27.10.2022 of theIncome Tax Appellate Tribunal, Cochin Bench in ITA No.257/Coch/2020,pertaining to the assessment year 2015-2016. For the previous yearpertaining to the said assessment year, the appellant herein had filed aloss return. By Annexure A assessment order, however, while theinterest income of the appellant was accepted, the interest expenses onfixed deposits from investors was disallowed on the ground that theappellant had not carried out any actual business activities during thesaid year. Aggrieved by the assessment order, the appellant preferredan appeal before the Commissioner of Income Tax (Appeals), which isstated to be pending. In the meanwhile, however, the PrincipalCommissioner of Income Tax, by an order under Section 263 of theIncome Tax Act, set aside the assessment order to the extent that it hadassessed the interest income of the appellant under the head of“business income” as against the head of “income from other sources”.The reasoning of the Principal Commissioner was essentially that theinterest income had to be assessed under the head of income from ITA.No.2 of 2023 other sources since, during the year in question, the appellant had notcarried out any business using the deposits that had been collectedfrom various persons. While the appellant preferred an appeal againstthe said order of the Principal Commissioner before the AppellateTribunal, the said appeal came to be rejected by the Appellate Tribunalby Annexure K order. The tribunal was of the view that since thePrincipal Commissioner had merely remanded the matter to theassessing officer for de novo consideration, there was no necessity tointerfere with the order of the Principal Commissioner. 2. In the appeal before us, the appellant raises the followingsubstantial questions of law under Section 260A of the Income Tax Act. 1) Whether on the facts and in the circumstancesof the case the Appellate Tribunal is right in holdingthat the Commissioner was justified in invoking therevisionary jurisdiction under Section 263 of theIncome Tax Act? 2)Whether on the facts and in the circumstances ofthe case and in the light of the assessmentproceedings there was any evidence or materialbefore Appellate Tribunal to justify its finding thatthe Assessing Officer has not made any enquiry withrespect to the issue in question and therefore theCommissioner was justified in invoking the jurisdiction under Section 263 of the lT Act 3) Whether on the facts and in the circumstances ofthe case and in view of the pendency of the Appealagainst Annexure A assessment before theCommissioner (Appeals), the Commissioner hasexceeded his jurisdiction in revising Annexure-Aassessment order and accordingly Annexures D and Eare vitiated? 2)Whether on the facts and in the circumstances ofthe case and in the light of the assessmentproceedings there was any evidence or materialbefore Appellate Tribunal to justify its finding thatthe Assessing Officer has not made any enquiry withrespect to the issue in question and therefore theCommissioner was justified in invoking the jurisdiction under Section 263 of the lT Act 3) Whether on the facts and in the circumstances ofthe case and in view of the pendency of the Appealagainst Annexure A assessment before theCommissioner (Appeals), the Commissioner hasexceeded his jurisdiction in revising Annexure-Aassessment order and accordingly Annexures D and Eare vitiated? 4) Whether on the facts and in the circumstances ofthe case when the Appellant had already filed anAppeal before the Commissioner of Income Tax(Appeals) against Annexure A, claiming that pro ratainterest had to be allowed and the same issue wouldarise even if the income was assessed under adifferent head of income the order of the CIT underSection 263 is vitiated by lack of jurisdiction? 3. We heard Sri. Abraham Joseph Markos, the learned Seniorcounsel, duly assisted by Sri.Aibel Mathew Siby, the learned counsel forthe appellant and Sri.Christopher Abraham, the learned Standingcounsel for the Income Tax Department. 4. On a consideration of the rival submissions, we find that theonly issue that requires to be considered in this appeal is whether the ITA.No.2 of 2023 Principal Commissioner of Income Tax was justified in renderingfindings on the merits of the claim for interest expenses while settingaside the assessment order and remanding the matter for freshconsideration of the said issue by the assessing authority. As alreadynoticed, the Principal Commissioner was of the view that the interestearned by the appellant, through lending the deposited amounts to itspartners, could not be treated as the business income of the appellantbut had rather to be assessed under the head of “income from othersources” and consequently no expenses could be set off against the saidincome earned by the appellant. However, on the PrincipalCommissioner deciding to remand the matter to the assessing authorityfor verification of the causal link between the expenses incurred by theappellant and the income earned by it by way of interest, he ought notto have rendered a finding that the appellant was not entitled to claimset off of the expenses against the said income. The effect of AnnexureE order of the Principal Commissioner is to effectively preclude theassessing authority from enquiring into whether or not there was acausal link between the incurring of the expenditure and the earning ofinterest income that was assessed in the hands of the appellant duringthe year in question. In our view, this ought not to have been done,especially when, in the ultimate analysis, what the PrincipalCommissioner did, in the exercise of its powers under Section 263 ofthe Income Tax Act, was to set aside the assessment order on this issue ITA.No.2 of 2023 and remand it to the assessing authority for a de novo consideration onmerits. As a matter of fact, a perusal of the consequential order passedby the assessing authority, pursuant to the remand (produced asAnnexure I along with the appeal memorandum) clearly reveals that theassessing authority found itself bound by the observations of thePrincipal Commissioner in his order, thereby justifying our findingsabove. ITA.No.2 of 2023 and remand it to the assessing authority for a de novo consideration onmerits. As a matter of fact, a perusal of the consequential order passedby the assessing authority, pursuant to the remand (produced asAnnexure I along with the appeal memorandum) clearly reveals that theassessing authority found itself bound by the observations of thePrincipal Commissioner in his order, thereby justifying our findingsabove. In the result, while we see no reason to interfere with the orderof the Commissioner under Section 263 of the Income Tax Act to theextent it remands the matter to the assessing authority for determiningthe nature of the income - whether business income or income fromother sources - we set aside those findings of the Commissioner inAnnexure E order that decides the issue on merits and leaves, no scopefor an enquiry by the assessing authority as regards the causal link, ifany, between the incurring of expenditure and the earning of theinterest income during the previous year in question. We are of theview that the assessing authority must determine the issue afresh basedon the directions of the Principal Commissioner in Annexure E orderbut untrammeled by those findings in the said order that we have setaside in this judgment. To enable the assessing authority to do so, wealso set aside Annexure I order of the assessing authority and AnnexureK order of the Appellate Tribunal to the extent it upholds the order of ITA.No.2 of 2023 the Principal Commissioner under Section 263 even on those aspectsthat have been set aside by us in this judgment. The questions of lawraised in this appeal are not answered since we have directed a re-examination of the issue on merits by the assessing authority. Sd/- Dr. A.K.JAYASANKARAN NAMBIAR JUDGE Sd/-MOHAMMED NIAS C.P. JUDGE mns ITA.No.2 of 2023 :8: APPENDIX OF ITA 2/2023 PETITIONER ANNEXURES Annexure ATRUE COPY OF THE ASSESSMENT ORDER DATED28.12.2017 PASSED BY THE RESPONDENT FOR AY2015-1628.12.2017 PASSED BY THE RESPONDENT FOR AY2015-16 Annexure BTRUE COPY OF THE AUDITED ACCOUNTS OF THEAPPELLANT FOR THE FY 2014- 15.APPELLANT FOR THE FY 2014- 15. Annexure CTRUE COPY OF THE NOTICE UNDER SECTION 263DATED 17.01.2020DATED 17.01.2020 Annexure DTRUE COPY OF THE DETAILED OBJECTIONS DATED19.02.2020 FILED BY THE APPELLANT19.02.2020 FILED BY THE APPELLANT Annexure ETRUE COPY OF THE ORDER DATED 15.05.2020PASSED BY THE COMMISSIONER OF INCOME TAXPASSED BY THE COMMISSIONER OF INCOME TAX Annexure FTRUE COPY OF THE CORRIGENDUM ORDER DATED30.03.2021 OF THE COMMISSIONER OF INCOMETAX30.03.2021 OF THE COMMISSIONER OF INCOMETAX Annexure GTRUE COPY OF THE APPEAL FILED BY THEAPPELLANT BEFORE THE INCOME TAX APPELLATETRIBUNAL, KOCHI BENCH, NUMBERED AS ITA NO.257/COCH/2020.APPELLANT BEFORE THE INCOME TAX APPELLATETRIBUNAL, KOCHI BENCH, NUMBERED AS ITA NO.257/COCH/2020. Annexure H TRUE COPY OF THE ADDITIONAL GROUNDS OFAPPEAL DATED 26.09.2022 FILED BY THEAPPELLANTAPPEAL DATED 26.09.2022 FILED BY THEAPPELLANT Annexure ITRUE COPY OF THE REVISED ASSESSMENT ORDERDATED 21.06.2021DATED 21.06.2021 Annexure JTRUE COPY OF THE ARGUMENT NOTE DATED 31-3- ITA.No.2 of 2023 2022 FILED BY THE APPELLANTAnnexure KCERTIFIED COPY OF THE IMPUGNED ORDER DATED27.10.2022 OF THE APPELLATE TRIBUNAL INI.T.A. NO. 257/COCH/2020.