DCIT, Chandigarh V. M/s A.B. Sugars Ltd., Chandigarh

ITA 1107/CHANDI/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8475 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 17-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 12-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: MEHA KANSAL
• Keywords: Opportunity of being heard; Notional interest; Commercial expediency
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI H.L.KARWA, HONBLE VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 1107/CHD/2014 ASSESSMENT YEAR: 2007-08 THE DCIT, VS M/S A.B. SUGARS LTD., CIRCLE I(1), HOUSE NO. 77, CHANDIGARH. SECTOR 11-A, CHANDIGARH. PAN: AABCG3045M DEPARTMENT BY : SHRI MANJIT SINGH ASSESSEE BY : MS. MEHA KANSAL DATE OF HEARING : 17.02.2016 DATE OF PRONOUNCEMENT : 19.02.2016 O R D E R PER H.L.KARWA,V.P. THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF LD. CIT(APPEALS), CHANDIGARH DATED 10.09.2014 IN CANCELING THE PENALTY OF RS.60,19,895 /- LEVIED UNDER SECTION 271(1)(C) OF THE INCOME TAX AC T, 1961 (IN SHORT THE ACT ) FOR ASSESSMENT YEAR 2007-08. 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THE FOLLO WING GROUNDS : 1. THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS & CONTR ARY TO FACTS & LAW. 2. THE LD. CIT HAS ERRED IN DELETING THE PENALTY ON TH E ISSUE OF DISALLOWANCE OF INTEREST U/S 36(L)(III) BY RELYI NG ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F RELIANCE PETRO PRODUCTS LTD. WHEN THE AO HAD CLEARLY ESTABLI SHED THAT THE CLAIM OF THE ASSESSEE WAS MALAFIDE TO THE EXTENT THAT 2 THE DIVERSION OF FUNDS TO SISTER CONCERNS, ON WHICH INTEREST WAS FORGONE, WAS WITHOUT ANY BUSINESS EXPEDIENCY. 3. THE LD. CIT HAS ERRED IN DELETING THE PENALTY ON TH E ISSUE OF DISALLOWANCE OF INTEREST U/S 36(L)(III) BY RELYI NG ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F RELIANCE PETRO PRODUCTS LTD. WHEN THE CLAIM OF THE ASSESSEE WAS MALAFIDE AND THE DECISION OF THE HON'BLE DELHI HIGH COURT IN ZOOM COMMUNICATIONS PVT. LTD. (2010 327 ITR 510) WAS APPLICABLE TO THE CASE. 4. THE LD. CIT(A) ERRED IN DELETING THE PENALTY ON THE I SSUE OF REDUCTION OF DEFERRED TAX FROM NET PROFIT FOR TH E PURPOSE OF ARRIVING AT BOOK PROFIT FOR MAT ON THE PLEA THAT THE AMENDMENT TO SECTION 115JB OF THE ACT WAS MADE AFTE R THE ASSESSEE HAD FILED ITR, WHEN IT WAS OUTRIGHTLY ILLO GICAL AND MALAFIDE TO REDUCE THE AMOUNT OF DEFERRED TAX FROM N ET PROFIT WHICH WAS NEVER CREDITED TO THE P&L ACCOUNT. 5. THE LD. CIT(A) ERRED IN DELETING THE PENALTY ON THE I SSUE OF REDUCTION OF DEFERRED TAX FROM NET PROFIT FOR TH E PURPOSE OF ARRIVING AT BOOK PROFIT FOR MAT ON THE PLEA THAT TH E AMENDMENT TO SECTION 115JB OF THE ACT WAS MADE AFTE R THE ASSESSEE HAD FILED ITR, WHEN SUB-CLAUSES (H) AND (VIII) OF EXPLANATION-1 TO THAT SECTION WERE INSERTED BY THE S AME AMENDMENT AND THERE WAS NO BASIS FOR THE ASSESSEE T O HAVE REDUCED THE DEFERRED TAX AMOUNT FROM NET PROFIT FOR THE PURPOSES OF MAT AT THE TIME OF FILING OF ITR. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH E ASSESSEE SUBMITTED ITS RETURN OF INCOME ON 28.10.20 07 FOR THE ASSESSMENT YEAR 2007-08 DECLARING TOTAL INCOME AT RS. 1,65,41,079/-. THE FIRST ISSUE RELATES TO THE DISALLOWANCE OF THE INTEREST ON ACCOUNT OF DIVERSI ON OF FUNDS TO SISTER CONCERN. DURING THE COURSE OF ASSE SSMENT 3 PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD ADVANCED LOANS TO M/S K. SONS & ASSOCI ATES WHICH, AS ON 31.03.2007 WAS AT RS. 3341.26 LACS. T HE ASSESSING OFFICER OBSERVED THAT ON ONE HAND THE ASS ESSEE HAD RAISED HUGE SECURED AND UNSECURED LOANS AND ON THE OTHER HAND, THE ASSESSEE HAD DIVERTED FUNDS TO ITS SISTER CONCERN WITHOUT ANY COMMERCIAL EXPEDIENCY. SO THE ASSESSING OFFICER DISALLOWED INTEREST @ 2.55% ON TH E MONTHLY DEBIT BALANCES IN THE ACCOUNT OF THIS CONCE RN. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED INTER EST OF RS. 65,72,728/- UNDER SECTION 36(1)(III) OF THE ACT . 3(I) IN THE ASSESSMENT ORDER, THE ASSESSING OFF ICER MADE ANOTHER ADDITION ON ACCOUNT OF DEFERRED TAX AMOUNTING TO RS. 3,35,63,811/- TO THE BOOK PROFIT U NDER SECTION 115JB OF THE ACT. ACCORDING TO THE ASSESSI NG OFFICER, THE AMOUNT OF DEFERRED TAX CAN BE REDUCED FROM THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT ONLY IF THE PROVISION OF DEFERRED TAX HAS BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT. ACCORDING TO THE ASSESSING OFFICER, THERE WAS NO CREDIT ENTRY RELATED TO THE DEFERRED TAX IN THE P&L ACCOUNT, THEREFORE, THE ASSESSING OFFICER DID NOT A LLOW DEDUCTION OF RS. 3,35,63,811/- OF DEFERRED TAX FOR THE PURPOSE OF CALCULATION OF MAT UNDER SECTION 115JB O F THE ACT. THE ASSESSING OFFICER INITIATED PENALTY PROCE EDINGS UNDER SECTION 271(1)(C) OF THE ACT. THE ASSESSING OFFICER AFFORDED AN OPPORTUNITY OF BEING HEARD TO THE ASSES SEE BY ISSUING LETTER DATED 22.03.2013. IN RESPONSE TO TH E SAID LETTER, THE ASSESSEE SUBMITTED ITS WRITTEN SUBMISSI ONS VIDE 4 LETTER DATED 25.03.2013 STATING THAT ASSESSING OFFI CER HAS DISALLOWED PART OF THE INTEREST EXPENSES AS NOTIONA L INTEREST ON ADVANCES UNDER SECTION 36(1)(III) OF TH E ACT AND ADVANCES WERE BUSINESS ADVANCES. AS REGARDS TH E ADDITION ON ACCOUNT OF DEFERRED TAX, THE ASSESSEE SUBMITTED THAT HE TREATED DEFERRED TAX AS BOOK PROF IT FOR THE PURPOSE OF CALCULATION OF MAT UNDER SECTION 115 JB AS THIS AMENDMENT WAS MADE BY FINANCE ACT, 2008 APPLICABLE RETROSPECTIVELY FROM 2001. 4. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE AND LEVIED THE PENALTY UNDER SECTIO N 271(1)(C) OF THE ACT. 5. ON APPEAL, THE LD. CIT(APPEALS) CANCELLED THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT O N ADDITION OF NOTIONAL INTEREST UNDER SECTION 36(1)(I II) OF THE ACT, OBSERVING AS UNDER : 5.2 I HAVE CONSIDERED THE SUBMISSION OF THE LD. C OUNSEL. THE CONCEALMENT PENALTY HAS BEEN LEVIED ON ACCOUNT OF PROPORTIONATE DISALLOWANCE OF INTEREST ON AMOUNT AD VANCED TO THE SISTER CONCERN. THE DISALLOWANCE HAS BEEN MA DE BY THE ASSESSING OFFICER ON PROPORTIONATE/ESTIMATED BA SIS. THE APPELLANT HAD NOT CONCEALED THE PARTICULARS OF ITS INCOME OR HAD NOT FURNISHED INACCURATE PARTICULARS AND SO THE CONCEALMENT PENALTY ON SUCH DISALLOWANCE CANNOT BE LEVIED IN VIEW OF THE JUDGEMENT OF HON'BLE SUPREME COURT I N THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. (322 ITR 1 58). HENCE, THE CONCEALMENT PENALTY LEVIED ON THIS ISSUE IS CANCELLED. GROUND OF APPEAL NO. 3 IS ALLOWED. 6. THE LD. CIT(APPEALS) ALSO CANCELLED THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT ON ADDITION OF D ECLARED TAX LIABILITY TO THE BOOK PROFIT UNDER SECTION 115J B OF THE 5 ACT, OBSERVING AS UNDER : 6.2 I HAVE CONSIDERED THE SUBMISSION OF THE LD. C OUNSEL. CLAUSE (VIII) WAS INSERTED IN EXPLANATION-1 BELOW SEC TION 115JB(1) BY FINANCE ACT, 2008, BUT WITH RETROSPECTI VE EFFECT FROM 01.04.2001 AND SO THE APPELLANT COULD NOT HAVE KNOWN IN THE YEAR IN QUESTION I.E. 2006-07 THAT DEFERRED TAX LIABILITY WAS NOT TO BE REDUCED FOR THE PURPOSES OF CALCULATION OF BOOK PROFIT IF IT WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT. HENCE, THE ASSESSING OFFICER WAS NOT RIGHT IN LEVYING THE PENALTY U/S 271(L)(C) ON THIS ADDITION MAD E IN CALCULATION OF BOOK PROFIT AND SO THE PENALTY LEVIE D ON THIS ISSUE IS ALSO CANCELLED. GROUND OF APPEAL NO. 4 IS ALLOWED. 7. AGGRIEVED BY THE ORDER OF LD. CIT(APPEALS), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD MS. MEHA KANSAL, LD. COUNSEL FOR T HE ASSESSEE AND SHRI MANJIT SINGH, LD. DR AT LENGTH AN D HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD . MS. MEHA KANSAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT WHILE FRAMING ASSESSMENT, THE ASSESSING OFFICER MAD E CERTAIN NOTIONAL DISALLOWANCES UNDER SECTION 36(1)( III) OF THE ACT ON ADVANCES GIVEN TO CERTAIN PARTIES AMOUNT ING TO RS. 65,27,728/-. SHE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS LEVIED THE PENALTY ON THIS NO TIONAL DISALLOWANCE. THIS BEING NOTIONAL IN NATURE, THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF THE INCOME. SHE ALSO STATED THAT TH IS ISSUE BEING A DEBATABLE ISSUE, NO PENALTY IS LEVIAB LE ON THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDE R SECTION 36(1)(III) OF THE ACT. IN THIS CASE, THE I MPUGNED PENALTY HAS BEEN LEVIED ON ACCOUNT OF PROPORTIONATE DISALLOWANCE OF THE INTEREST ON AMOUNT ADVANCED TO THE 6 SISTER CONCERN. IT IS ALSO TRUE THAT THE DISALLOWA NCE WAS MADE ON ESTIMATED BASIS. IN THAT VIEW OF THE MATTE R, WE HOLD THAT THE LD. CIT(APPEALS) HAS CORRECTLY HELD T HAT THE ASSESSEE HAD NOT COMMITTED ANY DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. IN THE CA SE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. ( 2010) 322 ITR 158 (S.C), THE HON'BLE SUPREME COURT HAS OBSERVED T HAT, WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HEL D GUILTY OF FURNISHING INACCURATE PARTICULARS. THE HON'BLE SUPREME COURT FURTHER HELD THAT, WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE I N ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE, THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. WE FULLY AGREE WITH THIS OBSERVATION OF THE LD. CIT(APPEALS) THAT ASSESSEE H AD NOT CONCEALED THE PARTICULARS OF INCOME OR HAD NOT FURN ISHED INACCURATE PARTICULARS OF INCOME, AND HENCE, NO PEN ALTY UNDER SECTION 271(1)(C) OF THE ACT CAN BE LEVIED IN THIS CASE. 9. AS REGARDS LEVY OF PENALTY UNDER SECTION 271(1)( C) OF THE ACT ON ADDITION OF DECLARED TAX LIABILITY TO TH E BOOK PROFIT UNDER SECTION 115JB OF THE ACT, MS. MEHA KAN SAL, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT CLAUSE (VIII) WAS INSERTED IN EXPLANATION-I BELOW S ECTION 115JB(1) BY FINANCE ACT, 2008, BUT WITH RETROSPECTI VE EFFECT FROM 01.04.2001 AND SO THE ASSESSEE COULD NO T HAVE KNOWN IN THE YEAR IN QUESTION THAT THE DEFERRE D TAX 7 LIABILITY WAS NOT TO BE REDUCED FOR THE PURPOSE OF CALCULATION OF BOOK PROFIT, WHICH WAS CREDITED TO T HE PROFIT & LOSS ACCOUNT. IN OUR OPINION, THERE IS ME RIT IN THE ABOVE CONTENTION OF MS. MEHA KANSAL, LD. COUNSE L FOR THE ASSESSEE AND THEREFORE, WE HOLD THAT THE LD. CIT(APPEALS) WAS FULLY JUSTIFIED IN CANCELING THE P ENALTY ON THE ADDITION OF DECLARED TAX LIABILITY. 10. BEFORE PARTING THIS CASE, WE MAY ALSO OBSERVE H ERE THAT THE TAX AS PER MAT IS MORE THAN THE REGULAR TA X CALCULATED BY THE ASSESSING OFFICER. HENCE, THE AS SESSEE COMPANY WAS ASSESSED ON THE BOOK PROFITS UNDER SECT ION 115JB OF THE INCOME TAX ACT, 1961. RECENTLY, THE C BDT HAS ISSUED CIRCULAR NO. F.279/MISC./140/2015/ITJ DA TED 31.12.2015, WHEREIN IT IS STATED THAT WHEN THE TAX PAYABLE ON INCOME COMPUTED UNDER NORMAL PROCEDURE I S LESS THAN THE TAX PAYABLE UNDER THE DEEMING PROVISI ONS OF SECTION 115JB OF THE ACT, THEN PENALTY UNDER SEC TION 271(1)(C) OF THE ACT COULD NOT BE IMPOSED WITH REFERENCE TO ADDITIONS /DISALLOWANCES MADE U NDER NORMAL PROVISIONS. THE AFORESAID CIRCULAR READS AS UNDER : CIR CULAR NO. 25/2015 F.NO.279/MISC./140/2015/ITJ GOVERNMENT OF INDIA MINISTRY OF FINANCE CENTRAL BOARD OF DIRECT TAXES NEW DELHI, 31ST DECEMBER, 2015 SUBJECT: PENALTY U/S 271(1)(C) WHEREIN ADDITIONS/DI SALLOWANCES MADE UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 BUT T AX LEVIED UNDER MAT PROVISIONS U/S 115JB/115JC, FOR CASES PRI OR TO A.Y. 2016-17-REG.- 8 SECTION 115JB OF THE ACT IS A SPECIAL PROVISION FOR LEVY OF MINIMUM ALTERNATE TAX ON COMPANIES, INSERTED BY FINANCE ACT 2000 WITH EFF ECT FROM 1-4-2001. 2. UNDER CLAUSE (III) OF SUB-SECTION (1) OF SECTION 271 OF THE ACT, PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS OF INCOME IS DETERMINED BASED ON THE AMOUNT OF TAX SOUGHT TO BE EVADED WHICH HAS BEEN DEFINED INTER-ALIA, AS THE DIFFERENCE BETWEEN THE T AX DUE ON THE INCOME ASSESSED AND THE TAX WHICH WOULD HAVE BEEN CHARGEABLE HAD SU CH TOTAL INCOME BEEN REDUCED BY THE AMOUNT OF CONCEALED INCOME OR INCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAD BEEN FILED. 3. IN THIS CONTEXT, HONBLE DELHI HIGH COURT IN ITS JUDGMENT DATED 26.8.2010 IN ITA NO.1420 OF 2009 IN THE CASE OF NALWA SONS INVES TMENT LTD. (AVAILABLE IN NJRS AS 2010-LL-0826-2), HELD THAT WHEN THE TAX PAY ABLE ON INCOME COMPUTED UNDER NORMAL PROCEDURE IS LESS THAN THE TAX PAYABLE UNDER THE DEEMING PROVISIONS OF SECTION 115JB OF THE ACT, THEN PENALT Y UNDER SECTION 271(1)(C) OF THE ACT COULD NOT BE IMPOSED WITH REFERENCE TO ADDITION S /DISALLOWANCES MADE UNDER NORMAL PROVISIONS. THE JUDGMENT HAS ATTAINED FINALITY. 4. SUBSEQUENTLY, THE PROVISIONS OF EXPLANATION 4 TO SUB-SECTION (1) OF SECTION 271 OF THE ACT HAVE BEEN SUBSTITUTED BY FINANCE ACT, 20 15, WHICH PROVIDE FOR THE METHOD OF CALCULATING THE AMOUNT OF TAX SOUGHT TO B E EVADED FOR SITUATIONS EVEN WHERE THE INCOME DETERMINED UNDER THE GENERAL PROVI SIONS IS LESS THAN THE INCOME DECLARED FOR THE PURPOSE OF MAT U/S 115JB OF THE ACT. THE SUBSTITUTED EXPLANATION 4 IS APPLICABLE PROSPECTIVELY W.E.F. 01 .04.2016. 5. ACCORDINGLY, IN VIEW OF THE DELHI HIGH COURT JUDG MENT AND SUBSTITUTION OF EXPLANATION 4 OF SECTION 271 OF THE ACT WITH PROSPE CTIVE EFFECT, IT IS NOW A SETTLED POSITION THAT PRIOR TO 1/4/2016, WHERE THE INCOME T AX PAYABLE ON THE TOTAL INCOME AS COMPUTED UNDER THE NORMAL PROVISIONS OF T HE ACT IS LESS THAN THE TAX PAYABLE ON THE BOOK PROFITS U/S 115JB OF THE ACT, T HEN PENALTY UNDER 271(1)(C) OF THE ACT, IS NOT ATTRACTED WITH REFERENCE TO ADDITIO NS /DISALLOWANCES MADE UNDER NORMAL PROVISIONS. IT IS FURTHER CLARIFIED THAT IN CASES PRIOR TO 1.4.2016, IF ANY ADJUSTMENT IS MADE IN THE INCOME COMPUTED FOR THE P URPOSE OF MAT, THEN THE LEVY OF PENALTY U/S 271(1)(C) OF THE ACT, WILL DEPE ND ON THE NATURE OF ADJUSTMENT. 6. THE ABOVE SETTLED POSITION IS TO BE FOLLOWED IN RESPECT OF SECTION 115JC OF THE ACT ALSO. 7. ACCORDINGLY, THE BOARD HEREBY DIRECTS THAT NO AP PEALS MAY HENCEFORTH BE FILED ON THIS GROUND AND APPEALS ALREADY FILED, IF ANY, O N THIS ISSUE BEFORE VARIOUS COURTS/TRIBUNALS MAY BE WITHDRAWN/NOT PRESSED UPON. THIS MAY BE BROUGHT TO THE NOTICE OF ALL CONCERNED. 9 SD/- (RAMANJIT KAUR SETHI) DCIT (OSD) (ITJ), CBDT, NEW DELHI 12. IN VIEW OF THE ABOVE CIRCULAR ALSO, NO PENALTY UNDER SECTION 271(1)(C) OF THE ACT CAN BE LEVIED IN THIS CASE. 13. IN VIEW OF THE ABOVE DISCUSSION, WE UPHOLD THE ORDER OF THE LD. CIT(APPEALS) IN CANCELING THE PENALTY. 14. IN THE RESULT, APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19 TH FEBRUARY, 2016. SD/- SD/- (RANO JAIN) (H. L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED: 19 TH FEBRUARY, 2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD