ASST CIT 5(2)(1), MUMBAI V. INFINITE COMPUTER SOLUTIONS (I) LTD, NAVI MUMBAI

ITA 1109/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7843 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH RAJ
• Assessee Lawyers: THOMAS KUTTY M V
• Keywords: Wrong claim
• Section: 143(3); 14A; 2

Judgement Text

1 ITA 1109/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI MAHAVIR SINGH (JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.1109/MUM/2016 (ASSESSMENT YEAR: 2010-11) ACIT 5(2)(2), MUMBAI VS M/S INFINITE COMPUTER SOLU TIONS (I) LTD PLOT NO.155, SOMDUTT CHAMBERWS-II, 9, BHIKAJI CAMA PALACE, NEW DELHI 110 066 PAN : AAACI5145D APPELLANT RESPONDEDNT APPELLANT BY SHRI SAURABH RAJ RESPONDENT BY SHRI THOMAS KUTTY M.V. DATE OF HEARING 28-12-2017 DATE OF PRONOUNCEMENT 29-12-2017 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-10, MUMBAI 20-11-2015 AND IT PERTAINS TO AY 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN DELETING THE PENALTY LEVIED U/S 271(1)(C) OF RS. 44,43,404/- ON THE GROUND THAT A WRONG CLAIM WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW WILL NOT BECOME A BA SE FOR CONCEALMENT OF PENALTY. 1(B). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE CLAIM OF DEDUC TION U/S 35D MADE 2 ITA 1109/MUM/2016 BY THE ASSESSEE WAS PRIMA FACIE NOT ADMISSIBLE AS T HE PROJECT HAD NOT COMMENCED DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2010-2011 AND, HENCE, THE ASSESSEE HAD FURNISH ED INACCURATE PARTICULARS OF ITS INCOME. 1(C). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE ACCEP TED THAT ITS CLAIM OF DEDUCTION U/S 35D WAS NOT IN ORDER AND DID NOT CONTEST THE DISALLOWANCE OF THE DEDUCTION U/S 35D IN APPEAL. 1(D). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE HON'BLE DELHI HIGH COURT HAS CONSIDERING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS PVT. LTD. (322 ITR 158) HELD IN THE CASE OF CIT V. ZOOM COMMUNICATION PVT. LTD. (2010) 191 TAXMAN 179 (DELHI) THAT IF AN ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW, BUT IS ALSO WHOLLY WITHOUT ANY BA SIS AND EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOU ND TO BE BONA FIDE, EXPLANATION TO SECTION 271(1)(C) WOULD COME I NTO PLAY AND ASSESSEE WILL BE LIABLE TO PENALTY U/S 271(1)(C). 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT OF COMPUTER SOFTWARE, FILE D ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 27-09-2010 DECLARING TOTAL INCOME OF RS.25,97,48,000. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 30-01-2014 DETERMINING TOTAL INCOME AT RS.27,39,70,181 AFTER M AKING ADDITION ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE U/S 14A OF RS.77,500 AND DISALLOWANCE OF CLAIM OF DEDUCTION U/S 35D AMOUNTING TO RS.1,41,44,681. WHILE DISALLOWING EXPENSES U/S 35D, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED DEDUCTION TOWARDS EXPENSES DIRECTLY IN THE STATEMENT OF COMPU TATION OF TOTAL INCOME WITHOUT ROUTING THROUGH P&L ACCOUNT. THE AO HAS MA DE ADDITION ON THE BASIS OF REVISED STATEMENT OF TOTAL INCOME FILED BY THE A SSESSEE WITHDRAWING THE CLAIM 3 ITA 1109/MUM/2016 MADE U/S 35D AS THE BUSINESS OF THE ASSESSEE COMPAN Y HAS NOT COMMENCED DURING THE YEAR UNDER CONSIDERATION. 3. THEREAFTER, THE AO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) FOR WRONG CLAIM OF DEDUCTION TOWARDS IPO EXPENSES U/S 35D OF THE INCOME-TAX ACT, 1961. THE AO INITIATED PENALTY PROCEEDINGS ON THE GROUND THAT THE ASSESSEE HAS FILED INACCURATE PARTICULARS OF INCOME, WHICH WARRANTS LE VY OF PENALTY U/S 271(1)(C). IN RESPONSE TO NOTICE ISSUED BY THE AO ASSESSEE SUB MITTED THAT MERE CLAIM OF EXPENSES OR DISALLOWANCE OF EXPENSES DOES NOT TANTA MOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME SO AS TO LEVY PENA LTY U/S 271(1)(C) OF THE ACT. IN THIS REGARD, HE RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT LTD 322 I TR 158 (SC). THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSES SEE AND ALSO RELYING UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS KP MADHUSUDAN REPORTED IN 251 ITR 99 (SC) OBSERVED THAT THE ASSES SEE HAS FILED INCORRECT CLAIM IN THE RETURN OF INCOME IN RESPECT OF DEDUCTIONS CL AIMED TOWARDS IPO EXPENSES U/S 35D WHICH WARRANTS LEVY OF PENALTY U/S 271(1)(C ) OF THE ACT. 3. AGGRIEVED BY THE PENALTY ORDER, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). BEFORE CIT(A), ASSESSEE SUBMITTED THAT THE AO WAS E RRED IN LEVYING PENALTY U/S 271(1)(C) IN RESPECT OF DISALLOWANCE OF IPO EXPENSE S U/S 35D ON THE WRONG FOOTING THAT THE ASSESSEE HAS FILED INACCURATE PART ICULARS OF INCOME WITHOUT APPRECIATING THE FACT THAT DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE 4 ITA 1109/MUM/2016 ASSESSEE HAS FILED REVISED STATEMENT OF TOTAL INCOM E WITHDRAWING DEDUCTION CLAIMED U/S 35D. THE ASSESSEE FURTHER SUBMITTED TH AT MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE P ARTICULARS OF INCOME. IN THIS REGARD RELIED UPON CERTAIN JUDICIAL PRECEDENTS. TH E CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSESSEE AND ALSO RELYI NG UPON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANC E PETROPRODUCTS PVT LTD (SUPRA) OBSERVED THAT WHEN THE APPELLANT HAS WITHDR AWN THE CLAIM BY FILING A REVISED STATEMENT BEFORE THE AO DURING THE COURSE O F ASSESSMENT PROCEEDINGS ITSELF, THE AO SHOULD HAVE CONSIDERED THE REQUEST W HILE FINALISING THE PENALTY PROCEEDINGS. THE WITHDRAWAL OF CLAIM IN THE COURSE OF ASSESSMENT PROCEEDINGS IS A SUFFICIENT GROUND TO PROVE THAT THE MISTAKE IS INADVERTENT AND THERE IS NO INTENTION TO AVOID TAXES. WITH THESE OBSERVATIONS, THE CIT(A) DELETED PENALTY LEVIED BY THE AO. THE RELEVANT PORTION OF THE ORDE R OF THE CIT(A) IS EXTRACTED BELOW:- 5.1 I'M NOT CONVINCED WITH THE CONCEALMENT PENALTY LEVIED BY THE AO. THE DISALLOWANCE MADE IS IN ORDER SO FAR AS THE QUANTUM IS CONCERNED. WHEN THE APPELLANT HAS WITHDR AWN THE CLAIM BY FILING A REVISED STATEMENT BEFORE THE AG D URING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF, THE AG SHOULD HAV E CONSIDERED THE REQUEST WHILE FINALISING THE PENALTY PROCEEDING S. THE WITHDRAWAL OF CLAIM IN THE COURSE OF ASSESSMENT PRO CEEDINGS IS A SUFFICIENT GROUND TO PROVE THAT THE MISTAKE IS INAD VERTENT AND THERE IS NO INTENTION TO EVADE TAXES. IN MY CONSIDERED VI EW THERE IS NO HIDING OF FACTS WHILE FILING THE RETURN OF INCOME B UT THERE IS A WRONG CLAIM. AS IT IS A SETTLED LAW THAT A WRONG CLAIM WH ICH IS NOT SUSTAINABLE IN THE EYES OF LAW WILL NOT BECOME A BA SE FOR CONCEALMENT PENALTY. RELIANCE IS PLACED ON THE DECI SION OF THE HONOURABLE SUPREME COURT IN THE CASE OF RELIANCE PE TROPRODUCTS 5 ITA 1109/MUM/2016 P LTD 322 ITR 158. FURTHER, WHEN THE APPELLANT HAS WITHDRAWN THE CLAIM, THERE IS NO BASE ON WHICH PENALTY CAN BE LEV IED. IN VIEW OF THESE FACTS, THE PENALTY IS NOT SUSTAINABLE. ACCORD INGLY THE GROUND IS ALLOWED. 4. THE LD.DR SUBMITTED THAT THE LD.CIT(A) ERRED IN DEL ETING PENALTY ON THE GROUND THAT A WRONG CLAIM WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW WILL NOT BECOME A BASE FOR CONCEALMENT PENALTY. THE LD.DR F URTHER SUBMITTED THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS IN RE SPECT OF DEDUCTION CLAIMED U/S 35D EVEN THOUGH IT IS NOT ELIGIBLE FOR DEDUCTION AS THE ASSESSEE HAD NOT COMMENCED ITS BUSINESS OPERATIONS DURING THE YEAR U NDER CONSIDERATION. THOUGH THE ASSESSEE HAS WITHDRAWN THE CLAIM BY FILI NG REVISED STATEMENT OF TOTAL INCOME, SUCH WITHDRAWAL WOULD NOT ABSOLVE THE ASSES SEE FROM THE PENAL PROVISIONS OF SECTION 271(1(C). AS THE HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS ZOOM COMMUNICATIONS P LTD (2010) 191 TAXMAN. 179 HELD THAT IF AN ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT ALSO WITHOUT ANY BASIS AND EXPLANATION FURNISHED BY HIM FOR MAKING S UCH A CLAIM NOT FOUND TO BE BONA FIDE, EXPLANATION 1 TO SECTION 271(1(C) WOULD COME INTO PLAY AND ASSESSEE WILL BE LIABLE TO PAY PENALTY U/S 271(1)(C). 5. ON THE OTHER HAND, THE LD.AR FOR THE ASSESSEE SUPPO RTED ORDER OF THE CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL AVAILABLE ON RECORD. THE AO LEVIED PENALTY U/S 271(1)(C) IN RESPECT OF D ISALLOWANCE OF DEDUCTIONS 6 ITA 1109/MUM/2016 CLAIMED U/S 35D TOWARDS IPO EXPENSES ON THE GROUND THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHICH AT TRACTS PENALTY U/S 271(1)(C) OF THE ACT. ACCORDING TO THE AO, MAKING A WRONG CL AIM IN THE RETURN OF INCOME TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. THE AO FURTHER OBSERVE D THAT BY VIRTUE OF EXPLANATION 1, IF ANY AMOUNT HAS BEEN ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME, IT IS REQUIRED TO BE HE LD THAT THE AO IS SATISFIED THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOM E OR FURNISHING INACCURATE PARTICULARS OF INCOME AS IT IS INHERENT IN THE EXPL ANATION ITSELF THAT THE ASSESSEE HAS CONCEALED THE PARTICULARS OF INCOME OR FURNISHI NG INACCURATE PARTICULARS OF INCOME. IT IS THE CONTENTION OF THE ASSESSEE THAT MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE PART ICULARS OF INCOME. IT HAS DISCLOSED ALL NECESSARY FACTS AND PARTICULARS IN IT S BOOKS OF ACCOUNT AND NO FALSE STATEMENT HAS BEEN MADE EVEN IN THE RETURN OF INCOM E. IT HAS WITHDRAWN WRONG CLAIM MADE U/S 35D BEFORE THE AO AND ALSO EXPLAINED THE REASONS FOR MAKING SUCH CLAIM. ACCORDING TO THE ASSESSE, IT HAS MADE A WRONG CLAIM ON THE BONA FIDE BELIEF THAT IT IS ELIGIBLE FOR 1/5 TH OF DEDUCTION TOWARDS IPO EXPENSES, EVEN THOUGH IT HAS NOT COMMENCED BUSINESS ACTIVITIES. H OWEVER, ON COMING TO KNOW THAT IT IS NOT ELIGIBLE FOR DEDUCTION DURING THE CU RRENT FINANCIAL YEAR, IT HAS FILED A REVISED STATEMENT OF TOTAL INCOME WITHDRAWING ITS C LAIM WHICH SHOWS THE BONA FIDENESS AND HENCE, THE AO WAS INCORRECT IN HOLDING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHICH AT TRACTS PENALTY U/S 271(1)(C). 7 ITA 1109/MUM/2016 7. HAVING HEARD BOTH THE SIDES AND CONSIDERED MATERIAL AVAILABLE ON RECORD, WE FIND MERIT IN THE ARGUMENT OF THE ASSESSEE FOR T HE REASON THAT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROP RODUCTS (P) LTD (SUPRA) HELD THAT A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTA INABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGA RDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMO UNT TO FURNISHING OF INACCURATE PARTICULARS. IN THIS CASE, ADMITTEDLY, THE ASSESSEE HAS FILED REVISED STATEMENT OF TOTAL INCOME WITHDRAWING DEDUCTION CLA IMED U/S 35D AT THE TIME OF ASSESSMENT PROCEEDINGS. THE ASSESSEE ALSO EXPLAINE D THE REASONS FOR MAKING SUCH CLAIM. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT MERE MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW CANNOT TANTAMOUNT T O FURNISHING OF INACCURATE PARTICULARS OF INCOME WHICH WOULD ATTRACT PENALTY U /S 271(1)(C). THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS OF THE ASSES SEE AND ALSO BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF C IT VS RELIANCE PETROPRODUCTS (P) LTD (SUPRA) DELETED PENALTY LEVI ED BY THE AO. WE DO NOT FIND ANY ERROR IN THE ORDER OF THE CIT(A). HENCE, WE AR E INCLINED TO UPHOLD THE FINDINGS OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 8. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DISMI SSED. 8 ITA 1109/MUM/2016 ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH DECEMBER, 2017. SD/- SD/- (MAHAVIR SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 29 TH DECEMBER, 2017 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI