DCIT, New Delhi V. M/s Menlo Worldwide Forwarding India Pvt. Ltd., New Delhi

ITA 3052/DEL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6803 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 8 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 01-02-2016
• Assessment Year: 2003-2004
• Appeal Filed On: 09-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMRIT LAL
• Keywords: Question of law; Difference of opinion; Revised return
• Section: 143(3); 139(5)

Judgement Text

1 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: E NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBL E, JUDICIAL MEMBER I.T.A . NO.-1755/DEL/2012 (ASSESSME NT YEAR-2003-04) MENLO WORLDWIDE FORWARDING INDIA PVT. LTD. D-12/1, OKHLA INDUSTRIAL ESTATE PHASE-II NEW DELHI AAACE2236R (APPELLANT) VS DCIT CIRCLE-6(1) NEW DELHI (RESPONDENT) I.T.A .NO.-3052/DEL/2011 (ASSESSME NT YEAR-2003-04) DCIT CIRCLE-6(1), ROOM NO. 413, C.R. BUILDING NEW DELHI (APPELLANT) VS MENLO WORLDWIDE FORWARDING INDIA PVT. LTD. R-77-A, GREATER KAILASH, PART-1NEW DELHI AAACE2236R (RESPONDENT) APPELLANT BY SH. S.K. AGGARWAL, CA. MS. MEHA CHAUHAN, CA RESPONDENT BY SH. AMRIT LAL, SR. DR ORDER PER SUCHITRA KAMBLE, JM THESE TWO APPEALS BEING ITA NO. 3052/DEL/2011 FILED BY THE REVENUE AND ITA NO. 1755/DEL/2012 FILED BY THE ASSESSEE ARE AGAINST THE ORDER DATED 6/5/2009 PASSED BY LD. CIT (A) IX, NEW DELHI FOR TH E A.Y 2003-04. DATE OF HEARING 01.02.2016 DATE OF PRONOUNCEMENT 16.02.2016 2 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 2. THE GROUNDS OF APPEAL FOR REVENUE ARE AS UNDER: - (ITA 3052/DEL/2011) 1. THE ORDER OF LD. CIT (APPEALS) IS ERRONEOUS & CONTR ARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE PENALTY U/S2 71(1)(C) OF THE I.T ACT, ON ACCOUNT OF ADDITION OF RS. 17,42,063/- MADE BY DISALLOWING EXPENSES INCURRED BY REIMBURSEMENT OF COMMUNICATION FEES PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY. 3. LD. CIT(A) IGNORED THE FINDING RECORDED BY THE A SSESSING OFFICER AND THE FACT THAT ASSESSEE FURNISHED INACCURATE PARTICU LARS OF ITS INCOME BY CLAIMING NON-ALLOWABLE EXPENSES ON ACCOUNT OF RE IMBURSEMENT OF COMMUNICATION FEES. 3. THE GROUNDS OF APPEAL FOR ASSESSEE ARE AS UNDER: - (ITA NO. 1755/DEL/2012) 1. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW, THE ORDER PASSED BY LD. CIT(A) CONFIRMING THE PENALTY L EVIED BY THE ASSESSING OFFICER (A.O) U/S 272(1)(C) OF THE INC OME TAX ACT, 1961 (THE ACT) AMOUNTING TO RS.52,13,000/- IS WRONG AN D BAD IN LAW. 2. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. CIT(A) CONFIRMING THE PENALTY L EVIED BY THE A.O IN RESPECT OF THE DISALLOWANCE/ADDITIONS MADE IN TH E ASSESSMENT ORDER AND CONFIRMED BY LD. CIT(A) AND THE HONBLE I NCOME TAX APPELLATE TRIBUNAL (ITAT). THE SAME HAS BEEN DON E IGNORING THE FACT THAT THE APPELLANT HAS MADE A FULL AND TRUE DI SCLOSURE OF ALL FACTS IN RESPECT OF THE CLAIMS MADE IN THE RETURN O F INCOME. ACCORDINGLY, THERE WAS NEITHER ANY CONCEALMENT OF I NCOME NO FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME. 3 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 3. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. CIT (A) CONFIRMING THE PENALTY IGNORING THE FACT THAT THE APPELLANT HAS MADE A FULL DISCLOSURE IN RE SPECT OF THE CLAIMS MADE IN THE RETURN OF INCOME AND DISALLOWANCES/ADDI TIONS ARE MADE DUE TO DIFFERENCE OF OPINION ON QUESTION OF LAW BET WEEN THE A.O AND THE APPELLANT. THERE WAS NEITHER ANY CONCEALMENT O F INCOME NOR FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME. 4. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. CIT(A) CONFIRMING THE PENALTY L EVIED BY INVOKING EXPLANATION 1 TO SECTION 272(1)(C) OF THE ACT WITHO UT ESTABLISHING WHETHER THERE WAS FAILURE ON THE PART OF THE APPELL ANT TO OFFER ANY EXPLANATION OR THAT THE EXPLANATIONS OFFERED WERE F ALSE OR THAT THE EXPLANATIONS GIVEN BY THE APPELLANT WERE NOT BONAFI DE, WHEN ADMITTEDLY FULL AND TRUE DISCLOSURE WAS MADE IN THE RETURN OF INCOME AND DURING THE ASSESSMENT PROCEEDINGS BY THE APPELL ANT. 5. THAT, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ORDER PASSED BY LD. CIT (A) CONFIRMING THE PENALTY ON THE GROUND THAT THE DISALLOWANCES/ADDITIONS MADE BY A.O IN TH E ASSESSMENT ORDER WERE CONFIRMED BY THE LD. CIT(A) AND FURTHER CONFIRMED BY ITAT. THE LD. CIT (A) HAS FAILED TO APPRECIATE THA T A MERE DISALLOWANCE OF CLAIM DOES NOT AUTOMATICALLY RESULT IN LEVY OF PENALTY. 6. THAT THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO AND INDEPENDENT OF ONE ANOTHER. 4. BRIEF FACTS OF THE CASE THAT MENLO WORLDWIDE FOR WARDING INDIA PVT. LTD. (EARLIER KNOWN AS EMERY WORLDWIDE (INDIA) PVT. LTD ) (APPELLANT COMPANY/ASSESSEE) IS A COMPANY INCORPORATED IN IND IA ON 12 TH MARCH 1996. DURING A.Y 2003-04, THE APPELLANT COMPANY WAS ENGAG ED IN THE BUSINESS OF 4 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 FREIGHT FORWARDERS PROVIDING SERVICES OF FREIGHT HA NDLING, TRANSPORTATION TO THE EXPORTERS AND IMPORTERS ETC. IT ENTERED INTO NUMER OUS TRANSACTIONS WITH ITS OVERSEAS GROUP COMPANIES IN THE COURSE OF PROVIDING FREIGHT FORWARDING SERVICES TO ITS CUSTOMERS FOR EXPORT AS WELL AS IMPORT OF CA RGO ON RECIPROCAL BASIS. 5. THE ASSESSEE COMPANY DISCONTINUED THE BUSINESS W ITH EFFECT FROM 1 APRIL 2006 PURSUANT TO GLOBAL TAKEOVER OF THE BUSINESS OF THE ASSESSEE COMPANY AND ITS ASSETS AND CERTAIN LIABILITIES WERE TRANSFERRED TO M/S UPS SCS (INDIA) PVT. LTD IN INDIA AND REMAINING EMPLOYEES LEFT THE SERVI CES OF THE APPELLANT COMPANY. THEREFORE, FROM 1 APRIL 2006 THE APPELLANT COMPANY IS NOT CARRYING ON ANY BUSINESS. 6. FOR THE A.Y 2003-04, THE RETURN OF INCOME WAS FI LED U/S139(1) OF THE ACT ON 2 DECEMBER 2003 DECLARING INCOME OF RS.5,33,96,5 50/- ALONG WITH AUDITED FINANCIAL ACCOUNTS, TAX AUDIT REPORT ETC. 7. SUBSEQUENT TO THE FILING OF ABOVE RETURN OF INCO ME FOR A.Y 2003-04 IN THE COURSE OF AUDIT OF BOOKS OF ACCOUNTS AND FINANCIAL STATEMENTS FOR F.Y 2003-04 RELEVANT TO A.Y 2004-05 THE AUDITORS FOUND THAT THE REVENUE IN RESPECT OF TRANSACTIONS WITH OVERSEAS GROUP COMPANIES IN THE L AST QUARTER OF F. Y 2002-03 RELEVANT TO A. Y 2003-04 WAS OVERSTATED BY NET AMOU NT OF RS.137, 73,479/-. ACCORDINGLY IN THE BOOKS OF ACCOUNTS FOR A.Y 2004-0 5, THE ERROR WAS RECTIFIED BY REDUCING THE REVENUE IN PROFIT AND LOSS ACCOUNT AND CORRESPONDINGLY REDUCING THE AMOUNT RECEIVABLE IN THE BALANCE SHEET. CONSEQ UENTLY, THE RETURN OF INCOME FOR A.Y 2003-04 WAS REVISED UNDER 139(5) OF THE ACT ON 31 MARCH 2005 REDUCING THE INCOME TO RS.3,96,23,070 AFTER CORRECT ING THE ABOVE ERROR AS FOUND OUT WHILE AUDITING THE ACCOUNTS FOR A.Y 2004- 05, SINCE IT PERTAINED TO A.Y 2003-04. 8. THE ASSESSMENT WAS COMPLETED U/S 143(3) OF THE A CT AT INCOME OF RS.58, 584,342/- AFTER MAKING CERTAIN ADDITIONS AND DISALL OWANCES. THE CIT (A) DISPOSED OFF THE APPEAL VIDES HIS ORDER DATED 21 ST AUGUST 2007, PARTLY ALLOWING 5 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 THE APPEAL. THE HONBLE ITAT DISPOSED OFF THE ASSE SSEES AND DEPARTMENTS APPEAL BY COMBINED ORDER DATED 13 TH OCTOBER 2010. THE APPEAL AGAINST THE ORDER OF HONBLE ITAT WAS NOT PREFERRED DUE TO DISC ONTINUANCE OF BUSINESS AND AS ALL THE EMPLOYEES OF THE ASSESSEE HAD LEFT. 9. THE A.O PASSED AN ORDER U/S 271(1)(C) OF THE ACT DATED 30 TH MARCH 2009 LEVYING A PENALTY AGGREGATION TO RS.58,53,210/- ALL EGING FURNISHING OF INACCURATE PARTICULARS OF INCOME IN RESPECT OF THE ITEMS STATED THERE IN FOR THE ADDITIONS/DISALLOWANCES IN THE ASSESSMENT ORDER. 10. THE AR SUBMITTED THAT THE REVENUE HAS FILED THE APPEAL ONLY ON THE ISSUE OF DELETING THE PENALTY U/S 271(1)(C) ON ACCOUNT OF ADDITION OF RS.17,42,063/- MADE BY DISALLOWANCE EXPENSES INCURRED BY RE-IMBURS EMENT OF COMMUNICATION FEES PAID TO THE DIRECTORS OF THE ASSESSEE COMPANY. THE AR POINTED OUT PARA 6.1.5 & 6.2, THE CIT (A)S ORDER WHEREIN IT HAS BEE N CATEGORICALLY STATED THAT IN QUANTUM APPEAL, THE ITAT DELETED THE SAID DISALLOWA NCE AS NOT BEING THE PAYMENT FOR ROYALTY OR FEES FOR TECHNICAL SERVICES & CIT(A) HELD THAT AS DISALLOWANCE HAS BEEN DELETED BY THE ITAT, THERE IS NO ESCAPEMENT OF INCOME AND, THEREFORE, NO PENALTY SHOULD BE LEVIED AND THE REFORE, WE HOLD THAT THE REVENUES APPEAL DOES NOT SUSTAIN AS THE QUANTUM AP PEAL ON THIS ISSUE HAS BEEN DECIDED AGAINST THE REVENUE AND PENALTY WILL N OT STAND FOR. 11. THE AR SUBMITTED THAT THE ASSESSEE WHILE PREPAR ING THE ASSESSMENT RETURN FOR A.Y 2004-05 HAS COME TO THE KNOWLEDGE TH AT THERE WAS AN ERROR IN NET PROFIT FOR THE A.Y 2003-04 IMMEDIATELY, THE ASS ESSEE FILED REVISED RETURN FOR A.Y 2003-04 WHICH WAS REJECTED BY THE ASSESSING OFF ICER. THE AR POINTED OUT PAGE 215 OF THE PAPER BOOK WHEREIN THE REVISED RETU RN FOR A.Y 2003-04 WAS FILED AND IN SCHEDULE 9, THERE WAS A CLEAR MENTION THAT THERE WAS SOME ERROR FOR WHICH THE REVISED RETURN HAS BEEN FILED. THE A R ALSO SUBMITTED THAT AUDITOR HIMSELF HAS ADMITTED THAT THERE WAS AN ERROR AND NO AUTHORITY WHATSOEVER HAS STATED THAT THE REVISED RETURN WERE FALSE. THEREFO RE, THERE WAS A FULL DISCLOSURE ON PART OF THE ASSESSEE. THE ASSESSEE RELIED ON TH E JUDGMENT OF SHERWANI 6 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 HOSPITALITIES LTD VS. CIT 2013-35 TAXMAN.COM 271 DE LHI HIGH COURT WHEREIN IN PARA 19 &20 IT IS HELD THAT IT IS NOT UNCOMMON A ND UNUSUAL FOR THE ASSESSEE TO BONAFIDELY CLAIM A PARTICULAR EXPENDITURE AS REV ENUE DEDUCTION AND EXPENSE BUT NOT SUCCEED. EVERY ADDITION OR DISALLOWANCE MA DE DOES NOT JUSTIFY AND MANDATE LEVY OF PENALTY FOR CONCEALMENT U/S 271(1)( C) OF THE ACT LEVY OF PENALTY IS NOT AN AUTOMATIC CONSEQUENCE WHEN AN ADDITION IS MADE BY DISALLOWING AN EXPENSE AND BY NOT ACCEPTING THE INTERPRETATION GIV EN BY THE ASSESSEE. EXPLANATION 1 OF SECTION 271(1)(C) CLEARLY STIPULA TES THAT THE PENALTY CAN BE IMPOSED WHEN THE DETAILS FURNISHED BY THE ASSESSEE ARE FOUND TO BE INCORRECT, ERRONEOUS AND FALSE MERELY MAKING A CLAIM WHICH IS HELD AS NOT SUSTAINABLE UNDER LAW SHOULD NOT LEAD TO PENALIZATION WHEN THE ASSESSEE HAD FURNISHED FULL DETAILS IN THE RETURN ITSELF IN THE CLAIM IS DEBATA BLE, REASONABLY PLAUSIBLE OR MAY WILL HAVE BEEN ACCEPTED. THE ASSESSEE ALSO REL IED UPON THE CIT VS. RELIANCE PETRO PRODUCT PVT. LTD. 2010 322 ITR 158 H ON'BLE SUPREME COURT. THE ASSESSEE ALSO RELIED UPON THE HONBLE MADRAS HI GH COURT DECISION IN THE CASE OF CIT VS. N. NAGRAJ BALL WHEREIN THE HONBLE KARNATAKA HIGH COURT AGAIN REITERATED THE SIMILAR POSITION. THE AR FURTHER S UBMITTED THAT AS RELATES TO PENALTY UNDER DISALLOWANCE OF MANAGERIAL REMUNERATI ON PAID BY THE ASSESSEE, THE AR RELIED UPON THE CASE OF CIT VS. SREE VISA LA KSHI MILLS PVT. LTD. 1999 239 ITR 910, THE HONBLE MADRAS HIGH COURT HELD THA T THE PROVISO TO SECTION 314 OF THE COMPANIES ACT COMES INTO PLAY ONLY IN CA SES WHERE IN THE APPROVAL SOUGHT BY THE COMPANY IS NOT GRANTED AT THE PERSON WHO HAS RECEIVED REMUNERATION IS LIABLE TO REFUND THE AMOUNT. THE O BLIGATION CASTE ON THE EMPLOYEE TO REFUND THE MONEY AND THE PROHIBITION IM POSED ON THE COMPANY NOT TO THE WAVE RECOVERY. HOWEVER, DO NOT HAVE THE EFFECT OF RENDERING THE INITIAL PAYMENT ILLEGAL. THUS, THE PENALTY ON THE SALE CANNOT BE LEVIED BY THE ASSESSING OFFICER. 12. THE LD. DR RELIED UPON THE PENALTY ORDER AND CI T (A)S ORDER TO THAT EFFECT. 7 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 13. WE HAVE PERUSED ALL THE DOCUMENTS ON RECORD AND HEARD BOTH THE SIDES. THE CIT (A) WHILE CONFIRMING THE PENALTY IMPOSED BY THE ASSESSING OFFICER, HAS OVER LOOKED THE FACTS THAT THE ASSESSEE HAS FIL ED REVISED RETURN WHEN THE ASSESSEE COMPANY ITSELF CAME TO THE KNOWLEDGE THAT THERE WAS AN ERROR IN ITS RETURN FOR A.Y 2003-04. THE FACT THAT COMPANY HAS AT NO STAGE HIDDEN OR INTENTIONALLY ACTED WHICH SHOWS THAT THEY HAVE DELI BERATELY FILED THE INACCURATE, INADEQUATE RETURNS U/S 271(1)(C). IF TH ERE IS ANY INACCURATE PARTICULARS OF INCOME FURNISHED WITH INTENTION THEN THAT HAS TO BE PENALIZED BUT IN PRESENT CASE, THERE WAS NO SUCH INTENTION IN THE PRESENT CASE. THE CIT (A)S FINDING THAT THE ASSESSEE IS GUILTY OF FURNIS HING INACCURATE PARTICULARS OF INCOME IS IN APPROPRIATE AS THE ASSESSING OFFICER A T ANY POINT OF TIME HAS NOT SCRUTINIZED 2003-04 OF THE ASSESSMENT ON RECORDS AN D ISSUED ANY NOTICE BEFORE THE FILING OF REVISED RETURN. THUS, WHEN THE ERROR WAS KNOWN TO THE ASSESSEE, THE ASSESSEE ITSELF HAS FILED THE REVISED RETURN TH IS ACT SHOWS THAT IT IS NOT INTENTIONAL FURNISHING OF INACCURATE PARTICULARS OF INCOME ON BEHALF OF THE ASSESSEE. THE CASE LAWS PLACED BEFORE US ARE ALSO I N SUPPORT OF THE ASSESSEES CASE. HENCE, THE GROUNDS OF ASSESSEES APPEAL ARE A LLOWED AND THE REVENUES APPEAL DOES NOT SUSTAIN. 14. IN RESULT, THE ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 16 TH OF FEBRUARY 2016. SD/- SD/- ( J. S. REDDY) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16/02/2016 *R. NAHEED* COPY FORWARDED TO: 1. APPELLANT 8 ITA NO. 1755/DEL/2012 & 3052/DEL/2011 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 01/02/2016 PS 2. DRAFT PLACED BEFORE AUTHOR 02/02/2016 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 1 6 . 0 2 .2016 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 16.02.2016 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER. 9 ITA NO. 1755/DEL/2012 & 3052/DEL/2011