M/S. BIL METAL INDUSTRIES LTD.,,BARODA vs. THE DY.CIT, CIRCLE-1(1),, BARODA

आदेश / O R D E R

PER MAHAVIR PRASAD, JUDICIAL MEMBER : This is an appeal for confirming of penalty u/s.271(1)(c) of the I.T. Act, 1961 by the assessee against the order of the Commissioner of Income Tax(Appeals)-I, Baroda, vide Appeal No. CAB-I/023/2013-14 dated 24/04/2017 for the Assessment Year (AY) 2005-06, on the following Grounds:

1.0 The order passed by the learned CIT(A) confirming the levy of penalty u/s 271(1)(c) for Rs.1,40,000/- is bad in law and liable to be quashed. Your appellant submits that it has neither concealed

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 2 - income nor furnished any inaccurate particulars thereof and as such the penalty is liable to be cancelled. It is submitted that it be so held now. 2.0 The order passed by learned CIT(A) confirming penalty u/s.271(1)(c) is bad-in-law also for the reason that order of penalty passed by learned A.O. is not specific about the charge for which penalty u/s 271(1)(c ) is levied. 3.0 The learned CIT(A) failed to note that appellant had given not only bona fide explanation, but had also substantiated the same and the same was not found to be false and hence there is no case of invoking provisions of Explanation-1 to section 271(1)(c) of the Act. It is submitted that it be so held now. 4.0 Without prejudiced to above, your appellant submits that there is no tax sought to be evaded in terms of Explanation-4 to section 271(1)(c) and hence also such penalty is liable to be cancelled as there could not be any levy of penalty in such cases.

2.1 The initial notice under section 271(l)(c) was issued to the assessee on 17/12/2007. Against the assessment order the assessee had filed appeal before CIT(A). The Ld. CIT(A) vide order No. CAB-I/347/07-08 dated 18/08/2011 had confirmed the addition in respect of Interest on loans and advances and had deleted the remaining three additions as

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 3 - mentioned above. . Thereafter, further notice u/s.271(l)(c) was issued to the assessee on 15/10/2012. In response, the assessee has furnished a reply vide letter dated 06/11/2012.

2.2 The case is discussed as under: During the assessment proceedings, it was seen the assessee had given loans/advances of Rs.31 lacs to M/s Bil Metal Works Pvt. ltd in which the directors are common. From schedule 'R' to profit and loss account it was seen that the assessee has incurred huge interest expenditure of Rs.76,576 lacs on term loan and Rs.160,70 lacs for working thus, the assessee had acquired funds for the purpose of its day to day running of business and also for long term expenditure. It was very difficult for the assessee itself to establish that its own fund of Rs 6 crore was not utilized and was blocked as advance to M/s. B. Metal Works, in any case had no advances given or had the advances that were blocked recovered or had the assessee charged some interest on the advances under consideration, the burden of interest which the assessee has borne would not have been required to be borne. The AO relied upon the decision of the Hon'ble Allahabad High court in the case of H. R. Sugar Factory Ltd (187 ITR 363) wherein the Hon'ble High Court had confirmed the action of Assessing officer disallowing of interest u/s.36(1)(iii) stating that the assessee could have easily avoided its liability by not giving interest free funds to its group concerns. Had this money not been advanced to the directors, it would

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 4 - have been available to the assessee for its business purposes and to that extent it may not have been necessary to borrow from the banks. The above decision of the Hon'ble High Court clearly confirms that the assessee are not free to use their interest free funds as per their own whims and whiffs for non income earning purposes on one hand and borrow and incur interest expenses on the other hand and load the business with avoidable load of incurring of interest expenditure, It was clear that the assessee has taken the loans and paid the interest which actually serves the purpose of non business purpose. The decision in the case of CIT vs. Abhishek Ind ltd 186 ITR 01 (P& H) was also noted which has held that the onus was entirely on the assessee to prove that all the borrowed funds were used for business. In view of the above, claim of interest expenditure to the tune of Rs.378754/- @ 12% is considered to be not incurred for the purposes of business. Therefore, out of interest payments, an amount of Rs.378754/- was disallowed.

2.3 The CIT(A) held that assessee allotted equity shares to the erstwhile partners of the firm. Bil metal works in the ratio of their capital as per clause 6 of the merger agreement. Total consideration of Rs.10 lakh by way of shares was paid by the assessee to nine partners including Bil metal Works Pvt. Ltd to which 5000 shares were allotted. This was done without taking into account the debit balance of bill metal works and the liability of Rs.31.91 lakh was accepted by assessee without receiving any consideration. Not recovering the debit balance of bill

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 5 - metal works Pvt. Ltd and further allotting of snares to this company shows that the transaction was not at arm's length or commercially expedience Disallowance of Rs.378764/- being interest computed on funds diverted to Bill Metal Works Pvt. Ltd, a related party while assessee continued paying huge interest was justified for claiming any expenditure, onus is on the assessee to prove that the expenditure was wholly and exclusively incurred for the purpose of business. In absence of necessary details, which are essential to ascertain whether expenses were incurred for business purposes and merely because the accounts were audited does not establish that the expenses incurred were wholly and exclusively for business.

2.4 In reply, the assessee submits as follows:

" ……Rs.378764/- being notional interest at 12% on advantage given to bill Metal Works Pvt Ltd is added the total income. Kindly note that the receivable amount of Rs. 31.91 lacs is receivable for the financial year 2000-2001 is on account of the share of loss incurred as a partner in Bilmetal works partnership firm which was merged with Bilmetal Industrial Limited in the year 2000-01 as per the provision of section 47 x (iii) of the Income Tax Act 1961 and on account of Merger as per Audit report, Para: 3(a).the company had shown the Rs.31.91 lacs receivable from M/s Bilmetal works Private Limited. Kindly note that as per the Audited Balance Sheet as on 31/03/2005, the company is having its own share capital fund of Rs.600 lacs less Profit & loss account Debit Balance of Rs 66.30 lacs, thus net owned fund was of Rs.533,70 lacs. The company had not given any amount to Bil Metal works Pvt ltd the amount was recoverable on account of share of loss incurred as a partner. This is the notional Addition made by the Assessing officer.

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 6 - These amount was shown as receivable as advances, the department has never considered these advances for not business purpose and never charged as notional interest of the company. We may also mentioned that as per the decision of Hon’ble Supreme Court in case of S. A builders vs. CIT (2006) 158 tax man 74, held that even interest bearing funds of an assessee can be diverted to sister concern and no objection to this in income tax assessment taken plea of commercial expediency." 2.5 The reply of the assessee is considered, however it is not tenable. The decision of the Supreme Court in the case of S.A Builders is not applicable in this case as mentioned by the ld.CIT(A) in his order. The assessee's contention of having own funds of Rs.600 lakh cannot be accepted as nexus between the same and advance to bill metal works had not been established. It has been cleared the assessee has taken the loans and paid interest which actually serves the serves the purpose of other than the business purpose. The wrong claim of the assessee came to notice of the assessing officer during the course of scrutiny assessment proceeding only the assessee has not been able to justify it claim not only before the assessing officer before the CIT(A) also. No new evidence or argument has been brought on record by assessee in it submission. The same contention have already been given before the AO and the CIT(A) as well. The issue as mentioned above, has gone through the test of the appeal. Had the case not been selected for scrutiny verification and analysis not carried out by the AO the facts concerning the real income of the assessee would have had remained undetected and revenue would have had loss to that extent, and the judgment quoted by the assessee are also not clearly applicable in the assessee's case. Thus in this case the

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 7 - assessee not only concealed the particulars of its income but also furnished inaccurate particulars of such income deliberately.

2.6 After assimilation of all the facts emerging from the above observations and interpretations vis-a-vis the submissions of the assessee, it is concluded that the onus cast upon by the explanation 1 below the provisions of sections u/s.271(l)(c) have not been discharged by the assessee for the reason that the explanation rendered on record by the assessee in its defence against charge of furnishing inaccurate particulars of its income and thus concealment fall considerably short of the attributes mandated in this regard by the said explanation. Therefore, I hold that the amount of Rs.378754/- which was disallowed out of the claim of interest expenditure for the purposes of section 271(l)(c) represents the income in respect of which the assessee has furnished inaccurate particulars of its income and it has thus concealed the income within the meaning of Explanation 1 of section 271(l)(c) of the Act.

2.7 The penalty leviable in the case is worked out as under: Concealed income/inaccurate particulars Rs.378754/- on which penalty is leviable Tax on the concealed income Rs.138595/- Penalty leviable @ 100% on the concealed income Rs.138595/- Penalty leviable @ 300% on the concealed income Rs.415785/-

2.8 Considered the facts and circumstances of the case Dy. CIT levied the penalty of Rs.1,40,000/- u/s.271(1)(c) of the Act.

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 8 - 3. Against the said order assessee preferred first statutory appeal before the ld. CIT(A) but same was dismissed.

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 9 - of interpretation of laws and as such making a claim, which is found unacceptable in law, cannot be treated as furnishing of inaccurate particulars of income. In this case, no information/figures in the return of income was found to be incorrect or inaccurate. The same was reflected in books of accounts. All books of accounts were maintained and Audited by the assessee. Only Notional interest was calculated and was disallowed from actual interest expenditure paid to bank. Disallowance was merely on account on account of difference of opinion and has nothing to do with concealment of income or furnishing of inaccurate particulars. It is clear that mere disallowance in the assessment proceedings could not be the sole basis for levying penalty u/s.271(1)(c).

Sd/- Sd/- ¼izeksn dqekj½ ¼egkohj izlkn½ ¼izeksn dqekj½ ¼egkohj izlkn½ ¼izeksn dqekj½ ¼egkohj izlkn½ ¼izeksn dqekj½ ¼egkohj izlkn½ Yks[kk ln Yks[kk lnL; L; U;kf;d lnL; U;kf;d lnL; Yks[kk ln Yks[kk ln L; L; U;kf;d lnL; U;kf;d lnL; (PRAMOD KUMAR) ( MAHAVIR PRASAD ) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 19/12/2017 Priti yadav, Sr.PS

ITA No.2075/Ahd/2014 M/s. Bil Metal Industries Ltd. vs. DCIT Asst.Year –2005-06 - 10 -

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-I, Baroda. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 18/12/2017 2. Date on which the typed draft is placed before the Dictating Member …19/12/2017 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S…………….. 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S……. 7. Date on which the file goes to the Bench Clerk………………… 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order………………