ENEM NOSTRUM REMEDIES P. LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 4496/MUM/2011

• Counselvise Citation: 449619914 RSA 2011
• Duration Of Justice: 11 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-05-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 03-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SASMITA MISRA
• Assessee Lawyers: KAVITA MEHEND ALE
• Keywords: Benefit of exemption
• Section: 14A; 115JB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER & SHRI N.V. VASUDEVAN, JUDICIAL MEMBER. I.T.A. NOS. 4496 & 4497/MUM/2011. ASSESSMENT YEARS : 2007-08 AND 2009-10 ENEM NOSTRUM REMEDIES P.LTD., DY. COMMERCIAL OF UNIT NO. 201 TO 204, VS. INCOME-TAX-8(1), GAYATRI COMMERCIAL COMPLEX, MUMBAI. MAROL, ANDHERI (E), MUMBAI 400059. PAN AAACE8766G. APPELLANT. RESPONDENT. APPELLANT BY : SHRI ANIL SATHE AND MS. KAVITA MEHENDALE. RESPONDENT BY : SHRI SASMITA MISRA. DATE OF HEARING : 19-04-2012 DATE OF PRONOUNCEMENT : 16-05-2012 O R D E R PER P.M. JAGTAP, A.M. : THESE TWO APPEALS FILED BY THE ASSESSEE AGAINST TW O SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS) HAVE BEEN HEARD TOGETHE R AND ARE BEING DISPOSED OF BY THIS SINGLE CONSOLIDATED ORDER. 2. FIRST WE SHALL TAKE UP THE APPEAL OF THE ASSESSE E FOR ASSESSMENT YEAR 2007-08 BEING ITA NO. 4496/MUM/2011 WHICH IS DIRECTED AGAIN ST THE ORDER OF LEARNED CIT(APPEALS)-16, MUMBAI DATED 23-11-2011. 2 ITA NOS.4496&4497/MUM/2011 3. THE GROUNDS RAISED BY THE ASSESSEE IN THIS APPEA L READ AS UNDER : 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF D ISALLOWING CLAIM OF DEDUCTION U/S 35(1)(IV) OF RS.6,14,21,248/- IN RESP ECT OF SCIENTIFIC RESEARCH EXPENDITURE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF D ISALLOWING THE EXEMPTION U/S 10B UNDER NORMAL PROVISIONS AS WELL A S UNDER 115JB. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN M AKING A DISALLOWANCE U/S 14A OF RS.3,11,769/-. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER OF A DDING THE AMOUNT OF DISALLOWANCE U/S 14A OF RS.3,11,769/- WHILE CALC ULATING BOOK PROFIT U/S 115JB 4. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. AS REGARDS GROUND NO.1, IT IS O BSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF ASSESSEES CLAIM FOR DED UCTION U/S 35(1)(IV) IN RESPECT OF SCIENTIFIC RESEARCH EXPENDITURE IS SQUARELY COVE RED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE BY THE DECISION OF THE TRIBUN AL RENDERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2003-04 VIDE AN ORDER DATE D 28-8-2008 PASSED IN ITA NO. 1179/MUM/2008 WHEREIN A SIMILAR CLAIM OF THE ASSESS EE WAS HELD TO BE NOT ALLOWABLE BY THE TRIBUNAL FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO.11 : THE LD. COUNSEL FOR THE ASSESSEE HAS ARGUED THAT IT IS COVERED U/S. 35(1)(IV) R.W.S. 43(4)(III)(A). WE WILL, THEREFORE, RESTRICT OUR DISCUSSION TO THESE PROVISIONS ONLY. IT WAS STATED ON BEHALF OF T HE ASSESSEE THAT THE SCIENTIFIC RESEARCH, IN SO FAR AS IT IS APPLICABL E TO THE ASSESSEE, MEANS ANY SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AN EXTENSION OF THAT 3 ITA NOS.4496&4497/MUM/2011 BUSINESS OR, AS THE CASE MAY BE, ALL BUSINESS OF TH AT CLASS. HE FURTHER ASSERTED THAT THE EXPRESSION SCIENTIFIC RESEARCH RELATED TO THE BUSINESS AS USED IN SECTION 35(1)(IV) IS SIMILAR TO SCIENTIFIC RESEARC H RELATED TO A BUSINESS AS EMPLOYED IN SECTION 43(4)(III) AND WHEN BOTH ARE SE EN IN JUXTAPOSITION TO EACH OTHER, IT IMPLIES THAT IF THE SCIENTIFIC RESEA RCH LEADS TO AN EXTENSION OF THE ASSESSEES BUSINESS, THEN THE DEDUCTION CANNOT BE DENIED. IN THIS BACKGROUND OF THE FACTS THE LD. AR STATED THAT THE ASSESSEE HAS BEEN BENEFITTED WITH THE RESULTS OF ITS RESEARCH IN AS M UCH AS ITS BUSINESS OF SCIENTIFIC RESEARCH HAS INCREASED. WE ARE NOT CONVI NCED WITH THE INTERPRETATION GIVEN BY THE LD. A.R. TO THE STATUTO RY PROVISIONS. PRIMARILY THERE IS DIFFERENCE IN THE LANGUAGE OF CLAUSE (IV) OF SECTION 35(1) AND SECTION 43(4)(III)(A) BECAUSE THE REFERENCE IN THE FORMER S ECTION IS TO SCIENTIFIC RESEARCH RELATED TO THE BUSINESS CARRIED ON BY THE ASSESSEE AND IN THE DEFINITION CLAUSE OF SECTION 43 THE LANGUAGE USED I S SCIENTIFIC RESEARCH RELATED TO A BUSINESS OR CLASS OF BUSINESS TO INCL UDE ANY SCIENTIFIC RESEARCH WHICH MAY LEAD TO OR FACILITATE AN EXTENSION OF THA T BUSINESS OR AS THE CASE MAY BE, ALL BUSINESS OF THAT CLASS. THE HARMONIOUS CONSTRUCTION OF THESE PROVISIONS CLEARLY INDICATES THAT THERE SHOULD BE A BUSINESS CARRIED ON BY THE ASSESSEE AND THE SCIENTIFIC RESEARCH SHOULD RELATE TO THAT BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE. IT NO WHERE SUGGESTS TH AT THE BUSINESS OF CARRYING ON SCIENTIFIC RESEARCH IS COVERED WITHIN THE AMBIT OF THIS PROVISION. AGAIN THE REFERENCE TO THE EXTENSION OF THAT BUSIN ESS IN SECTION 43(4)(III) CLEARLY DIVULGES THAT THE SCIENTIFIC RESEARCH SO DO NE BY THE ASSESSEE SHOULD CONTRIBUTE IN THE EXTENSION OF BUSINESS CARRIED ON BY IT. IT IS NOT AKIN TO THE EXTENSION OF THE BUSINESS OF SCIENTIFIC RESEARCH. F OR EXAMPLE, A PHARMACEUTICAL COMPANY MAY BE SELLING A PARTICULAR TABLET MEANT FOR CURING HEADACHE WITHIN AN HOUR FROM ITS CONSUMPTION. WHEN IT UNDERTAKES SCIENTIFIC RESEARCH AND INVENTS A FORMULA BY WHICH THE NEW TAB LET WOULD CURE THE HEADACHE WITHIN 10 MINUTES, THE SCIENTIFIC RESEARCH LEADING TO THE INVENTION OF SUCH NEW TABLET WOULD CERTAINLY LEAD TO OR FACIL ITATE IN THE EXTENSION OF THE BUSINESS OF THE SALE OF MEDICINE OF CURING HEADACHE . IT IS THIS TYPE OF RESEARCH THAT WOULD BE COVERED WITHIN THE AMBIT OF SECTION 43(4)(III)(A). NOWHERE IT IS CONTEMPLATED THAT SCIENTIFIC RESEARCH SHOULD LEAD TO THE GROWTH OF THE BUSINESS OF SCIENTIFIC RESEARCH ITSELF IN TE RMS OF MORE ORDERS FOR RESEARCH AND DEVELOPMENT. HERE IS A CASE BEFORE US IN WHICH THE ASSESSEE IS ENGAGED IN THE DEVELOPMENT OF FORMULATION AS PER TH E ORDERS PLACED BY ITS PARENT COMPANY. IT MEANS THAT THE ASSESSEE HAS TO K EEP ON TRYING VARIOUS PERMUTATIONS AND COMBINATIONS TILL THE DESIRED RESU LT IS ACHIEVED AND FORMULA SO DEVELOPED ACCORDS WITH THE REQUIREMENTS OF THE P ARENT COMPANY. IT IS OBVIOUS THAT NOTHING MORE OR LESS THAN THE ORDER GI VEN BY THE PARENT 4 ITA NOS.4496&4497/MUM/2011 COMPANY WOULD BE ACCEPTABLE AS THE END PRODUCT OF T HE ASSESSEES RESEARCH IN THE FORM OF THE NEW FORMULATION MUST NECESSARILY MATCH WITH THE ORDER PLACED. THE FORMULA SO DEVELOPED BY THE ASSESSEE IS , THEREAFTER, UTILIZED BY NOSTRUM, USA IN EXTENSION OF ITS BUSINESS. THE CONT RIBUTION OF THE ASSESSEES ACTIVITY IS FACILITATING THE EXTENSION O F BUSINESS OF NOSTRUM, USA AND NOT THAT OF ITS OWN. THE SITUATION WOULD HAVE B EEN OTHERWISE IF THE ASSESSEE HAD BEEN ENGAGED IN THE PHARMACEUTICAL BUS INESS AND HAD UTILIZED THE SCIENTIFIC RESEARCH CARRIED OUT BY IT IN ITS BU SINESS OF PRODUCING TABLETS ETC., IN WHICH CASE IT WOULD HAVE BEEN QUALIFIED FO R DEDUCTION WITHIN FOUR CORNERS OF THIS CLAUSE. IN OUR CONSIDERED OPINION T HE LD. CIT(A) CORRECTLY PROCEEDED IN HOLDING THAT THE ASSESSEE IS NOT ELIGI BLE FOR DEDUCTION U/S 35(1)(IV). WE, THEREFORE, APPROVE THE VIEW TAKEN BY HIM ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 5. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDER ATION AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2003-04, WE RESPECTFULLY FOLLOW THE ORDER OF THE COORDINATE BEN CH OF THIS TRIBUNAL FOR ASSESSMENT YEAR 2003-04 AND UPHOLD THE IMPUGNED ORD ER OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY TH E AO ON ACCOUNT OF ASSESSEES CLAIM FOR DEDUCTION U/S 35(1)(IV) IN RES PECT OF SCIENTIFIC RESEARCH EXPENDITURE. GROUND NO. 1 IS ACCORDINGLY DISMISSED. 6. AS REGARDS GROUND NO.2, IT IS OBSERVED THAT THE ISSUE INVOLVED THEREIN RELATING TO DISALLOWANCE MADE BY THE AO AND CONFIRM ED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF ASSESSEES CLAIM FOR EXE MPTION U/S 10B UNDER NORMAL PROVISIONS AS WELL AS U/S 115JB IS ALSO SQUARELY CO VERED AGAINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL FOR ASSESSMENT YEAR 2003-0 4 RENDERED VIDE ITS ORDER DATED 28-08-2008 (SUPRA) WHEREIN THE ACTION OF THE AUTHOR ITIES BELOW IN DENYING THE BENEFIT OF EXEMPTION U/S 10B WAS UPHELD BY THE TRIB UNAL ON THE BASIS OF LETTER OF THE DEPARTMENT OF INFORMATION AND TECHNOLOGY WHICH CLEARLY STATED THAT THE ACTIVITIES OF THE ASSESSEE WERE NOT COVERED UNDER I NFORMATION TECHNOLOGY ENABLED SERVICES. AS THE ISSUE INVOLVED IN THE YEAR UNDER C ONSIDERATION AS WELL AS ALL THE 5 ITA NOS.4496&4497/MUM/2011 MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO ASSE SSMENT YEAR 2003-04, WE RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL RENDERED FOR ASSESSMENT YEAR 2003-04 AND UPHOLD THE IMPUGNED ORDER OF THE LEARNED CIT(APPEALS) CONFIRMING THE DISALLOWANCE MADE BY TH E AO ON ACCOUNT OF ASSESSEES CLAIM FOR EXEMPTION U/S 10B UNDER NORMAL PROVISIONS AS WELL AS U/S 115JB. GROUND NO. 2 IS ACCORDINGLY DISMISSED. 7. AS REGARDS THE ISSUE RAISED IN GROUND NOS. 3 AND 4 RELATING TO THE DISALLOWANCE MADE BY THE AO U/S 14A AND CONFIRMED B Y THE LEARNED CIT(APPEALS), IT IS OBSERVED THAT A SUM OF RS.11.3 LAKHS WAS RECEIVED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION ON ACC OUNT OF DIVIDEND FROM MUTUAL FUNDS AND THE SAME WAS CLAIMED TO BE EXEMPT FROM TA X. ACCORDING TO THE AO, EXPENDITURE CLAIMED BY THE ASSESSEE UNDER THE HEAD PERSONAL COST, ADMINISTRATIVE EXPENSES AND FINANCE COST, AGGREGATING TO RS.3,37,7 1,329/- WAS PARTLY ATTRIBUTABLE TO THE EARNING OF EXEMPT DIVIDEND INCOME AND TO THA T EXTENT THE SAID EXPENDITURE WAS LIABLE TO BE DISALLOWED U/S 14A. SINCE THE TOTA L INCOME OF THE ASSESSEE EXCLUDING THE INCOME ADDED ON ACCOUNT OF DEEMED DIV IDEND U/S 2(22(E) WAS RS.12,24,03,490/-, HE WORKED OUT THE EXPENDITURE AT TRIBUTABLE TO THE EARNING OF EXEMPT DIVIDEND INCOME ON PRORATE BASIS AT RS.3,11, 769/- AND DISALLOWANCE TO THAT EXTENT WAS MADE BY HIM BY INVOKING THE PROVISIONS O F SECTION 14A. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE SAID DISALLOWANC E MADE BY THE AO HOLDING THAT THE SAME WAS MADE ON REASONABLE BASIS. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSE L FOR THE ASSESSEE HAS PREPARED AND FURNISHED BEFORE US THE WORKING OF DISALLOWANCE U/S 14A AS MADE BY THE AO AND AS IT SHOULD BE AS PER THE ASSESSEE. THE SAME I S GIVEN BELOW :- 6 ITA NOS.4496&4497/MUM/2011 CALCULATION OF DISALLOWANCE AS PER AO PARTICULARS AMOUNT (RS.IN LAKHS) ADMINISTRATIVE EXPENSES PERSONNEL COST FINANCE COST TOTAL EXPENDITURE ASSESSED INCOME DIVIDEND EARNED PROPORTIONATE DISALLOWANCE 155.75 134.14 47.83 337.72 1224.03 11.30 3.12 CALCULATION OF DISALLOWANCE AS PER ASSESSEE. PARTICULARS AMOUNT (RS.IN LAKHS) TOTAL ADMINISTRATIVE EXPENSES LESS: FOREIGN EXCH FLUCTUATION LESS: LOSS ON SALE OF ASSET ADMINISTRATIVE EXPENSES (EXCL. EXCHANGE FLUCTUATION AND LOSS ON SALE OF FA) TURNOVER DIVIDEND EARNED PROPORTIONATE DISALLOWANCE 155.75 (49.49) (10.02) 96.23 1867.00 11.30 0.58 7 ITA NOS.4496&4497/MUM/2011 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY THE LEAR NED COUNSEL FOR THE ASSESSEE ON THIS ISSUE IN THE LIGHT OF WORKING GIVEN ABOVE. AS REGARDS FOREIGN EXCHANGE FLUCTUATION OF RS.49.49 LAKHS AND LOSS ON SALE OF A SSETS AMOUNTING TO RS.10.02 LAKHS, WE AGREE WITH THE STAND OF THE LEARNED COUNS EL FOR THE ASSESSEE THAT THE SAME HAVING NO RELATION WHATSOEVER TO THE EARNING OF EXE MPT DIVIDEND INCOME, HAVE TO BE EXCLUDED FROM THE TOTAL ADMINISTRATIVE EXPENSES FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE TO BE MADE U/S 14A ON PRORATE BASI S. WE ALSO AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT PERSONAL COST MAINLY REPRESENTING SALARY PAID TO SCIENTIST IS TOTALLY UN RELATED TO THE EARNING OF EXEMPT DIVIDEND INCOME AND THE SAME, THEREFORE, SHOULD NOT BE CONSIDERED FOR COMPUTING THE DISALLOWANCE TO BE MADE U/S 14A. WE, HOWEVER, D O NOT AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT DIVIDEND INCOME SHOULD BE TAKEN VIS--VIS ASSESSED INCOME AND NOT THE TURNOVE R FOR THE PURPOSE OF PRORATA ALLOCATION OF EXPENSES. IN OUR OPINION, GROSS DIVID END INCOME AND TOTAL TURNOVER SHOULD BE COMPARED FOR SUCH ALLOCATION AS RIGHTLY DONE BY THE AO AND TAKING NET INCOME FOR THIS PURPOSE MAY NOT BE APPROPRIATE. AS REGARDS FINANCE COST, WE AGREE WITH THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT IF THE CORRESPONDING LOANS ARE ENTIRELY USED BY THE ASSESSEE FOR PURCHAS E OF PLANT AND MACHINERY, FINANCE COST CANNOT BE SAID TO BE INCURRED IN RELAT ION TO EARNING OF EXEMPT DIVIDEND INCOME AND THE SAME, THEREFORE, NEED NOT BE CONSIDE RED FOR THE PURPOSE OF WORKING OUT DISALLOWANCE U/S 14A. THIS MATTER, HOWEVER, REQ UIRES VERIFICATION AND ACCORDINGLY WE DIRECT THE AO TO VERIFY THE SAME FRO M THE RELEVANT RECORD AND ALLOW APPROPRIATE RELIEF TO THE ASSESSEE. THE AO ACCORDIN GLY IS DIRECTED TO RECOMPUTE THE DISALLOWANCE TO BE MADE U/S 14A AS PER THE DECISION /DIRECTION GIVEN ABOVE. GROUND NO. 3 AND 4 ARE THUS PARTLY ALLOWED. 8 ITA NOS.4496&4497/MUM/2011 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR AS SESSMENT YEAR 2007-08 BEING ITA NO.4496/MUM/2011 IS PARTLY ALLOWED. 10. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009-10 BEING ITA NO. 4497/MUM/2011 WHICH INVOLVES A SOLITA RY ISSUE RELATING TO PENALTY OF RS.27,12,088/- IMPOSED BY THE AO U/S 221(1) AND CONFIRMED BY THE LEARNED CIT(APPEALS). 11. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2009- 10 ON 29-09-2009. THE SELF ASSESSMENT TAX AMOUNTING TO RS.1,08,48,354/- PAYABLE AS PER THE SAID RETURN, HOWEVER, WAS NOT PAID BY TH E ASSESSEE BEFORE THE DUE DATE OF FILING THE RETURN. A NOTICE, THEREFORE, WAS ISSUED BY THE AO ON 12-01-2010 REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY IT S HOULD NOT BE TREATED AS IN DEFAULT U/S 140A(3) AND PENALTY U/S 221(1) SHOULD NOT BE IM POSED FOR THE DEFAULT IN PAYMENT OF SELF ASSESSMENT TAX. IN REPLY, IT WAS EX PLAINED BY THE ASSESSEE THAT MAJORITY OF ITS SALES WERE MADE TO M/S ENEM NOSTRUM U.S. AND THE FUNDS PERTAINING TO THESE SALES WERE NOT RECEIVED FOR MOR E THAN TWO YEARS. IT WAS SUBMITTED THAT DUE TO NON REALIZATION OF THE SALE P ROCEEDS, THERE WAS SHORTAGE OF FUNDS DUE TO WHICH THE TAX LIABILITY COULD NOT BE P AID. IT WAS CONTENDED THAT THE DEFAULT IN PAYMENT OF SELF ASSESSMENT TAX, THEREFOR E, WAS DUE TO THE REASONS BEYOND THE CONTROL OF THE ASSESSEE AND PENALTY U/S 221(1) SHOULD NOT BE IMPOSED. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABL E BY THE AO. ACCORDING TO HIM, THE EXPLANATION OFFERED BY THE ASSESSEE WAS NOT SUF FICIENT TO SHOW THAT THE DEFAULT WAS FOR A GOOD AND SUFFICIENT REASON. HE ALSO HELD THAT NO EVIDENCE WAS IN ANY CASE PRODUCED BY THE ASSESSEE TO SUPPORT AND SUBSTANTIAT E THE SAID EXPLANATION. ACCORDING TO THE AO, THE CASE OF THE ASSESSEE THUS WAS A FIT CASE TO IMPOSE PENALTY U/S 221(1) AND HE IMPOSED A PENALTY OF RS.27,12,088 /- BEING 25% OF THE TOTAL DEMAND OF RS.1,08,48,354/-. ON APPEAL, THE LEARNED CIT(APPEALS) CONFIRMED THE 9 ITA NOS.4496&4497/MUM/2011 SAID PENALTY IMPOSED BY THE AO FOR THE SAME REASONS AS GIVEN BY THE AO. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS) CONFIRMING THE PENALTY IMPOSED BY THE AO U/S 221(1), THE ASSESSEE HAS PREF ERRED THIS APPEAL BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNED COUNSEL FOR THE ASS ESSEE HAS MAINLY REITERATED BEFORE US THE EXPLANATION OFFERED ON BEHALF OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW IN SUPPORT OF THE ASSESSEES CASE THAT THERE WAS GOOD AND SUFFICIENT REASON FOR THE DEFAULT COMMITTED BY THE ASSESSEE IN PAYMEN T OF SELF ASSESSMENT TAX. HOWEVER, AS RIGHTLY CONTENDED BY THE LEARNED DR, TH E SAID EXPLANATION OFFERED ON BEHALF OF THE ASSESSEE IS NOT SUFFICIENT TO SHOW TH AT THERE WAS GOOD AND SUFFICIENT REASON FOR THE DEFAULT ON THE PART OF THE ASSESSEE TO PAY THE SELF ASSESSMENT TAX. MERELY BECAUSE SUBSTANTIAL FUNDS WERE LOCKED IN SUN DRY DEBTORS, IT CANNOT BE SAID THAT THERE WAS GOOD AND SUFFICIENT REASON FOR DEFAU LT IN PAYMENT OF SELF ASSESSMENT TAX BY THE ASSESSEE ESPECIALLY WHEN THE NET PROFIT EARNED BY IT IN THE PREVIOUS YEARS ENDING ON 31-03-2007 AND 31-03-2008 WAS TO THE TUNE OF RS.12.35 CRORES AND RS.5.73 CRORES. THE TOTAL ACCUMULATED RESERVES AND SURPLUS AS ON 31-03-2008 WERE TO THE TUNE OF RS.32.25 CRORES AND KEEPING IN VIEW THE OVERALL FINANCIAL POSITION OF THE ASSESSEE COMPANY, WE ARE OF THE VIEW THAT IT WA S CERTAINLY IN A POSITION TO RAISE FUNDS FOR PAYMENT OF SELF ASSESSMENT TAX. THE EXPLA NATION OFFERED BY THE ASSESSEE IN THIS REGARD, THEREFORE, CANNOT BE ACCEPTED AND W E FIND OURSELVES IN AGREEMENT WITH THE AUTHORITIES BELOW THAT IT WAS A FIT CASE T O IMPOSE PENALTY U/S 221(1) FOR DEFAULT IN PAYMENT OF SELF ASSESSMENT TAX BY THE AS SESSEE. HOWEVER, KEEPING IN VIEW THAT THE ASSESSEE WAS LIABLE TO PAY INTEREST A LSO FOR THE DELAY IN PAYMENT OF SELF ASSESSMENT TAX, WE ARE OF THE VIEW THAT PENALT Y OF 25% IMPOSED BY THE AO IN ADDITION TO THE INTEREST PAYABLE BY THE ASSESSEE IS ON THE HIGHER SIDE AND IT WOULD BE 10 ITA NOS.4496&4497/MUM/2011 FAIR AND REASONABLE TO RESTRICT THE SAME TO 15%. AC CORDINGLY, WE RESTRICT THE PENALTY OF 25% IMPOSED BY THE AO AND CONFIRMED BY THE LEARN ED CIT(APPEALS) TO THE EXTENT OF 15% OF THE TOTAL TAX LIABILITY AND ALLOW THIS APPEAL OF THE ASSESSEE IN PART. 13. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 16 TH DAY OF MAY, 2012. SD/ SD/- (N.V.VASUDEVAN) (P.M. JA GTAP) JUDICIAL MEMBER ACC OUNTANT MEMBER MUMBAI, DATED: 16 TH MAY, 2012 COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH. (TRUE COPY) BY ORDE R ASSTT. REGI STRAR, ITAT, MUMBAI BEN CHES, MUMBA I, WAKODE