The DCITBharuch Circle, Bharuch V. Ragini Exhibitors Pvt.Ltd., Bharuch

ITA 4165/AHD/2008

• Counselvise Citation: 416520514 RSA 2008
• Duration Of Justice: 2 year(s) 9 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-10-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 31-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAY RAJ KUMAR
• Assessee Lawyers: J P SHAH
• Keywords: Proportionate interest; Initiation of penalty proceedings; Commercial expediency
• Section: 143(3)

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH DAHMEDABAD BEFORE S/SHRI D. K. TYAGI, J.M. AND A. K. GARODIA, A.M. ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 DY. CIT, BHARUCH CIRCLE, BHARUCH. VS. RAGINI EXHIBITORS (P) LTD., BHADKODRA ROAD, TAL. ANKLESHWAR, DIST.BHARUCH. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI JAYRAJ KUMAR, DR RESPONDENT BY:- SHRI J.P. SHAH, AR DATE OF HEARING : 3/10/2011 DATE OF PRONOUNCEMENT : 21/10/2011. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 1/10/2008 RAISING FOLLOWING GROUND :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE T HE LD. CIT(A) HAS ERRED IN LAW IN CANCELING THE ORDER U/S 271(1)( C) LEVYING PENALTY OF RS.2,56,258/- 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS ENGAGED IN RUNNING A CINEMA HALL AT BHADKODRA, TAL. ANKLESHWAR , IN THE NAME OF RAGINI CINEMA. THE ASSESSEE COMPANY FILED ITS RET URN OF INCOME ON 31/10/2002 DECLARING TOTAL LOSS AT RS.11,98,443/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE ACT ON TOTAL INCOME OF RS.2,99,686/-. ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 2 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE HAD PAID INTEREST OF RS.10 ,36,856/- TO ANKLESHWAR NAGRIK SAHAKARI BANK LTD. DURING THE YEA R UNDER CONSIDERATION. ON FURTHER SCRUTINY OF ACCOUNTS, IT WAS OBSERVED BY THE AO THAT THE ASSESSEE COMPANY HAD OBTAINED TERM LOAN OF RS.1 CRORE FROM THE SAID BANK ON 05/12/2001, WHICH IS GROUPED UNDER THE HEAD OF OTHER LIABILITIES. OUT OF THE BORROWINGS, THE ASSESSEE C OMPANY HAD GIVEN LOAN OF RS.67,91,000/- TO ITS ASSOCIATE CONCERN M/S ASHW INI CONSTRUCTION ON THE SAME DAY. FURTHER, AS PER THE BALANCE SHEET, TH ERE WERE DEBIT BALANCES OF MANY PARTIES, ON WHICH NO INTEREST WAS CHARGED B Y THE ASSESSEE COMPANY THOUGH THE DEBIT BALANCE REMAINED FOR WHOLE YEAR. THEREFORE, PROPORTIONATE INTEREST AT RS.7,52,184/- OUT OF THE TOTAL INTEREST OF RS.10,36,856/- WAS DISALLOWED. PENALTY PROCEEDINGS WERE INITIATED U/S 271(1)(C) OF THE ACT. 2.2 DURING THE COURSE OF PENALTY PROCEEDINGS, IT WA S STATED BY THE ASSESSEE THAT THE VIEW OF THE AO THAT THE ADVANCES TO THE SISTER CONCERN IS NOT FOR THE BUSINESS PURPOSE IS NOT CORRECT. THE DE CISION OF THE CASE OF M/S S.A. BUILDER LTD. 288 ITR 1 (SC) WAS RELIED UPO N. HOWEVER, THE ASSESSEE HAD NOT TAKEN THE MATTER TO TRIBUNAL AS TH ERE WAS ASSESSED LOSS OF RS.2,99,686/- AND IN VIEW OF THE APEX COURTS DECIS ION IN THE CASE OF VIRTUAL SOFTWARE LTD. 289 ITR 83, PENALTY WAS NOT L EVIABLE WHEN THERE WAS ASSESSED LOSS. THE AO ON THE OTHER HAND WAS OF THE VIEW THAT THE ASSESSEE HAD FAILED TO ESTABLISH COMMERCIAL EXPEDIE NCY OF ADVANCING HUGE AMOUNT TO SISTER CONCERN AND THUS HAD DIVERTED ITS INTEREST BEARING FUND FOR NON-BUSINESS PURPOSES AND HAD FILED INACCU RATE PARTICULARS OF INCOME. THE AO THEREFORE, LEVIED PENALTY OF RS.2,56 ,258/- U/S 271(1)(C). ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 3 2.3 THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST AP PELLATE AUTHORITY WHEREIN IT WAS CONTENDED THAT IN VIEW OF THE DECISI ON OF HONBLE SUPREME COURT IN THE CASE OF VIRTUAL SOFTWARE LTD. PENALTY WAS NOT LEVIABLE IF THERE WAS ASSESSED LOSS UPTO ASST. YEAR 2003-04. IT WAS FURTHER ARGUED THAT IT WAS MENTIONED THAT MERE NOTING IN TH E ASSESSMENT ORDER THAT PENALTY PROCEEDINGS ARE INITIATED MAY NOT BE CALLED RECORDING SATISFACTION FOR INITIATION OF PENALTY PROCEEDINGS. THE DECISION IN THE CASE OF PANNA DESAI 73 TTJ 915, MUNEESH IRON STORE 263 ITR 484 ( P & H), SUBHASH GUPTA 85 ITD 167, (JAI) D.M. MANSAWI 77 ITD 107 (SC ) WERE RELIED UPON. STRONG RELIANCE WAS PLACED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF T. ASHOK PAI (SUPRA) WHEREIN IT IS H ELD THAT IN PENALTY PROCEEDINGS THE BURDEN LIES ON THE DEPARTMENT TO ES TABLISH THAT THE ASSESSEE HAS CONCEALED ITS INCOME AND A FINDING IN THE ASSESSMENT PROCEEDING IS NOT CONCLUSIVE FOR PURPOSES OF PENALT Y. IT WAS ALSO STATED THAT THE PENALTY PROCEEDINGS ARE INDEPENDENT PROCEE DINGS AND THAT AN OMISSION IN INCOME DOES NOT BY ITSELF LEAD TO INFER ENCE OF CONCEALMENT. IT WAS ALSO IMPRESSED THAT INFERENCE OF MENS REA FOR C ONCEALMENT OF PENALTY IS ESSENTIAL AND THAT WHEN AN ASSESSEE ACTS ON LEGA L ADVICE THE OMISSION SHOULD BE TREATED AS BONA FIDE. IT WAS THUS PLEADED THAT THE PENALTY U/S 271(1)(C) HAD BEEN WRONGLY LEVIED AND BE DELETED. 2.4 THE LD. CIT(A) AFTER CONSIDERING THE PENALT Y ORDER AND SUBMISSIONS OF THE ASSESSEE DELETED THE PENALTY IN QUESTION BY OBSERVING AS UNDER :- 4.2 I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT, THE PENALTY ORDER, THE ASSESSMENT ORDER AND THE QUANTUM APPEAL ORDER. AT THE OUTSET, THE LEGAL PLEA OF THE APPELLANT THAT IN VIE W OF THE DECISION IN THE CASE OF VIRTUAL SOFTWARE LTD., THE PENALTY IS NOT L EVIABLE IN LOSS CASES IS NOT TENABLE IN THE LIGHT OF LATEST JUDGMENT IN THE CASE OF CIT-I, AHMEDABAD VS. GOLD COIN HEALTH FOODS (P) LTD. 2008- TIOL-152-SC-IT, WHEREIN THE HONBLE SUPREME COURT HAS OVERRULED THE DECISION IN THE CASE OF VIRTUAL SOFTWARE LTD. HOLDING THAT THE PENA LTY WAS LEVIABLE EVEN IN ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 4 A CASE WHERE ADDITION OF CONCEALED INCOME REDUCES T HE RETURNED LOSS EVEN FOR ASSESSMENT YEAR PRIOR TO 2003-04. 4.2.1 HOWEVER ON MERITS IT IS NOTED THAT THE APPELL ANT HAD RAISED TERM LOAN OF RS.1 CRORE ON 05/12/2001 FROM ANKLESHWAR NA GRIK SAHAKARI BANK AND HAD ALSO PAID INTEREST OF RS.10,36,856/- TO THE SAID BANK AND THAT MONIES WERE ALSO ADVANCED TO SISTER CONCERN WITHOUT CHARGING ANY INTEREST. BEFORE THE AO IT WAS STATED THAT NO INTER EST WAS CHARGED ON ACCOUNT OF COMMERCIAL EXPEDIENCY AND LONG TERM BUSI NESS TRANSACTIONS WITH THE ASSOCIATE CONCERNS. DURING THE COURSE OF Q UANTUM APPEAL PROCEEDINGS, IT WAS STATED THAT THE ADVANCES WERE G IVEN TO ASHWINI CONSTRUCTION AT NO INTEREST RATE BECAUSE THE SAID C ONCERN HAD HELPED IN CONSTRUCTION OF THE CINEMA THEATRE OF THE APPELLANT AND AT THAT TIME SUBSTANTIAL CREDIT WAS GIVEN BY ASHWINI CONSTRUCTIO N WITHOUT CHARGING ANY INTEREST. THE AO DISALLOWED PROPORTIONATE INTER EST STATING THAT THE ASSESSEE HAD FAILED TO PROVE THAT THE BORROWINGS ON WHICH INTEREST WAS PAID WAS FOR BUSINESS OF THE ASSESSEE. IT IS HOWEVE R ASSERTED BY THE APPELLANT THAT IN THE CASE OF S.A. BUILDERS 288 ITR 1, THE HONBLE APEX COURT HAS HELD THAT IT IS NOT RELEVANT AS TO WHETHE R THE BORROWED AMOUNT IS UTILIZED BY THE ASSESSEE IN ITS OWN BUSINESS OR WHETHER IT HAS BEEN ADVANCED TO THE SISTER CONCERN AS INTEREST FREE LOA N OUT OF COMMERCIAL EXPEDIENCY. 4.2.2 THE CIT(A) HAD PARTLY CONFIRMED THE INTERES T DISALLOWANCE RELYING ON THE DECISION IN THE CASE OF TORRENT FINANCIER 73 TTJ 624 (ITAT, AHMEDABAD) HOLDING THAT IT WAS DIFFICULT TO ESTABLI SH ONE TO ONE CO- RELATION BETWEEN THE AVAILABILITY OF INTEREST FREE FUND AVAILABLE AND THE AMOUNTS ADVANCED ON DAY-TO-DAY BASIS. 5. IN VIEW OF THE AFORESAID FACTS OF THE CASE, I AM OF THE VIEW THAT IN THIS CASE THE APPELLANT HAD FURNISHED ALL THE DETAI LS REGARDING THE INTEREST EXPENDITURE AND INTEREST FREE ADVANCES AND HAD ALSO OFFERED EXPLANATION FOR THE INTEREST FREE ADVANCES TO THE SISTER CONCER NS. SUCH AN EXPLANATION IS NOT FOUND TO BE FALSE BY THE AO. FURTHER, THE CO NFIRMATION OF THE DISALLOWANCE BY CIT(A) WAS ALSO ON MACRO ANALYSIS O F SOURCES OF FUND AVAILABLE AND THE ADVANCES MADE BASED ON BALANCE SH EET FIGURES. UNDER THE CIRCUMSTANCES, BOTH IN TERMS OF THE MAIN PROVIS ION AND EXPLANATION TO SECTION 271(1)(C) IT CANNOT BE SAID THAT THE APPELL ANT HAD CONCEALED PARTICULARS OF INCOME. THE PENALTY OF RS.2,56,258/- IS THEREFORE DIRECTED TO BE DELETED. ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 5 AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. DR SUPPORTED THE ORDER OF AO A ND SUBMITTED THAT THE ASSESSEE FAILED TO ESTABLISH COMMERCIAL EXPEDIE NCY OF ADVANCING HUGE AMOUNT TO SISTER CONCERN AND THUS HAD DIVERTED ITS INTEREST BEARING FUND FOR NON-BUSINESS PURPOSE AND HAD FILED INACCURATE P ARTICULARS OF INCOME. THE AO WAS THEREFORE, JUSTIFIED IN LEVYING THE PENA LTY OF RS.2,56,258/-. THE LD. CIT(A) WRONGLY DELETED THE PENALTY WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ORDER OF LD. CIT (A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 4. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT IN PENALTY P ROCEEDINGS THE BURDEN LIES ON THE DEPARTMENT TO ESTABLISH THAT THE ASSESS EE HAS CONCEALED ITS INCOME AND A FINDING IN THE ASSESSMENT PROCEEDINGS IS NOT CONCLUSIVE FOR PURPOSES OF PENALTY. IT WAS ALSO SUBMITTED THAT THE PENALTY PROCEEDINGS ARE INDEPENDENT PROCEEDINGS AND THAT AN OMISSION IN INCOME DOES NOT BY ITSELF LEAD TO INFERENCE OF CONCEALMENT. IT WAS ALS O STATED THAT INFERENCE OF MENS REA FOR CONCEALMENT OF PENALTY IS ESSENTIAL AN D THAT WHEN AN ASSESSEE ACTS ON LEGAL ADVICE THE OMISSION SHOULD B E TREATED AS BONA FIDE. THE ASSESSEE HAD FURNISHED ALL THE DETAILS REGARDIN G THE INTEREST EXPENDITURE AND INTEREST FREE ADVANCES AND HAD ALSO OFFERED EXPLANATION FOR THE INTEREST FREE ADVANCES TO THE SISTER CONCER NS. SUCH AN EXPLANATION WAS NOT FOUND TO BE FALSE BY THE AO. BOTH IN TERMS OF THE MAIN PROVISION AND EXPLANATION TO SECTION 271(1)(C) IT CANNOT BE S AID THAT THE ASSESSEE HAD CONCEALED PARTICULARS OF INCOME. THEREFORE, THE LD. CIT(A) HAS RIGHTLY DELETED THE PENALTY IN QUESTION. THE ORDER OF LD. C IT(A) BE UPHELD. ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 6 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE AO STATED THAT PENALTY PROCEEDINGS W ERE INITIATED ONLY ON THE DISALLOWANCE OF INTEREST PAID TO SISTER CONCERN . THE ASSESSEE HAS FAILED TO ESTABLISH THE COMMERCIAL EXPEDIENCY OF ADVANCING SUCH HUGE AMOUNT TO OTHERS WITHOUT CHARGING ANY INTEREST WHEN IT HAD INCURRED HUGE EXPENDITURE ON BORROWINGS. THE ASSESSEE HAD DIVERTE D ITS INTEREST BEARING FUNDS FOR NON-BUSINESS PURPOSES AND THEREFORE, PROV ISIONS OF SECTION 36(1)(III) WERE CLEARLY APPLICABLE TO THIS CASE. TH E ASSESSEE HAD FAILED TO PROVE THE NEXUS BETWEEN INTEREST FREE UNSECURED LOA NS AND INTEREST FREE ADVANCES GIVEN TO VARIOUS PARTIES. THE ASSESSEE HAD FILED INACCURATE PARTICULARS AND THEREBY COMMITTED DEFAULT U/S 271(1 )(C). ACCORDINGLY THE PENALTY WAS LEVIED. THE LD. CIT(A) IN HIS ORDER HAS OBSERVED THAT THE ASSESSEE HAD FURNISHED ALL THE DETAILS REGARDING TH E INTEREST EXPENDITURE AND INTEREST FREE ADVANCES AND HAD ALSO OFFERED EXP LANATION FOR THE INTEREST FREE ADVANCES TO THE SISTER CONCERNS. SUCH AN EXPLANATION WAS NOT FOUND TO BE FALSE BY THE AO. THE CONFIRMATION OF TH E DISALLOWANCE BY CIT(A) WAS ALSO ON MACRO ANALYSIS OF SOURCES OF FUN D AVAILABLE AND ADVANCES MADE BASED ON BALANCE SHEET FIGURES. BOTH IN TERMS OF MAIN PROVISION AND EXPLANATION SECTION 271(1) IT CANNOT BE SAID THAT THE ASSESSEE HAD CONCEALED PARTICULARS OF INCOME ACCORD INGLY, HE DELETED THE PENALTY. THIS FINDING OF LD. CIT(A) WAS NOT DISPUTE D BY THE REVENUE AT THE TIME OF HEARING BEFORE US. SINCE THE ASSESSEE H AD FURNISHED ALL THE DETAILS REGARDING THE INTEREST EXPENDITURE AND INTE REST-FREE ADVANCES AND ALSO OFFERED EXPLANATION FOR INTEREST-FREE ADVANCES TO THE SISTER CONCERN WHICH WAS NOT FOUND FALSE BY THE AO, HE WAS NOT JUS TIFIED IN LEVYING PENALTY U/S 271(1)(C) AND, THEREFORE, THE LD. CIT(A ) HAS RIGHTLY DELETED THE SAME. WE FEEL NO NEED TO INTERFERE WITH THE ORDER O F LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THE GROUND RAISED BY THE REV ENUE IS DISMISSED. ITA NO.4165/AHD/2008 ASST. YEAR 2002-03 7 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 21/10/20 11. SD/- SD/- (A. K. GARODIA) (D. K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 3/10/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 17/10/11. /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 DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..