AIA Exports Pvt.Ltd, Ahmedabad V. The Income tax Officer,Ward-1(1), Ahmedabad

ITA 3271/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6420 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 08-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: SUNIL H TALATI
• Keywords: Difference of opinion
• Section: 271(1)(c); 14A; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER DATE OF HEARING : 19/5/2011 DRAFTED ON:15/06/ 2011 ITA NO.3271/AHD/2009 ASSESSMENT YEAR : 2001-02 AIA EXPORTS PVT.LTD. ( NOW MERGED WITH M/S.AIA ENGINEERING LTD. ) 115, G.V.M.M. ESTATE ODHAV ROAD AHMEDABAD VS. THE INCOME TAX OFFICER WARD-1(1) AHMEDABAD PAN/GIR NO. : AABCM 0676 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SUNIL H. TALATI, A.R. RESPONDENT BY: SHRI O.P. BATHEJA, SR.D.R. O R D E R PER SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-V, AHMEDABAD DATED 28/12/2006 PASSED FOR ASSESSMENT YEAR 2001-02. 2. THE SUBSTANTIVE ISSUE IS CONFIRMATION OF PENALTY LEVIED U/S.271(1)(C) OF THE I.T.ACT OF RS.11,00,922/-. FO R THE SAKE OF COMPLETENESS, GROUNDS ARE REPRODUCED BELOW:- 1. THE LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING T HE PENALTY OF RS.11,00,922/- U/S.271(1)(C) OF THE I.T.ACT. IT IS SUBMITTED THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE IS N EITHER CONCEALMENT ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 2 - OF FURNISHING OF INACCURATE PARTICULARS OF INCOME A ND THE PENALTY LEVIED OF RS.11,00,922/- BE DELETED. 2. THE LEARNED CIT(APPEALS) HAS ERRED IN LEVYING A P ENALTY OF RS.11,00,922/- U/S.271(1)(C) HOLDING THAT THE CLAIM OF INTEREST MADE WAS NOT BONAFIDE. THE APPELLANT UNDER REASONABLE C AUSE TO PROVE THAT THE BORROWED FUNDS WERE UTILIZED FOR INVESTMEN T. THERE IS A BUNCH AND BUNDLE OF FINANCE FROM WHICH VARIOUS INVE STMENTS HAVE BEEN MADE. THEREFORE, AS ADVISED BY CHARTERED ACCO UNTANTS, THE APPELLANT CLAIMED THE DEDUCTION OF INTEREST UNDER B ONAFIDE BELIEF AND HONESTLY IN NORMAL COURSE OF COMPUTING THE INCO ME. THIS IS NOT A CASE OF MENS REA OF DOING ANY WRONG OR A CONTUMAC IOUS CONDUCT. THEREFORE, THE VERY BASIS OF LEVYING THE PENALTY IS NOT JUSTIFIED AND THE SAME BE DELETED. 3. THE ORDER PASSED BY THE LEARNED C.I.T. (APPEALS) IS BAD IN LAW AND CONTRARY TO THE PROVISIONS OF LAW AND FACTS. IT IS SUBMITTED THAT THE SAME BE HELD SO NOW. 2.1. FACTS IN BRIEF AS EMERGED FROM THE CORRESPOND ING PENALTY ORDER PASSED U/S.271(1)(C) OF THE I.T. ACT, 1961 DATED 23 /03/2006 AND ASSESSMENT ORDER PASSED U/S.143(3)(I) OF THE I.T.AC T DATED 30/01/2004 FOR ASSESSMENT YEAR 2001-02 AND THE ISSUE INVOLVED AS PER THE GROUNDS REPRODUCED HEREINABOVE ARE THAT THE DISALLOWANCE OF INTEREST OF RS.27,83,624/- WAS MADE BY THE ASSESSING OFFICER. THOUGH A RETURN OF LOSS OF RS.27,04,378/- WAS FILED BUT DUE TO THE SAI D ADDITION THE NET INCOME WAS ASSESSED AT RS.79,246/-. THE ASSESSEE I S IN THE BUSINESS OF MANUFACTURING AND THEREUPON EXPORT OF ALLOY STEEL C ASTING. THE SAID LOSS WAS MAINLY ON ACCOUNT OF DEBITING OF INTEREST IN PROFIT & LOSS ACCOUNT AND, IN THIS REGARD, THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE INTEREST-BEARING BORROWED FUNDS WERE UTILI ZED AS AN INVESTMENT TOWARDS ACQUISITION OF SHARES OF M/S.PARAMOUNT CENT RISPUN CASTINGS LTD. STATED TO BE A GROUP COMPANY. THE ALLEGATION OF TH E ASSESSING OFFICER WAS THAT THE ENTIRE CLAIM OF INTEREST OF RS.27,83,6 24/- PAID ON BORROWED ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 3 - FUNDS WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPO SE OF BUSINESS. IT HAS ALSO BEEN HELD BY THE ASSESSING OFFICER THAT SINCE THE BORROWED FUNDS HAVE BEEN UTILIZED TOWARDS ACQUISITION OF SHARES, T HEREFORE THE INCOME GENERATED OUT OF THE SAID INVESTMENT, I.E. DIVIDEND INCOME BEING EXEMPT UNDER I.T. ACT, THEREFORE THE RELATED EXPENDITURE O F INTEREST WAS NOT TO BE ALLOWED IN TERMS OF THE PROVISIONS OF SECTION 14A O F THE I.T.ACT. THE SAID ADDITION WAS CONTESTED IN QUANTUM APPEAL BEFOR E LEARNED CIT(APPEALS) WHO HAS AFFIRMED THE ACTION OF THE ASS ESSING OFFICER AND HELD THAT THE BORROWINGS WERE NOT FOR THE PURPOSE O F EARNING INCOME, THEREFORE INTEREST THEREON WAS NOT ADMISSIBLE IN TE RMS OF SECTION 57(III) OF THE I.T.ACT. THE LEARNED CIT(APPEALS) HAS ALSO AFF IRMED THE OTHER REASON OF DISALLOWANCE OF INTEREST WHICH WAS MADE B Y INVOKING THE PROVISIONS OF SECTION 14A OF THE I.T.ACT. THE LEAR NED AUTHORISED REPRESENTATIVE HAS STATED THAT THE SAID ORDER OF LE ARNED CIT(APPEALS) WAS NOT FURTHER CHALLENGED. 3. WITH THIS BRIEF FACTUAL BACKGROUND, WE HAVE HEAR D BOTH THE SIDES. WE HAVE PERUSED THE RELEVANT ORDERS OF THE AUTHORIT IES BELOW. IN THIS CONTEXT, THE LEARNED AUTHORISED REPRESENTATIVE MR. SUNIL H.TALATI HAS VEHEMENTLY ARGUED THAT THIS WAS NOT THE FIRST YEAR OF THE CLAIM BUT IN THE PAST FOR ASSESSMENT YEAR 1997-98 THE CLAIM WAS MADE WHICH WAS DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 14 A OF THE I.T.ACT BY THE ASSESSING OFFICER VIDE AN ORDER PASSED U/S.143( 3) R.W.S. 250 DATED 22.9.2003. HOWEVER, WHEN THE SAME WAS CONTESTED BE FORE THE FIRST APPELLATE AUTHORITY, THE LEARNED CIT(APPEALS) VIDE APPEAL NO.CIT(A)- VIII/ITO/4(4)/211/03-04, ORDER DATED 18/06/2004 (A. Y. 1997-98), HAS PARTLY DELETED THE ADDITION; RELEVANT PORTION EXTRA CTED BELOW:- ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 4 - 3.3. THE CONTENTIONS RAISED HAVE BEEN CONSIDERED. AS POINTED OUT ABOVE, IN THE EARLIER APPELLATE ORDER, THE CIT(A) H AD HELD THAT THE INTEREST WAS REQUIRED TO BE DISALLOWED TO THE EXTEN T OF INTEREST ON BORROWED FUNDS WHICH WERE UTILIZED IN BUYING OF THE SHARES. THE CIT(A) HAD DIRECTED THE A.O. TO QUANTIFY THE INTEREST ON THE FUNDS USED FOR INVESTMENT AND DISALLOW THE INTEREST TO THAT EXTENT U/S.14A. IN THE PRESENT APPEAL BEFORE ME, I AM ONLY CONCERNED WITH THE FACT AS TO WHETHER THE DIRECTION GIVEN BY THE CIT(A) HAS BEEN CARRIED OUT CORRECTLY OR NOT. THEREFORE, THERE IS NO QUESTION OF DELETING THE DISALLOWANCE AND AS DIRECTED BY THE CIT(A), THE A.O . WAS ONLY REQUIRED TO RECOMPUTED THE DISALLOWANCE BY ASCERTAINING THE BORROWED FUNDS WHICH HAVE BEEN UTILIZED IN BUYING OF SHARES. THE A.O. WAS THEREFORE NOT JUSTIFIED IN COMPUTING THE DISALLOWANCE IN AN A DHOC MANNER BY ADOPTING THE AVERAGE RATE OF INTEREST OF 20 PER CEN T PER ANNUM ON THE TOTAL INVESTMENT OF RS.2,40,27,496.00. THE A.O. WA S IN FACT REQUIRED TO TAKE THE FOLLOWING STEPS IN ORDER TO COMPLY WITH TH E DIRECTIONS OF CIT(A). (I) TO ASCERTAIN THE AMOUNT OF BORROWED FUNDS UTILIZED IN PURCHASE OF SHARES. (II) TO FIND OUT THE DATE OF INVESTMENT IN SHARES FROM T HE SAID BORROWINGS. (III) TO ASCERTAIN THE RATE OF INTEREST WHICH HAS BEEN PA ID BY THE APPELLANT COMPANY ON SUCH BORROWINGS. . . 3.5. THE ABOVE DETAILS ARE VERIFIABLE FROM THE LEDG ER ACCOUNTS, COPIES OF WHICH HAVE BEEN PLACED ON RECORD BY THE LEARNED COUNSEL. THE RATE OF INTEREST PAID ON THE OVERDRAFT ACCOUNT OF THE BA NK IS 17.75 PER CENT WHICH IS VERIFIABLE FROM THE CORRESPONDENCE WITH TH E BANK, ESPECIALLY THE LETTER DATED 15.6.1996 ISSUED BY THE BANK IN CO NNECTION WITH THE OVERDRAFT FACILITY. THE INTEREST PAID BY THE APPEL LANT COMPANY TO BKS HUF AND MIPL IS 18 PER CENT AND 21 PER CENT RESPECT IVELY AS INFORMED BY THE LEARNED COUNSEL. I HAVE NO REASON TO DISBEL IEVE THE CLAIM OF THE LEARNED COUNSEL. THE SAME IS THEREFORE BEING ACCEP TED. 3.6. AS PER THE ABOVE CALCULATION, THE TOTAL INTERE ST ON THE BORROWINGS WHICH HAVE BEEN UTILIZED IN MAKING INVESTMENT IN SH ARES AMOUNTS TO RS.34,35,144.00. THE DISALLOWANCE OF RS.48,05,500. 00 IS THEREFORE REDUCED TO RS.34,35,144.00 AND THE APPELLANT COMPAN Y GETS RELIEF OF RS.13,70,356.00. ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 5 - 3.1. APART FROM THE ABOVE PAST HISTORY OF THE ASSES SEES OWN CASE, IT HAS ALSO BEEN CONTESTED BEFORE US THAT THE PROVISIONS O F SECTION 14A OF THE I.T.ACT WERE INSERTED BY FINANCE ACT, 2001 RETROSPE CTIVELY. HOWEVER, AT THE TIME OF FILING OF RETURN AS WELL AS AT THE TIME OF COMPLETION OF BOOKS OF ACCOUNT, THE ASSESSEE WAS NOT FULLY AWARE ABOUT THE AMENDED PROVISIONS OF LOW AS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, I.E. ASSESSMENT YEAR 2001-02. UNDER BONA FIDE BELIEF, THE ACCOUNTS WERE FINALIZED AND THE INTEREST PAID WAS C LAIMED IN THE PROFIT & LOSS ACCOUNT. IN SUPPORT OF THIS LEGAL PROPOSITION , THE LEARNED AUTHORISED REPRESENTATIVE CITED TWO DECISIONS OF RE SPECTED CO-ORDINATE BENCH DELHI AS FOLLOWS:- SL.NO(S) DECISION IN THE CASE OF IN ITA NO(S) 1. ACIT VS. M/S.JINDAL EQUIPMENT LEASING & CONSULTANCY SERVICES LTD. ITA NOS.3808- 3809/DEL/2010 A.YS.1999-00 & 2001-02 ORDER DATED 21/04/2011 2. DY.CIT VS. NALWA INVESTMENTS LTD. ITA NO.3805(DEL)/2010 A.Y. 2005-06 ORDER DATED 29/10/2010 4. WE FIND SUBSTANCE IN THE ARGUMENTS OF THE LEARNE D AUTHORISED REPRESENTATIVE SPECIALLY WHEN THE ISSUE OF DISALLO WANCE OF INTEREST REMAINED CONTROVERSIAL IN ASSESSEES OWN CASE IN T HE PAST. IN ONE OF THE ASSESSMENT YEARS, I.E. 1997-98, THE SAID DISALLOWAN CE WAS RESTRICTED BY ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 6 - LEARNED CIT(APPEALS), HOWEVER, FOR THE YEAR UNDER C ONSIDERATION THE ACTION OF THE ASSESSING OFFICER WAS AFFIRMED. BUT THE FACT REMAINED THAT THE INVOCATION OF THE PROVISIONS OF SECTION 14A WAS ON ACCOUNT OF THE INSERTION OF NEW CLAUSES IN THE IT ACT AND THE AMEN DMENT TOOK PLACE VIDE FINANCE ACT, 2001. THERE ARE NO TWO OPINIONS ABOUT THE FACT THAT SECTION 14A WAS EFFECTIVE RETROSPECTIVELY FROM 1/4/1962 THO UGH IT WAS INSERTED BY THE FINANCE ACT, 2001. LATER ON, THE SAID SECTI ON WAS AMENDED WITH EFFECT FROM 1/4/2007 BY FINANCE ACT, 2006, PROVIDIN G MODE AND METHOD OF DISALLOWANCE AND THEREUPON AGAIN FOR THE PURPOSE OF SAID CALCULATION RULE-8D WAS FRAMED IN THE YEAR 2008. 4.1. FREQUENT AMENDMENTS AND CHANGE IN THE LAW DEFI NITELY LEADS TO A CONCLUSION THAT THE ISSUE OF DISALLOWANCE OF INTERE ST WAS DEBATABLE AND THE CORRECT POSITION OF LAW WAS NOT FULLY SETTLED W HEN THE ACCOUNTS OF THE ASSESSEE WERE FINALIZED. THE PENALTY PROCEEDINGS B EING QUASI-CRIMINAL IN NATURE, THEREFORE IT IS EXPECTED THAT BEFORE LEVY O F PENALTY A DELIBERATE CONCEALMENT OR A CONTUMACIOUS CONDUCT ON THE PART O F THE ASSESSEE HAS TO BE EXAMINED. BEFORE LEVY OF PENALTY THIS FACT HAS ALSO TO BE EXAMINED THAT WHETHER ALL RELEVANT RELATED FACTS IN RESPECT OF THE IMPUGNED CLAIM HAVE FULLY, TRULY AND CORRECTLY FURNISHED BY A CLAI MANT. IT HAS ALSO TO BE ASCERTAINED THAT WHETHER THERE WAS ANY FALSITY IN R ESPECT OF SUCH A CLAIM. ON EXAMINATION OF THE ORDERS OF THE AUTHORITIES BEL OW THERE IS NO SUCH ALLEGATION FROM THE SIDE OF THE REVENUE THAT THE EX PLANATION OFFERED BY THE ASSESSEE IN TERMS OF SECTION 271(1)(C) EXPLANAT ION-1 (A)(B) WERE EITHER FALSE OR NOT BONA FIDE IN NATURE. RATHER, T OTALITY OF THE CIRCUMSTANCES AND THE PROVISIONS OF THE STATUTE CLE ARLY INDICATE THAT THERE WAS AN HONEST DIFFERENCE OF OPINION. CONSIDERING THESE FACTS WE ARE OF ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 7 - THE CONSCIOUSNESS VIEW THAT THE QUESTION OF LEVY OF PENALTY IN THE PRESENT APPEAL IS COVERED THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS (P) LTD. REPORTED AT (2010) 322 ITR 158 (SC), WHEREIN IT HAS HELD THAT NO INFORMATION GIV EN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE C ANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. THE HON'BLE APE X COURT HAS FURTHER OBSERVED THAT IN ORDER TO EXPOSE THE ASSESSEE TO PE NALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROV ISION CANNOT BE INVOKED. RESPECTFULLY FOLLOWING THE AFORESAID DE CISION AND CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE, THE VIEW T AKEN BY THE LEARNED CIT(APPEALS) IS HEREBY REVERSED AND PENALTY IS, ACC ORDINGLY, DELETED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 17 TH JUNE, 2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 17 / 6 /2011 T.C. NAIR, SR. PS ITA NO. 3271/AHD/2009 AIA EXPORTS PVT.LTD. VS. ITO ASST.YEAR - 2001-02 - 8 - COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEPARTMENT. 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-V, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION.. 14/06/2011 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 15/06/2011 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 17/6/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER