DCIT, New Delhi V. Shri Harminder Singh Benipal, New Delhi

ITA 1680/DEL/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7495 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-01-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 07-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: SACHIN SAPRA
• Keywords: Business income; Bonafide belief; Wrong claim
• Section: 273B; 143(3); 80HHC

Judgement Text

ITA NO. 1680/DEL/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 1680/DEL/2011 A.Y. : 2003-04 DY. COMMISSIONER OF INCOME TAX, CIRCLE 24(1), ROOM NO. 238-B, 2 ND FLOOR, CR BUILDING, IP ESTATE, NEW DELHI VS. SHRI HARMINDER SINGH BENIPAL, PROP. M/S MALRIK SEAM, GARMENT EXPORT HOUSE, 211, UDYOG VIHAR, PHASE-IV, GURGAON (HARYANA) (PAN/GIR NO. : AAFPB 5310F) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. SACHIN SAPRA, FCA DEPARTMENT BY : SH. SALIL MISHRA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 20.12. 2010 PERTAINING TO ASSESSMENT YEAR 2003-04. 2. THE ISSUE RAISED IN THE APPEAL IS THAT LD. COMMIS SIONER OF INCOME TAX (APPEALS) ERRED IN DELETING THE PENALTY OF ` 8, 17,753/- IMPOSED BY ASSESSING OFFICER U/S. 271(1)(C) OF THE IT ACT. 3. IN THIS CASE, THE ASSESSEE IS ENGAGED IN THE BUS INESS OF FABRICATION AND EXPORTS OF READYMADE GARMENTS. IN THIS CASE ASSESSMENT U/S. 143(3) WAS COMPLETED AT AN INCOME OF ` 42,43,420/- AS AGAINST DECLARED INCOME OF ` 16,39,880/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS FOUND BY THE ASSESSIN G OFFICER THAT THE ITA NO. 1680/DEL/2011 2 TOTAL EXPORT SALES HAD BEEN SHOWN AT ` 4,51,37,785/ - ON WHICH NET PROFIT OF ` 78,26,834/- WAS DECLARED. THE ASSESSEE HAD ALSO EARNED INTEREST INCOME OF ` 1,35,079/-. FROM THE CALCULATIO N OF DEDUCTION U/S 80HHC FILED ALONG-WITH THE RETURN OF INCOME, IT WAS SEEN THAT THE ASSESSEE HAD CALCULATED DEDUCTION U/S 80HHC AT 50% OF ADJUSTED PROFITS PLUS 90% OF DUTY DRAW BACK, AT ` 73,65,026/ - AND CLAIMED THE SAME IN THE COMPUTATION OF ASSESSABLE INCOME, WHEREAS AS PER SUBSECTION 1(B) OF SECTION 80HHC DEDUCTION U/S 80H HC IS ALLOWABLE AT 50% OF PROFITS (INCLUDING 90% OF DUTY DRAW BACK). V IDE LETTER DATED 10.02.2006 THE ASSESSEE WAS ASKED WHY THE EXCESS CL AIM OF DEDUCTION U/S 80HHC SHOULD NOT BE REDUCED. FURTHER, IT WAS AL SO NOTICED THAT THE ASSESSEE HAD ADOPTED MERCANTILE SYSTEM OF ACCOUNTING EXCEPT FOR DUTY DRAW BACK, WHICH WAS ACCOUNTED FOR ON CASH BASIS. V IDE ORDER SHEET ENTRY OF 24.02.2006, THE ASSESSEE WAS ASKED TO FURN ISH THE DETAILS OF DRAW BACKS RECEIVABLE, AS PER MERCANTILE BASIS OF A CCOUNTING. IN RESPONSE TO SHOW CAUSE NOTICE, THE APPELLANT REV ISED THE COMPUTATION OF DEDUCTION U/S 80HHC ALONG-WITH STATEME NT OF REVISED BUSINESS PROFITS ON THE BASIS OF WORKING OF DUTY DR AW BACK ON MERCANTILE BASIS. THE REVISED CALCULATION OF DEDUCTI ON U/S 80HHC WAS WORKED OUT AT ` 27,34,578/-. FURTHER, IT WAS SEEN THAT THE APPELLANT HAD RECEIVED INTEREST INCOME AMOUNTING TO ` 1,35,079/- AND MISC. INCOME AMOUN TING TO `118/- WHICH WERE SHOWN UNDER THE HEAD BUSINESS INC OME. THE INTEREST ON FDRS AMOUNTING TO ` 1,35,079/- AND MISC. INCOME AMO UNTING TO ` 118/- WAS TREATED AS INCOME OF THE ASSESSEE UNDER T HE HEAD 'INCOME FROM OTHER SOURCES' AND ACCORDINGLY DISALLOWED FOR B ENEFIT OF DEDUCTION ITA NO. 1680/DEL/2011 3 U/S 80HHC WITHIN THE MEANING OF THE EXPLANATION (BAA ) BELOW SECTION 80HHC (4B) OF THE INCOME TAX ACT, 1961. FROM THE REVISED COMPUTATION OF NET ASSESSABLE INCOME, IT WAS SEEN THAT THE ASSESSEE HAD NOW DECLARED SHORT TERM C APITAL GAIN AT ` 18,437/- ON SALE OF MUTUAL FUND UNITS AND LONG TERM CAPITAL GAIN OF ` 57,458/- ON SALE OF FLAT. BESIDES THE ASSESSEE HAD ALSO SHOWN INTEREST INCOME OF ` 22,130/- IN THIS REVISED COMPUTATION OF NET ASSESSABLE INCOME. THESE INCOMES WERE NOT DECLARED IN THE ORIG INAL RETURN OF INCOME FILED BY THE APPELLANT. THE ASSESSING OFFICE R INITIATED PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 ON THESE UNDISCLOSED INCOMES AMOUNTING TO ` 25,96,044/-. AFTER ISSUING NOTICE OF SHOW CAUSE AS TO WHY THE PENALTY U/S. 271(1)(C) SHOULD N OT BE LEVIED, AND AFTER CONSIDERING THE EXPLANATION OFFERED, THE ASSE SSING OFFICER LEVIED PENALTY AMOUNTING TO ` 8,17,753/- FOR DELIBERATELY CONCEALING HIS INCOME AND FURNISHING INACCURATE PARTICULARS OF INC OME. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE ISSUE. LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND COGENCY IN THE CONTENTION OF THE AS SESSEE THAT THE WRONG CLAIM OF DEDUCTION U/S. 80HHC OF THE IT ACT WA S DUE TO ARITHMETIC ERROR COMMITTED BY HIS CHARTERED ACCOUNTA NT. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT CLAIMI NG DEDUCTION U/S 80HHC, THE ASSESSEE WAS LEGALLY BOUND TO RELY ON THE CHARTERED ITA NO. 1680/DEL/2011 4 ACCOUNTANT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT ASSESSING OFFICER HAS NOT MADE A CAS E THAT ASSESSEE IS IN COLLUSION WITH THE CHARTERED ACCOUNTANT IN THE H APPENING OF THIS APPARENT ARITHMETICAL ERROR. LD. COMMISSIONER OF IN COME TAX (APPEALS) FURTHER NOTED THAT ASSESSING OFFICER HAS NOT BROUGHT ON RECORD WHETHER THE ASSESSEE HAS COMMITTED THE SAM E MISTAKE IN THE EARLIER YEARS OR FOLLOWING YEARS TO MAKE WRONG CLAIMS OF DEDUCTION U/S. 80HHC. 5. THE NEXT ISSUE LD. COMMISSIONER OF INCOME TAX (AP PEALS) CONSIDERED IS THE METHOD OF ACCOUNTING OF DUTY DRA W BACK. LD. COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT D UTY DRAW BACK ON CASH BASIS RESULTED IN THIS YEAR IN DISCLOSING H IGHER DUTY DRAW BACK RECEIVED, AND HENCE, HIGHER PROFITS FROM BUSINESS, A ND FINALLY HIGHER DEDUCTION U/S. 80HHC. LD. COMMISSIONER OF INCOME TAX (APPEALS) FOUND THAT THE METHOD OF ACCOUNTING OF DUTY DRAW BA CK WAS DISCLOSED IN THE AUDIT REPORT IN FORM NO. 3CD. IT WAS ALSO S EEN THAT THE METHOD OF ACCOUNTING WAS CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE. LD. COMMISSIONER OF INCOME TAX (APPEALS), HENCE, HELD TH AT IT HAS TO BE ACCEPTED THEREFORE THAT IN THIS MATTER TOO, THE ASSE SSEE HAS BEEN WRONGLY ADVISED BY THE CHARTERED ACCOUNTANT. MORE OVER, HE FOUND THAT THE ELEMENT OF CONCEALMENT WAS ABSENT. LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT KEEPING IN VIEW OF T HE FACTS AND CIRCUMSTANCES OF THE CASE AND THE JUDICIAL PRONOUNCE MENTS OF THE HIGHER COURTS IN THIS REGARD, THE DEFAULT IS HELD T O BE THE RESULT OF THE INCORRECT CALCULATION MADE BY THE CHARTERED ACCOUNTA NT OF THE ASSESSEE AND THIS FACT ITSELF CONSTITUTES A REASONA BLE CAUSE IN TERMS OF SECTION 273B OF THE INCOME TAX ACT, 1961. LD. COMMI SSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED THAT ASSESSIN G OFFICER HAS ALSO ITA NO. 1680/DEL/2011 5 LEVIED PENALTY ON THE EXCESS DEDUCTION U/S. 80HHC C LAIMED IN RELATION TO INTEREST INCOME OF ` 1,35,079/- AND MISCELLANEOUS INCOME OF ` 118/- WHICH HE HAS ASSESSED AS INCOME FROM OTHER SOURCES A S AGAINST INCOME FROM BUSINESS. ON THIS ISSUE LD. COMMISSION ER OF INCOME TAX (APPEALS) FOUND THE MATTER WAS COVERED BY THE JUDGEM ENT OF THE ITAT, DELHI BENCH IN THE CASE OF MODEL FOOTWEAR PVT. LTD.. CONSIDERING THE OVERALL FACTS OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE PENALTY. 6. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 7. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT SECTION 271(1(C) OF THE ACT POSTULATES IMPOSITION OF PENALTY FOR FURNISHING OF INACCURATE PARTICULARS AND CONCEALMENT OF INCOME. IN THE PRESENT CASE, WE FIND THAT THERE HAS BEEN REDUCTION IN THE CLAIM U/S 80HHC DUE TO THE FO LLOWING REASONS:- I) REDUCTION IN THE AMOUNT OF DUTY DRAW BACK BY ` 23,49,681/- OWING TO DUTY DRAW BACK BEING ACCOUNTED FOR ON MERCANTILE SYSTEM. II) EXCLUSION OF ` 1,35,197/- OF FDR INTEREST FORM BUSINESS INCOME, TO BE ASSESSED AS INCOME FROM OTHER SOURCE S. III) ARITHMETICAL ERROR APPARENT FROM THE RECORD. 7.1 WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPE ALS) HAS GIVEN A FINDING THAT ARITHMETIC ERROR WAS OWING TO THE MISTAKE ON THE PART OF THE CHARTERED ACCOUNTANT AND THE ASSESSEE COULD NOT BE RESPONSIBLE ITA NO. 1680/DEL/2011 6 FOR THAT. REGARDING THE AMOUNT OF DUTY DRAW BACK B EING ACCOUNTED FOR ON CASH BASIS, LD. COMMISSIONER OF INCOME TAX (APPEA LS) HAS GIVEN A FINDING THAT METHOD OF ACCOUNTING WAS CONSISTENTLY BEING FOLLOWED BY THE ASSESSEE OVER A NUMBER OF YEARS. FURTHER, WE F IND THAT ALL THE OTHER ASPECTS IN THE COMPUTATION OF DEDUCTION U/S. 8 0HHC WERE DULY DISCLOSED BY THE ASSESSEE. IT IS A FACT THAT THE A SSESSEE HAS CLAIMED FDR INTEREST OF ` 1,35,079/- AS BUSINESS INCOME AND TH E SAME WAS ALSO DISCLOSED. HENCE, IT CAN NOT BE SAID THAT ASSESSE ES ACTION WAS CONTUMACIOUS TO WARRANT LEVY OF PENALTY U/S. 271(1 )(C). HENCE, IN OUR CONSIDERED OPINION, ON THE FACTS OF THE CASE, LD. COMMISSIONER OF INCOME TAX (APPEALS) IS CORRECT IN DELETING THE LE VY OF PENALTY. 7.2 IN THIS REGARD WE PLACE RELIANCE FROM THE APEX COURT DECISION RENDERED BY A LARGER BENCH COMPRISING OF THREE OF THEIR LORDSH IPS IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 26 WHEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGA TION IS THE RESULT OF A QUASI- CRIMINAL PROCEEDINGS, AND PENALTY WILL NOT ORDINARI LY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIBERATELY IN DEFIANCE OF LA W OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST, OR ACTED IN CONSCIOUS DI SREGARD OF ITS OBLIGATION. PENALTY WILL NOT ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER ITA NO. 1680/DEL/2011 7 OF DISCRETION OF THE AUTHORITY TO BE EXERCISED JUDIC IALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENA LTY IS PRESCRIBED, THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY, WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE P ROVISIONS OF THE ACT, OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIEF THAT THE OF FENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. 7.3 WE WOULD ALSO LIKE TO REFER TO THE HONBLE AP EX COURT DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. IN CIVIL APPEAL NO. 2463 OF 2010. IN THIS CASE VIDE ORDER DATED 17.3.2010 IT HAS BEEN HELD T HAT THE LAW LAID DOWN IN THE DILIP SHEROFF CASE 291 ITR 519 (SC) AS TO THE MEANI NG OF WORD CONCEALMENT AND INACCURATE CONTINUES TO BE A GOOD LAW BECAUSE WH AT WAS OVERRULED IN THE DHARMENDER TEXTILE CASE WAS ONLY THAT PART IN DILI P SHEROFF CASE WHERE IT WAS HELD THAT MENSREA WAS A ESSENTIAL REQUIREMENT OF PE NALTY U/S 271(1)(C). THE HONBLE APEX COURT ALSO OBSERVED THAT IF THE CONTEN TION OF THE REVENUE IS ACCEPTED THEN IN CASE OF EVERY RETURN WHERE THE CL AIM IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE THE PENAL TY U/S 271(1)(C). THIS IS CLEARLY NOT THE INTENDMENT OF LEGISLATURE. ITA NO. 1680/DEL/2011 8 8. IN THE BACKGROUND OF THE AFORESAID DISCUSSION AND PRECEDENT, WE CONFIRM THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) ON THIS ISSUE OF DELETION OF THE LEVY OF PENALTY. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE ST ANDS DISSMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/1/2012. SD/- SD/- [ [[ [I.P. I.P. I.P. I.P. BANSAL BANSAL BANSAL BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 20/1/2012 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES