DCIT (2), MUMBAI V. MTZ POLYFILMS LTD, MUMBAI

ITA 2727/MUM/2012

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0863 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 13-06-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 23-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T A KHANDR
• Section: 43B

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.2727/MUM/2012 ASSESSMENT YEAR: 2005-06 DCIT-9(2), ROOM NO.218, 02 ND FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020 / VS. M/S MTZ POLYFILMS LTD. 5 TH FLOOR, NEW INDIA CENTRE, COOPERAGE ROAD, MUMBAI-400039 ( / REVENUE) ( !'# $ /ASSESSEE) PAN. NO.AAACT0193N % & $ ' / DATE OF HEARING : 15/01/2018 & $ ' / DATE OF ORDER: 15/01/2018 !'# $ ! / ASSESSEE BY NONE ! / REVENUE BY SHRI T.A. KHAN-DR ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 2 / O R D E R PER JOGINDER SINGH (JUDICIAL MEMBER) THE REVENUE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 16/02/2012 OF THE FIRST APPELLATE AUTHORITY, MUMBAI, DELETING THE PENALTY OF RS.26,88,042/-, IMP OSED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAF TER THE ACT). 2. DURING HEARING, NONE WAS PRESENT FOR THE ASSESSEE. ON EARLIER OCCASION, THE LD. DR WAS DIRE CTED TO EFFECT THE SERVICE UPON THE ASSESSEE. AS PER THE RE PORT FROM THE DEPARTMENT, IT WAS FOUND THAT THE ASSESSEE IS N OT RESIDING AT THE GIVEN ADDRESS, THEREFORE, THE SERVI CE COULD NOT BE EFFECTED. THE LD. DR CONTENDED THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL) DELETED THE PEN ALTY WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST U/S 36(1)(III) OF THE ACT EVE N THOUGH THE SAID EXPENDITURE PERTAINED TO CAPITAL WORK IN P ROGRESS AND THUS NOT ALLOWABLE AS PER PROVISO TO SECTION 36 (1)(III) FO THE ACT. 2.1. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. DR AND PERUSED THE MATERIAL AVAILABLE ON RECORD. SINCE , THE ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 3 ASSESSEE WAS NOT FOUND RESIDING AT THE GIVEN ADDRES S, THEREFORE, WE HAVE NO OPTION BUT TO PROCEED EX-PART E, QUA THE ASSESSEE AND TEND TO DISPOSE OF THIS APPEAL ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIE F, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF POLYSTER FILMS IN VARIOUS MICRON THICKNESS AND SIZES OF DIFFERENT GRADES WHICH ARE CHEMICALLY TREATED. THE ASSESSEE HAD AN APPLICATION UNDER BIFR AS THE ASSESSEE ACCUMULATED LOSSES WHICH ARE M ORE THAN THE FUNDS OF THE SHARE HOLDERS. THE LD. ASSESS ING OFFICER LEVIED PENALTY U/S 271(1)(C) OF THE ACT ON THE DISALLOWANCES CLAIMED U/S 36(1)(III) AND 43B OF THE ACT. THE STAND OF THE LD. ASSESSING OFFICER WAS THAT THE CAP ITAL ASSET AMOUNTING TO RS.34,56,00,000/- WAS NOT PUT TO USE A ND THE AMOUNT INVESTED THEREIN REPRESENTED BORROWED FU NDS ON WHICH INTEREST WAS PAID, THEREFORE, THE DISALLOW ANCE WAS WORKED OUT AT RS.1,85,13,497/- AS ATTRIBUTABLE TO I NTEREST TO WORK IN PROGRESS, WHICH WAS RESTRICTED TO RS.79, 29,330/- BY THE LD. FIRST APPELLATE AUTHORITY. LIKEWISE, THE INITIAL DISALLOWANCE OF RS.1,83,00,000/- WAS RESTRICTED TO RS.1,44,00,000/- BY THE LD. COMMISSIONER OF INCOME TAX ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 4 (APPEAL). THE ASSESSEE, TOOK THE STAND BEFORE THE L D. ASSESSING OFFICER THAT SINCE THE ASSESSEE COMPANY I S A BIFR COMPANY, THEREFORE, UNABLE TO PAY THE INTEREST TO THE BANKS. PLEA WAS ALSO RAISED BEFORE THE LD. COMMISSI ONER OF INCOME TAX (APPEAL) THAT THE LD. ASSESSING OFFICER DID NOT INITIATE THE PENALTY PROCEEDINGS DURING ASSESSMENT PROCEEDINGS WITH REFERENCE TO DISALLOWANCES. THERE IS A FINDING IN THE IMPUGNED ORDER THAT THE LD. ASSESSIN G OFFICER COULD NOT ESTABLISH THE NEXUS OF INTEREST O N BORROWED FUNDS AND IT UTILIZATION FOR ACQUISITION O F ASSETS AND AD-HOC DISALLOWANCE WAS MADE ON PROPORTIONATE B ASIS, WHICH WAS REDUCED TO 70% BY THE LD. COMMISSIONER OF INCOME TAX (APPEAL) WHICH FURTHER WEAKENED THE CASE OF THE DEPARTMENT. IT WAS ALSO FOUND THAT THE ASSESSE E WAS HAVING OWN FUNDS OF RS.16,792.35 LAKHS AND BORROWED FUNDS WERE RS.11940.48 LAKHS AND THERE WAS NO FINDI NG BY THE LD. ASSESSING OFFICER THAT BORROWED FUNDS WERE UTILIZED TO MEET THE EXPENSES FOR CAPITAL WORK IN PROGRESS A ND OWN FUNDS WERE NOT UTILIZED. CONSIDERING THE TOTALITY O F FACTS AS NARRATED/OBSERVED IN PARA-5 ONWARDS OF THE IMPUGNED ORDER WITH RESPECT TO SECTION 36(1)(III) AND 43B OF THE ACT, ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 5 WE ARE IN AGREEMENT WITH THE FINDING OF THE LD. COMMISSIONER OF INCOME TAX (APPEAL) THAT IS NOT THE CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICUL ARS OF INCOME. THE FINDING CONTAINED IN THE IMPUGNED ORDER WAS NOT CONTROVERTED BY THE REVENUE. 2.2. IT IS ALSO OUR BOUNDED DUTY TO ANALYZE THE PROVISION OF SECTION 271(1)(C) OF THE ACT, WHICH IS REPRODUCED HEREUNDER:- '271(1) IF THE ASSESSING OFFICER OR THE COMMISSIONE R (APPEALS) OR THE COMMISSIONER IN THE COURSE OF ANY PROCEEDINGS UNDER THIS ACT, IS SATISFIED THAT ANY P ERSON- (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME.' A GLANCE AT THIS PROVISION WOULD SUGGEST THAT IN ORDER TO BE COVERED UNDER THIS SECTION FIRSTLY, THE RE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE AND SECONDLY, THE ASSESSEE MUST HAVE FURNI SHED INACCURATE PARTICULARS OF HIS INCOME. PRESENT IS NO T THE CASE OF CONCEALMENT OF THE INCOME. THAT IS NOT THE CASE OF THE REVENUE EITHER. AS PER LAW LEXICON, THE MEANING OF THE WORD 'PARTICULAR' IS A DETAIL OR DETAILS (IN PLURAL SENSE); THE DETAILS OF A CLAIM, OR THE SEPARATE ITEMS OF AN ACC OUNT. ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 6 THEREFORE, THE WORD 'PARTICULARS' USED IN THE SECTI ON 271(1)(C) WOULD EMBRACE THE MEANING OF THE DETAILS OF THE CLAIM MADE. IT IS AN ADMITTED POSITION IN THE PRESE NT CASE THAT NO INFORMATION GIVEN IN THE RETURN WAS FOUND T O BE INCORRECT OR INACCURATE. IT IS NOT AS IF ANY STATEM ENT MADE OR ANY DETAIL SUPPLIED WAS FOUND TO BE FACTUALLY IN CORRECT. HENCE, AT LEAST, PRIMA FACIE, THE ASSESSEE CANNOT B E HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE WO RDS ARE PLAIN AND SIMPLE. IN ORDER TO EXPOSE THE ASSESSEE T O THE PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY ANY STR ETCH OF IMAGINATION, MAKING AN INCORRECT CLAIM IN LAW CANNO T TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. IN COMMISSIONER OF INCOME TAX, DELHI VS. ATUL MOHAN BI NDAL [2009(9) SCC 589], WHERE HON'BLE APEX COURT WAS CONSIDERING THE SAME PROVISION, THE COURT OBSERVED THAT THE ASSESSING OFFICER HAS TO BE SATISFIED THAT A PE RSON HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHE D INACCURATE PARTICULARS OF SUCH INCOME. HON'BLE COUR T REFERRED TO ANOTHER DECISION OF THIS COURT IN UNION OF INDIA VS. DHARAMENDRA TEXTILE PROCESSORS [2008(13) SCC 36 9], ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 7 AS ALSO, THE DECISION IN UNION OF INDIA VS.RAJASTHA N SPG. & WVG. MILLS [2009(13) SCC 448] AND REITERATED IN PAR A 13 THAT:- '13. IT GOES WITHOUT SAYING THAT FOR APPLICABILITY OF SECTION 271(1)(C), CONDITIONS STATED THEREIN MUST E XIST.' 2.3. THEREFORE, IT IS OBVIOUS THAT IT MUST BE SHOW N THAT THE CONDITIONS UNDER SECTION 271(1)(C) MUST EX IST BEFORE THE PENALTY IS IMPOSED. THERE CAN BE NO DISP UTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY TH E ASSESSEE BECAUSE THAT IS THE ONLY DOCUMENT, WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LI ABILITY WOULD ARISE. IN DILIP N. SHROFF VS. JOINT COMMISSIO NER OF INCOME TAX, MUMBAI & ANR. [2007(6) SCC 329], HON'BL E COURT EXPLAINED THE TERMS 'CONCEALMENT OF INCOME' A ND 'FURNISHING INACCURATE PARTICULARS'. THE COURT WENT ON TO HOLD THEREIN THAT IN ORDER TO ATTRACT THE PENALTY U NDER SECTION 271(1)(C), MENS REA WAS NECESSARY, AS ACCORDING TO THE COURT, THE WORD 'INACCURATE' SIGNIFIES A DELIBE RATE ACT OR OMISSION ON BEHALF OF THE ASSESSEE. IT WENT ON T O HOLD THAT CLAUSE (III) OF SECTION 271(1) PROVIDED FOR A ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 8 DISCRETIONARY JURISDICTION UPON THE ASSESSING AUTHO RITY, INASMUCH AS THE AMOUNT OF PENALTY COULD NOT BE LESS THAN THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF SUCH CONCEALMENT OF PARTICULARS OF INCOME, BUT IT MAY NO T EXCEED THREE TIMES THEREOF. IT WAS POINTED OUT THAT THE TERM 'INACCURATE PARTICULARS' WAS NOT DEFINED ANYWHERE I N THE ACT AND, THEREFORE, IT WAS HELD THAT FURNISHING OF AN ASSESSMENT OF THE VALUE OF THE PROPERTY MAY NOT BY ITSELF BE FURNISHING INACCURATE PARTICULARS. IT WAS FURTHER H ELD THAT THE ASSESSEE MUST BE FOUND TO HAVE FAILED TO PROVE THAT HIS EXPLANATION IS NOT ONLY BONA FIDE BUT ALL THE FACTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF HIS INCOME WERE NOT DISCLOSED BY HIM. IT WAS THEN HELD THAT TH E EXPLANATION MUST BE PRECEDED BY A FINDING AS TO HOW AND IN WHAT MANNER, THE ASSESSEE HAD FURNISHED THE PARTICULARS OF HIS INCOME. THE COURT ULTIMATELY WEN T ON TO HOLD THAT THE ELEMENT OF MENS REA WAS ESSENTIAL. IT WAS ONLY ON THE POINT OF MENS REA THAT THE JUDGMENT IN DILIP N. SHROFF VS. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. WAS UPSET. IN UNION OF INDIA VS. DHARAMENDRA T EXTILE PROCESSORS (CITED SUPRA), AFTER QUOTING FROM SECTIO N 271 ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 9 EXTENSIVELY AND ALSO CONSIDERING SECTION 271(1)(C), THE COURT CAME TO THE CONCLUSION THAT SINCE SECTION 271 (1)(C) INDICATED THE ELEMENT OF STRICT LIABILITY ON THE AS SESSEE FOR THE CONCEALMENT OR FOR GIVING INACCURATE PARTICULAR S WHILE FILING RETURN, THERE WAS NO NECESSITY OF MENS REA. THE COURT WENT ON TO HOLD THAT THE OBJECTIVE BEHIND ENA CTMENT OF SECTION 271(1)(C) READ WITH EXPLANATIONS INDICAT ED WITH THE SAID SECTION WAS FOR PROVIDING REMEDY FOR LOSS OF REVENUE AND SUCH A PENALTY WAS A CIVIL LIABILITY AN D, THEREFORE, WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS WAS THE CASE IN T HE MATTER OF PROSECUTION UNDER SECTION 276-C OF THE ACT. THE BAS IC REASON WHY DECISION IN DILIP N. SHROFF VS. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SU PRA) WAS OVERRULED BY HON'BLE APEX COURT IN UNION OF IND IA VS. DHARAMENDRA TEXTILE PROCESSORS (CITED SUPRA), WAS T HAT ACCORDING TO THE COURT THE EFFECT AND DIFFERENCE B ETWEEN SECTION 271(1)(C) AND SECTION 276-C OF THE ACT WAS LOST SIGHT OF IN CASE OF DILIP N. SHROFF VS. JOINT COMMI SSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SUPRA). HOWEVER, I T MUST BE POINTED OUT THAT IN UNION OF INDIA VS. DHARAMEND RA ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 10 TEXTILE PROCESSORS (CITED SUPRA), NO FAULT WAS FOUN D WITH THE REASONING IN THE DECISION IN DILIP N. SHROFF VS . JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SU PRA), WHERE THE COURT EXPLAINED THE MEANING OF THE TERMS 'CONCEAL' AND INACCURATE'. IT WAS ONLY THE ULTIMATE INFERENCE IN DILIP N. SHROFF VS. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CITED SUPRA) TO THE EFFE CT THAT MENS REA WAS AN ESSENTIAL INGREDIENT FOR THE PENALTY UNDER SECTION 271(1)(C) THAT THE DECISION IN DILIP N. SHR OFF VS. JOINT COMMISSIONER OF INCOME TAX, MUMBAI & ANR. (CI TED SUPRA) WAS OVERRULED. WE ARE NOT CONCERNED IN THE P RESENT CASE WITH THE MENS REA . HOWEVER, WE HAVE TO ONLY SEE AS TO WHETHER IN THIS CASE, AS A MATTER OF FACT, THE ASSE SSEE HAS GIVEN INACCURATE PARTICULARS. IN WEBSTER'S DICTIONA RY, THE WORD 'INACCURATE' HAS BEEN DEFINED AS:- 'NOT ACCURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS; AS AN INACCURATE STATEMENT, COPY OR TRAN SCRIPT'. WE HAVE ALREADY SEEN THE MEANING OF THE WORD 'PARTICULARS' IN THE EARLIER PART OF THIS ORDER. RE ADING THE WORDS IN CONJUNCTION, THEY MUST MEAN THE DETAILS SU PPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 11 NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO FINDING THA T ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IN THE LIGHT OF THE F OREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT T HE LD. COMMISSIONER OF INCOME TAX (APPEAL) WAS JUSTIFIED I N DELETING THE PENALTY. WE UPHELD THE SAME. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF THE LD. DR AT THE CONCLUSION OF THE HEA RING ON 15/01/2018. SD/- SD/- ( RAJESH KUMAR ) (JOGINDER SINGH) '!# / ACCOUNTANT MEMBER $!# /JUDICIAL MEMBER % MUMBAI; ( DATED : 15/01/2018 F{X~{T? P.S / /. . . %$&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. *+,- / THE APPELLANT (RESPECTIVE ASSESSEE) 2. ./,- / THE RESPONDENT. 3. 0 0 1$ ( *+ ) / THE CIT, MUMBAI. 4. 0 0 1$ / CIT(A)- , MUMBAI, 5. 34 .$ ! , 0 *+' *! 5 , % / DR, ITAT, MUMBAI ITA NO. 2727/MUM/2012 M/S MTZ POLYFILMS 12 6. 6' 7% / GUARD FILE. ! / BY ORDER, TRUE COPY /! (DY./ASSTT. REGISTRAR) , % / ITAT, MUMBAI