Sh. Ruchi Sharma, Jammu V. The Income Tax Officer, Jammu

ITA 135/ASR/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 1056 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: misc
• Appeal Filed On: 14-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PANKAJ GANDOTRA
• Keywords: Wrong claim; Set aside
• Section: 271(1)(c); 143(3); 205

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR (SMC) BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER I.T.A. NO. 135/ASR/2017 AS SESSMENT YEAR: 2010-11 RUCHI SHARMA, PROP: JAMMU PINE & SYNTHETICS PRODUCTS, 3/107, VIKAS NAGAR, JAMMU [PAN: AIWPS 0709G] VS. INCOME TAX OFFICER, WARD-2(2), JAMMU (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PANKAJ GANDOTRA (C.A.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 21.02.2019 DATE OF PRONOUNCEMENT: 15.03.2019 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS), JAMMU ('CIT(A )' FOR SHORT) DATED 28.12.2016, DISMISSING THE ASSESSEES APPEAL CONTES TING THE LEVY OR PENALTY UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 ('THE ACT' HEREINAFTER) FOR THE ASSESSMENT YEAR (AY) 2010-11 VIDE ORDER DATED 26.03 .2015. 2. THE ASSESSEE, A MANUFACTURER OF RESIN AND TURPEN TINE OIL FROM RESIN PROCURED FROM THE FOREST DEPARTMENT, WAS DURING ASSESSMENT P ROCEEDINGS FOUND TO HAVE ADVANCED LOAN/S TO ITS SISTER CONCERN, M/S. P.R. C HEMICALS, ON INTEREST FREE BASIS DURING THE RELEVANT PREVIOUS YEAR. THE ADVANCE WAS FURTHER FOUND TO BE WITHOUT ANY ITA NO. 135/ASR/2017 (AY 2010-11) RUCHI SHARMA V. ITO 2 BUSINESS PURPOSE. THE ASSESSEE, ON THE OTHER HAND, HAD ASSUMED BANK BORROWINGS, INCURRING INTEREST COST AT RS.4.68 LACS FOR THE CUR RENT YEAR, WHICH WAS CLAIMED (THROUGH THE PROFIT AND LOSS ACCOUNT) PER ITS RETUR N OF INCOME (FILED ON 28.11.2010). THE INTEREST CORRESPONDING TO THE SAID ADVANCE, WOR KED AT RS.3,05,707/-, WAS ACCORDINGLY DISALLOWED AS BEING NOT DEDUCTIBLE U/S. 36(1)(III) OF THE ACT VIDE ASSESSMENT U/S. 143(3) DATED 15.12.2009. THE SAME S TOOD CONFIRMED IN APPEAL VIDE ORDER US/. 250(6) DATED 12.8.2013. THE ASSESSEE DID NOT CARRY THE MATTER FURTHER. PENALTY PROCEEDINGS FOR FURNISHING INACCURATE PARTI CULARS OF INCOME, INITIATED ON THE CONCLUSION OF THE ASSESSMENT, WERE ACCORDINGLY PROCEEDED WITH. AND PENALTY LEVIED AT 100% OF THE TAX SOUGHT TO BE EVADED, I.E. , RS.54,158, RELYING ON THE DECISIONS, INTER ALIA, IN CIT V. ESCORTS FINANCE (P.) LTD . [2010] 328 ITR 44 (DEL) AND CIT V. ZOOM COMMUNICATIONS (P.) LTD . [2010] 327 ITR 510 (DEL). THE SAME BEING CONFIRMED IN FIRST APPEAL, THE ASSESSEE, AGGR IEVED, IS IN SECOND APPEAL. 3. I HAVE HEARD THE PARTIES, AND PERUSED THE MATERI AL ON RECORD. 3.1 THE ASSESSEES CASE FOR NON LEVY OF PENALTY IS BASED ON CIT V. RELIANCE PETRO PRODUCTS PVT. LTD. [2010] 322 ITR 158 (SC), WHEREIN IT HAS BEEN CLARI FIED THAT MERE MAKING A WRONG CLAIM PER THE RETURN OF IN COME WOULD NOT BY ITSELF JUSTIFY THE LEVY OF PENALTY U/S. 271(1)(C). THIS IS AXIOMATIC AS, OTHERWISE, IT WOULD IMPLY THAT PENALTY U/S. 271(1)(C) IS AUTOMATIC, I.E ., ONCE AN ADJUSTMENT (BY WAY OF DISALLOWANCE OR ADDITION) TO THE RETURNED INCOME IS MADE IN ASSESSMENT. THE BURDEN, HOWEVER, TO FURNISH A REASONABLE BASIS FOR ITS CLAIM/S IS ON THE ASSESSEE. THE LAW IN THE MATTER WELL SETTLED PER A SERIES OF DECISIONS BY THE APEX COURT, FOR WHICH ONE MAY REFER TO (VIZ. MAK DATA (P.) LTD. VS. CIT [2013] 358 ITR 593 (SC); UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC); K.P. MADHUSUDHANAN VS. CIT [2001] 251 ITR 99 (SC); B.A. BALASUBRAMANIAM AND BROS V. CIT [1999] 236 ITR 977 (SC); ADDL. CIT VS. JEEVAN LAL SHAH [1994] 205 ITA NO. 135/ASR/2017 (AY 2010-11) RUCHI SHARMA V. ITO 3 ITR 244 (SC); CIT VS. K. R. SADAYAPPAN [1990] 185 ITR 49 (SC)), TO CITE SOME, FOLLOWED BY HONBLE HIGH COURTS THROUGHOUT THE COUN TRY, AS BY THE JURISDICTIONAL HIGH COURT IN CIT V. LALCHAND TIRATH RAM [1997] 225 ITR 675 (P&H); PREM PAL GANDHI V. CIT (IN ITA NO. 353 OF 2009, DATED 22/7/2009). AS SUCH, WHERE THE ASSESSEE RENDERS AN EXPLANATION WHICH HE IS ABLE TO SUBSTANTIATE, DISCLOSING MATERIAL FACTS, NO PENALTY CAN BE IMPOSED WHERE THE BONA FIDES OF THE EXPLANATION ARE NOT IN DOUBT. IN ITS ABSENC E, OR IN THE ABSENCE OF ANY EXPLANATION, OR IF IT BEING FOUND FALSE, EXPLANATION 1 TO SECTION 271(1)(C) SHALL GET ATTRACTED, AND THE ASSESSEE DEEMED TO HAVE CONCEALE D PARTICULARS OF INCOME. THIS REPRESENTS TRITE LAW, WHICH GETS REPRESENTED IN THE STATEMENT THAT A PLAUSIBLE EXPLANATION SAVES PENALTY, WHICH IS ALSO, IN EFFECT , THE RATIO OF THE DECISION IN RELIANCE PETRO PRODUCTS PVT. LTD . (SUPRA). 3.2 IN THE FACTS OF THE CASE, THE ASSESSEE HAS ADVA NCED NO EXPLANATION, I.E., FOR THE CLAIM OF ADVANCE SHOWN IN FACT AS A DEBTOR IN THE BALANCE-SHEET, AS A BUSINESS ADVANCE OR, PER CONTRA, THE BUSINESS PURPOSE OF THE SAID ADVANCE, SO THAT THE SAME, INFERABLY, IS ONLY BY WAY OF FINANCIAL ASSISTANCE T O ITS SISTER CONCERN. THERE IS IN FACT NO CLAIM, AT ANY STAGE, OF THE BUSINESS PURPOS E OF THE LOAN/ADVANCE, MUCH LESS EXHIBITING IT, AS REQUIRED IN TERMS OF EXPLANATION 1 TO SECTION 271(1)(C). THE ASSESSEES CASE, AS AFORE STATED, IS IN FACT SANS ANY EXPLANATION, SO THAT LIMB (A) EXPLANATION 1 IS ATTRACTED. THE RELIANCE BY THE REVENUE ON THE A FORE-STATED DECISIONS (REFER PARA 2), WHICH IN FACT CONSIDER TH E DECISION IN RELIANCE PETRO PRODUCTS PVT. LTD. (SUPRA), IS APPOSITE. 3.3 THE LD. COUNSEL FOR THE ASSESSEE, SH. KHANNA, W OULD BEFORE ME, HOWEVER, RAISE ANOTHER PLEA. THAT IS, THAT IN VIEW OF THE SU BSTANTIAL OWN/INTEREST-FREE FUNDS, THERE CAN BE NO PRESUMPTION AS TO BORROWED CAPITAL, ON WHICH INTEREST IS CLAIMED, AS HAVING BEEN DIVERTED TO THE SISTER CONCERN, I.E. , FOR NON-BUSINESS PURPOSE/S. IN ITA NO. 135/ASR/2017 (AY 2010-11) RUCHI SHARMA V. ITO 4 ANY CASE, THERE IS NOTHING TO SUGGEST THAT THE ENTI RE ADVANCE TO P.R. CHEMICALS IS FINANCED BY BORROWED FUNDS. THERE IS MERIT IN THE A RGUMENT. THE BURDEN TO EXHIBIT THIS, HOWEVER, IS SQUARELY ON THE ASSESSEE. THE BAN K BORROWINGS, WHICH REPRESENT THE BORROWED CAPITAL ON WHICH INTEREST IS PAID, ARE , AS STATED, AGAINST STOCK. ADEQUATE STOCK, WHICH MAY BE WORKED OUT AT DIFFEREN T POINTS OF TIME BY APPLYING THE AVERAGE GROSS PROFIT RATE (FOR THE YEAR), I.E., AFTER EXCLUDING THE STIPULATED MARGIN THERE-FROM, WOULD IMPLY NO DIVERSION OF BANK BORROWINGS, WHILE A SHORTFALL WOULD IMPLY A DIVERSION TO THAT EXTENT. FOR EXAMPLE , A STOCK OF RS.100, GIVEN A MARGIN OF 25%, WOULD JUSTIFY A BANK BORROWING OF RS .75. A BORROWING IN EXCESS THEREOF, FOR THE PERIOD IT OBTAINS, WOULD IMPLY A D IVERSION OF BANK BORROWING, WHICH THUS GETS PROVED. THIS WOULD NEGATE THE ASSES SEES CLAIM OF SUFFICIENT FUNDS AS IT HAS ADMITTEDLY OVERDRAWN FROM THE BANK TO THAT EXTENT. IF, THEREFORE, THE BANK BORROWING IS AT RS.90 (SAY), THERE IS A DIVERS ION OF BANK BORROWING (FOR NON- BUSINESS PURPOSE) AT RS.15. IN OTHER WORDS, THE DRA WING POWER (DP), WORKED AT DIFFERENT TIMES OF THE YEAR, (SAY, AT 15 TH AND 30 TH OF EACH MONTH), WOULD GIVE A FAIR IDEA OF THE DIVERSION OF BANK BORROWINGS DURING THE YEAR, IF ANY, AS WELL AS ITS EXTENT. THE ONUS IS ON THE ASSESSEE, WHO SHALL FURN ISH THE RELEVANT DATA INCLUDING THE BASIS THEREOF, TO THE ASSESSING OFFICER (AO), O R ANY OTHER THAT MAY BE CALLED FOR BY HIM. 4. THE MATTER, ACCORDINGLY, IN VERIFICATION OF THE ASSESSEES CLAIM WITH REGARD TO SUFFICIENT OWN (INTEREST-FREE) FUNDS WITH IT, SO THAT THERE HAS BEEN IN FACT NO DIVERSION OF BANK BORROWINGS DURING THE RELEVANT YE AR, IS SET ASIDE TO THE FILE OF THE AO, WHO SHALL CAUSE TO DO SO IN A REASONABLE PERIO D, PREFERABLY THREE MONTHS OF THE RECEIPT OF THIS ORDER, DRAWING ADVERSE INFERENC E IN CASE OF NON-COOPERATION BY THE ASSESSEE, ON WHOM THE ONUS TO ESTABLISH HER CLA IM LIES, AFTER ALLOWING IT, OF COURSE, REASONABLE OPPORTUNITY TO EXHIBIT HER CLAIM S. I DECIDE ACCORDINGLY. ITA NO. 135/ASR/2017 (AY 2010-11) RUCHI SHARMA V. ITO 5 5. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN CO URT ON MARCH 15, 2019 SD/- (SANJAY ARORA) ACCOUNTANT MEMBER DATE: 15.03.2019 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: RUCHI SHARMA PROP: JAMMU PIN E & SYNTHETICS PRODUCT 3/107, VIKAS NAGAR, JAMMU (2) THE RESPONDENT: INCOME TAX OFFICER, WARD-2( 2), JAMMU (3) THE CIT(APPEALS), JAMMU (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER