The DCIT, Circle-1(2), Baroda V. Fortune Infotech Ltd., Baroda

ITA 2993/AHD/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 50504 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 09-11-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C K MISHRA
• Assessee Lawyers: M G PATEL
• Section: 10B; 2

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD, D BENCH . .. . . .. . , , , , !' !' !' !', , , , #$ #$ #$ #$ %% % & %% % & %% % & %% % &, , , , ' ' ' ' ( ' ( ' ( ' ( ' BEFORE S/SHRI G.D. AGARWAL, VICE-PRESIDENT AND MUKUL KR. SHRAWAT, JUDICIAL MEMBER) ITA NO.2731, 2732 AND 2733/AHD/2009 [ASSTT.YEAR : 2002-2003, 2003-2004 AND 2004-05] FORTUNE INFOTECH LTD. PLOT NO.160/4, OLD CHHANI ROAD BARODA. PAN : AAACC 7460 R /VS. ACIT, CIR.1(2) BARODA. ITA NO.2993 AND 2994/AHD/2009 [ASSTT.YEAR : 2002-2003 AND 2004-2005] ACIT, CIR.1(2) BARODA. /VS. FORTUNE INFOTECH LTD. PLOT NO.160/4, OLD CHHANI ROAD BARODA. PAN : AAACC 7460 R ( (( (*+ *+ *+ *+ / APPELLANT) ( (( (,-*+ ,-*+ ,-*+ ,-*+ / RESPONDENT) ' . / (/ REVENUE BY : SHRI C.K. MISHRA 1& . / (/ ASSESSEE BY : SHRI M.G. PATEL (2 / O R D E R PER G.D. AGARWAL, VICE-PRESIDENT : THESE APPEALS - THREE BY THE ASSESSEE AND TWO BY THE REVENUE ARE AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, BARODA. BO TH THE REVENUE AND THE ASSESSEE ARE AGGRIEVED BY RESPECTIVE ORDERS OF THE CIT(A) PASSED UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961 . SINCE ASSESSEE BEING SAME, WE DISPOSE OF ALL THESE APPEALS BY THIS COMMON ORDER. ASSESSEES APPEAL (ASSTT.YEARS : 2002-2003) FORTUNE INFOTECH LTD. VS ACIT -2- 2. THE FACTS OF THE CASE ARE THAT THE AO LEVIED PEN ALTY OF RS.3,84,000/- ON THE ALLEGED CONCEALMENT OF INCOME OF RS.10,75,328/-. THE BREAK-UP OF WHICH IS AS UNDER: I) TRAINING FEES : RS.6,02,641/- II) DISALLOWANCE U/S.35D : RS.1,79,421/- III) DISALLOWANCE OF INTEREST : RS.2,93,266/- THE CIT(A) CANCELLED THE PENALTY IN RESPECT OF TRAI NING FEES AS WELL AS DISALLOWANCE OF INTEREST. BUT HE SUSTAINED THE PE NALTY IN RESPECT OF DISALLOWANCE OF DEDUCTION CLAIMED UNDER SECTION 35D . THE REVENUE AGGRIEVED WITH THE DELETION OF PENALTY IS IN APPEAL BEFORE US VIDE ITA NO.2993/AHD/2009 AND THE ASSESSEE IS IN APPEAL AGAI NST THE PENALTY SUSTAINED VIDE ITA NO.2731/AHD/2009. 3. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US. WE FIND THAT THE ISSUE IS SQUARELY COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE PETROPRODUCTS P. LTD., 322 ITR 158 (SC ) WHEREIN THEIR LORDSHIPS HELD AS UNDER: A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, THERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURA TE PARTICULARS OF HIS INCOME. THE MEANING OF THE WORD 'PARTICULARS ' USED IN SECTION 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INFORMATION GIVEN IN THE RETURN IS FOUND T O BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY O F FURNISHING INACCURATE PARTICULARS. IN ORDER TO EXPOSE THE ASSE SSEE TO PENALTY, UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISIO N, THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRETCH OF IMAGI NATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. (EMPHASIS ADDED) THERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BY TH E ASSESSEE, FORTUNE INFOTECH LTD. VS ACIT -3- BECAUSE THAT IS THE ONLY DOCUMENT WHERE THE ASSESSE E CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULAR S ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. TO ATTRAC T PENALTY, THE DETAILS SUPPLIED 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 ERRONEOU S OR FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 2 71(1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RE TURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS . (EMPHASIS ADDED) THE RATIO OF THE ABOVE DECISION WOULD BE SQUARELY A PPLICABLE IN THE APPEAL UNDER CONSIDERATION BEFORE US. THE PENALTY HAS BEEN LEVIED BY THE REVENUE IN RESPECT OF CERTAIN EXPENSES OR THE DEDUC TION CLAIMED BY THE ASSESSEE WHICH WAS DISALLOWED BY THE AO. THERE IS NO DISPUTE THAT ALL THE PARTICULARS RELATING TO THESE ITEMS WERE DULY F URNISHED BY THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE DETAILS SUPPLIED BY THE ASSESSEE WERE INACCURATE, INCORRECT OR ERRONEOUS. THE HONB LE APEX COURT IN THE ABOVE CASE HAS STATED THAT MERELY BECAUSE THE CLAIM OF THE ASSESSEE IS NOT SUSTAINABLE IN LAW THAT BY ITSELF WILL NOT AMOUNT T O FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IN THIS CASE ALSO, MERELY THE ASSESSEES CLAIM FOR DEDUCTION UND ER SECTION 35D OR CERTAIN EXPENDITURE WAS DISALLOWED WOULD NOT AMOUNT TO CONCEALMENT OF INCOME. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWI NG THE ABOVE DECISION OF THE HONBLE APEX COURT, WE UPHOLD THE ORDER OF T HE CIT(A) WHEREIN HE CANCELLED THE PENALTY IN RESPECT OF DISALLOWANCE OF TRAINING FEES AND DISALLOWANCE OF INTEREST. HOWEVER, WE MODIFY HIS O RDER AND HOLD THAT THE PENALTY SUSTAINED IN RESPECT OF DISALLOWANCE UNDER SECTION 35D IS ALSO CANCELLED. FORTUNE INFOTECH LTD. VS ACIT -4- ITA NO.2732/AHD/2009 A.Y.2003-04 (ASESSEES APPEA L) 4. IN THIS APPEAL, THE AO HAS LEVIED PENALTY FOR DI SALLOWANCE OF CLAIM UNDER SECTION 35D, WHICH IS SUSTAINED BY THE CIT(A) . THE FACTS ARE IDENTICAL TO THE ASSESSEES APPEAL FOR A.Y.2002-200 3. FOR THE DETAILED DISCUSSION THEREIN AND RELYING UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD. (SUPRA), WE CANCEL THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE ACT I N RESPECT OF DISALLOWANCE UNDER SECTION 35D AND ALLOW THE ASSESS EES APPEAL. ITA NO.2733/AHD/2009 A.Y.2004-05 (ASSESSEES APPE AL) AND A.Y.2994/AHD/2009 A.Y.2004-2005 (REVENUES APPEAL ) 5. BOTH THE ASSESSEE AND THE REVENUE ARE IN APPEAL AGAINST THE ORDER OF THE CIT(A) FOR IMPOSITION OF PENALTY UNDER SECTI ON 271(1)(C) OF THE ACT. 6. THE FACTS OF THE CASE ARE THAT OUT OF THE ADDITI ONS MADE BY THE AO, THE CIT(A) CONFIRMED THE FOLLOWING ADDITIONS: I) EXP. BS7799 & ISO 9001 : RS.4,94,720/- II) DIS. OF RENT U/S.40A(2)(B) : RS.1,26,000/- III) DISALLOWANCE U/S.35D : RS.3,20,526/- IV) PROVISION FOR LEAVE ENCASHMENT : RS.45,367/- V) INCENTIVE INCOME FOR THE PURPOSE : RS.45,59,177 OF DEDUCTION U/S.10B. SINCE THE ABOVE ADDITIONS HAVE BEEN CONFIRMED, THE AO IMPOSED PENALTY UNDER SECTION 271(1)(C). HOWEVER, THE CIT(A) DELETE D PENALTIES EXCEPT PENALTY IN RESPECT OF CLAIM UNDER SECTION 35D AMOUN TING TO RS.3,20,526/- . HENCE, BOTH THE ASSESSEE AND THE REVENUE ARE AGA INST RESPECTIVE ORDERS OF THE CIT(A) FOR DELETION/SUSTENANCE OF THE PENALT Y BEFORE US. FORTUNE INFOTECH LTD. VS ACIT -5- 7. AFTER HAVING CONSIDERED THE SUBMISSIONS OF BOTH THE SIDES AND THE MATERIAL PLACED BEFORE US, WE FIND THAT THE AO HAS LEVIED PENALTY FOR DISALLOWANCE OF CLAIM UNDER SECTION 35D, WHICH IS S USTAINED BY THE CIT(A). THE FACTS ARE IDENTICAL TO THE ASSESSEES APPEAL FOR A.Y.2002- 2003 AND 2003-04. FOR THE DETAILED DISCUSSION THER EIN AND RELYING UPON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD. (SUPRA), WE CANCEL THE PENALT Y LEVIED UNDER SECTION 271(1)(C) OF THE ACT AND ALLOW THE ASSESSEES APPEA L. 8. REVENUE IS AGGRIEVED BY THE DELETION OF PENALTY IN RESPECT OF FOUR ADDITIONS DETAILED ABOVE. SO FAR AS LEVY OF PENALTY QUA EXPENSES OF RS.4,94,720/- TOWARDS BS7799 & ISO 9001 IS CONCERNE D, WE FIND THAT THE ASSESSEE THE ITAT IN THE QUANTUM APPEAL FOR A.Y.200 4-05 BY THE ASSESSEE IN ITA NO.1384/AHD/2008 DELETED THE ADDITI ON, WHICH HAS NOT BEEN DISPUTED BY THE REVENUE BEFORE US. A COPY OF THE ORDER IS PLACED ON RECORD BY THE ASSESSEE. THEREFORE, SINCE THE IMPUG NED ADDITION WAS DELETED BY THE ITAT, THE PENALTY BASED ON SUCH ADDI TION DOES NOT SURVIVE THE SAME IS DELETED. 9. SO FAR AS THE IMPOSITION OF PENALTY IN RESPECT O F DISALLOWANCE OF RENT UNDER SECTION 40A(2)(B) IS CONCERNED, WE FIND THAT THE ITAT IN THE QUANTUM APPEAL OF THE ASSESSEE FOR A.Y.2004-05 HAS CONFIRMED THE ADDITION MADE BY THE AO AND SUSTAINED BY THE CIT(A) . HOWEVER, DISALLOWANCE WAS OUT OF RENT PAID BY THE ASSESSEE T O M/S.PACKING PRODUCTS P. LTD., AN ASSOCIATE COMPANY. TILL LAST YEAR, THE ASSESSEE WAS PAYING RENT AT THE RATE OF RS.30,000/- PER MONTH. THIS YEAR ALSO FOR THE FIRST SIX MONTHS I.E. FROM 1-4-2003 TO 30-9-2003, T HE ASSESSEE PAID RENT AT THE RATE OF RS.30,000/- PER MONTH. HOWEVER, THEREA FTER THE AGREEMENT FORTUNE INFOTECH LTD. VS ACIT -6- WAS MODIFIED AND THE ASSESSEE GAVE INTEREST FREE DE POSIT OF RS.40,00,000/- TO M/S.PACKING PRODUCTS. PVT. LTD. A ND THE RENT WAS REDUCED TO RS.1,000/- PER MONTH. THE AO WORKED OUT THE COST TO THE ASSESSEE AT RS.4,86,000/- AS UNDER: RENT PAYMENT COST (@ RS.30,000/- PER MONTH FROM 1-4-2003 TO 30-9-2003) RS.1,80,000/- RENT PAYMENT COST (@ RS.1,000/- PER MONTH FROM 1-10-2003 TO 31-3-2004) RS.6,000/- INTEREST FORGONE IN RESPECT OF M/S.PACKING PRODUCTS P. LTD. RS.40,00,000 X 15 100 X 2 (FROM 1-10-03 TO 31-3-04) RS.3,00,000/- TOTAL RS.4,86,000/- IN THE LAST YEAR, THE RENT PAID BY THE ASSESSEE WAS RS.3,60,000/-, THEREFORE, THE DIFFERENCE OF RS.1,26,000/- WAS DISALLOWED BY T HE AO UNDER SECTION 40A(2)(B) WHICH WAS SUSTAINED BY THE ITAT. THE GEN UINENESS OF THE AGREEMENT BY WHICH THE ASSESSEE PAID RS.40 LAKHS AS INTEREST FREE DEPOSITS AND RENT WAS REDUCED TO RS.1000/- PER MONTH WAS NOT DISPUTED BY THE REVENUE. HOWEVER, IN THE OPINION OF THE AO SUCH PA YMENT WAS EXCESSIVE, HE THEREFORE, DISALLOWED PART OF THE PAY MENT MADE BY THE ASSESSEE. IT IS NOT IN DISPUTE THAT ALL THE MATERI AL FACTS IN THIS REGARD WERE DULY PRODUCED BY THE ASSESSEE BEFORE THE AO. THERE IS NO CONCEALMENT OF ANY INCOME. IT IS NOT THE CASE OF THE REVENUE THAT THE DETAILS SUPPLIED BY THE ASSESSEE WERE EITHER INACCURATE OR INCORRECT. THAT MERELY BECAUSE THE AO DISALLOWED PART OF THE RENT THAT TOO AT NOTIONAL LY COMPUTING THE RENT ON THE BASIS OF INTEREST ON DEPOSIT GIVEN, IT CAN N OT BE SAID THAT THERE WAS FORTUNE INFOTECH LTD. VS ACIT -7- ANY CONCEALMENT OF INCOME OR FURNISHING OF INACCURA TE PARTICULARS BY THE ASSESSEE. ON THE ABOVE FACTS, IN OUR OPINION, THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETROLEUM PRODUC TS PVT. LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. RESPECTFULLY FOLLOWI NG THE SAME, WE DELETE THE PENALTY LEVIED IN RESPECT OF DISALLOWANC E UNDER SECTION 40A(2)(B). 10. SO FAR AS PENALTY IN RESPECT OF PROVISION FOR L EAVE ENCASHMENT AND THE DEDUCTION UNDER SECTION 10B IS CONCERNED, WE FI ND THAT THE CIT(A) WHILE DELETING THE PENALTY HAS RECORDED FINDING THA T THE ASSESSEE HAS OFFERED REASONABLE EXPLANATION, THAT ISSUES INVOLVE D UNDER APPEAL WERE DEBATABLE AND THAT ALL THE MATERIAL FACTS NECESSARY FOR THE CONSIDERATION OF THE CLAIM WERE DISCLOSED IN THE COMPUTATION AS WELL AS IN TAX AUDIT REPORT. THIS FINDING OF FACTS RECORDED BY THE CIT(A) HAS NO T BEEN CONTROVERTED BY THE REVENUE BEFORE US. THEREFORE, RESPECTFULLY FOL LOWING THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF RELIANCE PETR OPRODUCTS P.LTD. (SUPRA), WE CONFIRM THE ACTION OF THE CIT(A) IN DEL ETING PENALTY IN RESPECT OF PROVISION FOR LEAVE ENCASHMENT AND INCEN TIVE INCOME FOR THE PURPOSE OF DEDUCTION UNDER SECTION 10B. 11. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED WHILE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 26 TH AUGUST, 2011 SD/- SD/- ( %% % & %% % & %% % & %% % & / MUKUL KR. SHRAWAT) ' ' ' ' /JUDICIAL MEMBER ( . .. . . .. . G.D. AGARWAL) !' !' !' !' /VICE-PRESIDENT PLACE : AHMEDABAD DATE : 26-08-2011