USHA ASHOKKUMAR SHAH L/H ASHOKKUMAR PUKHRAJ SHAH, MUMBAI V. DCIT 14(2), MUMBAI

ITA 2766/MUM/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2296 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2003-2004
• Appeal Filed On: 22-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B P PUROHIT
• Keywords: Business income; Business expenditure
• Section: 69C; 68

Judgement Text

1 I.T.A. NO.2940 /MUM/2011 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F, MUMBAI BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACOUNTANT MEMBER) I.T.A. NO. 2766/MUM/2014 (ASSESSMENT YEAR : 2003-04) SMT. USHA ASHOKKUMAR SHAH 502-B, DEEPAK JYOTI TOWER AMBEWADI, P.T. ROAD KALACHOWKI, MUMBAI-33 VS DY.CIT, 14(2), MUMBAI PAN : AANPS9784Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B.P. PUROHIT RESPONDENT BY SHRI RAJESH OJHA DATE OF HEARING : 20-07-2016 DATE OF PRONOUNCEMENT : 22-07-2016 O R D E R PER ASHWANI TANEJA, AM THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS) [HEREINAFTER C ALLED CIT(A)] DT 28- 03-2014 PASSED AGAINST THE PENALTY ORDER U/S 271(1) (C) OF THE AO DT 30- 03-2009 FOR A.Y. 2003-04 ON THE FOLLOWING GROUNDS: 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE APPELLATE AUTHORITY I.E. THE CIT (A) 25, MUMBAI, HA S ERRED IN 2 I.T.A. NO.2940 /MUM/2011 SUSTAINING PENALTY U/S 271(1)( C) WITHOUT APPRECIAT ING THAT NO SUCH PENALTY CAN BE SUSTAINED IN THE CASE OF THE APPELLA NT. THE SAID PENALTY MAY THEREFORE KINDLY BE DELETED. 2) YOUR APPELLANT CRAVES LEAVE TO ADD TO AMEND, DEL ETE ANY OF THE ABOVE GROUNDS AND / OR TO ADD ANY NEW GROUNDS THERE TO. 2. DURING THE COURSE OF HEARING, IT WAS STATED BY THE LD.COUNSEL OF THE ASSESSEE AT THE VERY OUTSET THAT IN THIS CASE, ORDE R HAS BEEN PASSED BY THE TRIBUNAL IN THE QUANTUM APPEAL DT 9-3-2016 IN ITA N O.535/MUM/2008 WHEREIN MOST OF THE ADDITIONS / DISALLOWANCES HAVE EITHER B EEN DELETED, REDUCED OR REMANDED BACK TO THE FILE OF THE AO AND, THEREFORE, AS ON DATE PENALTY LEVIED ON NONE OF THE ISSUES SHOULD SURVIVE AND BE DELETED . 3. PER CONTRA, THE LD.DR SUBMITTED THAT PENALTY WAS LE VIED WITH REGARD TO THE ESTIMATED GROSS PROFIT FOR THE REASON THAT THE ESTIMATION WAS DONE BY THE AO UNDER COMPULSION AS AO HAD NO OTHER CHOICE. FOR PENALTY ON OTHER ISSUES, HE RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 4. WE HAVE GONE THROUGH THE ORDER PASSED BY THE TRIBUN AL AS WELL AS THE ORDERS PASSED BY THE LOWER AUTHORITIES. IT IS NOTE D BY US THAT ALL THE ADDITIONS / DISALLOWANCES ON WHICH PENALTY WAS LEVIED HAVE EITH ER BEEN DELETED, REDUCED OR REMANDED BACK TO THE FILE OF THE AO. THE ISSUE WITH RESPECT TO LEVY OF PENALTY WITH RESPECT TO EACH ADDITION / DISALLOWANC E IS DISCUSSED HEREUNDER:- PENALTY ON ACCOUNT OF ADDITION BY ESTIMATINGH G.P. 5. IT IS NOTED THAT THE ASSESSEE HAD DISCLOSED GP @5.8 5%. THE AO IN THE ASSESSMENT ORDER ESTIMATED THE SAME AT 9% AND MADE ADDITION OF 3 I.T.A. NO.2940 /MUM/2011 RS.24,96,400/-. THE CIT(A) REDUCED THE SAME TO 8%; THE TRIBUNAL REDUCED THE SAME FURTHER TO 7%. IT HAS BEEN SUBMITTED BY THE L D. COUNSEL THAT DETAILED WORKING WAS SUBMITTED TO AO WHICH HAVE NOT BEEN PRO PERLY CONSIDERED BY HIM AND WHILE ESTIMATING THE GP, VALUATION OF OPENING S TOCK AND CLOSING STOCK HAVE NOT BEEN PROPERLY TAKEN INTO CONSIDERATION. IT WAS FURTHER SUBMITTED THAT DETAILED WORKING WAS SUBMITTED TO THE TRIBUNAL ALSO WHICH HAS NOT BEEN CONSIDERED BY THE TRIBUNAL, TOO. IT WAS FURTHER SU BMITTED THAT IN ANY CASE, THIS ADDITION WAS MADE PURELY ON ESTIMATE BASIS. 5.1 WE HAVE CONSIDERED THE ORDERS OF THE LOWER AUTHORI TIES AS WELL AS THE ORDER OF THE TRIBUNAL AND SUBMISSIONS MADE BY BOTH THE SIDES. IT IS NOTED THAT THIS ADDITION HAS BEEN MADE BY MAKING ESTIMATE AT A LL STAGES. THE AO HAD ESTIMATED GP AT 9% AS AGAINST GP OF 5.8% DISCLOSED BY THE ASSESSEE; THE LD.CIT(A) ADOPTED 8% WHEREAS THE TRIBUNAL HAS REDUC ED IT TO 7%. THE ASSESSEE IS AGGRIEVED WITH THE FACT THAT THE DETAILED WORKIN G SUBMITTED BY IT POINTING OUT FALLACIES IN THE ESTIMATION DONE AT VARIOUS STAGES HAS BEEN IGNORED . IT IS FURTHER NOTED BY US THAT IN ANY CASE, THE ADDITION HAS BEEN MADE ON ESTIMATE BASIS ONLY. CONCEALMENT OF INCOME HAS NOT BEEN PRO VED BY THE AO WHILE LEVYING PENALTY. WE DO NOT FIND ANY JUSTIFICATION TO LEVY PENALTY ON THE ADDITION WHICH HAS BEEN MADE ON ESTIMATE BASIS AND ALSO KEEP ING IN VIEW THE FACT THAT THERE IS NO UNIFORMITY EVEN ON THE ESTIMATION. THU S, PENALTY LEVIED ON THIS ADDITION IS DIRECTED TO BE DELETED. 6. DISALLOWANCE ON ACCOUNT OF LOW HOUSEHOLD WITHDRA WALS 6.1 IN THE ASSESSMENT ORDER, AN ADDITION WAS MADE U /S 69C FOR RS.82,097 ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWAL FOR PERSONAL EX PENSES. THIS ADDITION HAS BEEN REDUCED BY THE TRIBUNAL TO RS.40,000. IN THIS CASE ALSO, WE FIND THAT PURE 4 I.T.A. NO.2940 /MUM/2011 GUESS WORK HAS BEEN ADOPTED BY THE LOWER AUTHORITIE S IN MAKING THIS ADDITION. THUS, WE DO NOT FIND JUSTIFICATION FOR LEVY OF PENA LTY IN THIS CASE ALSO AND PENALTY LEVIED ON THE SAME IS DIRECTED TO BE DELETE D. 7. PENALTY ON DISALLOWANCVE ON ACCOUNT OF INTEREST 7.1 IN THIS CASE, DISALLOWANCE WAS MADE BY THE AO O N ACCOUNT OF INTEREST FOR RS.2,67,127 ON THE GROUND THAT ASSESSEE HAD USED BO RROWED FUNDS FOR GIVING LOAN TO M/S SHREEKAR POLYESTER PVT LTD AND THOUGH A SSESSEE HAD EARNED INTEREST INCOME FROM THE SAID PARTY, THE SAME WAS N OT ASSESSABLE AS BUSINESS INCOME. THE TRIBUNAL REDUCED THE SAME TO RS.133,50 0 WITH FOLLOWING REASONINGS: 7. THE NEXT ISSUE CONTESTED BY THE ASSESSEE RELATES TO THE DISALLOWANCE MADE OUT OF INTEREST EXPENDITURE TO TH E TUNE OF RS.2,67, 127/-. FROM THE PERUSAL OF THE BALANCE SHEET, THE A O NOTICED THAT THE ASSESSEE HAS INCREASED HIS BORROWINGS AND ALSO INCREASED HIS INVESTMENTS IN A SISTER CONCERN NAMED M/ S SHREEKAR POLYESTER PVT. LTD. THE ASSESSEE CONTENDED THAT THE WITHDRAWALS MADE FR OM HIS PERSONAL ACCOUNT WAS USED TO MAKE INVESTMENT IN THE ABOVE SAID CONCERN. THE AO CONSIDERED THE SUBMISSIONS OF THE A SSESSEE AND FINALLY CAME TO THE CONCLUSION THAT THE BORROWINGS TO THE EXTENT OF RS.33.52 LAKHS, REPRESENTING 14.8% OF THE BORROWED FUNDS HAV E BEEN USED FOR NON- BUSINESS PURPOSES. ACCORDINGLY, HE DISALLOWED PROPO RTIONATE AMOUNT OF INTEREST EXPENDITURE AMOUNTING TO RS.2,67 ,127/-. THE LD CIT(A) ALSO CONFIRMED THE SAME. 8. WE HEARD THE PARTIES ON THIS ISSUE. FROM THE SUBMIS SIONS MADE BY THE ASSESSEE BEFORE LD CIT(A), WE NOTICE THAT THE A SSESSEE COULD NOT ESTABLISH ONE TO ONE NEXUS BETWEEN THE OWN FUNDS AN D THE AMOUNT DIVERTED TO SISTER CONCERN, BUT GENERAL SUBM ISSIONS HAVE BEEN MADE. WHEN THE BORROWED FUNDS HAVE NOT BEEN USED FO R BUSINESS PURPOSES, THE RELEVANT INTEREST EXPENDITURE CANNOT BE ALLOWED U/S 36(1)(III) OF THE ACT. WE NOTICE FROM THE ASSESSMEN T ORDER, THE AO 5 I.T.A. NO.2940 /MUM/2011 HAS ALSO WORKED OUT THE INTEREST DISALLOWANCE ON ES TIMATED BASIS. HENCE, THE GENERAL SUBMISSIONS MADE BY THE ASSESSEE COULD NOT BE REJECTED ALTOGETHER. AT THE SAME TIME, WE ARE OF THE VIEW THAT IT CANNOT BE SAID THAT THE ASSESSEE HAS NOT DIVERTED B ORROWED FUNDS. FURTHER, THE INTEREST RATE HAS RANGED FROM 12% TO 1 4%, HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT A PART OF INTEREST EXPENDITURE SHOULD BE DISALLOWED. SINCE THE INTERES T HAS BEEN DISALLOWED BY THE AO ON ESTIMATED BASIS, WE ARE OF THE VIEW THE SAME APPEARS TO BE ON A HIGHER SIDE IN VIEW OF THE DISCUSSIONS MADE SUPRA. ACCORDINGLY WE DIRECT THE AO TO RESTRIC T DISALLOWANCE TO 50%, I.E., TO RS. 1,33,500/-. THE ORDER OF LD CIT(A) ON THIS ISSUE STANDS MODIFIED ACCORDINGLY. (A) THE TRIBUNAL HAS NOTED AT PARAGRAPH 8 THAT THE ASSE SSING OFFICER HAD WORKED OUT THE INTEREST DISALLOWANCE ON ESTIMA TE BASIS. THE TRIBUNAL ALSO MADE ESTIMATE TO RESTRICT THE DISALLO WANCE ON ADHOC BASIS TO 50% OF THE DISALLOWANCE MADE BY THE ASSESS ING OFFICER. THUS, THE DISALLOWANCE MADE IS PURELY ON ESTIMATE BASIS AND DOES NOT AMOUNT TO ANY TYPE OF CONCEALMENT OF INCOME. (B) THE ASSESSEE HAS EARNED INTEREST INCOME FROM M/S SH REEKAR POLYESTER PVT TD FOR RS7.02 LAKHS WHICH HAS BEEN SHOWN AS PAR T OF BUSINESS INCOME. THE INTEREST EXPENDITURE INCURRED ON FUNDS BORROWED HAD BEEN CLAIMED AS PART OF BUSINESS EXPENSES. THUS, A SSESSEE HAS CLAIMED SET OFF OF THE EXPENDITURE WITH INTEREST INCOME. T HOUGH THE ASSESSING OFFICER AT PARAGRAPH 11.7 OF THE ASSESSMENT ORDER D ISCUSSED THAT THE IMPUGNED INTEREST INCOME SHOULD BE ASSESSED AS INC OME FROM OTHER SOURCES U/S 57 OF THE ACT, WHILE MAKING FINAL COMP UTATION OF INCOME, AT THE CONCLUSION OF THE ASSESSMENT ORDER, THE AFOR ESAID INTEREST INCOME HAS BEEN TREATED AS PART OF BUSINESS INCOME ONLY. ONCE THE 6 I.T.A. NO.2940 /MUM/2011 INTEREST INCOME HAS BEEN TREATED AS PART OF BUSINES S INCOME, THE INTEREST EXPENSES IN FULL DESERVES TO BE ALLOWED AS PER LAW; AND (C) IT IS NOTED THAT IN ANY CASE, EVEN IF THE AOS ACTIO N OF TREATING THE AFORESAID INTEREST INCOME AS INCOME FROM OTHER SOU RCES, IS FINALLY UPHELD AS IT IS, THEN THAT FACT ITSELF CANNOT PROV E ANY CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. THE ASSESSEE MADE THE CLAIM WITH PROPER DISCLOSURE IN ITS P&L AC COUNT SUPPORTED WITH OTHER DETAILS AND DOCUMENTS. IN THE OPINION O F THE ASSESSING OFFICER, THE CLAIM ON ACCOUNT OF INTEREST EXPENDITU RE WAS NOT ALLOWABLE IN FULL. ON THE OTHER HAND, IN THE OPINION OF THE TRIBUNAL, THE DISALLOWANCE TO THE EXTENT OF 50% MADE BY THE ASSES SING OFFICER WAS NOT SUSTAINABLE AND THUS, ONLY HALF OF THE DISALLOW ANCE AS WAS MADE BY THE ASSESSING OFFICER, WAS FINALLY SUSTAINED BY THE TRIBUNAL. NONE OF THE AUTHORTITIES HAVE BRANDED THE CLAIM AS BOGUS. THUS, IT IS NOT A CASE OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICUL ARS OF INCOME AND THUS, PENALTY HAS BEEN WRONGLY LEVIED ON THIS DISAL LOWANCE AND, THEREFORE, THE SAME IS DIRECTED TO BE DELETED. 8. PENALTY ON ADDITION MADE U/S 68 OF RS.50,000 8.1 THIS ISSUE HAS BEEN SENT BACK TO THE FILE OF THE AS SESSING OFFICER AND, THEREFORE, AS ON DATE, PENALTY DOES NOT SURVIVE. T HUS, PENALTY ON THIS ADDITION IS DELETED. THE ASSESSING OFFICER IS FREE TO INITI ATE FRESH PENALTY PROCEEDINGS AFTER DECIDING THIS ISSUE AS PER LAW. 9. PENALTY ON DISALLOWANCE ON ACCOUNT OF INTEREST OF R S.27,551 HAS BEEN DELETED BY THE TRIBUNAL, AND THEREFORE, PE NALTY ON THIS ISSUE IS ALSO DIRECTED TO BE DELETED. 10. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. 7 I.T.A. NO.2940 /MUM/2011 ORDER PRONOUNCED IN THE COURT ON THIS 22 ND DAY OF JULY, 2016. SD/- SDF/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 22 ND JULY, 2016 PK/- COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE , F-BENCH (TRUE COPY) BY ORDER ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES