The ITO, Ward-4(2), Baroda V. Project Technologists Pvt.Ltd., Baroda

ITA 1741/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6531 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-04-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 27-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: JP SHAHAR
• Keywords: Transfer pricing; Business expenditure; Principle of natural justice; Retrospective amendment; Wrong claim; Revised return; Set aside
• Section: 271(1)(c); 143(3); 143(1); 205; 251; 143(2); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' [BEFORE SHRI MAHAVIR SINGH,JMAND SHRI A N PAHUJA,AM ] ITA NO.1741/AHD/2007 (ASSESSMENT YEAR:-2003-04) INCOME-TAX OFFICER, WARD- 4(2),4 TH FLOOR, AAYAKAR BHAVAN,RACE COURSE CIRCLE, BARODA V/S PROJECT TECHNOLOGISTS PVT. LTD., GOKUL, 23/D, MANISHA VISHWAS COLONY, ALKAPURI, BARODA [PAN:AABCP2644K] [APPELLANT] [RESPONDENT] ITA NO.2201/AHD/2007 (ASSESSMENT YEAR:-1995-96) PROJECT TECHNOLOGISTS PVT. LTD., GOKUL, 23/D, MANISHA VISHWAS COLONY, ALKAPURI, BARODA V/S THE INCOME-TAX OFFICER, WARD-4(2), BARODA [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI C K MISHRA, DR ASSESSEE BY:- SHRI J P SHAH,AR O R D E R A N PAHUJA: THE APPEAL IN ITA NO.1741/AHD/2007 FILED BY THE REVENUE AGAINST AN ORDER DATED 31-1-2007 OF THE LD. CIT(APPEALS)- III, BARODA, RAISES THE FOLLOWING GROUNDS:- 1 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF BONUS OF RS.4,74,529/- AND GRATUITY OF RS.5,40,940/ - WHICH WERE DISALLOWED BY THE AO FOR FAILURE OF THE ASSESSEE IN PRODUCING THE EVIDENCE OF PAYMENT OF THE AFORESAID AMOUNT FOR NEC ESSARY VERIFICATION IN ASSESSMENT PROCEEDINGS AND THE SAME WERE ALLOWED BY THE LD. CIT(A) WITHOUT GIVING OPPORTUNITY OF VERIFICATION T O THE AO. 2 THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN D ELETING THE ADDITION OF RS.87,628/- MADE BY AO ON ACCOUNT OF DISALLOWANCE O UT OF STAFF WELFARE AND AMENITIES DESPITE THE FACT THAT THE ASS ESSEE HAD FAILED TO PRODUCE DETAILS OF EXPENSES OF RS.41,391/- OF MEDIC AL REIMBURSEMENT EXPENSES AND RS.46,237/- OF VEHICLE EXPENSES AND TH E SAME WERE ITA NO.1741& 2201/AHD/2007 2 2 ALLOWED BY THE LD. CIT(A) WITHOUT GIVING OPPORTUNIT Y OF VERIFICATION TO THE AO. 3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 4 IT IS, THEREFORE, PRAYED THAT THE ORDER OF THE CI T(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 2 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS.1,69,455/- FILED ON 29.11.2003 BY THE AS SESSEE, ENGAGED IN VARIOUS ACTIVITIES RELATED TO MECHANICAL CONSTRU CTION CONTRACTS LIKE PIPING, EQUIPMENT ERECTION, FABRICATION OF TANKS AT SITE AND STRUCTURAL WORK, WAS PROCESSED ON 28.4.2004 U/S 143(1) OF THE INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT]. THE REAFTER, THE ASSESSEE FILED A REVISED RETURN DECLARING NIL INCO ME ON 20.9.2004 AND THE SAID RETURN WAS TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 15.10.2004. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD DEDUCTED BONUS OF RS.4,74,529 /- & GRATUITY OF RS.5,40,940/- FROM THE TOTAL INCOME IN THEIR REVISE D COMPUTATION WHILE THE AUDITOR HAD MENTIONED IN A NOTE ON THE BO TTOM OF SAID COMPUTATION THAT THE ASSESSEE HAD PAID RS.4,74,529/ - ON ACCOUNT OF BONUS & GRATUITY OF RS.5,40,940/- BEFORE FILING TH E RETURN OF INCOME. TO A QUERY BY THE AO, SEEKING EVIDENCE OF PAYMENT OF BONUS & GRATUITY, THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE . THE AO WAS OF THE OPINION THAT MERE WRITING BY THE ASSESSEE IN RESPECT OF PAYMENT OF BONUS & GRATUITY WAS NOT ACCEPTABLE AS E XPENSES ON ACCOUNT OF BONUS & GRATUITY WERE PERMISSIBLE ON FUR NISHING OF PROOF OF PAYMENT AND THAT THE PROOF OF PAYMENT OF BONUS & GRATUITY HAS TO BE ENCLOSED WITH THE RETURN. THE AO ACCORDINGLY, DI SALLOWED THE SAID AMOUNT OF RS.4,74,529/-& RS.5 ,40,940/-. 3 ON APPEAL, THE ASSESSEE SUBMITTED THAT ALL THE B OOKS OF ACCOUNTS, INCLUDING THE VOUCHERS RELATING TO PAYME NT OF BONUS AND ITA NO.1741& 2201/AHD/2007 3 3 GRATUITY WERE DULY PRODUCED BEFORE THE A.O FOR VER IFICATION AND THESE VOUCHERS BEING VOLUMINOUS (RUNNING INTO MORE THAN 1000 IN NUMBER), THE A.O DID NOT EXAMINE THEM. IT WAS SUBMI TTED THAT THE BONUS AND GRATUITY VARYING BETWEEN RS.200/- & RS.1 000/- WAS PAID TO WORKERS AT THE SITE OFFICES SPREAD THROUGHOUT T HE COUNTRY. SINCE THE RELEVANT EXTRACTS OF LEDGER ACCOUNTS WERE ALSO FURNISHED BESIDES COPIES OF CERTIFICATE OF THE MANAGEMENT AS WELL AS THE TAX AUDITORS, THE EXPENDITURE WAS , THEREFORE, ALLOWABLE. IN THE LIGHT OF THESE SUBMISSIONS, THE LD.CIT(A) DELETED THE ADDITION, H OLDING AS UNDER:- 4.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A.R AND THE FACTS OF THE CASE. IN THE INSTANT CASE, THE A.O HAS DISBELIE VED THE CERTIFICATE OF THE AUDITOR AS WELL AS THE CERTIFICATE OF THE MANAGEMEN T. IN THE CASE OF SAW PIPES LTD., V. ADDL. CIT, 94 TTJ 1036, THE DELHI BE NCH OF THE ITAT HAS HELD THAT AUDIT REPORT AND CERTIFICATE OF THE AUDIT ORS WOULD AMOUNT TO VALID EVIDENCE IN SUPPORT OF THE EXPENSES CLAIMED BY THE ASSESSEE. SUCH CERTIFICATES HAVE BEEN PROVIDED BY THE APPELLANT IN THE INSTANT CASE. NO INSTANCE OF BOGUS CLAIM OF EXPENDITURE HAS BEEN POI NTED OUT. WHERE THE ASSESSEE HAS PRODUCED THE ENTIRE BOOKS OF ACCOUNTS, VOUCHERS, LEDGERS, ETC. FOR VERIFICATION AND THE A.O HAS NOT GONE THRO UGH THE SAME, IT CANNOT BE SAID THAT THE EXPENSES WERE UNVERIFIABLE OR NON- GENUINE, ESPECIALLY WHERE SUCH EXPENSES HAVE BEEN CERTIFIED BY THE STAT UTORY AUDITORS. ACCORDINGLY, IN MY OPINION, THE A.O WAS NOT JUSTIFI ED IN DISALLOWING THE .AMOUNTS OF RS.4,74,529/- & RS.5,40,940/- BEING BON US AND GRATUITY PAYMENTS RESPECTIVELY. THE ADDITIONS ARE DIRECTED T O BE DELETED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SUPPORTED TH E ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSEE RELIED O N THE FINDINGS OF THE LD. CIT(A). 5 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH T HE FACTS OF THE CASE. UNDISPUTEDLY, THE ASSESSEE PRODUCED THE ENTIRE BOOKS OF ACCOUNTS, VOUCHERS, LEDGERS, ETC. FOR VERIFICATION AS ALSO SUBMITTED RELEVANT CERTIFICATE OF THE MANAGEMENT AND THE AUDITORS ,CER TIFYING THE AFORESAID PAYMENTS. ONLY BECAUSE THE A.O DID NOT GO THROUGH THE RELEV ANT VOUCHERS, IT CANNOT BE SAID THAT THE EXPENSES WERE UNVERIFIABLE OR NON-GEN UINE, ESPECIALLY WHEN SUCH EXPENSES HAVE BEEN CERTIFIED BY THE STATUTORY AUDIT ORS. IN THESE CIRCUMSTANCES , ITA NO.1741& 2201/AHD/2007 4 4 ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, W E HAVE NO HESITATION IN UPHOLDING THE FINDINGS RECORDED BY THE LD. CIT(A),F OLLOWING THE DECISION IN THE CASE OF SAW PIPES LTD. (SUPRA), THEREFORE, GROUND N O.1 IN THE APPEAL OF THE REVENUE IS DISMISSED. 6 GROUND NO.2 IN THE APPEAL RELATES TO DISALLOWANC E OUT OF STAFF WELFARE AND AMENITIES EXPENSES. THE AO NOTICE D THAT THOUGH THE EXPENSES OF RS.41,391/- AND RS.46,237/- ON ACCO UNT OF MEDICAL REIMBURSEMENT AND VEHICLE EXPENSES REIMBURSEMENT RE SPECTIVELY WERE INCLUDED IN THE STAFF WELFARE AND AMENITIES EX PENSES, THE RELEVANT DETAILS WERE NOT PRODUCED BY THE ASSESSEE . ACCORDINGLY, THE AO DISALLOWED THE SUM OF RS.87,628/- [RS.41,391 + RS.46,237]. 7 ON APPEAL, THE ASSESSEE SUBMITTED THAT FULL DETA ILS OF THE EXPENDITURE WERE PRODUCED BEFORE THE AO FOR VERIFIC ATION. COPIES OF LEDGER ACCOUNTS MAINTAINED BY THE ASSESSEE AS WELL AS AUDITED COPY OF ACCOUNTS WERE ALSO FURNISHED. IT WAS SUBMITTED T HAT VEHICLE EXPENSES WERE REIMBURSED TO THE EMPLOYEES FOR MAKIN G OFFICIAL TRIPS AND MEDICAL REIMBURSEMENT WAS A STAFF WELFARE MEASU RE FOR THE FAMILY MEMBERS OF THE EMPLOYEES WHILE NONE OF THESE EXPENSES RELATED TO ANY OF THE DIRECTORS. IN THE LIGHT OF TH ESE SUBMISSIONS,THE LD. CIT(A) DELETED THE ADDITION IN THE FOLLOWING TE RMS:- 6.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A .R AND THE FACTS OF THE CASE. PROVISION OF MEDICAL FACILITIES TO THE FAMILY MEMBERS OF EMPLOYEES IS ALLOWABLE BUSINESS EXPENDITURE, INCURRED IN THE NOR MAL COURSE OF BUSINESS. SIMILARLY, REIMBURSEMENT OF VEHICLE EXPENSES INCURR ED BY THE EMPLOYEES FOR CHARGING OFFICIAL DUTIES IS ALSO FULLY ALLOWABL E AS BUSINESS EXPENDITURE. NO INSTANCE HAS BEEN POINTED OUT TO SHOW THAT THE E XPENDITURE IN QUESTION WAS EITHER INFLATED OR BOGUS. ACCORDINGLY, ADDITION S OF RS.41,391/- & RS.46,237/- ARE DIRECTED TO BE DELETED. 8 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. DR SU PPORTED THE ORDER OF THE AO WHILE THE LD. AR ON BEHALF OF THE ASSESSE E RELIED ON THE FINDINGS OF THE LD. CIT(A). ITA NO.1741& 2201/AHD/2007 5 5 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE AFORESAID EXPENDITURE HAD BEEN INCURRED TOWARDS PROVISION OF MEDICAL FACILITIES TO THE FAM ILY MEMBERS OF EMPLOYEES AS ALSO FOR REIMBURSEMENT OF VEHICLE EX PENSES INCURRED BY THE EMPLOYEES WHILE PERFORMING THEIR DUTIES. FIN DING THAT THERE WAS NO INSTANCE OF EITHER INFLATED OR BOGUS EXPENDI TURE, THE LD. CIT(A) ALLOWED THE SAME . IN THESE CIRCUMSTANCES , ESPECIALLY WHEN THE REVENU E HAVE NOT PLACED BEFORE US ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A).THUS, GROUND NO.2 IN THE APPEAL OF THE REVENUE IS ALSO DISMISS ED. . 10 GROUND NOS.3 & 4 BEING GENERAL IN NATURE, DO NO T REQUIRE ANY SEPARATE ADJUDICATION. THEREFORE, BOTH THESE GR OUNDS ARE DISMISSED. ITA NO.2201/AHD/2007 11 THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED A GAINST AN ORDER DATED 31-1-2007 OF THE CIT(A) FOR AY 1995-96, UPHOLDING A PENALTY OF RS.12,64,126/- LEVIED BY THE AO U/S 271 (1)(C) OF THE ACT. 12 FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THA T THE ASSESSEE FILED ITS RETURN DECLARING LOSS OF RS.11,77,666/- O N 29-12-1995 WHILE THE ASSESSMENT WAS COMPLETED ON AN INCOME OF RS.12, 79,000/- VIDE ORDER DATED 13-2-1998 U/S 143(3) OF THE ACT. INTER ALIA, AN AMOUNT OF OF RS.27,48,142/- PAID TO M/S RAJ LEATHER CLOTH IND USTRIES PVT. LTD. WAS DISALLOWED SINCE THE ASSESSEE COULD NOT ESTABL ISH WITH ANY EVIDENCE THE NATURE OF SERVICES RENDERED BY THEM. T HE AO ALSO INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT. ON APPEAL, INITIALLY THE LD. CIT(A) AND SUBSEQUENTLY, THE ITA T VIDE THEIR ORDER DATED 5-8-2005 IN ITA NO.1163/AHD/1999 UPHELD THE DISALLOWANCE. ON RECEIPT OF THE ORDER OF THE ITAT, THE AO ISSUED A SHOWCAUSE NOTICE DATED 31.1.2006 TO THE ASSESSEE BEFORE LEVY OF PENALTY. IN ITA NO.1741& 2201/AHD/2007 6 6 RESPONSE, THE ASSESSEE DID NOT FILE ANY REPLY. ACCO RDINGLY, THE AO IMPOSED A PENALTY OF RS.12,64,126/- U/S 271(1)(C) O F THE ACT @ 100% OF THE TAX SOUGHT TO BE EVADED ON THE INCOME O F RS.27,48,102/- ON THE GROUND THAT THE ASSESSEE FUR NISHED INACCURATE PARTICULARS OF INCOME. 13 ON APPEAL, THE ASSESSEE CONTENDED THAT M/S RAJ LEATHER CLOTH INDUSTRIES PVT. LTD., WAS A COMPANY IN THE BINDAL G ROUP, WHO HAD GIVEN SUBSTANTIAL ORDERS WORTH FEW CRORES OF RUPEES TO TH E APPELLANT. IN THE PRESENT DAY OF INDUSTRIAL CONTRACTS, THE SYSTEM OF GIVING COMMI SSION TO THE PROMOTERS OF THAT INDUSTRY WAS VERY MUCH PREVALENT AND HAS TO BE DONE IN ORDER TO SECURE ORDERS. THE ASSESSEE POINTED OUT THAT THIS PAYMENT WAS IN T HE NATURE OF THE PAYMENT MADE TO BERMACO VALVES PVT. LTD. WHICH HAS BEEN ALL OWED IN THE PAST, THE ONLY DISTINCTION BEING THAT BERMACO VALVES PVT. LTD. HAV E ISSUED THE BILLS FOR THE SERVICES RENDERED BY THEM WHILE NO SUCH BILLS HAVE BEEN ISSUED BY RAJ LEATHER CLOTH INDUSTRIES PVT. LTD. ALL THE PAYMENTS WERE BY ACCOUNT PAYEE CHEQUES. SINCE THE SAID PARTY DID NOT CONFIRM THE TRANSACTIO N, THE PAYMENT WAS DISALLOWED. IT WAS ARGUED THAT DISALLOWANCE OF EXPENDITURE DOES NOT AUTOMATICALLY GIVE RISE TO LEVY OF PENALTY AND THE EXPLANATION TO SECTION 37 ON THE BASIS OF WHICH THE TRIBUNAL DECIDED THE APPEAL WAS INTRODUCED RETROSPE CTIVELY BY THE FINANCE NO. 2 ACT, 1998 AND WHICH DID NOT EXIST AT THE TIME, WHEN THE ASSESSEE HAD INCURRED THE EXPENDITURE . AFTER CONSIDERING THESE SUBMISSIO NS, THE LD. CIT(A) CONFIRMED THE LEVY OF PENALTY IN THE FOLLOWING TERM S:- 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE ID. A .R AND THE FACTS OF THE CASE. THE ESSENCE OF THE ARGUMENT OF THE ASSESS EE IS THAT THE PAYMENTS WERE MADE BY ACCOUNT PAYEE CHEQUE WHICH SH OWS THE GENUINENESS OF THE TRANSACTION. THE FACT THAT LARGE ORDERS WERE PROCURED FROM BINDAL GROUP OF INDUSTRIES HAS BEEN HIGHLIGHTE D, IMPLYING THEREBY THAT THE ORDERS COULD BE PROCURED ONLY THROUGH THE MEDIU M OF COMMISSION PAID TO M/S. RAJ LEATHER CLOTH INDUSTRIES PVT. LTD., WHI CH WAS AN ASSOCIATED ENTERPRISE OF BINDAL GROUP. THE FACT THAT THE EXPLA NATION TO SECTION 37 WAS INTRODUCED RETROSPECTIVELY IN 1998, HAS ALSO BEEN H IGHLIGHTED AND IT HAS BEEN STRESSED THAT WHEN THE APPELLANT HAD INCURRED THE EXPENDITURE AND CLAIMED THE SAME, THIS EXPLANATION WAS NOT ON THE S TATUTE BOOK. IT HAS ALSO BEEN ARGUED THAT A DISALLOWANCE OF EXPENDITURE DOES NOT AUTOMATICALLY GIVE RISE TO LEVY OF PENALTY. ITA NO.1741& 2201/AHD/2007 7 7 3.2.1 IT IS TRUE THAT THE DISALLOWANCE OF EXPENDITU RE DOES NOT NECESSARILY RENDER THE ASSESSEE LIABLE TO PENALTY U/S 271(L)(C) . HOWEVER, THE ONUS OF PROVING THE GENUINENESS OF THE EXPENDITURE IN QUEST ION SQUARELY LIES ON THE ASSESSEE. UNLESS THE GENUINENESS IS PROVED, NO CLAIM IN RESPECT OF SUCH EXPENDITURE CAN BE ALLOWED. WHERE THE CLAIM IS FRAUDULENT OR HAS NOT BEEN SHOWN TO BE GENUINE, THE MAKING OF SUCH CLAIM WOULD AMOUNT TO CONCEALING ITS TRUE INCOME/FURNISHING INACCURATE PA RTICULARS OF ITS INCOME ON THE PART OF THE ASSESSEE. IN SUCH CIRCUMSTANCES, THE A.O WOULD BE FULLY JUSTIFIED IN IMPOSING PENALTY U/S 271(1)(C). FURTHE R, THE FACT THAT THE EXPLANATION TO SECTION 37 (1) WAS INTRODUCED BY FIN ANCE ACT, 1998 WITH RETROSPECTIVE EFFECT FROM 1-4-1962 IS NOT REALLY GE RMANE TO THE ISSUE. IF AT ALL IT IS RELEVANT, IT IS ONLY RELEVANT TO THE EXTE NT OF CLARIFYING THE PREEXISTING POSITION WHICH OBTAINED ALL ALONG IN THE PAST ALSO. REFERENCE TO THE DATE OF INTRODUCTION OF THE EXPLANATION WOULD NOT COME TO T HE AID OF THE APPELLANT IN THIS CASE. 3.2.2 THE ONLY RELEVANT ISSUE IS WHETHER THE ASSESS EE HAS DISCHARGED ITS ONUS OF PROVING THE GENUINENESS OF THE TRANSACTION. REFERENCE HAS BEEN MADE TO A.Y 1993-94 WHERE THE ASSESSEE CLAMED SALES PROMOTION EXPENSES PAID TO BERMACO VALVES PVT. LTD. AND SUCH EXPENDITURE WAS ALLOWED. ON THE SAME ANALOGY, IT HAS BEEN ARGUED TH AT THE COMMISSION PAID TO M/S. RAJ LEATHER CLOTH INDUSTRIES PVT. LTD. BE ALLOWED. HOWEVER, THIS ANALOGY IS FALLACIOUS. THE APPELLANT HAS ITSEL F ADMITTED THAT IN THAT CASE M/S. BERMACO VALVES HAD CONFIRMED THE TRANSACTION W HEREAS IN THE INSTANT CASE, THE ASSESSEE COULD NOT FILE ANY EVIDENCE, MAT ERIAL OR CONFIRMATION REGARDING THE NATURE OF SERVICES RENDERED BY M/S. R AJ LEATHER CLOTH INDUSTRIES PVT. LTD. HENCE, IN MY OPINION, AND AS H ELD BY THE ITAT, THE ASSESSEE HAS NOT BEEN ABLE TO SHOW THAT THE EXPENDI TURE CLAIMED BY IT WAS A GENUINE BUSINESS EXPENDITURE. IF CLAIMING A N ON-GENUINE EXPENDITURE AS GENUINE EXPENDITURE WOULD NOT AMOUNT TO CONCEALMENT OF INCOME / FURNISHING OF INACCURATE PARTICULARS OF IN COME, IT IS DIFFICULT TO IMAGINE WHAT ELSE WOULD. IN THESE CIRCUMSTANCES, IT IS HELD THAT THE A.O WAS FULLY JUSTIFIED IN IMPOSING PENALTY U/S 271(1)( C), WHICH IS CONFIRMED. 14. THE ASSESSEE IS NOW IN APPEAL BEFORE US AG AINST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LD. AR ON BEHALF OF THE ASSES SEE WHILE RELYING UPON DECISION OF THE HON'BLE SUPREME COURT IN CIT VS. R ELIANCE PETRO PRODUCTS,322 IT 158, CONTENDED THAT NO PENALTY CAN BE LEVIED IN THIS CASE ON ACCOUNT OF MERE DISALLOWANCE OF EXPENDITURE . MOREOVER, THE AO HAS NOT PRECISELY SPELT OUT IN THE ASSESSMENT OR DER AS TO WHETHER PENALTY PROCEEDINGS HAVE BEEN INITIATED F OR CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS THER EOF. WHILE CARRYING US THROUGH THE ASSESSMENT ORDER, THE LD. AR CONTEND ED THAT SERVICES ITA NO.1741& 2201/AHD/2007 8 8 HAD BEEN RENDERED BY THE SAID M/S RAJ LEATHER CLOTH INDUSTRIES PVT. LTD . THE LD. AR ALSO RELIED UPON DECISION REPORTED IN NA VNITLAL K ZAVERI VS. CIT, 125 ITR 385 RELEVANT FOR THE AY 1972-73. T O A QUERY BY THE BENCH, THE LD. AR ADMITTED THAT NO EXPLANATION HAD BEEN SUBMITTED BEFORE THE AO IN RESPONSE TO SHOWCAUSE NOTICE ISSUED BY HIM B EFORE LEVY OF PENALTY. ON THE OTHER HAND, THE LD. DR SUBMITTED THAT THAT THI S WAS NOT A MERE CASE OF DISALLOWANCE OF EXPENSES. WHILE CARRYING US THROUGH THE IMPUGNED ORDER, THE LD. DR POINTED THAT IN THIS CASE NO EVIDENCE OF SERVIC ES RENDERED BY M/S RAJ LEATHER CLOTH INDUSTRIES PVT. LTD. WAS PLACED EITHE R BEFORE THE AO OR THE LD. CIT(A) IN THE ASSESSMENT PROCEEDINGS AND EVEN DURI NG PENALTY PROCEEDINGS .IN FACT, NOT EVEN ANY EXPLANATION WAS FILED BY THE ASS ESSEE BEFORE THE AO DURING THE PENALTY PROCEEDINGS AND THEREFORE, LEVY OF PENA LTY HAS TO BE UPHELD, THE LD. DR ADDED. 15. WE HAVE HEARD BOTH THE PARTIES AND ALSO G ONE THROUGH THE FACTS OF THE CASE. UNDISPUTEDLY, THE ASSESSEE DID NOT FURNISH AN Y REPLY OR EXPLANATION IN RESPONSE TO SHOWCAUSE NOTICE ISSUED BY THE AO BEFOR E LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. IN TERMS OF PROVISIONS OF SEC. 271(1)(C) OF THE ACT READ WITH EXPLANATION 1 THERETO AND THE JUDICIAL PRONOUNCEMEN TS IN THE CASE OF B.A. BALASUBRAMANIAM & BROS. CO. V. CIT [1999] 157 CTR 5 56(SC), CIT V. B.A. BALASUBRAMANIAM & BROS. [1984] 40 CTR (MAD.)/[1985] 152 ITR 529 (MAD.) , CIT V. MUSSADILAL RAM BHAROSE [1987] 60 CTR (SC) 34/[ 1 987] 165 ITR 14 (SC); TC 50 R. 474; CIT V. K.R. SADAYAPPAN [1990] 86 CTR (SC ) 120; [1990] 185 ITR 49 (SC); TC 50 R. 795, ADDL. CIT V. JEEVAN LAL SAH [19 94] 117 CTR (SC) 130; [1994] 205 ITR 244 (SC); TC 50 R. 973 AND K.P.MADHUSUDANAN VS. CIT, 251 ITR 99(SC), IT IS WELL ESTABLISHED THAT WHENEVER TH ERE IS DIFFERENCE BETWEEN THE RETURNED AND ASSESSED INCOME, THERE IS INFERENCE OF CONCEALMENT. THE EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT RAISES A PRESUMPTION THAT CAN BE REBUTTED BY THE ASSESSEE WITH REFERENCE TO FACTS OF THE CASE. THUS, THE ONUS IS ON THE ASSESSEE TO REBUT THE INFERENCE OF CONCEALMENT. THE ABSENCE OF EXPLANATION ITSELF WOULD ATTRACT PENALTY. THE EXPLANATION OFFER ED BY THE ASSESSEE SHOULD NOT BE FALSE. THE ONUS LAID DOWN UPON THE ASSESSEE TO REBUT THE PRESUMPTION RAISED UNDER EXPLANATION 1 WOULD NOT BE DISCHARGED BY ANY FANTASTIC OR FANCIFUL ITA NO.1741& 2201/AHD/2007 9 9 EXPLANATION. IT IS NOT THE LAW THAT ANY AND EVERY E XPLANATION HAS TO BE ACCEPTED WHILE MERE OFFER OF INCOME BY THE ASSESSEE CAN NOT JUSTIFY CANCELLATION OF PENALTY. IN THE INSTANT CASE,UNDISPUTEDLY, NO EXPLANATION H AS BEEN GIVEN ON ACCOUNT OF DIFFERENCE BETWEEN THE RETURNED AND ASSESSED INCOME AND THUS, ONUS LAID DOWN UPON THE ASSESSEE IN TERMS OF EXPLANATION 1A TO SEC . 271(1)(C) OF THE ACT REMAINS UNDISCHARGED. ADMITTEDLY, WHATEVER REPLY HAS BEEN SUBMITTED , THIS WAS SUBMITTED BEFORE THE LEARNED CIT(A).THE LEARNED CIT (A) WITHOUT CONFRONTING THE SAID REPLY TO THE AO OR EVEN RECORDING ANY FINDING S AS TO WHETHER OR NOT THE ASSESSEE DISCHARGED ONUS IN TERMS OF EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT, UPHELD THE LEVY OF PENALTY. THIS APPROACH OF THE LE ARNED CIT(A) IS NOT IN ACCORDANCE WITH THE PRINCIPLES OF NATURAL JUSTICE. AS POINTED OUT ALREADY, IT IS NOW WELL SETTLED THAT EXPLANATION 1 TO SEC. 271(1)(C) O F THE ACT AUTOMATICALLY COMES INTO OPERATION WHEN IN RESPECT OF ANY FACTS MATERIA L TO THE COMPUTATION OF TOTAL INCOME OF ANY ASSESSEE, THERE IS FAILURE TO OFFER A N EXPLANATION OR AN EXPLANATION IS OFFERED WHICH IS FOUND TO BE FALSE BY THE ASSESS ING OFFICER OR AN EXPLANATION IS OFFERED, WHICH IS NOT SUBSTANTIATED. IN SUCH A CASE , THE AMOUNT ADDED IN COMPUTING THE TOTAL INCOME IS DEEMED TO REPRESENT T HE INCOME IN RESPECT OF WHICH THE PARTICULARS HAVE BEEN CONCEALED AND, CONSEQUENTLY, THE ASSESSEE BECOMES LIABLE TO THE PENALTY PROVIDED BY SECTION 271(1)(C) OF THE ACT . IN NUTSHELL ,THE EXPLANATION SHIFTS THE BURDEN OF PROO F ON THE ASSESSEE . [K.P.MADHUSUDNAN VS. CIT,251 ITR 99(SC). 16. IN VIEW OF THE FOREGOING, ESPECIALLY WHEN THE ASSESSEE DID NOT SUBMIT ANY DETAILS OR EXPLANATION BEFORE THE AO DURING THE PEN ALTY PROCEEDINGS AND FOR THE FIRST TIME SUBMITTED BEFORE THE LD. CIT(A) WHATSOE VER EXPLANATION IS CONCERNED WHILE THE LD. CIT(A) DID NOT RECORD ANY FINDINGS AS TO WHETHER OR NOT THE ASSESSEE DISCHARGED ONUS IN TERMS OF EXPLANATION 1 TO SEC. 2 71(1)(C) OF THE ACT, IN THE INTEREST OF JUSTICE , WE CONSIDER IT FAIR AND APPR OPRIATE VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTORE THE MATTER TO HIS FILE, WITH THE DIRECTIONS TO RECORD HIS SPECIFIC FINDINGS AS TO WHETHER OR NOT THE ASSESSEE DISCHARGED ONUS LAID DOWN ON THE ASSESSEE IN TERMS OF THE AFORESAID EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT AND THEREAFTER, DISPOSE OF THE MATTER IN ACCORDA NCE WITH LAW AFTER ALLOWING ITA NO.1741& 2201/AHD/2007 10 10 SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH T HESE DIRECTIONS, GROUND NO. 2.1 RAISED IN THE APPEAL IS DISPOSED OF, AS INDICATED H EREINBEFORE 17.. GROUND NOS. 1.01 TO 1.03 BEING GENERAL IN N ATURE, DO NOT REQUIRE ANY SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAVING BEEN RAISED IN TERMS OF THE RESIDUARY GROUND NO. 1.04, ACCORDINGLY, THESE GROUNDS ARE DI SMISSED. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED WHILE THAT OF THE ASSESSEE IS ALLOWED, BUT FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT TODAY ON 30 -04- 2010 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 30-04-2010 COPY OF THE ORDER FORWARDED TO : 1. PROJECT TECHNOLOGISTS PVT. LTD., GOKUL, 23/D, MA NISHA VISHWAS COLONY, ALKAPURI, BARODA 2. THE ITO, WARD-4(2), BARODA 3. CIT CONCERNED 4. CIT(A)-III, BARODA 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD