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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
                   ,   "" 

  .   ,        ,                                  

                  ./I.T.A. No.5245/Mum/2013
                 (   / 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,
                                      Ayakar Bhavan,

       ( /Appellant)              ..    (    / Respondent)

          . /   . /PAN/GIR No. : AACCM429oK

            / Assessee by              Shri Niraj Sheth

              /Revenue by              Shri Akhilendra Yadav

             / Date of Hearing
                                            :   27.11.2014
            /Date of Pronouncement : 19.12.2014

                                / O R D E R


       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
                                   2                          5245/Mum/2013

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
                                  3                       5245/Mum/2013

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"
                                  4                       5245/Mum/2013

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
                                   5                         5245/Mum/2013

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

Lochan Kanoria(supra).

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.
                                   6                      5245/Mum/2013

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.
                                     7                        5245/Mum/2013

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    

       sd                                         sd
(.   /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,
true copy
                                               (Asstt. Registrar)
                                     ,  /ITAT, Mumbai
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