M/S. THE OCEANIC SHIPPING AGENCY PVT. LTD, MUMBAI V. THE DCIT CC-36,

ITA 1047/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1925 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Next Hearing Date: 03-02-2010
• Assessment Year: 1999-2000
• Appeal Filed On: 12-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SUTARIA
• Assessee Lawyers: PHEROZE A DHANBHOORA
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI K BENCH, MUMBAI BEFORE SHRI PRAMOD KUMAR, (ACCOUNTANT MEMBER) AND SHRI V. DURGA RAO, (JUDICIAL MEMBER) I.T.A NO.1047/MUM./2008 ASSESSMENT YEAR : 1999-2000 DATE OF HEARING 3.2.2010 M/S. THE OCEANIC SHIPPING AGENCY P. LTD. DARABSHAW HOUSE, BALLARD ESTATE MUMBAI 400 001 AAACT1533A .. APPELLANT VS DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 36, AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 RESPONDENT APPELLANT BY : SHRI PHEROZE A. DHANBHOORA RESPONDENT BY : SHRI DEEPAK SUTARIA O R D E R PER PRAMOD KUMAR A.M. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS C ALLED INTO QUESTION CORRECTNESS OF LD. COMMISSIONER (APPEAL)S ORDER DATED 22 ND NOVEMBER 2007, CONFIRMING PENALTY OF RS.2,38,030/- IMPOSED ON THE ASSESSEE U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). ITA NO.1047/MUM./2008 THE OCEANIC SHIPPING AGENCY P. LTD. [2] 2. THE DEVELOPMENTS LEADING TO THIS APPEAL BEFORE US A RE AS FOLLOWS. THE ASSESSEE, A SHIPPING AGENT, FILED ITS INCOME TAX RETURN DISCLO SING AN INCOME OF RS.4,33,750/- WHICH WAS SUBJECTED TO SCRUTINY ASSESSMENT. ONE OF THE AD DITIONS MADE DURING THIS SCRUTINY ASSESSMENT WAS OF RS.6,51,510/- ON ACCOUNT OF, WHAT THE ASSESSING OFFICER TERMED, AS FICTITIOUS LIABILITY ON ACCOUNT OF BROKERAGE PAYAB LE WHICH IS NOT PAID TILL DATE . AGGRIEVED, ASSESSEE CARRIED THE DISALLOWANCE IN APP EALS BEFORE THE LEARNED CIT(A) AND THEN BEFORE THE TRIBUNAL, BUT WITHOUT ANY SUCCESS. THE MATTER, HOWEVER, DID NOT REST THERE. THE ASSESSING OFFICER ALSO IMPOSED PENALTY U /S 271(1)(C) IN RESPECT OF THE AFORESAID ADDITION, AS EQUIVALENT TO 100% OF TAX SO UGHT TO BE EVADED. IN APPEAL, THE ASSESSEE MADE ELABORATE SUBMISSION ON MERITS I.E., AS TO WHY PENALTY OUGHT NOT HAVE BEEN IMPOSED ON THE FACTS OF THIS CASE, BUT LEARNED CIT(A) DECLINED TO DEAL WITH THESE SUBMISSIONS AND CONFIRMED THE PENALTY ON THE GROUND THAT NO EXPLANATION WAS FURNISHED TO THE ASSESSING OFFICER AND, THEREFORE, ASSESSEE I S HIT BY EXPLANATION TO SECTION 271(1)(C) AND THE ASSESSEE IS DEEMED TO HAVE CONCEALED THE PARTIC ULARS OF HIS INCOME . THE ASSESSEE IS NOT SATISFIED AND IS IN APPEAL BEFO RE US. 3. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MA TERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 4. WE HAVE NOTED THAT THERE IS NO DISPUTE ABOUT THE EL EMENTARY FACT THAT THE AMOUNT TREATED AS FICTITIOUS LIABILITY ON ACCOUNT OF BROKERAGE PAYAB LE WAS PAYABLE TO M/S. CROTIA LINE WHICH HAD TURNED BANKCRUPT. AS EVIDENT FROM TELEFAX MESSAGE DATED 17 TH MAY 2000, PLACED AT PAGE-21 OF THE PAPER BOOK FILE D BEFORE US, THE SAID CROTIA LINE WAS UNDER BANKCRUPTCY PROCEEDINGS UNDER INTERIM TRUSTEESHIP OF ONE MR. TEODOR CANDRILIC AS PER DIRECTIONS OF THE COURT OF RIJEKA, CROATIA. AS NOTED IN THE ASSESSMENT ORDER, CROATIA LINE WAS PLACED UNDER BANKCRUPTCY PROCEEDINGS AND THE AMOUNT PAYABLE TO CROTIA LINE WAS RETAINED BY THE ASSESSEE FOR PAYMENT OF VARIOUS CLAIMS ON BEHALF OF CROTIA LINE. THE REASON OF TREATING THIS AMOUNT AS INCOME WAS THAT THE ASSESSEE COULD NOT JUSTIFY THE CLAIMS PAYABLE BY THE ASSESSEE ITA NO.1047/MUM./2008 THE OCEANIC SHIPPING AGENCY P. LTD. [3] ON BEHALF OF CROTIA LINE. THE SHORT QUESTION THAT W E NEED TO DECIDE IS WHETHER, ON THESE FACTS, PENALTY U/S 271(1)(C) WAS LEVIABLE. 5. IT IS ONLY ELEMENTARY THAT A PENALTY U/S 271(1)(C) CANNOT BE AN AUTOMATIC CONSEQUENCE OF A QUANTUM ADDITION BEING CONFIRMED. IN THE CASE BEFORE US, QUANTUM ADDITION HAS BEEN MADE AS THE CREDITOR HAS GONE IN FOR BANKCRUPTCY PROCEEDINGS AND THE AMOUNT PAYABLE TO THE CREDITOR UNDER A CONTRACTUAL OBLIGATION HAS BEEN TREATED AS FICTITIOUS LIABILITY BECAUSE TH E CREDITOR HAS BECOME BANKCRUPT. IN OUR HUMBLE UNDERSTANDING, EVEN AS THE ADDITION O N THESE FACTS MAY HAVE BEEN CONFIRMED, IT IS CERTAINLY NOT A FIT CASE FOR THE P ENALTY BECAUSE BANKCRUPTCY OR INSOLVENCY OF THE CREDITOR DOES NOT NECESSARILY TAK E AWAY THE LIABILITY OF THE ASSESSEE TO PAY THOSE DUES. A VIEW IS THUS INDEED P OSSIBLE THAT IT WAS NOT RELEVANT AS TO WHETHER ASSESSEE HAD ANY EXISTING LIABILITIES TO PAY CLAIMS ON BEHALF OF CROTIA LINE, BECAUSE THE AMOUNT CONTINUED TO BE PAYABLE TO CROTIA LINE AND BECAUSE AN INSOLVENCY OR BANKCRUPTCY PROCEEDINGS DOES AFFECT A BILITY OF THE INSOLVENT OR BANKCRUPT ORGANISATIONS ABILITY TO PAY, NOT ITS A BILITY TO RECEIVE. IN SUCH A SITUATION, THEREFORE, THE LIABILITY FOR SPECIFIC CL AIMS BEING DEMONSTRATED BY THE ASSESSEE CANNOT BE CONSTRUED AS CONCEALMENT OF PART ICULARS, LEADING TO IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. THE ASSESSEES EXPLANATION FOR NON-TAXABILITY OF THE IMPUGNED ADDITION MAY OR MAY NOT BE SUFFICIENT IN QUANTUM PROCEEDINGS, BUT, IN OUR CONSIDERED VIEW, IT IS A REASONABLE EXPLANAT ION IN PENALTY PROCEEDINGS THAT WE ARE NOW IN SEISIN OF. WE ALSO SEE NO MERITS IN P EDANTIC APPROACH OF THE LEARNED CIT(A) WHO HAS NOT CONSIDERED EXPLANATIONS BEFORE H IM NOR APPLIED HIS MIND TO THE FACTS AND CIRCUMSTANCES OF THE CASE ONLY BECAUSE TH E EXPLANATIONS WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER. IN OUR CONS IDERED VIEW, THE LEARNED CIT(A) OUGHT TO HAVE CONSIDERED THE MATTER ON MERITS AND A PPLIED HIS MIND TO THE QUESTION WHETHER PENALTY WAS INDEED LEVIABLE ON THE FACTS OF THIS CASE. BE THAT AS IT MAY, WE HAVE NOW DECIDED THE MATTER ON MERITS AND IN THE LI GHT OF THE PRECEDING DISCUSSIONS, WE HOLD THAT IT WAS NOT A FIT CASE FOR IMPOSITION OF PENALTY U/S 271(1)(C). ITA NO.1047/MUM./2008 THE OCEANIC SHIPPING AGENCY P. LTD. [4 ] 6. FOR THE REASONS SET OUT ABOVE, WE VACATE THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE GETS THE RELIEF ACCORDINGLY. 7. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT TODAY ON 30 TH DAY OF APRIL 2010. SD/- (V. DURGA RAO) JUDICIAL MEMBER SD/- (PRAMOD KUMAR) ACCOUNTANT MEMBER MUMBAI; 30 TH DAY OF APRIL 2010 COPIES OF THE ORDER FORWARDED TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT, MUMBAI (4) CIT(A), MUMBAI (5) DR, K BENCH (6) GUARD FILE TRUE COPY BY ORDER, ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PRADEEP J. CHOWDHURY MUMBAI BENCHES SR. PRIVATE SECRETARY ITA NO.1047/MUM./2008 THE OCEANIC SHIPPING AGENCY P. LTD. [5 ] DATE INITIAL 1. DRAFT DICTATED ON 23.4.2010 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 26.4.2010 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 26.4.2010 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER 26.4.2010 JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 26.4.2010 SR.PS/PS 6. DATE OF PRONOUNCEMENT 30.4.2010 SR.PS 7. FILE SENT TO THE BENCH CLERK 30.4.2010 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER