RARE ENTERPRISES,MUMBAI vs. PCIT (CENTRAL), MUMBAI 4, MUMBAI

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ITA 653/MUM/2022Status: DisposedITAT Mumbai02 September 2022AY 2011-20125 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that penalty proceedings are separate from quantum assessment and dropping the penalty by the AO was a plausible view. The PCIT's revisional action was deemed erroneous as the AO had taken a sustainable view, and the assessee had not filed inaccurate particulars.

What were the facts?

The Assessing Officer (AO) disallowed interest under Section 36(1)(iii) for interest-free advances given by the assessee. The AO later dropped penalty proceedings under Section 271(1)(c) based on Supreme Court and High Court decisions. The Principal Commissioner of Income Tax (PCIT) invoked revisional jurisdiction under Section 263, setting aside the AO's order to drop the penalty.

What were the issues?

Whether the PCIT validly exercised revisional jurisdiction under Section 263 to set aside the AO's order dropping penalty proceedings when the AO had taken a plausible view.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 271(1)(c),Section 263

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI

Before: SHRI ABY T. VARKEY, JM & SHRI GAGAN GOYAL, AM

For Appellant: Shri S. C. Tiwari
Hearing: 21/07/2022Pronounced: 02/09/2022

O R D E R

PER ABY T. VARKEY, JM:

1.

This is an appeal preferred by the assessee against the order of the Ld. Principal Commissioner of Income Tax-04, Mumbai dated 22.03.2022 for assessment year 2011-12 passed under section 263 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”).

2.

The assessee has challenged the revisional jurisdictional by Ld. PCIT without validly holding that the AO’s order is erroneous as well as prejudicial to the revenue. 3. Brief facts is that the AO in the assessment order u/s 143(3) of the Act inter-alia had disallowed u/s 36(1)(iii) of the Act Rs.3,53,06,301/-, taking note that the assessee had given interest free income to three (3) parties i.e. (i) M/s. Best Value Hpermarket (Rs.10,00,00,000/- (ii) M/s. Lesconceirages Life Care Services (2,00,00,000/-) and (iii) M/s. Park Developers (Rs.2,30,00,000/-). And 2 A.Y. 2011-12 Rare Enterprises when asked by the AO, the assessee tried to explain/prove the source of interest free advances was from its own interest free funds, but the same was not accepted by the AO. And he made proportionate disallowance of interest to the tune of Rs.3,53,06,301/- which was challenged by the assessee before the Ld. CIT(A), who confirmed the action of the AO. On appeal, the Tribunal also confirmed the same. Thereafter, the AO initiated the penalty proceedings for furnishing of inaccurate particulars of income. And thereafter, the AO heard the assessee during the penalty proceedings and after going through the reply filed by the assessee to his show cause notice dated 30.05.2019, the AO was pleased to drop the penalty proceedings relying on the decision of the Hon’ble Supreme Court in the case of Reliance Petro products Pvt. Ltd. 322 ITR 158 (SC) and Hon’ble Bombay High Court decision in the case of CIT Vs. SM Construction of 2013 (Bom) by order dated 20.06.2019. This action of the AO has been interdicted by the Ld. PCIT exercising his revisional jurisdiction by issuing show cause notice dated 23.02.2022 which has been reproduced by the Ld. PCIT in his impugned order and after hearing the assessee, the Ld. PCIT was pleased to set aside the action of the AO to drop the penalty initiated u/s 271(1)(c) of the Act and directed him to pass afresh penalty order u/s 271(1)(c) of the Act. Aggrieved, the assessee is before us challenging the jurisdiction of Ld. PCIT to have invoked the revisional jurisdiction without validly holding the action of AO to be erroneous in so far as prejudicial to the revenue.

3 A.Y. 2011-12 Rare Enterprises 4. We have heard both the parties and perused the records. It is settled law that the penalty proceedings are separate proceedings and even if quantum assessment is confirmed it does not mean that automatically penalty should be levied. We note that the facts afore- stated are not disputed. We note that the assessee has challenged the action of the Tribunal confirming the quantum disallowance/addition made by AO before the Hon’ble Bombay High Court (for admission) and the same is pending before the Hon’ble High Court. We note that the AO had initiated penalty for furnishing inaccurate particulars of income. However, it is noted from perusal of the assessment order framed u/s 143(3) of the Act that AO had disallowed Rs.3,59,06,301/- u/s 36(1)(iii) of the Act by taking into consideration the facts which were recorded from the audited books of accounts submitted before him. It is also noted that when the AO asked the assessee to explain about the interest free loans to three (3) entities, the assessee had replied that it was from its own interest free funds and had filed charts to substantiate that own funds were utilized for making the advances in question which is placed at page no. 162 & 163. These charts were brought to the notice of the AO/Ld. CIT/ITAT to show/correlate the funds utilized for making the advance in question and thus the assessee tried to demonstrate/show that no borrowed funds were used for giving interest free loan to three entities. However, at the level of Tribunal the same was not accepted and the disallowance was confirmed. The assessee justified its action of giving interest free loans to three (3) entities by relying on the decision of the Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340

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