K.T.M. Textile Mills Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-4(2), Ahmedabad

ITA 2034/AHD/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0990 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 24-06-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 10-09-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Assessee Lawyers: MANISH I SHAH
• Keywords: Revenue expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.2034/AHD/2012 / ASSTT. YEAR: 2008-2009 K.T.M. TEXTILE MILLS P.LTD. 34, NEW CLOTH MARKET AHMEDABAD 380 002. PAN : AAACK 6190 L VS ITO, WARD - 4(2) AHMEDABAD. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI MANISH I. SHAH REVENUE BY : SHRI DINESH SINGH, SR.DR / DATE OF HEARING : 24/06/2016 / DATE OF PRONOUNCEMENT: 02/08/2016 $%/ O R D E R ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAINST T HE ORDER OF LD.CIT(A)-VIII, AHMEDABAD DATED 18.7.2012 PASSED FO R THE ASSTT.YEAR 2008- 09. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A)HAS ERRED IN CONFIRMING PENALTY OF RS.2,74,652/- WHICH WAS IMPOS ED BY THE LD.AO UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA S FILED ITS RETURN OF INCOME ELECTRONICALLY ON 23.9.2008 DECLARING TOTAL LOSS OF RS.12,41,455/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT, AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 25.8.2009. ON SCRU TINY OF THE ACCOUNTS, IT REVEALED TO THE AO THAT THE ASSESSEE HAS DEBITED SU MS OF RS.9,15,505/- AND RS.5,985/- UNDER THE HEAD PRIOR PERIOD EXPENDITURE AND DEFERRED TAXES. ITA NO.2034/AHD/2012 2 IN ORDER TO VERIFY THE CLAIM OF THE ASSESSEE, THELD .AO HAD ISSUED NOTICE AND DIRECTED THE ASSESSEE TO FURNISH NECESSARY EVIDENCE S IN SUPPORT OF GENUINENESS AND CORRECTNESS OF PRIOR PERIOD EXPENSES, AS WELL A S JUSTIFICATION FOR DEBITING DEFERRED TAXES FROM THE TOTAL INCOME. SUCH NOTICE WAS ISSUED ON 22.3.2010. THE ASSESSEE INSTEAD OF FURNISHING ANY EVIDENCE, HA S REVISED THE COMPUTATION OF INCOME VIDE UNDATED LETTER RECEIVED IN THE OFFIC E OF THE AO ON 10.5.2010. THE ASSESSEE HAS REDUCED THE LOSS TO RS.3,15,585/- AS AGAINST RS.12,41,455/-. THE LD.AO HAS PASSED THE ASSESSMENT ORDER. HE MADE VARIOUS ADDITIONS, AND ULTIMATELY ASSESSED THE LOSS AT RS.2,13,398/-. THE AO HAS INITIATED PENALTY PROCEEDINGS WITH REGARD TO CLAIM OF PRIOR PERIOD EX PENDITURE AND ALLEGED DEFERRED TAX LIABILITY. A SHOW CAUSE NOTICE UNDER SECTION 274 R.W.S. 271(1)(C) OF THE ACT WAS ISSUED ON 28.5.2010, WHICH WAS DULY SERVED UPON THE ASSESSEE. THE ASSESSEE DID NOT FILE ANY EXPLANATION BEFORE TH E AO. THE AO IMPOSED PENALTY OF RS.2,74,652/-. APPEAL TO THE CIT(A) DID NOT BRING ANY RELIEF TO THE ASSESSEE. 4. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE CONTE NDED THAT THE ASSESSEE- COMPANY HAS BEEN SUFFERING LOSS FROM LAST MANY YEAR S. IT HAS VERY SMALL BUSINESS ACTIVITIES, AND HAS A VERY SMALL TURNOVER OF RS.19LAKHS. THE ASSESSEE HAS VOLUNTARILY REVISED ITS RETURN OF INCOME RECTIF YING THE MISTAKE OCCURRED WHILE PREPARING THE STATEMENT OF TOTAL INCOME. HE CONTENDED THAT THE ASSESSEE-COMPANY HAD NO INTENTION TO CONCEAL ANY IN COME OR TO AVOID ITS TAX LIABILITY, BECAUSE, THE ASSESSEE-COMPANY NEVER WANT S TO CLAIM PRIOR PERIOD EXPENSES AND DEFERRED TAX LIABILITY, AS REVENUE EXP ENSES. HE FURTHER CONTENDED THAT, THOUGH, EXPLANATION WAS NOT GIVEN T O THE AO IN RESPONSE TO THE NOTICE RECEIVED UNDER SECTION 274 R.W.S. 271(1) (C) OF THE ACT, BUT IN THE APPEAL, THE ASSESSEE HAS PLEADED ITS CASE BEFORE TH E LD.CIT(A). THOSE SUBMISSION CAN BE CONSIDERED AS EXPLANATION OF THE ASSESSEE FOR ABSOLVING IT FROM LIABILITY OF PENALTY. IN SUPPORT OF HIS CONTE NTION, HE RELIED UPON THE ITA NO.2034/AHD/2012 3 JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F PRICE WATERHOUSE COOPERS P.LTD. VS. CIT, 348 ITR 306 (SC). ACCORDIN G TO THE LD.COUNSEL FOR THE ASSESSEE, THERE WAS A BONA FIDE MISTAKE WHILE PREPARING THE STATEMENT OF INCOME, AND THERE IS NO DELIBERATE ATTEMPT AT THE E ND OF THE ASSESSEE TO REDUCE ITS LOSSES. HE TOOK ME THROUGH PROFIT & LOSS ACCOU NT WHICH HAS BEEN PLACED ON RECORD. IN THIS PROFIT AND LOSS, HE POINTED OUT THAT NET PROFIT BEFORE THE TAX WAS COMPUTED BY THE ASSESSEE AT RS.3,52,688/-. IT IS A NEGATIVE FIGURE. THE ASSESSEE HAS, THEREAFTER, ADDED THE DEFERRED TAX AN D PRIOR PERIOD ITEMS IN STATEMENT OF INCOME. THE LD.DR, ON THE OTHER HAND, SUBMITTED THAT FILING OF RETURN WAS DULY VERIFIED BY THE COMPETENT PERSON, A ND THEREAFTER, HE PUT HIS SIGNATURE. THERE IS NOTHING ON RECORD TO SHOW AS T O HOW THE MISTAKE WAS COMMITTED BY THE ASSESSEE. 5. I HAVE CONSIDERED RIVAL CONTENTIONS AND GONE THR OUGH THE RECORD CAREFULLY. SECTION 271(1)(C) OF THE ACT HAS A DIREC T BEARING ON THE CONTROVERSY, THEREFORE, WE TAKE NOTE RELEVANT PROVISION, WHICH R EADS AS UNDER: '271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTIC ES, CONCEALMENT OF INCOME, ETC. (1) THE ASSESSING OFFICER OR THE C OMMISSIONER (APPEALS) OR THE CIT IN THE OF COURSE OF ANY PROCEE DINGS UNDER THIS ACT, IS SATISFIED THAT ANY PERSON (A) AND (B) ** ** ** (C) HAS CONCEALED THE PARTICULARS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. HE MAY DIREC T THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I)AND (INCOME-TAX OFFICER,)** ** ** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CLA USE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL N OT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF TAX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULA RS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INAC CURATE PARTICULARS OF SUCH INCOME OR FRINGE BENEFITS: EXPLANATION 1- WHERE IN RESPECT OF ANY FACTS MATERI AL TO THE COMPUTATION OF THE TOTAL INCOME OF ANY PERSON UNDER THIS ACT, ITA NO.2034/AHD/2012 4 (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR OF FERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMM ISSIONER (APPEALS) OR THE CIT TO BE FALSE, OR (B) SUCH PERSON OFFERS AN EXPLANATION WHICH HE IS N OT ABLE TO SUBSTANTIATE AND FAILS TO PROVE THAT SUCH EXPLANATI ON IS BONA FIDE AND THAT ALL THE FACTS RELATING TO THE SAME AND MAT ERIAL TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THEN, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOT AL INCOME OR SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURP OSES OF CLAUSE (C) OF THIS SUB-SECTION, BE DEEMED TO REPRESENT THE INC OME IN RESPECT OF WHICH PARTICULARS HAVE BEEN CONCEALED.' 6. A BARE PERUSAL OF THIS SECTION WOULD REVEAL THA T FOR VISITING ANY ASSESSEE WITH THE PENALTY, THE ASSESSING OFFICER OR THE LEARNED CIT(APPEALS) DURING THE COURSE OF ANY PROCEEDINGS BEFORE THEM SH OULD BE SATISFIED, THAT THE ASSESSEE HAS; (I) CONCEALED HIS INCOME OR FURNISHED INACCURATE PARTICULARS OF INCOME. AS FAR AS THE QUANTIFICATION OF THE PENALTY IS CONCERNED, THE PENALTY IMPOSED UNDER THIS SECTION CAN RANGE IN BETWEEN 100 % TO 300% OF THE TAX SOUGHT TO BE EVADED BY THE ASSESSEE, AS A RESULT OF SUCH CONCEALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS. THE OT HER MOST IMPORTANT FEATURES OF THIS SECTION IS DEEMING PROVISIONS REGARDING CON CEALMENT OF INCOME. THE SECTION NOT ONLY COVERED THE SITUATION IN WHICH THE ASSESSEE HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS, IN CERT AIN SITUATION, EVEN WITHOUT THERE BEING ANYTHING TO INDICATE SO, STATUTORY DEEM ING FICTION FOR CONCEALMENT OF INCOME COMES INTO PLAY. THIS DEEMING FICTION, BY WAY OF EXPLANATION-1 TO SECTION 271(1)(C) POSTULATES TWO SITUATIONS; (A) FI RST WHETHER IN RESPECT OF ANY FACTS MATERIAL TO THE COMPUTATION OF THE TOTAL INCO ME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE FAILS TO OFFER AN EXPLANATION OR THE EXPLANATION OFFERED BY THE ASSESSEE IS FOUND TO BE FALSE BY THE ASSESSING OFFICER OR LEARNED CIT(APPEAL); AND, (B) WHERE IN RESPECT OF ANY FACT, MATERIAL TO THE COMPUTATION OF TOTAL INCOME UNDER THE PROVISIONS OF THE ACT, THE ASSESSEE IS NOT ABLE TO SUBSTANTIATE THE EXPLANATION AND THE AS SESSEE FAILS, TO PROVE THAT SUCH EXPLANATION IS BONA FIDE AND THAT THE ASSESSEE HAD DISCLOSED ALL THE FACTS ITA NO.2034/AHD/2012 5 RELATING TO THE SAME AND MATERIAL TO THE COMPUTATIO N OF THE TOTAL INCOME. UNDER FIRST SITUATION, THE DEEMING FICTION WOULD CO ME TO PLAY IF THE ASSESSEE FAILED TO GIVE ANY EXPLANATION WITH RESPECT TO ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME OR BY ACTION OF THE ASS ESSING OFFICER OR THE LEARNED CIT(APPEALS) BY GIVING A CATEGORICAL FINDIN G TO THE EFFECT THAT EXPLANATION GIVEN BY THE ASSESSEE IS FALSE. IN THE SECOND SITUATION, THE DEEMING FICTION WOULD COME TO PLAY BY THE FAILURE O F THE ASSESSEE TO SUBSTANTIATE HIS EXPLANATION IN RESPECT OF ANY FACT MATERIAL TO THE COMPUTATION OF TOTAL INCOME AND IN ADDITION TO THIS THE ASSESSE E IS NOT ABLE TO PROVE THAT SUCH EXPLANATION WAS GIVEN BONA FIDE AND ALL THE FA CTS RELATING TO THE SAME AND MATERIAL TO THE COMPUTATION OF THE TOTAL INCOME HAV E BEEN DISCLOSED BY THE ASSESSEE. THESE TWO SITUATIONS PROVIDED IN EXPLANAT ION 1 APPENDED TO SECTION 271(1)(C) MAKES IT CLEAR THAT THAT WHEN THIS DEEMIN G FICTION COMES INTO PLAY IN THE ABOVE TWO SITUATIONS THEN THE RELATED ADDITION OR DISALLOWANCE IN COMPUTING THE TOTAL INCOME OF THE ASSESSEE FOR THE PURPOSE OF SECTION 271(1)(C) WOULD BE DEEMED TO BE REPRESENTING THE I NCOME IN RESPECT OF WHICH INACCURATE PARTICULARS HAVE BEEN FURNISHED. 7. APART FROM THE ABOVE, EXPLANATION 4(A) TO SECTIO N 271(1)(C) OF THE ACT TALKS OF NOTIONAL EVASION OF TAXES I.E. IF THERE IS REDUCTION OF LOSS DECLARED IN THE RETURN AND IN ULTIMATE ASSESSMENT ORDER, THEN S UCH REDUCED LOSS WOULD BE CONSIDERED THE AMOUNT ON WHICH TAXES ARE SOUGHT TO BE EVADED. THIS WILL BRING AN ASSESSEE AT PAR WITH OTHERS IN WHOSE CASE EXPLANATION 1 IS APPLICABLE. 8. IN THE LIGHT OF ABOVE, LET US EXAMINE THE CASE O F THE ASSESSEE. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT GI VE ANY JUSTIFICATION, RATHER, REVISED THE RETURN AND REDUCED ITS CLAIM OF LOSS. AGAIN DURING THE PENALTY PROCEEDINGS, THE ASSESSEE DID NOT GIVE ANY EXPLANAT ION AS TO HOW MISTAKE WAS OCCURRED. BEFORE THE LD.CIT(A), IT WAS CONTENTED B Y THE ASSESSEE THAT A BONA ITA NO.2034/AHD/2012 6 FIDE MISTAKE WAS COMMITTED BY THE STAFF WHILE PREPARING THE STATEMENT OF TOTAL INCOME. ACCORDING TO THE ASSESSEE, THE ASSESSEE HA D NO INTENTION TO CONCEAL ANY PARTICULARS OF INCOME OR AVOID ITS TAX LIABILIT Y, BECAUSE, THE ASSESSEE COMPANY NEVER WANTS TO CLAIM PRIOR PERIOD EXPENDITU RE AND DEFERRED TAX LIABILITY AS REVENUE EXPENDITURE, BECAUSE THEY HAVE NOT BEEN DEBITED TO EXPENDITURE ACCOUNT. THE ONUS UPON THE ASSESSEE WA S TO DEMONSTRATE AS TO HOW MISTAKE HAS OCCURRED. HOW SUCH A MISTAKE COULD BE ALLEGED AS A BONA FIDE MISTAKE ? THE ONLY EXPLANATION ON THAT SCORE IS T HAT THE COMPANY IS OPERATING AT A VERY SMALL LEVEL. ITS TOTAL TURNOVE R WAS RS.19 LAKHS. APART FROM THAT THE ASSESSEE DID NOT BOTHER TO GO TO AO T O GIVE ANY EXPLANATION. HOW THE AO COULD VERIFY THAT EXPLANATION GIVEN BY T HE ASSESSEE WAS FALSE OR NOT ? BECAUSE NO EXPLANATION WAS GIVEN. SIMILARLY, THE ASSESSEE FAILED TO GIVE ANY MATERIAL WHICH CAN SUBSTANTIATE ITS EXPLANATION AS TO HOW THE MISTAKE HAS HAPPENED. THE LD.COUNSEL FOR THE ASSESSEE HAS RELI ED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF PRICE WATERHOU SE COOPERS P.LTD. (SUPRA.). THE FACTS ARE QUITE DISTINGUISHABLE. IN THAT CASE, A PROVISION FOR PAYMENT OF GRATUITY WAS MADE. THE COMPANY ITSELF H AS MENTIONED THAT THIS PROVISION WAS NOT ALLOWABLE UNDER SECTION 40A(7) OF THE ACT. BUT INSPITE OF THAT, WHILE FILING RETURN, IT HAS CLAIMED AS DEDUCT ION. THE AO HAS PASSED THE ASSESSMENT ORDER UNDER SECTION 143(3) OF THE ACT AN D ALLOWED THE DEDUCTION. THE EXPLANATION GIVEN FOR THE MISTAKE HAS BEEN NOTI CED BY THE HONBLE SUPREME COURT IN PARA-14 TO 16 OF THE JUDGMENT, WHI CH READ AS UNDER: 14. DURING THE COURSE OF HEARING THIS APPEAL AGAINS T THE JUDGMENT AND ORDER OF THE CALCUTTA HIGH COURT, WE HAD REQUIRED T HE ASSESSEE TO EXPLAIN TO US HOW AND WHY THE MISTAKE WAS COMMITTED . 15. THE ASSESSEE HAS FILED AN AFFIDAVIT DATED 14TH SEPTEMBER, 2012 IN WHICH IT IS STATED THAT THE ASSESSEE IS ENGAGED IN MULTIDISCIPLINARY MANAGEMENT CONSULTING SERVICES AND IN THE RELEVANT YEAR IT EMPLOYED AROUND 1000 EMPLOYEES. IT HAS A SEPARATE ACCOUNTS D EPARTMENT WHICH MAINTAINS DAY TO DAY ACCOUNTS, PAY ROLLS ETC. IT IS STATED IN THE AFFIDAVIT ITA NO.2034/AHD/2012 7 THAT PERHAPS THERE WAS SOME CONFUSION BECAUSE THE P ERSON PREPARING THE RETURN WAS UNAWARE OF THE FACT THAT THE SERVICE S OF SOME EMPLOYEES HAD BEEN TAKEN OVER UPON ACQUISITION OF A BUSINESS, BUT THEY WERE NOT MEMBERS OF AN APPROVED GRATUITY FUND UNLIKE OTHER E MPLOYEES OF THE ASSESSEE. UNDER THESE CIRCUMSTANCES, THE TAX RETURN WAS FINALIZED AND FILLED IN BY A NAMED PERSON WHO WAS NOT A CHARTERED ACCOUNTANT AND WAS A COMMON RESOURCE. 16. IT IS FURTHER STATED IN THE AFFIDAVIT THAT THE RETURN WAS SIGNED BY A DIRECTOR OF THE ASSESSEE WHO PROCEEDED ON THE BASIS THAT THE RETURN WAS CORRECTLY DRAWN UP AND SO DID NOT NOTICE THE DISCRE PANCY BETWEEN THE TAX AUDIT REPORT AND THE RETURN OF INCOME. 9. THIS DECISION CAN BE OF HELP TO THE ASSESSEE, IF THERE HAD BEEN ANY EXPLANATION AT THE END OF THE ASSESSEE BEFORE THE A O. EXPLANATION GIVEN BEFORE THE LD.CIT(A) ALSO NOT DIRECT ON POINT, AS T O HOW THE MISTAKE HAS HAPPENED. THE ASSESSEE CANNOT DRAW ANY BENEFIT FRO M THIS JUDGMENT. I FIND NO MERIT IN THE APPEAL OF THE ASSESSEE. IT IS DISM ISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ORDER PRONOUNCED IN THE COURT ON 2 ND AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 02/08/2016