Dr. Mahesh B. Patel, Baroda V. The Dy.CIT, Circle-5, Baroda

ITA 242/AHD/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0982 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-07-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 02-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P MEENA
• Keywords: Difference of opinion
• Section: 145

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA.NO.242/AHD/2016 / ASSTT. YEAR: 2008-2009 DR.MAHESH B. PATEL 13, SPANDAN NAVRANG HOSPITAL VIP ROAD KARELIBAG, BARODA 390 018. PAN : AAZPP 1871 F. VS DCIT, CIR.5 BARODA. ! / (APPELLANT) '# ! / (RESPONDENT) ASSESSEE BY : SHRI TEJ SHAH, AR REVENUE BY : SHRI O.P. MEENA, SR.DR / DATE OF HEARING : 20/07/2016 / DATE OF PRONOUNCEMENT: 01/08/2016 $%/ O R D E R THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL AGAIN ST THE ORDER OF THE LD.CIT(A)-1, VADODARA DATED 16.12.2015 PASSED FOR T HE ASSTT.YEAR 2008-09. 2. SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT THE L D.CIT(A) HAS ERRED IN CONFIRMING THE PENALTY OF RS.3,47,727/- WHICH WAS I MPOSED 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 HIS RETURN OF INCOME ON 30.9.2008 DECLARING AN INCOME AT RS.38,88 ,470/-. THE ASSESSEE AT THE RELEVANT TIME WAS RUNNING AN ORTHOPEDIC NURSING HOME. HIS CASE WAS SELECTED FOR SCRUTINY ASSESSMENT AND NOTICE UNDER S ECTION 143(2) WAS ISSUED AND SERVED UPON THE ASSESSEE. A PERUSAL OF THE BAL ANCE SHEET, IT REVEALED TO THE AO THAT THE ASSESSEE HAS SHOWN SUNDRY CREDITORS TO THE TUNE OF RS.10,11,020/- AND SALARY PAYABLE AT RS.71,434/-. ON FURTHER INQUIRY, IT ITA NO.242/AHD/2016 2 REVEALED TO THE AO THAT THE ASSESSEE HAS BEEN FOLLO WING MIX ACCOUNTING SYSTEM. FOR EXPENSES, HE HAS FOLLOWED MERCANTILE S YSTEM OF ACCOUNTANCY AND FOR INCOME HE HAS BEEN FOLLOWING CASH SYSTEM. THE LD.AO HAS MADE REFERENCE TO SECTION 145 OF THE INCOME TAX ACT AND OBSERVED THAT SUB-SECTION 1 OF SECTION 145 PROHIBITS THE ASSESSEE TO FOLLOW M IX ACCOUNTING SYSTEM. THE INCOME WAS TO BE COMPUTED EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING. ACCORDINGLY, THE LD.AO MADE ADDITION OF RS.9,84,329 /- AND RS.1,41,000/-. THE FINDING OF THE AO READS AS UNDER: 5. HENCE, SUNDRY CREDITORS AND SALARY PAYABLE OF RS . 10,11,020/- &. RS. 71,434//- OF THE PREVIOUS YEAR RELEVANT TO A.Y. 2008-09 TOTAL OF RS. 10,82,452/- AFTER DEDUCTING THE CREDIT LIABILITY OF PREVIOUS A.Y. I.E. 2007-08 OF RS. 97,825/- IT COMES TO (RS. 10,82,254/ - - RS. 97,825/-) RS. 9,84,329/- WHICH IS NOT ALLOWED AS AN EXPENSE DEBIT ED IN PROFIT AND LOSS ACCOUNT . HENCE THE AMOUNT OF RS. 9,84,329/- I S ADDED BACK TO ASSESSEE'S TOTAL INCOME. PENALTY PROCEEDINGS U/S 271(L)(C) OF THE I.T.ACT, 1961, 1961 IS ALSO INITIALED FOR FUR NISHING OF INACCURATE (ADDITION : RS.9,84,329/-) 6. ON PERUSAL OF THE SUBMISSION IT WAS FOUND THAT T HE ASSESSEE HAS MADE PAYMENT TO NATWARLAL N SUTHAR, VISHWAS CONSTRU CTION EXCEEDING RS. 20,000/- IN A DAY OR GROSS 50,000/- FOR REPAIRS AND MAINTENANCE BUT HE HAS NOT MADE TDS ON THESE PAYMENTS. IN ADDIT ION TO THIS THE ASSESSEE HAS ALSO MADE PAYMENT OF RS. 65,000/- TO D SEVEN ADVERTISING FOR ADVERTISEMENT IN GUJARAT SAMACHAR BUT NOT DEDUC TED TDS. THE ASSESSEE WAS SHOW CAUSED WHY NOT THESE EXPENSES SHO ULD NOT BE DISALLOWED AS EITHER NO PROOF HAS BEEN FURNISHED OR NO TDS HAS BEEN DEDUCTED. THE ASSESSEE COULD NOT PRODUCED THE TDS D ETAILS. HENCE THE AMOUNT OF 1,41,000/- (NATWARLAL N SUTHAR 22,000/- + VISHWAS CONSTRUCTION 54,000+ D SEVEN ADVERTISING 65,0007-) ON WHICH TDS HAS NOT BEEN MADE IS BEING DISALLOWED AND ADDED BAC K TO ASSESSEE'S INCOME. (ADDITION: RS. 1,41,000/-) 4. THE AO, THEREAFTER, INITIATED PENALTY PROCEEDING S AND ISSUED NOTICE UNDER SECTION 274 R.W.S. SECTION 271(1)(C) OF THE I NCOME TAX ACT. AFTER ITA NO.242/AHD/2016 3 HEARING THE ASSESSEE, THE LD.AO HAS IMPOSED PENALTY OF RS.3,47,727/-. APPEAL TO THE LD.CIT(A) DID NOT BRING ANY RELIEF TO THE AS SESSEE. 5. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT P ENALTY WAS INITIATED FOR FURNISHING INACCURATE PARTICULARS OF INCOME, WHEREA S, IT HAS BEEN IMPOSED FOR CONCEALING OF INCOME. ON THE STRENGTH OF HONBLE K ARNATAKA HIGH COURT DECISION IN THE CASE OF CIT VS. MANJUNATH COTTON & GINNING FACTORY, 359 ITR 565 AND HONBLE GUJARAT HIGH COURT DECISION IN THE CASE OF CIT VS. LAKHDHIR LALJI, 85 ITR 77, HE CONTENDED THAT THE AO HAS NOT SHOWN WHAT TYPE OF OFFENCE THE ASSESSEE HAS COMMITTED. THE AO HAS FAILED TO CHARGE FOR A PARTICULAR ALLEGATION I.E. WHETHER THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME OR CONCEALED PARTICULARS INCO ME. ON THE OTHER HAND, THE LD.DR RELIED UPON THE ORDER OF THE AO. 6. I HAVE DULY CONSIDERED RIVAL CONTENTIONS AND GON E THROUGH THE RECORD CAREFULLY. A PERUSAL OF THE PENALTY ORDER WOULD IN DICATE THAT THE LD.AO HAS IMPOSED PENALTY FOR FURNISHING INACCURATE PARTICULA RS. HE HAS NOT IMPOSED PENALTY FOR CONCEALMENT OF INCOME. THE AO HAS OBSE RVED THAT THE ASSESSEE HAS TRIED TO EVADE TAX BY FURNISHING INACCURATE PAR TICULARS OF INCOME WHICH LEAD TO CONCEALMENT OF INCOME. THUS, THERE IS NO C ONFUSION IN THE MIND OF THE AO. I DO NOT FIND ANY MERIT IN THE FIRST FOLD OF S UBMISSION RAISED BY THE LD.COUNSEL FOR THE ASSESSEE. 6. IN THE NEXT FOLD OF SUBMISSIONS, IT WAS CONTENDE D BY THE LD.COUNSEL FOR THE ASSESSEE THAT THE EXPLANATION GIVEN BY THE ASSE SSEE WAS NOT FOUND TO BE FALSE. THE ASSESSEE HAS BEEN RECOGNIZING THE INCOM E ON CASH BASIS, BUT KEEPING THE EXPENDITURE ON MERCANTILE BASIS. IT WA S A LAPSE UNDER SECTION 145(1) OF THE INCOME TAX ACT. BUT THERE WAS NO DEL IBERATE ATTEMPT AT THE END OF THE ASSESSEE TO CONCEAL PARTICULARS. THE LD.DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE REVENUE AUTHORITIES BELOW. ITA NO.242/AHD/2016 4 7. WITH THE ASSISTANCE OF THE LEARNED REPRESENTATIV ES, WE GONE THROUGH THE RECORD CAREFULLY. SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 HAS DIRECT BEARING ON THE CONTROVERSY. THEREFORE, IT IS PERTI NENT TO TAKE NOTE OF THE SECTION. '271. FAILURE TO FURNISH RETURNS, COMPLY WITH NOTIC ES, CONCEALMENT OF INCOME, ETC. (1) THE ASSESSING OFFICER OR THE COMMISSIONER (APPE ALS) OR THE CIT IN THE COURSE OF ANY PROCEEDINGS 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 DIRECT THAT SUCH PERSON SHALL PAY BY WAY OF PENALTY. (I)AND (INCOME-TAX OFFICER,)** ** ** (III) IN THE CASES REFERRED TO IN CLAUSE (C) OR CL AUSE (D), IN ADDITION TO TAX, IF ANY, PAYABLE BY HIM, A SUM WHICH SHALL NOT BE LESS THAN, BUT WHICH SHALL NOT EXCEED THREE TIMES, THE AMOUNT OF T AX SOUGHT TO BE EVADED BY REASON OF THE CONCEALMENT OF PARTICULARS OF HIS INCOME OR FRINGE BENEFIT THE FURNISHING OF INACCURATE PARTICU LARS 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, (A) SUCH PERSON FAILS TO OFFER AN EXPLANATION OR O FFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (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 MATERIA L TO THE COMPUTATION OF HIS TOTAL INCOME HAVE BEEN DISCLOSED BY HIM, THE N, THE AMOUNT ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME O R SUCH PERSON AS A RESULT THEREOF SHALL, FOR THE PURPOSES OF CLAUSE (C) OF THIS SUB- SECTION, BE DEEMED TO REPRESENT THE INCOME IN RESPE CT OF WHICH PARTICULARS HAVE BEEN CONCEALED. ITA NO.242/AHD/2016 5 8. 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 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 ITA NO.242/AHD/2016 6 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 FACTS 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. 9. IN THE LIGHT OF THE ABOVE, IF I EXAMINE THE FACT S OF THE PRESENT CASE, THEN IT WOULD REVEAL THAT THE LD.AO DID NOT FIND ANY FAC TUAL INACCURACY IN THE DETAILS OF THE ASSESSEE. THE ONLY DIFFERENCE IN TH E STAND OF THE ASSESSEE AND THE AO WAS A DIFFERENCE OF OPINION ABOUT THE RECOGN ISATION OF INCOME OR EXPENDITURE. THE ASSESSEE HAS BEEN ACCOUNTING THE EXPENDITURE ON MERCANTILE BASIS AND RECOGNIZING THE INCOME ON CASH BASIS. SU CH TYPE OF METHOD IS NOT PERMISSIBLE IN LAW, BUT IT WAS NOT CASE OF THE AO T HAT THIS METHOD WAS ADOPTED BY THE ASSESSEE WITH DELIBERATE ATTEMPT TO CONCEAL CERTAIN THINGS. THE ASSESSEE HAS POINTED OUT THAT UNDER BONA FIDE MISTAKE, IT MIGHT HAVE BEEN DONE, AND THE EXPLANATION OF THE ASSESSEE WAS NOT F OUND TO BE FALSE, THEREFORE, I ALLOW THE APPEAL ASSESSEE AND DELETE THE PENALTY. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE COURT ON 1 ST AUGUST, 2016 AT AHMEDABAD. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED 01/08/2016