DCIT, New Delhi v. M/s. PEC Ltd, New Delhi

ITA 930/DEL/2009 | 2004-2005
Pronouncement Date: 08-01-2010 | Result: Dismissed

Appeal Details

RSA Number 93020114 RSA 2009
Bench Delhi
Appeal Number ITA 930/DEL/2009
Duration Of Justice 9 month(s) 25 day(s)
Appellant DCIT, New Delhi
Respondent M/s. PEC Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 08-01-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted F
Tribunal Order Date 08-01-2010
Date Of Final Hearing 09-11-2009
Next Hearing Date 09-11-2009
Assessment Year 2004-2005
Appeal Filed On 13-03-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SHRI DEEPAK R SHAH ACCOUNTANT MEMBER AND SHRI RAJPAL YADAV JUDICIAL MEMBER I.TA. NO. 930/DEL./09 ASSTT. YEAR 2004-05 DEPUTY COMMISSIONER OF INCOME TAX CIR. 14(1) NEW DELHI. VS. M/S. PEC LTD. HANSALAYA 15 BARAKHAMBA ROAD NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.K. LAL SR. DR RESPONDENT BY : SHRI ASHOK KUMAR G.M (FINANCE) COMPANY SECRETARY ORDER PER DEEPAK R SHAH ACCOUNTANT MEMBER THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(A) XVII NEW DELHI DATED 16.12.2008 IN AN APPEAL AGAINST ORD ER LEVYING PENALTY U/S 271 (1) (C) OF THE INCOME TAX ACT (THE ACT). 2. THE REVENUE HAS RAISED THE FOLLOWING GROUND :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN DELEING THE PENALTY OF RS. 1 38 56 774/- LEVIED U/S 271(1)(C) OF THE IN COME TAX ACT 1961 3. THE FACTS ARE THAT DURING THE COURSE OF ASSESSME NT PROCEEDINGS THE AO MADE THE DISALLOWANCES ON ACCOUNT OF FOREIGN USANCE BILL INTEREST PAID (RS. ITA NO. 930/DEL/09 ASSTT. YEAR 2004-05 2 3 86 03 654/-) AND PRIOR PERIOD EXPENSES (RS. 21 49 9/-). AGGRIEVED WITH THE ORDER OF THE AO THE ASSESSEE PREFERRED APPEAL BEFO RE THE CIT(A) XVII NEW DELHI WHO VIDE ORDER IN APPEAL NO. 166/CIT(A)XVII/ DEL/2007-08 DATED 28.3.2007 DISMISSED THE APPEAL OF THE ASSESSEE. HOWEVER LD. CIT (A) IN HIS ORDER DIRECTED THE AO TO VERIFY THE CLAIMS RELATING TO TH E AMOUNT OF INTEREST PAID AND APPLICABILITY OF DTAAS. THE AO WHILE GIVING EFFECT TO THE SAID ORDER OF THE CIT (A) REQUIRED THE ASSESSEE TO FURNISH DETAILS OF INTERES T PAID AND THE DTAAS WHICH WERE SUBSEQUENTLY FILED BY THE ASSESSEE BEFORE THE AO. THE AO OBSERVED FROM THE DETAILS FILED BY THE ASSESSEE THAT AT THE TIME OF ASSESSMENT PROCEEDINGS THE AMOUNT OF INTEREST PAID ON ACCOUNT OF FOREIGN USANC E BILL INTEREST WAS DISALLOWED AT RS. 4 60 96 320/- AS AGAINST THE ACTU AL AMOUNT OF RS. 4 98 24 0126/- SINCE THE MISTAKE WAS APPARENT FROM RECORD THE SAME WAS RECTIFIED U/S 154 OF THE ACT AFTER SEEKING THE NO OBJECTION FROM THE ASSESSEE COMPANY AND THE FOREIGN USANCE BILL INTEREST PAID W AS DISALLOWED TO RS. 4 98 24 016/-. IT IS ALSO SEEN FROM THE ORDER OF TH E AO THAT APPEAL EFFECT WAS GIVEN VIDE ORDER U/S 250/154/143(3) OF THE ACT ON 2 5/9/2007. THE AO ALSO ALLOWED RELIEF OF RS. 1 12 20 363/- AS PER THE DIRE CTION OF THE CIT (A)XVII BEING THE AMOUNT OF FOREIGN USANCE BILL INTEREST PAID BY THE ASSOCIATES OF THE ASSESSEE COMPANY. ON THE BALANCE AMOUNT OF ADDITION BEING RS . 3 86 03 654/- WHICH WAS CONFIRMED BY THE LD. CIT (A) XVII THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. ITA NO. 930/DEL/09 ASSTT. YEAR 2004-05 3 4. BEFORE LD. CIT (A) IT WAS CONTENDED AS UNDER :- (I) THE ASSESSEE IS A PUBLIC SECTOR UNDERTAKING UN DER THE ADMINISTRATIVE CONTROL OF MINISTRY OF COMMERCE. (II) THE ASSESSEE HAS BEEN ENGAGED IN TRADING ACTIV ITIES. LETTER OF CREDIT IS ISSUED BY THE BANK ON THE BASIS OF DOC UMENTS FURNISHED BY THE SUPPLIER. (III) THE SUPPLIER GETS THE LC DISCOUNTED THROUGH H IS BANKERS. (IV) THE ASSESSEES BANK IS PAID THE PRINCIPAL AND INTEREST WHICH IT HAS PAID TO THE SUPPLIERS BANK. (V) THE ASSESSEE OBTAINED A LEGAL OPINION FROM M/S. VAISH ASSOCIATES ADVOCATES ON THE ISSUE OF DEDUCTION OF TAX AT SOURCE. THEY OPINED THAT THE INTEREST PAID BY THE A SSESSEE WOULD BE ELIGIBLE FOR EXCLUSION FROM DEDUCTION OF T AX AT SOURCE AS PROVIDED IN CLAUSE (III) OF SUB-SECTION ( 3) OF SECTION 194A OF THE ACT SINCE THE INTEREST IS BEING PAID TO A BANK. (VI) M/S. VAISH ASSOCIATES HAD ALSO OPINED THAT TH E DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. VIJAY SHIP BREAKING CORPORATION AND OTHERS (181-CTR-134) DOES NOT LAY DOWN THE CORRECT LAW. (VII) THE TAX AUDITORS OF THE ASSESSEE ALSO CONSIDE RED THE SAID OPINION AND MENTIONED THAT THE INTEREST PAID ON FOR EIGN USANCE BILL DOES NOT COME WITHIN THE PURVIEW OF SEC TION 195 AND HENCE NO DISALLOWANCE WAS MADE U/S 40(A)(IA). SINCE THERE WERE TWO VIEWS POSSIBLE THE VIEW FAVOU RABLE TO THE ASSESSEE WAS FOLLOWED WITH FULL DISCLOSURE IN THE TAX AUDIT REPORT AND THEREFORE THERE WAS NO FURNISHING OF INACCURATE PARTICULARS. THE PA RTICULARS WERE PROPERLY DISCLOSED IN THE TAX AUDIT REPORT AS WELL AS DURING THE ASSESSMENT PROCEEDINGS. THE ASSESSEE DISCHARGED ITS DUTY BY MA KING COMPLETE DISCLOSURE ABOUT THE OPINION OF THE ADVOCATES AND T HE SAME WAS ACCEPTED BY THE TAX AUDITORS WITHOUT ANY ADVERSE REMARK. 5. LD. CIT (A) HELD AS UNDER :- 6. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE ORDER OF THE AO AND SUBMISSIONS MADE BY THE LD. AR. THE MAJOR ISSUE OF PENALTY IN THE INSTANT CASE IS REGARDING THE ADDITION ON ACCOUNT O F DISALLOWANCE OF FOREIGN USANCE BILL INTEREST WHICH WAS INITIALLY M ADE BY THE AO OF RS. ITA NO. 930/DEL/09 ASSTT. YEAR 2004-05 4 4 60 96 320/- AND THEREAFTER REDUCED BY THE CIT(A) TO RS. 3 86 03 654/-. THE AO HAS LEVIED THE PENALTY BY HOLDING THAT THE A SSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHEREAS THE DEFENC E OF THE APPELLANT IS MAINLY TWO FOLD ONE IT IS NOT A CASE OF FURNISHI NG OF INACCURATE PARTICULARS OF INCOME RATHER IT WAS A LEGALLY TENABLE CLAIM OF THE ASSESSEE WHICH WAS REJECTED BY THE LD. AO AND CIT(A). IT IS ALSO VEHEM ENTLY CLAIMED BY THE APPELLANT THAT THE VIEW TAKEN BY THE LD. AO AND CIT (A) WHILE DISALLOWING THE ABOVE REFERRED SUM WAS BASED ON THE DECISION O F HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. VIJAY SHIP BAKING CORPORATION (261ITR 113) WHICH HAS RECENTLY BEEN REVERSED BY THE HONBL E APEX COURT (314 ITR 309). A COPY OF THE SAID ORDER HAS ALSO BEEN F ILED BY THE LD. AR BEFORE ME. AFTER GOING THROUGH THE SAID DECISION OF HONBLE APEX COURT I AM CONVINCED WITH THE PLEA OF THE APPELLANT THAT TH E ADDITION ON ACCOUNT OF DISALLOWANCE OF FOREIGN USANCE BILL INTEREST ITSELF CANNOT BE HOLD GOOD IN THE LIGHT OF THE DECISION OF THE APEX COURT . THERE IS AMPLE FORCE IN THE ARGUMENT OF THE APPELLANT THAT THE ISSUE WAS QUITE DEBATABLE THEREFORE CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES AND SPECIALLY THE DECISION OF HONBLE APEX COURT (SUPRA) IT CANNOT B E HELD THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME FOR THE PURPOSE OF CONCEALMENT OF INCOME. ACCORDINGLY PENALTY U/S 271 (1)(C) ON THIS ISSUE DOES NOT APPEAR JUSTIFIABLE HENCE THE SAME IS DELE TED. 6.1 AS REGARDS THE PENALTY IN RESPECT OF THE A DDITION OF SMALLER AMOUNT OF RS. 21 499/- ON ACCOUNT OF DISALLOWANCE OF PRIOR PERIOD EXPENSES IT IS NOTED THAT THE AO HAS NOT MADE DETAILED DISCUSSION ON THIS ISSUE AND SIMPLY HELD THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS IN RESPECT OF PRIOR PERIOD EXPENSES. IT IS NOTED FROM THE PENA LTY AS WELL AS ASSESSMENT ORDER THAT THE CLAIM OF PRIOR PERIOD EXP ENSES WAS DISALLOWED ON THE GROUND THAT THE EXPENDITURE DOES NOT PERTAI N TO THE INSTANT ASSESSMENT YEAR. IT IS OBSERVED THAT THIS ISSUE IS ALSO A DEBATABLE SSUE AS THERE MAY BE A DIFFERENCE IN OPINION BETWEEN THE AP PELLANT AND THE AO AS TO WHETHER THE LIABILITY OF A PARTICULAR EXPENDITUR E HAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION OR IN AN EARLIER YEAR. IT IS NOT A CASE OF CLAIM OF BOGUS EXPENDITURE; THEREFORE IT CANNOT BE HELD THAT ASSESEEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR A BOG US CLAIM OF EXPENDITURE. IN THIS REGARD THE FINDING OF THE RECE NT DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SRIRAM PIST ONS LTD. IS QUITE RELEVANT HOLDING THAT WHEN THE RATE OF TAX IN TWO YEARS ARE SAME WHEN IT IS PITY TO DISPUTE THAT IN WHICH YEAR A DEDUCTIBLE EXP ENDITURE HAS BEEN CLAIMED. IN VIEW OF SUCH POSITION THE PENALTY U/S 271 (1)(C) CAN ALSO NOT BE UPHELD ON DISALLOWANCE OF PRIOR PERIOD EXPENSES. THE REVENUE IS IN FURTHER APPEAL BEFORE US. ITA NO. 930/DEL/09 ASSTT. YEAR 2004-05 5 6. WE HAVE HEARD THE COUNSELS AND PERUSED THE ORDE RS OF AUTHORITIES BELOW. FROM THE SAME FACTS THE OPINION OF THE AO IS THAT I NTEREST PAID ON USANCE BILL THROUGH THE BANKERS IS NOT ALLOWABLE WHEREAS THE AS SESSEE IS UNDER BONAFIDE BELIEF THAT THE EXPENSES ARE ALLOWABLE. THE REASONI NG ADOPTED BY AO WAS BASED ON HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF CIT VS. VIJAY SHIP BREAKING CORPORATION. HOWEVER THE SAID DECISION HAS BEEN REVERSED BY HONBLE SUPREME COURT FINDING THAT THE LAW IN THIS REGARD H AS BEEN RETROSPECTIVELY AMENDED. AT ANY RATE THE DISCLOSURE WAS FULL AND TR UE AND NEITHER THE FACTS WERE CONCEALED NOR ANY NEW FACTS ARE DISCOVERED. . THE A O HAS NOT BEEN ABLE TO PROVE THAT THE EXPLANATION OFFERED BY THE ASSESSEE IS FALSE. IN SUCH CIRCUMSTANCES EVEN UNDER EXPLANATION 1 TO SECTION 2 71(1)(C) PENALTY IS NOT LEVIABLE. IT IS BY NOW SETTLED LAW THAT ONLY BECAUS E ADDITION IS SUSTAINED THE PENALTY IS NOT AUTOMATIC. PENALTY WOULD BE ATTRACTE D AS PER EXPLANATION 1 PROVIDED (I) THE ASSESSEE FAILS TO OFFER AN EXPLANA TION REGARDING CLAIM MADE (II) SUCH EXPLANATION IS NOT SUBSTANTIATED AND ALSO FAIL S TO PROVE THAT SUCH EXPLANATION IS BONAFIDE.(III) THE EXPLANATION OFFER ED IS FOUND BY THE AO TO BE FALSE. ONLY IN SUCH CIRCUMSTANCES PENALTY U/S 271(1 ) (C) READ WITH EXPLANATION 1 THERETO IS ATTRACTED. HOWEVER IN THE PRESENT CASE T HIS CRITERIA IS NOT FULFILLED AND HENCE PENALTY WAS RIGHTLY DELETED BY LD. COMMISSION ER (A). 7. IN THE RESULT THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8.1.2010. [RAJPAL YADAV] [DEEPAK.R. SHAH) JUDICIAL MEMBER ACCOUNTANT MEMBER ITA NO. 930/DEL/09 ASSTT. YEAR 2004-05 6 VEENA DATED : COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER D EPUTY REGISTRAR ITAT