THERMAL PRODUCTS CO., MUMBAI V. DCIT CIR 12(2), MUMBAI

ITA 4007/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9458 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 05-12-2012
• Assessment Year: 1998-1999
• Appeal Filed On: 26-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B D PATIL DR
• Assessee Lawyers: GANGADHAR GANESH SATHE
• Keywords: Business income; Bonafide belief; Wrong claim; Bad and doubtful debts; Notional interest
• Section: 27

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES J MUMBAI . . , . / BEFORE SHRI B.R. MITTAL, JUDICIAL MEMBER / AND , . . SHRI RAJENDRA, ACCOUNTANT MEMBER . / ITA NO. 4007/M/2009 / ASSESSMENT YEAR 1998-99 THERMAL PRODUCTS CO., DANI WOOLTEX COMPOUND, 158, VIDYANAGARI MARG, KALINA, SANTACRUZ (E), MUMBAI-400 098. PAN: AACFT 0365 R VS. DCIT 12(2), MUMBAI. ( / APPELLANT ) ( ! / RESPONDENT ) ' / APPELLANT BY : SHRI GANGADHAR GANESH SATHE ! # ' /RESPONDENT BY : SHRI B.D. PATIL (DR) # $%& / DATE OF HEARING : 05-12-2012 '( # $%& / DATE OF PRONOUNCEMENT : 05-12-2012 )* / O R D E R PER RAJENDRA, AM THE PRESENT APPEAL IS DIRECTED AGAINST THE ORDER DT .16-04-2009 PASSED BY THE CIT(A)-XII, MUMBAI. FOLLOWING GROUNDS OF APPEAL H AVE BEEN RAISED BY THE ASSESSEE: GROUND I THE CIT (A) ERRED IN HOLDING THAT THE APPELLANT HAD FILED INACCURATE PARTICULARS TO THE EXTENT OF THE CLAIM FOR DEDUCTION AMOUNTING TO RS. 9, 63,457/- AND THE ACTION OF THE A.O. IN IMPOSING PENALTY U/S 271(1) (C) IS JUSTIFIED. THE APPELLANT SUBMITS THAT ITA NO. 4007/M/2009 THERMAL PRODUCTS CO., 2 I. THE ASSESSEE HAD GIVEN CERTAIN PROPERTY ON SUB- LEASE AND THE RENTAL INCOME ALL ALONG IN THE PAST AND IN THE SUBSEQUENT YEARS WAS CONSIDERED AS BUSINESS INCOME AND TAXED ACCORDINGLY. II. IN RESPECT OF ONE OF THE LESSEES VIZ ARMOUR CHE MICALS LEASE RENTAL AMOUNTING TO RS.9,63,457/- WAS NOT FORTHCOMING AND REMAINED OUTS TANDING. III. THE SAID LESSEE WAS DECLARED AS A SICK UNIT AN D WAS PUT UNDER BIFR. IV. THE ASSESSES THEREFORE BONAFIDE THOUGHT THAT TH IS SUM DID NOT ACCRUE TO IT AND SHOULD NOT BE INCLUDED IN ITS INCOME. V. IN THE CIRCUMSTANCES THE COMMERCIAL PROFITS FOR COMPUTATION COULD NOT HAVE BEEN PROPERLY ARRIVED AT UNLESS THIS OUTSTANDING SUM WAS DEDUCTED . THE CIT (A) FAILED TO APPRECIATE THAT I. IT WAS ONLY FIRST TIME THAT THE AO CONSIDERED TH AT THIS IS NOT A BUSINESS INCOME AND THEREFORE TO BE TAXED AS INCOME FROM OTHER SOURCES. NO DEDUCT ION FOR THIS OUTSTANDING WAS ALLOWED BY THE A0. HE ALSO CONSIDERED IT AS NOT IRRECOVERABLE. II. ALL THE FACTS REGARDING THE CLAIM WERE GIVEN TO THE A0. THE EXPLANATION AS TO HOW THE CLAIM AROSE WAS ALSO GIVEN. III. THE EXPLANATION WAS BONAFIDE AND NOT FOUND TO BE FALSE BY THE AO. IV. THE DECISION IN DHARMENDRAS CASE (306 ITR 277) HAS NO APPLICATION BECAUSE ONLY THE ESTABLISHMENT OF MENS-REA WAS OUSTED BUT ALL THE PA RAMETERS AND THE REQUIREMENTS OF THE PROVISIONS OF SECTION 27 1(1) (C) REMAIN APPLICABLE . THE APPELLANT THEREFORE CONTENDS THAT THE LEVY OF P ENALTY U/S 27 1(1) (C) IS NOT JUSTIFIED. GROUND II THE CIT (A) ERRED IN HOLDING THAT THE FINDINGS OF THE ASSESSING OFFICER THAT THE LOANS TAKEN HAD BEEN ADVANCED AS INTEREST FREE LOANS HAD NOT BE EN DISPROVED BY THE APPELLANT. THE APPELLANT SUBMITS THAT I. DURING THE YEAR THERE WAS NO DIVERSION OF ANY BO RROWINGS IN AS MUCH AS NO FRESH ADVANCES WISE GIVEN TO ANY PARTIES. IT WAS NOT THEIR PRACTIC E TO CHARGE INTEREST FOR ADVANCES GIVEN. II. THE NOTIONAL INTEREST CALCULATED ON THE ADVANCE S WAS NEVER EARNED AND SUCH NOTIONAL SUM CANNOT BE DEDUCTED FROM INTEREST PAID ON BORROWINGS WHICH WERE TAKEN FOR BUSINESS PURPOSE. THE APPELLANT THEREFORE CONTENDS THAT THE PENAL PR OVISIONS OF SECTION 271(1) (C) ARE NOT AT ALL ATTRACTED AND THE PENALTY CANNOT BE LEVIED WITH REF ERENCE TO SUCH DISALLOWANCE WHICH THE A.O HIMSELF HAS CREATED AND DISALLOWED. GROUND III THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEN D ANY OR ALL THE GROUNDS OF APPEAL. ITA NO. 4007/M/2009 THERMAL PRODUCTS CO., 3 2. ASSESSEE-FIRM, ENGAGED IN THE BUSINESS OF MANUFACTU RING GRINDING WHEELS AND SEGMENTS, FILED ITS RETURN OF INCOME IN RESPONSE TO NOTICE ISSUED U/S.148 OF THE INCOME-TAX ACT, 1961 (ACT), DECLARING TOTAL INCOME OF RS.11.62 LAKHS. ASSESSING OFFICER (AO) FINALISED THE ASSESSMENT ORDER U/S.143 (3) R.W.W.147, ON 27.03.2002, DETERMINING THE TOTAL INCOME AT RS. 25.38 LAKHS. 3.1.I DURING THE ASSESSMENT PROCEEDINGS AO FOUND THAT THE ASSESSEE HAD SHOWN RS. 9,63,457/- DUE FROM M/S. ARMOUR CHEMICALS PVT L TD. (ACPL) ON ACCOUNT OF LICENCE FEES FOR THE PERIOD FROM AUGUST 1996 TO MAR CH 1998. AO FURTHER NOTICED THAT THE SAID SUM WAS SHOWN AS WRITTEN OFF AND WAS CLAIM ED AS EXPENSES WHILE COMPUTING THE TOTAL INCOME. HE ALSO FOUND THAT THE ASSESSEE HAD NOT ACTUALLY WRITTEN IT OFF IN THE BOOKS OF ACCOUNTS. ASSESSEE DID NOT FURNISH ANY EXP LANATION AS TO WHY IT HAD NOT ACTUALLY WRITTEN OFF THE SAID AMOUNT IN ITS BOOKS O F ACCOUNTS OR ADJUSTED THE DEPOSIT- MONEY AMOUNTING TO RS. 16,04,370/- RECEIVED FROM A CPL, THOUGH SAME WAS SHOWN AS A LIABILITY. APART FROM THIS, IT WAS ALSO NOTICE D BY THE AO THAT THE AMOUNT RECOVERABLE FROM ACPL WAS TRANSFERRED BY THE ASSESS EE TO ITS SISTER CONCERN-M/S. LUPIN INDUSTRIES LTD. CONSIDERING ABOVE FACTS HE H ELD THAT THE AMOUNT OF RS. 9,63,457/- HAD NEVER BECOME BAD AS CLAIMED BY T HE ASSESSEE AND ASSESSEES CLAIM FOR DEDUCTION OF RS. 9,63,457/- FROM THE TAXABLE IN COME WAS DISALLOWED. ADDITION MADE BY THE AO IN RESPECT OF WRITTEN OFF LICENCE F EE WAS CONFIRMED IN APPEAL BY THE FIRST APPEAL AUTHORITY (FAA). 3.1.II. DURING THE ASSESSMENT PROCEEDING AO HELD THAT THE A SSESSEE HAD UTILISED INTEREST BEARING LOAN FUNDS FOR ADVANCING THE INTER EST FREE LOANS AND HAD NOT ESTABLISHED ITS NEXUS TO ITS BUSINESS. PROPORTIONA TE INTEREST AMOUNTING TO RS.1,35,000/- ON LOAN TRANSACTION IN QUESTION WAS C ONSIDERED AS NOT HAVING BEEN UTILISED FOR THE BUSINESS OF THE ASSESSEE AND WAS A CCORDINGLY DISALLOWED. ADDITION MADE BY THE AO WERE CONFIRMED BY THE FAA. SIMILARL Y, AO MADE ADHOC DIS- ALLOWANCES AMOUNTING TO RS. 80,159/-. ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA) WHO CONFIRMED THE ORDER O F THE AO. ASSESSEE FILED SECOND APPEAL BEFORE THE TRIBUNAL VIDE ITS ORDER DT . 21-11-2008, G BENCH OF THE ITAT, MUMBAI (ITA NO. 3802/M/03 AY 1998-99) UPHELD THE DIS-ALLOWANCE OF RS. 9.63 LAKHS CONFIRMED BY THE FAA. ISSUE OF INTEREST WAS RESTORED BACK TO THE FILE OF THE AO. DIS-ALLOWANCE OF EXPENSES, BEING COMMISSI ON PAID WAS ALSO DECIDED AGAINST THE ASSESSEE. 4. MEANWHILE, AO ISSUED NOTICE U/S. 274 OF THE ACT AND LEVIED A PENALTY OF RS. 4.12 LAKHS VIDE HIS ORDER DT. 15-04-2008 IN RESPECT OF THE FOLLOWING ITEMS: I. LICENCE FEE DUE FROM ACPL WRITTEN-OFF RS. 9.63 LAKH S; II. INTEREST DIS-ALLOWED ON LOANS RS. 1.35 LAKHS; III. DIS-ALLOWANCE UNDER DIFFERENT HEADS OF EXPENSES RS. 80,159/-; AO HELD THAT ASSESSEE HAD FURNISHED INACCURATE PAR TICULARS OF INCOME. ASSESSEE PREFERRED AN APPEAL BEFORE THE FAA. AFTER CONSIDER ING THE SUBMISSIONS OF THE ASSESSEE, HE HELD THAT PENALTY IMPOSED ON ADHOC DIS -ALLOWANCES OF RS. 80,159/- COULD ITA NO. 4007/M/2009 THERMAL PRODUCTS CO., 4 NOT BE SUSTAINED. WITH REGARD TO THE DIS-ALLOWANCE S OF RS. 9.63 LAKHS, HE HELD THAT APPELLANT HAD FAILED TO PROVE THE FACT THAT AMOUNT IN QUESTION HAD BECOME BAD, THAT BY CLAIMING THE SAME IN THE COMPUTATION OF INCOME WITH OUT CORRESPONDING WRITING IN THE BOOKS OF ACCOUNTS DID NOT MAKE THE DEBT AS BAD, THA T NO EXPLANATION WAS OFFERED AS TO WHY THE AMOUNT DUE FROM ACPL WAS WRITTEN-OFF, THAT THE APPELLANT HAD FAILED TO GIVE A BONAFIDE EXPLANATION OF ITS ACTION, THE APPELLANT HAD FILED INACCURATE PARTICULARS TO THE EXTENT OF CLAIM OF DEDUCTION AMOUNTING TO RS. 9 .63 LAKHS, THAT AO WAS JUSTIFIED IN IMPOSING PENALTY U/S. 271(1)( C ) OF THE ACT. HE R ELIED UPON THE ORDER OF THE DHARMENDRAS CASE (306 ITR 277) AND UPHELD THE ORDER OF THE AO. WITH REGARD TO DIS-ALLOWANCE OF INTEREST EXPENSE OF RS. 1.35 LAKHS , HE HELD THAT APPELLANT DID NOT PROVE THAT THE INTEREST BEARING LOANS HAD NOT BEEN UTILIZED FOR ADVANCING INTEREST FREE LOANS, THAT INTEREST FREE LOANS ADVANCE ON ACCOUNT OF BUSINESS EXPEDIENCY. FINALLY, HE UPHELD THE IMPOSITION OF PENALTY BY AO. 5. BEFORE US, AUTHORISED REPRESENTATIVE (AR) SUBMITTE D THAT ASSESSEE HAD GIVEN PROPER EXPLANATION WITH REGARD TO PROPERTY SUB-LEAS ED TO ACPL, THAT ACPL WAS DECLARED AS SICK UNIT AND PUT UNDER BIFR. ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE LEASE RENT DID NOT ACCRUED TO IT AND COULD NOT BE I NCLUDED IN ITS INCOME, THAT DECISION DELIVERED BY THE HONBLE SUPREME COURT IN THE CASE DHARMENDRA (SUPRA) HAD NO APPLICATION IN THE CASE UNDER CONSIDERATION, THAT A SSESSEE HAD NOT FILED INACCURATE PARTICULARS, THAT THERE WAS NO DIVERSION OF ANY BOR ROWINGS IN THE YEAR UNDER CONSIDERATION, THAT NO FRESH ADVANCES WERE GIVEN TO ANY PARTY, THAT AO HAD CALCULATED NOTIONAL INTEREST ON THE ADVANCES OF THE DETAILS AB OUT THE LOAN TRANSACTIONS WERE FURNISHED DURING THE ASSESSMENT PROCEEDINGS. AR AL SO RELIED UPON THE ORDERS OF THE RELIANCE PETRO PRODUCTS PVT. LTD., (322 ITR 158). DEPARTMENTAL REPRESENTATIVE (DR) SUBMITTED THAT ASSESSEE HAD MADE A WRONG CLAIM THAT THE AO HAD RIGHTLY IMPOSED THE PENALTY THAT CONFIRMED BY THE FAA. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. 6. AFTER GOING THROUGH THE ORDERS OF THE AO, FAA AND T HE TRIBUNAL WITH REGARD TO THE LEASE RENT AMOUNTING TO RS. 9.63 LAKHS, WE ARE OF THE OPINION THAT ASSESSEE HAD MADE A FALSE CLAIM BEFORE THE AO. IT IS AN ESTABLI SHED FACT THAT THE ASSESSEE HAD TRANSFERRED THE SAID ENTRY TO THE SISTER CONCERN WI THOUT WRITING OFF THE SAID AMOUNTS IN THE BOOKS OF ACCOUNTS. IN OUR OPINION, BY CLAIMING THE SAME AS BAD DEBTS, WHILE COMPUTING THE INCOME FOR THE RELEVANT AY, ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF ITS INCOME. IN THESE CIRCUMSTANCES, WE ARE UPHOLDING THE ORDER OF THE FAA. WE DECIDE GROUND NO.1 AGAINST THE ASSESSEE. 7. AS FAR AS GROUND NO.2 IS CONCERNED, IN OUR OPINION , PENALTY CANNOT BE IMPOSED WITH REGARD TO NOTIONAL DIS-ALLOWANCE OF INTEREST A MOUNTING TO RS. 1.35 LAKHS. WE FIND THAT THE ASSESSEE HAD FILED ALL THE NECESSARY DETAILS BEFORE THE AO DURING THE ASSESSMENT PROCEEDINGS. AO HAD MADE AN ADDITION IN THIS REGARD THAT WAS CONFIRMED BY THE FAA. IN OUR OPINION, PENALTY PROCEEDINGS AR E DIFFERENT FROM THE ASSESSMENT PROCEEDINGS. ANY ADDITION MADE DURING THE ASSESSME NT PROCEEDINGS DOES NOT RESULT IN AUTOMATIC LEVYING OF PENALTY. AO HAS TO ESTABLISH THAT INACCURATE PARTICULARS WERE ITA NO. 4007/M/2009 THERMAL PRODUCTS CO., 5 FILED OR PARTICULARS OF THE INCOME WERE CONCEALED. IN THE ISSUE UNDER CONSIDERATION, WE FIND THAT THERE WAS NO OMISSION/COMMISSION BY TH E ASSESSEE. HENCE, GROUND NO.2 IS DECIDED IN FAVOUR OF THE A SSESSEE. AS A RESULT APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH DECEMBER, 2012. )* # '( & , -). 5TH DECEMBER, 2012 ( # / 0 SD/- SD/- ( . . / B.R. MITTAL ) ( / RAJENDRA ) )1 / JUDICIAL MEMBER & )1 / ACCOUNTANT MEMBER MUMBAI, -) DATE: 5 TH DECEMBER, 2012 TNMM COPY TO: 1. APPELLANT 2. RESPONDENT 3. THE CONCERNED CIT (A) 4. THE CONCERNED CIT 5. DR J BENCH, ITAT, MUMBAI 6. GUARD FILE !2$ $ //TRUE COPY// )* )* )* )* / BY ORDER, 3 33 3 / 4 4 4 4 DY./ASST. REGISTRAR , / ITAT, MUMBAI