M/s. Gujarat Insecticides Limited, Ankleshwar V. The Dy.CIT.,Bharuch Circle, Bharuch

ITA 114/AHD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60559 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 20-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 16-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR JAYANT JHAWERI
• Assessee Lawyers: M G PUTE
• Keywords: Business expenditure
• Section: 143(3); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD B BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI T.R. MEENA, ACCOUNTANT MEMBER I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 DEPUTY COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH APPELLANTS (IN ALL THE APPEALS) VS. GUJARAT INSECTICIDES LTD. PLOT NO.-805/806, GIDC ESTATE, ANKLESHWAR, DIST.-BHARUCH PAN-AAACG8436D RESPONDENTS (IN ALL THE APPEALS) WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 GUJARAT INSECTICIDES LTD. PLOT NO.-805/806, GIDC ESTATE, ANKLESHWAR, DIST.-BHARUCH PAN-AAACG8436D APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH RESPONDENT DEPARTMENT BY : DR. JAYANT JHAWERI, SR. D.R. ASSESSEE BY : SHRI M.G. PUTE, A.R. DATE OF HEARING : 20.06.2012 DATE OF PRONOUNCEMENT 29.06.2012 I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 2 / ORDER PER BENCH: APPEAL NOS.1006 TO 1010 OF 2010 HAVE BEEN FILED BY THE REVENUE AND APPEAL NO.114 OF 2012 HAS BEEN PREFERRED BY THE ASS ESSEE AGAINST SEPARATE ORDERS OF THE LD. CIT(A). SINCE ALL THE APPEALS BELONG TO THE SAME ASSESSEE AND WERE HEARD TOGETHER, FOR THE SAKE OF CONVENIENCE, WE ARE DISPOSING OF THEM BY PASSING A CONSOLIDATED ORDER. ITA NO.1006/AHD/2010 2. REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: - L(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT.(A) ERRED IN DELETING THE PENALTY OF RS.50,66,5 84/- LEVIED U/S. 271(1)(C) OF THE ACT ON THE FOLLOWING ADDITIONS CON FIRMED BY THE CIT(A) I) COMMISSION PAYMENT RS. 19,35,500 II) SALARY PAYMENT RS. 10,39,594 III) MARKETING EXPENSES U/S.40A(2)(B) OF THE ACT R S. 91,04,865 IV) ERP SOFTWARE EXPENSES RS. 10,80,000 (B)THE, CIT(A) FAILED TO APPRECIATE THAT THE ASSESS EE COMPANY HAS CLEARLY FURNISHED INACCURATE PARTICULARS OF INC OME, THEREBY ATTRACTING EXPLANATION 1 TO SECTION 271(L)(C) OF TH E ACT, 1961. MERELY CLAIMING THAT IT HAD NOT CONCEALED PARTICULARS OF I NCOME OR NOT FURNISHED INACCURATE PARTICULARS OF INCOME IS NOT S UFFICIENT TO PROVE THAT THE ASSESSEE'S CASE DOES NOT FALL UNDER THE PR OVISIONS OF SECTION 271(L)(C). FURTHER, IN THE RECENT JUDGMENT IN THE C ASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTILES PROCESSORS AND O THERS - 306 ITR 277 (SC) THE HON. APEX COURT HAS HELD THAT THE EXPL ANATIONS APPENDED TO SECTION 271(L)(C) OF THE INCOME-TAX ACT , 1961, INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETU RN.' THE PENALTY U/S. 271(L)(C) WAS, THEREFORE, RIGHTLY LEVIED BY THE ASS ESSING OFFICER. ITA NO.1007/AHD/2010 I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 3 L(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT.(A) ERRED IN DELETING THE PENALTY OF RS.60,38,3 10/- LEVIED U/S. 271(L)(C) OF THE ACT ON THE FOLLOWING ADDITIONS AND EXCESS CLAIM OF DEDUCTION U/S. 80HHC & 80IA CONFIRMED BY THE CIT(A) - I)COMMISSION PAYMENT RS.18,67,600 II) MARKETING EXPENSES U/S.40A(2)(B) OF THE ACT RS .1,33,99,935 (B) THE CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE COMPANY HAS CLEARLY FURNISHED INACCURATE PARTICULARS OF INC OME, THEREBY ATTRACTING EXPLANATION 1 TO SECTION 271(L)(C) OF TH E ACT, 1961. MERELY CLAIMING THAT IT HAD NOT CONCEALED PARTICULARS OF I NCOME OR NOT FURNISHED INACCURATE PARTICULARS OF INCOME IS NOT S UFFICIENT TO PROVE THAT THE ASSESSEE'S CASE DOES NOT FALL UNDER THE PR OVISIONS OF SECTION 271(L)(C). FURTHER, IN THE RECENT JUDGMENT IN THE C ASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTILES PROCESSORS AND O THERS - 306 ITR 277 (SC) THE HON. APEX COURT HAS HELD THAT THE EXPL ANATIONS APPENDED TO SECTION 271(L)(C) OF THE INCOME-TAX ACT , 1961, INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETU RN.' THE PENALTY U/S. 271(L)(C) WAS, THEREFORE, RIGHTLY LEVIED BY THE ASS ESSING OFFICER. ITA NO.1008/AHD/2010 L(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT.(A) ERRED IN DELETING THE PENALTY OF RS.1,04,10 ,780/- LEVIED U/S. 271(L)(C) OF THE ACT ON THE FOLLOWING ADDITIONS AND EXCESS CLAIM OF DEDUCTION U/S. 80HHC & 80IA CONFIRMED BY THE CIT(A) - I) COMMISSION PAYMENT RS.45,69,565/- II) MARKETING EXPENSES U/S.40A(2)(B) OF THE ACT RS .2,45,92,286/- (B) THE CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE COMPANY HAS CLEARLY FURNISHED INACCURATE PARTICULARS OF INC OME, THEREBY ATTRACTING EXPLANATION 1 TO SECTION 271(L)(C) OF TH E ACT, 1961. MERELY CLAIMING THAT IT HAD NOT CONCEALED PARTICULARS OF I NCOME OR NOT FURNISHED INACCURATE PARTICULARS OF INCOME IS NOT S UFFICIENT TO PROVE THAT THE ASSESSEE'S CASE DOES NOT FALL UNDER THE PR OVISIONS OF SECTION 271(L)(C). FURTHER, IN THE RECENT JUDGMENT IN THE C ASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTILES PROCESSORS AND O THERS - 306 ITR 277 (SC) THE HON. APEX COURT HAS HELD THAT THE EXPL ANATIONS APPENDED TO SECTION 271(L)(C) OF THE INCOME-TAX ACT , 1961, INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETU RN.' THE PENALTY U/S. 271(L)(C) WAS, THEREFORE, RIGHTLY LEVIED BY THE ASS ESSING OFFICER. ITA NO.1009/AHD/2010 I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 4 L(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT.(A) ERRED IN DELETING THE PENALTY OF RS.53,06,1 50/- LEVIED U/S. 271(L)(C) OF THE ACT ON THE FOLLOWING ADDITIONS AND EXCESS CLAIM OF DEDUCTION U/S. 80HHC & 80IA CONFIRMED BY THE CIT(A) - I) COMMISSION PAYMENT RS.23,21,500/- II) MARKETING EXPENSES U/S.40A(2)(B) OF THE ACT RS .1,21,17,001/- (B) THE CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE COMPANY HAS CLEARLY FURNISHED INACCURATE PARTICULARS OF INC OME, THEREBY ATTRACTING EXPLANATION 1 TO SECTION 271(L)(C) OF TH E ACT, 1961. MERELY CLAIMING THAT IT HAD NOT CONCEALED PARTICULARS OF I NCOME OR NOT FURNISHED INACCURATE PARTICULARS OF INCOME IS NOT S UFFICIENT TO PROVE THAT THE ASSESSEE'S CASE DOES NOT FALL UNDER THE PR OVISIONS OF SECTION 271(L)(C). FURTHER, IN THE RECENT JUDGMENT IN THE C ASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTILES PROCESSORS AND O THERS - 306 ITR 277 (SC) THE HON. APEX COURT HAS HELD THAT THE EXPL ANATIONS APPENDED TO SECTION 271(L)(C) OF THE INCOME-TAX ACT , 1961, INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETU RN.' THE PENALTY U/S. 271(L)(C) WAS, THEREFORE, RIGHTLY LEVIED BY THE ASS ESSING OFFICER. ITA NO.1010/AHD/2010 L(A). ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT.(A) ERRED IN DELETING THE PENALTY OF RS.77,87,7 80/- LEVIED U/S. 271(L)(C) OF THE ACT ON THE FOLLOWING ADDITIONS AND EXCESS CLAIM OF DEDUCTION U/S. 80HHC & 80IA CONFIRMED BY THE CIT(A) - I) COMMISSION PAYMENT RS.9,40,000/- II) MARKETING EXPENSES U/S.40A(2)(B) OF THE ACT R S.2,07,68,103/- (B) THE CIT(A) FAILED TO APPRECIATE THAT THE ASS ESSEE COMPANY HAS CLEARLY FURNISHED INACCURATE PARTICULARS OF INC OME, THEREBY ATTRACTING EXPLANATION 1 TO SECTION 271(L)(C) OF TH E ACT, 1961. MERELY CLAIMING THAT IT HAD NOT CONCEALED PARTICULARS OF I NCOME OR NOT FURNISHED INACCURATE PARTICULARS OF INCOME IS NOT S UFFICIENT TO PROVE THAT THE ASSESSEE'S CASE DOES NOT FALL UNDER THE PR OVISIONS OF SECTION 271(L)(C). FURTHER, IN THE RECENT JUDGMENT IN THE C ASE OF UNION OF INDIA AND OTHERS VS. DHARMENDRA TEXTILES PROCESSORS AND O THERS - 306 ITR 277 (SC) THE HON. APEX COURT HAS HELD THAT THE EXPL ANATIONS APPENDED TO SECTION 271(L)(C) OF THE INCOME-TAX ACT , 1961, INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETU RN.' THE PENALTY U/S. 271(L)(C) WAS,, THEREFORE, RIGHTLY LEVIED BY THE AS SESSING OFFICER. 3. ASSESSEE HAS TAKEN FOLLOWING GROUND OF APPEAL:- I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 5 ITA NO.114/AHD/2012 THE LD. CIT(A)-IV, BARODA HAS ERRED IN LAW AND ON F ACTS OF THE CASE BY CONFIRMING PENALTY LEVIED U/S 271(I)(C) BY THE A.O. IN RESPECT OF DISALLOWANCE OF COMMISSION OF RS.19,17,652/-. 4. GROUND NO.1 (A) (I) IN ITA NO.1006, 1007, 1008, 1009, 1010 OF 2010 AND ITA NO.114 OF 2012 RELATING TO PENALTY LEVIED O N COMMISSION PAID TO M/S NIPUPN FINVEST PVT. LTD. AND OTHER PARTIES IS COMMO N IN ALL THE APPEALS. SIMILARLY GROUND NO.1(A)(III) IN ITA NO.1006/2010 AND GROUND NO.1 (A)(II) IN ITA NO.1007, 1008, 1009 & 1010 OF 2010, RELATING TO PENALTY LEVI ED ON MARKETING EXPENSES U/S 40A(2)(B) ARE COMMON. SO, WE PROCEEDED TO DECIDE T HESE GROUNDS ALONG WITH OTHER TWO GROUNDS OF ITA NO.1006 OF 2010 BY TAKING THE FACTS OF ITA NO.1006 OF 2010. 5. BRIEF FACTS OF THE CASE ARE THAT IN THIS CASE A SSESSMENT U/S 143(3) OF THE ACT WAS FINALIZED DETERMINING TOTAL INCOME OF R S.4,56,16,090/- AGAINST TOTAL INCOME RETURNED BY THE ASSESSEE OF RS.19,75,260/-. IN THE ASSESSMENT VARIOUS ADDITIONS/DISALLOWANCES WERE MADE AND PENALTY U/S 2 71(1)(C) WERE INITIATED. SUBSEQUENTLY, ASSESSEE WAS GIVEN FRESH OPPORTUNITY AS TO WHY PENALTY U/S 271(1)(C) BE NOT IMPOSED ON ADDITION CONFIRMED BY LD. CIT(A). THE ASSESSEE FILED ITS REPLY WHICH WAS NOT ACCEPTABLE TO THE A.O. AND HE IMPOSED PENALTY OF RS.50,66,584/- U/S 271(1)(C) OF THE ACT. BEFORE LD . CIT(A) ASSESSEE MADE FOLLOWING SUBMISSIONS IN RESPECT OF EACH ADDITION F OR WHICH PENALTY WAS IMPOSED BY THE A.O.:- I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 6 3.1.1 REGARDING THE COMMISSION PAYMENT OF RS.15,13 ,500/- TO NIPUN FINVEST PVT. LTD., ASSESSING OFFICER IN ASSES SMENT ORDER HAS STATED THAT THE TERMS OF COMMISSION PAYMENT WERE DE CIDED BY LETTER DATED 19-05-1999 WHEREAS THE FIRST PAYMENT OF COMMI SSION TO THE SAID PARTY HAS BEEN MADE PRIOR TO THAT I.E. IN THE MONTH OF APRIL, 1999. THE SAID NIPUN FINVEST PVT. LTD. IS A REGULAR AGENT OF THE APPELLANT COMPANY AND IN EARLIER YEAR ALSO THE COMMISSION HAS BEEN PAID BY THE APPELLANT ON SALES AFFECTED THROUGH THEM. MERELY, B ECAUSE THE PAYMENT IS MADE EARLIER TO THE LETTER DATED 19-05-1 999 FIXING THE TERMS, NO DISALLOWANCE CAN BE MADE FOR THE REASON T HAT THE TERMS WERE ALREADY DECIDED ORALLY PRIOR TO THE PAYMENT OF COMMISSION. FURTHER, REGARDING PAYMENT OF COMMISSION OF RS.2,50 ,000/- TO THE SAID PARTY THE ASSESSING OFFICER HAS STATED THAT COMMISS ION HAS BEEN CREDITED IN RESPECT OF BUSINESS WITH GOVERNMENT OF GUJARAT DURING APRIL, 1999 TO MARCH,2000 FOR WHICH NO DETAILS HAS BEEN FURNISHED BY THE APPELLANT. IN THIS REGARD, IT IS SUBMITTED THAT THE SALES HAVE BEEN AFFECTED TO GOVT. OF GUJARAT AND THEREFORE, THE QUE STION OF /FURNISHING THE NAMES OF THE PARTIES DOES NOT ARISE AT ALL. IN THE CREDIT NOTE ITSELF THE DETAILS HAVE BEEN GIVEN. AFTER OBSERVING ABOVE, THE ASSESSING OFFICER HAS DISALLOWED COMMISSION OF RS.17,63,500/- PAID TO NIPUN FINVEST PVT. LTD WHICH WAS THE GENUINE CLAIM. 3.1.2 REGARDING THE COMMISSION PAYMENT OF RS.10,00, 000/- TO M/S. MERCURY ENTERPRISES, THE ASSESSING OFFICER HAS STATED THAT AS PER CREDIT NOTE DATED 31-03-2000, THE ACTUAL PAYMENT OF COMMISSION COMES TO RS.8,28,000/-WHIEREAS THE COMMISSION CLAIM ED IS AT RS.10,00,000/- AND THEREFORE, THE EXPENDITURE IN QU ESTION IS SIMPLY TO REDUCE THE PROFIT OF THE APPELLANT COMPANY. IT WAS EXPLAINED TO THE ASSESSING OFFICER THAT IN THE SAID CREDIT NOTE CALC ULATION MISTAKE WAS CREPT IN AND THE CORRECT AMOUNT OF COMMISSION IS OF RS.10,00,000/- HOWEVER, THE ASSESSING OFFICER HAS NOT ACCEPTED THE SAME AND HAS DISALLOWED RSJLO,00,000/- AND THE LEARNED CIT(A) HA S CONFIRMED THE DISALLOWANCE TO THE EXTENT OF RS.1,72,000/-. IT IS SUBMITTED THAT IN SPITE OF HAVING FURNISHED COMPLETE DETAILS IN RESPE CT OF COMMISSION PAYMENT TO THE AFORESAID PARTIES ALONG WITH SALES E FFECTED THROUGH THEM, THE ASSESSING OFFICER DISALLOWED THE SAME MER ELY ON THE BASIS OF PRESUMPTION AND SURMISES WITHOUT BRINGING OUT ANY A DVERSE EVIDENCE TO THE FACT THAT THE COMMISSION EXPENDITURE HAS NOT BEEN INCURRED BY THE APPELLANT AT ALL OR THE SAME IS NON-GENUINE. AS THE COMPLETE ADDRESSES FROM THE PARTIES WERE FURNISHED BY THE AP PELLANT, IF THE ASSESSING OFFICER HAS ANY DOUBT REGARDING THE GENUI NENESS OF THE PAYMENT OF COMMISSION TO THE AFORESAID PARTIES, HE COULD HAVE DIRECTLY INQUIRED FROM THE CONCERNED PARTY WHICH HAS NOT BEE N DONE BY HIM. THUS, THE CLAIM OF COMMISSION EXPENDITURE WAS THE G ENUINE CLAIM OF I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 7 THE APPELLANT AND ON SUCH DISALLOWANCE, NO PENALTY U/S 271(L)(C) CAN BE LEVIED. 3.1.3 REGARDING OTHER DISALLOWANCES, IT IS SUBMITTE D THAT DURING THE YEAR THE APPELLANT COMPANY IN ADDITION TO OTHER PAYMENTS, HAS MADE FOLLOWING PAYMENTS TO GHARDA CHEMICALS LTD., W HICH IS A HOLDING COMPANY. (I) PAYMENT RS.10,39,594/- (II) REIMBURSEMENT OF EXPENDITURE RS.91,04,865/- (III) ERP SOFTWARE RS.10,80,000/- IN RESPECT OF PAYMENT OF SALARY TO GHARDA CHEMICALS LTD. AND HAS STATED THAT THE REIMBURSEMENT OF SALARY TO GHAR DA CHEMICALS LTD. CANNOT BE JUSTIFIED FOR THE REASON THAT THE APPELLA NT HAS NOT GAINED ANYTHING FROM THE SERVICES RENDERED BY DR. BOMI PAT EL AND U. A. MAROO. THE APPELLANT, VIDE LETTER DATED 31-01-2003, EXPLAINED THE ASSESSING OFFICER THAT SHRI BOMI PATEL IS AN M SC. PHID. HAVING EXPERIENCE OF OVER 10 YEARS IN CHEMICAL INDUSTRY. S HRI BOMI PATEL HAS GIVEN HIS VALUABLE SERVICES TO THE APPELLANT, WHICH HAS HELPED IN IMPROVING THE PRODUCTION, QUALITY OF PRODUCT AND AL SO IN REDUCING COST OF MANUFACTURING AND THEREFORE, THE APPELLANT THOUG HT THAT IT WOULD BE BENEFICIAL AND ADVANTAGEOUS TO THE COMPANY TO AVAIL HIS SERVICES. REGARDING U. A. MAROO, THE APPELLANT EXPLAINED THAT HE IS A CHARTERED ACCOUNTANT AND COMPANY SECRETARY, HAS VAST EXPERIEN CE OF AROUND 20 YEARS IN THE FIELD OF FINANCE AND LEGAL MATTERS AND HE IS PROVIDING HIS VALUABLE SERVICES IN FINANCIAL AND LEGAL ISSUE TO T HE APPELLANT. IN SUPPORT OF THE SAME THE APPELLANT HAS ALSO FURNISHE D COPY OF BOARD'S RESOLUTION DATED 5TH FEBRUARY, 99 AND IN TERMS OF S AID RESOLUTION THE BOARD OF THE APPELLANT COMPANY AGREED TO REIMBURSEM ENT OF SALARY EXPENDITURE IN RESPECT OF THE ABOVE REFERRED PERSON TO GHARDA CHEMICALS LTD. AND ACCORDINGLY THE PAYMENT HAS BEEN MADE BY THE APPELLANT TO GHARDA CHEMICALS LTD. THE REASON ADVAN CED BY THE ASSESSING OFFICER THAT THE RESOLUTION EFFECTING REI MBURSEMENT OF SUCH EXPENSES IS PASSED WITH A VIEW TO REDUCE THE PROFIT . THIS IS NO GROUND FOR THE DISALLOWANCE FOR THE REASON THAT THERE IS N O MOTIVE TO REDUCE THE PROFIT AS THE APPELLANT COMPANY AS WELL AS GHAR DA CHEMICALS LTD. ARE HAVING TAXABLE INCOME AND ARE BEING TAXED AT TH E SAME RATE. THUS, THE GENUINE EXPENDITURE DULY DISCLOSED IN TAX AUDIT REPORT HAS BEEN DISALLOWED U/S 40A(2)(B) OF THE IT. ACT, 1961, CONS IDERING THE SAME AS UNREASONABLE FOR WHICH NO PENALTY U/S 271(L)(C) CAN BE LEVIED. RELIANCE IS PLACED ON MUMBAI ITAT DECISION IN CASE OF JHAVAR PROPERTIES (P) LTD. [28 DTR (MUMBAI) TRB-26]. SIMIL ARLY EXPLANATION WAS OFFERED FOR A.YS 2001-02 TO 2003-04. REGARDING MARKETING EXPENDITURE IT IS STATED THAT A PPELLANT VIDE LETTER DATED 31-01-2003 FULLY AND SATISFACTORILY EX PLAINED AND JUSTIFIED THAT THE EXPENDITURE ON MARKETING OF FORMULATION PR ODUCTS IS WHOLLY I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 8 AND EXCLUSIVELY INCURRED FOR THE BUSINESS PURPOSE A ND THE APPELLANT HAS BEEN BENEFITED AND HAVE EARNED SUBSTANTIAL PROF IT ON MARKETING THE NEW PRODUCT THROUGH GHARDA CHEMICALS LTD. THUS THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING ENTIRE MARK ETING EXPENDITURE PAID TO GHARDA CHEMICALS LTD., WHICH IN FACT IS MOST REA SONABLE AND COMMENSURATE WITH BUSINESS EXPEDIENCY AS EXPLAINED IN THE NOTE SUBMITTED BY APPELLANT TO THE ASSESSING OFFICER. IT IS SUBMITTED THAT IN TAX AUDIT REPORT ALL PAYMENTS MADE TO HOLDING COMPA NY ARE DULY REPORTED AND ACCORDINGLY DUE DISCLOSURE HAS BEEN MA DE. THE SAME HAS BEEN DISALLOWED MERELY CONSIDERING UNREASONABLE. TH US, THE GENUINE EXPENDITURE HAS BEEN DISALLOWED U/S 40A(2)(B) OF TH E IT. ACT, 1961 FOR WHICH NO PENALTY U/S 271(L)(C) CAN BE LEVIED. RELIA NCE IS PLACED ON MUMBAI ITAT DECISION IN CASE OF JHAVAR PROPERTIES ( P) LTD. [28 DTR (MUMBAI) TRIB.26]. THE APPELLANT, VIDE LETTER DATED 31-01-2003, EXPLAINED TO THE ASSESSING OFFICER THAT ERP EXPENDI TURE OF RS.50,00,000/- HAS BEEN PAID TO BY THE APPELLANT TO GHARDA CHEMICALS LTD., WHO IN TURN HAVE ENTERED INTO AGREEMENT WITH RAMCO SYSTEM LTD. AS PER THE SAID AGREEMENT THE APPELLANT COMPAN Y WAS REQUIRED TO PAY RS,25,20,000/- BY WAY OF LICENCE FEE FOR THE US E OF SAID SOFTWARE. IN ADDITION TO THIS THE APPELLANT HAS REIMBURSED A SUM OF RS.14,00,000/- FOR IMPLEMENTATION OF SOFTWARE IN TE RMS OF AGREEMENT AND RS.10,80,000/- HAS BEEN PAID TO GHARDA CHEMICAL S LTD. FOR TRAINING GIVEN BY GHARDA CHEMICALS LTD. TO THE STAF F OF APPELLANT COMPANY FOR THE OPERATION OF SAID SOFTWARE. THUS, E XPENDITURE IN QUESTION IS TOTALLY BUSINESS EXPENDITURE FULLY ALLO WABLE AS REVENUE. IT IS SUBMITTED THAT DISALLOWANCES ARE MADE IN RESPECT OF BONAFIDE CLAIM OF EXPENDITURE FOR WHICH NO PENALTY U/S 271(L)(C) CAN BE LEVIED. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS: I) CIT V. HOTEL SABAR P. LTD. [264 ITR 381 (GUJ)] II) CIT V. HARSHVARDHAN CHEMICALS & MINERALS LTD. [ 259 (GUJ)] III) CIT V. SKYLINE AUTO PRODUCTS P. LTD. [271 ITR 335 (MP)] IV) CIT V. ANAND WATER METER MFG. CO. [117 ITR 866 (P&H) V) CIT V M.P.NARAYANAN [244 ITR 528 (MAD)] VI) CIT V. UNION ELECTRIC CORPORATION [281 ITR 266 (GUJ)] 6. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE, LD. CIT(A) DELETED THE PENALTY IMPOSED BY THE A.O. AGG RIEVED BY THIS ORDER OF LD. CIT(A) NOW REVENUE IS IN APPEAL BEFORE US. I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 9 7. AT THE TIME OF HEARING, LD. D.R. SUBMITTED THAT LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE ASSESSEE COMPANY HAS CLEARLY FU RNISHED INACCURATE PARTICULARS OF INCOME THEREBY ATTRACTING AN EXPLANATION-1 TO SE CTION 271(1)(C) OF THE ACT. MERELY CLAIMING THAT IT HAD NOT CONCEALED PARTICULA RS OF INCOME OR NOT FURNISHED INACCURATE PARTICULARS OF INCOME IS NOT SUFFICIENT TO PROVE THAT THE ASSESSEES CASE DOES NOT FALL UNDER THE PROVISION OF SECTION 271(1) (C) OF THE ACT. HE, THEREFORE, PRAYED THAT THE PENALTY IMPOSED BY THE A.O. MAY KIN DLY BE UPHELD AND THE ORDER PASSED BY LD. CIT(A) DELETING THE SAME MAY KINDLY B E SET ASIDE. LD. COUNSEL OF THE ASSESSEE, ON THE OTHER HAND SUBMITTED THAT AS FAR A S PENALTY LEVIED ON COMMISSION PAID TO M/S NIPUN FINVEST PVT. LTD. OF RS.15,13,500 /- + 2,50,000/- WAS CONCERNED, THE ASSESSEE HAS FILED COMPLETE DETAILS OF COMMISSI ON PAID ALONG WITH SALES EFFECTIVE THROUGH THEM AND PAN NUMBER HAVE ALSO BEE N GIVEN AT THE TIME OF ASSESSMENT PROCEEDINGS. PAYMENT OF RS.15,13,500/- TO M/S NIPUN FINVEST PVT. LTD. WAS GIVEN AS PER TERMS OF COMMISSION FIXED VID E LETTER DATED 19.05.1999, PAYMENT OF RS.2,50,000/- TO M/S NIPUN FINVEST PVT. LTD. GIVEN ON SALES EFFECTED TO GOVERNMENT OF GUJARAT. THUS, THE ENTIRE DETAILS IN RESPECT OF COMMISSION PAID TO M/S NIPUN FINVEST PVT. LTD. WERE BEFORE THE A.O. DU LY SUPPORTED BY AUDIT REPORT. SIMILARLY, PAYMENT OF RS.10,00,000/- TO MERCURY ENT ERPRISES WAS MADE AS PER CREDIT NOTE DATED 31.03.2000. THE COMPLETE DETAILS INCLUDING ADDRESS OF THE PARTIES WERE GIVEN TO THE A.O. WHO COULD HAVE VERIF IED THE GENUINENESS OF THIS PAYMENT. AS FAR AS PENALTY LEVIED ON ERP SOFTWARE E XPENSES OF RS.10,80,000/- WAS CONCERNED, THE SUBMISSION OF THE ASSESSEE WAS T HAT THIS PAYMENT WAS MADE I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 10 TO GHARDA CHEMICALS FOR IMPLEMENTATION OF ERP DEVEL OPED BY RAMCO SYSTEMS. THE A.O., WITHOUT MAKING ANY ENQUIRIES HAS MADE THE SE DISALLOWANCES. MERELY BECAUSE DISALLOWANCES/ADDITIONS HAVE BEEN MADE BY T HE A.O., PENALTY FOR CONCEALMENT OF INCOME CANNOT BE IMPOSED AUTOMATICAL LY UNLESS SOMETHING IS BROUGHT ON RECORD TO SHOW THAT ASSESSEE HAS CONCEAL ED HIS INCOME OR HAS FILED INACCURATE PARTICULARS OF INCOME. FOR MAKING THIS SUBMISSION HE RELIED ON THE FOLLOWING CASE LAWS:- I) CIT V. HOTEL SABAR P. LTD. [264 ITR 381 (GUJ)] II) CIT V. HARSHVARDHAN CHEMICALS & MINERALS LTD. [ 259 (GUJ)] III) CIT V. SKYLINE AUTO PRODUCTS P. LTD. [271 ITR 335 (MP)] IV) CIT V. ANAND WATER METER MFG. CO. [117 ITR 866 (P&H) V) CIT V M.P.NARAYANAN [244 ITR 528 (MAD)] VI) CIT V. UNION ELECTRIC CORPORATION [281 ITR 266 (GUJ)] 8. AS FAR AS PENALTY LEVIED ON SALARY OF RS.10,39, 594/-, THE ASSESSEES CONTENTION WAS THAT IN ASSESSEES OWN CASE PENALTY IMPOSED BY THE A.O. HAS BEEN DELETED BY THE TRIBUNAL VIDE ITA NO.345/AHD/2009 IN A.Y. 1999-00. IN RESPECT OF PENALTY LEVIED ON MARKETING EXPENSES U/S 40A(2)(B) OF RS.91,04,865/-, THE PENALTY DURING THE YEAR 1999-2000 ON SIMILAR FACTS HAS BEEN DELETED VIDE ITA NO.272/AHD/2009 IN A.Y.1999-90. THEREFORE, DURING THE YEAR UNDER APPEAL ALSO, FOLLOWING THESE JUDGMENTS OF THE TRIBUNAL THE ORDER PASSED BY LD. CIT(A) MAY KINDLY BE UPHELD. 9. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE FIND FORCE IN THE CONTENTION OF LD. COUNSEL OF THE ASSESSEE THAT IN RESPECT OF COMMISSION PAID TO M/S NIPUN FINVEST PVT. LTD. AND MERCURY ENTERPRISES AND ERP SOFTWARE EXPENSES I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 11 INCURRED ON ERP SOFTWARE, THE ASSESSEE HAS FILED AL ONG WITH THE RETURN OF INCOME AUDIT REPORT AND OTHER RELEVANT STATEMENTS IN SUPPO RT OF SUCH CLAIMS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALSO, THE ASSESSEE FURTHER SUBMITTED ALL THE INFORMATION AND EXPLANATIONS AS REQUIRED BY THE A.O . FROM TIME TO TIME TO SUBSTANTIATE THE CLAIM FOR SUCH DEDUCTION. THE EXP LANATION OFFERED BY THE ASSESSEE IN SUPPORT OF SUCH CLAIMS WERE NOT FOUND F ALSE BY THE A.O. THEREFORE, MERELY BECAUSE ASSESSEES CLAIM HAS BEEN DISALLOWED , IT CANNOT BE SAID THAT THE ASSESSEE IS ALSO GUILTY OF CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. FOR IMPOSITION OF PENALTY T HE A.O. COULD HAVE BROUGHT ON RECORD SOME MATERIAL OR EVIDENCE FOR ARRIVING AT A REASONABLE CONCLUSION THAT AMOUNT OF ADDITION UNDER CONSIDERATION REPRESENT TH E INCOME OF THE ASSESSEE. THE ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE DIFFERENT AND SIMPLY BECAUSE CERTAIN ADDITIONS HAVE BEEN MADE, IT WOULD NOT AUTO MATICALLY LEAD TO IMPOSITION OF PENALTY. IN VIEW OF THIS, WE ARE OF THE CONSIDERED OPINION THAT IN THE FACTS OF THIS CASE, PENALTY U/S 271(1)(C) OF THE ACT WAS NOT LEVI ABLE AND LD. CIT(A) HAS RIGHTLY DELETED THE PENALTY IMPOSED BY THE A.O. 10. AS FAR AS PENALTY LEVIED ON SALARY OF RS.10,39 ,594/- IS CONCERNED, WE FIND THAT ON SIMILAR FACTS PENALTY IMPOSED BY THE A .O. WAS DELETED BY LD. CIT(A) AND THE ORDER OF LD. CIT(A) DELETING THE PENALTY HA S BEEN UPHELD BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 1999-2000 BY ORDER DATED 27.03. 2012 IN ITA NO.345/AHD/2009, RESPECTFULLY FOLLOWING THE SAME, T HE ORDER PASSED BY LD. CIT(A) DELETING THE PENALTY IS HEREBY CONFIRMED. SIMILARL Y, WE FIND THAT PENALTY LEVIED ON I.T.A. NO.1006, 1007, 1008, 1009 & 1010/AHD/2010 A. Y. 2000-01, 01-02, 02-03, 03-04 & 04-05 WITH I.T.A. NO.114/AHD/2012 A. Y. 2005-06 12 MARKETING EXPENSES OF RS.91,04,865/- ON SIMILAR FAC TS, PENALTY WAS IMPOSED BY THE A.O. WHICH WAS SUSTAINED BY LD. CIT(A) WAS DELE TED BY THE TRIBUNAL VIDE ITS ORDER IN ITA NO.272/AHD/2009 FOR ASSESSMENT YEAR 19 99-2000. FOLLOWING THE SAME, THE ORDER PASSED BY LD. CIT(A) IS HEREBY UPHE LD. 11. IN THE RESULT, THE REVENUES APPEALS IN ITA NO S.1006, 1007, 1008, 1009 & 1010 OF 2010 ARE DISMISSED AND THAT OF ITA N O.114 OF 2012 OF ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 29.06.2012 SD/- SD/- (T.R. MEENA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER TRUE COPY N.K. CHAUDHARY, SR. P.S. / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. / CONCERNED CIT 4. - / CIT (A) 5. , ! , '# / DR, ITAT, AHMEDABAD 6. $% &' / GUARD FILE. BY ORDER/ , ( / ' ) ! , '# *