IN INCOME TAX APPELLATE TRIBUNAL B Bench, Mumbai Before Shri B.R. Baskaran (AM)& Ramlal Negi (JM) I.T.A. No. 6868/Mum/2014 (Assessment Year 1992-93) BOI Finance Ltd. DCIT Circle 2(1) (Since merged with Vs. Mumbai. Bank of India) Star House, 8 t h Floor C-5, G-Block Bandra Kurla Complex Bandra East Mumbai-400 051. (Appellant) (Respondent) PAN No.AAACB0472C Assessee by Shri C. Naresh Department by Smt. Vinita Menon Date of Hearing 16.6.2016 Date of Pronouncement 16.9.2016 ORDER Per B.R. Baskaran (AM) :- assessee has filed this appeal challenging order dated 13-08-2014 passed by Ld CIT(A)-4, Mumbai confirming penalty of Rs.38.00 lakhs levied by AO u/s 271(1)(c) of Act for assessment year 1992-93. 2. assessee was wholly owned subsidiary of Bank of India and it was engaged in activities of financing, trading in shares & securities, port folio management services. It has since been merged with Bank of India. penalty u/s 271(1)(c) of Act has been levied on following additions, which has since been confirmed by ITAT. (a) Commission on Share Application money - Rs.36.00 lakhs (b) Loss on valuation of securities - Rs. 7.84 lakhs. (c) Accrued interest on overdue lease rentals - Rs.28.16 lakhs 2 BOI Finance Ltd. Lad CIT(A) also confirmed penalty and hence assessee has filed this appeal before us. 3. first addition relate to commission of Rs.36.00 lakhs earned on Share application money. assessee had undertaken Portfolio Management Scheme (PMS) for M/s HPCL. It applied for Rights shares of Cement Corporation of Gujarat Ltd, which was issued on Private Placement Basis and invested sum of Rs.250,00,000/- from PMS for HPCL. According to AO, assessee was having right to receive commission, which was paid by way of shares. right to receive shares by way of commission arose to assessee in year relevant to AY 1992-93. Since assessee did not declare same, AO assessed value of shares amounting to Rs.36.00 lakhs as commission income of assessee. It is pertinent to note that this issue was set aside by ITAT to file of AO. In set aside proceedings also, assessee contended that it was entitled to only Portfolio Management Charges only and not to any commission as presumed by AO. However, assessee did not furnish any details, viz., details relating to purchase and sale of shares in account of HPCL etc., to substantiate its claim. Hence addition of Rs.36.00 lakhs was confirmed by Tribunal also. 4. Ld A.R submitted that assessee was entitled to only PMS charges only and all benefits shall go account of PMS client only. He submitted that assessee had assured minimum return at prescribed rate to PMS clients and same was assumed as payment of interest by tax authorities. He submitted that assessee shall be liable to pay income to PMS clients at prescribed rate, if income is less and it shall liable to pay actual income, if it is more than prescribed rate. Accordingly he submitted that benefits of rights shares shall accrue only to PMS clients and not to 3 BOI Finance Ltd. assessee. He submitted that addition of Rs.36.00 lakhs was confirmed by Tribunal only for reason that assessee could not furnish relevant evidences. He submitted that assessee was subsidiary of Government Bank and its accounts are duly audited. He submitted that assessee could not furnish details due to passage of time. Since addition has been made on presumptive basis, he prayed that penalty may kindly be deleted. 5. On contrary, Ld D.R submitted that addition of Rs.36.00 lakhs was confirmed by Tribunal, since assessee could not substantiate its claim. Accordingly he submitted that Ld CIT(A) has rightly confirmed penalty levied on this addition. 6. We heard rival contentions and perused record. In original assessment order, AO has observed as under:- Commission of Rs.36 lakhs received on share application money of Rs.286 lakhs was full accrued by company to PMS account of M/s HPCL. In Audit Report, Auditors have further observed that this share application money was further transferred to another PMS client M/s ARA and ultimately said application money was taken over by assessee company. In this respect it was further observed by Auditors that full of commission amount of Rs.36 lacs was accrued to HPCL account, whereas such commission can accrue only on allotment of shares. Since actual allotment was made to assessee company, therefore any commission on same should have been taken as income of assessee company. Clarification of assessee was taken by Auditors, in which it was contended that amount was not commission but same was in nature of front end fees. On this Auditors have observed that whatever may be nature of particular receipt, essence of receipts does not change. If said commission of Rs.36 lacs is considered as front end fees, question arises as to what were services rendered by PMS client HPCL, who were themselves hiring services of assessee company. It has further been observed that interest on application money has subsequently been received by assessee company till very date of buy back arrangement. 4 BOI Finance Ltd. In view of these facts, assessee was requested to explain why commission of Rs.36 lacs was not being considered as income of assessee since actual allotment was in name of company. In reply, it was stated that initial amount of Rs.250 lacs was invested out of PMS account of M/s Hindustan Petroleum for investment in right shares of Cement Corporation of Gujarat on private placement basis. Since there was dispute among Directors of company issue of shares was delayed. Subsequently, it was agreed that one Sumaraj Holdings Pvt Ltd will pay upfront fee to extent of Rs.36 lacs. Accordingly payment of Rs.250 lacs shares of value of Rs.286 lacs were acquired and since payment was made out of HPCL account, therefore, benefit on this account was correctly allowed. From facts discussed as above, it is evident that although initial investment was made from HPCL a/c, fact remains that actual allotment was made at time when assessee company was owner of that fund by transfer from PMS client, subsequent interest etc has also been received by assessee company. transaction has been managed by assessee company and not PMS client. Therefore, any benefit on this account has certainly to be considered as income of assessee company. In view of these facts amount of Rs.36 lacs is being treated as income of assessee company. In view of these facts amount of Rs.36 lacs is being treted as income of assessee and same is being added to income of assessee. above said observation made by AO, which is based on auditor s report, would show that assessee initially made investment of Rs.250 lacs from PMS account of M/s HPCL. Subsequently it was shifted from HPCL account to M/s ARA Account and later same was shifted to assessee s own account. Hence tax authorities have taken view that payment of Rs.250 lacs was ultimately made by assessee. It was further observed that interest for delayed allotment was received by assessee. Against payment of Rs.250 lacs, shares worth Rs.286 lacs of Cement Corporation of Gujarat Ltd were acquired. It is further stated that the upfront fee of Rs.36 lacs was paid by another person named M/s Sumaraj holdings P Ltd. tax authorities have observed that difference between Rs.286 lacs and 5 BOI Finance Ltd. Rs.250 lacs represent commission payment. Since assessee has carried out these transactions ultimately in its own account, tax authorities have taken view that commission income of Rs.36 lacs is assessable in hands of assessee. We notice that assessee could not furnish any details to contradict this finding given by tax authorities and hence Tribunal has also upheld addition. 7. In penalty proceedings also, assessee could not furnish any details to contradict findings given by tax authorities. AO has also observed that assessee has not discharged burden placed upon it under Explanation 1 to sec. 271(1)(c) of Act. Though penalty proceedings are considered as separate proceedings, yet finding given in assessment order can be taken support of to decide issue of penalty. What we notice is that company M/s Cement Corporation of Gujarat Ltd has received sum of Rs.286 lakhs, viz., Rs.250 lakhs from assessee and Rs.36 lakhs from M/s Sumaraj Holdings P Ltd. Against said amount, it has allotted shares for Rs.286 lakhs. Thus difference of Rs.36 lakhs assessed as commission income in hands of assessee appears to relate to payment made by M/s Sumaraj Holdings P Ltd as upfront fee. questions as to why above said company made upfront payment and how it has been compensated for remain unanswered. We notice that assessee has repeatedly stated that it has received only PMS charges and all benefits accrue to PMS clients only. It is contention of assessee that it could not furnish details due to passage of time. Hence we are of view that addition of Rs.36 lakhs cannot be said to have been confirmed on basis of concrete materials. Tribunal has also confirmed addition on reasoning that assessee has failed to furnish details. Under these set of facts, we are of view that non-furnishing of details may lead to addition, but same may not lead to 6 BOI Finance Ltd. penalty in facts and circumstances of case, since very addition has been made by drawing inferences on facts available on record. Accordingly we set aside order passed by Ld CIT(A) on this issue and direct AO to delete penalty levied on this addition. 8. next addition relate to loss on valuation of investments. assessee treated investments as part of stock in trade and accordingly provided for erosion in value of investments as at year end and claimed same as deduction. AO has treated same as part of Investments and did not recognise valuation. Accordingly he disallowed claim of Rs.7,48,614/-. Ld CIT(A) as well as ITAT confirmed addition by stating that assessee has failed to show that same was held as stock in trade. penalty levied by AO on this addition was also confirmed by ld CIT(A). 9. We have heard parties on this issue and perused record. We notice assessee has claimed provision for fall in value of stock as deduction by treating same as Stock in trade . However, tax authorities have treated stock as Investments and accordingly disallowed claim. We notice that there is no allegation that assessee has concealed any particulars of income. In case of Reliance Petro Products Ltd (322 ITR 158) has held that deduction claimed, if not sustainable in law, would not give rise to furnishing of inaccurate particulars of income. In any case, this addition has been made only on account of change of head of income. Hence we are of view that there is no justification for levying penalty on this addition. Accordingly we set aside order passed by Ld CIT(A) on this issue and direct AO to delete penalty levied on this addition. 10. next addition relates to addition of accrued interest on overdue lease rentals. auditors noticed that penal interest leviable on overdue 7 BOI Finance Ltd. lease rentals was short charged to extent of Rs.28,16,398/-. In original assessment proceedings, assessee s reply is narrated as under by AO:- In reply it was stated that assessee was not in agreement with observations of auditors. company charged overdue interest on unpaid lease rentals for this year amounting to Rs.23.24 lakhs during subsequent year and amount was included as income for that year. It is further stated that company waived interest chargeable on delayed payments in certain cases of lease rentals. It was further stated that no bifurcation of amount of Rs.1.07 crores shown under column interest charged during year 1992-93 was made and this amount included interest charged for year 1991-92. Certain other examples have also been given where overdue interest received and declared as income for year 1991-93 has not considered by auditors. AO was not convinced with explanations of assessee and hence added amount of Rs.28.16 lacs. Since assessee could not furnish exact details, same was confirmed by appellate authorities. AO levied penalty on this addition and same was also confirmed by Ld CIT(A). 11. We heard parties on this issue and perused record. We notice from explanations given by assessee before AO that (a) part of penal interest was waived. (b) part of penal interest was accounted in succeeding year. (c) interest income shown in FY 1992-93 includes interest pertaining to FY 1991-92. At time of hearing, Ld A.R submitted that penal interest was accounted mostly on receipt basis, since recovery of regular interest was uncertain. We notice that assessee has offered plausible explanation with regard to non-accounting of penal interest. We notice that though assessee could not give break up details, yet explanation offered appears to be reasonable, since same is quite normal in case of financing activities. Accordingly we are of view that there is no reason to reject explanations 8 BOI Finance Ltd. given by assessee on this issue. Accordingly we set aside order passed by Ld CIT(A) on this issue and direct AO to delete penalty levied on this addition. 12. In result, appeal filed by assessee is allowed. Order has been pronounced in Court on 14.9.2016 Sd/- Sd/- (RAMLAL NEGI) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated : 14/9/2016 Copy of Order forwarded to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// (Dy./Asstt. Registrar) ITAT, Mumbai PS BOI Finance Ltd. (Since merged with Bank of India) v. DCIT, Circle 2(1), Mumbai