The DCIT, Ahmedabad Circle-1, Ahmedabad V. M/s. Akash Fashion Prints Pvt. Ltd., Ahmedabad

ITA 2705/AHD/2006

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0490 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-11-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 07-12-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOVIND SINGHAL
• Keywords: Question of law; Fair market value
• Section: 271(1)(c); 251

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, A-BENCH, AHMEDABAD. BEFORE: SHRI R.V. EASWAR, VICE PRESIDENT, AND SHRI M.V. NAYAR, ACCOUNTANT MEMBER. ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002) THE DCIT, CIRCLE-1, 3 RD FLOOR, JITENDRA CHAMBERS, R.B.I. LANE, ASHRAM ROAD, AHMEDABAD. VERSUS AKASH FASHION PRINTS PVT. LTD. 238, SAIJPUR GOPALPUR, NAROL, AHMEDABAD. AKASH FASHION PRINTS PVT. LTD. 238, SAIJPUR GOPALPUR, NAROL, AHMEDABAD. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE-1, AHMEDABAD. (APPELLANT) (RESPONDENT) PAN: AABCA 8319 C FOR THE APPELLANT: SHRI GOVIND SINGHAL, SR. DR FOR THE RESPONDENT SHRI SANJAY R. SHAH, CA ORDER PER SHRI M.V. NAYAR, ACCOUNTANT MEMBER: THE ASSESSEE AND THE REVENUE ARE BOTH IN APPEAL AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS)-V, AHMEDABAD IN APPEAL NO. CIT( A)-V/ACIT CIR.1/46/2006-07, VIDE ORDER DATED 21-09-2006. 2. THE GROUNDS OF THE REVENUES APPEAL IN ITA NO. 2 705/AHD/2006 ARE AS GIVEN BELOW: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN CANCELI NG THE PENALTY LEVIED OF RS. 17,67,667/- U/S. 271(1)(C) OF THE I.T. ACT. 2 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE AS SESSING OFFICER. 3. THE GROUNDS OF THE ASSESSEES APPEAL IN ITA NO. 2783/AHD/2006 ARE AS GIVEN BELOW: 1. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING PE NALTY U/S. 271(1)(C) IN RESPECT OF DISALLOWANCE OF RS. 8,46,48 0/- MADE IN RESPECT OF BROKERAGE PAID TO RELATED PARTIES AND WH ICH CAME TO BE DISALLOWED U/S. 40A(2) OF THE ACT IN QUANTUM PROCEE DINGS. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING PEN ALTY U/S. 271(1)(C) IN RESPECT OF THE ABOVE AMOUNT BY GIVING INDEPENDENT FINDING WHICH IS RELATABLE TO QUANTUM APPEAL, EVEN THOUGH THE QUANTUM APPEAL WAS NOT FOR ADJUDICATION BEFORE HIM. IT IS SUBMITTED THAT IN THE PENALTY PROCEEDINGS, THE LEAR NED CIT(APPEALS) SHOULD HAVE GONE BY FINDING RECORDED B Y THE LEARNED ASSESSING OFFICER AND THE LEARNED CIT(APPEALS) IN Q UANTUM, PROCEEDINGS AND NOT BY HIS OWN INDEPENDENT FINDING. THE PENALTY U/S. 271(1)(C) CONFIRMED BY THE LEARNED CIT(APPEALS ), THEREFORE, IS WRONGLY CONFIRMED BY HIM. IT IS SUBMITTED THAT IT BE SO HELD NOW. 3. THE LEARNED CIT(APPEALS) OUGHT NOT TO HAVE CONFI RMED THE PENALTY U/S. 271(1)(C) WHEN THERE WAS NO SATISFACTI ON RECORDED BY THE LEARNED ASSESSING OFFICER IN THE BODY OF THE AS SESSMENT ORDER, AS TO WHETHER THE ASSESSEE HAVE CONCEALED THE INCOM E OR HAVE FURNISHED INACCURATE PARTICULARS OF INCOME. 3 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) 4. IN THIS CASE ADDITIONS WERE MADE AT THE TIME OF ASSESSMENT OUT OF WHICH ADDITIONS SUSTAINED BY THE LD. COMMISSIONER O F INCOME TAX(APPEALS) WERE AS UNDER: I. OUT OF COMMISSION UNDER SECTION 40A(2)(B) RS.39 ,83,355/- II. EXP. ON DESIGN FRAMES RS.77,93,344/- 5. SUBSEQUENTLY, IN THE QUANTUM APPEAL DECIDED BY T HE AHMEDABAD B-BENCH, VIDE ORDER DATED 11-09-2009 IN ITA NO. 155 5/AHD/2005 AND ITA NO. 1683/AHD/2005, ONLY AN ADDITION OF RS. 8,00 ,000/- WAS CONFIRMED BY THE TRIBUNAL IN RESPECT OF THE FIRST A DDITION I.E. EXPENDITURE OUT OF COMMISSION UNDER SECTION 40A(2)(B). 6. THE ASSESSING OFFICER IMPOSED A PENALTY OF RS. 1 0,33,898/- UNDER SECTION 271(1)(C) OF THE ACT. THE MATTER WENT BEFO RE LD. COMMISSIONER OF INCOME TAX(APPEALS)-V, AHMEDABAD, WHO HELD AS GI VEN BELOW: 7. COMING TO THE ASPECT OF DISALLOWANCE OF BROKERA GE TO RELATED PARTIES, THOUGH, THE LD.CIT(A) HAS HELD THAT ONLY 2 % OF BROKERAGE IS TO BE CONSIDERED AS DISALLOWABLE WHICH AMOUNTS T O RS. 8,46,480/- BUT THE ACTUAL FACT IS THAT COMMISSION W AS PAID TO NEAR RELATIVES AND THEIR CONCERNS MERELY FOR NAME SAKE A ND THERE WAS NOTHING TO SHOW THAT ANY SERVICES WERE RENDERED BY THEM. IN THIS CONNECTION IT WOULD BE RELEVANT TO POINT OUT TO OBS ERVATIONS IN THE ASSESSMENT ORDER ABOUT WHICH NO COMMENTS HAVE BEEN OFFERED BY THE CIT(A) WHILE DECIDING THE QUANTUM APPEAL. IT W AS FOUND THAT ALL THE PARTIES IN RESPECT OF WHOM COMMISSION WAS P AID TO NEAR RELATIVES OR RELATED CONCERNS WERE OLD CUSTOMERS AN D IN EARLIER YEAR NO BROKERAGE WAS PAID IN RESPECT OF TRANSACTIO NS WITH THESE PARTIES. IT IS APPARENT THAT ALL THESE PARTIES WER E KNOWN TO THE 4 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) ASSESSEE AND FOR THE FIRST TIME BROKERAGE WAS PAID TO RELATED PARTIES AND APPARENTLY THIS WAS FOR DIVERSION OF PR OFITS AND REDUCE ITS OWN TAX BURDEN. IT WAS ALSO NOT KNOWN AS TO WH AT SPECIFIC SERVICES WERE RENDERED BY THESE PARTIES. THUS, NEC ESSITY OF RELATED PARTIES AS BROKERS IN THESE TRANSACTIONS WAS NON-EX ISTENT. IN FACT THE RELATED PARTIES HAVE NOT RENDERED ANY SERVICES EXCEPT FACILITATING DIVERSION OF PROFITS OF THE ASSESSEE C OMPANY. THEREFORE, SO FAR AS DISALLOWANCE OF BROKERAGE IS C ONCERNED, PENALTY IS CLEARLY ATTRACTED. IN VIEW OF THE DECISION MADE ABOVE, THE ASSESSING OFFICER IS DIRECTED TO RESTRICT THE QUANTUM OF PENALTY TO MINI MUM PENALTY LEVIABLE TREATING THE DISALLOWANCE OF COMMISSION AM OUNTING TO RS. 8,46,480/- AS INCOME LIABLE TO PENALTY FOR CONCEALM ENT. THE ASSESSING OFFICER WILL WORK OUT THE QUANTUM OF PENA LTY, ACCORDINGLY. 8.IN THE RESULT, APPEAL IS PARTLY ALLOWED. 7. AGAINST THIS, THE REVENUE AND THE ASSESSEE ARE B OTH IN APPEAL BEFORE US. SHRI. SANJAY SHAH, CA APPEARED FOR THE ASSESSEE. HE ARGUED THAT IN RESPECT OF COMMISSION PAID UNDER SECTION 40 A(2)(B) OF THE ACT ARE DISALLOWANCE OF ALMOST RS. 39.83 LACS HAD BEEN MADE BY THE ASSESSING OFFICER, OUT OF WHICH ONLY RS. 8 LACS HAD BEEN SUST AIN BY THE TRIBUNAL. HE ALSO POINTED OUT THAT THE EXPENDITURE OF DESIGN FRAMES DISALLOWED AT RS. 77.93 LACS HAD ENTIRELY BEEN DELETED BY THE TRI BUNAL. HE FURTHER DREW OUR ATTENTION TO THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX(APPEALS) IN THE QUANTUM APPEAL WHICH IS REPRODU CED AS GIVEN BELOW: 5 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF TH E ASSESSING OFFICER AND THE SUBMISSIONS OF THE APPELLANT AND TH E CASE LAWS REFERRED TO IN THE MATTER. IT COULD BE SEEN THAT SE C 40A(2)(B) OF THE I.T. ACT EMPOWERS THE ASSESSING OFFICER TO DISALLOW SO MUCH OF THE EXPENDITURE AS IS SO CONSIDERED TO BE EXCESSIVE OR UNREASONABLE BY THE ASSESSING OFFICER LOOKING TO THE FAIR MARKET VA LUE OF THE GOODS AND SERVICES OR FACILITIES FOR WHICH PAYMENT IS MAD E OR THE LEGITIMATE NEEDS OF THE BUSINESS OR PROFESSION OF T HE ASSESSEE OR THE BENEFIT DERIVED BY OR ACCORDING TO HIM THERE FROM. HOWEVER, IN THIS CASE, THE ASSESSING OFFICER HAS FAILED TO VERIFY TH E PERSONS FALLING UNDER SEC. 40A(2)(B) BEFORE MAKING DISALLOWANCE. AG AIN WHILE HAVING AGREED TO THE NEED OF BROKERS FOR PURCHASE O F GREY CLOTH AND SALE OF CLOTH, THE ASSESSING OFFICER HAS DISALL OWED THE WHOLE AMOUNT PAID TO THE PERSONS SPECIFIED UNDER SEC.40A( 2)(B) WHICH IS NOT JUSTIFIED. HE OUGHT TO HAVE ALLOWED THE BROKERA GE WHICH HE CONSIDERED REASONABLE LOOKING TO FAIR MARKET VALUE OF SERVICES TO THE ASSESSEE. HAVING REGARD TO THE OVER ALL FACTS AND CIRCUMSTANC ES OF THE BROKERAGE PAID IN THE APPELLANTS LINE OF BUSINESS AND COMPARISON OF BROKERAGE BEING PAID BY THE APPELLANT ITSELF TO SEVERAL PERSONS, TO MY MIND, IT WOULD BE JUSTIFIED TO CONSIDER BROK ERAGE RATE OF 2% AS REASONABLE. THE ASSESSING OFFICER IS THEREFORE, DIRECTED TO ALLOW FULLY THE BROKERAGE PAID TO THE PERSONS WHO ARE NOT SPECIFIED UNDER SEC.40A(2)(B) AND ALSO ALLOW THE BROKERAGE @ 2% TO THE PERSONS COVERED UNDER SEC.40A(2)(B). THE ASSESSING OFFICER WILL CALCULATE THE DISALLOWABLE BROKERAGE ACCORDINGLY. 6 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) 8. THE AR FURTHER RELIED ON THE FOLLOWING RULINGS: I. THE DECISION OF THE HON'BLE RAJASTHAN HIGH COUR T IN THE CASE OF SHIV LAL TAX VS. COMMISSIONER OF INCOME TAX 251 ITR 373 (RAJ.) II. THE DECISION OF THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF HARIGOPAL SINGH VS. COMMISSIONER OF INCOME TAX 258 ITR 85 (P & H) III. THE DECISION OF THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. AJAIB SINGH AND CO. 253 ITR 630 (P & H) 9. SHRI. GOVIND SINGHAL, DR, APPEARED FOR THE REVEN UE. HE RELIED ON PARA 7 OF THE ORDER OF LD. COMMISSIONER OF INCOME T AX(APPEALS) WHICH HAS BEEN REPRODUCED BY US IN OUR APPELLATE ORDER. HE POINTED OUT THAT THE ASSESSEE HAD DELIBERATELY ATTEMPTED TO REDUCE THE T AX BURDEN BY MAKING PAYMENTS TO RELATIVES. HE POINTED OUT THAT PAYMENT S WERE MADE AT 2% TO OTHER ORDINARY BROKERS, WHEREAS 3% AND 4% PAYMENTS HAD BEEN MADE TO RELATIVES. FURTHER, HE RELIED ON THE RULING IN THE CASE OF VIMAL GINNING AND PRESSING FACTORY VS. COMMISSIONER OF INCOME TAX 279 ITR 100 (M.P.). 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. THE RULINGS OF THE PUNJAB & HARYANA HIGH COURT IN 253 ITR 630 HELPS TH E ASSESSEES CASE. IN THAT CASE IT WAS HELD AS GIVEN BELOW: DISALLOWANCE OF AN EXPENSE PER SE CANNOT MEAN THAT THE ASSESSEE HAS FURNISHED INCORRECT PARTICULARS OF ITS INCOME. CONCEALMENT INVOLVES PENAL ACTION. IT HAS TO BE PROVED AS A CO NSCIOUS ACT. THE ESSENTIAL PRE-CONDITION FOR INVOKING EXPLANATION 1 TO SECTION 7 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) 271(1)(C) OF THE INCOME-TAX ACT, 1961 IS THAT THE A SSESSEE FAILS TO OFFER AN EXPLANATION OR OFFERS AN EXPLANATION WHICH IS FOUND BY THE ASSESSING OFFICER OR THE COMMISSIONER (APPEALS) TO BE FALSE. IT IS ONLY IN SUCH A SITUATION THAT THE ASSESSING OFFICER CAN INVOKE THE EXPLANATION TO SECTION 271(1)(C) AND IMPOSE PENALTY . HELD, DISMISSING THE APPEAL, THAT, IN THE INSTANT C ASE, THE TRIBUNAL HAD FOUND THAT THE ADDITION OF RS. 40,000 HAD BEEN SUSTAINED ON ESTIMATE BASIS. SIMILARLY, IT WAS FOUND THAT EVEN THE ADDITION OF RS. 4,200 ON ACCOUNT OF SALES TAX LIABILITY INVOLVE D A MATTER OF DEBATE. IT HELD THAT THE CLAIM MADE BY THE ASSESS EE IN RESPECT OF THE SALES TAX MAY HAVE BEEN UNDER ERRONEOUS UNDERS TANDING OF LAW BUT IT CANNOT LEAD TO THE CONCLUSION OF CONCEAL MENT ON THE PART OF THE ASSESSEE. THUS, IT WAS HELD THAT PENALTY W AS NOT LEVIABLE. THE TRIBUNALS DECISION WAS CORRECT AND NO SUBSTANT IAL QUESTION OF LAW AROSE FROM IT. 11. IN THE PRESENT CASE ALSO THE ASSESSEE CLAIMED P AYMENT OF 3% AND 4% COMMISSION TO NEAR RELATIVES. LD. COMMISSIONER OF INCOME TAX(APPEALS) RESTRICTED THE PAYMENT TO 2% AND DISAL LOWED THE BALANCE. HIS ORDER WAS CONFIRMED BY THE ITAT IN QUANTUM APPE AL. THERE HAS ONLY BEEN A DISALLOWANCE OF EXPENDITURE, BUT THAT DOES N OT MEAN INACCURATE PARTICULARS OF INCOME HAS BEEN FURNISHED BY THE ASS ESSEE. WE ARE THEREFORE OF THE VIEW THAT THIS IS NOT A FIT CASE F OR IMPOSITION OF PENALTY UNDER SECTION 271(1)(C). WE ACCORDINGLY, DELETE TH E PENALTY IMPOSED BY THE ASSESSING OFFICER, PART OF WHICH WAS CONFIRMED BY LD. COMMISSIONER OF INCOME TAX(APPEALS). 8 ITA NO.2705/AHD/2006 ITA NO.2783/AHD/2006 (ASSESSMENT YEAR 2001-2002 ) 12. THE APPEAL OF THE ASSESSEE IS ALLOWED AND THE A PPEAL OF THE REVENUE IS DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 13 TH NOVEMBER, 2009. SD/- SD/- (R.V. EASWAR) (M .V. NAYAR) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD; DATED: 13/11/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.