Ita/64/2009 Of M/S Muthoot Chitty Fund Koazhenchery v. The Commissioner Of Income Tax

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 JYAISHTA, 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, REP. BY PARTNER THOMAS JOHN MUTHOOT. KOZHENCHERRY. 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, THECOURT 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 THEASSESSING OFFICER. // TRUE COPY // P.A. TO JUDGE ANTONY DOMINIC & DAMA SESHADRI NAIDU, JJ. - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I.T.A.No.64 of 2009 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 24[th] day of May, 2016 Antony Dominic, J. JUDGMENT This appeal is filed by the assessee challenging the orderpassed by the Income Tax Appellate Tribunal, Cochin Bench inI.T.A.No.374/07. 2. The relevant assessment year is 2000-2001. Theappellant, which is the partnership firm, is engaged in the businessof money lending/banking. On the facts as disclosed in the order ofthe Tribunal, it would appear that while computing the businessincome of the assessee, the original return of the incomecomputation showed loss from business to the tune ofRs.2,08,50,952/- against that the appellant set off the unexplainedcash credit of Rs.2,08,00,000/- shown in the current account of its partner late Mathew M. Thomas. After setting off, the net businessloss was reduced to Rs.50,952/-. : 2 : 3. In the reassessment proceedings, the Assessing Officeraccepted the claim of set off. Finding the order to be erroneousand prejudicial to the interest of the Revenue, the Commissionerassumed the jurisdiction under Section 263 of the Income Tax Actand directed the Assessing Officer to arrive at the business loss ofthe firm with set off of unexplained cash credit which was shown inthe current account of its partner. It was this order which waschallenged before the Tribunal. The Tribunal, by the impugnedorder, confirmed the order of the Commissioner. It is challengingthis order, this appeal is filed by the assessee framing the followingquestions of law for the consideration of this court: “A. Whether on the facts and in the circumstancesof the case the Tribunal is correct in law and fact inupholding the Annexure B order dated 21-3-2007 ofthe respondent passed under Section 263 of the Act? B. Is the Tribunal correct in law and fact in holdingthat the credit which is appearing in the books ofthe appellant firm is assessable in the hands of thecreditor and not in accordance with the provisionsof Section 68? C. Whether the Tribunal is correct in law and factin holding that the assessing officer wrongly takenthis unexplained cash credit in the assessee's firm,without recording a finding as to what was theerror that the assessing officer has committed in sodoing when the action of the assessing officer wasstrictly in conformity with the provisions of section68? “A. Whether on the facts and in the circumstancesof the case the Tribunal is correct in law and fact inupholding the Annexure B order dated 21-3-2007 ofthe respondent passed under Section 263 of the Act? B. Is the Tribunal correct in law and fact in holdingthat the credit which is appearing in the books ofthe appellant firm is assessable in the hands of thecreditor and not in accordance with the provisionsof Section 68? C. Whether the Tribunal is correct in law and factin holding that the assessing officer wrongly takenthis unexplained cash credit in the assessee's firm,without recording a finding as to what was theerror that the assessing officer has committed in sodoing when the action of the assessing officer wasstrictly in conformity with the provisions of section68? D. Whether on the facts and in the circumstances ofthe case the Tribunal correct in law and fact inholding that application of Section 68 by theassessing officer in the hands of the appellant firmis totally wrong which was set right by theCommissioner under Section 263, otherwise therewill be an adverse effect of interest of revenue?” 4. We heard the counsel for the assessee and the learnedSenior 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 regardingthe correctness of the Commissioner assuming jurisdiction underSection 263 of the Income Tax Act. 6. Section 263 of the Income Tax Act empowers theCommissioner to call for and examine the record of any proceedingunder the Act, and if he considers that any order passed by theAssessing Officer is erroneous in so far as it is prejudicial to theinterests of the Revenue, he may, after giving the assessee anopportunity of being heard and after making or causing to be madesuch inquiry as he deems necessary, pass such order thereon as thecircumstances of the case justify, including an order enhancing ormodifying the assessment, or cancelling the assessment anddirecting 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 partnerof the appellant firm. Such an amount credited in the partner of thefirm was assessed as income of the firm under Section 68 of theAct, which clearly is an erroneous exercise of power. On the otherhand, this amount should have been treated as the income of the : 5 : partner and assessed under Section 69 of the Act. The case,therefore, disclosed both error and prejudice which are the twoelements required for the exercise of power under Section 263 ofthe Act. The Commissioner, therefore, rightly exercised the powerunder Section 263 of the Act and the order of the Tribunalconfirming the Commissioners order does not suffer from anyillegality. We do not find any illegality in the orders impugned norwe do find any question of law arising out of the orders impugnedfor consideration of this court. Appeal fails and it is dismissed accordingly. Sd/- ANTONY DOMINIC JUDGE Sd/- DAMA SESHADRI NAIDU JUDGE