ACIT, New Delhi V. M/s Verve Engineering (P) Ltd., New Delhi

ITA 4848/DEL/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 0406 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Question of law
• Section: 271(1)(c); 260A; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: G, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.4848/DEL/2016 ASSESSMENT YEAR: 2009-10 ACIT, CIRCLE-26(1), NEW DELHI VS. M/S. VERVE ENGINEERING (P.) LTD., C-148, MAYAPURI INDUSTRIAL AREA, NEW DELHI PAN :AACCV7364H (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 21.06.2016 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-9, NEW DELHI, [IN SHORT LEARNED CIT(A)] FOR ASSESSMENT YEAR 2009-10 IN RELATION TO THE PENALTY LEVIED UNDE R SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961 (FOR SHORT T HE ACT) BY THE ASSESSING OFFICER. THE GROUNDS RAISED BY THE REVENU E ARE REPRODUCED AS UNDER: APPELLANT BY SHRI SHAILESH KUMAR, SR. DR & SHRI S.S. RANA, CIT(DR) RESPONDENT BY SHRI KAPIL GOEL, ADV. DATE OF HEARING 16.10.2019 DATE OF PRONOUNCEMENT 13.12.2019 2 ITA NO.4848/DEL/2016 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED : (I) IN DELETING THE PENALTY U/S 271(1) OF THE I.T . ACT ON THE ADDITION OF RS.1,94,03,219/- MADE BY THE AO ON ACCOUNT OF IN TEREST PAID DISALLOWED. (II) IN DELETING THE PENALTY U/S 271(1) OF THE I. T. ACT ON THE ADDITION OF RS.1,13,50,138/- MADE BY AO ON ACCOUNT OF INCOME FROM OTHER SOURCES. 2. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS(S) OF APPEAL AT AN Y TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT DURING T HE ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFIC ER MADE FOLLOWING ADDITIONS: (I) INTEREST CLAIMED UNDER SECTION 36(1)(III) OF TH E ACT, AMOUNTING TO RS.1,94,03,2019/- WAS DISALLOWED, (II) THE INCOME FROM INTEREST OF RS.1,13,50,138/- D ISCLOSED UNDER THE HEAD BUSINESS WAS SHIFTED TO INCOME FROM OTHER SOURCES, (III) EXPENSES OF RS.61,191/- WERE DISALLOWED. 3. ON FURTHER APPEAL, THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) DELETED THE DISALLOWANCE OF RS.61,1941/-. IN RESPECT OF DISALLOWANCE UNDER SECTION 36(1)(III) OF THE ACT, T HOUGHT THE LEARNED CIT(A) UPHELD THE DISALLOWANCE, HE DIRECTED THE ASSESSING OFFICER FOR NETTING OF INTEREST RECEIVED AGAINST I NTEREST PAID. ON FURTHER APPEAL, THE TRIBUNAL REVERSED THE FINDING O F THE LEARNED CIT(A) ON THE ISSUE OF NETTING OF INTEREST RECEIVED AGAINST THE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT. THE ASSESSEE FILED FURTHER APPEAL BEFORE THE HONBLE DE LHI HIGH COURT WHERE THE APPEAL OF THE ASSESSEE HAS BEEN ADMITTED BEING SUBSTANTIAL QUESTION OF LAW INVOLVED. ON PARTIAL CO NFIRMATION OF THE APPEAL BY THE LEARNED CIT(A), THE ASSESSING OFF ICER ISSUED SHOW-CAUSE NOTICE TO THE ASSESSEE FOR LEVY OF PENAL TY AND VIDE HIS 3 ITA NO.4848/DEL/2016 ORDER DATED 27.03.2014, HE LEVIED THE PENALTY IN RE SPECT OF ADDITIONS UPHELD BY THE LEARNED CIT(A). FURTHER, AG AINST THE ORDER OF LEVY OF THE PENALTY UNDER SECTION 271(1)(C) OF T HE ACT, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LEARNED CIT (A), WHO DELETED THE PENALTY, MAINLY ON THE GROUND THAT THE ISSUE WAS CLEARLY DEBATABLE AND, THEREFORE, THE ASSESSING OFF ICER WAS NOT JUSTIFIED IN LEVY OF THE PENALTY. THE FINDINGS OF T HE LEARNED CIT(A) ARE REPRODUCED AS UNDER: 2.2 I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND ORDER OF THE AO AND I FIND, THE ISSUE INVOLVED WAS THAT THE ASSESSE E HAS CLAIMED INTEREST EXPENSE IN P & L ACCOUNT OF AMOUNTING TO RS. 194032 19/- WHICH WAS DISALLOWED BY THE AO. THE AOS FINDING WAS THAT THE ASSESSEE COMPANY DIVERTED AND UTILIZED THESE FUNDS IN MAKING INVESTM ENTS IN EQUITY SHARES OF COMPANY. THE AO HELD THAT THE INVESTMENT IS MADE OU T OF BORROWED FUND AND NO BUSINESS ACTIVITY WAS CARRIED OUT. SO, CLAIM OF THE INTEREST PAYMENT WAS DISALLOWED AND PENALTY WAS INITIATED U/ S 271(1)(C). FURTHER THE ASSESSEE HAS SHOWN INTEREST INCOME OF RS.113501 38/- AS BUSINESS INCOME WHICH WAS TREATED BY THE AO AS INCOME FROM O THER SOURCE AND LEVIED THE PENALTY U/S 271(1)(C) OF THE IT ACT. THE ORDER WAS CONTEST BEFORE THE CIT(A). THE CIT(A ) HAS PASSED ORDER VIDE APPEAL 258/2011 DATED 09.04.2012. THE AO HAS MENTIO NED THE FACTS IN THE PENALTY ORDER THAT ADDITION RS.61,191/- ON ACCOUNT OF EXPENSES DISALLOWED WAS DELETED BY THE LD. CIT (A) AND OTHER CO ADDITIO NS WERE CONFIRMED BY THE CIT ON ACCOUNT OF INTEREST PAID AND INCOME FROM OTH ER SOURCES. WHEREAS THE APPELLANT HAS SUBMITTED THAT THE APPELLATE AUTHORIT Y VIDE ORDER DATED 09.04.2012 PARTLY CONFIRMED AOS ACTION BUT ALSO DI RECTING NETTING OF INTEREST RECEIVED. SUBSEQUENTLY ASSESSEE AND REVENU E FILED APPEAL/CROSS OBJECTION BEFORE THE HONBLE ITAT, DELHI AND THE HO NBLE ITAT DECIDE THE ISSUE IN FAVOUR OF REVENUE. ASSESSEE FILED THE APPE AL BEFORE THE HONBLE DELHI HIGH COURT WHO ADMIT THE ISSUE AS SUBSTANTIAL QUESTION OF LAW. 2.2.2 THE APPELLANT HAS ARGUED THAT THE ISSUE IS DE BATABLE. SO PENALTY CANNOT BE LEVIED. I FIND THAT THE CIT (A) HAS APPROVED THE TH EORY OF NETTING OF INTEREST PAID AND INTEREST RECEIVED WHERE THE HONBLE ITAT H AS CONFIRMED THE ORDER OF THE AO. IT CLEARLY SHOWS THAT THE ISSUE IS DEBAT ABLE. FURTHER THE APPELLANT HAS FILED AN APPEAL U/S 260 A OF THE IT ACT BEFORE JURISDICTIONAL HIGH COURT WHERE THE HONBLE HIGH COURT FRAMED AND ADMITTED ON THE SUBSTANTIAL QUESTION OF LAW. IN THIS REGARD THE HONBLE ITAT HA S HELD IN THE CASE OF PAWAN KUMAR MALHOTRA IN ITA NO. 5556/DEL/2011 AY 20 05-06. IN THE CONTEXT OF THE APPEALS OF THE ASSESSEE WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE ON HAND IS DEBATABLE, OPEN A ND CAPABLE OF HAVING AN 4 ITA NO.4848/DEL/2016 ALTERNATE VIEW AS THE SAME IS HELD TO BE REPRESENTI NG A SUBSTANTIAL QUESTION OF LAW BY THE JURISDICTIONAL HIGH COURT AT THE TIME OF ADMISSION OF APPEAL. ACCORDINGLY, IT IS APPROPRIATE FOR US TO HOLD, THAT THE ASSESSEE WAS UNDER A BONA FIDE BELIEF FOR STAKING ITS CLAIM AND IN THE P RESENCE OF THESE FACTORS, NO PENALTY UNDER SECTION 271(1)(C ) IS LEVIABLE. THE H ON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. LIQUID INVESTMENT LIMITED (I .T.A.NO. 240/2009 VIDE ITS ORDER DATED 5.10.2010) HAS CLEARLY HELD THAT WHERE HIGH COURT HAS ACCEPTED SUBSTANTIAL QUESTION OF LAW U/S 260A, THIS ITSELF S HOWS THAT ISSUE IS DEBATABLE AND IN SUCH A CASE NO PENALTY WAS IMPOSABLE U/S 271 (1)(C) OF THE INCOME-TAX ACT, 1961. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLO WING THE PROPOSITION LAID DOWN BY HON'BLE DELHI HIGH COURT AND HONBLE BOMBAY HIGH COURT, AS NARRATED ABOVE, WE CONFIRM THE ORDER OF THE LD. CIT (A). HENCE, THE APPEAL OF THE DEPARTMENT IS DISMISSED.' FURTHER THE HONBLE KARNATAKA HIGH COURT IN THE CA SE OF HARSHA BILLINGADY ON 10.03.2015 IN ITA NO. 292/2014 HELD WE ARE ALSO OF THE OPINION THAT WHERE PENALTY IS IMPOSED IN RESPECT OF ANY ADDITION WHERE THE HIGH COURT HAS ADMITTED THE APPEAL ON SUBSTANTIAL QUESTION OF LAW, THEN THE SUSTAINABILITY OF ADDITION ITSELF BECOMES DEBATABLE AND IN SUCH CIRCUMSTANCES PENALTY CANNOT BE LEVIED U/S 271(1)(C ) OF THE ACT. FURTHER, THE HONBLE HIGH COURT OF BOMBAY HAS HELD IN THE CASE OF COMMISSIONER OF INCOME 2 VERSUS IMMORTAL FINANCIAL SERVICES PVT. LTD THAT THE ABOVE FACTS COUPLED WITH THE FACT /' -AT IN QU ANTUM PROCEEDINGS, THE APPEAL U/S 260A OF THE ACT HAS BEEN ADMITTED, THIS WOULD BY -SELF EVIDENCE THAT THE ISSUE IS DEBATABLE THEREFORE PENALTY IS NO T WARRANTED. 2.2.3 FROM THE FACTS DISCUSSED ABOVE IT IS CLEAR TH ERE ARE TWO VIEWS OF THE ISSUE INVOLVED. ON THE ISSUE OF MERIT IT IS NOTICED THAT CIT (A) HAS IN QUANTUM PROCEEDING HAD ALLOWED NET OF INTEREST PAID AND INT EREST RECEIVED WHICH WAS SUBSEQUENTLY DISAPPROVED BY THE HONBLE ITAT AND RE STORE THE ORDER OF THE AO. SUBSEQUENTLY THE HONBLE HIGH COURT OF DELHI HA S ADMITTED THE APPEAL OF THE ASSESSEE ON THE VARIOUS SUBSTANTIAL QUESTION OF LAW MENTIONED ABOVE, WHICH PROVE THAT THE ISSUE IS CLEARLY DEBATABLE. ON CE THE ISSUE IS DEBATABLE, PENALTY IS NOT LEVIABLE AS HELD IN THE ABOVE CITED DECISIONS. SO, RESPECTFULLY FOLLOWING THE RATIO LAID DOWN IN THE ABOVE DECISION S AND IN VIEW OF THE ABOVE FACTS THE PENALTY LEVIED IS HEREBY CANCELLED. 4. BEFORE US, THE LEARNED DR RELIED ON THE ORDER OF T HE ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE H AS CONCEALED ITS INCOME BY WAY OF FURNISHING INACCURATE PARTICUL ARS OF INCOME AND, THEREFORE, THE ASSESSING OFFICER WAS JUSTIFIED IN LEVY OF THE PENALTY. 5 ITA NO.4848/DEL/2016 5. ON THE CONTRARY, THE LEARNED COUNSEL OF THE ASSESSE E RELIED ON THE SUBMISSION MADE BEFORE THE LEARNED CIT(A) AN D ON THE FINDING OF THE LEARNED CIT(A). 6. WE HAVE HEARD RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. AS FAR AS THE LEVY OF PENALTY IN RESPECT OF CHANGE OF HEAD OF INTEREST INCOME OF R S.1,13,50,138/- FROM THE PROFIT AND GAINS OF BUSINESS AND PROFESS ION TO INCOME FROM OTHER SOURCES, IS CONCERNED, WE FIND THAT TH E ASSESSEE HAS RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. IMMORTAL FINANCIAL SERVICES PVT. LTD . IN ITA NO. 2067/2013, WHEREIN IT IS HELD THAT NO PENALTY IS LE VIABLE ON MERE CHANGE OF HEAD OF INCOME. FURTHER, IN RESPECT OF DI SALLOWANCE MADE UNDER SECTION 36(1)(III) OF THE ACT, THE ASSES SEE SUBMITTED BEFORE THE LEARNED CIT(A) THAT IN QUANTUM PROCEEDIN GS, THE LEARNED CIT(A) HAS GRANTED RELIEF BY DIRECTING NETT ING OF INTEREST INCOME AND THUS, PENALTY LEVIED BY THE ASSESSING OF FICER SUFFERED FROM NON-APPLICATION OF MIND. THE ASSESSEE HAS FURT HER SUBMITTED THAT MERE FILING OF INCORRECT CLAIM CANNO T INVITE PENALTY AS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD., 322 ITR 158. THE ASSESSEE ALSO SUBMITTED THAT IN VIEW OF DECISION OF THE TRIBUNAL IN QUANTUM OF PROCEEDINGS, THE CLAIM OF THE ASSESSEE WAS IN THE N ATURE OF ARGUABLE AND DEBATABLE CLAIM. IN VIEW OF THE SUBMIS SIONS OF THE ASSESSEE, THE LD. CIT(A) HAS FOLLOWED THE DECISION IN THE CASE OF PAWAN KUMAR MALHOTRA (SUPRA), WHEREIN THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HONBLE DELHI HIGH COU RT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. LIQUID INVESTMENT LTD. (SUPRA) THAT NO PENALTY CAN BE IMPOSABLE WHEN THE ISSUE IS DEBATABLE. 6 ITA NO.4848/DEL/2016 THE APPEAL FILED BY THE ASSESSEE ON DISALLOWANCE OF INTEREST EXPENSES HAVE BEEN ADMITTED BY THE HONBLE HIGH COU RT. THIS FACT IS NOT UNDER DISPUTE. THE ISSUE OF ADDITION IS THUS DEBATABLE IN NATURE. IN OUR OPINION, THE LD. CIT(A) HAS FOLLOWE D THE BINDING PRECEDENT ON THE ISSUE IN DISPUTE AND, THEREFORE, W E DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) AND ACCORD INGLY, WE UPHOLD THE SAME. THE GROUNDS OF APPEAL OF THE REVENUE ARE ACCORDINGLY DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13 TH DECEMBER, 2019. SD/- SD/- (H.S. SIDHU) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 13 TH DECEMBER, 2019. RK/-(D.T.D.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI