THE DCIT CIR 3(1), MUMBAI V. M/S. A.B. COLOR PVT. LTD, MUMBAI

ITA 3307/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7477 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 30-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 12-05-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM GAUR
• Assessee Lawyers: SHRI
• Keywords: Difference of opinion
• Section: 271(1)(c); 251; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH H : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI A.L. GEHL OT ,(AM) ITA NO.3307/MUM/2008 ASSESSMENT YEAR : 2002-03 DY. COMMISSIONER OF INCOME TAX CIRCLE- 3(1) ROOM NO.607, AAYAKAR BHAVAN MUMBAI-400 020. ..( APPELLANT ) VS. M/S. A.B. COLOR PVT. LTD. 901, MAKER CHAMBERS V, NARIMAN POINT MUMBAI-400 021. ..( RESPONDENT ) P.A. NO. (AAACA 3373 K) APPELLANT BY : SHRI VIKRAM GAUR RESPONDENT BY : SHRI PA NKAJ R. TOPRANI O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 14.2.2008 PASSED BY THE LD. CIT(A) DELETI NG THE PENALTY OF RS.1131824/0 IMPOSED BY THE AO U/S.271(1)(C) OF THE IT ACT,1961 (THE ACT) FOR THE ASSESSMENT YEAR 2002-03. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COM PANY IS ENGAGED IN THE BUSINESS OF SLITTING OF PHOTOGRAPHIC COLO UR PAPER AND ITA NO.3307/M/08 A.Y:02-03 2 GRAPHIC ART FILMS. THE RETURN WAS FILED DECLARING AN INCOME OF RS.12,16,885/-. HOWEVER, THE ASSESSMENT WAS COMPLETED AT A N INCOME OF RS.44,32,260/- INCLUDING THE DISALLOWANCE OF RENT RS.20,000/- AND INTEREST RS.31,50,378/-, VIDE ORDER DA TED 31.3.2005 PASSED U/S.143(3) OF THE ACT. ON APPEAL THE LD. CIT(A ) CONFIRMED THE DISALLOWANCE MADE BY THE AO. ON FURTHER APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL DELETED THE DISALLOWANCE OF RENT RS.20,00 0/- AND WITH REGARD TO THE DISALLOWANCE OF INTEREST, THE TRIBUNAL H ELD THAT THE ADDITION OF INTEREST IS TO BE SUSTAINED PROPORTIONATELY ON THE FRESH LOANS ADVANCED BY THE ASSESSEE IN THE YEAR IN QUESTION TO THE TUNE OF RS.41.00 LACS AND ACCORDINGLY DIRECTED THE AO TO MAKE PRO PORTIONATE DISALLOWANCE OF INTEREST BY CONSIDERING THE RATE OF INTE REST ETC. VIDE ORDER DATED 24.10.2008. IN THE MEANTIME, THE AO AF TER CONSIDERING THE EXPLANATION OF THE ASSESSEE WHEREIN IT HAS BEEN INTERALIA STATED THAT THE INTEREST FREE LOAN AND ADVANCES WERE GIVEN OU T OF ASSESSEE'S OWN FUNDS AND THE BORROWED FUNDS WERE NOT USED FOR N ON BUSINESS PURPOSES, OBSERVED THAT THE DISALLOWANCE OF RENT AND IN TEREST HAS BEEN UPHELD BY THE LD. CIT(A), THE ASSESSEE HAS FAILED TO SUBST ANTIATE THE EXPLANATION GIVEN BY IT IN JUSTIFICATION OF ITS CLAIM FOR ALLOWING INTEREST PAID/PAYABLE RS.31,50,378/- AND HENCE, THE ASSESSEE IS LI ABLE TO PENALTY ON THE AMOUNT OF DISALLOWANCE OF RENT RS.20,00 0/- AND INTEREST RS.31,50,378/- ACCORDINGLY, HE IMPOSED PENALTY OF RS.11 ,31,824/- ITA NO.3307/M/08 A.Y:02-03 3 VIDE ORDER DT.30.3.2007 PASSED U/S.271(1)(C) OF THE ACT. ON APPEAL THE LD. CIT(A) WHILE OBSERVING THAT THE AO DID NOT I NITIATE PENALTY PROCEEDING U/S.271(1)(C) IN RESPECT OF DISALLOWANCE OF RS.2 0,000/- BEING EXCESS RENT PAID, DELETED THE PENALTY ON THE SAID AMOUNT AND WITH REGARD TO THE PENALTY ON DISALLOWANCE OF INTEREST RS.31,50,378/- HE HELD THAT NO PENALTY U/S.271(1)(C) IS LEVIABLE ON A DEBATABLE ISSUE LEADING TO DIFFERENCE OF OPINION AND ACCORDINGLY DELE TED THE PENALTY. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A) T HE REVENUE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE DE LETION OF PENALTY IMPOSED BY THE AO U/S.271(1)(C) OF THE ACT. 4. AT THE TIME OF HEARING THE LD. DR SUBMITS THAT FOR THE REASONS AS MENTIONED IN THE PENALTY ORDER, THE LD. CIT(A) WAS N OT JUSTIFIED IN DELETING THE PENALTY IMPOSED BY THE AO U/S.271(1)(C) OF THE ACT. RELIANCE WAS ALSO PLACED ON THE DECISION IN K.P. MADHUSU DHANAN VS. CIT (2001) 251 ITR 99 (SC). 5. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESSEE, A T THE OUTSET, SUBMITS THAT IN THE QUANTUM APPEAL, TRIBUNAL H AS DELETED THE DISALLOWANCE OF RENT RS.20,000/- THEREFORE, NO PENALTY IS LEVIABLE ON SUCH DISALLOWANCE OF RENT. WITH REGARD TO DISALLOWANCE OF INTEREST HE SUBMITS THAT THE TRIBUNAL IN THE QUANTUM APPEAL HAS R EDUCED THE ITA NO.3307/M/08 A.Y:02-03 4 DISALLOWANCE AND DIRECTED THE AO TO MAKE PROPORTIONAT E DISALLOWANCE OF INTEREST ON THE ADVANCE OF RS.41.00 LACS AND ODD. TH EREFORE, THE DISALLOWANCE OF INTEREST IS A DEBATABLE ISSUE LEADING TO DIFFERENCE OF OPINION AND HENCE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE PENALTY IMPOSED BY THE AO. THE RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS: CIT VS. MRS. BALJEET JOLLY (2003) 263 ITR 239(DEL.) UNION OF INDIA VS. RAJASTHAN SPINNING & WEAVING MILLS (2009) 224 CTR (SC)1 CIT VS. HARSHVARDHAN CHEMICALS AND MINERAL LTD.(2003) 2 59 ITR 212(RAJ.) CIT VS. CALCUTTA CREDIT CORPORATION (1987) 166 ITR 29 (CAL.) KANBAY SOFTWARE INDIA (P.) LTD. VS. DY.CIT(PUNE) (2 009) 31 SOT 153(PUNE) GLORIOUS REALITY (P.) LTD. VS. ITO(MUM.) (2009) 29 SO T 292(MUM) ASSTT. CIT VS. VIP INDUSTRIES LTD.(MUM.) (2009) 122 TTJ (MUMBAI) 289 ADDL. CIT VS. PREM CHAND GARG (2009) 123 TTJ(DEL.)(T M)433 CIT VS. BACARDI MARTINI INDIA LTD. (2007) 288 ITR 585 (DEL.) CIT VS. SMT. BIMLA DEVI SHARMA (1991) 192 ITR 482(PA T.) HE THEREFORE, SUBMITS THAT THE ORDER PASSED BY THE LD. C IT(A) IN DELETING THE PENALTY BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SE TTLED LAW THAT PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILITY A ND THE REVENUE IS NOT REQUIRED TO PROVE WILLFUL CONCEALMENT AS HELD BY T HE HONBLE SUPREME COURT IN CASE THE OF UNION OF INDIA VS. DHARM ENDRA TEXTILES ITA NO.3307/M/08 A.Y:02-03 5 AND PROCESSORS (2008) 306 ITR 277(SC). HOWEVER, EACH AND EVERY ADDITION MADE IN THE ASSESSMENT CANNOT AUTOMATICALLY LEAD TO LEVY OF PENALTY FOR CONCEALMENT OF INCOME. A CASE FOR IMPOSITION OF PENALTY HAS TO BE EXAMINED IN TERMS OF THE PROVISIONS OF EXPLAN ATION 1 TO SECTION 271(1)(C). SECONDLY, IT IS ALSO A SETTLED LEGAL POSITION THAT PENALTY PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDI NGS. THE FINDING GIVEN IN THE ASSESSMENT THOUGH IS A GOOD EVIDENCE BUT THE SAME IS NOT CONCLUSIVE IN PENALTY PROCEEDINGS AS HELD BY T HE HONBLE SUPREME COURT IN THE CASE OF ANANTHARAM VEERASINGHAIAH & CO. VS. CIT (1980) 123 ITR 457 (SC). 7. IN K.P. MADHUSUDHNAN (SUPRA), THE ASSESSEE INTERALIA STATED THAT SINCE IT WAS UNABLE TO FURNISH EVIDENCE FOR SUCH LOA NS IT OFFERED THE AMOUNT OF RS.93,000/- AS ADDITIONAL INCOME. IN PEN ALTY PROCEEDING THE AO NOTED THAT IT HAS OFFERED THE AMOUNT OF RS.93, 000/- AS ADDITIONAL INCOME AND APPLYING EXPLANATION 1(B) TO SE C 271 IMPOSED A PENALTY ON THE ASSESSEE. THE APPELLATE TRIBUNAL CANCELLE D THE PENALTY, INTERALIA , FOR THE REASON THAT IN THE NOTICE INITIATING PENALT Y PROCEEDINGS THE ASSESSEE WAS NOT INTIMATED ABOUT THE PROPO SED ACTION UNDER EXPLANATION 1(B) TO SECTION 271(1)(C); BUT THE HO NBLE HIGH COURT ON REFERENCE HELD THAT THE IMPOSITION OF PENAL TY WAS VALID. ON APPEAL, THE HONBLE SUPREME COURT HELD, AFFIRMING T HE DECISION OF THE HONBLE HIGH COURT THAT THE PENALTY WAS VALIDLY LEVIED FURTHER HELD THAT ITA NO.3307/M/08 A.Y:02-03 6 NO EXPRESS INVOCATION OF THE EXPLANATION TO SEC. 271 IN THE NOTICE U/S.271 IS NECESSARY BEFORE THE PROVISIONS OF THE EXPLANAT ION ARE APPLIED. HOWEVER, IT IS NOT THE CASE OF THE ASSESSEE THAT THE PENALTY IS NOT LEVIABLE AS NOTICE INITIATING PENALTY PROCEEDING THE ASSESSEE WAS NOT INTIMATED ABOUT THE PROPOSED ACTION UNDER EXPLANA TION 1(B) TO SEC.271(1)(C). THEREFORE, THE DECISION RELIED ON BY THE LD. DR IS NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 8. IN THE CASE BEFORE US THERE IS NO DISPUTE THAT THE TRIBUNAL IN QUANTUM APPEAL HAS DELETED THE DISALLOWANCE OF RENT RS. 20,000/- AND HAS DIRECTED THE AO TO RE-CALCULATE THE DISALLOWANCE OF I NTEREST ON THE BORROWING OF RS.41.00 LACS AND ODD AS AGAINST AMOUNT OF INTEREST FREE LOANS CONSIDERED BY THE AO RS.1,94,65,414/-. FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT DISCLOSED FULL PARTICULARS OF ITS INCOME OR SUCH DISALLOWANCE OF INTEREST WAS MADE IN EARLIER YEARS OR THE ASSESSEE HAS NO INTEREST FREE FUNDS. IT IS RE PEATEDLY HELD BY THE COURTS THAT WHEN THE FACTS ARE CLEARLY DISCLOSED IN THE RETURN OF INCOME PENALTY CAN NOT BE LEVIED. MERELY BECAUSE AN AM OUNT IS NOT ALLOWED OR TAXED TO INCOME, IT CANNOT BE SAID THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS OR CONCEALED ANY INCOME CHARGE ABLE TO TAX. EVEN IF SOME DEDUCTION OR BENEFIT IS CLAIMED BY THE A SSESSEE WRONGLY BUT BONAFIDE AND NO MALAFIDE CAN BE ATTRIBUTED, THE PENALTY WOULD NOT BE LEVIED. THIS BEING SO AND KEEPING IN VIEW THE RAT IO OF THE RELEVANT ITA NO.3307/M/08 A.Y:02-03 7 DECISIONS RELIED ON BY THE LD. COUNSEL FOR THE ASSESSEE WE ARE OF THE VIEW THAT THE PENALTY IMPOSED BY THE AO IS NOT SUSTAINA BLE IN LAW AND ACCORDINGLY WE ARE INCLINED TO UPHOLD THE ORDER OF THE LD. CIT(A) IN DELETING THE PENALTY IMPOSED BY THE AO. THE GROUNDS TAKEN BY THE REVENUE ARE, THEREFORE, REJECTED. 9. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.3.2010. SD/- SD/- (A.L. GEHLOT) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 19.3.2010. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 12.3.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 15.3.10 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 19.3.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 23.3.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER