Income Tax Appellate Tribunal - Delhi
Acit, New Delhi vs Nath Bros. Exim International Ltd., New ... on 24 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "E" : DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
ITA.No.5547/Del./2012
Assessment Year 2008-2009
Nath Bros. Exim
International Ltd., 102-A,
Banglasahib Marg (Rear vs The ACIT, Circle - 13(1),
Side), Gole Market, New Delhi.
New Delhi - 110 001.
PAN AAACN0495R
(Appellant) (Respondent)
C.O.No.95/Del./2013
Arising out of
ITA.No.5547/Del./2012 - Assessment Year 2008-2009
Nath Bros. Exim International
Ltd., 102-A, Banglasahib
The ACIT, Circle - 13(1), vs Marg (Rear Side), Gole
New Delhi. Market,
New Delhi - 110 001.
PAN AAACN0495R
(Appellant) (Respondent)
ITA.No.6030/Del./2015
Assessment Year 2008-2009
Nath Bros. Exim
International Ltd., 102-A,
Banglasahib Marg (Rear vs The DCIT, Circle - 13(1),
Side), Gole Market, New Delhi.
New Delhi - 110 001.
PAN AAACN0495R
(Appellant) (Respondent)
2
ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015
Nath Bros. Exim International Ltd., New Delhi.
Shri Ved Jain, Advocate &
For Assessee :
Shri Ashok Goel, C.A.
For Revenue : Shri S.R. Senapati, Sr. D.R.
Date of Hearing : 19.04.2018
Date of Pronouncement : 24.04.2018
ORDER
PER BHAVNESH SAINI, J.M.
This Order shall dispose of all the above matters pertaining to the same assessee for the same assessment year.
2. We have heard the learned Representatives of both the parties and perused the material on record. The Cross- Appeals are decided as under.
ITA.No.5547/Del./2012 - Assessee's Appeal-A.Y. 2008-09 :
C.O.No.95/Del.2013 - Revenue's Cross Objection-A.Y. 2008-2009 :
3. The Appeal of Assessee and Cross Objection by Revenue are directed against the order of the Ld. CIT(A)-XVI, New Delhi, dated 17th August, 2012, for the A.Y. 2008-2009. Learned Counsel for the Assessee did not press ground Nos. 4, 3 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. 5 and 6 of the Appeal of assessee. The same are dismissed as not pressed.
4. On Ground Nos. 1 and 2, assessee challenged the order of the Ld. CIT(A) in denying the exemption under section 10B of the I.T. Act in a sum of Rs.2,43,53,575/-. The Revenue has also raised the cross objection on the same issue stating therein that no deduction under section 10B shall be allowed to the assessee as return of income was not filed on or before the due date specified under section 139(1) of the I.T. Act and that the Ld. CIT(A) has not adjudicated other points raised before him.
5. The A.O. denied the exemption under section 10B of the I.T. Act. It was submitted that A.O. has denied the exemption under section 10B of the I.T. Act because no return was filed on or before the due date specified under section 139(1) of the I.T. Act because original return was filed on 31st December, 2008. The requisite mandatory report in Form-56G dated 09th March, 2010 has been filed by assessee, but, as per 4 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. provisions of the Income Tax Act, this report should have been prepared before due date of filing of the return and that assessee has regularly furnished declaration in writing under section 10B(8) in A.Ys. 2002-2003 to 2006-2007 that the provisions of this Section may not be applicable to him, therefore, it applies to A.Y. 2008-2009 as well.
5.1. The submissions of the assessee were recorded in the appellate order challenging the denial of deduction under section 10B of the I.T. Act. The assessee relied upon the order of ITAT in the case of ACIT vs. Dhir Global Industrial Pvt. Ltd., (2010) 133 TTJ 580 (Del.) in which it was held that these provisions are directory and not mandatory. It was submitted that due to dispute among the family members, there were delay in filing the return of income. It was further submitted that option of claim under section 10B of the I.T. Act was on year to year basis subject to the sunset clause. If in a year there is no profit, the question of actual allowance of exemption under section 10B would not arise. The assessee-company has began 5 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. function/commence commercial production from the A.Y. 2002-2003 and it had profit in A.Ys. 2004-05, 2006-07 and 2007-08 and loss in earlier years i.e., 2002-03, 2003-04 and 2005-06.
5.2. The Ld. CIT(A) noted that assessee has filed declaration under section 10B(8) in earlier year that it would not avail deduction under section 10B of the I.T. Act, therefore, it apply to the assessment year under appeal as well. Accordingly, this ground of appeal assessee were dismissed.
6. Learned Counsel for the Assessee submitted that issue of filing declaration under section 10B(8) came up for consideration in succeeding years in which Ld. CIT(A) allowed the claim of assessee by holding that declaration made by assessee under section 10B(8) of the Act is in respect of the year in which declaration is made by the assessee and not for the subsequent year. Reliance was placed upon the decision of ITAT, Delhi Bench in the case of Legato Systems India (P) Ltd., vs. ITO (2005) 2 SOT 719 (Del.) which is confirmed by the 6 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. Hon'ble Delhi High Court in the case of CIT vs. Legato Systems India (P) Ltd., (2006) 203 CTR 101. Learned Counsel for the Assessee, however, fairly submitted that since original return under section 139(1) have not been filed within the time prescribed by law, therefore, assessee would not be entitled for deduction under section 10B of the I.T. Act. The Revenue has raised the same point in the cross objection.
7. Considering the facts of the case in the light of submissions of the parties and provisions of law, we are of the view that authorities below correctly denied the exemption under section 10B of the I.T. Act to the assessee because original return under section 139(1) was not filed within the period prescribed under section 139(1) of the I.T. Act. Therefore, provisions of Section 10B(1) Proviso (3) will apply against the assessee. On this ground itself assessee would not be entitled for deduction. Therefore, there is no need to decide other points in the present issue. Ground Nos. 1 and 2 of the appeal of 7 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. assessee are accordingly dismissed. The Cross Objection of the Department is allowed.
8. On Ground No.3, assessee challenged the orders of the authorities below in disallowing Rs.2,66,614/- under section 14A of the I.T. Act. In the written submissions, assessee has stated that in the opinion of the A.O. it was not necessary to establish a direct nexus between the exempted income and expenses. The A.O. concluded that to earn dividend income of Rs.3,20,571/-, expenditure of Rs.2,66,614/- has been incurred. There was no definite finding on incurring of expenditure and only on presumptions, disallowance have been made. The assessee stated that the earning of the dividend required minimum activity on behalf of the assessee-company's employees. The time involvement was also minimal. The expenditure incurred in relation to income not includable in the total income was applicable only if the A.O. having regard to the accounts of the assessee was not satisfied with the correctness of the claim of assessee in respect of such expenditure or no 8 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. expenditure in relation to such income. The assessee has not incurred any expenditure to earn exempted income, therefore, no disallowance under section 14A be made. The Ld. CIT(A), however, noted that assessee must have been incurred certain administrative expenditure, therefore, this ground of appeal of assessee were dismissed.
9. The Learned Counsel for the Assessee submitted that out of the total addition of Rs.2,66,614/-, A.O. made addition of Rs.2,19,561/- on account of interest expenditure debited to the P & L A/c and Rs.47,053/- on account of half percent of the average value of investments. As regards the addition of Rs.2,19,561/-, Learned Counsel for the Assessee submitted that own funds of the assessee-company are more than the investment made by assessee. Therefore, disallowance of interest under section 14A is not called for. He has submitted that investment made by assessee is of Rs.94,21,879/-. However, the share capital of assessee has been Rs.5.01 crore and equity shares of Rs.94,21,879. He has submitted that it is 9 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. well settled that as assessee was having own funds which were more than the investment made, therefore, no disallowance under section 14A is sustainable. In support of the contention, he has relied upon the decision of ITAT, Delhi Bench in the case of Gagan Goyal dated 2nd August, 2016 and decision of the Punjab & Haryana High Court in the case of CIT vs. Max India Ltd., dated 6th September, 2016.
10. On the other hand, Ld. D.R. relied upon the orders of the authorities below.
11. After considering the rival submissions, we are of the view that addition of Rs.2,19,561/- is not justified. The assessee has own sufficient funds which are more than the investment made by the assessee. Therefore, no interest is to be disallowed. Further, A.O. has not made out a case if any borrowed funds have been used for the purpose of making investment to earn exempted income. In the absence of any nexus between the borrowed funds and the funds invested to earn exempt income, the disallowance of interest is not permissible. We, accordingly, 10 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. set aside the orders of the authorities below and delete the addition of Rs.2,19,610/-. However, as regards the balance amount of Rs.47,053/-, Learned Counsel for the Assessee did not make further submissions considering it to be a small amount. This part of ground is accordingly dismissed. In the result, addition of Rs.2,19,561/- is deleted. This ground of appeal of assessee is partly allowed.
12. In the result, Appeal of Assessee is partly allowed whereas, Cross Objection of the Department is allowed. ITA.No.6030/Del./2015 - Assessee's Appeal - A.Y. 2008-2009 :
13. This appeal by assessee has been directed against the order of the Ld. CIT(A)-20, New Delhi, dated 12th October, 2015 for the A.Y. 2008-2009, challenging the levy of penalty under section 271(1)(c) of the I.T. Act, 1961.
14. The penalty was levied by the A.O. on account of denying exemption under section 10B of the I.T. Act as noted above. The assessee filed return declaring income of 11 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. Rs.70,06,280/- on 31st December, 2008 which was revised declaring -NIL- income. The assessment was completed under section 143(3) of the I.T. Act on 29th December, 2010 at the income of Rs.72,85,400/-. The A.O. made additions on account of deduction under section 10B of the I.T. Act in a sum of Rs.2.43 crores and also made addition on account of disallowance under section 14A of Rs.2,66,614/-. The A.O. noted that assessee has filed original return of income after due date of filing of the return specified under section 139(1) of the I.T. Act. Therefore, revised return could be filed if the original return has been filed within the period specified under section 139(1) of the I.T. Act. Since, revised return was invalid, therefore, claim of assessee under section 10B was rejected. A.O. applied Explanation-1 to Section 271(1)(c) of the I.T. Act and noted that only few percentage of returns are taken-up for scrutiny and in case, assessment had not been taken-up for scrutiny assessment, the amounts would not be subjected to the addition. He has relied upon the decision of Hon'ble Delhi High Court in the case of CIT vs. Zoom Communication Pvt. 12
ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. Ltd., 327 ITR 510 and held that assessee has concealed as also furnished inaccurate particulars of income, therefore, penalty under section 271(1)(c) was levied on the addition made on account of denial of deduction under section 10B of the I.T. Act. The assessee challenged the penalty order before the Ld. CIT(A). The written submissions of the assessee is reproduced in the appellate order. The Ld. CIT(A), however, dismissed the appeal of assessee.
15. Learned Counsel for the Assessee submitted that assessee in the original return of income did not claim deduction under section 10B of the I.T. Act and declared all the particulars. In the revised return, assessee made claim of deduction under section 10B of the I.T. Act and disclosed all the particulars of income. The claim of assessee was however, denied because return was filed beyond the period specified under section 139(1) of the I.T. Act. The assessee thus, disclosed all the facts in the original return of income as well as in the revised return of income. The claim of assessee was not 13 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. found bogus and same deduction was allowed in subsequent years by the Ld. CIT(A). The declaration under section 10B could be made for each year. He has submitted that penalty may not be imposed merely on technical ground.
16. The Ld. D.R. relied upon the orders of the authorities below.
17. We have considered the rival submissions. In the instant case, assessee filed original return of income beyond the period of limitation in which the assessee did not make any claim of deduction under section 10B of the I.T. Act. Subsequently, return was revised, in which, assessee made claim of deduction under section 10B of the I.T. Act. The claim of assessee were denied primarily on the reason that return was not filed within the time prescribed under section 139(1) of the I.T. Act. It was also noted that assessee has not furnished Certificate under section 10B(8) of the I.T. Act. Since revised return was invalid as the original return was filed belatedly, therefore, claim of assessee for deduction under section 10B of 14 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. the I.T. Act were denied. However, the claim of assessee was not found to be false or bogus. The assessee disclosed all the particulars for claiming deduction under section 10B of the I.T. Act in the return of income as well as at the assessment stage. In the later years, the claim of assessee under section 10B have been allowed by the Ld. CIT(A), against which, the department is in appeal in different years. therefore, in assessment year under appeal, the claim of assessee for deduction under section 10B have been denied on technical reasons. In our view, the facts and circumstances of the case are clearly show that it is not a fit case of levy of penalty. The Hon'ble Supreme Court in the case of Reliance Petro Products 322 ITR 158 held as under:
"Where there is no findings that any details supplied by the assessee in its return are found to be incorrect or erroneous or false, there is no question of inviting the penalty u/sec. 271(1)(c) of the Act. A mere making a claim, which is not sustainable in law, by itself, will not amount of furnishing inaccurate particulars regarding the income of the 15 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. assessee. Such claim made in the return cannot amount to furnishing inaccurate particulars of income. As the assessee has furnished all the details of its expenditure as well as income in its return, which details, in themselves, were not found to be inaccurate nor could be viewed as the concealment of income on its part. It was up to the authorities to accept its claim in the return or not. Merely, because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable to the Revenue, that by itself would not, in our opinion, attract the penalty u/sec. 271(1)(c). If we accept the contention of the Revenue then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty u/sec. 271(1)(c). That is clearly not the intendment of the Legislature".
17.1. It may also be noted here that in the assessment order, A.O. while initiating the penalty proceedings has noted that he is satisfied that assessee has furnished inaccurate 16 ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi. particulars of its income and has concealed its correct income on this issue. However, in the penalty order, the A.O. has relied upon the Explanation-1 to Section 271(1)(c) of the I.T. Act which is relevant to the concealment of income only. The A.O. in the penalty order has also noted that he is satisfied that assessee has concealed as also furnished inaccurate particulars of its income. In the impugned orders, thus, the A.O. did not specify which limb of Section 271(1)(c) of the Act, penalty have been levied i.e., whether for concealment of particulars of income or furnishing of inaccurate particulars of income. It is well settled that penalty is not automatic and need not be imposed in each and every case. The facts and circumstances shall have to be considered. Considering the facts of the case and in the light of above discussion, we are of the view that it is not a fit case of levy of penalty. We, accordingly, set aside the orders of the authorities below and cancel the penalty.
18. In the result, appeal of the assessee is allowed. 17
ITA.No.5547/D/2012, CO.No.95/D/2013 & ITA.No.6030/D/2015 Nath Bros. Exim International Ltd., New Delhi.
19. To sum-up, Appeal of Assessee in ITA.No.5547/Del./2012 is partly allowed, whereas Appeal of Assessee in ITA.No.6030/Del./2015 is allowed. The Cross Objection No.95/Del./2013 of the Department is allowed.
Order pronounced in the open Court.
Sd/- Sd/-
(O.P. KANT) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 24th April, 2018
VBP/-
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT 'E' Bench, Delhi
6. Guard File.
// BY Order //
Assistant Registrar : ITAT Delhi Benches :
Delhi.