VIJAY G. JAIN, MUMBAI V. ITO 24(3)(4), MUMBAI

ITA 4307/MUM/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 3767 (ITAT-MUMBAI)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 14-11-2011
• Assessment Year: misc
• Appeal Filed On: 26-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Assessee Lawyers: R C JAIN
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH F, MUMBAI BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER I.T.A. NO. 4307/MUM/2010 ASSESSMENT YEAR : 2005-06. VIJAY G. JAIN, THE INCOME-TAX OFFICER, 601, ARIHANT APTS., VS. WARD-24(3)(4), MUMBAI. PLOT NO.2, JAWAHAR NAGAR, S.V. ROAD, GOREGAON (W), MUMBAI. PAN : AAIPJ5398N. APPELLANT. RESPONDENT APPELLANT BY : SHRI R.C. JAIN. RESPONDENT BY: SHRI C.G.K. NAIR. DATE OF HEARING : 14-11-2011. DATE OF PRONOUNCEMENT : 18-11-2011. O R D E R. PER P.M. JAGTAP, A.M. : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LEARNED CIT(APPEALS)-34, MUMBAI DATED 16-02-2010 WHEREBY HE CONFIRMED THE PENALTY OF RS.1,29,093/- IMPOSED BY THE AO U/S 271(1)(C). 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L WHO IS ENGAGED IN THE BUSINESS OF TRADING IN PLASTIC MATERIALS AND TEXTIL ES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM ON 31-10- 2005 DECLARING TOTAL INCOME OF RS.5,76,390/-. DURING THE COURSE OF ASSESSMENT PROC EEDINGS, IT WAS NOTICED BY THE 2 ITA NO. 4307/MUM/2010 ASSESSMENT YEAR : 2005-06. AO THAT THE ASSESSEE HAS ADVANCED INTEREST FREE LOA NS OF RS.47,71,956/- FOR NON BUSINESS PURPOSE. HE ALSO FOUND THAT THE ASSESSEE, ON THE OTHER HAND, HAD TAKEN SUBSTANTIAL LOANS ON INTEREST AND THE INTEREST PAID ON SUCH LOANS WAS CLAIMED AS DEDUCTIBLE BUSINESS EXPENDITURE. IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION FORTHCOMING FROM THE ASSESSEE, INTEREST ATTRIBUTABL E TO THE INTEREST FREE LOANS GIVEN BY THE ASSESSEE FOR NON BUSINESS PURPOSE AS WORKED OUT BY HIM AT RS.3,38,997/- WAS DISALLOWED BY THE AO IN THE ASSESSMENT COMPLETE D U/S 143(3) VIDE AN ORDER DATED 24-12-2007. THE ASSESSEE DID NOT CHALLENGE TH E SAID DISALLOWANCE IN THE APPEAL AND ACCEPTED THE ADDITION MADE BY THE AO. TH E AO ALSO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) AND ISSUED A NOTICE TO TH E ASSESSEE REQUIRING HIM TO SHOW CAUSE AS TO WHY PENALTY SHOULD NOT BE IMPOSED IN RE SPECT OF ADDITION MADE BY WAY OF DISALLOWANCE OF INTEREST TREATING THE SAME AS TH E ACT OF FURNISHING INACCURATE PARTICULARS OF INCOME. IN REPLY FILED IN RESPONSE T O THE SAID NOTICE, IT WAS SUBMITTED BY THE ASSESSEE THAT HE HAD GOT SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH HIM AT THE RELEVANT TIME TO GIVE INTEREST FREE ADVANCES AN D THERE WAS NO UTILIZATION OF INTEREST BEARING BORROWED FUNDS TO GIVE THE SAID AD VANCES. THIS EXPLANATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO ON THE GROUND T HAT THE SAME WAS NOT OFFERED DURING THE COURSE OF ASSESSMENT PROCEEDINGS DESPITE SUFFICIENT OPPORTUNITY. HE HELD THAT THE ASSESSEE WAS GUILTY OF FURNISHING INA CCURATE PARTICULARS OF HIS INCOME TO THE EXTENT OF ADDITION MADE BY WAY OF DISALLOWAN CE OF INTEREST AND IMPOSED A PENALTY OF RS.1,29,093/- U/S 271(1)(C) BEING 100% O F THE TAX SOUGHT TO BE EVADED IN RESPECT OF THE SAID ADDITION. ON APPEAL, THE LEA RNED CIT(APPEALS) CONFIRMED THE SAID PENALTY IMPOSED BY THE AO OBSERVING THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO ESTABLISH THAT INTEREST FREE FUNDS WERE UTILIZED FOR ADVANCING INTEREST FREE LOANS. AGGRIEVED BY THE ORDER OF THE LEARNED C IT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 3 ITA NO. 4307/MUM/2010 ASSESSMENT YEAR : 2005-06. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS DEMONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSEE FROM THE BALANCE SHEET OF THE ASSESSEE AS ON 31 ST MARCH, 2005, SUFFICIENT INTEREST FREE FUNDS WERE APPARENTLY AVAILABLE WITH THE ASSESSEE A T THE RELEVANT TIME TO GIVE INTEREST FREE ADVANCES FOR NON BUSINESS PURPOSE. IT IS NO DOUBT TRUE THAT IT IS A CASE OF MIXED FUNDS. HOWEVER, AS HELD BY THE HONBLE BOM BAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES AND POWER LTD. 313 IT R 340, IF IT IS A CASE OF MIXED FUNDS WITH BOTH INTEREST FREE AND INTEREST BEARING FUNDS AVAILABLE WITH THE ASSESSEE, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WO ULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE. IT WAS HELD THAT IF THE INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS, NO DI SALLOWANCE ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS COULD BE MADE. IT IS ALSO TR UE THAT THE ASSESSEE HAS ACCEPTED THE ADDITION MADE BY THE AO BY WAY OF DISA LLOWANCE OF INTEREST IN THE QUANTUM PROCEEDINGS. HOWEVER, THE PENALTY PROCEEDIN GS ARE SEPARATE AND DISTINCT FROM THE ASSESSMENT PROCEEDINGS AND THE ASSESSEE CA N ALWAYS SHOW DURING THE COURSE OF PENALTY PROCEEDINGS THAT THE RELEVANT ADD ITION IN RESPECT OF WHICH PENALTY HAS BEEN IMPOSED BY ITSELF IS NOT SUSTAINABLE. IN T HE PRESENT CASE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS DEMONSTRATED FROM THE RELEVANT FACTS AND FIGURES THAT SUFFICIENT INTEREST FREE FUNDS HAVING BEEN AVAILABL E WITH THE ASSESSEE TO GIVE INTEREST FREE ADVANCES, THE DISALLOWANCE OF INTERES T ITSELF PRIMA FACIE IS NOT SUSTAINABLE. WE ARE, THEREFORE, OF THE VIEW THAT IT IS NOT A FIT CASE TO IMPOSE PENALTY U/S 271(1)(C) IN RESPECT OF ADDITION MADE BY WAY OF DISALLOWANCE OF INTEREST ESPECIALLY WHEN THE ASSESSEE WAS NOT FOUND TO BE GU ILTY OF FURNISHING ANY INACCURATE PARTICULARS WHILE MAKING THE CLAIM FOR D EDUCTION ON ACCOUNT OF INTEREST. IN THAT VIEW OF THE MATTER, WE CANCEL THE PENALTY I MPOSED BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) U/S 271(1)(C) AND ALLOW THIS APPEAL OF THE ASSESSEE. 4 ITA NO. 4307/MUM/2010 ASSESSMENT YEAR : 2005-06. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THI S 18 TH DAY OF NOV., 2011. SD/- S D/- (R.S.PADVEKAR) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 18 TH NOV., 2011. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, F-BENCH. 6. GUARD FILE. (TRUE COPY ) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI.