TRIGYN TECHNOLOGIES LTD, MUMBAI V. ITO 8(3)(3), MUMBAI

ITA 6856/MUM/2014

• Counselvise Citation: 685619914 RSA 2014
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: E
• Assessment Year: 2005-2006
• Appeal Filed On: 11-11-2014
• Court: TRIBUNAL
• Department Lawyers: MANJUNATHA SWAMY
• Keywords: Depreciation; Transfer pricing; Bonafide belief; Avoidance of tax; Revenue expenditure; Capital expenditure
• Section: 43B; 143(3)

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 . 6856&685 7 / MUM/20 1 4 ( / ASSESSMENT YEAR S : 200 5 - 20 0 6 & 2006 - 07 ) M/S TRIGYN TECHNOLOGIES LTD. , C/O M/S RAVI & DEV, CHARTERED ACCOUNTANTS, 601, A WING, AURUS CHAMBERS, BEHIND MAHINDRA TOWERS, S.S.A MRUTWAR MARG, WORLI, MUMBAI - 13 VS. ITO - 8(3)(3), MUM BAI ./ ./ PAN/GIR NO. : A A ACL 2065 K ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI VIJAY MEHTA /REVENUE BY : SHRI MANJUNATHA SWAMY / DATE OF HEARING : 10 /0 7 / 2015 / DATE OF PRONOUNCEMENT 23/09 /2015 / O R D E R PER BENCH : TH ESE ARE THE APPEALS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) , MUMBAI , FOR THE ASSESSMENT YEAR S 2005 - 06 & 2006 - 07 , IN THE MATTER OF IMPOSITION OF PENALTY U/S. 271(1)(C) OF THE I.T.ACT . 2. COMMON GROUNDS HAVE BEEN TAKEN IN BOTH THE YEARS UNDER CONSIDERATION, THEREFORE, BOTH THE APPEALS WERE HEARD TOGETHER AND NOW DISPOSED OFF BY THIS CONSOLIDATED ORDER. 3. BRIEF FACTS OF THE CASE IN THE ASSESSMENT YEAR 2005 - 06 ARE THAT DURING THE COURSE OF SCRUTINY ASSESSMENT THE AO MADE ADDITION WITH RESPECT TO THE FOLLOWING ITEMS : - ISSUES ON WHICH ADDITION/DISALLOWANCES MADE - ADDITION/DISALLOWANCES AS CONFIRMED BY CIT(A) 1 PAYMENT IN LIEU OF DIVIDEND ON PREFE RENCE SHARES - 3,25,00,000 2 TRANSFER PRICING ADJUSTMENT - 3,04,96,436 TOTAL - 6,29,96,436 ITA NO. 68 56&6857 /1 4 2 AFTER THESE ADDITIONS WERE CONFIRMED BY THE CIT(A), THE AO LEVIED PENALTY U/S.271(1)(C) OF THE ACT. 3. LD. AR PLACED ON RECORD ORDER OF THE TRIBUNAL IN QUANTUM PROCEEDINGS WHEREIN ADDITION WITH REGARD TO TRANSFER PRICING WAS RESTORED TO FILE OF THE AO TO DETERMINE OF THE ARMS LENGTH PRICE OF THE TRANSACTION AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. WE HAD GONE THROUGH THE ORDER OF THE TRIBUNAL DATED 3 - 12 - 2014 AND FOUND THAT THE CONTENTION OF LD. AR IS CORRECT. AS THE QUANTUM ITSELF HAS BEEN SET ASIDE, WE SET ASIDE THE PENALTY IMPOSED WITH REFERENCE TO THE ADDITION MADE ON ACCOUNT OF TRANSFER PRICING AND THE AO IS DIRECTED TO DECIDE IT AFRESH AFTER DECID ING QUANTUM PROCEEDINGS AS PER THE DIRECTION OF THE TRIBUNAL VIDE ORDER DATED 3 - 12 - 2014. 4. WITH REGARD TO THE PENALTY IMPOSED ON INTEREST PAYABLE TO ORIENTAL BANK OF COMM ERCE, WE FOUND THAT THE ASSESSEE HAS TAKEN A LOAN FROM M/S GLOBAL TRUST BANK. THE ASS ESSEE OFFERED PREFERENCE SHARES TO BANK AS A SECURITY ON WHICH DIVIDEND @13% WAS PAYABLE. I N THE CASE OF SHORTFALL IN PROFIT , THE A SSESSEE WAS REQUIRED TO PAY THE INTEREST AT 13% OF THE TOTAL AMOUNT ADVANCED. DURING THE YEAR UNDER CONSIDERATION, AS THE A SSESSEE HAD INCURRED HEAVY LOSS, THEREFORE, COULD NOT PAY THE DIVIDEND . INTEREST ON LOAN WAS CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THE CLAIM WAS DECLINED ON THE PLEA THAT INTEREST WAS NOT ACTUALLY PAID, THEREFORE, NOT LIABLE TO BE ALLOWED IN VIEW OF THE PROVISIONS OF SECTION 43B. THE CIT(A) ACCEPTED ASSESSEES CONTENTION THAT THE SAID AMOUNT IS NOT IN THE NATURE OF DIVIDEND TO HOLD THAT IT IS A CAPITAL EXPENDITURE . HOWEVER, HE CONFIRMED ITA NO. 68 56&6857 /1 4 3 AOS ACTION SINCE INTEREST WAS NOT ACTUALLY PAID. IN THE QUANTUM PROC EEDINGS, THE TRIBUNAL HELD THAT PROVISIONS OF SECTION 43B WOULD BE APPLICABLE AND SINCE THE ASSESSEE HAS NOT ACTUALLY PAID THE INTEREST, THE SAME IS LIABLE TO BE DISALLOWED UNDER SECTION 43B. IT WAS CONTENTION OF LD. AR THAT ASSESSEE HAS DISCLOSED ALL THE MATERIAL FACTS IN RETURN OF INCOME AS WELL AS IN THE AUDITED BALANCE SHEET. AS PER THE NOTES ON ACCOUNT FORMING PART OF THE BALANCE SHEET THE AUDITOR OF THE COMPANY HAS CLEARLY MENTIONED THAT ASSESSEE COMPANY HAS MADE AN ADDITION TOWARDS LIABILITY OF THE I NTEREST IN THE PROFIT AND LOSS ACCOUNT. WE FOUND THAT I N THE SCRUTINY ORDER UNDER SECTION 143(3) THE AO HAS SPECIFICALLY MENTIONED THAT HE HAS COME TO KNOW ABOUT THE NON - DISALLOWANCE OF CLAIM U/S.43B OF THE ACT FROM THE DOCUMENTS ON RECORD, WHICH INDICATES THAT ASSESSEE COMPANY HAS FURNISHED FULL PARTICULARS OF INCOME. IT IS ALSO STATE THAT THE SAID INTEREST WAS WAIVED BY THE BANK AND THE ASSESSEE COMPANY HAS OFFERED THE SAME TO TAX IN THE IMMEDIATE SUCCEEDING ASSESSMENT YEAR 2007 - 08. THIS FACT HAS BEEN NOT ED BY THE TRIBUNAL IN ITS QUANTUM ORDER. IT IS ALSO A MATTER OF RECORD THAT THERE WAS A LOSS IN BOTH ASSESSMENT YEAR S AND EVEN AFTER THE SAID INTEREST DISALLOWANCE , THE INCOME WOULD STILL HAVE BEEN A LOS S , I N SO FAR AS ASSESSEE COMPANY HAS HUGE BROUGHT FOR WARD LOSSES AND DEPRECIATION. 5. IN THE INSTANT CASE, ASSESSEES CLAIM OF INTEREST HAS BEEN DECLINED ON THE PLEA THAT INTEREST WAS DUE BUT NOT ACTUALLY PAID AND PENALTY WAS IMPOSED FOR THE SAID DISALLOWANCE. ITA NO. 68 56&6857 /1 4 4 6 . LD. AR ALSO RELIED ON THE FOLLOWING DECISIO NS IN SUPPORT OF THE PROPOSITION THAT MERELY MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW DOES NOT IN ITSELF ATTRACT PENALTY. HE RELIED ON THE FOLLOWING DECISIONS : - A) KANBAY SOFTWARE INDIA P. LTD., 31 SOT 153; B) RELIANCE PETROPRODUCTS PVT. LTD., 322 ITR 158; C) EQUEST INDIA PVT. LTD., 41 SOT 225; D) PATSON AUTO PRODUCTS PVT. LTD., ITA NO.471/PN/2007, ORDER DATED 30 - 11 - 2010. 7. WE HAVE CONSIDERED RIVAL SUBMISSIONS. IT IS A FACT IN FILE THAT THE ASSESSEE HAD FULLY AND TRULY DISCLOSED ALL THE MATERIAL F ACTS IN ITS RETURN OF INCOME. THE DISALLOWANCE OF INTEREST WAS MADE INVOKING THE PROVISIONS OF SECTION 43B, AS THE INTEREST WAS NOT ACTUALLY PAID DURING THE YEAR. HOWEVER, IT IS A FACT ON THE FILE THAT THERE WAS A LOSS IN BOTH THE ASSESSMENT YEARS AND EVEN AFTER THE SAID INTEREST DISALLOWANCE, THE RESULTANT INCOME WAS IN LOSS. HENCE, THE PECULIAR FACT OF THIS CASE REVEALS THAT THERE WAS NO ATTEMPT TO AVOID THE DUE TAX. IN THE SUBSEQUENT YEAR THE SAID INTEREST WAS WAIVED BY THE BANK AND THE ASSESSEE COMPANY HAS OFFERED THE SAME TO TAX IN THE ASSESSMENT YEAR 2007 - 08. IN THE QUANTUM PROCEEDINGS, THE CLAIM OF THE ASSESSEE THAT THE INTEREST CHARGED BY THE BANK WAS A REVENUE EXPENDITURE HAS BEEN ACCEPTED BY THE TRIBUNAL VIDE ORDER DATED 3 - 12 - 2014. EVEN SUCH A CLAI M WAS ACCEPTED BY THE REVENUE IN THE EARLIER ASSESSMENT YEARS. IT IS ALSO AN UNDISPUTED FACT THAT THE LOAN IN QUESTION WAS TAKEN FROM GLOBAL T RUST B ANK IN THE YEAR 2001 WHICH WAS NOT A SCHEDULE D BANK. THE ASSESSEE SINCE THEN HAD BEEN DEBITING ITS PROFIT AN D LOSS ACCOUNT BY THE AMOUNT OF INTEREST PAYABLE ON THE SAID BORROWINGS AND THE SUCH LIABILITY HAS BEEN CONSISTENTLY CONSIDERED AND ITA NO. 68 56&6857 /1 4 5 ACCEPTED BY THE REVENUE IN THE EARLIER YEARS. THE DISALLOWANCE IN QUESTION INVOKING THE PROVISIONS OF SECTION 43B WAS MADE B ECAUSE OF THE FACT THAT THE G LOBAL T RUST B ANK HAD TAKEN OVER BY THE ORIENTAL BANK OF COMMERCE AND THE BORROWINGS OF THE ASSESSEE HAD TO BE CONSIDERED AS BORROWINGS FROM ORIENTAL BANK OF COMMERCE. IN THE QUANTUM PROCEEDINGS, THE TRIBUNAL OBSERVED THAT SINCE THE ORIENTAL BANK OF COMMERCE WAS SCHEDULE D BANK, HENCE, THE PROVISIONS OF SECTION 43B WOULD BE APPLICABLE. IT IS UNDISPUTED FACT THAT THE LIABILITY OF THE ASSESSEE TO PAY INTEREST WAS OTHERWISE AN ADMISSIBLE LIABILITY AND HAS BEEN ALLOWED IN EARLIER ASSE SSMENT YEARS, BUT DENIED IN THE YEAR UNDER CONSIDERATION BECAUSE OF THE APPLICABILITY OF THE PROVISIONS OF SECTION 43B. THE ASSESSEE WAS UNDER BONAFIDE BELIEF THAT THE PROVISIONS OF SECTION 43B WERE NOT APPLICABLE SINCE THE LOAN WAS TAKEN FROM A NON - SCHEDU LE D BANK. HOWEVER, THE ASSESSEE COULD NOT SUCCEED IN ITS CLAIM BEFORE THE TRIBUNAL IN THE QUANTUM PROCEEDINGS. THE FACT WHICH REMAINS TO BE CONSIDERED IS THAT IT IS NEITHER A CASE OF CONCEALMENT OF INCOME NOR A CASE OF FURNISHING INACCURATE PARTICULARS OF INCOME. THE ASSESSEE HAD PUT A BONAFIDE CLAIM WHICH WAS NOT ALLOWED BUT THAT ITSELF CANNOT BE SAID TO BE AN ACT ON THE PART OF THE ASSESSEE TO CONCEAL HIS INCOME OR TO FURNISH INACCURATE PARTICULARS OF INCOME. AT THE MOST, IT CAN BE SAID TO BE A CASE OF BO NAFIDE ERROR AND NOT A CASE OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME FOR AVOIDANCE OF TAX. IT HAS BEEN HELD TIME AND AGAIN THAT EVERY DISALLOWANCE MADE BY THE AO CANNOT BE A CASE OF LEVY OF PENALTY U/S.271(1)(C) OF THE ACT . IN THE LIGHT OF THE ABOVESTATED PECULIAR ITA NO. 68 56&6857 /1 4 6 FACTS OF THE CASE, THE LEVY OF PENALTY ON THIS ISSUE IN THIS CASE CANNOT BE HELD TO BE JUSTIFIED. WE ACCORDINGLY, DELETE THE PENALTY SO LEVIED ON THIS ISSUE BY THE LOWER AUTHORITIES. 8 . IN THE RESULT, BOTH APPEAL S OF THE ASSESSEE ARE ALLOWED, IN TERMS INDICATED HEREINABOVE. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 23/09 / 201 5 . SD/ - SD/ - ( . . ) ( R.C.SHARMA ) ( ) ( SANJAY GARG ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED 23 /09 /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//