EMINENT HOLDINGS P. LTD, MUMBAI v. DCIT C EN CIR 31, MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 3616/MUM/2009 (ASSESSMENT YEAR: 2006-07) M/S. EMINENT HOLDINGS P. LTD. DCIT CENTRAL CIRCLE 31 32 MADHULI DR. A.B. ROAD MUMBAI WORLI MUMBAI 400018 VS. PAN - AAACE3115 H APPELLANT RESPONDENT APPELLANT BY: SHRI NILESH MEHTA RESPONDENT BY: DR. P. DANIEL O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE CIT(A)-CENTRAL IV MUMBAI DATED 23.03.2009. 2. THE ASSESSEE IS A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) AC T 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT. THE RETURN IN THIS CASE WAS FILED ON 29.11.2006 DECLARING INCOME OF RS.6 166/-. THEREAFT ER REVISED RETURN OF INCOME WAS FILED ON 28.03.2007 DECLARING TOTAL INCO ME OF RS.6 58 255/-. IN THE SCRUTINY ASSESSMENT COMPLETED UNDER SECTION 143 (3) THE TOTAL INCOME WAS DETERMINED AT RS.11 82 710/- ON 19.12.2008. THE ASSESSEE HAS RAISED VARIOUS ISSUES BEFORE THE CIT(A) AND THE CIT(A) REJ ECTED ALL THE GROUNDS AND DISMISSED THE APPEAL. CONSEQUENTLY THE ASSESSEE HAS RAISED THE PRESENT APPEAL. 3. IN THE CASE OF THIS APPEAL THE ASSESSEE HAS FILED A CHART AND HAS NOT PRESSED GROUND NOS. 1 2 3 & 5. ITA NO. 3616/MUM/2009 M/S. EMINENT HOLDINGS P. LTD. 2 4. GROUND NO. 4 WHICH IS ON DISALLOWANCE OF INTEREST EXPENDITURE IS AS UNDER: - 4. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN LAW AND IN FACTS IN CONFORMING DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES AMOUNTING TO RS.5 14 455/-. 5. IT WAS SUBMITTED THAT THIS ISSUE WAS COVERED BY THE ORDER OF THE TRIBUNAL IN THE CASE OF GROUP COMPANIES AND THE ORD ERS ARE PLACED ON RECORD. IN THE CASE OF ORION TRAVELS PVT. LTD. VS. DCIT IN ITA NO. 6888/MUM/2008 AND ITA NO. 6889/MUM/2008 FOR ASSESSM ENT YEARS 2004- 05 AND 2005-06 THE MATER WAS SET ASIDE TO THE FILE OF THE CIT(A) VIDE PARAS 20 & 21 F THE ORDER WHICH IS AS UNDER: 20. AGGRIEVED ON THE ABOVE ISSUES THE APPELLANT IS IN APPEAL BEFORE US AND REITERATED THE CONTENTIONS SUBMITTED BEFORE THE LOWER AUTHORITIES. WE FIND THAT SIMILAR ISSUES WERE BEFORE THE HON'BLE TR IBUNAL IN ITA NO. 147/MUM/2008 FOR ASST. YEAR 2000-2001 IN THE CASE O F GROUP CONCERN NAMELY M/S AATUR HOLDINGS PVT. LTD. V DCIT. IN THAT CASE ALSO THE ASSESSEE WHO WAS A NOTIFIED PERSON UNDER THE SPECIA L COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) AC T 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VE STED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT. IN T HAT CASE ALSO THE ASSESSEE HAD CLAIMED DEDUCTION OF INTEREST DEPRECI ATION AND OTHER ADMINISTRATIVE EXPENSES. THE TRIBUNAL IN THAT CASE HELD: AS FAR AS CLAIM OF AUDIT FEES AND DEPRECIATION IS CONCERNED WE DO NOT FIND THE BASIS ON WHICH THE CLAIM HAS BEEN MADE. SIMILARLY IN RESPECT OF INTEREST PAYABLE ON LOANS BORROWED FOR THE PURPOSE OF BUSINESS LEARNED COUNSE L HAS FILED BEFORE US A COPY OF THE MISCELLANEOUS PETITION NO. 41 OF 1999 FILED BY THE CUSTODIAN BEFORE THE SPECIAL COUNT IN WHICH ACCORDING TO THE ASSESSEE CLAIM FOR INTERES T EXPENSES AGAINST THE ASSESSEE HAS BEEN MADE BY THE CUSTODIAN. IN THE ABSENCE OF THE R EQUIRED DETAILS WE ARE NOT IN A POSITION TO APPRECIATE THE ADMISSIBILITY OF CLAIMS. THEREFORE IN THE INTEREST OF JUSTICE WE REMAND THIS MATTER TO THE CIT(A) FOR FRESH CONSIDER ATION AFTER PROVIDING THE ASSESSEE OPPORTUNITY TO SUBSTANTIATE ITS CLAIM THAT THE AFOR ESAID EXPENSES OF AUDIT FEE AND DEPRECIATION ACCRUED TO THE ASSESSEE DURING THE PRE VIOUS YEAR AND THAT THE INTEREST EXPENSES CLAIM RELATES TO THE FINANCIAL YEAR IN QUE STION AND IS A LEGITIMATE BUSINESS EXPENSES. 21. THE FACTUAL POSITION IN THIS CASE IS ALSO IDENT ICAL WITH THE CASE OF M/S. AATUR HOLDINGS PVT. LTD. (SUPRA). FOLLOWING TH E RATIO OF THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF M/S AATUR H OLDINGS PVT. LTD. UNDER IDENTICAL CIRCUMSTANCES WE DEEM IT FIT TO RE MAND THE CLAIM OF EXPENDITURE BY THE ASSESSEE BY WAY OF INTEREST AUD IT FEES AND DEPRECIATION IN GROUNDS 5 6 7 BACK TO CIT(A) FOR FR ESH CONSIDERATION. 6. RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISI ON WE RESTORE THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH CONSIDER ATION AFTER PROVIDING OPPORTUNITY TO THE ASSESSEE TO SUBSTANTIATE ITS CLA IM. ITA NO. 3616/MUM/2009 M/S. EMINENT HOLDINGS P. LTD. 3 7. GROUND NO. 6 IS AS UNDER: - 6. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN LAW AND IN FACTS IN CALCULATING BOOK PROFIT U/S. 115JB AMOUNTING TO RS.11 80 210/-. 8. THIS ISSUE IS ALSO COVERED BY THE ORDER OF THE TRIB UNAL IN THE CASE OF ORION TRAVELS PVT. LTD. (SUPRA) WHEREIN PARA 22 OF THE ORDER THE ISSUE WAS ADJUDICATED AS UNDER: - 22. AS REGARDS GROUND NO. 9 REGARDING COMPUTATION OF BOOK PROFITS U/S 115JB WE FIND THAT THE ASSESSEE HAS BEEN TAXED UNDER THE NORMAL PROVISIONS OF THE ACT AND NOT ON THE BOOK PROFITS U /S 115JB. IN THE CIRCUMSTANCES WE ARE NOT CONSIDERING THIS ISSUE AND DISMISS THE APPEAL ON THIS ISSUE AS INFRUCTUOUS WITH A DIRECTION THAT IN CASE THE ASSESSEE AT A LATER STAGE IS ASSESSED ON THEIR BOOK PROFITS U/S 115JB IT WILL BE OPEN FOR THE ASSESSEE TO RAISE THESE CONTENTIONS AT THAT TIME. 9. THE FACTS ARE BEING SIMILAR AND AS ASSESSEES INCO ME WAS NOT COMPUTED UNDER THE PROVISIONS OF SECTION 115JB THE ISSUE CONTESTED BY THE ASSESSEE DOES NOT ARISE. HOWEVER THE ISSUE IS LEFT OPEN IN CASE ASSESSEES INCOME IS DETERMINED UNDER SECTION 115JB. ACCORDING LY THE GROUND IS REJECTED. 10. GROUND NO. 7 IS AS UNDER: - 7. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS ) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT THE INTEREST CHARGES U/S. 234A 234B AND 234C OF THE ACT ARE INCORRECT. 11. SINCE THE ASSESSEE HAS NOT PAID ANY ADVANCE TAX THE A.O. LEVIED INTEREST UNDER SECTION 234A 234B AND 234C. THE CONTENTION O F THE ASSESSEE IS THAT IT CANNOT PAY ANY ADVANCE TAX AS ALL ASSETS AND BANK A CCOUNTS ARE IN THE CUSTODY OF THE CUSTODIAN AND THE ASSESSEE WAS PREVENTED FRO M PAYING THE TAX. IT IS FURTHER SUBMITTED THAT SIMILAR ISSUE WAS DECIDED BY THE ITAT IN THE CASE OF ORION TRAVELS PVT. LTD. VIDE PARA 23 TO 25 OF THE S AID ORDER WHICH IS AS UNDER: - 23. AS REGARDS THE LAST GROUND NO. 9 REGARDING TH E LEVY OF INTEREST UNDER SECTION 234A 234B AND 234C THE ASSESSEE IS A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN A PPOINTED UNDER THE SAID ACT. FROM THE DATE OF FUNCTIONING OF THE COURT I.E. 1.6.1992 THE DISTRIBUTION OF MONIES IN CASE OF NOTIFIED PERSONS WILL BE DECIDED BY THE ITA NO. 3616/MUM/2009 M/S. EMINENT HOLDINGS P. LTD. 4 SPECIAL COURT. THE TAXES DO NOT HAVE THE PRIORITY I N SETTLEMENT. EVEN IF A NOTIFIED PERSON HAD WANTED TO PAY THE ADVANCE TAX I T WAS NOT WITHIN HIS CONTROL TO DO SO. HE HAS TO MAKE AN APPLICATION TO THE CUSTODIAN AND ONLY HE CAN PERMIT PAYMENT OF ADVANCE TAX AFTER OBTAININ G APPROVAL FROM THE SPECIAL COURT. THE SPECIAL COURT IN ITS RULING HAS OBSERVED AS UNDER: WHERE A NOTIFIED PARTY IS PREVENTED BY REASON OF N OTIFICATION FROM DOING THINGS WHICH ARE REQUIRED TO BE DONE BY HIM UNDER OTHER ACTS OR CONTRACTS IN SUCH CASES IF THE PROVISIONS OF THE SPECIAL COURTS ACT PREVENTS A NOT IFIED PARTY FROM DOING THAT THIN THEN BY REASON OF THIS LEGAL DISABILITY NO PENALTY OR I NTEREST CAN BE LEVIED ON THAT PARTY. THUS NO PENALTY OR INTEREST CAN BE IMPOSED FOR NON- FULFILMENT OF AN ACT WHICH A NOTIFIED PARTY IS PREVENTED FROM DOING BY REASON OF THE SPEC IAL COURT ACT. IN SUCH CASES EVEN THOUGH THE PROVISIONS OF SOME OTHER ACT OR CONTRACT LAY DOWN CONSEQUENCES FOR NON- PERFORMANCE THE PROVISIONS OF THE SPECIAL COURTS A CT WILL PREVAIL. THIS IS BECAUSE IN SUCH CASES THERE WOULD BE A CONFLICT BETWEEN THE PR OVISIONS OF THE SPECIAL COURTS ACT AND THAT OTHER LAW AND/OR CONTRACT. IN CASES OF SUC H CONFLICT THE PROVISIONS OF THE SPECIAL COURT ACT MUST PREVAIL. TO TAKE AN EXAMPLE UNDER SECTION 234B OF THE INCOME TAX ACT EVERY ASSESSEE IS LIABLE TO PAY ADVANCE TA X. ALL PARTIES WERE NOTIFIED BETWEEN JUNE 1992 TO AUGUST 1992. ALL OF THEM WOULD BE LIAB LE TO ADVANCE TAXES FOR THE FINANCIAL YEAR ENDING MARCH 1993 AND FOR THE SUBSEQ UENT YEARS. HOWEVER AS SEEN EARLIER TAXES ONLY UPTO ASSESSMENT YEAR 1992-93 CA N BE PAID IN PRIORITY. THESE WOULD HAVE TO RANK AS ORDINARY DEBTS UNDER SECTION 11(2) . THIS THEREFORE CAN ONLY BE RELEASED AFTER THE ENTIRE DISTRIBUTION HAS TAKEN PL ACE. EVEN IF THE NOTIFIED PARTY WERE TO MAKE AN APPLICATION TO THIS COURT TO PAY THE ADVANC E TAX THE COURT WOULD REFUSE IT. THUS MONIES FOR PAYMENT OF ADVANCE TAX HAVE NOT BEE N RELEASED. THUS A NOTIFIED PARTY HAS BEEN PREVENTED FROM PAYING ADVANCE TAX. THUS U NDER THE SPECIAL COURTS ACT THERE IS A LEGAL DISABILITY TO PAY ADVANCE TAX. YET UNDER THE INCOME TAX ACT THERE IS A COMPULSION TO PAY ADVANCE TAX. THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND THE INCOME TAX ACT. THE PROV ISIONS OF THE SPECIAL COURTS ACT MUST PREVAIL. UNDER THE INCOME TAX ACT IF ADVANCE T AX IS NOT PAID FOR SUCH NON- PAYMENT INTEREST CAN BE LEVIED. THIS OBVIOUSLY ON T HE FOOTING THAT THE ASSESSEE IS IN DEFAULT. HOWEVER A NOTIFIED PARTY HAS BEEN PREVEN TED BY LAW FROM PAYING ADVANCE TAX. HE IS NOT A DEFAULTING PARTY. HE NEITHER HAS N OT PAID ADVANCE TAX BECAUSE OF LEGAL RESTRAINT ON HIM. THE LAW HAS PREVENTED HIM FROM PA YING ADVANCE TAX. IN MY VIEW IN SUCH CASES I.E. WHERE THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND SOME OTHER ACT/CONTRACT THE CONTRARY PROVI SIONS MUST NECESSARILY GIVE WAY. IF THERE IS THIS LEGAL DISABILITY THEN THERE IS NO TH E QUESTION OF THE NOTIFIED PARTY BEING FOISTED WITH THE LIABILITY TO PAY INTEREST AND/OR P ENALTY. 24. IN THE BACKDROP OF THE ABOVE IT WAS IMPOSSIBLE FOR THE ASSESSEE TO HAVE PAID THE ADVANCE TAX EVEN IF HE HAD WANTED TO. IT IS A WELL KNOWN LEGAL DICTUM LEX NON COGITAD IMOSSIBILIA (LAW CAN NOT COMPEL YOU TO DO THE IMPOSSIBLE). ASSESSEE CANNOT THEREFORE BE FOISTED WITH INTEREST LIABILITY U/S 234A 234B AND 234C. INTEREST U/S 234 B AND 234C ARE DIRECTLY RELATED TO PAYMENT OF ADVANCE TAX AND HENC E IS NOT LEVIABLE ON NOTIFIED PERSONS. EVEN THOUGH LEVY OF INTEREST U/S 234A IS REALLY ON THE DELAY IN FILING THE RETURN WHICH IS A DEFAULT COMMI TTED BY THE ASSESSEE THE QUANTIFICATION OF THE SAME DEPENDS ON THE ADVAN CE TAX PAID WHICH IN THIS CASE IS NOT WITHIN THE CONTROL OF THE ASSE SSEE. HENCE INTEREST U/S 234A CANNOT ALSO BE LEVIED IN THE CASE OF A NOTIFIE D PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSA CTIONS IN SECURITIES) ACT 1992 AND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WER E ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDE R THE SAID ACT. 25. THE CO-ORDINATE BENCH IN THE CASE OF DIVINE HOL DINGS PVT. LTD. V DCIT IN ITA NO. 180/M/2000 DT. 26.6.2001 HAS HELD T HAT CIT(A) IS RIGHT ITA NO. 3616/MUM/2009 M/S. EMINENT HOLDINGS P. LTD. 5 IN ADMITTING THE APPEAL OF A NOTIFIED PERSON EVEN T HOUGH THE TAX ON THE RETURNED INCOME HAS NOT BEEN PAID BY HIM. IN COMING TO THIS CONCLUSION THEY HAD RELIED ON THE ABOVE PASSAGE OF THE SPECIAL COURT. 12. IN THESE CIRCUMSTANCES RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECISION AS ABOVE WE DIRECT THE A.O. NOT TO LEVY I NTEREST UNDER SECTION 234A 234B AND 234C OF THE ACT IN THE YEAR UNDER CONSIDER ATION. 13. IN THE RESULT APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MAY 2010. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 28 TH MAY 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CENTRAL IV MUMBAI 4. THE CIT CENTRAL II MUMBAI CITY 5. THE DR J BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.