Shri Deepal Navinchandra Shah, Gandhinagar V. The ACIT. GNR Circle, Gandhinagar

ITA 1509/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8778 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-03-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 30-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 16-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: M G PATEL
• Keywords: Depreciation; Opportunity of being heard; Set aside
• Section: 271(1)(c); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH,JM AND SHRI A N PAHUJA,A M) ITA NO.1509/AHD/2007 (ASSESSMENT YEAR:-2001-02) SHRI DEEPAL NAVINCHANDRA SHAH, PROP. DAZZLE COMPUTER MEDIA, 24, VIRATNAGAR SOCIETY, SECTOR- 23, GANDHINAGAR [PAN:AQAPS8315G] V/S THE INCOME-TAX OFFICER, WARD-1,GANDHINAGAR [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI M G PATEL ,AR REVENUE BY:- SMT. NEETA SHAH, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST AN ORDER DATED 31-01-2007 OF THE LD.CIT(APPEALS), GAND HINAGAR, UPHOLDING PENALTY OF RS.1,77,153/- LEVIED U/S 27 1(1)(C) OF THE INCOME-TAX ACT, 1961[HEREINAFTER REFERRED TO AS THE ACT] ON THE G ROUND THAT THE ASSESSEE WAS GUILTY OF FURNISHING INACCURATE PARTICULARS OF INCO ME . 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT THE ASSESSMENT IN THIS CASE WAS FINALISED U/S 143(3) OF THE ACT ON AN INCOME OF RS.6,82,540/- IN PURSUANCE TO RETURN DECLARING INCO ME OF RS.1,40,000/- FILED ON 31.10.2001.INTER ALIA, FOLLO WING EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT WERE DISALLOWED: COMMISSION ACCOUNT RS.3,04,100/- DEMONSTRATION EXPENSES RS. 57,719/- SALES PROMOTION ACCOUNT RS.1,42,890/- TOTAL RS.5,04,709/-. ON THE GROUND THAT THESE WERE NOT VERIFIABLE NOR SUBSTANTIATED BY THE ASSESSEE THAT THE SAID EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. BESIDES, D ISALLOWANCE OF 1/5 TH CAR, SCOOTER AND TELEPHONE EXPENSES AS ALSO DISAL LOWANCE OF RS. 2,000 & RS. 1,000/- OUT OF OFFICE AND REFRESHME NT EXPENSES , ITA NO.1509/AHD/2007 2 WAS ALSO MADE. CONSEQUENTLY, PENALTY PROCEEDINGS U/ S. 271(1)(C) OF THE ACT WERE ALSO INITIATED FOR FURNISHING INACCUR ATE PARTICULARS OF INCOME. ON APPEAL, THE LEARNED CIT(A) UPHELD THESE DISALLOWANCES VIDE HIS ORDER DATED 14.6.2004. SUBSEQUENTLY, IN RE SPONSE TO A SHOWCAUSE NOTICE BEFORE LEVY OF PENALTY U/S 271(1)( C) OF THE ACT, THE ASSESSEE DID NOT FURNISH ANY REPLY. SINCE THE ASSE SSEE FAILED TO ESTABLISH THE GENUINENESS OF THE EXPENDITURE, THE A O IMPOSED A PENALTY OF RS.1,77,153/- @ 100% OF TAX SOUGHT TO BE EVADED ON THE GROUND THAT THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF HIS IN COME . 3 ON APPEAL, THE LD. CIT(A) UPHELD THE LEVY OF PEN ALTY, HOLDING AS UNDER: 2. APPELLANT WAS CARRYING ON BUSINESS IN COMPUTER HARDWARE AND ITS MAINTENANCE. THE ASSESSMENT WAS COMPLETED WHEREIN T OTAL INCOME WAS FIXED AT RS.6,82,540/- THE AO MADE DISALLOWANCES TO TALING RS.5,04,709/- IN RESPECT COMMISSION, DEMONSTRATION AND SALES PROM OTION STATING THAT THE CLAIMS WERE NOT VERIFIABLE AND THE APPELLANT DID NO T SUBSTANTIATE SUCH EXPENSES. PENALTY PROCEEDINGS U/S 271(1)(C) WERE IN ITIATED. APPELLANT FURNISHED WRITTEN SUBMISSIONS AS PER LETTER DATED 3 0/03/2004. IT WAS SUBMITTED THAT SO FAR AS THE EXPENSES DISALLOWED, F ULL DETAILS OF EXPENSES OF COMMISSION OF RS.3,04,100/-, DEMONSTRATION EXPEN SES OF RS.57,719/- AND SALES PROMOTION EXPENSES OF RS.1,42,890/- WERE PRODUCED DURING ASSESSMENT PROCEEDINGS. SO FAR AS THE ADDITION OF R S.37.830/-, IT WAS POINTED OUT THAT THE ADDITION WAS MADE ON PRESUMPTI VE BASIS. THE MERE FACT THAT THE ADDITIONS WERE MADE DID NOT JUSTIFY L EVY OF PENALTY. IN APPEAL, THE CIT(A), GANDHINAGAR AS PER ORDER NO. CIT(A)/(9N R/8/2004-05 DATED 14/06/2004 UPHELD THE ADDITIONS. IN VIEW OF THE ABO VE, ASSESSING OFFICER PROCEEDED PENALTY PROCEEDINGS U/S. 271(L)(C) OF THE IT. ACT. THE APPELLANT WAS GRANTED OPPORTUNITY TO FURNISH EXPLANATION. HOW EVER, NO REPLY WAS FILED. THE ASSESSING OFFICER CONSIDERED THE EXPLANA TION AND POINTED OUT THAT APPELLANT FAILED TO ESTABLISH THE GENUINENESS OF THE EXPENSES. THE IDENTITY OF THE PARTIES TO WHOM PAYMENTS WERE MADE, WAS NOT PROVED. NO EVIDENCE WAS ALSO PRODUCED TO SHOW THAT THE EXPENSE S WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS . ACCORDINGLY, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE APPELLAN T WAS GUILTY OF FURNISHING INACCURATE PARTICULARS OF INCOME AND HE LEVIED A MINIMUM PENALTY OF RS.1,77,153/-, BEING 100% OF TAX SOUGHT TO BE EVADED. 2.1. THE APPELLANT OBJECTED TO THE LEVY OF PENALTY POINTING OUT THAT THE ACTION OF ASSESSING OFFICER IN LEVYING PENALTY WAS BAD IN LAW. AN APPEAL AGAINST CIT(A) HAD ALREADY BEEN PREFERRED BEFORE HO NBLE ITAT AND NO PENALTY SHOULD HAVE BEEN LEVIED. THE REPRESENTATIVE S APPEARING ON ITA NO.1509/AHD/2007 3 BEHALF OF THE APPELLANT FURTHER SUBMITTED THAT APPE LLANT HAD FILED DETAILS AND PROOF OF EXPENSES BEFORE THE HON'BLE ITAT AND THE S AME SHOULD BE TAKEN INTO ACCOUNT. IT WAS FURTHER SUBMITTED BY THEM THAT MERELY BY MAKING ADDITIONS TO INCOME, ASSESSEE COULD NOT BE HELD TO HAVE CONCEALED HIS INCOME. THE ASSESSING OFFICER IS BOUND TO PROVE THA T THE SUBJECT MATTER OF DISALLOWANCE WAS A CONSCIOUS ACT OH THE PART OF THE ASSESSEE. THE RELEVANT FACTS AND CIRCUMSTANCES ARE REQUIRED TO BE BROUGHT ON RECORD. FOR ATTRACTING PENAL PROVISIONS 'MENS REA' IS TO BE EST ABLISHED. RELIANCE WAS ALSO PLACED ON THE DECISIONS IN THE FOLLOWING CASES :- I) CIT V/S. AJAI SINGH & CO. [ 2001] 119 TAXMAN 825 (PUNJAB) II) CIT V/S. INDEN BISLERS [2001] 118 TAXMAN 76 6 (MAD) 2.2. THE FACTS OF THE CASE AND THE SUBMISSIONS HAVE BEEN CONSIDERED CAREFULLY. DURING THE ASSESSMENT PROCEEDINGS, IT WA S FOUND THAT THE APPELLANT HAD SOLD 25 COMPUTERS UNDER A SCHEME OF L OAN CONCEIVED BY STATE GOVERNMENT FOR PURCHASE OF COMPUTERS FOR UNEM PLOYED PERSONS. THE PRICE OF COMPUTERS WAS INFLATED FROM RS.35,000/ - TO RS.80.000/- THE INFLATED PRICE REALIZED WAS STATED TO BE RETURNED T O THE CUSTOMERS OR THEIR RELATIVES AS KICKBACK AND DEBITED TO P&L A/C UNDER VARIOUS HEADS OF EXPENSES. SO FAR AS THESE EXPENSES ARE CONCERNED, A PPELLANT DID NOT FURNISH ANY EVIDENCE TO ESTABLISH THE GENUINENESS O F EXPENDITURE. THE DISALLOWANCES WERE UPHELD BY CIT(APPEALS) ALSO ON F INDING THAT NO EVIDENCE WAS FURNISHED. IN THIS CONTEXT, THE EXPLAN ATION 1 TO SECTION 271(1) IS FOUND TO BE APPLICABLE. SO FAR AS THE CON TENTION THAT THE ASSESSING OFFICER DID NOT BRING ON RECORD ANY MATER IAL TO ESTABLISH 'MENS REA', IT IS OBSERVED THAT IT IS NOT NECESSARILY TO ESTABLISH 'MENS REA' FOR THE PURPOSES OF LEVY PENALTY U/S 271(1)(C) OF IT ACT. I T IS ALSO NOTICED THAT APPELLANT HAD RESORTED TO MANIPULATION OF CLAIM OF EXPENSES INFLATING PRICES AND CLAIMING ABNORMAL EXPENSES. IN THIS CONTEXT ALS O, THE CASE LAW RELIED ON BY THE APPELLANT ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. THE LEVY OF PENALTY IS UPHELD. 4 THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A).AT THE OUTSET, THE LD. A R ON BEHALF OF THE ASSESSEE WHILE INVITING OUR ATTENTION TO AN ORDER D ATED 19-09-2008 OF THE ITAT IN ITA NO.2459/AHD/2004, CONTENDED THAT THE ISSUES IN RESPECT OF DISALLOWANCE OF COMMISSION, DEMONSTRATIO N EXPENSES AND SALES PROMOTION EXPENSES HAD BEEN SET ASIDE BY THE ITAT TO THE FILE OF THE AO WITH THE DIRECTIONS TO RE-ADJUDICATE AFTE R ALLOWING SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESSEE WHILE TH E TRIBUNAL CONFIRMED THE 1/5 TH DISALLOWANCES OUT OF PETROL RS.37,729/-, SCOOTER REPAIR RS.16,595/- AND SCOOTER DEPRECIATI ON RS.6,000/-. THE LEARNED AR ON BEHALF OF THE ASSESSEE FURTHER SU BMITTED THAT IN ITA NO.1509/AHD/2007 4 THE CONSEQUENTIAL ORDER, THE AO VIDE HIS ORDER DATE D 15.12.2009 HAD ALLOWED THEIR CLAIM FOR EXPENSES OF RS.5,04,709/-. CONSEQUENTLY, NO PENALTY CAN BE LEVIED PENALTY U/S 271(1)(C) OF THE ACT ON THE SAID DISALLOWANCE. EVEN OTHER WISE MERE DISALLOWANCE OF EXPENSES WILL NOT ENTAIL PENALTY, THE LD. AR ARGUED. ON THE OTHER HAND, THE LD. DR, DID NOT DISPUTE THESE SUBMISSIONS ON BEHALF OF THE ASSESSEE. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT IN THE CONSEQUENTIAL ORDER DATED 15.12.2009 IN PURSUANCE TO DIRECTIONS OF THE ITAT VIDE THEIR O RDER DATED 19-09- 2008 IN ITA NO.2459/AHD/2004, THE AO ACCEPTED THE C LAIM OF THE ASSESSEE FOR DEDUCTION OF EXPENSES OF RS.5,04,709 /-. IN THESE CIRCUMSTANCES, PENALTY LEVIED BY THE AO ON THE SAID AMOUNT DOES NOT SURVIVE. WHERE AN ORDER OF ASSESSMENT OR REASSESSMENT ON THE BASIS OF WHICH PENALTY HAS BEEN LEVIED ON THE ASSESSEE, HAS ITSELF BEEN SE T ASIDE , THE PENALTY CANNOT STAND BY ITSELF . HONBLE DELHI HIGH COURT IN THE C ASE OF CIT VS. R.DALMIA,(1992)107 TAXATION 107, HELD THAT NO PENAL TY SURVIVES AFTER DELETION OF ADDITIONS, FORMING THE BASIS FOR THE LEVY OF PENALT Y. SINCE THE VERY BASIS UPON WHICH THE PENALTY HAS BEEN IMPOSED DOES NOT EXIST, WE HAVE NO ALTERNATIVE BUT TO SET ASIDE THE IMPUGNED ORDER AND QUASH THE LEVY OF PENALTY UPHELD BY THE LD. CIT(A) IN RELATION TO THE AMOUNT OF RS.5,04,709/-. AS REGARDS PENALTY IN RELATION TO DISALLOWANCE OF 1/5 TH OF THE FOLLOWING EXPENDITURE:- I) PETROL RS.37,729/- II) SCOOTER REPAIR RS.16,595/- III) SCOOTER DEPRECIATION RS. 6,000/- UPHELD BY THE ITAT ,IT IS WELL SETTLED THAT MERE DI SALLOWANCE OF EXPENSES DOES NOT IMPLY FURNISHING INACCURATE PARTICULARS OF SUCH INC OME. WHEN A DISALLOWANCE IS MADE MERELY ON AN ESTIMATE BASIS, THE PENALTY CANNO T AUTOMATICALLY BE IMPOSED . IT IS WELL SETTLED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND DISTINCT AND AS HELD BY HON'BLE SUPREM E COURT IN THE CASE OF ANANTHRAMAN VEERASINGHAIAH & CO. VS. CIT - 123 ITR 457; THE FINDING IN THE ASSESSMENT PROCEEDINGS CANNOT BE REGARDED AS CONCLU SIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. IT IS, THEREFORE, NECESSAR Y TO REAPPRECIATE AND ITA NO.1509/AHD/2007 5 RECONSIDER THE MATTER SO AS TO FIND OUT AS TO WHETH ER THE ADDITION MADE IN THE QUANTUM PROCEEDINGS ACTUALLY REPRESENTS THE CONCEAL MENT ON THE PART OF THE ASSESSEE AS ENVISAGED IN SEC. 271(1 )(C) OF THE ACT AND WHETHER IT IS A FIT CASE TO IMPOSE THE PENALTY BY INVOKING THE SAID PROVISIONS. IT IS ALSO WELL SETTLED THAT THE CRITERION AND YARDSTICKS FOR THE PURPOSE OF IMPOSIN G PENALTY U/S 271(1)(C) OF THE ACT ARE DIFFERENT THAN THOSE APPLIED FOR MAKING OR CONFIRMING THE ADDITIONS. WHEN THE ASSESSEE HAS MADE A PARTICULAR CLAIM IN THE RET URN OF INCOME AND HAS ALSO FURNISHED ALL THE MATERIAL FACTS RELEVANT THERETO, THE DISALLOWANCE OF SUCH CLAIM CANNOT AUTOMATICALLY LEAD TO THE CONCLUSION THAT TH ERE WAS CONCEALMENT OF PARTICULARS OF HIS INCOME BY THE ASSESSEE OR FURNIS HING OF INACCURATE PARTICULARS THEREOF . WHAT IS TO BE SEEN IS WHETHER THE SAID CL AIM MADE BY THE ASSESSEE WAS BONA-FIDE AND WHETHER ALL THE MATERIAL FACTS RELEVA NT THERETO HAVE BEEN FURNISHED AND ONCE IT IS SO ESTABLISHED, THE ASSESSEE CANNOT BE HELD LIABLE FOR CONCEALMENT PENALTY U/S 271(L)(C) OF THE ACT. A MERE REJECTION OF THE CLAIM OF THE ASSESSEE BY RELYING ON DIFFERENT INTERPRETATIONS DOES NOT AMOUN T TO CONCEALMENT OF THE PARTICULARS OF INCOME OR FURNISHING INACCURATE PART ICULARS OF INCOME BY THE ASSESSEE. HON'BLE PUNJAB & HARYANA HIGH COURT IN TH E CASE OF CIT VS. AJAIB SINGH & CO. (2001) 170 CTR (P&H) 489 : (2002) 253 ITR 630 (P&H) HAVE OBSERVED THAT MERELY BECAUSE CERTAIN EXPENSES CLAI MED BY THE ASSESSEE ARE DISALLOWED BY AN AUTHORITY, IT CANNOT MEAN THAT PAR TICULARS FURNISHED BY THE ASSESSEE WERE WRONG. IT WAS HELD THAT MERE DISALLOWANCE OF EXPENSES PER SE CANNOT MEAN THAT ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF ITS INCOME. IN THE CASE UNDER CONSIDERATION, WE FIND THAT THE ASSESSEE HAD GIVEN ALL THE PARTICULARS OF INCOME AND HAD DISCLOSED ALL FACTS T O THE AO. IN SUCH CIRCUMSTANCES, HONBLE DELHI HIGH COURT HELD IN TH E CASE OF COMMISSIONER OF INCOME-TAX.VS BACARDI MARTINI INDIA LIMITED.,288 IT R 585(DEL) THAT NO PENALTY WAS LEVIABLE. RECENTLY, HONBLE APEX COURT IN CIT VS. RELIANCE PETRO PRODUCTS, ARISING OUT OF SLP (C) NO.27161 OF 2008, VIDE THEIR ORDER DATED 17.3.2010 HELD THAT MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EX PENDITURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, ATTRACT THE PENALTY U/S 271(1)(C) OF THE ACT. IN V IEW OF THE FOREGOING, WE HAVE NO HESITATION IN VACATING THE FINDINGS OF THE LD. CIT( A) AND QUASH THE AFORESAID PENALTY ORDER. THUS, GROUND NOS. 1 & 2 IN THE APPEA L ARE ALLOWED. ITA NO.1509/AHD/2007 6 6 IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 30-03-2 010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-03-2010 COPY OF THE ORDER FORWARDED TO : 1. SHRI DEEPAL NAVINCHANDRA SHAH, PROP. DAZZLE COMP UTER MEDIA, 24, VIRATNAGAR SOCIETY, SECTOR-23, GANDHINAG AR 2. THE ITO, WARD-1, GANDHINAGAR 3. CIT CONCERNED 4. CIT(A), GANDHINAGAR 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD