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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI AMARJIT SINGH, JM
Assessee by: Shri Pramod Kumar Parida & Ms. Sanjukta Chowdhury Department by: Shri Sumit Kumar सुनवाई क" तार"ख / Date of Hearing: 22.04.2016 घोषणा क" तार"ख /Date of Pronouncement:05.08.2016 आदेश / O R D E R PER AMARJIT SINGH, JM:
The above mentioned appeals have been filed by the assessee against the different orders passed by the Commissioner of Income Tax (Appeals)-27, Mumbai [hereinafter referred to as the “CIT(A)”] on 04.07.2011 and 26.11.2009 for the A.Y.2004-05. Since both the appeals are filed by the one and the same assessee and the matter of controversy in both the appeals are connected with each other, A.Y.2004-05 therefore, both the appeals are being taken up together for adjudication for the sake of convenience.
The facts of the case are that the assessee filed its return of income on 16.07.2004 declaring total loss to the tune of Rs.58,15,725/-. The return of income was accompanied by the Statement of total income, balance sheet, Trading, Profit and Loss Account, Proprietor’s Capital Account along with its Schedules. The case was selected for scrutiny, therefore, notices u/s.143(2) and 142(1) of the Income Tax Act, 1961 ( in short “the Act”) were issued and served upon the assessee. The Assessing Officer disallowed the interest claimed to the tune of Rs.53,76,200/- but as the same was not paid to the creditors mainly M/s. Sangam India Ltd.. Therefore, the said interest to the tune of Rs.53,76,200/- had been added to the income of the assessee. Assessee filed the appeal before the CIT(A), but the CIT(A) confirmed the order on these issues, therefore the present appeal has been filed before us.
The assessee has raised the following grounds:-
1. Disallowance of Interest – Rs.53,76,200/- “a) The ld. CIT(A) erred in confirming the disallowance of interest claim without appreciating that the liability to pay interest got crystallized by virtue of MOU with the two creditors which was overdue since long and could not be A.Y.2004-05 paid on account of mounting losses in the business and initiation of legal actions by the creditors; therefore, as per the mercantile method of accounting followed, the claim of the Appellant ought to have been allowed. b) The ld. CIT(A) failed to appreciate that the interest liability is arising on account of failure to meet trading liability and the non-payment thereof had given rise to interest liability; therefore, the way trading liability was allowed in the year of purchases, the same way, interest liability (at varied rates yearwise) which got crystallized during the year, and as a part of addendum to the trading liability, should have been allowed. c) The ld. CIT(A)erred in admitting to allow the alleged interest attributable to the year under consideration (A.Y.2004-05) instead of entire interest on the premise that prior period expenses are not allowable. d) Without prejudice to above, the alleged miscalculation of interest cannot override the chargeability; therefore, the ld. CIT(A) erred in not appreciating to the bonafides of genuine claim.
2. Levy of Penal Interests:
The appellant, on merits, denies his liability to penal interest.”
ISSUE NO.1:-
Under issue no.1, the assessee has challenged the addition of interest to the tune of Rs.53,76,200/- in the income of the assessee. The representative of the assessee has argued that the assessee has to paid the interest to the creditors but did not pay well in time therefore the assessee settled the issue with them out of court in view of the MOU dated 29.07.2003, therefore, he has to pay the interest to the A.Y.2004-05 tune of Rs.53,76,200/- M/s. Sangam India Ltd. and accordingly by following the mercantile system of account he made the provision in his account books and recorded the entry in the accounts books because of the liability, therefore the authority has wrongly disallowed the interest to the tune of Rs.53,76,200/- and wrongly added to the income of the assessee, therefore, the order passed by the CIT(A) dated 04.07.2011 is wrong against law and fact and is liable to be set aside. It is also argued that the interest is liable to be allowable being liability of the assessee in his account books in accordance with law.
On the other hand the learned representative of the department has strongly relied by the order passed by the CIT(A) in question. In view of the contentions raised by the learned representative of the assessee and perusing the record, it came into the notice that the assessee has shown the interest to the tune of Rs. Rs.53,76,200/- payable to the assessee M/s. Sangam India Ltd. The MOU was prepared on 29.07.2003 in which the liability to pay the interest has been shown. At the time of examination of the account books, the Assessing Officer wrote the letter dated 12.12.2006 to the M/s. Sangam India Ltd. and in reply M/s. Sangam India Ltd. said that he did not receive any interest from the assessee. The assessee has recorded the said entry in his account books whereas no entry has been recorded in the account book of M/s. Sangam India Ltd. The Assessing Officer took the view that the assessee did not incur any A.Y.2004-05 interest expenses for business purpose. He was also of the view that the amount to the tune of Rs.53,76,200/- was not paid to the M/s. Sangam India Ltd. and this fact was confirmed by the said firm in reply to the notice issued by the Assessing Officer u/s.133(6) of the Act. The contention of the assessee is that he suffered a loss, therefore he was unable to pay loan to the creditors and the matter went into the court and thereafter the assessee settled the matter with the creditors out of court. MOU is on the file which lies at pages 11 to 29 of the paper book. It is a settlement on record vide which the assessee is liable to pay certain amount along with interest. It is incumbent upon the assessee to prove this fact the amount as well as the interest payable to the M/s. Sangam India Ltd. is in connection with the business purpose. The silent feature is necessary to describe on record to know about the nature of the transaction which is reproduced as under:-
“5.1. The salient features of the MOU are as under: i. Appellant is co-owner of the property at Prithvi Apartment alongwith his brother having 50% share therein. The property was agreed to be sold for an amount of Rs.2.5 crores to M/s. Sangam India Ltd. and SPBL Ltd. by the appellant and his brother. ii. The appellant was due to pay to M/s. Sangam India Ltd. and SPBL Ltd. on account of purchases made from them A.Y.2004-05 and the outstanding amount as on 25.07.2003 was worked out at Rs.1,24,19,639/- which is inclusive of 16% of interest per annum. The calculation of the amount outstanding was provided in annexure 1 to the MOU. iii. Out of the above liability, an amount of Rs.57,00,000/- was agreed to be adjusted from the amount payable to the appellant towards sale of the property. After such adjustment, the balance amount payable as on 15.11.2003 was worked at Rs.70,08,307/- which was inclusive of interest upto 15.11.2003. iv. The said amount of Rs.70,08,307/- was agreed to be paid by the appellant, by way of 30 monthly post dated cheques starting from 15th Nov. 2003 alongwith the interest calculated thereon as per annexure 2 to the MOU. v. The outstanding calculation given at annexure 1 is reproduced as under: Outstanding of Sangam (I) Ltd. Rs.68,55,283/- Outstanding SPBL Ltd. Rs. 38,63,185/- Total Rs.1,07,18,468/- Interest upto 23.07.2003 Rs. 30,01,171/- Total Rs.1,37,19,639/- Less: Payment received including interest On payment received (5lacs+1lacs) Rs. 6,00,000/- Less: Waiver of interest Rs. 7,00,000/- Net outstanding as on 25.07.2003 Rs.1,24,19,639/- Less: Amount to be adjusted from Sale proceeds Rs.57,00,000/- Balance amount to be paid in 30 installments Starting from 15.11.2003 Rs.67,19,639/- A.Y.2004-05 Add: Interest on above till 15.11.2003 Rs. 2,88,668/- Grand Total Rs.70,08,307/- 6. We have considered the rival contention and found that assessee is liable to pay out standing purchases amount to its creditor. For this purpose assessee had entered into MOU with the creditors. However, at the very same time we found that MOU so entered for payment of principle as well as interest was not acted upon, it means there is no material on record to suggest that actual interest has been paid. The CIT(A) has also pointed out that there is some calculation mistake pertain to last 5-6 years and as per the calculation submitted by the assessee before Assessing Officer, same is different from calculation given in the MOU. However, CIT(A) is not aggrieving with the interest provided for earlier years. As per our considered view, any liability for expenses can be claimed in the year of crystallization. In the instant case assessee had had not claimed interest expenditure in earlier years, however to settle the matter he entered into MOU with creditors to pay the same. The liability to pay interest for earlier year was crystallized during this year only. In view of all the contradictions pointed out by CIT(A), we restore the matter back to the file of Assessing Officer to examine the correctness of the interest so claimed with reference to actual amount due to earlier year. Assessing Officer is also directed to verify if assessee had actually made payment of interest in the subsequent year. If the Assessing Officer found that even after making provision in MOU, assessee has A.Y.2004-05 not made payment in subsequent year, because more that 7-8 years have been passed after the execution of the MOU, the Assessing Officer will be at the liberty to disallow the same. We directed accordingly.
As we have already set aside quantum appeal of assessee. After imposition of penalty assessee is also set aside to Assessing Officer for passing afresh after deciding the quantum as directed by the Tribunal.
After the execution of the MOU the appellant and his brother fail to honour the MOU and did not pay the amount to the assessee nor interest paid. In brief the actual amount if any payable to M/s. Sangam India Ltd. and SPBL Ltd. was not paid. Therefore, M/s. Sangam India Ltd. and SPBL Ltd. filed the suit no.985 of 2006 before the Hon’ble Bombay High Court. The contention of the assessee in connection with the calculation of the interest was on the basis of the annexure 1 of the MOU. The assessee and his brother did not honour the MOU and the cheques issued in pursuance of said MOU were dishonored by the banker of the appellant. The present case is for the A.Y.2004-05 and earlier to that there was no provision of interest. The provision of interest was made in view of the MOU but the same was not acted upon. Sangam India Ltd. and SPBL Ltd. filed the suit no. 985 of 2006 before the Hon’ble Bombay High Court to realize their amount. Appellant also provided details of the calculation of interest. A.Y.2004-05 But on comparison the revenue authority fail to match figure of Rs.53,76,200/- with the interest which has been shown in the MOU. The CIT(A) desired the working of interest from the assessee who submitted his letter dated 30.06.2011 furnishing the details which is reproduced as under:-
“As required by you the details of break up interest of Rs.53,76,200/- debited to profit and loss account for A.Y.2004- 05 based on MOU with creditor was already given as follows:
Financial year 2000-01 Rs.11,46,460/- Financial year 2001-02 Rs.13,58,509/- Financial year 2002-03 Rs.14,26,925/- Financial year 2003-04 Rs.14,46,299/- Your have now requested to give details how the same has been worked out. In this respect my submission is as follows:
Balance during year 2000 Rs.64,00,804/- Add Interest approx.@18% for year 2001-02Rs.11,46,468/- Balance on 31.3.2001 Rs.75,47,272/- Add Interest @ 18% for the year 2001-02 Rs.13,58,509/- Balance on 31.3.2002 Rs.89,05,781/- Add Interest @ 16% for the year 2002-03 Rs.14,24,925/- Balance on 31.3.2003 Rs.1,03,30,706/- Add Interest @ 14% for the year 2003-04 Rs.14,46,297/- Balance as on 31.3.2004 Rs.1,17,77,005/- A.Y.2004-05 When the said figure was compared by the CIT(A) the same was not found in accordance with the figure mentioned in the books of account. The said letter also speaks that the interest if any was also belonging to the financial year 2000-2001 to onwards but no provision of interest was mentioned in the books of account. In brief the interest which has been calculated and shown in the Profit & Loss A/c. did not match with the annexure 1 of the MOU. No distinguishable material has been placed on record before us. Factually no provision of interest was made in the earlier years when made in view of MOU then the same was not complied with therefore, in view of the said circumstances we are of the view that the CIT(A) has rightly decided the matter correctly and judiciously which does not require to be interfere with at this stage. Accordingly appeal filed by the assessee is dismissed.
The assessee has raised the following grounds:-
1) The learned CIT(A) has erred in law and in facts in upholding order of AO in levying penalty u/s.271(1)(c) of Rs.17,45,546/-. 2) The learned CIT(A) has erred in law and in facts that no appeal was filed against the assessment order disallowing interest claimed of Rs.53,76,200/- when actually appeal against order u/s.143(3) has been filed.
ISSUE NO. 1 & 2:- A.Y.2004-05 In brief the assessee challenged the penalty levied u/s.271(1)(c) of the Act on the ground of that the assessee had raised the bonafide claim of interest but the same was not accepted therefore in the said circumstances no penalty is liable to be leviable in view of the law settled in (2010) 322 ITR 158 (SC) CIT Vs. Reliance Petroproducts P. Ltd. and 329 ITR 572 (Del) CIT Vs. Dharampal Pramchand and 253 ITR 630 (P&H) CIT Vs. Ajaib Singh & Co. It is also argued that where two views are possible therefore in the said circumstances no penalty is leviable in view of the law settled in 259 ITR 212 (Raj.) CIT Vs. Harshavardhan Chemicals & Minerals Ltd. On the other hand learned representative of the department has strongly relied upon the order passed by the CIT(A) in question. The appeal of the assessee against the quantum has been upheld. In this regard the matter of controversy has been discussed above while deciding the ITA No.7462/M/2011. The assessee claimed the interest to the tune of Rs.53,76,200/- which was disallowed on the ground of that earlier to the relevant assessment year no provision of interest was retained in the account books and when the assessee claimed in the relevant assessment year then the same includes the interest payable to M/s. Sangam India Ltd. for the earlier year also i.e. 2000-01 to onwards. The MOU dated 29.07.2003 no doubt speaks the liability of the assessee to pay the interest but the figure did not match with the explanation of assessee in view of the letter dated 30.06.2011 as discussed above. The MOU never acted upon no payment was made A.Y.2004-05 the cheques issued by the assessee were bounced and the claim of the creditors went up to the Hon’ble Bombay High court as well as before the recovery Tribunal. Therefore, in the said circumstances it is a clear case of furnishing the inaccurate particulars just to evade the tax liability, therefore, in the said circumstances the law relied by the representative of the assessee has to no use. In view of the discussion made above the present is hereby dismissed.
In the result, both the appeals filed by the assessee are hereby dismissed.
Order pronounced in the open court on 5th August, 2016. (R.C.SHARMA) (AMARJIT SINGH) लेखा सद"य / ACCOUNTANT MEMBER "या"यक सद"य/JUDICIAL MEMBER मुंबई Mumbai; "दनांक Dated : 8th August, 2016 MP MP MP MP A.Y.2004-05