Gulshan Polyols Ltd., New Delhi V. DCIT, New Delhi

ITA 253/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7267 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 13-06-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 17-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KR YADAV
• Assessee Lawyers: MOHD SHAHID
• Section: 263

Judgement Text

1 ITA 253 & 1226/DEL/2012 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI: JUDICIAL MEMBER ITA NOS. 253 & 1226/DEL/2012 ASSTT. YR: 2004-05 GULSHAN POLYOLS LTD., VS. DCIT CIRCLE 12(1), G-81, PREET VIHAR, NEW DELHI. NEW DELHI. PAN: AABCG 3954 F ( APPELLANT ) (RESPONDENT) APPELLANT BY : MR. MOHD. SHAHID CA RESPONDENT BY : MR. SANJAY KR. YADAV SR. DR DATE OF HEARING : 13/06/2016. DATE OF ORDER : 15/06/20126. O R D E R PER S.V. MEHROTRA, A.M: THESE ARE ASSESSEES APPEALS AGAINST SEPARATE OR DERS OF LD. CIT(A) IN QUANTUM AND PENALTY APPEALS RELATING TO AY 2004-05. BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY A COMMO N ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA 253 & 1226/DEL/2012 ITA NO. 253/DEL/2012 (QUANTUM APPEAL) : 2. SOLE EFFECTIVE GROUND RAISED IN THIS APPEAL IS A S UNDER: 1. THAT THE HONBLE CIT(APPEALS ) IS WRONG AND UNJU STIFIED BOTH IN LAW AND FACTS IN DISALLOWING RS. 5,91,902/- ON WORKING CAPITAL INTEREST. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR WAS ENGAGED IN THE BUSINESS OF MANUFACTURING A ND MARKETING OF SORBITOL. ASSESSEE FILED ITS RETURN OF INCOME DECLA RING PROFIT OF RS. 1,16,83,210/-. ORIGINALLY THE ASSESSMENT WAS COMPL ETED AT AN INCOME OF RS. 1,21,83,210/-, WHICH WAS SET ASIDE VIDE CITS ORDER DATED 20.3.2009 U/S 263 OF THE ACT. SUBSEQUENTLY, THE AO VIDE ORDER DATED 2 7.11.2009 FRAMED THE ASSESSMENT AT AN INCOME OF RS. 1,71,34,460/- U/S 14 3(3)/263 OF THE ACT BY MAKING ADDITION OF RS. 49,51,250/- ON ACCOUNT OF WO RKING CAPITAL INTEREST, INTER ALIA, BY OBSERVING THAT ASSESSEE HAD CLAIMED AND ALLOWED AN EXPENDITURE OF RS. 49,51,250/- ON ACCOUNT OF INTERE ST ON BANK BORROWINGS FOR WORKING CAPITAL BUT THE AMOUNT WAS NOT PAID BEFORE FILING OF THE RETURN AND AS SUCH THE SAME WAS NOT AN ADMISSIBLE EXPENDITURE. THE ASSESSEE VIDE ITS REPLY DATED 22.8.2009 STATED THAT THE INTEREST ON B ANK BORROWINGS FOR WORKING CAPITAL WAS CHARGED AND COLLECTED BY THE BA NK FROM THEIR ACCOUNT AT THE END OF EVERY MONTH ON MONTHLY BASIS AND, HENCE, THERE DID NOT ARISE ANY QUESTION OF NON- PAYMENT OF SUCH INTEREST. IN SUPPO RT OF ITS CONTENTION, HE NOTED THAT ASSESSEE FILED COPY OF BANK STATEMENT. A O HAS FURTHER OBSERVED THAT INFORMATION WERE ALSO CALLED FOR FROM BANK OF BARODA, DEFENCE ENCLAVE, PREET VIHAR,DELHI AND INDUSTRIAL ESTATE B RANCH, AANKLESHWAR (GUJARAT). HE POINTED OUT THAT BANK OF BARODA, DELH I BRANCH DECLINED TO HAVE ANY CASH CREDIT IN THE NAME OF THE COMPANY. AA NKLESHWAR BRANCH HAD FURNISHED A CERTIFICATE FOR THE RECOVERY OF INTERES T AMOUNTING TO RS. 3 ITA 253 & 1226/DEL/2012 1,18,101/- INCLUDING PENAL INTEREST OF RS. 2,099/-. HE, THEREFORE, DISALLOWED INTEREST OF RS. 49,51,250/-. 4. BEFORE LD. CIT(A) THE ASSESSEE HAD, INTER ALIA, POINTED OUT THAT COMPANY HAD CASH CREDIT ACCOUNT WITH BANK OF BAROD A, LARGE CORPORATE BRANCH, BANK OF BARODA BUILDING, PARLIAMENT STREET, NEW DELHI AND THE LETTER SEEKING INFORMATION WAS SENT TO BANK OF BARO DA DEFENCE ENCLAVE, PREET VIHAR BRANCH WITH WHICH IT HAD NO ACCOUNT. TH EREFORE, ASSESSEE HAD FILED BANK CERTIFICATE FROM LARGE CORPORATE BRANCH, WHICH CONFIRMED AND CERTIFIED HAVING RECEIVED THE INTEREST. LD. CIT(A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, DELETED THE ADDITION TO THE TUNE OF RS. 43,59,348/-, INTER ALIA, OBSERVING THAT SINCE NO EVIDENCE HAD BE EN PRODUCED BY THE ASSESSEE FOR THE BALANCE OF RS. 5,91,902/-, THEREFO RE, THE ADDITION TO THAT EXTENT WAS UPHELD. 5. LD. COUNSEL HAS FILED BEFORE US DETAILED SUBMISS IONS DATED 3.9.2014, WHEREIN IT HAS BEEN PLEADED THAT LD. CIT(A) SHOULD HAVE DELETED THE SUM OF RS. 5,91,902/- ALSO AS THE SAME IS AS PER THE CERTI FICATE FROM THE BANK REGARDING FINANCE CHARGES. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THE ASSESSEES SUBM ISSIONS ARE REPRODUCED HEREUNDER: SUB: APPEAL NO. 2531DEL-2012 FOR THE A.Y. 2004-05- HON 'BLE SIRS, THIS IS OUR APPEAL AGAINST CIT(A)'S ORDER DATED 01- 12-2011 FOR UPHOLDING THE ADDITION OF RS.5.92LACS. (OUT OF TOTA L ADDITION OF RS.49.51 LACS MADE BY ASSESSING OFFICER UNDER THE H EAD OF FINANCE CHARGES) 4 ITA 253 & 1226/DEL/2012 THIS RS.5.92 LACS IS LOSS ON ACCOUNT OF FOREIGN EXC HANGE FLUCTUATION WHICH HAS NOT BEEN CONSIDERED BY THE CI T(A). THE FACT OF THE CASE IS THAT THE COMPANY HAD RAISED A F OREIGN CURRENCY LOAN OF USD 960000 FROM BANK OF BARODA ON 09- 06- 2003( COPY OF BANK SANCTION LETTER TO CONFIRM T HIS SANCTION IS ANNEXED AT PAGE 17 OF THE PAPER BOOK) WHEN DOLLA R RATE WAS RS. 46.81 PER USD AND ACCORDINGLY RS.44937600/- ($960000*RS.46.81) WAS DEBITED BY BANK TO OUR ACCOU NT. (OUR STATEMENT OF ACCOUNT IS ANNEXED AT PAGE NO.15 OF TH E PAPER BOOK TO CONFIRM THIS LOAN). AS PER THE CONDITION OF THE LOAN, THE LOAN HAD TO BE ROLLED OVER AFTER EVERY SIX MONTHS A T RE-PRICING AT ROLL OVER TIME (COPY OF SANCTION LETTER TO CONFI RM THIS CONDITION IS ANNEXED ON PAGE 17 OF PAPER BOOK) AT ROLL OVER TIME I.E. 10-12-2003, USD RATE WAS RS .45.645 PER USD (PROOF OF RATE ANNEXED ON PAGE NO.19 OF PAPER B OOK) HENCE COMPANY GAINED RS.L.165 (46.81- 45.645) PER U SD AMOUNTING IN AGGREGATE RS.LL.L8 LACS ($960000*RS.1. 165) WHICH AFTER SETTING OFF BANK CHARGES RS.0.20 LACS C HARGED BY BANK NET RS.I0.98 LACS WAS CREDITED TO FOREIGN EXCH ANGE FLUCTUATION INCOME BY DEBITING LOAN LIABILITY, IN O UR BOOKS (PLEASE REFER TO PAGE NO.L6 OF PAPER BOOK) ANOTHER CONDITION OF LOAN WAS THAT THE COMPANY WILL HAVE TO TAKE NECESSARY HEDGE AGAINST CURRENCY FLUCTUATION R ISK. (PLEASE REFER SANCTION LETTER ANNEXED ON PAGE NO. 17 OF PAP ER BOOK) IN COMPLIANCE OF THE SECOND CONDITION OF THE SANCTI ON, COMPANY HAD TAKEN FORWARD COVER FOR USD 972000 (LOAN AMOUNT USD 960000 + INTEREST THEREON USD 12000) @ RS. 47.36 PE R USD (PROOF OF RATE IS ANNEXED ON PAGE NO. 18 OF PAPER B OOK) ON 10.06.2003 WHICH WAS CANCELLED AT ROLL OVER TIME AN D FRESH COVER WAS TAKEN WHICH WAS AVAILABLE @ RS.45.54 PER USD. THIS HAD RESULTED IN NET LOSS OF RS.1.82 ($47.36-$4 5.54 )PER USD AMOUNTING IN AGGREGATE RS.17.46 LACS WHICH WAS DEBITED BY OUR BANK TO OUR ACCOUNT ON 10.12.2003(COPY OF BA NK 5 ITA 253 & 1226/DEL/2012 STATEMENT DEBITING THE FIGURES IS ANNEXED ON PAGE N O.29 OF PAPER BOOK). THE SAME WAS BOOKED UNDER THE HEAD OF FOREIGN EXCHANGE FLUCTUATION EXPENSES IN OUR BOOKS OF ACCOU NTS (PLEASE REFER OUR STATEMENT OF ACCOUNT ANNEXED ON PAGE NO. 16 OF PAPER BOOK). OUT OF THIS RS.17.46 LACS, AMOUNT OF GAIN RS .IO.98 LACS ON FOREIGN EXCHANGE FLUCTUATION AS PER PARA 4 OF OU R LETTER WAS SET-OFF AND BALANCE REMAINED RS.6.48 LACS WHICH AFTER SETTING OFF RS.0.56 LACS ON ACCOUNT OF MISC. BANK C REDITS NET RS. 5.92 LACS WERE CHARGED TO PROFIT AND LOSS ACCOU NT AS FOREIGN EXCHANGE FLUCTUATION EXPENSES. IN VIEW OF OUR ABOVE EXPLANATION IT IS REQUESTED TH AT THE ADDITION OF RS.5.92 LACS UNDER THE HEAD OF FINANCE CHARGES BE DELETED 7. THE AFOREMENTIONED SUBMISSIONS REQUIRE FACTUAL V ERIFICATION AND, THEREFORE, WE RESTORE THIS MATTER TO THE FILE OF AO TO EXAMINE THE AFOREMENTIONED CONTENTIONS OF ASSESSEE AND IF THE S AME ARE FOUND TO BE CORRECT, THEN TO DELETE THE ADDITION. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 1226/DEL/2012 (PENALTY APPEAL U/S 271(1)(C) : 9. SOLE EFFECTIVE GROUND RAISED IN THIS APPEAL IS A S UNDER: THAT THE HONBLE CIT(APPEALS ) IS WRONG AND UNJUST IFIED BOTH IN LAW AND FACTS IN IMPOSING PENALTY ON ADDITION OF RS. 5,91,902/- ON ACCOUNT OF ON WORKING CAPITAL INTERE ST. 10. BRIEF FACTS GIVING RISE TO THE IMPUGNED APPEAL ARE THAT AO HAD INITIATED PENALTY PROCEEDINGS AGAINST THE ASSESSEE U/S 271(1)(C) FOR FURNISHING OF INACCURATE PARTICULARS OF ITS INCOME AND VIDE PENALTY ORDER DATED 28.5.2010 IMPOSED THE PENALTY OF RS. 17,76,2 61/- @ OF 100% OF THE TAX SOUGHT TO BE EVADED, FOR FURNISHING OF INACCURA TE PARTICULARS OF ITS INCOME TO THE EXTENT OF RS. 49,51,250/- ON ACCOUNT OF WORK ING CAPITAL INTEREST. 6 ITA 253 & 1226/DEL/2012 11. IN APPEAL THE LD. CIT(A) REDUCED THE PENALTY BY DIRECTING THE AO TO WORK OUT THE PENALTY IN RESPECT OF INCOME OF RS. 5, 91,902/-. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. WHILE DEALING WITH QUANTUM APPEAL, AS ABOVE, W E HAVE SET ASIDE THE ISSUE RELATING TO ADDITION OF RS. 5,91,902/- TO TH E FILE OF AO TO VERIFY THE CLAIM OF THE ASSESSEE AND THEN TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW. SINCE THE VERY BASIS FOR LEVY OF PENALTY U/S 271(1 )(C) HAS BEEN SET ASIDE TO THE FILE OF AO, THE PENALTY IN QUESTION CA NNOT BE SUSTAINED IN THE EYE OF LAW AND THE SAME IS DIRECTED TO BE DELETED. HOWE VER, THE AO WILL BE AT LIBERTY TO INITIATE PENALTY PROCEEDINGS, IF ANY, DE PENDING ON THE OUTCOME OF THE SET ASIDE ISSUE. WE ORDER ACCORDINGLY. 13. IN THE RESULT, ITA NO. 253/DEL/2012 IS ALLOWED FOR STATISTICAL PURPOSE AND ITA NO. 1226/DEL/2012 IS ALLOWED. ORDER PRONOUNCEMENT IN OPEN COURT ON 15/06/2016. SD/- SD/- (BEENA A. PILLAI) (S.V. MEHROTRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:15/06/2016. *MP* COPY OF ORDER TO: 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI.