PALLAVI HOLDINGS P. LTD, MUMBAI V. DCIT CC-31,

ITA 3540/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7592 (ITAT-MUMBAI)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2000-2001
• Appeal Filed On: 29-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL SPECIAL
• Keywords: Set aside
• Section: 234B; 115JB; 201

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH C, MUMBAI BEFORE SHRI T.R. SOOD, AM AND SHRI V. DURGA RAO ,JM I.T.A. NO. 3540/MUM/09 ASSESSMENT YEAR :2006-07 M/S. PALLAVI HOLDINGS PVT. LTD., 32, MADHULI , 3 RD FLOOR, DR. A.B. ROAD, NEHRU CENTRE, WORLI, MUMBAI 400 018. PAN: AAACP 8031 H VS. DY. COMMISSIONER OF INCOME-TAX, CENTRAL CIRCLE 31, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY :: SHRI VIJAY MEHTA RESPONDENT BY :: DR. P. DANIEL (SPECIAL COUNSEL) O R D E R PER T.R. SOOD (AM): IN THIS APPEAL, THE ASSESSEE HAS RAISED VARIOUS GRO UNDS. HOWEVER, AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE POINT ED OUT THAT GROUND NOS. 1 & 7 WERE OF GENERAL NATURE AND FURTHER GROUND NOS. 2 AND 4 WERE NOT PRESSED BEFORE US. THEREFORE, THESE GROUNDS ARE BEING DISMISSED AS OF GENERAL NAT URE/NOT PRESSED. THE OTHER GROUNDS I.E. GROUND NOS. 3, 5 AND 6 ARE AS UNDER: 3. THE LEARNED CIT(A) HAS ERRED IN LAW A ND IN FACTS IN CONFIRMING DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSE AMOUNTING TO RS. 4,93,5 78/-. 5. THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CONFIRMING CALCULATION OF BOOK PROFITS U/S. 115JB AMOUNTING TO RS. 7,98,095/-. 6. THE LEARNED CIT(A) HAS ERRED IN LAW A ND IN FACTS IN NOT APPRECIATING THAT THE INTEREST CHARGED U/S. 234A, 234B AND 234C OF THE AC T ARE INCORRECT. 2. AS REGARDS GROUND NO. 3, AFTER HEARING BOTH PARTIE S WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 7231/MUM/2008 DATED30.10.2009 WHEREIN THIS ISSU E WAS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER VIDE PARA 5 WHICH REA DS AS UNDER: WITH RESPECT TO GROUND NO. 5 & 6 ABOVE, THE ORDER OF THE ITAT C BENCH (SUPRA), IT HAS BEEN HELD AS FOLLOWS: THE FACTUAL POSITION IN THIS CASE IS ALSO IDENTICA L WITH THE CASE OF M/S. AATUR HOLDINGS PVT. LTD. (SUPRA). FOLLOWING THE RATIO OF THE DECISION OF THE CO- ORDINATE BENCH IN THE CASE OF M/S. AATUR HOLDINGS P VT. LTD. UNDER IDENTICAL 2 CIRCUMSTANCES, WE DEEM IT FIT TO REMAND THE CLAIM O F EXPENDITURE BY THE ASSESSEE BY WAY OF INTEREST, AUDIT FEES AND DEPRECI ATION IN GROUNDS 5,6,7 BACK TO CIT(A) FOR FRESH CONSIDERATION. FOLLOWING THE ABOVE ORDER IN THIS YEAR ALSO WE SET ASIDE THE ORDER OF THE LEARNED CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF T HE AO WITH SIMILAR DIRECTIONS AS HELD IN EARLIER YEARS. 3. AS REGARDS GROUND NO. 5, AFTER HEARING BOTH THE PAR TIES, WE FIND THAT IDENTICAL ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN TH E CASE OF M/S. ORION TRAVELS PVT. LTD. V. DCIT IN ITA NOS. 6888 AND 6889/M/08 FOR THE ASSES SMENT YEAR 2004-05 AND 2005-06 DATED 9.10.2009, WHEREIN THAT ISSUE WAS CONSIDERED BY THE TRIBUNAL AND THE FOLLOWING OBSERVATIONS WERE MADE IN PARA 22, WHICH READ AS UNDER: AS REGARDS GROUND NO.8, REGARDING COMPUTATION OF B OOK PROFITS U/S.115JB, WE FIND THAT THE ASSESSEE HAS BEEN TAXED UNDER THE NORMAL PROVISIONS OF THE ACT AND NOT ON THE BOOK PROFITS U/S.115JB. IN T HE CIRCUMSTANCES WE ARE NOT CONSIDERING THIS ISSUE AND DISMISS THE APPEAL O N THIS ISSUE AS INFRUCTUOUS WITH A DIRECTION THAT IN CASE THE ASSES SEE AT A LATER STAGE IS ASSESSED ON THEIR BOOK PROFITS U/S.115JB, IT WILL B E OPEN FOR THE ASSESSEE TO RAISE THESE CONTENTIONS AT THAT TIME. FOLLOWING THE ABOVE ORDER, WE DECLINE TO ADJUDICATE THE ISSUE RAISED BEFORE US AS THE ISSUE IS INFRUCTUOUS WITH A CLARIFICATION THAT IN CASE THE ASSESSEE AT A LATER STAGE IS ASSESSED ON THEIR BOOK PROFIT U/S. 1125JB THEN SUBJ ECT TO THE LEGAL PROVISION THE ASSESSEE WILL HAVE LIBERTY TO RAISE THIS ISSUE AT THE APPROP RIATE FORUM. 4. AS REGARDS GROUND NO. 6, AFTER HEARING BOTH THE PAR TIES, WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN AN OTHER GROUP CASE OF M/S. ORION TRAVELS PVT. LTD. (SUPRA) AND THE SAME WAS DECIDED VIDE PAR AS 23, 24, 25 AND 26, WHICH READ AS UNDER: 23. AS REGARDS THE LAST GROUND NO 9, REGARDING THE LEVY OF INTEREST UNDER SEC 234A, 234B AND 234C, THE ASSESSEE IS A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS I N SECURITIES) ACT, 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHE D AND VESTED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT. FROM THE DATE OF FUNCTIONING OF THE COURT I.E., 1.6.1992, THE DISTRIBUTION OF MO NIES IN CASE OF NOTIFIED PERSONS WILL BE DECIDED BY THE SPECIAL COURT. THE T AXES DO NOT HAVE THE 3 PRIORITY IN SETTLEMENT. EVEN IF A NOTIFIED PERSON H AD WANTED TO PAY THE ADVANCE TAX IT WAS NOT WITHIN HIS CONTROL TO DO SO. HE HAS TO MAKE AN APPLICATION TO THE CUSTODIAN AND ONLY HE CAN PERMIT PAYMENT OF ADVANCE TAX AFTER OBTAINING APPROVAL FROM THE SPECIAL COURT. T HE SPECIAL COURT IN ITS RULING HAS OBSERVED AS UNDER: WHERE A NOTIFIED PARTY IS PREVENTED BY REASON OF N OTIFICATION, FROM DOING THINGS WHICH ARE REQUIRED TO BE DONE BY HIM UNDER O THER ACTS OR CONTRACTS. IN SUCH CASES, IF THE PROVISION OF THE SPECIAL COUR TS ACT PREVENTS A NOTIFIED PARTY FROM DOING THAT THING, THEN BY REASON OF THIS LEGAL DISABILITY, NO PENALTY OR INTEREST CAN BE LEVIED ON THAT PARTY. THUS NO PE NALTY OR INTEREST CAN BE IMPOSED FOR NON-FULFILLMENT OF AN ACT WHICH A NOTIF IED PARTY IS PREVENTED FROM DOING BY REASON OF THE SPECIAL COURT ACT. IN SUCH CASES EVEN THOUGH THE PROVISIONS OF SOME OTHER ACT OR CONTRACT LAY DOWN C ONSEQUENCES FOR NON- PERFORMANCE, THE PROVISIONS OF THE SPECIAL COURTS A CT WILL PREVAIL. THIS IS BECAUSE IN SUCH CASES THERE WOULD BE A CONFLICT BET WEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND THAT OTHER LAW AND/OR CONTRA CT. IN CASES OF SUCH CONFLICT, THE PROVISIONS OF THE SPECIAL COURT ACT M UST PREVAIL. TO TAKE AN EXAMPLE, UNDER SECTION 234B OF THE INCOME TAX ACT, EVERY ASSESSEE IS LIABLE TO PAY ADVANCE TAX. ALL PARTIES WERE NOTIFIED BETW EEN JUNE 1992 TO AUGUST 1992. ALL OF THEM WOULD BE LIABLE TO ADVANCE TAXES FOR THE FINANCIAL YEAR ENDING MARCH 1993 AND FOR THE SUBSEQUENT YEARS, HO WEVER AS SEEN EARLIER, TAXES ONLY UPTO ASSESSMENT YEAR 1992-93 CAN BE PAID IN PRIORITY. THESE WOULD HAVE TO RANK AS ORDINARY DEBTS UNDER SECTION 11(2)(C ). THIS THEREFORE CAN ONLY BE RELEASED AFTER THE ENTIRE DISTRIBUTION HAS TAKEN PLACE. EVEN IF THE NOTIFIED PARTY WERE TO MAKE AN APPLICATION TO THIS COURT TO PAY THE ADVANCE TAX, THE COURT WOULD REFUSE IT. THUS MONIES FOR PAY MENT OF ADVANCE TAX HAVE NOT BEEN RELEASED. THUS A NOTIFIED PARTY HAS BEEN PREVENTED FROM PAYING ADVANCE TAX. THUS, UNDER THE SPECIAL COURTS ACT, THERE IS A LEGAL DISABILITY TO PAY ADVANCE TAX. YET UNDER THE INCOME TAX ACT THERE IS A COMPULSION TO PAY ADVANCE TAX. THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND THE INCOME TAX ACT. THE PROVISIONS OF THE SPECIAL COURTS ACT MUST PREVAIL. UNDER THE INCOME TAX ACT IF ADVANCE TAX IS NOT PAID, FOR SUCH NON-PAYMENT INTEREST CAN BE LEVIED. THIS OBVIOUSLY ON THE FOOTING THAT THE ASSESSEE IS IN DEFAULT. HOWEVER A NOTIFIED PARTY, HAS BEEN PREVENTED BY LAW FROM PAYING ADVANCE TAX. HE IS NO T A DEFAULTING PARTY. HE NEITHER HAS NOT PAID ADVANCE TAX BECAUSE OF LEGAL R ESTRAINT ON HIM. THE LAW HAS PREVENTED HIM FROM PAYING ADVANCE TAX. IN MY V IEW, IN SUCH CASES, I.E. WHERE THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND SOME OTHER ACT/CONTRACT, THE CONTRARY PROVISIONS MU ST NECESSARILY GIVE WAY. IF THERE IS THIS LEGAL DISABILITY, THEN THERE IS NO THE QUESTION OF THE NOTIFIED PARTY BEING FOISTED WITH THE LIABILITY TO PAY INTER EST AND/OR PENALTY. 24. IN THE BACKDROP OF THE ABOVE, IT WAS IMPOSSIBLE FOR THE ASSESSEE TO HAVE PAID THE ADVANCE TAX EVEN IF HE HAD WANTED TO. IT IS A WELL KNOWN LEGAL DICTUM LEX NON COGITAD IMOSSIBILIA (LAW CANNOT CO MPEL YOU TO DO THE IMPOSSIBLE). ASSESSEE CANNOT THEREFORE BE FOISTED W ITH INTEREST LIABILITY U/S 234A, 234B AND 234C. INTEREST U/S 234B AND 234C ARE DIRECTLY RELATED TO PAYMENT OF ADVANCE TAX AND HENCE IS NOT LEVIABLE ON NOTIFIED PERSONS. EVEN THOUGH LEVY OF INTEREST U/S 234A IS REALLY ON THE D ELAY IN FILING THE RETURN WHICH IS A DEFAULT COMMITTED BY THE ASSESSEE, THE Q UANTIFICATION OF THE SAME DEPENDS ON THE ADVANCE TAX PAID WHICH, IN THIS CASE , IS NOT WITHIN THE CONTROL OF THE ASSESSEE. HENCE INTEREST U/S 234A CANNOT ALS O BE LEVIED IN THE CASE OF 4 A PERSON A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT, 1992 AND ALL IT S ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF T HE CUSTODIAN APPOINTED UNDER THE SAID ACT. 25. THE CO-ORDINATE BENCH IN THE CASE OF DIVINE HOL DINGS PVT. LTD V DCIT IN ITA NO180/M/2000 DT. 26.6.2001 HAS HELD THAT CIT (A) IS RIGHT IN ADMITTING THE APPEAL OF A NOTIFIED PERSON EVEN THOUGH THE TAX ON THE RETURNED INCOME HAS NOT BEEN PAID BY HIM. IN COMING TO THIS CONCLUS ION THEY HAD RELIED ON THE ABOVE PASSAGE OF THE SPECIAL COURT. 26. IN THE CIRCUMSTANCES, WE DIRECT THAT INTEREST U /S 234A, 234B AND 234C SHOULD NOT BE LEVIED ON THE ASSESSEE FOR THE A SSESSMENT YEAR UNDER APPEAL. FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL (SUPRA), WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 23RD DAY OF FEBRUARY, 201 0. SD. SD. (V. DURGA RAO) (T.R. SOOD ) JUDICIAL MEMBER ACCOUNTANT MEMBR MUMBAI, DATED THE 23RD FEBRUARY, 2010. KN COPY TO: 1. THE ASSESSEE. 2. THE DCIT, CC-31, MUMBAI 3. THE CIT, CENTRAL-II, MUMBAI 4. THE CIT(A)-IV, MUMBAI 5. THE DR, C BENCH, MUMBAI BY ORDER /TRUE COPY/ ASST. REGISTRAR, I.T.A.T.MUMBAI