M/S. EMINENT HOLDINGS PVT.LTD., MUMBAI V. DCIT, CC 31,

ITA 6814/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7430 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-03-2010
• Appeal Filed By: Assessee
• Bench Allotted: E
• Next Hearing Date: 06-01-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 26-11-2008
• Court: TRIBUNAL
• Department Lawyers: DR P DANIEL
• Keywords: Business expenditure; Opportunity of being heard
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B BEFORE SHRI N.V. VASUDEVAN (JM) & T.R. SOOD (AM) I.T.A.NO. 6814/MUM/2008 (ASSESSMENT YEAR : 2004-0 5) I.T.A.NO. 6815/MUM/2008 (ASSESSMENT YEAR : 2005-0 6) M/S. EMINENT HOLDINGS PVT. LTD. 32, MADHULI, DR. A.B. ROAD WORLI, MUMBAI-400 018. VS. DCIT CENTRAL CIRCLE 31 MUMBAI. APPELLANT RESPONDENT PAN/GIR NO. : AAACE3115H ASSESSEE BY : SHRI VIJAY MEHTA DEPARTMENT BY : DR. P. DANIEL ORDER PER N.V. VASUDEVAN, JM :- BOTH THESE APPEALS ARE BY THE ASSESSEE AGAINST TWO ORDERS BOTH DATED 19.9.2008 OF LEARNED CIT(A)-CENTRAL-IV, MUMBA I RELATING TO A.Y. 2004-05 AND 205-06. 2. GROUND NO. 1 TO 4 IN BOTH THESE APPEALS WERE NOT PRESSED AND THEY ARE THEREFORE DISMISSED AS NOT PRESSED. 3. GROUND NO. 5 IN BOTH THESE APPEALS ARE IDENTICAL AND THIS GROUND RELATES TO ACTION OF LEARNED CIT(A) IN CONFIRMING T HE DISALLOWANCE OF INTEREST EXPENSES OF RS. 5,14,455/- MADE BY THE ASS ESSING OFFICER. IN GROUNDS OF APPEAL INSTEAD OF REFERRING TO INTEREST EXPENSES, IT HAS BEEN MENTIONED AS INTEREST INCOME. REVISED GROUNDS OF AP PEAL HAS BEEN FILED, IN WHICH, THIS MISTAKE HAS BEEN RECTIFIED. 4. FACTS AND CIRCUMSTANCES GIVING RISE TO THE ABOVE GROUNDS OF APPEAL ARE AS FOLLOWS :- M/S. EMINENT HOLDINGS PVT. LTD. 2 THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BU SINESS OF TRADING AND INVESTMENTS IN SECURITIES. THE ASSESSEE WAS A NOTIFIED PERSON UNDER SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT, 1992; AND ALL HIS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN A PPOINTED UNDER THE SAID ACT. ONLY SOURCE OF INCOME OF THE ASSESSEE WAS INTEREST ON TERM DEPOSITS. THE ASSESSEE WAS NOTIFIED AS A NOTIFIED P ERSON AND ALL SHARES AND MONIES IN THE BANK ACCOUNTS WERE ATTACHED BY TH E CUSTODIAN. THE SHARES ATTACHED WERE SOLD. MONIES IN THE BANK ACCOU NT OF THE ASSESSEE, AS WELL AS SALE PROCEEDS OF SHARES THAT WERE ATTACH ED AND WERE INVESTED IN FIXED DEPOSITS WITH VARIOUS BANKS AS PER THE ORD ER OF THE SPECIAL COURT. THE ASSESSEE EARNED AN INTEREST ON TERM DEPO SITS WITH THE BANKS OF RS. 9,41,952/-. AS AGAINST THE ABOVE INCOME, THE ASSESSEE CLAIMED DEDUCTION OF INTEREST LIABILITY OF RS. 5,41,455/-. THE ASSESSEE SUBMITTED THAT IT BORROWED FUNDS IN COURSE OF ITS BUSINESS AN D UTILIZED THOSE FUNDS TO PURCHASE SHARES. APART FROM THE ABOVE, THE ASSES SEE ALSO PURCHASED SHARES FROM THREE BROKERAGE FIRMS OF M/S. HARSHAD M EHTA; M/S. ASHWIN S. MEHTA AND M/S. J.H. MEHTA ON CREDIT. THE ASSESSE E FURTHER SUBMITTED THAT THE CUSTODIAN HAS FILED MISCELLANEOUS PETITION NO. 41 OF 1999 BEFORE THE SPECIAL COURT AND HAS CLAIMED INTEREST ON MONIE S PAYABLE BY THE ASSESSEE TO THE FIRMS FROM WHICH, ASSESSEE PURCHASE D SHARES ON CREDIT. THE ASSESSEE, THUS, SUBMITTED THAT INTEREST EXPENSE S THAT IT MIGHT INCUR CONSEQUENT TO THE CLAIM OF THE CUSTODIAN CAN BE SAI D TO BE INTEREST ATTRIBUTABLE TO EARNING OF INTEREST ON SHORT TERM D EPOSITS; AND THEREFORE THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION. THE R EVENUE AUTHORITIES, HOWEVER, REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE INTEREST LIABILITY HAS BEEN QUANTIFIED BY THE SPECI AL COURT AND LIABILITY CAN ACCRUE ONLY AFTER SUCH QUANTIFICATION. AGGRIEVE D BY THE ORDER OF LEARNED CIT(A), THE ASSESSEE HAS RAISED THE AFORESA ID GROUNDS OF APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING OF THIS APPEAL, IT WAS BR OUGHT TO OUR NOTICE THAT IN THE CASE OF ANOTHER NOTIFIED PERSON ON IDEN TICAL FACTS, THIS M/S. EMINENT HOLDINGS PVT. LTD. 3 TRIBUNAL IN THE CASE OF M/S. AATUR HOLDINGS PVT. LT D. VS. DCIT, IN ITA NO. 147/MUM/2008 FOR A.Y. 2000-01 DATED 13.6.2008 REMAN DED THE MATTER TO LEARNED CIT(A) FOR FRESH CONSIDERATION GIVING OP PORTUNITY TO THE ASSESSEE TO ESTABLISH THAT INTEREST EXPENSES RELATE S TO F.Y. AND IS A LEGITIMATE BUSINESS EXPENSES. FACTS AND CIRCUMSTANC ES BEING IDENTICAL. WE DEEM IT FIT AND PROPER TO RESTORE THIS ISSUE TO THE LEARNED CIT(A) FOR FRESH CONSIDERATION GIVING THE ASSESSEE AN OPPORTUN ITY TO EXPLAIN AS TO HOW INTEREST EXPENSES CLAIMED BY THE ASSESSEE CAN B E SAID TO BE EXPENSES INCURRED FOR THE PURPOSE OF EARNING INTERE ST INCOME. LEARNED CIT(A) WILL AFFORD OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE AND DECIDE THE ISSUE AFRESH. 6. GROUND NO. 6 WAS NOT PRESSED IN BOTH THE APPEALS AND THIS GROUND IS THEREFORE DISMISSED AS NOT PRESSED. 7. GROUND NO. 7 WHICH IS COMMON IN BOTH THE APPEALS READ AS FOLLOWS :- THE LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT THE INTEREST CHARGED U/S. 234A, 2 34B AND 234C OF THE ACT ARE INCORRECT. 8. ON AN IDENTICAL GROUND, THIS TRIBUNAL IN ITA NO. 6425/MUM/2008 HAD HELD AS FOLLOWS :- WITH REGARD TO LEVY OF INTEREST U/S.234A, 234B AND 234C WE FIND THAT THE TRIBUNAL IN THE CASE OF ORION TRAV ELS PVT. LTD. (SUPRA), HAS DISCUSSED THE ISSUE IN DETAIL A ND, OBSERVED AND HELD IN PARA-23,24, 25 AND 26 AS UNDER : 23. AS REGARDS THE LAST GROUND NO 9, REGARDING THE LEVY OF INTEREST UNDER SEC 234A, 234B AND 234C, THE ASSESSEE IS A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT, 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT. FROM THE DATE OF FUNCTIONING OF THE COURT I.E., 1.6.1992, THE DISTRIBUTION OF MONIE S M/S. EMINENT HOLDINGS PVT. LTD. 4 IN CASE OF NOTIFIED PERSONS WILL BE DECIDED BY THE SPECIAL COURT. THE TAXES DO NOT HAVE THE PRIORITY I N SETTLEMENT. EVEN IF A NOTIFIED PERSON HAD WANTED TO PAY THE ADVANCE TAX IT WAS NOT WITHIN HIS CONTROL T O DO SO. HE HAS TO MAKE AN APPLICATION TO THE CUSTODIAN AND ONLY HE CAN PERMIT PAYMENT OF ADVANCE TAX AFTER OBTAINING APPROVAL FROM THE SPECIAL COURT. THE SPECIAL COURT IN ITS RULING HAS OBSERVED AS UNDER: WHERE A NOTIFIED PARTY IS PREVENTED BY REASON OF NOTIFICATION, FROM DOING THINGS WHICH ARE REQUIRED TO BE DONE BY HIM UNDER OTHER ACTS OR CONTRACTS. IN SUCH CASES, IF THE PROVISION OF THE SPECIAL COURTS ACT PREVENTS A NOTIFIED PARTY FROM DOING THAT THING, THEN BY REASON OF THIS LEGAL DISABILITY, NO PENALTY OR INTEREST CAN BE LEVIED ON THAT PARTY. THUS NO PENALTY OR INTEREST CAN BE IMPOSED FOR NON-FULFILLMENT OF AN ACT WHICH A NOTIFIED PARTY IS PREVENTED FROM DOING BY REASON OF THE SPECIAL COURT ACT. IN SUCH CASES EVEN THOUGH THE PROVISIONS OF SOME OTHER ACT OR CONTRACT LAY DOWN CONSEQUENCES FOR NON- PERFORMANCE, THE PROVISIONS OF THE SPECIAL COURTS ACT WILL PREVAIL. THIS IS BECAUSE IN SUCH CASES THERE WOULD BE A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND THAT OTHER LAW AND/OR CONTRACT. IN CASES OF SUCH CONFLICT, THE PROVISIONS OF THE SPECIAL COURT ACT MUST PREVAIL. TO TAKE AN EXAMPLE, UNDER SECTION 234B OF THE INCOME TAX ACT, EVERY ASSESSEE IS LIABLE TO PAY ADVANCE TAX. ALL PARTIES WERE NOTIFIED BETWEEN JUNE 1992 TO AUGUST 1992. ALL OF THEM WOULD BE LIABLE TO ADVANCE TAXES FOR THE FINANCIAL YEAR ENDING MARCH 1993 AND FOR THE SUBSEQUENT YEARS, HOWEVER AS SEEN EARLIER, TAXES ONLY UPTO ASSESSMENT YEAR 1992-93 CAN BE PAID IN PRIORITY. THESE WOULD HAVE TO RANK AS ORDINARY DEBTS UNDER SECTION 11(2)(C ). THIS THEREFORE CAN ONLY BE RELEASED AFTER THE ENTIRE DISTRIBUTION HAS TAKEN PLACE. EVEN IF THE NOTIFIED PARTY WERE TO MAKE AN APPLICATION TO THIS COURT TO PAY THE ADVANCE TAX, THE COURT WOULD REFUSE IT. THUS MONIES FOR PAYMENT OF ADVANCE TAX HAVE NOT BEEN M/S. EMINENT HOLDINGS PVT. LTD. 5 RELEASED. THUS A NOTIFIED PARTY HAS BEEN PREVENTED FROM PAYING ADVANCE TAX. THUS, UNDER THE SPECIAL COURTS ACT, THERE IS A LEGAL DISABILITY TO PAY ADVANCE TAX. YET UNDER THE INCOME TAX ACT THERE IS A COMPULSION TO PAY ADVANCE TAX. THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND THE INCOME TAX ACT. THE PROVISIONS OF THE SPECIAL COURTS ACT MUST PREVAIL. UNDER THE INCOME TAX ACT IF ADVANCE TAX IS NOT PAID, FOR SUCH NON-PAYMENT INTEREST CAN BE LEVIED. THIS OBVIOUSLY ON THE FOOTING THAT THE ASSESSEE IS IN DEFAULT. HOWEVER A NOTIFIED PARTY, HAS BEEN PREVENTED BY LAW FROM PAYING ADVANCE TAX. HE IS NOT A DEFAULTING PARTY. HE NEITHER HAS NOT PAID ADVANCE TAX BECAUSE OF LEGAL RESTRAINT ON HIM. THE LAW HAS PREVENTED HIM FROM PAYING ADVANCE TAX. IN MY VIEW, IN SUCH CASES, I.E. WHERE THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND SOME OTHER ACT/CONTRACT, THE CONTRARY PROVISIONS MUST NECESSARILY GIVE WAY. IF THERE IS THIS LEGAL DISABILITY, THEN THERE IS NO THE QUESTION OF THE NOTIFIED PARTY BEING FOISTED WITH THE LIABILITY TO PAY INTEREST AND/OR PENALTY. 24. IN THE BACKDROP OF THE ABOVE, IT WAS IMPOSSIBLE FOR THE ASSESSEE TO HAVE PAID THE ADVANCE TAX EVEN IF HE HAD WANTED TO. IT IS A WELL KNOWN LEGAL DICTUM LEX NON COGITAD IMOSSIBILIA (LAW CANNOT COMPEL YOU TO DO THE IMPOSSIBLE). ASSESSEE CANNOT THEREFORE BE FOISTED WITH INTEREST LIABILITY U/S 234A, 234B AND 234C. INTEREST U/S 234B AND 234C ARE DIRECTLY RELATED TO PAYMENT OF ADVANCE TAX AND HENCE IS NOT LEVIABLE ON NOTIFIED PERSONS. EVEN THOUGH LEVY OF INTEREST U/S 234A IS REALLY ON THE DELAY IN FILING THE RETUR N WHICH IS A DEFAULT COMMITTED BY THE ASSESSEE, THE QUANTIFICATION OF THE SAME DEPENDS ON THE ADVANCE TAX PAID WHICH, IN THIS CASE, IS NOT WITHIN THE CONTROL OF THE ASSESSEE. HENCE INTEREST U/S 234A CANNOT ALSO BE LEVIED IN THE CASE OF A PERSON A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) AC T, 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS M/S. EMINENT HOLDINGS PVT. LTD. 6 WERE ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT. 25. THE CO-ORDINATE BENCH IN THE CASE OF DIVINE HOLDINGS PVT. LTD V DCIT IN ITA NO180/M/2000 DT. 26.6.2001 HAS HELD THAT CIT(A) IS RIGHT IN ADMITTIN G THE APPEAL OF A NOTIFIED PERSON EVEN THOUGH THE TAX ON THE RETURNED INCOME HAS NOT BEEN PAID BY HIM. IN COMING TO THIS CONCLUSION THEY HAD RELIED ON THE ABOVE PASSAGE OF THE SPECIAL COURT. 26. IN THE CIRCUMSTANCES, WE DIRECT THAT INTEREST U/S 234A, 234B AND 234C SHOULD NOT BE LEVIED ON THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER APPEAL. 9. IN THE ABSENCE OF ANY DISTINGUISHING FEATURE BRO UGHT ON RECORD BY THE REVENUE; WE RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL (SUPRA), HOLD AND ORDER ACCORDINGLY. THE GROUND TAKEN BY THE ASSESSEE IS THEREFORE ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 31 ST DAY OF MARCH, 2010. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 31 ST MARCH, 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS