The DCIT, Circle-5, Ahmedabad V. Powersoft Consulting Pvt. Ltd., Ahmedabad

ITA 1586/AHD/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9630 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 13-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AARTIBEN SHAH
• Keywords: Wrong claim; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE S/SHRI G. D. AGARWAL, VICE-PRESIDENT AND MAHAVIR SINGH, JUDICIAL MEMBER) ITA.NO.1586/AHD/2010 [ASSTT.YEAR : 2003-2004] DCIT, CIR.5 AHMEDABAD. VS. M/S.POWERSOFT CONSULTING PVT. LTD. 801, SATKRUT, PARTH SARTHI AVENUE NR. SHYAMAL, 132 FT. RING ROAD, SATELLITE, AHMEDABAD. ITA.NO.1221/AHD/2010 [ASSTT.YEAR : 2003-2004] M/S.POWERSOFT CONSULTING PVT. LTD. 801, SATKRUT, PARTH SARTHI AVENUE NR. SHYAMAL, 132 FT. RING ROAD, SATELLITE, AHMEDABAD. VS. ACIT, CIR.5 AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI K. MADHUSUDAN ASSESSEE BY : SMT.AARTIBEN SHAH O R D E R G.D. AGARWAL, VICE-PRESIDENT: THESE ARE TWO APPEALS ONE BY THE REVENUE AND ANOTHER BY THE ASSESSEE AGAINST THE ORD ER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-XI, AHMEDABAD DATED 05.03.2010 ARISING OUT OF THE ORDER OF THE ASSESSING OFFICER PASSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 2. THE ONLY GROUND RAISED IN BOTH THE APPEALS IS WI TH REGARD TO LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT, WHICH I S PARTLY SUSTAINED BY THE CIT(A). 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERI VES INCOME FROM SOFTWARE EXPORTS. FOR THE YEAR UNDER CONSIDERATION, THE AO LEVY LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT AMOUNTING TO RS.4,37,7 50/-. THE PENALTY WAS ITA.NO.1221 AND 1586/AHD/2010 -2- LEVIED IN RESPECT OF ADDITIONS TOTALING TO RS.11,91 ,160/- CONFIRMED BY THE CIT(A). THESE ADDITIONS WERE RELATING TO THE FOLLO WING THREE ITEMS: I) DISALLOWANCE OUT OF SALARY RS.5.00 LAKHS II) DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENSES OF RS.6 ,41,160/- III) DISALLOWANCE OF CONSULTANCY CHARGES OF RS.50,000/- 4. ON APPEAL, THE CIT(A) DELETED THE PENALTY IN RES PECT OF THE DISALLOWANCE OUT OF SALARY AND CONSULTANCY CHARGES, BUT SUSTAINE D THE PENALTY IN RESPECT OF DISALLOWANCE OUT OF FOREIGN TRAVEL EXPENSES. BOTH THE PARTIES AGGRIEVED WITH THE ORDER OF THE CIT(A) ARE IN APPEAL BEFORE THE TR IBUNAL. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS PLACED BEFORE US. THE FACTS RELATING TO THE ABOVE THREE DISALLOW ANCE ARE AS UNDER: A) REGARDING DISALLOWANCE OUT OF SALARY: - DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED DEDUCTION F OR RS.41,92,028/- ON ACCOUNT OF CONSULTANTS SALARY. THE AO DISALLOWED THE ENTIRE SALARY WITH THE FOLLOWING FINDING: AT POINT NO.5, OF THE COPY OF AGREEMENT SUBMITTED BY THE ASSESSEE, IT IS MENTIONED THAT PAYMENT SHALL BE MAD E EVERY MONTH ON ACTUAL AS INVOICED BY THE CONSULTANT. HOW EVER, NO COPY OF INVOICE WAS FURNISHED DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR VERIFICATION. NO DOCUMENTARY EVIDE NCES WITH RESPECT TO THE NATURE OF THE WORK OR THE NATURE OF CONSULTANCY RENDERED BY THE CONSULTANTS HAVE BEEN FURNISHED BY THE ASSESSEE. THE COPY OF AGREEMENTS IS GENERAL IN NAT URE AS FAR AS THE NATURE OF SERVICES TO BE PROVIDED BY THE CON SULTANTS IS CONCERNED. IN VIEW OF THE ABOVE DISCUSSIONS, AND F AILURE ON PART OF THE ASSESSEE TO SUBSTANTIATE THE ABOVE EXPE NDITURE WITH SUPPORTING DOCUMENTS, THE ENTIRE AMOUNT OF RS.41,90,028/- IS BEING DISALLOWED. ON APPEAL, THE CIT(A) REDUCED THE DISALLOWANCE OUT OF SALARY TO RS.5.00 LAKHS. ON FURTHER APPEAL, THE ITAT PARTLY MODIFIED THE ORDER OF THE CIT(A) AND SUSTAINED THE DISALLOWANCE OUT OF SALARY AT ITA.NO.1221 AND 1586/AHD/2010 -3- RS.13,94,929/-. THE AO HAD LEVIED THE PENALTY FOR DISALLOWANCE OF SALARY AMOUNTING TO RS.5 LAKHS. B) REGARDING FOREIGN TRAVEL EXPENSES:- THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE CLAIMED AN AMOUNT OF RS.12,14,633/- TOWARDS TRAVELLING EXPENSES WHICH IN CLUDED A SUM OF RS.6,41,160/- FOR FOREIGN TRAVEL. THE AO DISALLOWE D THE FOREIGN TRAVEL EXPENSES WITH THE FOLLOWING OBSERVATIONS: THE ABOVE SUBMISSION OF THE ASSESSES HAS BEEN CONSI DERED AND NOT FOUND TO BE ACCEPTABLE FOR THE REASONS MENT IONED BELOW- 1. THE ASSESSEE HAS STATED THAT THEY HAVE GOT TWO NEW CONTRACTS, ONE FROM EGYPT AND ANOTHER FROM JAPAN, BECAUSE OF THE EFFORTS PUT BY THE MARKETING PEOPLE. HOWEVER, NO DOCUMENT IN RESPECT OF SUCH CONTRACTS H AVE BEEN FURNISHED BY THE ASSESSEE. 2. NO DOCUMENTS IN SUPPORT OF ANY BUSINESS MEETING , PROJECT DISCUSSION HELD DURING THESE TOUR OR TOUR REPORT HA S BEEN FURNISHED BY THE ASSESSEE. 3. THE SUPPORTING DOCUMENTS FURNISHED BY THE ASSESS EE INCLUDE CASH VOUCHERS AND MEMOS FOR PURCHASE OF FOREIGN CUR RENCY NOTES, RESTAURANT BILLS, BILLS FOR SHOPPING AT HYPE R MARKETS, HOTEL BILLS, ETC WHICH ARE COMMON FOR BUSINESS AS W ELL AS NON-BUSINESS TOURS. 4. ON GOING THROUGH THE DOCUMENTS FURNISHED BY THE ASSESSEE CERTAIN BILLS RELATED TO STAY AT KUALALAMPUR HAVE B EEN NOTICED. SINCE THE ASSESSEE HAS NOT EVEN MENTIONED ABOUT HAVING ANY BUSINESS TRANSACTION IN KUALALAMPOR [MAL AYSIA] THE CLEMENT OF PERSONAL NATURE CANNOT BE DENIED IN THESE FOREIGN TOURS. TAKING INTO CONSIDERATION, THE FACTS AND OBSERVATI ONS DISCUSSED ABOVE, IT CAN BE SAID THAT THE ASSESSEE HAS TAILED TO SUBSTANTIATE THE EXPENDITURE OF RS.6,41,160/- INCURRED ON FOREIGN TR AVEL EXPENSES, HAVE BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR BUSIN ESS PURPOSE. IN THE CASE OF COOPER ENGINEERING LTD. VS. CIT BOM. CI TY 1, HONBLE BOMBAY HIGH COURT HAS RULED THAT IT IS ONE THING TO MENTION THE PURPOSE FOR WHICH THE TOUR IS SOUGHT TO BE UNDERTAK EN PRIOR TO THE ITA.NO.1221 AND 1586/AHD/2010 -4- COMMENCEMENT OF THE TOUR AND IT IS A DIFFERENT THIN G TO ATTRIBUTE THE EXPENSES, ACTUALLY INCURRED TO THE SAID PURPOSE OR PURPOSES FOR THE PURPOSE FOR WHICH THE TOUR IS UNDERTAKEN MAY NOT AC TUALLY BE ACHIEVED AND THE MONIES MAY BE SPENT FOR A DIFFEREN T PURPOSE. IT IS NECESSARY, THEREFORE, THAT THE RELEVANT EVIDENCE IS PLACED ON RECORDS TO PROVE THE PURPOSE FOR WHICH THE EXPENSES WERE ACTUALLY INCURRED. ACCORDINGLY, RS.6,41,140/- IS BEING DISAL LOWED AND ADDED BACK TO THE TOTAL INCOME U/S 37(L) OF THE ACT . THE CIT(A) ON QUANTUM APPEAL SUSTAINED THE DISALLOW ANCE OUT OF FOREIGN TRAVEL EXPENSES. NO APPEAL BY THE ASSESSEE WAS FILED AGAINST THE ORDER OF THE CIT(A). THUS, THE DISALLOWANCE OU T OF FOREIGN TRAVEL EXPENSES MADE BY THE AO WAS UPHELD. C) REGARDING CONSULTANCY EXPENSES:- THE ASSESSEE C LAIMED EXPENDITURE OF RS.50,000/- PAID TO DELLOITE HASKINS AND SELLS. WHEN THE AO MADE INQUIRY IT WAS FOUND THAT THE FEE WAS P AID FOR ACQUIRING STAKE IN GETWAY INFOSYS. SINCE THE FEES WAS PAID FOR ACQUIRING THE SHARES OF ANOTHER COMPANY, THE AO HAS TREATED THE S AME AS CAPITAL EXPENDITURE. THE DISALLOWANCE WAS SUSTAINED BY THE APPELLATE AUTHORITY. 6) AT THE TIME OF HEARING BEFORE US, IT WAS SUBMITT ED BY THE LEARNED COUNSEL THAT ALL THE DISALLOWANCES WERE MADE BY THE REVENUE AUTHORITIES ON THE GROUND THAT THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM I.E. WHETHER THE EXPENDITURE INCURRED WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. HOWEVER, MERELY BECAUSE THE CLAIM OF CERTAIN EXPENDITURE IS NOT ALLOWED THAT WOULD NOT BE A GROUND FOR LEVY OF PENALTY UNDER SECTION 271(1 )(C). SHE STATED THAT ALL THE FACTS RELATING TO THE EACH AND EVERY EXPENDITURE WA S PLACED BEFORE THE AO. THERE WAS NEITHER CONCEALMENT OF ANY FACT NOR FURNI SHING OF INACCURATE PARTICULARS WITH REGARD TO ANY OF THE EXPENDITURE. SHE THEREFORE SUBMITTED THAT THE PENALTY UNDER SECTION 271(1)(C) ON THE FACTS OF THE CASE, IS NOT JUSTIFIED. IN SUPPORT OF THIS CONTENTION, SHE RELIED UPON THE FOL LOWING DECISIONS: ITA.NO.1221 AND 1586/AHD/2010 -5- I) CIT VS. RELIANCE PETROPRODUCTS PVT.LTD., 322 ITR 15 8(SC); II) CIT VS. HOTEL SABAR P. LD., 264 ITR 381 (GUJ); III) CIT VS. UNION ELECTRIC CORPORATION; 281 ITR 266 (GU J) IV) CIT VS. ANAND WATER METER MFG CO., 117 ITR 866 (P&H ); V) GUJARAT CREDIT CORPORATION LTD., VS. ACIT, 302 ITR 250 (ABAD SP BENCH); VI) CIT VS. HARSHVARDHAN CHEMICALS & MINERALS LTD., 259 ITR 212; VII) CIT VS. SKYLINE AUTO PRODUCTS PVT. LTD., 271 ITR 33 5 (MP); THE LEARNED DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE AO AND HE HAS STATED THAT THE ASSESSEE MADE WRONG CLAIM OF THE EX PENDITURE. ASSESSEE VISITED ABROAD FOR PERSONAL PURPOSE AND THE SAME WAS NOT FO R THE PURPOSE OF BUSINESS. WHEN THE ASSESSEE HAS DEBITED SUCH EXPENDITURE IN T HE BOOKS OF ACCOUNTS, THE PENALTY UNDER SECTION 271(1)(C) WAS RIGHTLY LEVIED BY THE AO. SIMILARLY, WHEN THE CAPITAL EXPENDITURE IS CLAIMED AS REVENUE EXPEN DITURE, THE PENALTY UNDER SECTION 271(1)(C) WOULD BE FULLY JUSTIFIED. 7. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THA T HONBLE APEX COURT HAS CONSIDERED THE ISSUE OF LEVY OF PENALTY UNDER SECTI ON 271(1)(C) IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD., (SUPRA), WHEREIN THEIR LORDSHIPS HELD AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION271(1)(C) OF T HE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, T HERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICU LARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTI ON 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO IN FORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT 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 CO VERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STR ETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHI NG WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS T HE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INC OME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILI TY WOULD ARISE. TO ITA.NO.1221 AND 1586/AHD/2010 -6- 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 FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANN OT AMOUNT TO FURNISHING INACCURATE PARTICULARS. 8. FROM THE ABOVE, IT IS EVIDENT THAT MERELY BECAUS E A CLAIM FOR DEDUCTION OF EXPENDITURE WAS NOT SUSTAINABLE IN LAW, THAT BY ITSELF, WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME OF T HE ASSESSEE. IN THE CASE UNDER APPEAL BEFORE US, THE REVENUE HAS NOT POINTED OUT THAT THE ASSESSEE HAS FURNISHED ANY INACCURATE OR WRONG PARTICULARS WITH REGARD TO THE INCOME OR EXPENDITURE. MERELY BECAUSE, SOME EXPENDITURE WAS DISALLOWED, THAT BY ITSELF DOES NOT AMOUNT TO CONCEALMENT OF INCOME OR FURNISH ING OF INACCURATE PARTICULARS. THE ASSESSEE HAS DULY DISCLOSED ALL T HE FACTS RELATING TO EACH AND EVERY EXPENDITURE. IT IS NOT THE CASE OF THE REVEN UE THAT SUCH PARTICULARS FURNISHED BY THE ASSESSEE WERE EITHER INACCURATE OR FALSE. IN VIEW OF THE ABOVE, WE RESPECTFULLY FOLLOWING THE DECISION OF THE HONB LE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD., HOLD THAT THE LEV Y OF PENALTY UNDER SECTION 271(1)(C) ON THE FACTS OF THE ASSESSEES CASE WAS N OT JUSTIFIED. WE THEREFORE CANCEL THE PENALTY SUSTAINED BY THE CIT(A). 9. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED WHILE THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 15 TH OCTOBER, 2010. SD/- SD/- (MAHAVIR SINGH ) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 15-10-2010 ITA.NO.1221 AND 1586/AHD/2010 -7- COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD