COMMISSIONER OF INCOME TAX III LDH vs. M/S TRIDENT INFOTECH CORP LTD

PDF · subscribers
ITA/267/2012HC Punjab & HaryanaPHHC01099346201223 April 2013Bench: MR. JUSTICE HEMANT GUPTA,MS. JUSTICE RITU BAHRI3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the Tribunal's reasoning for setting aside the penalty was sound and did not warrant interference. Regarding the addition of Rs.45,14,373/-, the court noted that the additions were a direct result of the judgment in CIT vs. Abhishek Industries Ltd. The Tribunal had correctly observed that since the additions were based on a judicial interpretation of the law, it did not establish that the assessee had concealed income or furnished inaccurate particulars. Therefore, the penalty was not leviable. Concerning the addition of Rs.11,45,476/-, the Tribunal found that the assessee had disclosed the particulars in its return and subsequently offered the amount as additional income due to an inadvertent mistake. The Tribunal rightly concluded that there was no justification to hold that the assessee had furnished inaccurate particulars of income when the particulars were disclosed and the claim was withdrawn. Consequently, the penalty was set aside. The appeal was dismissed.

What were the facts?

The appeal concerns assessment year 2004-05. The Income Tax Appellate Tribunal (Tribunal) set aside penalties imposed by the Assessing Officer (AO) consequent to additions of Rs.45,14,373/- and Rs.11,45,476/-. The first addition arose from the AO disallowing interest deduction under Section 36(1)(iii) of the Income Tax Act, 1961, on the basis that the assessee had provided interest-free advances while simultaneously borrowing interest-bearing loans. The second addition related to an amount claimed as bad debts, which the assessee later requested to be added back to its returned income. The assessee had filed its return before a relevant High Court judgment was delivered.

What were the issues?

1. Whether the Tribunal was justified in setting aside the penalty imposed on the addition of Rs.45,14,373/-, which was made consequent to the disallowance of interest deduction under Section 36(1)(iii) of the Income Tax Act, 1961, in light of the High Court's judgment in CIT vs. Abhishek Industries Ltd. (2006) 286 ITR 1? 2. Whether the Tribunal was justified in setting aside the penalty imposed on the addition of Rs.11,45,476/-, which was initially claimed as bad debts but later offered as additional income by the assessee? Assessee's Contentions: The assessee argued that the additions were made based on a subsequent judgment of the High Court, and therefore, it did not constitute concealment of income or furnishing of inaccurate particulars. For the second addition, the assessee contended that it had disclosed the particulars and withdrawn the expenditure claim due to an inadvertent mistake, offering it as additional income, thus negating any intent to furnish inaccurate particulars. Revenue's Contentions: The revenue's contentions are not explicitly recorded in the judgment, but the appeal itself challenges the Tribunal's decision to set aside the penalty.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 260A

AI-generated summary — verify with the full judgment below

ITA No. 267 of 2012 (O&M) 1 IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA No. 267 of 2012 (O&M) Date of decision: 23.04.2013 Commissioner of Income Tax-III Ludhiana ...Appellant versus M/s Trident Infotech Corporation Ltd. ...Respondent CORAM: HON'BLE MR. JUSTICE HEMANT GUPTA HON'BLE MS. JUSTICE RITU BAHRI Present: Mr. Rajesh Katoch, Advocate for the appellant. HEMANT GUPTA, J. (ORAL) The present appeal under Section 260A of the Income Tax Act, 1961 (for short 'the Act') arises out of an order dated 26.03.2012 passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'A' Chandigarh (for short 'the Tribunal') in relation to assessment year 2004-05 whereby the penalty imposed consequent to addition of Rs.45,14,373/- and Rs.11,45,476/- was set aside by the Tribunal. During the year in question, the assessee has given interest free advances and borrowed interest bearing loan. The question whether the advances of interest free loan in these circumstances is entitled to deductions under Section 36(1)(iii) of the Act came to be decided by this court in the case of Commissioner of Income Tax vs. Abhishek Industries Ltd (2006) 286 ITR 1. The court has held to the following effect: “34. .....Once it is borne out from the record that the assessee had borrowed certain funds on which liability to pay tax is being incurred Kumar Vimal 2013.04.30 14:33 I attest to the accuracy and integrity of this document Chandigarh

ITA No. 267 of 2012 (O&M) 2 and on the other hand, certain amounts had been advanced to sister concerns or others without carrying any interest and without any business purpose, the interest to the extent the advance had been made without carrying any interest is to be disallowed under section 36(1)(iii) of the Act. Such borrowings to that extent cannot possibly be held for the purpose of business but for supplementing the cash diverted without deriving any benefit out of it. Accordingly, the assessee will not be entitled to claim deduction of the interest on the borrowings to the extent those are diverted to sister concerns or other persons without interest.” In the present case, the assessee has furnished its return prior to the judgment of this Court in Abhishek Industries Ltd. case (supra). In view of the principles of law laid down in the aforesaid judgment, the Assessing Officer made addition to the extent of Rs.45,14,373/-. The learned Tribunal has set aside the penalty on the aforesaid addition inter alia for the reasons that such additions were made on account of judgment of this Court in Abhishek Industries Ltd. case(supra) and it does not establish that the assessee has either concealed its income or furnished inaccurate particulars of income. The scope of the provisions of the Act came to be interpreted by this court in the aforesaid judgment. Therefore, the claim of the Assessee cannot be said to be concealment of income, which may attract penalty. In respect of addition of Rs.11,45,476/-, the assessee claimed it as bad debts expenses in the profit and loss account filed with the return of income. But vide letter dated 24.10.2006, the assessee communicated to the Assessing Officer that actually this amount was written off in the books of account and the same be added to the returned income at the time of finalizing the assessment for the assessment year in question. It is, Kumar Vimal 2013.04.30 14:33 I attest to the accuracy and integrity of this document Chandigarh

ITA No. 267 of 2012 (O&M) 3 thereafter, the assessment was finalized by the Assessing Officer on 28.11.2006. The learned Tribunal found that when the assessee has disclosed the particulars in the return of income and withdrawn his claim of expenditure being made because of an inadvertent mistake and offered the same as additional income, there is no justification to hold that the assessee has furnished inaccurate particulars of income. Therefore, the order of penalty was set aside. Consequently, we do not find that the reasoning given by the Tribunal warrants any interference in appeal when the additions are direct result of judgment of jurisdictional Court. The appeal is dismissed accordingly. (HEMANT GUPTA) JUDGE (RITU BAHRI) JUDGE April 23, 2013 G.Arora/Vimal Kumar Vimal 2013.04.30 14:33 I attest to the accuracy and integrity of this document Chandigarh

More judgments on Section 36(1)(iii)

All 3,665 judgments and leading authorities on Section 36(1)(iii) →

Recent GST High Court judgments

Search GST case law →