DY.CIT.,-8(1), MUMBAI V. INSTANT HOLDINGS LTD., (FORMERLY KNOWN AS KEC HOLDING LTD.), MUMBAI

ITA 1434/MUM/2012

• Counselvise Citation: 143419914 RSA 2012
• Duration Of Justice: 1 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 21-11-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 02-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P SINGH
• Assessee Lawyers: RONAK G DOSHI
• Keywords: Bonafide belief; Reasonable cause; Bad and doubtful debts; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH I , MUMBAI BEFORE SHRI R.C. SHARMA , ACCOUNTANT MEMBER AND SHRI SANJAY GARG , JUDICIAL MEMBER ITA NO. 1434/M/2012 ASSESSMENT YEAR: 2005 - 06 DY. CIT 8(1) ROOM NO.260A, 2 ND FLOOR, AAYAKAR BHAVAN, M.K. RO AD, MUMBAI 400020 VS. M/S. INSTANT HOLDINGS LTD. (FORMERLY KNOWN AS KEC HOLDING LTD.) 1 ST FLOOR, CEAT MAHAL, 463, DR. ANNIE BESANT ROAD, WORLI, MUMBAI 400 030 PAN: AACCK5600M (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI RONAK G. DOSHI REVENUE BY : SHRI O.P. SINGH, D.R. DATE OF HEARING : 13.01 .201 4 DATE OF PRONOUNCEMENT : 22.01.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGITATING T HE DELETION O F THE PENALTY BY THE CIT(A) WHICH WAS LEVIED BY THE ASSESSING OFFICER UNDER VARIOUS HEADS . T HE GROUNDS OF APPEAL , FOR THE SAKE OF CONVENIENCE , ARE REPRODUCED AS UNDER: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY OF RS.2,30,07,900/ - IMPO SED U/S 271(1)(C) OF THE I. T. ACT RELYING UPON THE DECISION OF THE HON' BLE I TAT IN THE ASSESSEE'S OWN CASE FOR A.Y.2003 - 04. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) E RRED IN DELETING THE PENALTY IMPOSED U/S 271 (1 )(C) OF THE I. T. ACT WITHOUT APPRECIATING THE FACT THAT THE DEPARTMENT HAS CONTESTED THE HON'BLE ITAT'S ORDER FOR A.Y. 2003 - 04 IN THE QUANTUM APPEAL IN WHICH THE HON'BLE ITAT HAS DELETED THE SIMILAR ADDITION S. ITA NO .1434/M/2012 M/S. INSTANT HOLDINGS LTD. 2 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY IMPOSED U/S 271(1)(C) OF THE I. T. ACT IN RESPECT OF UNACCOUNTED INTEREST OF RS.4 ,68,76,000/ - WITHOUT APPRECIATING THAT THE ADMITTEDLY THE ASSESSEE H AS NOT ACCOUNTED FOR SUCH INTEREST ACCRUED AND RECEIVABLE WHICH IS IN CONTRAVENTION OF THE MERCANTILE SYSTEM OF THE ACCOUNTING, FOLLOWING WHICH IS MANDATORY FOR THE ASSESSEE COMPANY. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A ) ERRED IN DELETING THE PENALTY IMPOSED U/S 271(1)(C) OF THE I. T. ACT WITHOUT APPRECIATING THAT THE ASSESSEE HAD CLAIMED DEDUCTION FOR PROVISION FOR NON PERFORMING ASSETS OF RS.L,60,00,000/ - WHICH IS NOT ADMISSIBLE UNDER THE LAW. THE APPELLANT PRAYS THAT THE ORDER OF THE CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE A.O. BE RESTORED. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. AT THE OUTSET, THE LD. A.R. BEFORE US HAS SUBMITTED A CHAR T TO SHOW THAT ON SOME OF THE ISSUES IN THE QUANTUM PROCEEDINGS , THE ADDITIONS MADE BY THE LOWER AUTHORITIES HAVE BEEN DELETED AND ON THE REMAINING ISSUES THE MATTER HAS BEEN SENT BACK TO THE AO TO DECIDE THE SAME AFRESH. 3. THE VARIOUS ISSUES ARE DISCU SSED SEPARATELY HEREIN UNDER: GROUND NO.1 & 2: DELETION O F PENALTY OF RS.2,30,07,900/ - BY THE CIT(A) DURING THE ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT INTEREST INCOME OF RS.4,68,76,000/ - ACCRUED TO THE APPELLANT ON THE LOANS AND ADVANCES GIVEN TO V ARIOUS PARTIES, BUT THE SAME WAS NOT OFFERED FOR TAXATION, THEREFORE, THE AO ADDED INTEREST INCOME OF RS.4,68,76,000/ - TO THE TOTAL INCOME OF TH E APPELLANT. THE AO FURTHER OBSERVED THAT THE APPELLANT HAD WRONGLY REDUCED AN AMOUNT OF RS.1,60,00,000/ - ON A CCOUNT OF REVERSAL OF PROVISION FOR NPA . HE THEREF ORE ADDED BACK THE SAID AMOUNT IN THE INCOME OF THE ASSESSEE. THE LD. CIT(A) CONFIRMED THE ABOVE ADDITION S MADE BY THE AO. ITA NO .1434/M/2012 M/S. INSTANT HOLDINGS LTD. 3 DURING THE COURSE OF PENALTY PROCEEDINGS, THE AO HELD THE ASSESSEE HAD FILED INA CCURATE PARTICULARS OF ITS INCOME. THE AO FURTHER HELD THAT THE APPELLANT HAD NOT STATED THE REASONABLE CAUSE FOR THE FAILURE ON ITS PART TO REPORT ITS TRUE AND CORRECT PROFIT. THE AO, THEREFORE , LEVIED PENALTY OF RS.2,30,07,900/ - UNDER SECTION 271(1)(C) OF THE ACT. 4. IN APPEAL, THE LD. CIT(A) DELETED THE PENALTY SO LEVIED BY THE AO OBSERVING AS UNDER: I HAVE CAREFULLY CONSIDERED THE CONTENTION OF THE APPELLANT COMPANY AS WELL AS CAREFULLY GONE THROUGH THE AVAILABLE DOCUMENTS ON RECORD. I FIND THAT T HE LD. AO HAD LEVIED THE PENALTY ON ACCOUNT OF ADDITIONS MADE ON INTEREST INCOME WHICH ACCORDING TO HIM HAD ACCRUED TO THE APPELLANT BUT NOT RECOGNISED. I ALSO FIND THAT SIMILAR ADDITIONS WERE MADE FOR THE FIRST TIME IN THE A.Y. 2003 - 04. THE HONBLE ITAT VIDE ITS ORDER ITA NO.3734/MUM/2009 (2003 - 04) HAS DELETED THE ADDITION BY O B SERVING THAT THE FACTS OF THE APPELLANT CASE ARE SIMILAR TO THE ONE DECIDED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. VASHIST CHAY VYAVAR LTD. 330 ITR 440 WHEREIN AFT ER CONSIDERING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT, 320 ITR 577, HELD THAT WHEN INTEREST INCOME HAS TO BE CONSIDERED AS NON PERFORMING ASSET IN TERMS THE GUIDELINES ISSUED BY THE RBI, THEN SUCH INTER EST INCOME CANNOT BE CONSIDERED AS DEEMED TO HAVE ACCRUED TO AN ASSESSEE UNDER MERCANTILE SYSTEM OF ACCOUNTING. THEREFORE, EVEN ON MERIT THE LD. AO HAS NO CASE TO LEVY PENALTY ON THE INTEREST INCOME THAT HAD ACCRUED TO THE ASSESSEE BUT NOT RECOGNISED AS T HE QUANTUM ADDITION HAS BEEN DELETED BY HONBLE ITAT. 5. THE REVENUE THROUGH ITS APPEAL HAS AGITATED THE DELETION OF THE PENALTY ON THE GROUND THAT AGAINST THE ORDER OF THE ITAT IN QUANTUM APPEAL FOR A.Y.2003 - 04, THE DEPARTMENT HAS PREFERRED AN APPEAL B EFORE THE HONBLE HIGH COURT AND THUS THE ISSUE IS STILL ALIVE. MAY IT BE SO, THE FACT WHICH EMERGES OUT FROM THE ABOVE NARRATED SEQUENCE OF EVENTS IS THAT THE ISSUE RELATING TO T HE ADDITIONS MADE BY THE AO, AS TO WHETHER INTEREST INCOME HAS TO BE CONSID ERED AS NON PERFORMING ASSET AND WHETHER THE SAME CAN BE CONSIDERED AS DEEMED TO HAVE ACCRUED TO THE ASSESSEE , HAS BEEN A DEBATABLE ISSUE AND FINALLY DECIDED IN FAVOUR OF THE ASSESSEE BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE OWN CASE ITA NO .1434/M/2012 M/S. INSTANT HOLDINGS LTD. 4 OF THE ASSESSE E IN ITA NO.3734/M/2009 FOR ASSESSMENT YEAR 2003 - 04 VIDE ORDER DATED 22.07.2011 . NOW IT IS A SETTLED LAW WHERE THE ISSUE HAS BEEN A DEBATABLE ONE AND THE ASSESSEE HAS BEEN UNDER BONAFIDE BELIEF THAT IT IS ENTITLED TO CLAIM SUCH DEDUCTIONS UNDER LAW AND HA S ACCORDINGLY CLAIMED SO, THEN IT CANNOT BE SAID TO BE A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF WRONG PARTICULARS OF INCOME. ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT(A) IN DELETING THE PENALTY UNDER THIS HEAD. ACCORDINGLY , THE FINDING OF THE LD. CIT(A) ON THIS ISSUE IS UPHELD. GROUND NO.3: DELETION OF PENALTY LEVIED ON IN RESPECT OF UNACCOUNTED INTEREST AMOUNTING TO RS. 4,68,76,000/ - 6. THE ASSESSEE IN ITS CHART HAS GIVEN THE BREAK - UP OF VARIOUS ADDITIONS WHICH WERE MAD E BY THE AO UNDER THIS HEAD. A) ADDITION OF ACCRUED INTEREST OF RS.17.37 LAKHS : THE LD. A.R. HAS BROUGHT OUR ATTENTION TO THE JUDGMENT OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN QUANTUM PROCEEDING FOR THE RELEVANT ASSESSMENT YEAR I.E. A . Y . 2005 - 06 , WH EREIN THE ADDITION MADE BY THE AO UNDER THIS HEAD HAS BEEN ORDERED TO BE DELETED BY THE TRIBUNAL SUBJECT TO CONFIRMATION OF THE BORROWER HAVING NOT BOOKED ITS INTEREST LIABILITY IN THE BOOKS OF THE ACCOUNTS. SINCE THE ADDITION MADE ON ACCOUNT OF ACCRUED I NTEREST UNDER THIS HEAD HAS BEEN ORDERED TO BE DELETED BY THE TRI BUNAL, HENCE THE VERY BASIS ON ACCOUNT OF WHICH T HE PENALTY WAS LEVIED HAS CEASED TO EXIST. ACCORDINGLY, THE LEVY OF PENALTY ON THIS ISSUE CANNOT SURVIVE , H ENCE, ACCORDINGLY ORDERED TO BE DE LETED. B) ADDITION OF ACCRUED INTEREST ON NPA OF RS.133.9 9 LAKHS (RS.116.96 LAKHS + RS.17.03 LAKHS) : THE LD. A.R. HAS BROUGHT OUR ATTENTION TO THE FACT THAT IN THE QUANTUM PROCEEDINGS THE CO - ORDINATE BENCH OF THE TRIBUNAL , VIDE ORDER ITA NO .1434/M/2012 M/S. INSTANT HOLDINGS LTD. 5 DATED 14.08.2013 IN THE OWN CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION I.E. AY 2005 - 06 , HAS RESTORED THE MATTER BACK TO THE FILE OF AO ON THIS ISSUE . SINCE THE ADDITION MADE UNDER THIS HEAD HAS BEEN SET ASIDE AND THE MATTER HAS BEEN REMANDED BACK TO THE FILE OF THE AO, HENCE THE VERY BASIS FOR WHICH THE PENALTY WAS LEVIED UNDER THIS HEAD HAS CEASED TO EXIST AND AS SUCH THE PENALTY ON THE BASIS OF SUCH AN ADDITION CANNOT SURVIVE AND IS ACCORDINGLY ORDERED TO BE DELETED. HOWEVER, IT IS MADE CLEAR THAT IF AFTER THE FRESH DECISION /ASSESSMENT ON THE ISSUE BY THE AO IN TERMS OF THE DIRECTIONS GIVEN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN QUANTUM PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEAR , THE AO WOULD BE OF OPINION THAT THE PENALTY IS LEVIABLE UNDER THIS HEAD, HE AFTER GIVING AN OPPORTUNITY TO THE ASSESSEE TO REPRESENT ITS CASE WILL DECIDE THE PENALTY ISSUE ACCORDINGLY. C) ADDITION ON ACCOUNT OF AMOUNT RECEIVED TOWARDS REPAYMENT OF PRINCIPAL BY TREATING SAME AS INTEREST DUE OF RS.89 LAKHS : T HE LD. A.R. FROM THE CHART HAS DEMONSTRATED THAT THE ISSUE OF ADDITION MADE UNDER THIS HEAD HAS ALSO BEEN RESTORED BY THE ITAT TO THE FILE OF THE AO FOR DECIDING AFRESH IN TERMS OF THE DIRECTIONS GIVEN BY THE ITAT. SINCE THE ADDITION MADE ON ACCOUNT OF AC CRUED INTEREST UNDER THIS HEAD HAS BEEN ORDERED TO BE DELETED BY THE TRIBUNAL, HENCE THE VERY BASIS ON THE CONSIDERATION OF WHICH T HE PENALTY WAS LEVIED HAS CEASED TO EXIST. ACCORDINGLY, THE LEVY OF PENALTY ON THIS ISSUE CANNOT SURVIVE, HENCE, ACCORDINGLY ORDERED TO BE DELETED. HOWEVER, IT IS MADE CLEAR THAT IF AFTER THE FRESH DECISION/ASSESSMENT ON THE ISSUE BY THE A . O . IN TERMS OF THE DIRECTIONS GIVEN BY THE CO - ORDINATE BENCH OF THE TRIBUNAL IN QUANTUM PROCEEDINGS FOR THE RELEVANT ASSESSMENT YEA R, THE A O WOULD BE OF OPINION THAT THE PENALTY IS LEVIABLE UNDER THIS HEAD, HE AFTER GIVING AN ITA NO .1434/M/2012 M/S. INSTANT HOLDINGS LTD. 6 OPPORTUNITY TO THE ASSESSEE TO REPR ESENT ITS CASE WILL DECIDE THE PENALTY ISSUE ACCORDINGLY. D) ADDITION ON ACCOUNT OF NOTIONAL INTEREST OF RS.157.20 LAKHS: THE L D. A.R. HAS BROUGHT OUR ATTENTION TO THE FACT THAT VIDE ORDER DATED 14.08.13 IN THE QUANTUM APPEAL, THE ADDITION MADE BY THE AO UNDER THIS HEAD HAS BEEN DELETED BY THE ITAT VIDE PARA 13 OF THE JUDGMENT. SINCE THE VERY BASIS UPON WHICH THE PENALTY WAS LEVI ED HAS CEASED TO EXIST HENCE UNDER SUCH CIRCUMSTANCE THE PENALTY CANNOT SURVIVE. THE PENALTY UNDER THIS HEAD IS ACCORDINGLY ORDERED TO BE DELETED. E) ADDITION O F RS.7 1 .20 LAKHS RELATING TO BAD DEBTS : THE LD. A.R. HAS BROUGHT OUR ATTENTION TO THE FACT THAT VIDE ORDER DATED 14.08.13 (SUPRA) IN THE QUANTUM APPEAL, THE ADDITION MADE BY THE AO UNDER THIS HEAD HAS BEEN DELETED BY THE ITAT VIDE PARA 13 OF THE JUDGMENT. SINCE THE VERY BASIS UPON WHICH T HE PENALTY WAS LEVIED HAS CEASED, TO EXIST HENCE UNDER S UCH CIRCUMSTANCE THE PENALTY CANNOT SURVIVE. THE PENALTY UNDER THIS HEAD IS ACCORDINGLY ORDERED TO BE DELETED. GROUND NO.4: ADDITION OF REVERSAL OF PROVISION FOR NPA OF RS.160 LAKHS 7. FROM THE CHART THE LD. A.R. HAS BROUGHT OUR ATTENTION TO THE FACT THA T IN THE QUANTUM PROCEEDINGS , THE MATTER HAS BEEN RESTORED BACK TO THE FILE OF THE AO BY THE CO - ORDINATE BENCH OF THE TRIBUNAL ORDER DATED 14.08.13. AS PER OUR FINDING S / DIRECTIONS AS GIVEN U NDER PARA 6 HEADING (B) ABOVE, THIS GROUND IS ACCORDINGLY DECI DED IN FAVOUR OF THE ASSESSEE. ITA NO .1434/M/2012 M/S. INSTANT HOLDINGS LTD. 7 8. IN VIEW OF OUR ABOVE OBSERVATIONS, THE APPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 22.01. 201 4 . SD/ - SD/ - ( R.C. SHARMA ) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 22.01. 201 4 . * KISHORE COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT ( A) CONCERNED, MUMB AI THE DR C BENCH //TRUE COPY// [ BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.