THE ACIT RG 6(3), MUMBAI V. M/S. GEMINI DYEING & PRINTING MILLS LTD, MUMBAI

ITA 5057/MUM/2008

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 8675 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 16-12-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 08-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest

Judgement Text

ITA NO. 5057/MUM/08 ASSESSMENT YEAR: 2003-04 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI G BENCH, MUMBAI. CORAM : PRAMOD KUMAR, AM, AND ASHA VIJAYARAGHAVAN , JM ITA NO. 5057/MUM/08 ASSESSMENT YEAR: 2003-04 ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 6(3), MUMBAI . APPELLANT VS GEMINI DYEING & PRINTING MILLS LTD .RESPON DENT MATHURADAS MILL COMPOUND SENAPATI BAPAT MARG, LOWER PAREL MUMBAI 400 013 PAN : AAABCG0943J APPEARANCES: A K NAYAK, FOR THE APPELLANT SANJAY PARIKH, FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THE SHORT ISSUE THAT WE ARE REQUIRED TO ADJUDICA TE IN THIS APPEAL IS WHETHER OR NOT THE CIT(A) WAS JUSTIFIED IN DELETING THE PENALTY OF RS 8,00,000 IMPOSED ON THE ASSESSEE, UNDER SECTION 271 (1)(C) OF THE ICOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2003-04. ITA NO. 5057/MUM/08 ASSESSMENT YEAR: 2003-04 PAGE 2 OF 4 2. THE ISSUE IN APPEAL LIES IN A RATHER NARROW COMP ASS OF MATERIAL FACTS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTICED THAT EVEN THOUGH THE ASSESSEE HAS MADE AN I NVESTMENT OF RS 4,30,36,311 AND THE ASSESSEE HAS RECEIVED A PROFIT SHARE OF RS 38,68,694 FROM THIS PARTNERSHIP FIRM, THE ASSESSEE HAS NOT DI SALLOWED EXPENDITURE RELATABLE TO THESE TAX EXEMPT EARNINGS. THE ASSESS EES EXPLANATION WAS THAT SINCE THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUN DS, SO AS TO MEET THIS INVESTMENT OF RS 4,30,36,111, NO PART OF THE INTERE ST EXPENDITURE COULD BE DISALLOWED UNDER SECTION 14 A. THIS PLEA, HOWEVER, WAS NOT ACCEPTED BY THE ASSESSEE. HE PROCEEDED TO COMPUTE THE DISALLOWANCE UNDER SECTION 14 A IN RESPECT OF INTEREST PAID BY THE ASSESSEE IN THE RAT IO OF INVESTMENT IN THE FIRM TO THE TOTAL FUNDS AVAILABLE TO THE ASSESSEE. THE DISALLOWANCE THUS WORKED OUT TO RS 16,93, 906. THE ASSESSING OFFICER ALSO NO TICED THAT THE ASSESSEE HAD ALSO PAID A SUM OF RS 1,24,50,598 IN THE EARLIER YE AR, AS SHARE APPLICATION MONEY TO MANNAY ROLLER FLOUR MILLS PVT LTD, AND TH E SAID AMOUNT REMAINED OUTSTANDING AT THE END OF THE RELEVANT PREVIOUS YEA R AS WELL. THE EXPLANATION OF THE ASSESSEE WAS THAT THIS INVESTMEN T WAS MADE, FOR BUSINESS PURPOSES, AS THE SHARES WERE SUBSCRIBED AS A PART O F JOINT VENTURE PROJECT WHICH COULD NOT FINALLY MATERIALIZE, AND THAT THE PAYMENTS WERE MADE FROM INTERNAL ACCRUALS AND AVAILABLE SUFFICIENT INTEREST FREE FUNDS. NONE OF THESE SUBMISSIONS IMPRESSED THE ASSESSING OFFICER. ON THE SAME BASIS, AS HE ADOPTED FOR COMPUTING DISALLOWANCE UNDER SECTION 14 A, I.E. BY COMPUTING PROPORTIONATE INTEREST IN THE RATIO OF AMOUNT PAID FOR SHARE SUBSCRIPTION TO THE TOTAL FUNDS AVAILABLE, HE DISALLOWED THE PROPOR TIONATE INTEREST EXPENDITURE. AGGRIEVED BY THESE DISALLOWANCES, ASSE SSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS . THE MATTER DID NOT REST THERE AS WELL. THE ASSESSING OFFICER ALSO IMPOSED PENALTY UNDER SECTION 271(1)(C) MAINLY ON THE GROUND THAT HAD THE ASSESS EES CASE NOT BEEN PICKED UP FOR SCRUTINY, THE ASSESSEE COULD HAVE BEN EFITED FROM FILING OF INACCURATE PARTICULARS OF INCOME. HOWEVER, WHEN I MPOSITION OF PENALTY ITA NO. 5057/MUM/08 ASSESSMENT YEAR: 2003-04 PAGE 3 OF 4 UNDER SECTION 271(1)(C) WAS CHALLENGED IN APPEAL BE FORE THE CIT(A), HE DELETED THE PENALTY AND OBSERVED THAT THE ADHOC DIS ALLOWANCES MADE BY THE ASSESSING OFFICER, ON ESTIMATE BASIS AND WITHOUT BR INGING ON RECORD ANY MATERIAL TO INDICATE THAT INTEREST FREE FUNDS WERE USED FOR INVESTMENT IN PARTNERSHIP FIRM AND IN SHARE APPLICATION MONEY, DI D NOT JUSTIFY ANY IMPOSITION OF PENALTY UNDER SECTION 271(1)(C). THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AN D IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL ON RECORD AND DULY CONSIDERED THE FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. IN OUR CONSIDERED VIEW, THE ONLY REASON FOR IMPO SING THE IMPUGNED PENALTY WAS THAT, IN ASSESSING OFFICERS OPINION, M AKING A CLAIM FOR DEDUCTION OF ENTIRE INTEREST PAID BY THE ASSESSEE A MOUNTED TO CONCEALMENT OF INCOME. THE CLAIM FOR DEDUCTION OF INTEREST IS A LEGAL CLAIM, AND PRIMA FACIE IT IS NOT AN ABSURD OR OUTLANDISH CLAIM THAT ENTIRE INTEREST PAID ON THE BORROWINGS, EVEN THOUGH THE ASSESSEE HAS SOME INTER EST FREE ADVANCES TO THE PARTNERSHIP FIRM OR SHARE APPLICATION MONIES TO A P RIVATE LIMITED COMPANY, IS DEDUCTIBLE UNDER SECTION 36(1)(III) PARTICULAR LY AS THE ASSESSING OFFICER HAS NOT EVEN DISPUTED ASSESSEES CLAIM THAT THE ASS ESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MEET INVESTMENTS IN THE PART NERSHIP FIRM OR THE SHARE APPLICATION MONIES. AS A MATTER OF FACT, THERE ARE JUDICIAL PRECEDENTS, INCLUDING ONE FROM HONBLE JURISDICTIONAL HIGH COUR T IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LIMITED (313 ITR 340), T O SUPPORT THE PROPOSITION THAT IF THERE ARE FUNDS AVAILABLE TO THE ASSESSEE, BOTH INTEREST-FREE AND INTEREST BEARING, THEN A PRESUMPTION WOULD ARISE TH AT INVESTMENTS WOULD BE OUT OF INTEREST-FREE FUNDS GENERATED OR AVAILABLE W ITH COMPANY, PROVIDED SAID FUNDS ARE SUFFICIENT TO MEET INVESTMENTS. WHE N SUCH ARE THE VIEWS OF ITA NO. 5057/MUM/08 ASSESSMENT YEAR: 2003-04 PAGE 4 OF 4 HONBLE JURISDICTIONAL HIGH COURT, IT IS FUTILE TO SUGGEST THAT AN ADHOCK DISALLOWANCE, ON PROPORTIONATE BASIS, IN THE HANDS OF THE ASSESSEE AND IN RESPECT OF INTEREST ATTRIBUTABLE TO MAKE INVESTMENT S YIELDING TAX EXEMPT INCOME OR INVESTMENTS FOR NON BUSINESS PURPOSES, CA N BE VISITED WITH PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). THE C LAIM OF THE ASSESSEE MAY OR MAY NOT BE ACCEPTABLE TO THE TAX AUTHORITIES, BU T RIGHT NOW WE ARE CONCERNED WITH THE LIMITED QUESTION WHETHER MAKING OF SUCH A CLAIM CAN BE SAID TO BE REASONABLE OR NOT. IN ANY EVENT, HONBLE SUPREME COURT HAS, IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT LTD (322 ITR 158), HELD THAT A MERE MAKING OF LEGAL CLAIM, EVEN IF NOT ADMISSIBLE, CANNOT BE CONSTRUED AS FURNISHING OF INACCURATE PARTICULARS. IN VIEW OF TH ESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE APPROVE TH E CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN T HE MATTER. 5. IN THE RESULT, THE APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY, 2011. SD/- (ASHA VIJAYARAGHAVAN) (JUDICIAL MEMBER) SD/- (PRAMOD KUMAR) (ACCOUNTANT MEMBER) MUMBAI, DATED 28 TH JANUARY, 2011 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)-, MUMBAI 4. COMMISSIONER OF INCOME TAX, , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH D, MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI