ACIT 2(1), MUMBAI V. DYNAMIC PHARMACAPS P.LTD ( NOW MAERGED IN CAPSULATION SERVICES P.LTD), MUMBAI

ITA 111/MUM/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70642 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 31-07-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 05-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHAN VYAS
• Assessee Lawyers: D V LAKHANI
• Keywords: Wrong claim; Revised return

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI . . , ! , ' # BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 111 / / 2012 A.Y. 2005-06 ITA NO. : 111/MUM/2012 (ASSESSMENT YEAR: 2005-06) ASSTT. COMMISSIONER OF INCOME TAX -10(2), ROOM NO. 432, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI -400 020 VS M/S. DYNAMIC PHARMACAPS PVT LTD., (NOW MERGED IN CAPSULATION SERVICES PVT. LTD.), CAPSULATION PREMISES, 1 ST FLOOR, SION TROMBAY ROAD, DEONAR, MUMBAI -400 088 .: PAN: AAACD 0560 H (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KISHAN VYAS RESPONDENT BY : SHRI D.V. LAKHANI ! /DATE OF HEARING : 31-07-2013 '# ! / DATE OF PRONOUNCEMENT : 07-08-2013 ' O R D E R ! , : PER VIVEK VARMA, JM: THE APPEAL IS FILED BY THE DEPARTMENT AGAINST THE ORDER O F CIT(A) 21, MUMBAI, DATED 03.10.2011, WHEREIN, THE DEPARTMENT AGITATES THE DELETION OF PENALTY OF RS. 5,15,954/- LEVIED U/S 271(1)(C). 2. THE FACTS AS PER THE ASSESSMENT ORDER ARE THAT IN THE REVISED RETURN FILED BY THE ASSESSEE, IT CLAIMED A LOSS SUFFERED ON D EFALCATION OF RS. 14.10 LACS, COMMITTED BY ONE OF ITS EMPLOYEES. IT WAS N OTICED THAT M/S. DYNAMIC PHARM ACAPS PVT LTD. ITA NO. 111/MUM/2012 2 SHRI S.G. TEREDESAI EMBEZZLED AND DEFRAUDED OTHER GROUP C OMPANIES AS WELL, WHICH INCLUDED M/S UNIVERSAL MEDICARE PVT. LTD. 3. THE AO REJECTED THE CLAIM AND EXPLANATION OF THE ASSE SSEE AND ADDED BACK RS. 14.10 LACS AND ALSO LEVIED THE PENALTY EQUA L TO THE TAX AMOUNT. 4. AGGRIEVED, THE ASSESSEE APPROACHED THE CIT(A), IN PENA LTY PROCEEDINGS, WHO HELD, 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE. IN TH E REVISED RETURN OF INCOME THE APPELLANT CLAIMED DEFALCATION LOSS OF RS. 14.10 LACS. THE APPELLANT WAS PART OF GROUP COMPANIES M/S. UNIVERSAL MEDICARE PVT. LTD. IT WAS AN ADMITTED FACT THAT SHRI S.G. TEREDESAI, VICE PRE SIDENT, FINANCE & ACCOUNTS COMMITTED FRAUD ON THE APPELLANT COMPANY A ND MISAPPROPRIATED THE FUNDS OF GROUP COMPANIES BY BOO KING BOGUS EXPENSES AND SIPHONING OF MONEY FROM COMPANIES BANK ACCOUNT. THIS ISSUE HAS BEEN DEALT WITH IN DETAIL IN THE CASE OF M/S. UNIVERSAL MEDICARE PVT. LTD. IN WHICH THE DEFALCATION LOSS OF RS. 19.04 CRORES WAS ACCEPTED IN A.Y. 2006-07. IN THE CASE UNDER CONSIDE RATION ALSO THE APPELLANT CLAIMED DEFALCATION LOSS OF RS. 14.10 LAC S. IT IS WORTH TO MENTION HERE THAT THE AO AND CIT(A) DID NOT DOUBTED THE FACT OF DEFALCATION COMMITTED BY THE SAID SHRI S.G. TEREDES AI, VICE PRESIDENT, FINANCE & ACCOUNTS. THE APPELLANTS CLAIM WAS NOT A CCEPTED MERELY ON THE GROUND THAT THE LETTER OF ONLY M/S CHETAN DALAL INVESTIGATION AND MANAGEMENT SERVICES WAS FILED WHICH WAS NOT SUBSTAN TIVE EVIDENCE. HOWEVER, DURING THE ASSESSMENT AND APPELLATE PROCEE DINGS, THE FACT WAS NOT DENIED THAT THE MATTER WAS GOING ON IN THE CIVIL COURT. IN THE FACTS AND CIRCUMSTANCES, THERE WAS FORCE IN APPELLA NTS CLAIM OF DEFALCATION LOSS OF RS. 14.10 LACS. THE AO MENTIONE D IN THE ASSESSMENT ORDER THAT THE APPELLANT FILED A LETTER DATED 15.12 .2007 FROM M/S. CHETAN DALAL INVESTIGATION STATING THAT THE AMOUNT OF DEFALCATION LOSS WAS RS. 14.60 LACS. THE AO REJECTED APPELLANTS CLA IM THAT APART FROM THIS LETTER DATED 15.12.2007, NO INVESTIGATION REPO RT WAS FURNISHED BY APPELLANT TO PROVE ITS CLAIM. DURING PENALTY APPELL ATE PROCEEDINGS THE APPELLANT HAD EXPLAINED THAT THE REPORT OF M/S. CHE TAN DALAL INVESTIGATION AND MANAGEMENT SERVICES WAS RECEIVED AFTER PASSING OF ASSESSMENT ORDER AND THEREFORE COULD NOT HAVE BEEN FILED DURING ASSESSMENT PROCEEDINGS. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES, IT WAS AN ADMITTED FACT THAT THE SAI D SHRI S.G. TEREDESAI COMMITTED DEFRAUD ON THE APPELLANT COMPANY AS A RES ULT OF WHICH THE APPELLANT SUFFERED DEFALCATION LOSS OF RS. 14.10 LA CS. THE REPORT OF INVESTIGATOR M/S. CHETAN DALAL INVESTIGATION AND MA NAGEMENT SERVICES WERE ON RECORD. BESIDES IT WAS ALSO ADMITTED FACTS THAT THE POLICE ALSO INVESTIGATED SUCH DEFRAUD COMMITTED BY THE SAID S.C . TEREDESAI AND THE CASE WAS PENDING IN THE CIVIL COURT. IN THE FACTS A ND CIRCUMSTANCES, THE APPELLANTS CLAIM WAS BASED ON BONAFIDE AND JUSTIFI ED FACTS THEREFORE, COULD NOT BE HELD TO BE A BOGUS CLAIM. DURING ASSES SMENT PROCEEDINGS, PENALTY PROCEEDINGS AND PENALTY APPELLATE PROCEEDIN GS, THE APPELLANT FILED A SATISFACTORY AND BONAFIDE EXPLANATION THAT ITS CLAIM OF DEFALCATION LOSS WAS BASED ON CORRECT AND GENUINE F ACTS LEADING TO SUCH LOSS AND SUCH CLAIM WAS SUPPORTED BY FACTS OF INVES TIGATION REPORT AS WELL AS PENDENCY OF MATTER IN THE CIVIL COURT. M/S. DYNAMIC PHARM ACAPS PVT LTD. ITA NO. 111/MUM/2012 3 THE SAID SHRI S.C. TEREDESAI VICE PRESIDENT, ACCOUN TS & FINANCE OF GROUP COMPANY ALSO COMMITTEE SUCH IN THE CASE OF OT HER GROUP COMPANIES. IN THE CASE OF M/S. UNIVERSAL MEDICARE P VT. LTD. FOR A.Y. 2004-05 THE PENALTY LEVIED ON THIS ISSUE BY AO U/S. 271(1)(C) WAS DELETED BY CIT(A)-24, MUMBAI VIDE ORDER DATED 24.05 .2010. IN THE CASE OF M/S. UNIVERSAL MEDICATE PVT. LTD. FOR A.Y. 2003- 04, THE PENALTY LEVIED BY AO ON THIS ISSUE WAS ALSO DELETED BY CIT(A)-24, VIDE ORDER DATED 24.05.2010. IN THE CASE OF ANOTHER GROUP COMPANIES M/S. GELTEC PVT. LTD. (FORMERLY, KNOWN AS BANNER PHARMACAP INDIA P. LTD.) FOR A.Y. 2004-05, THE PENALTY LEVIED BY AO ON THE SAME ISSUE WAS DELETED BY THE UNDERSIGNED VIDE APPEAL ORDER DATED 6.04.2011. IN THE CASE OF M/S. GELTEC PVT. LTD. FOR A.Y. 2003-04, THE PENALTY LEVI ED BY AO ON THE SAME ISSUE WAS ALSO DELETED BY THE UNDERSIGNED VIDE ORDE R DATED 5.04.2011. CONSIDERING THE ENTIRETY OF THE FACTS AND CIRCUMSTA NCES, IT IS HELD THAT THE APPELLANTS CLAIM OF DEFALCATION LOSS OF RS. 14 .10 LACS WAS BASED ON VALID AND LEGAL GROUNDS. BY CLAIMING SUCH LOSS THE APPELLANT DID NOT FURNISH ANY INACCURATE PARTICULARS OF INCOME. THE E XPLANATION OFFERED BY APPELLANT DURING ASSESSMENT, PENALTY AND PENALTY AP PELLATE PROCEEDINGS WAS BONAFIDE, SATISFACTORY AND JUSTIFIE D. SUCH EXPLANATION WAS NOT HELD TO BE UNSATISFACTORY OR FALSE. IN THE FACTS AND CIRCUMSTANCES, THE PROVISIONS OF SEC. 271(1)(C) WER E NOT ATTRACTED. THE PENALTY LEVIED BY AO IS, THEREFORE, DELETED. 5. THE DEPARTMENT IS AGAINST THIS ORDER OF THE CIT(A), BEFO RE THE ITAT. 6. AT THE TIME OF HEARING, THE AR PLACED THE COPIES OF ORD ER OF THE SISTER CONCERNS, WHEREIN, ON IDENTICAL FACTS, THE PENALTY LEV IED HAD BEEN CANCELLED, WHICH ARE 1 ITAT NO. 5256/MUM/2011 PENALTY DROPPED ORDER OF O UR SISTER CONCERN CAPSULATION SERVICES PVT. LTD. FOR A.Y. 2003-04 2 ITAT NO. 6078/MUM/2010 PENALTY DROPPED ORDER OF O UR SISTER CONCERN UNIVERSAL MEDICARE PVT. LTD. FOR A.Y. 2003-04 3 ITAT NO. 6077/MUM/2011 PENALTY DROPPED ORDER OF O UR SISTER CONCERN UNIVERSAL MEDICARE PVT. LTD. FOR A.Y. 2004-05 4 ITAT NO. 5257/MUM/2011 & 5258/MUM/2011 PENALTY DR OPPED ORDER OF OUR SISTER CONCERN GELTEC PVT. LTD. FOR A.Y. 2003-0 4 & AY 2004-05 5 ITAT NO. 5670/MUM/2011 PENALTY DROPPED ORDER OF O UR SISTER CONCERN BANNER PHARMACAPS PVT. LTD. FOR A.Y. 2005-05 6 COPY OF ASSESSMENT ORDER FOR AY 2006-2007 FOR ALL OWANCE OF DEFLACATION LOSS DTD. 31.12.2008 AND SPECIFICALLY REFERRED TO THE RELEVANT PORTION OF THE COORDINATE B ENCH ORDER IN THE CASE OF UNIVERSAL MEDICARE PVT. LTD., WHICH READS, 5. UNDISPUTED FACTS EMERGING FROM THE MATERIAL AVA ILABLE CAN BE SUMMARIZED AS UNDER: I. ASSESSEE WAS VICTIM OF A FRAUD II. DEFALCATION WAS COMMITTED BY THE SENIOR OFFICER OF THE COMPANY WITH THE HELP OF HIS SUBORDINATES. M/S. DYNAMIC PHARM ACAPS PVT LTD. ITA NO. 111/MUM/2012 4 III. CRIME WAS DETECTED IN 2005 AND COMPLAINT AGAINST TH E EMPLOYEES WAS LODGED BY THE ASSESSEE COMPANY WITH P OLICE AUTHORITIES. IV. AS SOON AS THE ASSESSEE CAME TO KNOW ABOUT THE DEFA LCATION, IT INFORMED THE DEPARTMENTAL AUTHORITIES. V. ACCOUNTANTS OF THE ASSESSEE COMPANY WERE AUDITED AS PER THE PROVISIONS OF SEC. 142 (2A) OF THE ACT. VI. AO HAD ALLOWED DEFALCATION AMOUNTING TO RS. 19.04 C RORES, WHILE PASSING THE ASSESSMENT ORDER FOR THE A.Y. 200 6-07. VII. RETURN OF INCOME FOR THE A.Y. UNDER CONSIDERATION H AD ALREADY BEEN FILED BY THE ASSESSEE BEFORE THE FRAUD WAS DET ECTED. VIII. AO HAD LEVIED PENALTY ON ACCOUNT OF ADDITIONS/DISAL LOWANCES. IX. FAA DELETED THE PENALTY IMPOSED BY THE AO. X. AO HAS PREFERRED SECOND APPEAL FOR 4 ADDITIONS/DISA LLOWANCES OUT OF THE 9 ITEMS 5.1 CONSIDERING THE ABOVE FACTUAL MATRIX, WE ARE OF THE OPINION THAT IT IS NOT A FIT CASE FOR IMPOSING PENALTY U/S 271(1)(C) O F THE ACT FOR FURNISHING INACCURATE PARTICULARS/CONCEALING THE PA RTICULARS OF INCOME. PENALTY IS IMPOSED WHERE AN ASSESSEE CONCEA LS HIS INCOME, SO THAT IT DOES NOT SUFFER TAXATION. IN THE CASE UN DER CONSIDERATION, ASSESSEE-COMPANY WAS CHEATED BY ITS EMPLOYEES AND T HE AO HAS ADMITTED THE SAID FACT BY ALLOWING DEFALCATION IN S UBSEQUENT A.Y. IN THESE PECULIAR CIRCUMSTANCES, IF THE ASSESSEE COULD NOT SUPPORT THE CLAIM MADE BY IT, DURING THE ASSESSMENT PROCEEDINGS , IT CANNOT BE HELD THAT IT HAD FILED INACCURATE PARTICULARS. RETU RN OF INCOME, FOR THE A.Y. UNDER CONSIDERATION HAD BEEN FILED BEFORE THE FRAUD WAS BE DETECTED. SO, IF WRONG CLAIMS WERE MADE BY THE ASSE SSEE-COMPANY, ON THE BASIS OF THE MATERIAL SUPPLIED BY THE EMPLOY EE-CA, PENAL PROVISIONS SHOULD NOT HAVE BEEN INVOKED. LODGING OF A POLICE COMPLAINT AND SUBSEQUENT ARREST OF THE EX-EMPLOYEE OF THE COMPANY PROVE THAT ASSESSEE COMPANY PROVE THAT ASSESSEE COM PANY HAD NO ROLE IN FILING INACCURATE PARTICULARS RATHER IT WAS A VICTIM OF A FRAUD. PENALTIES UNDER THE ACT ARE IMPOSED FOR SOME OMISSI ONS AND COMMISSIONS. IN OUR OPINION, IN THE CASE UNDER CONS IDERATION IT CANNOT HELD THAT THERE WAS ANY OMISSION OR COMMISSI ON ON PART OF THE ASSESSEE-COMPANY FOR WHICH IT SHOULD HAVE BEEN VISITED BY PENALTY U/S 271(1)(C) OF THE ACT. 5.2 AFTER DELIBERATING UPON THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT ORDER PASSED BY THE FAA DOE S NOT SUFFER FROM ANY LEGAL INFIRMITY. HE HAS RIGHTLY RELIED UPON THE CASE OF RELIANCE PETRO CHEMICALS (SUPRA). WE ARE OF THE OPINION THAT DELETION OF PENALTY BY HIM IS FULLY JUSTIFIED. DETAILS FILED BY THE ASSESSEE- COMPANY WITH REGARD TO FOUR ITEMS DISCUSSED IN PARA NO. 3 WAS RESULT OF A CRIME COMMITTED UPON THE ASSESSEE-COMPA NY. IN THESE CIRCUMSTANCES GROUNDS OF APPEAL FILED BY THE AO STA ND REJECTED. 7. THE AR, SUBMITTED THAT SINCE ON IDENTICAL FACTS, THE COO RDINATE BENCH HAS DELETED THE PENALTY IN THE CASES OF THE ASSES SEES SISTER CONCERN, THE PENALTY HEREIN SHOULD ALSO BE DELETED. 8. THE DR PLACED RELIANCE ON THE ORDERS OF THE AO. M/S. DYNAMIC PHARM ACAPS PVT LTD. ITA NO. 111/MUM/2012 5 9. ON GOING THROUGH THE FACTS AND THE ORDERS OF THE CO ORDINATE BENCH IN THE CASE OF THE SISTER CONCERNS, WE RESPECTFULLY FOLLOWING THOSE ORDERS, SUSTAIN THE ORDER OF THE CIT(A), DELETING THE PENALTY. 10. THE GROUND RAISED IS, THEREFORE, REJECTED. 11. IN THE RESULT, THE APPEAL FILED BY THE DEPARTMENT IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH AUGUST, 2013. SD/- SD/- ( . . ) ( ! ) (R.S. SYAL) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 7 TH AUGUST, 2013 / COPY TO:- 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) ' '( ( ) - 21 MUMBAI / THE CIT (A)-21, MUMBAI. 4) ' '( MC-10 , MUMBAI / THE CITMC-10, MUMBAI, 5) *+, - , ' ! - , ./ / THE D.R. D BENCH, MUMBAI. 6) , 0 COPY TO GUARD FILE. '12 / BY ORDER / / TRUE COPY / / [ 3 / 4 5 ' ! - , ./ DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *784 . . * CHAVAN, SR. PS