TMI Blog2016 (5) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... ars in view of provisions of Section 79 of the Act of 1961 as the holding company has divested its shareholding in the assessee company in the year 2011 while return of income in which said claim of allowance of interest/ financial charges expenditure was made , was filed on 22.09.2009 , so it is incumbent on the part of the assessee company to explain that the claim of the allowance of interest / financial charges expenditure was legitimate and bona-fide within the four corners of the Act of 1961, when the return of income was filed in the year 2009 and not the later developments happening in the year 2011. Thus, keeping in view all these peculiar facts and circumstances of the case, in our considered view and in the interest of justice, one more opportunity needs to be given to the assessee company to bring all the relevant and cogent material on record with the revenue to substantiate that its claim of allowance of interest/financial charges expenditure was bona-fide and legitimate, the matter is now hereby set aside to the file of the A.O. to decide the issue of leviability of penalty u/s 271(1)(c ) of the Act , de-novo after considering all the relevant facts and evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance u/s.14A of the Act was also made of ₹ 6,45,774/-. The assessee company did not file any revised return of income with the Revenue and only when the above said facts were brought to the notice of the assessee company during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act, the assessee company filed revised computation of income with the AO. The revised computation of income filed by the assessee company was considered and found acceptable by the AO.. Since , the assessee company has not filed revised return of income with the Revenue and the assessee company filed revised computation of income only after issue of notice u/s.143(2) of the Act and after being cornered by the revenue whereby the AO specifically queried the assessee company on 15-07-2011 with respect to disallowance of the said claim of interest expenditure, the penalty proceedings u/s 271(1)(c) of the Act were initiated against the assessee company for furnishing of inaccurate particulars of income leading to concealing of particulars of income and penalty notice u/s.274 r.w.s.271(1)(c) of the Act was issued to the assessee company on 18.08.2011. Further, on verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of the provisions of Section 79 of the Act as well as avoidance of protracted litigation, in the event of disallowance of such expenditure either in part or otherwise. (f) Accordingly, it was submitted not to consider the said expenditure as admissible' expenditure in assessing the total income. The assessee company submitted that before any question was raised by the A.O. in relation to the admissibility of the captioned expenditure, attention was drawn by the Taxation Manager Ms.Hetal Sangani for the proposed withdrawal by the assessee company of its claim of allowance of the captioned expenditure, more particularly to the fact that during the financial year 2011- 2012, there was a change in the shareholding of the assessee company which triggers the applicability of the provisions of Section 79 of the Act. The assessee company drew the attention of the A.O. to the following Note No.1 forming part of the computation of total income:- The Company had in the preceding previous year received funds and utilised the same for granting advances in connection with the proposed development for eviction, re-settlement and re-development of Slums on the encroached Airport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany has filed revised computation of income only after service of notice u/s 143(2) of the Act and further the assessee company has not preferred any appeal against the quantum assessment order. The A.O. held that claiming wrong or excessive deductions also amounts to concealment of income as well as furnishing of inaccurate particulars of income. The A.O. relied upon the decision of UOI v. Dharmendra Textiles Processors, [2008] 306 ITR 277 (SC). The AO held that the initial burden of discharging the onus of rebuttal is on the assessee company and the assessee company has to substantiate to prove the same to be bonafide. In view of all these facts, the A.O. came to the conclusion that the assessee company s case is a fit case to impose penalty u/s 271(1)(c) of the Act and accordingly levied minimum @100% of the tax calculated on concealed income of ₹ 14,98,08,096/- and penalty of ₹ 4,71,89,550/- was levied u/s 271(1)(c ) of the Act vide penalty orders dated 29.02.2012. 5. Aggrieved by the penalty order dated 29.02.2012 passed by the A.O., the assessee company preferred an appeal before the CIT(A). 6. Before the CIT(A), the assessee company submitted that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 79 of the Act, whereby the right to carry forward the losses relating to preceding years lapsed. To evidence the same, a copy of share transfer form signed by the Holding Company, together with copy of one of the share certificate of the assessee company with the Memorandum of Transfer Form of Share(s) were submitted before the CIT(A). The assessee company submitted that in the course of assessment proceedings conducted in the month of July, 2011, the Taxation Manager , Ms Hetal Sangani of CA firm drew the attention of the AO that the assessee company was withdrawing its claim far allowance of interest expenditure of ₹ 14,91,61,322/- recovered by the Holding Company and shall be filing appropriate communication in this regard, which was filed vide letter dated 16-07-2011. The assessee company submitted that it had carried forward the said amount as unabsorbed business loss and even if the claim would have been allowed in the course of assessment proceedings, the assessee company could not have taken the benefit there against for carry forward and set-off of losses in its assessment of income consequent to the applicability of Section 79 of the Act pursuant to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure/financial charges voluntarily cannot be equated to filing of inaccurate particulars of income. In support, the assessee company relied upon the decision of the Hon'ble Delhi Court in the case of CIT v. Nath Bros. Exim International Ltd. reported in 288 ITR 670 and the decision of the Hon'ble Apex Court in the case of CIT v. Reliance Petroproducts (P) Limited reported in 322 ITR 158 (SC). In the light of the above discussion, the assessee company prayed before the CIT(A) that penalty levied by the Revenue should be deleted. 7. The CIT(A) after carefully considering the facts of the case and the submissions of the assessee company and the penalty order, rejected the contentions of the assessee company and held that it is a matter of undisputed fact that the assessee company has claimed interest expenditure of ₹ 14,91,61,322/-. The A.O. at the time of assessment proceedings vide letter dtd.15.07.2011 asked the assessee company to explain why the interest claimed in P L should not be disallowed as they are interest free advances out of the borrowed funds and in response to this, the assessee company submitted its reply vide letter dtd.16.07.2011 on 20.07.2011, file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... positive income and the returned losses has been reduced. The CIT(A) also concluded that the assessee company has not produced any evidence to justify that interest expenditure of ₹ 14,91,61,322/- has been incurred by the assessee company wholly and exclusively for the purposes of business. The CIT(A) relied on the judgment of Hon ble Delhi High Court in the case of Zoom Communication Ltd., 327 ITR 510 and also the judgment of Hon ble Supreme Court in the case of Reliance Petroproducts Pvt. Ltd. 322 ITR 158(SC). In nutshell, the CIT(A) held that the assessee company has furnished inaccurate particulars of income by claiming interest expense in its accounts and in the light of the judgments of various courts, the penalty is required to be levied in the case of the assessee company for furnishing inaccurate particulars of income leading to concealment of income of ₹ 14,91,61,322/- and accordingly the action of the A.O. of levying penalty u/s 271(1)(c) of the Act of ₹ 4,71,89,550/- was upheld vide orders dated 14/08/2012. 8.Aggrieved by the orders dated 14.08.2012 of the CIT(A), the assessee company is in appeal before the Tribunal. 9. The ld. Counsel for the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s change in shareholding. Notice u/s 142(1) of the Act dated 14-06-2011 was issued by the AO to the assessee company and the assessee company vide its letter dated 15-7-2011 furnished details of unsecured loan received with the name of parties, address etc. as asked by the A.O., which is placed at paper book page No. 11 12. On 15-07-201, the assessee company was asked by the AO that why interest expenditure should not be disallowed . The claim of interest was withdrawn vide letter dated 16th July, 2011 filed on 20-07-2011 by the authorized representative of the assessee company. The ld. Counsel for the assessee company drew our attention to the assessment order dated 18-08- 2011 passed by the A.O. u/s 143(3) of the Act ,wherein the A.O. asked the assessee company vide letter dated 15.07.2011 to explain why not the interest claimed in P L be not disallowed as there are interest free advances out of the borrowed funds and the assessee company vide letter dated 16-07- 2011 filed on 20-07-2011 before the AO withdrew its claim for interest expenditure of ₹ 14,91,61,322/- and also revised computation of income withdrawing the said interest expenditure claimed. The ld counsel also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Limited (2010) 327 ITR 510 (Del. HC) and CIT v. Dr R C Gupta Co. (1980) 122 ITR 567(Raj. HC) and decision of Mumbai Tribunal in the case of Ultramarine Pigments Limited v. ACIT (2010) 39 SOT 115(Mum-Trib.). 11. The ld. Counsel for the assessee company, in the rejoinder, submitted that the MOU was cancelled in current year before closure of the previous year relevant to the assessment year 2009-10. The funds have been utilized for the purpose of business. The disclosure has been made in the computation of income. The assessee company has submitted the entire details of particulars of income and it cannot be said that the assessee company has furnished inaccurate particulars of income or concealment of income. 12. We have considered the rival submissions and also perused the material available on record including the case laws cited by both the parties. We have observed that the assessee company has entered into an MOU with HDIL dated 27th October, 2007 in relation to the proposed development for eviction, re-settlement and redevelopment of slums on the encroached airport lands at Mumbai Airports at Santacruz and Sahar. The said MOU was stated to be cancelled in the curr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on behalf and at behest of the assessee company to repay the funds received by the assessee company . Vide para 2.4 of its letter dated 16-07-2011, the assessee company stated that to avoid protracted litigation and to buy peace, the assessee company decided to withdraw its claim for the said interest expenditure having regard to the fact that after 31st march, 2011, the holding company has divested its investment in the assessee company and therefore by virtue of section 79 of the Act, the right to carry forward losses lapses and as such claim of interest expenditure/financial charges resulting into the business loss has become infructuous and, hence, the interest expenditure of ₹ 14,91,61,322/- for the assessment year under reference stand withdrawn and the computation of income to that extent be considered as modified. The assessee company stated in the said letter that the amount of loan was obtained for business purposes keeping in view commercial expediency and necessary disclosure was made vide note no 1 forming part of statement of computation of total income filed with the return of income. The assessee company has contended that its taxation manager has stated bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eleased Land in the said agreement amongst other such benefits as more particularly described and provided in the said agreement and upon the terms and conditions as provided in the said agreement. The assessee company has agreed to join with HDIL for the performance of the purposes and object of the said agreement dated 15th October, 2007 and to receive and obtain along with HDIL all the benefits there under and for that purpose to form a consortium along with HDIL and with prior written consent of Mumbai International Airport Pvt. Ltd. . It was also decided to register a special purpose vehicle(SPV), whether being a corporate entity or such other legal entity. The said SPV shall have authorized share capital of ₹ 100 crores which will be contributed by the parties in the proportion as 49.27% in the case of D.B. Properties and 50.73% in the case of HDIL. If any further funds required for the working of the SPV and to be spent on completion of the business of SPV , shall be brought in and arranged by the said HDIL and D.B. Properties in the ratio of 72:28 respectively and shall be entitled to interest on all amounts advanced by each one of them to the SPV to be calculated on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest even during the appellant proceedings to substantiate whether the claim made by the assessee company was legitimate and bonafide claim keeping in view the provisions of the MOU entered into dated 27th October, 2007 and also the background of the said MOU, despite being asked by the Revenue. Under the penalty provisions u/s 271(1)(c) of the Act, the assessee company is duty bound to offer explanation which is bona-fide and to substantiate its claim made in the return of income filed with the Revenue. We have also observed that the authorities below have also stated that the assessee company has not brought on record the evidence to substantiate its claim of interest expenditure ₹ 14,91,61,322/- as a bonafide claim while filing return of income with the Revenue rather the assessee company is repeatedly contending that it is withdrawing its claim to buy peace and also the claim of carry forward of losses shall not be allowable for set off in subsequent years owing to provisions of Section 79 of the Act . The assessee company ought to have brought on record complete evidences to substantiate bona-fide of its claim that it was bona-fide and legitimate claim while filing ret ..... X X X X Extracts X X X X X X X X Extracts X X X X
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