E.S. PATANWALA, MUMBAI V. ACIT13(1), MUMBAI

ITA 1700/MUM/2012

• Counselvise Citation: 170019914 RSA 2012
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-09-2014
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 18-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 12-03-2012
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR BORA
• Assessee Lawyers: ASHOK J PATIL
• Keywords: Business expenditure; Wrong claim; Difference of opinion; Corroborative evidences
• Section: 143(3)

Judgement Text

, , INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH. . . , , BEFORE S/SH.I.P.BANSAL, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1700/MUM/2012, ! ! ! ! / ASSESSMENT YEAR-2007-08 M/S E.S.PATANWALA 182/84 A.R.STREET, MUMBAI-400003 ' ' ' '. .. . . .. . . .. . /PAN:AAAFE1723A VS. ACIT 13(1 ) MUMBAI. ( '% / APPELLANT) ( &''% / RESPONDENT) () () () () * * * * / ASSESSEE BY : SHRI ASHOK J. PATIL + * / REVENUE BY : SHRI VIJAY KUMAR BORA + ++ + ), ), ), ), / DATE OF HEARING : 18-09-2014 -.! + ), / DATE OF PRONOUNCEMENT : 24-09-2014 , 1961 + ++ + 254 254 254 254( (( (1 11 1) )) ) )5) )5) )5) )5) 6 6 6 6 ORDER U/S..254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,AM : CHALLENGING THE ORDER DT.19.03.2012 OF THE CIT(A)-2 8,MUMBAI,ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1)THE LEARNED CIT HAS ERRED IN LAW AS WELL AS FACT OF THE CASE IN :- A)LEVYING PENALTY U/S 271(1 )(C) OF RS. 180743/-THA T THE FINDINGS OF THE LEARNED CIT ARE ERRONEOUS AND CIRCUMSTANCES AND MATERIALS PRODUCED AND ON REC ORD GIVEN LEVYING PENALTY OF RS.180743/- 3.THAT THE LEARNED C.I.T. FAILED TO CONSIDER THAT T HE INCOME ADDED IN THE ASSESSMENT PROCEEDING ORDER CANNOT BE TREATED AS CONCEALMENT OF INCOME FO R TECHNICAL ERROR AND LEVIED PENALTY U/S 271(L)(C) AS DECIDED IN NUMBER OF CASES ON ACCOUNT F OBJECT CLAUSE AND ACCEPTED ASSESSMENT A/S 143(3) TO INACCURATE PARTICULAR DOES NOT ARISE AND BESIDE CASE LAW GIVEN, WHEREIN TWO VIEW THE ASSESSEE SHALL NOT BE PENALISED FOR A VIEW FAVOURAB LE TO HIM IN FILING RETURN. 4.THAT THE LEARNED ITO OUGHT TO HAVE CONSIDERED ALL FACTS AND CIRCUMSTANCES ON PROPER APPRECIATION THEREOF AND EVIDENCE AND MATERIALS ON RECORD AND EXPLANATION GIVEN OUGHT TO HAVE NOT LEVIED PENALTY U/S 271(1)(C) OF RS. 180743/- 5.THAT YOUR PETITIONER PRAY ACCORDINGLY AND CRAVES LEAVE TO ADD TO OR TO ALTER OR AMEND THE ABOVE GROUNDS OF APPEAL AS AND WHEN OCCASIONS ARISES. 2. IN THIS CASE,THE RETURN OF INCOME DECLARING INCOME OF RS.NIL WAS FILED BY THE ASSESSEE ON 14/11/ 2007ALONG WITH THE AUDITED STATEMENT OF ACCOUNTS AN D OTHER DETAILS. THE SAME WAS PROCESSED U/S 143(1) OF THE ACT.SCRUTINY ASSESSMENT U/S143(3) OF THE ACT WAS COMPLETED ON 29/12/2009 DETERMINING THE TOTAL INCOME AT RS.NIL.IN THE ASSES SMENT,PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT WAS ALSO INITIATED-THE FIRST ISSUE ON WHICH PEN ALTY WAS INITIATED RELATED TO DISALLOWANCE OF RS. 4,81,273/- OUT OF INTEREST EXPENDITURE ON ACCOUNT O F INTEREST @12 % ON EXCESS WITHDRAWAL BY THE PARTNERS TO THE TUNE OF RS. 40,10,614/-.THE SECOND ISSUE FOR WHICH PENALTY WAS INITIATED RELATES TO DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 55,693/ - ON NON-GENUINE LOANS OF AY.2005-06.A PENALTY SHOW CAUSE NOTICE U/S.274 R.W.S271 OF THE A CT WAS ISSUED ON 29/12/ 2009 TO THE ASSESSEE ALONG WITH THE ASSESSMENT ORDER U/S.143(3) OF THE A CT.IN RESPONSE TO THIS NOTICE, NO SUBMISSIONS WERE FURNISHED BY THE ASSESSEE. LATER ON IT FILED WRITTEN REPLY ON 15/06/2010.IT WAS ARGUED THAT THE ASSESSEE HAD NOT CONCEALED ANY INCOME OR HAD GI VEN INACCURATE PARTICULARS,THAT THE PARTNERS HAD WITHDRAWN MONEY FOR THEIR HOUSEHOLD DRAWING,THA T THERE WAS NO PROVISION FOR PAYMENT OF 2 ITA NO.1700/MUM/2012 M/S E.S.PATANWALA INTEREST.AFTER CONSIDERING THE SUBMISSION OF THE AS SESSEE,THE AO HELD THAT THAT DESPITE BORROWING FUNDS AT HEAVY INTEREST ASSESSEE WAS GIVING INTERES T FREE LOANS TO THE PARTNERS IN TERMS OF EXCESS WITHDRAWAL FROM THEIR CAPITAL ACCOUNT FOR THEIR HOU SEHOLD PURPOSE,THAT THERE WAS NO PROVISION TO CHARGE INTEREST ON SUCH EXCESS WITHDRAWAL IN THE DE ED,THAT ABSENCE OF SUCH A CLAUSE DID NOT MEAN THAT THE FUNDS BORROWED BY THE ASSESSEE COULD BE US ED TO GIVE THEM TO PARTNERS AS EXCESS WITHDRAWAL FROM CAPITAL ACCOUNT,THAT THE ASSESSEE H AD NOT PROVED THAT FUNDS WERE BEING USED FOR THE PURPOSE OF THE BUSINESS WHOLLY AND EXCLUSIVE1Y. WITH REGARD TO SECOND ISSUE,THE AO HELD THAT,THE ASSESS HAD ACCEPTED THAT GENUINENESS OF LO AN COULD NOT BE VERIFIED AND HENCE THE CLAIM OF INTEREST EXPENDITURE ON SUCH NON-GENUINE LOANS AMOU NTED TO FURNISHING OF INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALING THE INCOME AS WELL AS LOSS OF REVENUE. HE FURTHER HELD THAT THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT TENABLE.REFERRING TO THE JUDGMENT OF DHARMENDRA TEXTILE PROCESSORS LTD.(306 ITR 277)HAS HELD THAT THE ASSESSEE HAD NOT DISCHARGED THE ONUS BY GIVING ANY EXPLANATION THAT THE EXPLANATION FURNISHED BY IT WAS NOT SATISFACTORY.FINALLY,HE HELD THAT IT HAD COMMITTED DEFAULT WITHIN THE MEANING OF SEC. 271(1)(C) OF THE ACT AND HAD MADE ITSELF LIABLE FOR PENALTY.HE L EVIED A PENALTY OF RS. 1,80,743/-,BEING 100% OF THE TAX SOUGHT TO BE EVADED UNDER THE ABOVE MENTION ED SECTION. 3. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE FILED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).IN THE APPELLATE PROCEEDINGS,THE ASS ESSEE MADE SUBSTANTIALLY THE SAME SUBMISSIONS AS MADE IN THE PENALTY PROCEEDINGS WITH RESPECT TO THE FIRST DISALLOWANCE ON ACCOUNT OF EXCESS WITHDRAWAL BY PARTNERS. AS REGARDS THE SE COND DISALLOWANCE OF INTEREST EXPENSES ON ACCOUNT OF NON-GENUINE LOANS, IT WAS BEEN SUBMITTED THAT SOME OF THE LOANS HAD BEEN HELD TO BE GENUINE BY THE FAA IN HIS ORDER.AFTER CONSIDERING T HE PENALTY ORDER AND THE SUBMISSIONS MADE BY THE ASSESSEE,HE HELD THAT THE AO HAD GIVEN A FINDIN G THAT BORROWED FUNDS ON WHICH SUBSTANTIAL INTEREST WAS BEING PAID BY THE ASSESSEE AND CLAIMED AS DEDUCTIBLE EXPENDITURE HAD BEEN GIVEN TO THE PARTNERS FOR HOUSEHOLD EXPENSES,THAT THE INTERE ST EXPENSES CLAIMED ON THESE AMOUNTS WERE NOT ALLOWABLE AS A DEDUCTION SINCE THE SAME WAS NOT USE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS,THAT THE ASSESSEE HAD NOT CONTROVERTE D SUCH FINDING OF THE AO,THAT ONCE IT IS HELD THAT THE BORROWED FUNDS ON WHICH INTEREST WAS BEING PAID HAD NOT BEEN USED FOR THE PURPOSES OF BUSINESS THE INTEREST ATTRIBUTABLE TO THAT PART OF THE BORROWED FUNDS COULD NOT BE ALLOWED AS AN EXPENDITURE FROM THE INCOME OF THE ASSESSEE,THAT TH E ACT OF THE ASSESSEE OF CLAIMING SUCH EXPENDITURE AS A DEDUCTION WAS COMPLETELY UNTENABLE IN LAW,THAT THE ASSESSEE HAS ALSO NOT BEEN ABLE TO SHOW HIS BONAFIDE IN RESPECT OF SUCH CLAIM. HE RELIED UPON THE CASES OF ZOOM COMMUNICATIONS LTD.(327TR510)AND RELIANCE PETROPRO DUCTS PVT.LTD.(322ITR158) AND HELD THAT THE RATIO OF THE ABOVE DECISIONS WERE CLEARLY APPLI CABLE TO THE FACTS OF THE CASE UNDER CONSIDERATION.HE ALSO HELD THAT THE CASE OF THE ASS ESSEE WAS COVERED BY THE PROVISIONS OF SEC. 271(1)(C) AND PENALTY WAS LEVIABLE IN RESPECT OF TH E DISALLOWANCE OF RS. 4,81,273/-. AS REGARDS THE SECOND DISALLOWANCE,HE HELD THAT THE WHILE DECIDING THE QUANTUM APPEAL FOR THE AY. 2005-06 THE THEN FAA HAD HELD THAT THE LOAN/DEP OSIT TWO CREDITORS(CHATRIWALA OF RS. 50, 000/- AND FROM ALFA H. MANASAWALA OF RS. 70,000/-) WERE NOT GENUINE,THAT THE LOANS FROM THE REMAINING TWO PARTIES HAD BEEN HELD TO BE GENUINE B Y HIM BY THE THEN FAA,THAT NO INTEREST COULD BE CLAIMED BY THE ASSESSEE AS AN EXPENDITURE IN RES PECT OF CHATTRIWALA AND MANASWALA,THAT THE ASSESSEE HAD ALSO NOT SHOWN THAT ITS CASE WAS NOT C OVERED BY THE PROVISIONS OF SEC. 271(1)(C) OF THE ACT,THAT THE DISALLOWANCE HAD NOT BEEN MADE ON ACCOUNT OF DIFFERENCE OF OPINION,THAT THE CLAIM WAS TOTALLY UNTENABLE IN LAW.FINALLY,HE HELD THAT IN VIEW OF THE RATIO LAID DOWN BY THE 3 ITA NO.1700/MUM/2012 M/S E.S.PATANWALA HONBLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUN ICATIONS LTD.(SUPRA), PENALTY U/S 271(1)(C) WOULD BE LEVIABLE IN RESPECT OF THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.16,416/-RELATING TO CHATTRIWALA AND MANASAWALA(RS. 5,083 + 11,333),THAT THE ACTION OF THE AO WAS TO BE UPHELD TO THE EXTENT OF THE DISALLOWANCE OF RS.(4,81,273/- + 16,416/-),THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF INCOME FOR THE AMOUNTS IN QUESTION.HE DIRECTED THE AO TO RE-COMPUTE THE PENALTY U/S.271(1)(C) IN RESPECT OF THE ABOVE AMOUN T OF RS. 4,97,689/- AND PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US,THE AUTHROISED REPRESENTATIVE(AR)ARGUED T HAT RATE OF INTEREST ADOPTED BY THE AO FOR MAKING DISALLOWANCE FOR EXCESS WITHDRAWAL BY THE PA RTNERS WAS ESTIMATE BASED,THAT CONCEALMENT PENALTY CANNOT BE LEVIED WHERE ESTIMATED ADDITIONS WERE MADE. DEPARTMENTAL REPRESENTATIVE(DR)SUPPORTED THE ORDER OF THE FAA. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.ON A SPECIFIC QUERY BY THE BENCH THE AR STATED THAT THE ASSESSEE HAD NOT F ILED QUANTUM APPEAL AND HAD ACCEPTED THE ADDITION MADE BY THE AO.WE FIND THAT THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAD CLAIMED INTEREST EXPENDITURE ON TWO COUNTS I.E.ON T HE INTEREST PAYMENT MADE TO PARTNERS FOR EXCESS WITHDRAWAL AND ON THE INTEREST PAYMENT TO THE CREDI TORS, THAT THE ASSESSEE HAD NOT CHALLENGED THE FINDING GIVEN BY THE AO,THAT THE FAA HAD PARTLY ALL OWED THE APPEAL FILED BY THE ASSESSEE CHALLENGING THE ORDER PASSED BY THE AO U/S.271(1)( C)OF THE ACT.IN OUR OPINION,THE ISSUE OF ESTIMATION OF ADDITION MAY HAVE SOME RELEVANCE IN D ECIDING QUANTUM APPEAL,BUT THE ISSUE BEFORE US IS TO DECIDE THE QUESTION AS TO WHETHER THE IMPO SED BY THE AO AND CONFIRMED BY THE FAA FOR FILING INACCURATE PARTICULARS AND THUS CONCEALING T HE TAXABLE INCOME IS JUSTIFIABLE?THE ASSESSEE VERY WELL KNEW THAT THE INTEREST EXPENDITURE SHOWN IN THE BOOKS OF ACCOUNTS,ON ACCOUNT OF EXCESS WITHDRAWAL BY THE PARTNERS,WAS NOT A BUSINESS EXPEN DITURE.AS PER THE PROVISIONS OF THE ACT,NOT ONLY THERE SHOULD BE INCURRING OF EXPENDITURE BUT S UCH INCURRING SHOULD BE WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. THE ASSESSEE WAS FULLY A WARE OF THE FACT THAT INTEREST EXPENDITURE CLAIMED IN THE BOOKS OF ACCOUNT HAD NO CONNECTION W ITH THE BUSINESS CARRIED OUT BY IT DURING THE YEAR UNDER APPEAL. EVEN THEN WHILE FILING THE RETUR N OF INCOME, IT CLAIMED THE SAID EXPENDITURE AS BUSINESS EXPENDITURE.THE MOMENT A PATENTLY DISALLOW ABLE CLAIM WAS MADE ABOUT WHICH THE ASSESSEE KNEW THAT IT WAS NOT PERMISSIBLE AS PER LA W, IT HAD EXPOSED ITSELF TO THE PENAL PROVISIONS AS ENVISAGED BY THE ACT.WE FIND THAT THAT THERE WAS NO DIFFERENCE OF OPINION BETWEEN THE AO AND THE ASSESSEE ABOUT THE ALLOWABILITY OF THE EXPENDIT URE. BOTH WERE OF THE VIEW THAT THE EXPENDITURE WAS NOT RELATED IN ANY MANNER TO THE CARRYING ON BU SINESS OF THE ASSESSEE.THE QUESTION OF INCURRING OF SAME WHOLLY AND EXCLUSIVELY FOR THE BU SINESS DOES NOT ARISE.SIMILAR IS THE SITUATION ABOUT THE OTHER DISALLOWANCE.INTEREST EXPENDITURE O F RS.16,416/- CLAIMED TO HAVE BEEN PAID TO CHATTRIWALA AND MANASAWALA WAS FOUND BY THE AO AND THE FAA AS NON GENUINE AND THE ASSESSEE HAD NOT PREFERRED ANY APPEAL ABOUT THE QUANTUM IN T HE PREVIOUS YEAR WHEN THE THEN FAA HAD DECIDED THE ISSUE AGAINST THE ASSESSEE.THUS,TO CLAI M INTEREST EXPENSES ABOUT THE PARTIES WHO WERE FOUND TO BE NON-GENUINE CANNOT BE TREATED AS DIFFER ENCE OF OPINON.IN SHORT,BOTH THE ADDITIONS DO NOT FALL IN THE CATEGORY OF DEBATABLE ISSUE. A NON- GENUINE CLAIM AND DEBATABLE CLAIM ARE TWO DIFFERENT CONCEPTS.WHEN AN UNREAL THING OR UNTRUE F ACT IS PROJECTED OR PRESENTED AS TRUE OR GENUINE SAME IS TERMED TO BE A BOGUS CLAIM. COURTS ARE UNAN IMOUS THAT FOR A DEBATABLE CLAIM ASSESSEE CANNOT BE PENALISED,BUT WHEN IT MAKES A BOGUS CLAIM LEVY OF PENALTY IS JUSTIFIED.ASSESSEES ARE EXPECTED, RATHER REQUIRED, NOT ONLY PRODUCES EVIDEN CE, BUT TO PRODUCE POSITIVE EVIDENCE IN RESPECT 4 ITA NO.1700/MUM/2012 M/S E.S.PATANWALA OF A CLAIM MADE. ONUS OF PROVING A CLAIM IS ALWAYS ON THE ASSESSEES AND THEY HAVE TO BE DISCHARGE IT FULLY.MERE MAKING OF A CLAIM IS NOT SUFFICIENT.I F ASSESSEE FAILS TO PRODUCE THE CORROBORATIVE EVIDENCES,HIS CLAIM ALSO FAILS.IN THE CASE UNDER CO NSIDERATION, THE ASSESSEE HAS FAILED MISERABLY TO SUBSTANTIATE AND SUPPORT CLAIM THAT THE EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES-RATHER IT WAS AWARE THAT THERE WA S NO CONNECTION BETWEEN THE EXPENDITURE AND THE BUSINESS.THE PARTNERS OF THE ASSESSEE-FIRM HAD INCURRED THE EXPENDITURE FOR THEIR PERSONAL USE. IN NO CIRCUMSTANCES,SUCH A CLAIM CAN BE HELD TO BE GENUINE.THEREFORE,IN OUR OPINION,THE AO AND THE FAA WERE JUSTIFIED IN LEVYING/CONFIRMING THE PE NALTY. AS THE FACTS AND THE CONDUCT OF THE ASSESSEE CLEARL Y ESTABLISH THAT IT HAD FILED INACCURATE PARTICULAR S OF INCOME AND HAD THUS CONCEALED PARTICULARS OF INC OME,SO WE DO NOT WANT DISTURB THE ORDER OF THE FAA.UPHOLDING HIS ORDER, WE DECIDE EFFECTIVE GROUND OF APPEAL AGAINST THE ASSESSEE. AS A RESULT,APPEAL FI LED BY THE ASSESSEE STANDS DISMISSED. 7)8 () 9 : + 5 ; + ) <= . ORDER PRONOUNCED IN THE OPEN COURT ON 24TH,SEPTEMBER2014 . 6 + -.! > ? 24 ) , 201 4 . + 5 @ SD/- SD/- ( . . / I.P. BANSAL) ( / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, ? /DATE: 24.09 . 2014. 6 6 6 6 + ++ + &)A &)A &)A &)A BA!) BA!) BA!) BA!) / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '% 2. RESPONDENT / &''% 3. THE CONCERNED CIT(A)/ C D , 4. THE CONCERNED CIT / C D 5. DR E BENCH, ITAT, MUMBAI / AE5 &) , , . . . 6. GUARD FILE/ 5 7 'A) 'A) 'A) 'A) &) &)&) &) //TRUE COPY// 6 / BY ORDER, F / < DY./ASST. REGISTRAR , /ITAT, MUMBAI