Disposed

M/S. Malayil Bankers v. Commissioner of Income Tax, Kowdiyar

Kerala HC19 Dec 2018ITA/101/2016

Case brief

AI extract

What is this about?

Unexplained cash credits and suppressed interest were disputed in tax assessments. The court rejected reliance on insolvency creditor lists and held remand unjustified. It restored regular assessments, allowing Revenue's regular-assessment appeals, but expressly allowed the assessee's block-assessment appeals.

What did the court decide?

Regular assessments and Section 68 cash-credit additions restored; ITA 6/2012, 60/2012, 101/2016 and 102/2016 allowed.

M/S. Malayil Bankers Vs Commissioner of Income Tax, Kowdiyar — Income Tax | Kerala HC (2018)

¶1

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶2

PRESENT

¶3

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶4

¶5

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶6

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶7

ITA.No. 6 of 2012

¶8

AGAINST THE ORDER/JUDGMENT IN ITA 758/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-07-2011

¶9

APPELLANT/S:

¶10

THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM.

¶11

BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX

¶12

RESPONDENT/S:

¶13

M/S. MALAYIL BANKERS C/O SHRI. GEORGE VARGHESE, MALAYIL HOUSE, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANTHAPURAM-695015.

¶14

BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.BOBY M.SEKHAR SMT.NISHA JOHN SRI.V.P.NARAYANAN

¶15

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.33/2012, ITA.56/2012, ITA.60/2012, ITA.101/2016, ITA.102/2016, ITA.162/2015, & ITA.163/2015, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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I.T.A.Nos.6/2012 & connected cases

¶17

¶18

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶19

PRESENT

¶20

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶21

¶22

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶23

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶24

ITA.No. 33 of 2012

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AGAINST THE ORDER/JUDGMENT IN ITA 20/2007 of I.T.A.TRIBUNAL,COCHIN BENCH

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APPELLANT/S:

¶27

THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM.

¶28

BY ADVS.

¶29

SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC FOR INCOME TAX

¶30

RESPONDENT/S:

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M/S.MALAYIL BANKERS C/O.SHRI.GEORGE VARGHESE, MALAYIL HOUSE, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANHTPAURAM-695033.

¶32

BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN

¶33

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.102/2016, ITA.101/2016, ITA.163/2015, ITA.162/2015, ITA.56/2012, ITA.6/2012, & ITA.60/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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I.T.A.Nos.6/2012 & connected cases

¶35

¶36

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶37

PRESENT

¶38

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶39

¶40

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶41

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶42

ITA.No. 56 of 2012

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AGAINST THE ORDER/JUDGMENT IN ITA 5/2007 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-07-2011

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APPELLANT/S:

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THE COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM.

¶46

BY ADVS. SRI.P.K.R.MENON, SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC FOR INCOME TAX

¶47

RESPONDENT/S:

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M/S.MALAYIL BANKERS, C/O.SHRI.GEORGE VARGHESE MALAYIL HOUSE, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANTHAPURAM-695 033.

¶49

BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.BOBY M.SEKHAR SMT.NISHA JOHN SRI.V.P.NARAYANAN

¶50

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.102/2016, ITA.101/2016, ITA.163/2015, ITA.162/2015, ITA.33/2012, ITA.6/2012, ITA.60/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶51

I.T.A.Nos.6/2012 & connected cases

¶52

¶53

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶54

PRESENT

¶55

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶56

¶57

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶58

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶59

ITA.No. 60 of 2012

¶60

AGAINST THE ORDER/JUDGMENT IN ITA 759/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-07-2011

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APPELLANT/S:

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THE COMMISSIONER OF INCOME TAX THIRUVANANTHAPURAM.

¶63

BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX

¶64

RESPONDENT/S:

¶65

M/S. MALAYIL BANKERS C/O.SHRI GEORGE VARGHESE, MALAYIL HOUSE, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANTHAPURAM.

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BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.BOBY M.SEKHAR SMT.NISHA JOHN SRI.V.P.NARAYANAN

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OTHER PRESENT:

¶68

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.102/2016, ITA.101/2016, ITA.163/2015, ITA.162/2015, ITA.33/2012, ITA.56/2012, & ITA.6/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶69

I.T.A.Nos.6/2012 & connected cases

¶70

¶71

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶72

PRESENT

¶73

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶74

¶75

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶76

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶77

ITA.No. 101 of 2016

¶78

AGAINST THE ORDER/JUDGMENT IN OTHERS 5/2007 of I.T.A.TRIBUNAL,COCHIN BENCH

¶79

APPELLANT/S:

¶80

M/S. MALAYIL BANKERS MALAYIL HOUSE, AGRA, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANTHAPURAM, REPRESENTED BY EX-MANAGING PARTNER, GEORGE VARGHESE.

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BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN

¶82

RESPONDENT/S:

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COMMISSIONER OF INCOME TAX, KOWDIYAR KOWDIYAR, THIRUVANANTHAPURAM.

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BY ADVS. SRI.P.K.R.MENON,SENIOR COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC FOR INCOME TAX

¶85

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.102/2016, ITA.163/2015, ITA.162/2015, ITA.33/2012, ITA.56/2012, ITA.6/2012, & ITA.60/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶86

I.T.A.Nos.6/2012 & connected cases

¶87

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶89

PRESENT

¶90

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶91

¶92

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶93

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶94

ITA.No. 102 of 2016

¶95

AGAINST THE ORDER/JUDGMENT IN OTHERS 53/2008 of I.T.A.TRIBUNAL,COCHIN BENCH

¶96

APPELLANT/S:

¶97

M/S. MALAYIL BANKERS MALAYIL HOUSE, AGRA, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANTHAPURAM, REPRESENTED BY EX- MANAGING PARTNER, GEORGE VARGHESE.

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BY ADVS.

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SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN

¶100

RESPONDENT/S:

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COMMISSIONER OF INCOME TAX KAWDIYAR, THIRUVANANTHAPURAM - 695 001.

¶102

BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX

¶103

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.101/2016, ITA.163/2015, ITA.162/2015, ITA.33/2012, ITA.56/2012, ITA.6/2012, & ITA.60/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶104

I.T.A.Nos.6/2012 & connected cases

¶105

¶106

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶107

PRESENT

¶108

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶109

¶110

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶111

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶112

ITA.No. 162 of 2015

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AGAINST THE ORDER/JUDGMENT IN ITA 758/2008 of I.T.A.TRIBUNAL,COCHIN BENCH

¶114

APPELLANT/S:

¶115

M/S. MALAYIL BANKERS, THIRUVANANTHAPURAM MALAYIL HOSE, AGRA, KUSAVARKAL ROAD, NALANCHIRA,THIRUVANANTHAPURAM, REPRESENTED BY EX-MANAGING PARTNER,GEORGE VARGHESE

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BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN

¶117

RESPONDENT/S:

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THE COMMISSIONER OF INCOME TAX, KOWDIAR, THIRUVANANTHAPURAM – 695001.

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BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX

¶120

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.102/2016, ITA.101/2016, ITA.163/2015, ITA.33/2012, ITA.56/2012, ITA.6/2012, ITA.60/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

¶121

I.T.A.Nos.6/2012 & connected cases

¶122

¶123

IN THE HIGH COURT OF KERALA AT ERNAKULAM

¶124

PRESENT

¶125

THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN

¶126

¶127

THE HONOURABLE MR. JUSTICE ASHOK MENON

¶128

WEDNESDAY,THE 19TH DAY OF DECEMBER 2018 / 28TH AGRAHAYANA, 1940

¶129

ITA.No. 163 of 2015

¶130

AGAINST THE ORDER/JUDGMENT IN ITA 759/2008 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 29-07-2011

¶131

APPELLANT/S:

¶132

M/S. MALAYIL BANKERS, THIRUVANANTHAPURAM MALAYIL HOUSE, AGRA, KUSAVARKAL ROAD, NALANCHIRA, THIRUVANANTHAPURAM, REPRESENTED BY EX-MANAGING PARTNER, GEORGE VARGHESE.

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BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.DIVYA RAVINDRAN SRI.V.P.NARAYANAN

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RESPONDENT/S:

¶135

THE COMMISSIONER OF INCOME TAX, KOWDIYAR, THIRUVANANTHAPURAM.

¶136

BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX

¶137

THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 19.12.2018, ALONG WITH ITA.102/2016, ITA.101/2016, ITA.162/2015, ITA.33/2012, ITA.56/2012, ITA.6/2012, ITA.60/2012, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

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I.T.A.Nos.6/2012 & connected cases

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JUDGMENT

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[ITA 6/2012, ITA.33/2012, ITA.56/2012, ITA.60/2012, ITA.101/2016, ITA.102/2016, ITA.162/2015, ITA.163/2015] Vinod Chandran, J.

¶142

Of the eight appeals coming up for consideration, four are by the Revenue and four by the assessee. Two appeals of the Revenue arise from the block assessment of the assessee for the period 01.04.1987 to 05.09.1997

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and those are I.T.A.Nos. 33/2012 and 56/2012. The

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assessee's appeals from the block assessment are numbered as I.T.A.Nos.101/2016 and 102/2016. Since the notice issued under Section 158BC read with Section 143(3) of the Income Tax Act, 1961 (for brevity “the Act”) was stayed by this Court, the Assessing Officer (for brevity “A.O.”) had completed the assessments for assessment years (for brevity “AY”) 1995-96 and 1996-97 under Section 143(3); lest the limitation set in. Two appeals each by the Revenue and the assessee arise from such regular assessments also. The appeals of the assessee are numbered as I.T.A.Nos.162/2015 and 163/2015. The appeals of the Revenue are numbered as I.T.A.Nos.6/2012 and 60/2012. Common questions arise in

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I.T.A.Nos.6/2012 & connected cases

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the above appeals, since the individual assessments as

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also the block assessments have been completed on the basis of the materials recovered on search.

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On facts, we have to notice that the assessee

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had filed returns for AY 1995-96 on 31.10.1995 and for AY 1996-97 on 30.10.1996. The return for AY 1995-96 was selected for verification under Section 143(2). The assessee though responded to the notice, dragged the

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matter on one pretext or the other. A survey under

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Section 133A of the Act was carried out, at the business premises of the assessee, i.e., at the Head

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Office at Thiruvananthapuram and Branch Offices at Peroorkada and Vattiyoorkavu; on 19.12.1996. The discrepancies and anomalies in the accounts as also the corrupt business practices revealed huge unaccounted

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business and systematic suppression of income. The discrepancies noticed were the following:

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(1) The pledge register in Form-M showed the

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assessee having lend money on the security of gold with interest chargeable at 18% per annum; but, however, interest received was at the rate of 36% per annum. Only 50% of the total interest received on gold loans, ie.,

¶157

I.T.A.Nos.6/2012 & connected cases

¶158

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18% was disclosed in the regular books of accounts.

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(2) The service charges collected at the rate of Rs.3 per loan of Rs.1000 was not accounted for.

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(3) The unaccounted gold loans for amounts in excess of Rs.10,000/- were recorded in a separate register.

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(4) The deposit register did not have the name or address of the depositors.

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(5) Interest being paid to the depositors without deduction of tax at source.

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(6) Fixed Deposit Receipts in benami and bogus names, worth about Rs.30 lakhs, with Lord Krishna Bank and Catholic Syrian Bank were recovered and the survey revealed that all the depositors were introduced by George Varghese, the Managing Partner of the assessee herein.

¶165

The sworn statement of the General Manager under

¶166

Section 131 indicated that the deposit receipts were with the auditor. The auditor who appeared on summons

¶167

denied the same. An audit under Section 142(2A) of the

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Thiruvananthapuram; but the assessee did not

¶169

co-operate. The return for the AY 1996-97 was also

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taken up for scrutiny by issuance of notice under

¶171

I.T.A.Nos.6/2012 & connected cases

¶172

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Section 143(2). At this juncture, the Revenue initiated

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search and seizure proceedings under Section 132 of the Act in the business premises of the assessee as well as the residential premises of the Directors. The search commenced on 19.08.1997 and continued till 05.09.1997. The assessee having challenged the action before this Court, the block assessments were kept pending; but the regular assessment for AY 1995-96 and 1996-97 were completed.

¶175

As to the block assessment, notice under Section

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158BC was issued on 01.12.1997 for the block period from 01.04.1987 to 05.09.1997. No return was filed in response to the notice. The assessment, hence, was completed determining the undisclosed income for the block period at Rs.1634.47 lakhs, vide order dated 03.03.1999. The same was set aside by the CIT under Section 263, since the matter was pending before this Court. Subsequently, after securing permission of this Court by order dated 11.01.2002, the assessment was completed afresh at Rs.1649.55 lakhs, vide order under Section 144 read with Section 158BC(c) dated 26.3.2002.

¶177

I.T.A.Nos.6/2012 & connected cases

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The assessee filed appeals before the

¶180

Commissioner of Income Tax from the regular assessments of AY 1995-96 and AY 1996-97 with delay of 3292 days

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and 1643 days respectively. The first appellate authority, after condoning the delay, adjudicated the assessee's appeals. The block assessment was also appealed by the assessee before the Commissioner of Income Tax. In block assessment, the questions arising were the following:

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“(i)Whether the assessee was liable to be treated as an association of persons as distinguished from a firm ?

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(ii) Whether the huge deposits found in the books of accounts without the details of the depositors could be added as unaccounted credits under Section 68 ?

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(iii)Whether the addition of 18% interset on gold

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loans in addition to the 18% disclosed in the books of accounts was proper?

¶186

On the question of Association of Persons, the

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Commissioner of Appeals found on the evidence recorded by the A.O. that there is no ground for treating the

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assessee as a firm. The assessee had not produced any

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registration as a partnership firm and in such

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I.T.A.Nos.6/2012 & connected cases

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circumstances, the evidence and findings of the A.O.

¶193

were affirmed. The assessee was in appeal before the Tribunal on that question. The issue of addition of cash credits as unexplained credits were remanded by the first appellate authority on the ground that there was an insolvency petition filed by the assessee before the Sub Court, Thiruvananthapuram, wherein there was a list of creditors given, which was adjudicated upon and approved by the Civil Court and, hence, the said creditors are to be taken as genuine. To that extent, the first appellate authority directed the A.O. to delete the addition made as unexplained cash credit. On the question of addition of 36% of interest actually received in the gold loans, 18% was deleted and the A.O. was directed to accept the interest as disclosed from the books of accounts. The first appellate authority, on an interim application filed later, modified its earlier order directing the A.O. to allow credit with respect to any subsequent list produced, which stands approved by the Civil Court subsequent to

¶194

I.T.A.Nos.6/2012 & connected cases

¶195

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the order or in future. The Department filed appeal from these findings to the Tribunal.

¶197

The Tribunal by a common order found the status

¶198

of the assessee as has been found by the lower authorities to be one of Association of Persons. The grounds raised by the assessee with respect to the

¶199

preliminary list of creditors as issued by the

¶200

Insolvency Court on 30.08.2006 for a total amount of

¶201

Rs.1125.54 lakhs and seven more depositors for a total of Rs.7.55 lakhs, not included in the list; were both considered together as one issue. In this context, the

¶202

Tribunal also noticed that the first appellate

¶203

authority had specifically directed any subsequent list approved by the Civil Court to be given effect to by

¶204

the A.O. Though such direction was there, the

¶205

subsequent list was not taken into account, was the contention urged by the assessee before the Tribunal in

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its cross-objection. The Tribunal found that the

¶207

preliminary list of creditors as approved by the civil court cannot be taken without further evidence of the genuineness of the claims made by the depositors. It

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I.T.A.Nos.6/2012 & connected cases

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was found that the Adjudicating Authority under the Act

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is not bound by the order passed by the Civil Court in an Insolvency Petition and the A.O. would have to be convinced of the genuineness of the parties by sufficient evidence adduced before the A.O. The remand order of the C.I.T. (Appeals), though confirmed, specific directions were issued by the Tribunal as to how the preliminary list of creditors and any subsequent list as approved by the Civil Court are to be taken into account. With respect to the addition made of 18% towards the interest received on the gold

¶212

loans not disclosed in the books of accounts, the Tribunal based on various evidences before the A.O., held that the Revenue's case would stand un-impeached. The dis-allowance of interest on deposits were also found to be monies diverted and withdrawn from the business by the partners, in proof of which substantial evidences, direct as well as corroborative, were found

¶213

during the search. These evidences, according to the Tribunal, stood un-controverted. Even then, the said

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issues were restored to the files of the first

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I.T.A.Nos.6/2012 & connected cases

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appellate authority, since there was an absence of a speaking order by the first appellate authority.

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The following questions, as reframed by us,

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arise insofar as the block assessments are considered in the assessee's appeal:

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i) Whether the Tribunal was correct in having affirmed the status of the assessee as Associations of Persons ?

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ii) Ought not the Tribunal have confirmed the deletion of cash credit under Section 68 and held that on facts the list approved by the Civil Court in the Insolvency Petition filed by the assessee adjudicated upon the genuineness of the depositor, especially in the context of the Receiver appointed by the Civil Court having taken possession of the properties and also made the pro-rata distribution of amounts due to such depositors ?

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iii)Ought not the Tribunal have accepted the finding of the first appellate authority that there was absolutely no material to add on 18% of the interest as disclosed in the books of accounts, insofar as the gold loans are concerned ?

¶223

I.T.A.Nos.6/2012 & connected cases

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The Revenue's appeals raise the following

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questions of law, as re-framed by us:-

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i) Ought not the Tribunal have found the deletion of cash credits by the first appellate authority to be erroneous and restored the order of the Assessing Authority ?

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ii) Having found on facts the additional levy of interest at 18% as also the same having been diverted to the partners, ought not the Tribunal have restored the order of the A.O. deleting the direction of the first appellate authority to accept the books of accounts of the assessee ?

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The questions can be considered together, insofar as they arise from the common order of the Tribunal and refer almost to the very same

¶230

transactions, which were the subject of the assessment in the block period.

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On the question of the status of the assessee, the A.O. found on the basis of the materials recovered

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on search that there was existence of multiple entities

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but unity of control, inter-locking and inter-lacing of funds, as also the premises in which the various

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I.T.A.Nos.6/2012 & connected cases

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entities function, recording of transactions, etc. The

¶237

decision in Prithvi Insurance Co. v. C.I.T., 63 ITR 632 (SC) was relied upon, specifically finding that the assessee had not refuted the findings of the A.O. at any point. The supporting materials, including documents and the sworn statements of key personnel were found to be compelling satisfactory evidence in support of finding the status of the assessee to be of an Association of Persons. It was found that when the list of 1064 creditors were submitted by the assessee, there was no distinction as to the creditors being of

¶238

one or other of the eight firms of the assessee. The business was run in all the eight premises in the name of “Malayil Bankers”. There was no partnership deed filed, which was duly registered for at least four entities constituted with effect from 01.04.1996. The A.O. had called for the details of the link between the

¶239

said four entities and the four others constituted as a partnership. The assessee had failed to produce any such evidence. The registration as a firm, inclusive of all the entities carrying on business in common,

¶240

I.T.A.Nos.6/2012 & connected cases

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being not established by the assessee, the compelling

¶243

evidence as recovered under the survey and seizure would commend us also to find that the status of the assessee is one of Association of Persons. We do not

¶244

think any question of law arises from the said aspect,

¶245

since the lower authorities had found such status on the strength of the evidence recovered and on the basis

¶246

of facts. We, hence, decline to answer the said question raised in the appeal of the assessee and uphold the order of the Tribunal affirming the finding of the lower authorities.

¶247

The other two questions remaining in the

¶248

assessee's appeals and that raised in the Revenue's appeals are inter-connected. The assessee had sought

¶249

for sustaining the order of the first appellate authority, insofar as deletion of the cash credit under Section 68 and the acceptance of interest on gold loans as per the books of accounts. The Revenue insists that

¶250

the said directions are not sustainable and also

¶251

further impugn the Tribunal's order remanding the said issues to the A.O.

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I.T.A.Nos.6/2012 & connected cases

¶253

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We see that the assessee has produced the order

¶255

of the Civil Court in I.A.No.2967/2016 in I.T.A.No.162/2015. The assessee had relied on the preliminary list of creditors produced as Annexure D before this Court. It indicates that various amounts were claimed by almost 1064 persons. In this context, it has to be noticed that the insolvency petition is filed by the assessee before the Civil Court, pointing out the assets owned by the assessee and also the creditors of the assessee. The prayer is, insofar as the amounts due to the creditors far exceeding the value of the assets held by the assessee, which is the ground on which declaration of insolvency is sought for. The Civil Court then would take out necessary publication and the further claims filed before the Civil Court are also taken on record. A Receiver is appointed and the assets of the assessee are taken possession of. Pursuant to which, after adjudicating the claims, there is a pro-rata distribution made from

¶256

the assets of the assessee. The question here, however, is as to whether the Income Tax authorities

¶257

I.T.A.Nos.6/2012 & connected cases

¶258

¶259

are bound by the finding of the Civil Court as to

¶260

amounts being due to various respondents as arrayed in an insolvency proceeding.

¶261

We have to first observe that in an insolvency

¶262

proceeding when the petitioner itself array the respondents as creditors, there need be no further adjudication on the same, since the assessee admits

¶263

such debts to the said persons. There could also be

¶264

circumstances of the assessee in the insolvency proceedings making claims through others for which substantiating documents also could be proffered

¶265

subsequently. As far as the assessment for income tax purposes are concerned, it should relate back to the date of search and the materials recovered at the point of search. The assessee too had to explain the various discrepancies found and produce materials to support the explanation offered. Having not produced any such materials at the time of search or when a notice was issued for filing of returns, the assessee cannot later

¶266

at the appellate stage, rely on a Civil Court proceeding, that too, in an insolvency petition and

¶267

I.T.A.Nos.6/2012 & connected cases

¶268

¶269

assert that the creditors shown therein were the real depositors with the assessee.

¶270

We find that the preliminary list of creditors in the insolvency proceeding does not at all commend to us, as a substantiating material to interfere with the assessment proceedings. We also notice the order of

¶271

the District Court in appeal, wherein it is

¶272

specifically indicated that there was a scheme of

¶273

composition filed and approved by the Civil Court. The order of adjudication of the trial court also stood

¶274

annulled in terms of Sections 38 and 40 of the

¶275

Insolvency Act. Hence, what has been done by the assessee is to file a scheme of composition and effect pro-rata distribution of its assets to those respondents included in the scheme of composition.

¶276

This cannot lead to any interference of the assessment order under the income tax act. The assessee, at the

¶277

time of search nor later after issuance of notice

¶278

produced any substantiating materials as to the genuineness of the depositors.

¶279

I.T.A.Nos.6/2012 & connected cases

¶280

¶281

We herewith extract the order of the C.I.T.(Appeals),

¶282

which was extracted by the Tribunal also, as follows:

¶283

“I therefore hold that the list of depositors approved by the Civil Court has to be taken as genuine and there is no reason to conclude otherwise, especially without any enquiry. The addition of the deposits as unexplained cash credits is not correct as it is made without any enquiry and is deleted.”

¶284

This is the operative portion of the order, which was held to be non-speaking by the Tribunal. We agree with the Tribunal, but when the Tribunal is also a fact

¶285

finding authority it was appropriate that the Tribunal itself examine the facts. In fact the Tribunal did so;

¶286

which findings we find, are against the assessee. Despite that the Tribunal remanded the issue, which was improper. After clearly finding that the civil proceedings would not regulate the assessment under the

¶287

I.T. Act,, there was no ground for modifying the order

¶288

of the C.I.T.(Appeals) directing the A.O. to examine the genuineness of the creditors. We find that the preliminary list of creditors as approved by the Civil Court in the insolvency proceedings, is not sufficient material to upset the additions made in an assessment under the I.T. Act.

¶289

I.T.A.Nos.6/2012 & connected cases

¶290

¶291

It is further to be noticed that the Tribunal

¶292

itself found that the General Manager, Alex Kurian and the Managing Partner, George Varghese admitted in their sworn statement under Section 132(4) that all the names of the depositors as entered in the registers are not real and that whenever there was a shortage of funds, deposits in the names of partners or other bogus names were entered. The managerial personnel admitted to have destroyed the copies of the original deposits bearing the signatures of the depositors. The assessee also had a contention that the deposit forms where with the auditor, which was specifically denied by the auditor, who was summoned. We agree with the Tribunal that the Civil Court proceedings in the insolvency petition would have no bearing on the assessment proceedings. Even then, the Tribunal had made a remand insofar as permitting the assessee to produce additional evidence. We do not think a remand was proper, especially looking

¶293

at the facts as found by the Tribunal and the delay occasioned in filing the statutory appeals.

¶294

I.T.A.Nos.6/2012 & connected cases

¶295

¶296

We noticed that the appeals before the first

¶297

appellate authority were itself delayed and now we are considering the block period 1988-89 and 1997-98 in the year 2018. The appeals by the assessee before this

¶298

Court were also delayed, having been filed and

¶299

returned; after which representation was made with delay respectively of 1676 and 1683 days. Having

¶300

found the list of creditors in the insolvency petition to have no bearing insofar the assessment proceedings under the I.T.Act, we are of the opinion that the remand order is erroneous. The insolvency proceeding

¶301

eventually was concluded with a composition scheme. We

¶302

also have found that the Tribunal itself on the basis of the facts found the deletion of the cash credits by the first appellate authority to be bad. In such

¶303

circumstances, we answer the questions raised herein above both in the appeals of the assessee and the

¶304

Revenue in favour of the Revenue and against the

¶305

assessee. We restore the assessment order with respect to the addition of cash credits under Section 68.

¶306

I.T.A.Nos.6/2012 & connected cases

¶307

¶308

On the question of interest on gold deposits as

¶309

also the expenditure by way of interest on deposits, we find the Tribunal having affirmed the order of the A.O. on facts and evidences, which were before the A.O. as revealed from the survey and seizure. As in the earlier issue, we feel that the Tribunal ought not have remanded the issue, especially having found compelling evidence to

¶310

substantiate such additions made. The Tribunal had noticed that the Cashier sitting at the counter was writing down the accounted and unaccounted portions of the interest, one in the register and other on a piece of paper, which was impounded. The paper recovered from the business premises, indicated additional interest having been received at the rate of 18% per annum, which was in addition to the interest income recorded in the registers maintained, as revealed from the regular books of accounts. The said finding was also established by the Department through a decoy, an Inspector, who availed

¶311

a small loan from the assessee and closed it. The assessee received from the said decoy also 36% interest; 18% of which alone was revealed in the books of accounts.

¶312

I.T.A.Nos.6/2012 & connected cases

¶313

¶314

The further evidences were also noticed by the

¶315

Tribunal. T.G.Alexander, Branch Manager, Peroorkada in his sworn statement dated 19.08.1999 during the search proceedings, admitted the charge of interest at the rate of 36% per annum and accounting having been carried out only at the rate of 18% per annum. The said deponent also admitted to collecting service charge at the rate of Rs.3/- per Rs.1000/- of a loan. The excess cash in hand found in survey was admitted to be unaccounted interest for the day, ie., 19.12.1996. The Branch Cashier at Peroorkada and the Branch Manager

¶316

of Vattiyoorkavu also confirmed the statements of T.G.Alexander. Alex Kurian, General Manager confirmed the same as per his statement under Section 132(4) on being confronted with the seized materials. The interest accounted of 18% per annum while retained at

¶317

the branch where it was collected, the excess unaccounted amounts were transmitted to the Head Office on a periodic basis, entering it separately in a daily sheet with the heading 'Malayil'. The seized materials from the residence of T.G.Alexander also indicated

¶318

I.T.A.Nos.6/2012 & connected cases

¶319

¶320

charge of interest at 36% per annum. The seized

¶321

materials also indicated that the gold loans for higher amounts, ie., in excess of Rs.10,000/-, were being recorded separately.

¶322

On the question of dis-allowance of interest on deposits also, the Tribunal found it to be amounts diverted and withdrawn by the partners of the business, for which there was direct and corroborative evidence.

¶323

The Tribunal clearly held that the finding of the C.I.T.(Appeals) that the accounts are to be treated as genuine was erroneous. The C.I.T. (Appeals), according to the Tribunal, was labouring under an impression that

¶324

what was to be examined was only a question of law; while the facts were totally ignored as reflected from the materials available before the A.O. by way of the sworn statements and other documents. The books of accounts failed to stand the test of verification, especially with reference to the direct and indirect evidence in the possession of the Revenue in respect of

¶325

the business/financial transactions of the assessee.

¶326

The business expenditure whatever there be, stood

¶327

I.T.A.Nos.6/2012 & connected cases

¶328

¶329

already claimed and allowed in the regular assessments

¶330

and hence there could be no further claim of

¶331

expenditure by way of interest paid on deposits. True, the Tribunal found that the C.I.T.'s (Appeal) order was not speaking. However, when the Tribunal had gone into the evidences, as revealed from the survey and search, which it was competent to do, as the last fact finding authority, we are of the opinion that there was no warrant for a further remand to the A.O.

¶332

The C.I.T.(Appeals) having found the books of accounts to be genuine without any discussion thereon,

¶333

the order has to be set aside. However, the Tribunal having looked into the facts and found the books of accounts to be not worthy of acceptance, especially in the context of the compelling evidences available by way of materials recovered in survey and search, there

¶334

was no question of any further consideration by the A.O. We hence answer the said questions raised both in

¶335

the cases of the Revenue and that of the assessee in

¶336

favour of the assessee and against the Revenue. We,

¶337

I.T.A.Nos.6/2012 & connected cases

¶338

¶339

hence, allow I.T.A.Nos.101/2016 and 102/2016 and reject I.T.A.Nos.33/2012 and 56/2012.

¶340

As to the regular assessments, the question of law, insofar as the assessee is concerned, other than that already answered in the appeals from the block assessment, is only with respect to the additions having been already made in the block assessment. The said question of law is as follows:

¶341

“(i) Should not the Appellate Tribunal have found and held that in the light of the Block Assessment for the period 1-4-1987 to 5-9-1997, separate additions made in the assessment for 1995-96 & 1996-97 covered by the Block Assessment period is not legal or valid and should have accepted the order of the First Appellate Authority ?”

¶342

As far as the Revenue is concerned, they are aggrieved

¶343

with the remand made of the various issues, the questions arising in which appeals have now been answered by us in favour of the Revenue.

¶344

The question raised by the assessee is as to

¶345

the income assessed in the block period having also

¶346

been assessed in the two years where regular assessment

¶347

I.T.A.Nos.6/2012 & connected cases

¶348

¶349

was also taken up. There is no such duplication of assessment, as can be seen from the order of the A.O. We need only refer to the computation in the assessment order for the various years as available in the block

¶350

assessment. The additions made in each of the assessment years of the block period is seen from the last page of the assessment order (Annexure C in I.T.A.No.102/2016). In page 33, after having computed

¶351

the various additions, that assessed in regular assessment for the years 1995-96 and 1996-97 coming to a total of Rs.51,48,230/- has been reduced in the block

¶352

asessement. We, hence find the question raised of duplication, in the appeals of the assessee, not

¶353

arising at all. As to the question raised by the Revenue on the sustainability of remand, we have

¶354

already considered the same in the block assessment and found the remand to be unjustified. We hence restore the orders of the A.O.

¶355

We also notice that the issue of fixed deposit receipts found in the two banks, in bogus names was also telescoped and the A.O. in the subject assessment

¶356

I.T.A.Nos.6/2012 & connected cases

¶357

¶358

years had made addition only to the extent of Rs.27.22

¶359

lakhs. This is not liable to be interfered with. Hence, we restore the regular assessments made against the assessee for the years 1995-96 and 1996-97 finding the deletion of the various additions and the direction to accept the books of accounts as genuine, made by the C.I.T.(Appeals), to be erroneous and the remand order

¶360

made by the Tribunal, to the A.O. and the C.I.T. (Appeals) to be not justified in the light of the facts having been elaborately gone into by the Tribunal and the assessments found to be valid in law. The

¶361

appeals of the assessee, I.T.A.Nos.162/2015 and 163/2015 would stand dismissed. The Revenue's appeals, I.T.A.Nos.6/2012 & 60/2012 would stand allowed. The

¶362

parties will suffer their respective costs in all the appeals.

¶363

Sd/-

¶364

K.VINOD CHANDRAN JUDGE Sd/-

¶365

ASHOK MENON JUDGE

¶366

dkr

¶367

I.T.A.Nos.6/2012 & connected cases

¶368

¶369

APPENDIX OF ITA 6/2012

¶370

APPELLANT'S/S ANNEXURES:

¶371

ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER 143(3) DATED 5/2/1998

¶372

ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 12/2/2008. ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 29/7/2011.

¶373

APPENDIX OF ITA 33/2012

¶374

APPELLANT'S/S ANNEXURES:

¶375

ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER 144 R.W.S. 158BC DATED 26/3/2002.

¶376

ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27/11/2006.

¶377

ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 29/7/2011.

¶378

APPENDIX OF ITA 56/2012

¶379

APPELLANT'S/S ANNEXURES:

¶380

ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER 144 R.W.S. 158BC DATED 26/3/2002. ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 27/11/2006. ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 29/7/2011.

¶381

I.T.A.Nos.6/2012 & connected cases

¶382

¶383

APPENDIX OF ITA 60/2012

¶384

APPELLANT'S/S ANNEXURES:

¶385

ANNEXURE-A TRUE COPY OF THE ORDER OF THE ASSESSING OFFICER 143(3) DATED 14/01/1999. ANNEXURE-B TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 12/02/2008. ANNEXURE-C TRUE COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL DATED 29/07/2011.

¶386

APPENDIX OF ITA 101/2016

¶387

APPELLANT'S/S ANNEXURES:

¶388

ANNEXURE-A TRUE COPY OF ASSESSMENT ORDER DATED 12/02/2008 ISSUED U/S.143(3) FOR THE ASSESSMENT YEAR 1995-96 PASSED BY THE ASSESSING OFFICER. ANNEXURE-B TRUE COPY OF ASSESSMENT ORDER DATED 14.01.1999 ISSUED U/S 143(3) FOR THE ASSESSMENT YEAR 1996-97 PASSED BY THE ASSESSING OFFICER. ANNEXURE-C TRUE COPY OF ASSESSMENT ORDER DATED 26/03/2002 FOR THE BLOCK PERIOD 01/04/1987 TO 05/09/1997 PASSED BY THE ASSESSING OFFICER. ANNEXURE-D TRUE COPY OF THE ORDER OF COMMISSIONER OF INCOME TAX (APPEAL) IN IT 127/T/06-07 DATED 27/11/2006. ANNEXURE-E TRUE COPY OF THE APPELLATE TRIBUNAL'S ORDER DATED 29/07/2011 IN IT (SS) A NO.5/COCH/07.

¶389

I.T.A.Nos.6/2012 & connected cases

¶390

¶391

APPENDIX OF ITA 102/2016

¶392

APPELLANT'S/S AN	NEXURES:
ANNEXURE-A	TRUE COPY OF	ASSESSMENT ORDER DATED
	5/2/1998 ISSUED ASSESSMENT YEAR ASSESSING OFFICER.	U/S. 143(3) FOR THE 1995-96 PASSED BY THE
ANNEXURE-B	TRUE COPY OF	ASSESSMENT ORDER DATED
	14/1/1999 ISSUE ASSESSMENT YEAR ASSESSING OFFICER.	D U/S.143(3) FOR THE 1996-97 PASSED BY THE
ANNEXURE-C	TRUE COPY OF 26/3/2002 FOR THE 5/9/1997 PASSED BY	ASSESSMENT ORDER DATED BLOCK PERIOD 1/4/1987 TO THE ASSESSING OFFICER.
ANNEXURE-D	TRUE COPY OF THE INCOME TAX (APPEA 27/11/2006.	ORDER OF COMMISSIONER OF L) IN IT 127/T/06-07 DATED
ANNEXURE-E	TRUE COPY OF THE DATED 29/7/2011 20/COCH/07/, 53/C 99/COCH/08.	APPELLATE TRIBUNAL'S ORDER IN IT (SS) A NO. OCH/2008 AND CO NO.98 AND

¶393

APPENDIX OF ITA 162/2015

¶394

APPELLANT'S/S ANNEXURES:

¶395

ANNEXURE-A	TRUE COPY	OF ASSESSMENT ORDER DATED
	12/02/2008 ASSESSMENT ASSESSING O	ISSUED U/S. 143(3) FOR THE YEAR 1995-96 PASSED BY THE FFICER.
ANNEXURE-B	TRUE COPY NO.245-T/06 THE CIT (A)	OF THE APPELLATE ORDER IN ITA -07 DATED 12/02/2008 PASSED BY I, TRIVANDRUM.
ANNEXURE-C	TRUE COPY NO.758/COCH AND CONNECT	OF THE COMMON ORDER IN ITA /2008 AND C.O. NO. 96/COCH/2008 ED CASES DATED 29/07/2011.

¶396

I.T.A.Nos.6/2012 & connected cases

¶397

¶398

ANNEXURE-D	TRUE COPY	OF P	RELIM	INARY LIST OF CREDITORS
	OF OP (I ADDITIONAL ON 14/08/2 DISTRICT C	P) SUB 006 OURT	2/98, COURT FILED , THIR	ON THE FILE OF 1ST , THIRUVANANTHAPURAM AS BEFORE THE 1ST ADDL. UVANANTHAPURAM.
ANNEXURE-E	TRUE COPY	OF	ADDITI	ONAL LIST OF CREDITORS
	OF OP (I ADDITIONAL ON 09/04/2 DISTRICT C	P) SUB 007 OURT	2/98 COURT FILED , THIR	ON THE FILE OF 1ST , THIRUVANANTHAPURAM AS BEFORE THE 1ST ADDL. UVANANTHAPURAM.
ANNEXURE-F	TRUE COPY NO.2619/20	OF 07 I	ORDER N AS	DATED 09/10/2007 IN IA NO.60/2003 OF THE 1ST
	ADDL. DIS	TRIC	T JUD	GE, THIRUVANANTHAPURAM
	ALONG WITH RECEIVER.	RE	PORT	FILED BY THE OFFICIAL
ANNEXURE-G	TRUE COPY NO.60/2003 JUDGE, THI	OF OF RUVA	ORDER THE 1 NANTHA	DATED 07/03/2008 IN AS ST ADDITIONAL DISTRICT PURAM.

¶399

APPENDIX OF ITA 163/2015

¶400

APPELLANT'S/S ANNEXURES:

¶401

ANNEXURE-A	TRUE COPY	OF	ASSESSMENT ORDER DATED
	14/01/1999 ASSESSMENT ASSESSING O	ISS YEA FFIC	UED U/S. 143(3) FOR THE R 1996-97 PASSED BY THE ER.
ANNEXURE-B	TRUE COPY NO.244-T/06 THE CIT (A)	OF -07 I,	THE APPELLATE ORDER IN ITA DATED 12/02/2008 PASSED BY TRIVANDRUM.
ANNEXURE-C	TRUE COPY NO.758/COCH CONNECTED C	OF /200 ASES	THE COMMON ORDER IN ITA 8 AND CO NO.96/COCH/2008 AND DATED 29/07/2011.

M/S. Malayil Bankers v. Commissioner of Income Tax, Kowdiyar

Case brief

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What did the court decide?

M/S. Malayil Bankers v. Commissioner of Income Tax, Kowdiyar

Case brief

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What the court decided

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