M/S. NORIND HEALTHCARE P.LTD., MUMBAI V. THE I.T.O.WARD-10(3)(2), MUMBAI

ITA 1652/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1553 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2001-2002
• Appeal Filed On: 05-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A R BAIWAR
• Assessee Lawyers: VISHNU BAJAJ
• Keywords: Business expenditure; Difference of opinion; Set aside
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JM & SHRI R.K. PANDA, AM I.T.A. NO. 1652/MUM/08 (ASSESSMENT YEAR 2000-01) M/S. NORIND HEALTHCARE PVT. LTD. C/O. M/S. SARAF & CHANDRA, CAS BHARAT INS. BLDG., 3 RD FLOOR, 15-A, HORNIMAN CIRCLE, FORT, MUMBAI-400 001 PAN: AABCN2279E VS. I.T.O. WARD 10(3)(2) AAYAKAR BHAVAN M.K. ROAD, MUMBAI-400 020 APPELLANT RESPONDENT APPELLANT BY: SHRI VISHNU BAJAJ RESPONDENT BY: SHRI A.R. BAIWAR O R D E R DATE OF HEARING: 25.09.2009 DATE OF ORDER: 30.11.2009 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 10 TH AUGUST, 2006 OF THE CIT(A)-X, MUMBAI RELATING TO A SSESSMENT YEAR 2001-02. 2. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALLENGE D THE ORDER OF THE CIT(A) IN CONFIRMING THE PENALTY LEVIED BY THE ASSESSING OFFICER U/S. 271(1)(C) ON ACCOUNT OF ADDITIONS SUSTAINED ON ACCO UNT OF ADVERTISEMENT EXPENSES OF RS. 13605/- AND COMMISSION OF RS.6,89,3 24/-. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING SERVICES AND TRADING O F COSMETIC PRODUCTS. THE ASSESSEE COMPANY IMPORTS BODY CARE/HAIR CARE/TO ILETRY ITEMS. THE ASSESSMENT IN THE INSTANT CASE WAS COMPLETED ON A T OTAL INCOME OF RS.29,22,194 AS AGAINST THE RETURNED INCOME OF RS.1 ,35,456. OUT OF THE ADDITION OF RS.27,86,738 MADE BY THE ASSESSING OFFI CER, THE CIT(A) SUSTAINED AN AMOUNT OF RS.7,93,929, THE DETAILS OF WHICH ARE AS UNDER: ITEM ADDITIONS MADE BY AO (RS.) ADDITIONS SUSTAINED BY CIT(A) I.T.A. NO. 1652/MUM/08 M/S. NORIND HEALTHCARE PVT. LTD. ====================== 2 (RS.) 1) RENT PAID IN ADVANCE 49,500 - 2) ADVERTISEMENT EXPENSES 16,48,583 13,605 3) BUSINESS PROMOTION EXPENSES 4,08,331 1,00,000 4) COMMISSION 6,80,324 6,80,324 TOTAL 27,86,738 7,93,929 4. THE ASSESSING OFFICER THEREAFTER INITIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE INCOME-TAX ACT, 1961 (THE ACT). T HE ASSESSEE REPLIED THAT THE APPEAL OF THE ASSESSEE IS PENDING BEFORE THE TR IBUNAL, THEREFORE, THE PENALTY PROCEEDINGS MAY BE KEPT IN ABEYANCE. THE A SSESSING OFFICER REJECTED THE ABOVE PLEA OF THE ASSESSEE AND IN ABSE NCE OF ANY RESPONSE TO THE VARIOUS QUERIES RAISED BY HIM, PROCEEDED TO LEV Y PENALTY U/S. 271(1)(C) OF THE ACT. 5. AS REGARDS THE ADDITION OF RS.6,83,324 ON ACCOUNT O F COMMISSION THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE CO MPANY HAS ENTERED INTO AN AGREEMENT WITH M/S. SHAMA HERBAL CARE ON 14 TH APRIL, 2000. AS PER THIS AGREEMENT M/S. SHAMA HERBAL CARE IS SUPPOS ED TO BEAR THE EXPENSES LIKE ADVERTISEMENT, BUSINESS PROMOTION AND COMMISSION, ETC. AS PER CLAUSE (4) OF THE SAID AGREEMENT, IT WAS THE DU TY OF THE M/S. SHAMA HERBAL CARE TO PROMOTE THE BUSINESS AND THE COST OF SUCH BUSINESS EXPENDITURE WAS TO BE BORNE BY THE SAID PARTY. HOW EVER, THE ASSESSEE HAS PAID COMMISSION OF RS.6,80,324 TO A THIRD PARTY I.E ., M/S. BHAGWATI ENTERPRISES. THE ASSESSEE HAS NOT BROUGHT ON RECOR D THAT M/S. SHAMA HERBAL CARE HAD ANYWHERE APPOINTED M/S. BHAGWATI EN TERPRISES AS COMMISSION AGENT. THE ASSESSEE HAS ALSO NOT PROVED THE SERVICES RENDERED BY M/S. BHAGWATI ENTERPRISES. ACCORDINGLY , THE CLAIM OF COMMISSION PAYMENT OF RS.6,80,324 WAS DISALLOWED. SIMILARLY THE ASSESSEE COULD NOT PRODUCE THE BILL OF RS.13,605 OU T OF THE TOTAL ADVERTISEMENT EXPENSES FOR WHICH THE SAME WAS CONFI RMED BY THE CIT(A). HE SIMILARLY OBSERVED THAT AN AMOUNT OF RS. 1 LAKHS OUT OF RS.4,08,331 ON ACCOUNT OF BUSINESS PROMOTION EXPENSES HAS BEEN SUS TAINED BY THE CIT(A). THE ASSESSING OFFICER ACCORDINGLY LEVIED MINIMUM PENALTY OF RS.3,13,999 U/S. 271(1)(C) OF THE ACT TREATING THE ABOVE ADDITIONS AS CONCEALED INCOME OF THE ASSESSEE. I.T.A. NO. 1652/MUM/08 M/S. NORIND HEALTHCARE PVT. LTD. ====================== 3 6. BEFORE CIT(A) IT WAS SUBMITTED THAT THERE IS NEITHE R CONCEALMENT OF INCOME NOR SUBMISSION OF INACCURATE PARTICULARS OF INCOME. AS REGARDS THE DISALLOWANCE OF COMMISSION IT WAS SUBMITTED THA T THE SAME IS WITH THE CONSENT OF SOLE SELLING AGENT AND AS PER THE RE SOLUTION PASSED BY THE BOARD OF DIRECTORS. IT WAS FURTHER SUBMITTED THAT THE COMMISSION WAS NOT PAID TO THE ABOVE PARTY DUE TO SOME LITIGATION GOIN G ON BETWEEN THE ASSESSEE AND M/S. SHAMA HERBAL CARE AGAINST WHOM CR IMINAL PROCEEDINGS U/S. 138 OF THE NEGOTIABLE INSTRUMENT ACT (NIA) HAV E BEEN INITIATED AND THE PARTY IS ABSCONDING. IT WAS SUBMITTED THAT THE COMMISSION OF RS.6.80,324 IS A MERE PROVISION PAYABLE TO ASSOCIAT E CONCERN OF SHAMA HERBAL CARE AND EVEN AFTER THIS THE CLIENT HAS TO R ECOVER HUGE AMOUNT FROM THE SOLE SELLING AGENT. AS REGARDS AD-HOC ADD ITION OF RS. 1 LAKH ON ACCOUNT OF BUSINESS PROMOTION AND ADVERTISEMENT EXP ENSES OF RS.13,605 IT WAS SUBMITTED THAT BOTH THESE EXPENSES ARE VERIF IED BY THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS. 7. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE, TH E CIT(A) DELETED THE PENALTY LEVIED ON ACCOUNT OF ADDITION O F RS. 1 LAKH OUT OF BUSINESS PROMOTION EXPENSES. HOWEVER, HE SUSTAINED THE PENALTY LEVIED BY THE ASSESSING OFFICER ON ACCOUNT OF ADDITION OF RS.13,605 ON ACCOUNT OF ADVERTISEMENT EXPENSES AND RS.6,80,324 ON ACCOUNT O F COMMISSION PAYMENT. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 8. THE LEARNED COUNSEL FOR THE ASSESSEE, AT THE OUT SE T, SUBMITTED THAT THE QUANTUM ADDITION HAS BEEN CONFIRMED BY THE TRIB UNAL. HOWEVER, MERELY BECAUSE ADDITIONS HAVE BEEN SUSTAINED, PENAL TY CANNOT BE LEVIED AUTOMATICALLY. HE SUBMITTED THAT THE COMMISSION WH ICH WAS DEBITED TO THE PROFIT AND LOSS A/C. HAS NOT YET BEEN PAID DUE TO THE DISPUTE BETWEEN THE ASSESSEE AND THE SOLE SELLING AGENT. HE SUBMIT TED THAT THE CASE IS PENDING BEFORE THE COURT UNDER NIA. FULL FACTS WER E DISCLOSED TO THE ASSESSING OFFICER IN THE REGULAR RETURN AND DURING ASSESSMENT PROCEEDINGS. FURTHER THE SALE HAS BEEN ACCEPTED BY THE ASSESSING OFFICER. DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF COMMISSION I.T.A. NO. 1652/MUM/08 M/S. NORIND HEALTHCARE PVT. LTD. ====================== 4 PAYMENT IS DUE TO DIFFERENCE OF OPINION BUT THE FAC T REMAINS THAT THERE IS NEITHER CONCEALMENT OF INCOME NOR FURNISHING OF INA CCURATE PARTICULARS OF INCOME. HE SUBMITTED THAT THE PARTY M/S. BHAGWATI ENTERPRISES TO WHOM COMMISSION WAS PROVIDED IS AN ASSOCIATE OF THE SOLE SELLING AGENT M/S. SHAMA HERBAL CARE AND AT THEIR REQUEST ONLY THE COM MISSION WAS PROVIDED TO M/S. BHAGWATI ENTERPRISES. HE SUBMITTE D THAT THE BOARD OF DIRECTORS WHO HAVE DECIDED TO APPOINT M/S. SHAMA HE RBAL CARE AS THEIR SOLE SELLING AGENT HAS APPROVED THE PAYMENT OF COMM ISSION TO M/S. BHAGWATI ENTERPRISES. FURTHER THE COMMISSION PROV IDED TO M/S. BHAGWATI ENTERPRISES IS STILL OUTSTANDING AND LEGAL PROCEEDINGS TO RECOVER THE AMOUNTS FROM M/S. SHAMA HERBAL CARE ARE ON. AS REGARDS LEVY OF PENALTY ON ADVERTISEMENT EXPENSES, HE SUBMITTED THA T THE BILL FOR ONLY A SMALL AMOUNT OF RS.13,605 COULD NOT BE PRODUCED BEF ORE THE ASSESSING OFFICER FOR WHICH THE ADDITION HAS BEEN UPHELD. RE FERRING TO THE DECISION OF TRIBUNAL IN THE CASE OF NASU PROPERTIES PVT. LTD . VS. ITO, (REPORTED IN BCA JOURNAL ON PAGE 450 OF JULY, 2008) HE SUBMITTED THAT THE ITAT I BENCH HAS HELD THAT DISMISSING THE CLAIM OF THE ASSESSEE CANNOT IPSO FACTO LEAD TO THE ESTABLISHMENT OF CHARGE OF PRESUMPTION OF ANY I NACCURATE PARTICULARS OF INCOME. HE ALSO RELIED ON THE DECISION OF HONB LE ORISSA HIGH COURT IN THE CASE OF IMFA LTD. REPORTED IN 117 CTR 378 (ORIS SA). 9. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE OR DER OF THE CIT(A). HE SUBMITTED THAT THE PENALTY HAS BEEN LEV IED ON DISALLOWANCE OF EXPENSES WHICH HAS BEEN CONFIRMED BY THE CIT(A) AND THE ITAT. HE SUBMITTED THAT THE ASSESSEE HAS NOT CLARIFIED AS TO WHAT ARE THE SERVICES RENDERED BY M/S. BHAGWATI ENTERPRISES. THE THIRD P ARTY CONFIRMATION WAS NEVER PRODUCED. THEREFORE, WHEN THE ASSESSEE F AILED TO DISCHARGE THE ONUS CAST ON IT BY PROVING THE GENUINENESS OF THE E XPENSES WHICH HAS BEEN UPHELD BY THE ITAT IT AMOUNTS TO FURNISHING TH E INACCURATE PARTICULARS OF INCOME. HE ACCORDINGLY SUBMITTED TH AT THE ORDER OF THE CIT(A) BE UPHELD. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER I.T.A. NO. 1652/MUM/08 M/S. NORIND HEALTHCARE PVT. LTD. ====================== 5 BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT AN AMOUNT OF RS.6,80,324 ON ACCOUNT OF COMMISSION PAYMENT AND AN AMOUNT OF RS.13,605 ON ACCOUNT OF ADVERTISEMENT EXPENSES HAVE BEEN CONFIRMED BY THE ITAT. THERE IS ALSO NO DISPUTE TO THE FACT THA T THE PENALTY LEVIED BY THE ASSESSING OFFICER ON THESE 2 AMOUNTS HAS BEEN UPHEL D BY THE CIT(A). IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT FULL PARTICULARS WERE PROVIDED TO THE ASSESSING OFFICER DURING THE C OURSE OF ASSESSMENT PROCEEDINGS AND THE ADDITION ON ACCOUNT OF COMMISSI ON PAYMENT IS DUE TO DIFFERENCE OF OPINION. WE FIND FORCE IN THE ABOVE S UBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE. THE COMMISSION H AS BEEN PAID TO M/S. BHAGWATI ENTERPRISES AS PER THE BOARD OF DIRECTORS RESOLUTION AND AS PER THE CONSENT OF SOLE SELLING AGENT. WE FIND THE COM MISSION PROVIDED IN THE BOOKS HAS NOT BEEN PAID AND STILL OUTSTANDING. IT HAS ALSO BEEN BROUGHT ON RECORD BY THE ASSESSEE THAT HUGE AMOUNTS OUTSTANDIN G IS RECOVERABLE FROM M/S. SHAMA HERBAL CARE AND THE PAYMENT OF COMM ISSION TO M/S. BHAGWATI ENTERPRISES HAS BEEN WITHHELD AND CRIMINAL PROCEEDINGS U/S. 138 OF NIA HAVE BEEN TAKEN UP AGAINST M/S. SHAMA HE RBAL CARE AND THE PARTY IS ABSCONDING. THE VARIOUS EVIDENCES FURNISH ED BY THE ASSESSEE MAY NOT BE SUFFICIENT FOR DELETING THE QUANTUM ADDI TION. HOWEVER, ADDITION ON ACCOUNT OF DIFFERENCE OF OPINION CANNOT BE A GROUND FOR LEVYING PENALTY U/S. 271(1)(C) OF THE ACT. IN OUR OPINION MERELY BECAUSE ADDITION HAS BEEN SUSTAINED DUE TO DIFFERENCE OF OP INION, LEVY OF PENALTY CANNOT BE AUTOMATIC. THE ASSESSEE IN THE INSTANT C ASE HAS EXPLAINED THE REASONS FOR PROVIDING OF COMMISSION WHICH HAS NOT B EEN FOUND TO BE FALSE. THEREFORE, IN OUR OPINION THE ADDITION HAS BEEN SUS TAINED DUE TO DIFFERENCE OF OPINION BETWEEN THE ASSESSEE AND THE ASSESSING OFFICER AND, THEREFORE, THE LEVY OF PENALTY CANNOT BE AUTOMATIC. SIMILARLY AS REGARDS THE DISALLOWANCE OF ADVERTISEMENT EXPENSES AMOUNTIN G TO RS.13,605 WE FIND OUT OF THE TOTAL ADVERTISEMENT EXPENSES OF RS. 16,48,583 ONLY AN AMOUNT OF RS.13605 HAS BEEN SUSTAINED BY THE CIT(A) FOR NON PRODUCTION OF ANY BILL. WE FIND MERIT IN THE SUBMISSION OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE BILL HAS BEEN MISPLACED FOR WHICH IT COULD NOT PRODUCE I.T.A. NO. 1652/MUM/08 M/S. NORIND HEALTHCARE PVT. LTD. ====================== 6 FOR WHICH ADDITION HAS BEEN SUSTAINED. SINCE THE A SSESSEE HAS PRODUCED BILLS FOR MORE THAN RS.16,48,000, FOR WHICH THE ADD ITION HAS BEEN DELETED BY THE CIT(A), THEREFORE, ALTHOUGH ADDITION HAS BEE N SUSTAINED TO THE EXTENT OF RS. 13,605, NO PENALTY CAN BE LEVIED ON T HIS AMOUNT. IN THIS VIEW OF THE MATTER WE SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO CANCEL THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 30 TH NOVEMBER, 2009. SD/- (D.K. AGARWAL) JUDICIAL MEMBER SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2009 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT (A)-X, MUMBAI, (4) THE CIT, MC-X, MUMBAI, (5) THE DR, B BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO