M/s Transgel Industries Limited, Hyderabad V. ACIT, Circle-2(3), Hyderabad

ITA 717/HYD/2013

• Counselvise Citation: 71722514 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: A V RAGHURAM
• Keywords: Wrong claim; Revised return
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A: HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA.NO.717/HYD/2013 ASSESSMENT YEAR 2008-2009 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD PAN AABCT-0820-D VS. ACIT, CIRCLE 2(3) HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE MR. A.V. RAGHURAM FOR REVENUE MR. R. MOHAN REDDY DATE OF HEARING 02.07.2014 DATE OF PRONOUNCEMENT 28.08.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-III, HYDERABAD DATED 13.02. 2013 FOR THE ASSESSMENT YEAR 2008-2009 ON THE ISSUE OF LEVY OF P ENALTY UNDER SECTION 271(1)(C) OF THE I.T. ACT, 1961. 2. ASSESSEE IS A COMPANY DEALING IN RAW MATERIAL F OR BULK DRUGS. IT FILED ITS RETURN OF INCOME DECLARING LOSS OF RS.28,07,432. IN THE COURSE OF SCRUTINY, A.O. NOTIC ED THAT ASSESSEE HAS CHARGED INTEREST ON BANK LOANS UNDER T HE HEAD FINANCE CHARGES AT RS.2,41,7,645. ON ENQUIRY, ASS ESSEE SUBMITTED STATEMENT OF DETAILS OF INTEREST ON SECUR ED LOANS AND PAYMENTS MADE DURING THE YEAR UP TO THE DATE OF FIL ING RETURN. HOWEVER, A.O. OBTAINED INFORMATION FROM EXIM BANK D IRECTLY AND FOUND THAT THERE ARE VARIATIONS BETWEEN WHAT HA D BEEN 2 ITA.NO.717/HYD/2013 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD. CLAIMED BY ASSESSEE AND WHAT HAS BEEN STATED BY THE BANK. ASSESSEE HOWEVER, AGREED FOR DISALLOWANCE OF INTERE ST UNDER THE PROVISIONS OF SECTION 43B, AS THERE IS VARIATIO N BETWEEN THE AMOUNT STATED TO HAVE BEEN ADJUSTED BY THE ASSESSEE TO THAT OF AMOUNT ADJUSTED BY THE BANK IN THEIR BOOKS. ON THES E ADJUSTMENT A.O. CONSIDERED AND LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 2.1. ASSESSEE SUBMITTED THAT AN AMOUNT OF RS.5,40,67,680 WAS PAID DURING THE YEAR TO EXIM BAN K AND STATED THAT THE SAID AMOUNT PERTAIN TO PAYMENT TOWA RDS PRINCIPAL AS WELL AS INTEREST CLAIMED DURING THE YE AR. HOWEVER, IT TURNED OUT THAT THE BANK HAS ADJUSTED ONLY AN AM OUNT OF RS.83,51,790 TOWARDS INTEREST AND BALANCE TOWARDS P RINCIPAL, THEREFORE, DISCREPANCY AROSE. IT WAS SUBMITTED THAT ASSESSEE HAS PROVIDED INTEREST IN THE BOOKS OF ACCOUNTS ON T HE BASIS OF THE LETTERS RECEIVED FROM THE BANK AND ALSO PAID TH E AMOUNT TO THE BANK. THE DISCREPANCIES IF ANY, IN RESPECT OF ADJUSTMENTS OF THE AMOUNT AND DISALLOWANCE UNDER SECTION 43B TO AN EXTENT OF RS.2,07,04,078, DOES NOT CALL FOR ANY PEN ALTY UNDER SECTION 271(1)(C). ASSESSEE RELIED ON VARIOUS CASE LAW, INCLUDING THAT OF HONBLE SUPREME COURT IN THE CASE OF PRICE WATER HOUSE 348 ITR 306(SC). 2.2. LD. CIT(A), HOWEVER, DISCUSSED VARIOUS CASE O THER CASE LAW AND CAME TO A CONCLUSION THAT EXPLANATION GIVEN BY THE ASSESSEE IS NOT BONAFIDE AND IT IS VERY CLEAR T HAT THE ASSESSEE HAS MADE A DELIBERATE AND FALSE CLAIM. ACC ORDINGLY, HE CONFIRMED THE PENALTY IMPOSED BY THE A.O. 3. AFTER HEARING THE RIVAL CONTENTIONS AND PERUSIN G THE PAPER BOOK PLACED INCLUDING THE CLARIFICATION F URNISHED AT 3 ITA.NO.717/HYD/2013 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD. THE INSTANCE OF THE BENCH BY THE LEARNED COUNSEL, W E ARE OF THE OPINION THAT THERE IS NO NEED FOR LEVY OF PENALTY U NDER SECTION 271(1)(C). ASSESSEE HAD PROVIDED THE AMOUNT ON THE BASIS OF THE LETTERS RECEIVED FROM THE EXIM BANK ABOUT VARIO US INTERESTS CHARGED BY THEM. THE DETAILS ARE : REF. NO. PRINCIPAL AMOUNT INTEREST CHARGED BC/04/T601/DO 2,11,85,816.53 34,42,695.25 BC/07/T601/AO 2,06,25,000.00 32,22,656.25 BC/09/T601/AO 4,59,99,990.00 57,49,998.90 BC/04/T601/CO 78,34,000.00 12,24,062.50 BC/04/T601/DO 78,34,000.00 12,24,062.50 BC/04/T601/EO 1,83,81,110.42 27,57,166.47 3.1. THESE LETTERS RECEIVED BY THE ASSESSEE WERE I N FACT NOT UP TO 31.03.2008 BUT FOR PART PERIOD. THEREFORE , IN THE LEDGER ACCOUNTS ASSESSEE HAS PROVIDED THE INTEREST AS UNDER : DATE PARTICULARS VCH.TYPE VCH.NO. DEBIT CREDIT 20.03.08 CR. INTEREST PAYABLE EXIM BANK BEING THE INTEREST PAYABLE TO EXIM BANK LOAN 04/T601/DO JOURNAL 290 34.42.695.00 CR. INTEREST PAYABLE EXIM BANK BEING THE INTEREST PAYABLE TO EXIM BANK LOAN 07/T601/A.O. JOURNAL 291 32,22,656.25 CR. INTEREST PAYABLE EXIM BANK BEING THE INTEREST PAYABLE TO EXIM BANK LOAN 04T601DO JOURNAL 292 86,24,998.20 CR. INTEREST PAYABLE EXIM BANK BEING INTEREST PAYABLE FOR 07-08 ON EXIM BANK LOAN 07/T601/AO JOURNAL 293 26,32,500.00 CR. INTEREST PAYABLE EXIM BANK BEING THE INTEREST JOURNAL 294 12,24,062.50 4 ITA.NO.717/HYD/2013 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD. ON EXIM BANK LOAN PAYABLE ON BC/09/T601/CO CR. INTEREST PAYABLE EXIM BANK BEING THE INTEREST ON EXIM LOAN PAYABLE FOR 07-08 04T601EO JOURNAL 295 27,57,166.47 31.03.20 08 CR. AS PER DETAILS JOURNAL 321 21,37,128.00 PRIOR PERIOD EXPENSES 37,85,520.00DR TRANSFREI GHT SHIPPING SERVICES 52,51,612.00CR. TDS ON INTEREST PAYABLE 1,71,036.00CR. BEING THE INTEREST PAYABLE TO TRANS- FREIGHT, SHIPPING SERVICES FROM MAR 06 TO MAR 08 2,40,41,206.42 DR. CLOSING BALANCE 2,40,41,206.42 2,40,41,206.42 2,40,41,206.42 3.2. THUS, AS CAN BE SEEN FROM THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS, THERE IS BASIS FOR PROVIDING AN AMOUNT OF RS.2,40,41,206 AS INTEREST PAYABLE ON EXIM BANK LOA NS BY THE ASSESSEE. 3.3. THERE IS NO DISPUTE WITH REFERENCE TO THE FAC T THAT ASSESSEE HAD PAID AN AMOUNT OF RS.5,40,67,680 DURIN G THE PERIOD UP TO 30.09.2008. ASSESSEE HAS TREATED MOST OF THE AMOUNT REPAID TOWARDS INTEREST IN ITS BOOKS. THEREF ORE, NO AMOUNT WAS DISALLOWED UNDER SECTION 43B. ON ENQUIRY BY THE 5 ITA.NO.717/HYD/2013 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD. A.O. THE BANK HOWEVER, REPORTED THAT ONLY AN AMOUNT OF RS.83,51,790 WAS ADJUSTED TOWARDS INTEREST, WHEREAS THE BALANCE WAS ADJUSTED TOWARDS PRINCIPAL OUTSTANDING. THERE WAS LOT OF CORRESPONDENCE BETWEEN THE A.O., ASSESSE E AND THE BANK AND THE BANK WAS GIVING VARIOUS CLARIFICATIONS /REVISED STATEMENTS. THEREFORE, IT CAN BE ASSUMED THAT IT IS THE BANKS INTERNAL ACCOUNTING SYSTEM WHICH CAUSED THE DISCREP ANCY IN THE CLAIMS/ AMOUNTS. ASSESSEE ALSO PLACED ON RECORD THE CORRESPONDENCE WITH THE BANK WHICH ULTIMATELY RESUL TED IN CERTIFYING THE AMOUNTS. THESE SUBSEQUENT ENQUIRIES MADE HAVE A BEARING ON THE CLAIM OF THE INTEREST BUT TO EXAMI NE THE ISSUE FROM THE PERSPECTIVE OF LEVY OF PENALTY UNDER SECTI ON 271(1)(C), IT CAN BE CONCLUDED THAT : (A) ASSESSEE HAS PROVIDED THE INTEREST IN THE BOOKS OF ACCOUNTS ON THE BASIS OF THE LETTERS/PAYMENTS RAISE D BY THE EXIM BANK ON VARIOUS LOANS. (B) THAT ASSESSEE HAS PAID AMOUNTS TO THE BANK TO AN EXTENT OF RS.5,40,67,680 TOWARDS SETTLEMENT OF VARIOUS LOANS AND INTEREST. 3.4. IT IS ONLY THE APPROPRIATION OF THE AMOUNTS B Y BANK WHICH CAUSED THE DISCREPANCY. ASSESSEE HAS ADJ USTED MOST OF THE AMOUNTS REPAID TOWARDS INTEREST WHEREAS SAID BANK HAS ADJUSTED AMOUNTS TOWARDS PRINCIPAL RATHER THAN TO INTEREST. THEREFORE, A.O. DISALLOWED THE AMOUNTS BA SICALLY INVOKING THE PROVISIONS OF SECTION 43B. THE INTERE ST PROVIDED IS AN ALLOWABLE EXPENDITURE BUT FOR THE PROVISIONS OF SECTION 43B. SINCE THE DISALLOWANCE WAS MADE INVOKING THE P ROVISIONS OF SECTION 43B, SUCH DISALLOWANCE, IN OUR VIEW, DO ES NOT CALL FOR ANY LEVY OF PENALTY. 6 ITA.NO.717/HYD/2013 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD. 3.5. LD. CIT(A) HAS TAKEN GREAT PAINS IN ANALYZING VARIOUS CASE LAW WHEREIN THE PENALTY WAS CONFIRMED. HOWEVER, THE FACTS IN EACH CASE ARE NOT SIMILAR TO THE ASSE SSEE CASE. HE HAS RELIED ON CASES WHERE THERE ARE DISCLOSURES IN SURVEY, FILING OF REVISED RETURNS ETC., WHICH ARE NOT APPLICABLE T O THE FACTS OF THE CASE. THEREFORE, WE DO NOT INTEND TO DISCUSS AL L THE CASE LAW. SUFFICE TO SAY THAT THE ORIENTATION OF THE LD. CIT(A) SEEMS TO ESTABLISH THAT ASSESSEE HAS DELIBERATELY MADE A FALSE CLAIM. WE ARE UNABLE TO UNDERSTAND WHAT IS THE FALSE CLAIM . AS FAR AS THE CLAIM OF INTEREST IS CONCERNED, THERE IS NO DIS PUTE WITH REFERENCE TO ASSESSEE OBTAINING LOANS UNDER VARIOUS HEADS FROM EXIM BANK AND PROVIDING INTEREST THEREON, AS P ER THE INTEREST RATES WHICH THE A.O. ALSO EXTRACTED IN THE ASSESSMENT ORDER. TO THAT EXTENT PROVIDING AMOUNT OF RS.2,40,4 1,206.42 CAN NOT TO BE DISPUTED. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE HAS PAID THE AMOUNTS DURING THE YEAR. THE DISCREPAN CIES AROSE BECAUSE OF ADJUSTMENTS OF THE AMOUNTS. AS ALREADY S TATED, ASSESSEE ADJUSTED TOWARDS THE INTEREST AND DID NOT DISALLOW ANY AMOUNT UNDER SECTION 43B WHEREAS, THE SAID BANK ADJUSTED THE AMOUNT TOWARDS PRINCIPAL, RESTRICTING THE ADJUSTMENT TO THE INTEREST TO A SMALLER AMOUNT I.E. , TO THE EXTENT OF RS.83,51,795/-. A.O. ALSO DISALLOWED ONLY THE BALANCE AMOUNT IN THE ASSESSMENT ORDER INVOKING THE PROVISI ONS OF SECTION 43B, WHILE ALLOWING THE ABOVE AMOUNT. THERE FORE, ON THE FACTS OF THE CASE, WE ARE OF THE OPINION THAT P RINCIPLES LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RE LIANCE PETRO PRODUCTS LTD VS. CIT 322 ITR 158 (SC) EQUALLY APPLIES TO THIS AS IT IS ONLY A MERE DISALLOWANCE UNDER PROVIS IONS OF SECTION 43B WHICH RESULTED IN AN ADDITION. ON THESE FACTS OF THE CASE, THERE IS NEITHER A CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS. ASSESSEE CANN OT BE 7 ITA.NO.717/HYD/2013 M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD. FAULTED IF THE BANK ADJUSTS THE AMOUNTS TOWARDS PRI NCIPAL BUT NOT TOWARDS INTEREST. IN THESE CIRCUMSTANCES, ASSES SEES EXPLANATION/ACTIONS CAN BE CONSIDERED AS BONAFIDE A ND ACCORDINGLY, WE ARE OF THE OPINION THAT THERE IS NO SCOPE FOR LEVY OF PENALTY UNDER SECTION 271(1)(C). THEREFORE, LEVY OF PENALTY UNDER SECTION 271(1)(C) IS CANCELLED. GROUN DS RAISED BY THE ASSESSEE ARE ACCORDINGLY ALLOWED. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 28.08.2014. SD/- SD/- (ASHA VIJAYARAGHAVAN) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 28 TH AUGUST, 2014 VBP/- COPY TO 1. M/S. TRANSGEL INDUSTRIES LTD., HYDERABAD, C/O. MR. K. VASANTKUMAR & MR. A.V. RAGHURAM ADVOCATES, 610, 6 TH FLOOR, BABUKHAN ESTATE, BASHEERBAGH, HYDERABAD-1. 2. ACIT, CIRCLE 23(3), 8 TH FLOOR, I.T. TOWERS, A.C. GUARDS, HYDERABAD. 3. CIT(A)-III, HYDERABAD. 4. CIT-II, HYDERABAD. 5. D.R. A BENCH, ITAT, HYDERABAD.