9911796707
TMI Blog1995 (2) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... . K.P. Natarajan Kuttipurathu Thumpoli . . . . . . Alleppey 1,900 1-3-90 13-3-90 13 47.50 30% M. Naushad, XI/414, Chokalinapuram,Vellakinar No . . . . . . Alleppey 950 17-7-89 13-3-90 250 190.00 30% C.K. Thankappan,, Kadathusseri,, Vattayal Ward . . . . . . Alleppey 1,050 2.3.90 13.3.90 12 15.75 18% Edwen Fernandez,, Phyloda Mansion,, Convent Square . . . . . . Alleppey 1,800 29.12.89 13.3.90 75 67.50 18% A. Abdul Wahab,, Wahab Manzil,, Lajanath Ward . . . . . . Alleppey 750 8.3.90 13.3.90 6 18.75 30% According to their statements, they have paid @ 2.50 per Rs. 100, per month. This worked out to 30% per annum. Therefore, the Assessing Officer took the rate of interest @ 30% on all loans and made an addition of Rs. 1,94,217 for the asst. yr. 1990-91. Though similar enquiries were not made for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the extra interest collected and the Assessing Officer has gracefully accepted the explanation of the assessee in this regard. Thus, the assessee has been adopting a subterfuge to overcome the provisions of Kerala Money Lenders Act. The pronotes and other records obtained from the borrowers will only reveal 18% though the assessee was in fact collecting more than 18%. Therefore, it cannot be said that the assessee has evidence to show that it has not collected more than 18% at the minimum and 24% at the maximum. Enquiries revealed that the assessee was collecting more than 24%, nearly @ 30% p.a. In the circumstances, the addition was justified. Taking notice of the fact that only a few persons have been examined, the learned CIT(A) has given 50% relief and, therefore, there was no need to give further relief. He further submitted that the assessee belongs to a big group in moneylending business. The sister concerns in the same group have settled for 27% p.a. Hence, no interference is called for. 5. Having regard to rival submissions, we modify the orders of the CIT(A). The assessee was collecting interest @ 24% p.a. though it was accounting for 18% in the interest account, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. For the asst. yrs. 1989-90 and 1991-92, similar enquiries have not been made. The small loans given during the financial year 1989-90 relevant to the asst. yr. 1990-91 were closed before the end of the financial year itself and there is no material that similar loans were given to the same parties as other parties on similar lines in the financial year 1990-91 relevant to the asst. yr. 1991-92. Still addition was made and sustained in half. In our considered opinion, in the absence of any independent material on record, it cannot be assumed that the assessee has been charging more than what it has shown in its books. The argument of the learned Departmental Representative is that the sister concerns have admitted 27% and, therefore, there is nothing wrong in the order of the CIT(A) in having adopted 27% rate of interest p.a. in the case of the assessee also. This argument will be valid only if the conditions are shown to be similar to each other. There is no material before us to support this contention. While sister concerns have settled for 27% rate of interest, the assessee is objecting to such percentage and this objection of the assessee cannot be lost sight of. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum of Rs. 10,60,000 was in fact made in cash. 30th March was the last working day of the accounting year of the bank, as 31st of March being a Sunday and on the last working day of the year banks do not transact business. Therefore, the payment was justified in cash under the exceptional circumstances coming under r. 6DD(j) of the IT Rules. Further Miss. Anna Thomas did not have a bank account and, therefore, payment was necessitated in cash. 11. Shri Srinivasan further submitted that the sum of Rs. 10,60,000 was paid in different sums on the same day. The recipient is the minor daughter of the partner of the firm. The partner took the interest in instalments and re-deposited each instalment with the firm. There is nothing wrong for the father and the natural guardian of a minor daughter in receiving the interest amount and in re-depositing the same with the firm. As the withdrawal and deposit have taken place on the same day, the authorities were under the impression that no money flowed either way and the entries evidencing the transaction are mere journal entries. Such a conclusion is not justified because there is nothing in law preventing a person from receiving the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest to Miss Anna Thomas and re-depositing of such interest in her loan account as mentioned in para 7. On this basis, the Revenue contends that the payments and deposits are evidenced only by book entries and there was no physical movement of cash from and to the assessee. Further, it is contended that since the assessee was maintaining cash system of accounting, it cannot claim the interest payment on mercantile system of accounting. We do not accept this contention. In Morvi Industries Ltd. vs. CIT 1974 CTR (SC) 149 : (1971) 82 ITR 835 (SC), Supreme Court had an occasion to deal with the system of accounting and it was explained as follows: "The mercantile system of accounting differs substantially from the cash system of book-keeping. Under the cash system, it is only actual cash receipts and actual cash payments which are recorded as credits and debits; whereas, under the mercantile system, credit entries are made in respect of amounts due immediately they become legally due and before they are actually received. Similarly, the expenditure items for which legal liability has been incurred are immediately debited even before the amounts in question are actually disbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gate of the cash balance in a sum of Rs. 5,89,283.56 together with the outgoing in respect of other persons or parties effected during the day and the closing balance as at the end of the day are taken into account, the assessee could not have made the payment of interest in a sum of Rs. 10,60,000 but the assessee could have made only effected the payment in an extent of Rs. 4,28,948.20. In order to avert such a contingency, the assessee has paid the amounts in instalments and the partner acting on behalf of the minor daughter has received the amounts in instalments. The amounts thus received were re-deposited then and there, thus enabling the assessee to make the payment of interest of Rs. 10,60,000. To make payments of interest in instalments keeping an eye on the cash balance and to receive back the interest as deposit in the loan account are not prohibited transactions in the commercial parlance. It only represents efficient cash management, making larger turnover of existing cash resources. It cannot be considered as a tax avoidance scheme because the interest received by the minor daughter has been admitted in her return of income, and the interest payment was for the use of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
