ASST CIT 5(3)(2), MUMBAI V. XTP DESIGN FURNITURE LTD, MUMBAI

ITA 1098/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 7386 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Keywords: Revenue expenditure; Capital expenditure
• Section: 143(3); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G, MUMBAI BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER & SHRI G MANJUNATHA, ACCOUNTANT MEMBER ITA NO.1098/MUM/2016 ASSESSMENT YEAR : 2009-2010 ASST. CIT 5(3)(2) MUMBAI VS. XTP DESIGN FURNITURE LTD., 203 HYDE PARK, ANDHERI SAKI NAKA ROAD, SAKIVIHAR ROAD, ANDHERI (E). MUMBAI 400 072. PAN AAACX0160B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V VIDHYADHAR RESPONDENT BY : SHRI YOGESH THAR & MS. RITU PUNJABI DATE OF HEARING :14.05.2018 DATE OF PRONOUNCEMENT : 18.05.2018 O R D E R PER G MANJUNATHA, ACCOUNTANT MEMBER THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST ORDER OF THE CIT(A)-10, MUMBAI, DATED 18.11.2015, AND IT PERTAINS TO ASSESS MENT YEAR 2009-10. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL:- 1(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN HOLDING THAT ALTHOUGH THE INTEREST EXPENDI TURE INCURRED ON THE AMOUNT BORROWED FOR INVESTMENT IN FOREIGN SUBSIDIAR Y COMPANY HAS BEEN HELD TO BE CAPITAL IN NATURE BY THE BOTH THE CIT(A) AND THE ITAT, THE DISALLOWANCE OF THE SAID INTEREST EXPENDITURE AS CA PITAL EXPENDITURE WILL NOT ATTRACT CONCEALMENT PENALTY U/S. 271(1)(C). 1(B) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, LD. CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S. 271(1)(C) WITHO UT APPRECIATING THAT THE INTEREST EXPENDITURE ON THE AMOUNT BORROWED FOR INV ESTMENT IN FOREIGN SUBSIDIARY COMPANY WAS PRIMA FACIE A CAPITAL EXPEND ITURE AND THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF IT S INCOME BY CLAIMING THE SAID EXPENDITURE AS A REVENUE EXPENDITURE. ITA NO.1098/MUM/2016 XTP DESIGN FURNITURE LTD. 2 2. THE APPELLANT PRAYS THAT THE ORDER OF THE LD. CI T(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD ANY OTHER GROUND WHICH MAY BE NECESSARY. 2. THE BRIEF FACTS OF THE CASE ARE THAT IN THIS CAS E ASSESSMENT HAS BEEN COMPLETED U/S. 143(3) OF THE INCOME TAX ACT, 1961 O N 28.12.2011, DETERMINING TOTAL INCOME AT ` 6,10,90,560/- AFTER MAKING THE ADDITIONS ON ACCOUN T OF DISALLOWANCE OF INTEREST PAID AMOUNTING TO ` 3,40,59,571/- ON BORROWED MONEY FOR INVESTMENTS IN FOREIGN SUBSIDIARY COMPANY. THEREAF TER, THE ASSESSING OFFICER INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND CALLED UPON THE ASSESSEE TO EXPLAIN AS TO WHY PENALTY SHALL NOT BE LEVIED IN RESPECT OF ADDITIONS MADE TO WARDS DISALLOWANCE OF INTEREST. IN RESPONSE TO SHOW CAUSE NOTICE, THE ASSESSEE SUBMITT ED THAT IT HAD NEITHER CONCEALED PARTICULARS OF INCOME NOR FURNISHED INACC URATE PARTICULARS OF INCOME IN RESPECT OF INTEREST CLAIMED AGAINST INCOME FROM HO USE PROPERTY AS THE FACT THAT WHETHER INTEREST PAID ON BORROWED CAPITAL IS A CAPI TAL EXPENDITURE OR REVENUE EXPENDITURE IS A DEBATABLE ISSUE, WHICH ALWAYS HAS TWO VIEWS. THEREFORE, THE QUESTION OF LEVYING PENALTY FOR FURNISHING INACCURA TE PARTICULARS OF INCOME DOES NOT ARISE. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND ALSO RELIED UPON JUDICIAL PRECEDENCE INCLUDING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. DHARMENDRA TEXTILE PROCESSOR S [306 ITR 277 (SC)], OBSERVED THAT THE ASSESSEE COMPANY HAS CONSCIOUSLY AND DELIB ERATELY CONCEALED PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF I NCOME IN RESPECT OF INTEREST PAID ON BORROWED CAPITAL. HE THEREFORE, OPINED THAT IT IS A FIT CASE FOR LEVY OF PENALTY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME AND, ACCORDINGLY, LEVIED PENALTY OF ` 1,15,76,857/- WHICH IS 100% OF THE TAX SOUGHT TO B E EVADED. 3. AGGRIEVED BY THE PENALTY ORDER, ASSESSEE PREFERR ED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED THAT I T HAS DISCLOSED NECESSARY FACTS IN RESPECT OF INTEREST EXPENDITURE ON AMOUNT BORROW ED FOR INVESTMENT IN FOREIGN SUBSIDIARY IN THE COMPUTATION OF TOTAL INCOME AS WE LL AS RETURN OF INCOME, HENCE, ITA NO.1098/MUM/2016 XTP DESIGN FURNITURE LTD. 3 THE QUESTION OF CONCEALMENT OF INCOME DOES NOT ARIS E. THE ASSESSEE FURTHER SUBMITTED THAT WHETHER INTEREST PAID ON MONEY BORRO WED FOR INVESTMENT IN FOREIGN SUBSIDIARY IS A CAPITAL OR REVENUE EXPENDITURE IS H IGHLY DEBATABLE ISSUE AND ALWAYS TWO VIEWS ARE POSSIBLE. THEREFORE, WHEN THE ISSUE IS HIGHLY DEBATABLE, PENALTY U/S. 271(1)(C) CANNOT BE LEVIED, MORE PARTICULARLY WHEN THE ASSESSEE HAS DISCLOSED NECESSARY FACTS IN COMPUTATION OF INCOME. IN THIS REGARD, HE HAS RELIED UPON PLETHORA OF JUDGMENTS INCLUDING THAT OF HONBLE SUP REME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P.) LTD. [322 ITR 158 ( SC)] 4. THE CIT(A) AFTER CONSIDERING RELEVANT SUBMISSION S OF THE ASSESSEE ALSO RELIED UPON THE DECISION OF HONBLE SUPREME COURT IN THE C ASE OF RELIANCE PETROPRODUCTS (P.) LTD. (SUPRA) AND OBSERVED THAT ALTHOUGH THE CI T(A) AND THE TRIBUNAL HAVE AGREED TO THE VIEW TAKEN BY THE ASSESSING OFFICER I N DISALLOWING INTEREST EXPENDITURE AS CAPITAL IN NATURE, IN MY CONSIDERED OPINION, IT WILL NOT ATTRACT CONCEALMENT PENALTY U/S. 271(1)(C) SINCE THE ISSUE OF WHETHER INTEREST PAID ON MONEY BORROWED FOR INVESTMENT IN FOREIGN SUBSIDIARY IS A CAPITAL OR RE VENUE EXPENDITURE IS HIGHLY DEBATABLE ISSUE AND ALWAYS TWO VIEWS ARE POSSIBLE. THE RELEVANT PORTION OF THE ORDER OF CIT(A) IS EXTRACTED BELOW: 4. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CAS E AND THE SUBMISSIONS OF THE ID.AR. I HAVE ALSO GONE THROUGH THE DECISION S RELIED ON BY THE AO AND THE ID.AR. AS SEEN FROM THE FACTS OF THE CASE T HE AO HAS DISALLOWED INTEREST PAID AMOUNTING TO RS.3,40,59,5717- ON BORR OWED MONEY FOR INVESTMENT IN FOREIGN SUBSIDIARY COMPANY HOLDING IT AS CAPITAL IN NATURE VIDE HIS ORDER DT. 28.12.2011 PARA-7(IV). THE CIT(A ) HAS ALSO CONFIRMED THE ADDITION VIDE HIS ORDER DT. 23.01.2012 AS UNDER - '9.2. DECISION ON MERIT OF ADDITIONAL AROUND OF APP EAL:- I HAVE CAREFULLY AND DISPASSIONATELY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. IT IS NOT DISPUTED THAT THE APPELLANT HAD DISCLOSED THE INVESTMENT IN FOREIGN COMPANY UNDER T HE HEAD CAPITAL ACCOUNT AND THE LAO HAS ALSO TREATED THE INTEREST E XPENDITURE AS CAPITAL EXPENDITURE FOR ACQUIRING THE PREVIOUSLY ME NTIONED FOREIGN COMPANY NAMELY M/S GREAT CATCH GROUP LTD. UNDER THE CIRCUMSTANCES, THE APPELLANT WILL BE FREE TO CAPITA LIZE THE INTEREST COST AND INCLUDE THE SAME IN THE COST OF ACQUISITIO N OF THE PREVIOUSLY MENTIONED FOREIGN COMPANY. THIS IS ALSO IN ACCORDAN CE WITH THE ITA NO.1098/MUM/2016 XTP DESIGN FURNITURE LTD. 4 PROVISIONS OF PROVISO TO SEC.36(1)(III) AND EXPLANA TION 8 TO SEC.143(I) OF THE ACT.....' WHILE CONFIRMING THE DECISION OF THE CIT(A) THE ITA T VIDE ITS ORDER DT.20.08.2014 HAS STATED THAT-.... '......SINCE THE MONEY WAS BORROWED FOR CAPITAL INV ESTMENT, THE INTEREST ON THE BORROWING NEED TO BE CAPITALIZED AS RIGHTLY HELD BY THE LD.CIT(A)....' AS BOTH THE CIT(A) AND ITAT HAVE CONFIRMED THE DISA LLOWANCE OF THE AO HOLDING IT AS CAPITAL IN NATURE, THE AO HAS PROCEED ED TO LEVY OF PENALTY U/S.271(1)(C) OF THE ACT. 4.1. AS SEEN FROM THE ABOVE, THE ISSUE IN DISPUTE I S TO SEE WHETHER THE INTEREST EXPENDITURE INCURRED ON THE AMOUNT OF ADV ANCE TO THE FOREIGN SUBSIDIARY IS REVENUE OR CAPITAL IN NATURE. EVEN TH OUGH THE CIT(A) AND ITAT HAVE AGREED WITH A VIEW OF THE AO THAT THE SAI D EXPENDITURE IS CAPITAL IN NATURE, IN MY CONSIDERED OPINION IT WILL NOT ATTRACT CONCEALMENT PENALTY U/S.271(1)(C) SINCE IT IS A MATTER OF DISPU TE. FURTHER, I DO NOT FIND ANY CONCEALMENT OF INCOME OR FURNISHING OF INACCURA TE PARTICULAR IN THE RETURN OF INCOME BY THE APPELLANT. RELIANCE IS PLAC ED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE P ETRO PRODUCTS P.LTD. REPORTED 322 ITR 158. IN VIEW OF THIS THE PENALTY L EVIED IS DISMISSED. THE GROUND IS ALLOWED. 5. THE LEARNED DR SUBMITTED THAT THE LEARNED CIT(A) ERRED IN HOLDING THAT ALTHOUGH THE INTEREST EXPENDITURE INCURRED ON AMOUN T BORROWED FOR INVESTMENT IN FOREIGN SUBSIDIARY HAS BEEN HELD TO BE CAPITAL IN N ATURE BY CIT(A) AND ITAT, THE DISALLOWANCE OF SAID INTEREST EXPENDITURE AS CAPITA L EXPENDITURE WILL NOT ATTRACT CONCEALMENT PENALTY U/S. 271(1)(C) OF THE ACT. THE LEARNED DR FURTHER SUBMITTED THAT THE ASSESSEE CONSCIOUSLY AND DELIBERATELY CLAI MED INTEREST PAID ON BORROWED CAPITAL, WHICH IS OTHERWISE NOT ALLOWABLE AS REVENU E EXPENDITURE AGAINST ITS INCOME FROM HOUSE PROPERTY, WHICH CLEARLY ATTRACTS CONCEA LMENT PENALTY U/S. 271(1)(C) OF THE ACT. THE CIT(A) WITHOUT APPRECIATING THE FACTS HAS DELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER. HENCE, THE ORDER OF CIT(A) SHOULD BE SET ASIDE AND PENALTY LEVIED BY THE ASSESSING OFFICER SHOULD BE UPHELD. 6. ON THE OTHER HAND, THE LEARNED AR FOR THE ASSESS EE STRONGLY SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT HE HAS RIGHTLY A PPRECIATED FACTS IN THE LIGHT OF ITA NO.1098/MUM/2016 XTP DESIGN FURNITURE LTD. 5 DISCLOSURE MADE BY THE ASSESSEE IN RETURN OF INCOME ABOUT INTEREST PAID ON BORROWED CAPITAL FOR INVESTMENT IN FOREIGN SUBSIDIA RY AND HELD THAT IT IS NOT A CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME. THERE FORE, THE ORDER OF THE CIT(A) SHOULD BE UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED ALL AVAI LABLE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW. THE ASSESSING OFFICER LEVIED CONCEALMENT PENALTY U/S. 271(1)(C) IN RESPECT OF DI SALLOWANCE OF INTEREST PAID ON BORROWED CAPITAL FOR INVESTMENT IN FOREIGN SUBSIDIA RY ON THE GROUND THAT INTEREST PAID ON BORROWED CAPITAL FOR INVESTMENT IN FOREIGN SUBSIDIARY IS CAPITAL IN NATURE AND CANNOT BE ALLOWED AS DEDUCTION AGAINST INCOME FROM HOUSE PROPERTY. ACCORDING TO THE ASSESSING OFFICER THE ASSESSEE CONSCIOUSLY AND DELIBERATELY FURNISHED INACCURATE PARTICULARS OF INCOME EVEN THOUGH SUCH INTEREST IS NOT DEDUCTIBLE AGAINST INCOME FROM HOUSE PROPERTY. THUS, THE CONTENTION OF THE ASSESSEE THAT THE ISSUE OF DEDUCTIBILITY OF INTEREST PAID ON BORROWED CAPITAL IS HIGHLY DEBATABLE IN NATURE AND ALWAYS TWO VIEWS ARE POSSIBLE. THE ASSESSEE FURTHE R SUBMITTED THAT WHEN TWO VIEWS ARE POSSIBLE ON DEDUCTIBILITY OF ANY EXPENDIT URE, WHETHER IT IS CAPITAL OR REVENUE IN NATURE, PENALTY CANNOT BE LEVIED U/S. 27 1(1)(C) MORE PARTICULARLY WHEN THE ASSESSEE HAS DISCLOSED ALL PRIMARY FACTS IN THE RETURN OF INCOME. 8. HAVING HEARD BOTH THE SIDES, WE FIND MERITS IN T HE ARGUMENTS OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE HAS DISCLOSED NECE SSARY FACTS IN RESPECT OF INTEREST PAID ON BORROWED CAPITAL FOR INVESTMENT IN FOREIGN SUBSIDIARY IN ITS RETURN OF INCOME. WE FURTHER OBSERVED THAT THE ISSUE OF DEDUCTIBILITY OF INTEREST PAID ON BORROWED CAPITAL IS HIGHLY DEBATABLE IN NATURE. THERE ARE D IVERGENT VIEWS ON THE ISSUE. SOME COURTS HAVE HELD THAT INTEREST IS ALLOWABLE U/S. 57 (III) EVEN WHEN THE ASSESSEE HAS NOT EARNED ANY INTEREST INCOME. THE HONBLE SUPREM E COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P.) LTD (SUPRA), HAS HELD THAT A MER E MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER HAS ERRED IN LEVYING PEN ALTY U/S. 271(1)(C) OF THE ACT IN RESPECT OF DISALLOWANCE OF INTEREST EXPENDITURE BY HOLDING THAT ASSESSEE HAS ITA NO.1098/MUM/2016 XTP DESIGN FURNITURE LTD. 6 DELIBERATELY FURNISHED INACCURATE PARTICULARS OF IN COME. THE CIT(A) AFTER CONSIDERING RELEVANT FACTS HAS RIGHTLY DELETED THE PENALTY LEVIED BY THE ASSESSING OFFICER. WE, THEREFORE, DO NOT FIND ANY ERROR IN T HE ORDER OF THE CIT(A). WE ARE INCLINED TO UPHOLD THE FINDING OF THE CIT(A) AND DI SMISS THE APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 18 TH MAY 2018. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 18 TH MAY, 2018. SA COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE C I T(A), MUMBAI. 4. THE C I T 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, MUMBAI