Pact Securities and Financial Services Limited, Hyderabad, Hyderabad V. DCIT, Circle-16(3), Hyderabad, Hyderabad

ITA 1559/HYD/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6550 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 31-05-2018
• Assessment Year: 2003-2004
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANJALA SAHU
• Keywords: Notional interest
• Section: 143(3)

Judgement Text

ITA NO 1559 OF 2016 PACT SECURITIES AND FINANCIAL SERVICES LIMITED HYDERABAD. PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.1559/HYD/2016 (ASSESSMENT YEAR: 2003-04) PACT SECURITIES AND FINANCIAL SERVICES LTD HYDERABAD PAN: AABCP4438R VS DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(3) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI Y. RATNAKAR FOR REVENUE : SMT. ANJALA SAHU, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2003-04 AGAIN ST THE ORDER OF THE CIT (A)-11, HYDERABAD, DATED 16.08 .2016 CONFIRMING THE PENALTY LEVIED BY THE AO U/S 271(1)( C) OF THE ACT. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) I, HYD. DT.16-8-2016 IS CONTRARY TO LAW A ND FACTS. 2. THE APPELLANT CONTENDS THAT THE LEARNED COMMISSI ONER OF INCOME TAX ERRED IN UPHOLDING THE PENALTY OF RS.6,2 3,643 LEVIED U/ S 271(1)(C) OF THE LT ACT. 3. THE APPELLANT CONTENDS THAT NOTIONAL INTEREST AS SESSED TO THE EXTENT OF RS.17,13,312 CANNOT BE CONSTRUED AS I NCOME CONCEALED OR AMOUNTING TO FURNISHING OF INACCURATE PARTICULARS. DATE OF HEARING: 31.05 . 201 8 DATE OF PRONOUNCEMENT: 18.07.2018 ITA NO 1559 OF 2016 PACT SECURITIES AND FINANCIAL SERVICES LIMITED HYDERABAD. PAGE 2 OF 6 4. IT IS CONTENDED THAT THE SAID SUM OF RS.17,13,31 2 REPRESENTS INTEREST ON NON-PERFORMING ASSETS (NPAS. ) CALCULATED IN LINE WITH THE GUIDE LINES ISSUED BY T HE RESERVE BANK OF INDIA. HENCE THE SAID NOTIONAL INTEREST OF RS.17,13,312 IS NOT INCOME AND NOT LIABLE TO TAX. E VEN OTHERWISE THE APPELLANT CONTENDS THAT THE SAID ASSE SSMENT OF INTEREST CANNOT BE CONSIDERED AS CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS ENTAILING THE LEVY OF PENALTY OF RS.6,23,643 U/S 271(1)(C) OF THE LT ACT. 5. THE APPELLANT CONTENDS THAT THE NOTICE U/S 271(1 )(C) HAS NOT BEEN ISSUED PROPERLY AND IS BAD IN LAW. THE VER Y LEVY OF PENALTY ON THE BASIS OF THE SAID NOTICE IS ERRONEOU S. 2. FURTHER, VIDE LETTER DATED 20.02.2018 HAS RAISED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL ALONG WITH P RAYER FOR ADMISSION OF THE SAME: 1. THE APPELLANT CONTENDS THAT THE NOTICE DT. 28.1 2.2005 ISSUED U/S 271(1)(C) OF THE I.T. ACT ALONG WITH THE ASSESSMENT ORDER DT. 28.12.2005 IS BAD IN LAW AS IT DOES NOT S PECIFY THE CHARGE IN UNEQUIVOCAL AND UNAMBIGUOUS TERMS AS TO W HETHER THE SHOW NOTICE CAUSE IS FOR CONCEALMENT OF INCOME OR FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 2. IT IS THEREFORE CONTENDED THAT APART FROM MERITS , THE NOTICE ISSUED U/S 271(1)(C) OF THE I.T. ACT IS HIT BY AMBI GUITY AND THEREFORE, THE CONSEQUENT PENALTY ORDER LEVYING PEN ALTY OF RS.6,23,643 U/S 271(1)(C) IS BAD IN LAW AND DESERVE S TO BE QUASHED 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY ENGAGED IN THE BUSINESS OF HIRE PURCHASE AND EQUIPM ENT LEASING FINANCIAL SERVICES, FILED ITS RETURN OF INCOME FOR THE A.Y 2003-04 ON 28.11.2003 DECLARING AN INCOME OF RS.29,80,457. THE RETURN WAS PROCESSED U/S 143(1) INITIALLY AND, THEREAFTER, WAS PICKED UP FOR SCRUTINY U/S 143(3) OF THE ACT. DURING THE ASSESSM ENT PROCEEDINGS U/S 143(3), THE AO NOTICED FROM THE ENC LOSURES TO THE RETURN OF INCOME THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.81,93,927 TOWARDS INTEREST, OTHER THAN INTEREST ON SECURITIES, ITA NO 1559 OF 2016 PACT SECURITIES AND FINANCIAL SERVICES LIMITED HYDERABAD. PAGE 3 OF 6 IN THE PREVIOUS YEAR RELEVANT TO THE A.Y 2003-04 AN D CORRESPONDING TDS OF RS.17,19,145 ON THIS AMOUNT WA S ALSO RETURNED TO THE ASSESSEE, WHEREAS ONLY AN AMOUNT OF RS.68,22,531 WAS OFFERED TO TAX AS INTEREST ON LOAN S AND ADVANCES. THE ASSESSEE WAS THEREFORE, REQUESTED TO FURNISH THE REASONS FOR NOT OFFERING THE BALANCE RECEIPTS TO TA X. THE ASSESSEE VIDE REPLY DATED 7.12.2005 STATED THAT AN AMOUNT OF RS.5,01,510 WAS OFFERED TO TAX IN THE IMMEDIATE THREE EARLIER A .YS ON ACCRUED BASIS AND AS THERE WAS DELAY IN ISSUANCE OF TDS CER TIFICATES BY THE DEDUCTOR, THE SAME IS BEING CLAIMED IN A.Y 2003-04. IN SUPPORT OF THIS CONTENTION, THE ASSESSEE FILED THE RECONCILIAT ION STATEMENT ALSO. HOWEVER, THE AO NOTICED THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.15,54,453 AS INTEREST FROM PRATHIMA ES TATES LTD, BUT THE SAME WAS NOT OFFERED TO TAX , TREATING IT A S AN NPA. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAM E HAS NOT OFFERED TO TAX, IT WAS STATED THAT AS PER THE RBI N ORMS, THE LOANS GIVEN TO PRATHIMA ESTATES LTD, WHICH IS A SISTER CO NCERN OF THE ASSESSEE HAD BECOME NPAS AND THUS INTEREST WAS NOT OFFERED TO TAX AND A PART OF THE INTEREST TO BE RECEIVED FROM PRATHIMA ESTATES LTD IS REVERSED FOR THE PURPOSE OF INCOME RECOGNITI ON. THE AO HOWEVER, DID NOT ACCEPT THE ASSESSEES CONTENTION A ND OBSERVED THAT M/S. PRATHIMA ESTATES LTD IS A SISTER CONCERN OF THE ASSESSEE AND THAT IN THE BOOKS OF ACCOUNT, IT WAS SEEN THAT RS.12,50,000 IS PAID ON 2.7.2002 TOWARDS LOAN REPAYMENT AND ANOTHER AMOUNT OF RS.5,72,291 HAS SHOWN AS PAYMENT RECEIVED FROM PRAT HIMA ESTATES LTD AS ON 31.03.2003 AND THEREFORE, THE LOA N AMOUNT CANNOT BE TREATED AS NPA AND INTERESTS OUGHT TO HAV E BEEN OFFERED TO TAX. SIMILARLY, HE OBSERVED THAT SOME OTHER LOAN S ALSO HAVE NOT BECOME NPAS AND THE INTEREST THEREON OUGHT TO HAVE BEEN OFFERED ITA NO 1559 OF 2016 PACT SECURITIES AND FINANCIAL SERVICES LIMITED HYDERABAD. PAGE 4 OF 6 TO TAX. THUS, HE MADE AN ADDITION OF RS.21,34,073 U NDER THIS HEAD. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL B EFORE THE CIT (A) AND THEREAFTER TO ITAT WHICH CONFIRMED THE ADDI TIONS MADE BY THE AO. MEANWHILE, THE AO INITIATED PENALTY PROCEED INGS U/S 271(1)(C) OF THE ACT BY COMING TO THE CONCLUSION TH AT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME, THE AO LEVIED THE PENALTY U/S 271(1)(C) OF THE ACT. AGGRIEVED, THE AS SESSEE PREFERRED ITS APPEAL BEFORE THE CIT (A), WHO CONFIRMED THE PE NALTY AND THE ASSESSEE IS IN SECOND APPEAL BEFORE BY RAISING THE GROUNDS OF APPEAL AS WELL AS THE ADDITIONAL GROUNDS OF APPEAL WHICH ARE ALREADY REPRODUCED IN PARAS 1 & 2 ABOVE. 4. IN SUPPORT OF THE ADDITIONAL GROUNDS OF APPEAL, THE ASSESSEE HAS ALSO FILED COPY OF THE NOTICE U/S 271( 1)(C) AND IT IS SEEN THERE FROM THAT THE AO HAS NOT STRUCK OFF IRRE LEVANT PORTION OF THE NOTICE AND THEREFORE, THE REASON FOR THE INI TIATION OF THE PENALTY PROCEEDINGS IS NOT KNOWN, I.E. WHETHER IT I S FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURA TE PARTICULARS OF INCOME. THIS ISSUE HAD COME UP BEFORE THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF PR. CIT VS . SMT. BAISETTY REVATHI REPORTED IN 398 ITR 88 (T & A.P) WHEREIN TH E HON'BLE HIGH COURT HAS HELD THAT IF IRRELEVANT PORTION OF THE NO TICE IS NOT STRUCK OFF, SUCH NOTICE IS NOT VALID AND THE CONSEQUENT PE NALTY ORDER IS NOT SUSTAINABLE. THEREFORE, CONSIDERING THE LEGAL Q UESTION INVOLVED, WE ADMIT THE ADDITIONAL GROUNDS AND ADJUD ICATE THE SAME AS UNDER:- 5. WHILE THE LEARNED COUNSEL FOR THE ASSESSEE RELIE D UPON THE SUBMISSIONS MADE ABOVE, THE LEARNED DR SUPPORTE D THE ITA NO 1559 OF 2016 PACT SECURITIES AND FINANCIAL SERVICES LIMITED HYDERABAD. PAGE 5 OF 6 ORDERS OF THE AUTHORITIES BELOW AND RELIED UPON THE FOLLOWING DECISIONS WHICH ARE REFERRED TO IN HER WRITTEN SUBM ISSIONS: A) DR. SYAMAL BARAN MONDAL VS. CIT (2011) 244 CTR 6 31 B) TRISHUL ENTERPRISES VS. DCIT (ITA NOS.384 & 385/ MUM/2014 FOR A.YS 2006-07 & 2007-08 DATED 10.02.2017 C) M/S. MAHARAJ GARAGE & CO. VS. CIT DATED 22.8.201 7 D) EARTHMOVING EQUIPMENT SERVICE CORPN. VS. DCIT 22 (2) MUMBAI (2017) 84 TAXMANN.COM 51 E) MAHESH M GANDHI VS. ACIT (TS-5465-ITAT-2017 (MUM BAI)-O) F) DHANRAJ MILLS (P) LTD VS. ACIT (OSD) CENTRAL RAN GE-R, MUMBAI ON 21 ST MARCH, 2017 . G) ITA NO.1519/HYD/2016 DATED 28.11.2017 6. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT THE DECISIONS RELI ED UPON BY THE LEARNED DR OF THE TRIBUNAL AT MUMBAI AND THEREFORE IS ONLY OF PERSUASIVE VALUE, WHILE THE DECISION OF THE JURISDI CTIONAL HIGH COURT IS BINDING ON US. THE FACTS IN THE CASE OF JY OTHIRMAY YAMASAMI ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE BEFORE US BECAUSE IN THE CASE OF JYOTHIRMAY, THE AO HAD RECOR DED IN THE ASSESSMENT ORDER ITSELF, THE REASON FOR INITIATING PENALTY PROCEEDINGS, WHEREAS, IN THE CASE BEFORE US, THERE IS NO SUCH INDICATION, EITHER IN THE ASSESSMENT ORDER OR IN TH E NOTICE U/S 271(1)(C) OF THE ACT. THEREFORE, WE HOLD THAT THE N OTICE U/S 271(1)(C) IS NOT VALID. 7. EVEN OTHERWISE ON MERITS ALSO, WE FIND THAT THE ASSESSEE HAS BEEN FOLLOWING CONSISTENT SYSTEM OF AC COUNTING THE INTEREST ON RECEIPT BASIS AND AS PER THE RBI NORMS, ONCE A LOAN HAS BEEN TREATED AS AN NPA, SUBSEQUENT REPAYMENT OF THE LOAN ITA NO 1559 OF 2016 PACT SECURITIES AND FINANCIAL SERVICES LIMITED HYDERABAD. PAGE 6 OF 6 ALSO WILL NOT CHANGE THE CHARACTER OF THE NPA. SUBS EQUENT REPAYMENT MAY HAVE JUSTIFIED THE ADDITION TO THE RE TURNED INCOME, BUT THAT WILL NOT AMOUNT TO FURNISHING OF INACCURAT E PARTICULARS OF INCOME OR CONCEALMENT OF INCOME ATTRACTING THE PENA LTY U/S 271(1)(C) OF THE ACT. FURTHER, ADDITIONS CONFIRMED BY THE CIT (A) OR THE HIGHER FORUM WILL NOT AUTOMATICALLY ATTRACT PEN ALTY U/S 271(1)(C) OF THE ACT. UNLESS IT IS PROVED THAT THE ASSESSEE HAS COMMITTED THE DEFAULT OF FURNISHING OF INACCURATE P ARTICULARS OR CONCEALMENT OF INCOME. AS BOTH INGREDIENTS ARE ABSE NT IN THE CASE BEFORE US, WE ARE OF THE OPINION THAT THE PENALTY I S NOT SUSTAINABLE EVEN ON MERITS. 8. IN THE RESULTS, THE ASSESSEES APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH JULY, 2018. (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 18 TH JULY 2018. VINODAN/SPS COPY TO: 1 PACT SECURITIES & FINANCIAL SERVICES LTD, PLOT NO .213, PRATHIMA, ROAD NO.1, FILM NAGAR, HYDERABAD 2 DY.CIT CIRCLE 16(3) HYDERABAD 3 CIT (A) - 11, HYDERABAD 4 PR. CIT CENTRAL, HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER