QPRO INFOTECH LTD, MUMBAI V. DCIT 2(3), MUMBAI

ITA 2197/MUM/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 2565 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 16-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 19-03-2013
• Court: TRIBUNAL
• Department Lawyers: CAPT PRADEEP S ARYA
• Keywords: Bad and doubtful debts

Judgement Text

, , D, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER, AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.2197/MUM/2013 ASSESSMENT YEAR: 2008-09 QPRO INFOTECH LTD., RATNAJYOT 1-B, PUSHPAM, 30E, CAWASJI PATEL STREET, FORT, MUMBAI-400001 / VS. DCIT 2(3) MUMBAI (ASSESSEE ) (REVENUE) P.A. NO. AAACQ0953H APPELLANT BY SHRI DHARMESH SHAH ( A R) REVENUE BY CAPT. PRADEEP S. ARYA ( SR. DR) ! ' # / DATE OF HEARING : 29/06/2016 ' # / DATE OF ORDER: 13/07/2016 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST ORDER OF LD. ORDER OF LD. COMMISSIONER OF INCOME TAX (APP EALS) -6, MUMBAI, {(IN SHORT CIT(A)}, DATED 29.01.2013 PASS ED AGAINST QPRO INFOTECH LTD. 2 PENALTY ORDER U/S 271(1)(C) OF THE ACT, DATED 30 TH MAY 2011 FOR THE A.Y 2008-09. 2. DURING THE COURSE OF HEARING, ARGUMENTS WERE MADE B Y SHRI DHARMESH SHAH, AUTHORISED REPRESENTATIVE (AR) ON BE HALF OF THE ASSESSEE AND BY CAPT. PRADEEP S. ARYA, DEPARTME NTAL REPRESENTATIVE (DR) ON BEHALF OF THE REVENUE. 3 . IN THIS CASE BOTH THE PARTIES MADE THEIR RESPECTI VE SUBMISSIONS BEFORE US AND THE SAME HAS BEEN CONSIDE RED WHILE DISPOSING THIS APPEAL. 3.1. LD. COUNSEL OF THE ASSESSEE RELIED UPON FOLLOWING JUDGMENTS IN SUPPORT OF HIS ARGUMENTS THAT NO PENAL TY SHOULD BE LEVIED ON THIS CASE. 1. DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT V. RELIANCE PETROPRODUCTS PVT. LTD [322 ITR 158]. 2.DECISION OF HON'BLE SUPREME COURT IN CASE OF PRIC E WATERHOUSE COOPERS PVT. LTD V. CIT & ORS [348 ITR 3 061 3. ORDER OF HON'BLE MUMBAI TRIBUNAL IN CASE OF B. MELARAM & SONS V. ACIT [ITA NO.5143/MUM/2014] DATED 25.02.2016 FOR A.Y. 2008-09. 4. ORDER OF HON'BLE MUMBAI TRIBUNAL IN CASE OF ACIT V. MANGALYA TRADING & INVESTMENTS LTD [ITA NO. 4165/MUM/2011] DATED 20.04.2012. 5. ORDER OF HON'BLE MUMBAI TRIBUNAL IN CASE OF SHRI RAJESH MULCHAND JOSHI V ITO [ITA NO.1448/MUM/2014] DT 22.04.2016. QPRO INFOTECH LTD. 3 3.2. WE HAVE GONE THROUGH THE JUDGMENTS RELIED UPON BY T HE PARTIES BEFORE US AS WELL AS FACTS OF THIS CASE AS BORNE OUT FROM THE ORDERS OF THE LOWER AUTHORITIES. IT IS NOTED TH AT ASSESSEES CLAIM ON ACCOUNT OF BAD DEBT OF SHARE APPLICATION M ONEY WHICH HAD BECOME IRRECOVERABLE WAS DISALLOWED ON TH E GROUND THAT IT (I.E. IMPUGNED AMOUNT) WAS NOT ELIGIBLE AS BAD DEBT U/S 36(1)(III). THE ASSESSEE COMPANY DID NOT FILE APPEA L IN QUANTUM BECAUSE IT HAD FILED THE RETURN SHOWING LOSS OF RS. 63,21,756/- WHICH WAS NOT EVEN AVAILABLE FOR CARRY FORWARD AS T HE RETURN WAS FILED LATE. EVEN AFTER THE ADDITION, THE ASSESS MENT WAS DONE BY THE AO AT LOSS OF RS.44,96,756/-. UNDER THE SE CIRCUMSTANCES, THE ASSESSEE DID NOT CONTEST THE ISS UE OF DISALLOWANCE ANY FURTHER TO BURY LITIGATION. SUBSEQ UENTLY, THE AO ISSUED PENALTY NOTICE U/S 271(1)(C) AND LEVIED T HE PENALTY ON THE GROUND THAT SINCE CLAIM MADE BY THE ASSESSEE WAS DISALLOWED, THEREFORE, PENALTY WAS LEVIABLE AND THU S, THE PENALTY WAS LEVIED BY THE AO. THE ASSESSEE CONTESTE D THE PENALTY ORDER BUT BEFORE LD. CIT(A) WHO PASSED FOUR LINE ORDER AND CONFIRMED THE PENALTY. THE ENTIRE ORDER PASSED BY THE LD. CIT(A) IS REPRODUCED HEREUNDER: ORDER THE APPELLANT CONCEALED THE PARTICULARS OF INCOME A S WELL AS FURNISHED INACCURATE PARTICULARS OF SUCH IN COME BY CLAIMING A DEDUCTION OF RS.18,25,000/- IN THE GA RB OF BAD DEBT' EVEN THOUGH THE RS.18,25,000/- WAS PAID TOWARDS APPLICATION MONEY FOR ACQUISITION OF SHARES AND THE MONEY LOST WAS NOT RELATED TO ANY BUSINESS ACTI VITY. UNDER THE CIRCUMSTANCES, THE LEVY OF PENALTY AT THE QPRO INFOTECH LTD. 4 MINIMUM RATE OF 100% AMOUNTING TO RS 6,14,2951- IS FOUND TO BE PERFECTLY VALID. 2. THE APPEAL IS DISMISSED. SD/- COMMISSIONER OF INCOME TAX (APPEALS)-6, MUMBAI. 3.3. BEFORE US, IT WAS VEHEMENTLY SUBMITTED BY THE LD. COUNSEL THAT HE WAS YET TO SEE SUCH A NON-SPEAKING AND CRYPTIC ORDER PASSED BY THE ANY APPELLATE AUTHORITY . HE FURTHER MADE HIS ARGUMENTS IN DETAIL TO JUSTIFY THAT IN THI S CASE PENALTY WAS NOT LEVIABLE AT ALL. 3.4. WE HAVE CONSIDERED ALL THESE SUBMISSIONS CAREFULLY. UNDOUBTEDLY THE CLAIM OF THE ASSESSEE WAS REJECTED ON THE GROUND THAT IT WAS NOT ALLOWABLE AS BAD DEBT U/S 36 (1)(III). BUT, IT IS NOTED BY US THAT THAT WHILE LEVYING THE PENALTY IN THE PENALTY ORDER, THE AO HAS NOT MADE OUT A CASE FOR L EVY OF PENALTY. HE HAS NOT DEMONSTRATED HOW THERE WAS CONC EALMENT OF INCOME OR FURNISHING INACCURATE PARTICULARS OF I NCOME. IF THE CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE AS BAD DEBT U/S 36(1)(III), THEN, ALTERNATIVELY, THE ASSESSEE MAY H AVE BEEN ENTITLED FOR ITS CLAIM AS BUSINESS LOSS U/S 37(1). NO OBSERVATIONS OR FINDINGS HAVE BEEN GIVEN BY ANY OF THE AUTHORITIES IN THIS REGARD. IT HAS NOWHERE BEEN MEN TIONED IN ANY OF THE ORDERS PASSED BY THE LOWER AUTHORITIES T HAT CLAIM OF THE ASSESSEE WAS NOT ALLOWABLE UNDER ANY CIRCUMSTAN CES AT ALL OR UNDER ANY OTHER PROVISIONS OF THE ACT. THE PENAL TY HAS BEEN LEVIED IN A HIGHLY MECHANICAL MANNER. LD. CIT(A) HA S ALSO QPRO INFOTECH LTD. 5 CONFIRMED THE PENALTY IN A CRYPTIC, NON-SPEAKING, D ISREGARDFUL AND CASUAL MANNER. 3.5. IN THE FACTS OF THE CASE BEFORE US, THE GENUINENES S OF PAYMENT OF SHARE APPLICATION MONEY HAS NOT BEEN DOU BTED AT ANY STAGE BY ANY OF THE AUTHORITIES. THE ONLY DISPU TE WAS WITH REGARD TO ALLOWABILITY OF CLAIM OF BAD DEBTS MADE B Y THE ASSESSEE FOR THE REASON THAT SHARE APPLICATION MONE Y HAD BECOME IRRECOVERABLE. THE DISALLOWANCE MADE BY THE AO WAS NOT CONTESTED VIGOROUSLY BY THE ASSESSEE AS THE SAM E WAS REVENUE NEUTRAL AS THE ASSESSEE HAD INCURRED HUGE L OSSES, WHICH WERE NOT EVEN AVAILABLE FOR CARRY FORWARD AND SET OFF IN FUTURE YEARS. THUS, APPARENTLY, THERE WAS NO MOTIVE WITH THE ASSESSEE TO MAKE A BOGUS OR INFLATED CLAIM WHILE FI LING ITS RETURN OF INCOME. UNDER THESE CIRCUMSTANCES, IT WAS IMPERATIVE ON THE PART OF THE LOWER AUTHORITIES TO EXAMINE THE ASPECT OF LEVY OF PENALTY WITHIN THE PROVISIONS OF THE ACT, INDEPENDENTLY AND WITH LIBERAL ATTITUDE. 3.6. THE LEVY OF PENALTY AND ITS CONFIRMATION HAS FAR R EACHING SERIOUS IMPLICATIONS UPON AN ASSESSEE, SINCE IT MAY ALSO INVITE PROSECUTION OF THE ASSESSEE. THUS, MATTERS WITH REG ARD TO LEVY OF PENALTY CANNOT BE TAKEN LIGHTLY OR CASUALLY AS I T MAY CAUSE UNINTENDED AND AVOIDABLE HARDSHIP TO THE TAX PAYERS . FURTHER, IT IS WELL SETTLED LAW THAT LEVY OF PENALTY IS NOT AUTOMATIC UPON THE MAKING OF DISALLOWANCE ITSELF BY THE AO IN THE ASSESSMENT ORDER. ANY DISALLOWANCE/ADDITION IN THE ASSESSMENT ORDER WOULD NOT NECESSARILY LEAD TO LEVY OF PENALTY IPSO FACTO AS A QPRO INFOTECH LTD. 6 NATURAL CONSEQUENCE. THE DETERMINATION OF TAX LIAB ILITY AND LEVY OF PENALTY ARE TWO DIFFERENT EVENTS UNDER THE INCOME TAX LAW. THE AO IS DUTY BOUND AND OBLIGED UNDER THE LAW TO MAKE OUT A CASE FOR LEVY OF PENALTY, INDEPENDENT OF THE ASSESSMENT PROCEEDINGS. THEREFORE, THE CONDITIONS UNDER SECTIO N 271(1)(C) MUST EXIST BEFORE THE PENALTY IS IMPOSED, WHICH ARE TO BE MANDATORILY SHOWN BY THE AO BEFORE LEVYING THE PENA LTY IN ANY GIVEN CASE. 3.7. IN OUR COUNTRYS LEGAL AND CONSTITUTIONAL FRAME WO RK, THE ROLE ASSIGNED TO THE INCOME TAX DEPARTMENT IS TO AC T LIKE A WATCH DOG TO ENSURE THAT TAX EVASION IS CHECKED A ND LEGITIMATE TAX COLLECTION IS AUGMENTED, BUT NOT TO ACT LIKE A SCARE CROW. IN OUR VIEW, IT HAS BEEN OBSERVED ON THE BASIS OF PAST EXPERIENCE THAT BY PASSING SUCH ORDERS WHICH A RE IN BLATANT DISREGARD OF LAW, THE REVENUE DOES NOT GAIN ANYTHING SUBSTANTIVE, BUT IT SURELY SCARES AWAY EVEN SINCERE AND HONEST TAX PAYERS. IN OUR CONSIDERED VIEW, SUCH KIND OF AP PROACH SHOULD BE AVOIDED IN ALL CIRCUMSTANCES SO THAT FAIT H OF THE TAX PAYERS UPON THE INCOME TAX DEPARTMENT FOR ITS FAIR, TRANSPARENT AND HASSLE-FREE FUNCTIONING CAN BE INCR EASED AND AS A RESULT OF IT, VOLUNTARY TAX COMPLIANCE CAN ALS O BE STRENGTHENED. 3.8. IT IS FURTHER NOTED BY US THAT TIME AND AGAIN AND HONBLE APEX COURT HAS GIVEN GUIDANCE THROUGH ITS VARIOUS L ANDMARK JUDGMENTS WITH REGARD TO LEVY OF PENALTY U/S 271(1) (C) UPON A DISALLOWANCE MADE BY THE AO IN THE ASSESSMENT ORDER . QPRO INFOTECH LTD. 7 IMMEDIATE REFERENCE CAN BE MADE IN THIS CASE TO JUD GMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT V. RELIANCE PETRO PRODUCT PVT. LTD, 322 ITR 158 (SC) AND PRICE WATERHOUSE COOPERS PVT. LTD. V. CIT 348 ITR 306 (SC) . IN THE CASE OF RELIANCE PETRO PRODUCT PVT. LTD. (SUPRA), HONBLE S UPREME COURT CAME DOWN HEAVILY UPON THE APPROACH OF THE AS SESSING OFFICER WHEREBY PENALTY WAS LEVIED ON AUTOMATIC B ASIS ON MAKING OF DISALLOWANCE OF A CLAIM OF THE ASSESSEE I N THE ASSESSMENT ORDER. SOME OF THE USEFUL OBSERVATIONS O F THE HONBLE SUPREME COURT ARE REPRODUCED HEREUNDER: IN ORDER TO EXPOSE THE ASSESSEE TO THE PENALTY UNL ESS THE CASE IS STRICTLY COVERED BY THE PROVISION, THE PENALTY PROVISION CANNOT BE INVOKED. BY ANY STRETCH OF IMAGINATION, MAKING AN INCORRECT CLAIM IN LAW CANNO T TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. IN CIT V. ATUL MOHAN BINDAL [2009] 9 SCC 589, WHERE THIS COURT WAS CONSIDERING THE SAME PROVISION, THE COURT OBSERVED THAT THE ASSESSING OFFICER HAS TO BE SATISFIED THAT A PERSON HAS CONCEALED THE PARTICULA RS OF HIS INCOME OR FURNISHED INACCURATE PARTICULARS O F SUCH INCOME. THIS COURT REFERRED TO ANOTHER DECISIO N OF THIS COURT IN UNION OF INDIA V. DHARAMENDRA TEXTILE PROCESSORS [2008] 13 SCC 369 AS ALSO, THE DECISION IN UNION OF INDIA V. RAJASTHAN SPG. & MG. MILLS [2009] 13 SCC 448 AND REITERATED IN PARAGRAPH 13 THAT (PAGE 13 OF 317 ITR): '13. IT GOES WITHOUT SAYING THAT FOR APPLICABILITY OF SECTION 271(1)(C), CONDITIONS STATED THEREIN MUST EXIST.' THEREFORE, IT IS OBVIOUS THAT IT MUST BE SHOWN THAT THE CONDITIONS UNDER SECTION 271(1)(C) MUST EXIST BEFOR E THE PENALTY IS IMPOSED. 3.9. IN THE FACTS OF THE CASE BEFORE US NOTHING HAS BEEN BROUGHT BY THE AUTHORITIES TO SHOW THAT THE CLAIM O F THE QPRO INFOTECH LTD. 8 ASSESSEE WAS BOGUS. NOTHING HAS BEEN SHOWN TO ESTAB LISH WHETHER THERE WAS CONCEALMENT OF INCOME OR FURNISHI NG OF INACCURATE PARTICULARS OF INCOME AND HOW. IT HAS BE EN MERELY MENTIONED BY THE AO IN THE LAST PARA OF THE PENALTY ORDER THAT IN CASE RETURN OF THE ASSESSEE WAS NOT SELECTED FOR SCRUTINY, THEN IT WOULD HAVE RESULTED IN EXCESS CARRY FORWARD OF THE LOSSES TO BE ADJUSTED AGAINST THE INCOME OF FUTURE YEARS. BUT, HERE ALSO, LD. AO WENT FACTUALLY WRONG, SINCE RETUR N OF THE ASSESSEE WAS FILED BEYOND TIME LIMIT PRESCRIBED U/S 139(1) AND THEREFORE, THE ASSESSEE WAS NOT ELIGIBLE TO CARRY F ORWARD LOSS CLAIMED IN THE RETURN. THUS, WHOLE PREMISE OF THE A O WAS BUILT UNDER MISCONCEPTION OF FACTS AND INCORRECT UNDERSTA NDING OF LAW. ABOVE ALL, LD. CIT(A) ALSO MISERABLY FAILED IN HIS DUTY, BY PASSING A CASUAL ORDER AND COLLAPSING THE CHECK AND BALANCE MECHANISM ENVISAGED BY THE STATUTE. THE LEVY OF PENALTY WAS HIGHLY UNJUSTIFIED AND THE SAME IS DIRE CTED TO BE DELETED. 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JULY, 2016. SD/- (JOGINDER SINGH) SD/- (ASHWANI TANEJA) ! / JUDICIAL MEMBER ' ! / ACCOUNTANT MEMBER ! MUMBAI; % DATED: 13 /07 /2016 CTX? P.S/. . . QPRO INFOTECH LTD. 9 #$%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. '() / THE APPELLANT 2. *+() / THE RESPONDENT. 3. , , - ( ' ) / THE CIT, MUMBAI. 4. , , - / CIT(A)- , MUMBAI 5. 01 *2 , , '# 23 , ! / DR, ITAT, MUMBAI 6. 45 6! / GUARD FILE. / BY ORDER, +0' * //TRUE COPY// / (DY./ASSTT. REGISTRAR) , ! / ITAT, MUMBAI