VIDYAVIHAR CONTAINERS LTD, MUMBAI V. ASST CIT CIR 10(2), MUMBAI

ITA 5542/MUM/2013

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71557 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-10-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-10-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 22-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GIRIJA DALAL
• Assessee Lawyers: A V SONDE SENIOR
• Keywords: Capital asset; Depreciation; Question of law; Date of conversion; Fair market value; Wrong claim; Unabsorbed depreciation
• Section: 45(2); 260A

Judgement Text

` IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI . . , ! ' #'' '$ , % ! & BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 5541 5544/ / 2013 A.YS. 2002-2003, 2004-05, 2005-06 2006-07 ITAS NO. : 5541 TO 5544/MUM/2013 (ASSESSMENT YEARS: 2002-2003, 2004-05, 2005-06 & 2006-07) VIDYAVIHAR CONTAINERS LIMITED, BAJAJ BHAWAN, 3 RD FLOOR, JAMNALAL BAJAJ MARG, 226, NARIMAN POINT, MUMBAI -400 021 .: PAN: AAACN 0291 R VS ACIT 10(2), AAYAKAR BHAVAN, 4 TH FLOOR, M. KARVE MARG, MUMBAI -400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI A.V. SONDE, SENIOR ADVOCATE RESPONDENT BY : SHRI GIRIJA DALAL ! /DATE OF HEARING : 10-10-2013 '# ! / DATE OF PRONOUNCEMENT : 23-10-2013 , O R D E R #'' '$ , : PER VIVEK VARMA, JM: THE FOUR APPEALS PERTAINING TO ASSESSMENT YEAR 2002 -2003, 2004-05, 2005-06 & 2006-07 ARE AGAINST THE ORDER OF CIT(A) 2 2, ALL DATED 16.07.2013, SUSTAINING THE PENALTIES IMPOSED UNDER SECTION 271( 1)(C) OF THE INCOME TAX ACT.. 2. AT THE TIME OF HEARING, THE SENIOR COUNSEL SUBMI TTED A CHART, GIVING DETAILS OF AGGREGATE DISALLOWANCES IN EACH OF THE F OUR YEARS, ON WHICH THE PENALTIES HAVE BEEN LEVIED. THE CHART IS AS FOLLOWS : SR. NO. PARTICULARS AY 2003-03 AY 2004-05 AY 2005-06 AY 200 6-07 1 DISALLOWANCE OF INTEREST ON LOANS FROM HOLDING COMPANY 9,56,60,050 10,90,99,963 11,07,57,156 11,04,95,264 2 DISALLOWANCE OUT OF LEGAL & PROFESSIONAL FEES 2,50,000 22,87,959 -- -- 3 SET OFF OF CARRIED -- -- -- 5,32,52,864 VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 2 FORWARD UNABSORBED DEPRECIATION 4 DISALLOWANCE OF RATES & TAXES 22,31,490 -- -- -- TOTAL DISALLOWANCES: 9,81,41,540 11,13,87,922 11,07,57,156 16,37,48,128 4 PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT 3,43,49,539 3,89,85,773 4,05,28,813 4,91,24,438 3. IT WAS POINTED OUT BY THE SENIOR COUNSEL THAT TH E DISALLOWANCES MADE BY THE AO IN QUANTUM, IN EACH OF THE YEARS HAVE BEE N SUSTAINED BY THE COORDINATE BENCH IN ITAS NO. 1086/MUM/2010; 30/MUM/ 2006 AND 7730/MUM/2007. 4. THE FACTS ARE THAT THE ASSESSEE WAS ENGAGED IN T HE BUSINESS OF MANUFACTURE OF SHIPPING CONTAINERS. THIS BUSINESS O F MANUFACTURE WAS CLOSED AND THE ASSESSEE INDULGED IN TRADING OF MARI TIME CONTAINERS AND LATER ON THE ASSESSEE ENTERED INTO THE BUSINESS OF REAL E STATE DEVELOPMENT. THE ENTIRE SEQUENCE OF EVENTS CAN BE SUMMARIZED AS UNDE R (AS NOTED IN THE QUANTUM ORDER BY THE ITAT). 12TH SEPT., 1994 : RESOLUTION PASSED IN THE EXTRAORDINARY GENERAL MEETINGS O F THE SHAREHOLDERS OF THE ASSESSEE COMPANY ACCORDING THE CONSENT TO THE CO MMENCEMENT OF NEW BUSINESS, NAMELY, TO DEVELOP AND TURN TO ACCOUNT ANY LAND ACQUIRED BY THE COMPANY OR IN WHICH THE COMPANY IS INTERESTED AND IN PAR TICULAR BY SURVEY, LAYING OUT AND REPAIRING THE SAME FOR BUILDING PURPOSES, DESIGNING, CONSTRUCTING ETC. AND TO ENTER INTO CONTRACTS AND ARRANGEMENTS OF ALL KINDS WITH BUILDERS, TENANTS AND OTHERS. 7TH OCT., 1994 : CERTIFIED TRUE COPY OF THE SPECIAL RESOLUTION UNANIMOUSLY PASSED BY THE SHAREHOLDERS AT THE EXTRAORDINARY GENERAL MEETING HELD O N 12TH SEPT., 1994 FILED WITH THE REGISTRAR OF COMPANIES IN THE PRESCRIBED FORM. 4TH MARCH, 1997 : PERMISSION SOUGHT BY THE ASSESSEE FOR THE DEVELOPMENT ON THE INDUSTRIAL ZONE LAND FOR COMMERCIAL USER GRANTED BY EXECUTIVE ENGINEER , DEVELOPMENT PLAN, BRIHAMMUMBAI MAHANAGAR PALIKA SUBJECT TO COMPLIANCE OF C ERTAIN TERMS AND CONDITIONS. 21ST DECEMBER, 1998 : LETTER ISSUED BY THE ADDITIONAL COLLECTOR, ULC, GRATER M UMBAI IN CONNECTION WITH PERMISSION FOR DEVELOPMENT OF PROPERTY SOUGHT BY THE ASSESSEE SUBJECT TO CERTAIN TERMS AND CONDITIONS. THE ASSESSEE WAS ADVISED TO APPROACH GBMC TO GET THE REDEVELOPMENT PROPOSAL APPROVED WITH AN UNDER TAKING THAT THE SAID CONDITIONS ARE ACCEPTABLE TO IT. 11TH JANUARY, 2002 : PROPOSAL/SCHEME SUBMITTED TO THE COLLECTOR, MUMBAI SUB -URBAN DISTRICT SEEKING PERMISSION FOR THE REDEVELOPMENT OF THE PROPERTY. 15TH JANUARY, 2004 : APPLICATION SUBMITTED BY THE ASSESSEE TO THE COMMISSIONE R OF LAB RESOLUTION PASSED IN THE MEETING OF BOARD OF DIRECTORS OF THE ASS ESSEE COMPANY CONVERTING THE LAND OWNED BY IT INTO STOCK IN TRADE. 29 TH MAY, 2004 : RESOLUTION PASSED IN THE MEETING OF BOARD OF DIRECTORS OF THE ASSESSEE COMPANY CONVERTING THE LAND OWNED BY IT INTO STOCK IN TRADE. 30TH JULY, 2004 . VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 3 NO OBJECTION CERTIFICATE ISSUED BY THE LABOUR COMMISSIO NER TO MCGD COMMUNICATING ITS NO OBJECTION TO GRANT PERMISSION FOR D EVELOPMENT OF LAND AS SOUGHT BY THE ASSESSEE. 16TH MAY, 2005 : ORDER ISSUED BY COLLECTOR, MUMBAI SUB URBAN DISTRICT GRA NTING PERMISSION TO THE ASSESSEE FOR CHANGE OF USER FROM ORIGINAL INDUSTRIAL TO THAT OF RESIDENTIAL AND THE PROPOSAL OF THE ASSESSEE FOR DEVELOPMENT OF ITS PROPER TY WAS FINALLY APPROVED SUBJECT TO CERTAIN TERMS AND CONDITIONS INCLUDING THE PA YMENT OF 50% OF UNEARNED INCOME. 5. IN THE ASSESSMENT PROCEEDINGS, THE AO CAME TO TH E CONCLUSION THAT THE ORIGINAL BUSINESS OF THE ASSESSEE HAD BEEN CLOS ED AND NEW ACTIVITY OF TRADING IN CONTAINERS HAD BEEN STARTED AND THEREFOR E, THE EXPENSES PERTAINED TO THE CLOSED BUSINESS. HE, THEREFORE, CONCLUDED TH AT SUCH EXPENSES COULD NOT BE ALLOWED, WHICH WERE TO BE ADDED BACK. 6. IN THE CONSEQUENTIAL PENALTY PROCEEDINGS, IT WAS SUBMITTED BY THE ASSESSEE THAT NEITHER IN THE ASSESSMENT ORDER NOR I N THE SHOW CAUSE, SETS OUT THE ITEMS, ACTS OR OMISSION, LEADING TO THE INITIAT ION AND LEVY OF PENALTY. 7. IN THE SUBMISSIONS, BEFORE THE AO, THE ASSESSEE PLACED ON A PLETHORA OF DECISIONS RENDERED BY VARIOUS COORDINATE BENCHES OF THE ITAT AS WELL AS BY THE VARIOUS HIGH COURTS AND HONBLE SUPREME COURT O F INDIA. THE ASSESSEE ALSO DISTINGUISHED THE DECISION RENDERED BY THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF UOI VS DHARMENDRA TEXTILES AND FINALLY THE ASSESSEE REFERRED TO THE CASE OF CIT VS RELIANCE PETROPRODUC TS PVT LTD, REPORTED IN 322 ITR 158 AND PRAYED FOR DROPPING OF THE PENALTY PROC EEDINGS. THE AO, NEGATING THE ARGUMENTS OF THE ASSESSEE OBSERVED IN THE INSTANT CASE, THE ASSESSEE MADE THE INCORRECT CLAIM OF DEDUCTION IN ITS RETURN OF INCOME DESPITE OF BEING AWARE OF THE FACT THAT THE SA ID CLAIM WAS NOT ALLOWABLE TO IT. FURTHER THE RELEVANT DETAILS ARE NOWHERE MENTIONED IN THE PARTICULARS FILED WITH THE RETURN OF INCOME, BUT WERE GLEANED BY THE ASSESSING OFFICER FROM SPECIFIC DETAILS AND QUERIES RAISED BY THE AO DURING THE COURSE OF ASSESSME NT PROCEEDINGS, HENCE THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE CLAIM MADE IN THE RETURN WOULD HAVE BEEN ALLOWED AND THE INCORRECTNESS G ONE UNDETECTED BUT FOR THE FACT THAT THE CASE WAS SELECTED FOR SCRUTINY THE WRONGFUL CLAIM WAS DETECTED ONLY BECAUSE OF THE ENQUIRIES MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE INACCURACY OF THE PARTICULARS WAS UNEARTHED. SINCE THE ASSESSEE HAD MADE A WRONG CLAIM, WHICH WAS NOT ALLOWABLE IN THE CIRCUMSTANCES OF THE CASE, IT AM OUNTS TO FURNISHING OF INACCURATE PARTICULARS AS WELL AS CONCEALMENT OF INCOME. 8. ON THE BASIS OF THESE OBSERVATIONS, THE AO CONCL UDED THAT THE ASSESSEE HAD FURNISHED INACCURATE PARTICULARS OF IN COME AND HAS CONCEALED ITS INCOME, WHICH WAS LIABLE FOR TAXATION. VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 4 9. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A), BEFORE WHOM, THE ASSESSEE MADE EXTENSIVE ARGUMENTS AND PLA CED RELIANCE ON PLETHORA OF DECISIONS, REITERATING THAT THE AO ERRED IN LEV Y OF PENALTY. 10. THE CIT(A), PLACED RELIANCE ON THE QUANTUM DECI SION BY THE ITAT, WHEREIN THE COORDINATE BENCH HAD DISMISSED THE APPE AL OF THE ASSESSEE AND HELD THAT WHEN THE ASSESSEE HAD DISCONTINUED ITS BU SINESS IN 1998-99, THE FUNDS FROM HOLDING COMPANY WAS NOT UTILIZED FOR THE PURPOSES OF BUSINESS AND HENCE THE ASSESSEE WAS NOT ENTITLED TO THE CLAI M OF PAYMENT OF INTEREST, WHICH AMOUNTED TO INACCURATE PARTICULARS AND FALSE CLAIM MADE BY THE ASSESSEE. THIS WAS, THEREFORE A FIT CASE FOR THE LE VY OF PENALTY. THE CIT(A), THEREFORE, CONFIRMED THE LEVY OF PENALTY. 11. AGGRIEVED, THE ASSESSEE IS NOW BEFORE THE ITAT. 12. BEFORE US, THE SENIOR COUNSEL POINTED OUT THAT MERE BASIS OF LEVY OF PENALTY IS ON A WRONG PREMISE. THE AR POINTED OUT T HAT BASIS FOR INITIATION AND LEVY OF PENALTY IS ON WRONG PREMISE, BECAUSE, T HE REASONING ADOPTED BY THE AO WERE : (I) IN THE INSTANT CASE, THE ASSESSEE MADE THE INCORRECT CLAIM OF DEDUCTION IN ITS RETURN OF INCOME DESPITE OF BEING AWARE OF THE FACT TH AT THE SAID CLAIM WAS NOT ALLOWABLE TO IT. (II) FURTHER THE RELEVANT DETAILS ARE NOWHERE MENTIONED IN THE PARTICULARS FILED WITH THE RETURN OF INCOME, BUT WERE GLEANED BY THE A SSESSING OFFICER FROM SPECIFIC DETAILS AND QUERIES RAISED BY THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS, HENCE THIS DECISION IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. THE CLAIM MADE IN THE RETURN WOULD HAVE BEEN ALLOW ED AND THE INCORRECTNESS GONE UNDETECTED BUT FOR THE FACT THAT THE CASE WAS SELECTED FOR SCRUTINY (III) THE WRONGFUL CLAIM WAS DETECTED ONLY BECAUSE OF TH E ENQUIRIES MADE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE INACCUR ACY OF THE PARTICULARS WAS UNEARTHED. SINCE THE ASSESSEE HAD MADE A WRONG CLAIM , WHICH WAS NOT ALLOWABLE IN THE CIRCUMSTANCES OF THE CASE, IT AMOUNTS T O FURNISHING OF INACCURATE PARTICULARS AS WELL AS CONCEALMENT OF INCOME. THE AR POINTED OUT THAT THE ABOVE REASONS WERE IN F ACT CONTRARY TO THE FACTS, ALREADY AVAILABLE WITH THE AO, FROM THE TIME, WHEN THE ASSESSEE FILED ITS RETURNS OF INCOME, AS THEY HAD FORMED PART OF THE A NNEXURES APPENDED WITH THE RETURN. THESE FACTS PERTAINED TO ITS OPERATIONS , WHICH WERE DECLARED BY THE ASSESSEE IN THE REPORT OF THE BOARD OF DIRECTOR S, WHICH READS AS UNDER: 3. OPERATIONS: 4.1 SALES WERE RS. 3.43 MILLION AS AGAINST RS. 1.69 MILLION IN TH E PREVIOUS YEAR. OTHER INCOME FOR THE YEAR ENDED 31 ST MARCH, 2002 WAS RS. 2,76 MILLION AS AGAINST RS. 17.34 MILLION IN THE PREVIOUS YEAR. VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 5 4.2 THERE WERE NO OPERATIONS DURING THE YEAR AND ALL THE AS SETS OF THE COMPANY OTHER THAN LAND, INVENTORIES AND CONTAINERS GIVEN ON LEA SE HAVE BEEN DISPOSED OFF. 4.3 LAND HAS BEEN STATED AT FAIR MARKET VALUE ESTIMATED B Y A REGISTERED VALUER AS ON 31 ST MARCH, 2002. 4.4 KEEPING IN VIEW THE LOCATION OF THE COMPANY AND THE PR ODUCTS DEALT IN THE NAME OF THE COMPANY WAS CHANGED TO VIDHYAVIHAR CONTAINERS LIMITED WITH EFFECT FROM 25 TH SEPTEMBER, 2001. 4.5 FINANCE: (I) THE INSTALLMENTS PAYABLE TO UNION BANK OF INDIA WERE RESCHEDULED AT THE REQUEST OF THE COMPANY AND THE SAME ARE BEING PA ID. THE DUES OF THE FINANCIAL INSTITUTIONS HAVE BEEN SETTLED. (II) THERE IS NO REVENUE GENERATING ACTIVITY IN THE COMPANY . 4.6 THE COMPANY HAS BEEN ADVISED THAT IT IS NO LONGER AN INDUSTRIAL COMPANY AND THE PROVISIONS OF SICK INDUSTRIAL COMPANY (SPECIAL PROVISIO NS) ACT, 1985 DO NOT APPLY TO IT. 13. THE AR FURTHER POINTED OUT THAT IN THE AUDITOR REPORT, THE FOLLOWING WAS REPORTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 227 OF THE COMPANIES ACT,1956,, WE REPOT AS UNDER: I. WE HAVE OBTAINED ALL THE INFORMATION AND EXPLANATIONS, WHICH TO THE BEST OF OUR KNOWLEDGE AND BELIEF WERE NECESSARY FOR THE PURPOSE OF OUR AUDIT. II. IN OUR OPINION, PROPER BOOKS OF ACCOUNT AS REQUIR ED BY LAW, HAVE BEEN KEPT BY THE COMPANY, SO FAR AS APPEARS FROM OUR EXAMINATION O F SUCH BOOKS. III. THE COMPANYS BALANCE SHEET AND PROFIT AND LOSS ACCOU NT DEALT WITH BY THE REPORT ARE IN AGREEMENT WITH THE BOOKS OF ACCOUNT. IV. IN-OUR OPINION, THE PROFIT & LOSS ACCOUNT AND BALANCE SHEET COMPLY WITH THE ACCOUNTING STANDARDS REFERRED TO IN SUB SECTION (3C) O F THE SECTION 211 OF THE COMPANIES ACT, 1956. V. AS STATED IN NOTE NO. 2 TO ACCOUNTS, (THE MANAGEMENT OF THE COMPANY IS HOPEFUL OF REVIVING IN THE FORESEEABLE FUTURE ECONOMICALLY VIABLE NON-INDUSTRIAL COMMERCIAL ACTIVITY. WE HAVE RELIED UPON THE MANAGEMENT S PERCEPTION, AS MENTIONED IN THE SAID NOTE, WHILE ACCEPTING APPROPRIATENES S OF THE GOING CONCERN ASSUMPTION FOR DRAWING UP THE ACCOUNTS UNDER REPORT. VI. THE COMPANY HAS TO DATE ISSUED BONUS SHARES FOR THE AMOUNT OF RS 73,69,18,800/ (21,51,480 SHARES ON 19 TH AUGUST 1994, 30,12,072 SHARES ON 27 TH DECEMBER 1995 AND 22,05,636 SHARES ON 15 JANUARY 1998 AGGREGATING TO 73,69,188 EQUITY SHARES OF RS. 100 EACH ) BY CAPI TALIZING THE RESERVE ARISING OUT OF REVALUATION OF FIXED ASSETS. THE ISSUE OF BONU S SHARES AS AFORESAID IS CONTRARY TO THE RECOMMENDATIONS OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA. VII. AS STATED IN NOTE NO. 7 (C) TO ACCOUNTS, THE COMPANY HAS NOT ACCOUNTED FOR INTEREST PAYABLE TO THE HOLDING COMPANY MUKAND LTD ON VARIOUS LOANS/INTER CORPORATE DEPOSITS FOR THE PERIOD FROM 1 ST OCTOBER 2001 TO 31 ST MARCH 2002 RS. 4,09,24,204/-. WE HAVE BEEN GIVEN TO UNDERSTAND BY THE MANAGEMENT T HAT THE COMPANY INTENDS TO PAY THE SAME ON REALIZATION OF FIXED ASSETS I N FUTURE. IN OUR OPINION, THE SAME IS NOT IN CONSONANCE WITH THE PRINCIPLES OF MERCANTILE SYSTEM OF ACCOUNTING. ACCORDINGLY THE LOSS AND THE UNSE CURED LOANS ARE UNDERSTATED TO THE EXTENT OF RS. 4,09,24,204/-. 14. THE AR POINTED OUT THAT IN THE NOTES TO THE BAL ANCE SHEET AND PROFIT & LOSS ACCOUNT MENTIONS THERE HAS BEEN A COMPLETE STOPPAGE OF OPERATIONS AND THE ENTIRE LABOUR FORCE OF THE COMPANY HAS IN THE PAST RETIRED FROM SERVICE. A LL THE FIXED ASSETS OF THE COMPANY OTHER THAN LAND, INVENTORIES AND CONTAINERS G IVEN ON LEASE HAVE BEEN DISPOSED OFF. THE MANAGEMENT PLANS TO AND IS HOPEFUL OF REVIVING IN THE FORESEEABLE FUTURE ECONOMICALLY VIABLE NON-INDUSTRIAL COMMERCIAL ACTIVITY. THE ACCOUNTS HAVE BEEN VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 6 DRAWN UP BASED ON THE GOING CONCERN ASSUMPTION BASED ON THE MANAGEMENTS PERCEPTION OF THE FUTURE OF THE COMPANY. 15. THE AR ALSO POINTED OUT THAT COMPLETE DETAILS O F STOCKS WAS PROVIDED (A) OPENING STOCK OF GOODS: YEAR QUANTITY (NOS.) (RUPEES) I MARINE FREIGHT CONTAINERS 2001-2002 2000-2001 192 231 7,342,687 9,143,706 (B) CLOSING STOCK OF GOODS: I MARINE FREIGHT CONTAINERS 2001-2002 2000-2001 102 192 3,865,164 7,342,687 (C) TURNOVER I MARINE FREIGHT CONTAINERS 2001-2002 2000-2001 90 39 3,426,883 1,694,214 16. THESE DETAILS, THE AR POINTED OUT WERE USED BY THE AO FROM THE DETAILS, AS PLACED BEFORE HIM, WHICH HE ACKNOWLEDGE S IN THE ASSESSMENT ORDER (PAGES 4 & 5 OF THE ASSESSMENT ORDER). 17. THE AR, THEREFORE, REITERATED BEFORE US THAT TH E SUBMISSIONS AS MADE BY THE AO IN THE PENALTY ORDER (REPRODUCED IN THE P RE PARAS HERE ABOVE), WERE IN FACT INCORRECT. 18. THE SENIOR COUNSEL, THEREFORE, SUBMITTED THAT T HE PENALTY CANNOT BE ATTRACTED, IF FULL AND TRUE DISCLOSURE IS MADE CATENA OF DECISIONS BY THE VARIOUS FORA WAS THE LEGAL CLAIM, THAT WAS NOT ACCEPTED ISSUE WAS DEBATABLE 19. THE SENIOR COUNSEL, THEREFORE, PRAYED THAT THE PENALT Y BE DELETED. 20. THE DR ON THE OTHER HAND ARGUED THAT THE BASIC CONCEPT OF PEN AL PROVISIONS IS MENS REA , WHICH IS APPARENT IN THE CASE BECAUSE THE ASSESSEE HAD MADE A WRONG CLAIM, WHICH WAS ALSO FOUND TO BE INCORRECT BY THE ITAT IN THE QUANTUM APPEAL PROCEEDINGS . THIS GOES TO PROVE THAT THE INTENTION OF THE ASSESSEE WAS TO MAKE A WRONG CLAIM AND SOMEHOW GET RELIEF. 21. THE DR, THEREFORE, PLACED RELIANCE ON THE DECISION OF C IT VS ZOOM COMMUNICATIONS (P) LTD., REPORTED IN 327 ITR 510 (DEL), A CIT VS VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 7 HARVEY HEART HOSPITALS LTD., REPORTED IN 20 ITR (TRIB) 722 (CHENNAI) AND KANCHENJUNGA ADVERTISEMENT (P) LTD. VS CIT REPORTED IN 340 ITR 595 (DEL) AND SUBMITTED THAT THERE CAN BE NO TWO VIEWS POSSIBLE ON THE CLAIM TO BE MADE. HE, THEREFORE, PRAYED THAT THE REVENUE AUTHORITIES WERE CORRECT IN THE LEVY OF PENALTY. 22. IN THE REJOINDER, THE SENIOR COUNSEL REITERATED AND SUMMED UP THE ARGUMENTS, ALREADY MADE AND POINTED OUT THAT EVEN IN THE CASE OF ZOOM COMMUNICATIONS, CITED BY THE AO/CIT(A)/DR, THE PROPO SITION OF LAW WITH REGARD TO THE LEVY OF PENALTY HAS NOT BEEN DISTU RBED. THE SENIOR COUNSEL POINTED OUT THE OBSERVATION MADE BY THE COURT IN THIS CASE, WHEREIN IT IS OBSERVED, THE PROPOSITION OF LAW WHICH EMERGES FROM THIS CASE, W HEN CONSIDERED IN THE BACKDROP OF THE FACTS OF THE CASE BEFORE THE COURT IS THAT SO LONG AS THE ASSESSEE HAS NOT CONCEALED ANY MATERIAL FACT OR THE FACTUAL INFO RMATION GIVEN BY HIM HAS NOT BEEN FOUND TO BE INCORRECT, HE WILL NOT BE LIABLE TO IMPOSITION OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT, EVEN IF THE CLAIM MADE BY HIM IS UNSUSTAINABLE IN LAW, PROVIDED THAT HE EITHER SUBSTANTIAT ES THE EXPLANATION OFFERED BY HIM OR THE EXPLANATION, EVEN IF NOT SUBST ANTIATED, IS FOUND TO BE BONA FIDE. 23. THE SENIOR COUNSEL, THEREFORE, CLOSED HIS ARGUMENTS B Y PRAYING THAT NO DOUBT THE ADDITIONS MADE BY THE AO HAVE BEEN SUSTAINED RIGHT UPTO THE ITAT STAGE, BUT THAT BY ITSELF CANNOT BE THE G ROUND FOR THE LEVY OF PENALTY. HE, THEREFORE, PRAYED THAT THE PENALTY LEVIE D IN THE FOUR IMPUGNED YEARS DESERVES TO BE DELETED. 24. WE HAVE HEARD THE ARGUMENTS MADE BY BOTH THE PARTIES AND PERUSED THE DETAILS AND THE FACTS AND HISTORY OF THE BUS INESS OF THE ASSESSEE FROM 1994 TO MAY 2005, AS NOTED BY THE COORD INATE BENCH IN THE QUANTUM APPEAL BY THE ASSESSEE THE DETAILS AS SUB MITTED BY THE ASSESSEE IN THE RETURN/ASSESSMENT PROCEEDINGS. 25. WE FIND THAT IN THE QUANTUM PROCEEDINGS, THE COORD INATE BENCH HAD ACCEPTED THE VIEW TAKEN BY THE AO THAT THE BUSINE SS OPERATION OF THE ASSESSEE HAD BEEN DISCONTINUED AND THEREFORE, THE IN TEREST WAS FOR NON BUSINESS PURPOSE AND LIABLE TO BE ADDED BACK. AGAINST THIS VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 8 DECISION, AND IDENTICAL DECISIONS IN THE QUANTUM APPEALS, THE ASSESSEE APPROACHED THE HONBLE BOMBAY HIGH COURT IN ASSESSMENT YEARS 2002-03, 2004-05 AND 2006-07 IN APPEAL UNDER SECTION 26 0A OF THE INCOME TAX ACT. THE SENIOR COUNSEL POINTED OUT THAT THE HONBLE BOMBAY HIGH COURT IN THESE APPEALS HAVE ADMITTED THE AP PEALS ON SUBSTANTIAL QUESTION OF LAW, WHICH READS AS UNDER, HEARD. ADMIT ON THE FOLLOWING SUBSTANTIAL QUESTION O F LAW. A) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE TRIBUNALS FINDING THAT THE APPELLANT HAD DISCONTINUED THE BUSINESS OF MARINE FREIGHT CONTAINERS AND THAT THE INTEREST EXPENDITURE OF RS. 9,56,60,050/- RATES AND TAXES OF RS. 22,31,490/- AND LEGAL AND PROFESSIONA L CHARGES OF RS. 2,50,000 PAID FOR VALUATION OF LAND COULD NOT BE ALLOWED A S A DEDUCTION WAS ERRONEOUS, PERVERSE AND CONTRARY TO THE MATERIAL ON RECORD IN VIEW OF THE FACT THAT (I) THE APPELLANT HAD MERELY DISCONTINUED THE MANUF ACTURE OF THE CONTAINERS BUT HAD CONTINUED TO TRADE IN THEM AND (II) THE APPELLAN TS REAL ESTATE BUSINESS ACTIVITY AND THE SAID MARINE FREIGHT CONTAINER ACTIVITY C ONSTITUTED A COMPOSITE BUSINESS AND SO EVEN ASSUMING THAT THE SAID MARINE FREIG HT ACTIVITY HAD DISCONTINUED, THAT COULD HAVE NO IMPACT ON THE ALLOWABILITY OF THE INTEREST EXPENDITURE AND (III) UNDER FICTION CREATED BY SECTION 41 , THE APPELLANTS BUSINESS WAS DEEMED TO HAVE BEEN CARRIED ON DURING THE ASSESSMENT YEAR? 25. IN A SEPARATE APPEAL FILED BY THE DEPARTMENT AG AINST THE QUANTUM ORDER BY THE ITAT UNDER SECTION 260, WHEREIN THE QU ESTION SOUGHT TO ANSWERED WAS (A) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL ERRED IN DIRECTING THAT THE REAL ESTATE BUSINESS WAS DULY COMMENCED AND CARRIED ON BY THE ASSESSEE SINCE 1996? THE HONBLE BOMBAY HIGH COURT OBSERVED, SO FAR AS QUESTION (A) IS CONCERNED AS FRAMED BY THE REVENUE, DOES NOT BRING OUT THE REAL CONTROVERSY BETWEEN THE PARTIES. THE BAS IC ISSUE IS WHEN THE LAND WHICH WAS HELD BY THE ASSESSEE WAS CONVERTED INTO STOC K IN TRADE WITHIN OF SECTION 45(2) OF THE INCOME TAX ACT, 1961. IT IS THE CASE OF THE REVENUE THAT THE ASSESSEE IS NOT CARRYING OUT ANY BUSINESS OF REAL ESTA TE DEVELOPMENT. CONSEQUENTLY, THE ENTIRE GAIN ARISING ON THE SALE OF LAND IS A CAPITAL GAIN TAXABLE UNDER THE HEAD CAPITAL GAIN. AS AGAINST THAT, T HE CASE OF THE ASSESSEE IS THAT THEY WERE CARRYING OUT BUSINESS OF REAL ESTATE DEVELOPMENT. THE TRIBUNAL HAS RETURNED A FINDING OF FACT ON THE BASIS OF EVIDEN CE LED BEFORE IT THAT THE RESPONDENT-ASSESSEE CARRIED A BUSINESS OF REAL ESTATE. IT IS NOT THE CASE OF THE REVENUE THAT THE ABOVE FINDING OF THE TRIBUNAL IS PERVER SE. MOREOVER, WE FIND THAT BY THE IMPUGNED ORDER, THE TRIBUNAL HAS RESTORED THE MATTER TO THE ASSESSING OFFICER TO DETERMINE THE DATE OF CONVERSION OF THE CAPITAL ASSET INTO STOCK IN TRADE FOR THE PURPOSE OF COMPUTING CAPITAL GA INS. SINCE THE DISPUTE IS RESTORED TO THE ASSESSING OFFICER FOR RE-DETERMINATION, WE SEE NO REASON AT THIS STAGE TO ENTERTAIN QUESTION (A). 26. THE AR, THEREFORE, SUBMITTED THAT THE APPEAL FI LED BY THE DEPARTMENT WAS DISMISSED AND THE APPEALS FILED BY THE ASSESSEE ON QUANTUM, ON WH ICH THE INSTANT PENALTY(S) HAD BEEN LEVIED, WERE ADMITT ED BY THE HONBLE BOMBAY HIGH COURT. VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 9 27. AS MENTIONED ABOVE, BOTH THE CONTESTING PARTIES HAD MADE EXTENSIVE AND ELABORATE ARGUMENTS AND PLETHORA OF DECISIONS WERE CITED BEFORE US, WHICH HAVE BEEN CONSIDERED BY US, BOTH AT THE TIME OF HE ARING AND THE TIME OF ADJUDICATION OF THE APPEALS. IT IS OBSERVED THAT A LL THE MATERIAL FACTS RELATING TO ITS CLAIM FOR DEDUCTION ON ACCOUNT OF INTER EST EXPENDITURE WERE FULLY AND TRULY FURNISHED BY THE ASSESS EE IN THE ACCOUNTS MAINTAINED BY IT AND APPENDED ALONG WITH THE RE TURN OF ITS INCOME, FILED FOR THE INSTANT YEAR. THE AO, WHILE FRAMING THE RE GULAR ASSESSMENT MADE THE DISALLOWANCE OF THE SAID EXPENDITURE, BASED ON THESE VERY DETAILS, AS WERE FURNISHED BY THE ASSESSEE. THE CLAIM, OF T HIS EXPENSE, AS MADE BY THE ASSESSEE, WAS HAVING A POSITIVE AND POSSIBLE VIEW, WHICH HAS NOW BECOME DEBATABLE, AS A CONSEQUENCE O F THE APPEAL OF THE ASSESSEE HAVING BEEN ADMITTED BY THE HON BLE BOMBAY HIGH COURT. THIS SHOWS THAT IT WAS A CASE OF BONAFIDE CLAIM. THIS POSITION GETS FORTIFIED FROM THE FACT THAT THE APPEAL FILED BY THE ASSESSEE UNDER SECTION 260A BEFORE THE HONBLE BOMBAY HIGH COURT AGAINST QUANTUM DECISION IS ADMITTED. WHERE THE HIGH COURT HAS AC CEPTED THE APPEAL, THE SUBJECT MATTER OF APPEAL INVOLVES SUBSTANTIA L QUESTION OF LAW UNDER SECTION 260A, AND IT IS NEEDLESS TO EMPHASIS TH AT THE ISSUE IS DEBATABLE. THE HONBLE DELHI HIGH COURT IN CIT VS LIQUID IN VESTMENT & TRADING CO. IN 1T4 NO. 240/2009 VIDE ITS JUDGMENT DATE D 5.10.2010 HAS HELD THAT AN ISSUE BECOMES DEBATABLE ON THE ADMISSIO N OF SUBSTANTIAL QUESTION OF LAW AGAINST THE TRIBUNAL ORDER BY T HE HIGH COURT. IN SUCH A CASE ALSO, PENALTY HAS BEEN HELD TO BE NOT IMPOSABLE UNDER SECTION 271(1)(C) OF THE ACT. THE MUMBAI BENCH OF THE TRIBUNAL IN NAYAN BUILDERS & DEVELOPERS PVT LTD. VS ITO IN ITA NO. 2379/MUM/2009, VIDE ORDER DATED 18.03.2011, HAS ALSO HELD THAT WHERE SUBSTANTIAL QUESTION OF LAW HAS BEEN ADMITTED BY TH E HONBLE HIGH COURT AGAINST THE ADDITIONS SUSTAINED BY THE TRIBUNA L, THERE CANNOT BE ANY QUESTION OF PENALTY UNDER SECTION 271(1)(C). S IMILAR VIEW HAS BEEN TAKEN BY THE THIRD MEMBER OF THE TRIBUNAL IN TH E CASE OF VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 10 RAPAM MERCANTILES LIMITED VS DCIT, REPORTED IN 91 ITD 237 (AHD. - TM). 28. FOR THE REASONS GIVEN ABOVE, WE ARE OF THE VIEW THA T IT IS NOT THE FIT CASE FOR THE EXIGIBILITY OF PENALTY UNDER SECTION 271(1)(C). I N VIEW OF THAT MATTER, WE DELETE THE ENTIRE PENALTY LEVIED. 29. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDERS OF T HE CIT(A) IN ALL THE FOUR APPEALS IN ITAS NO. 5541/MUM/2013, 5542/MUM/2 013, 5543/MUM/2013 & 5544/MUM/2013 AND DIRECT THE AO TO D ELETE THE PENALTIES LEVIED IN ALL THE IMPUGNED FOUR YEARS. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE IN ITA 5541/MUM/2013 ITA 5542/MUM/2013 ITA 5543/MUM/2013 ITA 5544/MUM/2013 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD OCTOBER, 2013. SD/- SD/- ( . . ) ( #'' '$ ) ! ! (P.M. JAGTAP) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER ''( MUMBAI, )* DATE: 23 RD OCTOBER, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) + +, ( ) - 31, MUMBAI / THE CIT (A)-31, MUMBAI. 4) THE CIT-20 / _____, MUMBAI, 5) ./0 1 , + ! 1 , '( / THE D.R. E BENCH, MUMBAI. VIDYAVIHA R CONTAINERS LIMITED ITAS 5541 TO 5544/MUM/2013 11 6) 02 3 COPY TO GUARD FILE. +*4 / BY ORDER / / TRUE COPY / / [ 5 / 6 7 + ! 1 , '( DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *9:6 . . * CHAVAN, SR. PS