GEETA PRABHUDAS PAWANI, MUMBAI V. ITO WD 23(2)(3), MUMBAI

ITA 6535/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 79191 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 24-03-2014
• Assessment Year: 2003-2004
• Appeal Filed On: 29-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K SAHU
• Assessee Lawyers: SUBODH RATNAPARAKHI

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'G' BENCH, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 6535 & 6536/MUM/2012 (ASSESSMENT YEARS: 2003-04 & 2006-07) MS. GEETA PRABHUDAS PAWANI INCOME TAX OFFICER - 23 (2)(3) PAWANI PLOT, NEAR VIPUL APARTMENT, BHAKTI MARG MULUND (W), MUMHAI 400080 VS. C-10, PRATYAKSHA KAR BHAVAN BANDRA-KURLA COMPLEX MUMBAI 400051 PAN - AAFPP8765Q APPELLANT RESPONDENT APPELLANT BY: SHRI SUBODH RATNAPARAKHI RESPONDENT BY: SHRI R.K. SAHU DATE OF HEARING: 17.06.2014 DATE OF PRONOUNCEMENT: 17.06.2014 O R D E R PER D. MANMOHAN, V.P. THESE TWO APPEALS ARE FILED AT THE INSTANCE OF THE ASSESSEE AND THEY PERTAIN TO A.Y. 2003-04 AND A.Y. 2006-07. 2. IN SO FAR AS A.Y. 2003-04 IS CONCERNED, PENALTY LEV IED BY THE AO FOR NOT DECLARING THE LIQUIDATED DAMAGES OF ` 63,87,752/- IS THE SUBJECT MATTER OF DISPUTE. 3. FOR THE YEAR UNDER CONSIDERATION ASSESSMENT WAS COM PLETED ON 23.01.2006 DETERMINING TOTAL INCOME AT ` 2,40,400/-. THE COMMISSIONER OF INCOME TAX CALLED FOR THE RECORDS AND NOTICED THAT THE ASSESSEE HAD ADVANCED A LOAN OF ` 6 CRORES TO ENTERPRISE TRADING COMPANY SUBJECT TO CERTAIN TERMS OF AGREEMENT. ACCORDING TO ARTICLE 5. 1.3 OF THE TERMS OF AGREEMENT FAILURE ON THE PART OF THE BORROWER TO RE PAY THE DEBTS COMPRISING OF PRINCIPAL AMOUNT AND INTEREST, ON DUE DATE, WOUL D AMOUNT TO DEFAULT IN WHICH EVENT THE BORROWER HAS TO PAY LIQUIDATED DAMA GE @48% PER ANNUM ON THE DEFAULTING AMOUNT. RECORDS SHOW THAT THOUGH THE PRINCIPAL AMOUNT WAS REPAID BY THE BORROWER THE ASSESSEE HAS NOT REC OVERED ANY AMOUNT ON ACCOUNT OF ALLEGED INTEREST LIABILITY WHICH WORKS O UT TO ` 1,33,07,817/-. SINCE ITA NO. 6535&6536/MUM/2012 MS. GEETA PRABHUDAS PAWANI 2 THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACC OUNTING, IN THE OPINION OF THE COMMISSIONER, THE ASSESSEE SHOULD HAVE ACCOU NTED FOR THE LIQUIDATED DAMAGES @48% ON THE OUTSTANDING LIABILITY OF INTERE ST OF ` 1.33 CRORES. 4. WHEN CALLED UPON BY THE COMMISSIONER THE ASSESSEE S UBMITTED THAT THE INCOME IS NEITHER ACCRUED NOR RECEIVED. IT WAS ALSO CONTENDED THAT INTEREST WAS CHARGED ON THIS LOAN AS PER STIPULATED TERMS IN THE FINANCIAL YEAR 1996-97 AND 1997-98. ALTHOUGH THE BORROWER REP AID THE ENTIRE PRINCIPAL AMOUNT IT DID NOT PAY THE INTEREST AMOUNT AS PER THE STIPULATED TERMS. EVEN AFTER CONSISTENT FOLLOW UP NOTHING COUL D BE RECOVERED AND IT WAS DOUBTFUL OF RECOVERY. THEREFORE IT WAS CONSIDERED P RUDENT NOT TO CHARGE LIQUIDATED DAMAGES OVER AND ABOVE THE INTEREST AMOU NT OUTSTANDING. IT IS ALSO CONTENDED THAT NO PRUDENT MAN WOULD THINK OF R ECOVERING LIQUIDATED DAMAGES WHEN INTEREST AMOUNT OUTSTANDING IS IN ITSE LF DOUBTFUL OF RECOVERY. IT WAS ALSO ARGUED THAT ON REAL INCOME PRINCIPLE NO TIONAL INCOME CANNOT BE BROUGHT TO TAX AND BY MUTUAL CONSENT THE ASSESSEE H AD DECIDED NOT TO CHARGE LIQUIDATED DAMAGES. THE COMMISSIONER, HOWEVE R, WAS OF THE VIEW THAT THIS ISSUE REQUIRED DETAILED EXAMINATION BY TH E AO AND THEREFORE SET ASIDE THE MATTER FOR PROPER EXAMINATION. BEFORE THE AO THE LETTERS EXCHANGED BETWEEN THE ASSESSEE AND THE ENTERPRISE T RADING CO. WERE FURNISHED TO SHOW THAT THE PARTIES HAVE DECIDED NOT TO CHARGE LIQUIDATED DAMAGES AND THE TERMS OF AGREEMENT WERE ALTERED BY SUBSEQUENT CONDUCT OF THE PARTIES. THE AO, HOWEVER, WAS OF THE OPINION TH AT THE ASSESSEE HAVING FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING, LIQUIDATE D DAMAGES OUGHT TO HAVE BEEN BOOKED IN THE HANDS OF THE ASSESSEE AND THEREF ORE BROUGHT TO TAX AN AMOUNT OF ` 63,87,752/- AND FURTHER LEVIED PENALTY OF ` 20,12,142/- ON THE GROUND THAT THE ASSESSEE SOUGHT TO EVADE TAX ON THE AFOREMENTIONED SUM. 5. PENALTY WAS AFFIRMED BY THE LEARNED CIT(A) AND THER EFORE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. AT THE TIME OF HE ARING THE LEARNED COUNSEL FOR THE ASSESSEE PLACED BEFORE US A COPY OF THE ORD ER OF ITAT G BENCH, MUMBAI IN ASSESSEES OWN CASE FOR A.Y. 2003-04 (ITA NO. 4633/MUM/2011 DATED 16.11.2012) TO CONTEND THAT THE TRIBUNAL HAD CONSIDERED THIS ISSUE IN GREAT DETAIL IN THE QUANTUM PROCEEDINGS WHILE COMIN G TO THE CONCLUSION THAT IN THE YEAR UNDER CONSIDERATION LIQUIDATED DAMAGES HAD NOT ACCRUED TO THE ITA NO. 6535&6536/MUM/2012 MS. GEETA PRABHUDAS PAWANI 3 ASSESSEE AND THUS SET ASIDE THE ADDITION. THE LEARN ED COUNSEL FOR THE ASSESSEE CONTENDED THAT THE ADDITION NO LONGER SUBS ISTS IN THE LIGHT OF THE DECISION OF THE APPELLATE TRIBUNAL IN WHICH EVENT T HE PENALTY PROCEEDINGS HAVE NO LEGS TO STAND. 6. ON THE OTHER HAND, THE LEARNED D.R. REITERATED THE SUBMISSIONS MADE BEFORE THE APPELLATE TRIBUNAL DURING THE QUANTUM PR OCEEDINGS AND CONTENDED THAT THE ASSESSEE HAS NOT COMPLETELY STOP PED CHARGING THE INTEREST; IT WAS REDUCED TO 18%. WHEN POINTED OUT T HAT IN CONNECTION WITH LIQUIDATED DAMAGES THERE IS MUTUAL AGREEMENT NOT TO COLLECT LIQUIDATED DAMAGES AND INTEREST AT 48% THEREON, THE LEARNED D. R. MERELY RELIED UPON THE ORDER PASSED BY THE AO. 7. HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE AND IN THE LIGHT OF THE DECISION OF THE ITAT (SUPRA) WE ARE OF THE VIEW THA T IT IS NOT A FIT CASE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT SINCE THE ADDITION MADE IN THE QUANTUM PROCEEDINGS HAS BEEN DELETED BY THE TRIBUNA L. WE HOLD ACCORDINGLY AND ALLOW THE APPEAL FILED BY THE ASSESSEE. 8. ITA NO. 6536/MUM/2012 IS WITH REGARD TO THE APPEAL FILED BY THE ASSESSEE PERTAINING TO A.Y. 2006-07 WHEREIN ADDITIO N OF ` 6,60,238/- WAS MADE BY THE AO REFERABLE TO INTEREST ON LIQUIDATED DAMAGES WORKED OUT @48% OF OUTSTANDING INTEREST LIABILITY; IN THE OPIN ION OF THE AO AS WELL AS THE CIT(A) THE LIQUIDATED DAMAGES, AS WELL AS INTEREST THEREON, ACCRUES TO ASSESSEE FROM YEAR TO YEAR. 9. IN THIS CASE ALSO THE LEARNED COUNSEL FOR THE ASSES SEE PLACED RELIANCE UPON THE ORDER OF THE TRIBUNAL TO SUBMIT THAT EVEN FOR A.Y. 2003-04 THE TRIBUNAL HAD TAKEN A VIEW THAT ON ACCOUNT OF THE LE TTERS EXCHANGED BETWEEN THE PARTIES THERE IS AN EXPLICIT AGREEMENT FOR NOT CHARGING LIQUIDATED DAMAGES AND INTEREST THEREON WHICH AMOUNTS TO CHANG ING THE TERMS OF AGREEMENT PRIOR TO THE END OF THE ACCOUNTING YEAR 1 997-98 IN WHICH EVENT THE INTEREST COMPONENT ON THE ASSUMED LIQUIDATED DA MAGES CANNOT BE ADDED IN THE SUBSEQUENT YEARS. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE RECORD. WE HAVE ALREADY CONSIDERED THIS ISSUE IN TH E PENALTY PROCEEDINGS. ITA NO. 6535&6536/MUM/2012 MS. GEETA PRABHUDAS PAWANI 4 FOR THE REASONS GIVEN THEREIN AND RESPECTFULLY FOLL OWING THE ORDER OF THE TRIBUNAL (SUPRA) WE HOLD THAT THE INTEREST COMPONEN T OF LIQUIDATED DAMAGES DID NOT ACCRUE TO THE ASSESSEE IN THIS YEAR AND DIR ECT THE AO TO DELETE THE ADDITION. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE AR E ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE, 2014. SD/- SD/- (N.K. BILLAIYA) (D. MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT MUMBAI, DATED: 17 TH JUNE, 2014 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 11, MUMBAI 4. THE CIT 23, MUMBAI CITY 5. THE DR, G BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.