D.C.I.T.(2), MUMBAI V. M/S MTZ POLYFILMS LTD., MUMBAI

ITA 2538/MUM/2010

• Counselvise Citation: 253819914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 01-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RK GUPTA
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Bonafide belief; Wrong claim

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYARAG HAVAN (JM) ITA NO. 2538/MUM/2010 ASSESSMENT YEAR- 2006-07 THE DCIT 9(2), AAYAKAR BHAVAN, MUMBAI-400 020 VS. M/S. MTZ POLYFILMS LTD., NEW INDIA CENTRE, 4 TH FLOOR, 17, COOPERAGE ROAD, MUMBAI-400 039 PAN- (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI R.K. GUPTA RESPONDENT BY: SHRI VIJAY MEHTA O R D E R PER ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 22.01.2010 PASSED BY THE LD. CIT(A)-20 FOR TH E ASSESSMENT YEAR 2006-07. 2. BRIEFLY STATED THE FACTS ARE AS FOLLOWS. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS O F MANUFACTURING POLYESTER FILMS IN VARIOUS MICRON THI CKNESS AND SIZES. IT FILED ITS RETURN OF INCOME DECLARING TOTA L LOSS OF RS.13,53,14,001. THE AO COMPLETED THE ASSESSMENT U/ S.143(3) OF THE ACT DETERMINING LOSS AT RS.12,36,34,697. SUB SEQUENTLY THE LOSS WAS RECOMPUTED AT RS.12,47,34,697 VIDE ORDER U /S.154. THE AO INITIATED PENALTY PROCEEDING U/S. 271(1)(C) OF T HE ACT.(1)(C) DURING THE ASSESSMENT PROCEEDING WITH REFERENCE TO FOLLOWING DISALLOWANCES/ADDITIONS TO THE RETURNED INCOME :- I. DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF OF RS.11,16,349 II. DISALLOWANCE OF CAR RENT OF RS.11,71,278 ITA NO. 2538/MUM/2010 2 III. PROVISION FOR EXPENSES OF RS.9,31,105 IV. LEGAL & PROFESSIONAL FEES OF RS.2,223 V. DISALLOWANCE U/S.40(A)(IA) OF THE I.T. ACT OF RS.69 ,03,248 VI. UN-RECONCILED DIFFERENCE OF ANNUAL INFORMATION REPO RT (AIR) OF RS.48,381 VII. PRIOR PERIOD EXPENSES OF RS.53,068 THE FACTS LEADING TO THE ABOVE ADDITIONS AS MENTION ED IN THE ASSESSMENT ORDER ARE AS FOLLOWS:- (I) THE APPELLANT HAD MADE DELAYED PAYMENT IN RESPECT O F EMPLOYEES CONTRIBUTION TO PF AMOUNTING TO RS.11,16, 349. THE AO ADDED THE SAME AS INCOME IN TERMS OF SECTION 2(24)(X) READ WITH SECTION 36(1)(V) OF THE ACT. (II) THE APPELLANT DEBITED TO THE PROFIT AND LOSS ACCOU NT A SUM OF RS.11,71,278 BEING CAR RENT PAID. THE AO ASKED T HE APPELLANT TO FURNISH EVIDENCE AND SHOW GENUINENESS. AS THERE WAS NO COMPLIANCE THE AO DISALLOWED THE SUM C LAIM AS DEDUCTION AND ADDED AS INCOME OF THE APPELLANT. (III) THE APPELLANT DEBITED TO THE PROFIT AND LOSS ACCOUN T EXPENSES OF RS.9,31,105 ON ACCOUNT OF COMMISSION ON EXPORTS. THE AO OBSERVED THAT THE SAME WAS NOT ACTU ALLY INCURRED. HE DISALLOWED THE SAME AND ADDED TO THE I NCOME OF THE APPELLANT. (IV) THE APPELLANT HAD DEBITED AN AMOUNT OF RS.27,99,788 AS LEGAL & PROFESSIONAL FEES. THE APPELLANT COULD FURN ISH DETAILS ONLY TO THE EXTENT OF RS.27,97,565. THE AO, THEREFORE, DISALLOWED THE EXCESS AMOUNT OF RS.2,223 . (V) THE APPELLANT HAD DEBITED TO THE PROFIT AND LOSS AC COUNT, A SUM OF RS.74,23,203 PERTAINING TO LABOUR & OTHER CH ARGES. THE AO OBSERVED THAT THE APPELLANT HAD NOT DEDUCTED TDS U/S.194C ON PAYMENT OF RS.3,72,590 AND RS.6,10,879. HE FURTHER OBSERVED THAT THE APPELLANT HAD DEDUCTED TD S ON A SUM OF RS.59,19,779 BUT DEPOSITED THE SAME BEYOND T HE SPECIFIED TIME AS PER PROVISIONS OF SECTION 40(A)(I A) OF THE ACT. HE THUS DISALLOWED ALL THE THREE SUMS TOTALING RS.69,03,248 UNDER SECTION 40(A)(IA) OF THE ACT. (VI) THE AO RECEIVED AIR INFORMATION IN RESPECT OF TDS O N COMMISSION/BROKERAGE AND INTEREST. HE OBSERVED THAT THE APPELLANT HAD CREDITED ONLY RS.13,414 AS COMMISSION/BROKERAGE AS AGAINST A TOTAL SUM RECEIVE D OF ITA NO. 2538/MUM/2010 3 RS.46,441. HE ALSO OBSERVED THAT THE APPELLANT HAD CREDITED INTEREST OF RS.4,68,130 OUT OF THAT RECEIV ED OF RS.4,83,484. IN THE ABSENCE OF ANY EXPLANATION, THE AO ADDED THE DIFFERENCE AGGREGATING TO RS.48,381 AS IN COME OF THE APPELLANT. (VII) THE APPELLANT DEBITED PRIOR PERIOD EXPENSES OF RS.2 ,19,410 TO THE PROFIT AND LOSS ACCOUNT. THE AO OBSERVED FRO M THE DETAILS FILED THAT THE APPELLANT HAD BOOKED EXPENSE S AMOUNTING TO RS.53,068 PERTAINING TO PREVIOUS YEAR AND DISALLOWED THE SAME. IN RESPONSE TO THE SHOW CAUSE NOTICE, THE APPELLANT SUBMITTED THAT ALL THE FACTS AND FIGURES WERE DISCLOSED IN TH E TAX AUDIT REPORT AND HENCE THERE WAS NO CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME . THE APPELLANT FURTHER SUBMITTED THAT THERE WAS NO MATERIAL EVIDEN CE ON RECORD RELATING TO THE DISALLOWANCE MADE BY THE AO, WHICH SUGGESTED ANY CONCEALMENT OR FURNISHING OF INACCURATE PARTICU LARS. IT WAS, THEREFORE, SUBMITTED THAT MERE DISALLOWANCE IN ASSE SSMENT PROCEEDINGS WAS NOT A SUFFICIENT GROUND TO JUSTIFY LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. THE AO DID NOT AGREE AND HE OBSERVED THAT EXPLANATI ON 1 TO SECTION 271(1)(C) RAISES A PRESUMPTION THAT AS AND WHEN ANY AMOUNT IS ADDED OR DISALLOWED IN COMPUTING THE TOTAL INCOME THE SAME S HALL BE DEEMED TO REPRESENT THE INCOME IN RESPECT OF WHICH PARTICULAR S HAVE BEEN CONCEALED. HE FURTHER OBSERVED THAT ONUS HAD BEEN P LACED ON THE ASSESSEE TO PROVE THAT THE EXPLANATION FURNISHED BY HIM WAS BONAFIDE. HE HELD THAT THE ASSESSEE HAD NOT OFFERED SATISFACT ORY EXPLANATION AND HAD NOT FULFILLED ITS ONUS TO ESTABLISH THAT ALL FA CTS AND FULL PARTICULARS RELATING TO THE TOTAL INCOME HAS BEEN DISCLOSED COR RECTLY. HE, THEREFORE, LEVIED THE MINIMUM PENALTY OF RS.38,12,210/-. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). THE LD. CIT(A) ALLOWED THE APPEAL OF THE ASSESSEE BY OB SERVING AS UNDER: ITA NO. 2538/MUM/2010 4 IN THE INSTANT CASE I FIND THAT THE APPELLANT HAS TENDERED AN EXPLANATION WHICH THE AO HAS NOT FOUND TO BE FALSE. THE CONDITION PRESCRIBED IN CLAUSE (A) OF THE EXPLANATI ON 1 THUS DOES NOT ATTRACT HERE. THE AO HAS LEVIED THE PENALT Y HOLDING THAT THE APPELLANT HAS NOT SUBSTANTIATED THE EXPLAN ATION AND FAILED TO DISCHARGE THE ONUS THAT IT WAS A BONAFIDE EXPLANATION AND IT HAS DISCLOSED ALL FACTS AND PART ICULARS RELATING TO THE COMPUTATION OF TOTAL INCOME. THE AO IS OF THE VIEW THAT THE CONDITIONS PRESCRIBED IN CLAUSE (B) O F THE EXPLANATION 1 EXIST IN THE CASE OF THE APPELLANT FO R LEVY OF PENALTY. I, HOWEVER, DO NOT AGREE. IT IS NOT THE CA SE OF THE AO THAT THE EXPENSES IN RESPECT OF WHICH DISALLOWANCES WERE MADE WERE BOGUS. ALL THE DETAILS WERE AVAILABLE ON RECORD AND THE AO DID NOT DISALLOW ANY ITEM BASED ON ANY MATER IAL GATHERED BY HIM OR BROUGHT ON RECORD. IT IS ONLY WI TH RESPECT TO THE ADDITION BASED ON AIR INFORMATION CAN IT BE SAI D THAT THE APPELLANT FAILED TO ACCOUNT FOR THE INCOME TO THE E XTENT OF RS.48.381. EVEN IN RESPECT OF THIS THE APPELLANT HA S GIVEN EXPLANATION. I HAVE ALREADY EXTRACTED THE EXPLANATI ONS GIVEN BY THE APPELLANT IN RESPECT OF EACH ADDITIONS/DISAL LOWANCE MADE IN THE ASSESSMENT. I HAVE NO HESITATION TO HOL D THAT THE APPELLANT HAS GIVEN BONAFIDE EXPLANATIONS FOR THE A MOUNT DISALLOWED AND ADDED IN COMPUTING THE TOTAL INCOME. THE FACT THAT THE APPELLANT DID NOT CONTEST THESE DISALLOWANCES/ADDITIONS GOES TO SHOW ITS BONAFIDE. UNDER THE AFORESAID FACTS AND CIRCUMSTANCES. I HOLD THAT THE CONDITIONS PRESCRIBED IN EXPLANATION 1 TO SECTION 271 (1) (C) DO NOT EXIST. I, THEREFORE, CANCEL THE PENALTY OF RS.38,12,210. 4. AGGRIEVED REVENUE IS IN APPEAL BEFORE US AND RAI SED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE PENALTY U /S. 271(1)(C) OF RS. 38,12,201/- WITHOUT APPRECIATING T HE FACT THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS/NO DETAILS OF VARIOUS EXPENSES LEADING TO CONCEALMENT OF INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) FAILED TO FOLLOW THE DECISION O F THE APEX COURT IN THE CASE OF CIT VS M/S. DHARMENDRA TEXTILES REPORTED IN 306 ITR 277 WHEREIN INTER-ALIA IT WAS HELD THAT IN RESPECT OF PROCEEDINGS UNDER THE I .T. ITA NO. 2538/MUM/2010 5 ACT IT IS NOT REQUIRED TO ESTABLISH MENS-REA AS I T IS A CIVIL OFFENCE AND ANY WRONG CLAIM/DEDUCTION MADE SH ALL ATTRACT PENALTY PROCEEDINGS FOR CONCEALMENT OF INCO ME. 5. WE FIND THAT THE ASSESSEE HAS FURNISHED ALL THE FACTS AND FIGURES IN THE TAX AUDIT REPORT. THE AO ALSO HAS NOT MADE OUT OF A CASE THAT THE EXPENSES IN RESPECT OF WHICH DISALLOWANCES MADE WER E BOGUS EXPENSES. THE ASSESSEE HAS MADE A CLAIM WHICH HAS NOT BEEN AL LOWED BY THE AO. IN FACT THE AO HAS NOT DISALLOWED ANY ITEM BASED ON ANY MATERIAL GATHERED BY HIM INDEPENDENTLY. 6. THE ASSESSEE HAS GIVEN AN EXPLANATION FOR EACH O NE OF THE ITEMS BEFORE THE LOWER AUTHORITIES AS FOLLOWS: THE APPELLANT SUBMITS FURTHER THAT DUE TO FAVOURAB LE VIEW TAKEN BY VARIOUS ITAT AND HIGH COURT THE APPELLANT WAS UNDER THE BONAFIDE BELIEF THAT THE BELATED PAYMENT OF PF WOULD BE ALLOWED AS IT HAS MADE PAYMENT BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. REGARDING CAR RENT IT SUBMITS THAT IT HAS PAID CAR LEASE RENT AGAINST THE CAR PURCHASED IN THE EARLIER YEAR WHICH WAS ALLOWED BY THE AO. EVEN THOUGH IT FILED NECESSARY DETAILS THE AO DISAL LOWED STATING THAT GENUINENESS OF CLAIM WAS NOT PROVED. AS REGARDS EXPORT COMMISSION IT SUBMITS THAT IT WAS NOT A PROV ISION BUT ACTUALLY INCURRED LIABILITY UNDER THE MERCANTILE ME THOD OF ACCOUNTING PAYMENT OF WHICH REMAINED OUTSTANDING AT THE END OF THE CURRENT YEAR. REGARDING LEGAL AND PROFE SSIONAL FEES OF RS.2,223/- IT SUBMITS THAT BEING SMALL AMOUNT AN D DUE TO SHORTAGE OF TIME IT COULD NOT RECONCILE THE FIGURES . AS REGARDS DISALLOWANCE MADE U/S. 40(A)(IA) ON ACCOUNT OF NON DEDUCTION AND DELAY IN PAYMENT OF TAX ON VARIOUS OCCASIONS TH E APPELLANT SUBMITS THAT THE NON DEDUCTION AROSE ON A CCOUNT OF INADVERTENT MISTAKE ON THE PART OF THE EMPLOYEE RES PONSIBLE FOR MAKING PAYMENT AND THE DELAY WAS ON ACCOUNT OF FINANCIAL CRISIS AND LIQUIDITY CRUNCH AS EVIDENT FR OM THE FACT THAT IT HAS BEEN INCURRING LOSS IN BUSINESS. REGAR DING UN- RECONCILED DIFFERENCE OF ANNUAL INFORMATION (AIR) O F RS. 48,381/- IT SUBMITS THAT IN THE ABSENCE OF PROPER D ETAILS AND TIME IT COULD NOT RECONCILE THE DIFFERENCE. FINALL Y ON DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 53,068 /- IT SUBMITS THAT IT WAS ON ACCOUNT OF SECURITY SERVICE CHARGES ITA NO. 2538/MUM/2010 6 DEBITED TO MISC EXP. IT USED TO BOOK THESE EXPENSE S AS AND WHEN IT RECEIVED THE BILLS FROM THE PARTIES CONCERN ED. AS THESE BILLS WERE RECEIVED IN THE CURRENT YEAR, THE SAME W AS CLAIMED IN THE CURRENT YEAR. IN VIEW OF THE AFORESAID THE APPELLANT THE LIGHT OF ABOVE FACTS, SUBMITS THAT NO PENALTY CAN B E LEVIED ON THE ABOVE DISALLOWANCES AS THERE IS NOTHING ON RECO RD TO SUGGEST THAT THERE IS CONCEALMENT OF INCOME OR FURN ISHING OF INACCURATE PARTICULARS OF SUCH INCOME ON THE PART O F THE APPELLANT. THE APPELLANT SUBMITS THAT ALL THE MATE RIAL FACTS RELATING TO THE ISSUES IN DISPUTE HAVE BEEN FULLY D ISCLOSED BY THE APPELLANT. FURTHER IN VIEW OF LACK OF RESOURCE S AND FINANCIAL CONSTRAINTS IT ACCEPTED THE ADDITIONS MAD E. WITHOUT PREJUDICE, IT SUBMITS THAT AN ARITHMETICAL ERROR HA S CREPT IN LEVY OF PENALTY. THE AO HAS LEVIED PENALTY OF RS. 38,12,210 WITH REFERENCE TO THE DISALLOWANCE AGGREGATING TO R S. 1,13,25,652. HOWEVER THE ACTUAL AMOUNT OF DISALLOW ANCE ON WHICH PENALTY SHOULD HAVE BEEN COMPUTED IS RS. 1,02,25,652/-. THE DIFFERENCE OF RS. 11,00,000/- I S DUE TO DELETION OF DISALLOWANCE OF PROVISION FOR EXPENSES VIDE ORDER DT. 17.2.2009 PASSED U/S. 154 OF THE ACT. IT, THER EFORE, SUBMITS THAT SINCE THE ADDITION TO THE EXTENT OF RS . 11,00,000 WAS DELETED BY THE AO THE SAME NEED BE REDUCED WHILE WORKING OUT THE INCOME SOUGHT TO BE EVADED FOR TH E PURPOSE OF LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT. 7. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS PVT. LTD (2010) 322 ITR 158 (SC) HAS HELD THAT BY NO STRETCH OF IMAGINATION CAN AN INCORRECT CLAIM TANTAMOUNT TO FU RNISHING INACCURATE PARTICULARS. 8. FURTHER THE SUPREME COURT HELD AS FOLLOWS: A GLANCE AT THE PROVISIONS OF SEC 271(1)(C) OF THE INCOME TAX ACT 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY I T, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHE D INACCURATE PARTICULARS OF HIS INCOME. THE MEANING O F THE WORD PARTICULARS USED IN SEC 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE R ETURN IS FOUND TO BE INCORRECT OR INACCURATE THE ASSESSEE CA NNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY UNLESS THE CASE IS S TRICTLY ITA NO. 2538/MUM/2010 7 COVERED BY THE PROVISION THE PENALTY PROVISION CANN OT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULA RS. THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE BECAUSE THAT IS THE ON LY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF H IS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE TH E LIABILITY WOULD ARISE. TO ATTRACT PENALTY, THE DETAILS SUPPL IED IN THE RETURN MUST NOT BE ACCURATE NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING IN ACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. S UCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INAC CURATE PARTICULARS. 9. IN THIS CASE, DISALLOWANCE HAS BEEN MADE BY THE AO NOT ACCEPTING THE CLAIM OF THE ASSESSEE WHICH CANNOT BE CONSIDERE D AS FURNISHING INACCURATE PARTICULARS BY THE ASSESSEE TO INVITE PE NALTY U/S. 271(1)(C). THEREFORE, WE DELETE THE PENALTY AND DISMISS THE DE PARTMENTAL APPEAL. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON THIS 1 ST DAY OF JUNE, 2011 SD/- SD/- (PRAMOD KUMAR) (A SHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL M EMBER MUMBAI, DATED 1 ST JUNE, 2011 RJ ITA NO. 2538/MUM/2010 8 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 2538/MUM/2010 9 DATE INITIALS 1 DRAFT DICTATED ON: 6.6. 201 1 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 7 .0 6 .2011 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10 . DATE OF DISPATCH OF ORDER: _________ ______