The DCITBharuch Circle, Bharuch V. M/s. Jhagadia Copper Limited, Dist.Bharuch

ITA 1191/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8882 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-03-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 04-04-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Assessee Lawyers: TUSHAR HIMANI
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : A BENCH : A HMEDABAD (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI A.N. PAHUJA, A.M.) I.T.A. NO. 1191/AHD./2008 ASSESSMENT YEAR : 2002-2003 DEPUTY COMMISSIONER OF INCOME TAX, -VS.- M/S. JHAGADIA COPPER LIMITED, BHARUCH BHARUCH CIRCLE, BHARUCH (PAN : AADCS 9799 Q) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GOVIND SINGHAL , SR. D.R. RESPONDENT BY : SHRI TUSHAR HIMANI O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE REVENUE IS AGAINST THE OR DER DATED 02.01.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VI, BARODA FOR THE ASSESSMENT YEAR 2002-03 CANCELLING THE PENALTY OF RS.21,77,060/- LEVIED BY THE ASSESSI NG OFFICER UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE I S A COMPANY. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED THE RETURN OF INCOME ON 30.10.2002 DECLARING BUSINESS LOSS OF RS.3,12,145/- AND INCOME FROM CAPITAL GAINS AT RS.32,80,672/-, AGAINS T WHICH CAPITAL LOSS OF ASSESSMENT YEAR 1995- 96 WAS SET OFF. THE ASSESSING OFFICER FRAMED THE AS SESSMENT UNDER SECTION 143(3) DETERMINING INCOME FROM HOUSE PROPERTY AT RS.1,56,187/- AND OTH ER SOURCES AT RS.83,46,209/- AGGREGATING TO RS.85,02,396/-. IN THE ASSESSMENT ORDER, THE A.O. A LSO INITIATED THE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). SUBSEQUENTLY, THE A.O. VIDE ORDE R DATED 28.03.2007 LEVIED THE PENALTY UNDER SECTION 271(1)(C) IN RESPECT OF TAXATION OF INCOME FROM OTHER SOURCES OF RS.60,98,209/-. 3. IN APPEAL, AGAINST THE PENALTY ORDER DATED 28.03 .2007 UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CANCELLED THE PENALTY OF RS.21,77,060/- FOR THE DETAILED REASONS GIVEN IN PA RA 5, WHICH ARE AS UNDER :- 5. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IT IS AN ADMITTED FACT THAT THE BUSINESS OF THE APPELLANT HAS NOT BEE N SET UP OR HAS NOT 2 ITA NO. 1191/AHD/2008 COMMENCED OPERATION DURING THE RELEVANT ASSESSMENT YEAR. THE ACT OF APPELLANT IN NETTING OF THE INTEREST EXPENSES AGAIN ST THE INTEREST INCOME IS NOT APPROPRIATE IN VIEW OF HON'BLE SUPREME COURT JU DGMENT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS .- CIT [227 ITR 172 (SC)]. THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS.- CIT 2 27 ITR 172 (SC) HAS VERY CLEARLY INDICATED THAT THE INTEREST EXPENSES C ANNOT BE ADJUSTED AGAINST CAPITAL PRE-OPERATIVE EXPENSES. THE DECISIO N OF APEX COURT HAS RENDERED MUCH PRIOR TO THE RELEVANT ASSESSMENT YEAR . IN MY HUMBLE VIEW THEREFORE, THE APPELLANTS SUBMISSION THAT IF THE E NTIRE INTEREST EXPENSES IS ALLOWED AGAINST THE INTEREST INCOME THERE WOULD BE A LOSS AND THAT ITS CASE WOULD BE COVERED BY THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF VIRTUAL SOFT SYSTEMS LTD. VS.- CIT 289 ITR 83 (S C) IS NOT TENABLE. CONSEQUENT TO DIRECTIONS OF HON'BLE ITAT IN APPEAL ORDER NO. CAB/VI- 472/06-07 DATED 01.01.2008, I HAVE HELD THAT THE IN TEREST EXPENSES CAPITALIZED CANNOT BE ALLOWED UNDER SECTION 36(1)(I II). HOWEVER, IT IS SEEN THAT IN THE PROFIT AND LOSS ACCOUNT FILED ALONGWITH THE RETURN, IT WAS MENTIONED BY THE ASSESSEE THAT THE INTEREST FROM FI XED DEPOSITS OF RS.47,51,448/- AND INTEREST FROM FIXED DEPOSIT KEPT AS MARGIN MONEY OF RS.1,54,891/- AND INTEREST AMOUNT OF RS.13,46,761/- RECEIVABLE FROM SHALIMAR WIRE INDUSTRIES LTD. HAS BEEN REDUCED FROM THE PRE-OPERATIVE EXPENSES RELATING TO COPPER PROJECT. THE APPELLANT HAS ALSO RELIED UPON THE DECISION IN THE CASE OF CIT VS.- BOKARO STEEL LT. 236 ITR 315 (SC) AND ALSO THE GUIDELINES ISSUED BY THE INSTITUTE OF CHAR TERED ACCOUNTANT OF INDIA IN REGARD TO ITS TREATMENT OF NETTING OFF OF THE INTEREST INCOME AGAINST PRE-OPERATIVE EXPENSES. 5.1. FROM THE PERUSAL OF THE RELEVANT FACTS AS WELL AS SUBMISSIONS MADE IT IS APPARENT THAT THE APPELLANT HAS ADOPTED ONE V IEW FOR ITS TREATMENT OF INTEREST INCOME WHEREAS THE ASSESSING OFFICER HAD A PPLIED THE RATIO OF DECISION IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS.- CIT 227 ITR 172 (SC) AND BROUGHT THE INTERES T INCOME TO TAX AS INCOME FROM OTHER SOURCES. THE ACTION OF ASSESSING OFFICER WAS CONFIRMED AT QUANTUM APPEAL LEVEL. HOWEVER, IT CANNOT BE SAID THAT THE APPELLANT HAS CONCEALED PARTICULARS OF INCOME OR HAS FURNISHED IN ACCURATE PARTICULARS OF INCOME. IT CAN AT BEST BE A VIEW WHICH IS NOT FOUND TO BE CORRECT BY THE ASSESSING OFFICER AS WELL AS THE CIT(A). IN MY HUMB LE VIEW, THIS CANNOT BE A GROUND FOR LEVY OF PENALTY IN TERMS OF PROVISIONS OF SECTION 271(1)(C). THE PENALTY OF RS.21,77,060/- IS THUS DIRECTED TO B E DELETED. AGGRIEVED BY THIS ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF R EVENUE SHRI GOVIND SINGHAL, SR. D.R. APPEARED AND CONTENDED THAT FOR THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE FILED THE RETURN OF 3 ITA NO. 1191/AHD/2008 INCOME ON 30.10.2002. AS PER THE JUDGMENT OF THE HO N'BLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS AND FERTILIZERS LTD. VS .- CIT 227 ITR 172 (SC), WHICH WAS DELIVERED ON 08.07.1997, THE ASSESSEE WAS REQUIRED TO SHOW INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES. THUS THERE WAS A CLEAR LAPSE ON THE PART OF THE ASSESSEE AND LEARNED COMMISSIONER OF INCOME TAX(APPEALS) OUGHT T O HAVE CONSIDERED THE RATIO OF THE HON'BLE SUPREME COURT IN THE CASE OF T. ASHOK PAI VS.- CIT [292 ITR 11 (SC)] AND CONFIRMED THE PENALTY LEVIED BY THE A.O. BECAUSE THE EXPLANAT ION OF THE ASSESSEE IS NOT BONAFIDE. THE LD. D.R. CONCLUDED THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME, THEREFORE, THE PENALTY OF RS.21,77,060/- LEVIED BY THE A.O. UNDER SECTION 271(1)(C) BE RESTORED. 5. ON THE OTHER HAND, SHRI TUSHAR HIMANI, LD. COUNS EL OF THE ASSESSEE FILED THE DECISION DATED 13.11.2009 OF ITAT, A BENCH IN ASSESSEES O WN CASE. HE SUBMITTED THAT IN THIS ORDER, IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E. 200 1-02, THE TRIBUNAL HAS ACCEPTED THE ALTERNATE CONTENTION OF THE ASSESSEE THAT THIS INTEREST INCOM E WOULD GO TO REDUCE THE COST OF THE ASSETS/ CAPITAL WORK-IN-PROGRESS BECAUSE THE ASSESSEE HAS N OT COMMENCED ITS BUSINESS ACTIVITIES. THE RELEVANT DISCUSSION IS CONTAINED IN PARA 11 ON PAGE 7 OF THE TRIBUNALS ORDER DATED 13.11.20009 AND THE SAME READS AS UNDER :- 11. GROUND NO. 2.2 AS MODIFIED BEFORE US REMAINS TO BE CONSIDERED. THE LEARNED COUNSEL FOR THE ASSESSEE HAD RELIED ON THE ORDER OF THE AHMEDABAD BEACH OF THE TRIBUNAL IN THE EASE OF TORRENT GUJARAT BIO- TECH LTD (SUPRA). WE HAVE CAREFULLY PERUSED THE SAID ORDER. IN PARA- 10 TO 12 OF THE ORDER, THE TRIBUNAL DEALT WITH THE ASSESSEE'S CONTENTION THAT THE INTEREST EA RNED DURING THE PRE -COMMENCE MERIT PERIOD CANNOT BE ASSESSED AS INCOME AND HELD THAT THERE WAS NO MATERIAL TO SHOW THAT THE INTEREST EARNED WAS INEXTRICABLY LINK ED TO THE SETTING UP OF THE PLANT ACCORDINGLY, THE CONTENTION WAS REJECTED AND THE AS SESSMENT OF THE INTEREST AS INCOME FROM OTHER SOURCES WAS UPHELD. THE ALTERNATI VE CONTENTION THAT THE EXPENDITURE INCURRED FOR EARNING THE INTEREST SHOUL D BE ALLOWED AS A DEDUCTION UNDER SECTION 57(III) WAS ALSO CONSIDERED BY THE TR IBUNAL IN PARA-13 TO 15 THE TRIBUNAL NOTED THAT THE INTEREST INCOME IN THE CASE BEFORE THEM WAS RECEIVED ON THE DEPLOYMENT OF THE ENTIRE FUNDS RAISED BY ISSUE OF PARTLY CONVERTIBLE DEBENTURES AND THEREFORE, ..THE EXPENDITURE INCURRED IN REL ATION TO THE ISSUE OF SAID DEBENTURES AND INTEREST PAID THEREON WERE EXPENDED FOR THE PURPOSE OF EARNING OF INTEREST INCOME OF RS.1,08,40,072/- DURING THE YEAR UNDER CONSIDERATION AND, THEREFORE. THE SAME TO BE DEDUCTED FOR COMPUTING TH E INCOME ASSESSABLE UNDER THE HEAD FROM OTHER SOURCES'. IN THE LIGHT OF THIS ORDE R OF A CO-ORDINATE BENCH, WHICH IS BINDING ON US, WE HAVE TO HOLD IN THE PRESENT CA SE THAT THE INTEREST PAID BY THE ASSESSEE TO EARN THE INTEREST INCOME OF RS.93,47,68 8/- SHOULD BE ALLOWED AS DEDUCTION. IT IS NOT IN DISPUTE THAT THE DEPOSITS M ADE BY THE ASSESSEE ON WHICH INTEREST WAS EARNED WERE MADE OUT OF BORROWED MONIE S. THE INTEREST PAID IN RESPECT OF THE BORROWED MONIES, TO THE EXTENT IT IS ATTRIBUTABLE TO THE EARNING OF THE 4 ITA NO. 1191/AHD/2008 INTEREST INCOME OF RS.93,47,688/- IS THEREFORE DIRE CTED TO BE ALLOWED AS A DEDUCTION UNDER SECTION 57(III) AGAINST THE AFORESA ID INTEREST INCOME. THE QUANTIFICATION OF THE INTEREST ALLOWABLE ON THE ABO VE BASIS IS LEFT TO THE A.O. WHO SHALL DO SO AFTER GIVING DUE OPPORTUNITY TO THE ASS ESSEE OF BEING HEARD. THUS THE GROUND NO. 2.2 IS PARTLY ALLOWED. 5.1. RELYING ON THE ABOVE, THE LD. COUNSEL OF THE A SSESSEE SUBMITTED THAT THE EXPLANATION OF THE ASSESSEE WAS BONAFIDE AND, THEREFORE, THE VIEW TAKE N BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) CANCELLING THE PENALTY OF RS.21,77,060 /- UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT BE UPHELD. 6. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUT HORITIES BELOW. IT IS PERTINENT TO NOTE THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR, I.E. ASSESSMENT YEAR 2001-02, ITAT, A BENCH, AHMEDABAD VIDE ORDER DATED 13.11.2009 ACCEPTED THE ALTERNATE PLEA OF THE ASSESSEE AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEDUCTION UNDER SECT ION 57(III) OF THE INCOME TAX ACT AGAINST THE INTEREST INCOME ASSESSED UNDER THE HEAD INCOME FRO M OTHER SOURCES. THIS, IN OUR OPINION, CLEARLY DEMONSTRATES THAT EXPLANATION OF THE ASSESS EE WAS BONAFIDE. KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES, WE ARE CONVINCED TH AT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN COGENT REASON FOR CANCELLING THE PENALTY OF RS.21,77,060/- LEVIED BY THE ASSESSING OFFICER UNDER SECTION 271(1)(C) OF THE IN COME TAX ACT. WE, THEREFORE, DECLINE TO INTERFERE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON 05.03.201 0 SD/- SD/- (A.N. PAHUJA) (T.K. SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 05/ 03 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGISTRAR, ITAT, AHMEDABAD LAHA/SR.P.S.