M/s. National Petrochem, RAJKOT-GUJARAT V. The Deputy Commissioner of Income Tax, Circle-1, RAJKOT-GUJARAT

ITA 316/RJT/2013

• Counselvise Citation: 31624914 RSA 2013
• Duration Of Justice: 3 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 08-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR J B JHAVERI
• Assessee Lawyers: DM RINDANI
• Keywords: Bonafide belief; Bonafide mistake
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBULAL, SMC BENCH, RAJKOT BEFORE SHRI T. K. SHARMA, JM ITA NO. 316/RJT/2013 ASSESSMENT YEAR : 2007-08 M/S. NATIONAL PETROCHEM KUVADVA ROAD, NR. DELUX CINEMA RAJKOT PAN : AABFN 6976 F ( / APPELLANT) DCIT, CIRCLE-1 RAJKOT / RESPONDENT / ASSESSEE BY SHRI D M RINDANI, CA / REVENUE BY DR J. B. JHAVERI, DR / DATE OF HEARING 11.11.2013 !'# / DATE OF PRONOUNCEMENT 13.11.2013 / ORDER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DA TED 24.07.2013 OF CIT(A)-I, RAJKOT FOR THE ASSESSMENT YEAR 2007-08 CO NFIRMING THE PENALTY OF RS.59,460/- LEVIED BY THE ASSESSING OFFICER U/S 271 (1)(C) OF THE INCOME-TAX ACT, 1961. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND IS THE AUTHORIZED DEALER OF BHARAT PETROLEUM AND OPERATES A PETROL PUMP. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED E-RETURN ON 31.10.2007 DECLARING NIL INCOME. ON VERIFICATION, THE ASSESSING OFFICER FOUND THAT T HERE IS NEGATIVE BALANCE OF CAPITAL OF PARTNERS AMOUNTING TO RS.15,01,155/-. AS PER PAR TNERSHIP DEED, THE ASSESSEE WAS REQUIRED TO CHARGE INTEREST ON THIS AMOUNT AT THE R ATE OF 12% WHICH WORKS OUT TO RS.1,80,138/-. THE ASSESSING OFFICER ACCORDINGLY MA DE AN ADDITION OF RS.1,80,183/- IN THE ASSESSMENT FRAMED U/S 143(3) OF THE INCOME-T AX ACT ON 20.11.2009 AND ALSO INITIATED PENALTY PROCEEDINGS U/S 274 R.W.S. 271(1) (C) OF THE INCOME-TAX ACT. 3. DURING THE COURSE OF PENALTY PROCEEDINGS, IN RES PONSE TO THE SHOW-CAUSE NOTICE DATED 20.11.2009, THE ASSESSEE FILED A DETAI LED SUBMISSION CONTENDING THAT THE WITHDRAWALS MADE BY THE PARTNERS WERE MADE FROM THE PROFITS GENERATED DURING THE YEAR UNDER CONSIDERATION AND IT WAS UNDER THE B ONAFIDE BELIEF THAT THE ASSESSEE IS NOT REQUIRED TO CHARGE ANY INTEREST. IT WAS ALSO SUBMITTED THAT COMPLETE AND HONEST DISCLOSURE OF THE ENTIRE INFORMATION RELATING TO TH E INTEREST EXPENDITURE WERE MADE BY 2 316-RJT-2013 - NATIONAL PETROCHEM (SMC) THE ASSESSEE-FIRM ALONGWITH RETURN OF INCOME ITSELF AND SINCE THE ASSESSEE WAS UNDER THE BONAFIDE BELIEF THAT THE ASSESSEE WAS NOT REQUIRED TO CHARGE ANY INTEREST, NO PENALTY WAS CALLED FOR. THE ASSESSING OFFICER R ELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA & OTHER V/S. DHARMENDRA TEXTILES PROCESSORS & OTHERS (2009) 306 ITR 277 (SC), HELD T HAT THE EXPLANATIONS APPENDED TO SECTION 271(1)(C) OF THE INCOME TAX ACT , 1961, INDICATE THE ELEMENT OF STRICT LIABILITY ON THE ASSESSEE FOR CONCEALMENT OR FOR GIVING INACCURATE PARTICULARS WHILE FILING THE RETURN. THE OBJECTIONS BEHIND THE ENACTMENT OF SECTION 271(1)(C) READ WITH EXPLANATIONS INDICATE T HAT THE SECTION HAS BEEN ENACTED TO PROVIDE FOR A REMEDY FOR LOSS OF REVENUE . THE PENALTY UNDER THE PROVISIONS IS A CIVIL LIABILITY. WILLFUL CONCEALMEN T IS NOT AN ESSENTIAL INGREDIENT FOR ATTRACTING CIVIL LIABILITY AS IS THE CASE IN TH E MATTER OF PROSECUTION UNDER SECTION 276C. HE ACCORDINGLY LEVIED THE PENALTY OF RS.59,460/- B EING THE 100% OF TAX SOUGHT TO BE EVADED ON CONCEALMENT OF INCOME TO THE TUNE OF RS.1,80,183/-. ON APPEAL, IN THE IMPUGNED ORDER, THE LD CIT(A) CONFIR MED THE PENALTY OBSERVING THAT THE ASSESSEE CASE IS SQUARELY COVERED UNDER EXPLANATION 1 TO SECTION 271(1)(C) FOR FILING INACCURATE PARTICULARS OF INCOME. AGGRIEVED WITH TH E ORDER OF LD CIT(A), THE ASSESSEE IS NOW IN APPEAL BEFORE THIS TRIBUNAL. 4. BEFORE THE TRIBUNAL, ON BEHALF OF THE ASSESSEE, SHRI D. M. RINDANI, CA, APPEARED AND CONTENDED THAT IN THE BOOKS OF ACCOUNT S THE ASSESSEE HAS NOT CHARGED INTEREST ON DEBIT BALANCE OF TWO PARTNERS AND ALSO NOT PAID INTEREST ON CREDIT BALANCE OF ONE PARTNER. HE POINTED OUT THAT IN THE ASSESSME NT YEAR 2006-07 ALSO NEITHER INTEREST WAS CHARGED NOR PAID TO PARTNERS THOUGH TH ERE WAS DEBIT AND CREDIT BALANCE IN THE CAPITAL ACCOUNT OF THE PARTNERS. IN SUPPORT OF THIS, THE LD COUNSEL OF THE ASSESSEE PRODUCED A COPY OF THE ASSESSMENT ORDER PA SSED U/S 143(3) FOR THE ASSESSMENT YEAR 2006-07. THE LD COUNSEL OF THE ASSE SSEE FURTHER POINTED OUT THAT IN THE LAST YEAR THE FIRM HAS TAKEN A DECISION THAT NE ITHER TO PAY NOR TO CHARGE INTEREST ON DEBIT AND CREDIT BALANCE IN THE CAPITAL ACCOUNT OF THE PARTNERS BUT THIS DECISION WAS NOT REDUCED INTO WRITING. BECAUSE OF THIS REASO N, THIS DISALLOWANCE HAS BEEN ACCEPTED BUT HE SUBMITTED THAT SINCE COMPLETE FACTS ARE DISCLOSED IN THE BOOKS OF 3 316-RJT-2013 - NATIONAL PETROCHEM (SMC) ACCOUNTS AND THIS HAS HAPPENED DUE TO BONAFIDE LEGA L MISTAKE, FOR WHICH PENALTY U/S 271(1)(C) IS NOT LEVIABLE. 5. AS AGAINST THIS, DR. J. B. JHAVERI, DR, APPEARED ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF LD CIT(A). THE LD DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THERE IS NO VALID REASON FOR NOT C HARGING THE INTEREST ON DEBIT BALANCE IN THE CAPITAL ACCOUNT OF THE PARTNERS; THEREFORE, THE ADDITION OF RS.1,80,183/- WAS RIGHTLY MADE, FOR WHICH PENALTY U/S 271(1)(C) IS L EVIABLE KEEPING IN VIEW THE EXPLANATION 1 TO SECTION 271(1)(C) OF THE INCOME-TA X ACT, 1961. AS AGAINST THIS LD COUNSEL OF THE ASSESSEE POINTED OUT THAT BONAFIDES OF THE ASSESSEE IS ESTABLISHED BEYOND DOUBT BY THE FACT THAT IN THE ASSESSMENT YEA R 2006-07 NEITHER INTEREST ON DEBIT BALANCE OF PARTNERS WAS CHARGED NOR ON CREDIT BALANCE WAS PAID. IN THAT ASSESSMENT, THE ASSESSING OFFICER ACCEPTED THE STAN D OF ASSESSEE-FIRM IN THE ASSESSMENT FRAMED U/S 143(3) ON 26.12.2008. THE ONL Y REASON FOR ACCEPTING THE DISALLOWANCE IN THE ASSESSMENT YEAR UNDER APPEAL IS THAT THE PARTNERSHIP DEED WAS NOT AMENDED THOUGH THIS DECISION WAS TAKEN LAST YEA R. THIS MISTAKE HAS OCCURRED THIS YEAR ALSO. THE MISTAKE IS BONAFIDE WHICH IS EV IDENT FROM THE FACT THAT THE ASSESSEE HAS ALSO NOT PAID INTEREST ON CREDIT BALAN CE IN CAPITAL ACCOUNT OF ONE OF ITS PARTNERS. 6. HAVING HEARD BOTH SIDES, I HAVE CAREFULLY GONE T HROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE RE ARE THREE PARTNERS. IN TWO PARTNERS CAPITAL ACCOUNT THERE WAS DEBIT BALANCE WHEREAS IN THE CAPITAL ACCOUNT OF THIRD PARTNER THERE WAS CREDIT BALANCE OF RS.389876 AND C LOSING CREDIT BALANCE WAS RS.461491/-. IN RESPECT OF THIS PARTNERS CAPITAL A CCOUNT, THE ASSESSEE COULD HAVE CLAIMED THE PAYMENT OF INTEREST, BUT THE SAME IS NO T CLAIMED. THIS CLEARLY ESTABLISHED THAT THE STAND OF THE ASSESSEE IS BONAFIDE. AS A MA TTER OF FACT, LAST YEAR ALSO THE PARTNERS TOOK A DECISION NEITHER TO CHARGE NOR TO P AY INTEREST ON CAPITAL ACCOUNT, BUT THE SAME WAS NOT REDUCED INTO WRITING. AS A RESULT OF NOT REDUCING THIS DECISION INTO WRITING, ADDITION CAN BE MADE; BUT SINCE THIS WAS A GENUINE AND BONAFIDE MISTAKE I AM OF THE VIEW THAT THIS IS NOT A CASE FOR LEVYING PENALTY U/S 271(1)(C) OF THE INCOME- 4 316-RJT-2013 - NATIONAL PETROCHEM (SMC) TAX ACT, 1961. I, THEREFORE, CANCEL THE PENALTY OF RS.59,460/- LEVIED BY THE ASSESSING OFFICER U/S 271(1)(C) OF THE INCOME-TAX ACT, 1961. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER PRONOUNCED IN OPEN COURT ON THE DATE MEN TIONED HEREINABOVE. SD/- ( $.. &' / T. K. SHARMA) ( ) /JUDICIAL MEMBER *)& +) ,/ ORDER DATE: 13.11.2013 !$ /RAJKOT *BT / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT- M/S. NATIONAL PETROCHEM, KUVADVA ROAD , RAJKOT 2. / RESPONDENT- DCIT, CIRCLE-1, RAJKOT 3. ,0,1 * * 2 / CONCERNED CIT-I, RAJKOT 4. * * 2- / CIT (A)-I, RAJKOT 5 . 567 1, * 1#, !$ / DR, ITAT, RAJKOT 6 . 79 :; / GUARD FILE *)& / BY ORDER TRUE COPY PRIVATE SECRETARY, ITAT, RAJKOT