VALIA CHEMICALS P.LTD, NAVI MUMBAI v. ITO 2(3)(4), NAVI MUMBAI

ITA 2525/MUM/2010 | 2003-2004
Pronouncement Date: 30-12-2010 | Result: Allowed

Appeal Details

RSA Number 252519914 RSA 2010
Assessee PAN AAACV1474A
Bench Mumbai
Appeal Number ITA 2525/MUM/2010
Duration Of Justice 8 month(s) 29 day(s)
Appellant VALIA CHEMICALS P.LTD, NAVI MUMBAI
Respondent ITO 2(3)(4), NAVI MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted F
Tribunal Order Date 30-12-2010
Assessment Year 2003-2004
Appeal Filed On 31-03-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES F MUMBAI BEFORE SHRI R V EASWAR PRESIDENT AND SHRI PRAMOD KUMAR ACCOUNTANT MEMBER I T A NO: 2525/MUM/2010 (ASSESSMENT YEAR: 2003-04) VALIA CHEMICALS PVT. LTD. NAVI MUMBAI APPELLANT (PAN: AAACV1474A) VS INCOME TAX OFFICER 2(3)(4) MUMBAI RESPONDENT APPELLANT BY: NONE RESPONDENT BY: MR SUMEET KUMAR O R D E R R V EASWAR PRESIDENT: NOTICE POSTING THE APPEAL FOR HEARING TODAY HAS BE EN SERVED ON THE ASSESSEE AS PER AD CARD PLACED ON RECORD. H OWEVER THERE IS NO APPEARANCE BY THE ASSESSEE. WE THEREFORE PRO CEED TO DISPOSE OF THE APPEAL ON THE BASIS OF THE RECORD AN D AFTER HEARING THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE MR SUMEET KUMAR. 2. THE APPEAL IS BY THE ASSESSEE AND IS DIRECTED AG AINST THE PENALTY OF ` 99 281/- IMPOSED UNDER SECTION 271(1)(C) OF THE INC OME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2003-04. TH E ASSESSEE IS A COMPANY ENGAGED IN DEALING AND EXPORTING OF CHEMI CALS. IN ITS RETURN IT CLAIMED DEDUCTION ON ACCOUNT OF INTEREST PAYMENT OF ` 22 16 866/- ON BORROWED FUNDS OF ` 2 05 45 406/-. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3) THE ASSESSING OFFICER OBSERVED FROM THE DETAILS SUBMITTED BY THE ASSESSEE THAT SOME LOANS WERE ADVANCED TO PERSONS FROM WHICH THE ASSESSEE WAS NOT GETTING ANY INCOME OR INTEREST. HE THEREF ORE PROPOSED TO ITA NO: 2525/MUM/2010 2 DISALLOW THE INTEREST ON SUCH LOANS. THE ASSESSEE SUBMITTED IN WRITING THE COMPLETE DETAILS OF THE INTEREST PAYMEN T. THE DETAILS SHOWED THAT INTEREST OF ` 20 71 824/- WAS PAID TO BANKS AND ` 1 45 042/- WAS PAID TO OTHERS. THE ASSESSEE ALSO S UBMITTED A STATEMENT OF SOURCES AND APPLICATION OF FUNDS AS ON 31.03.2003 TO SHOW THAT THE ENTIRE INTEREST IS ALLOWABLE AS BUSIN ESS EXPENDITURE. IT WAS ALSO SUBMITTED IN THE LETTER WRITTEN TO THE ASSESSING OFFICER THAT OUT OF THE TOTAL FUNDS OF ` 8 01 40 686/- EMPLOYED BY THE ASSESSEE ONLY ` 1 19 50 000/- CARRIED INTEREST WHICH IN OTHER WORDS AMOUNTED TO ONLY 14.91% OF THE TOTAL SOURCES OF FUND AVAILABLE TO THE ASSESSEE. THE ASSESSEE POINTED OU T THAT IT HAD DEPLOYED ` 1 20 14 781/- TOWARDS ADVANCES WHICH DID NOT GENERA TE ANY INCOME. IT WAS HOWEVER CONTENDED THAT THE ASSE SSEE HAD AT ITS DISPOSAL ` 6 81 90 686/- CONSISTING OF OWN FUNDS OF ` 4 06 94 162/- BUSINESS FUNDS OF ` 1 89 01 118/- AND INTEREST FREE FUNDS OF ` 85 95 406/- AND THE INTEREST FREE ADVANCES OF ` 1 20 14 781/- HAD COME OUT OF THESE FUNDS AND THUS THE NON INTEREST B EARING FUNDS WERE MORE THAN THE AMOUNT ADVANCED INTEREST FREE. IT WAS THUS CLAIMED THAT THE ENTIRE BORROWED FUNDS OF ` 1 19 50 000/- ON WHICH INTEREST WAS PAID WAS EMPLOYED IN THE ASSESSEES BU SINESS AND THUS THE ENTIRE INTEREST WAS ALLOWABLE AS A DEDUCTI ON. 3. IN THE SAME LETTER THE ASSESSEE MADE AN ALTERNAT IVE CLAIM WITHOUT PREJUDICE TO THE EFFECT THAT THE AMOUNT TO BE DISALLOWED EVEN ASSUMING THAT A DISALLOWANCE IS TO BE MADE IS ` 2 70 152/- WHICH HAS BEEN DISALLOWED BY THE ASSESSEE ITSELF. IN SUPPORT OF THIS FIGURE A WORKING WAS ALSO ATTACHED. ITA NO: 2525/MUM/2010 3 4. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES CONTENTION ON THE GROUND THAT THE ASSESSEE COULD NO T ESTABLISH THAT INTEREST BEARING FUNDS ARE NOT INVESTED IN NON BUSI NESS FUNDS. HE ALSO NOTED THAT THE ASSESSEE HIMSELF IS AGREEING FOR THE PROPORTIONATE DISALLOWANCE OF INTEREST WHICH CAN BE EVIDENT FROM THE REPLY GIVEN BY THE ASSESSEE . IN THIS VIEW OF THE MATTER HE DISALLOWED ` 2 70 152/- WHICH IS 15% ON ` 18 01 016/-. THE AMOUNT OF ` 18 01 016/- REPRESENTS 14.91% OF ` 1 20 14 781/- WHICH IS THE AMOUNT OF INTEREST FREE ADVANCES GIVEN BY THE ASSES SEE. AS ALREADY SEEN THIS AMOUNT CONSTITUTED 14.91% OF THE TOTAL APPLICATION OF THE FUNDS. 5. THE ASSESSEE SEEMS TO HAVE APPEALED AGAINST THE DISALLOWANCE AND FROM THE ORDER OF PENALTY DATED 13 .02.2009 IT IS SEEN THAT THE CIT(A) BY ORDER DATED 12.02.2008 HA D DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER THE ASSESSEE ON ITS OWN HAD DISALLOWED THE INTEREST OF ` 2 70 152/- WHILE COMPUTING THE TOTAL INCOME AND IF IT IS FOUND THAT THE CLAIM IS CORRECT THEN DIRECTIONS WERE GIVEN TO THE ASSESSING OFFICER TO DELETE THE D ISALLOWANCE MADE IN THE ASSESSMENT ORDER AND IF THE CLAIM IS NO T CORRECT THEN THE DISALLOWANCE MADE IN THE ASSESSMENT ORDER WOULD STAND CONFIRMED. 6. PURSUANT THERETO THE ASSESSING OFFICER VERIFIED THE RECORDS AND FOUND THAT THERE IS NO DOUBLE DISALLOWANCE. HE THEREFORE ISSUED NOTICED TO THE ASSESSEE UNDER SECTION 274 OF THE ACT ASKING THE ASSESSEE TO SHOW CAUSE WHY PENALTY FOR CONCEALM ENT OF INCOME SHOULD NOT BE IMPOSED. THE ASSESSEE SUBMITT ED THAT ON ITS ITA NO: 2525/MUM/2010 4 OWN IT HAD OFFERED THE AMOUNT OF ` 2 70 152/- FOR TAX AND THEREFORE THERE IS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS THEREOF. IT WAS ALSO SUBMITTED THAT TH E DISALLOWANCE WAS OFFERED IN THE REPLY FILED BEFORE THE ASSESSING OFF ICER DURING THE ASSESSMENT PROCEEDINGS ON REALIZATION OF THE MISTAK E. IT WAS POINTED OUT THAT THE ASSESSING OFFICER JUST ACCEPTE D THE ASSESSEES OFFER AND COMPLETED THE ASSESSMENT ACCORDINGLY. IT WAS THUS PLEADED THAT THERE WAS NO CONCEALMENT ON THE PART O F THE ASSESSEE. 7. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSE ES EXPLANATION. ACCORDING TO HIM BY CLAIMING THE INTE REST PAID AS A DEDUCTION THE ASSESSEE HAS FURNISHED INACCURATE PAR TICULARS OF ITS INCOME AND THEREFORE PENALTY UNDER SECTION 271(1) (C) IS ATTRACTED. HE ALSO NOTED THAT FOR THE ASSESSMENT YEAR 2001-02 A SIMILAR PENALTY WAS IMPOSED WHICH WAS ALSO CONFIRMED BY THE CIT(A). THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE H AD MISLED THE FACTS BEFORE THE CIT(A) IN THE APPEAL AGAINST THE A SSESSMENT ORDER AND HAD MISREPRESENTED THAT IT HAD OF ITS OWN DISAL LOWED THE INTEREST OF ` 2 70 152/- WHILE COMPUTING THE TOTAL INCOME WHICH HAD BEEN PROVED WRONG ON VERIFICATION. FOR THESE REASO NS HE IMPOSED THE IMPUGNED PENALTY. 8. ON APPEAL THE CIT(A) LAID STRESS ON THE FACT TH AT THE ASSESSEE HAD NOT OFFERED ANY DISALLOWANCE OF THE IN TEREST ON ITS OWN VOLITION AND THAT IT WAS DISCOVERED BY THE ASSE SSING OFFICER DURING THE ASSESSMENT PROCEEDINGS AND THEREFORE T HE CHARGE OF FILING INACCURATE PARTICULARS WAS ESTABLISHED. IN THIS VIEW OF THE MATTER HE CONFIRMED THE PENALTY. ITA NO: 2525/MUM/2010 5 9. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL. WE HAVE GONE THROUGH THE ORDERS OF THE INCOME TAX AUTH ORITIES AND HEARD THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIV E. ON A CONSIDERATION OF THE RECORD AND THE ARGUMENTS OF TH E LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE WE ARE OF THE VIEW THA T NO STRONG CASE HAS BEEN MADE OUT FOR IMPOSING THE PENALTY. IT MUS T BE REMEMBERED THAT PENALTY UNDER SECTION 271(1)(C) IS IMPOSED FOR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PART ICULARS OF THE INCOME. THE PENALTY UNDER THAT SECTION IS NOT IMPO SED MERELY BECAUSE THE ASSESSEE MADE A WRONG STATEMENT TO THE EFFECT THAT IT HAD ITSELF DISALLOWED THE AMOUNT OF INTEREST AND A FURTHER DISALLOWANCE BY THE ASSESSING OFFICER WOULD AMOUNT TO DOUBLE DISALLOWANCE. IN THE PRESENT CASE THE ASSESSEE HAS IN RESPONSE TO THE QUERY RAISED BY THE ASSESSING OFFICER SUBMITTE D FULL DETAILS OF THE SOURCES AND APPLICATION OF FUNDS IN A COLUMNAR CHART WHICH HAS BEEN REPRODUCED AT PAGE 2 OF THE ASSESSMENT ORDER. ON THE BASIS OF THESE DETAILS THE ASSESSEE PUT FORTH THE CLAIM T HAT IT HAD OWN FUNDS TO THE EXTENT OF ` 6 81 90 686/- OUT OF WHICH IT DEPLOYED ` 1 20 14 781/- ON MAKING INTEREST FREE ADVANCES AND THEREFORE IT CANNOT BE SAID THAT INTEREST BEARING FUNDS WERE USE D FOR MAKING THE INTEREST FREE ADVANCES. THESE DETAILS HAVE NOT BEE N FOUND TO BE INCORRECT OR FALSE BY THE DEPARTMENTAL AUTHORITIES. AFTER SUBMITTING THESE DETAILS AND CONTENDING THAT SINCE OWN FUNDS W ERE USED FOR MAKING INTEREST FREE ADVANCES THERE CAN BE NO DISAL LOWANCE OF THE INTEREST THE ASSESSEE ADDED ANOTHER PARAGRAPH IN I TS LETTER TO THE ASSESSING OFFICER THE CONTENTS WHEREOF WERE WITHOUT PREJUDICE TO ITS ITA NO: 2525/MUM/2010 6 BASIC CLAIM. IN THIS PARAGRAPH THE ASSESSEE SUBMIT TED THAT IF AT ALL ONLY 14.91% OF THE BORROWED FUNDS CAN BE SAID TO HA VE BEEN UTILIZED FOR MAKING INTEREST FREE ADVANCES AND THE REFORE THE PROPORTIONATE INTEREST WHICH CAN BE DISALLOWED WOUL D BE ` 2 70 152/-. NO DOUBT IN THIS PARAGRAPH THE ASSESSE E APPEARS TO HAVE MADE A STATEMENT THAT THIS FIGURE HAS BEEN DIS ALLOWED ON ITS OWN. AT BEST IT IS AN ERRONEOUS STATEMENT AND IF T HE ASSESSING OFFICER HAD WANTED HE COULD HAVE EVEN AT THAT TIME VERIFIED THE ASSESSEES RETURN AND FOUND THAT THERE WAS NO DISAL LOWANCE BY THE ASSESSEE ITSELF. AS ALREADY POINTED OUT PENALTY U NDER SECTION 271(1)(C) HAS TO BE IMPOSED FOR CONCEALMENT OF INCO ME OR FURNISHING INACCURATE PARTICULARS THEREOF AND NOT M ERELY BECAUSE THE ASSESSEE MADE AN ERRONEOUS STATEMENT TO THE EFF ECT THAT IT HAD ALREADY MADE THE DISALLOWANCE OF A PART OF THE INTE REST IN THE RETURN ITSELF. BE THAT AS IT MAY IT IS NOT THE CASE OF T HE ASSESSING OFFICER THAT THE FIGURES GIVEN IN THE STATEMENT OF SOURCES AND APPLICATION OF FUNDS FROM WHICH THE ASSESSEE SOUGHT TO DEMONSTRATE THAT THE ENTIRE INTEREST FREE ADVANCES OF ` 1 20 14 781/- WAS COVERED BY ITS OWN FUNDS WHICH WERE AVAILABLE WITH IT TO THE EXTEN T OF ` 6 81 90 686/- ARE INCORRECT OR FALSE. IF THOSE FI GURES HAD BEEN FOUND TO BE FALSE OR INCORRECT THEN NO DOUBT PENALT Y FOR FURNISHING INACCURATE PARTICULARS WOULD HAVE BEEN LEVIABLE. B UT SINCE THEY HAVE NOT BEEN QUESTIONED THERE WAS A DISTINCT POSS IBILITY OF THE AMOUNT ADVANCED AS INTEREST FREE ADVANCE COMING OUT OF THE ASSESSEES OWN FUNDS ON WHICH NO INTEREST WAS PAYAB LE. THE DEPARTMENTAL AUTHORITIES ESPECIALLY THE ASSESSING OFFICER WOULD ITA NO: 2525/MUM/2010 7 APPEAR TO HAVE PINNED THE ASSESSEE TO ITS STATEMENT MADE WITHOUT PREJUDICE TO THE EFFECT THAT INTEREST TO THE EXTENT OF ` 2 70 152/- WAS DISALLOWABLE. THIS IS NOT A FAIR APPROACH. WHEN T HE MAIN CONTENTION WHICH IS SUPPORTED BY FIGURES IS IGNORED AND THE ALTERNATIVE PLEA MADE WITHOUT PREJUDICE TO THE MAIN CONTENTION IS CARRIED UPON TO LEVY PENALTY. IN OUR OPINION THIS IS A CASE WHERE ALL THE FACTS AND FIGURES WERE PRESENTED BEFORE THE ASS ESSING OFFICER WHO DID NOT QUESTION THEIR CORRECTNESS OR VERACITY. THE ASSESSEE IN OUR OPINION DID NOT FURNISH ANY INACCURATE PART ICULARS OF INCOME. AT BEST IT WOULD BE A CASE WHERE THE ASSESSING OFFI CER DREW AN INFERENCE AGAINST THE ASSESSEE IGNORING THE FACTS AND FIGURES SUBMITTED BY THE ASSESSEE. HAVING REGARD TO THE RA TIO OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF CIT VS . RELIANCE PETROPRODUCTS PVT. LTD. (2010) 322 ITR 158 (SC) WE SEE NO JUSTIFICATION FOR THE PENALTY LEVIED IN THE PRESENT CASE. WE CANCEL THE SAME AND ALLOW THE ASSESSEES APPEAL WITH NO OR DER AS TO COSTS. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING ON 30 TH DECEMBER 2010. SD/- SD/- (PRAMOD KUMAR) (R V EASWAR) ACCOUNTANT MEMBER PRESIDENT MUMBAI DATED 30 TH DECEMBER 2010 SALDANHA ITA NO: 2525/MUM/2010 8 COPY TO: 1. VALIA CHEMICALS PVT. LTD. VALIA HOUSE D-16/1 TTC INDUSTRIAL ESTATE AREA MIDC TURBHE NAVI MUMBAI 400 705 2. ITO 2(3)(4) 3. CIT-2 4. CIT(A)-6 5. DR F BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI