GANDHI EXIMS, MUMBAI V. ITO 16(3)(1), MUBMAI

ITA 126/MUM/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2593 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 14-12-2009
• Assessment Year: 2003-2004
• Appeal Filed On: 07-01-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MOHAMMED USMAN
• Keywords: Tax effect
• Section: 271(1)(c); 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL G BENCH, MUMBAI. BEFORE SHRI R.V.EASWAR, SR.V.P. AND SHRI J.SUDHAK AR REDDY, AM I.T.A. NO.126/MUM/2009 (ASSESSMENT YEAR :2003-04) GANDHI EXIMS, A/3, PURSHOTTAM BUILDING, 7, NEW QUEENS ROAD, OPERA HOUSE, MUMBAI-400 004. PAN:AACGF5855H VS. THE INCOME TAX OFFICER, WARD-16(3)(1), MATRU MANDIR, 2 ND FLOOR, MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : MR. JITENDRA JAIN RESPONDENT BY : MR. MOHAMMED USMAN O R D E R PER R.V.EASWAR, SENIOR VICE PRESIDENT: THIS APPEAL BY THE ASSESSEE RELATES TO THE ASSESSMENT YEAR 2003-04 AN D IS DIRECTED AGAINST THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E EXPORT OF DIAMONDS. WHILE COMPLETING THE ASSESSMENT UNDER SECTION 143(3), THE ASSESSING OFFICER NOTICED THAT THE ASSE SSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF TRAVELLING EXPENSES OF RS.1,12,343/-, OUT OF WHICH RS.76,738/- WAS INCURRE D IN RESPECT OF A BROKER BY NAME MR.RATNESH. ON THE GROU ND THAT THE BROKER WAS NOT DIRECTLY CONNECTED WITH THE BUSI NESS OF THE ASSESSEE EITHER AS A PARTNER OR EMPLOYEE, THE TRAVE LLING EXPENSES INCURRED IN RESPECT OF HIM WERE DISALLOWED AND ADDE D BACK WHILE COMPLETING THE ASSESSEES INCOME. THE DISALLO WANCE WAS ACCEPTED BY THE ASSESSEE AND IT IS STATED BEFORE US ON ITS BEHALF THAT IT WAS ACCEPTED BECAUSE OF LOW TAX EFFECT. 3. THE ASSESSING OFFICER ALSO INITIATED PENALTY PRO CEEDINGS UNDER SECTION 271(1)(C) IN RESPECT OF THE DISALLOWA NCE OF THE FOREIGN TRAVEL EXPENSES OF MR. RATNESH DEBITED IN T HE ACCOUNTS ITA NO.126/MUM/09 2 OF THE ASSESSEE. IN ITS EXPLANATION, THE ASSESSEE S TATED THAT THERE WAS NO CONCEALMENT OF INCOME AND THAT THERE W AS A GENUINE MISTAKE COMMITTED BY THE ASSESSEES ACCOUNT ANT AND THEREFORE, A REQUEST WAS MADE THAT THE PENALTY PROC EEDINGS BE DROPPED. THE ASSESSING OFFICER REJECTED THE EXPLANA TION BY SAYING THAT THE ACCOUNTANT OF THE ASSESSEE FIRM SHO ULD HAVE KNOWN THAT MR. RATNESH WAS NEITHER AN EMPLOYEE NOR A PARTNER AND HIS EXPENSES COULD NOT BE DEBITED AND CLAIMED A S A DEDUCTION IN THE ACCOUNTS OF THE ASSESSEE. IN THIS VIEW OF THE MATTER, HE HELD THE ASSESSEE LIABLE FOR PENALTY FOR HAVING FURNISHED INACCURATE PARTICULARS OF ITS INCOME. THE RE WAS ANOTHER AMOUNT OF RS.81,780/-, BEING THE EXCHANGE D IFFERENCE GAIN IN RESPECT OF THE EXPORT OF THE EARLIER YEARS WHICH WAS ALSO THE SUBJECT MATTER OF PENALTY PROCEEDINGS AND THE A SSESSING OFFICER REJECTED THE ASSESSEES EXPLANATION WITH RE GARD TO THAT ADDITION ALSO AND LEVIED THE PENALTY UNDER SECTION 271(1)(C). THUS, THE PENALTY IN RESPECT OF BOTH THE ADDITIONS CAME TO RS.1,14,900/-. 4. THE ASSESSEE APPEALED TO THE CIT(A) AGAINST THE LEVY OF PENALTY. THE CIT(A) DELETED THE PENALTY LEVIED IN R ESPECT OF THE EXCHANGE GAIN OF RS.81,780/- ON THE GROUND THAT IT WAS A DEBATABLE ISSUE. HOWEVER WITH REGARD TO PENALTY LEV IED WITH REFERENCE TO THE FOREIGN TRAVEL EXPENSES OF MR. RAT NESH, HE REJECTED THE ASSESSEES CLAIM THAT MR.RATNESH AS A BROKER HAD GONE ABROAD FOR PURCHASE OF DIAMONDS FOR THE ASSESS EE FIRM, ON THE GROUND THAT THIS CLAIM WAS NOT PUT FORTH BEFORE THE ASSESSING OFFICER. HE ALSO HELD THAT THE ASSESSEE H AD NOT PROVED THE GENUINENESS OF THE EXPENSES. HE REFERRED TO EXP LANATION 1 TO SECTION 271(1)(C) AS WELL AS THE JUDGEMENT OF THE S UPREME COURT IN UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS , (2007) 166 TAXMANN 65 AND HELD THAT PENALTY WAS LEVIABLE I N RESPECT ITA NO.126/MUM/09 3 OF THIS AMOUNT AND DIRECTED THE ASSESSING OFFICER T O RECOMPUTE THE PENALTY ACCORDINGLY. 5. THE ASSESSEE IS IN FURTHER APPEAL BEFORE THE TRI BUNAL AND THE FIRST SUBMISSION ON ITS BEHALF IS THAT THE ASSE SSING OFFICER WAS NOT SATISFIED THAT THE ASSESSEE FURNISHED INACC URATE PARTICULARS OF THE FOREIGN TRAVEL EXPENSES OF MR. R ATNESH, AMOUNTING TO RS.76,738/-. IT IS POINTED OUT FROM TH E COPY OF THE ASSESSMENT ORDER FILED BEFORE US THAT PENALTY PROCE EDINGS UNDER SECTION 271(1)(C) WERE DIRECTED TO BE INITIATED FOR FURNISHING INACCURATE INFORMATION ONLY IN RESPECT OF THE DEDUC TION CLAIMED UNDER SECTION 80HHC AND NO SUCH DIRECTIONS HAD BEEN ISSUED FOR INITIATING PENALTY PROCEEDINGS IN RESPECT OF TH E DISALLOWANCE OF FOREIGN TRAVEL EXPENSES RELATING TO MR.RATNESH. WE FIND FORCE IN THE SUBMISSION. IT IS WELL SETTLED THAT IN ORDE R TO LEVY PENALTY UNDER SECTION 271(1)(C) THE ASSESSING OFFICER MUST BE SATISFIED IN THE COURSE OF ANY PROCEEDINGS UNDER THE ACT THAT THE ASSESSEE HAS CONCEALED ITS INCOME OR FURNISHED INACCURATE PA RTICULARS THEREOF. THIS IS CLEAR FROM THE LANGUAGE USED IN T HE OPENING PART OF SECTION 271(1). THERE WAS A CONTROVERSY WHE THER THE MERE DIRECTION BY THE ASSESSING OFFICER AT THE END OF THE ASSESSMENT ORDER TO INITIATE PROCEEDINGS UNDER SECT ION 271(1)(C) WOULD AMOUNT TO THE REQUISITE SATISFACTION AS ENVIS AGED BY THE SECTION . A SERIES OF JUDGEMENTS STARTING FROM THE JUDGEMENT OF THE DELHI HIGH COURT IN THE CASE OF DIWAN ENTERPRIS ES VS. CIT & OTHERS, (2000) 246 ITR 571 HAD HELD THAT A MERE DI RECTION AS ABOVE WOULD NOT AMOUNT TO THE REQUISITE SATISFACTIO N. IN ORDER TO OVERCOME THE RESULT OF THE JUDGEMENTS, THE FINANCE ACT, 2008 INSERTED SUB-SECTION(1B) INTO SECTION 271 WILL RETR OSPECTIVE EFFECT FROM 1.4.1989. THIS SUB-SECTION IS AS UNDER: - (1B) WHERE ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME OR LOSS OF AN ASSESSEE I N ANY ORDER OF ASSESSMENT OR REASSESSMENT AND THE SAID ORDER CONTAINS A DIRECTION FOR INITIATION OF ITA NO.126/MUM/09 4 PENALTY PROCEEDINGS UNDER CLAUSE(C) OF SUB-SECTION (1), SUCH AN ORDER OF ASSESSMENT OR REASSESSMENT SHALL BE DEEMED TO CONSTITUTE SATISFACTION OF THE ASSESSING OFFICER FOR INITIATION OF THE PENALTY PROCEEDINGS UNDER THE SAID CLAUSE(C). 6. HOWEVER, THE DEPARTMENT CANNOT RELY ON THIS SUB- SECTION IN THE PRESENT CASE BECAUSE THE DIRECTION IN THE AS SESSMENT ORDER IS THAT PENALTY PROCEEDINGS UNDER SECTION 271 (1)(C) MAY BE INITIATED SEPARATELY FOR FURNISHING WRONG INFORMATI ON FOR CLAIMING THE DEDUCTION UNDER SECTION 80HHC AND THER E WAS NO DIRECTION FOR INITIATING PENALTY PROCEEDINGS IN RES PECT OF THE DISALLOWANCE OF THE FOREIGN TRAVEL EXPENSES RELATIN G TO MR.RATNESH. THERE IS NO OTHER OBSERVATION IN THE AS SESSMENT ORDER WHICH CAN AMOUNT TO THE REQUISITE SATISFACTIO N THAT THE ASSESSEE CONCEALED ITS INCOME IN RELATION TO FOREIG N TRAVEL EXPENSES OF MR.RATNESH ALSO. IN THE ABSENCE OF ANY SATISFACTION RECORDED IN THE ASSESSMENT ORDER AND SINCE SECTION 271(1B) CANNOT ALSO COME TO THE AID OF THE DEPARTMENT, WE M UST ACCEPT THE CONTENTION ADVANCED ON BEHALF OF THE ASSESSEE T HAT THE PENALTY LEVIED WITH REFERENCE TO THE DISALLOWANCE O F THE FOREIGN TRAVEL EXPENSES RELATING TO RATNESH IS INVALID. WE HAVE PERMITTED THE ASSESSEE TO ADVANCE THIS CONTENTION B EFORE US BECAUSE IT IS A LEGAL CONTENTION AND DOES NOT INVOL VE ANY INVESTIGATION INTO FACTS NOT ALREADY ON RECORD. 7. EVEN ON MERITS, WE ARE SATISFIED THAT THE ASSES SEE HAS NOT CONCEALED ITS INCOME OR FURNISHED INACCURATE PARTIC ULARS WITH REFERENCE TO THE CLAIM OF FOREIGN TRAVEL EXPENSES R ELATING TO MR.RATNESH. IT IS ONLY FROM THE DETAILS SUBMITTED B Y THE ASSESSEE THAT THE ASSESSING OFFICER CAME TO KNOW TH AT A PART OF THE EXPENSES ON FOREIGN TRAVEL RELATED TO MR. RATNE SH. NO DOUBT, MR.RATNESH WAS NOT A PARTNER OR AN EMPLOYEE. BUT TH ERE IS NO FINDING THAT HE HAS NOT EVEN ACTED AS A BROKER TO T HE ASSESSEE. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE ITA NO.126/MUM/09 5 CREDIT NOTE ISSUED BY THE ASSESSEE TO MR. RATNESH C REDITING HIM WITH COMMISSION OF RS.1,15,000/- FOR DIAMOND EXPORT EFFECTED DURING THE RELEVANT ACCOUNTING YEAR. A COPY OF THE CREDIT NOTE IS AT PAGE 3 OF THE PAPER BOOK FILED BY THE ASSESSEE. THE COMMISSION PAYMENT HAS BEEN ALLOWED AS A DEDUCTION WHICH SHOWS THAT MR. RATNESH HAD SOME CONNECTION WITH THE ASSESSEE FIRM. THE FINDING OF THE CIT(A) THAT THE ASSESSEE H AS NOT PROVED THE GENUINENESS OF THE EXPENSES OF RS.76,738/- DOES NOT SEEM TO HAVE ANY BASIS BECAUSE EVEN THE ASSESSING OFFICE R HAS NOT DISALLOWED THE EXPENSES ON THAT GROUND BUT HAS DISA LLOWED THE SAME ONLY ON THE GROUND THAT MR. RATNESH WAS NOT A PARTNER OR AN EMPLOYEE OF THE ASSESSEE FIRM. IN OUR OPINION, AT BEST IT CAN ONLY BE A DEBATABLE CLAIM BUT IT IS NOT AN UNTENABL E OR FRIVOLOUS CLAIM SO THAT IT CAN BE SAID THAT THE ASSESSEE, BY CLAIMING THE EXPENSES ATTEMPTED TO CONCEAL ITS INCOME OR FURNISH ED INACCURATE PARTICULARS THEREOF. WE ACCORDINGLY CANC EL THE PENALTY LEVIED WITH REFERENCE TO THE CLAIM AND ALLO W THE ASSESSEES APPEAL WITH NO ORDER AS TO COSTS. ORDER PRONOUNCED ON THIS 17 TH DAY OF DECEMBER, 2009. SD/- (J.SUDHAKAR REDDY) SD/- ( R.V.EASWAR ) ACCOUNTANT MEMBER SENIOR VICE P RESIDENT MUMBAI, DATED 17 TH DECEMBER, 2009. SOMU COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-16, MUMBAI. 4. THE CIT(A)-XVII, MUMBAI 5. THE DR G BENCH /TRUE COPY/ BY ORDE R ASSTT. REGISTRAR, I.T.A.T, MUMBAI