ITO 3(2)(2), MUMBAI V. MARINE CARRIERS P. LTD, MUMBAI

ITA 2375/MUM/2009

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8612 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 03-10-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 15-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: H S RAHEJA
• Keywords: Bonafide belief; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.R.JAIN (ACCOUNTANT MEMBER) ITA NO.2375/MUM/2009 ASSESSMENT YEAR: 2001-02 INCOME TAX OFFICER 3(2)(2), ROOM NO.673, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. M/S. MARINE CARRIERS PVT LTD., 88A, JOLLY MAKERS CHAMBERS NO.2, NARIMAN POINT, MUMBAI-400 021 PA NO.AAACM 4456 F (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI MOHIT JAIN RESPONDENT BY: SHRI H.S.RAHEJA DATE OF HEARING: 3 .10.2012 DATE OF PRONOUNCEMENT: 10 .10.2012 ORDER PER B.R.MITTAL, JM: THE DEPARTMENT HAS FILED THIS APPEAL FOR ASSESSMEN T YEAR 2001-02 AGAINST ORDER DATED 3.2.2009 OF LD CIT(A) DELETING THE PENALTY OF RS.5,38,811 LEVIED BY THE AO U/S.271(1)(C) OF THE ACT. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT THE ASSESSEE IS A CORPORATE ENTITY. IN THE ASSESSMENT PROCEEDINGS, THE AO DISA LLOWED A SUM OF RS.13,62,352 ON ACCOUNT OF UNPAID COMMISSION TO THE DIRECTORS, WHIC H WAS CLAIMED AS DEDUCTION. AO STATED THAT THERE WAS EMPLOYEE AND EMPLOYERS RELATI ONSHIP BETWEEN THE DIRECTORS AND THE ASSESSEE AND HENCE, UNPAID AMOUNTS OF COMMISSIO N TO THE DIRECTORS ARE COVERED UNDER SECTION 36(1)(II) R.W.S. 43B(C) OF THE INCOME TAX ACT, 1961. IN VIEW OF ABOVE, AO INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)( C) OF THE ACT. IT IS RELEVANT TO STATE THAT ASSESSEE CONTENDED THAT THE SAID DIRECTORS ARE NOT EMPLOYEES OF THE COMPANY. HOWEVER, AO DID NOT ACCEPT THE CONTENTION OF ASSESS EE AND LEVIED PENALTY UNDER SECTION 271(1)(C) OF THE ACT @ 100% OF TAX SOUGHT TO EVADED ON THE SAID SUM OF RS.13,62,352 ITA NO.2375/MUM/2009 ASSESSMENT YEAR: 2001-02 2 ON THE GROUND THAT ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS THEREBY CONCEALING ITS INCOME. BEING AGGRIEVED, ASSESSEE FILED APPEAL BEF ORE THE FIRST APPELLATE AUTHORITY. LD CIT(A) VIDE PARA 1.4 OF THE IMPUGNED ORDER CANCELLE D THE PENALTY, WHICH READS AS UNDER: I HAVE PERUSED THE FACTS OF THE CASE AND I FIND THAT IN THE INSTANT CASE ALL THE DIRECTORS ARE THE SHAREHOLDERS OF THE APPEL LANT COMPANY AS ALSO ALL THE SHAREHOLDERS ARE DIRECTORS OF THE COMPANY. IN SUCH A SITUATION, THE CONTENTION MADE BEFORE ME THAT IF COMMISSION WAS NO T PAID TO DIRECTORS, IT WOULD HAVE RESULTED IN HIGHER PROFITS PAYABLE TO THE DIRECTORS AS SHAREHOLDERS IN THE FORM OF PROFITS OR DIVIDEND. T HIS CONTENTION IS PERFECTLY JUSTIFIED. IT THEREFORE FOLLOWS THAT APP ELLANT WAS UNDER BONAFIDE BELIEF THAT THE LATER PART OF SECTION 36(1)(II) WAS ATTRACTED IN THE FACTS OF THE CASE AND THEREFORE COMMISSION CLAIMED IN THE RE TURN OF INCOME WAS NOT HIT BY SECTION 43B(C) OF THE ACT. SUBSEQUENTLY , WITHOUT GOING INTO CONTROVERSY WHETHER THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILES PROCESSORS & OTHER IS APPLICABL E OR NOT, I AM OF THE VIEW THAT THE CLAIM MADE BY THE APPELLANT IN THE RE TURN OF INCOME WAS UNDER BONAFIDE BELIEF AND THEREFORE IMPOSITION OF P ENALTY IN THE PRESENT FACTS OF THE CASE IS NOT AT ALL JUSTIFIED. PENALTY IS ACCORDINGLY CANCELLED. 3. HENCE, THIS APPEAL BY THE DEPARTMENT. 4. AT THE TIME OF HEARING, LD D.R. SUPPORTED THE OR DER OF ASSESSING OFFICER AND SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO TANT AMOUNT TO CLAIMING INACCURATE PARTICULARS AND PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. ZOOM COMMUNICATION (P) LTD., 327 ITR 510(DE L). 5. ON THE OTHER HAND, LD A.R. SUPPORTED THE ORDER O F LD CIT(A). HE SUBMITTED THAT THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIA NCE PETROPRODUCTS P. LTD., 323 ITR 158(SC) HAS HELD THAT IF ALL THE FACTS RELATING TO CLAIM ARE DISCLOSED AND THE INFORMATION GIVEN IN THE RETURN IS NOT FOUND INCORRECT OR INACC URATE, ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS OF INCOME AND, TH EREFORE, LEVY OF PENALTY IS NOT JUSTIFIED. 6. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. 7. WE OBSERVE THAT ASSESSEE IN THE RETURN FILED MAD E A CLAIM OF RS.13,62,352 ON ACCOUNT OF COMMISSION TO THE DIRECTORS WHICH WAS UN PAID BEFORE DUE DATE OF FILING THE ITA NO.2375/MUM/2009 ASSESSMENT YEAR: 2001-02 3 RETURN OF INCOME. AO DISALLOWED THE SAID CLAIM OF THE ASSESSEE IN VIEW OF PROVISIONS OF SECTION 43B(C) R.W.S 36(1)(II) OF THE ACT. HOWEVER , ASSESSEE CLAIMED THAT THERE WERE NO EMPLOYEE AND EMPLOYER RELATIONSHIP BETWEEN THE DIRE CTORS AND ASSESSEE BUT AO DID NOT ACCEPT THE SAME. IT IS RELEVANT TO STATE THAT IN T HE QUANTUM APPEAL, LD CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE AO. THEREFO RE, AO HAS CONCLUDED THAT ASSESSEE HAS FURNISHED WRONG PARTICULARS OF INCOME. WE ARE OF THE CONSIDERED VIEW THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, IT CANN OT BE SAID THAT ASSESSEE HAS CONCEALED MATERIAL PARTICULARS OR HAVE FURNISHED IN ACCURATE PARTICULARS OF INCOME. AO HAS INITIATED THE PENALTY UNDER SECTION 271(1)(C) O F THE ACT ONLY BECAUSE CLAIM OF THE ASSESSEE HAS BEEN DISALLOWED IN THE ASSESSMENT PROC EEDINGS. THE APEX COURT HAS HELD IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD (SUPRA ) THAT DISALLOWANCE OF A BONAFIDE CLAIM CANNOT BE TREATED AS FURNISHING INACCURATE PA RTICULARS OR CONCEALMENT OF PARTICULARS OF INCOME. IT WAS HELD THAT PENALTY CA NNOT BE LEVIED PARTICULARLY WHEN ASSESSEE HAS DISCLOSED ALL THE PRIMARY FACTS IN RES PECT OF CLAIM MADE BUT THE CLAIM WERE FOUND NOT ALLOWABLE WOULD NOT IPSO FACTO WARRANTS L EVY OF PENALTY UNLESS THE DISALLOWANCE MADE DUE TO FURNISHING INACCURATE PART ICULARS OF INCOME OR CONCEALMENT OF PARTICULARS OF INCOME. SIMILAR ISSUE WAS ALSO CONS IDERED BY THE MUMBAI ITAT IN THE CASE OF BENNETT COLEMAN & CO. LTD. VS. ACIT VIDE ORDER D ATED 30.4.2010 IN I.T.A. NO.1189/M/2009 AND IT IS RELEVANT TO REPRODUCE PARA S 27 AND 28 OF THE SAID ORDER, WHICH READ AS UNDER: 27. MERELY BECAUSE THE CLAIM OF EXPENDITURE IS DIS ALLOWED WOULD NOT AUTOMATICALLY LEAD FURNISHING OF INACCURATE PAR TICULARS OF INCOME OR CONCEALMENT OF PARTICULARS OF INCOME WARRANTED T O PENALTY. IT IS NOT A CASE MADE OUT BY THE REVENUE THAT THE ASSESSE E HAS CLAIMED VARIOUS EXPENDITURES DISHONESTLY FOR AVOIDING TAX W HEN ALL THE RELEVANT FACTS WERE DISCLOSED BY THE ASSESSEE PERTA INING TO THE CLAIM MADE THEN ONLY BECAUSE THE CLAIM WERE DISALL OWED AS THE SAME WERE NOT ALLOWABLE UNDER LAW, THE PENALTY CANN OT BE LEVIED. NOTHING IS AVAILABLE ON THE RECORD TO SHOW THAT THE BELIEF OF THE ASSESSEE AND THE EXPLANATION OF THE ASSESSEE WERE FALSE AND INHERETENTLY IMPOSSIBLE, THE PENALTY CANNOT BE LEV IED. EVEN ON ERRONEOUS CLAIM FOR DEDUCTION CANNOT WARRANT PENALT Y UNTIL AND UNLESS IT IS PROVED THAT THE CLAIM WAS MADE WITH DI SHONEST INTENTION. DISALLOWANCE OF BONAFIDE CLAIM CANNOT BE TREATED A S FURNISHING OF INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF PARTICULARS OF INCOME AND THEREFORE, PENALTY CANNOT BE LEVIED. THE ASSESSEE HAS DISCLOSED ALL THE PRIMARY FACTS IN RESPECT OF CLAIM MADE BUT THE ITA NO.2375/MUM/2009 ASSESSMENT YEAR: 2001-02 4 CLAIM WERE FOUND NOT ALLOWABLE WOULD NOT IPSO FACT O WARRANTS LEVY OF PENALTY UNLESS THE DISALLOWANCE MADE DUE TO FURN ISHING INACCURATE PARTICULARS OF INCOME OR CONCEALMENT OF PART ICULARS OF INCOME. IN THE CASE OF DECISION OF CIT V/S RELIANCE PETROPRODUCTS PVT.LTD REPORTED IN 322 ITR 158(SC ), THE HONBLE SUPREME COURT HELD IN PARAGRAPHS 11 TO 14 AS UNDER : 11. WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTICULARS IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION, THEY MUST MEANS THE DETAILS S UPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CO RRECT, NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO FINDING THAT ANY DET AILS SUPPLIED BY THE ASSESSEE IN ITS RETURN WERE FOUND TO BE INCORR ECT OR ERRONEOUS OR FALSE, SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C ) OF THE ACT. A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAI NABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF HE ASSESSEE. SUCH CLAIM MAD E IN THE RET5URN CANNOT AMOUNT TO THE INACCURATE PARTICULARS . 12. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A O F THE ACT SPECIFICALLY EXCLUDED THE DEDUCTION IN RESPECT OF T HE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WA S FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. IT WAS, THEREFORE REITER ATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED TH E CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUC TIONS KNOWING THAT THEY ARE INCORRECT, IT AMOUNTED TO CON CEALMENT OF INCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEH OOD IN ACCOUNTS CAN TAKE EITHER OF THE TWO FORMS ; (I) AN ITEM OF RECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITE M OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AM OUNT ) CLAIMED AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABL E INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PARTICULARS OF ONES INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FURNI SHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN IS RETURN, WHICH DETAILS, IN THEMSELVES WE NOT FOUND TO BE INACCURAT E NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PARTS . IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETUR N OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDI TURE, WHICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)( C ). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RETURN WHER E THE CLAIM ITA NO.2375/MUM/2009 ASSESSMENT YEAR: 2001-02 5 MAD IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE A SSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)( C ). THAT IS C LEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 13. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT M ADE IN SREE KRISHNA ELECTRICIANS V/S STATE OF TAMIL NADU ( 2009) 23 VST 249 AS REGARDS THE PENALTY ARE APPOSITE. IN THE AF OREMENTIONED DECISION WHICH PERTAINED TO THE PENALTY PROCEEDINGS UNDER THE TAMIL NADU GENERAL SALES TAX ACT, THE COURT HAD FO UND THAT THE AUTHORITIES BELOW HAD FOUND THAT THERE WERE SOME IN CORRECT STATEMENTS MADE IN THE RETURN . HOWEVER, THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. THI S COURT, THEREFORE, OBSERVED (PAGE 251): SO FAR AS THE QUESTION OF PENALTY IS CONCERNED THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATED IN THE APPELLANTS ACCOUNT BOOKS . WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED IN THE TURNOVER ARE DISCLOSED IN THE DEALERS OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDES THESE ITEMS IN THE DEALERS TURNOVER DISALLOWING THE EXEMPTION, PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STAND S SET ASIDE 14. THE SITUATION IN THE PRESENT CASE IS STILL BETT ER AS NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSEE IN ITS RETURN. 28. FROM THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), IT IS CLEAR THAT WHEN THE INFORMATION AND DETAILS GIVEN B Y THE ASSESSEE IS NOT FOUND TO BE INCORRECT OR INACCURATE, THE ASSESS EE CANNOT BE HELD OF GUILTY OF FURNISHING INACCURATE PARTICULARS AND RESULTING LEVY OF PENALTY. RESPECTFULLY FOLLOWING THE DECISION OF TH E DECISION OF THE SUPREME COURT (SUPRA), WE FIND THAT, IN THE FACTS A ND CIRCUMSTANCES OF THE PRESENT CASE, THE PENALTY IS NOT JUSTIFIED. ACCORDINGLY, WE SET ASIDE THE ORDER OF THE CIT(A) AND DISMISS THE APPE AL OF THE REVENUE. 8. FURTHER, ITAT MUMBAI HAS HELD IN THE CASE OF WAL TER SALDHANA VS DCIT, 44 SOT 26 (MUM) THAT WHEN ASSESSEE HAS FURNISHED FULL DETA ILS OF THE CLAIM AND HAS NOT CONCEALED ANY PARTICULARS OF INCOME OR HAS FURNISHE D PARTICULARS OF INCOME, MERE MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE ITA NO.2375/MUM/2009 ASSESSMENT YEAR: 2001-02 6 PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IT WAS HELD THAT SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING OF INACCURAT E PARTICULARS. 9. IN THE CASE BEFORE US, THERE IS NO DISPUTE TO TH E FACT THAT ASSESSEE DISCLOSED ALL THE RELEVANT FACTS IN RESPECT OF UNPAID COMMISSION TO THE DIRECTORS. THE CLAIM OF THE ASSESSEE HAS BEEN DISALLOWED BY THE AO IN VIEW OF S TATUTORY PROVISIONS OF SECTION 43B(C) OF THE ACT, WHICH IS NOT THE CLAIM OF THE AO THAT S AID CLAIM OF THE ASSESSEE WAS INACCURATE OR NOT BONAFIDE. THE CLAIM HAS BEEN DIS ALLOWED IN VIEW OF STATUTORY PROVISIONS OF THE ACT ONLY. HENCE, THE DISALLOWANC E OF CLAIM WHICH HAS BEEN FOUND PURELY AS A QUESTION OF LAW TO BE NOT SUSTAINABLE C ANNOT TANTAMOUNT TO FURNISHING WRONG PARTICULARS OF INCOME BY THE ASSESSEE OR CONCEALMEN T OF ANY MATERIAL FACTS BY THE ASSESSEE. 10. CONSIDERING THE ABOVE FACTS, WE ARE OF THE CONS IDERED VIEW THAT LD CIT(A) IS JUSTIFIED TO DELETE THE PENALTY LEVIED BY AO. THE RELIANCE PLACED BY LD D.R. ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION P.LTD. (SUPRA) IS NOT RELEVANT TO THE FACTS BEFORE US. IN VIEW OF ABOVE, GROUND OF APPEAL TAKEN BY REVENUE IS REJECTED BY UPHOLDING THE ORDER OF LD CI T(A). 11. IN THE RESULT, APPEAL FILED BY DEPARTMENT IS DI SMISSED. PRONOUNCED IN THE OPEN COURT ON 10 TH OCTOBER, 2012 SD/- (B.R.JAIN) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 10 TH OCTOBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS),III, MUMBA I 4. COMMISSIONER OF INCOME TAX, 3, MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH B MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI