DIVINE HOLDINGS P. LTD, MUMBAI v. DCIT C EN CIR 31, MUMBAI

ITA 3617/MUM/2009 | 2006-2007
Pronouncement Date: 31-05-2010

Appeal Details

RSA Number 361719914 RSA 2009
Assessee PAN AAACD4959J
Bench Mumbai
Appeal Number ITA 3617/MUM/2009
Duration Of Justice 11 month(s) 27 day(s)
Appellant DIVINE HOLDINGS P. LTD, MUMBAI
Respondent DCIT C EN CIR 31, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-05-2010
Appeal Filed By Assessee
Bench Allotted D
Tribunal Order Date 31-05-2010
Date Of Final Hearing 12-04-2010
Next Hearing Date 12-04-2010
Assessment Year 2006-2007
Appeal Filed On 03-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D BEFORE S/SHRI N.V. VASUDEVAN (JM) & T.R. SOOD (AM) I.T.A.NO. 3617/MUM/2009 (ASSESSMENT YEAR : 2006-0 7) M/S. DIVINE HOLDINGS PVT. LTD. 32 MADHULI 3 RD FLOOR DR. ANNIE BESANT ROAD NEHRU CENTRE WORLI MUMBAI-400 018. VS. DCIT CENTRAL CIRCLE31 MUMBAI. APPELLANT RESPONDENT PAN/GIR NO. : AAACD4959J ASSESSEE BY : SHRI NILESH MEHTA DEPARTMENT BY : DR.P. DANIEL ORDER PER N.V. VASUDEVAN JM :- THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 20.3.2009 OF LEARNED CIT(A)-CENTRAL IV MUMBAI RELA TING TO A.Y. 2006-07. 2. AT THE TIME OF HEARING OF THIS APPEAL LEARNED C OUNSEL FOR THE ASSESSEE DID NOT PRESS FOR ADJUDICATION GROUND NO. 1 2&4 AND THESE GROUNDS ARE THEREFORE DISMISSED. 3. GROUND NO. 3 RAISED BY THE ASSESSEE READS AS FOL LOWS :- LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CON FIRMING DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES AMOUNT ING TO RS. 8 09 700/-. 4. FACTS AND CIRCUMSTANCES GIVING RISE TO THE ABOVE GROUNDS OF APPEAL ARE AS FOLLOWS :- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BU SINESS OF TRADING AND INVESTMENTS IN SECURITIES. THE ASSESSEE WAS A NOTIFIED PERSON UNDER SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT 1992; AND ALL HIS ASSETS INCLUDING BANK ACCOUNTS WERE M/S. DIVINE HOLDINGS PVT. LTD. 2 ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN A PPOINTED UNDER THE SAID ACT. ONE OF THE SOURCES OF INCOME OF THE ASSES SEE WAS INTEREST ON TERM DEPOSITS. THE ASSESSEE WAS NOTIFIED AS A NOTIF IED PERSON AND ALL SHARES AND MONIES IN THE BANK ACCOUNTS WERE ATTACHE D BY THE CUSTODIAN. THE SHARES ATTACHED WERE SOLD. THE MONI ES IN THE BANK ACCOUNT OF THE ASSESSEE AS WELL AS SALE PROCEEDS O F SHARES THAT WERE ATTACHED AND WERE INVESTED IN FIXED DEPOSITS WITH V ARIOUS BANKS AS PER THE ORDER OF THE SPECIAL COURT. THE ASSESSEE EARNED AN INTEREST ON TERM DEPOSITS WITH THE BANKS. AS AGAINST THE ABOVE INCOM E THE ASSESSEE CLAIMED DEDUCTION OF INTEREST LIABILITY OF RS. 8 09 700/-. THE ASSESSEE SUBMITTED THAT IT BORROWED FUNDS IN COURSE OF ITS B USINESS AND UTILIZED THOSE FUNDS TO PURCHASE SHARES. APART FROM THE ABOV E THE ASSESSEE ALSO PURCHASED SHARES FROM THREE BROKERAGE FIRMS OF M/S. HARSHAD MEHTA; M/S. ASHWIN S. MEHTA AND M/S. J.H. MEHTA ON CREDIT. THE ASSESSEE FURTHER SUBMITTED THAT THE CUSTODIAN HAS FILED MISC ELLANEOUS PETITION NO. 41 OF 1999 BEFORE THE SPECIAL COURT AND HAS CLAIMED INTEREST ON MONIES PAYABLE BY THE ASSESSEE TO THE FIRMS FROM WHICH AS SESSEE PURCHASED SHARES ON CREDIT. THE ASSESSEE THUS SUBMITTED THA T INTEREST EXPENSES THAT IT MIGHT INCUR CONSEQUENT TO THE CLAIM OF THE CUSTODIAN CAN BE SAID TO BE INTEREST ATTRIBUTABLE TO EARNING OF INTEREST ON SHORT TERM DEPOSITS; AND THEREFORE THE ASSESSEE WAS ENTITLED TO CLAIM DE DUCTION. THE REVENUE AUTHORITIES HOWEVER REJECTED THE CLAIM OF THE ASS ESSEE ON THE GROUND THAT THE INTEREST LIABILITY HAS BEEN QUANTIFIED BY THE SPECIAL COURT AND LIABILITY CAN ACCRUE ONLY AFTER SUCH QUANTIFICATION . AGGRIEVED BY THE ORDER OF LEARNED CIT(A) THE ASSESSEE HAS RAISED THE AFOR ESAID GROUNDS OF APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING OF THIS APPEAL IT WAS BR OUGHT TO OUR NOTICE THAT IN THE CASE OF ANOTHER NOTIFIED PERSON ON IDEN TICAL FACTS THIS TRIBUNAL IN THE CASE OF M/S. AATUR HOLDINGS PVT. LT D. VS. DCIT IN ITA NO. 147/MUM/2008 FOR A.Y. 2000-01 DATED 13.6.2008 REMAN DED THE MATTER TO LEARNED CIT(A) FOR FRESH CONSIDERATION GIVING OP PORTUNITY TO THE ASSESSEE TO ESTABLISH THAT INTEREST EXPENSES RELATE S TO F.Y. AND IS A M/S. DIVINE HOLDINGS PVT. LTD. 3 LEGITIMATE BUSINESS EXPENSES. FACTS AND CIRCUMSTANC ES BEING IDENTICAL. WE DEEM IT FIT AND PROPER TO RESTORE THIS ISSUE TO THE LEARNED CIT(A) FOR FRESH CONSIDERATION GIVING THE ASSESSEE AN OPPORTUN ITY TO EXPLAIN AS TO HOW INTEREST EXPENSES CLAIMED BY THE ASSESSEE CAN B E SAID TO BE EXPENSES INCURRED FOR THE PURPOSE OF EARNING INTERE ST INCOME. LEARNED CIT(A) WILL AFFORD OPPORTUNITY OF BEING HEARD TO TH E ASSESSEE AND DECIDE THE ISSUE AFRESH. 6. GROUND NO. 5 READS AS FOLLOWS :- LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN CAL CULATING BOOK PROFIT U/S. 115JB AMOUNTING TO RS. 42 23 883/-. 7. ON THIS ISSUE RAISED IN GROUND NO. 5 THE TRIBUN AL IN THE CASE OF ORION TRAVELS PVT. LTD. IS RELATED ENTITY OF THE A SSESSEE HAS DISMISSED THE SIMILAR ISSUE WITH FOLLOWING OBSERVATIONS :- AS REGARDS GROUND NO.8 REGARDING COMPUTATION OF BOOK PROFITS U/S 115JB WE FIND THAT THE ASSESSEE HAS BEEN TAXED UNDER THE NORMAL PROVISIONS OF THE ACT AND NOT ON THE BOOK PROFITS U/S 115JB. IN THE CIRCUMSTANCES WE ARE NOT CONSIDERING THIS ISSUE AND DISMISS THE APPEAL ON THIS ISSUE AS INFRUCTUOUS WIT H A DIRECTION THAT IN CASE THE ASSESSEE AT A LATER ST AGE IS ASSESSED ON THEIR BOOK PROFITS U/S 115JB IT WIL L BE OPEN FOR THE ASSESSEE TO RAISE THESE CONTENTIONS AT THAT TIME 8. WE ARE OF THE VIEW THAT SIMILAR DIRECTIONS WOULD BE APPROPRIATE IN THE PRESENT CASE AND WE DIRECT ACCORDINGLY. 9. GROUND NO. 6 READS AS FOLLOWS :- LEARNED CIT(A) HAS ERRED IN LAW AND IN FACTS IN NOT APPRECIATING THAT THE INTEREST CHARGED U/S. 234A A 234B AND 234 C OF THE ACT ARE CORRECT. 10. IN THE CASE OF ORION TRAVELS PVT. LTD. VS. ACIT A RELATED ENTITY OF THE ASSESSEE IN ITA NO. 6888/MUM/2008 FOR A.Y. 2004 -05 THIS TRIBUNAL ON AN IDENTICAL ISSUE HELD AS FOLLOWS :- M/S. DIVINE HOLDINGS PVT. LTD. 4 23. AS REGARDS THE LAST GROUND NO 9 REGARDING THE LEVY OF INTEREST UNDER SEC 234A 234B AND 234C THE ASSE SSEE IS A NOTIFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT 1992 A ND ALL ITS ASSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VE STED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT. FROM THE DATE OF FUNCTIONING OF THE COURT I.E. 1.6 .1992 THE DISTRIBUTION OF MONIES IN CASE OF NOTIFIED PERSONS WILL BE DECIDED BY THE SPECIAL COURT. THE TAXES DO NOT HAVE THE PRIORITY IN SETTLEMENT. EVEN IF A NOTIFIED PERSON H AD WANTED TO PAY THE ADVANCE TAX IT WAS NOT WITHIN HIS CONTROL T O DO SO. HE HAS TO MAKE AN APPLICATION TO THE CUSTODIAN AND ONL Y HE CAN PERMIT PAYMENT OF ADVANCE TAX AFTER OBTAINING APPRO VAL FROM THE SPECIAL COURT. THE SPECIAL COURT IN ITS RULING HAS OBSERVED AS UNDER: WHERE A NOTIFIED PARTY IS PREVENTED BY REASON OF NOTIFICATION FROM DOING THINGS WHICH ARE REQUIRED TO BE DONE BY HIM UNDER OTHER ACTS OR CONTRACTS. IN SUCH CASES IF THE PROVISION OF THE SPECIAL COURTS ACT PREVENTS A NOTIFIED PARTY FROM DOING THAT THING TH EN BY REASON OF THIS LEGAL DISABILITY NO PENALTY OR INTEREST CAN BE LEVIED ON THAT PARTY. THUS NO PENAL TY OR INTEREST CAN BE IMPOSED FOR NON-FULFILLMENT OF A N ACT WHICH A NOTIFIED PARTY IS PREVENTED FROM DOING BY REASON OF THE SPECIAL COURT ACT. IN SUCH CASES EVE N THOUGH THE PROVISIONS OF SOME OTHER ACT OR CONTRACT LAY DOWN CONSEQUENCES FOR NON-PERFORMANCE THE PROVISIONS OF THE SPECIAL COURTS ACT WILL PREVAIL. THIS IS BECAUSE IN SUCH CASES THERE WOULD BE A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COUR TS ACT AND THAT OTHER LAW AND/OR CONTRACT. IN CASES O F SUCH CONFLICT THE PROVISIONS OF THE SPECIAL COURT ACT MUST PREVAIL. TO TAKE AN EXAMPLE UNDER SECTION 234B OF THE INCOME TAX ACT EVERY ASSESSEE IS LIABLE TO PAY ADVANCE TAX. ALL PARTIES WERE NOTIFI ED BETWEEN JUNE 1992 TO AUGUST 1992. ALL OF THEM WOULD BE LIABLE TO ADVANCE TAXES FOR THE FINANCIAL YEAR ENDING MARCH 1993 AND FOR THE SUBSEQUENT YEARS HOWEVER AS SEEN EARLIER TAXES ONLY UPTO ASSESSMENT YEAR 1992-93 CAN BE PAID IN PRIORITY. THESE WOULD HAVE TO RANK AS ORDINARY DEBTS UNDER SECTION 11(2)(C ). THIS THEREFORE CAN ONLY BE RELEASED AFTER THE ENTIRE DISTRIBUTION HAS TAKEN PL ACE. M/S. DIVINE HOLDINGS PVT. LTD. 5 EVEN IF THE NOTIFIED PARTY WERE TO MAKE AN APPLICATION TO THIS COURT TO PAY THE ADVANCE TAX T HE COURT WOULD REFUSE IT. THUS MONIES FOR PAYMENT OF ADVANCE TAX HAVE NOT BEEN RELEASED. THUS A NOTIFIED PARTY HAS BEEN PREVENTED FROM PAYING ADVANCE TAX. THUS UNDER THE SPECIAL COURTS ACT THERE IS A LEGAL DISABILITY TO PAY ADVANCE TAX. YET UNDER THE INCOME TAX ACT THERE IS A COMPULSION TO PAY ADVANCE TAX. THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND THE INCOME TAX ACT. THE PROVISIONS OF THE SPECIAL COURTS ACT MUST PREVAIL. UNDER THE INCOME TAX ACT IF ADVANCE TAX IS NOT PAID FOR SUCH NON-PAYMENT INTEREST CAN BE LEVIED. THIS OBVIOUSLY ON THE FOOTING THAT THE ASSESSEE IS IN DEFAULT. HOWEVER A NOTIFIED PARTY HAS BEEN PREVENTED BY LAW FROM PAYING ADVANCE TAX. HE IS NOT A DEFAULTING PARTY. HE NEITHER HAS NOT PAID ADVANCE TAX BECAUSE OF LEGAL RESTRAINT ON HIM. THE LAW HAS PREVENTED HIM FROM PAYING ADVANCE TAX. IN MY VIEW IN SUCH CASES I.E. WHERE THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE SPECIAL COURTS ACT AND SOME OTHER ACT/CONTRACT THE CONTRARY PROVISIONS MUST NECESSARILY GIVE WAY. IF THERE IS THIS LEGAL DISABILITY THEN THERE IS NO TH E QUESTION OF THE NOTIFIED PARTY BEING FOISTED WITH T HE LIABILITY TO PAY INTEREST AND/OR PENALTY. 24. IN THE BACKDROP OF THE ABOVE IT WAS IMPOSSIBLE FOR THE ASSESSEE TO HAVE PAID THE ADVANCE TAX EVEN IF HE HA D WANTED TO. IT IS A WELL KNOWN LEGAL DICTUM LEX NON COGITA D IMOSSIBILIA (LAW CANNOT COMPEL YOU TO DO THE IMPOS SIBLE). ASSESSEE CANNOT THEREFORE BE FOISTED WITH INTEREST LIABILITY U/S 234A 234B AND 234C. INTEREST U/S 234B AND 234C ARE DIRECTLY RELATED TO PAYMENT OF ADVANCE TAX AND HENCE IS NOT LEVIABLE ON NOTIFIED PERSONS. EVEN THOUGH LEVY OF INTEREST U/S 234A IS REALLY ON THE DELAY IN FILING THE RETURN WHICH IS A DEFAULT COMMITTED BY THE ASSESSEE THE QUANTIFICATION OF TH E SAME DEPENDS ON THE ADVANCE TAX PAID WHICH IN THIS CASE IS NOT WITHIN THE CONTROL OF THE ASSESSEE. HENCE INTEREST U/S 234A CANNOT ALSO BE LEVIED IN THE CASE OF A PERSON A NOT IFIED PERSON UNDER THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES) ACT 1992 AND ALL ITS A SSETS INCLUDING BANK ACCOUNTS WERE ATTACHED AND VESTED IN THE HANDS OF THE CUSTODIAN APPOINTED UNDER THE SAID ACT . M/S. DIVINE HOLDINGS PVT. LTD. 6 25. THE CO-ORDINATE BENCH IN THE CASE OF DIVINE HOL DINGS PVT. LTD V DCIT IN ITA NO180/M/2000 DT. 26.6.2001 H AS HELD THAT CIT(A) IS RIGHT IN ADMITTING THE APPEAL OF A N OTIFIED PERSON EVEN THOUGH THE TAX ON THE RETURNED INCOME HAS NOT BEEN PAID BY HIM. IN COMING TO THIS CONCLUSION THEY HAD RELIE D ON THE ABOVE PASSAGE OF THE SPECIAL COURT. 26. IN THE CIRCUMSTANCES WE DIRECT THAT INTEREST U /S 234A 234B AND 234C SHOULD NOT BE LEVIED ON THE ASSESSEE FOR THE ASSESSMENT YEAR UNDER APPEAL. 11. IN THE LIGHT OF THE AFORESAID DECISION WE HOLD THAT INTEREST U/S. 234A B&C SHOULD NOT BE LEVIED IN THE CASE OF THE AS SESSEE. 12. IN THE RESULT APPEAL BY THE ASSESSEE IS PARTLY ALLOWED. ORDER HAS BEEN PRONOUNCED ON 31 ST DAY OF MAY 2010. SD/- (T.R. SOOD) ACCOUNTANT MEMBER SD/- (N.V. VASUDEVAN) JUDICIAL MEMBER DATED : 31 ST MAY 2010 COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT CONCERNED. 5. THE DR CONCERNED MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR ITAT MUMBAI PS