The ACIT, Circle 2, RAJKOT-GUJARAT v. M/s Saurashtra Paper & Board Mills Ltd, RAJKOT-GUJARAT

ITA 1146/RJT/2010 | 2005-2006
Pronouncement Date: 30-09-2011 | Result: Dismissed

Appeal Details

RSA Number 114624914 RSA 2010
Assessee PAN AADCS0252N
Bench Rajkot
Appeal Number ITA 1146/RJT/2010
Duration Of Justice 1 year(s) 29 day(s)
Appellant The ACIT, Circle 2, RAJKOT-GUJARAT
Respondent M/s Saurashtra Paper & Board Mills Ltd, RAJKOT-GUJARAT
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 30-09-2011
Date Of Final Hearing 27-09-2011
Next Hearing Date 27-09-2011
Assessment Year 2005-2006
Appeal Filed On 31-08-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI D.K. TYAGI (JM) AND SHRI A.L. GEHLOT (A M) I.T.A. NO.1146/RJT/2010 - A.Y 2005-06 I.T.A. NO.1218/RJT/2010 - A.Y 2004-05 ACIT CIR.2 VS M/S SAURASHTRA PAPER & BOARD RAJKOT MILLS LTD PATTANI BLDG M.G. ROAD RAJKOT PAN : AADCS0252N (APPELLANT) (RESPONDENT) C.O. NOS 44 & 48/RJT/2010 (ARISING OUT OF ITAS NO.1146 & 1218/RJT/2010) (ASSESSMENT YEARS 2005-06 & 2004-05) M/S SAURASHTRA PAPER & BOARD VS ACIT CIR.2 MILLS LTD RAJKOT RAJKOT (CROSS OBJECTOR) (RESPONDENT) DATE OF HEARING : 27-09-2011 DATE OF PRONOUNCEMENT : 30-09-2011 REVENUE BY : SHRI YOGESH PANDE ASSESSEE BY : SHRI DM RINDANI O R D E R PER BENCH THESE TWO APPEALS BY THE REVENUE AND THE CROSS OBJ ECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE INDEPENDENT ORDER S OF THE CIT(A)-III RAJKOT DATED 29-06-2010 FOR THE ASSESSMENT YEAR 2005-06 AN D DATED 19-07-2010 FOR THE ASSESSMENT YEAR 204-05. AS ALL THE MATTERS PER TAIN TO SAME ASSESSEE FOR THE SAKE OF CONVENIENCE THEY WERE HEARD TOGETHER A ND ARE DISPOSED OFF BY THIS COMMON ORDER. ITA NO.1146 & 1218/RJT/2010 CO 44 & 48/RJT/2010 2 2. THE SOLE ISSUE ARISES IN THE APPEALS FILED BY TH E REVENUE PERTAINS TO CANCELLATION OF PENALTY LEVIED U/S 271(1)(C) OF THE ACT. THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE IN SUPPORT OF THE ORDER OF THE CIT(A). 3. THE ASSESSING OFFICER IN THE COURSE OF ASSESSME NT PROCEEDINGS ASSESSMENT YEAR UNDER CONSIDERATION HAS MADE ADDITI ON OF RS.40 28 079 ON ACCOUNT OF ESTIMATION OF GROSS PROFIT FOR THE ASSES SMENT YEAR 2005-06; HOWEVER ON APPEAL THE CIT(A) RESTRICTED THE SAME TO RS. 3 2 8 079 WHICH ON AN APPEAL BY THE REVENUE HAS BEEN RAISED TO RS. 9 LAKHS BY THE TRIBUNAL. THE IMPUGNED LEVIED PENALTY OF RS. 3 29 330 SPRINGS FROM THIS AD DITION OF RS.9 LAKHS SUSTAINED BY THE TRIBUNAL WHICH IS AGAIN ON ESTIMATE BASIS. ON APPEAL THE CIT(A) CANCELLED THE PENALTY BY OBSERVING THAT THE GROSS P ROFIT ADDITION IS ESTIMATION ONLY AND ONE ESTIMATION HAS BEEN REPLACED BY OTHER ESTIM ATION; NO MATERIAL SHOWING SUPPRESSED SALES OR UNACCOUNTED PRODUCTION WAS FOUN D; ALLEGED PRODUCTION ITSELF IS BASED ON ESTIMATED BASIS. THE CIT(A) THEREFORE DELETED THE PENALTY RELYING ON THE DECISION OF THE CASE OF CIT VS RELIANCE PETR OPRODUCTS (P) LTD 322 ITR 158 (SC). 4. WITH REGARD TO PENALTY FOR ASSESSMENT YEAR 2004- 05 THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS MADE THE FOLLOWING ADDI TIONS: (I) ON ACCOUNT OF DISALLOWANCE OF INTEREST RS. 2 09 31 711 (II) ADDITION ON A/C OF ADVANCE PAYMENT U/S 69C RS . 27 04 433 ITA NO.1146 & 1218/RJT/2010 CO 44 & 48/RJT/2010 3 (III) ON ACCOUNT OF UNDERVALUATION OF CLOSING STOC K RS. 8 768 (IV) ON ACCOUNT OF DISALLOWANCE OF TRAVELING ALLOW . RS. 25 000 (V) ON ACCOUNT OF DISALLOWANCE OF TELE.EXPNS. RS. 50 000 ON APPEAL THE CIT(A) UPHELD ADDITION U/S 43B ON AC COUNT OF INTEREST TO THE EXTENT OF RS. 1 80 00 000; DELETED ADDITION TO THE EXTENT OF RS.7 89 071 ON ACCOUNT OF ADVANCE PAYMENT U/S 69C OF THE I.T.ACT. THE ORDER OF THE CIT(A) WAS CONFIRMED BY THE ITAT. THE ASSESSING OFFICER LEVIE D PENALTY OF RS.64 57 500 ON THE ADDITION OF RS. 1 80 00 000 SUSTAINED BY THE CI T(A) WHICH WAS CONFIRMED BY THE ITAT. ON APPEAL THE CIT(A) FOUND THAT THE ASSE SSEE WAS UNDER BONA FIDE BELIEF THAT THE INTEREST ON BANK TERM LOAN AND OTHE RS WAS ALLOWABLE A DEDUCTION IN TERMS OF PROVISIONS OF SECTION 43B OF THE ACT AS PE R LEGAL POSITION THEN PREVAILING. RETROSPECTIVE AMENDMENT HAS COME INTO FORCE LATER O N AS EFFECTED BY FINANCE ACT 2006 I.E. AFTER FILING THE RETURN OF INCOME. THE CIT(A) ALSO HELD THAT THE CONCEALMENT MUST BE DELIBERATE AND THERE BEING NO P ROOF OF SUCH DELIBERATE CONCEALMENT THE IMPOSITION OF PENALTY WAS NOT WARR ANTED. ACCORDINGLY RELYING UPON THE DECISIONS IN THE CASE OF KANBAY SOFTWARE V S DCIT ITA NO.300/PN/07 (ITAT PUNE) AND CIT VS RELIANCE PETROPRODUCTS (P) LTD (2010) 322 ITR 158 (SC) THE CIT(A) DELETED THE PENALTY: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE MATERIAL PLACED BEFORE US. THE ADDITION SUSTAINED BY THE TR IBUNAL FOR THE ASSESSMENT YEAR 2005-06 IS ONE ESTIMATION TO ANOTHER ESTIMATIO N AND THAT NO MATERIAL ITA NO.1146 & 1218/RJT/2010 CO 44 & 48/RJT/2010 4 SHOWING SUPPRESSED SALES OR UNACCOUNTED PRODUCTION WAS FOUND STANDS UNCONTROVERTED BEFORE US. WITH REGARD TO DISALLOWA NCE OF RS.1 80 00 000 U/S 43B CONFIRMED BY THE ITAT THE ASSESSEE SUBMITS THA T THE DISALLOWANCE IS THE RESULT OF THE RETROSPECTIVE AMENDMENT BROUGHT INTO THE SECTION AND THAT TOO AFTER FILING THE RETURN OF INCOME. THE BONA FIDE OF THE CLAIM IS NOT DOUBTED AT ANY STAGE. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE ORDER OF THE RAJKOT BENCH OF THE TRIBUNAL (SMC) IN THE CASED OF ITO VS M/S DENISH ICE FACTORY IN ITA NO.1131 & 1132/RJT/2010 ORDER DATED 07 TH JANUARY 2011 WHEREIN THE TRIBUNAL BY FOLLOWING THE DECISION OF THE APEX COU RT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS (P) LTD 322 ITR 158 HAS DELE TED THE PENALTY LEVIED ON THE AMOUNT OF DISALLOWANCE MADE U/S 43B OF THE ACT. FOR THE SAKE OF CONVENIENCE WE REPRODUCE BELOW THE FINDINGS OF THE TRIBUNAL: 7. I HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES RECORD PERUSED. IN THE GROUNDS OF APPEAL REVENUE H AS HEAVILY RELIED UPON THE JUDGMENT OF THE APEX COURT IN THE C ASE OF DHARMENDRA TEXTILE PROCESSOR306 ITR 277 (SC). HOWE VER SUBSEQUENT TO THIS JUDGMENT THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT LTD 322 ITR 158 (SC) HA S CONSIDERED THE JUDGMENT IN THE CASE OF DHARMENDRA TEXTILES. T HE FALLOUT OF THE DECISION IN UOI V. DHARAMENDRA TEXTILE PROCESSORS ( 2008) 306 ITR 277 (SC) QUESTIONING THE CORRECTNESS OF THE DECISIO N IN DILIP N. SHROFF V. JOINT CIT (2007) 291 ITR 519 (SC) HAS CAU SED GREAT UNCERTAINTY AS TO THE PENALTY LAW FOR DIRECT TAXES. THE DECISION IN DHARAMENDRA TEXTILE PROCESSORS CASE (SUPRA) HAS BE EN EXPLAINED BY THE SUPREME COURT ITSELF IN UNION OF INDIA V. RA JASTHAN SPINNING AND WEAVING MILLS (2010) GSTR 66 (SC) WHEREIN THE SUPREME COURT UNDERSTOOD DHARAMENDRA TEXTILE PROCESSORS CA SE TO BE NOT APPLICABLE WHERE SECTION 11 AC OF THE CENTRAL EXCI SE ACT IS NOT APPLICABLE ESPECIALLY SINCE THAT WAS NOT EVEN THE STAND OF THE REVENUE IN THIS CASE. THE SUPREME COURT HAD FURTH ER EXPLAINED THE DECISION IN CIT V. ATUL MOHAN BINDAL (2009) 317 ITR 1 (SC) POINTING OUT THAT DHARAMENDRA TEXTILE PROCES SORS CASE HAS ITA NO.1146 & 1218/RJT/2010 CO 44 & 48/RJT/2010 5 BEEN EXPLAINED IN RAJASTHAN SPINNING AND WEAVING MI LLS CASE (SUPRA) AND CONCLUDED IN LINE WITH THIS DECISION TH AT PENALTY UNDER SECTION 11AC OF THE CENTRAL EXCISE ACT COULD NOT BE LEVIED IN EVERY CASE OF NON-PAYMENT OR SHORT PAYMENT OF DUTY AND TH AT PENALTY IN RESPECT OF SECTION 271(1)(C) OF THE INCOME-TAX ACT WOULD BE LEVIABLE SUBJECT ONLY TO THE CONDITIONS THEREUNDER . IT REQUIRED THE MATTER TO BE CONSIDERED NOT SOLELY WITH REFERENCE T O DHARAMENDRA TEXTILE PROCESSORS CASE BUT ALONG WITH THE DECISIO N OF RAJASTHAN SPINNING AND WEAVING MILLS CASE (SUPRA). IN THE C ASE OF CIT V. RELIANCE PETROPRODUCTS PVT LTD 322 ITR 158 THE SUPR EME COURT FURTHER EXPLAINED THE MATTER AND FINALLY SETTLED TH E CONTROVERSY CREATED IN DHARAMENDRA TEXTILE PROCESSORS CASE (SU PRA). THE SUPREME COURT IN THIS CASE HAS ANALYSED THE FACTS I N DILIP N. SHROFFS CASE (SUPRA) AND FOUND FROM THE FACTS THA T THE EXPLANATION GIVEN BY THE ASSESSEE WAS BONA FIDE NOR DID NOT ASS ESSEE FURNISH ANY INACCURATE PARTICULARS. IT NO DOUBT WENT ON TO OBSERVE THAT THE ELEMENT OF MENS REA WAS ESSENTIAL. THE SUPREME COU RT IN DHARAMENDRA TEXTILE PROCESSORS CASE (SUPRA) HAD PO INTED OUT ONLY TO THIS ASPECT OF THE DECISION IN THAT THERE WAS N O NECESSITY TO PROVE MENS REA ON A PLAIN READING OF THE PROVISIONS OF SECTION 271(1)(C) IN THE CONTEXT OF A PENALTY BEING A COMPE NSATION FOR LOSS OF REVENUE LIKELY TO HAVE BEEN OCCASIONED BY THE AC CEPTANCE OF THE RETURN. IT WAS FURTHER POINTED OUT BY THE SUPREME COURT THAT THE REASONING IN THE CONCLUSION ON THE MERITS IN DILIP N. SHROFFS CASE (SUPRA) HAD NOT BEEN QUESTIONED. IT WAS ONLY THE I NFERENCE THAT MENS REA WAS AN ESSENTIAL INGREDIENT FOR PENALTY T HAT WAS OVERRULED. APPLYING THIS UNDERSTANDING OF LAW THE SUPREME COURT FOUND THAT IN THE CASE BEFORE IT THE ASSESSING OFF ICER HAD FOUND THAT THE ASSESSEES CLAIM FOR DEDUCTION OF THE ENTI RE INTEREST ON A BORROWING WHICH HAD BEEN PARTLY UTILISED FOR EARNI NG EXEMPT INCOME REQUIRED DISALLOWANCE OF THE PROPORTIONATE P ART UNDER SECTION 14A. THE CLAIM OF THE ASSESSEE WAS THAT B EING AN INVESTMENT COMPANY THE CLAIM OF INTEREST NEED NOT BE PROPORTIONATELY APPORTIONED TO EXEMPT INCOME FROM D IVIDEND CANNOT JUSTIFY PENALTY EVEN IF THE DISALLOWANCE ITS ELF WAS JUSTIFIED. THIS CONCURRENT VIEW OF THE COMMISSIONER (APPEALS) TRIBUNAL AND THE HIGH COURT WAS UPHELD BY THE SUPREME COURT. IN CIDENTALLY THE MERITS OF THE ISSUE IN THE CASE OF RELIANCE PETROPR ODUCTS PVT LTD (2010) 322 ITR 158 WHETHER SECTION 14A HAS BEEN APP LIED CORRECTLY IN SUCH CASES IS STILL A MATTER OF CONTROVERSY AS B ETWEEN DIFFERENT BENCHES OF THE TRIBUNAL RAISING BASIC QUESTION WHE THER DIVIDEND WHICH IS TAXED IN THE HANDS OF THE COMPANY UNDER SE CTION 115-O COULD BE TREATED AT ALL AS AN UNTAXED AMOUNT SO AS TO JUSTIFY APPLICATION OF SECTION 14A. THE FURTHER QUESTION W AS WHETHER A PERSON WHO BORROWS MONEY FOR INVESTMENT IN SHARES C OULD AT ALL BE TREATED AS A PERSON BORROWING MONEY FOR EARNING EXE MPT DIVIDEND ITA NO.1146 & 1218/RJT/2010 CO 44 & 48/RJT/2010 6 INCOME WHEN THE PURPOSE IS TO DERIVE INCOME FROM R ESALE OF SHARES RATHER THAN EARN DIVIDEND INCOME. ANOTHER Q UESTION THAT MAY ARISE IS WHETHER SECTION 14A AT ALL WOULD APPL Y WHERE INTEREST PAYMENT IS CAPITALIZED IN THE CASE OF INVESTORS. R ULE 8D PROVIDING FOR AN ARTIFICIAL BASIS GIVING A FORMULA FOR ARRIVI NG AT THE ALLOCABLE EXPENDITURE FOR EXEMPT INCOME CREATES FURTHER DISTO RTION OF THE REAL INCOME AND MAY NOT BE INDISCRIMINATELY APPLIED IN E VERY CASE SINCE IT IS SUBJECT TO CONDITIONS UNDER SECTION 14A (23) AND (3) OF THE ACT. ONE MAY HAVE TO AWAIT ADJUDICATION OF THE SUP REME COURT ON THE MERITS OF SUCH ISSUES AS WELL UNLESS THE STATU TE OR THE BOARD COMES OUT WITH A REASONABLE SOLUTION. 8. IN VIEW OF THE DEVELOPMENT OF LAW AT THE STAGE O F THE SUPREME COURT IN RELIANCE PETROPRODUCTS CASE (SUPR A) ONE NEED NOT TAKE THE TROUBLE OF DISTINGUISHING DILIP N. SHR OFFS CASE SINCE IT HAS NOT BEEN OVERRULED EXCEPT FOR ITS MENTION OF ME NS REA THEREIN. NOTWITHSTANDING THE RIPPLE CREATED BY DHARAMENDRA T EXTILE PROCESSORS CASE (SUPRA) THE HIGH COURTS HAVE FOLL OWED THE LONG- ESTABLISHED LAW THAT A BONA FIDE OMISSION CANNOT J USTIFY PENALTY IN A NUMBER OF DECISIONS REPORTED IN THIS VOLUME. WHE RE AN ADDITION TO AN INCOME WAS ADJUSTED AGAINST THE VALUE OF CLOS ING STOCK AND EXPLANATION THEREFORE WAS ALSO FOUND TO BE BONA FID E PENALTY WAS FOUND TO HAVE BEEN RIGHTLY DELETED IN CIT V. HINDUS TAN COMPUTERS LTD. (2010) 322 ITR 88 (ALL). 9. CANCELLATION OF PENALTY FOR A WRONG CLAIM OF DED UCTION IN COMPUTATION OF NON-AGRICULTURAL INCOME BONA FIDE MA DE AND FOR A WRONG CLAIM OF RELIEF UNDER SECTION 80P WERE FOUND TO BE DECISIONS ON THE FACTS ON WHICH NO QUESTION OF LAW WOULD ARIS E AS HELD IN CIT V. SHAHBAD CO-OP. SUGAR MILLS LTD (2010) 322 ITR 73 (P&H). THE HIGH COURT IN THIS CASE REFERRED TO THE DECISION IN TER ALIA IN HINDUSTAN STEEL LTD. V. STATE OF ORISSA (1972) 83 I TR 26 (SC) A SALES TAX CASE WHERE PENALTY WAS NOT FOUND LEVIABL E IN THE ABSENCE OF A CONSCIOUS BREACH OF LAW. IN FACT IT WAS OBSERVED THAT DELIBERATE DEFIANCE OF LAW IS WHAT WOULD MERIT PENA LTY. 10. IN THE CASE OF CIT V. SIDHARTHA ENTERPRISES (20 10) 322 ITR 80 (P&H) IT WAS HELD THAT A WRONG CLAIM AS BUSINES S INCOME OF WHAT SHOULD BE TREATED AS SHORT TERM CAPITAL GAINS ON THE ADVICE OF THE ASSESSEES COUNSEL COULD NOT BE TREATED AS AN INSTANCE OF DELIBERATE DEFAULT. 11. IN THE LIGHT OF ABOVE DISCUSSION IF I CONSIDER THE FACTS OF THE CASE I FIND THAT ADDITION ON ACCOUNT OF PAYMENT TO GUJARAT ELECTRICITY BOARD HAS BEEN DELETED BY THE CIT(A) IN QUANTUM APPEAL. AS REGARDS DISALLOWANCE OF INTEREST U/S 43 B OF THE ACT I FIND ITA NO.1146 & 1218/RJT/2010 CO 44 & 48/RJT/2010 7 THAT THE ISSUE IS SQUARELY COVERED BY THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT LT D CITED SUPRA. THEREFORE FOR THE DETAILED DISCUSSION MADE ABOVE I HOLD THAT THE CIT(A) HAS RIGHTLY APPLIED THE RATIO OF JUDGMENT IN THE CASE OF RALIANCE PETROPRODUCTS PVT LTD (SUPRA) AND CANCELLE D THE PENALTY.. MY INTERFERENCE IS UNCALLED FOR. THEREFORE THE OR DER OF CIT(A) IS UPHELD. 6. IN VIEW OF THE ABOVE AND IN CONSISTENT WITH THE EARLIER DECISION OF THE TRIBUNAL WE DO NOT FIND ANY INFIRMITY IN THE ORDERS PASSED BY THE CIT(A). WE UPHOLD HIS ORDERS AND CONFIRM THE DELETION OF PENAL TY LEVIED U/S 271(1)(C) OF THE ACT. 7. THE CROSS OBJECTIONS ARE FILED IN SUPPORT OF THE ORDER OF THE CIT(A) AND THEREFORE BECOMES INFRUCTUOUS. 8. IN THE RESULT THE APPEALS FILED BY THE REVENUE ARE DISMISSED AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE ALSO DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 30-09-2011. SD/- SD/- (D.K. TYAGI) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 30 TH SEPTEMBER 2011 PK/- COPY TO: 1. ASSESSEE 2. REVENUE 3. THE CIT(A)-III RAJKOT 4. THE CIT-II RAJKOT 5. THE DR I.T.A.T. RAJKOT (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT