The ITO, Ward-4(4), Ahmedabad V. Mudra Finvest (Guj.) Ltd., Ahmedabad

ITA 2225/AHD/2009

• Counselvise Citation: [2009] 114 COUNSELVISE.COM (IT) 8903 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 16-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Section: 271(1)(c); 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA, JUDICIAL MEMBER AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 16/09/09 DRAFTED ON: 29/09 /09 ITA NO.2225/AHD/2009 ASSESSMENT YEAR : 2004-05 THE ITO WARD-4(4) AHMEDBAD VS. MUDRA FINVEST (GUJ) LTD. 10-B, SUMATINAGAR SOCIETY NR.SINDHI HIGH SCHOOL USMANPURA AHMEDABAD PAN/GIR NO. : AABCM 0526 H (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI GOVIND SINGHAL, DR RESPONDENT BY: SHRI VINIT MOONDRA, CA O R D E R PER D.C.AGRAWAL , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED CIT(APPEALS)-VIII, AHMEDABAD DATED 27/04/20 09 PASSED FOR ASSESSMENT YEAR 2004-05, WHEREIN THE LEARNED CIT(APPEALS) CANCELLED THE PENALTY U/S.271(1)(C) AM OUNTING TO RS.12,04,888/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF FINANCING AND C HEQUE DISCOUNTING. THE RETURN OF INCOME WAS FILED ON AN INCOME OF RS.2 7,36,912/-. THE ITA NO.2225/AHD/2009 ITO VS. MUDRA FINVET (GUJ) LTD. ASST.YEAR 2004-05 - 2 - ASSESSMENT WAS COMPLETED U/S.143(3) OF THE I.T. ACT , 1961 WHEREIN THE ASSESSING OFFICER HAD DISALLOWED INTEREST EXPENSES TO THE TUNE OF RS.12,04,488/-. HE ALSO MADE SOME OTHER ADDITIONS. THE ASSESSING OFFICER AFTER MAKING ADDITION ALSO INITIATED PENALT Y PROCEEDINGS U/S.271(1)(C) OF THE I.T. ACT, 1961. IN QUANTUM P ROCEEDINGS, THE MATTER TRAVELED TO THE TRIBUNAL AND VIDE THEIR ORDER (IN I TA NO.1859/AHD/2007 FOR ASSESSMENT YEAR 2004-05) DATED 03/07/2009 CONFI RMED THE DISALLOWANCE OF INTEREST ON PRO-RATA BASIS BY HOLDI NG THAT ASSESSEE HAD MIXED FUNDS, I.E. INTEREST-FREE CAPITAL AS WELL AS INTEREST-BEARING LOAN. THE TRIBUNAL DIRECTED TO CALCULATE DISALLOWABLES AS PER FORMULA GIVEN THEREIN. 3. IN PENALTY PROCEEDINGS, THE ASSESSING OFFICER CA LLED FOR AN EXPLANATION FROM THE ASSESSEE, WHICH WAS SUBMITTED AS UNDER:- WITH REFERENCE TO YOUR NOTICE DT 19/02/2008 FOR PE NALTY PROCEEDINGS U/S.271(1)(C), WE SUBMIT THAT THE NATUR E OF ADDITION MADE BY ITO IS BASE DON DEEMING THE INCOME WHICH NEVER AROSE OR RECEIVED. THERE WAS NO DISALLOWANC E OF ANY EXPENSES OR NO MIS-STATEMENT OR UNTRUE FACT WAS FOU ND. MERE NO CHARGING OF INTEREST ON SOME OF ACCOUNT DOES NOT AMOUNT TO CONCEALMENT. HOW ONE CAN CONCEAL HIS OWN INCOME BY NOT CHARGING INTEREST OUT OF ITS OWN FUNDS. THUS THERE WAS NO MENS RIA AND INTENTION TO CONCEAL THE INCOME HENCE PENALTY ITA NO.2225/AHD/2009 ITO VS. MUDRA FINVET (GUJ) LTD. ASST.YEAR 2004-05 - 3 - U/S.271(1)(C) IS NOT LEVIABLE. FURTHER MORE APPEAL WITH ITAT IS PENDING AND WE ARE SURE OF DECISION IN OUR FAVOU R. YOUR ARE THEREFORE REQUESTED TO DROP THE PENALTY PROCEEDINGS. 4. THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE. ACCORDING TO HIM, FUND OF THE ASSESSEE W ERE ALREADY LOCKED IN FDRS. IT COULD HAVE RECOVERED THE FUNDS FROM THE PE RSONS TO WHOM INTEREST-FREE ADVANCES WERE GIVEN AS IT COULD HAVE REDUCED ITS OVERDRAFT BURDEN. IT WAS NOT DONE AND ALSO THE ASSESSEE FA ILED TO PROVE THE NEXUS BETWEEN INTEREST-BEARING BORROWINGS AND INTEREST-FR EE ADVANCES OR THAT THEY WERE FOR BUSINESS PURPOSES. 5. THE LEARNED CIT(APPEALS) DELETED THE PENALTY ON FOLLOWING GROUNDS:- (I) THE DISALLOWANCE OF INTEREST MADE BY THE ASSES SING OFFICER IS NOT HIT BY ANY OF THE THREE TESTS LAID DOWN U/S.27 1(1)(C) OF THE I.T. ACT, 1961. THE EXPLANATION FURNISHED BY THE ASSES SEE IS NOT FOUND FALSE. IT HAS FURNISHED ALL THE MATERIAL FACTS N ECESSARY FOR COMPUTATION OF INCOME AND FURTHER THE EXPLANATION FURNISHED BY THE ASSESSEE IS BONA FIDE. ITA NO.2225/AHD/2009 ITO VS. MUDRA FINVET (GUJ) LTD. ASST.YEAR 2004-05 - 4 - (II) SECONDLY, THERE IS NOTHING IN THE ASSESSMENT O RDER OR IN THE PENALTY ORDER TO SHOW THAT CLAIM FOR DEDUCTION WAS FABRICATED OR FALSE. (III) THIRDLY, THE ASSESSING OFFICER HAS NOT ESTAB LISHED THAT THE ASSESSEE HAS CONSCIOUSLY DIVERTED INTEREST-BEARING FUNDS TO RELATED PARTIES AS INTEREST-FREE ADVANCES. 6. THE DISALLOWANCE OUT OF INTEREST HAS BEEN WORKED OUT ON ESTIMATE BASIS. THE LEARNED CIT(APPEALS) RELIED ON THE DECIS ION OF HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF SHIV LAL TAK VS . CIT 251 ITR 373 (RAJ) AND OF HON'BLE DELHI HIGH COURT CIT VS. BACAR DI MARTINI INDIA 288 ITR 585 (DELHI). HE ACCORDINGLY ALLOWED THE APPEAL OF THE ASSESSEE. 7. BEFORE US, LD.DR SUBMITTED THAT ASSESSEE HAS FAI LED TO PROVE THE NEXUS BETWEEN INTEREST-FREE FUNDS AND INTEREST-FREE ADVANCES. 8. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE, ON THE OTHER HAND, SUBMITTED THAT THE ADDITION PROPOSED BY THE ASSESSING OFFICER HAS NOT BEEN UPHELD BY THE TRIBUNAL IN THE ORDER DA TE 03/07/2009. FURTHER, ADDITION IS MADE ONLY ON ESTIMATE BASIS AN D ON PRESUMPTIONS THAT ITA NO.2225/AHD/2009 ITO VS. MUDRA FINVET (GUJ) LTD. ASST.YEAR 2004-05 - 5 - INTEREST-BEARING FUNDS HAVE BEEN TRANSFERRED AS INT EREST-FREE ADVANCES. SECONDLY, THERE IS NO ALLEGATION FROM THE REVENUE T HAT ASSESSEE HAS WITHHELD ANY PARTICULAR MATERIAL FROM THE DEPARTMEN T. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN OUR CONSIDERED VIEW, THERE IS NO CASE FOR LEVY OF PENALTY. THERE ARE SEVERAL AUTHORITIES WHICH HOLD THAT WHERE ADDITIONS TO INCOME ARE BASED ON ESTIMATE, NO PENALTY FOR CONCEALMENT CAN BE LEVIED, IF THERE IS NO EVIDENCE OF CONCEALMENT INCOME. IN THIS REGARD, WE REFER TO TH E DECISION IN FOLLOWING CASES:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. CIT VS. SANGRUR VANASPATI MILLS LTD. (2008)303 ITR 53 ( P&H) 2. CIT VS. VALIMKBHAI H.PATEL (2006) 280 ITR 487 (GUJ.) 3. CIT VS. RAJ BANS SINGH (2005) 276 ITR 351 (ALLA.) 4. CIT VS. K.MENNAKSHIKUTTY (2002) 258 ITR 494 (MAD.) 10. IN THE PRESENT CASE, DISALLOWANCE OF INTEREST UPHELD BY THE TRIBUNAL IS MADE ONLY BY ESTIMATE, AND FOR ESTIMA TING, THEY HAVE LAID DOWN A FORMULA I.E. TO TAKE PRO-RATA BASIS. THER E IS NO EVIDENCE ON ITA NO.2225/AHD/2009 ITO VS. MUDRA FINVET (GUJ) LTD. ASST.YEAR 2004-05 - 6 - RECORD TO SUGGEST THAT INTEREST-BEARING FUNDS WERE ACTUALLY TRANSFERRED AS INTEREST-FREE ADVANCES OR THAT SUCH INTEREST-FREE A DVANCES WERE FOR NON- BUSINESS PURPOSES OR THAT SUCH INTEREST-FREE ADVANC ES HAD NOT COME OUT OF INTEREST-FREE FUNDS. IT IS ONLY ON THE PRESUMPTIO N THAT ASSESSEE HAVING FAILED TO SHOW THE NEXUS BETWEEN INTEREST-FREE FUND S AND INTEREST-FREE ADVANCES, THE TRIBUNAL HAS UPHELD DISALLOWANCE ON PRO-RATA BASIS BY HOLDING THAT ASSESSEE IS UTILIZING MIXED FUNDS. F OR THAT MATTER, EXPLANATION FURNISHED BY THE ASSESSEE CANNOT BE TR EATED AS FALSE OR THAT ASSESSEE CANNOT BE CHARGED WITH SUPPRESSING ANY MAT ERIAL FACTS NECESSARY FOR COMPUTATION. THUS, THE CASE OF THE ASSESSEE WILL NOT FALL EITHER IN THE MAIN PROVISION OF SECTION 271(1)(C) OR IN THE EXPLA NATION (1A) OR (1B) TO SECTION 271(1)(C) OF THE I.T. ACT, 1961. AS A RESU LT, WE CONFIRM THE ORDER OF THE LEARNED CIT(APPEALS) AND DISMISS THE APPEAL FILED BY THE REVENUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/09/2009. SD/- SD/- ( T.K.SHARMA ) ( D.C.AGRAWAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 30/ 09 /2009 T.C. NAIR ITA NO.2225/AHD/2009 ITO VS. MUDRA FINVET (GUJ) LTD. ASST.YEAR 2004-05 - 7 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-VIII, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD