CLASSIC COMMUNICATION, MUMBAI V. ITO 16(1)(1), MUMBAI

ITA 1748/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 4003 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 13-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T ROUMUAN PAITE DT OF HEARING
• Keywords: Wrong claim; Difference of opinion

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL C CC C BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , ,, , ' ' ' ' # # # # , . BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI SANJAY ARORA SANJAY ARORA SANJAY ARORA SANJAY ARORA, AM , AM , AM , AM & & & & SHRI SHRI SHRI SHRI VIJAY VIJAY VIJAY VIJAY PAL RAO, JM PAL RAO, JM PAL RAO, JM PAL RAO, JM ./ I.T I.TI.T I.T.A. NO. .A. NO. .A. NO. .A. NO. 1748/MUM/2012 1748/MUM/2012 1748/MUM/2012 1748/MUM/2012 ( $% $% $% $% & & & & / ASSESSMENT YEAR : 2001-02) CLASSIC COMMUNICATION, FLAT NO. 24, BLOCK 5B, SHYAM NIWAS, BHULABHAI DESAI ROAD, MUMBAI-400026 % % % % / VS. INCOME TAX OFFICER 16(1)(1) MUMBAI ' ./ ( ./ PAN/GIR NO. : AACFC0615P ( ') / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( *+') / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) ') ') ') ') , , , , / APPELLANT BY : SHRI VIMAL PUNMIYA *+') *+') *+') *+') - -- - , , , , /RESPONDENT BY : SHRI T. ROUMUAN PAITE % % % % - -- - . . . . / DT. OF HEARING : 2 ND JULY 2013 /& /& /& /& - -- -. . . . / DT.OFPRONOUNCEMENT: 24 TH JULY 2013 0 / O R D E R PER : # , . . / VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 17.2.2012 OF COMMISSIONER OF INCOME TAX(APPEALS) AR ISING FROM PENALTY ORDER PASSED U/S 271(1)(C) FOR THE INCOME TAX ACT F OR THE ASSESSMENT YEAR 2001-02. 2. THE ASSESSEE HAS RAISED THE ONLY GROUND IN THIS APPEAL AS UNDER: THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED I N CONFIRMING THE PENALTY OF ` 1,37,397/- U/S 271(1)(C) LEVIED BY THE LD. ASSESSING OFFICER. ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 2 3. THE ASSESSEE IS A PARTNERSHIP FIRM AND ENGAGED I N ADVERTISING, PRINTING, SALES PROMOTION AND OTHER INTER-RELATED A CTIVITIES. THE ASSESSEE HAD CLAIMED REMUNERATION PAID TO PARTNERS AMOUNTING TO ` 4,80,000/- IN AGGREGATE. THE ASSESSEE HAS EXECUTED TWO PARTNERSHI P I.E. DEED DATED 1.1.2000 AND THEREAFTER SUPPLEMENTARY DEED BEARING DATED 1.4.2001. HOWEVER, THE ASSESSEE HAS CLAIMED THAT THE SUPPLEME NTARY DEED WAS ENTERED INTO ON 1.4.2000 AND THERE WAS A TYPOGRAPHI CAL MISTAKE IN WRITING THE DATE. AS PER THE SUPPLEMENTARY DEED THE REMUNER ATION OF THE PARTNERS HAVE BEEN ENHANCED FROM 1,80,000/- TO 4,80,000/-. T HE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS FOUND THAT AS PER THE ORIGINAL PARTNERSHIP DEED THE REMUNERATION PAYABLE TO THE PARTNERS IS ` 1,80,000/- AND SINCE THE ASSESSEE FIRM HAS PAID REMUNERATION TO THE PART NERS AMOUNTING TO ` 4,80,000/-, THE DIFFERENTIAL REMUNERATION WAS NOT A LLOWABLE IN TERMS OF SECTION 40(B) OF THE INCOME TAX ACT. ACCORDINGLY, T HE AO DISALLOWED AND ADDED A SUM OF ` 3,00,000/- TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF EXCESS CLAIM OF REMUNERATION TO PARTNERS . APART FROM THIS THE AO ALSO FOUND THAT THE ASSESSEE HAS CLAIMED THE INT EREST PAID TO BANK TO ` 50,504/-. THE AO OBSERVED THAT THE ASSESSEE IS BORR OWING AMOUNT FROM BANK ON WHICH THE INTEREST IS PAID WHEREAS ON THE O THER HAND, THE MAIN PARTNER HAD WITHDRAWN SUBSTANTIAL AMOUNT FROM THE F IRM WITHOUT PAYING ANY INTEREST. THUS, THE AO DISALLOWED A SUM OF ` 50 ,504/- ON ACCOUNT OF INTEREST PAID TO BANK. THE ASSESSEE CHALLENGED THE DISALLOWANCE MADE BY THE AO BEFORE THE CIT(A) AND FURTHER BEFORE THIS TR IBUNAL BUT COULD NOT SUCCEED AS THE DISALLOWANCE MADE ON ACCOUNT OF EXCE SSIVE REMUNERATION ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 3 PAID TO THE PARTNERS HAVE BEEN CONFIRMED BY THIS TR IBUNAL VIDE ORDER DATED 4.10.2007 WHEREAS THE GROUND REGARDING DISALL OWANCE OF INTEREST OF ` 50,504/- WAS NOT PRESSED BY THE ASSESSEE AND ACCO RDINGLY DISMISSED BY THIS TRIBUNAL. IN THE MEANTIME, THE AO INITIATED PR OCEEDINGS U/S 271(1)(C) AND LEVIED THE PENALTY OF ` 1,37,397/- VIDE ORDER D ATED 27.3.2006 IN RESPECT OF THIS TWO DISALLOWANCE. THE CIT(A) HAS CO NFIRMED THE LEVY OF PENALTY U/S 271(1)(C). 4. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT AS PER THE SUPPLEMENTARY PARTNERSHIP DEED THE REMUNERATION OF THE PARTNERS WAS ENHANCED FROM 1,80,000/- TO 4,80,000/-. HE HAS REFE RRED CLAUSE 2 AND 4 OF THE PREAMBLE OF THE DEED OF PARTNERSHIP AS WELL AS CLAUSE 2, 3 AND 9 OF THE TERMS OF DEED OF PARTNERSHIP AND SUBMITTED THAT THE SUPPLEMENTARY DEED OF PARTNERSHIP AUTHORISE THE PARTNERS TO RECEIVED T HE REMUNERATION. THE CLAIM OF THE ASSESSEE HAS BEEN DISALLOWED BECAUSE O F THE TYPOGRAPHICAL MISTAKE AND WRONG STAMP PAPER USE FOR THE PURPOSE O F EXECUTION OF THE PARTNERSHIP DEED. HE HAS FURTHER SUBMITTED THAT THE REMUNERATION IS OTHERWISE COMMENSURATE TO THE PARTNERS SKILL, EXPER TISE, KNOWLEDGE AND TIME AND EFFORTS DEVOTED BY THE PARTNERS FOR THE PR OGRESS OF THE FIRM. THEREFORE, THE PAYMENT OF REMUNERATION TO THE PARTN ERS HAS BEEN MADE AS PER THE DEED OF PARTNERSHIP HOWEVER, IT WAS CONS IDERED BY THIS TRIBUNAL THAT THE PROVISIONS OF PARTNERSHIP DEED WOULD BE PR OSPECTIVE AND THEREFORE THE ENHANCE REMUNERATION CANNOT BE ALLOWE D IN THE YEAR UNDER CONSIDERATION. HE HAS FURTHER SUBMITTED THAT THE AS SESSEE HAS EXPLAINED THE REASON OF MISTAKE IN USING A WRONG PAPER AND TY POGRAPHICAL MISTAKE ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 4 DUE TO IN ADVERTENT MISTAKE IN THE OFFICE OF CHARTE R ACCOUNTANT WHO HAD PREPARED THE DEED OF PARTNERSHIP. THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT UNDER THESE CIRCUMSTANCES EVEN IF TH E DISALLOWANCE HAS BEEN CONFIRMED, THE SAME DOES NOT IF SO FACTO LEAD TO THE LEVY OF PENALTY WHEN THE ASSESSEE HAD DISCLOSED ALL THE RELEVANT FA CTS AND MATERIAL WHICH WERE NECESSARY FOR THE ASSESSMENT. HE HAS FILED THE COPY OF THE ACKNOWLEDGMENT OF THE RETURN AND SUBMITTED THAT THE SUPPLEMENTARY DEED WAS FILED ALONG WITH THE RETURN AND THEREFORE THE ASSESSEE HAS DISCLOSED AND FURNISH ALL THE NECESSARY MATERIAL ON THE BASIS OF WHICH THE REMUNERATION PAID TO THE PARTNERS HAS BEEN CLAIMED. HE HAS FURTHER SUBMITTED THAT THE MISTAKE IN THE DATE HAS BEEN COM MITTED ONLY AT ONE PLACE IN PARAGRAPH ONE OF THE DEED OF PARTNERSHIP. HOWEVER, THE EFFECTIVE DATE OF PARTNERSHIP DEED HAS BEEN MENTIONED AS 1.4. 2000 IN ALL THE RELEVANT CLAUSE OF THE DEED OF THE PARTNERSHIP, THE REFORE THE CLAIM OF THE ASSESSEE CANNOT BE CONSIDERED AS BOGUS OR FALSE CLA IM. 5. HE HAS RELIED UPON THE DECISION OF HONBLE SUPRE ME COURT IN CASE OF RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 AND SU BMITTED THAT MERE MAKING OF CLAIM WHICH IS NOT SUSTAINABLE IN LAW WIL L NOT AMOUNT TO FURNISH INACCURATE PARTICULARS OF INCOME. THUS, THE LD. AR HAS PLEADED THAT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE PENALTY U/S 271(1)(C) CANNOT BE LEVIED ON THE ADDITION WHICH HAS BEEN RES ULTED DUE TO CLERICAL/TYPOGRAPHICAL MISTAKE IN THE DEED OF PARTN ERSHIP. 6. AS REGARDS THE DISALLOWANCE OF INTEREST THE LD. AR HAS SUBMITTED THAT THE CLAIM OF INTEREST IS NOT FALSE OR BOGUS BE CAUSE THE ASSESSEE HAS ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 5 PAID THE INTEREST TO THE BANK. THE DISALLOWANCE HAS BEEN MADE BY THE AO ON THE GROUND THAT THE ASSESSEE HAS ALLOWED THE PAR TNER TO WITHDRAW THE AMOUNT FROM THE FIRM AND NO INTEREST WAS CHARGED TO THE PARTNERS OVERDRAFT. THUS, THE DISALLOWANCE IS NOT BASED ON F ALSE WAS BOGUS CLAIM BUT DUE TO THE DIFFERENCE OF OPINION BETWEEN THE AS SESSEE AND THE AO. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE HAS CONC EALED PARTICULARS OF INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOM E. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON THE ORDERS OF THE AUTHOR ITIES BELOW AND SUBMITTED THAT WHEN THE DISALLOWANCE HAS BEEN CONFI RMED AND BECOME FINAL THEN THE PENALTY LEVIED U/S 271(1)(C) IS JUS TIFIED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAR EFULLY PERUSE THE RELEVANT MATERIAL. THE CLAIM OF REMUNERATION PAID T O THE PARTNERS IS BASED ON THE SUPPLEMENTARY DEED OF PARTNERSHIP. THE DISAL LOWANCE WAS MADE BY THE AO BECAUSE IN THE PREAMBLE OF THE PARTNERSHIP D EED IT BEARS THE DATE OF EXECUTION AS 1.4.2001. HOWEVER, THE OTHER CLAUSE OF THE DEED OF PARTNERSHIP MENTIONED THE EFFECTIVE DATED AS 1.4.20 00. THE CLAUSES 2 & 4 OF THE RECITALS AND CLAUSE 2, 3 AND 9 OF THE TERMS AND CONDITIONS OF THE PARTNERSHIP DEED ARE RELEVANT ON THIS POINT. WE REP RODUCE THESE RELEVANT CLAUSES AS UNDER: 2. WITH EFFECT FROM 1 ST APRIL, 2000 THE PARTIES OF THE FIRST AND SECOND PART HAVE AGREED TO CARRY ON BUSINESS IN PAR TNERSHIP IN THE FIRM NAME AND STYLE OF M/S CLASSIC COMMUNICATIONS A T 16, BRIJ BHAVAN, PEDDAR ROAD, MUMBAI-400026. .. 4. THE PARTIES HERETO ARE DESIROUS OF RECORDING TH E TERMS AND CONDITIONS ON WHICH THEY HAVE AGREED TO CARRY ON BU SINESS IN ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 6 PARTNERSHIP IN THE FIRM OF M/S CLASSIC COMMUNICATIO NS WITH EFFECT FROM 1 ST APRIL, 2000. . 2. THE PARTNERSHIP AS CONSTITUTED UNDER THIS DEED SHALL COMMENCE (OR SHALL BE DEEMED TO HAVE COMMENCED) ON 1 ST APRIL, 2000. 3. THE PARTNERSHIP BUSINESS SHALL BE CARRIED ON AT 16, BRIJ BHAVAN, PEDDAR ROAD, MUMBAI-400026 W.E.F. 1 ST APRIL, 2000, AND OR SUCH OTHER PLACE OR PLACES AS MUTUALLY AGREED UPON BY AN D BETWEEN THE PARTIES HERETO. 9. IT IS AGREED BY AND BETWEEN THE PARTIES TO THIS DEED THAT THEY SHALL DEVOTE THEIR TIME AND ATTENTION FOR THE CONDU CT OF THE AFFAIRS OF THE FIRM, AS THE CIRCUMSTANCES AND BUSINESS NEED S MAY REQUIRE. THE PARTNERS SHALL BE ENTITLED TO REMUNERATION AS U NDER: 1. MR. ANIL JAGGA ` 30,000/- PER MONTH. 2. MRS. INDRA JAGGA ` 10,000/- PER MONTH. HOWEVER, THE REMUNERATION IN NO CASE SHALL EXCEED T HE BOOK PROFIT AS PROVIDED IN SECTION 40(B) OF THE INCOME TAX ACT, 1961. 8. THUS, IT IS CLEAR THAT THE CLAIM OF THE ASSESSEE REGARDING ENHANCE REMUNERATION IS BASED ON THE SUPPLEMENTARY PARTNERS HIP DEED THOUGH THE SAME BEARS THE DATE OF EXECUTION AS 1.4.2001. WE FI ND THAT THE ASSESSEE PRODUCE THE SUPPLEMENTARY PARTNERSHIP DEED ALONG WI TH THE RETURN OF INCOME THEREFORE THE CLAIM OF THE ASSESSEE IS NOT B OGUS OR FALSE BUT WAS FOUND AS NOT ALLOWABLE BECAUSE OF THE DATE OF THE P ARTNERSHIP DEED AND THE PROVISIONS OF THE DEED OF PARTNERSHIP WOULD BE APPLICABLE PROSPECTIVELY. THE ASSESSEE HAS DISCLOSED THE CLAIM AND ALSO IN THE PARTNERSHIP DEED IN THE RETURN OF INCOME AS WELL AS AUDIT REPORT AND THEREFORE IT CANNOT BE SAID THAT THE CLAIM IS WITHO UT ANY BASIS OR ABSOLUTELY WRONG OR FALSE. THE EXPLANATION GIVEN BY THE ASSESSEE THOUGH HAS NOT BEEN SUBSTANTIATE, HOWEVER, THE SAME APPEAR TO BE BONAFIDE AS ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 7 THE DEED OF PARTNERSHIP PROVIDES THE EFFECTIVE DATE AS 1.4.2000 WHEREAS IN THE FIRST PARAGRAPH OF THE PREAMBLE OF THE DEED BEARS THE DATE AS 1.4.2001. OTHERWISE THE CLAIM OF THE ASSESSEE IS PE RMISSIBLE AS WITHIN THE LIMIT OF THE REMUNERATION AS PROVIDED U/S 40(B) BEC AUSE THE BOOK PROFIT OF THE ASSESSEE FIRM FOR THE YEARS IS ` 11,51,609/- AN D THEREFORE AS PER THE FORMULA GIVEN U/S 40(B), THE REMUNERATION PERMISSIB LE CAN BE TO THE EXTENT OF ` 7,80,000/-. THEREFORE, THE CLAIM DOES N OT FALL UNDER THE CATEGORY OF EXCESSIVE CLAIM. SINCE THE PARTNERSHIP DEED PRESCRIBES THE REMUNERATION TO THE PARTNERS THEREFORE THE REMUNERA TION PAID TO THE PARTNERSHIP CANNOT MORE THAN THE DEED OF PARTNERSHI P PERMITS. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE W E ARE OF THE VIEW THAT THE CASE OF THE ASSESSEE DOES NOT FALL UNDER THE CA TEGORY OF CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF I NCOME SO FAR AS THE CLAIM OF REMUNERATION PAID TO THE PARTNERS IS CONCE RNED. 9. AS REGARDS THE DISALLOWANCE OF INTEREST PAID TO THE BANK THERE IS NO QUARREL ON THE FACT THAT THE ASSESSEE PAID THE SAID INTEREST TO THE BANK AND ACCORDINGLY CLAIMED AS EXPENDITURE. THE AO DISA LLOW THE CLAIM OF THE ASSESSEE ON THE GROUND THAT ONE OF THE PARTNERS HAS WITHDRAWN MONEY FROM THE FIRM AND THE FIRM HAS NOT CHARGE ANY INTER EST BY THE PARTNER. THEREFORE THE DISALLOWANCE OF INTEREST WAS DUE TO N ON-CHARGING OF INTEREST ON THE AMOUNT WITHDRAWN THAT THE PARTNER. THE CLAIM OF THE INTEREST THOUGH WAS NOT ACCEPTABLE AND SUSTAINABLE BECAUSE T HE ASSESSEE DID NOT CHARGE INTEREST FROM THE PARTNER HOWEVER WHEN THE A SSESSEE HAS FURNISHED ALL THE PARTICULARS IN RESPECT OF THE CLA IM THEN THE DISALLOWANCE ITA NO. 1748/M/2012 CLASSIC COMMUNICATION . 8 OF THE CLAIM WOULD NOT LEAD TO THE CONCLUSION THAT THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR FURNISH INACCURA TE PARTICULARS OF INCOME. ACCORDINGLY, IN VIEW OF THE DECISION OF HON BLE SUPREME COURT IN CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. (SU PRA) A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISH INACCURATE PARTICULARS OF INCOME AND AS SUC H THE DISALLOWANCE OF THE SAME WOULD NOT IF SO FACTO ATTRACT THE PENALTY U/S 271(1)(C) OF THE ACT. HENCE, PENALTY LEVIED U/S 271(1)(C) IS DELETED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF JULY 2013 0 - /& 1 2%3 24 TH - 4 SD/- SD/- ( ) (SANJAY ARORA) ACCOUNTANT MEMBER ( # ) $ (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 24 TH JULY 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI