M/s. Gupta International, Panipat V. ACIT, Panipat

ITA 2247/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7157 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 30-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 15-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T VASANTHAN SENIOR
• Keywords: Depreciation
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH C CC C : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI BEFORE SHRI BEFORE SHRI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT G.D. AGRAWAL, VICE PRESIDENT AND AND AND AND S SS SMT. BEENA A. PILLAI MT. BEENA A. PILLAI MT. BEENA A. PILLAI MT. BEENA A. PILLAI, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO ITA NO ITA NO ITA NO . .. . 2247/DEL/2014 2247/DEL/2014 2247/DEL/2014 2247/DEL/2014 ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : ASSESSMENT YEAR : 2009 2009 2009 2009 - -- - 10 1010 10 M/S GUPTA INTERNATIONAL, M/S GUPTA INTERNATIONAL, M/S GUPTA INTERNATIONAL, M/S GUPTA INTERNATIONAL, SHIV NAGAR, SHIV NAGAR, SHIV NAGAR, SHIV NAGAR, BEHIND GANDHI MA BEHIND GANDHI MA BEHIND GANDHI MA BEHIND GANDHI MANDI, NDI, NDI, NDI, PANIPAT. PANIPAT. PANIPAT. PANIPAT. PAN : AACFG0217F. PAN : AACFG0217F. PAN : AACFG0217F. PAN : AACFG0217F. VS. VS. VS. VS. ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, PANIPAT CIRCLE, PANIPAT CIRCLE, PANIPAT CIRCLE, PANIPAT CIRCLE, PANIPAT. PANIPAT. PANIPAT. PANIPAT. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SOMIL AGARWAL, ADVOCATE. RESPONDENT BY : SHRI T. VASANTHAN, SENIOR DR. DATE OF HEARING : 04.07.2016 04.07.2016 04.07.2016 04.07.2016 DATE OF PRONOUNCEMENT : 13.07.2016 13.07.2016 13.07.2016 13.07.2016 ORDER ORDER ORDER ORDER PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP PER G.D. AGRAWAL, VP : :: :- -- - THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2009-1 0 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), KARNAL DATED 22 ND OCTOBER, 2013. 2. THE ONLY GROUND RAISED BY THE ASSESSEE IS AGAINST THE LEVY OF PENALTY OF `3,76,390/- IMPOSED U/S 271(1)(C) OF THE I NCOME-TAX ACT, 1961. 3. THE ASSESSING OFFICER HAS LEVIED THE PENALTY IN RESPEC T OF THE FOLLOWING THREE ADDITIONS :- (I) DISALLOWANCE OF INTEREST AMOUNTING TO `9,42,000/- WHICH IS CAPITALIZED BY THE ASSESSING OFFICER. ITA-2247/DEL/2014 2 (II) DISALLOWANCE OF INTEREST OF `1,50,980/- WHICH IS ALSO CAPITALIZED BY THE ASSESSING OFFICER. (III) ADDITION ON ACCOUNT OF DIFFERENCE IN THE RECE IPT AS PER TDS CERTIFICATE AND BOOKS OF ACCOUNT AT `14,387/-. 4. WITH REGARD TO THE FIRST TWO ITEMS I.E., CAPITALIZ ATION OF INTEREST, IT IS STATED BY THE LEARNED COUNSEL THAT THERE IS NO DISPUT E THAT THE PLOT WAS PURCHASED FOR THE PURPOSE OF BUSINESS AND THE CONSTRUC TION STARTED THEREON WAS ALSO FOR THE PURPOSE OF BUSINESS. A S PER ASSESSING OFFICER, SINCE THE BUILDING WAS NOT PUT TO USE, THE IN TEREST ATTRIBUTABLE TO INVESTMENT IN THE PLOT AND CONSTRUCTION OF BUILDIN G IS CAPITALIZED. IT IS STATED BY THE LEARNED COUNSEL THAT NO MONEY WAS BORR OWED FOR THE PURPOSE OF EITHER INVESTMENT IN THE PLOT OR FOR CONSTR UCTION OF THE BUILDING. THE TOTAL INVESTMENT IN THE PLOT WAS `1.40 CRORES AND THE INVESTMENT IN THE BUILDING WAS `15.98 LAKHS AND `3.78 LAKHS. THUS, THE TOTAL INVESTMENT IN THE PLOT AND BUILDING TAKEN TOGE THER WAS LESS THAN `1.25 CRORES. HE STATED THAT THE OWN FUND IN THE FOR M OF PARTNERS CAPITAL ON WHICH NO INTEREST WAS PAID WAS MORE THAN `6 .73 CRORES. THUS, THE OWN FUND WAS MUCH MORE THAN THE INVESTMENT I N THE PLOT/BUILDING. THAT NO MONEY WAS BORROWED FOR THE P URPOSE OF PURCHASE OF PLOT OR THE CONSTRUCTION AND NO NEXUS HAS B EEN PROVED BY THE ASSESSING OFFICER. THAT HON'BLE JURISDICTIONAL HIGH COURT IN THE RECENT CASE OF BRIGHT ENTERPRISES PVT.LTD. VS. CIT VIDE ITA NO.224 OF 2013 HELD THAT IF THE INTEREST FREE FUNDS ARE AVAILAB LE, THE PRESUMPTION WOULD ARISE THAT THE INVESTMENT WOULD BE OUT OF INTER EST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THAT IN THE CASE O F THE ASSESSEE, INTEREST FREE FUNDS ARE MORE THAN FIVE TIMES OF THE I NVESTMENT IN PLOT/BUILDING. IN VIEW OF THE ABOVE DECISION OF HON 'BLE JURISDICTIONAL ITA-2247/DEL/2014 3 HIGH COURT, EVEN THE DISALLOWANCE OF INTEREST IS NOT J USTIFIED. HE STATED THAT THE ASSESSEE HAS ACCEPTED THE ORDER OF THE ASSESSING OF FICER BECAUSE THE ADDITION IS TAX NEUTRAL AS ASSESSEE WOULD BE G ETTING MORE DEPRECIATION DUE TO CAPITALIZATION OF INTEREST. IT IS ONLY THE TIMING DIFFERENCE AND THEREFORE, THE ASSESSEE, TO AVOID UNNECE SSARY LITIGATION, HAS ACCEPTED THE ORDER OF THE ASSESSING OFFICER. HOWEV ER, PENALTY PROCEEDINGS ARE INDEPENDENT TO ASSESSMENT PROCEEDINGS AND THEREFORE, ASSESSEE HAS A RIGHT TO POINT OUT THAT EVEN T HE ADDITION ITSELF IS NOT SUSTAINABLE. HE FURTHER STATED THAT IN ANY CASE, THE ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS WHICH HAVE NOT BEEN F OUND TO BE FALSE AND INCORRECT AND THEREFORE, THE ASSESSEE CANNOT BE CH ARGED WITH THE PENALTY U/S 271(1)(C). IN SUPPORT OF THIS CONTENTION , HE RELIED UPON THE DECISION OF HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS PVT.LTD. (2010) 322 ITR 158 (SC). W ITH REGARD TO THE DIFFERENCE IN THE RECEIPT AS PER TDS CERTIFICATE AND AS PER BOOKS OF ACCOUNT, HE STATED THAT IT IS ONLY A CLERICAL MISTAKE WHICH IS OF INSIGNIFICANT AMOUNT AND THEREFORE, DOES NOT DESERVE A NY PENALTY U/S 271(1)(C) OF THE ACT. 5. LEARNED DR, ON THE OTHER HAND, ARGUED AT LENGTH. HE ALSO FURNISHED THE WRITTEN SUBMISSION. HIS ARGUMENTS AS WELL A S WRITTEN SUBMISSION BOTH HAVE BEEN CAREFULLY CONSIDERED. IT IS ST ATED BY THE LEARNED DR THAT AS PER PROVISO TO SECTION 36(1)(III) , THE AMOUNT OF INTEREST PAID BY THE ASSESSEE IS NOT ALLOWABLE. HE STATED THAT THIS PROVISO WAS INSERTED BY THE FINANCE ACT, 2003 WITH EFF ECT FROM 01.04.2004. THUS, THE PROVISO HAD COME INTO EXISTENCE SINCE LAST FIVE YEARS AND THEREFORE, THE ASSESSEE OUGHT TO HAVE CAPITALI ZED THE INTEREST IN RESPECT OF INVESTMENT IN PLOT AND BUILDING WHICH HAS ADMITTEDLY NOT BEEN UTILIZED FOR THE PURPOSE OF BUSIN ESS DURING THE YEAR UNDER CONSIDERATION. SINCE THE ASSESSEE HAS CLAIMED THE DEDUCTION WHICH IS CONTRARY TO THE PROVISIONS OF LAW, THE ACT OF THE ITA-2247/DEL/2014 4 ASSESSEE FALLS WITHIN THE AMBIT OF FURNISHING OF INACCURA TE PARTICULARS OF INCOME. IN SUPPORT OF THIS CONTENTION, HE RELIED UPO N THE FOLLOWING DECISIONS:- (I) N.G. TECHNOLOGIES VS. CIT [2016] 70 TAXMANN.COM 37 (SC). (II) CIT VS. HCIL KALINDEE ARSSPL [2013] 37 TAXMANN. COM 347 (DEL). (III) SHR TRADING PVT.LTD. VS. DCIT [2014]-TIOL-13 48-ITAT-MUM. (IV) CIT VS. ESCORTS FINANCE LTD. [2009] 183 TAXMAN 453 (DEL). (V) DEVELOPMENT CREDIT BANK LTD. VS. DCIT [2012]-T IOL-722-ITAT- MUM. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAVE PER USED THE ORDER OF THE ASSESSING OFFICER AND LEARNED CIT(A). THO UGH IT IS A CASE OF A PENALTY BUT BOTH THE SIDES HAVE ARGUED WITH REGA RD TO THE CORRECTNESS OF ALLOWABILITY OF INTEREST. THEREFORE, W E WOULD LIKE TO DEAL WITH THE SAME BRIEFLY BECAUSE PENALTY PROCEEDINGS ARE SEPARATE AND INDEPENDENT PROCEEDINGS. SECTION 36(1)(III) READS AS UNDER:- 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWIN G CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO I N SECTION 28 (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF C APITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION : [PROVIDED PROVIDED PROVIDED PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RE SPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET [FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION] (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BO RROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SU CH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION. ]. 7. AS PER PROVISO, THE INTEREST PAID IN RESPECT OF CAPI TAL BORROWED FOR ACQUISITION OF AN ASSET WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT ITA-2247/DEL/2014 5 OR NOT FOR ANY PERIOD BEGINNING FROM THE DATE ON WH ICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF ASSET TILL THE LAST DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE SHALL NOT BE ALLOWED AS A DEDUCTION . ADMITTEDLY, THE PLOT AND BUILDING WHICH WAS UNDER CONSTRUCTION WA S NOT PUT TO USE BUT, AT THE SAME TIME, IT HAS BEEN STATED THAT NO MONE Y WAS BORROWED FOR THE ACQUISITION OF PLOT OR FOR INVESTMENT IN THE CONSTRUCTION OF BUILDING. THE ASSESSING OFFICER HAS ALSO NOT POINTED O UT ANY BORROWING FOR ACQUISITION OF PLOT OR FOR INVESTMENT OF THE BUIL DING. HE HAS CALCULATED THE INTEREST AT THE RATE OF 9% WHICH WAS T HE AVERAGE RATE OF INTEREST OF THE MONEY BORROWED BY THE ASSESSEE. UNDISPUT EDLY, THE INTEREST FREE FUNDS OF MORE THAN `6.7 CRORES ARE AVAI LABLE WITH THE ASSESSEE WHILE THE INVESTMENT IN THE PLOT AND BUILDING C ONSTRUCTION IS LESS THAN `1.25 CRORES. HON'BLE JURISDICTIONAL HIGH CO URT IN THE CASE OF BRIGHT ENTERPRISES PVT.LTD. (SUPRA) IN PARAGRAPH 16 HE LD AS UNDER:- 16. AS WE NOTED EARLIER, THE FUNDS/RESERVES OF THE APPELLANT WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY IT OF RS.10.29 CRORES TO ITS SISTER COMPANY. WE ARE ENTIRELY IN AGREEMENT WITH THE JUD GMENT OF THE BOMBAY HIGH COURT IN COMMISSIONER OF INCOME T AX VS. RELIANCE UTILITIES & POWER LTD., (2009) 313 ITR 3 40, PARA-10, THAT IF THERE ARE INTEREST FREE FUNDS AVAILA BLE A PRESUMPTION WOULD ARISE THAT INVESTMENT WOULD BE OUT O F THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH T HE COMPANY IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. 8. FROM THE ABOVE, IT IS EVIDENT THAT AS PER HON'BLE JURISDICTIONAL HIGH COURT, IF THERE ARE INTEREST FREE FUNDS AVAILABL E, A PRESUMPTION WOULD ARISE THAT THE INVESTMENT WAS OUT OF INTEREST FRE E FUNDS. THEREFORE, IN VIEW OF THE ABOVE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT, THE DISALLOWANCE OF INTEREST BY THE ASSESSING OFFI CER IS NOT JUSTIFIED. HOWEVER, THE APPEAL BEFORE US IS ONLY IN R ESPECT OF PENALTY AND NOT IN RESPECT OF ADDITION MADE BY THE ASSESSING OFF ICER. IT WAS ITA-2247/DEL/2014 6 CLARIFIED BY THE LEARNED COUNSEL THAT THE ASSESSEE HAS AC CEPTED THE ASSESSMENT ORDER AND HAS NOT FILED ANY APPEAL. HE STATED THAT ONCE THE INTEREST IS CAPITALIZED, THE ASSESSEE WILL ULTIMATELY GET THE DEDUCTION IN THE SUBSEQUENT YEAR IN THE FORM OF MORE DEPRECIATION AND THEREFORE, THERE WAS ONLY THE TIMING DIFFERENCE IN R ESPECT OF ALLOWABILITY OF INTEREST. HENCE, THE ASSESSEE DID NOT FILE ANY APPEAL AGAINST THE ADDITION MADE BY THE ASSESSING OFFICER. N OW, THE LIMITED QUESTION BEFORE US IS WHETHER IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C). AS WE HAVE ALREADY STATED THAT IT IS NOT E VEN A FIT CASE FOR DISALLOWANCE OF INTEREST, THEREFORE, IT CANNOT BE SAID THAT IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C). MOREOVER, THE ISSU E IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON BLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT.LTD. (SUPRA), WHEREIN HONBLE APEX COURT HELD AS UNDER:- WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED B Y THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING TH E PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDIN G THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETU RN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. 9. THE RATIO OF ABOVE DECISION OF HONBLE APEX COURT WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. T HE ASSESSEE HAS DISCLOSED ALL MATERIAL FACTS AND, ADMITTEDLY, THE D ETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN OF INCOME ARE NOT FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. ACCORDINGLY, WE, RESPECTFULLY FOL LOWING THE ABOVE DECISION OF HONBLE APEX COURT, HOLD THAT NO PENALT Y U/S 271(1)(C) OF THE ACT IS LEVIABLE IN RESPECT OF DISALLOWANCE OF INTE REST OF `9,42,000/- AND `1,50,980/-. ITA-2247/DEL/2014 7 10. SO FAR AS THE DIFFERENCE IN THE DISCLOSURE OF REC EIPT AS PER TDS CERTIFICATE AND BOOKS OF ACCOUNT IS CONCERNED, NO SATI SFACTORY EXPLANATION IS GIVEN BY THE ASSESSEES COUNSEL. THE ONLY EXPLANATION WAS THAT THE DIFFERENCE IS MEAGER AND THAT THE SAME IS A CLERICAL ERROR. WE ARE UNABLE TO ACCEPT SUCH EXPLANATION AND THEREFO RE SUSTAIN THE PENALTY LEVIED IN RESPECT OF DIFFERENCE IN THE RECEI PT. WE, THEREFORE, DIRECT THE ASSESSING OFFICER TO CALCULATE THE PENALTY AT THE RATE OF 100% OF THE TAX SOUGHT TO BE EVADED ON THE DIFFERENC E IN THE RECEIPT SHOWN IN THE TDS CERTIFICATE AND AS SHOWN IN THE BOOK S OF ACCOUNT. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY A LLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 13.07.2016. SD/- SD/- (BEENA A. PILLAI (BEENA A. PILLAI (BEENA A. PILLAI (BEENA A. PILLAI ) )) ) ( (( ( G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL ) )) ) JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESID VICE PRESID VICE PRESID VICE PRESID ENT ENT ENT ENT VK. COPY FORWARDED TO: - 1. APPELLANT : M/S GUPTA INTERNATIONAL, M/S GUPTA INTERNATIONAL, M/S GUPTA INTERNATIONAL, M/S GUPTA INTERNATIONAL, SHIV NAGAR, BEHIND GANDHI MANDI, PANIPAT. SHIV NAGAR, BEHIND GANDHI MANDI, PANIPAT. SHIV NAGAR, BEHIND GANDHI MANDI, PANIPAT. SHIV NAGAR, BEHIND GANDHI MANDI, PANIPAT. 2. RESPONDENT : ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, ASSISTANT COMMISSIONER OF INCOME TAX, PANIPAT CIRCLE, PANIPAT. PANIPAT CIRCLE, PANIPAT. PANIPAT CIRCLE, PANIPAT. PANIPAT CIRCLE, PANIPAT. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR