Income-tax Officer, V. Mharashtra Co.operative Development Corporation, Pune

ITA 1233/PUN/2014

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 2271 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-10-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Keywords: Business income; Capital expenditure
• Section: 37(1)

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1233/PN/2014 '% % / ASSESSMENT YEAR : 2007-08 ITO, WARD-11(1), PUNE . / APPELLANT V/S MAHARASHTRA COOPERATIVE DEVELOPMENT CORPORATION LTD., SAKHAR SANKUL, SHIVAJINAGAR, PUNE 411 005 PAN NO.AADCM0636L . / RESPONDENT / APPELLANT BY : SHRI HITENDRA NINAWE / RESPONDENT BY : SHRI S.N.PURANIK / ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE OR DER DATED 29-11-2013 OF THE CIT(A)-I, PUNE RELATING TO THE A SSESSMENT YEAR 2007-08. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEEIS A N ON BANKING FINANCE COMPANY (NBFC) FORMED UNDER THE AEGIS OF THE GOVT. MAHARASHTRA WITH THE OBJECT OF PROVIDING FINANCIAL SERVICES TO CO-OPERATIVE ORIGINATIONS IN MAHARASHTRA STATE. THE BOARD OF / DATE OF HEARING :20.10.2015 / DATE OF PRONOUNCEMENT:21.10.2015 2 ITA NO.1233/PN/2014 DIRECTORS OF THE COMPANY CONSISTS OF MINISTERS OF T HE VARIOUS DEPARTMENTS OF THE STATE GOVERNMENT AND IS CHAIRED BY THE CHIEF MINISTER. OUT OF THE TOTAL SHARE HOLDINGS, 51 % SHARE IS HELD BY THE STATE GOVERNMENT WHILE THE REST IS HELD BY COOPERATIVE SOCIETIES IN MAHARASHTRA. THE FINANCIAL ASSISTANCES ARE GIVEN BY WAY OF LOAN IN TERMS OF THE TRIPARTITE AGREEMENTS BETWEEN THE ASSESSEE COMPANY, BORROWER AND GOVT. OF MAHARASHTRA WHICH GUARANTEES THE REPAYMENTS OF THE LOANS AND INTEREST. THE ASSESSING OFFICER NOTED THAT THE ASSE SSEE HAD RAISED A LOAN OF RS.113 CRORES FROM THE GOVT. OF MA HARASHTRA TO MEET ITS REPAYMENT LIABILITY OF FUNDS RAISED FROM O PEN MARKET, WHICH CARRIED AN INTEREST RATE OF 9% P.A. WITH PROV ISION FOR PAYMENT OF ADDITIONAL INTEREST LIABILITY OF 2% IN C ASE OF DELAY. DURING THE IMPUGNED ASSESSMENT YEAR, THE ASSESSEE W AS FOUND TO HAVE DEBITED AN AMOUNT OF RS.22,60,050/- ON ACCOUNT OF PENAL INTEREST IN ITS INCOME & EXPENDITURE A/C FOR DELAY IN REPAYMENT OF THE LOAN INSTALLMENTS TO THE STATE GOV T. NOTING THAT THE ADDITIONAL INTEREST LIABILITY WAS PENAL IN NATURE, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE DEDUCTI ON CLAIMED FOR THE EXPENDITURE SHOULD NOT BE DISALLOWED. THE A SSESSEE CONTENDED THAT THE EXPENDITURE WAS INCURRED IN THE ORDINARY COURSE OF THE BUSINESS OF THE ASSESSEE AND WAS NOT IN THE NATURE OF ANY FINE FOR INFRINGEMENT OF ANY LAW. IT WAS ARG UED THAT THE ASSESSEE IS A GOVERNMENT SPONSORED ORGANIZATION AND THE INTEREST PAYMENT BEING A TRANSACTION BETWEEN THE GO VERNMENT COMPANY AND THE GOVERNMENT, THERE WAS NO BASIS FOR MAKING THE IMPUGNED DISALLOWANCE. 3 ITA NO.1233/PN/2014 3. HOWEVER, THE PLEADINGS OF THE ASSESSEE FAILED TO IMPRESS THE ASSESSING OFFICER. HE NOTED THAT THE GOVT. ORD ER DATED 15/02/2006 BEARING NO. MSV-2005/PR.KR. 476/2-5 SANCTIONING THE LOAN CLEARLY PROVIDED FOR PAYMENT OF PENAL INTEREST IN CASE OF DELAY IN REPAYMENT. THEREFORE, SUCH AN OUTGO CANNO T BE ALLOWED AS DEDUCTION FROM BUSINESS INCOME. ACCORDINGLY, PEN AL INTEREST EXPENDITURE CLAIMED OF RS.22,60,050/- WAS DISALLOWE D AND ADDED BACK TO THE INCOME OF THE ASSESSEE. 4. IN APPEAL THE LD.CIT(A) FOLLOWING THE ORDER OF HIS PREDECE SSOR IN ASSESSEES OWN CASE FOR A.Y. 2008-09 DELETED THE DISALL OWANCE MADE BY THE AO. 5. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE ON ACCO UNT OF PENAL INTEREST PAYABLE TO THE GOVT. OF MAHARASHTRA INSTEAD O F CONFIRMING THE SAME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LD.CIT(A) HAS ERRED IN NOT CONSIDERING THE FACT THAT IT WAS CLEARLY MENTIONED IN THE GOVT. OF MAHARASHTRA ORDER DATED 15 -02-2006 BEARING NO. MSV-2005/PR.KR.476/2-5 THAT THE DELAY I N REPAYMENT OF LOAN ALONG WITH INTEREST WILL RESULT IN LEVY OF PENA L INTEREST AT THE RATE OF TWO PERCENT. 3. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LD.CIT(A) MAY BE VACAT ED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND ANY OR ALL THE GROUNDS OF APPEAL 6. THE LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET FILED A COPY OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.YR S. 2009-10 AND 2008-09 VIDE ITA NO.302/PN/2013 AND ITA NO.1672/PN /2012 ORDER DATED 24-12-2013 AND SUBMITTED THAT UNDER IDENT ICAL FACTS AND CIRCUMSTANCES THE APPEAL FILED BY THE REVENUE HAS BE EN 4 ITA NO.1233/PN/2014 DISMISSED BY THE TRIBUNAL. HE ACCORDINGLY SUBMITTED THAT T HIS BEING A COVERED MATTER THE ORDER OF THE CIT(A) BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE BE DISMISSED. 7. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAN D FAIRLY CONCEDED THAT THE ISSUE STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y RS. 2008- 09 AND 2009-10. 8. AFTER HEARING BOTH THE SIDES, WE FIND THE TRIBUNAL IN ASSESSEES OWN CASE CITED (SUPRA) AT PARA 4 OF THE ORDE R HAS DECIDED THE ISSUE AND THE GROUNDS RAISED BY THE REVENUE HAVE BEEN DISMISSED. THE RELEVANT OBSERVATION OF THE TRIBUNAL AT PARA 4 OF THE ORDER READS AS UNDER : 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. THE DETAIL FACTS ARE GIVEN HERE-IN-ABOVE. THE SHORT ISSUE FOR OUR CONSIDERATION IS WHETHER THE PENAL INTEREST PAYABLE BY THE ASSESSEE TO TH E GOVERNMENT FOR DEFAULTING IN REPAYMENT OF THE LOAN IS HIT BY EX PLANATION BELOW SEC. 31(1). IT IS NECESSARY TO EXAMINE THE SAID PROVISION: 37(1) ANY EXPENDITURE (NOT BEING EXPENDITURE OF TH E NATURE DESCRIBED IN SECTIONS 30 TO 26 AND NOT BEING IN THE NA TURE OF CAPITAL EXPENDITURE OF PERSONAL EXPENSES OF THE ASSESSEE) , LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPO SES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. [EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HERE BY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PU RPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHAL L NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSES OF BUSIN ESS OF PROFESSION AND NOT DEDUCTION OR ALLOWANCE SHALL BE MAD E IN RESPECT OF SUCH EXPENDITURE.] 5. NOW LET US EXAMINE THE FACTS OF THIS CASE IN THE BAC K DROP OF THE ABOVE EXPLANATION. THE ASSESSEE HAS RAISED A LOAN OF RS.1 13 CRORES TO MAKE REPAYMENT TO THE INVESTORS OF 13% MCDC BONDS (SER IES-I) AND THE SANCTION LETTER PROVIDED FOR REPAYMENT OF LOAN T O THE GOVT. IN 10 EQUAL INSTALLMENTS WITH A MORATORIUM OF ONE YEAR ON T HE INTEREST OF 9%. THE SAID SANCTION LETTER FURTHER PROVIDED FOR PA YMENT OF 2% OF PENAL INTEREST, IF THE ABOVE TERMS OF THE LOAN ARE NO T COMPLIED WITH. IT IS CLEAR FROM THE ABOVE FACTS THAT THE PENAL INTEREST IS NOT FOR ANY OFFENCE BUT IT IS FOR FAILURE TO KEEP CONTRACTUAL C OMMITMENT BY THE 5 ITA NO.1233/PN/2014 ASSESSEE. FAILURE TO COMPLY WITH THE CONTRACTUAL OBLIG ATION CANNOT BE EQUATED WITH THE OFFENCE WHICH IS CONTEMPLATED IN E XPLANATION BELOW SEC. 37. IN OUR OPINION, THE LD. CIT(A) HAS RIGHTLY DELETED THE HIGH PITCH ADDITIONS WHICH ARE MADE BY THE ASSESSING OFFICER . WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) . ACCORDINGLY, THE GROUNDS TAKEN BY THE REVENUE ARE DISMISSED IN BOTH ASSESSME NT YEARS. 9. SINCE FACTS OF THE INSTANT CASE ARE IDENTICAL TO THE FAC TS OF THE CASE DECIDED BY THE TRIBUNAL, THEREFORE, RESPECTFULLY FOLLOWI NG THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABSE NCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE WE UPHOLD THE O RDER OF THE CIT(A) ON THIS ISSUE. GROUNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21-10-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; # DATED : 21 ST OCTOBER, 2015. LRH'K ( )'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. CIT(A) - I, PUNE 4. 5. 6. CIT-I, PUNE ' *, *, IQ.KS / DR, ITAT, B PUNE; / GUARD FILE. / BY ORDER , ' //TRUE COPY// / * / SR. PRIVATE SECRETARY *, IQ.KS / ITAT, PUNE