DCIT CIR 3(3)(2), MUMBAI V. XYLON ELECTROTECHNIC PVT. LTD, MUMBAI

ITA 1582/MUM/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0540 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 21-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VIDHYADHAR
• Assessee Lawyers: V MOHAN
• Keywords: Opportunity of being heard; Principle of natural justice
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 1582 /MUM/ 2016 ASSESSMENT YEAR: 2011 - 12 DCIT - 3(3)(2) ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. VS. M/S XYLON ELECTROTECHNIC PVT. LTD., A - 491, 3 RD PASTA LANE, COLABA, MUMBAI - 400005 PAN NO. AAACX0088Q APPELLANT RESPONDENT C.O. NO. 285/MUM/2017 ASSESSMENT YEAR: 2011 - 12 M/S XYLON ELECTROTECHNIC PVT. LTD., A - 491, 3 RD PASTA LANE, COLABA, MUMBAI - 400005 VS. DCIT - 3(3)(2) ROOM NO. 609, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020. PAN NO. AAACX0088Q APPELLANT RESPONDENT REVENUE BY : MR. V. VIDHYADHAR, DR ASSESSEE BY : MR. V. MOHAN , AR DATE OF HEARING : 25/01/2018 DATE OF PRONOUNCEMENT : 30/01/2018 ORDER PER N.K. PRADHAN, A.M. THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 2 (APPEALS) - 8 , MUMBAI AND ARISE OUT OF THE PENALTY ORDER PASSED BY THE ASSESSING OFFICER (AO) U/S 271(1)(C) OF THE INCOME TAX ACT 1961, (THE ACT). ITA NO. 1582/MUM/2016 ASSESSMENT YEAR: 2011 - 12 2. THE 1 ST & 2 ND GROUND RAISED BY THE REVENUE IN THIS APPEAL ARE AGAINST THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) ON FOREIGN TRAVEL EXPENSES. THE 3 RD GROUND IS AGAINST THE ORDER OF THE LD. CIT(A) DELETING THE PENALTY LEVIED BY THE AO U/S 271(1)(C) ON THE CESSATION OF LIABILITY U/S 41(1) OF THE ACT. THE 4 TH GROUND IS THAT THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE HAD UNDERESTIMATED ITS INCOME BY FURNISHING INACCURATE PARTICULARS OF EXPENSES. 3. THE AO HAS I MPOSED PENALTY U/S 271(1)(C) ON THE FOLLOWING ADDITION/DISALLOWANCE: A) DISALLOWANCE U/S 40 RS.31,32,542/ - B) DISALLOWANCE U/S 2(24)(X) R.W.S. 36(1)(VA) IN RESPECT OF DELAY IN PAYMENT OF EMPLOYEES P.F. CONTRIBUTION RS.2,85,900/ - C) ADDITION ON ACCOUNT OF ALLEGED CESSATION OF LIABILITY U/S 41(1) RS.20,06,198/ - D) DISALLOWANCE OF CERTIFICATION EXPENSES RS.1,48,114/ - E) DISALLOWANCE OF FOREIGN TRAVEL EXPENDITURE RS.22,71,200/ - M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 3 WE ARE CONCERNED IN THIS APPEAL ON ITEM AT SERIAL NO. (C) AND (E) ONLY. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FOUND THAT OUT OF TOTAL FOREIGN TRAVEL EXPENSES OF RS.24,93,298/ - , AN AMOUNT OF RS.22,71,200/ - WAS INCURRED BY THE DIRECTOR AND HIS FAMILY MEMBERS ON FOREIG N VISITS. SINCE THE ASSESSEE FAILED TO SUBMIT ANY EVIDENCE TO SUBSTANTIATE ITS CLAIM, THE AO DISALLOWED RS.22,71,200/ - TREATING THE SAME AS PERSONAL EXPENDITURE OF THE DIRECTORS. ALSO THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ISSUED NOTICE U/S 133(6) TO THE CREDITORS TO VERIFY THE GENUINENESS OF TRANSACTION. HE NOTICED THAT ONE PARTY HAD SHOWN BALANCE AT RS.13,63,852/ - , WHEREAS AS PER BOOKS OF ACCOUNTS OF THE ASSESSEE, T HE OUTSTANDING AMOUNT PAYABLE TO SUCH PARTY WAS SHOWN AT RS.20,06,198/ - . IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE SUBMITTED THAT DUE TO ASSESSEES POOR FINANCIAL CONDITION, THE SAID PARTY HAD WRITTEN OFF THE DIFFERENTIAL AMOUNT AS NOT RECOVERA BLE. HOWEVER, THE AO TREATED THE ABOVE AMOUNT OF RS.20,06,198/ - AS LIABILITY WHICH HAS CEASED AND BROUGHT TO TAX THE ABOVE SUM U/S 41(1) OF THE ACT. THEN THE AO INTER ALIA LEVIED PENALTY U/S 271(1)(C) ON THE FOREIGN TRAVEL EXPENDITURE OF RS.22,71,200/ - A ND CESSATION OF LIABILITY OF RS.20,06,198/ - U/S 41(1) OF THE ACT . 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). WE FIND THE LD. CIT(A) HAS SUSTAINED THE PENALTY AT SERIAL NO. (A) AND (B) ONLY. WHILE DELETING THE PENALTY LEVIED BY THE AO M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 4 ON FOREIGN TRAVEL EXPENSES, THE LD. CIT(A) OBSERVED THAT THE EXPENDITURE OR PAYMENT THROUGH CHEQUES ARE NOT DISPUTED. WHILE DELETING THE PENALTY LEVIED BY THE AO ON CESSATION OF LIABILITY, THE LD. CIT(A) OBSERV ED THAT NEITHER THERE WAS ANY CONCEALMENT N OR FURNISHING OF INACCURATE PARTICULARS BY THE ASSESSEE. RELIANCE WAS PLACED BY HIM ON THE DECISION IN CIT V. RELIANCE PETROPRODUCTS (P.) LTD . 322 ITR 158 (SC). 5. BEFORE US, THE LD. DR RELIES ON THE ORDER OF THE AO, WHEREAS THE LD. COUNSEL OF THE ASSESSEE SUPPORTS THE ORDER PASSED BY THE LD. CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT THE ASSESSEE HAS SHOWN FOREIGN TRAVEL EXPENSES OF RS.24,93,298/ - . T HE AO DISALLOWED RS.22,71,200/ - OUT OF THE ABOVE AMOUNT OF RS.24,93,298/ - TREATING THE SAME AS PERSONAL EXPENDITURE OF THE DIRECTORS. FURTHER, THE AO HAS MADE A DISALLOWANCE OF RS.20,06,198/ - AS CESSATION OF LIABILITY U/S 41(1) OF THE ACT. WE MAY REFER TO THE JUDGMENT OF THE HONBLE SUPREME COURT ANANTHARAM VEERASINGHAIAH & CO. V. CIT (1980) 123 ITR 457 (SC), WHEREIN IT HAS BEEN HELD THAT THE FINDINGS RECORDED IN THE ASSESSMENT ORDER CONSTITUTE GOOD EVIDENCE IN THE PENALTY PROCEEDINGS BUT THOSE FINDINGS CANNOT BE REGARDED AS CONCLUSIVE FOR THE PURPOSES OF THE PENALTY PROCEEDINGS. WHETHER A PENALTY CAN BE IMPOSED IN A GIVEN CASE, THE ENTIRETY OF THE CIRCUMSTANCES MUST BE TAKEN INTO ACCOUNT. ALL WILL DEPEND ON THE CIRCUMSTANCES OF THE CASE. M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 5 IN RELIANCE P ETROPRODUCTS PVT. L TD. (SUPRA), THE HONBLE SUPREME COURT HELD : A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF ASSE SSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND TO BE INCO RRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGIN ATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULAR S OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FIN DING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY U/S 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT T O FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. 6.1 IN THE INSTANT APPEAL, THERE IS NO FINDING BY THE AO THAT THE DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE, THEREFORE, THERE IS NO QUESTION OF INVITING THE PENALTY U/S 271(1)(C). IT IS NOT A FIT CASE TO IMP OSE PENALTY U/S 271(1)(C) ON M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 6 DISALLOWANCE OF FOREIGN TRAVEL EXPENSES AND ADDITION ON ACCOUNT OF CESSATION OF LIABILITY U/S 41(1) OF THE ACT. RESPECTFULLY FOLLOWING THE DECISION IN RELIANCE PETROPRODUCTS PVT. LTD. (SUPRA), WE UPHOLD THE ORDER OF THE LD. CI T(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. C.O. NO. 285/MUM/2017 ASSESSMENT YEAR: 2011 - 12 8. THE CROSS OBJECTION RAISED BY THE ASSESSEE IS THAT THE AO HAS NOT RECORDED HIS SATISFACTION AS PRESCRIBED AND REQUIRED BY SECTION 271( 1) R.W.S. 271(1B) OF THE ACT IN THE ASSESSMENT ORDER AND CONSEQUENTLY THE PENALTY PROCEEDING ARE BAD IN LAW. 9. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMITS THAT THE PENALTY NOTICE HAS BEEN ISSUED WITHOUT APPLICATION OF MIND AS IT NOWHERE INDICATES WHETHER THE NOTICE IS FOR FURNISHING INACCURATE PARTICULARS OF INCOME OR FOR CONCEALMENT OF INCOME AND CONSEQUENT LY THE PENALTY NOTICE IS INVALID IN LAW AND THE PENALTY PROCEEDINGS AND THE PENALTY ORDER ARE BAD IN LAW AND OUGHT TO BE CANCELLED. 10. PER CONTRA THE LD. DR SUBMITS THAT THE A O HAS RIGHTLY INITIATED PENALTY IN THE ASSESSMENT ORDER DATED 18.03.2014 AND SU BSEQUENTLY LEVIED THE PENALTY. 11. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. WE FIND THAT IN THE ASSESSMENT ORDER DATED 18.03.2014 , THE AO HAS INITIATED THE PENALTY PROCEEDINGS. IN THE PENALTY M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 7 ORDER DATED 25.07.2014, THE AO HAS LEVIED THE PENALTY FOR FURNISHING INACCURATE PARTICULARS OF INCOME. IN MAK DATA PVT. LTD. VS. CIT (CIVIL APPEAL NO. 9772 OF 2013), THE HONBLE SUPREME COURT HAS HELD AT PARA 10 THE FOLLOWING: THE AO HAS TO SATISFY WHETHER THE PENALTY PROCEEDINGS BE INITIATED OR NOT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AND THE AO IS NOT REQUIRED TO RECORD HIS SATISFACTION IN A PARTICULAR MANNER OR REDUCE IT INTO WRITING. THE SCOPE OF SECTION 271(1)(C) HAS ALSO BEEN ELABORATELY DISCUSSED BY TH IS COURT IN UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS (2008) 13 SCC 369 AND CIT VS. ATUL MOHAN BINDAL (2009) 9 SCC 589. IN THE CASE OF CIT VS. SMT. KAUSHALYA AND OTHERS (1995) 216 ITR 660 (BOM), THE HONBLE BOMBAY HIGH COURT HELD: 9. WE WILL FIR ST TAKE UP THE SHOW - CAUSE NOTICE DATED MARCH 29, 1972, PERTAINING TO THE ASSESSMENT YEARS 1968 - 69 AND 1969 - 70. THE ASSESSMENT ORDERS WERE ALREADY MADE AND THE REASONS FOR ISSUING THE NOTICE UNDER SECTIO N 274 READ WITH SECTION 271(1)(C) WERE RECORDED BY THE INCOME - TAX OFFICER. THE ASSESSEE FULLY KNEW IN DETAIL THE EXACT CHARGE OF THE DEPARTMENT AGAINST HIM. IN THIS BACKGROUND, IT COULD NOT BE SAID THAT EITHER THERE WAS NON - APPLICATION OF MIND BY THE INCOME - TAX OFFICER OR THE SO - CALLED AMBIGUOUS WORDING IN THE NOTICE IMPAIRED OR PREJUDICED THE RIGHT OF THE ASSESSEE TO REASONABLE OPPORTUNITY OF BEING HEARD. AFTER ALL, SECTION 274 OR ANY OTHER PROVISION IN THE ACT OR THE RULES, DOES NOT EITHER MANDATE THE GIVING OF NOTICE OR ITS ISSUANCE IN A PARTICULAR FORM. PENALTY PROCEEDINGS ARE QUASI - CRIMINAL IN NATURE. SECTION 274 CONTAINS THE PRINCIPLE OF NATURAL JUSTICE OF THE ASSESSEE BEING HEARD BEFORE LEVYING PENALTY. RULES OF NATURAL JUSTICE CANNOT BE IMPRISONED IN ANY STRAIGHT - JACKET FORMULA. FOR SUSTAINING A COMPLAINT OF FAILURE OF THE PRINCIPLES OF NATURA L JUSTICE ON THE GROUND OF ABSENCE OF M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 8 OPPORTUNITY, IT HAS TO BE ESTABLISHED THAT PREJUDICE IS CAUSED TO THE CONCERNED PERSON BY THE PROCEDURE FOLLOWED. THE ISSUANCE OF NOTICE IS AN ADMINISTRATIVE DEVICE FOR INFORMING THE ASSESSEE ABOUT THE PROPOSAL TO LEVY PENALTY IN ORDER TO ENABLE HIM TO EXPLAIN AS TO WHY IT SHOULD NOT BE DONE. MERE MISTAKE IN THE LANGUAGE USED OR MERE NON - STRIKING OF THE INACCURATE PORTION CANNOT BY ITSELF INVALIDATE THE NOTICE. THE ENTIRE FACTUAL BACKGROUND WOULD FALL FOR CONSIDERATION IN THE MATTER AND NO ONE ASPECT WOULD BE DECISIVE. IN THIS CONTEXT, USEFUL REFERENCE MAY BE MADE TO THE FOLLOWING OBSERVATION IN THE CASE OF CIT V. MITHILA MOTOR 'S (P.) LTD. [1984] 149 ITR 751 (PATNA) ( HEAD NOTE): UNDER SECTION 274 OF THE INCOME - TAX ACT, 1961, ALL THAT IS REQUIRED IS THAT THE ASSESSEE SHOULD BE GIVEN AN OPPORTUNITY TO SHOW CAUSE. NO STATUTORY NOTICE HAS BEEN PRESCRIBED IN THIS BEHALF . HENCE, IT IS SUFFICIENT IF THE ASSESSEE WAS AWARE OF THE CHARGES HE HAD TO MEET AND WAS GIVEN AN OPPORTUNITY OF BEING HEARD. A MISTAKE IN THE NOTICE WOULD NOT INVALIDATE PENALTY PROCEEDINGS.' THEREFORE, THERE IS NO MERIT IN THE CROSS OBJECTION FILED BY THE ASSESSEE AND THE SAME IS DISMISSED. 12. TO SUM UP, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/01/ 2018. SD/ - SD/ - ( D.T. GARASIA ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 30/01/2018 RAHUL SHARMA, SR. P.S. M/S XYLON ELECTROTECHNIC ITA NO. 1582/MUM/2016 & CO NO. 285/MUM/2017 9 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI