MEDIAVEST INDIA P.LTD, MUMBAI V. ASST CIT CIR 11(1), MUMBAI

ITA 5245/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84635 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 29-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA YADAV
• Keywords: Business expenditure; Bonafide belief; Difference of opinion; Revenue expenditure; Capital expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, M UMBAI BEFORE S/SHRI D. KARUNAKAR RAO, (AM) AND AMIT SHUKLA, (JM) . , , ./I.T.A. NO.5245/MUM/2013 ( ! / ASSESSMENT YEAR :2006-07) MEDIAVEST INDIA PVT LIMITED, 135, CONTINENTAL BUIKLDING, DR ANNUIE BESAND ROAD WORLI, MUMBAI-400018 / VS. ASSTT.COMMISSIONER OF INCOME TAX -11(1), ROOM NO.439, 4 TH FLOOR, AYAKAR BHAVAN, M.K.ROAD, MUMBAI-400020 ( '# / APPELLANT) .. ( $%'# / RESPONDENT) ' ./ &' ./PAN/GIR NO. : AACCM429OK '# ( / ASSESSEE BY SHRI NIRAJ SHETH $%'# ) ( /REVENUE BY SHRI AKHILENDRA YADAV * ) + / DATE OF HEARING : 27.11.2014 ,-! ) + /DATE OF PRONOUNCEMENT : 19.12.2014 / O R D E R PER AMIT SHUKLA, (JM) THE AFORESAID APPEAL HAS BEEN PREFERRED BY THE ASSESSEE CHALLENGING THE ORDER DATED 30.5.2013 PASSED BY L D. CIT(A)-3, MUMBAI IN RELATION TO PENALTY PROCEEDINGS U/S 271 ( 1)( C ) FOR THE ASSESSMENT YEAR 2006-07. 2. THE SOLE ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN UPH OLDING THE PENALTY 5245/MUM/2013 2 OF RS.1,02,06,807/-, LEVIED BY THE AO U/S 271 (1)( C ) OF THE INCOME TAX ACT, 1961 (THE ACT). 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF PROMOTING, CONTROLLING A ND MANAGING MEDIA RELATED COMPANIES. DURING THE RELEVANT FINAN CIAL YEAR, THE ASSESSEE COMPANY HAS PROMOTED DILIGENT MEDIA CORP ORATION LTD. AND HAD MADE INVESTMENT IN THE SAID COMPANY FOR CON TROLLING 50% INTEREST IN THE SAID COMPANY. THE SAID INVESTMENT WERE MADE OUT OF BORROWED FUNDS AS IT WAS CONSIDERED AS PART OF ASSE SSEES BUSINESS. THE ASSESSEE HAS PAID INTEREST OF RS.30,323,254/- DURING THE YEAR ON THE SECURED LOAN TAKEN BY IT. SUCH AN INTERES T WAS CLAIMED AS BUSINESS EXPENDITURE IN THE PROFITS AND LOSS ACCOU NT. THE AO REQUIRED THE ASSESSEE AS TO WHY DISALLOWANCE U/S 14 A OF THE ACT SHOULD NOT BE MADE. IN RESPONSE, THE ASSESSEE SUBM ITTED THAT ITS MAIN BUSINESS IS PROMOTING, CONTROLLING AND MANAG ING MEDIA RELATED COMPANIES AND IN PURSUANCE THEREWITH, IT HAS MADE I NVESTMENT IN DILIGENT MEDIA CORPORATION LTD., FOR ACQUIRING CO NTROLLING INTEREST IN THE SAID COMPANY. SINCE, THE LOAN WAS MAINLY FOR BUSINESS PURPOSE AND THEREFORE, THE INTEREST IS ALLOWABLE U/S 36(1) (III), AND NO DISALLOWANCE SHOULD BE MADE. IN SUPPORT OF THIS C ONTENTION, RELIANCE WAS PLACED ON THE DECISION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT V/S RAJEEVA LOCHAN KANORIA (1995) 208 I TR 616 AND THE 5245/MUM/2013 3 DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF ADDL. CIT V/S LAXMI AGENTS(P) LTD (1980)125 ITR 227 (GUJ). HOWEVER, THE AO REJECTED THE ASSESSEES CONTENTION AND HELD THAT SUCH AN INTEREST SHOULD BE CAPITALIZED AS COST OF INVESTMEN T. THE ORDER OF THE AO HAS ATTAINED FINALITY AS IN THE APPELLATE PROCE EDINGS AS THE ASSESSEE DID NOT PRESS FOR THIS GROUND. NOW PENAL TY HAS BEEN LEVIED ON SUCH DISALLOWANCE OF INTEREST MADE BY THE AO. DURING THE COURSE OF THE PENALTY PROCEEDINGS, THE ASSESSEE MAD E DETAILED SUBMISSIONS/ EXPLANATION WHICH HAS BEEN INCORPORATE D BY THE AO IN THE PENALTY ORDER AT PAGES 4 AND 5. IN SUM AND SUB STANCE ASSESSEES EXPLANATION WERE ARE AS UNDER : 1. THE ASSESSEE SUBMITTED ALL RELEVANT DETAILS IN THE RETURN OF INCOME AND DURING THE ASSESSMENT PROCEEDINGS. 2. THE PENALTY IS INITIATED ON DISALLOWANCE DUE TO DIFFERENCE OF OPINION/DISALLOWANCE OF BONAFIDE CLAIM AND WITHO UT PROVING ANY CONCEALMENT OF SUBMITTING IN ACCURATE PARTICULA RS OR INTENT TO CONCEAL (MEANSRAS) 3. ASSESSEE RELIED ON VARIOUS JUDGMENTS WHICH HELD THAT PENALTY CANNOT BE LEVIED FOR ADDITIONS/DISALLOWANCE MADE ON ACCOUNT OF DIFFERENT OF OPINION/DISALLOWANCE OF BON AFIDE CLAIM. 4. ASSESSEE ALSO RELIED ON VARIOUS JUDGMENT THAT ON US IS ON THE DEPARTMENT TO ESTABLISH CONCEALMENT OR INTENT T O CONCEAL INCOME THE ASSESSEE ALSO QUOTED THE JUDGMENTS WHIC H DEALT AND DISTINGUISHED THE JUDGMENT IN THE CASE OF DHA RMENDRA TEXTILES AND FOLLOWING VARIOUS JUDGMENT OF APEX CO URT PENALTY PROCEEDINGS ARE REQUIRED TO BE DROPPED IN THE INST ANT CASE 5245/MUM/2013 4 HOWEVER, THE AO AS PER HIS DETAILED REASONING, LEVI ED THE PENALTY FOR DISALLOWANCE OF INTEREST OF RS.30,323,254/- AT THE RATE OF 100% OF THE TAX SOUGHT TO BE EVADED AND ACCORDINGLY PENALTY WAS DETERMINED AT RS. RS.1,02,06,807/-. WHILE LEVYING PENALTY, THE A O HAS RELIED UPON HE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF UOI V/S DHARMENDRA TEXTILE PROCESSORS (2007) 295 ITR 244 ( SC). 4. THE LD. CIT(A) AFTER ANALYZING THE ORDER OF AO AND THE SUBMISSIONS OF THE ASSESSEE HELD THAT THERE WAS CO NSCIOUS AND DELIBERATE ATTEMPT ON THE PART OF THE ASSESSEE TO E VADE TAX BY CLAIMING INTEREST PAYMENT ON SECURED LOAN FOR ITS B USINESS PURPOSE AND ADMITTEDLY IT IS NOT ALLOWABLE IN THE FACTS OF THE CASE. HE TOO REFERRED THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS (SUPRA)(2007) 295 IT R 244 (SC). 5. BEFORE US, THE LD.COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE ASSESSEE HAS GIVEN ENTIRE PARTICULARS OF INTEREST AND WHILE CLAIMING THE EXPENDITURE U/S 36(1)(III); THE ASSESSEE HAD A BONAFIDE BELIEF FOR SUCH A CLAIM, WHICH WAS ALSO SUPPORTED BY HIGH COUR T DECISIONS. MOREOVER THE DISALLOWANCE HAS BEEN MADE ONLY ON TH E GROUND THAT SUCH INTEREST NEEDS TO BE CAPITALIZED. THUS, IN VI EW OF THE PRINCIPLE LAID DOWN IN THE CASE OF CIT VS . RELIANCE PETROPRODUCTS(P) LTD. 322 ITR 158 (SC) NO PENALTY SHOULD BE LEVIED. HE FURTHE R SUBMITTED THAT 5245/MUM/2013 5 THE ASSESSEES MAIN BUSINESS WAS INVESTING IN SHARE S AS A PROMOTER AND TO HAVE CONTROLLING INTEREST, THEREFORE, ITS C LAIM WAS BONAFIDE AT THE TIME OF FILING OF RETURN OF INCOME WHICH IS ALS O SUPPORTED BY THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF RAJEEVA LOCHAN KANORIA(SUPRA). 6. ON THE CONTRARY, THE LD. DR STRONGLY RELIED ON THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS. IT IS AN ADM ITTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROMOTING, C ONTROLLING AND MANAGING MEDIA RELATED COMPANIES AND IN PURSUANCE O F SUCH BUSINESS ACTIVITY, IT HAS MADE INVESTMENT FOR REQU IRING CONTROLLING INTEREST OF 50% OF THE BUSINESS OF THE SAID COMPAN Y, WHICH WAS IN THE MEDIA BUSINESS ONLY. THIS INVESTMENT IN SHARES HAVE BEEN MADE OUT OF BORROWED FUNDS ON WHICH THE ASSESSEE HAS DEB ITED A SUM OF RS.30,323,254/- TOWARDS INTEREST EXPENDITURE IN T HE PROFIT AND LOSS ACCOUNT, CLAIMING IT TO BE A BUSINESS EXPENDITURE, U/S 36(1)(III). IN SUPPORT OF SUCH A CLAIM, THE ASSESSEE HAD PLACED R ELIANCE ON THE DECISIONS OF CERTAIN HIGH COURTS. THE AO HELD THA T MANAGEMENT AND CONTROL OF SUBSIDIARY COMPANIES CANNOT BE A BUSINES S BY ITSELF AND INVESTMENT ARE MADE ONLY FOR EARNING DIVIDEND OR CA PITAL APPRECIATION. 5245/MUM/2013 6 HE DISALLOWED THE INTEREST EXPENDITURE BUT AT THE S AME TIME ALLOWED IT TO BE CAPITALIZED TOWARD THE COSTS OF INVESTMENT. THUS, THE DISALLOWANCE HAS BEEN MADE ONLY ON THE GROUND THAT IT IS NOT REVENUE EXPENDITURE BUT A CAPITAL EXPENDITURE WHICH NEEDS TO BE CAPITALIZED TOWARDS THE COST OF INVESTMENT. THE ASS ESSEE HAS FURNISHED ALL THE PARTICULARS OF THE INTEREST IN , THE PROFIT AND LOSS ACCOUNT AND SUBMITTED THAT THE CLAIM WAS ON BONAFID E BELIEF, BASED ON CERTAIN HIGH COURT RULINGS AND ALSO THE FACT T HAT ASSESSEE WAS PURELY IN THE BUSINESS OF PROMOTING AND CONTROLLIN G THE COMPANIES RELATING TO MEDIA. THUS, SUCH A CLAIM CANNOT TAN TAMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME OR C ONCEALMENT OF INCOME. IN OUR OPINION, NO PENALTY EITHER FOR CONC EALMENT OF INCOME OR FOR FURNISHING OF INACCURATE PARTICULARS OF IN COME, CAN BE LEVIED. AS THE ASSESSEE HAS FURNISHED ALL THE NECESSARY INF ORMATION AND THE ADDITION HAS BEEN MADE PURELY ON GROUND THAT EXPEN DITURE IS A CAPITAL EXPENDITURE AND IT SHOULD HAVE BEEN CAPITA LIZED AS COST OF INVESTMENT. UNDER THESE FACTS, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (P) LTD(SUPRA) IS SQUARELY APPLICABLE. THUS, THE PENALTY LEVIED B Y THE AO AND CONFIRMED BY THE LD. CIT(A) IS DELETED. 5245/MUM/2013 7 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPE N COURT ON 19TH DEC , 2014. ,-! . /0 19 TH DEC ,2014 - ) 6* 7 SD SD ( . / D. KARUNAKAR RAO) ( / AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER * MUMBAI: 19 TH DEC, 2014. . . ./ SRL , SR. PS ! ' #$% &%'# / COPY OF THE ORDER FORWARDED TO : 1. '# / THE APPELLANT 2. $%'# / THE RESPONDENT. 3. ( ) / THE CIT(A)- CONCERNED 4. / CIT CONCERNED 5. 9:6 $; , + ; , * / DR, ITAT, MUMBAI CONCERNED 6. 6 <* / GUARD FILE. / BY ORDER, TRUE COPY = & (ASSTT. REGISTRAR) + ; , * /ITAT, MUMBAI