GEM CLASS P.LTD, MUMBAI v. ITO 10(3)(1), MUMBAI

ITA 2130/MUM/2010 | 2004-2005
Pronouncement Date: 29-03-2011 | Result: Allowed

Appeal Details

RSA Number 213019914 RSA 2010
Assessee PAN AACCG1478R
Bench Mumbai
Appeal Number ITA 2130/MUM/2010
Duration Of Justice 1 year(s) 12 day(s)
Appellant GEM CLASS P.LTD, MUMBAI
Respondent ITO 10(3)(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted G
Tribunal Order Date 29-03-2011
Date Of Final Hearing 23-03-2011
Next Hearing Date 23-03-2011
Assessment Year 2004-2005
Appeal Filed On 17-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES G MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI RAJENDRA SINGH ACCOUNTANT MEMBER I T A NO: 2130/MUM/2010 (ASSESSMENT YEAR: 2004-05) M/S GEM CLASS PRIVATE LIMITED MUMBAI APPELLANT (PAN: AACCG1478R) VS INCOME TAX OFFICER 10(3)(1) MUMBAI RESPONDENT APPELLANT BY: MR BHAVESH K SAVLA RESPONDENT BY: MR A K MAYAK O R D E R R V EASWAR PRESIDENT: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE PENA LTY OF ` 1 05 726/- IMPOSED UNDER SECTION 271(1)(C) OF THE I NCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2004-05. 2. THE APPEAL ARISES THIS WAY. THE ASSESSEE IS A C OMPANY ENGAGED IN SHARE TRADING. IN THE RETURN OF INCOME THE ASSESSEE CLAIMED INTEREST OF ` 8 84 116/- AS A DEDUCTION IN RESPECT OF UNSECURED LOANS OF ` 2 36 03 000/- TAKEN BY IT. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS ADVANCED AN I NTEREST FREE LOAN OF ` 1 16 00 000/- TO M/S CENTURION PRIMA ADVISORS PRIVA TE LIMITED WHICH IS A SISTER CONCERN. HE THEREFORE C ALLED UPON THE ASSESSEE TO EXPLAIN WHY PROPORTIONATE INTEREST SHOU LD NOT BE DISALLOWED ON THE FOOTING THAT THE BORROWED MONIES WERE DIVERTED FOR NON-BUSINESS PURPOSES. THE ASSESSEE REPRESENTE D THAT IT ADVANCED THE AMOUNT TO THE SISTER CONCERN AS A LONG TERM AND STRATEGIC ADVANCE AND THEREFORE DID NOT CHARGE ANY INTEREST. IT WAS ITA NO: 2130/MUM/2010 2 PLEADED THAT THE INTEREST SHOULD BE ALLOWED AS HAVI NG BEEN PAID ON BORROWINGS USED FOR THE PURPOSE OF THE BUSINESS. T HE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES EXPLANATION A ND HELD THAT THE INTEREST BEARING FUNDS WERE DIVERTED FOR INTEREST F REE LOANS GIVEN TO THE SISTER CONCERN. ACCORDINGLY HE DISALLOWED PROP ORTIONATE INTEREST OF ` 2 94 705/-. THE DISALLOWANCE WAS ACCEPTED BY THE A SSESSEE AND NO APPEAL WAS FILED. 3. THE ASSESSING OFFICER THEREAFTER INITIATED PENAL TY PROCEEDINGS FOR CONCEALMENT OF INCOME AND THE MATTE R REACHED THE TRIBUNAL IN ITA NO: 2528/MUM/2007. THE TRIBUNAL BY ORDER DATED 16.04.2009 FOUND THAT THE CIT(A) HAS PASSED AN EX P ARTE ORDER WITHOUT PROPER OPPORTUNITY. IT THEREFORE RESTORED THE APPEAL TO THE FILE OF THE CIT(A) WITH A DIRECTION TO HIM TO DECID E THE MERITS OF THE LEVY OF PENALTY IN ACCORDANCE WITH LAW AND AFTER GI VING DUE OPPORTUNITY TO THE ASSESSEE. THE CIT(A) TOOK UP TH E APPEAL PURSUANT TO THE AFORESAID ORDER OF THE TRIBUNAL. T HE ASSESSEE REPRESENTED THAT THE ADVANCE TO M/S CENTURION PRIMA ADVISORS PRIVATE LIMITED WAS GIVEN OUT OF APPLICATION MONIES RECEIVED FOR THE ISSUE OF ZERO COUPON BONDS ON WHICH NO INTEREST WAS PAYABLE AND THE BONDS WERE TO BE CONVERTED INTO EQUITY CAPITAL OF THE COMPANY. IT WAS THUS PLEADED THAT IT CANNOT BE SAID THAT THE ASSESSEE HAD UTILIZED INTEREST BEARING FUNDS FOR GIVING NON-INTE REST BEARING ADVANCES. THIS PLEA OF THE ASSESSEE IS SEEN RECORD ED IN PARAGRAPH 2.3 OF THE IMPUGNED ORDER OF THE CIT(A). 4. THE CIT(A) HELD THAT THE ASSESSEES PLEA WAS NOT SUPPORTED BY ANY EVIDENCE. HE FOUND FURTHER FROM THE BALANCE SHEET THAT THE ITA NO: 2130/MUM/2010 3 SHARE CAPITAL AND RESERVES WERE INADEQUATE TO MAKE THE ADVANCE TO THE SISTER CONCERN. HE ALSO NOTED THAT THE ASSESSE E DID NOT FILE ANY APPEAL AGAINST THE DISALLOWANCE OF THE INTEREST. T AKING ALL THESE FACTS INTO CONSIDERATION AND APPLYING THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS (2008) 306 ITR 277 (SC) THE CIT(A) HELD THAT THE PENALTY WAS RIGHTLY IMPOSED. 5. IT IS AGAINST THE AFORESAID ORDER OF THE CIT(A) THAT THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRIBUNAL. IN SUPPORT OF THE APPEAL THE LEARNED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THE ACCOUNT COPY OF THE ASSESSEE WITH SYNDICATE BANK FO R THE PERIOD 01.04.2003 TO 31.03.2004 AND POINTED OUT THAT THE Z ERO COUPON BONDS APPLICATION MONIES WERE RECEIVED ON 08.12.200 3 IN THE AMOUNT OF ` 1.16 CRORES AND ON THE VERY SAME DAY THE AMOUNT WAS ADVANCED TO M/S CENTURION PRIMA ADVISORS PRIVATE LI MITED BY CHEQUE AND THUS THE NEXUS BETWEEN THE INTEREST FREE FUNDS AND THE INTEREST FREE ADVANCE STOOD PROVED. IT WAS THEREFO RE CONTENDED THAT THE ASSESSEE BY MAKING THE CLAIM OF INTEREST IN TH E AMOUNT OF ` 2 94 705/- DID NOT CONCEAL ITS INCOME OR FURNISH IN ACCURATE PARTICULARS THEREOF. OUR ATTENTION WAS ALSO DRAWN TO THE PLEA TAKEN BEFORE THE CIT(A) AND REFERRED TO BY HIM IN PARAGRA PH 2.3 OF HIS ORDER THAT NO INTEREST WAS PAID ON THE ZERO COUPON BONDS APPLICATION MONIES SINCE THE BONDS WERE TO BE CONVE RTED INTO EQUITY CAPITAL OF THE COMPANY. THE LEARNED REPRESE NTATIVE ALSO FILED A COPY OF THE ORDER PASSED BY THE CIT(A) ON 27.05.2 008 IN RESPECT OF THE ASSESSMENT YEAR 2005-06 BY WHICH HE HAD CANC ELLED THE ITA NO: 2130/MUM/2010 4 PENALTY OF ` 69 896/- IMPOSED UNDER SECTION 271(1)(C) FOR THAT Y EAR ON THE DISALLOWANCE OF INTEREST OF ` 1 91 100/- MADE FOR IDENTICAL REASONS. IT WAS SUBMITTED THAT SINCE THERE WAS DIV ERGENCE OF OPINION EVEN AMONGST THE REVENUE AUTHORITIES ABOUT THE LEVIABILITY OF THE PENALTY THE ASSESSEE SHOULD BE GIVEN THE BE NEFIT OF DOUBT. RELIANCE WAS ALSO PLACED ON AN ORDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF E R TRUST VS. ACIT (2000) 7 3 ITD 426 (MUM) IN WHICH ON IDENTICAL CIRCUMSTANCES THE LEVY OF PENALTY FOR CONCEALMENT OF INCOME WAS CANCELLED. 6. ON THE OTHER HAND THE CONTENTION OF THE LEARNED SENIOR DR BEFORE US WAS THAT THE ZERO COUPON BONDS WERE ISSUE D AT A DISCOUNT AND THE DISCOUNT PORTION IN SUBSTANCE REPR ESENTED THE INTEREST PAYABLE BY THE ASSESSEE AND IT CANNOT THER EFORE BE SAID THAT THE APPLICATION MONIES IN RESPECT OF THOSE BON DS WERE INTEREST FREE. IT WAS THEREFORE CONTENDED THAT THE ASSESSEE S CLAIM THAT THE INTEREST FREE ADVANCE TO THE SISTER CONCERN WAS GIV EN OUT OF INTEREST FREE FUNDS WAS INCORRECT AND THEREFORE IT ATTRACT ED PENALTY FOR HAVING MADE A WRONG CLAIM FOR PROPORTIONATE INTERES T. HE ALSO DREW OUR ATTENTION TO THE FACT THAT THE BANK ACCOUNT COP Y FILED BEFORE US WAS NOT FILED BEFORE THE CIT(A) DESPITE THE FACT TH AT THE TRIBUNAL HAD RESTORED THE APPEAL TO THE CIT(A) ONLY FOR THE PURP OSE OF GIVING AN OPPORTUNITY TO THE ASSESSEE OF BEING HEARD. HE THE REFORE SUBMITTED THAT WE SHOULD NOT LOOK INTO THE ACCOUNT COPY. A P LEA WAS MADE IN THESE CIRCUMSTANCES THAT THE PENALTY SHOULD BE CONF IRMED. 7. ON A CAREFUL CONSIDERATION OF THE RIVAL CONTENTI ONS WE ARE OF THE VIEW THAT THE BENEFIT OF DOUBT HAS TO BE EXTEND ED TO THE ITA NO: 2130/MUM/2010 5 ASSESSEE RESULTING IN CANCELLATION OF THE PENALTY. IT IS TRUE THAT THE CIT(A) HAS RECORDED IN PARAGRAPH 2.4 OF THE IMPUGNE D ORDER THAT THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE TO SHOW T HAT THE ADVANCE TO THE SISTER CONCERN WAS MADE OUT OF INTER EST FREE FUNDS. HOWEVER CONSIDERING THE FACT THAT THESE ARE PENALT Y PROCEEDINGS WE ARE INCLINED TO LOOK INTO THE ACCOUNT COPY OF TH E ASSESSEE RELATING TO THE BANK TRANSACTION FROM WHICH IT IS SEEN THAT THE INTEREST FREE ADVANCE TO M/S CENTURION PRIMA ADVISO RS PRIVATE LIMITED HAD COME OUT OF THE APPLICATION MONIES IN R ESPECT OF THE ZERO COUPON BONDS RECEIVED BY THE ASSESSEE ON 08.12 .2003. THE NEXUS BETWEEN THE RECEIPT OF THE MONIES AND THE INT EREST FREE ADVANCE IS THUS ESTABLISHED. THE ONLY QUESTION TO BE EXAMINED NOW IS WHETHER THE DISCOUNT ALLOWED BY THE ASSESSEE WHILE ISSUING THE ZERO COUPON BONDS CAN BE CONSIDERED AS INTEREST . THIS COULD BE AN ARGUABLE POINT. MOREOVER THE ASSESSEE HAS S PECIFICALLY PLEADED BEFORE THE CIT(A) WHICH IS RECORDED IN PAR AGRAPH 2.3 OF THE IMPUGNED ORDER THAT NO INTEREST WAS PAYABLE ON THE APPLICATION MONIES BECAUSE THE BONDS WERE TO BE CONVERTED INTO EQUITY CAPITAL OF THE COMPANY. THIS PLEA HAS NOT BEEN SPECIFICALL Y CONTROVERTED OR DISPROVED BY THE DEPARTMENTAL AUTHORITIES. THEREFO RE THE QUESTION WHETHER THE APPLICATION MONIES WERE INTEREST FREE O R NOT WAS AT BEST A DEBATABLE QUESTION. ADDED TO THIS IS THE FACT TH AT FOR THE ASSESSMENT YEAR 2005-06 THE CIT(A) HAS CANCELLED T HE PENALTY LEVIED ON THE ASSESSEE ON IDENTICAL CIRCUMSTANCES. TAKING ALL THESE FACTS INTO CONSIDERATION AND HAVING REGARD TO THE O RDER OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF E R TRU ST VS. ACIT ITA NO: 2130/MUM/2010 6 (SUPRA) WE ARE OF THE VIEW THAT IT CANNOT BE DEFIN ITELY STATED THAT THE ASSESSEE CONCEALED ITS INCOME OR FURNISHED INACCURA TE PARTICULARS THEREOF BY MAKING THE CLAIM FOR DEDUCTION OF THE IN TEREST. ALL THE FACTS HAD BEEN PLACED BEFORE THE DEPARTMENTAL AUTHO RITIES. NO NEW FACT WAS UNEARTHED BY THEM. IT WAS ON THE FACTS DI SCLOSED BY THE ASSESSEE THAT THE DEPARTMENT DISALLOWED THE INTERES T. UNDER THESE CIRCUMSTANCES WE ARE SATISFIED THAT THE PENALTY LEV IED SHOULD BE CANCELLED. WE HOLD ACCORDINGLY AND ALLOW THE APPEA L OF THE ASSESSEE WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH MARCH 2011. SD/- SD/- (RAJENDRA SINGH) (R V EASWAR) ACCOUNTANT MEMBER PRESIDE NT MUMBAI DATED 29 TH MARCH 2011 SALDANHA COPY TO: 1. M/S GEM CLASS PRIVATE LIMITED 507/5 VIJAYSHREE BUILDING 98/106 TATYA GHARPURE ROAD MUMBAI 400 004 2. ITO 10(3)(1) MUMBAI 3. CIT-10 MUMBAI 4. CIT(A)-22 MUMBAI 5. DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI