Shri Rohit C.Parikh, Baroda V. The ACIT.,Circle-1, Baroda

ITA 989/AHD/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0973 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-06-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 11-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: M J SHAH
• Keywords: Salary income

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.989/AHD/2013 / ASSTT. YEAR: 2004-2005 SHRI ROHIT C. PARIKH 1/B, ASHOK SOCIETY B/H. UTKARSH PETROL PUMP KARELIBAUG BARODA 390 018. VS DCIT, CIR.1(2) BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI M.J. SHAH REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 23/06/2016 / DATE OF PRONOUNCEMENT: 01/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF THE LD.CIT(A)-IV, BARODA DATED 20.2.2013 FOR THE ASSTT. YEAR 2004-05. 2. GRIEVANCE OF THE ASSESSEE RELATES TO CONFIRMATIO N OF PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 . 3. BRIEF FACTS OF THE CASE OF THE ASSESSEE ARE THAT THE ASSESSEE HAS FILED HIS RETURN OF INCOME ON 6.9.2004 DECLARING LOSS OF RS.4 ,08,089/-. THE ASSESSMENT WAS MADE UNDER SECTION 143(1) R.W.S. 147 OF THE ACT ON 18.9.2006. THE LD.AO HAS MADE FOLLOWING ADDITIONS TO THE INCOME OF THE ASSESSEE, ON WHICH PENALTY HAS BEEN INITIATED. I) DISALLOWANCE OF INTEREST PAID TO THE DEPOSITORS RS.5,41,838/- II) DISALLOWANCE OF BROKERAGE RS.1,42,890/- ITA NO.989/AHD/2013 2 III) DISALLOWANCE OF INTEREST ON COMPANY DEPOSIT RS.1,42,876/- THE AO HAS IMPOSED PENALTY OF RS.83,000/-. 4. IT IS PERTINENT TO OBSERVE HERE THAT THE DISALLO WANCE OF BROKERAGE AMOUNTING TO RS.1,42,890/- WAS DELETED BY THE TRIBU NAL, AND THEREFORE, THE LD.CIT(A) HAS NOT CONFIRMED PENALTY ON THIS ADDITIO N. THE AO HAS DETERMINED THE TAXABLE INCOME AT RS.3,97,475/-. OU T OF THAT ADDITION, RS.1,42,890/- HAS BEEN DELETED. THE LD.CIT(A) HAS NOTICED THIS FACT ELABORATELY IN THE IMPUGNED ORDER. THEREFORE, I DE EM IT PERTINENT TO TAKE NOTE OF THE FINDING OF THE LD.CIT(A) FROM PARA 4.3 AS UN DER: 4.3 AS CAN BE SEEN FROM THE ABOVE, THE LD, CIT(A) H AS OBSERVED THAT NO CASH FLOW STATEMENT WAS FILED BY THE APPELLANT B EFORE THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND APPELLANT FAILED TO SUBSTANTIATE ITS ARGUMENT BEFORE THE AO THAT INTER EST FREE FUNDS WERE ADVANCED AS DEPOSITS TO THE COMPANY. THE VIEW O F THE AO THAT THE INTEREST EXPENDITURE WAS INCURRED NOT WHOLLY AND EX CLUSIVELY FOR THE BUSINESS PURPOSES IS DULY CONFIRMED BY THE LD. CIT( A) IN ITS ABOVE ORDER. AGAIN, THE HON'BLE ITAT, AHMEDABAD HAS OBSER VED IN ITS ABOVE ORDER THAT THE APPELLANT IS AN INDIVIDUAL AND MANAG ING DIRECTOR OF M/S. KRISHNA BARRELS PVT. LTD, AND HIS MAIN SOURCE OF INCOME IS SALARY. AS PER THE HON'BLE ITAT, AHMEDABAD, THE BASIC QUEST ION IS THAT SINCE THE APPELLANT IS A SALARIED EMPLOYEE AND THEREFORE, WHETHER HIS CLAIM OF PAYMENT OF INTEREST TO CERTAIN DEPOSITORS AMOUNT ING TO RS.5,41,838/- WAS AN ADMISSIBLE DEDUCTION AGAINST THE SALARY INCO ME AS PER LAW. FROM THIS OBSERVATION OF THE HON'BLE ITAT, AHMEDABA D, IT IS CLEARLY ESTABLISHED THAT THE CLAIM OF INTEREST OF RS.5,41,8 38/- OF THE APPELLANT AGAINST HIS SALARY INCOME WAS NOT CORRECT AS PER LA W AND THEREFORE, IT CAN BE SAID THAT THE APPELLANT HAS FILED INACCURATE PARTICULARS OF INCOME SO FAR AS SUCH CLAIM OF INTEREST AGAINST THE SALARY INCOME IS CONCERNED. THE HONBLE ITA, AHMEDABAD, HAS FURTHER OBSERVED THAT O N ONE HAND THE APPELLANT HAD SHOWN INTEREST INCOME OF RS.68,554/-, BUT AGAINST THE ITA NO.989/AHD/2013 3 SAID INTEREST INCOME HE HAD CLAIMED THE INTEREST PA ID OF RS.5,41,838/-. SINCE, THE APPELLANT HAD FAILED TO ESTABLISH THE NE XUS AND IN ABSENCE..OF: ANY COGENT MATERIAL TO ESTABLISH THE R EASON OF INTEREST PAID AND IN ABSENCE OF ANY NEXUS OF THE UTILIZATION OF B ORROWED FUNDS, THE FIRST APPELLATE AUTHORITY WAS CORRECT IN HOLDING TH AT THE EXPENDITURE OF INTEREST THE PURPOSE OF EARNING INTEREST. THUS, AS PER THE HONBLE ITAT, AHMEDABAD, THERE IS NO JUSTIFICATION TO ALLOW SUCH CLAIM. FROM THESE OBSERVATIONS OF THE LD.CIT(A) AS WELL AS THE HON'BL E ITAT, IT IS ESTABLISHED THAT THE CLAIM OF THE APPELLANT WITH RE GARD TO INTEREST EXPENDITURE OF RS.5,41,838/- WAS INCORRECT AND WAS NOT GENUINE AND THEREFORE/SUCH CLAIM OF INTEREST/EXPENSES CLEARLY A TTRACT THE PROVISIONS OF SECTION 271(1)(C) OF THE IT ACT. CONSIDERING AL L THESE FACTS, I HOLD THAT THE AO HAS CORRECTLY LEVIED PENALTY UNDER SECT ION 271(1)(C) OF THE ACT SO FAR AS THE ADDITION ON ACCOUNT OF DISALLOWAN CE OF INTEREST EXPENDITURE OF RS.5,41,838/- IS CONCERNED. AT THIS PLACE IT MAY BE MENTIONED THAT SUBSEQUENTLY THE APPELLANT HAD FILED A PETITION BEFORE HON'BLE ITAT 'D' BENCH, AHMEDABAD WHICH WAS ARISING FROM THE ABOVE ORDER OF TRIBUNAL DATED 21-10-2011. VIDE THIS PETIT ION, IT WAS ARGUED BY THE APPELLANT BEFORE THE HON'BLE ITAT THAT IT HAD E ARNED INTEREST OFF 35,203/- FROM M/S KRISHNA BARRELS PVT. LTD. AGAINST THE LOAN AND ADVANCES GIVEN BY IT FOR WHICH THE INTEREST WAS INC URRED. THUS, VIDE THE ABOVE PETITION, THE APPELLANT'1 REQUESTED THE HON'B LE ITAT, AHMEDABAD TO GRANT NETTING TO THE EXTENT OF RS.35,203/- FROM THE ABOVE INTEREST OF RS.5,41,838/- WHICH WAS DISALLOWED. THE HON'BLE ITA T D' BENCH, AHMEDABAD VIDE ITS ORDER IN MA'NO.171/AHD/2011 DATE D 07-02-2012 RECALLED ABOVE GROUND AND DIRECTED THE REGISTRY TO FIX THE APPEAL AS PER LAW. THE HON'BLE ITAT, D' BENCH, AHMEDABAD FURTHER VIDE ITS ANOTHER ORDER IN ITA NO.1151/AHD/2008 DATED 13-07-2012 HAS HELD THAT THE APPELLANT IS ENTITLED TO NETTING OF INTEREST EAR NED OF RS.35,203/- OUT OF INTEREST PAID OF RS.5,41,838/- AND HAS HELD THAT TH E APPELLANT WILL GET RELIEF OF RS.35,203/-. IN VIEW OF THESE FACTS, THE PENALTY LEVIED BY THE AO U/S 271(L)(C) OF THE IT ACT IS CONFIRMED ON NET DIS ALLOWANCE OF INTEREST OF RS.5,06,635/- (I.E. RS.5,41,838/- - RS.35,203/-) . IN OTHER WORDS THE PENALTY LEVIED U/S 271(L)(C) OF THE IT ACT ON REMAI NING AMOUNT OF RS.35,203/- IS HEREBY DELETED IN VIEW OF ABOVE DECI SION OF HON'BLE ITAT, D' BENCH, AHMEDABAD, .. .. 4.4. SINCE, THE HON'BLE ITAT HAS DELETED THE ABOVE ADDITION OF RS.1,42,890/- ON MERITS AND THEREFORE, NO PENALTY C AN BE LEVIED ON SUCH ITA NO.989/AHD/2013 4 ADDITION. WITH REGARD TO THE DISALLOWANCE OF INTER EST PAYMENT OF RS.1,42,876/-, THE HON'BLE ITAT, AHMEDABAD HAS CONF IRMED THE ADDITION ON THE SAME PRINCIPLE ON WHICH THE ADDITIO N OF RS.5,41,838/- HAS BEEN CONFIRMED BY IT IN VIEW OF THIS, THE PEN ALTY U/S 271(1)(C) OF THE IT ACT IS REQUIRED TO BE CONFIRMED ON THIS ADDI TION OF RS.1,42,876/- ALSO ON THE BASIS OF THE SAME REASON ON WHICH THE PENALTY U/S 271(1)(C) OF THE IT 1 ACT HAVE BEEN CONFIRMED IN PRECEDING PARAGRAPHS ON ADDITION OF RS. 5,06,635/-. IN SHORT, THE ACTION OF THE AO WITH REGARD TO LEVY OF PENALTY U/S 271(1)(C) OF THE IT ACT IS C ONFIRMED ON ADDITION OF RS.5,06,635/- AND ALSO ON ADDITION OF RS.1,42,836/ -. THE PENALTY, AS LEVIED BY THE AO U/S 271(1)(C) OF THE IT ACT ON ADD ITION OF RS.1,42,890/- ON ACCOUNT OF DISALLOWANCE OF PAYMENT OF BROKERAGE IS HEREBY DELETED. 5. WITH THE ASSISTANCE OF THE LD.REPRESENTATIVES, I HAVE GONE THROUGH THE RECORD CAREFULLY. THE AO WAS OPINION THAT THE ASSE SSEE HAS REDUCED THE INCIDENCE OF TAX BY CLAIMING DEDUCTION OF INTEREST EXPENDITURE AGAINST SALARY INCOME, AND THUS, HE DESERVES TO BE VISITED WITH PE NALTY. ON THE OTHER HAND, THE CASE OF THE ASSESSEE IS THAT HE HAS TAKEN LOAN WHICH WAS GIVEN TO THE COMPANY, FROM WHERE, HE COULD EARN INTEREST INCOME, AND HE ALSO HAVING BUSINESS INTEREST IN THE COMPANY. IN THE FIRST ROU ND OF LITIGATION UPTO THE LEVEL OF THE TRIBUNAL, IT HAS BEEN HELD THAT INTEREST EXP ENDITURE CANNOT BE ALLOWED AS SET OFF AGAINST SALARY INCOME, BUT THIS ORDER WAS R ECALLED BY THE TRIBUNAL IN MISC. APPLICATION, AS NOTICED BY THE LD.CIT(A) IN T HE FINDING EXTRACTED SUPRA. THE TRIBUNAL HAS ALLOWED SET OFF OF THE INTEREST EX PENDITURE AGAINST INTEREST INCOME OF RS.35,203/-. THIS REASONING OF THE TRIBU NAL WOULD INDICATE THAT INTEREST BEARING FUNDS WERE USED BY THE ASSESSEE FO R MAKING INVESTMENT IN THE COMPANY. IN OTHER WORDS, HE WOULD EARN INTEREST IN COME. IT IS A DIFFERENT MATTER THAT IN THIS YEAR, THE INCOME WAS TO THE EXT ENT OF RS.35,203/-. HAD THERE BEEN MORE INTEREST INCOME, THEN, THE TOTAL CL AIM OF INTEREST EXPENDITURE WOULD HAVE BEEN SET OFF. SO, THE QUESTION IS WHETH ER THE CLAIM OF THE ASSESSEE WAS NOT TENABLE AT ALL OR IT WAS NOT ALLOWED BECAUS E SUFFICIENT INTEREST INCOME ITA NO.989/AHD/2013 5 WAS NOT THERE FOR A SET OFF. EVEN IF A PART OF THE INTEREST EXPENDITURE IS BEING SET OFF AGAINST ALLEGED INTEREST INCOME, IT WOULD F ALSIFY THE REASONING OF THE AO. THE ASSESSEE, AS SUCH EXCLUSIVELY NOT CLAIMED THE INTEREST EXPENDITURE AGAINST THE SALARY INCOME, RATHER, HIS STAND IS TO BE CONSTRUED THAT HE CLAIMED INTEREST EXPENDITURE ON THE GROUND THAT SUCH INTERE ST BEARING FUNDS WERE USED FOR MAKING INVESTMENT IN THE COMPANY. TO MY MIND, IN SUCH SITUATION, HE CANNOT BE VISITED WITH PENALTY UNDER SECTION 271(1) (C) OF THE ACT. MORE SO, LD.AO HAS NOT SPECIFIED WHETHER PENALTY WAS IMPOSED FOR FURNISHING INACCURATE PARTICULARS FOR CONCEALING THE INCOME OR IT WAS INITIATED FOR FURNISHING INACCURATE PARTICULARS, BUT IN THE CONCL USION, THE LD.AO HAS OBSERVED THAT HE HAS SATISFIED THAT THE ASSESSEE HA S CONCEALED THE INCOME TO THE TUNE OF RS.3,97,475/-. I QUOTE BOTH THESE LINE S FROM PARA 2 OF THE PENALTY AS WELL AS FROM PARA-9 OF THE PENALTY ORDER AS UNDE R: 2. IN VIEW OF THE ABOVE, NOTICE U/S.274 R.W.S. 271 (1)(C) WAS ISSUED ON 18.09.2006 FOR FURNISHING INACCURATE PARTICULARS OF INCOME AND THEREBY CONCEALING THE INCOME, WHICH WAS DULY SERVE D ON THE ASSESSEE. .. . 9. AFTER CAREFUL CONSIDERATION OF THE ISSUE INVOLVE D IN THIS CASE IN VIEW OF THE TREATMENT ACCORDED TO IT BY THE ASSESSI NG OFFICER IN THE ASSESSMENT ORDER AND THE FACTS AND THE POSITION OF LAW RELIED UPON BY THE ASSESSING OFFICER, I AM SATISFIED THAT THE ASSE SSEE HAD CONCEALED THE INCOME TO THE TUNE OF RS.3,97,475/- (AS ASSESSED IN THE ORDER U/S.143(3) R.W.S 147 DTD.18.09.2006) FOR WHICH THE ASSESSEE CO ULD NOT OFFER ANY SATISFACTORY EXPLANATION. THUS, THE ASSESSEE HAS C OMMITTED A DEFAULT WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. THE PENALTY IS EVEN NOT SUSTAINABLE FOR THIS REASO N ALSO. FOR THIS, I DRAW SUPPORT FROM THE DECISION OF THE KARNATAKA HIGH COU RT N THE CASE OF CIT VS. ITA NO.989/AHD/2013 6 MANJUNATH COTTON & GINNING FACTORY, 359 ITR 565. I ALLOW THE APPEAL OF THE ASSESSEE AND DELETE PENALTY. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE COURT ON 1 ST AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER