Commissioner of Income Tax vs H.B. Leasing and Finance Co. Ltd.

In the income tax return filed by the Assessee pertaining to the assessment year 1994-95, the Assessee had declared an income of Rs. 36,50,410. The Assessing Officer made additions to the said income declared by the Assessee on three counts, which are as under:

(i) The intercorporate dividend was not actually distributed and still deductions were sought of an amount of Rs. 23,54,742 u/s 80M of the income tax Act, 1961 (hereinafter referred to as "the Act"). The Assessing Officer found that though the aforesaid amount was earmarked and deposited in a separate account, unless the amount was actually distributed, the Assessee was not entitled to deductions thereof and coming to this conclusion, the Assessing Officer relied upon the judgment of the Supreme Court in the case of PUNJAB DISTILLING INDUSTRIES LTD. Vs. COMMISSIONER OF Income Tax, PUNJAB.,

(ii) Another addition of Rs. 1,90,511 on account of share transfer was made disallowing the said expenditure on the ground that it was capital in nature.

(iii) Club expenses in the sum of Rs. 11,359 claimed by the Assessee were also disallowed and additions were made.

While passing this assessment order, the Assessing Officer also initiated separate penalty proceedings u/s 271(1)(c) of the Act and served a show-cause notice to the Assessee. After eliciting their reply and examining the matter, the Assessing Officer enforced penalty of Rs. 1,47,00,051 on all the aforesaid three counts. The Commissioner of income tax (Appeals) upheld this penalty, however, in further appeal preferred by the Assessee, the income tax Appellate Tribunal (hereinafter referred to as "the Tribunal") vide the impugned order dated October 9, 2009 has deleted the penalty.

In so far as the claim of deduction u/s 80M of the Act is concerned, the Tribunal has opined that it was a debatable issue. No doubt, as per the judgment of the Supreme Court in PUNJAB DISTILLING INDUSTRIES LTD. Vs. COMMISSIONER OF Income Tax, PUNJAB., the claim could not be made unless the amount actually disbursed on the interpretation of the word "distribution" given by the Supreme Court therein, the question in the present case was as to whether the conditions stipulated u/s 80M of the Act stood fulfilled when the amount in question, which was to be distributed as dividend, was kept aside in a separate bank account. In the facts of this case, we are of the opinion that this issue is debatable. We say so because of the reason that not only in the quantum proceedings the Commissioner of income tax (Appeals) had deleted the additions, even when the Tribunal reversed the order of the Commissioner of income tax (Appeals) and this Court also dismissed the appeal of the Assessee, the Supreme Court has remitted the case back to this Court and the issue stands admitted. Once the appeal, i.e., I.T.A. No. 612 of 2004 preferred by the Assessee has been admitted that would show that substantial question of law on the interpretation is involved. The issue is thus clearly debatable.

In so far as disallowance of share transfer expenses is concerned, the Tribunal has recorded that this disallowance was made as the Assessing Officer suspected the same to be expenses relating to the share capital increase and on that count held it to be capital in nature. However, it was not disputed that the expenditure was incurred in fact. Likewise, in respect of the club expenses, the observation of the Tribunal is that the claim, which was for a paltry amount of Rs. 11,359, was not mala fide.

Having regard to the aforesaid, we are of the opinion that no question of law arises. The appeal is dismissed.