ACIT, CHENNAI V. M/s. State Industries Promotion Corporation of Tamilnadu Ltd., CHENNAI

ITA 1291/CHNY/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1159 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 07-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DR SMT ANITA SUMANTH
• Keywords: Bad and doubtful debts
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 1290, 1291, 1292, 1293/MDS/2011 (ASSESSMENT YEARS : 2003-04, 2007-08 & 2008-09) & I.T.A. NO. 2059/MDS/2012 (ASSESSMENT YEAR : 2009-10) THE ASSISTANT COMMISSIONER OF INCOME TAX / DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(4), CHENNAI - 600 034. (APPELLANT) V. M/S STATE INDUSTRIES PROMOTION CORPORATION OF TAMILNADU LTD., 19A, RUKMANI LAKSHMIPATHY RD., EGMORE, CHENNAI - 600 008. PAN : AAACS 4643 J (RESPONDENT) APPELLANT BY :SHRI SHAJI P. JACOB, ADDL. CIT RESPONDENT BY :DR. (SMT.) ANITA SUMANTH, ADVOCATE DATE OF HEARING : 20.02.2013 DATE OF PRONOUNCEMENT : 07.03.2013 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS FILED BY THE REVENUE AGAINST OR DERS OF COMMISSIONER OF INCOME TAX (APPEALS)-V, CHENNAI, FO R THE IMPUGNED ASSESSMENT YEARS. 2 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 2. APPEALS FOR ASSESSMENT YEARS 2003-04, 2008-09 AN D 2009-10 ARE TAKEN UP FIRST FOR DISPOSAL. SOLE ISSUE RAISED BY THE REVENUE FOR THESE YEARS IS ON AN ADDITION FOR ACCRUED INTEREST MADE B Y THE ASSESSING OFFICER, DELETED BY THE CIT(APPEALS). AS PER REVEN UE, CONSIDERING THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN TH E CASE OF TAMILNADU POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPOR ATION LTD. V. JCIT (280 ITR 491), CIT(APPEALS) SHOULD HAVE UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 3. FACTS APROPOS ARE THAT ASSESSEE, A NON-BANKING F INANCIAL COMPANY, WHOLLY OWNED BY THE STATE OF TAMIL NADU, W AS ENGAGED IN PROMOTION OF INDUSTRIAL INFRASTRUCTURE IN THE STATE OF TAMIL NADU BY ACQUIRING LAND, DEVELOPING INFRASTRUCTURE, INCLUDIN G SPECIAL ECONOMIC ZONES AND PROVIDING FINANCIAL ASSISTANCE BY WAY OF MEDIUM AND LONG TERM LOANS. BALANCE SHEET OF THE ASSESSEE FOR THE RESPECTIVE ASSESSMENT YEARS, VIDE SCHEDULE L THEREOF, GIVING NOTES ON ACCOUNTS, MENTIONED THAT UNREALIZED INTEREST ON LOANS, INTERE ST ON PLOT COST AND INTEREST ON SEED CAPITAL ASSISTANCE WERE NOT RECOGN IZED AS INCOME. CLARIFICATIONS WERE SOUGHT FROM THE ASSESSEE AS TO WHY ACCRUED INTEREST ON LOANS SHOULD NOT BE CONSIDERED AS INCOME OF THE ASSESSEE FOR IMPUGNED ASSESSMENT YEARS SINCE IT WAS FOLLOWING ME RCANTILE SYSTEM OF ACCOUNTING. REPLY OF THE ASSESSEE WAS THAT IT COUL D FOLLOW CASH BASIS 3 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 ACCOUNTING. AS PER THE ASSESSEE, BY VIRTUE OF NOTI FICATION NO.GSR 550 (E) DATED 16.5.89 AND GST 770 (E) DATED 10.9.90, IT WAS ONLY REQUIRED TO DISCLOSE THE INTEREST THAT COULD ARISE FROM SUCH LOANS ONLY IN NOTE ON ACCOUNTS EVEN IF MERCANTILE SYSTEM WAS ADOPTED. FU RTHER, AS PER ASSESSEE, IT WAS WELL WITHIN ITS RIGHT NOT TO SHOW INCOME FROM SUCH LOANS, WHICH WERE NON-PERFORMING ASSETS. HOWEVER, THE ASS ESSING OFFICER WAS NOT IMPRESSED. ACCORDING TO HIM, MERELY BECAUSE RE SERVE BANK OF INDIA DIRECTED THE ASSESSEE TO MAKE CERTAIN PROVISI ONS FOR NON- PERFORMING ASSETS, WOULD NOT MEAN THAT SUCH DIRECTI ONS WOULD OVERRIDE MANDATORY PROVISIONS OF INCOME-TAX ACT. RELYING ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF TA MILNADU POWER FINANCE AND INFRASTRUCTURE DEVELOPMENT CORPORATION LTD. (SUPRA), ASSESSING OFFICER HELD THAT DEDUCTION COULD NOT BE ALLOWED FOR ANY AMOUNTS EXCEEDING 5% OF TOTAL INCOME IN RESPECT OF PROVISIONS OF BAD AND DOUBTFUL DEBTS. AS PER THE ASSESSING OFFICER, ASSESSEES PLEA THAT BY FOLLOWING CASH BASIS OF ACCOUNTING IN RESPECT OF SUCH LOANS, THERE WAS NO ESCAPEMENT OF TAXABLE INCOME, COULD NOT BE ACCEP TED, SINCE IT WOULD AMOUNT TO POSTPONEMENT OF TAXABLE LIABILITY. FURTH ER, AS PER THE A.O., ASSESSEE COULD NOT FURNISH ANY EVIDENCE TO SHOW THA T IT HAD CHANGED THE METHOD OF ACCOUNTING FROM MERCANTILE SYSTEM TO CASH IN RESPECT OF INTEREST ON SUCH LOANS WITH A VALID LEGAL APPROVAL. IN THIS VIEW OF THE 4 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 MATTER, HE MADE AN ADDITION OF THE INTEREST AMOUNTS MENTIONED IN SCHEDULE L NOTES ON ACCOUNTS. THIS CAME TO ` 43,02,55,000/- FOR ASSESSMENT YEAR 2003-04, ` 1,65,04,000/- FOR ASSESSMENT YEAR 2008-09 AND ` 44.71 LAKHS FOR ASSESSMENT YEAR 2009-10. 4. IN ITS APPEALS BEFORE CIT(APPEALS) FOR THESE YEA RS, ARGUMENT OF THE ASSESSEE WAS THAT INTERESTS, WHICH WERE NOT CONSIDE RED AS INCOME, WERE INTERESTS ON SUCH LOANS WHICH HAD BECOME NON-P ERFORMING ASSETS. AS PER ASSESSEE, ON THESE LOANS, NO INTEREST WAS RE CEIVED FOR SIX MONTHS AND PRUDENTIAL NORMS PRESCRIBED BY RESERVE B ANK OF INDIA, WHICH WERE MANDATORY FOR NON-BANKING FINANCIAL INST ITUTIONS, CLEARLY RESTRAINED IT FROM RECOGNIZING INTEREST ON NON-PERF ORMING ASSETS (NPA IN SHORT). AS PER ASSESSEE, CBDT CIRCULAR NO.401 DATE D 30.6.1987 ALSO MENTIONED THAT STATE FINANCIAL CORPORATIONS WERE GO VERNED BY THE DIRECTIVES OF RESERVE BANK OF INDIA. CRUX OF THE C ONTENTION OF THE ASSESSEE WAS THAT IT, BEING A NON-BANKING FINANCIAL COMPANY, IT WAS BOUND TO FOLLOW PRUDENTIAL NORMS PRESCRIBED BY RBI UNDER RBI ACT AND COULD NOT RECOGNIZE ANY INTEREST ON LOANS WHICH HAD BECOME NPA. RELIANCE WAS PLACED BY THE ASSESSEE ON THE DECISION OF HON'BLE APEX COURT IN THE CASE OF TRO V. CUSTODIAN, SPECIAL COUR T ACT, 1934 (293 ITR 369), FOR ITS SUBMISSION THAT SECTION 45Q OF RBI AC T HAD OVERRIDING EFFECT TO PROVISIONS OF INCOME-TAX ACT. FURTHER, AS PER T HE ASSESSEE, ONLY THE 5 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 REAL INCOME COULD BE TAXABLE UNDER INCOME-TAX ACT A ND THERE COULD NOT HAVE BEEN ANY ADDITION FOR UNREALIZED INTEREST ON S TICKY LOANS, SINCE SUCH INTERESTS WERE NEVER CHARGED IN THE ACCOUNTS A T ALL. CONSIDERABLE RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF CIT V. VASISTH CHAY VAAPAR LTD. (330 ITR 440). 5. LD. CIT(APPEALS) WAS APPRECIATIVE OF CONTENTIONS OF THE ASSESSEE. ACCORDING TO HIM, DECISION OF HONBLE DELHI HIGH CO URT IN VASISTH CHAY VAAPAR LTD. (SUPRA) WAS APPLICABLE ON ALL FOUR SQUARES, WHEN COMPARED TO THE FACTS IN ASSESSEES CASE. THERE ALSO THE QU ESTION WAS WHETHER A NON-BANKING FINANCIAL COMPANY WAS BOUND BY DIRECTIV ES OF RESERVE BANK OF INDIA AND WHETHER AN ASSESSING OFFICER COUL D MAKE ADDITION FOR INTEREST ACCRUED ON NON-PERFORMING ASSETS, EVENTHOU GH ASSESSEE HAD NOT ACCOUNTED FOR SUCH INTERESTS. AS PER LD. CIT(A PPEALS), HONBLE DELHI HIGH COURT, HAD AFTER CONSIDERING THE DECISION OF H ON'BLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. V. JCIT (320 ITR 577), H ELD THAT NBFCS WERE BOUND TO FOLLOW PRUDENTIAL NORMS PRESCRI BED BY RESERVE BANK OF INDIA SINCE SUCH PRUDENTIAL NORMS WERE ISSU ED BY RBI UNDER CHAPTER III OF RBI ACT, 1934. ACCORDING TO LD. CIT (APPEALS), SECTION 45Q OF RBI ACT HAD AN OVERRIDING EFFECT AND THE DIRECTI ONS ISSUED UNDER SECTION 45Q CONSTITUTED A CODE BY ITSELF. INSOFAR AS CHARGING OF INTEREST AND PROVISIONING WAS CONCERNED, A NON-BANKING FINAN CIAL INSTITUTION 6 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 HAD TO FOLLOW SUCH PRUDENTIAL NORMS PRESCRIBED UNDE R SECTION 45Q AND HAD NO CHOICE. IN THIS VIEW OF THE MATTER, HE DELE TED THE ADDITIONS MADE BY THE ASSESSING OFFICER FOR ALL THESE YEARS. 6. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDERS OF CIT(APPEALS), SUBMITTED THAT ASSESSEE WAS ADMITTEDL Y FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. ASSESSEE WAS HAVI NG AGREEMENTS WITH EACH OF THE PARTIES TO WHOM MONEYS WERE LOANED BY IT. AS PER SUCH AGREEMENTS, INTEREST ACCRUED TO THE ASSESSEE. THE PARTIES WERE LAWFULLY BOUND TO PAY THE ASSESSEE, INTEREST ON THE MONEY BO RROWED BY THEM. ACCRUAL OF INTEREST HAD HAPPENED BASED ON THE AGREE MENTS AND ASSESSEE HAD A LEGAL RIGHT TO CLAIM SUCH AMOUNT FRO M THE BENEFICIARIES OF THE LOANS. THEREFORE, IT COULD NOT SAY THAT THE RE WAS NO ACCRUAL OF INTEREST ON SUCH LOANS. THERE WAS NO WRITE OFF OF ANY BAD DEBT. ONCE AN ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING AND INCIDENCE OF ACCRUAL OF INCOME WAS BASED ON AGREEMENTS, IT CO ULD NOT SAY THAT BASED ON SOME NORMS OF RESERVE BANK OF INDIA, IT WA S POSSIBLE FOR IT, NOT TO SHOW SUCH INCOME. ACCORDING TO LEARNED D.R. , AUTHORITIES UNDER INCOME-TAX ACT WERE NOT BOUND BY THE PRUDENTIAL NOR MS PRESCRIBED BY RESERVE BANK OF INDIA. IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA), HON'BLE APEX COURT HAD CLEARLY HELD THAT R BI DIRECTIVES WERE ONLY IN THE CONTEXT OF PRESENTATION OF NPA IN THE B ALANCE SHEETS. 7 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 BALANCE SHEET OF AN NBFC HAD NOTHING TO DO WITH TAX ABLE INCOME. AS PER LEARNED D.R., THEIR LORDSHIP IN THE CASE OF SOU THERN TECHNOLOGIES LTD. (SUPRA) CLEARLY OBSERVED THAT NATURE OF EXPEND ITURE UNDER INCOME- TAX ACT COULD NOT BE CONCLUSIVELY DETERMINED BY THE MANNER IN WHICH ACCOUNTS WERE PRESENTED BASED ON RBI DIRECTIVES. T HEREFORE, ACCORDING TO LEARNED D.R., PROVISION FOR NPA WAS TO BE FOLLOW ED BY THE ASSESSEE ONLY FOR PRESENTATION OF ACCOUNTS UNDER RBI DIRECTI VES. HOWEVER, FOR INCOME-TAX ACT, IT WAS BOUND TO SHOW ITS INCOME BAS ED ON THE METHOD OF ACCOUNTING FOLLOWED. RELIANCE WAS PLACED ON THE DE CISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNITED NIL AGIRI TEA ESTATES CO. V. DCIT [TC(A) NO.278 OF 2006 DATED 17.7.2012]. ACCOR DING TO HIM, IN THIS CASE, HONBLE JURISDICTIONAL HIGH COURT HAD CLEARLY HELD THAT WHEN AN ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT ING, BASED ON ACCRUAL THEORY OF INCOME, INTEREST INCOME WAS TO BE ASSESSED IN THE YEAR IT HAD ACCRUED AND BECAME DUE. 7. PER CONTRA, LEARNED A.R., STRONGLY SUPPORTING TH E ORDERS OF CIT(APPEALS), SUBMITTED THAT THE DECISION OF HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF UNITED NILAGIRI TEA ESTATES CO . (SUPRA) WAS NOT WITH REFERENCE TO A PROVISION OR WRITE OFF MADE BY A NON -BANKING FINANCIAL COMPANY. THE SAID COMPANY WAS NOT A NBFC AT ALL. THE QUESTION WHETHER AN NBFC, WHICH WAS REGULATED BY RBI AND WAS TO FOLLOW THE 8 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 PRUDENTIAL NORMS, WAS BOUND TO SHOW ACCRUAL OF INTE REST INCOME ON NON- PERFORMING ASSETS, ACCORDING TO LEARNED A.R., STOOD ALREADY ANSWERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VAAPAR LTD. (SUPRA). AS PER LEARNED A.R., THEIR LORDSHIP, FOR DECIDING THE CASE, HAD TAKEN INTO CONSIDERATION JUDGMENT OF HON'BLE APEX C OURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA). ACCORDING TO H ER, LD. CIT(APPEALS) WAS JUSTIFIED IN ALLOWING THE APPEAL OF THE ASSESSE E BY DELETING THE ADDITIONS MADE BY THE A.O. 8. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO DISPUTE THAT ASSESSEE IS A NON-BANKING FINANCIAL COMPANY. THERE CANNOT ALSO BE A DISPUTE THAT BEING A NON-BAN KING FINANCIAL COMPANY, ASSESSEE WAS BOUND BY RBI DIRECTIVES. PRU DENTIAL NORMS HAVING BEEN PRESCRIBED BY RESERVE BANK OF INDIA, BY VIRTUE OF POWER VESTED IN IT UNDER RBI ACT, ASSESSEE WAS BOUND TO F OLLOW SUCH PRUDENTIAL NORMS. NO DOUBT, HON'BLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) HAD HELD THAT TH E RESERVE BANK OF INDIA DIRECTIONS, 1998 WAS ONLY IN THE CONTEXT OF P RESENTATION OF NPA IN THE BALANCE SHEET AND SUCH DIRECTIONS OPERATED IN A TOTALLY DIFFERENT FIELD THAN OF INCOME-TAX ACT, 1961. IT HAS ALSO BEEN HEL D BY HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNITED NIL AGIRI TEA ESTATES CO. (SUPRA) THAT AN ASSESSEE FOLLOWING MERCANTILE SYSTE M OF ACCOUNTING HAD 9 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 TO SHOW INTEREST INCOME IN THE YEAR IN WHICH IT HAD ACCRUED. HOWEVER, THERE IS A FINE DISTINCTION, IN OUR OPINION, BETWEE N A PROVISION MADE FOR BAD DEBTS BASED ON THE PRUDENTIAL NORMS, BY A NON-B ANKING FINANCIAL COMPANY AND NON-CHARGING OF INTEREST ON NPA IN THE BOOKS OF ACCOUNTS BY A NON-BANKING FINANCIAL COMPANY. ADMITTEDLY, H ERE THE ASSESSEE WAS PROVIDING LOANS TO ITS CLIENTS AS ALSO SEED CAP ITAL ASSISTANCE. CONTENTION OF THE ASSESSEE THAT LOANS ON WHICH INTE RESTS WERE NOT RECEIVED FOR A PERIOD OF SIX MONTHS BECAME NON-PERF ORMING ASSET, AS PER THE PRUDENTIAL NORMS, IS ALSO IN CONSONANCE WITH TH E PRUDENTIAL NORMS. BUT, HERE WHAT HAS BEEN ADDED BY THE ASSESSING OFFI CER IS NOT ANY INTEREST REVERSAL DONE BY THE ASSESSEE OR ANY PROVI SION MADE IN THE ACCOUNTS FOR NON-PERFORMING ASSETS. IT IS NOT EQUI VALENT TO A CASE WHERE ASSESSEE HAD ALREADY CHARGED INTEREST ON LOANS IN I TS BOOKS AND THEREAFTER REVERSED SUCH INTEREST, FINDING ITS RECO VERY TO BE DIFFICULT OR BASED ON PRUDENTIAL NORMS. ON THE OTHER HAND, IT I S A CASE WHERE THE ASSESSEE DID NOT CHARGE ANY INTEREST IN ITS ACCOUNT S ON NON-PERFORMING ASSETS AT ALL. IT IS NOT DISPUTED THAT UNDER THE P RUDENTIAL NORMS PRESCRIBED FOR NON-BANKING FINANCIAL COMPANIES, INT EREST COULD NOT HAVE BEEN RECOGNIZED ON NON-PERFORMING ASSETS. HON 'BLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA) WAS DEALING WITH A CASE WHERE ASSESSEE HAD BAD DEBTS AND HAD CLAIMED DEDUCT ION UNDER 10 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 SECTION 36(1)(VII) OF THE ACT. IN OUR OPINION, THI S CANNOT BE EQUATED WITH AN ASSESSEE WHICH HAS NOT CHARGED INTEREST IN ITS B OOKS OF ACCOUNTS. IN OUR OPINION, LEARNED A.R. IS RIGHT IN HER ARGUMENT THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF UNITED NIL AGIRI TEA ESTATES CO. (SUPRA) WAS DEALING WITH AN ASSESSEE WHICH WAS NOT A NON-BANKING FINANCIAL COMPANY. AN ASSESSEE WHICH IS NOT A NON- BANKING FINANCIAL COMPANY, IS NOT BOUND BY ANY PRUDENTIAL NORMS OR RB I REGULATIONS. THEREFORE, THE QUESTION OF RBI REGULATIONS HAVE OVE RRIDING EFFECT ON THE METHOD OF ACCOUNTING OF INCOME DID NOT ARISE THERE AT ALL. HENCE, IN OUR OPINION, THIS CASE WILL NOT HELP THE REVENUE IN ANY WAY. ON THE OTHER HAND, A LOOK AT THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VAAPAR LTD. (SUPRA) CLEARLY SHOWS THAT AN ADDITION CANNOT BE MADE FOR INTEREST INCOME THAT HAS NOT BEEN RECOG NIZED BY THE ASSESSEE IN ITS BOOKS BASED ON THE PRINCIPLES OF AC CRUAL, WHERE THE ASSESSEE CONCERNED IS A NON-BANKING FINANCIAL COMPA NY BOUND BY THE DIRECTIONS OF RBI. HONBLE DELHI HIGH COURT HAD TA KEN THIS VIEW AFTER DULY CONSIDERING THE DECISION OF HON'BLE APEX COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. (SUPRA). WE ARE, THEREF ORE, OF THE OPINION THAT LD. CIT(APPEALS) WAS JUSTIFIED IN RELYING ON T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF VASISTH CHAY VAAPAR LTD. (SUPRA) AND 11 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 DELETING THE ADDITIONS MADE BY THE ASSESSING OFFICE R. NO INTERFERENCE IS REQUIRED. 9. APPEALS OF THE REVENUE FOR ASSESSMENT YEARS 2003 -04, 2008-09 AND 2009-10 ARE DISMISSED. 10. NOW WE TAKE UP APPEALS OF THE REVENUE FOR ASSES SMENT YEAR 2007-08 IN I.T.A. NOS. 1291 & 1292/MDS/2011. FIRST OF THESE APPEALS IS AGAINST THE DIRECTIONS OF CIT(APPEALS) TO ALLOW THE ASSESSEE A DEDUCTION CLAIMED BY IT UNDER SECTION 80-IA OF THE ACT, ON TH E BOOK PROFIT COMPUTED UNDER SECTION 115JB OF THE ACT. SECOND ONE IS AGAI NST THE ORDER OF CIT(APPEALS) DELETING A PENALTY LEVIED ON THE ASSES SEE UNDER SECTION 271(1)(C) OF THE ACT. 11. I.T.A. NO. 1291/MDS/2011 IS TAKEN UP FIRST. AS SESSEE HAD CLAIMED DEDUCTION UNDER SECTION 80-IA IN RESPECT OF PROFITS AND GAINS DERIVED BY IT ON A PROJECT CALLED ORAGADAM WHICH WAS NOTIFIE D AS A SPECIAL ECONOMIC ZONE UNDER SPECIAL ECONOMIC ZONES ACT, 200 5. INCOME OF THE ASSESSEE FOR IMPUGNED ASSESSMENT YEAR WAS COMPU TED UNDER SECTION 115JB SINCE TAX ON NORMAL PROVISION WAS LES SER THAN TAX UNDER SECTION 115JB OF THE ACT. HOWEVER, WHILE WORKING O UT THE BOOK PROFIT UNDER SECTION 115JB, ASSESSING OFFICER DID NOT ALLO W THE CLAIM OF DEDUCTION UNDER SECTION 80-IA OF THE ACT. 12 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 12. ASSESSEES APPEAL BEFORE CIT(APPEALS) WAS SUCCE SSFUL. ACCORDING TO HIM, IT COULD BE ALLOWED UNDER SECTION 80-IA EVEN FOR COMPUTATION OF BOOK PROFIT UNDER SECTION 115JB OF T HE ACT. IN OUR OPINION, THIS VIEW TAKEN BY LD. CIT(APPEALS) CANNOT BE DISTURBED IN VIEW OF THE DECISION OF HON'BLE APEX COURT IN THE CASE O F CIT V. BHARI INFORMATION TECH SYSTEMS (P)LTD. (340 ITR 593) . FOR THIS REASON, WE CANNOT FIND ANY MERIT IN THE APPEAL FILED BY THE RE VENUE. 13. APPEAL OF THE REVENUE IN I.T.A. NO. 1291/MDS/20 11 IS, THEREFORE, DISMISSED. 14. NOW WE TAKE UP APPEAL OF THE REVENUE AGAINST DE LETION OF PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT. ASSESSE E, WHILE FILING ITS RETURN AND COMPUTING ITS INCOME TAXABLE UNDER SECTI ON 115JB, CLAIMED DEDUCTION UNDER SECTION 80-IA IN RESPECT OF A PROJE CT CALLED ORAGADAM. HOWEVER, WHILE COMPUTING THE BOOK PROFIT FOR WORKIN G OUT TAXABLE INCOME UNDER SECTION 115JB OF THE ACT, ASSESSEE HAD NOT AD DED PROVISIONS FOR SUNDRY CREDITORS OF ` 2,81,73,444/-, PROVISIONS FOR TERM LOANS OF ` 2,19,67,705/- AND SHORTFALL IN INVESTMENTS OF ` 70,12,760/-. ASSESSING OFFICER WAS OF THE OPINION THAT THESE BEING PROVISI ONS, IT HAD TO BE ADDED BACK FOR ARRIVING AT CORRECT BOOK PROFIT. ASSESSME NT WAS COMPLETED ACCORDINGLY. PROCEEDINGS FOR PENALTY WERE INITIATE D. IN REPLY TO THE SHOW 13 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 CAUSE NOTICE, ASSESSEE STATED THAT SUB-SECTION (6) OF SECTION 115JB EXCLUDED APPLICATION OF PROVISIONS OF SECTION 115JB FOR SERVICES RENDERED BY A DEVELOPER OF SEZ. HOWEVER, ASSESSING OFFICER DID NOT ACCEPT THIS REPLY. ACCORDING TO HIM, PROVISIONS MA DE FOR SUNDRY DEBTORS, TERM LOAN AND SHORTFALL IN INVESTMENT, ALL RELATED TO THE FINANCE ACTIVITIES OF THE ASSESSEE AND WAS NOT RELATED TO ITS DEVELOPM ENT ACTIVITIES OF SEZ. HE WAS, THEREFORE, OF THE OPINION THAT ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME. PENALTY WAS LEVIED AT 100% OF TAX SOUGHT TO BE EVADED WHICH CAME TO ` 91,35,274/-. 15. ASSESSEES APPEAL BEFORE CIT(APPEALS) WAS SUCCE SSFUL. ACCORDING TO LD. CIT(APPEALS), ASSESSEE HAD NOT FUR NISHED ANY INACCURATE PARTICULARS NOR HAD IT STAKED A CLAIM WH ICH WAS UNSUSTAINABLE IN LAW. FURTHER, AS PER LD. CIT(APPEALS), ASSESSEE WAS A GOVERNMENT CONCERN AND IT COULD NOT SAY THAT IT HAD DELIBERATE LY FURNISHED ANY INACCURATE PARTICULARS. 16. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT PENALTY WAS RIGHTLY LE VIED BY THE ASSESSING OFFICER SINCE ASSESSEE CONSIDERED PROVISIONS TO BE AN EXPENDITURE WHICH COULD BE DEDUCTED FOR ARRIVING AT THE BOOK PR OFIT FOR APPLYING SECTION 115JB OF THE ACT. 14 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 17. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDER OF CIT(APPEALS). 18. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE IS NO FINDING BY THE ASSESSING OFFICER THAT A SSESSEE HAD AT ANY POINT OF TIME FURNISHED ANY INACCURATE PARTICULARS. NO DOUBT, ASSESSEE MIGHT HAVE CLAIMED PROVISIONS MADE WITH REGARD TO S UNDRY CREDITORS, TERM LOAN AND SHORTFALL IN INVESTMENT WHICH WERE CH ARGED TO PROFIT & LOSS ACCOUNT, AS DEDUCTIONS IN COMPUTING ITS INCOME UNDER SECTION 115JB OF THE ACT. THERE IS NO CASE FOR THE REVENUE THAT THESE ITEMS WERE NOT APPEARING IN THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE. IF THE ASSESSEE WAS UNDER A BONAFIDE IMPRESSION THAT SUCH AMOUNTS WERE A PART OF THE SERVICES RENDERED BY IT AS DEVELOPING S EZ, WE CANNOT SAY THAT THE CLAIM WAS INACCURATE. AS HELD BY HON'BLE APEX COURT IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS PVT. LTD. (32 2 ITR 158), JUST BECAUSE A CLAIM WAS MADE, WHICH WAS NOT SUSTAINABLE IN LAW, WOULD NOT BY ITSELF BE SUFFICIENT FOR LEVY OF PENALTY. WE CA NNOT SAY THAT ASSESSEE HAD FURNISHED ANY INACCURATE PARTICULARS OR CONCEAL ED ANY INCOME. PENALTY WAS RIGHTLY DELETED BY THE CIT(APPEALS). 19. APPEAL OF THE REVENUE IN I.T.A. NO. 1292/MDS/20 11 IS DISMISSED. 15 I.T.A. NOS.1290 TO 1293/MDS/2011 I.T.A. NO. 2059/MDS/2012 20. TO SUMMARIZE THE RESULT, APPEALS OF THE REVENUE FOR ALL THE YEARS ARE DISMISSED. ORDER WAS PRONOUNCED IN THE COURT ON THURSDAY, THE 7 TH OF MARCH, 2013, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH MARCH, 2013. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-V, CHENNAI-34 / CIT, CHENNAI-III, CHENNAI/D.R./GUARD FILE