SHRI. YOGESH R. DESAI, MUMBAI V. THE ASST.C.I.T., CIRCLE 21(2), MUMBAI

ITA 2711/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 7849 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2003-2004
• Appeal Filed On: 28-04-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G D MEHTA
• Keywords: Bonafide belief; Wrong claim; Ignorance of law
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G : MUMBAI BEFORE SHRI D.K. AGARWAL, (JM) AND SHRI R.K. PAND A ,(AM) ITA NO.2711/MUM/2009 ASSESSMENT YEAR : 2003-04 YOGESH R. DESAI C/O., MANAN ENTERPRISE 303, COSMOS COURT OPP. IOL PETROL PUMP S.V. ROAD, VILE PARLE(W) MUMBAI-400 056. ..( APPELLANT ) P.A. NO. (AADPD 1152 D) VS. ASSTT. COMMISSIONER OF INCOME TAX CIRCLE- 21(2) C-10/508, PRATYAKSHAKAR BHAVAN BANDRA KURLA COMPLEX BANDRA (E) MUMBAI-51. ..( RESPONDENT ) APPELLANT BY : SHRI G.D. MEHTA RESPONDENT BY : SHR I SUSHIL KUMAR O R D E R PER D.K. AGARWAL (JM). THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 06.03.2009 PASSED BY THE LD. CIT(A) FOR T HE ASSESSMENT YEAR 2003-04 SUSTAINING THE PENALTY OF RS.4,44,981/- IMPOSED BY THE AO U/S.271(1)(C) OF THE INCOME TAX ACT, 1961(THE ACT). ITA NO.2711/M/09 A.Y: 03-04 2 2. BRIEFLY STATED, FACTS OF THE CASE ARE THAT THE ASSESSEE AN INDIVIDUAL AND DERIVES INCOME FROM CONSULTANCY AND OTHER SOURCES. HE FILED RETURN SHOWING AN INCOME OF RS.22,18,600/- AFTE R CLAIMING DEDUCTIONS UNDER CHAPTER VIA INCLUDING DEDUCTION U/S.80- O RS.14,12,642/-. DURING THE COURSE OF ASSESSMENT THE ASSESSEE WAS ASKED TO JUSTIFY CLAIM OF DEDUCTION U/S.80-O OF THE ACT. IN RESPONSE IT WAS SUBMITTED BY THE ASSESSEE VIDE LETTER DATED 22.9.05 AS UNDER : (PARA-7 OF ASSESSMENT ORDER): MANAN ENTERPRISES EXTEND THE TECHNICAL CONSULTANCY AND PROVIDE INFORMATION CONCERNING INDU STRIAL AND COMMERCIAL ENTERPRISE AND RENDERS PROFESSIONAL SERVICES TO OVERSEAS COMPANIES TO HELD THEM STUDY A ND EVALUATE THE APPLICATION AND THE REQUIREMENTS OF IN DIA MARKET. THESE INCLUDE PROVIDING FEEDBACK ON PRODUCT USAGE AND GIVE FEEDBACK OF THE PRODUCT PERFORMANCE, PROBLEMS ETC. TO THE OVERSEAS COMPANIES TO ENABLE T HEM IMPROVE THEIR PRODUCTS AS REQUIRED. THE COMPANY ALSO ASSISTS IN TECHNICAL EVALUATION O F PROJECT REQUIREMENT BY INTERLACING WITH THEIR PROJE CT ENGINEERING DIVISION/CONSULTANTS ON BEHALF OF THE O VERSEAS COMPANIES. FURTHER IT HELPS THE CUSTOMER BASE OF THE ASSOCIAT E OVERSEAS COMPANIES IN INDIA IN TERMS OF UNDERSTANDI NG THE PRODUCTS, ITS UTILITIES, APPLICATIONS ETC. TO I MPROVE THEIR END PRODUCTS. HOWEVER, THE AO WAS OF THE VIEW THAT SERVICES RENDERED B Y M/S. DYNISCO EXTRUSION-USA IS IN CONNECTION WITH SALE OF THEIR PRODUCTS TO INDIAN CUSTOMERS. IT IS IN REAL SENSE COMMISSION INCOME RAT HER TECHNICAL CONSULTANCY CLAIMED BY ASSESSEE WHICH DO NOT FALL I N THE ITA NO.2711/M/09 A.Y: 03-04 3 CATEGORY OF SERVICES ELIGIBLE FOR DEDUCTION U/S.80-O. A CCORDINGLY THE ASSESSEE WAS ASKED AS TO WHY HE CLAIMED WRONG DEDUCTION U/ S.80-O OF THE ACT. IT WAS EXPLAINED BY THE ASSESSEE VIDE LETTER DT.28.10.2005 AS UNDER (PARA-10 OF ASSESSMENT ORDER.): WITH REFERENCE TO THE ABOVE, I WISH TO STATE THAT I AM A TECHNICAL PERSON AND AM NOT MUCH AWARE ABOUT VARIOUS TAX AND LEGAL PROVISIONS AND HENCE, ERRONEO USLY AND INADVERTENTLY CLAIMED THE DEDUCTION UNDER SEC.8 0-O AS GUIDED BY MY TAX CONSULTANT. I WOULD THEREFORE REQUEST YOUR GOOD SELVES TO KINDLY CONSIDER THIS AND PLEASE DO THE NEEDFUL AS P ER THE PROVISIONS OF INCOME TAX ACT IN THE SUBJECT MATTER AND OBLIGE. THE AO AFTER CONSIDERING THE ASSESSEES REPLY WHILE OBSERVI NG THAT THE DEFENSE OF IGNORANCE OF LAW IS NOT ACCEPTABLE, DISALLOWED THE DEDUCTION U/S.80-O OF RS.14,12,642/- AND ADDED TO THE INCOME OF THE ASSESSEE. THE AO AFTER MAKING SOME OTHER DISALLOWANCES COMPLETED T HE ASSESSMENT AT AN INCOME OF RS.36,60,070/- VIDE ORDER DATE D 18.11.2005 PASSED U/S.143(3) OF THE ACT AND ALSO INITIAT ED PENALTY PROCEEDING U/S.271(1)(C) OF THE ACT. IN THE ABSENCE OF ANY EXPLANATION, IN RESPONSE TO NOTICE TO SHOW CAUSE AS TO WHY PENALTY U/S.271(1) (C) MAY NOT BE IMPOSED, THE AO WHILE OBSERV ING THAT THE ASSESSEE HAS ADMITTED THE MISTAKE AT THE TIME OF ASSESSMENT A ND HAS NOT FILED ANY APPEAL AGAINST THE DISALLOWANCE MADE U/S. 80-O WAS OF THE VIEW THAT THE ASSESSEE HAS COMMITTED DEFAULT WITHIN T HE MEANING OF SEC.271(1)(C) OF THE ACT FOR FURNISHING INACCURATE P ARTICULARS OF INCOME AND CONCEALING HIS TAXABLE INCOME AND ACCORDINGLY IMPOSED ITA NO.2711/M/09 A.Y: 03-04 4 PENALTY OF RS.4,44,981/- VIDE ORDER DATED 28.4.2006 PASSED U/S.271(1)(C) OF THE ACT. ON APPEAL THE LD. CIT(A) WH ILE OBSERVING THAT IN THIS CASE A WRONG DEDUCTION HAS BEEN CLAIMED WI THOUT ANY BASIS FOR THE SAME, UPHELD THE PENALTY IMPOSED BY THE A O AND DISMISSED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US CHALLENGING IN ALL THE GROUNDS THE SU STENANCE OF PENALTY IMPOSED BY THE AO U/S.271(1)(C) OF THE ACT. 4. AT THE TIME OF HEARING THE LD. COUNSEL FOR THE ASSE SSEE WHILE REITERATING THE SAME SUBMISSIONS AS SUBMITTED BEFORE THE LD. CIT(A) FURTHER SUBMITS THAT THE CLAIM OF DEDUCTION U/S.80-O OF THE ACT WAS MADE ON THE BASIS OF ADVISE BY THE ASSESSEES CONSULTANT SUP PORTED BY TAX-AUDIT REPORT. THE ASSESSEE WAS UNDER THE BONAFIDE B ELIEF THAT THE SAID DEDUCTION IS ALLOWABLE UNDER THE ACT. DURING THE COURSE OF ASSESSMENT THE ASSESSEE CAME TO KNOW THAT THE SAME IS NOT ALL OWABLE, HENCE, HE ACCEPTED THE DISALLOWANCE OF DEDUCTION BY THE A O AND THE PAID TAX THEREON . IT IS A MISTAKE OF LAW WHICH HAS BE EN COMMITTED ON THE BASIS OF ADVISE GIVEN BY HIS CONSULTANT, THEREFORE, IN VIEW OF THE DECISION IN T. ASHOK PAI VS. CIT (2007) 292 ITR 11(SC) THE PENALTY IS NOT LEVIABLE. THE RELIANCE WAS ALSO PLACED ON THE DECISI ON IN UNION OF INDIA VS. RAJASTHASN SPG. & WVG. MILLS (2009) 23 DTR ( SC) 158 TO ITA NO.2711/M/09 A.Y: 03-04 5 CONTEND THAT THE DECISION IN UNION OF INDIA VS. DHARAME NDRA TEXTILE PROCESSORS (2008) 306 ITR 277(SC) CANNOT BE SAID TO HOLD THAT THE SAME WILL BE APPLIED IN EACH CASE WITH REGARD TO THE IM POSITION OF PENALTY. THE RELIANCE WAS ALSO PLACED ON THE DECISION I N GLORIOUS REALTY (P.) LTD. VS. ITO (2009) 29 SOT 292(MUM.) AND KANBAY SOFTWARE INDIA (P) LTD. VS. DCIT (2009) 119 ITD 153 (PUNE). HE THEREFORE, SUBMITS THAT THE PENALTY IMPOSED BY THE AO AND SUSTAINED BY THE LD. CIT(A) BE DELETED. 5. ON THE OTHER HAND THE LD. DR WHILE RELYING ON TH E ORDER OF THE AO AND THE LD. CIT(A) FURTHER SUBMITS THAT IN VIEW OF THE WRONG CLAIM OF DEDUCTION OF SEC.80-O WHICH IS NOT ALLOWABLE, THE AO WAS JUSTIFIED IN IMPOSING PENALTY U/S.271(1)(C) OF THE ACT AND, HENCE, TH E SAME BE UPHELD. 6. WE HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS SE TTLED LAW THAT PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILITY AN D THE REVENUE IS NOT REQUIRED TO PROVE WILLFUL CONCEALMENT AS HELD BY T HE HONBLE SUPREME COURT IN CASE THE OF UNION OF INDIA VS. DHARM ENDRA TEXTILES AND PROCESSORS (2008) 306 ITR 277(SC). HOWEVER, EACH AND EVERY ADDITION MADE IN THE ASSESSMENT CANNOT AUTOMATICALLY LEAD TO LEVY OF PENALTY FOR CONCEALMENT OF INCOME. A CASE FOR IMPOSITION OF PENALTY ITA NO.2711/M/09 A.Y: 03-04 6 HAS TO BE EXAMINED IN TERMS OF THE PROVISIONS OF EXPLAN ATION 1 TO SECTION 271(1)(C). SECONDLY, IT IS ALSO A SETTLED LEGAL POSITION THAT PENALTY PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDI NGS. THE FINDING GIVEN IN THE ASSESSMENT THOUGH IS A GOOD EVIDENCE BUT THE SAME IS NOT CONCLUSIVE IN PENALTY PROCEEDINGS AS HELD BY T HE HONBLE SUPREME COURT IN THE CASE OF ANANTHARAM VEERASINGHAIAH & CO. VS. CIT ((1980) 123 ITR 457 (SC). IN THE INSTANT CASE WE FIND THAT THERE IS NO DISPUTE THAT THE ASSESSEES HAS MADE THE CLAIM OF DEDU CTION U/S.80-O OF RS.14,12,642/- ON THE BASIS OF ADVICE GIVEN BY HIS TAX CONSULTANT. THIS BONAFIDE BELIEF OF THE ASSESSEE WAS NOT CO NTROVERTED BY THE REVENUE EVEN AT THIS STAGE. IT IS ALSO NOT THE CASE OF THE REVENUE THAT THE ASSESSEE HAS NOT DISCLOSED COMPLETE PARTICU LARS OF HIS INCOME OR THE CLAIM MADE BY THE ASSESSEE IS NOT SUPPORT ED BY TAX AUDIT REPORT. IT IS REPEATEDLY HELD BY THE COURTS TH AT WHEN THE FACTS ARE CLEARLY DISCLOSED IN THE RETURN OF INCOME PENALTY CAN NOT BE LEVIED. MERELY BECAUSE AN AMOUNT IS NOT ALLOWED OR TAXED TO IN COME, IT CANNOT BE SAID THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS OR CONCEALED ANY INCOME CHARGEABLE TO TAX. EVEN IF SOME DEDUCTION OR BENEFIT IS CLAIMED BY THE ASSESSEE WRONGLY BUT BONAFIDE AND NO MALA FIDE CAN BE ATTRIBUTED, THE PENALTY WOULD NOT BE LEVIED. THIS BE ING SO AND KEEPING IN VIEW THAT THE ASSESSEES EXPLANATION THAT THE CLAIM O F DEDUCTION U/S.80-O OF RS.14,12,642/- WAS CLAIMED ON THE BASIS OF AD VISE OF THE ITA NO.2711/M/09 A.Y: 03-04 7 TAX CONSULTANT SUPPORTED BY TAX AUDIT REPORT WAS NOT F OUND TO BE FALSE OR UNTRUE, WE ARE OF THE VIEW THAT THERE IS NO CONCEA LMENT OR FURNISHING OF INACCURATE PARTICULARS ON THE PART OF THE ASSESSEE. THIS VIEW ALSO FINDS SUPPORT FROM THE JUDGMENT OF HONBLE RA JASTHAN HIGH COURT IN CHANDRAPAL BAGGA VS. ITAT & ANOTHER (2003) 261 ITR 67(RAJ.) WHEREIN IT HAS BEEN HELD (PAGE-69) WHEN T HE ASSESSEE HAS DISCLOSED THE TRANSACTION WHICH IS THE BASIS FOR CAPITAL GAI NS TAX AND THOUGH WRONGLY CLAIMED EXEMPTION FROM THE CAPITAL GA INS TAX, BUT THAT CANNOT BE A CASE OF PENALTY U/S.271(1)(C) OF THE IT ACT, 1961. IF IT HAS CLAIMED ANY EXEMPTION AFTER DISCLOSING THE RELEVANT BA SIC FACTS AND UNDER IGNORANCE OF THE PROVISIONS OF THE ACT OF 1961, AND NOT OFFERED THAT AMOUNT FOR TAX, IN SUCH CASES, PENALTY SHOULD NOT B E IMPOSED...... IN THIS VIEW OF THE MATTER AND KEEP ING IN VIEW THE RATIO OF DECISIONS RELIED ON BY THE LD. COUNSEL FOR TH E ASSESSEE THE PENALTY IMPOSED BY THE AO AND SUSTAINED BY THE LD. CI T(A) IS DELETED. THE GROUNDS TAKEN BY THE ASSESSEE ARE THEREFORE, ALLOWED . 7. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 01.02.2010. SD/- SD/- ( R.K. PANDA ) ( D.K. AGARWAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:01.02.2010. JV. ITA NO.2711/M/09 A.Y: 03-04 8 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR G BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.2711/M/09 A.Y: 03-04 9 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 25.1.10 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 25.1.10 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 01.02.10 SR.PS/PS 7. FILE SENT TO THE BENCH CLERK 03.02.10 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER