Handum Industries Limited, Hyderabad V. ACIT, Circle-8(1), Hyderabad

ITA 383/HYD/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6454 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 22-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: P MURALI MOHAN RAO
• Keywords: Transfer pricing; Wrong claim
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI B.RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA.NO.383, 384 & 385/HYD/2013 ASSESSMENT YEARS 2003-04, 2004-05 & 2005-06 M/S. HANDUM INDUSTR IES LTD., HYDERABAD. PAN AAACH-6880-L VS. ACIT, CIRCLE 8(1) HYDERABAD (APPELLANT) (RESPONDENT) ASSESSEE BY: MR. P. MURALIMOHAN RAO REVENUE BY: MR. R. MOHAN REDDY, DATE OF HEARING: 26.06.2014 DATE OF PRONOUNCEMENT: 16.07.2014 ORDER PER B. RAMAKOTAIAH, A.M. THESE THREE APPEALS ARE BY ASSESSEE AGAINST THE ORDERS OF LD. CIT(A)-III, HYDERABAD DATED 22 ND FEBRUARY, 2013 CONFIRMING THE PENALTY LEVIED UNDER SECTION 271(1)( C) OF THE I.T. ACT, 1961 ON THE ISSUE OF CLAIM OF INTEREST IN THE IMPUGNED ASSESSMENT YEARS. 2. BRIEFLY STATED, ASSESSEE COMPANY FILED RETURNS OF INCOME FOR THE IMPUGNED YEARS INTER ALIA, CLAIMING INTEREST PAYBLE TO BANKS AS DEDUCTIBLE EXPENSES. AS NO EVIDE NCE OF PAYMENT WAS FURNISHED, A.O. ADDED THE AFORE MENTION ED AMOUNT TO THE INCOME. THE ADDITION WAS CONFIRMED BY THE LD. CIT(A). HOWEVER, ON FURTHER APPEAL, ITAT RESTORED T HE ISSUE TO THE FILE OF A.O. FOR EXAMINING THE DETAILS OF INTER EST CLAIM AND THEN ALLOWING THE SAME AFTER VERIFICATION. A.O. IN THE RE- ASSESSMENT PROCEEDINGS DISALLOWED THE INTEREST AMOU NT AGAIN ON THE REASON THAT ASSESSEE COULD NOT FURNISH THE N ECESSARY 2 ITA.NO.383, 384, 385/HYD/2013 M/S. HANDUM INDUSTRIES LTD., HYDERABAD. DETAILS. IT WAS THE SUBMISSION OF THE ASSESSEE THAT IT COULD NOT RECONCILE THE CLAIM OF INTEREST AS THE BANKS WERE N OT FURNISHING THE RELEVANT INFORMATION AS THE DEBTS HAVE BECOME B AD AND EXPRESSED ITS HELPLESSNESS TO THE A.O. TO FURNISH T HE NECESSARY EVIDENCE TO SUBSTANTIATE THE CLAIM. A.O. WAS OF THE OPINION THAT ASSESSEE HAS DELIBERATELY CLAIMED THE INTEREST AS AN EXPENSE AND WHEN ENQUIRED COULD NOT SUBSTANTIATE. T HEREFORE, PROVISIONS OF SECTION 271(1)(C) ARE INVOKED AND LEV IED THE PENALTY. PENALTY LEVIED IN THREE YEARS ARE AS UNDER : A.Y. PENALTY LEVIED 2003-04 RS.31,80,600/- 2004-05 RS.67,53,000/- 2005-06 RS.64,89,900/- 3. LD. CIT(A) IN HIS DETAILED ORDER HELD THAT ASSE SSEE HAS FURNISHED INACCURATE PARTICULARS AND ACCORDINGL Y MADE A FALSE CLAIM THEREBY, PENALTY UNDER SECTION 271(1)(C ) WAS ATTRACTED. PENALTY WAS ACCORDINGLY CONFIRMED. 4. LD. COUNSEL SUBMITTED THAT ASSESSEE HAS INCURRE D LOSSES IN ALL THE YEARS AND DID NOT CONTEST THE DIS ALLOWANCE AS THERE IS NO SCOPE FOR ADJUSTING LOSSES. EVEN OTHERW ISE, THE CLAIM OF INTEREST WHICH WAS NOT PAID TO THE BANK WO ULD ALSO GET DISALLOWED UNDER THE PROVISIONS OF SECTION 43B AND RELYING ON THE PRINCIPLES LAID DOWN BY THE ITAT IN THE CASE OF M/S. AVANTI LABORATORIES LTD., HYDERABAD VS. ACIT ITA.NO.307/HY D/2009 DATED 3 RD JULY, 2009, THE PENALTY WITH REGARD TO THE DISALLOWANCE UNDER SECTION 43B HAS TO BE DELETED. I T WAS FURTHER SUBMITTED THAT ITAT IN THE CASE OF SHRI S. PRASADA RAO VS. DCIT ITA.NO.338/HYD/2006 DATED 21.11.2008 HELD THAT DISALLOWANCE ON DISCREPANCIES FOUND OUT BY THE A.O. MAY GIVE RISE TO A SUSPICION TO MAKE AN ADDITION FOR ASSESS MENT BUT NOT 3 ITA.NO.383, 384, 385/HYD/2013 M/S. HANDUM INDUSTRIES LTD., HYDERABAD. SUFFICIENT ENOUGH TO JUSTIFY LEVY OF PENALTY UNDER SECTION 271(1)(C). LD. COUNSEL ALSO RELIED ON THE PRINCIPLE S LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD., (2010) 322 ITR 158 (SC) TO SUBMIT THAT MAKING A CLAIM WHICH COULD NOT BE SUPPORTED DOES NO T AMOUNT TO FURNISHING INACCURATE PARTICULARS. IT WAS FURTH ER SUBMITTED THAT THE SAME LD. CIT(A) IN ANOTHER GROUP OF COMPAN Y VIZ., M/S. HEMAN FAN COMPONENTS P. LTD., DELETED THE PENA LTY ON SIMILAR FACTS AND ON SECOND APPEAL BY REVENUE, THE TRIBUNAL CONFIRMED THE DELETION OF PENALTY VIDE ITS ORDER DA TED 18.06.2014 IN ITA.NOS. 910 TO 913/HYD/2013 AND RE LIED ON THE PRINCIPLES LAID DOWN IN THE SAME CASE BY THE IT AT. 5. LEARNED D.R. HOWEVER, RELIED ON THE ORDERS OF A .O. AND LD. CIT(A) TO SUBMIT THAT ASSESSEE HAS DELIBERA TELY CLAIMED THE INTEREST LOSS AND THEREFORE, PENALTY IS WARRANTED. 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EXAMINED THE ORDERS ON RECORD. THERE IS NO DISPUTE WITH REFERENCE TO THE FACT THAT ASSESSEE CLAIMED INTERES T PAYABLE TO IDBI. AS SEEN FROM THE ORDER OF LD. CIT(A) IN QUANT UM APPEAL DATED 12 TH MARCH, 2008, LD. CIT(A) CONFIRMED THE DISALLOWANCE IN A.Y. 2003-04 STATING THAT AN AMOUNT OF RS.1,06, 20,000/- HAS BEEN DISALLOWED UNDER SECTION 43B BEING INTERES T NOT PAID ON LOAN FROM IDBI. NO PARTICULARS OR EVIDENCES HAVE BEEN FURNISHED BEFORE ME TO SAY THAT INTEREST HAS BEEN P AID ON OR BEFORE DUE DATE FOR MAKING IT ELIGIBLE TO DEDUCTION . AS CAN BE SEEN FROM THE ABOVE, THE ORIGINAL DISALLOWANCE MADE BY THE A.O. WAS UNDER THE PROVISIONS OF SECTION 43B. HOWEV ER, THE ITAT GAVE ANOTHER OPPORTUNITY TO THE A.O. TO EXAMIN E AS THE CLAIM OF INTEREST WAS ALSO CONSIDERED AS FOR NON BU SINESS 4 ITA.NO.383, 384, 385/HYD/2013 M/S. HANDUM INDUSTRIES LTD., HYDERABAD. PURPOSES BY THE A.O. HOWEVER, ON THE DIRECTIONS OF THE ITAT, A.O. DISALLOWED THE AMOUNT AGAIN AS THE ASSESSEE EX PRESSED ITS INABILITY TO FURNISH NECESSARY DETAILS DUE TO D ISPUTES WITH THE BANK. IN THESE CIRCUMSTANCES, IT CANNOT BE STAT ED THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS DELIB ERATELY TO REVENUE. THE CLAIM MADE COULD NOT BE SUBSTANTIATED AND THIS MAY NOT LEAD TO LEVY OF PENALTY UNDER SECTION 271(1 )(C) WHERE THE PARAMETERS ARE FOR CONCEALMENT OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS. THE HONBLE SUPREME COUR T IN THE CASE OF RELIANCE PETRO PRODUCTS (P) LTD., (SUPRA), HAD THE OCCASION TO ANALYSE THE SIMILAR ISSUES AND HELD THA T MAKING A CLAIM WHICH COULD NOT BE SUBSTANTIATED CANNOT BE CO NSIDERED AS FURNISHING INACCURATE PARTICULARS. 6.1. THIS ISSUE WAS ELABORATELY DISCUSSED IN THE O RDER OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M/S. HEMAN FAN COMPONENTS P. LTD., HYDERABAD WHERE THE C IT(A) ON SIMILAR FACTS DELETED THE PENALTY AND REVENUE CA ME IN APPEAL VIDE ITA.NOS. 910, 911, 912 & 913/HYD/2013 A ND THE TRIBUNAL VIDE ITS ORDER DATED 18.06.2014 HELD AS UN DER : 8. WE HEARD BOTH SIDES AND PERUSED THE ORDERS OF T HE REVENUE AUTHORITIES AND OTHER MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, IT IS THE INTEREST PAYMENTS ON THE WORKING CAPITAL BOR ROWED FROM THE BANK IN THE YEARS UNDER APPEAL, WHICH WERE DISALLOW ED BY THE ASSESSING OFFICER IN THE COURSE OF SCRUTINY ASSESSM ENTS COMPLETED, THAT LED TO THE IMPUGNED PENALTIES UNDER S.271(1)(C) OF THE ACT. THE ASSESSING OFFICER IMPOSED THE PENALTIE S IN QUESTION OBSERVING THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF INCOME. IT IS EVIDENT FROM THE IMPUGNED ORDERS O F THE REVENUE AUTHORITIES THAT THOUGH THERE WAS LULL IN THE BUSIN ESS ACTIVITY OF THE ASSESSEE, THE BUSINESS OF THE ASSESSEE WAS NOT TOTALLY CLOSED DURING THE YEARS UNDER APPEAL, AND THE ACTUAL CLOSU RE OF THE ASSESSEES BUSINESS HAS TAKEN PLACE SUBSEQUENTLY. T HE INTEREST AMOUNTS DISALLOWED RELATE TO BORROWALS FROM THE BAN K TOWARDS WORKING CAPITAL REQUIREMENTS OF THE ASSESSEE. ASSE SSEE HAS EXPLAINED THE VARIOUS DIFFICULTIES THAT IT HAD TO E NCOUNTER ON 5 ITA.NO.383, 384, 385/HYD/2013 M/S. HANDUM INDUSTRIES LTD., HYDERABAD. ACCOUNT OF THE FACT OF THE CONCERNED ACCOUNTANT AND OTHERS, WHO WERE HANDLING THE ACCOUNTING MATTERS, WHO LEFT THE COMPANY, AND THE HOSTILE RELATIONSHIP BETWEEN THE ASSESSEE COMPA NY AND THE BANKER, WHICH PREVENTED IT FROM COMPLYING WITH THE REQUIREMENT OF THE ASSESSING OFFICER, WHICH LED TO THE DISALLOWANC ES IN QUESTION DURING THE YEARS UNDER APPEAL. THE VERY SAME REASON S WERE ALSO STATED TO HAVE PREVAILED THE ASSESSEE IN ACCEPTING THE ADDITIONS MADE BY THE ASSESSING OFFICER, INSTEAD OF PROCEEDIN G IN APPEAL AGAINST THE SAME. THUS, THERE WAS A JUSTIFIABLE REA SON FOR THE NON-COMPLIANCE FROM THE ASSESSEE. IN THE CIRCUMSTAN CES, WE FIND NO JUSTIFICATION FOR THE IMPOSITION OF PENALTY UNDE R S.271(1)(C) OF THE ACT. WE ARE SUPPORTED IN THIS BEHALF BY THE DEC ISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF AVA NTHI LABORATORIES LTD. (SUPRA), WHICH HAS BEEN RELIED UP ON BY THE CIT(A) IN THE IMPUGNED ORDER. 9. FURTHER, MERELY BECAUSE A CLAIM MADE BY THE ASSE SSEE IS DISALLOWED IN THE ASSESSMENT, IT CANNOT LEAD TO THE INFERENCE OF EITHER CONCEALMENT OF INCOME OR FURNISHING OF INACC URATE PARTICULARS OF INCOME BY THE ASSESSEE. WE ARE SUPPO RTED IN THIS BEHALF BY THE DECISION OF THE APEX COURT IN THE CAS E OF RELIANCE PETRO PRODUCTS (SUPRA), WHEREIN IT HAS BEEN HELD AS FOLLOWS- 9. WE ARE NOT CONCERNED IN THE PRESENT CASE WITH T HE MENS REA. HOWEVER, WE HAVE TO ONLY SEE AS TO WHETHER IN THIS CASE, AS A MATTER OF FACT, THE ASSESSEE HAS GIVEN INACCURATE P ARTICULARS. IN WEBSTER'S DICTIONARY, THE WORD 'INACCURATE' HAS BEE N DEFINED AS :- 'NOT ACCURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS; AS AN INACCURATE STATEMENT, COPY OR TRAN SCRIPT'. WE HAVE ALREADY SEEN THE MEANING OF THE WORD 'PARTI CULARS' IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION, THEY MUST MEAN THE DETAILS SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TR UTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RE TURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. SUCH N OT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVITING THE PE NALTY UNDER SECTION 271(1)(C) OF THE ACT. A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACC URATE PARTICULARS. IN THE CASE BEFORE, THERE IS NO DISPUTE WITH REGARD TO THE INTEREST PAYMENTS MADE BY THE ASSESSEE TO THE BANK. NEITHER THE AMOUNTS OF PAYMENT NOR THE FACTUM OF PAYMENT OF PAYMENT WAS QUESTIONED, SO AS TO ALLEGE THAT THE ASSESSEE HAS F URNISHED 6 ITA.NO.383, 384, 385/HYD/2013 M/S. HANDUM INDUSTRIES LTD., HYDERABAD. INACCURATE PARTICULARS OF ITS INCOME. IF THE DISALL OWANCE WAS MADE BY THE ASSESSING OFFICER, IT WAS BASING ON THE ASSU MPTION THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS AND DIVERT ED THE FUNDS OF ITS BUSINESS FOR NON-BUSINESS PURPOSES, AND AS S UCH, THE CLAIM OF THE ASSESSEE FOR INTEREST PAYMENTS MADE TO THE B ANK IS NOT ALLOWABLE. AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA), MERE MAKING OF A C LAIM BY THE ASSESSEE IN THE RETURN DOES NOT TANTAMOUNT TO FURNI SHING OF INACCURATE PARTICULARS OF INCOME, AND CONSEQUENTLY, EVERY DISALLOWANCE MADE IN THE ASSESSMENT CANNOT LEAD TO THE INFERENCE OF CONCEALMENT. 10. IN THE LIGHT OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW THAT IT IS NOT A FIT CASE FOR IMPOSITION OF PENALTY UNDER S.271(1)(C) OF THE ACT, AND AS SUCH THE CIT(A), WAS VERY MUCH J USTIFIED IN CANCELLING THE IMPUGNED PENALTIES LEVIED BY THE ASS ESSING OFFICER FOR THE FOUR YEARS UNDER APPEAL. WE ACCORDINGLY UPH OLD THE ORDER OF THE CIT(A), REJECTING THE GROUNDS OF THE REVENUE IN THESE APPEALS. 6.2. INTEREST AMOUNTS DISALLOWED RELATE TO BORROWA LS FROM THE BANK TOWARDS WORKING CAPITAL REQUIREMENTS OF THE ASSESSEE. ASSESSEE HAS EXPLAINED THE VARIOUS DIFFIC ULTIES THAT IT HAD TO ENCOUNTER ON ACCOUNT OF THE FACT OF HOSTILE RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND THE BANKER, WHICH PREVENTED IT FROM COMPLYING WITH THE REQUIREMENT OF THE ASSESSING OFFICER, WHICH LED TO THE DISALLOWANCES I N QUESTION DURING THE YEARS UNDER APPEAL. THE VERY SAME REASON S WERE ALSO STATED TO HAVE PREVAILED UPON ASSESSEE IN ACCE PTING THE ADDITIONS MADE BY THE ASSESSING OFFICER, INSTEAD OF PROCEEDING IN APPEAL AGAINST THE SAME. THUS, THERE WAS A JUSTI FIABLE REASON FOR THE NON-COMPLIANCE FROM THE ASSESSEE. IN THE CIRCUMSTANCES, WE FIND NO JUSTIFICATION FOR THE IMP OSITION OF PENALTY UNDER S.271(1)(C) OF THE ACT. WE ARE SUPPOR TED IN THIS BEHALF BY THE DECISION OF THE COORDINATE BENCH OF T HE TRIBUNAL IN THE CASE OF AVANTHI LABORATORIES LTD. (SUPRA). R ESPECTFULLY FOLLOWING THE SAME AND ALSO THE COORDINATE BENCH IN HEMAN FAN COMPONENTS LTD (SUPRA), WE SET ASIDE THE ORDERS OF THE 7 ITA.NO.383, 384, 385/HYD/2013 M/S. HANDUM INDUSTRIES LTD., HYDERABAD. LD. CIT(A) AND DELETE THE PENALTIES LEVIED BY THE A .O. ASSESSEES GROUNDS ARE ALLOWED. 7. IN THE RESULT, ALL THE THREE APPEALS OF THE ASS ESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT O N 16.07.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 16 TH JULY, 2014. VBP/- COPY TO 1. M/S. HANDUM INDUSTRIES LTD., SURVEY NO. 296/7/7, 8 & 11, SHERI BOLLARAM, JINNARAM MANDAL, JINNARAM MANDAL, HYDERABAD. C/O. P. MURALI & CO., CHARTERED ACCOUNTA NTS, 6- 3-655/2/3, 1 ST FLOOR, SOMAJIGUDA, HYDERABAD 82. 2. ACIT, CIRCLE 8 (1), HYDERABAD. 3. CIT(A)-III, HYDERABAD. 4. ADDL. CIT (TRANSFER PRICING), 6 TH FLOOR, B-BLOCK, IT TOWERS, AC GUARDS, HYDERABAD 4. 5. CIT-II, HYDERABAD 6. D.R. ITAT A BENCH, HYDERABAD.