RARE ENTERPRISES, MUMBAI V. PCIT (CENTRAL), MUMBAI 4, MUMBAI

ITA 653/MUM/2022

• Counselvise Citation: [2022] 107 COUNSELVISE.COM (IT) 0915 (ITAT-MUMBAI)
• Duration Of Justice: 4 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 11-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 263; 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI ABY T. VARKEY, JM AND SHRI GAGAN GOYAL, AM आयकर अपील सं/ I.T.A. No.653/Mum/2022 (निर्धारण वर्ा / Assessment Years: 2011-12) Rare Enterprises 151, Nariman Bhavan, 15 th Floor, Nariman Point, Mumbai-400021. बिधम Vs. PCIT (Central)-4 663, 6 th Floor, Aayakar Bhavan, Maharshi Karve Road, Mumbai-400020. स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AAEFR8176J (अपीलार्थी /Appellant) .. (प्रत्यर्थी / Respondent) सुनवाई की तारीख / Date of Hearing: 21/07/2022 घोषणा की तारीख /Date of Pronouncement: 02/09/2022 आदेश / O R D E R PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax-04, Mumbai dated 22.03.2022 for assessment year 2011-12 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”). 2. The assessee has challenged the revisional jurisdictional by Ld. PCIT without validly holding that the AO’s order is erroneous as well as prejudicial to the revenue. 3. Brief facts is that the AO in the assessment order u/s 143(3) of the Act inter-alia had disallowed u/s 36(1)(iii) of the Act Rs.3,53,06,301/-, taking note that the assessee had given interest free income to three (3) parties i.e. (i) M/s. Best Value Hpermarket (Rs.10,00,00,000/- (ii) M/s. Lesconceirages Life Care Services (2,00,00,000/-) and (iii) M/s. Park Developers (Rs.2,30,00,000/-). And Assessee by: Shri S. C. Tiwari Revenue by: Shri P. R. Mane (DR) ITA No.653/Mum/2022 A.Y. 2011-12 Rare Enterprises 2 when asked by the AO, the assessee tried to explain/prove the source of interest free advances was from its own interest free funds, but the same was not accepted by the AO. And he made proportionate disallowance of interest to the tune of Rs.3,53,06,301/- which was challenged by the assessee before the Ld. CIT(A), who confirmed the action of the AO. On appeal, the Tribunal also confirmed the same. Thereafter, the AO initiated the penalty proceedings for furnishing of inaccurate particulars of income. And thereafter, the AO heard the assessee during the penalty proceedings and after going through the reply filed by the assessee to his show cause notice dated 30.05.2019, the AO was pleased to drop the penalty proceedings relying on the decision of the Hon’ble Supreme Court in the case of Reliance Petro products Pvt. Ltd. 322 ITR 158 (SC) and Hon’ble Bombay High Court decision in the case of CIT Vs. SM Construction ITA. No. 412 of 2013 (Bom) by order dated 20.06.2019. This action of the AO has been interdicted by the Ld. PCIT exercising his revisional jurisdiction by issuing show cause notice dated 23.02.2022 which has been reproduced by the Ld. PCIT in his impugned order and after hearing the assessee, the Ld. PCIT was pleased to set aside the action of the AO to drop the penalty initiated u/s 271(1)(c) of the Act and directed him to pass afresh penalty order u/s 271(1)(c) of the Act. Aggrieved, the assessee is before us challenging the jurisdiction of Ld. PCIT to have invoked the revisional jurisdiction without validly holding the action of AO to be erroneous in so far as prejudicial to the revenue. ITA No.653/Mum/2022 A.Y. 2011-12 Rare Enterprises 3 4. We have heard both the parties and perused the records. It is settled law that the penalty proceedings are separate proceedings and even if quantum assessment is confirmed it does not mean that automatically penalty should be levied. We note that the facts afore- stated are not disputed. We note that the assessee has challenged the action of the Tribunal confirming the quantum disallowance/addition made by AO before the Hon’ble Bombay High Court (for admission) and the same is pending before the Hon’ble High Court. We note that the AO had initiated penalty for furnishing inaccurate particulars of income. However, it is noted from perusal of the assessment order framed u/s 143(3) of the Act that AO had disallowed Rs.3,59,06,301/- u/s 36(1)(iii) of the Act by taking into consideration the facts which were recorded from the audited books of accounts submitted before him. It is also noted that when the AO asked the assessee to explain about the interest free loans to three (3) entities, the assessee had replied that it was from its own interest free funds and had filed charts to substantiate that own funds were utilized for making the advances in question which is placed at page no. 162 & 163. These charts were brought to the notice of the AO/Ld. CIT/ITAT to show/correlate the funds utilized for making the advance in question and thus the assessee tried to demonstrate/show that no borrowed funds were used for giving interest free loan to three entities. However, at the level of Tribunal the same was not accepted and the disallowance was confirmed. The assessee justified its action of giving interest free loans to three (3) entities by relying on the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 ITA No.653/Mum/2022 A.Y. 2011-12 Rare Enterprises 4 (Bom) wherein the Hon’ble High Court had laid down that when the assessee is posssed of mixed funds which includes its own funds in sufficient quantity, a presumption that its own funds were utilized for the interest free advances is to be drawn and in the present case, during the quantum assessment and appellate proceedings the assessee has filed voluminous paper books to explain that there was no diversion of interest bearing funds; and it was demonstrated and thereby explained the source of each item supported by corresponding entries in the bank account. So, from the above discussion, we note that the assessee had not filed any inaccurate particulars before the AO and moreover the books of accounts of the assessee has not been rejected by the AO/Ld. CIT(A). In the light of the aforesaid facts, the action of the AO not to levy penalty by relying on the judgment of the Hon’ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158 (SC) to drop the proceedings is a plausible view and therefore cannot be termed to be erroneous as well as prejudicial to the revenue. It is settled law by the Hon’ble Supreme Court in the case of Malabar Industries 243 ITR 83, that when two views are possible and the AO has taken a plausible view, the Ld. PCIT cannot substitute his views unless the view of the AO can be held to be unsustainable in law. In this case, we find that the disallowance of interest u/s 36(1)(iii) of the Act even though has been confirmed by the Tribunal, the assessee had not filed any inaccurate particulars of income or has concealed its income, therefore, the AO rightly dropped the penalty, which is a plausible view and therefore that the PCIT ought not to have exercised ITA No.653/Mum/2022 A.Y. 2011-12 Rare Enterprises 5 his revisional jurisdiction u/s 263 of the Act. And therefore, we are inclined to quash the impugned order of the Ld. PCIT. 5. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 02/09/2022. Sd/- Sd/- (GAGAN GOYAL) (ABY T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 02/09/2022. Vijay Pal Singh, (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : आदेशधिुसधर/ BY ORDER, सत्यापपत प्रपत //True Copy// उि/सहधयक िंजीकधर /(Dy./Asstt. Registrar) आयकर अिीलीय अनर्करण, मुंबई / ITAT, Mumbai 1. अपीलार्थी / The Appellant 2. प्रत्यर्थी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. पवभागीय प्रपतपनपि, आयकर अपीलीय अपिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file.