SECO TOOLS INDIA PRIVATE LIMITED, Pune V. DCIT CIRCLE-6, PUNE, Pune

ITA 161/PUN/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72116 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 27-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MODI
• Assessee Lawyers: ANUJ DESHMUKH
• Keywords: Business income; Business expenditure; Bonafide belief; Commercial expediency; Capital expenditure
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 161/PN/2010 (ASSTT.YEAR : 2004-05) SECO TOOLS INDIA PVT. LTD. (DRILLCO SECO LIMITED MERGED WITH SECO TOOLS INDIA PVT. LTD., GAT NO.582, PUNE NAGAR ROAD, KOREGAON BHIMA, TAL : SHIRUR, PUNE 412 216. .. APPELLANT PAN NO. AAACS 9793F VS. DY.CIT, CIRCLE-6, PUNE .. RESPONDENT APPELLANT BY : SHRI KANCHAL KAUSHAL & SHRI ANUJ DESHMUKH RESPONDENT BY : SHRI A.K. MODI DATE OF HEARING : 21-08-2013 DATE OF PRONOUNCEMENT : 28-08-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 30-10-2009 OF THE CIT(A) III, PUNE RELATING TO ASS ESSMENT YEAR 2004-05. 2. THIS APPEAL WAS EARLIER DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL VIDE ORDER DATED 08-06-2011. SUBSEQUENTLY , THE TRIBUNAL VIDE MA NO.153/PN/2011 ORDER DATED 05-09-2012 RECALLED T HE EARLIER ORDER OF THE TRIBUNAL ON THE GROUND THAT THERE WERE CERTAIN FACTUAL ERRORS IN THE ORDER OF THE TRIBUNAL. HENCE, THIS IS A RECALLED MATTER. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME DECLARING LOSS OF RS.1,39,54,920/- ON 31-10- 2004. DURING THE 2 COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFI CER NOTED THAT THE ASSESSEE HAD NOT EARNED ANY INCOME FROM THE BUSINES S DURING THE IMPUGNED ASSESSMENT YEAR UNDER CONSIDERATION AND THE LOSSES WERE MAINLY ON ACCOUNT OF INTEREST CHARGES AMOUNTING TO RS.1,33,65 ,822/-. HE NOTED FROM THE AUDITED ACCOUNTS THAT THE ASSESSEE HAD A CAPITA L FUND OF RS.39,89,19,384/- AND HAD TAKEN UNSECURED LOANS OF RS.18,67,83,354/-. THE ASSESSEE HAD MADE INVESTMENT OF RS.49,02,52,296/- I N ITS SUBSIDIARY COMPANY VIZ., DRILLCO & SECO TOOLS INDIA PVT. LTD. THE ASSESSEE COMPANY HAD EARNED RS.3,12,789/- ONLY AS INTEREST ON FIXED DEPOSITS AND HAD DEBITED AN AMOUNT OF RS.1,33,65,822/- TO THE PROFIT AND LOS S ACCOUNT UNDER THE HEAD FINANCE CHARGES. SINCE THE ASSESSEE COMPANY HAD NOT CARRIED OUT ANY BUSINESS OPERATIONS DURING THE YEAR THE ASSESSING O FFICER DISALLOWED THE CLAIM OF DEDUCTION OF FINANCE CHARGES AMOUNTING TO RS.1,33,65,822/- IN THE ORDER PASSED U/S.143(3)/147. THE ASSESSEE DID NOT PREFER ANY APPEAL AGAINST THE SAID DISALLOWANCE. 3.1 SUBSEQUENTLY, THE ASSESSING OFFICER INITIATED P ENALTY PROCEEDINGS U/S.271(1)(C) OF THE INCOME TAX ACT. DURING PENAL TY PROCEEDINGS IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS NEITHER CON CEALED PARTICULARS OF INCOME NOR FURNISHED ANY INACCURATE PARTICULARS ABO UT ITS INCOME. IT WAS EXPLAINED THAT THE INTEREST EXPENSES WERE INCURRED FOR ACQUIRING THE MAJORITY STAKE IN DRILLCO & SECO LTD. WHICH WAS IN THE SAME LINE OF BUSINESS AND CARRYING ON MANUFACTURING OPERATIONS. IT WAS SUBMITTED THAT SUBSEQUENT AMALGAMATION OF THE COMPANY WITH DRILLCO & SECO LTD. SUBSTANTIATED THE FACT THAT THE STRATEGIC INTENTION OF THE COMPANY BEHIND THE INVESTMENT IN DRILLCO AND SECO LTD. WAS TO CARRY ON MANUFACTURING 3 OPERATIONS AND HENCE THE COMPANYS CONTENTION THAT INTEREST EXPENSES WERE INCURRED FOR BUSINESS PURPOSES WAS NOT COMPLETELY W RONG. RELYING ON VARIOUS JUDICIAL DECISIONS IT WAS ARGUED THAT MEREL Y BECAUSE THE DEDUCTION OF EXPENDITURE, IN THE CASE OF THE COMPANY, STANDS DISALLOWED, IT DOES NOT BY ITSELF LEAD TO THE INFERENCE THAT THE COMPANY HA D FURNISHED INACCURATE PARTICULARS OR CONCEALED INCOME IN REGARD TO THAT I TEM. IT WAS ARGUED THAT THE COMPANY OFFERED FULL EXPLANATION FOR THE DEDUCT ION CLAIMED FOR FINANCE CHARGES IN THE TAX RETURN DURING ASSESSMENT PROCEED INGS. THE STATEMENTS/EXPLANATIONS MADE BY COMPANY WITH REGARD TO THE BASIS OF THE CLAIM OF THE SAID EXPENDITURE WERE BONAFIDE AND WER E FULLY DISCLOSED DURING THE ASSESSMENT PROCEEDINGS. IT WAS ARGUED THAT THE CASE OF THE COMPANY DID NOT ATTRACT LEVY OF PENALTY U/S.271(1)(C) OF THE IN COME TAX ACT. 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT T HE ASSESSEE HAD INCURRED INTEREST FOR THE UNSECURED LOANS AND HAS DIVERTED T HE SAME TO THE SUBSIDIARY COMPANY WITHOUT CHARGING INTEREST. ONLY WHEN THE S AME WAS CONFRONTED TO THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS THAT THE ASSESSEE WITHDREW ITS CLAIM FOR DEDUCTION OF THE FINANCE CHARGES. TH EREFORE, IT CANNOT BE SAID THAT THE SUBSEQUENT WITHDRAWAL OF CLAIM OF FINANCE CHARGES INCURRED WAS VOLUNTARY. HAD THE CASE NOT BEEN VERIFIED AND REOP ENED THE ASSESSEE WOULD NOT HAVE WITHDRAWN ITS CLAIM. THE CONTENTION OF TH E ASSESSEE THAT IN THE RETURNS OF INCOME FOR THE SUBSEQUENT YEARS THE LOSS FOR A.Y. 2004-05 WERE NOT CARRIED FORWARD AND SET OFF AGAINST THE BUSINES S INCOME IS ALSO NOT ACCEPTABLE SINCE AS PER LAW THE ASSESSEE IS ALLOWED TO CARRY FORWARD THE LOSSES FOR 8 YEARS AND ACCORDINGLY, IN THE RETURN O F INCOME FILED BY THE 4 ASSESSEE IT HAD ALREADY CLAIMED FOR CARRY FORWARD O F LOSS FOR SET OFF IN FUTURE INCOME. REJECTING THE VARIOUS DECISIONS RELIED O N BY THE ASSESSEE THE ASSESSING OFFICER HELD THAT THE ASSESSEE SHOULD HAV E DECLARED THE CORRECT TAXABLE INCOME IN ITS ORIGINAL RETURN OF INCOME. S INCE THE ASSESSEE FAILED TO DO SO, THE ASSESSING OFFICER HELD THAT THE ASSESSEE IS LIABLE TO PAY PENALTY FOR CONCEALING THE INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME. THE ASSESSING OFFICER ACCORDINGLY LEVIED PENALTY OF RS.47,94,989/- U/S.271(1)(C) OF THE INCOME TAX ACT. 5. BEFORE THE CIT(A) THE ASSESSEE REITERATED THE SA ME SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER. IT WAS SUBMITTED THA T THE INVESTMENT IN DRILLCO WAS AN INTEGRAL PART OF THE GROWTH STRATEGY OF THE ORGANISATION. IT WAS SUBMITTED THAT BOTH THE COMPANIES HAVE COMMON B USINESS AND COMMON MANAGEMENT AS WELL AS COMMON PLACE OF BUSINE SS. RELYING ON THE DECISION OF THE MUMBAI ITAT IN THE CASE OF TATA CHE MICALS LTD. VS. DCIT REPORTED IN 72 ITD 1 IT WAS SUBMITTED THAT THE CLAI M OF DEDUCTION IN RESPECT OF THE FINANCE CHARGES WAS MADE BY THE COMPANY UNDE R BONAFIDE BELIEF THAT THE SAME COULD BE ALLOWED AS A DEDUCTION. THE ASSE SSEE SUBMITTED THAT THE COMPANY HAS BEEN CONSISTENTLY CLAIMING INTEREST EXP ENSES FOR INVESTMENTS IN DRILLCO RIGHT FROM A.Y. 2000-2001 TO 2004-05 UND ER GENUINE BELIEF THAT THE SAME IS QUALIFIED AS AN ALLOWABLE EXPENDITURE. IT WAS ARGUED THAT AFTER THE ADVERSE DECISION OF THE CIT(A) ON 25-01-2005 FO R A.Y. 2000-2001 AND 27-01-2005 FOR A.Y. 2001-02 THE ASSESSEE HAS NEITHE R SET OFF THE RETURNED LOSS FOR SUBSEQUENT ASSESSMENT YEARS FOR COMPUTING THE TAXABLE INCOME OF THE AMALGAMATED COMPANY NOR CARRIED FORWARD THE SAM E FOR SET OFF IN SUBSEQUENT ASSESSMENT YEARS. THE SAME POSITION/TRE ATMENT WAS ADOPTED FOR 5 THE RETURNS FILED FOR SUBSEQUENT YEARS. THESE FACT S CLEARLY SHOW THAT THE CONDUCT OF THE ASSESSEE IN CLAIMING THE SAID DEDUCT ION IN EARLIER ASSESSMENT YEARS WAS UNDER A BONAFIDE BELIEF AND THERE WAS NO CONCEALMENT OF INCOME. 6. HOWEVER, THE LD.CIT(A) WAS ALSO NOT SATISFIED WI TH THE EXPLANATION GIVEN BY THE ASSESSEE AND CONFIRMED THE PENALTY LEV IED BY THE ASSESSING OFFICER BY HOLDING AS UNDER : 7. THE SUBMISSION HAS BEEN CONSIDERED AND IS FOUND TO HAVE NO MERIT. IT IS SEEN THAT, WHILE PASSING ORDER U/S.2 71(1)(C), THE ASSESSING OFFICER HAS ELABORATELY DISCUSSED AS TO W HY THE PENAL PROVISIONS ARE ATTRACTED IN THE CASE OF THE APPELLA NT. FOR REASONS GIVEN IN THE ORDER U/S. 271(1)(C), I AM INCLINED TO AGREE WITH THE VIEW OF THE ASSESSING OFFICER. AS THERE WAS NO BASIS FO R THE APPELLANT TO FORM THE VIEW THAT THE FINANCIAL CHARGES PAID BY TH E APPELLANT ON THE BORROWED FUNDS DIVERTED TO THE SUBSIDIARY COMPANY W AS ALLOWABLE AS BUSINESS EXPENDITURE, ITS CLAIM OF DEDUCTION FOR TH E SAME, BY NO LOGIC, CAN BE CONSIDERED AS HAVING BEEN MADE GENUINELY. EV EN THE ARGUMENT THAT THE INVESTMENT IN DRILLCO WAS AN INTE GRAL PART OF THE GROWTH STRATEGY OF THE ORGANIZATION IS OF NO HELP T O THE APPELLANT SIMPLY BECAUSE EVEN ON THIS GROUND THE FINANCIAL CH ARGES PAID COULD NOT BE CONSIDERED AS ALLOWABLE EXPENDITURE. FURT HER, CONTRARY TO THE CONTENTION OF THE APPELLANT, THE FACT THAT THE APPELLANT HAS BEEN CONSISTENTLY CLAIMING THE DEDUCTION FOR SAID EXPEND ITURE TILL THE ADVERSE DECISION OF CIT(A) AND THEREAFTER, DISCONTI NUED CLAIMING IT IN THE RETURNS FILED SUBSEQUENTLY, DOES NOT, IN ANY W AY, SHOWS THAT THE CONDUCT OF THE APPELLANT IN CLAIMING THE SAID DEDUC TION WAS BASED ON SOME GENUINE BELIEF. APPELLANT'S ATTEMPT TO ESTABLI SH ITS BONAFIDE BY REFERRING TO THE JUDGEMENT OF MUMBAI ITAT IN THE CA SE OF TATA CHEMICALS LTD., 72 ITD 1 IS ALSO FOUND TO BE FUTILE ON ACCOUNT OF THE BASIC DISTINCTION BETWEEN FACTS IN THE CASE OF THE TATA CHEMICALS LTD, AND THOSE IN THE CASE OF THE APPELLANT. IN THE CASE OF TATA CHEMICALS LTD., THE ACTION OF THE ASSESSING OFFICER IN DISALL OWING INTEREST ON CAPITAL BORROWED BY THE ASSESSEE FOR SETTING UP A N EW FERTILIZER PLANT ON THE GROUND THAT ASSESSEE'S CHEMICAL PLANT AND FE RTILIZER PLANT WERE TWO SEPARATE BUSINESS, WAS HELD BY THE HON'BLE 1TAT AS NOT JUSTIFIED AFTER OBSERVING THAT THERE WAS INTERLACING, INTERDE PENDENCE AND INTERCONNECTION BETWEEN ASSESSEE'S CHEMICAL DIVISIO N AND FERTILIZER DIVISION. SUCH A SITUATION IS NOT THERE IN THE CASE OF THE APPELLANT WHERE THE BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR A SEPARATE BUSINESS OF THE ASSESSEE BUT HAVE BEEN DIVERTED IN MAKING INVESTMENTS IN OTHER COMPANY. THE DEDUCTION CLAIMED BY THE APPELLANT NEVER INVOLVED ANY ARGUABLE, DEBATABLE OR CONTROVERSIAL ISSUE AND THERE COULD BE NO REASON TO CLAIM SUCH NO N-ALLOWABLE DEDUCTION BUT FOR THE MALAFIDE INTENTION OF THE APP ELLANT TO UNDER- DISCLOSE ITS INCOME. I, THEREFORE, HOLD THAT, ON TH E FACTS OF THE CASE, 6 THE ASSESSING OFFICER IS JUSTIFIED IN VISITING THE APPELLANT WITH THE PENAL PROVISIONS OF SECTION 271(1)(C) AND LEVYING P ENALTY IN AN AMOUNT OF RS.47,94,989 FOR FURNISHING INACCURATE PA RTICULARS OF INCOME. ACCORDINGLY, ORDER U/S 271(1)(C) IS CONFIRM ED. 7. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUND : ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A)-III, PUNE [CIT(A)] ERRED IN UPHOLDING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6, PUNE ( AO) OF LEVYING PENALTY OF RS.47,97,989/- U/S.271(1)(C) OF THE ACT. IT IS PRAYED THAT THE LD. ASSESSING OFFICER BE DIRE CTED TO DELETE THE PENALTY OF RS.47,97,989/-. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER AND /OR DELETE ANY/ALL OF THE ABOVE GROUNDS OF APPEAL. 8. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OPPOSE D THE ORDER OF THE CIT(A). HE SUBMITTED THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES NO PENALTY U/S.271(1)(C) OF THE I.T. ACT WAS LEVIED FO R A.Y. 2000-2001 AND 2001-02. REFERRING TO THE DECISION OF HONBLE PUNJ AB & HARYANA HIGH COURT IN THE CASE OF CIT VS. M/S. SOOD HARVESTER REPORTED IN 2007-TIOL- 437, A COPY OF WHICH WAS FILED DURING THE COURSE OF HEARING, HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HA S HELD THAT IF NO PENALTY HAS BEEN LEVIED IN THE PRECEDING YEARS UNDER SIMILA R FACTS AND CIRCUMSTANCES THEN IN VIEW OF THE DECISIONS OF HON BLE SUPREME COURT IN THE CASES OF RADHASOAMI SATSANG AND BURGER PAINTS I NDIA LTD. THE REVENUE HAS TO MAINTAIN CONSISTENCY AND NO PENALTY SHOULD B E LEVIED. HE SUBMITTED THAT AFTER THE ORDER OF THE CIT(A) FOR A.Y. 2000-20 01 AND 2001-02 THE ASSESSEE HAS SUOMOTU DISALLOWED THE CARRY FORWARD O F THE LOSSES. 7 8.1 REFERRING TO THE DECISION OF HONBLE SUPREME CO URT IN THE CASE OF S.A. BUILDERS HE SUBMITTED THAT EVEN IF THE ASSESSE E HAD ADVANCED INTEREST FREE FUND OUT OF INTEREST BEARING FUND TO ITS SISTE R CONCERNS, THEN NO DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS CALLED FOR. HE SUBMITTED THAT THE ASSESSEE HAD BORROWED A SUM OF RS.10 CRORE S FROM CITIBANK N.A. CHENNAI FOR THE PURPOSE OF ACQUIRING 27 LAKH SHARES IN DRILLCO & SECO LTD. BASED IN PUNE. THIS INVESTMENT WAS PART OF THE ASS ESSEES STRATEGIC INVESTMENT TO MANUFACTURE AND SELL CARBIDE TIPPED C UTTING TOOLS IN INDIA TO CATER TO BOTH ITS DOMESTIC AS WELL AS EXPORT MARKET S. DRILLCO WAS ENGAGED IN THE MANUFACTURE AND SALE OF SIMILAR CARBIDE TIPPED CUTTING TOOLS. THEREFORE, THE INVESTMENT IN DRILLCO WAS AN INVESTMENT FOR THE PURPOSE OF BUSINESS AND HENCE THE INTEREST ON BORROWED FUNDS UTILISED FOR S UCH INVESTMENT SHOULD BE HELD AS BUSINESS EXPENDITURE IN VIEW OF THE DECISIO N OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1. HE SUBMITTED THAT IF THE CONTENTION OF THE REVENUE THA T ASSESSEE HAD INVESTED INTEREST BEARING FUNDS IN ACQUISITION OF SHARES, TH EN ALSO NO DISALLOWANCE IS CALLED FOR U/S.14A IN VIEW OF THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELITE ENTERPRISE S VIDE ITA NO.1101/2009 SINCE THERE IS NO PROFIT FOR THE RELEV ANT ASSESSMENT YEAR. 8.2 REFERRING TO THE DECISION OF CHENNAI BENCH OF T HE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD. VS. DCIT VIDE IT A NO.1503/1624/MAD/2012 ORDER DATED 17-07-2013 AND BA TCH OF OTHER APPEALS HE SUBMITTED THAT NO DISALLOWANCE U/S.14A I S CALLED FOR IN CASE OF ANY INVESTMENT MADE BY THE COMPANY IN ITS SUBSIDIAR Y COMPANY TO PROMOTE THE SUBSIDIARY COMPANY. REFERRING TO THE DECISION OF HONBLE SUPREME 8 COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCT S LTD. REPORTED IN 322 ITR 158 HE SUBMITTED THAT THE HONBLE SUPREME COURT IN THE SAID DECISION HAS HELD THAT MERELY BECAUSE THE ASSESSEE HAD CLAIM ED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE BY THE REVENUE, THAT BY ITSELF WOULD NOT, ATTRACT PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT. HE ACCORDINGLY SUBMITTED THAT THE PENALTY LEVIED BY TH E ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) SHOULD BE CANCELLED. THE L D. COUNSEL FOR THE ASSESSEE ALSO RELIED ON VARIOUS OTHER DECISIONS. 9. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED TH AT THE VARIOUS CASE DECISIONS RELIED ON BY THE LD. AR ARE NOT APPLICABL E TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT DRILLCO BECAME A S UBSIDIARY ONLY AFTER THE INVESTMENT AND THERE WAS NO EARLIER RELATIONSHIP/LI NK WITH THE ASSESSEE COMPANY. THEREFORE, THE DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF S.A. BUILDERS OR THE DECISION OF THE CHENNA I BENCH OF THE TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS (SUPRA) ARE NO T APPLICABLE TO THE FACTS OF THE PRESENT CASE. HE SUBMITTED THAT THE CAPITAL EXPENDITURE HAS BEEN WRONGLY DEBITED TO THE PROFIT AND LOSS ACCOUNT. TH EREFORE, IF THE ASSESSING OFFICER IN THE PAST HAD NOT INITIATED PENALTY PROCE EDINGS THE SAME CANNOT BE A BAR FOR NOT INITIATING PENALTY PROCEEDINGS IN SUB SEQUENT YEARS. HE SUBMITTED THAT PRINCIPLES OF RESJUDICATA DO NOT APP LY TO INCOME TAX PROCEEDINGS AND EVERY YEAR IS SEPARATE AND INDEPEND ENT. MERELY BECAUSE SOME WRONG HAS BEEN MADE IN THE PAST SUCH WRONG CAN NOT PERPETUATE. HE ACCORDINGLY SUBMITTED THAT THE PENALTY LEVIED BY TH E ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) SHOULD BE UPHELD. 9 10. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE IT S LETTER DATED 23-11- 2007 HAD WITHDREW THE CLAIM OF FINANCE CHARGES. TH E RELEVANT OBSERVATIONS OF THE ASSESSING OFFICER AT PARA 6 OF THE ORDER REA D AS UNDER : 6. THE AUTHORISED REPRESENTATIVE SUBMITTED THAT AS PER SUBMISSION GIVEN ON 23-11-2007, THE COMPANY WOULD L IKE TO WITHDRAW ITS CLAIM FOR THE FINANCE CHARGES DEDUCTIO N INCURRED DURING THE RELEVANT ASSESSMENT YEAR AND THE LOSS ON ACCOUN T OF FINANCE CHARGES HAS NOT CARRIED FORWARD AND SET OFF AGAINST SUBSEQUENT YEAR BUSINESS INCOME. 10.1 FURTHER, FROM THE SAME ASSESSMENT ORDER, WE FI ND THE ASSESSING OFFICER HAD CATEGORICALLY MENTIONED THAT THE ASSESS EE HAD TAKEN UNSECURED LOAN OF RS.18,67,83,354/- AND MADE INVESTMENT OF RS .49,02,52,296/- IN ITS SUBSIDIARY COMPANY NAMELY DRILLCO SECO LTD. WE, TH EREFORE, DO NOT FIND ANY MERIT IN THE SUBMISSION OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE BECAME A SUBSIDIARY COMPANY WITH DRILLCO O NLY AFTER THE INVESTMENT. FURTHER, THE LD. DEPARTMENTAL REPRESEN TATIVE ALSO COULD NOT CONTROVERT THE SUBMISSION OF THE LD. COUNSEL FOR TH E ASSESSEE THAT DRILLCO WAS ALSO ENGAGED IN THE MANUFACTURE AND SALE OF SIM ILAR CARBIDE TIPPED CUTTING TOOLS WHICH THE ASSESSEE ALSO MANUFACTURES AND SELLS. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO COULD NOT CONTROV ERT THE SUBMISSIONS MADE BEFORE CIT(A) THAT BOTH THE COMPANIES HAVE COM MON BUSINESS, COMMON MANAGEMENT AND COMMON PLACE OF BUSINESS. FU RTHER, IT IS ALSO A FACT THAT UNDER SIMILAR FACTS AND CIRCUMSTANCES NO PENALTY U/S.271(1)(C) HAS BEEN LEVIED BY THE ASSESSING OFFICER DURING A.Y. 20 00-01 AND 2001-02. 10 WE FIND MERIT IN THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE CLAIM OF FINANCE CHARGES MADE BY THE ASSESSEE W AS BASED ON FAVOURABLE DECISIONS AVAILABLE ON THE DATE OF FILING OF THE RE TURN OF INCOME ACCORDING TO WHICH WHEN BORROWED FUNDS ARE USED IN ORDER TO MAKE INVESTMENT IN SHARES OF ANOTHER COMPANY AND THE PURPOSE BEHIND SUCH INVE STMENT IS TO ACQUIRE CONTROLLING INTEREST IN ANOTHER COMPANY, SUCH INVES TMENT ARE FOR THE PURPOSE OF BUSINESS AND INTEREST ON SUCH BORROWING IS BUSINESS EXPENDITURE U/S.36(1)(III) OF THE INCOME TAX ACT. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA) HAS HELD THAT NO DISALLOWANCE OF INTEREST SHOULD BE MADE IF INTEREST BEARING FUNDS A RE GIVEN FREE OF INTEREST TO SISTER CONCERN FOR COMMERCIAL EXPEDIENCY. 10.2 IN THE INSTANT CASE THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD FURNISHED FULL DETAILS BEFORE THE ASSESSING OFFICER . FURTHER, THE ASSESSEE IN THE INSTANT CASE HAS FURNISHED AN EXPLANATION AND T HE SAID EXPLANATION HAS NOT BEEN FOUND TO BE FACTUALLY FALSE. FROM THE V ARIOUS DETAILS FILED, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS BEEN ABLE TO SHOW THAT THE EXPLANATION OFFERED IS A BONAFIDE ONE AND THE F ACTS AND MATERIALS RELATING TO COMPUTATION OF INCOME HAS BEEN DISCLOSE D. MERELY BECAUSE THE CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE TO THE R EV ENUE THAT ITSELF CANNOT BE A GROUND FOR LEVY OF PENALTY U/S.271(1)(C) OF THE I NCOME TAX ACT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. REPORTED IN 322 ITR 158. 10.3 CONSIDERING THE TOTALITY OF THE FACTS OF THE C ASE, WE ARE OF THE CONSIDERED OPINION THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY U/S.271(1)(C) 11 OF THE INCOME TAX ACT, 1961. WE, THEREFORE, SET-AS IDE THE ORDER OF THE LD.CIT(A) AND DIRECT THE ASSESSING OFFICER TO CANCE L THE PENALTY. THE APPEAL FILED BY THE ASSESSEE IS ACCORDINGLY ALLOWED . 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF AUGUST 2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 28 TH AUGUST 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A)-III, PUNE 4. THE CIT-III, PUNE 5. D.R. B BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE