The DCIT, Circle-4, Baroda V. Rekvina Laboratories Ltd., Baroda

ITA 4584/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0055 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 16-08-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 31-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: BHUBNESH KULSHRESHTHA
• Keywords: Opportunity of being heard; Notional interest; Commercial expediency
• Section: 271(1)(c); 37(1); 147

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI BHAVNESH SAINI, JM AND D.C.AGRAWAL, A M DY. CIT, CIRCLE-4, BARODA. VS. M/S REKVINA LABORATORIES LTD., 328- 329, PARADISE COMPLEX, SAYAJIGUNJ, BARODA. (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI BHUBNESH KULSHRESHTHA, DR REVENUEBY:- SHRI SUNIL TALATI, AR O R D E R PER D. C. AGRAWAL, ACCOUNTANT MEMBER . THESE ARE THREE APPEALS FOR ASST. YEAR 1999-00, 20 00-01 & 2002- 03 AGAINST THE COMMON ORDER OF LD. CIT(A) DATED 27. 9.2007 AGAINST DELETION OF PENALTY LEVIED BY THE AO U/S 271(1)(C). 2. THE RELEVANT FACTS FOR THREE YEARS ARE AS UNDER :- 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASST. YEAR 2001- 02 THE AO NOTICED THAT ASSESSEE HAS CLAIMED PAYMENT OF INTEREST OF RS.12,49,721/- IN THAT YEAR IN THE PROFIT AND LOSS ACCOUNT. THE AO DISALLOWED THE CLAIM OF EXPENDITURE IN THAT YEAR ON THE GROUND THAT ASSESSEE COMPANY HAS DIVERTED INTEREST BEARING FUND S TO M/S RADIANT PARENTAL LTD., SPANDAN FINANCE LTD. AND BANSALI FIN ANCIAL (P) LTD. FOR NON-BUSINESS PURPOSES. ON THE BASIS OF HIS FINDING THIS YEAR, HE REOPENED ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS :1999-00,2000-01 & 2002-03 ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS 1999-00, 2000-01 & 2002-03 2 ASSESSMENTS U/S 147 FOR ASST. YEARS 1999-00 AND 200 0-01 AND SELECTED FOR SCRUTINY ASSESSMENT FOR ASST. YEAR 2002-03. ASST. YEAR 1999-00 4. THE ASSESSEE COMPANY FILED RETURN OF INCOME ON 3 1.12.1999 ON A TOTAL INCOME OF RS.NIL. IT WAS PROCESSED UNDER SECT ION 143(1)(A) ON 10.5.2000 ON THE INCOME DECLARED U/S 115JA AT RS.27 ,105/-. 5. IN THE REASONS RECORDED FOR REOPENING THE ASSESS MENT FOR THIS YEAR IT WAS NOTED THAT ASSESSEE HAD CLAIMED INTEREST EXPEND ITURE OF RS.20,08,614/- WHICH WAS DEBITED IN ITS PROFIT AND LOSS ACCOUNT BUT NO INTEREST WAS CHARGED ON LOANS/ADVANCES GIVEN TO THR EE ASSOCIATE CONCERNS. IT WAS ALSO NOTED THAT THESE LOANS AND ADVANCES WER E GIVEN SINCE 1998 WITHOUT INTEREST AND FOR NON-BUSINESS PURPOSES. ACC ORDINGLY CLAIM OF INTEREST FOR ASST. YEAR 1999-00 WAS FOUND NOT ALLOW ABLE. THEREAFTER THE AO ISSUED NOTICE U/S 147 TO REOPEN THE ASSESSMENTS AND AFTER GIVING OPPORTUNITY OF BEING HEARD DISALLOWED PAYMENT OF IN TEREST CALCULATED ON INTEREST FREE ADVANCES GIVEN TO SISTER CONCERNS AT RS.20,08,614/-. HE CALCULATED INCOME ACCORDINGLY AND FOUND THAT REVISE D TOTAL INCOME AT RS.17,42,876/- WAS MORE THAN 30% BOOK PROFIT OF RS. 27,105/- AND ACCORDINGLY ASSESSED IT AS PER COMPUTATION OF INCOM E AND NOT U/S 115JA AS EARLIER DONE. ASST. YEAR 2000-01 6. IN THIS YEAR RETURN OF INCOME WAS FILED AT NIL A ND ASSESSMENT WAS COMPLETED UNDER SECTION 115JA ON DECLARED INCOME TH ERE-UNDER AT RS.36,107/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1)(A). ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS 1999-00, 2000-01 & 2002-03 3 7. IN THE ASSESSMENT PROCEEDINGS THE AO CALCULATED INTEREST ON INTEREST FREE ADVANCES GIVEN TO SISTER CONCERNS FOR NON-BUSINESS PURPOSES AT RS.18,51,196/-. HE ACCORDINGLY WORKED OUT REVISE D TOTAL INCOME AFTER DISALLOWING INTEREST AT RS.18,11,391/-. THUS AS AGA INST 30% BOOK PROFIT OF RS.36,107/-, THE AO ASSESSED ITS INCOME AT RS.18,11 ,391/-. ASST. YEAR 2002-03 8. THE RETURN OF INCOME FOR THIS YEAR WAS FILED DEC LARING LOSS OF RS.6,31,549/- ON 30.10.2002. IT WAS PROCESSED U/S 1 43(1)(A) ON 24.2.2003 ON DECLARED LOSS. 9. DURING THE COURSE OF SCRUTINY ASSESSMENT FOR THI S YEAR THE AO CALCULATED INTEREST ON INTEREST FREE ADVANCES GIVEN TO SISTER CONCERNS AT RS.7,18,689/- AND ACCORDINGLY ADDED THE SAME TO WOR K OUT TOTAL INCOME AT RS.1,85,070/- AGAINST LOSS EARLIER COMPUTED AT RS.6 ,31,549/- AFTER MAKING SOME OTHER MINOR ADDITIONS ALSO. 10. THE AO INITIATED PENALTY PROCEEDINGS UNDER SECT ION 271(1)(C) FOR ALL THE THREE YEARS. IN RESPONSE TO SHOW CAUSE NOTI CE ISSUED BY THE AO THE ASSESSEE FURNISHED THE REPLY ON 12.3.2007 STATING T HEREIN THAT ADDITION HAS BEEN MADE ONLY ON NOTIONAL INTEREST WHICH HAS NEITH ER BEEN CHARGED NOR THE SAME HAD ACCRUED FROM THE PARTIES. THE AO REJEC TED THE EXPLANATION AND LEVIED THE PENALTY BY HOLDING THAT ASSESSEE FAI LED TO SHOW THAT ADVANCES TO ASSOCIATE CONCERNS WERE NOT MADE FROM N ON-INTEREST BEARING CAPITAL/FUNDS AND WAS NOT FOR BUSINESS PURPOSES AND , THEREFORE, OUGHT NOT TO HAVE CLAIMED ANY INTEREST IN THE PROFIT AND LOSS ACCOUNT. HE, THEREAFTER LEVIED THE MINIMUM LEVIABLE PENALTY FOR ALL THE THR EE YEARS. ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS 1999-00, 2000-01 & 2002-03 4 11. THE LD. CIT(A) CANCELLED THE PENALTY BY RELYING ON THE DECISION OF HON. APEX COURT IN S.A. BUILDERS VS. CIT 288 ITR 1, WHEREIN IT WAS HELD THAT IF ASSESSEE HAS MADE CLAIM EVEN THOUGH MISCONC EIVED, WHICH IS DISALLOWED DURING THE COURSE OF ASSESSMENT PROCEEDI NGS, PENALTY WOULD NOT BE LEVIABLE IF ALL THE MATERIAL FACTS ARE DISCL OSED. FURTHER WHERE MORE THAN ONE POSSIBLE VIEW EXIST AND CLAIM HAS BEEN MAD E UNDER ONE OF TWO POSSIBLE VIEWS, WHICH IS NOT ACCEPTED BY THE AUTHOR ITIES, THEN PENALTY WOULD NOT BE LEVIABLE UNLESS SOME POSITIVE CONCEALM ENT IS DEMONSTRATED. THE LD. CIT(A) ALSO REFERRED TO THE DECISION OF HON . GUJARAT HIGH COURT IN BTX CHEMICALS (P) LTD. VS. CIT 288 ITR 196 (GUJ ) FOR THE LEGAL PROPOSITION THAT PENALTY WAS NOT LEVIABLE FOR DISAL LOWANCE MADE IN ASSESSMENT IF ALL THE MATERIAL FACTS ARE DISCLOSED BEFORE THE AUTHORITIES. IN THE INSTANT CASE LD. CIT(A) HELD THAT NO FACTS WERE WITHHELD WHICH COULD JUSTIFY IMPOSITION OF PENALTY FOR CONCEALMENT. THE CLAIM IS NOT FOUND FALSE OR BOGUS BUT ADDITIONS HAVE BEEN MADE ON DIFF ERENCE OF OPINION ON THE SCOPE OF EXPRESSION FOR THE PURPOSES OF THE BU SINESS. 12. THE LD. AR BASICALLY RELIED ON THE ORDER OF LD. CIT(A) AND ALSO ON THE DECISION OF HON. APEX COURT IN CIT VS. RELIANCE PETROPRODUCTS (2010) 322 ITR 158 (SC). 13. ON THE OTHER HAND, LD. DR RELIED ON THE ORDERS OF AO. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CA REFULLY PERUSED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THERE IS NO CASE FOR INTERFERENCE IN THE ORDER OF LD. CIT(A). THE REASONS ARE THAT AS SESSEE CONSIDERED ADVANCING OF FUNDS TO SISTER CONCERNS WITHOUT INTER EST A COMMERCIAL EXPEDIENCY AS IT THOUGHT PROPER TO CONTINUE BUSINES S RELATIONS WITH THOSE ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS 1999-00, 2000-01 & 2002-03 5 CONCERNS. THOUGH APPARENTLY THERE WAS NO CONNECTION OF BUSINESS OF THE ASSESSEE WITH THE ADVANCING INTEREST FREE FUNDS TO THE SISTER CONCERNS BUT IN COMMERCIAL LIFE THERE ARE UNWRITTEN OR UNEXPLAINABL E COMMERCIAL CONNECTION WHICH CANNOT REALLY BE PUT INTO BLACK AN D WHITE. WE UPHOLD THE ARGUMENT OF LD. AR IN THIS REGARD THAT EVEN THOUGH COMMERCIAL CONNECTION IS NOT ESTABLISHED AND ADDITION IS SUSTAINED BUT IN REALITY FROM ASSESSEES POINT OF VIEW THERE IS OFTEN A COMMERCIAL CONNECTIO N IN ORDER TO EITHER SUPPORT THE SISTER CONCERN SO AS TO PROTECT THE FUN DS OF THE DIRECTORS/SHAREHOLDERS OF THE ASSESSEE COMPANY AND THEIR INTEREST IN THOSE CONCERNS OR TO FORE-SEE A BRIGHT PROSPECT FOR THE B USINESS OF THE ASSESSEE COMPANY IF SISTER CONCERNS PROSPER OR THEY DO NOT D IE OUT FOR WANT OF FUNDS. SUCH DECISIONS, BASED ON PRUDENCE AND, SUB-C ONSCIOUS IMPRESSION ABOUT POSSIBLE BRIGHT FUTURE OF SISTER CONCERNS CAN NOT BE SAID TO BE MALA- FIDE, OR CONCEALMENT OF INCOME OR FURNISHING OF INA CCURATE PARTICULARS OF INCOME. TRULY FOR ALLOWING DEDUCTION UNDER SECTION 37(1) OR U/S 36(1)(III) COMMERCIAL CONNECTION OR BUSINESS PURPOSES FOR CLAI MING EXPENDITURE OR, FOR ADVANCING INTEREST FREE LOAN TO SISTER CONCERNS , HAS TO BE ESTABLISHED BY THE ASSESSEE AND ON ITS FAILURE TO FURNISH EVIDENCE IN THIS REGARD, ADDITION HAS TO BE SUSTAINED, BUT FOR THAT REASON ALONE IT C ANNOT BE SAID THAT DISALLOWANCE OF THE CLAIM WOULD INVITE PENALTY. 15. FURTHER, THERE IS NO ALLEGATION MADE BY THE AO EITHER IN THE ASSESSMENT ORDER OR IN THE PENALTY ORDER THAT ASSES SEE HAS CONCEALED ANY MATERIAL FACT NECESSARY FOR ASSESSMENT OR FURNISHED ANY INACCURATE PARTICULARS. THE CASE OF THE REVENUE ALSO DOES NOT FALL WITHIN THE MEANING OF EXPLANATION-1 TO SECTION 271(1)(C) BECAUSE REVEN UE HAS FAILED TO ESTABLISH THAT ALL THE THREE INGREDIENTS OF THAT EX PLANATION ARE SATISFIED. THERE IS NO FINDING BY THE AO THAT EXPLANATION FURN ISHED BY THE ASSESSEE WAS NOT BONA FIDE AND ALSO THERE IS NO ALLEGATION T HAT ANY MATERIAL FACT ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS 1999-00, 2000-01 & 2002-03 6 NECESSARY FOR ASSESSMENT HAS NOT BEEN DISCLOSED BY THE ASSESSEE AND FINALLY THERE IS ALSO NO ALLEGATION THAT ASSESSEE H AS FAILED TO SUBSTANTIATE THE EXPLANATION FURNISHED BY HIM. ACCORDINGLY EXPLANATI ON-1 WILL ALSO NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASES. HON. MADRAS HIGH COURT IN CIT V. SIVANANDA STEELS LTD [2002] 256 ITR 683 (MAD ) HELD THAT WHERE CLAIM MADE IS BONA FIDE THERE IS NO JUSTIFICATION F OR LEVY OF PENALTY, MERELY BECAUSE CLAIM WAS LATER WITHDRAWN BY THE ASSESSEE. THE HON. APEX COURT IN CIT VS. RELIANCE PETROPRODUCTS (SUPRA) HELD THAT PROVISION OF SECTION 271(1)(C) APPLIES WHERE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. NO INFORMATION GIVEN IN THE RETURN HAS BEEN FOUND TO BE INCORRECT OR INACCURATE. NO CASE HAS BEEN MADE OUT THAT THERE IS CONCEALMENT OF INCO ME. THE ARGUMENT OF AO OR THE LD. DR THAT SUBMITTING AN INCORRECT CLAIM FOR EXPENDITURE WOULD AMOUNT TO GIVING INACCURATE PARTICULARS OF SUCH INC OME IS NOT CORRECT, BECAUSE BY NO STRETCH OF IMAGINATION MAKING INCORRE CT CLAIM IN LAW WOULD TANTAMOUNT TO FURNISH INACCURATE PARTICULARS. IF CO NTENTION OF THE REVENUE IS ACCEPTED THEN IN EVERY CASE WHERE CLAIM OF THE A SSESSEE IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)(C) WHICH CANNOT BE THE INTENTION OF THE LEGI SLATURE. TO ATTRACT PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST BE FOUND NOT TO BE ACCURATE, NOT EXACT OR NOT CORRECT, OR NOT TRUE, OR SHOULD BE FOUND ERRONEOUS. SUCH FINDING HAS TO BE MADE ON MATERIAL EVIDENCE ON RECO RD AND CANNOT BE MERELY AN OPINION OF THE AO. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) IN CANCELING THE PENALTY. THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ITA NOS.4584 TO 4586/AHD/2007 ASST. YEARS 1999-00, 2000-01 & 2002-03 7 16. IN THE RESULT, ALL THE THREE APPEALS FILED BY T HE REVENUE ARE DISMISSED. ORDER WAS PRONOUNCED IN OPEN COURT ON 20/8/2010. SD/- SD/- (BHAVNESH SAINI) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBE R AHMEDABAD, DATED : 20/8/2010. MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD