DCIT 5(3), MUMBAI V. SEABRIDGE MARITIME AGENCIES P.LTD, MUMBAI

ITA 6253/MUM/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9454 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2015
• Appeal Filed By: Department
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 25-10-2013
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP
• Keywords: Earning of tax free income; Difference of opinion
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL E , BENCH MUMBAI . . , , BEFORE SHRI R.C.SHARMA , A M & SHRI SANJAY GARG , J M ./ ITA NO. 6253 / MUM/20 1 3 ( / ASSESSMENT YEAR : 2009 - 10 ) ADCIT, RG.5(3), MUMBAI VS. M/S SEABRIDGE MARITIME AGENCIES PVT. LTD., ROOM NO.17/69, 1, NAVRATNA BUILDING, 4 TH FLOOR, P.D.MELLO ROAD, MUMBAI - 400009 ./ ./ PAN/GIR NO. : A A DCS 9568 B ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NEIL PHILIP /ASSESSEE BY : SHRI DHARMESH SHAH / DATE OF HEARING : 16/03/2015 / DATE OF PRONO UNCEMENT 20 / 03/2015 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A) DATED 23 - 8 - 2013, FOR THE A.Y.200 9 - 10 IN THE MATTER OF IMPOSITION OF PENALTY U/S.271(1)(C) OF THE ACT, WHEREIN FOLLOWING GROU NDS HAVE BEEN TAKEN BY THE REVENUE : - 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING THE APPEAL OF THE ASSESSEE AND THEREBY DELETING THE PENALTY LEVIED U/S.271(1)(C) WITHOUT APPRECIATING THE FACT THA T ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME BY NOT MAKING ANY DISALLOWANCE U/S.14A R.W.RULE 8D, WHICH IS FULLY APPLICABLE IN THE INSTANT CASE? 2. THE APPELLANT PRAYS THAT THE ORDER OF LD.CIT(A) BE SET ASIDE AND THE ORDER OF THE AO BE RESTORED . ITA NO. 6253 / 1 3 2 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED . FROM THE RECORD, WE FOUND THAT THE AO HAS MADE AN ADDITION OF RS.16,47,637/ - U/S.14A R.W.RULE 8D OF THE I.T.ACT PENALTY PROCEEDINGS U/S.271(1)(C) OF THE IT ACT WAS ALSO INITIATED AT THE TIME OF A SSESSMENT. DURING PENALTY PROCEEDINGS, IT WAS CONTENDED BY THE ASSESSEE THAT PENALTY U/S.271(1)(C) IS NOT LEVIABLE ON THE DISALLOWANCE MADE BY THE AO WHERE ADDITIONS HAS BEEN MADE DUE TO DIFFERENCE IN OPINION ON DISPUTABLE ISSUE. HOWEVER, THE AO DID NOT AG REE WITH THE CONTENTIONS OF THE ASSESSEE. THE AO OBSERVED IN THE PENALTY ORDER THAT THE ADDITIONS HAVE BEEN SUSTAINED BY THE CIT(A). T HE AO HAS FURTHER HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME IN RESPECT OF THE ABOVE REFERRED A DDITION ON ACCOUNT OF DISALLOWANCE U/S.14A OF THE I.T.ACT. ACCORDINGLY, 100% PENALTY OF THE TAX SOUGHT TO BE EVADED WAS LEVIED ON THE ASSESSEE. 3. BY THE IMPUGNED ORDER, THE CIT(A) DELETED THE PENALTY AFTER CONSIDERING VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED AT PAGES 4,5,6&7 OF THE APPELLATE ORDER. THE CONCLUSION OF THE CIT(A) READS AS UNDER : - I HAVE CAREFULLY CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE, RELEVANT ASSESSMENT ORDER, RELIED UPON CASE LAWS AND THE SUBMISSIONS MADE BY THE LAR. IN THE INSTANT CASE IT IS NOTED THAT THE APPELLANT HAS CONTENDED THAT IT HAD NOT INCURRED ANY SPECIFIC EXPENDITURE IN EARNING OF THE DIVIDEND INCOME WHICH HAS BEEN RECEIVED ON THE INVESTMENT OF THE APPELLANT WHICH WERE MADE OUT OF ITS OWN SURPLUS FUNDS. HOWE VER, THE A.O. WAS OF THE B VIEW THAT THE APPELLANT MIGHT HAVE INCURRED SOME EXPENSES FOR EARNING THE EXEMPT INCOME OF DIVIDEND, THEREFORE, BY FOLLOWING THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF M/ S GODREJ & BOYCE MFG. CO. LTD. (SUPRA.) HAS WORKED O UT THE DISALLOWANCE U/S.14A BY APPLYING THE FORMULA OF RULE 8 D. A PERUSAL OF ASSESSMENT ORDER AS WELL AS PENALTY ORDER OF THE A.O. REVEALS THAT IT DOES NOT MENTION ABOUT ANY SPECIFIC EXPENDITURE WHICH CAN BE DIRECTLY LINKED WITH THE EARNING OF EXEMPT INCOM E. THEREFORE, UNDER THESE CIRCUMSTANCES, IT CANNOT BE HELD THAT EITHER THE APPELLANT HAS FURNISHED ANY INACCURATE PARTICULARS OF ITS INCOME EXPENDITURE OR THE APPELLANT HAS CONCEALED ITS INCOME. THE ADDITION MADE BY THE A.O. IS ON ACCOUNT OF A DISALLOWANCE U / S.14A PRIMARILY DUE TO THE FACT THAT THE OPINION OF THE A.O. IS DIFFERENT THEN THE EXPLANATION OF THE APPELLANT. IN SUCH A SCENARIO, IN VIEW OF THE DECISION OF ITA NO. 6253 / 1 3 3 HON'B LE APEX COURT IN THE CASE OF M/ S RELIANCE PETRO PRODUCTS (SUPRA.), THE PENALTY UJS.271(1 )(C) OF THE I.T.ACT,1961 IS NOT JUSTIFIED HENCE THE SAME IS DELETED. 4. THE CONTENTION OF THE ASSESSEE BEFORE THE AO WAS THAT IT HAD NOT INCURRED ANY SPECIFIC EXPENDITURE IN EARNING OF THE DIVIDEND INCOME WHICH HAS BEEN RECEIVED ON THE INVESTMENT OF THE A SSESSEE, EVEN INVESTMENT WAS MADE OUT OF ITS OWN SURPLUS FUNDS. HOWEVER, THE AO HAS COMPUTED THE DISALLOWANCE AS PER RULE 8D. 5. THE CIT(A) WHILE DELETING THE PENALTY OBSERVED THAT AS PER ASSESSMENT ORDER AND PENALTY ORDER, NO SPECIFIC EXPENDITURE WAS DIRE CTLY LINKED WITH THE EARNING OF EXEMPT INCOME, THEREFORE, IT CANNOT BE INFERRED THAT ASSESSEE HAS FURNISHED ANY INACCURATE PARTICULARS OF INCOME/EXPENDITURE OR THE ASSESSEE HAS CONCEALED ITS INCOME. THE DISALLOWANCE WAS MADE BY AO ON ACCOUNT OF PROVISIONS OF SECTION 14A. THEREFORE, RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS, 322 ITR 158 (SC) , DELETED THE PENALTY. 6. LD. AR PLACED ON RECORD VARIOUS JUDICIAL PRONOUNCEMENTS WHEREIN LEVY OF PENALTY U/S.271(1)(C) FOR DISALLOWANCE U/S.14A WAS NOT WARRANTED IN CASE WHERE NO DIRECT NEXUS BETWEEN THE EXPENDITURE AND EXEMPT INCOME WAS ESTABLISHED. 7. T HE DISALLOWANCE U/ S 14A IS BY WAY OF FICTION BUT S U CH FICTION IS NOT FOR LEVY OF PENALTY ALSO. FOR LEVY OF PENALTY THE AO MUST SHOW THAT THERE WAS FURNISHING OF INACCURATE PARTICULARS OF INCOME OR THAT THE EXPLANATION FURNISHED BY THE ASSESSEE WAS NOT BONAFIDE ONE. THE FINDINGS GIVEN IN THE ASSESSMENT PRO CEEDINGS CANNOT OPERATE AS RES- JUDICATA, BECAUSE THE CONSIDERATIONS THA T ARISE IN THE PENALTY PROCEEDINGS ARE DIFFERENT FROM THOSE IN THE ASSESSMENT PROCEEDINGS. THE AO HAS BROUGHT NOTHING ON RECORD TO SUGGEST THAT THE EXPLANATION OF THE ASSESSEE WAS FALSE OR DEVOID OF BONAFIDE. AS PER EXPLANATION 1 TO SEC 271(1)(C ), IF THE AO FINDS THAT THE EXPLANATION OFFERED BY THE ASSESSEE ITA NO. 6253 / 1 3 4 IS FALSE, THEN THE PENALTY CAN BE LEVIED ON THE AMOUNT WHICH IS FOUND TO BE CONCEALED. THEREFORE, THE WHOLE IDEA BEHIND EXPLANATION 1 IS THAT THE AO HAS TO FIRST RECORD REASONS FOR ARRIVING AT A CONCLUS ION THAT THERE IS CONCEALMENT ON THE PART OF THE ASSESSEE. AFTER SEEKING AN EXPLANATION IF THE AUTHORITY COMES TO A CONCLUSION THAT IT IS FALSE, THEN THE AO CAN PROCEED TO LEVY THE PENALTY. THE FINDINGS GIVEN IN THE ASSESSMENT PROC EEDINGS CANNOT OPERATE AS RES - JU DICATA, BECAUSE THE CONSIDERATIONS THAT ARISE IN THE PENALTY PROCEEDINGS ARE DIFFERENT FROM THOSE IN THE ASSESSMENT PROCEEDING. 8. IN CASE OF RELIANCE PETROPRODUCTS (SUPRA), HONBLE SUPREME COURT HAS DELETED THE PENALTY, W HICH WAS IMPOSED ON ACCOUNT OF DISALLOWANCE OF INTEREST PAID ON LOANS TAKEN FOR PURCHASE OF SHARES . ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) FOR DELETING PENALTY LEVIED WITH REFERENCE TO DISALLOWANCE OF EXPENSES U/S.14A OF THE IT ACT. 9 . IN THE RESULT, APPE AL OF THE REVENUE IS DISMISSED . O RDER PRONOUNCED IN THE OPEN COURT ON THIS 20 /03/ 201 5 . SD/ - SD/ - ( ) ( SANJAY GARG ) ( . . ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 20/03 /201 5 . . /PKM , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), MUMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//