Kerala H.C : Whether the amount of Rs.12,49,000/- could have been assessed as an unexplained investment, especially when there was no proposal to assess it as that under Section 69 of the Income Tax Act?

High Court Of Kerala

CIT vs. Amritha Cyber Park (P) Ltd

Section 69

K.Vinod Chandran & Ashok Menon, JJ.

ITA.No. 294 of 2010

19th February, 2019

Counsel Appeared:

Jose Joseph, SC for the Petitioner.: S.Parvathi, Amicus Curiae for the Respondent.


There was none appearing for the respondent, despite the Department having taken out paper publication, hence we appointed Advocate S. Parvathy, as Amicus Curiae.

The issue arising in the appeal is with respect to the assessment of Rs.12,4 9,000/- which according to the Company remained with the company as an advance for rent and never turned into income. The assessee-respondent is engaged in letting out commercial spaces. The assessee is said to have entered into a contract with one another company, for letting out a commercial space towards which the other company had advanced an amount of Rs.13, 00, 000/- as rent. This was paid by way of three cheques on various dates in September, 2001. The same were also encashed.

The company, who advanced the rent could not occupy the premises, allegedly due to the company having not received certain licences for carrying out the proposed business activities. There was a refund of Rs.51,000/- made by the assessee respondent on 31.03.2002. The balance remained in the accounts.

In the relevant previous year i.e. 2003-04, the amount was shown as a liability in the accounts of the assessee. The assessee was asked to explain, as to why the same should not be treated as the assessee’s income. The assessee contended that, it still remains as a iability in its account. Despite notice being issued, none appeared for the company which made the advance. The assessee also did not produce any agreement before the Assessing Officer. The Assessing Officer also noticed that one of the Directors in the assessee company, was a Director in that other company also. The Assessing Officer, hence treated it as an unexplained investment under Section 69 of the Income Tax Act, 1961.

The appellate authority, however, found that the money was credited through bank and there was a conformation letter from the Director of the creditor company. Hence, there was no cause for adding on the said amount as an unexplained investment or an unexplained cash credit, was the specific finding. The First Appellate Authority deleted the income from taxation. The revenue was before the Tribunal which confirmed the order of the lower authorities.

Sri. Jose Joseph, learned Standing Counsel for the Department would submit that by the time assessment was made, the remedy of the other company for claiming the aforesaid amounts was barred by limitation. The assessee could not also prefer any explanation, as to why the amounts were not returned and how it remains as a liability of the assessee company. In such circumstances, it was added as an income; which is permissible going by the decision in Commissioner of Income Tax v. T.V. Sundaram Iyengar and Sons Ltd.[1996(222) ITR 345 (SC)].

7. Smt. S.Parvathy, the learned Amicus, would rely on the decision of the Hon’ble Supreme Court in Commissioner of Customs, Mumbai v. Toyo Engineering India Limited [2006(201) E.L.T. 513 (S.C.) and of this Court in Bharat Petroleum Corporation Ltd. v. Union of India [2018(360) E.L.T. 848 (Ker.)] to contend that the Assessing Officer could not have deviated from the original proposal. The Assessing Officer found the amounts to be unexplained investment, which however was not originally proposed so in the notice issued. It is also contended that even in the relevant financing year, the recovery had not been barred, since the refund made earlier was on 31.03.2003.

8. The questions of law are re-framed as follows:

1. Whether the amount of Rs.12,49,000/- could have been assessed as an unexplained investment, especially when there was no proposal to assess it as that under Section 69 of the Income Tax Act?

2.Whether the First Appellate Authority and the Tribunal erred in so far as setting aside the assessment without looking at, whether the amounts can be assessed under the Income Tax Act under any other head?

In the context of the submission made as to deviation from the proposal, we have to notice that the Assessing Officer had specifically proposed to treat the amount as the assessee company’s income, as is seen from the assessment order itself. We are also of the opinion that it could not have been treated as an unexplained cash credit or as an unexplained investment; since it was neither. The source was clear and there was proper explanation for the amounts as seen from the books of accounts. We are also of the opinion that under the Income- tax Act the proposal is essentially to assess a particular amount, as income, which the assessee has not reckoned as such in its r turn. To propose under one head of income and in scrutiny or a reassessment to finalise under another head is perfectly permissible.

The further question is whether there was any possibility of it being recovered. If the recovery had been barred by limitation, necessarily, it has to be treated as an income from the business and the same had to be assessed under the Income Tax Act as has been held in T.V. Sundaram Iyengar and Sons Ltd. Even if the deviation from the proposal is found to be improper, the assessment has to be sustained, as an income from business; which was the original proposal. If the other company had occupied the premises the amounts would definitely be shown as income from business.

With respect to the contention of limitation having not expired in the relevant previous year, it is to be noticed that the assessment itself was finalised after three years, which is the normal period of limitation for recovery of money, even calculated from the date on which the last refund was made. The assessee had also not produced any agreement and in all possibility there would have been a restrictive clause, in so far as forfeiture of the advance amounts, if the contract did not fructify. The assessment order itself was passed, after three years from the date of commencement of limitation and there was no claim made by the assessee, who participated in the assessment proceedings, as to any recovery proceedings having been commenced by the other company or a repayment having been effected.

In the said circumstances, though we do not approve of the treatment of the amounts as an unexplained investment or an unexplained cash credit, we are of the opinion that the assessment has to be upheld as an income from business. The questions stand answered accordingly and the appeal stands allowed, restoring the order of the Assessing Officer; but however making modification as herein, assessing the rent received in advance as income in the relevant previous year. No order as to costs in this appeal.

[Citation : 412 ITR 199]

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