Mediavest India Pvt Limited, 135, Continental Buiklding, Dr Annuie Besand Road Worli, Mumbai-400018 Vs. Asstt.Commissioner of Income Tax -11(1), Room No.439, 4th Floor, Ayakar Bhavan, M.K.Road, Mumbai-400020
December, 22nd 2014
IN THE INCOME TAX APPELLATE TRIBUNAL "B" BENCH, MUMBAI
BEFORE S/SHRI D. KARUNAKAR RAO, (AM) AND AMIT SHUKLA, (JM)
. , ,
( / Assessment Year :2006-07)
Mediavest India Pvt Limited, / Asstt.Commissioner of Income Tax
135, Continental Buiklding, Dr -11(1),
Annuie Besand Road Worli, Room No.439,
Mumbai-400018 4th Floor,
( /Appellant) .. ( / Respondent)
. / . /PAN/GIR No. : AACCM429oK
/ Assessee by Shri Niraj Sheth
/Revenue by Shri Akhilendra Yadav
/ Date of Hearing
/Date of Pronouncement : 19.12.2014
/ O R D E R
PER AMIT SHUKLA, (JM)
The aforesaid appeal has been preferred by the assessee
challenging the order dated 30.5.2013 passed by ld. CIT(A)-3,
Mumbai in relation to penalty proceedings u/s 271 (1)( c ) for the
assessment year 2006-07.
2. The sole issue raised by the assessee in this appeal is that,
the ld. CIT(A) has erred in law and on facts in upholding the penalty
of Rs.1,02,06,807/-, levied by the AO u/s 271 (1)( c ) of the Income
Tax Act, 1961 (the Act).
3. The brief facts of the case are that the assessee company is
engaged in the business of promoting, controlling and managing
media related companies. During the relevant financial year, the
assessee company has promoted Diligent Media Corporation Ltd.
and had made investment in the said company for controlling 50%
interest in the said company. The said investment were made out of
borrowed funds as it was considered as part of assessee's business.
The assessee has paid interest of Rs.30,323,254/- during the year
on the secured loan taken by it. Such an interest was claimed as
business expenditure in the profits and loss account. The AO
required the assessee as to why disallowance u/s 14A of the Act
should not be made. In response, the assessee submitted that its
main business is promoting, controlling and managing media related
companies and in pursuance therewith, it has made investment in
Diligent Media Corporation Ltd., for acquiring controlling interest in
the said company. Since, the loan was mainly for business purpose
and therefore, the interest is allowable u/s 36(1)(iii), and no
disallowance should be made. In support of this contention, reliance
was placed on the decision of Hon'ble Calcutta High Court in the
case of CIT V/s Rajeeva Lochan Kanoria (1995) 208 ITR 616 and the
decision of the Hon'ble Gujarat High Court in the case of Addl. CIT
V/s Laxmi Agents(P) Ltd (1980)125 ITR 227 (Guj). However, the
AO rejected the assessee's contention and held that such an
interest should be capitalized as cost of investment. The order of the
AO has attained finality as in the appellate proceedings as the
assessee did not press for this ground. Now penalty has been
levied on such disallowance of interest made by the AO. During the
course of the penalty proceedings, the assessee made detailed
submissions/ explanation which has been incorporated by the AO in
the penalty order at pages 4 and 5. In sum and substance
assessee's explanation were are as under :
"1. The assessee submitted all relevant details in the return
of income and during the assessment proceedings.
2. The penalty is initiated on disallowance due to difference
of opinion/disallowance of bonafide claim and without proving
any concealment of submitting in accurate particulars or intent
to conceal (meansras)
3. Assessee relied on various judgments which held that
penalty cannot be levied for additions/disallowance made on
account of different of opinion/disallowance of bonafide claim.
4. Assessee also relied on various judgment that onus is on
the department to establish concealment or intent to conceal
income The assessee also quoted the judgments which dealt
and distinguished the judgment in the case of Dharmendra
Textiles and following various judgment of Apex court penalty
proceedings are required to be dropped in the instant case"
However, the AO as per his detailed reasoning, levied the penalty for
disallowance of interest of Rs.30,323,254/- at the rate of 100% of the
tax sought to be evaded and accordingly penalty was determined at
Rs. Rs.1,02,06,807/-. While levying penalty, the AO has relied upon
he decision of the Hon'ble Supreme Court in the case of UOI V/s
Dharmendra Textile Processors (2007) 295 ITR 244 (SC).
4. The ld. CIT(A) after analyzing the order of AO and the
submissions of the assessee held that there was conscious and
deliberate attempt on the part of the assessee to evade tax by
claiming interest payment on secured loan for its business purpose
and admittedly it is not allowable in the facts of the case. He too
referred the decision of Hon'ble Supreme Court in the case of
Dharmendra Textile Processors (supra)(2007) 295 ITR 244 (SC).
5. Before us, the ld.Counsel for the assessee submitted that the
assessee has given entire particulars of interest and while claiming
the expenditure u/s 36(1)(iii); the assessee had a bonafide belief for
such a claim, which was also supported by High Court decisions.
Moreover the disallowance has been made only on the ground that
such interest needs to be capitalized. Thus, in view of the principle
laid down in the case of CIT Vs. Reliance Petroproducts(P) Ltd. 322
ITR 158 (SC) no penalty should be levied. He further submitted that
the assessee's main business was investing in shares as a promoter
and to have controlling interest, therefore, its claim was bonafide at
the time of filing of return of income which is also supported by the
decision of the Hon'ble Gujarat High Court in the case of Rajeeva
6. On the contrary, the ld. DR strongly relied on the order of ld.
7. We have heard the rival submissions and perused the relevant
finding given in the impugned orders. It is an admitted fact that the
assessee is engaged in the business of promoting, controlling and
managing media related companies and in pursuance of such
business activity, it has made investment for requiring controlling
interest of 50% of the business of the said company, which was in
the media business only. This investment in shares have been made
out of borrowed funds on which the assessee has debited a sum of
Rs.30,323,254/- towards interest expenditure in the profit and loss
account, claiming it to be a business expenditure, u/s 36(1)(iii). In
support of such a claim, the assessee had placed reliance on the
decisions of certain High Courts. The AO held that management and
control of subsidiary companies cannot be a business by itself and
investment are made only for earning dividend or capital appreciation.
He disallowed the interest expenditure but at the same time allowed it
to be capitalized toward the costs of investment. Thus, the
disallowance has been made only on the ground that it is not
revenue expenditure but a capital expenditure which needs to be
capitalized towards the cost of investment. The assessee has
furnished all the particulars of the interest in , the profit and loss
account and submitted that the claim was on bonafide belief, based
on certain High Court Rulings and also the fact that assessee was
purely in the business of promoting and controlling the companies
relating to Media. Thus, such a claim cannot tantamount to
furnishing of inaccurate particulars of income or concealment of
income. In our opinion, no penalty either for concealment of income
or for furnishing of inaccurate particulars of income, can be levied.
As the assessee has furnished all the necessary information and the
addition has been made purely on ground that expenditure is a
capital expenditure and it should have been capitalized as cost of
investment. Under these facts, the ratio laid down by the Hon'ble
Supreme Court in the case of Reliance Petroproducts(P) Ltd(supra)
is squarely applicable. Thus, the penalty levied by the AO and
confirmed by the ld. CIT(A) is deleted.
8. In the result, the appeal filed by the assessee is allowed.
The above order was pronounced in the open court on 22nd Dec, 2014.
22 Dec ,2014
(. /D. KARUNAKAR RAO) ( / AMIT SHUKLA)
/ ACCOUNTANT MEMBER / JUDICIAL MEMBER
Mumbai: 22nd Dec,2014.
. ../ SRL , Sr. PS
/Copy of the Order forwarded to :
1. / The Appellant
2. / The Respondent.
3. () / The CIT(A)- concerned
4. / CIT concerned
5. , , /
DR, ITAT, Mumbai concerned
6. / Guard file.
/ BY ORDER,
, /ITAT, Mumbai