Mamta Machinery Pvt. Ltd., Ahmedabad V. The DY.CIT., Circle-4, Ahmedabad

ITA 1211/AHD/2008

• Counselvise Citation: 121120514 RSA 2008
• Duration Of Justice: 5 year(s) 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-09-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 03-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 07-04-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P JHANGID
• Keywords: Opportunity of being heard; Proportionate interest; Additional evidence; Wholly owned subsidiary
• Section: 43B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH AHMEDABAD BEFORE SHRI G.C.GUPTA , VICE PRESIDENT AND SHRI T.R. MEENA, ACCOUNTANT MEMBER ITA NO. 1211/AHD/2008 & 1257/AHD/2012 ASSESSMENT YEAR :2005-06 MAMTA MACHINERY PVT. LTD., 5/1/1-A, PHASE-I, G.I.D.C., VATVA, AHMADABAD-382440 V/S . DY. C.I.T., CIRCLE-4, AHMEDABAD PAN NO. AA B C M8241P (APPELLANT) .. (RESPONDENT) ITA NO. 2101/AHD/2008 ASSESSMENT YEAR :2005-06 DY. C.I.T., CIRCLE-4, AHMEDABAD V/S . MAMTA MACHINERY PVT. LTD., 5/1/1-A, PHASE-I, G.I.D.C., VATVA, AHMADABAD-382440 (APPELLANT) .. (RESPONDENT) BY REVENUE SHRI J. P. JHANGID, SR.D.R. /BY ASSESSEE SHRI MANISH J. SHAH, A.R. /DATE OF HEARING 03.07.2013 /DATE OF PRONOUNCEMENT 02.09.2013 O R D E R PER : SHRI T.R.MEENA, ACCOUNTANT MEMBER THESE THREE APPEALS, TWO FILED BY ASSESSEE AND ONE FILED BY THE REVENUE, EMANATED FROM THE ORDERS OF LD. COMMISSION ER OF INCOME-TAX (APPEALS)-VIII, AHMEDABAD, DATED 12.03.2008 IN ITA NOS. 1211 & 2101/AHD/2008 AND ORDER DATED 26.04.2012 IN ITA NO. 1257 AHD 2012 FOR THE ASSESSMENT YEAR 2005-06. THE ISSUES AND ARGUMENTS IN ALL APPEALS ARE SAME. THEREFORE, WE ARE DECIDING ALL IN A CONSOLID ATE ORDER FOR THE SAKE OF CONVENIENCE. THE GROUNDS OF ALL APPEALS ARE AS UND ER:- ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 2 ITA NO. 1211/AHD/2008 (ASSESSEES APPEAL) 1. YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PAS SED BY LEARNED C.I.T. (APPEALS)-VIII, AHMADABAD, DATED 12. 03.2008, PRESENTS THIS APPEAL ON FOLLOWING GROUNDS. 2. THE LEARNED C.I.T. (APPEALS)-VIII, AHMADABAD HAS ERRED IN CONFIRMING RS.22,97,336/- BEING REIMBURSEMENT EXPEN SES & SERVICE CHARGES U/S 40(A)(IA) OF THE ACT THOUGH EXP LAINED. THE DISALLOWANCE BE DELETED. 3. THE LEARNED C.I.T. (APPEALS)-VIII, AHMADABAD HAS ERRED IN CONFIRMING RS.11,22,513/- BEING INTEREST EXPENSES U /S 36(I)(III) & ADMINISTRATIVE EXPENSES OF RS. 20,000/- U/S. 14A OF ACT THOUGH EXPLAINED. THE DISALLOWANCE BE DELETED. I.T.A. NO. 2101 /AHD/ 2008 (REVENUES APPEAL) 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FA CTS OF THE CASE IN RESTRICTING THE DISALLOWANCE MADE ON ACCOUNT OF PRIOR PERIOD EXPENSES OF RS.1,17,138/- TO RS. 1,000/- ONLY. 2. THE LD. CIT(A) HAS FURTHER ERRED IN NOT APPRECIA TING THE FACTS THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND AS SUCH THE EXPENDITURE WHICH HAD ACCRUED IN A PART ICULAR YEAR CAN BE CLAIMED AND ALLOWED IN THAT PARTICULAR YEAR ONLY AND NOT IN ANY YEAR. 3. THE LD. CIT (A) HAS ERRED IN LAW AND ON THE FAC TS IN RESTRICTING THE DISALLOWANCE OF INTEREST EXPENSES U/S 14A OF TH E ACT OF RS.56,77,827/- TO RS.11,22,513/- THEREBY GRANTING R ELIEF TO THE ASSESS TO THE TUNE OF RS.43,35,314/-. 4. THE LD. CIT(A) HAS FURTHER ERRED IN RELYING ON T HE EVIDENCES FURNISHED BEFORE HIM BY THE ASSESSEE WHICH WERE NOT PRODUCED OR FURNISHED BEFORE THE A.O. DURING THE COURSE OF ASSE SSMENT PROCEEDINGS. ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 3 ITA NO. 1257/AHD/2012 (ASSESSEES APPEAL FOR PENALT Y) 1. YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PAS SED BY LEARNED C.I.T. (APPEALS)-VIII, AHMADABAD, DATED 26. 04.2012, PRESENTS THIS APPEAL ON FOLLOWING GROUNDS. 2. THE LEARNED C.I.T. (APPEALS)-VIII, AHMADABAD HAS ERRED THE LEARNED ACIT(OSD)-I, AHMEDABAD HAS ERRED IN CONFIRM ING THE PENALTY LEVIED ON RS.1,000/- OF PRIOR PERIOD EXPENS ES THOUGH EXPLAINED. THE PENALTY LEVIED BE DELETED. 3. THE LEARNED C.I.T. (APPEALS)-VIII, AHMEDABAD HAS ERRED IN CONFIRMING THE PENALTY LEVIED ON 40(A)(IA) OF RS.22 ,97,337/- THOUGH EXPLAINED. THE PENALTY LEVIED BE DELETED. ITA NO. 1211/AHD/2008 (ASSESSEES APPEAL) 2. THE FIRST GROUND OF ASSESSEES APPEAL IS GENERAL AND HAS NOT BEEN PRESSED BY THE APPELLANT. THE SAME IS DISMISSED. 3. THE SECOND GROUND OF APPEAL IS AGAINST CONFIRMIN G RS.22,97,336/- BEING REIMBURSEMENT EXPENSES & SERVICE CHARGES U/S 40(A)(IA) OF THE ACT. THE A.O. OBSERVED THAT THE ASSESSEE HAD NOT DEDUCTE D TDS FROM PAYMENT MADE TO ROBINSON AIR SERVICES AND CHETAN ROADWAYS. THE LD. A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD ON THIS ISSUE , WHICH WAS REPLIED BY THE APPELLANT. THE CONTENTION OF THE ASSESSEE COMPANY CONSIDERED BY THE A.O. AND HELD THAT PROVISIONS OF SECTION 194C, DURING TH E YEAR AGGREGATE AMOUNT OF PAYMENT MADE TO EACH PAYEE EXCEEDS RS.50,000/- TAX AT SOURCE SHOULD BE DEDUCTED. THE ASSESSEE IS IN MANUFACTURING OF PLAS TIC PROCESSING MACHINERY. ACCORDING TO CIRCULAR NO. 715 DATED 08.08.1995, ISS UED BY THE BOARD ON THE SUBJECT, THE SUM PAID AS REIMBURSEMENT CANNOT BE DE DUCTED OUT OF THE BILL ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 4 AMOUNT FOR THE PURPOSE OF TAX DEDUCTION AT SOURCE. ROBINSON AIR SERVICES HAD ISSUED THEIR BILLS IN WHICH SEPARATE BILLS FOR REIM BURSEMENT HAD NOT BEEN RAISED. ALSO SUPPORTING VOUCHERS/EVIDENCES FOR THE REIMBURSEMENT ARE ALSO NOT GIVEN. IN VIEW OF THE FACTS, THE ASSESSEE COMP ANY WAS REQUIRED TO DEDUCT TAX ON THE GROSS BILLS AMOUNT IN RESPECT OF PAYMENT MADE. THE ASSESSEE HAD FAILED TO DEDUCT TAX ON THE PAYMENTS MADE TO ROBINS ON AIR SERVICES AMOUNTING TO RS.22,97,337/-. THUS, THIS IS NOT ALL OWABLE U/S. 40(A)(IA) OF THE IT ACT. 3. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE CIT(A) WHO HAD CONFIRMED THE FINDING OF THE A.O. BY OBSERVING AS UNDER: 8. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. C AREFULLY. FROM THE BREAKUP OF THE BILL AMOUNT, IT IS SEEN THAT THE SERVICE CHARGES PAID TO ROBINSON WHICH HAVE BEEN MENTIONED AS DELIV ERY CHARGES AMOUNT TO RS.57,750/- IN TOTAL OUT OF THE AMOUNT OF RS.22,97,336/-. HOWEVER, THE CONTENTION OF THE A.R. CAN NOT BE ACCE PTED BECAUSE OF THE CBDT CIRCULAR NO. 715 AND I AGREE WITH THE CONC LUSION OF THE A.O. THAT IT IS A COMPOSITE CONTRACT AND THEREFORE THE APPELLANT SHOULD HAVE DEDUCTED TAX AT SOURCE ON THE ENTIRE PA YMENT OF RS.22,97,336/- AND AS TDS HAS NOT BEEN DEDUCTED, TH E DISALLOWANCE MADE U/S. 40(A)(IA) IS HELD TO BE JUSTIFIED AND THE SAME IS CONFIRMED. 4. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT CONTENDED THAT THESE PAYMENTS ARE REIMBURSEMENT OF ACTUAL EXPENDITURE INCURRED ON BEHALF OF THE ASSESSEE BY ROBINSON AIR SERVICES. HE FILED COPY OF ACCOUNTS. THE ASSESSEE FILED PAPER BOOK WHICH SHOW S THAT THESE PAYMENTS ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 5 WERE REIMBURSEMENT TO ROBINSON AIR SERVICES TOWARDS PAYMENTS MADE TO THE CUSTOM DEPARTMENT. HE FURTHER RELIED THAT THESE PA YMENTS ARE NOT PRINCIPAL TO PRINCIPAL BUT BETWEEN ASSESSEE AND PRINCIPAL AGE NT AND THERE IS NO PROFIT ELEMENT IN THESE PAYMENTS. HE RELIED UPON IN CASE OF CIT-III VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. IN TAX APPEAL N O. 315 OF 2013 (GUJ.), WHEREIN PAYMENTS MADE TO C&F AGENT AND REIMBURSEMEN T OF EXPENSES TOWARDS CONSIGNMENTS AGENTS AND NO TDS DEDUCTED BY THE GUJARAT NARMADA VALLEY FERTILIZE CO. LTD. THE CIRCULAR WOULD NOT B E APPLICABLE IN CASE OF APPELLANT. THE HONBLE GUJARAT HIGH COURT CONFIRME D THE ORDER OF THE CIT(A). THUS, HE PRAYED TO DELETE THE ORDER OF THE CIT(A) I N ASSESSEES CASE. AT THE OUTSET, LD. SR. D.R. RELIED UPON THE ORDER OF THE C IT(A) AND PRAYED TO CONFIRM THE ORDER OF THE A.O. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. IT IS EVIDENT THAT NATURE OF PAYMENT IS RE IMBURSEMENT AS CAN BE VERIFIED FROM THE BILLS ISSUED BY M/S. ROBINSON AIR SERVICES FOR PAYMENT MADE TO THE CUSTOM DEPARTMENT. THESE PAYMENTS WERE MADE BY THE ASSESSEE TO HIS AGENT WHICH WERE NOT PRINCIPAL TO PRINCIPAL. T HERE IS ALSO NO PROFIT ELEMENT IN THESE PAYMENTS. THUS, TDS IS NOT LIABLE TO BE D EDUCTED ON IT. ACCORDINGLY, WE REVERSE THE ORDER OF THE CIT(A). THE ASSESSEE G ETS RELIEF ON THIS GROUND. 6. THE THIRD GROUND OF ASSESSEES APPEAL AND THIRD & FOURTH GROUND OF REVENUES APPEAL ARE AGAINST CONFIRMING THE ADDITIO N OF RS. 11,22,513/- BEING INTEREST EXPENSES U/S. 36(1)(III) AND ADMINISTRATIV E EXPENSES OF RS.20,000/- U/S. 14A. THE A.O. FOUND THAT AS PER SCHEDULE 7 OF THE BALANCE SHEET, THE ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 6 APPELLANT COMPANY HAD MADE INVESTMENT IN SHARES OF COMPANIES UNDER THE SAME MANAGEMENT TOTALING TO RS.4,47,88,116/-. THE ASSESSEE COMPANY HAD SHOWN DIVIDEND INCOME FROM SAID INVESTMENTS WHICH W ERE EXEMPTED UNDER THE PROVISIONS OF THE IT ACT. THE PROPORTIONATE IN TEREST EXPENSES AND ADMINISTRATIVE EXPENSES HAD NOT BEEN DISALLOWED BY THE APPELLANT. THEREFORE, A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD, WH ICH WAS REPLIED BY THE APPELLANT. BUT THE APPELLANT HAD NOT FURNISHED THE DETAILS AND EVIDENCES SHOWING SOURCE OF INVESTMENT OF THE FUNDS FROM WHIC H THE INVESTMENT HAVE BEEN MADE. IN ABSENCE OF ANY SPECIFIC DETAILS OF S OURCE OF INVESTMENT, IT COULD BE INFERRED THAT THE ASSESSEE COMPANY HAD INV ESTED INTEREST BEARING FUNDS FOR MAKING THE INVESTMENTS. HE FURTHER RELIE D IN CASE OF HARISH KRISHNAKANT BHATT VS. ITO (2004) 91 ITD 311 (AHD). HE WORKED OUT PROPORTIONATE EXPENDITURE AT RS. 56,57,827/- U/S. 1 4A AND HELD THAT EXPENSES TO THE EXTENT OF RS. 56,57,827/- WERE NOT INCURRED FOR THE PURPOSE OF BUSINESS. ACCORDINGLY, ADDITION OF RS. 56,57,827/- WAS MADE U /S. 36(1)(III) OF THE ACT. SIMILARLY, ADMINISTRATIVE EXPENSES ALSO DISALLOWED AT RS. 20,000/- U/S.14A OF THE IT ACT. 7. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE AS SESSEE CARRIED THE MATTER BEFORE CIT(A) WHO HAD PARTLY ALLOWED THE APP EAL BY OBSERVING AS UNDER: 11. I HAVE CONSIDERED THE SUBMISSIONS OF THE A.R. CAREFULLY. THE A.R. HAS GIVEN DETAILS OF INVESTMENTS OF RS. 4.41 C RORES AND THE YEAR OF INVESTMENT AND THE SOURCE OF INVESTMENT. THE A.R . HAS ALSO FILED COPY OF RETURN OF ALLOTMENT IN FORM NO.2 FILED ON 2 6.4.1996 WITH THE ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 7 REGISTRAR OF COMPANIES, SHOWING THE AMOUNT OF PREMI UM RECEIVED OF RS.1.50 CRORES AND SHARE APPLICATION MONEY RECEIVED TO THE TUNE OF RS.50 LAKHS AND LEDGER FOLIO ACCOUNT FOR THE FINANC IAL YEAR 1995-96 SHOWING RECEIPT OF RS.2.16 CRORES AS SHARE APPLICAT ION MONEY INCLUDING SHARE PREMIUM. THE SAID AMOUNT HAS BEEN I NVESTED IN MAKING INVESTMENTS IN THE SHARES OF GROUP COMPANIES I.E. FERROMETIK MILACRON INDIA LTD AND OTHER GROUP COMPA NIES. THE A.R. HAS ALSO STATED THAT THE APPELLANT HAD INVESTED RS. 1.44 CRORES WITH MAMATA USA, INC, A WHOLLY OWNED SUBSIDIARY AND RS.2 .16 CRORES INVESTMENT HAS BEEN MADE OUT OF SHARE APPLICATION M ONEY, THAT LEAVES BALANCE INVESTMENT OF RS.81 LAKHS WHICH HAS BEEN CLAIMED TO HAVE BEEN INVESTED OUT OF RESERVES AND INTERNAL EAR NINGS OR ACCRUALS. THE A.R. HAS ALSO GIVEN COPY OF BALANCE S HEET FOR THE F.Y.95-96 AS ON 31.03.1996 WHICH SHOWS RESERVES TO THE TUNE OF RS.3.09 CRORES AND RESERVES AS ON 1.4.2004 ARE OF R S.5.91 CRORES. FURTHER, THERE IS NO INVESTMENT IN THE YEAR UNDER C ONSIDERATION AND ALL THE INVESTMENTS HAVE BEEN MADE IN THE EARLIER Y EARS. INVESTMENTS OF RS.2.97 CRORES HAVE BEEN MADE DURING THE PERIOD FROM F.Y.91-92 TO 95-96 AND INVESTMENTS OF RS.1.44 CRORE HAVE BEEN MADE WITH WHOLLY OWNED SUBSIDIARY IN THE F.Y.2003-04. HOWEVER , I FIND THAT IN A.Y.2004-05, THE A.O. HAD MADE DISALLOWANCE U/S.14A IN RESPECT OF INVESTMENTS OF RS.1.44 CRORES WHICH RELATES TO THE INVESTMENT IN MAMATA INC, USA A WHOLLY OWNED SUBSIDIARY COMPANY O F THE APPELLANT WHICH WAS INVESTED IN A.Y.2004-05 AND PRO PORTIONATE INTEREST WAS DISALLOWED TO THE TUNE OF RS.4,32,800/ - WHICH HAS BEEN CONFIRMED BY CIT(A)-VIII IN THE ORDER DATED 18.09.2 007. I ALSO FIND THAT THE BALANCE INVESTMENTS I.E. EXCLUDING THE INV ESTMENT OF RS.1.44 CRORES AS ABOVE, HAVE BEEN MADE IN EARLIER YEARS UPTO F.Y.1997-98 I.E. FROM F.Y. 1991-92 TO 97-98 AND THE SAME HAS BEEN MADE OUT OF THE PRIVATE PLACEMENT OF CAPITAL OF RS. 2.16 CRORES AND INTERNAL ACCRUALS. THEREFORE, PROPORTIONATE DISALLO WANCE SHOULD BE ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 8 MADE ONLY FOR INVESTMENT OF RS.1.44 CRORES IN THE W HOLLY OWNED SUBSIDIARY. THE A.R. HAS GIVEN A WORKING AND HAS SU BMITTED A COPY OF SANCTION LETTER FROM SBI, VATVA BRANCH DATED 31. 10.2003 FOR SANCTION OF RS.3 CRORES CORPORATE LOAN OUT OF WHICH RS.1 CRORE WAS TO BE DEPLOYED FOR INVESTMENT IN WHOLLY OWNED US SU BSIDIARY, AS PER CLAUSE 19, THUS INVESTMENT OF RS.1 CRORE IN THE WHO LLY OWNED SUBSIDIARY HAS BEEN MADE OUT OF THE CORPORATE LOAN OF RS.3 CRORES FROM SBI, AND THE A.R. HAS GIVEN A WORKING OF INTER EST ON THIS LOAN FOR THE RELEVANT FINANCIAL YEAR. THE BALANCE INVEST MENT OF RS.44,18,616/- IN THE SUBSIDIARY COMPANY HAS BEEN S TATED TO BE OUT OF INTERNAL ACCRUALS. THE TOTAL INTEREST LIABILITY FOR F.Y.2004-05 WORKED OUT BY THE A.R. IS OF RS.33,67,538/- ON LOAN OF RS. 3 CRORES, THEREFORE, FOR INVESTMENT OF RS.1 CRORE IN THE WHOLLY OWNED US SUBSIDIARY, THE PROPORTIONATE INTEREST LIABILITY WOULD BE 1/3 RD OF THE SAME WHICH COMES TO RS.11,22,513/-. AS PER THE SAID WORKING AN D THE DETAILS FILED BY THE A.R., I HOLD THAT THE INTEREST DISALLO WANCE SHOULD BE MADE TO THE TUNE OF RS.11,22,513/- AS AGAINST THE D ISALLOWANCE MADE BY THE A,O. OF RS.56,57,827/-. ACCORDINGLY, RE LIEF TO THE APPELLANT COMES TO RS.45,35,314/-. AS REGARDS, DISA LLOWANCE OF RS.20,000/- TOWARDS PROPORTIONATE ADMINISTRATIVE EX PENSES INCURRED FOR EARNING DIVIDEND INCOME THE SAME IS FOUND TO BE REASONABLE AND THE SAME IS THEREFORE, CONFIRMED. THIS GROUND IS PA RTIALLY ALLOWED. 8. NOW THE ASSESSEE AND REVENUE ARE BEFORE US. L D. COUNSEL FOR THE APPELLANT CONTENDED THAT THESE INVESTMENTS HAD BEEN MADE SINCE 1995-96. NO NEW INVESTMENT HAS BEEN MADE DURING THE YEAR. T HESE INVESTMENTS WERE MADE FROM RESERVE, SURPLUS AND PROFIT GENERATED FRO M A.Y. 1995-96. THE APPELLANT HAS DRAWN OUR ATTENTION PAGE NOS. 134 TO 155 OF THE PAPER BOOK AND CLAIMED THAT INVESTMENT IN SHARES OF FERROMETIK MIL ACRON INDIA LIMITED FACE ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 9 VALUE OF RS. 2.16 CRORE WERE MADE FROM RIGHT ISSUE TO EQUITY SHARE HOLDER IN 1995-96 AND INVESTMENT IN SHARE OF MAMATA USA INC. AT RS. 1.44 CRORE WERE MADE IN 2003-04 FROM INTERNAL EARNING OF RS. 44.18 LACS AND OUT OF BORROWING RS.1 CRORE. WHATEVER BORROWING MADE BY THE APPELLA NT FROM SBI FOR SPECIFIC PURPOSE WHICH CANNOT BE DIVERTED TO USE FOR OTHER P URPOSES. HE FURTHER RELIED IN CASE OF CIT I VS. UTI BANK LTD. IN TAX APPEAL NO. 118 OF 20 13 (GUJ.), WHEREIN DISALLOWANCE MADE BY THE A.O. HAD NOT JUSTI FIABLE IN VIEW OF THE HONBLE BOMBAY HIGH COURT DECISION IN CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. 313 ITR 340. HE FURTHER RELIED IN CASE OF ITO, WARD 10(3)(4), MUMBAI VS. STRIDES ARCOLAB LTD. [2012] 138 ITD 323, (MUM.), WHEREIN IT WAS HELD THAT INVESTMENT MADE IN SHARES OF FOREIGN COMP ANIES, DISALLOWANCE U/S. 14A CANNOT BE MADE. BORROWED FUND HAD NOT BEEN UTI LIZED IN INVESTMENT OF SHARES. NO DISALLOWANCE CAN BE MADE. AT THE OUTSE T, LD. SR. D.R. RELIED UPON THE ORDER OF THE LOWER AUTHORITIES AND ARGUED THAT THESE EVIDENCES WERE NOT FURNISHED BEFORE THE A.O. AT THE TIME OF ASSESSMENT . LD. CIT(A) ACCEPTED THE EVIDENCES OF THE APPELLANT WITHOUT GIVING ANY OPPOR TUNITY TO THE A.O. THUS, HE REQUESTED TO CONFIRM THE ACTION OF THE A.O. OR SET ASIDE THIS ISSUE TO THE CIT(A) FOR ALLOWING OPPORTUNITY TO THE A.O. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL ON RECORD. THE APPELLANT HAD NOT ABLE TO PROVE WHATEV ER REPLY WITH EVIDENCES PRODUCED BEFORE THE CIT(A), HAD BEEN FURNISHED TO T HE A.O. AT THE TIME OF ASSESSMENT PROCEEDING, AS PER PAPER BOOK SUBMITTED BY THE APPELLANT ON PAGE NOS. 1 TO 4 & 5 TO 8 I.E. WRITTEN SUBMISSION. IT IS ALSO EVIDENT FROM THE ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 10 ORDER OF THE CIT(A) THAT HE HAS NOT ALLOWED ANY OPP ORTUNITY TO THE A.O. ON THE ADDITIONAL EVIDENCE ADMITTED BY HIM DURING THE COUR SE OF APPELLATE PROCEEDING. THUS, IN THE INTEREST OF JUSTICE, ON T HIS ISSUE, WE SET ASIDE THE ORDER OF THE CIT(A) FOR DE NOVO AND ALSO DIRECTED T O ALLOW REASONABLE OPPORTUNITY OF BEING HEARD TO THE A.O. AND PASS NEC ESSARY ORDER AS PER LAW. GROUND NO.3 OF THE ASSESSEES APPEAL AND GROUND NO. 3 & 4 OF REVENUES APPEAL IS SET ASIDE. 10. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. NOW, WE TAKE I.T.A. NO. 2101 /AHD/ 2008 (REVENUES APPEAL) 11. GROUND NOS. 1 & 2 OF THE REVENUES APPEAL ARE A GAINST DISALLOWANCE MADE BY LD. CIT(A) OUT OF PRIOR PERIOD EXPENSES OF RS.1,17,138/- TO RS. 1,000/-. THE ASSESSEE COMPANY HAD PAID RS.1,13,106 /- FOR SERVICE TAX AND RS. 3,832/- TOWARDS INTEREST AND PENALTY AND DEBITE D THE EXPENDITURE IN THE EXCISE EXPENSES ACCOUNT. THE EXPENSES CLAIMED PERT AINED TO FINANCIAL YEAR 2003-04 RELEVANT TO A.Y. 2004-05. ON THIS ISSUE, T HE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD, WHICH WAS REPLIED BY T HE ASSESSEE AND CONSIDERED BY THE A.O. THE A.O. HELD THAT EXPENSES WERE RELEVANT TO A.Y. 04- 05 WHEREAS THE EXPENDITURE CLAIMED DURING THE CURRE NT YEAR. THE ASSESSEE COMPANY FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. THUS, PRIOR PERIOD EXPENSES ARE NOT ALLOWABLE. THEREFORE, HE MADE ADD ITION OF RS. 1,17,138/-. LD. CIT(A) OBSERVED THAT THE APPELLANT HAD PAID THI S AMOUNT ON 24.06.2004. THUS, THIS AMOUNT IS ALLOWABLE U/S. 43B OF THE IT A CT DURING THE YEAR UNDER ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 11 CONSIDERATION, BUT RS. 1,000/- PERTAINED TO PENALTY WHICH IS NOT ALLOWABLE U/S. 37 OF THE IT ACT. THE REVENUE AGAIN REITERATED THE FACTS OF ARGUMENT AS OBSERVED IN THE ASSESSMENT ORDER AND ARGUED TO CONF IRM THE ADDITION WHEREAS LD. COUNSEL FOR THE APPELLANT ARGUED THAT THESE EXP ENSES HAD BEEN CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AN D ACCORDINGLY, APPELLANT HAD CLAIMED THESE EXPENSES. THE FACT IS THAT HIS P AYMENTS WERE OUTSTANDING FOR A.Y. 2004-05 WHICH WAS PAID IN A.Y. 05-06 AND A LLOWABLE U/S. 43B OF THE IT ACT. THUS, IT IS ALLOWABLE U/S. 43B OF THE IT ACT, WHICH WERE PAID BEFORE THE DUE DATE OF FILING OF RETURN BY THE APPELLANT. ON GROUND NOS. 1 & 2, REVENUES APPEAL IS DISMISSED & ON GROUND NO.2 & 3, REVENUES APPEAL IS SET ASIDE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED. AT LAST, WE TAKE ITA NO. 1257/AHD/2012 (ASSESSEES APPEAL FOR PENALTY) 13. THE A.O. IMPOSED PENALTY U/S. 271(1)(C) ON THE BASIS OF ADDITIONS MADE BY THE A.O. UNDER THE FOLLOWING HEADS: I. DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 1, 17,138/- II. DISALLOWANCE U/S. 14A OF RS. 56,77,827/- III. DISALLOWANCE U/S. 40(A)(IA) OF RS. 34,20,850/- THE A.O. GAVE REASONABLE OPPORTUNITY OF BEING HEARD BEFORE IMPOSING PENALTY, WHICH WAS REPLIED BY THE ASSESSEE VIDE LET TER DATED 05.02.2010. IT ALSO RELIED UPON VARIOUS CASE LAWS BEFORE THE A.O. AFTER CONSIDERING THE ASSESSEES REPLY, THE LD. A.O. HELD THAT THE APPELL ANT HAD FURNISHED INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALED ITS INC OME. THUS, HE SATISFIED ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 12 THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICUL ARS OF INCOME IN RESPECT OF ALL THE ISSUES DISCUSSED IN ASSESSMENT ORDER AND CO NFIRMED BY THE JUDGMENT OF THE CIT(A)/ITAT. THE LD. A.O. OBSERVED THAT AFT ER GIVING THE EFFECT TO CIT(A) ORDER THE REVISED TOTAL INCOME COMES TO RS. 81,88,4 50/- WHILE THE RETURN OF INCOME WAS RS. 43,31,780/-. THE APPELLANT HAD FURN ISHED INACCURATE PARTICULARS OF RS.37,90,670/- TAX ON INCOME WAS WOR KED OUT AT RS.13,87,101/-. HE IMPOSED MINIMUM PENALTY I.E. 100% OF TAX SOUGHT TO BE EVADED AT RS. 13,87,101/- U/S. 271(1)(C) OF THE IT ACT. 14. BEING AGGRIEVED BY THE ORDER OF THE A.O., THE A SSESSEE CARRIED THE MATTER BEFORE CIT(A) WHO HAD PARTLY ALLOWED THE APP EAL BY OBSERVING THAT HE HAD NOT ACCEPTED ASSESSEES CLAIM THAT MERE MAKING OF CLAIM WHICH IS NOT SUBSTANTIABLE IN LAW BY ITSELF WILL NOT AMOUNT TO F URNISH INACCURATE PARTICULARS REGARDING INCOME OF THE ASSESSEE. AFTER CONSIDERIN G THE DECISION OF HONBLE APEX COURT IN CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. (2010) 322 ITR 158, WHEREIN IT WAS HELD THAT WHERE MORE THAN ONE VIEW C AN BE TAKEN FOR ANY ISSUE THAT CANNOT BE SAID TO BE CONCEALMENT OF INCO ME OR FURNISHING OF THE INACCURATE INCOME. BUT, IT IS NOT APPLICABLE IN CA SE OF ASSESSEE AS ASSESSEE HAS NOT DEDUCTED TDS ON PAYMENTS MADE. HE FURTHER RELIED IN CASE OF CIT VS. ZOOM COMMUNICATION (P) LTD. 40 DTR (DEL) 249. THUS, HE CONFIRMED THE PENALTY ORDER PARTLY. 15. NOW THE ASSESSEE IS BEFORE US. LD. COUNSEL FOR THE APPELLANT ARGUED THAT ALL THE ADDITIONS MADE BY THE A.O. ARE DEBATAB LE AND HAVE TWO VIEWS FOR WHICH HE RELIED IN CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. (SURPA) & ITA NO. 1211 & 2101/AHD/2008 & ITA NO. 1257/AHD/201 2 A.Y. 05-06 PAGE 13 PRICE WATERHOUSE COOPERS PVT. LTD. 348 ITR 308 (SC) AND REQUESTED TO DELETE THE PENALTY. AT THE OUTSET, LD. SR. D.R. RE LIED UPON THE ORDER OF THE CIT(A). 16. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL ON RECORD AND DECISIONS TAKEN IN THE QUANTUM APPEAL BY THIS BENCH. WE DO NOT FIND ANY REASON TO CONFIRM THE PENALTY AS MOST OF A DDITIONS HAD BEEN DELETED BY THIS BENCH AND PARTLY MATTER IS SET ASIDE TO THE A.O. THUS, WE ALLOW THE APPEAL OF THE ASSESSEE. 17. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 18. IN THE COMBINED RESULT, THE ASSESSEES AND REVE NUES QUANTUM APPEAL IS PARTLY ALLOWED AND THE ASSESSEES APPEAL IN PENA LTY IS ALLOWED. THESE ORDERS PRONOUNCED IN OPEN COURT ON 02.09.2013 SD/- SD/- (G.C.GUPTA) (T.R. MEENA) VICE PRESIDENT ACCOUNTANT MEMBER TRUE COPY S.K.SINHA / COPY OF ORDER FORWARDED TO:- 1. '#$ / APPELLANT 2. &'#$ / RESPONDENT 3. )*)+ ' ', / CONCERNED CIT 4. ' ',- ' / CIT (A) 5. 01'' +, ' ''' +, 34 * / DR, ITAT, AHMEDABAD 6. 167 89 / GUARD FILE. BY ORDER/ , :/3' )' ' ''' +, 34 * <