LMP Motors Pvt.Ltd., Baroda V. The Dy.CIT, Circle-1(2), Baroda

ITA 2635/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0092 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-11-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 11-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ ITA.NO.2635 AND 2636/AHD/2013 / ASSTT. YEAR: 2004-2005 AND 2006-2007 LMP MOTORS P.LTD. SURAJ PLAZA SAYAJIGUNJ BARODA 395 005. PAN : AAACL 3413 H VS DCIT, CIR.1(2) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI M.K. PATEL, AR REVENUE BY : SHRI JAMES KURIAN, SR.DR / DATE OF HEARING : 07/11/2016 / DATE OF PRONOUNCEMENT: 09/11/2016 $%/ O R D E R PER RAJPAL YADAV, JUDICIAL MEMBER PRESENT TWO APPEALS ARE DIRECTED AT THE INSTANCE OF ASSESSEE AGAINST SEPARATE ORDERS OF THE LD.CIT(A) DATED 23.8.2013 PA SSED FOR ASSTT.YEAR 2004- 05 AND 2006-07. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING PENALTY OF RS.24,41,970/- AND RS.41,25,2 00/- IMPOSED BY THE AO UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 IN ASSTT.YEARS 2004-05 AND 2006-07 RESPECTIVELY. 3. THE LD.COUNSEL FOR THE ASSESSEE, AT THE VERY OUT SET SUBMITTED THAT THELD.AO HAS MADE ADDITIONS ON ACCOUNT OF DISALLOWA NCE OF INTEREST COST ON ITA NO.2635 AND 2636/AHD/2013 2 THE GROUND THAT INTEREST BEARING FUNDS WERE USED BY THE ASSESSEE FOR NON- BUSINESS PURPOSE. IN THE ASSTT.YEAR 2004-05, ADDIT ION OF RS.70,78,411/- WAS MADE BY THE AO. THE LD.CIT(A) HAS SCALED DOWN THIS ADDITION TO RS.66,44,817/-. ACCORDINGLY, THE AO HAS COMPUTED P ENALTY OF RS.24,41,900/- AT THE RATE OF 100% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE. IN THE ASSTT.YEAR 2006-07, THE LD.AO HAS MADE TWO ADDITION S VIZ. (A) DISALLOWANCE OF INTEREST COST ON FUNDS DIVERTED FOR NON-BUSINESS PURPOSE OF RS.46,31,906/- AND CLAIM OF DEDUCTION OF INTER-COMPANY BALANCE W/B ACK OF RS.80,00,000/-. THE LD.CIT(A) HAS SCALED DOWN THIS ADDITION TO RS.1 ,22,55,098/-. THE LD.AO HAS COMPUTED PENALTY OF RS.41,25,200/-. 4. IT HAS BEEN BROUGHT TO OUR NOTICE THAT THE ADDIT IONS WERE CHALLENGED BY THE ASSESSEE BEFORE THE TRIBUNAL IN ITA NO.1101/AHD /2011 AND 1354/AHD/2011. APPEALS OF THE ASSESSEE HAVE BEEN D ECIDED VIDE ORDER DATED 31.8.2015. THE TRIBUNAL HAS SET ASIDE THIS ISSUE T O THE FILE OF THE AO FOR RE- ADJUDICATION. THE FINDING OF THE TRIBUNAL IN THE A SSTT.YEAR 2004-05 READS AS UNDER: 6.1. THE HONBLE JURISDICTIONAL HIGH COURT HAS ALS O TAKEN NOTE OF THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CA SE OF S.A.BUILDERS VS. CIT(SUPRA) AND THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CIT VS. DALMIA CEMENT (BHARAT) LTD. (2002) 254 ITR 377( DELHI). DURING THE COURSE OF HEARING THE LD.COUNSEL FOR THE ASSESS EE SUBMITTED THE FACT THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST-FR EE FUNDS AT THE TIME OF ADVANCES MADE TO ITS SISTER-CONCERNS CAN BE VERIFIE D FROM ITS RECORDS. THE LD.SR.DR HAS NO OBJECTION TO THIS PROPOSAL. THE REFORE, AFTER TAKING INTO CONSIDERATION AND LOOKING TO THE TOTALITY OF T HE FACTS OF THE CASE AND IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEMEN TS AS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE, WE HEREBY SET ASID E THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISSUE BACK TO THE FILE OF THE AO FOR LIMITED PURPOSE OF VERIFICATION. THE AO WOULD VERIF Y FROM THE RECORDS PLACED BEFORE HIM THAT THE FACT OF AVAILABILITY OF INTEREST-FREE FUNDS FOR THE PURPOSE OF MAKING ADVANCES TO ITS SISTER-CONCER NS. IN CASE, THE AO FINDS THAT THE ASSESSEE WAS HAVING SUFFICIENT INTER EST-FREE FUNDS ITA NO.2635 AND 2636/AHD/2013 3 AVAILABLE FOR MAKING ADVANCES TO ITS SISTER-CONCERN S, THE AO WOULD DELETE THE DISALLOWANCE. HOWEVER, THE AO WOULD ALSO VERIFY WHETHER THE BORROWED FUNDS HAD BEEN UTILIZED FOR BUSINESS P URPOSES OR NOT. IN THE EVENT OF THE MIXED FUNDS, IF AT THE TIME OF MAK ING ADVANCES THE ASSESSEE HAD BOTH THE BORROWED FUNDS AS WELLS AS TH E INTEREST-FREE FUNDS, THE AO WOULD VERIFY THE QUANTUM OF ADVANCES MADE BY THE ASSESSEE. IF THE AO FINDS THAT THE AMOUNT OF INTERE ST-FREE FUNDS WAS HIGHER THAN THE ADVANCES MADE, IN THAT EVENT, THE A O WOULD DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTERES T ON BORROWED FUNDS. THUS, GROUND NOS.1 TO 5 ARE ALLOWED FOR STAT ISTICAL PURPOSES. AS A RESULT, ASSESSEES APPEAL IN ITA NO.1101/AHD/2011 FOR AY 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 5. SIMILARLY, IN THE ASSTT.YEAR 2006-07, THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO. ON THE STRENGTH OF THIS ORDER, IT HAS BEEN CONTENDED BY THE ASSESSEE THAT SINCE ADDITIONS HAVE BEEN DELETED BY THE TRIBUNAL, AND THE ISSUE HAS BEEN SET ASIDE TO THE FILE OF THE AO FOR RE-ADJ UDICATION, PENALTY CANNOT SURVIVE. THE LD.DR, ON THE OTHER HAND, RELIED ON T HE ORDERS OF THE LD.CIT(A). 6. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTAN CES, WE FIND THAT S UB- CLAUSE (III) OF SECTION 271(1)(C) PROVIDES MECHANIS M FOR QUANTIFICATION OF PENALTY. IT CONTEMPLATES THAT THE ASSESSEE WOULD B E DIRECTED TO PAY A SUM IN ADDITION TO TAXES, IF ANY, PAYABLE HIM, WHIC H SHALL NOT BE LESS THAN , BUT WHICH SHALL NOT EXCEED THREE TIMES THE A MOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF CONCEALMENT OF INCOME AND FU RNISHING OF INACCURATE PARTICULARS OF INCOME. IN OTHER WORDS, THE QUANTIFICATION OF THE PENALTY IS DEPENDED UPON THE ADDITIONS MADE TO THE INCOME OF THE ASSESSEE. UPTO AND UNTIL, THE ISSUE REGARDING DETE RMINATION OF THE TAXABLE INCOME IS FINALIZED, PENALTY UNDER SECTION 271(1)(C) OF THE ACT CANNOT BE IMPOSED UPON THE ASSESSEE. THE DETERMINA TION OF TAXABLE INCOME OF THE ASSESSEE IS SUBJUDICED BEFORE THE LD. AO. AFTER ITA NO.2635 AND 2636/AHD/2013 4 ADJUDICATION THE ISSUE OF QUANTUM ON MERIT, IT WILL BE IN THE DISCRETION OF THE LD.AO TO INITIATE OR NOT TO INITIATE PENALTY PR OCEEDINGS ON THIS ISSUE AGAINST THE ASSESSEE. THE LD.AO WILL BE AT LIBERTY TO PROCEED IN ACCORDANCE WITH LAW. IN VIEW OF THE ABOVE, WE ALLOW BOTH APPEALS OF THE ASSESSEE AND DELETE PENALTY CONFIRMED BY THE LD.CIT (A). 7. IN THE RESULT, APPEALS OF THE ASSESSEE ARE ALLOW ED. ORDER PRONOUNCED IN THE COURT ON 9 TH NOVEMBER, 2016 AT AHMEDABAD. SD/- SD/- ( PRADIPKUMAR KEDIA ) ACCOUNTANT MEMBER (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 09/11/2016