ITO., Ward- 16(2), Hyderabad, Hyderabad V. M/s NCS Investments Private Limited, Hyderabad

ITA 1654/HYD/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2512 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-10-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R LAXMAN
• Assessee Lawyers: D BALAJI
• Keywords: Bonafide belief; Wrong claim
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1654/HYD/2014 ASSESSMENT YEAR: 2010-11 THE INCOME TAX OFFICER, WARD-16(2), HYDERABAD VS M/S. NCS INVESTMENTS (P) LTD., HYDERABAD [PAN: AABCN1081E] (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI R. LAXMAN, CIT-DR FOR ASSESSEE : SHRI D. BALAJI, AR DATE OF HEARING : 07-02-2018 DATE OF PRONOUNCEMENT : 16-02-2018 O R D E R PER B. RAMAKOTAIAH, A.M. : THIS IS AN APPEAL BY REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-V, HYDERABAD, DATED 21-07-2014. REVENUE HAS RAISED THE FOLLOWING GROUND : 1. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE, THE LD.CIT(A) ERRED IN DELETING/CANCELLING THE PENALTY LEVIED U/S. 271(1)(C) OF RS. 2,34,05,562/-. GROUND NO. 2 IS GENERAL IN NATURE. I.T.A. NOS. 1654/HYD/2014 :- 2 -: 2. BRIEFLY STATED, ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF RECTIFIED SPIRIT. IT HAS FIL ED ITS RETURN OF INCOME FOR THE A.Y. 2010-11 ON 15-10-2010 D ECLARING LOSS OF RS. 47,00,309/- UNDER NORMAL PROVISIONS OF THE ACT AND UNDER MAT PROVISIONS OF SECTION 115JB OF THE ACT, BOOK LOSS OF RS. 36,54,039/- WAS REFLECTED. THE ASSESSMENT U/S 14 3(3) WAS COMPLETED ON 28-01-2013 AT LOSS OF RS. 39,01,674/- AS AGAINST THE LOSS DECLARED BY ASSESSEE AT RS. 47,00,309/- UNDE R NORMAL PROVISIONS OF THE ACT MAKING AN ADDITION OF RS. 7,98, 545/- BEING DISALLOWANCE U/S 14A OF THE ACT AND FURTHER AN A DDITION OF RS. 7,72,20,000/- WAS MADE FOR THE PURPOSE OF WO RKING OUT THE BOOK PROFITS U/S 115JB OF THE ACT. THE DETAILS OF AD DITIONS MADE ARE AS UNDER: (I) DISALLOWANCE U/S 14A : RS.7,98,545/- : DURING THE ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT ASSESSEE INVESTED RS. 28.31 CRORES IN ITS SISTER CON CERNS ON 31-03-2010. IT WAS ALSO NOTICED THAT ASSESSEE CLAIMED RS. 79,85,452/- TOWARDS PAYMENT OF INTEREST ON LOANS DURI NG THE YEAR. ASSESSEE WAS ASKED TO EXPLAIN THE SOURCES OF THE ABOVE INVESTMENTS AND TO SHOW CAUSE WHY THE PROPORTIONATE CLAI M OF INTEREST ON LOAN SHOULD NOT BE DISALLOWED U/S. 14A. A SSESSEE REPLIED THAT THE SOURCES FOR THESE INVESTMENTS ARE NOTHING BUT ADJUSTMENT OF DUE AMOUNTS FROM THE SISTER CONCERNS. IT W AS ALSO MENTIONED THAT NO BORROWED LOANS WERE UTILIZED FOR THE PURPOSE OF INVESTMENT IN THE ABOVE COMPANIES. BUT THE AO DID NOT ACCEPT THE CONTENTION OF ASSESSEE AS IT FAILED TO SUBSTANTIATE ITS CLAIM THAT NO BORROWED FUNDS WERE UTILIZ ED FOR I.T.A. NOS. 1654/HYD/2014 :- 3 -: THE PURPOSES OF INVESTMENT IN THE SISTER CONCERNS. THERE FORE, THE AO MADE A DISALLOWANCE OF 10% OF RS. 79,85,452/- BEING PAYMENT OF INTEREST ON LOANS DURING THE YEAR, AS ATTRIBUTA BLE FOR DISALLOWANCE U/S.14A AMOUNTING TO RS.7,98,545/- W HICH WAS REDUCED FROM THE LOSS DECLARED BY ASSESSEE UNDER NORMAL PROVISIONS. (II) COMPUTATION OF BOOK PROFITS U/S 115JB RS. 7,72,20,000/- : DURING ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT ASSESSEE HAS DEDUCTED AN AMOUNT OF RS. 7,72,20,000/- BEING PROFIT ON SHARE TRANSFERS REFLECTED IN THE P&L ACCOUNT IN SCH. N (OTHER INCOME). AFTER MAKING THIS ADJUSTMENT, ASSESSEE IN ITS COMPUTATION STATEMENT OF TOTAL INCOME HAS REFLECTED BOOK L OSS AT RS. 36,54,039/-. IN FACT, THE PROFIT BEFORE TAXES AS PER P&L ACCOUNT WAS RS. 7,86,75,335/- AND THE ADMISSIBLE ADJUSTMENTS AS PER THE PROVISIONS OF SECTION 115JB ARE ONLY CERTAIN INADMISSIBLE EXPENSES TO THE TUNE OF RS. 6,95, 536/- AND DIVIDEND RECEIVED OF RS. 58,12,500/-, WHICH ARE INCLUDED IN THE P&L ACCOUNT. SINCE ASSESSEE MADE A CLAIM FOR D EDUCTION IN COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT IN CONTRAVENTION OF PROVISIONS SPECIFIED IN THE SAID PROV ISION, THE CLAIM OF ASSESSEE FOR DEDUCTION WAS REJECTED AND WAS INCLUDED FOR THE PURPOSE OF COMPUTING BOOK PROFITS U/S 115JB O F THE ACT. 3. ASSESSEE ACCEPTED THE DISALLOWANCE/ADDITION MADE. IN RESPONSE TO THE NOTICE ISSUED U/S. 271(1)(C), IT WAS SU BMITTED I.T.A. NOS. 1654/HYD/2014 :- 4 -: BEFORE THE LD.CIT(A) THAT ASSESSEE HAD FILED A REPLY ON 31-07- 2013 BUT THE AO SEEMS TO HAVE NOT CONSIDERED THE SAME AN D LEVIED PENALTY ON BOTH THE AMOUNTS AT 30%, EVEN THOUGH THE TAX ON 115JB WAS CALCULATED AT 15%. THERE WAS AN EXCE SS LEVY OF RS. 1,17,02,781/-. 4. BEFORE THE LD.CIT(A), ASSESSEE FILED DETAILED REP LY CONTENDING (A) THAT THERE WAS EXCESS PENALTY LEVIED; (B) THAT THE EXPLANATION OF ASSESSEE DT. 31-07-2013 WAS NOT CONSIDERED; (C) THAT PENALTY WAS LEVIED ON BOTH DISALLOWANCES/ADD ITIONS UNDER NORMAL COMPUTATION AS WELL IN COMPUTATION U/S. 115JB; (D) THAT THE MERE DISALLOWANCE DOES NOT WARRANT LEVY OF PENALTY. IT RELIED ON VARIOUS CASE LAW. 5. LD.CIT(A) HAS NOT ADDRESSED THE CONTENTIONS AT (A), (B) AND (C) BUT DELETED THE PENALTY HOLDING AS UNDER: 5. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND THE PENALTY ORDER. I FIND FORCE IN THE CONTENTI ONS OF THE APPELLANT AND FULLY AGREE WITH THE SUBMISSIONS. THE A.O. IN T HE PENALTY ORDER HAD OBSERVED THAT THE ASSESSEE MADE A DELIBERATE AT TEMPT TO RESORT TO TAX EVASION BY MAKING WRONG CLAIMS AND FURNISHING O F INACCURATE PARTICULARS OF INCOME, WHICH WAS EVIDENT FROM THE F ACT THAT THE ASSESSEE MADE HIGHER INTEREST CLAIMS WHEN IT HAS MA DE HUGE INVESTMENTS IN ITS SISTER CONCERNS. SIMILARLY, THE APPELLANT HAD MADE WRONG CLAIM BY DEDUCTING PROFIT ON TRANSFER OF SHAR ES, WHICH WAS NOT PERMISSIBLE UNDER THE PROVISIONS OF SECTION 115JB O F THE ACT. I.T.A. NOS. 1654/HYD/2014 :- 5 -: 5.1 I ALSO FIND THAT THE APPELLANT FILED ALL THE IN FORMATION BEFORE THE ASSESSING OFFICER ALONG WITH THE RETURN OF INCO ME, REGARDING THE CLAIM OF EXPENDITURE UNDER EACH HEAD, REVENUES TO T HE COMPANY AND ALL OTHER PARTICULARS ON THE BASIS OF WHICH THE A.O . HAD REJECTED THE CLAIMS OF THE APPELLANT, DISALLOWING RS.7,98,545 U/ S 14A AND RS.7,72,20,000 U/S 115JB OF THE ACT (WHICH WAS NOT INCLUDED BY THE APPELLANT FOR THE PURPOSE OF COMPUTING THE BOOK PRO FITS U/S 115JB OF THE ACT). THEREFORE, THIS IS A CASE OF REJECTION OF THE CLAIM AND THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F CIT VS. RELIANCE PETRO PRODUCTS (P) LTD., REPORTED IN 322 ITR 158 IS SQUARELY APPLICABLE TO THE CASE OF THE APPELLANT, WHICH IS QUOTED AS UN DER: AS HELD BY THE SC IN CIT VS RELIANCE PETRO PRODUCT S 322 ITR (2010) 0158, MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDI TURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVEN UE, THAT BY ITSELF WOULD NOT ATTRACT THE PENALTY U/S 271(1)(C). IF THE CONTENTION OF THE REVENUE IS ACCEPTED, THEN IN CASE OF EVERY RETURN W HERE THE CLAIM IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WIL L INVITE PENALTY U/S 271(1)(C) AND HELD THAT IS CLEARLY NOT THE INTENTIO N OF THE LEGISLATURE. 'IT WAS HELD THAT A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING OF INACCUR ATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO INACCURATE PARTICULARS'. 5.2 IN THIS CONNECTION, IT WOULD ALSO BE RELEVANT T O QUOTE THE FOLLOWING CASE-LAWS WHICH IS ON THE ISSUE UNDER CONSIDERATION . (I) CIT VS GLOW TECH STEELS PVT LTD. (2006) 280 ITR 133 (GUJ), WHEREIN IT WAS HELD THAT WRONG CLAIM WITH FULL DISCLOSURE O F FACTS IS NOT CONCEALMENT. MIS-CONCEPTION OF LAW IS NOT CONCEALME NT. (II) CIT VS INTERNATIONAL AUDIO VISUAL CO (2007) 28 8 ITR 570 (DEL) CIT VS NATH BROTHERS EXIM INTERNATIONAL LTD 288 ITR 670 (DEL), WHEREIN IT WAS HELD THAT WHERE THE FACTS WERE DISCLOSED AND A WRONG CLAIM FOR SPECIAL DEDUCTION WAS MADE, DOES NOT TANTAMOUNT TO CONCEALMENT (III) IN CEMENT MARKETING COMPANY OF INDIA LTD VS. ASST CST 124 ITR 15 (1980), IT HAS BEEN OBSERVED THAT OBSERVED THAT; ' WHERE THE ASSESSEE DOES NOT INCLUDE A PARTICULAR ITEM UNDER A BONA FIDE BELIEF THAT HE IS NOT LIABLE SO TO INCLUDE IT, IT W OULD NOT BE RIGHT TO CONDEMN THE RETURN AS A FALSE' RETURN INVITING IMPOSITION O F PENALTY.' I.T.A. NOS. 1654/HYD/2014 :- 6 -: (IV) IN HINDUSTAN STEEL LTD VS. STATE OF ORISSA 83 ITR 26 (1972), IT HAS BEEN HAS OBSERVED THAT: 'THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VEN IAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE THE BREACH FLOWS FRO M A BONAFIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRE SCRIBED BY THE STATUTE.' (V) THE HYDERABAD BENCH OF THE TRIBUNAL IN THE DECI SION OF HOE LEATHER GARMENTS LIMITED (2010) ITA NO.38/HYD/07 OB SERVED AS UNDER: ... WHENEVER INCOME RETURNED BY THE ASSESSEE IS EN HANCED BY THE ASSESSING OFFICER, THE PENAL PROVISION IS NOT AUTOM ATICALLY ATTRACTED. THE PENAL PROVISION IS APPLICABLE ONLY IF THE ENHANCEME NT IS ON ACCOUNT OF SOME INCOME WITH THE ASSESSEE IS FOUND TO HAVE EARN ED AND CONCEALED. (VI) THE DECISION OF THE DELHI HIGH COURT IN THE CA SE OF CIT VS. AT & T COMMUNICATIONS SERVICES INDIA PVT. LTD., REPORTED I N 343 ITR 257M (DELHI). (VII) THE DECISION OF THE DELHI HIGH COURT IN THE C ASE OF CIT VS. NOKIA INDIA PVT. LTD., REPORTED IN 343 ITR 434(DELHI) (VIII) THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF PRICE WATERHOUSE COOPERS (P) LTD., VS. CIT REPORTED IN 34 8 ITR 306(SC). (IX) THE DECISION OF THE DELHI HIGH COURT IN THE CA SE OF CIT VS. BRAHMAPUTRA CONSORTIUM LTD., REPORTED IN 348 ITR 33 9 (DELHI) 5.3 RESPECTFULLY FOLLOWING THE DECISION OF THE SUPR EME COURT CITED ABOVE, WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE APPELLANT AND ALSO OTHER CASE-LAWS I HOLD THAT THE PENALTY LEVIED IS NOT JUSTIFIED AS THERE WAS NEITHER CONCEALMENT OF INCOME NOR FURNISH ING OF INACCURATE PARTICULARS OF INCOME, AND HENCE, DELETE THE PENALT Y OF RS.2,34,05,562. 6. IT WAS THE CONTENTION OF REVENUE THAT ASSESSEE MADE A WRONG BUT DELIBERATE CLAIM LEADING TO CONCEALMENT, WH EREAS I.T.A. NOS. 1654/HYD/2014 :- 7 -: THE LD. COUNSEL CONTENDED THAT THE MERE DISALLOWANCE OF CLAIMS DOES NOT WARRANT PENALTY. 7. THERE WAS NO PAPER BOOK FILED AND NEITHER ASSESSE E NOR DR HAS PLACED THE ANNUAL REPORT, COMPUTATION OF INCOME , EXPLANATION STATED TO HAVE BEEN FILED BEFORE THE AO ON R ECORD. IT WAS INFORMED THAT ASSESSEE PREFERRED A WRIT PETITION WHICH WAS WITHDRAWN, BEFORE ACCEPTING THE ASSESSMENT ORDER O F AO. NO SUCH PETITION OR ORDER OF HON'BLE HIGH COURT WAS PL ACED ON RECORD. 8. AFTER CONSIDERING THE RIVAL CONTENTIONS AND PERUSIN G THE ORDER OF AO AND CIT(A), WE ARE NOT PERSUADED TO ACCEP T EITHER OF THE ORDERS OF THE AUTHORITIES. AS NOTICED, THE AO HA S NOT CONSIDERED THE EXPLANATION OF ASSESSEE (STATED TO HAVE FILED ONLY ON 31-07-2013) NOR LD.CIT(A) REFERRED TO IT IN H IS ORDER. IT WAS ALSO NOTICED THAT AO LEVIED PENALTY ON ADDITION U/S . 14A IN NORMAL COMPUTATION AND ALSO ADDITION OF CAPITAL GAINS AMOUNT U/S. 115JB. THIS ACTION OF AO IS NOT SUPPORTED BY THE PROVISIONS OF THE ACT. BOARD VIDE ITS CIRCULAR NO. 25/ 15 HAS ACCEPTED THE LEGAL POSITION AND INSTRUCTED THE OFFICERS VIDE THE CIRCULAR DT. 31-12-2015, BUT THE SAME WAS NOT BEFORE A O AT THE TIME OF FINALISING THE PENALTY. EVEN THOUGH CONTENTION WAS RAISED, LD.CIT(A) HAS NOT ADJUDICATED THE SAME. 8.1. AS FAR AS LEVY OF PENALTY ON ADDITION U/S. 14A IS CONCERNED, THE SAME DOES NOT ARISE AS THE COMPUTATION OF INCOME UNDER NORMAL PROVISIONS WAS LESS THAN THE TAX COMPUTED U/S. 115J. AS PER THE BOARD CIRCULAR REFERR ED, THE I.T.A. NOS. 1654/HYD/2014 :- 8 -: PENALTY IS NOT WARRANTED ON THIS AMOUNT. HENCE, TO THAT EXTENT, THE ACTION OF AO CANNOT BE ACCEPTED. 8.2. COMING TO THE ISSUE OF PENALTY ON THE ADDITION MA DE UNDER THE PROVISIONS OF SECTION 115JB, WE ARE UNABLE TO EXAMINE WHETHER THE CLAIM WAS DELIBERATE OR NOT? ASSE SSEE ADMITTED THAT IT MADE A CONSCIOUS CLAIM. EXCEPT STATING THE SAME AND RELYING ON VARIOUS CASE LAW, NO DETAILS ARE FILED TO EXAMINE. AS ALREADY STATED, THE ANNUAL REPORT OF THE CO MPANY WAS NOT FILED TO EXAMINE WHETHER THE GAINS ON SALE OF INVESTMENTS WAS REFLECTED IN P&L A/C OR TAKEN TO BALAN CE SHEET. NOT ONLY THAT, THE REASON FOR INCLUSION OF SAME IN NORMAL COMPUTATION AND EXCLUDING THE SAME IN COMPUTATIO N U/S. 115JB WAS NOT ON RECORD AND COPY OF COMPUTATION/C LAIMS MADE ARE ALSO NOT PLACED ON RECORD. THE CONTENTIONS MADE BEFORE THE HON'BLE HIGH COURT IN THE WRIT PETITION AND R EASONS FOR WITHDRAWAL ARE ALSO NOT ON RECORD. IN THESE CIRCU MSTANCES, WE ARE UNABLE TO COME TO A CONCLUSION WHETHER IT IS A B ONAFIDE CLAIM OR DELIBERATE CLAIM TO AVOID PAYMENT OF TAX U/S. 115JB. THE ORDER OF LD.CIT(A) DOES NOT THROW ANY LIGHT ON THES E ASPECTS. DEVOID OF FACTS, THE CASE LAW CANNOT BE APPLI ED. IT IS TRITE LAW THAT THE CASE LAW WILL APPLY ONLY BASED ON FAC TS IN WHICH IT WAS RENDERED. IN THE ABSENCE OF DISCUSSION O R EXAMINATION OF FACTS, IT IS NOT POSSIBLE TO ADJUDICATE ON LY ON PRINCIPLES OF LAW. IN VIEW OF THAT, WE HEREBY SET AS IDE THE ORDER OF AO AND CIT(A) ON THIS ISSUE AND RESTORE THE ISSUE TO THE FILE OF AO TO CONSIDER THE SAME AFRESH ON THE ISSUES STATED ABOVE AND GIVE CLEAR FINDINGS. NEEDLESS TO STATE THAT ASSESSEE S EXPLANATION DT. 31-07-2013 SHOULD ALSO BE CONSIDERED AND I.T.A. NOS. 1654/HYD/2014 :- 9 -: ASSESSEE SHOULD BE GIVEN DUE OPPORTUNITY BEFORE FINA LISING THE LEVY OR NON-LEVY OF PENALTY U/S. 271(1)(C). AO IS ALSO DIRECTED TO CONSIDER ONLY THE AMOUNT OF ADDITION MADE U/S. 115JB A ND THE TAX SOUGHT BE EVADED SHOULD BE CALCULATED AS PER THE PROVISIONS, IN CASE OF LEVY. WITH THESE DIRECTIONS, THE ORDER OF AO AND CIT(A) ARE SET ASIDE AND MATTER IS RESTORED TO T HE FILE OF AO FOR FRESH CONSIDERATION. 9. IN THE RESULT, APPEAL OF REVENUE IS CONSIDERED AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH FEBRUARY, 2018 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 16 TH FEBRUARY, 2018 TNMM I.T.A. NOS. 1654/HYD/2014 :- 10 -: COPY TO : 1. THE INCOME TAX OFFICER, WARD-16(2), HYDERABAD. 2. M/S. NCS INVESTMENTS (P) LTD., 405, MINAR APARTM ENTS, DECCAN TOWERS, BASHEERBAGH, HYDERABAD. 3. CIT(APPEALS)-V, HYDERABAD 4. CIT-IV, HYDERABAD. 5. D.R. ITAT, HYDERABAD. 6. GUARD FILE.