Held the questions of law were not answerable due to a discrepancy in figures regarding interest credited in the P&L account versus interest receivable collected by the Company, requiring factual verification.
Refused to answer questions of law; remanded matter for verification of figures in P&L Account against certificate.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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 APPELLATE TRIBUNAL, COCHIN BENCH DATED 27.04.2012
APPELLANT/RESPONDENT/ASSESSEE:
M/S.MUTHOOT BANKERS & FINANCIERS MUTHOOT BUILDINGS, PUNNEN ROAD, THIRUVANANTHAPURAM REPRESENTED BY SHRI.THOMAS JOHN, PARTNER.
BY ADVS. SRI.T.M.SREEDHARAN (SR.) SMT.BOBY M.SEKHAR SRI.V.P.NARAYANAN
RESPONDENT/APPELLANT/REVENUE:
THE COMMISSIONER OF INCOME TAX AYYAKKAR BHAVAN, THIRUVANANTHAPURAM - 695001.
BY ADVS. SRI.JOSE JOSEPH, SC, FOR INCOME TAX SRI.P.K.R.MENON,SR.COUNSEL, G.O.I [TAXES]
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
2
JUDGMENT
K. Vinod Chandran, J.
In the income-tax appeal, another Division Bench raised the following questions of law by order dated 05.11.2013:
“1) Whether the Appellate Tribunal is justified and right in law in restoring the addition of Rs.66,09,167/being the balance in the interest receivable in the gold loan account as the income for the Assessment Year 200506 on cash system of accounting?
2) Is the Appellate Tribunal's finding and conclusions that there was “constructive receipts” of the interest amount on the date of the agreement Annexure-B, legal, is valid and sustainable, when the interest receivable account is subject to actual realization and governed by other clauses of agreement?
3) Should not the Appellate Tribunal have found that in the cash system of accounting followed by the appellant
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3
interest became taxable only on actual receipt basis and not on the basis of the so called constructive receipt basis and is not the contrary finding taken by the Appellate Tribunal, erroneous and legally unsustainable?
4) Is not the finding of the Appellate Tribunal that interest receivable account became an interest received account on the date of the agreement contrary to the conditions of the agreement and the system of accounting followed by the appellant?
5) Is the finding of the Appellate Tribunal disputed herein legally valid and sustainable on the facts and in law?”
2. All the questions of law concern one single credit made by the Assessing Officer of an amount of Rs.66,09,167/-. There were other additions made by the Assessing Officer, which were interfered with by the First Appellate Authority. The Tribunal also confirmed such order of the First Appellate Authority. The
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4
interference by the Tribunal in an appeal filed by the Revenue was only with respect to the interest receivable of Rs.66,09,167/-.
3. The assessment completed was for the year 2005-2006, when the assessee firm had been taken over by a Company, M/s.Muthoot Fincorp Ltd. The take over was on consideration paid to
the firm. We are only concerned with the interest accrued in the loans granted by the assessee firm, which is said to have been taken over by the Company along with the assets and
liabilities of the assessee firm. The assessee's contention was that the assessee had been following the cash system of accounting and for reason of the interest having not been received, the assessee was not liable to show it as income. However, the Tribunal found that the moment, the buyer agreed to compensate the
assessee for the interest accrued in the loan accounts; up to the date of transfer, there is
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5
constructive receipt of the interest by the assessee, even in cash system of accounting. The addition to income made by the Assessing Officer was upheld, reversing the order of the First Appellate Authority. We agree with the reasoning of the Tribunal but the assessee points out a further fact, by way of additional documents.
4. The assessee produced the additional documents as Annexure-E to Annexure-G along with an affidavit dated 03.01.2019. The Profit
& Loss Account for the year ended 31.03.2005 is produced as Annexure-E. There is a credit shown of interest on gold loans at Rs.65,95,681.19. This is shown as interest received on gold loans. The assessee submits that the loss computed in the P&L account of the subject year was after crediting such interest. This is the interest income, now made addition of, is the argument.
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5. At the outset, we have to notice that the figures do not tally, because the addition
made by the Assessing Officer is Rs.66,09,167/-. Further, we also notice a Certificate produced by the Chattered
Accountant as seen at Annexure-F. Therein it is stated that Rs.65,95,681.19 has been offered as interest receivable on gold loan in the account of the assessee firm for the year ending 31.03.2005. It is also stated that this amount represents interest collected by the Company on take over of the business of the firm. Further, it is stated that the Company had taken over from the firm an amount of Rs.66,09,167/- as interest receivable, which was later collected and handed over to the firm by the Company. Hence the duplication is not in the Assessing Officer having made the addition, but in the Company having received the payments in the course of the year in addition to the consideration. We have our own doubts about the
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7
interest credited to the P&L account and the interest receivable, collected and handed over to the firm by the Company; whether they are one and the same. This is essentially a question of fact and the assessing officer will examine whether there was a duplication in so far as the addition made. We hence refuse to answer the questions of law for reason of there existing a warrant for further examination of
the figures as revealed from the P&L Account. We remand the matter for verification of this single aspect.
Sd/-
K.VINOD CHANDRAN
JUDGE
Sd/-
ASHOK MENON
JUDGE
//True Copy//
P.A. To Judge
sp/19.01.19
ITA. No.196 of 2012
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APPENDIX
PETITIONER'S EXHIBITS:
| 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. |
|---|---|
| ANNEXURE-B | TRUE COPY OF THE AGREEMENT DATED 01/04/2004 EXECUTED BETWEEN THE APPELLANT AND M/S.MUTHOOT FINCORP LTD. |
| ANNEXURE-C | TRUE 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. |
| ANNEXURE-D | ORIGINAL ORDER OF THE APPELLATE TRIBUNAL IN I.T.A. NO.788/COCH/2008 DATED 27/04/2012. |
| ANNEXURE-E | TRUE COPY OF THE PROFIT AND LOSS ACCOUNT AND BALANCE SHEET FOR THE YEAR ENDED 31/03/2005. |
| ANNEXURE-F | TRUE COPY OF THE CERTIFICATE ISSUED BY RANGAMANI AND CO., CHARTERED ACCOUNTANTS, DATED 19/11/2013. |
| ANNEXURE-G | COPY OF STATEMENT OF TOTAL INCOME FOR THE ASSESSMENT YEAR 2005-2006. |
1 issue framed by the court
Whether figures in the Profit & Loss Account and charted accountant certificate tally regarding interest credited and collected by the Company.
M/S.MUTHOOT BANKERS & FINANCIERS
THE COMMISSIONER OF INCOME TAX
K VINOD CHANDRAN
ASHOK MENON
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
