Chem Process Systems Pvt. Ltd., Ahmedabad V. The Dy.CIT, (OSD), Range-1, Ahmedabad

CO 246/AHD/2014

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2891 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 8 month(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 19-04-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-04-2017
• Assessment Year: 2007-2008
• Appeal Filed On: 19-08-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Bonafide belief; Wrong claim; Bonafide mistake

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.1333/AHD/2014 ( / ASSESSMENT YEAR : 2007-08) & CROSS OBJECTION NO.246/AHD/2014 - AY 2007-08 ( IN ITA NO.1333/AHD/2014 AY 2007-08 ) DY.CIT (OSD) RANGE-1 AHMEDABAD / VS. M/S.CHEM PROCESS SYSTEMS PVT.LTD. 15, NATRAJ INDUSTRIAL ESTATE SANAND, VIRAMGAM HIGHWAY VASNA-IYAVA, SANAND AHMEDABAD # ./ ./ PAN/GIR NO. : AABCC 5915 A ( #& / APPELLANT ) .. ( '#& / RESPONDENT ) & CROSS OBJECTOR REVENUE BY : MR. JAMES KURIAN, SR.DR ASSESSEE BY : MR. S.N. DIVATIA, AR () *+ / DATE OF HEARING 12/04/2017 ,-./ *+ / DATE OF PRONOUNCEMENT 19/ 04 /2017 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE CAPTIONED APPEAL OF THE REVENUE IS DIRECTED AGA INST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-6, AHMED ABAD [CIT(A) ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 2 - IN SHORT] DATED 11/02/2014 PERTAINING TO ASSESSMEN T YEAR (AY) 2007-08 WHEREIN PENALTY OF RS.14.53 LAKHS IMPOSED BY THE A SSESSING OFFICER (AO) VIDE ORDER DATED 30/03/2012 WAS DELETED BY THE CIT(A). THE ASSESSEE HAS ALSO FILED CROSS OBJECTION THEREON. 2. THE REVENUE IS AGGRIEVED BY THE ACTION OF THE CIT(A) IN DELETING THE PENALTY ON DISALLOWANCE OF LIQUIDATED DAMAGES O F RS.40 LACS. 3. THE LD.DR MR.JAMES KURIAN RELIED UPON THE ORDER OF THE AO FOR IMPOSITION OF PENALTY. 4. THE LD.AR MR.S.N.DIVATIA SUBMITTED AT THE OUTSE T THAT THE PENALTY WAS DELETED BY THE CIT(A) ON A SOUND BASIS. THE LD .AR POINTED OUT THAT THE ASSESSEE HAD CLAIMED LIQUIDATED DAMAGES AS BUSINESS EXPENSES PAID TO M/S.DCW LTD. THE AMOUNT WAS PAID IN ACCORD ANCE WITH THE AGREEMENT DATED 18/07/2007. IT WAS THE BELIEF OF THE ASSESSEE THAT THE LIABILITY HAD CRYSTALLIZED DURING THE FINANCIAL YEA R 2006-07 RELEVANT TO AY 2007-08 ALTHOUGH THE AGREEMENT WAS EXECUTED IN THE SUBSEQUENT YEAR. THE LD.AR SUBMITTED IN THE SAME VAIN THAT THE LIQU IDATED DAMAGES NEVERTHELESS HAVE BEEN ACCEPTED AS A BONAFIDE CLAIM AND WAS ALLOWED AS BUSINESS EXPENDITURE IN SUCCEEDING ASSESSMENT YEAR. THE LD.AR ACCORDINGLY SUBMITTED THAT UNDER THE CIRCUMSTANCES WHERE THE CLAIM OF LIQUIDATED DAMAGES HAVE BEEN ULTIMATELY ACCEPTED IN ONE YEAR OR THE ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 3 - ANOTHER, PENALTY OF ONEROUS NATURE U/S.271(1)(C) OF THE ACT OUGHT NOT TO HAVE BEEN IMPOSED BY EXERCISING STATUTORY DISCRETIO N AVAILABLE TO THE AO IN FAVOUR OF THE ASSESSEE. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES IN PENALTY PROC EEDINGS AS WELL AS IN QUANTUM PROCEEDING. THE SOLITARY QUESTION IN THE A PPEAL OF THE REVENUE IS TOWARDS JUSTIFICATION OF IMPOSITION OF PENALTY O N BUSINESS EXPENSES CLAIMED TOWARDS LIQUIDATED DAMAGES WHICH WAS DISALL OWED IN THE QUANTUM. WE NOTICE FROM THE ORDER OF THE CIT(A) TH AT LIMITED DISPUTE FOR ALLOWABILITY OF BUSINESS EXPENDITURE TOWARDS LI QUIDATED DAMAGES IS THE POINT OF TIME WHEN THE AFORESAID EXPENDITURE IS SAID TO HAVE BEEN INCURRED. THE ASSESSEE CONTENDED IN THE QUANTUM PR OCEEDINGS THAT THE EXPENDITURE IS RELATABLE TO AY 2007-08 WHICH WAS NO NETHELESS ALLOWED AS A BUSINESS EXPENDITURE BY THE REVENUE IN THE SUC CEEDING ASSESSMENT YEAR. WE TAKE NOTE THAT THE ASSESSEE HAS DECLARED TAXABLE INCOME IN BOTH THE ASSESSMENT YEARS AND ACCORDINGLY THERE IS NO AP PARENT LOSS TO THE REVENUE BY ADMITTING THE BUSINESS EXPENDITURE IN ON E YEAR OR THE ANOTHER. THE BONAFIDES OF THE EXPENDITURE CLAIMED HAS NOT BEEN IN DOUBT AT ANY STAGE OF THE PROCEEDINGS. THE ONLY DISPUTE WAS REGARDING THE CRYSTALLIZATION OF LIABILITY IN A GIVEN ASSESSMENT YEAR. IN THESE CIRCUMSTANCES, WE CONCUR WITH THE VIEW TAKEN BY THE CIT(A) THAT STATUTORY DISCRETION VESTED WITH THE AO WHILE EXERC ISING THE POWERS ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 4 - CONFERRED UNDER S.271(1)(C) OF THE ACT OUGHT TO HAV E BEEN EXERCISED IN FAVOUR OF ASSESSEE. IN THE ABSENCE OF ANY CULPABIL ITY IN THE ACTION OF THE ASSESSEE IN CLAIMING THE BUSINESS EXPENDITURE THE C ONSEQUENCE IN THE FORM OF PENALTY IS NOT JUSTIFIED. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ASSESSEES CROSS OBJECTION NO.246/AHD/2014 AY 200 7-08 7. THE ASSESSEE IN ITS CROSS OBJECTION HAS ALSO CHA LLENGED THE ACTION OF THE CIT(A) IN CONFIRMING THE PENALTY ON DISALLOW ANCE OF INCOME-TAX EXPENDITURE OF RS.9,39,330/- AND DISALLOWANCE OF PE NALTY OF RS.10,800/- PAID UNDER SHOP AND ESTABLISHMENT ACT. 8. THE LD.AR FOR THE ASSESSEE SUBMITTED THAT THE AS SESSEE HAS INADVERTENTLY COMMITTED THE ERROR IN NOT MAKING ADJ USTMENTS TOWARDS INCOME TAX EXPENSES OF RS.9,39,330/- DEBITED TO THE PROFIT & LOSS ACCOUNT WHILE FILING THE RETURN OF INCOME. CONSEQU ENTLY, THE TAXABLE INCOME WAS UNDERREPORTED TO AFORESAID EXTENT OWING TO BONAFIDE ERROR COMMITTED BY THE ASSESSEE AND ITS CHARTERED ACCOUNT ANT. THE LD.AR POINTED OUT WITH REFERENCE TO THE COMPUTATION OF IN COME THAT ADJUSTMENTS TOWARDS VARIOUS STATUTORY DISALLOWANCES WERE MADE W HILE FILING THE RETURN OF INCOME SUO MOTU . HOWEVER, THE DISALLOWANCE TOWARDS INCOME ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 5 - TAX EXPENSE WAS NOT MADE DUE TO OVERSIGHT OF THE CO NSULTANT WHO WAS ENTRUSTED WITH THE RESPONSIBILITY OF PREPARING THE TAX AUDIT REPORT AND FILING OF THE INCOME-TAX RETURN. UNDER THE CIRCU MSTANCES, IT WAS SUBMITTED THAT PENALTY FOR SUCH BONAFIDE ERROR COMM ITTED BY THE ASSESSEE DOES NOT CALL FOR ONEROUS PENALTY FOR SUCH DEFAULT. THE LD.AR RELIED UPON THE DECISION IN THE CASE OF PRICE WATERHOUSE C OOPERS PVT.LTD. VS. CIT 348 ITR 306 (SC) TO SUBMIT THAT THE SILLY MISTA KE COMMITTED BY AN ASSESSEE IS NOT IMPROBABLE. 9. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE OR DER OF THE CIT(A) AND SUBMITTED THAT IT IS ONLY BECAUSE OF THE SELECT ION OF THE RETURN UNDER SCRUTINY THAT THE AFORESAID APPARENT WRONG CLAIM HA S COME TO THE NOTICE OF THE REVENUE. THE PENALTY WAS STATED TO BE IS Q UITE JUSTIFIED FOR GROSS LAPSE OF THIS NATURE. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS. THE LD.AR HAS NOT ADDRESSED ON THE PENALTY OF RS.10,800/- IMP OSED IN THE COURSE OF HEARING. THE SHORT QUESTION THAT ARISES FOR CONSID ERATION IS WHETHER PENALTY CAN BE IMPOSED UNDER S.271(1)(C) ON INCORRE CT CLAIM OF EXPENDITURE TOWARDS INCOME-TAX PAYMENTS IN THE RETU RN OF INCOME. IT WOULD TO STATE THE OBVIOUS THAT PAYMENTS TOWARDS IN COME-TAX IS NOT A BUSINESS EXPENSES AND THUS NOT ALLOWABLE WHILE COMP UTING THE TAXABLE INCOME BY THE ASSESSEE. THEREFORE, IT IS A ADMITTE D CASE OF PRIMA-FACIE ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 6 - WRONG CLAIM WHEREBY THE INCOME RETURNED TO THE INCO ME-TAX DEPARTMENT WAS UNDERREPORTED TO THE EXTENT OF THE AFORESAID IN COME-TAX AMOUNT OF RS.9,39,330/-. AS PER THE SCHEME OF THE ACT, THE PENAL PROVISION COULD OPERATE WHEN THERE IS A FAILURE TO DISCLOSE FULLY O R TRULY ALL PARTICULARS OF INCOME. THE WORD EXPRESSION PARTICULARS OF INCOME REFERS TO THE FACTS WHICH LEAD TO THE CORRECT COMPUTATION OF INCOME IN ACCORDANCE WITH PROVISIONS OF THE ACT. IN THE INSTANT CASE, THE AS SESSEE HAS ALLOWED ITSELF TO MAKE PALPABLY WRONG CLAIM IN GROSS CONTRAVENTION OF THE PROVISIONS OF THE INCOME TAX ACT. SECTION 40(A)(II) CLEARLY P ROVIDES THAT ANY SOME PAID TOWARDS INCOME-TAX IS NOT AN ADMISSIBLE EXPEND ITURE. THUS, THE ACTION OF THE ASSESSEE IN MAKING AFORESAID CLAIM IS SQUARELY IN REPUGNANCE OF THE EXPRESS PROVISION OF THE ACT. A READING OF 40(A)(II) DOES NOT LEAVE ANY MANNER OF DOUBT THAT PAYMENT OF INCOME-TAX IS NOT DEDUCTIBLE EXPENDITURE. THUS, THE ACTION OF THE AS SESSEE IS INCOMPREHENSIBLE. THE PLEA RAISED BY THE ASSESSEE THAT THE PROFESSIONAL ADVISOR ENTRUSTED FOR THE EXECUTION OF WORK BY THE ASSESSEE-COMPANY HAS COMMITTED BONAFIDE ERROR WHICH SHOULD BE VIEWED LIB ERALLY IN FAVOUR OF ASSESSEE FINDS NO RESONANCE. EXPLAANTION-1 TO SECT ION 271(1)(C) OF THE ACT RAISES A PRESUMPTION OF CONCEALMENT WHEN AN ERR OR IS NOTICED BY THE AO BETWEEN REPORTED AND TRUE INCOME. THE BURDEN IS THEN ON THE ASSESSEE TO SHOW OTHERWISE BY COGENT AND RELIABLE E VIDENCE. THUS, THE INITIAL ONUS IS PLACED ON THE ASSESSEE BY THE AFORE SAID EXPLANATION. THE ASSESSEE IN THE PRESENT HAS SOUGHT TO DISCHARGE THE AFORESAID ONUS BY ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 7 - SHIFTING THE BLAME ON THE PROFESSIONAL CONSULTANT. NEEDLESS TO SAY THAT THE INADMISSIBILITY OF PAYMENT OF INCOME-TAX TOWARD S BUSINESS EXPENDITURE DOES NOT REQUIRE ANY INTRICATE UNDERSTA NDING OF PROVISIONS OF ACT. IT IS ELEMENTARY IN NATURE. IT IS NOT A CASE OF WRONG LEGAL ADVICE PURPORTEDLY GIVEN BY THE PROFESSIONAL CONSULTANT. IT IS RATHER A CASE OF GROSS NEGLECT ON THE PART OF THE ASSESSEE OR ITS CO NSULTANT WHICH CANNOT BE EQUATED WITH A BONAFIDE MISTAKE AS PLEADED. THE CL AIM TOWARDS INCOME- TAX BEING EX-FACIE UNSUSTAINABLE AND DOES NOT CALL FOR ANY DEBATE, T HE ACTION OF THE ASSESSEE HAS TO BE CHARACTERIZED AS C ONSCIOUS DISREGARD OF ITS STATUTORY OBLIGATION WHILE FILING THE RETURN OF INC OME. THE ACTION OF THE REVENUE TOWARDS IMPOSITION OF PENALTY FOR SUCH GROS S LAPSE THEREFORE CANNOT BE SAID TO BE ILLEGITIMATE. WE DO NOT FIND ANY COMPELLING CASE FOR DROPPING THE PENALTY. THE RELIANCE PLACED ON BEHAL F OF THE ASSESSEE ON THE DECISION OF WATERHOUSE COOPERS PVT.LTD. (SUPRA) IS TOTALLY MISPLACED. IN THAT CASE, THE ASSESSEE HAD FILED THE RETURN OF INCOME ALONG WITH TAX AUDIT REPORT WHEREIN IT WAS SPECIFICALLY OBSERVED T HAT PROVISION OF GRATUITY WAS NOT ALLOWABLE UNDER S.40(A)(7) OF THE ACT. HOWEVER, THE ASSESSEE CLAIMED THE AFORESAID EXPENDITURE BY OVERS IGHT. THE AO ALSO OVERLOOKED AFORESAID ITEM AND OMITTED TO MAKE DISAL LOWANCE. SUBSEQUENTLY, THE CASE WAS REOPENED UNDER S.147 AND THE AFORESAID EXPENDITURE WAS DISALLOWED AND PENALTY THEREON WAS IMPOSED UNDER S.271(1)(C) OF THE ACT. THE ASSESSEE, ON ITS PART, MADE OUT A CASE THAT RETURN WAS PREPARED BY NON-CHARTERED ACCOUNTANT AN D WAS SIGNED BY A ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 8 - DIRECTOR UNDER BONAFIDE BELIEF OF ITS HAVING BEEN C ORRECTLY DRAWN UP. IN THESE FACTS, THE HONBLE SUPREME COURT OBSERVED THA T NOTWITHSTANDING THE FACT THAT THE ASSESSEE IS A REPUTED FIRM, IT IS PRONE TO MAKE SILLY MISTAKE. THE HONBLE SUPREME COURT OBSERVED THAT THE ASSESSEE FILED TAX AUDIT REPORT WHEREIN THE FACT OF DISALLOWABILIT Y OF GRATUITY PAYMENT WAS UNEQUIVOCALLY REPORTED. THEREFORE, THE ASSESSE E HAD THE NECESSARY INTENT TO DISALLOW THE AFORESAID EXPENDITURE BUT IN ADVERTENTLY ERRED WHILE DRAWING THE COMPUTATION OF INCOME. IN THESE PECULI AR FACTS, THE PLEA OF OVERSIGHT BY THE ASSESSEE WAS ACCEPTED BY THE HONB LE SUPREME COURT. IN THE PRESENT CASE, THE FACTS ARE QUITE DIFFERENT AS NOTED ABOVE. IN THE INSTANT CASE, ADMITTEDLY THE RETURN HAS BEEN PREPAR ED BY A QUALIFIED CONSULTANT IN THIS REGARD. THE TAX AUDIT REPORT FI LED BY THE ASSESSEE ALSO DOES NOT INDICATE THE AFORESAID AMOUNT OF DISALLOWA NCE IN CONTRAST TO THE DECISION IN THE CASE OF WATERHOUSE COOPERS PVT.LTD . VS. CIT (SUPRA). CONSEQUENTLY, RELIANCE ON THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF WATERHOUSE COOPERS PVT.LTD. (SUPRA). IS OF NO ASSISTANCE TO THE ASSESSEE. IN VIEW OF THE AFORESAID DISCUSSION, WE DO NOT FIND ANY FORCE IN THE CONTENTIONS OF THE ASSESSEE. 11. AS A RESULT, GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE DISMISSED. ITA NO.1333/AHD /2014 & CO NO.246/AHD/2014 (BY ASSESSEE) DCIT VS. CHEM PROCESS SYSTEMS PVT.LTD. ASST.YEAR 2007-08 - 9 - 11. IN THE RESULT, THE APPEAL OF THE REVENUE AND TH E CROSS OBJECTION FILED BY THE ASSESSEE BOTH ARE DISMISSED. THIS ORDER PRONOUNCED IN OPEN COURT ON 19 / 04 /2017 SD/- SD/- ( ) ( ) ( MAHAVIR PRASAD ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 19/ 04 /2017 3..(,.(../ T.C. NAIR, SR. PS !'#$#! / COPY OF THE ORDER FORWARDED TO : 1. #& / THE APPELLANT 2. '#& / THE RESPONDENT. 3. 456+ 7+ / CONCERNED CIT 4. 7+ ( ) / THE CIT(A)-6, AHMEDABAD 5. 89:+(56 , 56 / , 4 / DR, ITAT, AHMEDABAD 6. :;) / GUARD FILE. / BY ORDER, '8++ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 12.4.17 (DICTATION-PAD 23- PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.4.17 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S. 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER