The Commissioner Of Income-Tax-5 v. M/S R.steinmetz & Sons (I) Pvt. Ltd

dik IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 5701 OF 2010 The Commissioner of Income-Tax-5 ...Appellant vs M/s R.Steinmetz & Sons (I) Pvt. Ltd....Respondent ..... Mr Suresh Kumar for the AppellantMr Percy Pardiwalla a/w Mr B.D.Damodar a/w Mr Devansh Shah i/b Kanga & Co. for the Respondent. CORAM : M.S.SANKLECHA & S.C. GUPTE, JJ. NOVEMBER 19, 2014 P.C. : This Appeal by the Revenue under Section 260A of the Income Tax Act, 1961 ('Act') challenges the order dated 25 September 2009 passed by the Income Tax Appellate Tribunal ( for short “ITAT”). By the impugned order the penalty of Rs.53,99,084/- imposed under Section 271(1)(c) of the Act has been dropped. 2The Assessment Year in question is A.Y. 2001-2002. 3The following question of law has been raised for our consideration: “Whether on the facts and circumstances of the case and in law, the ITAT was right in cancelling the the penalty levied u/s 271(1)(c) by the Assessing Officer and confirmed by the CIT(A)?” 4On 30 July 2001the Respondent – assessee filed its return of income for A.Y.2001-2002 declaring the loss of Rs.1.43 crores. Thereafter, during survey proceedings on 27 January 2003 in a statement made by the Director of the respondent – assessee, he has inter alia stated as under: Pg 1 of 3 “Q.No.11 : From the income tax return of A.Y. 2001-02 and 2002-03, it is seen that the company has incurred loss Rs.1.45 crores and Rs.2.07 crores respectively. However, there should not be loss as a company is dealing in rough diamond. It is further seen from profit and loss account filed along with respective returns that the company is paying heavy interest on account of stock and not recovering the sale consideration from sister concern/ other parties. What do you have to say ? Ans:- I do agree with the above. The net interest debited to accounts for A.Y. 2001-02 and 2002-03 shall be withdrawn and revised return shall be filed. The amount of net interest will be offered for taxation is the following manner, the details are given as under:- 5Consequent to the above, on 11 March 2003, the respondent - assessee filed its revised return of income. In its revised return the respondent assessee withdrew its claim for expenditure on account of interest amounting to Rs.1.36 crores and filed a return indicating loss of Rs.9.43 lacs. On 26 March 2004, the Assessing Officer passed an order under Section 143(3) of the Act assessing the respondent - assessee to income of Rs.4.49 lacs. 6Thereafter, on 28 March 2006 the Assessing Officer imposed a penalty of Rs.53.99 lacs upon the respondent-assessee under Section 271(1)(c) of the Act. The basis for imposing the penalty was the extract of statement recorded hereinabove and the additional income declared by reducing expenses of Rs.1.36 crores in the form of interest in its revised return of income. 7Being aggrieved, the respondent – assessee filed an appeal before CIT (Appeals). By an order dated 26 April 2006 the CIT (Appeals) dismissed the appeal and upheld the penalty imposed. This on the ground that the assessee had in the survey proceedings as well as in the revised return of income, admitted that expenditure on account of interest originally made was withdrawn. The CIT(A) thus concluded that the assessee had made an incorrect claim which had come to light in view of survey proceedings and upheld the penalty. Pg 2 of 3 7Being aggrieved, the respondent – assessee filed an appeal before CIT (Appeals). By an order dated 26 April 2006 the CIT (Appeals) dismissed the appeal and upheld the penalty imposed. This on the ground that the assessee had in the survey proceedings as well as in the revised return of income, admitted that expenditure on account of interest originally made was withdrawn. The CIT(A) thus concluded that the assessee had made an incorrect claim which had come to light in view of survey proceedings and upheld the penalty. Pg 2 of 3 8Being aggrieved, the respondent-assessee filed a second appeal to the Tribunal. The Tribunal by the impugned order dropped the penalty imposed upon the respondent-assessee. The Tribunal in the impugned order has noticed the fact that question No.11 to the Director of the Assessee proceeded on the basis that “...the company is paying heavy interest on account of stock and not recovering the sale consideration from sister concern/ other parties”. This would indicate that what has not been recovered is sale consideration of goods sold to sister concern. It was not a case of a loan being taken on which interest is paid and the amount so taken or part thereof is being given as a loan to a sister concern. The loan has been entirely utilized for the purpose of the business and would be entitled to deduction under Section 36(1)(iii) of the Act. Therefore, the entire basis of the impugned order is the finding of fact that the amounts alleged to have been parted were in fact used in the business of the respondent – assessee. This finding of fact is supported by the very question posed by the revenue to the Director of the respondent – assessee during the recording of statement on 27 January 2003. 9The Revenue has not been able to show that the finding of fact arrived at by the Tribunal that the amounts which were taken as loans from the bank were not advanced as a loan to its sister concern but the amounts were utilized in the business of the respondent – assessee and it was goods which were sold to its sister-concern, suffers from any defect. It was the consideration for sale of goods which had not been recovered by the respondent-assessee. In these circumstances it cannot be held that the claim made by the respondent – assessee for claim of expenditure on account of payment of interest was an incorrect claim. Accordingly, we see no reason to entertain the question of law as framed, as it does not give rise to any substantial question of law. 10Hence, the appeal is dismissed. There shall be no order as to costs. ( S.C.GUPTE J. ) ( M.S.SANKLECHA J. ) Pg 3 of 3