M/s. Kanan Textiles, Kanpur V. The Commissioner of Income Tax, Kanpur

ITA 830/LKW/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48334 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-04-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 26-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Keywords: Opportunity of being heard; Condonation of delay
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.830(LKW.)/2008 A.Y.: 2001-02 M/S. KARAN TEXTILES, VS. THE CIT-I, 119/449,DARSHANPURWA, KANPUR. KANPUR. PAN AAAFK8436G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH GARG, ADVOCATE RESPONDENT BY : SHRI P.K.BAJAJ, SR.D.R. O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE LD.CIT-I, KANPUR DATED 25.9.2008 IN LEVYING THE PEN ALTY OF RS.1,05,100 UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT,1961 (IN SHORT THE ACT) RELATING TO THE ASSESSMENT YEAR 2001-02. 2. IT IS OBSERVED THAT THE REGISTRY OF THIS TRIBUNA L HAS POINTED OUT THAT THE APPEAL IS LATE BY 73 DAYS. THE IMPUGNED ORDER H AS BEEN PASSED BY THE CIT-I, KANPUR ON 25.9.2008. THE SAID ORDER WAS RECE IVED BY THE ASSESSEE ON 27.9.2008. THEREAFTER, THE ASSESSEE FILED THE APPEA L BEFORE THE TRIBUNAL ON 26.11.2008. THE ASSESSEE PAID COURT FEE OF RS.500 A LOGNWITH THE MEMORANDUM OF APPEAL. HOWEVER, THE REGISTRY OF THIS TRIBUNAL TOOK THE VIEW THAT THE TRIBUNAL FEE IS SHORT BY RS.8,484, WH ICH WAS DEPOSITED ON 2 7.2.2009. THE REGISTRY OF THE TRIBUNAL TREATED THE APPEAL AS FILED ON 7.2.2009 AND THEREFORE POINTED OUT THAT THERE WAS A DELAY OF 73 DAYS IN FILING THE APPEAL. THE ASSESSEE HAS FILED THE APPLICATION FOR CONDONATION OF DELAY AND SUBMITTED THAT THE SHORTFALL IN PAYMENT OF FEES WAS ON ACCOUNT OF THE DECISION OF THE HON'BLE ALLAHABAD HIGH COURT-LUCKNO W BENCH IN THE CASE OF PATESHWARI ELECTRICALS, WHEREIN IT WAS INTERPR ETED THAT THE FILING FEE WAS TO BE CALCULATED ON THE FINALLY ASSESSED FIGURE, AF TER CONSIDERING THE RELIEF ALLOWED BY THE LD.CIT(A)/ITAT. IN OUR VIEW, THERE I S NO DELAY IN FILING THE APPEAL. ADMITTEDLY, THE APPEAL WAS FILED ON 26.11.2 008 AGAINST THE IMPUGNED ORDER COMMUNICATED TO THE ASSESSEE ON 27.9 .2008. FURTHER, IN VIEW OF THE DECISION OF THE HON'BLE PATNA HIGH COUR T IN THE CASE OF AJIT KUMAR PANDE VS. ITAT (2009), 310 ITR 195(PAT.), WE ARE OF THE VIEW THAT IN RESPECT OF APPEAL PREFERRED BY THE ASSESSEE BEFO RE THE TRIBUNAL, COURT FEE OF ONLY RS.500 IS PAYABLE AND SUCH COURT FEE HAS BE EN PAID, THE QUESTION OF ASSESSEE PAYING ANYTHING MORE DOES NOT ARISE. THUS, CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE ARE OF THE VIEW THAT THE APPEAL IS WELL WITHIN TIME AND THE OBJECTION RAISED BY THE REGISTRY OF THIS TRIBUNAL IS NOT TENABLE AND WE REJECT THE SAME. HEN CE, THE APPEAL IS ADMITTED. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A PARTNERSHIP FIRM DERIVING INCOME FROM TRADING OF P RINTING MATERIALS, SUCH AS, PRINTING INK, ADHESIVE TAPES ETC. AS WELL AS EARNI NG COMMISSION INCOME FROM M/S HINDUSTAN INKS AND RESINS LTD. ON DIRECT S ALES MADE TO VARIOUS CUSTOMERS. FOR THE ASSESSMENT YEAR 2001-02, THE AS SESSEE FILED ITS RETURN OF INCOME ON 31.10.2001 DECLARING AN INCOME OF RS.2 ,37,470. THE CASE WAS PICKED UP FRO SCRUTINY AFTER RECORDING REASONS AND THE ASSESSMENT WAS 3 FRAMED UNDER SECTION 143(3) OF THE ACT ON 18.3.200 4 DETERMINING TOTAL INCOME AT RS.3,56,060 BY MAKING CERTAIN ADDITIONS T O THE RETURNED INCOME. SUBSEQUENTLY, THE THEN CIT-I, KANPUR EXAMINED THE A SSESSMENT RECORDS AND NOTED THAT THE AO FAILED TO EXAMINE AND ENQUIRE VAR IOUS ISSUES FOR WHICH THE CASE WAS SELECTED FOR SCRUTINY AND THEREFORE FOUND THE ASSESSMENT ORDER DATED 18.3.2004, PRIMA FACIE, ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTERESTS OF REVENUE WITHIN THE MEANING OF SECTION 263(1)OF THE ACT. ACCORDINGLY, AFTER AFFORDING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, THE THEN LD.CIT-I, KANPUR ENHANCED THE IN COME OF THE ASSESSEE DETERMINED UNDER SECTION 143(3) AT RS.3,56,060 TO R S.8,98,383 VIDE ORDER DATED 27.3.2006 PASSED UNDER SECTION 263/143(3) OF THE ACT BY MAKING ADDITIONS TO THE TUNE OF RS.5,42,293. THESE ADDITIO NS, INTER ALIA, INCLUDED DISALLOWANCE OF RS.2,68,090 OUT OF INTEREST PAID TO THE BANK AND OTHERS. PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) WERE AL SO INITIATED AGAINST THE ASSESSEE FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE LD.CIT-I, KANPUR GAVE AN OPPORTUNITY OF BEING HEARD TO THE AS SESSEE IN THE MATTER. IN THE PENALTY ORDER, THE LD.CIT CONCLUDED THAT THE AS SESSEE FAILED TO SUBSTANTIATE THE EXPLANATION OFFERED BY IT FOR DIVE RSION OF INTEREST BEARING FUNDS ON WHICH INTEREST OF RS.2,68,090 WAS PAID TO THE FRIENDS AND RELATIVES FREE OF INTEREST. THEREFORE, THE LD.CIT TOOK THE VI EW THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF ITS INCOME TO THE TUNE OF RS.2,68,090 AND WAS THEREFORE, LIABLE TO PAY PENALTY UNDER SECTION 271(1)(C) OF THE ACT. CONSEQUENTLY, THE LD.CIT LEVIED THE PENALTY OF RS .1,05,100. 4. NOW, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUN AL AGAINST THE ORDER OF THE LD.CIT-I, KANPUR. 4 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI RAKESH GARG, AD VOCATE, LD. COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE TRIBUNAL, LUCKNOW BENCH VIDE ITS ORDER DATED 9.2.2011 HAS ALLOWED M.A.NO.26(L.)/2010 (IN I TA NO.439(LKW)/2006) RELATING TO THE ASSESSMENT YEAR 2 001-02. IN FACT, THE TRIBUNAL HAS SET ASIDE THE ORDER OF THE LD.CIT-I, K ANPUR AND RESTORED THE ISSUE OF DISALLOWANCE MADE IN RESPECT OF INTEREST P AID AMOUNTING TO RS.2,68,090 TO THE FILE OF THE AO FOR A FRESH ADJUD ICATION. THE ORDER OF THE TRIBUNAL PASSED IN M.A.NO.26(L.)/2010 DATED 9.2.201 1 READS AS UNDER: 2. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES AT LENGTH AND HAVE ALSO PERUSED THE MATERIALS AVAILAB LE ON RECORD. AT THE VERY OUTSET, WE MAY POINT OUT THAT THERE IS A MISTAKE APPARENT FROM THE RECORDS, WHICH NEEDS TO BE RECTIFIED. WHIL E DECIDING I.T.A.NO.439(LUC.)/2006, THE TRIBUNAL DID NOT CANCE L THE ENTIRE ORDER PASSED BY THE LD.CIT UNDER SECTION 263 OF THE INCOM E-TAX ACT,1961 (IN SHORT THE ACT), BUT UPHELD THE ORDER OF THE LD.CI T, BAREILLY WITH REFERENCE TO DISALLOWANCE MADE IN RESPECT OF INT EREST PAID AMOUNTING TO RS.2,68,090. THE TRIBUNAL HAS DEALT WI TH THIS ISSUE VIDE PARA 25 OF ITS ORDER DATED 25.1.2008. THE OBSERVATI ONS OF THE TRIBUNAL MADE VIDE PARA 25 OF THE ORDER HAVE BEEN REPRODUCED BY THE ASSESSEE IN THE ABOVE MISCELLANEOUS APPLICATION. THE TRIBUNA L CAME TO THE CONCLUSION THAT THE AO HAD NOT MADE ANY WORTHWHILE ENQUIRY AND THEREFORE, THE ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE BECAUSE AS PER PROVISIONS OF SECTION 3 6(1)(III) OF THE ACT, NO INTEREST CAN BE ALLOWED ON BORROWED FUNDS IF THE SAME ARE NOT UTILISED FOR BUSINESS PURPOSES. IT SEEMS THAT THE TRIBUNAL HAS NOT CORRECTLY APPRECIATED THE FACTS OF THE PRESENT CASE AND THEREFORE, THE ORDER PASSED BY THE TRIBUNAL IS AN INCORRECT ORDER . IT IS WORTHWHILE MENTIONING THAT A DETAILED PAPER BOOK WAS FILED CO NTAINING AS MANY AS 79 PAGES IN WHICH THE LEDGER ACCOUNT OF VARIOUS PERSONS TO WHOM THE LOANS WERE GIVEN OR ADVANCED IN EARLIER YEARS WAS FURNISHED. THE SAID COPY OF LOAN ACCOUNT HAS BEEN REPRODUCED BY T HE ASSESSEE IN THE MISCELLANEOUS APPLICATION. IT IS SEEN THAT ON PAGE 25 OF THE PAPER BOOK, A CHART WAS FILED SHOWING THE DETAILS OF LOA NS AND ADVANCES. THE SAID CHART CONTAINED THE NAME OF THE PERSONS, O PENING BALANCE, 5 AMOUNTS DEBITED DURING THE YEAR UNDER CONSIDERATION , AMOUNTS RECEIVED DURING THE YEAR UNDER CONSIDERATION AND TH E CLOSING STOCK. SHRI RAKESH GARG, ADVOCATE, LD. COUNSEL FOR THE ASS ESSEE POINTED OUT THAT DURING THE COURSE OF HEARING OF THE APPEAL IT WAS POINTED OUT THAT IN ALL THE CASES THE DEBIT BALANCES REMAINED STATIC EXCEPT IN THE CASE OF ONE HARI RAM, WHO WAS A MEMBER OF STAFF T O WHOM A LOAN WAS ADVANCED DURING THE YEAR UNDER CONSIDERATION FO R HIS PERSONAL NEEDS AND FROM WHOM A SUM OF RS.5,500 WAS RECOVERED DURING THE YEAR UNDER CONSIDERATION BY ADJUSTING HIS SALARY. LIKEWISE, THE LOAN IN THE NAME OF KALI SHANKAR MISHRA, WHICH STARTED W ITH AN OPENING BALANCE OF RS.9,80,659, STOOD REDUCED TO RS.1,53,6 84. A RECOVERY OF ROUND ABOUT RS.8 LACS WAS MADE. IT WAS ALSO SUBMIT TED BEFORE THE TRIBUNAL DURING THE COURSE OF APPELLATE PROCEEDINGS THAT THE OPENING BALANCE OF LOANS AND ADVANCES WAS RS.25,94,726, WHI CH STOOD REDUCED TO RS.17,87,261. THUS, THE OVERALL PICTURE WAS THAT NO FRESH LOANS WERE ADVANCED DURING THE YEAR UNDER CONSIDERA TION BARRING HARI RAM AND THE LOAN ALREADY ADVANCED WAS SOUGHT TO BE RECOVERED. SHRI RAKESH GARG, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IF THE DEBIT BALANCES ARE COMING FO RWARD FROM THE EARLIER YEARS AND NO NEW ADVANCES HAD BEEN MADE, TH EN QUESTION OF DISALLOWANCE OF INTEREST IN THE YEAR UNDER CONSIDER ATION COULD NOT BE MADE ON THE PREMISE THAT INTEREST HAS NOT BEEN CHAR GED ON THE DEBIT BALANCES OR ADVANCES MADE INTEREST FREE. SHRI RAKES H GARG, ADVOCATE, LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT NO NEW ADVANCES WERE MADE DURING THE YEAR. ACCORDING TO THE LD. COU NSEL FOR THE ASSESSEE, ONCE THIS IS HELD THAT NO NEW LOANS AND ADVANCES WERE MADE DURING THE YEAR UNDER CONSIDERATION, THEN THE QUES TION OF DISALLOWABILITY OF INTEREST FOR THE YEAR UNDER CONS IDERATION WOULD NOT ARISE. IN OUR VIEW, THE FACTS AS RECORDED BY THE TR IBUNAL IN I.T.A.NO.439(LUC.)/2006 ARE NOT CORRECT. WE ALSO FI ND SUBSTANCE IN THIS CONTENTION OF SHRI RAKESH GARG, LD. COUNSEL F OR THE ASSESSEE THAT THE RELIANCE ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF S.A.BUILDERS VS .CIT (A) [2007] 288 ITR 1 (S.C .) IS MISPLACED. IN OUR VIEW NON-MENTIONING OF CORRECT FACTS HAS MADE T HE ORDER PASSED BY THE TRIBUNAL AN INCORRECT ORDER. IN THAT VIEW OF THE MATTER, WE RECALL OUR ORDER DATED 25.1.2008 PASSED IN I.T.A.N O.439(LUC.)/2006 RELATING TO THE ASSESSMENT YEAR 2001-01 FOR A LIMIT ED PURPOSE I.E. TO DECIDE THE DISALLOWANCE OUT OF INTEREST PAID TO THE BANK AND OTHERS AMOUNTING TO RS.2,68,090. WE MAY ALSO OBSERVE HERE THAT THE LD.CIT UNDER SECTION 263 PROCEEDINGS AS WELL AS THE TRIBU NAL IN 6 I.T.A.NO.439(LUC.)/2006 HAVE NOT CORRECTLY APPRECIA TED THE FACTS OF THE PRESENT CASE. IN OUR VIEW, THE ISSUE NEEDS TO B E VERIFIED AND DECIDED AT THE LEVEL OF THE AO. WE, THEREFORE, REMA ND THIS ISSUE TO THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING DUE AND REASONAB LE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS MADE CLEAR TH AT IF NO NEW LOANS AND ADVANCES WERE ADVANCED DURING THE YEAR UNDER CO NSIDERATION, THEN THE QUESTION OF DISALLOWABILITY OF INTEREST FOR THE YEAR UNDER CONSIDERATION WOULD NOT ARISE. 3. FOR STATISTICAL PURPOSES, THE MISCELLANEOUS APPL ICATION IS ALLOWED. 5.1 IN VIEW OF THE ABOVE, SHRI RAKESH GARG, ADVOCAT E, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT ORDINARILY PENALTY UNDER S ECTION 271(1)(C) CANNOT STAND IF THE ASSESSMENT ITSELF IS SET ASIDE. 5.2 IN OUR VIEW, THERE IS A MERIT IN THE ABOVE SUBM ISSION OF SHRI RAKESH GARG, LD. COUNSEL FOR THE ASSESSEE. IT IS WELL SETT LED LAW THAT WHERE AN ORDER OF ASSESSMENT OR RE-ASSESSMENT ON THE BASIS OF WHIC H PENALTY HAS BEEN LEVIED ON THE ASSESSEE HAS ITSELF BEEN FINALLY SET ASIDE O R CANCELLED BY THE TRIBUNAL OR OTHERWISE, THE PENALTY CANNOT STAND BY ITSELF AN D THE SAME IS LIABLE TO BE CANCELLED. THUS, KEEPING IN VIEW THE ENTIRE FACTS A ND CIRCUMSTANCES OF THE CASE AS WELL AS THE SETTLED LEGAL POSITION, WE CANC EL THE PENALTY OF RS.105,100 LEVIED UNDER SECTION 271(1)(C) OF THE AC T. 5.3 BEFORE PARTING WITH THIS CASE, IT IS MADE CLEAR THAT IN FRESH PROCEEDINGS 7 IF ANY ADDITION IS MADE, THE AO IS FREE TO LEVY THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT IN ACCORDANCE WITH LAW. 6. IN THE RESULT, THE APPEAL IS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 25.4.20 11. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT APRIL 25TH ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.