DCIT 3(2), MUMBAI V. NILDEEP INVESTMENT CO. P. LTD, MUMBAI

ITA 624/MUM/2009

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5217 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-08-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2000-2001
• Appeal Filed On: 30-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HARIGOVIND SINGH
• Keywords: Business expenditure; Bonafide belief; Wrong claim
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) DCIT 3(2), ROOM NO.608, 6 TH FL.,AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 .APPELLANT VS M/S NILDEEP INVESTMENT CO.P.LTD., 208 REGENT CHAMBERS, NARIMAN POINT, MUMBAI-400021 PAN: AAACN5615R .. RESPONDENT APPELLANT BY : SHRI H ARI GOVIND SINGH RESPONDENT BY : NONE O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER DATED 28.11.2008 OF CIT(A)-III, MUMBAI ARISING FRO M THE PENALTY ORDER PASSED U/S 271(1)(C) OF THE ACT FOR T HE ASSESSMENT YEAR 2000-01. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS IN THIS APPEAL : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY OF RS.15,05,940/- LEVIED BY THE AO UNDER SECTION 271(1)( C ) OF THE ACT WITHOUT APPRECIATIN G THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 2 ITS INCOME AND ALSO FURNISHED INACCURATE PARETICULA RS OF SUCH INCOME 3. WE HAVE THE LEARNED DR AND CONSIDERED THE RELEVA NT RECORD. SINCE NOBODY HAS APPEARED ON BEHALF OF THE ASSESSEE WHEN THE CASE WAS CALLED FOR HEARING, THEREFORE, WE HAD NO PRIVILEGE TO HEAR THE ASSESSEE. THEREFORE, WE PROP OSE TO HEAR AND DECIDE THE APPEAL DECIDE EX-PARTE, QUA THE AS SESSEE. 4. THE LEARNED DR HAS SUBMITTED THAT THE ASSESSEE COMPANY RECEIVED THE INTEREST FREE ADVANCES FROM IT S DIRECTORS SHRI B C DALAL OF RS.1,42,89,000. THE SAID AMOUNT HAS ADVANCED TO ITS SISTER CONCERN AND SHOWN INTEREST RECEIVED FROM THEM. THE ASSESSEE ALSO ADVANCED FUNDS TO OTHE R SISTERS CONCERN BUT NOT RECEIVING INTEREST FROM THESE COMP ANIES VIZ. M/S ANMOL CHEMICALS AND M/S HARISHARAN DEVELOPERS L TD ON THE GROUND THAT THESE COMPANIES ARE SICK COMPANIES AND ARE NOT IN A POSITION TO PAY INTEREST. THE ASSESSEE CL AIMED INTEREST EXPENDITURE OF RS.39,11,535/- AGAINST THE INTEREST RECEIVED ON THE GROUND THAT SPECIAL COURTS SET UP UNDER SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRAN SACTIONS IN SECURITIES) ACT, 1992 PASSED AN ORDER ON 08.06.199 5 DIRECTING THE ASSESSEE TO RE-PAY THE PRINCIPAL AMOUNT WITH I NTEREST AT THE RATE OF 24% FROM THE DATE OF RECEIPT OF INTER EST FREE LOAN. THE SAID CLAIM OF INTEREST WAS DISALLOWED BY THE AO BEING A PENALTY AS AWARDED BY THE SPECIAL COURT. THE DISALL OWANCE ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 3 WAS CONFIRMED BY THE CIT(A) VIDE ORDER DATED 12.09. 2003. THUS, THE LEARNED DR HAS SUBMITTED THAT THE ASSESSE E KNOWING FULLY THAT THE INTEREST WHICH WAS IN THE NA TURE OF PENALTY AWARDED BY THE SPECIAL COURT IS NOT AN ALLO WABLE EXPENDITURE, CLAIMED THE SAME IN THE RETURN OF INC OME WHICH AMOUNTS TO CONCEALMENT OF PARTICULARS OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME WITH A VIEW TO REDUCE THE TAX LIABILITY. HE HAS RELIED UPON THE ORDER OF THE AO 4. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNE D DR, RELEVANT RECORD AND FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE CLAIMED INTEREST EXPENDITUR E OF RS.39,11,535/- BECAUSE SPECIAL COURTS (TRIAL OF O FFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT, 1992 HAS DIRECTED THE ASSESSEE COMPANY TO PAY THE SAID INTEREST TO S HRI B C DALAL ONE OF THE DIRECTORS OF THE COMPANY AND WAS A NOTIFIED PERSON BY THE CUSTODIAN /SPECIAL COURT. THE DISALL OWANCE OF THE CLAIM OF INTEREST BY THE AO WAS MADE AS THE SA ME WAS TREATED AS PENALTY AWARDED BY THE SPECIAL COURT AND THEREFORE IS NOT ALLOWABLE AS PER THE PROVISIONS OF ACT AS W ELL AS NOT AN EXPENDITURE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE COMPANY. THE FACTUM OF INTEREST PAYMENT IS NOT DI SPUTED BY THE REVENUE. IT IS ALSO NOT THE CASE OF THE REVENU E THAT THE ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 4 ASSESSEE HAS MADE A BOGUS OR FALSE CLAIM. THE CLAI M WAS DISALLOWED BECAUSE THE SAME WAS TREATED AS PENALTY AND NOT AS A BUSINESS EXPENDITURE. MAKING THE CLAIM OF INT EREST BY THE ASSESSEE WHICH IS NOT ALLOWABLE UNDER THE PROVISION S OF LAW DOES NOT AMOUNT TO CONCEALMENT OF PARTICULARS OF IN COME OR FURNISHING INACCURATE PARTICULARS OF THE INCOME. TH E ASSESSEE DISCLOSED THE PRIMARY FACT OF INTEREST AND THE PAYM ENT OF THE SAME AS PER THE ORDER OF THE SPECIAL COURT. THERE FORE, IN OUR VIEW, THE SAME CANNOT BE TREATED AS CONCEALMENT OF PARTICULARS OF INCOME AND FURNISHING INACCURATE PAR TICULARS OF INCOME WARRANT PENALTY. THE CIT(A) VIDE SECOND PARA GRAPH AT PAGES 5 AND 6 OF HIS ORDER HAS DELETED THE PENALTY BY HOLDING AS UNDER : IN THE INSTANT CASE, DISALLOWANCE OF INTEREST HAS BEEN CONSIDERED BY AO IN SEVERAL OF THE EARLIER YEARS. IN NONE OF THESE YEARS, STAND OF INTEREST BEING PENAL IN NATURE WAS TAKEN UP BY AO. THE DISALLOWANCE WAS BEING MADE ON THE GROUND THAT INTEREST BEARING FUNDS WERE DIVERTED TOWARDS EITHER NON INTEREST BEING ADVANCES OR ADVANCES WHERE THE INTEREST EARNED BY APPELLANT WAS LOWER THAN THE INTEREST BEING PAID ON BORROWED FUNDS UNDER CONSIDERATION. THE ISSUE OF INTEREST BEING PENAL IN NATURE HAS BEEN RAISED BY AO FOR THE FIRST TIME IN THIS YEAR. TO MY MIND, AT THE TIME WHEN APPELLANT FILED ITS RETURN OF INCOME, THERE WAS A BONAFIDE BE LIEF THAT INTEREST BEING PAID IN ACCORDANCE WITH ORDER O F THE SPECIAL COURT WAS NOT PENAL IN NATURE. THEREFORE, APPELLANT NOT HAVING MADE ANY DISALLOWANCE IN THE RETURN OF INCOME ON ACCOUNT OF INTEREST PAID WAS UNDER THE BONAFIDE BELIEF. THAT BELIEF HAS ALSO BEEN SUBSTANTIATED IN THE FORM OF PROCEEDINGS BEFORE ITAT OF THE EARLIER ASSESSMENT ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 5 YEARS. IN PROCEEDINGS BEFORE HONBLE TRIBUNAL, THE Y HAVE ALSO OPINED THAT INTEREST WAS NOT PENAL IN NATURE. I ALSO FIND THAT WHILE IMPOSING PENALTY, AO HAS PASSED A BRIEF ORDER AND HAS NOT AT ALL GONE IN TO HOW ACCORDING TO HIM, EXPLANATION 1 WAS ACTUALLY ATTRACTED. TO MY MIND, APPELLANT HAS SUBSTANTIATED IS CLAIM THAT ACCORDING TO THE INTEREST WAS NOT DISALLOWABLE AS PENAL INTEREST AND THAT SUBSTANTIATION, IS ALSO BONAFIDE. THEREFORE, IN THE FACTS OF THE PRESENT CASE, IMPOSITION OF PENALTY IS NOT JUSTIFIED. PENALTY IMPOSED IS CANCELLED IN THE CASE OF DECISION OF CIT V/S RELIANCE PET ROPRODUCTS PVT.LTD REPORTED IN 322 ITR 158(SC), THE HONBLE SUPREME COURT HELD IN PARAGRAPHS 11 TO 14 AS UNDER : 11. WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTICULARS IN THE EARLIER PART OF THIS JUDG MENT. READING THE WORDS IN CONJUNCTION, THEY MUST MEANS THE DETAILS SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TR UTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN TH IS CASE, THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORR ECT OR ERRONEOUS OR FALSE, SUCH NOT BEING THE CASE, TH ERE WOULD BE NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C ) OF THE ACT. A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, W ILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF HE ASSESSEE. SUCH CLAIM MADE IN THE RET5URN CANNOT AMOUNT TO THE INACCURATE PARTICULARS . 12. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF THE ACT SPECIFICALLY EXCLUDED THE DEDUCTION IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE REITER ATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING THAT THEY ARE INCORRECT, IT AMOUNTED TO CONCEALMENT OF INCOME. I T ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 6 WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACCOUN TS CAN TAKE EITHER OF THE TWO FORMS ; (I) AN ITEM OF R ECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT ) CLAIMED AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND, THEREFORE, BOTH TYPES AMOUN T TO CONCEALMENT OF PARTICULARS OF ONES INCOME AS WE LL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FURNISHED ALL TH E DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN IS RETURN, WHICH DETAILS, IN THEMSELVES WE NOT FOUND T O BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMEN T OF INCOME ON ITS PARTS. IT WAS UP TO THE AUTHORITI ES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECA USE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)( C ). IF W E ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHERE THE CLAIM MAD IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)( C ). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 13. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT MADE IN SREE KRISHNA ELECTRICIANS V/S STATE OF TAMI L NADU (2009) 23 VST 249 AS REGARDS THE PENALTY ARE APPOSITE. IN THE AFOREMENTIONED DECISION WHICH PERTAINED TO THE PENALTY PROCEEDINGS UNDER THE TAM IL NADU GENERAL SALES TAX ACT, THE COURT HAD FOUND TH AT THE AUTHORITIES BELOW HAD FOUND THAT THERE WERE SOM E INCORRECT STATEMENTS MADE IN THE RETURN . HOWEVER, THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNT S OF THE ASSESSEE. THIS COURT, THEREFORE, OBSERVED (PAGE 251): SO FAR AS THE QUESTION OF PENALTY IS CONCERNED THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATED IN THE APPELLANTS ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED IN THE TURNOVER ARE DISCLOSED IN THE DEALERS OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDES THESE ITEMS IN THE DEALERS TURNOVER DISALLOWING THE EXEMPTION, PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STANDS SET ASIDE ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 7 14. THE SITUATION IN THE PRESENT CASE IS STILL BET TER AS NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSEE IN ITS RETURN. 5. FROM THE DECISION OF THE HONBLE SUPREME COURT ( SUPRA), IT IS CLEAR THAT WHEN THE INFORMATION AND DETAILS G IVEN BY THE ASSESSEE IS NOT FOUND TO BE INCORRECT OR INACCURATE , THE ASSESSEE CANNOT BE HELD OF GUILTY OF FURNISHING INA CCURATE PARTICULARS AND RESULTING LEVY OF PENALTY. RESPECTF ULLY FOLLOWING THE DECISION OF THE SUPREME COURT (SUPRA), WE FIND THAT, IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, THE PE NALTY IS NOT JUSTIFIED. ACCORDINGLY, WE UPHOLD ASIDE THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL OF THE REVENUE. PRONOUNCED IN THE OPEN COURT ON 13.08.2010 SD SD ( P.M.JAGTAP ) (VIJA Y PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 13 TH AUG 2010 SRL:9810 ITA NO. 624/MUM/2009 (ASSESSMENT YEAR: 2000-01) 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI