The DCITAnand Circle, Anand V. Smt. Chandrikaben Nairanjanbhai Patel, Anand

ITA 323/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6294 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-06-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 02-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHRY
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Capital asset; Business income; Business expenditure; Earning of tax free income; Proportionate interest; Retrospective amendment; Difference of opinion
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI D.K. TYAGI, HONBLE JUDICIAL MEMBER AND SHRI A.N.PHAUJA, HONBLE ACCOUNTANT MEMBER ITA NO.323-324/AHD/2009 ASSESSMENT YEARS:1999-00 & 2000-01 DATE OF HEARING:30.6.11 DRAFTED:30.6.11 DEPUTY COMMISSIONER OF INCOME-TAX, ANAND CIRCLE, ANAND V/S. SMT. CHANDRIKABEN NIRANJANBHAI PATEL, 401, MILESTONE, OPP.ICY SPICY RESTAURANT, VALLABH VIDYANAGAR, DIST. ANAND, PAN NO.AENPP3438G (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI SUNIL H TALATI, AR REVENUE BY:- SHRI M.R. CHAUDHRY, DR O R D E R PER D.K. TYAGI, JUDICIAL MEMBER:- THESE TWO APPEALS FILED BY REVENUE AGAINST THE SEP ARATE ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-IV, BARODA DATED 17-11-2008 DELETING THE PENALTY OF RS.4,80,091/- AND RS.9,21,8 62/- RESPECTIVELY FOR THE ASSESSMENT YEARS 1999-00 & 2000-01. 2. SINCE BOTH THE APPEALS ARE AGAINST THE SAME ASSE SSEE AND THE FACTS BEING SIMILAR, FOR THE SAKE OF CONVENIENCE, T HESE ARE DISPOSED OFF BY A CONSOLIDATED ORDER BY TAKING THE FACTS OF ASSE SSMENT YEAR 2000-01. ITA NO.323-324/AHD/2009 A.Y.99-00 & 00-01 DCIT, ANAND CIRCLE V. SMT. CHANDRIKABEN N PATEL PAGE 2 3. IN THIS CASE, IN THE ASSESSMENT COMPLETED U/S.14 7 R.W.S 143(3) OF THE INCOME-TAX ACT, 1961 DISALLOWANCE OF INTEREST O F RS.32,94,758/- WAS MADE ON THE GROUND THAT IT WAS RELATABLE TO OTHER T HAN INCOME EARNING PURPOSE. AT THE TIME OF ASSESSMENT, THE ASSESSING O FFICER ASKED FOR EXPLANATION AS TO WHY THE PROPORTIONATE INTEREST PA ID TO THE BANK BE NOT DISALLOWED DUE TO DIVERSION OF INTEREST BEARING FUN DS TOWARDS INVESTMENT IN SHARES, INCOME FROM WHICH, BEING DIVIDEND WAS E XEMPT. THE ASSESSEES EXPLANATION WAS THAT INVESTMENT IN SHARE S WAS VERY OLD AND WAS MADE AT A TIME WHEN DIVIDEND INCOME WAS TAXABLE . THE AO OBSERVED THAT SUBSTANTIAL AMOUNT OF BANK ODS AND LO ANS WERE CARRIED OVER FROM YEAR-TO-YEAR AND THE STATEMENT OF DEPLOYM ENT OF FUNDS HELD BY THE ASSESSEE CLEARLY INDICATED THAT LOAN FUNDS ALON G WITH OTHER INTEREST FREE FUNDS INCLUDING CAPITAL HAD BEEN LOCKED UP IN SHARES AND INVESTMENT IN CAPITAL ASSETS, BEING LAND, BUILDINGS, ETC. EVEN PRIOR TO 31 ST MARCH, 1998. THUS, AS PER AO IT WAS ESTABLISHED THAT FUNDS OF ASSESSEE INCLUDING INTEREST BEARING FUNDS WERE LOCKED UP IN INVESTMENTS IN SHARES AS WELL AS OTHER CAPITAL ASSETS. THE FACT THAT DIVI DEND INCOME HAD SUBSEQUENTLY BECOME NON-TAXABLE DID NOT CHANGE THE IDENTITY OF FUNDS UTILIZED FOR EARNING NON-TAXABLE INCOME. THE AO ACC ORDINGLY WORKED OUT THE QUANTUM OF DIVERTED FUNDS AND THEN INTEREST ON THE SAME AT RS.32,94,758/- AND DISALLOWED THE SAME. LD. CIT(APP EALS) ESTIMATED DIVERTED FUNDS AT RS.2,05,72,783/- AS AGAINST THE C ORRESPONDING AMOUNT OF RS.2,35,33,990/- WORKED OUT BY THE AO AND RESTRI CTED THE DISALLOWANCE OF INTEREST AT RS.28,80,190/-. DURING THE PENALTY PROCEEDINGS, ASSESSEES SUBMISSION WAS THAT THE RET URN OF INCOME HAD BEEN CORRECTLY FILED ALONG WITH ALL THE PARTICULARS REQUIRED FOR FINALIZING THE ASSESSMENT. THE ASSESSEES FURTHER SUBMISSION WAS T HAT DISALLOWANCE OF INTEREST WAS A DISPUTED MATTER AND ALSO THAT DIS ALLOWANCE OF LEGITIMATE BUSINESS EXPENDITURE DID NOT AMOUNT TO CONCEALMENT WITHIN THE MEANING ITA NO.323-324/AHD/2009 A.Y.99-00 & 00-01 DCIT, ANAND CIRCLE V. SMT. CHANDRIKABEN N PATEL PAGE 3 OF SECTION 271(1) OF THE ACT. THE ASSESSEE SUBMITT ED THAT REDUCTION OF DISALLOWANCE BY LD. CIT(APPEALS) ITSELF PROVED THAT IT WAS A DISPUTED MATTER HAVING DIFFERENCE OF OPINION. THE ASSESSING OFFICER FOUND THE EXPLANATION OF THE ASSESSEE TO BE SAME AS THAT DURI NG THE ASSESSMENT PROCEEDINGS AND HELD THAT THE FACT REMAINED THAT IN TEREST BEARING FUNDS HAD BEEN DIVERTED FOR INVESTMENT IN SHARES AND IMMO VABLE PROPERTY, I.E. FOR NON-BUSINESS PURPOSES. THE AO HELD THAT BY CLAI MING INTEREST EXPENSES, ASSESSEE HAD REDUCED TAX INCIDENCE AND TH US FURNISHED INACCURATE PARTICULARS OF HER INCOME WHICH WAS PUNI SHABLE U/S.271(1) OF THE ACT. THE AO ALSO NOTED THAT THE EXPLANATION OF ASSESSEE WAS NOT BONA FIDE AND THE CASE CLEARLY FELL WITHIN EXPLANAT ION -1 TO SECTION 271(1)(C) OF THE ACT. THE AO THUS HELD DISALLOWANCE OF RS.28,80,190/- TO BE FURNISHING OF INACCURATE PARTICULARS OF INCOME. 4. BEFORE LD. CIT(APPEALS) IT WAS SUBMITTED BY ASSE SSEE THAT INCOME WAS SHOWN IN THE RETURN UNDER THE HEAD HOUSE PROPE RTY, BUSINESS INCOME INCLUDING CAR RENT INCOME, INTEREST INCOME, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. THE ASSESSEE WAS SHOWIN G INTEREST INCOME AS INCOME FROM OTHER SOURCES AND WAS CLAIMING INTER EST PAID AS ALLOWABLE U/S.57 OF THE ACT. THE AO OBSERVED THAT A SSESSEE HAD MADE INVESTMENT IN SHARES TO EARN DIVIDEND INCOME WHICH WAS EXEMPT AND PAID INTEREST TO BANK. ON THIS GROUND, THE CASE WAS REOPENED AND IN THE FINAL ASSESSMENT, INTEREST WAS DISALLOWED ON THIS G ROUND. THE ASSESSEE SUBMITTED THAT REOPENING ITSELF WAS BAD IN LAW AS C BDT VIDE ITS CIRCULAR DATED 23-07-2001 HAD ORDERED NOT TO REOPEN OLD ASSE SSMENTS WHICH HAD ATTAINED FINALITY, ON THE BASIS OF NEWLY INSERTED P ROVISIONS OF SECTION 14A. FURTHER, SUBMISSION OF THE ASSESSEE WAS THAT PENALT Y FOR CONCEALMENT WAS NOT JUSTIFIED AS THE DETAILS OF INTEREST PAID A ND ADVANCES WERE DULY DISCLOSED IN THE RETURN OF INCOME. ONLY BECAUSE ASS ESSEES EXPLANATION ITA NO.323-324/AHD/2009 A.Y.99-00 & 00-01 DCIT, ANAND CIRCLE V. SMT. CHANDRIKABEN N PATEL PAGE 4 WAS NOT ACCEPTED, DID NOT JUSTIFY LEVY OF PENALTY. ASSESSEE SUBMITTED THAT IN HER OPINION, THE EXPENDITURE CLAIMED WAS FO R BUSINESS ONLY AND SHE WAS CLAIMING THE SAME FROM EARLIER YEARS, WHEN IT WAS NEVER DISALLOWED. AS PER ASSESSEE, THE AO DISALLOWED THE INTEREST BY TAKING RECOURSE TO THE PRINCIPLES OF SECTION 14A, THOUGH T HIS SECTION WAS INSERTED BY THE FINANCE ACT, 2001 WITH RETROSPECTIV E EFFECT FROM 01-04- 1962. HENCE, AT THE TIME OF FILING OF RETURN, THERE WAS NO QUESTION OF ASSESSEE BEING AWARE THAT THE INTEREST WAS NOT TO B E ALLOWED. IT WAS THUS SUBMITTED THAT THERE WAS NO QUESTION OF ASSESS EE HAVING FILED INACCURATE PARTICULARS OF INCOME DELIBERATELY. THE ASSESSEE PLACED RELIANCE UPON FOLLOWING DECISIONS OF HONBLE SUPREM E COURT & HIGH COURTS IN SUPPORT OF CLAIM THAT PENALTY WAS NOT LEV IABLE IN HER CASE. CIT V. CALCUTTA TRADING CORP. 166 ITR 29 (CAL) KIKANAI GORDHANDAS & CO. V. CIT 200 ITR 678 (GUJ) NATIONAL TEXTILES V. CIT 249 ITR 125 (GUJ) CIT V. SMT. BIMLA DEVI SHARMA PATNA HIGH COURT CIT V. NEPANI BIRI CO. TRUST 190 ITR 402 (ALL) K.C. BUILDERS AND ANAR. V. ACIT 265 ITR 562 (SC) DILIP N SHROFF V. JCIT 291 ITR 519 (SC) 5. AFTER TAKING INTO CONSIDERATION OF THIS SUBMISSI ON OF THE ASSESSEE LD. CIT(APPEALS) DELETED THE PENALTY OF RS.9,21,862 /- LEVIED U/S.271(1) OF THE ACT BY THE ASSESSING OFFICER. 6. AGGRIEVED AGAINST THIS ORDER REVENUE CAME IN APP EAL BEFORE TRIBUNAL. 7. AT THE TIME OF HEARING LD. DR RELIED ON THE ORDE R OF ASSESSING OFFICER AND PLACED FURTHER RELIANCE ON THE CASE OF UNION OF INDIA AND ITA NO.323-324/AHD/2009 A.Y.99-00 & 00-01 DCIT, ANAND CIRCLE V. SMT. CHANDRIKABEN N PATEL PAGE 5 OTHERS V. DHARMENDRA TEXTILES PROCESSORS (2008) 306 ITR 277 (SC), WHEREIN IT WAS LAID DOWN THAT PENALTY U/S. 271(1)(C ) WAS CIVIL WRONG & MENS REA WAS NOT REQUIRED TO BE ESTABLISHED. 8. LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HAND, REITERATED THE SAME SUBMISSION AS MADE BEFORE LD. CIT(APPEALS) AND RELIED ON THE CASE LAWS ON WHICH RELIANCE WAS PLACED BEFORE LD. C IT(A). HE ALSO RELIED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF AIA EXPORTS PVT. LTD. V. ITO IN ITA NO.3271/AHD/2009 DATED 17-06-2011 FOR ASSESSMENT YEAR 2001-02. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THERE IS NO DISPUTE THAT RETURN WAS FILED BY THE A SSESSEE FOR THE YEARS UNDER APPEAL, AT A TIME, WHEN SECTION 14A WAS NOT O N THE STATUTE BOOK. THEREFORE THE EXPLANATION OF THE ASSESSEE THAT WHEN RETURN WAS FILED THERE WAS NO PROVISION IN THE ACT EXPRESSLY BARRING CLAIM OF EXPENSES RELATABLE TO EXEMPT INCOME, WAS A BONA FIDE EXPLANA TION. THEREFORE, THE ASSESSING OFFICER SHOULD NOT HAVE INVOKED THE EXPLA NATION-I BELOW SECTION 271(1)(C) OF THE ACT IN THIS CASE. LD. CIT( APPEALS) HAS RIGHTLY DELETED THE PENALTY IMPOSED BY THE ASSESSING OFFICE R BY SUCH INVOCATION. FOR THE SAKE OF BREVITY, THE RELEVANT P ORTION IS REPRODUCED AS UNDER:- 4. I HAVE CONSIDERED THE SUBMISSIONS. THE DISALLOW ANCE OF INTEREST WAS MADE ON THE GROUND THAT PART OF INTERE ST BEARING FUNDS WERE INVESTED IN SHARES AND OTHER ASSETS, INCOME FR OM WHICH WAS EITHER EXEMPT OR FROM WHICH THEE WAS NO INCOME. THE ASSESSING OFFICER WORKED OUT THE QUANTUM OF FUNDS SO DIVERTED AND COMPUTED INTEREST TO BE DISALLOWED. CIT(APPEALS) ARRIVED AT A DIFFERENT AND LOWER FIGURE OF FUNDS DIVERTED AND ACCORDINGLY, ALS O A LOWER FIGURE IN RESPECT OF INTEREST TO BE DISALLOWED. THE QUANTU M OF DIVERTED FUNDS SO DETERMINED BEING LOWER THAN THE TOTAL INVE STMENT IN SHARES; AS SUCH, THE ENTIRE DIVERSION OF INTEREST B EARING FUNDS CAN ITA NO.323-324/AHD/2009 A.Y.99-00 & 00-01 DCIT, ANAND CIRCLE V. SMT. CHANDRIKABEN N PATEL PAGE 6 BE SAID TO BE TOWARDS SHARES ONLY, INCOME FROM WHIC H, I.E. DIVIDEND, WAS EXEMPT. THE APPELLANT HAD FILED RETUR N OF INCOME FOR THE YEAR IN QUESTION, AT A TIME, WHEN SECTION 14A W AS NOT ON THE STATUTE BOOK. SECTION 14A WAS INTRODUCED BY THE FIN ANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 1.04.1962. CLAIM OF EXPENDITURE PERTAINING TO EXEMPT INCOME, WAS THUS A DEBATABLE I SSUE AT THE TIME OF FILING OF RETURN BY THE APPELLANT. APPELLAN TS SUBMISSION THAT THE RETURN FOR A.Y. 2000-01 WAS FILED AT THE TIME W HEN SECTION 14A WAS NOT ON THE STATUTE BOOK, HAS MERIT IN IT AND CA NNOT BE IGNORED. MOREOVER, THE AMOUNT OF INTEREST TO BE DISALLOWED W AS WORKED OUT THROUGH ESTIMATION BOTH BY THE ASSESSING OFFICER AN D CIT(A). WHERE DISALLOWANCE WAS MADE ON AN ESTIMATE BASIS AN D FULL PARTICULARS OF INCOME HAD BEEN DISCLOSED, IT CANNOT BE SAID THAT INACCURATE PARTICULARS OF INCOME HAD BEEN FURNISHED . ASSESSING OFFICER HAS ALSO INVOKED EXPLANATION-1 BELOW SECTIO N 271(1)(C) BY TERMING THE EXPLANATION FURNISHED BY THE APPELLANT TO BE NOT BONA FIDE. APPELLANTS EXPLANATION THAT THE RETURN OF IN COME HAD BEEN FILED, WHEN THERE WAS NO STATUTORY PROVISION, EXPRE SSLY BARRING CLAIM OF EXPENSES RELATABLE TO EXEMPT INCOME IS A B ONA FIDE EXPLANATION. IN VIEW OF ABOVE, PENALTY OF RS.9,21,8 62/- LEVIED U/S.271(1)(C) IS CANCELLED. 5. IN THE RESULT, THE APPEAL IS ALLOWED. IN VIEW OF THE ABOVE, THE ORDER PASSED BY LD. CIT(A PPEALS) ARE HEREBY UPHELD. THESE APPEALS OF REVENUE ARE DISMISSED. 10. IN THE RESULT, BOTH APPEAL OF REVENUE ARE DISMISSED . ORDER PRONOUNCED IN OPEN COURT ON 30/06/2011 SD/- SD/- (A.N.PHAUJA) (D.K. TYAG I) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 30/06/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. ITA NO.323-324/AHD/2009 A.Y.99-00 & 00-01 DCIT, ANAND CIRCLE V. SMT. CHANDRIKABEN N PATEL PAGE 7 2. THE RESPONDENT. 3. THE CIT(APPEALS)-IV, BARODA 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD