DEEPAK NAGJI VIRA, MUMBAI V. ITO 14(2)(4), MUMBAI

ITA 6029/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4265 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 26-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Wrong claim; Set aside
• Section: 271(1)(c); 274; 143(2)

Judgement Text

D IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI B.R.BASKARAN, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ./ I.T.A. NO.6029/ MUM/2017 ( / ASSESSMENT YEAR : 2011 - 12) DEEPAK NAGJI VIRA 11, HARICHAND MILL COMPOUND, L.B.S. MARG, VIKHROLI(W), MUMBAI - 400079 / V. ITO - 14(2)(4), MUMBAI ./ PAN :AABPV1228N ( / APPELLANT ) ( / RESPONDENT ) ASSESSEE BY: SHRI. SANJAY R. PARIKH REVENUE BY : SHRI. D.G. PANSARI / DATE OF HEARING : 07.03.2019 / DATE OF PRONOUNCEMENT : 13 .0 3 .2019 / O R D E R PER RAVISH SOOD, JUDICIAL MEMBER : THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 22, MUMBAI , DATED 29.06.2017, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A . O U/S. 271(1)(C) OF THE INCOME TAX ACT 1961 ( FOR SHORT I.T ACT ), DATED 30.12.2013 FOR A . Y 2011 - 12. THE ASSESSEE ASSAILING THE ORDER PASSED BY THE A. O U/S. 271(1)(C) H AS RAISED THE FOLLOWING GROUNDS OF APPEAL BEFORE US: 1. THE HON'BLE CIT(A) ERRED IN UPHOLDING THE PENALTY LEVIED BY TH E LD. ASSESSING OFFICER U/S. 271(1)( C) TO THE EXTENT OF RS.2,01,864/ - . 2. THE HON'BLE CIT(A) FAILED TO APPRECIATE THE INFIRMITY IN THE SHOW - CAUSE NOTICE FOR INITIATION OF PENALTY ISSUED U/S. 274 R.VV.S. 27I(L)(C), THUS RENDERING THE PENALTY PROCEEDINGS BAD IN LAW AND VOID AB INITIO. DEEPAK NAGJI VIRA VS. ITO - 14(2)(4) ITA NO. 6029/MUM/2017 2 2 3. THE HON'BLE CIT(A) FAILED TO APPRECIATE THAT THE APPELLANT HAD NOT FURNISHED INACCURATE PARTICULARS OF INCOME AND HAD SUBSTANTIATED THE BONA FIDE CLAIM MADE BY THE APPELLANT, WHICH THE HON'BLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI, IN ITS ORDER IN THE MATTER O F THE APPELLANT FOR A.Y. 2011 - 12, HAD ALSO ACCEPTED. 4. YOUR APPELLANT PRAYS THAT THE PENALTY LEVIED BY THE LD. ASSESSING OFFICER AND CONFIRMED BY THE HON'BLE CIT(A) MAY PLEASE BE DELETED. 5. YOUR APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, MODIFY OR DELETE ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL. 2. BRIEFLY STATED , THE ASSESSEE HAD FILED H I S RETU R N OF INCOME FOR A . Y 2011 - 12 ON 29.08.2012, DECLARING TOTAL INCOME OF RS. 2,98,630/ - . SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY A SSESSMENT U/S. 143(2) OF THE I T ACT . 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS IT WAS OBSERVED BY THE A . O THAT THE ASSESSEE HAD RAISED LOANS FROM VARIOUS PARTIES THOUGH FINANCE BROKERS AND HAD PAID INTEREST OF RS. 31,39,579/ - AND FINANCE BROKERAGE CHARGES OF RS. 1,33,954/ - , THEREIN TOTALLING TO RS. 32,63,533/ - . IT WAS NOTICED BY HIM THAT THE SAID BORROWED FUNDS WERE THEREAFTER ADVANCED BY THE ASSESSEE TO M/S. PURPL E CREATION PVT. LTD., WHEREIN THE ASSESSEE WAS A DIRECTOR AND HAD RECEIVED INTEREST INCOME OF RS. 23,76,0 1 1/ - ON THE AMOUNT ADVANCED . THE A . O BEING OF THE VIEW THAT THE MAIN OBJECT OF BORROWING OF FUNDS BY THE ASSESSEE WAS TO MOBILI Z E THE SAID FUNDS TO THE COMPANY ON THE BASIS OF LOW INTEREST WITHOUT ANY MOTIVE TO EARN ANY INCOME. APART THERE FROM, IT WAS ALSO OBSERVED BY THE A . O THAT THE ASSESSEE HAD FAILED TO ESTABLISH A DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE FUNDS WHICH WERE TRANSFERRED TO THE COMPANY ON INTEREST. IN THE BACKDROP OF HIS AFORESAID OBSERVATION S THE A . O CONCLUDED THAT THE DEFICIT /SHORTFALL IN THE INTEREST RECEIVED BY THE ASSESSEE I.E. RS. 8,87,532/ - ON ADVANCING OF THE SAID BORROWED FUNDS WAS AS A MATTER OF FACT THE LOSS OF THE COMPANY WHICH WAS DIVERTED TO THE ASSESSEE AND ADJUSTED AGAINST H I S REMUNERATION. ON TH E BASIS OF THE AFORESAID DELIBERATION S THE A . O DISALLOWED THE AFORESAID INTEREST EXPENDITURE AND FINANCIAL BROKERAGE CHARGES AMOUNTING TO RS. DEEPAK NAGJI VIRA VS. ITO - 14(2)(4) ITA NO. 6029/MUM/2017 3 3 8,87,532/ - AND ADDED BACK THE SAME TO THE INCOME OF THE ASSESSEE. ON APPEAL, T HE AFORESAID ADDITION WAS CONFIRM ED BY THE CIT(A), VIDE HIS ORDER DATED 08.10.2014. F URTHER, AS HAD BEEN BROUGHT TO OUR NOTICE BY THE LD. A.R THE APPEAL FILED BY THE ASSESSEE WITH THE T RIBUNAL HAD ALSO BEEN DISMISSED. 4. THE A . O AFTER RECEIVING THE ORDER OF THE CIT(A ) CALLED UPON THE ASSESSE E TO EXPLAIN AS TO WHY PENALTY U/S. 271(1)(C) IN RESPECT OF THE ADDITION OF RS. 8,87,532/ - PERTAINING TO THE DIFFERENCE IN PAYMENT OF INTEREST AND FINANCE BROKERAGE ON LOANS TAKEN FROM VARIOUS PARTIES AMOUNTING OF RS. 32,63,533/ - AND THE INTEREST RECEIVED OF RS. 23,76,001/ - MAY NOT BE IMPOSED ON IT . THE REPLY FILED BY THE ASSESSEE DID NOT F I ND FAVOUR WITH THE A . O , WHO HOLDING THE ASSESSEE AS BEING IN DEFAULT FOR HAVING FURNISHED INACCURATE PARTICULARS IN RESPECT OF THE AFORESAID CLAIM OF INTEREST EXPENDITUR E AND FINANCIAL BROKERAGE PAID OVER THE AMOUNT OF INTEREST GIVEN I.E. RS. 8,87,532/ - , IMPOSED A PENALTY OF RS. 2,66,260/ - . 5. THE ASSESSEE BEING AGGRIEVED WITH THE PENALTY IMPOSED BY THE A . O U/S. 271(1)(C) OF THE IT ACT CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) . THE CIT(A) BEING OF THE VIEW THAT THE LOSS OF INTEREST EXPENDITURE CLAIM ED BY THE ASSESSEE IN ITS RETURN OF INCOME WAS A PREMEDITATED LOSS, THEREFORE, SUBSCRIBED TO THE VIEW TAKEN BY THE A . O AND UPHELD THE PENALTY IMPOSED BY HIM U/S. 271(1)(C) OF THE I.T ACT. HOWEVER, A MISTAKE THAT HAD CREPT ON THE PART OF THE A . O WHILE QUANTIF YING THE AMOUNT OF PENALTY WAS CORRECTED BY THE CIT(A) AND THE AMOUNT OF PENALTY OF RS. 2,66,260/ - IMPOSED BY THE A . O U/S 271(1)(C) WAS REDUCED TO AN AMOUNT OF RS. 2,01,864/ - . 6. THE ASSESSEE BEING AGGRIEVED THAT THE ORDER OF THE CIT(A) HAS CARRIED MATTER IN APPEAL BEFORE US. THE LD. AUTHORISED REPRESENTATIVE ( FOR SHORT A . R ) FOR THE ASSESSEE AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED THAT THE ADDITION OF RS. 8,87,532/ - WAS MADE BY THE A.O ON ACCOUNT OF THE LOWER AMOUNT OF INTEREST THAT WAS RECEIVED BY THE DEEPAK NAGJI VIRA VS. ITO - 14(2)(4) ITA NO. 6029/MUM/2017 4 4 ASSESSEE ON THE AMOUNT ADVANCED TO THE COMPANY VIZ. M/S. PURP LE CREATION P. LTD., AS AGAINST THE INTEREST WHICH WA S BORNE /INCURRED BY THE ASSESSEE IN RESPECT OF THE BORROWED FUNDS. IN SUM AND SUBSTANCE, IT WAS THE CONTENTION OF THE LD. A . R THAT THOUGH THE SHORTFALL/DEFICIT OF THE INTEREST RECEIVED AS AGAINST INTEREST CHARGED ON THE BORROWED FUNDS WOULD JUSTIF Y AN ADDI TION OF THE SAME IN THE HAND S OF THE ASSESSEE, HOWEVER, THE SAME BY NO MEANS COULD LEAD TO LEVY OF PENALTY U/S. 271(1)(C) OF THE IT ACT. I N SUPPORT OF HIS AFORESAID CONTENTION THE LD. A . R RELIED ON THE JUDGMENT HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO C HEMICALS (P) LTD., (2010) 322 ITR 158 (SC). 7. PER CONTRA, THE LD. DEPARTMENT AL REPRESENTATIVE ( FOR SHORT D . R ) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES . I T WAS SUBMITTED BY THE LD. D . R THAT AS THE ASSESSEE HAS PREMEDITATED THE DIVERSION OF THE INTEREST BEARING BORROWED FUNDS AT A LOWER RATE TO THE COMPANY, THEREFORE, THE AUTHORITIES BELOW HAD RIGHTLY IMPOSED PENALTY U/S. 271(1)(C) IN RESPECT OF THE WRONG CLAIM OF DEDUCTION OF THE CO - RELATING IN TEREST EXPENDITURE AS WAS RAISED BY THE ASSESSEE IN ITS RETURN OF INCOME . 8. WE HAVE HEARD THE AUTHORISED REPRESENTATIVE FOR BOTH THE PARTIES , PERUSED THE ORDER S OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD. ADMITTEDLY, THE ASSESSEE HAD R AISED INTEREST BEARING FUNDS FROM CERTAIN PARTIES AT AN INTEREST RANGING FROM 12% PER ANNUM TO 15% PER ANNUM. FURTHER, THE ASSESSEE HAD ADVANCED AMOUNTS TO THE COMPANY I.E. M/S. PURP LE CREATION (P) LTD., IN WHICH IT WAS A DIRECTOR , AT THE RATE OF 12% PER A NNUM. IT IS THE CLAIM OF THE ASSESSEE THAT THE MOTIVE FOR LENDING THE MONEY TO THE AFORESAID COMPANY WAS TO EARN INCOME OUT OF THE SAID FUND S. APART THERE FROM, AS IS DISCERNIBLE FROM THE RECORDS, IT WAS ALSO THE CLAIM OF THE ASSESSEE BEFORE THE LOWER AUTH ORITIES THAT AS OUT OF TOTAL 75 PARTIES FROM WHOM UNSECURED LOANS WERE RAISED, LOANS RAISED FROM THE 42 PARTIES WERE AT AN INTEREST 12% PER ANNUM, THEREFORE, IT WAS INCORRECT ON THE PART OF THE LOWER AUTHORITIES TO CLAIM THAT THE INTEREST AT WHICH THE AMOU NTS WERE ADVANCED BY THE ASSESSEE TO THE COMPANY WAS IN ALL INSTANCES AT A DEEPAK NAGJI VIRA VS. ITO - 14(2)(4) ITA NO. 6029/MUM/2017 5 5 LOWER RATE. BE THAT AS IT MAY, IN OUR CONSIDERED VIEW THE FACT THAT THE ASSESSEE HAD ADVANCED PART OF THE INTEREST BEARING BORROWED FUNDS AT A LOWER RATE OF INTEREST TO THE COMPANY WOULD THOUGH JUSTIFY ADDITION/DISALLOWANCE OF THE SHORTFALL/DEFICIT AMOUNT OF INTEREST EXPENDITURE IN THE HAND OF THE ASSESSEE, BUT THE SAME CANNOT JUSTIFY IMPOSITION OF PENALTY U/S. 271(1)(C) IN ITS HANDS ON THE SAID COUNT. OUR AFORESAID VIEW IS FORTIFIED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO CHEMICALS (P) LTD., (2010) 322 ITR 158 (SC). THE HONBLE APEX COURT IN ITS AFORESAID JUDGMENT HAD OBSERVED THAT A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISH ING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. INSOFAR THE CASE OF THE ASSESSEE BEFORE US IS CONCERNED, WE FIND THAT THE ASSESSEE HAD FURNISHED FULL AND TRUE DISCLOSURE IN RESPECT OF THE INTEREST RECEI VE D AND THE INTEREST EXPENDITURE/FINANCIAL CHARGES INCURRED BY HIM. ADMITTEDLY, THE CLAIM OF THE ASSESSEE DID NOT FIND FAVOUR WITH AO, HOWEVER, WE ARE OF THE CONSIDERED VIEW THAT THE SAME MERELY FOR THE SAID REASON COULD NOT CULMINATE INTO IMPOSITION OF TH E PENALTY U/S. 271(1)(C) OF THE I.T ACT . WE THUS NOT FINDING OUR SELVES TO BE IN AGREEMENT WITH THE VIEW TAKEN BY THE LOWER AUTHORITIES, THEREFORE SET ASIDE ORDER OF THE CIT(A) AND VACATE THE PENALTY U/S 271(1)(C) OF RS. 2,06,864/ - AS SUSTAINED BY HIM. 9 . THE APPEAL F ILED BY THE ASSESSEE IS ALLOWED. ORDER PR ONOUNCED IN THE OPEN COURT ON 1 3 .0 3 .2019. 1 3 .0 3 .2019 S D / - S D / - (B.R. BASKARAN) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 1 3 .03.2019 NISHANT VERMA SR. PRIVATE SECRETARY DEEPAK NAGJI VIRA VS. ITO - 14(2)(4) ITA NO. 6029/MUM/2017 6 6 COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED, MUMBAI 4. THE CIT - CONCERNED, MUMBAI 5. THE DR BENCH, 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI