M/s. Dilli Karigari Ltd., New Delhi V. DCIT, New Delhi

ITA 5365/DEL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5799 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 14-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Related party transaction; Business expenditure; Diversion of income
• Section: 27; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B , NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO .5365 / DE L/ 2016 ASSESSMENT YEAR: 2009 - 10 M/ S. DILLI KARIGARI LIMITED., E - 42/ 4, OKHLA INDUSTRIAL AREA, PHASE II, NEW DELHI VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(2), NEW DELHI PAN : AACCD6741L ( APPELLANT ) (RESPONDENT) ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 22/ 08/ 2016 PASSED BY THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 37, NEW DELHI [ IN SHORT THE LD. CIT(A) ] FOR ASSESSMENT YEAR 2009 - 10 IN RELATION TO PENALTY UNDER SECTION 271(1)(C) OF THE INCOM E - TAX ACT, 1961( IN SHORT THE ACT THE GROUNDS OF APPEAL RAISED ARE REPRODUCED AS UNDER: 1. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PENALTY OF RS.2,03,220/ - IMPOSED BY THE ASSESSING OFFICER WHICH WAS BAD BOTH ON FAC TS AND IN LAW IN IMPOSING PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961. APPELLANT BY SH. NAVEEN JAIN, CA RESPONDENT BY SH. VIJAY KUMAR JIWANI, SR.DR DATE OF HEARING 30.05.2018 DATE OF PRONOUNCEMENT 27.06.2018 2 ITA NO.5365/DEL/2016 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PENALTY OF RS.2,03,220/ - IMPOSED BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INTEREST PAI D TO M/S. FAB INDIA OVERSEAS PRIVATE LIMITED. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PENALTY OF RS.2,03,220/ - IMPOSED BY THE ASSESSING OFFICER SINCE INITIATION OF PENALTY BY ASSESSING OFFICER WAS ITSELF DEFECTIVE SI NCE VIDE ORDER DATED 29/11/2011 THE ASSESSING OFFICER HAD INITIATED A GENERAL PENALTY UNDER SECTION 271(1)(C) AND HAS NOT INITIATED PENALTY UNDER SPECIFIC DISALLOWANCES. 4. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN UPHOLDING THE PENAL TY OF RS.2,03,220/ - WHEN NOTICE OF DEMAND UNDER SECTION 156 OF INCOME TAX ACT, 1961 IS ITSELF DEFECTIVE SINCE THE SAID DEMAND IS RAISED FOR THE ASSESSMENT YEAR 2012 - 13 WHEREAS THE ORDER PERTAINS TO THE YEAR 2009 - 10. 5. THE APPELLANT MAY BE ALLOWED TO ADD, ALTER, MODIFY OR DELETE ANY OR ALL OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING. 2. B RIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF SALE OF READY - MADE GARMENTS AN D MADE - UP S OF TEXTILES. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOM E DECLARING TOTAL INCOME OF RS.1,48,99, 754/ - . THE CASE WAS SELECTED FOR SCRUTINY A ND ASSESSMENT UNDER SECTION 143 (3) OF THE A CT WAS COMPLETED ON 29/ 11/ 2011 AFTER MAKING VARI OUS ADDITIONS / DISALLOWANCES AGGREGATING TO RS.1,48,13, 444/ - . PENALTY P ROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT WERE INITIATED ACCORDINGLY. ON FURTHER APPEAL , AGAINST THE QUANTUM ADDITIONS / DI SALLOWANCES, A DISALLOWANCE RS.6,57, 669/ - HAS BEEN UPHELD BY THE TRIBUNAL. CONSEQUENTLY, T HE ASSESSIN G OFFICER LEVIED PENALTY OF 3 ITA NO.5365/DEL/2016 RS.2,03, 220/ - VIDE ORDER DATED 22/ 09/ 2015 HOLDING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME WITH RESPECT T O THE SAID DISALLOWANCE OF RS. 6 ,57, 669/ - . THE LD. CIT( A) ALSO UPHELD THE SAID PENALTY LEVIED BY THE ASSESSING OFFICER . AGGRIEVED, THE AS SESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS A S REPRODUCED ABOVE. 3. THE SOLE ISSUE INVOLVED IN GROUNDS RAISED BY THE ASSESSEE IS IN RESPECT OF THE LEV Y OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON DISALLOWANCE OF INTEREST OF RS.6, 57,669 / - PAID TO M/ S FAB INDIA OVERSEAS P . L TD . (FIOPL) . IT HAS BEEN POINTED OUT BY THE LOWER AUTHORITIES THAT THE ASSESSEE CO MPANY HAS RECEIVED A SUM OF RS.2,52,89, 149/ - AS U N SECURED LOAN FROM F IOPL AND PAID INTEREST OF RS.6,57, 669/ - . THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE SOLD GOODS MAINLY TO FIOPL AND SALES PROCEEDS AT THE YEAR - END WERE OUTSTANDING AND IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE THE FIOPL W AS SHOWN AS DEBTOR OF RS.5,26,61, 159/ - . ACCORDING TO THE ASSESSING OFFICER , ON ONE SIDE THE SALES PROCEE DS OF M/ S FIOPL ARE OUTSTANDING, WHEREAS ON THE OTHER SIDE THE ASSESSEE IS MAKING INTEREST PAYMENT ON UNSECURED LOANS RECEIVED FROM THE SAME PARTY. ACCORDING TO TH E ASSESSING OFFICER THE TRANSACTION IN DISPUTE WAS COVERED UNDER SECTION 40A(2)(B) OF THE ACT. THE ASSESSING OFFICER CONCLUDED THAT IT IS A DIRECT BENEFIT GIVEN BY THE ASSESSEE TO FIOPL AND SAME AMOUNTS TO DIVERSION OF INCOME BY THE ASSESSEE. THE DISALLOWA NCE MADE BY THE ASSESSING OFFICER HAS BEEN UPHELD BY TH E LD. CIT(A) AS WELL AS BY THE T RIBUNAL IN QUANTUM PROCEEDINGS. 4. IN PENALTY PROCEEDINGS, THE ASSESSING OFFICER HAS NOTED THAT NO REPLY W AS FILED BY THE ASSESSEE AND THUS , HE FOLLOWING THE 4 ITA NO.5365/DEL/2016 DECISION O F THE HON HIGH COURT IN THE CASE OF ZOOM COMMUNICATION PRIVATE L IMITED REPORTED IN 371 ITR 51 LEVIED THE PENALTY U/ S 271(1)(C ) OF THE A CT. BEFORE THE LD. CIT(A), THE ASSESSEE CONTENDED THAT THE LOAN ACCOUNTS AND THE SALE ACCOUNTS WERE MAINTAINED SEPARATELY AND IN RESPECT OF THE SALES, BILL TO BILL PAYMENTS WERE RECEIVED FROM THE FIOPL. IT WAS ALSO CONTENDED THAT RELATED PARTY DISCLOSURES WAS DULY MADE BY THE ASSESSEE. THIS EXPLANATION WAS NOT ACCEPTED BY THE LD. CIT(A) . ACCORDING TO THE LD. CIT( A), THE ACCOUNTING POLICY ADOPTED BY THE ASSESSEE WAS NOT IN ACCORDANCE WITH THE PRINCIPLE OF ACCOUNTANCY. IN VIEW OF LD. CIT(A), THE EXPLANATION OF THE ASSESSEE WAS NOT BONA FIDE , AND THUS, HE UPHELD THE PENALTY LEVIED BY THE ASSESSING OFFICER. 5. BEFORE US , THE LD. COUNSEL OF THE ASSESSEE FILED A PAPERBOOK CONTAINING PAGES 1 TO 118 AND SUBMITTED THAT ASSESSEE HAS FILED ALL THE PARTICULARS ON THE ISSUE IN DISPUTE FULLY AND TRULY AND CLAIMED THE AMOUNT OF INTEREST PAID AS BUSINESS EXPENDITURE. ACCORDING TO THE LD. COUNSEL MERELY MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW DOES NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. FURTHER, HE REFERRED THE DECISION OF THE HON E SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD ., 322 ITR 158 (SC) AND SUBMITTED THAT MERELY THE FACT THAT ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH WAS NOT ACCEPTE D OR WAS NOT ACCEPTABLE TO THE R EVENUE AUTHORITIES, THAT BY ITSELF WOULD NOT ATTRA CT PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 6. THE LD. DR , ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LOWER AUTHORITIES AND RELIED ON THE DECISION OF THE HON HIGH COURT IN THE CASE OF ZOOM COMMUNICATION PVT. LTD . (SUPRA) 5 ITA NO.5365/DEL/2016 AND FILED A LIST OF OTHER DECISIONS ON THE ISSUE OF PENALTY UNDER SECTION 271(1) (C) OF THE ACT. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL OF RECORD. IN THE INSTANT CASE, PENALTY HAS BEEN LEVIED BY THE ASSESSING OFFICER ON THE GROUND OF FILING INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. WE HAVE OBSE RVED FROM THE FACTS OF THE CASE THAT THE ASSESSEE HAS DULY DISCLOSED THE RELATED PARTY TRANSACTIONS IN DOCUMENTS FILED BEFORE THE ASSESSING OFFICER. THE ASSESSEE HAS ALSO FILED RESPECTIVE ACCOUNTS OF LOAN AND SALES. THUS, THE ASSESSEE HAS DISCLOSED ALL THE FACTS TRULY AND FULLY BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS ALSO NOT POINTED OUT AS WHICH FACTUAL INFORMATION FILED BY THE ASSESSEE IS FOUND TO BE FALSE OR INCORRECT. THE ASSESSEE HAS EXPLAINED MAINTAINING OF TWO SEPARATE ACCOUNTS IN RES PECT OF THE LOAN AND SALES. THE ASSESSEE ALSO EXPLAINED ABOUT OUTSTANDING SALE PROCEEDS FROM M/ S . FIOPL. WE DO NOT FIND THE EXPLANATION EITHER A S FALSE OR MALAFIDE. IN OUR OPIN ION, PENALTY UNDER SECTION 27 1 (1)( C ) OF THE A CT CANNOT BE LEVIED , MERELY ON TH E GROUND THAT THE ADDI TION HAS BEEN SUSTAINED BY THE T RIBUNAL IN QUANTUM PROCEEDING, UNLESS PARTICULARS FURNISHED BY THE ASSESSEE ARE FOUND TO BE FALSE OR THE EXPLANATION FURNISHED BY THE ASSESSEE IS NOT BONA FIDE. THE HON R ELIANCE PETRO PRODUCTS PRIVATE LIMITED (SUPRA) HAS CLEARLY HELD THAT MAKING A CLAIM WHICH MAY NOT BE SUSTAINABLE IN LAW DOES NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME. THUS , RESPECTFULLY, FOLLOWING THE ABOVE DECISION OF THE HON SUPREME COURT, WE DELETE THE PENALTY LEVIED AND CANCEL ORDERS OF THE LOWER 6 ITA NO.5365/DEL/2016 AUTHORITIES ON THE ISSUE OF PENALTY. ACCORDINGLY , THE GROUND NO.1 & 2 OF THE APPEAL ARE ALLOWED. 8. SINCE THE PENALTY LEVIED HAS ALREADY BEEN DELETED THE OTHER GROUNDS ARE RENDERE D INFRUCTUOUS. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEES ALLOWED. D ECISION IS PRONOUN CED IN THE OPEN COURT ON 27 TH JUNE , 201 8 . SD/ - SD/ - ( AMIT SHUKLA ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27 TH JUNE , 201 8 . RK / - (D.T.D . ) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI