ITO, Ward-1(1)(4), Ahmedabad V. M/s. Diamond Textiles Mills Pvt. Ltd., Ahmedabad

ITA 277/AHD/2020

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9562 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 16-10-2023
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Principle of natural justice; Tax effect; Revenue expenditure; Capital expenditure; Set aside; Capital Gains
• Section: 147; 131; 263; 271(1)(c); 143(3); 195; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “C” BENCH Before: Shri Waseem Ahmed, Accountant Member And Shri T.R. Senthil Kumar, Judicial Member The ITO, Ward-1(1)(4), Ahmedabad (Appellant) Vs M/s. Diamond Textile Mills Pvt. Ltd., 210, Nikol Road, Opp. Thakkar Bapa Nagar, Ahmedabad PAN: AAACD3997L (Respondent) M/s. Diamond Textile Mills Pvt. Ltd., 210, Nikol Road, Opp. Thakkar Bapa Nagar, Ahmedabad PAN: AAACD3997L (Appellant) Vs The ITO, Ward-1(1)(4), Ahmedabad (Respondent) Assessee Represented: Shri A.K. Khandelwal, A.R. Revenue Represented: Shri Ashok Kumar Suthar, Sr.D.R. Date of hearing : 17-10-2023 Date of pronouncement : 13-12-2023 ITA No. 277/Ahd/2020 Assessment Year 2012-13 ITA No: 176/Ahd/2021 & ITA No: 149/Ahd/2020 Assessment Years: 2015-16 & 2016-17 I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 2 आदेश/ORDER PER : T.R. SENTHIL KUMAR, JUDICIAL MEMBER:- ITA No. 277/Ahd/2020 is appeal filed by the Revenue as against the appellate order dated 29.01.2020 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad arising out of the Penalty order passed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2012-13. 2. ITA No. 176/Ahd/2021 is appeal filed by the Assessee against the Appellate order dated 31.05.2021 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, (in short referred to as “NFAC”), arising out of the Penalty order passed under section 271(1)(c) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year 2015-16. 3. ITA No. 149/Ahd/2020 is appeal filed by the Assessee as against the appellate order dated 09.01.2020 passed by the Commissioner of Income Tax (Appeals)-1, Ahmedabad arising out of the assessment order passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) relating to the Assessment Year (A.Y) 2016-17. All these appeals are heard together and are disposed of by this common order. 4. Now first we will take in ITA No. 277/Ahd/2020 for A.Y. 2012-13 (Revenue Appeal). I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 3 5. The Registry has noted that there is a delay of 53 days in filing the above appeal. The appeal is filed on 27.05.2020. This period falls under COVID-Pandemic situation, thus following Hon’ble Supreme Court judgment dated 23.3.2020 in suo moto Writ Petition (Civil) No.3 of 2020, vide Hon’ble Supreme Court has extended time limit for filing appeals w.e.f. 15.3.2020. Thus, there is no delay in filing the above appeal and we take the appeal of the assessee for adjudication. 6. The brief facts of the case is that the assessee is Private Limited Company engaged mainly in the business processing of cloth and real estate business as ancillary business. For the Assessment Year 2012-13, the assessee filed its Return of Income declaring total income of Rs. 9,72,48,980/-. Regular assessment u/s. 143(3) was made on 27-03-2015 making various disallowances. 7. Aggrieved against the same, the assessee filed an appeal before Commissioner of Income Tax (Appeals) who partly allowed and partly confirmed the addition. 8. On further appeal by the assessee before the ITAT confirmed the partial process loss of Rs. 32,14,385/- and also confirmed the profit on sale of land/flats of Rs. 5,16,45,600/- considering the same as “business income” instead of capital gain as claimed by the assessee in its Return of Income. The Assessing Officer initiated penalty proceedings on the above disallowances which were confirmed by the Tribunal and levied a penalty of Rs. 1,77,99,323/- for furnishing inaccurate particulars of income by the assessee. I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 4 9. Aggrieved against the penalty order, the assessee filed an appeal before Ld. CIT(A). The Ld. CIT(A) deleted the entire penalty levied by the Assessing Officer observing as follows: “....I have examined the case laws relied for both the amounts which have been genesis for imposition of penalty u/s.271(1)(c) in this case. In my opinion, the appellant had given all the particulars regarding the claim in the return of income. It was a mere bonafide claim considered to be admissible. The assessing officer did not allow the claim fully. The disallowance made by the assessing officer does not make the case fit for imposition of penalty. Also, the head of income from one to another does not make a case for the penal provisions u/s. 271(1)(c). Hon'ble Delhi High Court in the case of CIT Vs. Electrolux Kelvenator Ltd. [2014] 44 taxmann.com 369 (Delhi) has held that "An issue of allowance of non- complete fee as revenue expenditure or capital expenditure was debatable, disallowance of assessee's claim would not be a ground to impose penalty under section 271(1)(c)." The appellant did not furnish any inaccurate particulars or misrepresented any fact in return of income. The claim was made by giving all the facts. Therefore, there is no furnishing of inaccurate particulars on the part of the appellant and in the circumstances the decision of Honorable Supreme Court in the case of Reliance Petro products Pvt. Ltd reported in 322 ITR 158 is clearly applicable. According to the decision, where there is no finding that any details were supplied by the appellant in its return of income found to be incorrect or erroneous or false there was no question of invoking the penalty under section 271(1)(c) Mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding the income of the appellant. Reliance is placed on the order in the case of Hindustan Steel Ltd. vs. State of Orissa 83 (TR 26 (SC). Wherein it is held that penalty will not be imposed merely because it is lawful to do so. Whether should be imposed for failure to perform a statutory obligation is matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. In one of the cases the jurisdictional ITAT has given detailed reasoning to confirm the deletion of penalty u/s 271(1)(c), i.e. in the case of Nin Finance & Credit Capital Pvt. vs. ACIT, Cir.3, Baroda on 28 Sept., 2012, ITAT, Ahmedabad observed as under:- We have heard both sides. We have perused the orders of the authorities below. As far as the question of levy of penalty in respect of an addition pertaining to the "share application money is concerned, we have been informed that the assessee has floated the shares in magfassil areas to promote the agency of the tractor, hence "share application money from the agriculturist have been invited. In para 7.5, the Respected Co-ordinate Bench in the order cited supra dated 28.2.2012 has made an observation that the AO in his remand report had stated that certain details were furnished by the assessee although after the completion of the assessment I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 5 proceedings. But it has also been noted in para 7.6 that during the course of hearing before the Bench, the assessee has furnished the confirmation letters from those persons and on that basis it was noted that majority of them were found to be agriculturist. The assessee has placed reliance on Lovely Exports Pvt. Ltd. 216 CTR 195 (SC). It has also been observed that the agriculturist have produced ration-cards and election identity-cards but have not produced the details of the land holding and the agriculture operation carried on by them. At one place while concluding the issue, Respected Tribunal has held that considering the preponderance of probability and evidence available on record, it was clear that whole set of transaction was not an allowable claim. We are of the view that the said observation of the Tribunal had revolved around the preponderance of probability and, therefore, merely on that basis the confirmation of levy of penalty was not justifiable. The first appellate authority has examined the relevant aspect of the case and thereupon decided this issue in assessee's favour. Before us, a decision of ITAT Calcutta Bench, viz. Eagle International Lid. 57 ITD 512 (Cal.) has been cited, wherein the provisions of section 271(1)(0 r.w.Explanation-1(B) has been discussed and then it was held that the addition was being made w/s.68 in respect of share money was not sufficient for levy of penalty because the AO has not taken any step to issue summons u/s. 131 or to obtain due information /s. 133(6) of IT Act but levied the penalty without having regard to the bona fide of the assessee. The Tribunal has therefore held that the penalty was not sustainable. Few more decisions have also been cited from the side of the assessee, however keeping brevity in mind, we do not consider it necessary to discuss them elaborately. However, we may like to add that if assessee gives an explanation which is although unproved but simultaneously not disproved, however, circumstances also do not lead to a positive inference that the explanation of the assessee was false, then the Explanation annexed to section 271(1)(c) do not help the Department to levy the penalty, because no material is brought on record to demonstrate that the explanation offered was bogus or false although not accepted. Therefore, because of this reason the penalty proceeding can be said to be distinguishable from the quantion proceedings. By placing reliance on National Textiles 249 ITR 125 (Guj.), wherein it was held that in order to justify the levy of penalty there must be same circumstances leading to a reasonable conclusion that the amount does represent assessee's concealed income and that it is not enough that the amount has been assessed as income and further that the circumstances must show that there was animus concealment coupled with furnishing of inaccurate particulars on the part of the assessee, therefore we hereby hold that the ld.CIT(A) has rightly deleted the penalty. It is mentioned that Hon'ble Gujarat High Court has held in the case of CIT VS. Whiteford India Ltd. 38 Taxmann. Com 15 (Guj.) that "it was incumbent upon the AO to come to a positive finding as to whether there was concealment of income by the assessee or whether any inaccurate particulars of such income had been furnished by the assessee. If no such clear-cut finding was reached by the AO, the order of penalty passed by the AO was liable to be struck down". The ratio of cases (supra) does indicate a case for the appellant. The appellant also relied on relevant case laws supporting the claim in I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 6 question. The assessing officer has not brought on record any independent evidences collected through enquiry during assessment proceedings. The claim of appellant was already existing on the day return of income filed with the department. AO has not proved it to be non-genuine transaction whereas appellant's own undisclosed money has been brought in the books of account through a designed mischief. I am convinced as to not confirm the penalty u/s.271(1)(c) on an amount which was claimed as LONG TERM CAPITAL GAIN but finally held to be as business income as it was a clear cut case wherein two opinions were quite possible. Considering the above facts and circumstances and relying on the ratio laid down by jurisdictional ITAT and Hon'ble Gujarat High Court, the penalty of Rs. 1,77,99,323/- imposed by the assessing officer u/s.271(1)(c) of IT Act, 1961 is hereby deleted on merits and the concerned issue raised in the grounds of appeal is allowed.” 10. Aggrieved against the appellate order, the Revenue is in appeal before us raising the following Grounds of Appeal: (1) The Ld. CIT(A) has on law and facts erred in deleting the penalty levied u/s. 271(1)(c) of the Act of Rs. 1,77,99,323/-. (2) It is, therefore prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer be restored. 11. Ld. Sr. D.R. Shri Ashok Kumar Suthar appearing for the Revenue supported the order passed by the Assessing Officer had submitted to confirm the levy of penalty. 12. Per contra, the Ld. A.R. Shri A.K. Khandelwal appearing for the assessee submitted before us, no penalty u/s. 271(1)(c) can be levied in respect of disallowance of legitimate and genuine claim for which full disclosure have been made by the assessee in the Return of Income with supportive documents. Hence, there is no mens rea or deliberate attempt to conceal the particulars of income, wherein penalty u/s. 271(1)(c) of the Act cannot be levied and relied upon various case laws. Ld. Counsel further submitted that for imposition of penalty, it is necessary to bring on records some material or evidence or circumstances leading to reasonable I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 7 conclusion that the amount of addition under consideration represent the income of the assessee. It is also necessary that there is conscious concealment or Act of furnishing inaccurate particulars of income on the part of the assessee, which is totally absent in the present case. The Assessing Officer has not proved the explanation offered by the assessee is false and thereby levy of penalty is not justifiable and relied on the following case laws: (i) T Ashok Pai v CIT (210 CTR 259 (SC)) (ii) Dilip N Shroff v JCIT (291 ITR 519 (SC)) (iii) Hindustan Steel Ltd. v State of Orissa (83 ITR 26 (SC)) (iv) K.C. Builders & Arn v ACIT (265 ITR 562 (SC)) (v) Reliance Petroproducts Pvt. Ltd. (332 ITR 158 (SC)) 13. We have given our thoughtful consideration and perused the materials available on record including the submissions and Paper Book filed by the assessee. Regarding the first issue of penalty namely process loss of Rs. 32,14,385/- the above disallowance is based on estimate basis. In assessee’s own case for the Assessment Year 2013-14 Co-ordinate Bench of this Tribunal in ITA No. 1189/Ahd/2019 vide order dated 17.09.2021 deleted the penalty levied in respect of process loss charges by observing as follows: “....5. Heard both the sides and perused the material on record. The Assessing Officer has levied penalty of Rs. 1,38,687/- u/s. 271(1)(c) of the act for furnishing of inaccurate particulars of income in respect of process loss of Rs. 4,48,825/-. Without reiterating the facts as referred above in this order, the assessee has submitted that wastage was borne by the assessee in case of export sale and in case of local sale it was borne by the parties. In the assessment made u/s. 143(3), the Assessing Officer has made disallowance of processed loss to the amount of Rs. 45,17,186/-. However, the ld. CIT(A) after reducing the sale made from wastage product i.e. chindri, fandrages for Rs. 40,68,361/- restricted the disallowance to the extent of Rs. 4,48,825/-. The Assessing Officer has mainly levied penalty u/s. 271(1)(c) of the act on the basis of unexplained process loss claimed by the assessee of Rs. 4,48,825/-. We have gone through the judicial pronouncement referred by the ld. counsel in the case of CIT, Ahd Vs. Reliance Petro Products P. Ltd. (2010) 189 taxman 322 (SC) supra wherein it is held that mere making of the claim which is not sustainable in law by itself will not amount to furnishing of inaccurate particulars regarding the income of the assessee. Such claim in the return of income cannot amount I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 8 to inaccurate particulars of income. In the light of the above facts and findings, we consider that only on the basis of not accepting the claim made by the assessee, the levy of penalty u/s. 271(1)(c) is not appropriate. Accordingly, the Assessing Officer is directed to delete the penalty. Therefore, this ground of appeal of the assessee is allowed.” 13.1. Respectfully following the same, penalty levied on account of process loss is hereby deleted. 13.2. Regarding the second issue pertaining to treatment of profit on sale of land/flats as “business income” instead of “capital gains” as claimed by the assessee. Because of change of head of income, no penalty u/s. 271(1)(c) of the Act can be levied, the claim made by the assessee with necessary evidences, thus the assessee has not furnished inaccurate particulars of income. There is no finding by the Assessing Officer that the details furnished by the assessee in the Return of Income found to be incorrect or erroneous or false, whereby invoking penalty u/s. 271(1)(c) of the Act. Mere making of a claim, which is not sustainable in law by itself will not amount to furnishing inaccurate particulars of income by the assessee. Therefore following the Hon’ble Supreme Court judgment in the case of Reliance Petroproducts Pvt. Ltd., the levy of penalty on this issue is liable to be deleted. Thus we do not find any merits in the grounds raised by the Revenue. 14. In the result, the appeal filed by the Revenue is hereby dismissed. ITA No. 176/Ahd/2021 for A.Y. 2015-16 (Assessee Appeal) 15. The Grounds of Appeal raised by the Assessee reads as under: (1) In law, on facts and in circumstances of the case, the impugned assessment order passed u/s. 143(3) by the Ld. Income Tax Officer, Ward- I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 9 1(1)(4), Ahmedabad is against natural justice, bad in law & deserves to be cancelled. (2) On facts, in law and in circumstances of the case, the Ld. CIT(A)-1, National Faceless Appeal Centre, Delhi has grossly erred in confirming the penalty of Rs. 1,42,868/- levied under section 271(1)(c) of the I.T. Act. He may be directed to delete the same. 16. The only issue in this case is the disallowance by process loss of Rs. 4,62,359/- against which Penalty u/s. 271(1)(c) of Rs. 1,42,868/- levied by the Assessing Officer on the ground that inaccurate particulars furnished by the assessee. 17. This issue is now covered in favour of the assessee by Co- ordinate Bench of this Tribunal in ITA No. 1189/Ahd/2019 vide order dated 17.09.2021 which was considered in Para 13 & 13.1 of this order. Respectfully following the same, the levy of penalty of Rs. 1,42,868/- is hereby deleted. 18. In the result, the appeal filed by the Assessee is allowed. ITA No. 149/Ahd/2020 for A.Y. 2016-17 (Assessee Appeal) 19. The brief facts of the case is that during the assessment proceedings, the Assessing Officer observed that the assessee company had paid interest of Rs. 3,14,91,715/- on Unsecured loans and advances taken from Directors and relatives which is hit by Section 40A(2)(b) of the Act. The assessee company had paid interest @ 18% to two persons namely Mr. Nareendrabhai M. Patel - Chairman of the assessee company and Mr. Rajendra R. Patel - Director of the assessee company and for others paid interest @ 12% on the Unsecured loans. The assessee explained the Chairman I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 10 and Director of the company provided personal guarantee to various banks for the loans borrowed by the assessee company, for which they did not charge any guarantee commission. Further the loans borrowed from them are also not secured against any assets of the company, therefore both the persons bear the risk for the amounts lended to the assessee company. Therefore they have been paid higher interest of 18% which is a normal business practice, which has been adopted in the previous year as well as in subsequent assessment years also. The Assessing Officer not accepted the above explanation and made addition of Rs. 75,00,138/- being excess interest paid to the above two parties and disallowed u/s. 40A(2)(b) of the Act. 20. On appeal before Commissioner of Income Tax (Appeals), he confirmed the above additions. 21. Aggrieved against the appellate order, the Assessee is in appeal before us raising the following Grounds of Appeal: (1) In law, on facts and in circumstances of the case, the impugned assessment order passed u/s. 143(3) by the Ld. Income Tax Officer, Ward- 1(1)(4), Ahmedabad is against natural justice, bad in law & deserves to be cancelled. (2) On facts, in law and in circumstances of the case, the Ld. CIT(A)-1, Ahmedabad, has grossly erred in forming the addition of Rs. 75,00,138/- on account of disallowance of interest u/s. 40A(2)(b) of the Act. The Ld. A.O. may be directed to delete such addition. (Tax effect is Rs. 23,40,043/). 22. Ld. Counsel for the assessee submitted before us a copy of the assessment order dated 19.03.2022 passed in assessee’s own case for the Assessment Year 2017-18 wherein no disallowance is made u/s. 40A(2)(b) of the Act. The Ld. Counsel also produced before us I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 11 copy of the ledger accounts of the above two parties wherein interest have been paid @ 18% as like that of the earlier years. Thus he submitted taking into account the personal guarantee given by the above two persons to the assessee company, there is no disallowance required to be made u/s. 40A(2)(b) of the Act. 23. Ld. Sr. D.R. Shri Ashok Kumar Suthar appearing for the Revenue could not contravent the above submission of the assessee and also could not place on record, whether the assessment order passed for the Assessment Year 2017-18 under section 147 r.w.s. 144B of the Act was revised under section 263 of the Act. However the Ld. Sr. D.R. pleaded to sustain the addition made by the Assessing Officer. 24. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the assessee. It is seen that such disallowance u/s. 40A(2)(b) of Rs. 53,86,915/- made by the Assessing Officer for the Assessment Year 2015-16. On appeal before Ld. CIT(A), the same was deleted by Ld. CIT(A) by holding that no loss of Revenue is caused by payment of interest @ 15% p.a. on loans and advances paid to the Chairman and Director of the company. Since the above specified persons are also falls into the higher bracket of taxation. The assessee also produced before us copy of the Returns filed by the Chairman and Director of the company disclosing the above interest paid @ 18% in their respective Returns of Income and paid taxes. Considering the fact, the above two parties were stood for the personal guarantee of the loans availed by the assessee company which is a I.T.A Nos. 277/Ahd/2020 and Ors. A.Ys. 2012-13, 2015-16 & 2016-17 Page No ITO Vs. M/s. Diamond Textiles Mills Pvt. Ltd. 12 business exigency. It is further seen that for the present Assessment Year 2015-16 the assessee claimed set off of brought forward losses of Rs. 13.75 crores and claiming Nil assessed income. Whereas the two other persons offered the interest income in their respective hands. Therefore there is Revenue neutrality and question of disallowance does not required. For the above reasons, the addition made by the Assessing Officer is hereby deleted. 25. In the result, the appeal filed by the Assessee is hereby allowed. Order pronounced in the open court on 13-12-2023 Sd/- Sd/- (WASEEM AHMED) (T.R. SENTHIL KUMAR) ACCOUNTANT MEMBER True Copy JUDICIAL MEMBER Ahmedabad : Dated 13/12/2023 आदेश कȧ ĤǓतͧलͪप अĒेͪषत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से, उप/सहायक पंजीकार आयकर अपीलȣय अͬधकरण, अहमदाबाद