M/S. SEASON APPARELS PVT. LTD, MUMBAI v. THE DY CIT RG 8(3),

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI J BENCH MUMBAI BEFORE SHRI D.K. AGRAWAL (JUDICIAL MEMBER) AND SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) I.T.A NO.4567/MUM./2007 ASSESSMENT YEAR : 2001-02 DATE OF HEARING 6.4.2010 SEASON APPARELS P. LTD. LEELA BAUG SIR M.V. ROAD ANDHERI (E) MUMBAI 400 059 PAN AAECS0578A .. APPELLANT VS DY. COMMISSIONER OF INCOME TAX RANGE 8(3) AAYAKAR BHAVAN M.K. MARG MUMBAI 400 020 RESPONDENT APPELLANT BY : SHRI NITESH JOSHI RESPONDENT BY : SHRI L.K. AGRAWAL O R D E R PER PRAMOD KUMAR A.M. BY WAY OF THIS APPEAL THE ASSESSEE HAS CHALLENGED CORRECTNESS OF ORDER DATED 20 TH MARCH 2006 PASSED BY THE LEARNED COMMISSIONER (APP EALS) XXIX MUMBAI CONFIRMING CONCEALMENT PENALTY OF RS.17 575/- IMPOSED U/S 271( 1)(C) OF THE INCOME TAX ACT 1961 (FOR ITA NO.4567/MUM./2007 SEASON APPARELS P. LTD. [2] SHORT THE ACT ) FOR THE ASSESSMENT YEAR 2001-02 THE ASSESSEE HAS RAISED FOLLOWING GRIEVANCES:- 1. THE LEARNED CIT(A) ERRED IN UPHOLDING THE PENAL TY ORDER PASSED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE INCOM E TAX ACT 1961. 2. THE LEARNED CIT(A) FURTHER ERRED IN DIRECTING TH E ASSESSING OFFICER TO ENHANCE THE QUANTUM OF PENALTY LEVIED BY HIM U/S 271(1)(C) OF THE INCOME TAX ACT. 2. THE MATERIAL FACTS GIVING RISE TO THIS DISPUTE BEFO RE US ARE AS FOLLOWS. THE ASSESSEE OWNS AN IMMOVABLE PROPERTY SITUATED AT ZON KHANA APARTMENT 3 RD FLOOR NARMADA NAGAR SURAT. THIS PROPERTY WAS GIVEN ON AN ANNUAL RENT OF RS.1 200/-. THE ASSESSEE ALSO RECEIVED AN INTEREST FREE REFUNDABLE DEPOSIT OF RS.3.00 LAKHS FROM THE TENANT TO WHOM THE SAID FLAT WAS RENTED OUT. IN THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT AS AGAINST THIS RENTAL INCOME OF RS.1 200/- AND OTHER INCOME OF RS.7 537/- THE ASSE SSEE HAS CLAIMED DEDUCTION FOR EXPENDITURE AGGREGATING TO RS.23 30 338/-. ON THESE FACTS THE ASSESSING OFFICER PROCEEDED TO TREAT NOTIONAL INTEREST @ 16% ON INTER EST FREE DEPOSIT AS PART OF THE RATEABLE VALUE AND TREATED THE RENTAL INCOME AS ALS O THIS NOTIONAL INTEREST INCOME AS TAXABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY RATHER THAN BUSINESS INCOME AS CLAIMED BY THE ASSESSEE. THE ASSESSEE FILED A RE VISION PETITION U/S 264 BUT WITHOUT ANY SUCCESS. THE MATTER HOWEVER DID NOT REST THER E. THE ASSESSING OFFICER ALSO PROCEEDED TO IMPOSE PENALTY @ 100% OF TAX SOUGHT TO BE EVADED WHICH WAS COMPUTED AT RS.17 575/-. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) BUT WITHOUT ANY SUCCESS. THE LEARNED CIT(A) ON THE CONTRARY DIRECTED THE ASSESSING OFFICER TO QUANTIFY THE TAX SOUGHT TO BE EVADED BY TAKING INTO ACCOUNT ALSO THE LOSS WHICH WAS CLAIMED AS DEDUCTION BUT WHICH HAS NOT BE EN ALLOWED TO BE CARRIED FORWARD. AGGRIEVED BY THE STAND SO TAKEN BY THE LEARNED CIT( A) THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED THE MA TERIAL ON RECORD AND DULY CONSIDERED THE APPLICABLE LEGAL POSITION AS ALSO TH E FACTUAL MATRIX OF THE CASE. ITA NO.4567/MUM./2007 SEASON APPARELS P. LTD. [3] 4. THERE ARE TWO ASPECTS TO THE PENALTY IMPUGNED IN AP PEAL BEFORE US FIRST RENTAL INCOME BEING BROUGHT TO TAX AS INCOME FROM HOUSE PROPERTY AS AGAINST INCOME FROM BUSINESS CLAIMED BY THE ASSESSEE AND ADDITION ON ACCOUNT OF NOTIONAL INTEREST ON DEPOSIT AND SECOND BUSINESS LOSS CARRY FORWARD BEING DEC LINED TO THE ASSESSEE. AS FAR AS THE FIRST ASPECT IS CONCERNED WE FIND THAT THE ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE BY DECISION OF A CO-ORDINATE BENCH IN THE CASE OF DCIT VS TIVOL I INVESTMENT & TRADING CO. LTD. (ITA NO.1441 1442/MUM./1997 AND ITA NO.4804/MUM./1998 ORDER DATED 28 TH JULY 2006) WHEREIN THE TRIBUNAL HAS INTER-ALIA OBSERVED AS F OLLOWS:- 5. .. WE ARE IN CONSIDERED AGREEMENT WITH THE VI EWS EXPRESSED BY THE LEARNED CIT(A) THAT THERE IS NEITHER CONCEALMENT OF ANY PARTICULARS NOR CONCEALMENT OF AN INCOME OR PARTICULAR. THE ISSUE A S TO WHETHER OR NOT THE NOTIONAL INTEREST ON INTEREST FREE DEPOSITS RECEIVE D BY THE ASSESSEE AS LANDLORD IS A PURELY LEGAL ISSUE ON WHICH DIVERGENT VIEWS HAVE BEEN EXPRESSED EVEN BY CO- ORDINATE BENCHES OF THIS TRIBUNAL. AS WE HAVE NOTED EARLIER THE DECISIONS RENDERED IN ASSESSEES OWN CASE IN FAVOUR OF THE RE VENUE HAVE BEEN REFERRED TO A LARGER BENCH. THIS SHOWS THAT THE CORRECTNESS OF TH E SAID DECISION IS NOT ENTIRELY FREE FROM DOUBT. AS A MATTER OF FACT ANOTHER BENCH OF THIS TRIBUNAL IN THE CASE OF GAGAN TRADING CO. LTD. VS ACIT 93 ITD 426 HAS TAKEN A CONTRARY VIEW AND DISTINGUISHED TRIBUNALS DECISION IN THE CASE OF TI VOLI INVESTMENT AND TRADING CO. P. LTD. ON THE GROUND THAT THE ASSESSEE RECEIVE D ONLY DEPOSITS AND NO RENT WAS STIPULATED TO THE SAME ORDER THE TRIBUNAL HAS A LSO OBSERVED NOTIONAL INTEREST ON INTEREST FREE DEPOSITS CANNOT BE TAKEN INTO CONSIDERATION WHILE DETERMINING THE ANNUAL LETTING VALUE OF THE BUILDIN G UNDER SECTION 23 OF THE INCOME TAX ACT 1961. IN THE LIGHT OF THIS DISCUSS ION WE AGREE WITH THE LEARNED CIT(A) THAT IMPUGNED ADDITION IS MADE ON THE BASIS OF A DEBATABLE INTERPRETATION OF LAW AND THEREFORE IT WAS NOT A FI T CASE OF IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. THE LAW IS TRITE THAT THE PENALTY IS NOT AN AUTOMATIC CONSEQUENCE OF A QUANTUM ADDITION BEING MADE IN THE LIGHT OF THIS DISCUSSION AND BEARING IN MIND THE ENTIRETY OF THE CASE WE CO NFIRM THE CONCLUSION ARRIVED AT BY THE LEARNED CIT(A) AND DECLINED TO INTERFERE IN THE MATTER. 5. IN ANY EVENT WHETHER AN AMOUNT IS TO BE TAXED UNDE R THE HEAD INCOME FROM BUSINESS OR UNDER THE HEAD INCOME FROM HOUSE PROPERTY IS PURELY A LEGAL ISSUE AND IT CANNOT BE SAID TO BE A CASE OF CONCEALMENT OF PARTI CULARS OF INCOME AS IS HELD BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROP RODUCTS LTD. 322 ITR 158. THERE CANNOT BE THUS ANY QUESTION OF IMPOSING A PENALTY MERELY B ECAUSE HEAD UNDER WHICH IT IS TAXED IS SHIFTED BY THE REVENUE AUTHORITIES. ITA NO.4567/MUM./2007 SEASON APPARELS P. LTD. [4] 6. COMING TO THE ENHANCEMENT OF PENALTY BECAUSE OF BUS INESS LOSS CARRY FORWARD BEING DECLINED WE HAVE NOTED THAT THE ONLY MENTION ABOUT THIS ASPECT OF THE MATTER IN THE ASSESSMENT ORDER IS THAT THE LOSSES CLAIMED IN THE RETURN ARE NOT ALLOWED T O BE CARRIED FORWARD . THERE IS NO FINDING ABOUT THE NATURE OF EXPENSES OR EVEN DISALLOWANCE OF EXPENDITURE CLAIMED AS DEDUCTION. IT IS DIFFICULT T O UNDERSTAND THE REASONING OF THE OBSERVATION THAT LOSSES CLAIMED IN THE RETURN ARE NOT ALLOWED TO BE CARRIED FORWARD BUT THEN IT IS NOT NECESSARY TO DO SO EITHER SINCE THIS OBSERVATION IS WHOLLY DEVOID OF ANY LEGAL IMPLICATION SINCE AS HELD BY THE HON'BLE SUPREME C OURT IN THE CASE OF CIT VS MANMOHAN DAS 59 ITR 699 THE QUESTION WHETHER A LOSS INCURR ED BY THE ASSESSEE IS ELIGIBLE TO BE SET- OFF AGAINST SUBSEQUENT ELIGIBLE INCOMES CAN ONLY BE ADJUDICATED IN THE YEAR IN WHICH SET-OFF IS CLAIMED. ANY OBSERVATION BY THE ASSESSING OFFICE R IN THE YEAR INCURRING THE LOSS DECLARING INELIGIBILITY OF LOSS NOT BEING ALLOWED TO BE CARRI ED FORWARD IS AN EXERCISE IN FUTILITY AND HAS TO BE IGNORED. OF-COURSE SITUATION WOULD HAVE BEEN MATERIALLY DIFFERENT IF THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM OF EXPENDITURE ON MERITS BUT THERE ARE NO FINDINGS NOT EVEN A SUGGESTION TO THAT EFFECT IN THE ASSESSMENT ORDER WHICH HAS SINCE RECEIVED FINALITY. WE ARE THUS UNABLE TO APPROVE IMPOSITION OF PENALTY IN RESPECT OF LOSS NOT ALLOWED TO BE CARRIED FORWARD. ON THE SECOND ASPECT ALSO THUS T HE PENALTY CANNOT BE IMPOSED. IN VIEW OF THESE DISCUSSIONS WE QUASH THE ORDERS OF BOTH THE AUTHORITIES BELOW AND HOLD THAT NO PENALTY IS LEVIABLE ON THE FACTS OF THIS CASE. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. PRONOU NCED IN THE OPEN COURT TODAY ON 30 TH DAY OF APRIL 2010. SD/- (D.K. AGRAWAL) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 30 TH DAY OF APRIL 2010 ITA NO.4567/MUM./2007 SEASON APPARELS P. LTD. [5] COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT MUMBAI (4) CIT(A) MUMBAI (5) DR J BENCH (6) GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY ITA NO.4567/MUM./2007 SEASON APPARELS P. LTD. [6] DATE INITIAL 1. DRAFT DICTATED ON 21.4.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 22.4.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 22.4.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 22.4.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 22.4.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 30.4.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 30.4.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER