M/s. Sree Leathers, Kolkata V. ACIT, Circle - 33, Kolkata, Kolkata

ITA 1992/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54501 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2001-2002
• Appeal Filed On: 01-11-2010
• Court: TRIBUNAL
• Department Lawyers: BASUDEB HAZRA
• Assessee Lawyers: SUBASH AGARWAL

Judgement Text

1 , A , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- A , KO LKATA [ . . . . . . . . , ,, , . .. . . .. . , , , , !' ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & SRI C.D. RAO, ACCOUNTANT MEMBER # # # # / ITA NO. 1992 (KOL) OF 2010 $%& '( / ASSESSMENT YEAR 2001-02 M/S. SREE LEATHERS, KOLKATA. (PAN-AAKFS2993L) ASSTT.COMMISSIONER OF I.T., CIRCLE-33, KOLKATA. (+, / APPELLANT ) - % - - VERSUS -. (/0+,/ RESPONDENT ) +, 1 2 !/ FOR THE APPELLANT: / SRI SUBASH AGARWAL /0+, 1 2 ! / FOR THE RESPONDENT: / SRI BASUDEB HAZRA !3 / ORDER ( . .. . . .. . ), !' (C.D. RAO), ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 24/09/2010 OF THE C.I.T.(A)-XX, KOLKATA PERTAINING TO ASSESSMENT YEAR 2001-02. THE ONLY GROUND RAISED IN THIS APPEAL BY THE ASSESSEE READS AS UNDER :- 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE PENALTY OF RS.6,65, 915/- IMPOSED BY THE A.O. U/S. 271(1)(C) THOUGH THE ASSESSEE HAD NEITHER CONCEALED THE PARTICULARS OF HIS INCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME. 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT DURIN G THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE-FIRM FILED ITS RETURN OF INCOME DECLAR ING TOTAL INCOME OF RS.24,63,593/-. THE A.O. OBSERVED THAT THE ASSESSEE HAD DEBITED RS. 16,98,762/- IN ITS P/L ACCOUNT ON ACCOUNT OF REMUNERATION TO PARTNERS, ALTHOUGH THE S AME WAS NOT QUANTIFIED IN THE PARTNERSHIP DEED AND EVEN THE LIMIT OF TOTAL REMUNE RATION WAS NOT SPECIFIED. HE, THEREFORE, IN VIEW OF CBDT CIRCULAR NO. 739 DATED 2 5/3/1996 DISALLOWED THE PAYMENT OF REMUNERATION TO PARTNERS, WHICH WAS ULTIMATELY CONF IRMED BY THE TRIBUNAL VIDE ORDER DATED 22/8/2005. 3. THE A.O. THEREAFTER INITIATED PENALTY PROCEEDIN G U/S. 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD CONCEALED THE PARTICUL ARS OF INCOME. IN RESPONSE TO NOTICE, 2 THERE WAS NO RESPONSE ON BEHALF OF THE ASSESSEE AND THE A.O., THEREFORE, IMPOSED PENALTY OF RS.6,65,915/- BEING 100% OF TAX SOUGHT T O BE EVADED. ON APPEAL, THE LD. C.I.T.(A) CONFIRMED THE ACTION OF THE A.O. BY HOLDI NG AS UNDER :- 6. I HAVE PERUSED THE RELEVANT ORDERS. I DO NOT FIND MERIT IN THE CONTENTIONS OF THE APPELLANT. DURING THE COURSE OF PENALTY PROCEEDING S U/S. 271(1)(C), THE APPELLANT FAILED TO OFFER AN EXPLANATION BEFORE THE AO; AND SO, THE AMOUNT DISALLOWED SHALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICU LARS HAVE BEEN CONCEALED IN VIEW OF EXPLANATION 1 TO SECTION 271(1)(C). EVEN ON MERITS , I FIND, AND IT HAS BEEN SO HELD BY THE HONBLE ITAT AS WELL, THAT THE CLAIM ON ACCOUNT OF REMUNERATION TO PARTNERS WAS NOT ALLOWABLE AND TO THAT EXTENT, THE APPELLANT HAS CERTAINLY FILED INACCURATE PARTICULARS OF INCOME. THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY THE APPELLANT ARE DISTINGUISHABLE ON FACTS, AND, ARE NOT APPLICABLE I N ITS CASE. IN VIEW OF THE ABOVE, THE PENALTY ORDER OF THE AO IS UPHELD. THE GROUNDS RAI SED BY THE APPELLANT ARE DISMISSED. HENCE THIS APPEAL BY THE ASSESSEE BEFORE THE TRIBUN AL. 4. AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PARTNERSHIP DEED, VIDE PARAS 7(II) & 7( III), MANNER OF COMPUTATION AS STIPULATED IN SEC. 40(B)(V) OF THE ACT AND PROPORTIONATE REMUN ERATION TO THE PARTNERS TO BE CREDITED IN THE PARTNERS CAPITAL ACCOUNT AT THE EN D OF THE ACCOUNTING YEAR HAVE BEEN MENTIONED. THEREFORE, THERE WAS NO SUPPRESSION OF PARTICULARS IN RELATION TO PARTNERS REMUNERATION, AS ALLEGED BY THE A.O. AND ENDORSED B Y THE LD. C.I.T.(A). HE FURTHER SUBMITTED THAT THE TRIBUNAL IN QUANTUM APPEAL HAS U PHELD THE DISALLOWANCE DOES NOT GO TO INFER THAT THE ASSESSEE WILLFULLY CONCEALED THE PAR TICULARS OF REMUNERATION SO AS TO ATTRACT PENAL PROVISION U/S. 271(1)(C) OF THE ACT. THE LEARNED COUNSEL FURTHER SUBMITTED THAT THE ASSESSEE HAS ALREADY FILED AN APPEAL BEFOR E THE HONBLE HIGH COURT AGAINST THE ORDER OF THE TRIBUNAL DATED 22/8/2005 AND THE SAME HAS BEEN ADMITTED BY THE HONBLE HIGH COURT. A COPY OF THE SAID ORDER DATED 02/5/20 06 IS FILED IN THE PAPER BOOK AT PAGE 14. HE, THEREFORE, SUBMITTED THAT THE PENALTY SHO ULD BE CANCELLED. 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT T HE TRIBUNAL ALSO CONFIRMED THE DISALLOWANCE BY HOLDING THAT CLAUSES OF THE PARTNER SHIP DEED DID NOT SPECIFY OR QUANTIFY THE AMOUNT OF REMUNERATION PAYABLE IN TERMS OF SEC. 40(B)(V) OF THE ACT. HE, THEREFORE, SUBMITTED THAT THERE WAS CONCEALMENT OF PARTICULARS SO FAR AS REMUNERATION TO PARTNERS 3 IS CONCERNED AND THE LD. C.I.T.(A) HAS RIGHTLY UPHE LD THE PENALTY OF RS.6,65,915/- LEVIED U/S. 271(1)(C) OF THE ACT, WHICH SHOULD BE CONFIRME D. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL PLACED ON RECORD. THE BASIS FOR INVOKING PROVISIONS OF SEC. 271(1)(C) OF THE AC T ON THE GROUND OF FURNISHING INACCURATE PARTICULARS OF INCOME WAS THE ORDER OF THE TRIBUNAL IN QUANTUM APPEAL WHEREIN THE DISALLOWANCE ON ACCOUNT OF REMUNERATION PAID TO THE PARTNERS WAS UPHELD BY HOLDING THAT ALTHOUGH IN THE PARTNERSHIP DEED IT IS MENTIONED TH AT REMUNERATION SHALL BE COMPUTED IN THE MANNER LAID DOWN IN SEC. 40(B)(V) READ WITH EXP LANATION 3 OF THE I.T. ACT OR ANY OTHER PROVISION AS MAY BE IN FORCE IN RESPECT OF PARTNERS HIP FIRM, BUT CLAUSES OF THE PARTNERSHIP DEED NO WHERE HAVE QUANTIFIED THE AMOUN T OF REMUNERATION OR THE MANNER OF QUANTIFICATION OF REMUNERATION OF THE BOOK PROFITS. ON PERUSAL OF THE RECORDS, WE OBSERVE THAT THE A.O. IN HIS ASSESSMENT ORDER DID N OT ALLOW THE PARTNERS REMUNERATION AMOUNTING TO RS.16,98,762/- ON THE GROUND THAT THE ACCORDING TO CBDT CIRCULAR THE ASSESSEE HAS TO MAKE A SPECIFIC AVERMENT IN THE PAR TNERSHIP DEED WITH REGARD TO THE AMOUNT OF REMUNERATION TO BE PAID TO EACH OF THE PA RTNERS, WHICH WAS NOT DONE IN THIS CASE. WE OBSERVE THAT IT IS NOT THE CASE OF THE DE PARTMENT THAT THE ASSESSEE HAS NOT INCURRED THE EXPENDITURE BY WAY OF REMUNERATION TO THE PARTNERS. THE REMUNERATION WAS NOT ALLOWED, AS STATED ABOVE, DUE TO SOME TECHNICAL MISTAKE IN PROPER OBSERVANCE OF THE PROCEDURES STIPULATED IN SEC. 40(B)(V) OF THE ACT. IT IS NOW SETTLED POSITION THAT PENALTY AND ASSESSMENT ARE TWO DIFFERENT THINGS. THERE MUS T BE SOME MATERIAL OR CIRCUMSTANCES LEADING TO THE REASONABLE CONCLUSION THAT THE AMOUN T DOES REPRESENT THE ASSESSEES INCOME, IT BEING NOT ENOUGH FOR THE PURPOSES OF PEN ALTY THAT THE AMOUNT HAS BEEN ASSESSED AS INCOME AND THE CIRCUMSTANCES MUST SHOW THAT THERE WAS ANIMUS, I.E. CONSCIOUS CONCEALMENT OR CONSCIOUS FURNISHING OF IN ACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. ABSENCE OF PROOF ACCEPTABLE TO THE D EPARTMENT CANNOT BE EQUATED WITH FRAUD OR WILLFUL NEGLECT. A FORTIORI, NO PENALTY CAN BE LEVIED IN CASE OF MERE INADVERTE NCE OR INNOCENT MISTAKE. IN THIS CONNECTION, WE MAY RE FER TO THE FOLLOWING DECISIONS :- CIT V. MUSSADILAL RAM BHAROSE [165 ITR 14 (SC)] CIT V. S.P. BHATT [97 ITR 440 (GUJ)] ADDL. CIT V. NOOR MOHD. & CO. [97 ITR 705 (RAJ)] 4 CIT V. M. GEORGE & BROS. [160 ITR 511 (KER)] THE MISTAKE, IF ANY, COMMITTED BY THE ASSESSEE IN S PECIFYING AND QUANTIFYING THE REMUNERATION PAYABLE TO THE PARTNERS IN THE PARTNER SHIP DEED, ALTHOUGH THE MANNER IN WHICH THE REMUNERATION IS TO BE PAID HAS BEEN DETAI LED IN THE CLAUSES OF THE PARTNERSHIP DEED, IN OUR OPINION, IS A TECHNICAL AND VENIAL MIS TAKE, WHICH CAN BE CURED AND SUCH LAPSE, AS ALLEGED BY THE DEPARTMENT, CANNOT BE A GROUND FO R THE IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. MOREOVER, ALL THE MATERIAL FACTS WERE BEFORE THE A. O. ON THE BASIS OF WHICH THE A.O. MADE THE DISALLOWANCE. FOR THE IMPOSITION OF PENALTY THE REVENUE HAS TO PROVE THAT THE ASSESSEE HAS KNOWINGLY FILED INAC CURATE PARTICULARS RESULTING IN CONCEALMENT OF INCOME. FURTHER, UNDER SIMILAR SITU ATION, THE HONBLE SUPREME COURT IN THE CASE OF HINDUSTAN STEEL LTD. VS. STATE OF ORISS A [83 ITR 26 (SC)] HELD AS UNDER :- AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI CRIMINAL PROCEEDING AND PENAL TY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIB ERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NOT BE IM POSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS MATTER OF THE DISCRETION OF THE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF ALL THE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBED THE AUTHORI TY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PEN ALTY WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WH ERE THE BREACH FLOWS FROM A BONA FIDE BELIEF THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE. FURTHER, THE VERY ISSUE OF DETERMINING OF FURNISHIN G OF INACCURATE PARTICULARS HAS BEEN DEALT WITH BY THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS LTD. [322 ITR 158 (SC)], WHEREIN IT WAS HELD THAT FURNISHING OF DETAILS OF EXPENDITURE AS WELL AS INCOME IN THE RETURN BY THE ASSESSEE, WHICH DETAILS IN THEMSELVES ARE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT O F INCOME ON ITS PART, WAS UPTO THE ASSESSING AUTHORITIES TO CONSIDER OR REJECT. MERELY BECAUSE THE ASSESSEE CLAIMED DEDUCTION OF EXPENDITURE WHICH HAS NOT BEEN ACCEPTE D BY THE REVENUE, PENALTY U/S. 271(1)(C) IS NOT ATTRACTED, BECAUSE MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACC URATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IN THE CASE OF THE ASSESSEE, AS STAT ED ABOVE, THE DEPARTMENT HAS NOT 5 DISPUTED THE EXPENDITURE INCURRED ON PARTNERS REMU NERATION. HOWEVER, THEY HAVE DISALLOWED THE SAME AS THERE WAS NO SPECIFICATION A ND QUANTIFICATION AS PER SEC. 40(B)(V) OF THE ACT IN THE PARTNERSHIP DEED WHICH WAS DISALL OWABLE AS PER CBDT CIRCULAR. IN OUR CONSIDERED OPINION, THIS FAILURE ON THE PART OF THE ASSESSEE IN NO WAY CAN BE CONNECTED WITH THE INTENTION OF THE ASSESSEE OF HAVING FURNIS HED INACCURATE PARTICULARS OF INCOME. THEREFORE, THE AMOUNT HELD TO HAVE BEEN CONCEALED F OR HAVING FURNISHED INACCURATE PARTICULARS OF INCOME COULD NOT BE ESTABLISHED IN T HE CASE OF THE ASSESSEE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRONOUNCEMENTS, THE INITIATION OF PENALTY PROCEEDING AND THEREUPON LEVYING PENALTY OF RS.6,65,915/- U/S. 271(1)(C) OF THE ACT IS, IN OUR CONSIDERED OPINION, NOT TENABLE AND THE SAME IS CANCELLED. 4 !3 '5! 6 5% 7 48 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 07/09/11. SD/- SD/- ( . . . . . . . . ) ( . .. . . .. . ) !' (B.R.MITTAL) , JUDICIAL MEMBER (C.D.RAO) , ACCOUNTANT MEMBER ( (( ( ' ' ' ') )) ) DATE: 07-09-2011 !3 1 /$$9 :!9';- COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT : M/S. SREE LEATHERS, 3 & 4, LINDAY STREET, KOL-700 0 87. 2 /0+, / THE RESPONDENT : A.C.I.T., CIRCLE-33, KOLKATA. 3. $3% () : THE CIT(A)-XX, KOLKATA. 4. $3%/ THE CIT, KOL- 5 . ?$7 /$% / DR, ITAT, KOLKATA BENCHES, KOLKATA 6 . GUARD FILE . 09 /$/ TRUE COPY, !3%5/ BY ORDER, (DKP) @ A / DY/ASST. REGISTRAR .