POSCO MAHARASHTRA STEEL PRIVATE LIMITED, MUMBAI V. DCIT, PANVEL CIRCLE, PANVEL

ITA 2313/MUM/2018

• Counselvise Citation: [2019] 114 COUNSELVISE.COM (IT) 6121 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ABI RAMA KARTIKEYAN
• Keywords: Business income; Opportunity of being heard; Initiation of penalty proceedings; Reasonable cause; Capital receipt
• Section: 271(1)(c); 143(3); 274; 27; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENCH M UMBAI BEFORE SHRI G. MANJUNATHA, ACCOUNTANT MEMBER & SHRI RAM LAL NEGI, JUDICIAL MEM BER ITA NO.2313/MUM/2018 ( ASSESSMENT YEAR: 2010-11 ) POSCO MAHARASHTRA STEEL PVT.LTD. 1 ST FLOOR, HEAD OFFICE PLOT NO.C-1 VILE BHAGAD INDUSTRIAL AREA MANGAON, RAIGAD MAHARASHTRA-412 107 VS. DCIT, PANVEL CIRCLE AAYKAR BHAWAN MUMBAI-400 020 PAN/GIR NO. AAECP9855H APPELLANT ) .. RESPONDENT ) ASSESSEE BY NEELKANTH KHANDELWAL REVENUE BY ABI RAMA KARTIKEYAN DATE OF HEARING 15/07 /201 9 DATE OF PRONOUNCEMENT 11 /10 /201 9 / O R D E R PER G.MANJUNATHA (A.M) : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)2, MUMB AI, DATED 30/01/2018 AND IT PERTAINS TO THE ASSESSMENT YEAR 2 010-11. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSING OFFICE R HAD NOT COMPILED WITH THE PROVISIONS OF SECTION 274(1) OF THE ACT BY NOT GRANTING ASSESSES REASONABLE OPPORTUNITY OF BEING HEARD AND HENCE THE PENALTY LEVIED UNDER SECTION 271(1)( C) OF THE ACT IS BAD IN LAW. ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 2 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A) OUGHT TO HAVE HELD THAT THE ASSESSING OFFICE R HAD NOT COMPLIED WITH THE PROVISIONS OF SECTION 274 OF THE ACT R.W.S . 271(1)(C) SINCE THE ASSESSING OFFICER ERRED IN LEVYING PENALTY WITHOUT EXPLICITLY MENTIONING IN THE PENALTY NOTICE THE REASON FOR INITIATING PENALT Y PROCEEDINGS. IT IS HUMBLY SUBMITTED THAT THE INITIATION OF PROCE EDINGS U/S 271(1)(C) OF THE INCOME-TAX ACT, IS NOT VALID AS THE ASSESSING O FFICER ERRED IN NOT STRIKING OFF THE INAPPROPRIATE PORTION OF THE NOTIC E. THE ASSESSING OFFICER OUGHT TO HAVE STRUCK OFF THE INAPPROPRIATE PORTION AND INDICATED TO THE ASSESSES THE APPLICABLE PORTION IN THE NOTICE. THEREFORE, AS THE NOTICE U/S 271(1) (C) IS BAD IN L AW, THE PENALTY LEVIED NEEDS TO BE CANCELLED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) HAS ERRED IN UPHOLDING THE PENALTY LEVIED U/ S 271(1)(C) IRRESPECTIVE OF THE FACT THAT THE ASSESSEE DID NOT CONCEAL THE I NCOME AND DID NOT SUBMIT INACCURATE PARTICULARS OF INCOME AND ALSO TH E INTEREST RECEIVED BY THE ASSESSEE IS TO BE TREATED AS CAPITAL RECEIPT IN THE HANDS OF THE ASSESSES AND ALSO OVERLOOKED THE JUDICIAL DECISIONS . THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJU DICE TO ONE ANOTHER. YOUR APPELLANT CRAVES TO ADD, ALTER, AMEND OR DELET E ANY OF THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESEE COMPANY WAS IN THE PROCESS OF SETTING UP A MANUFACTURING PROJEC T AT VILE BHAGAD IN THE STATE OF MAHARASHTRA FOR MANUFACTURING GALVA NIZED AND GALVANNELED COILS. THE COMPANY WAS EXPECTED THAT TH E PROJECT WOULD BE SETTING UP BY THE END OF FINANCIAL YEAR 2011-12. IN ORDER TO EFFECTUATE THE PURPOSE, M/S POSCO CO. LTD, KOREA ( THE PARENT COMPANY) CONTRIBUTED SHARE CAPITAL OF RS. 252.17 C RORES. THE FUNDS ARE USED PRIMARILY FOR PURCHASE OF ACQUISITION OF L AND AND DEVELOPMENT FOR INFRASTRUCTURE, HOWEVER THE COMPANY COULD NOT UTILIZE THE FUNDS FOR THE STATED PURPOSE AND HENCE, DEPOSITED SURPLUS ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 3 FUNDS IN A FIXED DEPOSITS IN HDC BANK AND SHINHAN BAK AND EARNED INTEREST INCOME OF RS. 1,21,63,944/-. THE ASSESSEE HAS TREATED INTEREST EARNED FROM FIXED DEPOSITS AS CAPITAL RECE IPT AND SET UP AGAINST PRE-OPERATIVE EXPENSES AND ARRIVED AT NET LOSS OF RS. 2,73,64,272/-. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, THE LD. AO CALLED UPON THE ASSESSEE EXPLAIN AS TO WHY INTER EST INCOME EARNED FROM FIXED DEPOSITS SHALL NOT BE TREATED AS INCOME FROM OTHER SOURCES. THE AO, AFTER CONSIDERING ECPLANATION OF T HE ASSESSEE, OBSERVED THAT THERE WAS NO NEXUS BETWEEN INTEREST E ARNED FROM FIXED DEPOSITS AND BUSINESS ACTIVITY OF THE ASSESSE E AND ACCORDINGLY, ASSESSED INTEREST INCOME AMOUNTING TO RS. 1,21,63,9 44/- UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAS FI LED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, HOWEVER COULD NOT SUCCEED. THE LD.CIT(A) DISMISSED APPEAL FILED BY THE ASSESSEE AN D AFFIRMED ADDITIONS MADE BY THE AO TOWARDS INTEREST INCOME. T HEREAFTER, PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T.ACT,19 61 WAS INITIATED AND ACCORDINGLY, A SHOW- CAUSE NOTICE, DATED 19/02 /2016 WAS ISSUED U/S 274 R.W.S. 271(1)(C) OF THE I.T.ACT, 196 1. IN RESPONSE, THE LD. AR OF THE ASSESSEE FILED A LETTER AND REQUESTED FOR SHORT ADJOURNMENT, HOWEVER COULD NOT FILE ANY EXPLANATION . THE LD. AO AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSES SEE AND ALSO TAKEN NOTE OF PROVISIONS OF EXPLANATION-1 TO SECTIO N 271(1)(C) HELD ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 4 THAT WITHOUT ANY SUFFICIENT REASONABLE CAUSE, THE A SSESSEE HAS COMMITTED DEFAULT BY FURNISHING INACCURATE PARTICUL ARS OF ITS INCOME AND ACCORDINGLY, OPINED THAT IT IS A FIT CASE FOR L EVY OF PENALTY U/S 271(1)(C) AND HENCE, LEVIED PENALTY OF RS. 41,63,92 4/-, WHICH IS 100% OF TAX SOUGHT TO BE EVADED. THE RELEVANT FINDI NGS OF THE LD. AO ARE AS UNDER:- 4. THE PROPOSITION LAID DOWN BY THE APPELLATE AUTHO RITIES IS THAT INTEREST RECEIVED BY A COMPANY WHICH CARRIES ON BUSINESS, FR OM BANK DEPOSITS AND LOANS COULD ONLY BE TAXABLE AS 'INCOME FROM OTH ER SOURCES' AND NOT AS 'BUSINESS INCOME. THE INCOME DERIVED BY AN ASSES SEE HAS TO BE FITTED UNDER ONE OR OTHER HEAD HAVING REGARD TO THE SOURCE FROM WHICH THAT INCOME IS DERIVED. IT IS THE MANNER IN WHICH THE IN COME IS DERIVED MAT IS RELEVANT AND NOT MERELY THE FACT THAT THE PERSONS I N ENGAGED IN A BUSINESS OR IN A PROFESSION. MOREOVER, THE ASSESSEE HAD NOT DEPOSITED MONEY BY WAY OF MONEY LENDING BUSINESS THEREFORE TH E INTEREST EARNED ON FIXED DEPOSITS ADDED UNDER THE HEAD OF INCOME FR OM OTHER SOURCES. IT WAS CLEAR INTENTION OF THE ASSESSEE TO SET OFF THE EXPENSES DEBITED INTO P&L A/C AGAINST THE INTEREST INCOME. SUCH INTEREST INCOME WAS DELIBERATELY ROUTED THROUGH P&L A/C SO THAT THE EXP ENSES COULD BE CLAIMED. THE ASSESSEE HAD EARNED INTEREST INCOME WH ICH IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES INS TEAD OF THE HEAD INCOME FROM BUSINESS. HAD THE CASE WAS NOT SELECTED FOR SCRUTINY, THE INCOME EARNED BY WAY OF INTEREST WOULD HAVE BEEN ES CAPED. THE SAID DISCREPANCY CAME INTO LIGHT ONLY WHEN THE AO ASKED ABOUT THE SAID INCOME DURING ASSESSMENT PROCEEDINGS. THIS LAID TO FORM A BELIEF THAT THE ASSESSEE HAS CONSCIOUSLY OR DELIBERATELY SHOWN THE INTEREST ON FIXED DEPOSIT UNDER THE HEAD INCOME FROM BUSINESS. THE EN TIRETY OF CIRCUMSTANCES REASONABLY POINT TO THE CONCLUSION TH AT THE AMOUNT ADDED REPRESENTS INCOME DERIVED FROM OTHER SOURCES AND TH AT THE ASSESSEE HAS CONSCIOUSLY OR DELIBERATELY SHOWN INCOME FROM BUSIN ESS THEREBY FURNISHED INACCURATE PARTICULARS OF INCOME. THUS ME ASSESSEE HAS COMMITTED DEFAULT UNDER SECTION 271(L)( C ) R,W,S, 274 OF THE I.T ACT 1961, AS PER THE VIEW HELD BY THE HON. SUPREME COURT TOO FN VARIOUS DECISIONS. 5. IN VIEW OF THE ABOVE, THE ASSESSEE HAS COMMIT TED A DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE I.T.ACT, 19 61 READ WITH EXPLANATION-1. THE SAME IS APPLICABLE IN THE ASSESS EES CASE AS REPRODUCED BELOW: ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 5 'EXPLANATION-1 - WHERE IN RESPECT OF ANY FACTS MATE RIAL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT - (A) SUCH PERSON FAILS TO OFFER ANY EXPLANATION OR O FFERS AN EXPLANATION WHICH IS FOUND BY THE (ASSESSING) OFFICER OR THE (C OMMISSIONER OF APPEALS) (OR THE COMMISSIONER) TO BE FALSE OR; (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE (AND FAILS TO PROVE THAT SUCH EXPLANATION IS BONA F IDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM THEN THE AMOUNT, ADDED, OR DISALLOWED IN COMPUTING THE TOTAL INCOME OF SUCH PERSON AS A RESULT THEREOF SHALL, FO R THE PURPOSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRES ENT THE INCOME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED'. 6. THE FACTS FALL UNDER ABOVE CLAUSE 'A' AS THE ASS ESSES FAILED TO OFFER AN EXPLANATION IN RESPECT OF FACTS WHICH ARE MATERIAL TO THE COMPUTATION OF ITS TOTAL INCOME. I AM SATISFIED THAT WITHOUT ANY SUFFI CIENT AND REASONABLE CAUSE THE ASSESSES HAS COMMITTED DEFAULT BY FURNISH ING INACCURATE PARTICULARS OF ITS INCOME AS DEFINED U/S 271(1) (C) OF THE I.T ACT. CONSIDERING THE FACTS OF THE CASE AND PROVISIONS OF EXPLAINATION-1 TO SECTION 27L(1)(C), I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS LEADING CONCEALMENT OF INCOM E. THE MINIMUM AND MAXIMUM PENALTY LEVIABLE IS AT 100% BEING RS, 41,37 199/- AND AT 300% BEING RS. 1,24,11,597/- RESPECTIVELY. KEEPING IN VI EW OF THE FACTS OF THE CASE, I, THEREFORE, LEVY A MINIMUM PENALTY OF RS 41 ,37,200/- (FORTY ONE LAKH THIRTY SEVEN HUNDRED ONLY)BEING 100% OF THE TA X SOUGHT TO BE EVADED. WORKING OF PENALTY:- (I) ASSESSED INCOME INCLUDING CONCEALED INCOME: R S.1,2250436/- (II) TAX ON ASSESSED INCOME INDUCING CONCEALED INCO ME: RS. 41,63,924/- (III) ASSESSED INCOME EXCLUDING CONCEALED INCOME: RS. 86,490/- (IV) TAX ON ASSESSED INCOME EXCLUDING CONCEALED INC OME; RS. 26,725/- DIFFERENCE BETWEEN (II) AND (IV) ABOVE: RS. 4137199 /- MINIMUM PENALTY 100% .. RS. 41,37199/- MAXIMUM PENALTY 300%.. RS. 12411597 4. AGGRIEVED BY THE PENALTY ORDER, THE ASSESEE PRE FERRED AN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE HAS FILED ELABORATE WRITTEN SUBMISSIONS ON THE ISSU E, WHICH HAS BEEN REPRODUCED AT PARA 4 ON PAGES 4 TO 9 OF THE LD.CIT( A) ORDER. THE SUM AND SUBSTANCE OF ARGUMENTS OF THE ASSESSEE BEFO RE THE ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 6 LD.CIT(A) ARE THAT A CLAIM, WHICH WAS NOT SUBSTANTI ATED PER SE CANNOT LEADS TO CONCLUSION THAT THE ASSESSEE HAS FU RNISHED INACCURATE PARTICULARS OF INCOME. THE LD.CIT(A) AFT ER CONSIDERING RELEVANT SUBMISSION OF THE ASSESSEE AND ALSO BY REL IED UPON VARIOUS JUDICIAL PRECEDENTS REJECTED LEGAL ARGUMENTS TAKEN BY THE ASSESSEE, IN LIGHT OF CERTAIN JUDICIAL PRECEDENTS AND HELD TH AT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME BY NOT O FFERING INTEREST INCOME FOR TAX, THEREBY COMMITTED DEFAULT WITHIN TH E MEANING OF SECTION 271(1)(C) OF THE I.T.ACT 1961 R.W.S. EXPLAN ATION-1 AND ACCORDINGLY, CONFIRMED PENALTY LEVIED U/S 271(1)(C) OF THE I.T.ACT, 1961. THE RELEVANT FINDINGS OF LD.CIT(A) ARE AS UND ER:- 5. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE, FINDINGS OF THE A.O., PROVISIONS OF SECTION, SUBMISSIONS OF THE APP ELLANT, THE OBSERVATIONS OF THE AO IN THE PENALTY ORDER, CASE L AWS RELIED UPON AND MATERIAL PLACED ON RECORD. AS REGARDS THE REQUEST FOR ADMISSION OF ADDITIONAL GROUND-THAT THE PENALTY LEVIED IS BAD IN LAW AS THE AO HAD FAILED TO MENTION IN THE PENALTY NOTICE-WHETHER THE PENALTY NOTICE WAS ISSUED FOR CONCEALMENT OF INCOME OR FOR FILING OF I NACCURATE PARTICULARS OF INCOME IS CONCERNED IT IS HELD THAT THE SAME IS NOT ADMISSIBLE IN VIEW OF THE DECISION OF THE HONBLE ITAT IN THE CASE OF EAR THMOVING EQUIPMENT SERVICES CORPORATION VS. DCIT 22(2) MUMBAI (ITA NO. 6617/U/2014) WHERE THE HONBLE ITAT MUMBAI BENCH E VIDE ORDER DATED 02.05.2017 IN WHICH THE ABOVE CLAIM WAS DISMISSED BY HOLDING T HAT IN THE ASSESSMENT ORDER AS WELL AS IN PENALTY ORDER THE AO HAD SPECIFICALLY BROUGHT OUT THE FACTS FOR WHICH THE PENALTY WAS INI TIATED AND LEVIED. IN THIS CASE ALSO IN THE ASSESSMENT ORDER AS WELL AS IN THE PENALTY ORDER THE AO HAS CLEARLY BROUGHT OUT ON RECORD THE FACT THAT THE PENALTY WAS INITIATED AND LEVIED FOR FILING OF INACCURATE PARTICULARS OF INCOME. IT IS FURTHER NOTICED THAT THE APPELLANT HAS NEVER RAISED THIS IS SUE BEFORE THE AO THEREFORE, THE SAME CANNOT BE ENTERTAINED AT THIS S TAGE. IN THIS REGARD I WOULD LIKE TO PLACE MY RELIANCE ON THE RATIO LAID D OWN IN THE CASE OF M/S NOKIA INDIA (P) LTD. VS DCIT (2015) 59 TAXANN.CO 20 12. ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE APPELLANT IS NOT AD MISSIBLE, THEREFORE, DISMISSED. ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 7 5.1 DURING ASSESSMENT PROCEEDINGS THE AO NOTICED TH AT THIS IS A FIRST YEAR OF THE APPELLANTS BUSINESS AND THE BUSINESS ACTIVI TIES COULD NOT BE STARTED DUE TO DELAY IN ACQUIRING THE LAND AND OTHE R INFRASTRUCTURE. IN VIEW OF THESE FACTS THE APPELLANT HAD PARKED ITS SURPLUS SHARE CAPITAL/FUNDS IN THE BANK, IN THE FORM OF FDRS. AGAINST THESE FDRS T HE APPELLANT HAD EARNED INTEREST INCOME OF RS. 1,22,50440/- AND CAPI TALIZED WITH A PLEA THAT THE SAME HAD BEEN EARNED OUT OF SHARE CAPITAL. AFTER CONSIDERING THE CONTENTION OF THE APPELLANT, THE AO, ASSESSED THE I NTEREST INCOME OF RS. 122,50440/- UNDER THE HEAD INCOME FROM OTHER SOURC ES. BY HOLDING THAT INTEREST ON FIXED DEPOSITS ARE NOT INCIDENTAL TO TH E BUSINESS OF THE APPELLANT, AS THE APPELLANT IS ENGAGED IN BUSINESS OF MANUFACTURING OF GALVANIZED STEEL. 5.2 THE AO ALSO INITIATED PENALTY PROCEEDINGS U/S 2 71(1)(C) OF THE ACT, FOR FURNISHED INACCURATE PARTICULARS OF INCOME. THE APPELLANT PREFERRED FIRST APPEAL BEFORE THE CIT(A) 4 MUMBAI, AGAINST TH E ORDER PASSED U/S 143(3) OF THE ACT. THE LD.CIT(A)-4, MUMBAI, VIDE OR DER DATED 11.11.2014 DISMISSED THE APPAL OF THE APPELLANT BY GIVING DETA ILED FINDING. ON RECEIPT OF THE ORDER OF THE CIT(A) THE AO ISSUED A SHOW-CAU SE ON 19.06.2016, WHICH WAS DULY SERVED UPON THE APPELLANT. IN COMPLI ANCE THE LD. AR REQUESTED FOR SHORT ADJOURNMENT AND THE SAE WAS ALL OWED. ON GIVEN DATE THE APPELLANT, HOWEVER, DID NOT FILE ANY EXPLANATIO N THEREAFTER, TILL THE DATE OF FINALIZATION OF PENALTY ORDER. ACCORDINGLY, THE AO LEVIED MINIMUM PENALTY OF RS. 4137200/-, BEING 100% TAX SOUGHT TO BE EVADED, FOR FURNISHING INACCURATE PARTICULAR OF INCOME. 5.3 DURING THE APPELLATE PROCEEDINGS IT WAS CLAIMED THAT THE FUNDS WERE ACQUIRED PRIMARILY FOR PURCHASE OF LAND AND DE VELOPMENT OF INFRASTRUCTURE HOWEVER, DUE TO LEGAL ENTANGLEMENTS WITH RESPECT TO ACQUISITION OF LAND AND OTHER SET-UP ACTIVITIES THE SAME WAS PARKED WITH THE BANK IN THE FORM OF FIXED DEPOSIT, ON WHICH INT EREST OF RS. 1,21,63,944/- WAS EARNED. IT IS CLAIMED THAT THE FU NDS WERE PLACED IN FIXED DEPOSIT SO THAT LIQUIDITY WAS ENSURED AND MON EY WOULD REMAIN AVAILABLE WHENEVER REQUIRED FOR PURCHASE OF LAND, I NFRASTRUCTURE AND OTHER SET-UP ACTIVITIES, THEREFORE, THE SAME WAS TREATED AS CAPITAL RECEIPTS AND SET OFF AGAINST PRE-OPERATIVE EXPENSES. AS REGARDS LEVY OF PENALTY IS CONCERNED IT WAS CLAIMED THAT MERE MAKING OF A CLAI M WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF WILL NOT AMOUNT TO FU RNISHING INACCURATE PARTICULARS. THE APPELLANT PLACED RELIANCE ON THE R ULING IN THE CASE OF T ASHOK PAI VS CIT 161 TAXMAN 340 292 ITR 11(SC), SUP REME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS PVT.LTD. AND SO ON. 5.4 FROM THE ABOVE FACTS IT IS SEEN THAT THE APPE LLANT HAD PARKED ITS SURPLUS SHARE CAPITAL IN THE BANKS, IN THE FORM OF FIXED DEPOSITS AND EARNED INTEREST INCOME THERE FROM. THE SAME WAS NOT OFFERED FOR TAX WITH THE PLEA THAT IT HAD BEEN EARNED AGAINST SHARE CAPI TAL AND WOULD BE USED FOR CAPITAL INVESTMENT. AS PER RULINGS OF THE VARIO US COURTS, INCLUDING SUPREME COURT IN THE USUAL COURSE, THE INTEREST REC EIVED AGAINST SURPLUS DEPOSITS, REQUIRED TO BE TAXED UNDER THE HEAD INCO ME FROM OTHER SOURCES U/S 56 OF THE ACT. IN THIS REGARD I WOULD LIKE TO PLACE MY RELIANCE ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 8 ON THE RULING OF THE HONBLE ITAT IN THE CASE OF TH ERMAL POWERTECH CORPN. INDIA VS DCIT (2017) TAXMANN.COM 168 (HYDERA BAD TRIB.) (2017)/164 ITD 449, WHEREIN IT IS INTER-ALIA, HELD THAT-WHERE ASSESSEE- COMPANY FORMED TO BUILD OWN AND OPERATE A POWER PLA N DEPOSITED UNUTILIZED BORROWED FUNDS IN SHORT TERM FIXED DEPOS ITS DURING THE CONSTRUCTION OF POWER PLANT INTEREST EARNED ON THOS E DEPOSITS WOULD BE TAXED AS INCOME FROM OTHER SOURCES. 5.5 THE FACT THAT A PERSON/ENTITY CARRIED ON BUSI NESS DOES NOT LEAD TO INFERENCE THAT ALL THE INCOME RECEIVED BY SUCH PERS ON/ENTITY IS BUSINESS INCOME. IT IS THE MANNER IN WHICH INCOME IS DERIVED THAT IS RELEVANT AND NOT MERELY THE FACT THAT THE PERSON/ENTITY ARE ENGA GED IN THE BUSINESS. IN LIGHT OF ABOVE DISCUSSION, THE CONTENTION OF THE AP PELLANT TO TREAT THE INCOME EARNED AGAINST FIXED DEPOSITS, AS CAPITAL AS SET, AS IT HAD NOT STARTED THE BUSINESS, IS NOT TENABLE. THE CASE LAWS CITED BY THE APPELLANT ARE DISTINGUISHABLE, AS IN APPELLANTS CASE IT HAD SURPLUS FUND WHICH WAS PARKED WITH THE BANK, THEREBY EARNED THE INTEREST I NCOME WHICH IS LIABLE TO BE ASSESSED AS INCOME FROM OTHER SOURCES, HENCE NOT APPLICABLE TO THE FACT OF THE PRESENT APPEAL. HAD THIS CASE NOT B EEN PICKED UP FOR SCRUTINY, THEN THE TAXABLE INCOME, TO THIS EXTENT W OULD HAVE ESCAPED THE ASSESSMENT. 5.6 IN VIEW OF THE ABOVE DISCUSSIONS AND HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED V IEW THAT THE APPELLANT HAS FURNISHED INACCURATE PARTICULARS OF INCOME BY N OT OFFERING THE ABOVE INCOME FOR TAX THEREBY COMMITTED DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT R.W. EXPLANATION 1. ACCORDINGL Y, THIS IS A FIT CASE FOR IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT AND THE AO HAS RIGHTLY LEVIED MINIMUM PENALTY OF RS. 4137200/-, AS PER PRO VISIONS OF SEC 271(1)(C) OF THE ACT, THEREFORE, THE SAME IS UPHELD AND ALL THE ABOVE GROUNDS OF APPEAL ARE DISMISSED. 5. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE L D.CIT(A) WAS ERRED IN CONFIRMED PENALTY LEVIED U/S 271(1)(C) OF THE I.T.ACT, 1961 WITHOUT APPRECIATING THE FACTS IN RIGHT PERSPECTIVE AND ALSO, VARIOUS JUDICIAL PRECEDENTS CITED BY THE ASSESSE THAT IN AB SENCE OF PROPER SATISFACTION AND ALSO, NOTICE NO PENALTY CAN BE LEV IED U/S 271(1)(C) OF THE I.T.ACT, 1961. THE LD. AR, FURTHER SUBMITTED TH AT THE LD.CIT(A) HAS FAILED TO APPRECIATE THE FACT THAT THE LD. AO H AD NOT COMPLIED ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 9 WITH THE PROVISION OF SECTION 274 R.W..S. 271(1)(C) OF THE I.T.ACT, 1961 SINCE THE LD. AO ERRED IN LEVYING PENALTY WITHOUT EXPLICITLY MENTIONING IN THE PENALTY NOTICE, THE REASONS FOR I NITIATING PENALTY PROCEEDINGS. THE LD. AR, FURTHER SUBMITTED THAT EVE N ON MERITS, THE LD.CIT(A) WAS ERRED IN UPHOLDING THE PENALTY IRRESP ECTIVE OF THE FACT THAT THE ASSESSEE DID NOT CONCEAL INCOME AND DID NO T SUBMIT INACCURATE PARTICULARS OF INCOME AND ALSO, THE INTE REST RECEIVED BY THE ASSESEE IS TO BE TREATED AS CAPITAL RECEIPT IN THE HANDS OF THE ASSESSEE IGNORING CERTAIN JUDICIAL DECISIONS. IN T HIS REGARD, HE RELIED UPON THE FOLLOWING JUDICIAL DECISIONS:- I) MEHERJEE CASSINATH HOLDINGS VS ACIT IN ITA NO. 2555/MUM/2012 II) REKHA BHUPENDRA DALAL VS DCIT IN ITA NO. 3363/MUM/2016. 6. THE LD. DR, ON THE OTHER HAND STRONGLY SUPPORTED ORDER OF THE LD.CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATE RIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIE S BELOW. AS REGARDS, PRELIMINARY OBJECTIONS OF THE ASSESSEE, IN LIGHT OF SHOW CAUSE NOTICE ISSUED BY THE AO U/S 274 R.W.S. 271(1) (C) OF THE ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 10 I.T.ACT, 1961, DATED 30/01/2014, WE FIND THAT ALTHO UGH, THE ASSESSEE HAS CHALLENGED THE VALIDITY OF PENALTY PROCEEDINGS, IN LIGHT OF NON STRIKING OF IRRELEVANT PORTION IN THE NOTICE U/S 27 4, BUT, FACT REMAINS THAT THE LD. AO HAD ISSUED FURTHER SHOW-CAUSE NOTIC E, DATED 19/02/2016, FOR WHICH THE ASSESSEE NEITHER FILED A NY EXPLANATION NOR JUSTIFIED ITS CASE IN LIGHT OF EXPLANATION-1 TO SECTION 271(1)(C) OF THE I.T.ACT 1961. WE, FURTHER NOTED THAT THE LD. AO HAS ARRIVED AT PROPER SATISFACTION, IN RESPECT OF ADDITIONS MADE T OWARDS INTEREST INCOME ON FIXED DEPOSITS AT THE TIME OF ASSESSMENT PROCEEDINGS, WHERE HE HAD INITIATED PENALTY PROCEEDINGS U/S 271( 1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME LEADING TO CONCEALMENT OF INCOME. WE, FURTHER NOTED THAT THE LD. AO HAD LEVIE D PENALTY U/S 271(1)(C) FOR FURNISHING INACCURATE PARTICULARS OF INCOME LEADING TO CONCEALMENT OF INCOME. THEREFORE, ONCE A PROPER SAT ISFACTION HAS BEEN ARRIVED AT BEFORE INITIATION OF PENALTY PROCEE DINGS OR ANY TIME DURING PROCEEDINGS, THEN SUBSEQUENT ISSUE OF SHOW-C AUSE NOTICE IS A FORMALITY TO COMMUNICATE THE ASSESSEE ABOUT INITI ATION OF PENALTY PROCEEDING. FURTHER, IN THIS CASE, THE LD. AO HAD I SSUED ONE MORE SHOW-CAUSE NOTICE AND ALSO, CALLED UPON THE ASSESSE TO EXPLAIN WHY PENALTY PROCEEDINGS SHALL NOT BE INITIATED FOR FURN ISHING INACCURATE PARTICULARS OF INCOME, FOR WHICH NO COMPLIANCE FROM THE ASSESSEE. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ONCE, A PROPER ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 11 SATISFACTION HAS BEEN ARRIVED AT BEFORE INITIATION OF PENALTY PROCEEDINGS, AND THEN A DEFECT IN NOTICE INCLUDING MERE NON-STRIKING OF IRRELEVANT PORTION IN THE NOTICE DOES NOT INVALI DATE THE PENALTY PROCEEDINGS. ALTHOUGH, THE ASSESSEE HAS CITED CERTA IN JUDICIAL PRECEDENTS, INCLUDING THE DECISION OF ITAT MUMBAI B BENCH, IN THE CASE OF MEHRJEE CASSINATH HOLDINGS PVT.LTD. VS ACIT (SUPRA), WE FIND THAT FACTS OF THE PRESENT CASE ARE ENTIRELY DIFFERE NT FROM THE CASE LAWS RELIED UPON BY THE ASSESSEE AND HENCE, ARE NOT CONSIDERED AS APPLICABLE TO THE CASE OF THE ASSESSEE. WE, FURTHE R NOTED THAT THE ITAT, MUMBAI IN THE CASE OF M/S. EARTHMOVING EQUIPM ENT SERVICES CORPORATION VS DCIT IN ITA NO.6617/MUM/2014 HAD CON SIDERED AN IDENTICAL ISSUE AND HELD THAT WHEN, PROPER SATISFAC TION HAS BEEN RECORDED IN THE ASSESSMENT ORDER, AS WELL AS IN THE PENALTY ORDER THEN MERE NON STRIKING OF NOTICE OR VAGUE NOTICE DO ES NOT INVALIDATE PENALTY PROCEEDINGS. THEREFORE, WE ARE OF THE CONSI DERED VIEW THAT THERE IS NO MERIT IN LEGAL ARGUMENTS TAKEN BY THE A SSESSEE AND HENCE, GROUND NO. 1 AND 2 ARE REJECTED. 8. COMING TO PENALTY LEVIED IN RESPECT OF ADDITIONS MADE TOWARDS INTEREST INCOME EARNED FROM FIXED DEPOSITS. THE FAC T THAT A PERSON/ENTITY CARRIED ON BUSINESS DOES NOT LEAD TO INFERENCE THAT ALL THE INCOME RECEIVED FROM SUCH PERSONS/ENTITY IS ASS ESSABLE UNDER ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 12 THE HEAD INCOME FROM BUSINESS. IT IS THE MANNER IN WHICH INCOME IS DERIVED IS RELEVANT TO DECIDE THE HEAD OF INCOME, B UT NOT MERELY THE FACT THAT PERSONS/ENTITY ARE ENGAGED IN THE BUSINES S. IN LIGHT OF THE ABOVE LEGAL POSITION, IF YOU EXAMINE THE CASE OF TH E ASSESEE, IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE HAS PARKED ITS S URPLUS FUNDS IN THE BANKS IN FORM OF FIXED DEPOSITS AND EARNED INTE REST INCOME. FURTHER, ALTHOUGH INTEREST INCOME FROM FIXED DEPOSI TS IS ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES, THE ASSES SEE HAS TREATED SAID INTEREST INCOME AS CAPITAL RECEIPTS AN D SET UP AGAINST PRE-OPERATIVE EXPENSES WITHOUT OFFERING INTEREST IN COME FOR TAX. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE A SSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME, IN RESP ECT OF INTEREST INCOME EARNED FROM FIXED DEPOSITS, WHICH WARRANTS L EVY OF PENALTY U/S 271(1)(C) OF THE I.T.ACT, 1961. FURTHER, THE AS SESSEE HAS ALSO FAILED TO OFFER ANY EXPLANATION IN RESPONSE TO A SH OW CAUSE NOTICE THEREBY COMMITTED DEFAULT WITHIN THE MEANING OF EXP LANATION-1 TO SECTION 271(1)(C) OF THE I.T.ACT, 1961. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO ERROR IN PENALTY L EVIED U/S 271(1)(C) AND ACCORDINGLY, THE LD.CIT(A) WAS RIGHT IN AFFIRME D PENALTY LEVIED BY THE LD. AO. HENCE, WE ARE INCLINED TO UPHOLD THE FINDINGS OF THE LD.CIT(A) AND REJECT GROUND TAKEN BY THE ASSESEE. ITA NO.2313/MUM/2018 POSCO MAHARASHTRA STEEL PVT.LTD. 13 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 / 10/2019 SD/- (RAM LAL NEGI) SD/- (G. MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 11 /10/2019 THIRUMALESH SR.PS COPY OF THE ORDER FORWARDED TO : BY ORDER, (ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//