The ITO, Ward-4(3), Ahmedabad V. Lincoln Parenteral Pvt.Ltd., Ahmedabad

ITA 2631/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5941 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 21-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: A C SHAH
• Keywords: Opportunity of being heard; Bonafide belief
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S.SAINI, ACCOUNTANT MEMBER DATE OF HEARING: 15.06.10 DRAFTED ON:15.06.10 ITA NO.2631/AHD/2008 ASSESSMENT YEAR : 2003-2004 INCOME TAX OFFICER, WARD.4(3), ROOM NO.106, 1 ST FLOOR, NAVJEEVAN PRESS BLDG. OFF.ASHRAM ROAD, AHMEDABAD. VS. LINCOLN PARENTERALS PVT. LTD. 2 ND FLOOR, NIRAV COMPLEX, OPP. NAVRANG HIGH SCHOOL, NARANPURA, AHMEDABAD. PAN/GIR NO. : AAACL 3228 G (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI K. MADHUSUDAN SR. D.R. RESPONDENT BY: SHRI A.C.SHAH O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-VII I, AHMEDABAD DATED 21.05.2008. 2. THE SOLE GROUND OF THE APPEAL TAKEN BY THE REVEN UE IS THAT THE LD.CIT(A) HAS ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELETING THE PENALTY OF RS.4,98,275/- LEVIED U/S.27 1(1)(C). 3. THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASS ESSEE SHRI A.C.SHAH FILED COPY OF THE ORDER PASSED IN QUA NTUM APPEAL OF THE ASSESSEE DATED 26.02.2010 IN ITA NO.2745/AHD /2007 FOR THE ASSESSMENT YEAR 2003-04 AND SUBMITTED THAT PENA LTY HAS BEEN LEVIED BY THE LEARNED ASSESSING OFFICER ON TWO ADDITIONS - 2 - MADE BY HIM WHICH WERE CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) NAMELY RS.11,18 ,400/- ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITURE AND RS.2,37,453/- DISALLOWANCE OF INTEREST PAID TO BANK . HE SUBMITTED THAT AS REGARD THE FIRST ADDITION OF RS.1 1,18,400/-, THE TRIBUNAL IN THE QUANTUM APPEAL HAS RESTORED THE ISSUE BACK TO THE FILE OF THE LEARNED ASSESSING OFFICER AND WI TH REGARD TO THE SECOND DISALLOWANCE OF RS.2,37,453/-, THE TRIBU NAL HAS HELD THAT NO GRIEVANCE WAS CAUSED TO THE ASSESSEE BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) BEC AUSE THE ASSESSEE ADMITTED BEFORE THE LEARNED COMMISSIONER O F INCOME TAX(APPEALS) THAT THE DEDUCTION DID NOT PERTAIN TO THE ASSESSMENT YEAR UNDER APPEAL. HE SUBMITTED THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT THE E XPENDITURE WAS ALLOWABLE TO THE ASSESSEE IN THE IMMEDIATELY PR ECEDING ASSESSMENT YEAR 2002-03 AND NOT IN THE YEAR UNDER A PPEAL. HE SUBMITTED THAT THE ASSESSEE CAME TO KNOW ABOUT THE INTEREST EXPENDITURE ON THE RECONCILIATION OF THE BANK ACCOU NT DURING THE YEAR AND HENCE EXPENDITURE WAS CRYSTALLISED IN THE YEAR AND THEREFORE, UNDER A BONAFIDE BELIEF THAT THE SAME WA S ALLOWABLE IN THE YEAR UNDER CONSIDERATION DEBITED THE SAME ON 1.04.2002 IN ITS BOOKS OF ACCOUNT. SINCE, IT WAS NOT FOUND BY THE LEARNED ASSESSING OFFICER THAT THE EXPENDITURE WAS NOT ALLO WABLE AT ALL BUT WAS ALLOWABLE NOT IN THE PRESENT YEAR UNDER CON SIDERATION BUT IN THE IMMEDIATELY PRECEDING YEAR, THEREFORE, I T CANNOT BE HELD THAT THE ASSESSEE CONCEALED ITS INCOME OR FILE D INACCURATE PARTICULARS OF ITS INCOME AND WAS LIABLE TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE - 3 - SUBMITTED THAT THE ASSESSEE WAS AWARE THAT THE EXPE NDITURE ON ACCOUNT OF BANK INTEREST OF RS.2,37,453/- WAS NOT P ERTAINING TO THE YEAR UNDER CONSIDERATION AND STILL IT CLAIMED T HE SAME AS DEDUCTION IN THE YEAR UNDER APPEAL AND THUS, FILED INACCURATE PARTICULARS OF ITS INCOME SO AS TO AVOID THE PAYMEN T OF TAX. HENCE, THE ASSESSEE WAS LIABLE TO PENALTY FOR THE S AME. WITH REGARDS TO THE SETTING ASIDE OF THE ISSUE TO THE FI LE OF THE LEARNED ASSESSING OFFICER REGARDING DEDUCTION OF IN TEREST EXPENDITURE OF RS.11,18,400/-, IT WAS SUBMITTED THA T THE ISSUE OF PENALTY ON THIS AMOUNT SHOULD BE RESTORED BACK T O THE FILE OF THE LEARNED ASSESSING OFFICER TO BE DECIDED IN THE LIGHT OF THE REASSESSMENT FRAMED ON THIS ISSUE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSMENT WAS FRAMED BY THE LEARNED ASSESSING OFFI CER BY DISALLOWING INTEREST EXPENDITURE OF RS.11,18,400/- AND DISALLOWING INTEREST PAID TO BANK OF RS.2,37,453/-, WHICH WAS CONFIRMED IN APPEAL BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). ON AN APPEAL MADE BY THE ASSESSEE TO THE TRIBUNAL, THE TRIBUNAL HAS RESTORED THE ISSUE REGAR DING DISALLOWANCE OF INTEREST EXPENDITURE OF RS.11,18,40 0/- TO THE FILE OF THE LEARNED ASSESSING OFFICER BY OBSERVING AS FO LLOWS:- 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD OBTAINED TRADE SECURITY DEPOSITS FROM LPL VIDE AGREEMENT DATED 1.04.2000 TO THE TUNE OF RS.31 0.50 LACS, ON WHICH INTEREST @ 5% WAS ALSO PAID. ACCORD ING TO THE AGREEMENT, THE SECURITY DEPOSIT WAS GIVEN FOR T HE BUSINESS PURPOSE AND IN CASE OF CERTAIN CIRCUMSTANC ES, BREACH OF AGREEMENT ETC. THE INTEREST SHALL HAVE TO BE PAID BY ASSESSEE ON SECURITY DEPOSITS AS MUTUALLY AGREED . THE ASSESSEE FILED EVIDENCE WITH REGARD TO NEED FOR PAY MENT OF THE INTEREST, WHICH WAS FORWARDED TO THE ASSESSI NG OFFICER, BUT ULTIMATELY NOTHING CAME OUT FROM THE - 4 - OBSERVATION OF THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS). THEREFORE, EVIDENCE OF THE ASSESSEE FOR PAYMENT OF INTEREST AS PER THE AGREEMENT IS NOT IN DISPUTE. LEARNED COUNSEL FOR ASSESSEE ON THE BASIS OF THE AVAILABILITY OF THE INTEREST FREE FUNDS DEMONSTRATE D THAT IT HAS INTEREST FREE FUNDS AVAILABLE IN A SUM OF RS.2,51,17,851/-, WHICH WERE MORE THAN THE ABOVE INVESTMENTS IN THE SHARES. HONBLE BOMBAY HIGH COU RT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPR A) HELD THAT INVESTMENT BY ASSESSEE. FINDING THAT INVESTMEN TS WERE FROM INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE. BORROWED CAPITAL USED FOR THE PURPOSE OF BUSINESS. INTEREST DEDUCTIBLE UNDER SECTION 36(1)(III) OF THE INCOME TAX ACT, 1961. HONBLE SUPREME COURT IN THE CASE OF CORE HEALTH CARE LTD. (SUPRA) HELD THAT BORROWING FOR PU RCHASE OF MACHINERY FOR PURPOSE OF BUSINESS. INTEREST IS T O BE ALLOWED EVEN IF MACHINERY NOT USED IN THE YEAR OF BORROWING. HONBLE SUPREME COURT IN THE CASE OF MUN JAL SALES CORPORATION (SUPRA) HELD THAT UNDER THE INCOM E TAX ACT, AFTER AMENDMENT OF THE ACT BY FINANCE ACT 1992 , IN ORDER THAT INTEREST PAID ON BORROWINGS CAN BE ALLOW ED AS A DEDUCTION IN COMPUTING THE BUSINESS PROFITS, EVERY ASSESSEE, INCLUDING A FIRM, HAS TO ESTABLISH IN FIR ST INSTANCE THAT IT WAS ALLOWABLE UNDER SECTION 36(1)( III) OF THE INCOME TAX ACT, 1961. HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA) HELD THAT DECISIONS R ELATING TO SECTION 37 WILL ALSO BE APPLICABLE TO SECTION 36 (1)(III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF THE BUSINESS. FOR THE PURPOSE OF BUSIN ESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMME RCIAL EXPEDIENCY, AND IT IS IMMATERIAL IF A THIRD PARTY A LSO BENEFITS THEREBY. CONSIDERING THE FACTS OF THE CAS E IN THE LIGHT OF THE SECURITY TRADE DEPOSIT AGREEMENT DATED 1.04.2000, IT IS CLEAR THAT ASSESSEE OBTAINED TRADE SECURITY DEPOSIT FROM LPL FOR THE PURPOSE OF BUSINESS AND PA ID INTEREST THEREON. THE ASSESSING OFFICER HOWEVER, N OTED THAT THE ASSESSEE MADE INVESTMENT IN SHARES OUT OF THE SAME AMOUNT BUT THE ASSESSEE NOW EXPLAINED THAT IT HAS MORE INTEREST FREE FUNDS AVAILABLE AS COMPARED TO T HE INVESTMENT MADE IN SHARES IN THE ASSESSMENT YEAR IN QUESTION. THESE FACTS WERE NOT PLEADED BEFORE THE AUTHORITIES BELOW EARLIER. THE PURPOSE OF THE BUSIN ESS NOW EXPLAINED WAS ALSO NOT EXPLAINED CLEARLY BEFORE ASS ESSING OFFICER BECAUSE THE ASSESSEE CLAIMED DIVIDEND INCOM E OUT OF INVESTMENT IN SHARES AS INCOME FROM OTHER SOURCE S. THE ABOVE DISCUSSION THEREFORE, WOULD SHOW THAT THE MAT TER - 5 - REQUIRES RECONSIDERATION AT THE LEVEL OF THE ASSESS ING OFFICER AFRESH. WE ACCORDINGLY, SET ASIDE THE ORDER S OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF ASSESSING OFFICER WITH A DIRECTION TO RE-DECIDE THI S ISSUE IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE ABOVE BY GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. AS A RESULT, GROUND NOS.1 AND 2 OF THE AP PEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 6. SINCE, THE ISSUE HAS BEEN REMANDED BACK TO THE L EARNED ASSESSING OFFICER TO REDECIDE THE SAME AS PER THE D IRECTIONS GIVEN BY THE TRIBUNAL IN THE ABOVE QUOTED ORDER, IN OUR CONSIDERED OPINION, IT WOULD BE JUST AND FAIR TO RE MAND THE ISSUE OF LEVY OF PENALTY ON RS.11,18,400/- TO THE FILE OF THE LEARNED ASSESSING OFFICER TO READJUDICATE THE SAME IN THE L IGHT OF THE REASSESSMENT FRAMED ON THIS ISSUE. WE THEREFORE MO DIFY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APP EALS) AND DIRECT THE LEARNED ASSESSING OFFICER TO READJUDICAT E THE ISSUE AFRESH AS PER LAW AFTER ALLOWING REASONABLE AND PRO PER OPPORTUNITY OF HEARING TO THE ASSESSEE IN LIGHT OF THE REASSESSMENT TO BE FRAMED ON THIS ISSUE IN PURSUANC E TO THE DIRECTION OF THE TRIBUNAL VIDE ORDER DATED 26.02.20 10. 7. AS REGARDS THE LEVY OF PENALTY ON THE DISALLOWAN CE OF BANK INTEREST OF RS.2,37,453/-, WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS FOUND THAT THIS INTEREST EXPENDITURE WAS ALLOWABLE TO THE ASSESSEE IN THE IMMEDIATELY PRECEDING YEAR 2002-03 AND NOT IN THE P RESENT ASSESSMENT YEAR WHICH WAS CONFIRMED BY THE TRIBUNAL IN THE APPEAL FILED BY THE ASSESSEE. THE ASSESSEE EXPLAIN ED BEFORE THE LEARNED ASSESSING OFFICER AS WELL AS THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) THAT THE INTEREST EXPENDITUR E CAME TO ITS KNOWLEDGE ONLY ON RECONCILIATION OF THE BANK AC COUNT DURING THE YEAR UNDER CONSIDERATION AND THEREFORE, IT WAS UNDER A - 6 - BONAFIDE BELIEF THAT THE EXPENDITURE IN QUESTION CR YSTALLISED DURING THE YEAR UNDER APPEAL AND HENCE, WAS DEBITED THE ACCOUNT ON 1.04.2002 AND CLAIMED AS DEDUCTION IN TH E RETURN OF INCOME. THE REVENUE COULD NOT BRING ANY MATERIAL ON RECORD TO SHOW THAT THE EXPLANATION OF THE ASSESSEE THAT THE EXPENDITURE IN QUESTION WAS CLAIMED AS DEDUCTION UNDER A BONAFI DE BELIEF THAT IT CRYSTALLISED DURING THE YEAR AND WAS ALLOWA BLE DEDUCTION IN THE YEAR UNDER CONSIDERATION WAS FALSE. FURTHER, THE GENUINENESS OF THE EXPENDITURE CLAIMED IS ALSO NOT IN DOUBT OR DEBATE. MERELY BECAUSE THE ASSESSEE HAS CLAIMED DE DUCTION FOR AN EXPENDITURE IN THE RETURN OF INCOME WHICH IN THE OPINION OF THE LEARNED ASSESSING OFFICER WAS ALLOWABLE AS DEDU CTION TO THE ASSESSEE NOT IN THE CURRENT YEAR BUT IN THE IMMEDIA TELY PRECEDING YEAR WITHOUT FINDING SUCH EXPENDITURE TO BE FALSE OR BOGUS IT CANNOT BE HELD THAT ASSESSEE HAS CONCEALED ITS INCOME OR HAS FILED INACCURATE PARTICULARS OF ITS INCOME S O AS TO BE EXIGIBLE TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT. WE THEREFORE, CONFIRM THE ORDER OF THE LEARNED COMMISS IONER OF INCOME TAX(APPEALS) AND DISMISS THIS PART OF THE GR OUND OF APPEAL OF THE REVENUE. THUS, THE GROUND OF APPEAL O F THE REVENUE IS PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED AS ABOVE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 18 TH DAY OF JUNE, 2010. SD/- SD/- (MUKUL SHRAWAT) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD; ON THIS 18 TH DAY OF JUNE, 2010 PARAS - 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 DATE INITIALS 1. DRAFT DICTATED ON 15.06.2010 -------------- ----- 2. DRAFT PLACED BEFORE AUTHORITY 16.06.2010 ---- --------------- 3. DRAFT PROPOSED & PLACED 16.06.2010 ---------- --------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 16.06.2010 ---------- --------- JM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 16.06.2010 -------- ------------ 6. KEPT FOR PRONOUNCEMENT ON 18.06.2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 18.06.2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- --- ------------------