Chopda Auto Parts, 217 Ramnagar, Rahtani, Pune V. Dy. CIT Cir. 8, Pune, Pune

ITA 1382/PUN/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3319 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 24-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ABHAY DAMLE
• Keywords: Bonafide belief; Deemed to accrue or arise in india; Deemed dividend; Bonafide mistake; Revenue expenditure; Ignorance of law
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI D. KARUNAKARA RAO, AM I.T.A. NO. 1382/PN/2008 : A.Y. 2004-05 CHOPDA AUTO PARTS 217 RAMNAGAR, RAHTANI, PUNE-411 017. PAN AAAFC 8291 K APPELLANT VS. DY. CIT CIR. 8, PUNE RESPONDENT APPELLANT BY : SHRI NIKHIL PATHAK RESPONDENT BY: SHRI ABHAY DAMLE ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT (A)-III PUNE DATED 14-8-2008 F OR A.Y. 2004-05 ON THE POINT OF PENALTY U/S 271(1)(C) OF TH E ACT. 2. THE APPELLANT IS A PARTNERSHIP FIRM DEALING IN MANUFACTURING OF AUTO COMPONENTS. THE ASSESSEE FIL ED ITS RETURN OF INCOME DECLARING TOTAL LOSS OF RS. 85,14,607/- FOR A.Y. 2004-05. THE LOSS WAS COMPUTE D WITHOUT CAPITALIZING THE AMOUNT OF RS. 2,74,519/- REPRESENTING INTEREST PAID ON TERM LOAN FOR ACQUISI TION OF ASSET FOR EXTENSION OF ASSESSEES BUSINESS. DURING THE ASSESSMENT PROCEEDINGS, THE AMOUNT OF RS. 2,74,519/ - ITA NO. 1382/PN/08 CHOPDA AUTO PARTS A.Y. 2004-05 , 2 WAS ADDED TO THE INCOME OF THE ASSESSEE AS PER THE PROVISO INSERTED IN SEC. 36(1)(III) W.E.F. 1-4-2004 WHICH LAYS DOWN THAT ANY AMOUNT OF INTEREST PAID IN RESPE CT OF CAPITAL BORROWED FOR ACQUISITION OF ASSET FOR EXTEN SION OF EXISTING BUSINESS OR PROFESSION FOR ANY PERIOD BEGI NNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCT ION. CONSEQUENTLY, PENALTY U/S 271(1)(C) WAS ALSO LEVIED BY THE A.O WHICH WAS CONFIRMED BY THE CIT(A). 3. THE STAND OF THE ASSESSEE IS THAT IT WAS UNDER BONAFIDE BELIEF THAT INTEREST ON MONEY BORROWED FO R BUSINESS IS NECESSARY EXPENDITURE IN A BUSINESS FOR WHICH THE ASSESSEE IS ENTITLED FOR DEDUCTION IRRESP ECTIVE OF THE FACT THAT THE ASSET WAS NOT PUT TO USE. TH E ASSESSEE HAS CLAIMED DEDUCTION OF INTEREST PAID ON CAPITAL BORROWED FOR ACQUISITION OF ASSETS BEING FU LLY AWARE THAT THE ASSET WAS NOT PUT TO USE AND THEREFO RE, THE CLAIM OF THE ASSESSEE WAS NOT CONSISTENT WITH THE PROVISIONS OF LAW AS ENVISAGED UNDER THE PROVISO TO SECTION 36(1)(III) OF THE ACT. THE ASSESSEE HAS INADVERTENTLY CLAIMED INTEREST FOR THE MONEY BORROW ED FOR ACQUISITION OF ASSET. EVEN THE TAX AUDITOR IN HIS TAX AUDIT REPORT HAS NOT POINTED OUT THE MISTAKE THEREFORE, I T WAS ITA NO. 1382/PN/08 CHOPDA AUTO PARTS A.Y. 2004-05 , 3 SUBMITTED THAT NO PENALTY SHOULD BE LEVIED ON ACCOU NT OF BONAFIDE MISTAKE COMMITTED BY THE ASSESSEE. IN THI S REGARD, THE LEARNED AR RELIED ON THE DECISION OF I. T.A.T. MUMBAI BENCH E IN THE CASE OF SUNILCHANDRA VOHRA V S. ASSTT. CIT (2010) 127 TTJ (MUM) (UO) 100, WHEREIN IGNORANCE OF LAW VIZ. BONAFIDE EXPLANATION WAS HELD TO BE OUTSIDE THE AMBIT OF EXPLANATION 1 TO SEC. 271(1)(C ). ACCORDINGLY, PENALTY IN QUESTION WAS REQUESTED TO B E DELETED. LEARNED DR SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 4. AFTER GOING THROUGH THE RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE LOSS WAS COMP UTED WITHOUT CAPITALIZING THE AMOUNT OF RS. 2,74,519/- REPRESENTING INTEREST PAID ON TERM LOAN FOR ACQUISI TION OF ASSET FOR EXTENSION OF ASSESSEES BUSINESS WHICH WA S ADDED BACK TO THE INCOME OF THE ASSESSEE AS PER PRO VISO INSERTED IN SECTION 36(1)(III) OF THE ACT WITH EFFE CT FROM 1- 4-2004 WHICH LAYS DOWN THAT ANY AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF A SSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION FOR AN Y PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCTION. THE ASSESSEE FURNISHED ALL THE DETAI LS ITA NO. 1382/PN/08 CHOPDA AUTO PARTS A.Y. 2004-05 , 4 INCLUDING THE AUDIT REPORT. THE CONCERNED AUDITORS HAVE NOT POINTED OUT ANY MISTAKE COMMITTED ON BEHALF OF HE ASSESSEE IN THIS REGARD. ACCORDINGLY, LOSS TO THE EXTENT WAS NOT ALLOWED AND INCOME WAS ENHANCED ACCORDINGLY . LOOKING TO THE SAME UNDER THE PROVISIONS OF SECTION 271(1)(C) WE FIND THAT UNDER BONAFIDE IMPRESSION TH AT THE ASSESSEE HAS CLAIMED DEDUCTION IN QUESTION BEING NO T AWARE OF THE FACT THAT AT THE RELEVANT TIME IT IS E VIDENT FROM THE FACT THAT EVEN THE AUDITORS IN ITS AUDIT R EPORT HAVE NOT POINTED OUT THIS MISTAKE COMMITTED ON BEHA LF OF THE ASSESSEE. WE FIND THAT IN THE CASE OF SUNILCHA NDRA VOHRA VS. ASSTT. CIT (SUPRA) THE I.T.A.T. BOMBAY BE NCH HAD OCCASION TO DECIDE THE PENALTY U/S 271(1)(C) WI TH REGARDS TO NON-DISCLOSURE OF DEEMED DIVIDEND OF INC OME ON ACCOUNT OF IGNORANCE OF LAW. SUCH EXPLANATION O F THE ASSESSEE WAS NOT FOUND TO BE FALSE . EVEN THE CHAR TERED ACCOUNTANTS HAVE NOT BROUGHT TO THE ATTENTION OF TH E ASSESSEE WITH REGARDS TO APPLICABILITY OF PROVISION S OF SEC. 2(22)(E), HENCE, THERE WAS NO OCCASION FOR THE ASSE SSEE TO OFFER THE DEEMED INCOME VOLUNTARILY, BUT SUBSEQUENT CONDUCT OF THE ASSESSEE OF FURNISHING THE DETAILS D URING THE COURSE OF ASSESSMENT PROCEEDINGS AND ACCEPTING THE ADDITION REFERABLE TO DEEMED DIVIDEND CLEARLY SHOWE D THAT THERE WAS A BONAFIDE MISTAKE ON THE PART OF THE ASS ESSEE WHICH IS MAINLY ON ACCOUNT OF IGNORANCE OF LAW. TH E ITA NO. 1382/PN/08 CHOPDA AUTO PARTS A.Y. 2004-05 , 5 ASSESSEE WAS HELD TO BE NOT AWARE OF ALL THE LOSSES AT THE RELEVANT POINT OF TIME FOR DEVIATION ON ACCOUNT OF SUCH IGNORANCE, THE ASSESSEE SHOULD NOT BE SUBJECTED TO PROVISIONS OF SECTION 271(1)(C). ACCORDINGLY THE P ENALTY WAS DELETED. SIMILARLY, WE FIND THAT IN THE INSTANT CASE, THE ASSESSEES LOSS WAS COMPUTED FOR CAPITALIZATION OF THE AMOUNT OF RS. 2,74,519/- REPRESENTING INTEREST PAID ON TERM LOAN FOR ACQUISITION OF ASSET FOR EXTENSION OF ITS BUSINESS WHICH WAS ADDED BACK TO THE INCOME OF THE ASSESSEE AS PER PROVISO INSERTED IN SECTION 36(1)(I II) WITH EFFECT FROM 1-4-2004 WHICH LAYS DOWN THAT ANY AMOUN T OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR AC QUISITION OF ASSET FOR THE EXTENSION OF EXISTING BUSINESS OR PROFESSION FOR ANY PERIOD BEGINNING FROM THE DATE O N WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF T HE ASSET TILL THE ACQUISITION ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS DEDUCTION. EVEN THE AUDITORS HAVE NOT POINTED OUT THIS MISTAKE WHICH SH OWS THAT THE ASSESSEE INADVERTENTLY CLAIMED INTEREST AS REVENUE EXPENDITURE, HENCE FOR THE MISTAKE COMMITTE D INADVERTENTLY, THE ASSESSEE SHOULD NOT BE PENALIZED UNDER THE PROVISIONS OF SECTION 271(1)(C). THIS W AS NOT POINTED OUT EVEN BY THE AUDITORS IN ITS AUDIT REPOR T. ACCORDINGLY, THE PENALTY IN QUESTION IS DIRECTED TO BE DELETED. ITA NO. 1382/PN/08 CHOPDA AUTO PARTS A.Y. 2004-05 , 6 5. IN THE RESULT, THE APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER 2010. SD/- SD/- (D. KARUNAKARA RAO) (SHAILENDRAKUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE,DATED THE 21 ST SEPTEMBER 2010 ANKAM COPY FORWARDED TO: (1) ASSESSEE (2) DEPARTMENT (3) CIT- IV PUNE (4) CIT(A)-III PUNE (5) THE D.R. A' BENCH, PUNE TRUE COPY BY ORDER, ASSISTANT REGISTRAR INCOME-TAX APPELLATE TRIBUNAL, PUNE BENCHES, PUNE