CIT vs. FLEX SECURITIES LTD

t- 't .3 .-a $-2 + DELHI AT NEW DELHI ..... Appellant Through : Sh. N.P. Sahni, Sr. Standing Counsel. Versus FLEX SECURITIES LTD i ..... Respondent. Through :Nemo. CORAM: I.ION 'BLE MR. JUSTICE S. RAVINDRA BHAT HON 'BLE MR. JUSTICE R.V.DASWAR ORDER % 21.11.2012 The Revenue claims to be aggrieved by the order of the Income Tax Appellate Tribunal (ITAT) dated 12.07.2011 in ITA 4078/Del/2010. The question of law sought to be urged is: "Whether the Tribunal fell into error in upholding the setting-aside of the penalty proceedings and the penalty intposed upon the assessee, in the facts and circumstances of the case? " The assessee, an investment company, had in its return for the Assessrnent Year 1998-99 claimed deduction for interest under Section 36(l)(iii) of the Income Tax Act. The Assessing Officer scrutinized the return and disallowed interest of Rs.1,77,05,388/- under that provision for having utilized it for the purpose of investment in shares and securities. A further sum of Rs.24,16,860/- was disallowed on the ground that it was attributable to dividend income which was exempt. The assessee succeeded before the Cornrnissioner of Appeals; however, the rnatter rvas finally settled in favor of the I{evenue, at its instance, by the ITAT. The AO had, in the meanwhile, initiated penalty proceedings which cuhninated in an order imposing penalty for conceallnent of income. I 'he CIT (Appeal) 's order, settirrg-aside the penalty, was upheld by the Tribunal, in its IN THE HIGH COURT OF ITA 642/2012 CIT ?; 10 2012:DHC:8034-DB

7 irnpugned order. Learned counsel for the Revenue r,rrges that the Tribunal fell into error in rneclranically following the ruling in CIT v. Reliance Petroproducts (P) Ltd. 322ITR 158 (SC). Learned counsel ernphasized that out of the total incorne declared in the return and related documents, the revenue generated from the sale of shares constituted less than zyo. It rvas also subrnitted that having regard to the provision of Section 36(lxiii), making of the claim itself by the assessee, in the circumstances, arnounted to furnishing of inaccurate particr"rlars, which attracted penal proceedings. This Court has considered the submission. The Tribunal, by upholding the concurring order of the 4ppellate commissioner (setting-aside the penalty irnposed) had found as follows: "5. ltr/e have heard the rival contentions in the light of material produced on record and precedents relied upon. In the case the assessee ha,y boruowed Rs.10,89,87,367/- and paid interest Rs.2,41,02,166/-. Interest was claimed as exentpt expendihre u/s 36(l)(iiil of the Act. AO while scrutinizing the ca.se disallowed interest of Rs.2,01,22,248/- tt/s 36(1)(ii, of the Act having utilizedfor the purpose of making investntent in exempt inconte. AO observed that assessee has concealed the particulars of inconte/fttrnished inaccurate particulars of income to the extent of Rs.2,01,22,248/-. Ld. CIT(Q however referred to the decision of Hon 'ble Apex Court in the case of Reliance Petro Products P. Ltd. He held that there is no furni.shing of inaccu 'ate particrtlctrs or concealment in such a situation he held that there would no question of inryosing penalty u/s 27(I)(c) of the Act. A ntere nraking of claim which is not sustainable in lav by itself can not annunt to furnishing of inaccurate particulars regarding income of the assessee. CIf&) fltrther noted that ossessee hadfurnished all details of expendintre and inconte. Accordingly merely because assessee has claimed expenditure vhich is not exentpt can not lead to levy of penalty u/s 271(l)(c) of the Act. 6. Fm 'ther it ,s observed that Section I4A vhich mandates tlisallowance.r of expenditure in relation to inconrc not includecl in total inconte v 'as introduced by the Finance Act, 2001 y,ith retrospective ffict fi 'om 1.4.1962. 'I 'hus it is clear that S. I4Awas not is statute books vhen the asses.yee has filed his return of income. ITAT while nstaining the disallotvance on merits in this case has also referred to S.I4A in this case. This fttrther fortifies assessee 's claim that there was no concealment or furnishing of inacctn 'ate particulars of income in this case." 7 2012:DHC:8034-DB

t \ '4 U In view of the concurrent findings and having regard to the circumstances, especially the proviso to Section 14A introduced in the statute book after the relevant period, and providing that no disallowance would be rnade in an assessment for an assessment year prior to the assessment year 2001-02, this Court is of the opinion that the no substantial question of law arises. The appeal is accordingly dismissed. ILJ*"&* S. RAVINDRA BHAT, J fr N..^.-r.. n.v-naswAR, J NOVEMBErR 21,2012 'ajk ' ? ( 2012:DHC:8034-DB