M/s. Alcock Ashdown(Gujarat) Ltd., Bhavnagar V. The Income Tax Officer, Ward-3(3), Petlad

ITA 998/AHD/2014

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8570 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 21-06-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 07-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RICHA RASTOGI
• Keywords: Question of law

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.998/AHD/2014 ( / ASSESSMENT YEAR : 2002-03) M/S.ALCOCK ASHDOWN (GUJARAT) LTD. OLD BUNDAR ROAD BHAVNAGAR / VS. INCOME TAX OFFICER WARD-3(3) PETLAD # ./ ./ PAN/GIR NO. : AABCA 7983 J ( #% / APPELLANT ) .. ( &#% / RESPONDENT ) #%' / APPELLANT BY : MS. ARTI N. SHAH, AR &#%(' / RESPONDENT BY : MS. RICHA RASTOGI, SR.DR )*(+ / DATE OF HEARING 28/08/2017 ,-./(+ / DATE OF PRONOUNCEMENT 06/09/2017 / O R D E R PER PRADIP KUMAR KEDIA - AM: THE ASSESSEE HAS CHALLENGED THE ACTION OF THE CO MMISSIONER OF INCOME TAX(APPEALS)-XX, AHMEDABAD [CIT(A) IN SHORT] DATED 20/01/2014 FOR THE ASSESSMENT YEAR (AY) 2002-03 IN CONFIRMIN G THE PENALTY ON ADDITION TOWARDS INTEREST INCOME OF RS.6 1,68,310/- ARISING ON EAR-MARKED FUNDS FOR CERTAIN PROJECTS RECEIVED FROM GUJARAT GOVERNMENT. THE ASSESSEE TREATED THE INTEREST INCOME TO BE OF C APITAL IN NATURE AND ITA NO.998/AHD/ 2014 M/S.ALCOCK ASHDOWN (GUJ.) LTD. VS. ITO ASST.YEAR 2002-03 - 2 - ACCORDINGLY DID NOT OFFER THE ACCRUED INTEREST FOR TAXATION. THE ASSESSING OFFICER (AO) TREATED THE INTEREST INCOME TO BE OF REVENUE NATURE AND ACCORDINGLY ADDITIONS WERE MADE IN THE Q UANTUM ASSESSMENT AND PENALTY PROCEEDINGS WERE ALSO SIMULTANEOUSLY IS SUED FOR NON- INCLUSION OF AFORESAID INTEREST INCOME FOR THE PURP OSE OF COMPUTATION OF TAXABLE INCOME. 2. THE PENALTY UNDER S.271(1)(C) IMPOSED BY THE A O ON THE IMPUGNED ALLEGED CONCEALED INCOME WAS CHALLENGED BEFORE THE CIT(A). THE CIT(A), HOWEVER, DECLINED TO ENTERTAIN THE PLEA OF THE ASSESSEE SEEKING RELIEF AND CONFIRMED THE ACTION OF IMPOSITION OF PE NALTY. 3. AGGRIEVED, THE ASSESSEE PREFERRED APPEAL BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) TO AGITATE CONFIRMA TION OF PENALTY ON THE IMPUGNED INTEREST INCOME. 4. THE LD.AR FOR THE ASSESSEE MS.ARTI N.SHAH SUBMIT TED AT THE OUTSET THAT NOTWITHSTANDING THE FACT THAT ADDITIONS MADE B Y THE AO IN THE QUANTUM ASSESSMENT HAS BEEN UPHELD BY THE TRIBUNAL, THE APPEAL OF THE ASSESSEE AGAINST THE AFORESAID ORDER OF THE TRIBUNA L IN QUANTUM HAS BEEN ADMITTED BY THE HONBLE GUJARAT HIGH COURT FOR DISP OSAL ON MERITS VIDE ITS ORDER IN TAX APPEAL NO.804 OF 2009 DATED 06/09/ 2010. THUS, IT IS APPARENT THAT A SUBSTANTIAL QUESTION OF LAW WAS FO UND INVOLVED AS TO ITA NO.998/AHD/ 2014 M/S.ALCOCK ASHDOWN (GUJ.) LTD. VS. ITO ASST.YEAR 2002-03 - 3 - WHETHER INTEREST INCOME IS OF REVENUE CHARACTER OR OTHERWISE. THIS BEING SO, THE PENALTY UNDER S.271(1)(C) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT') IS A COMPLE TE NON-STARTER. FOR THE PROPOSITION THAT WHEN AN APPEAL IN THE QUANTUM HAS BEEN ADMITTED BY THE SUPERIOR WISDOM, THE PENALTY CANNOT BE FASTENED OWI NG TO INHERENT DEBATABLE CHARACTER OF THE DISPUTE, THE LD.AR RELIE D UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . NAYAN BUILDERS 286 ITR 722 (BOM.). THE LD.AR NEXT REFERRED TO AUD ITED FINANCIAL STATEMENTS OF THE ASSESSEE FOR THE RELEVANT FINANCI AL YEAR ENDING ON 31/03/2002 AND SUBMITTED THAT PROPER DISCLOSURE TO THIS EFFECT WAS MADE IN THE NOTES FORMING PART OF THE ACCOUNTS TO THE EFFECT THAT INTEREST ACCRUED ON EARMARKED FUNDS FOR NEW PROJECT HAS BEEN SHOWN UNDER CAPITAL RESERVES. THEREFORE, THERE IS NO SUPPRESSI ON FROM THE REVENUE IN SO FAR AS ESSENTIAL FACTS ARE CONCERNED. IT WAS TH EREFORE PLEADED THAT ON THIS COUNT ALSO THE PENALTY IS NOT SUSTAINABLE IN L AW. THE LD.AR NEXT CONTENDED THAT THE ASSESSEE HAD RELIED UPON THE DEC ISION OF THE HONBLE SUPREME COURT IN THE CASE OF BOKARO STEEL LTD. 236 ITR 315 (SC) AND KARNATAKA POWER CORPORATION 247 ITR 268 (SC) TO BUT TRESS ITS CLAIM ON MERITS THAT ACCRUED INTEREST ON EARMARKED FUNDS WO ULD GO TO REDUCE THE COST OF THE PROJECT AND DOES NOT REPRESENT INCOME O F CHARGEABLE NATURE. THE LD.AR ACCORDINGLY CONTENDED THAT ACTION OF THE CIT(A) IN CONFIRMING THE PENALTY IMPOSED BY THE AO DOES NOT HAVE LEGAL FOUNDATION. ITA NO.998/AHD/ 2014 M/S.ALCOCK ASHDOWN (GUJ.) LTD. VS. ITO ASST.YEAR 2002-03 - 4 - 5. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE OUGHT TO HAVE ROUTE D THE INTEREST INCOME THROUGH PROFIT & LOSS ACCOUNT WHICH WAS NOT DONE. THE ASSESSEE HAS DIRECTLY CREDITED THE INTEREST INCOME IN THE CAPITA L RESERVE ACCOUNT AND BYE-PASSED THE NORMAL ACCOUNTING METHOD TO ESCAPE T HE TAX LIABILITY. THE ACTION OF THE ASSESSEE WAS INTENDED TO CONCEAL THE INCOME OF TAXABLE NATURE WHICH WAS BROUGHT TO TAX DUE TO SCRUTINY ASS ESSMENT. THE LD.DR SUBMITTED THAT BUT FOR THE SCRUTINY ASSESSMENT THE AFORESAID INCOME WOULD HAVE ESCAPED ASSESSMENT. THEREFORE, THE PENA LTY HAS BEEN RIGHTLY SUSTAINED BY THE CIT(A). THE LD.DR RELIED UPON THE DECISION OF THE HONBLE SC IN MAK DATA PVT.LTD. VS. CIT-II 38 TAXM ANN.COM 448 (SC) FOR THE ACTION OF THE REVENUE. ADDRESSING THE MERITS OF CLAIM, THE LD.DR THEREAFTER REFERRED TO THE DECISION OF THE HO NBLE SUPREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILI ZERS LTD. VS. CIT 227 ITR 172 (SC) AND SUBMITTED THAT INTEREST EARNED BY THE ASSESSEE WAS CHARGEABLE AS INCOME FROM OTHER SOURCES AND THERE FORE BY NOT OFFERING THE SAME IN THE RETURN FILED, THE CONSEQUENCES IN THE FORM OF PENALTY CANNOT BE SHUNNED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE DISPUTE IN THE PRESENT CASE IS ON MAINTAINABILITY OF IMPOSI TION OF PENALTY UNDER S.271(1)(C) OF THE ACT ON INTEREST INCOME ACCRUED R S.61,68,310/- ON ITA NO.998/AHD/ 2014 M/S.ALCOCK ASHDOWN (GUJ.) LTD. VS. ITO ASST.YEAR 2002-03 - 5 - FUNDS OBTAINED FROM THE STATE GOVERNMENT OF GUJARAT AND EAR-MARKED FOR UTILIZATION IN SPECIFIED (CHANCH) PROJECT. WE NOTI CE THAT THE ASSESSEE- COMPANY IS OWNED BY GOVERNMENT OF GUJARAT AND IS EN GAGED IN THE BUSINESS OF SHIP BUILDING. AS POINTED OUT ON BEHAL F OF ASSESSEE, THE ASSESSEE HAS DISCLOSED BY WAY OF NOTE THAT THE AFOR ESAID INTEREST INCOME HAS NOT BEEN PASSED THROUGH PROFIT & LOSS ACCOUNT B UT HAS BEEN CREDITED TO RESERVE AND SURPLUS FOR THE REASON THAT THE FUND S OBTAINED FROM THE STATE GOVERNMENT OF GUJARAT WERE TO BE UTILIZED FOR CHANCH PROJECT AND THEREFORE THE FUNDS WERE DEPOSITED IN SEPARATE BANK ACCOUNT. WHILE THE INTEREST ACCRUED ON THE AFORESAID EAR-MARKED FU ND HAS BEEN CLAIMED TO BE PART OF THE COST OF THE PROJECT BY THE ASSESSEE, THE AO HAS TREATED THE SAME AS CHARGEABLE INCOME IN THE QUANTUM PROCEEDING S. THE ACTION OF THE AO HAS BEEN ENDORSED BY THE COORDINATE BENCH OF ITAT IN THE QUANTUM PROCEEDINGS. THE ORDER OF THE ITAT IN THE QUANTUM PROCEEDINGS IS STATED TO HAVE BEEN ADMITTED FOR DIS POSAL ON MERITS IN THE APPEAL FILED U/S.260A OF THE ACT. ON THESE FACTS, WE DO NOT SEE ANY WARRANT FOR IMPOSITION OF PENALTY. AS NOTICED, SU ITABLE DISCLOSURE HAS BEEN MADE BY THE ASSESSEE WHICH IS A STATE GOVERNME NT UNDERTAKING. THUS, NO INFERENCE OF MALAFIDE IN THE CONDUCT OF TH E ASSESSEE CAN BE DRAWN. MORE SO, THE CLAIM OF THE ASSESSEE IS SOMEW HAT DEBATABLE IN VIEW OF DECISION OF THE HONBLE SUPREME COURT, NAMELY BO KARO STEEL LTD. AND KARNATAKA POWER CORPORATION(SUPRA). IT IS A DIFFER ENT MATTER THAT THE CLAIM OF THE ASSESSEE DID NOT PASS THE TESTS OF NON -TAXABILITY IN THE GIVEN ITA NO.998/AHD/ 2014 M/S.ALCOCK ASHDOWN (GUJ.) LTD. VS. ITO ASST.YEAR 2002-03 - 6 - FACTS IN VIEW OF ANOTHER DECISION OF THE HONBLE SU PREME COURT IN THE CASE OF TUTICORIN ALKALI CHEMICALS & FERTILIZERS L TD. UNDER THESE CIRCUMSTANCES, THE ISSUE CANNOT BE SAID TO BE ENTIR ELY FREE OF ANY DEBATE. COUPLED WITH THIS, THE HONBLE JURISDICTIONAL HIGH COURT HAS CONSIDERED THE NEED FOR DISPOSAL OF THE CONTROVERSY ON MERITS AND THUS ADMITTED THE APPEAL. IN THESE CIRCUMSTANCES, IT IS DIFFICULT TO APPROVE THE ACTION OF THE REVENUE FOR IMPOSITION OF PENALTY WITH THE AID OF S ECTION 271(1)(C) OF THE ACT. NEEDLESS TO SAY, ADDITIONS MADE IN THE QUANTU M PROCEEDINGS WOULD NOT IPSO FACTO LEAD TO CONSEQUENCES IN THE FORM OF PENALTY. MITI GATING CIRCUMSTANCES DO EXIST IN THE FACTS WHICH PROPELS U S TO ADMIT RELIEF CLAIMED BY THEASSESSEE FROM THE CLUTCHES OF PENALTY IMPOSED UNDER S.271(1)(C) OF THE ACT. ACCORDINGLY, THE AO IS DIR ECTED TO DELETE THE PENALTY IMPOSED UNDER S.271(1)(C) OF THE ACT. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . THIS ORDER PRONOUNCED IN OPEN COURT ON 06 / 09 /2017 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 06/ 09 /2017 3..),.)../ T.C. NAIR, SR. PS ITA NO.998/AHD/ 2014 M/S.ALCOCK ASHDOWN (GUJ.) LTD. VS. ITO ASST.YEAR 2002-03 - 7 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. #% / THE APPELLANT 2. &#% / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-XX, AHMEDABAD 5. 89:+)56 , 56/ , 4 / DR, ITAT, AHMEDABAD 6. :<* / GUARD FILE. / BY ORDER, &8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .28.08.2017(DICTATION-PAD 15- P AGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.8.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.6.9.17 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 6.9.17 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER