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TMI Blog2014 (2) TMI 514X X X X Extracts X X X X X X X X Extracts X X X X ..... – Decided in favour of Assessee. Addition of proportionate interest and diversion of interest bearing funds – Held that:- The assessee clearly demonstrated before the CIT(A) that sufficient interest free / own funds were available for making advance to relatives and investment in shares - The assessee has also filed copies of the statement of accounts in respect of respective years to explain the availability of non interest bearing funds - when the assessee had sufficient non interest bearing funds, advances made from and out of the non interest bearing funds cannot be a reason to disallow interest on the borrowed funds – Relying uponMunjal Sales Corporation Versus Commissioner of Income Tax [2008 (2) TMI 19 - Supreme Court] - when the assessee has sufficient own funds and profit, it cannot be said that the borrowed funds were diverted – thus, the CIT(A) has rightly deleted the addition - From the orders of the CIT(A) and the materials filed by the assessee before this Tribunal, it is obvious that non interest bearing funds were available with the assessee – Decided against Revenue. Addition towards unexplained investment in construction – CIT(A) deleted the addition only o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessing officer made addition of Rs.6,29,479 on the ground that the assessee has not furnished any explanation to the proposal. According to the ld.representative, sales-tax paid in excess of sales-tax collected was debited to the profit loss account and the same was claimed as deduction. However, this was rejected by both the authorities below. According to the ld.representative, the CIT(A) confirmed the addition only on the ground that the assessee failed to explain the matter properly before the assessing officer. According to the ld.representative, it is not correct to say that the sales-tax collected was not routed through profit loss account. According to the ld.representative, the sales-tax collected was debited to profit loss account, therefore, the entire amount was claimed as deduction. 5. On the contrary, Shri M Anil Kumar, the ld.DR submitted that the assessee could not explain properly before the assessing officer even though adequate opportunity was given as to how the sales-tax collected and paid was routed through the profit loss account. According to the ld.DR, the assessee claimed an amount of Rs.6,29,479 which was debited in the profit lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incriminating materials were found during the course of search operation which discloses the investment in Quilon Medical Trust. Therefore, according to the ld.DR, the block assessment proceedings have been validly initiated. 9. We have considered the rival submissions on either side and also perused the material available on record. Section 143(2)(ii) clearly says that no notice shall be served on the assessee after expiry of six months from the end of the financial year in which the return was furnished. In this case, the return in the regular course was furnished on 31-10-2005. Therefore, notice u/s 143(2) shall be issued on or before 30-09-2006. In this case, admittedly, no notice was issued u/s 143(2). In fact, the return was processed u/s 143(1) on 08-01-2006 and the income returned was accepted. Therefore, it is obvious that the assessment proceedings for the assessment year 2005-06 came to an end on 08-1-2006 when the intimation was issued or on 30-09-2006 by operation of law. Therefore, the issues concluded by operation of law cannot be reopened in view of the specific provisions contained in Second Proviso to section 153A(1) of the Act. In respect of other issues which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed funds for non business purpose whereas for the assessment year 2008-09 the assessing officer disallowed Rs. 94,48,537 and for the assessment year 2009-10 the disallowance was Rs.68,09,145. According to the ld.DR, in view of the judgment of the Kerala High Court in CIT vs VI Baby Co 254 ITR 248 the claim of the assessee cannot be allowed. Therefore, the CIT(A) is not justified in allowing the claim of the assessee. 13. On the contrary, Shri Iype Mathew, the ld.representative for the assessee submitted that for the assessment year 2003-04 as on 31-03-2003 the assessee had Rs. 49,04,32,057 towards non interest bearing funds. The loan as on 31-03-2003 is only Rs. 2,98,85,592. Therefore, there was interest free funds / own funds is available to the extent of Rs.48,85,62,967 out of which the non business advance and investment was made to the extent of Rs.25,63,550. Therefore, in view of the judgment of the Apex Court in the case of Munjal Sales Corporation vs CIT Anr (2008) 298 ITR 298 (SC) the CIT(A) allowed the claim of the assessee. 14. Similarly, for the assessment year 2004-05 as on 31-03-2004 the assessee had non interest baring funds to the extent of Rs. 48,56,76,288 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Sales Corporation (supra),a the CIT(A) has rightly deleted the addition. 20. We have considered the rival submissions on either side and also perused the material available on record. The assessee clearly demonstrated before the CIT(A) that sufficient interest free / own funds were available for making advance to relatives and investment in shares. The assessee has also filed copies of the statement of accounts in respect of respective years to explain the availability of non interest bearing funds. This Tribunal is of the considered opinion that when the assessee had sufficient non interest bearing funds, advances made from and out of the non interest bearing funds cannot be a reason to disallow interest on the borrowed funds. The Apex Court in the case of Munjal Sales Corporation (supra) found that when the assessee has sufficient own funds and profit, it cannot be said that the borrowed funds were diverted. In view of the judgment of the Apex Court, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition. From the orders of the CIT(A) and the materials filed by the assessee before this Tribunal, it is obvious that non interest bearing fund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the construction of building was made by Quilon Medical Trust which is an independent assessable unit. According to the ld.representative, all incomes of the trust are exempt u/s 10(23C)(vi) of the Act. Therefore, there is no question of any addition in the hands of the present assessee. 27. We have considered the rival submissions on either side and also perused the material available on record. In the case of Quilon Medical Trust, this Tribunal found that the term "any income" referred in section 10(23C) does not include the money collected for admission of the students over and above the prescribed fee. This Tribunal found that the income generated in the course of running of the educational institution, the income generated from the property held under trust and any voluntary donation other than for admission of the students may fall within the term "any income" referred in section 10(23C) of the Act. However, the capitation fee for admission of the students over and above the prescribed fees as explained by the Apex court in the case of T.M.A. Pai Foundation Ors vs State of Karnataka Ors (2002) 8 SCC 481 and Islamic Academic Education vs State of Karnataka (2003) 6 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this amount. However, in the assessment order, the assessing officer made addition on a totally different ground. According to the ld.representative, the so-called professional receipt said to be found in the Quilon Medical Trust premises does not pertain to the transaction made by Smt. Hazeena with the assessee. According to ld.representative, the assessee has furnished the name and address of Smt. Hazeena to the assessing officer. In spite of that no enquiry was made with Smt. Hazeena. Therefore, according to the ld.representative, the assessing officer failed to make basic enquiry even though the complete name and address of Mrs. Hazeena was furnished to the assessing officer. Therefore, according to the ld.representative, the CIT(A) deleted the addition on the basis of the judgment of the Kerala High Court in CIT vs Lakshmi Hospital (2011) 245 CTR 471 (Ker). 31. We have considered the rival submissions on either side and also perused the material available on record. The revenue claims that a receipt voucher was found in the premises of Quilon Medical Trust which discloses receipt of Rs.47,25,000 by the assessee from Smt. Hazeena's QMC account. The assessee, however, denied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. 36. We have considered the rival submissions on either side and also perused the material available on record. Section 143(2)(ii) clearly says that no notice shall be served on the assessee after expiry of six months from the end of the financial year in which the return was furnished. In this case, the return in the regular course was furnished on 31-10-2005. Therefore, notice u/s 143(2) shall be issued on or before 30-09-2006. In this case, admittedly, no notice was issued u/s 143(2). In fact, the return was processed u/s 143(1) on 18-12-2006 and the income returned was accepted. Therefore, it is obvious that the assessment proceedings for the assessment year 2005-06 came to an end on 30-09-2006 by operation of law. Therefore, the issues concluded by operation of law cannot be reopened in view of the specific provisions contained in Second Proviso to section 153A(1) of the Act. In respect of other issues which were not reached finality by operation of law and incriminating materials were found during the course of search operation, the assessing authority is at liberty to make an assessment u/s 153A of the Act. This issue was specifically raised in ground No.5 before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compensation to the buyer. It is also not against public policy. Therefore, the payment of Rs.69,150 cannot be construed to be penal in nature. This Tribunal is of the considered opinion that it is a business expenditure in view of the inferior quality of cashew kernel supplied. Therefore, this has to be allowed as revenue expenditure. Accordingly, the orders of the lower authorities are set aside and the assessing officer is directed to allow deduction for Rs.69,150 as revenue expenditure while giving effect to this order. 40. The appeals of the assessee are partly allowed. 41. Now coming to the departmental appeals in the case of Shri A Abdul Salam, ITA No.97/Coch/.2012 is the appeal for the assessment year 2003-04. The first ground in this appeal is with regard to addition of Rs.10 lakhs towards investment in Kamaliya Medical Institution on 22-07-2002. 42. Shri M Anil Kumar, the ld.DR submitted that as per the seized document MKG-5 (A-29), the assessee was found to have paid an amount of Rs.10 lakhs as loan to Kamaliya Medical Institution on 22-07-2002. In response to a query, the assessee contended before the assessing officer that the payment of Rs.10 lakhs was paid to K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lakhs in Kamalia Medical Institution and another sum of Rs.10,20,000 in the case of Mala Medical Centre Pvt Ltd. It is nobody's case that both the investments, viz. investment in Mala Medical Centre Pvt Ltd and the investment in Kamalia Medical Institution are disclosed in the balance- sheet. Mala Medical Centre Pvt Ltd and Kamalia Medical Institution are different and independent institutions. Therefore, it is not known how the assessee has discharged his obligation in respect of investment made in Kamalia Medical Institution which was run by Imran Rafi Muslim Educational Charitable Trust. This Tribunal is of the considered opinion that the CIT(A) might have misunderstood the investment disclosed in Mala Medical Centre Pvt Ltd as investment made in Kamalia Medical Institution. Therefore, this Tribunal is of the considered opinion that the factual aspect needs to be clarified as to whether there are two investments or only one investment. This Tribunal is of the considered opinion that the assessing officer has to verify the records and thereafter decide the issue in accordance with law. Accordingly, the orders of lower authorities are set aside and the issue of addition of Rs.10 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the judgment of the Apex Court, this Tribunal is of the considered opinion that the CIT(A) has rightly deleted the addition. From the order of the CIT(A) and the materials filed by the assessee before this Tribunal, it is obvious that non interest bearing funds were available with the assessee. Therefore, we do not find any infirmity in the order of the lower authority. Accordingly, the order of the CIT(A) on this issue is confirmed. 49. The next ground of appeal is with regard to addition of Rs.49,100 being unexplained deposits in South Indian Bank on 24-07-2004. 50. Shri M Anil Kumr, the ld.DR submitted that during the year under consideration the assessee has deposited an amount of R.49,100 with South Indian Bank Ltd on 24-07-2004. The assessee explained before the assessing officer that the fixed deposits totalling Rs. 7,77,822 with South Indian Bank was duly accounted in the books of account and the interest accrued therein has also been credited to the profit loss account. However, on verification, the assessing officer found that the deposit of Rs.49,100 made on 24-07-2004 was not reflected. Therefore, in the absence of any further explanation regarding the source of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent of Rs.18,95,701 after adjusting the amount of Rs.11,44,611 remained to be explained. Accordingly, the same was treated as income of the assessee. However, on appeal by the assessee, the CIT(A) found that the assessee has explained the source of investment except an amount of Rs.20,312 made in Canara Bank, Marthandom Branch on 11-05-2005. Accordingly, the CIT(A) restricted the addition to Rs.20,312. According to the ld.DR, the assessee has not furnished any explanation before the assessing officer. 57. On the contrary, Shri Iype Mathew, the ld.representative for the assessee submitted that the assessee has explained the source of entire deposit before the assessing officer. A confirmatory letter was also filed from South Indian Bank. The CIT(A) further found that a deposit of Rs.10,20,000 referred by the assessing officer in the assessment order was, in fact, renewed during the year under consideration on account FBP proceeds. According to the ld.representative, all the fixed deposits were routed through the books of account and the materials were filed before the assessing officer. The fixed deposit was made to the extent of Rs.82,22,133 as shown in the balance-sheet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 828. On appeal, the CIT(A) found that found that the assessee had working capital at Rs.4,14,91,421 whereas the diversion of funds for non business purpose was only to the extent of Rs.2,14,56,662 leaving a clear balance of Rs.2,00,34,759. On the basis of this factual finding the CIT(A) held that the interest free funds for non business purpose given by the assessee was out of the interest bearing funds and therefore relying on the judgment of the Apex Court in the case of Munjal Sales Corporation (supra) he deleted the disallowance. We do not see any reason to interfere with the factual finding recorded by the CIT(A). The order of the CIT(A) on this issue is confirmed. 63. The next ground of appeal pertains to deletion of protective addition of Rs.44,67,631 on account of 1/4th of the total unexplained investment in building construction in the case of M/s Quilon Medical Trust. 64. Shri M Anil Kumar, the ld.DR submitted that the CIT(A) deleted the addition only on the ground that the assessee is entitled for exemption u/s 10(23C)(vi) of the Act. According to the ld.DR, for claiming exemption u/s 10(23C)(vi) the income should be generated in the course of activity or it should b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t find any infirmity in the order of the lower authority. Accordingly the same is confirmed. 67. The last ground of appeal pertains to deletion of addition on account of accrued interest on unexplained deposits amounting to Rs.2,27,800. 68. Shri M Anil Kumar, the ld.DR submitted that as per the seized material it was found that the assessee made deposit with South Indian Bank and Canara Bank. The total interest accrued on the deposit works out to Rs.2,27,800. This accrued interest was not taken as income. According to the ld.DR, the assessee admitted that the accrued interest on the fixed deposit was omitted to be included in the total income. However, the CIT(A) found that there is no material to show that the assessee admitted that the interest was omitted to be included. The CIT(A), therefore, deleted the addition. According to the ld.DR, when the assessee admitted that it was not included due to omission, the CIT(A) is not justified in deleting the addition. 69. On the contrary, Shri Iype Mathew, the ld.representative for the assessee submitted that the assessee never admitted before the assessing officer that the interest was not included due to omission. According to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee was not out of the interest bearing funds and therefore relying on the judgment of the Apex Court in the case of Munjal Sales Corporation (supra) he deleted the disallowance. We do not see any reason to interfere with the factual finding recorded by the CIT(A). Accordingly, the order of the CIT(A) on this issue is confirmed. 73. The next ground of appeal is with regard to addition of Rs. 8,19,37,628 protectively assessed as 1/4th of the total unexplained investment in building construction in the case of M/s Quilon Medical Trust. 74. We heard the ld.DR and the ld.representative for the assessee. This issue has been elaborately discussed in the earlier paragraphs of this order. The substantive addition has been made in the hands of the assessee Quilon Medical Trust and addition in the hands of the present assessee has been made on protective basis. In the case of Quilon Medical Trust, this Tribunal found that the term "any income" referred in section 10(23C) does not include the money collected for admission of the students over and above the prescribed fee. This Tribunal found that the income generated in the course of running of the educational institution, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) found that found that as on 31-03-2009 the assessee had working capital at Rs.8,44,53,041 whereas the diversion of funds for non business purpose was only to the extent of Rs.3,13,81,357 leaving a clear balance of Rs.1,03,861 after debiting bank charges and commission, etc. On the basis of this factual finding the CIT(A) held that the interest free funds for non business purpose given by the assessee was not out of the interest bearing funds and therefore relying on the judgment of the Apex Court in the case of Munjal Sales Corporation (supra) he deleted the disallowance. We do not see any reason to interfere with the factual finding recorded by the CIT(A). Accordingly, the order of the CIT(A) on this issue is confirmed. 77. The next ground of appeal is with regard to addition of Rs.2,27,800 on account of accrued interest on the unexplained deposit. 78. This issue has also been dealt by us while dealing with the appeal for assessment year 2007-08. The case of the assessing officer is that the assessee has admitted before him that due to omission, the accrued interest on deposits remained to be disclosed. The assessee retracts that he has made any such admission before the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The assessee specifically denied the receipt of money from Mrs. Hazeera. In order to facilitate the enquiry and find out the truth, the assessee has furnished the name and address of Mrs. Hazeera. However, the assessing officer failed to conduct any enquiry. According to the ld.representative, when the assessee doubted the so-called receipt voucher and denied the receipt of money, an enquiry ought to have been conducted by the assessing officer. The assessee, at the best, can produce the address of Mrs. Hazeera so as to facilitate the enquiry. Therefore, according to the ld.representative, the assessee has discharged his obligation., as has been found by the Kerala High Court in the case of Lakshmi Hospital (supra), the CIT(A) has rightly deleted he addition. 83. We have considered the rival submissions on either side and also perused the material available on record. The revenue found a receipt voucher in the premises of Quilon Medical Trust during the course of search operation which discloses a receipt of Rs.21,33,550 by the assessee. Admittedly, the receipt was not signed by the recipient. The assessee specifically denied the receipt of money. The assessee also doubted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all taken place. If the matter was verified with the so-called recipient of the money, it would clearly reveal that the payment was not made by the assessee at all. According to the ld.representative, the assessee has furnished all the details including the address of the recipient. Therefore, it is for the assessing officer to conduct enquiry and find out whether the money has actually been paid or not. In view of this factual situation, according to the ld.representative, the CIT(A) has rightly deleted the addition after placing reliance on the judgment of the Kerala High Court in the case of Lakshmi Hospital (supra). 87. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the revenue authorities found during the course of search operation that payments were made to 12 concerns to the extent of Rs.79,29,450. The assessee claims that the payment with regard to stem pepper, Alangar Earth Supply, Quilon Medical Trust, Meeran Property, Nizam Ltd and Kerala Steel Associates did not take place at all. However, in respect of other five concerns, the assessee is not denying the payment. Only in respect of seven concer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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