M/s. Mahati Software Pvt Ltd., Visakhapatnam V. THE DCIT, Visakhapatnam

ITA 353/VIZ/2015

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 6707 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 11-09-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M K SETHI
• Keywords: Reasonable cause; Non compliance

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . . , BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , ACCOUNTANT MEMBER . / I . T .A.NO. 353 /VIZ/ 201 5 ( / ASSESSMENT YEAR: 2012 - 13 ) MAHATI SOFTWARE PVT. LTD. D.NO.10 - 27 - 14/A, SIVAM KAILASH METTA WALTAIR VISAKHAPATNAM [ PAN : A ADCM9620J ] THE DY. COMMISSIONER OF INCOME TAX CIRCLE - 3(1) VISAKHAPATNAM ( / APPELLANT) ( / RESPONDENT) / APPELLANT BY : SHRI G.V.N.HARI, AR / RESPONDENT BY : S HRI M.K.SETHI, DR / DATE OF HEARING : 0 4 .0 9 .2017 / DATE OF PRONOUNCEMENT : 08 . 0 9 .2017 / O R D E R PER D.S. SUNDER SINGH , ACCOUNTANT MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 1, VISAKHAPATNAM VIDE ITA NO.294/2014 - 15/DCIT,C - 3(1),VSP/2015 - 16 DATED 14.08.2015. 2 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM 2. ALL GROUNDS OF APPEAL ARE RELATED TO THE LEVY OF PENALTY U /S 140A(3) R.W.S 221(1) OF I.T.ACT FOR DEFAULT IN PAYMENT OF SELF ASSESSMENT TAX . THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN SOFTWARE BUSINESS. FOR THE ASSESSMENT YEAR 2012 - 13, THE ASSESSEE FILED THE RETURN OF I NCOME DECLARING TOTAL INCOME OF RS.NIL UNDER THE NORMAL PROVISIONS OF I.T.ACT AND ADMITTED THE BOOK PROFIT OF RS.9,15,24,587/ - WHICH RESULTED INTO MINIMUM ALTERNATE TAX (MAT) OF RS.2,07,01,730/ - AND THE ASSESSEE COMPANY HAS N EITHER PAID THE ADVANCE TAX NOR THE SELF ASSESSMENT TAX. FOR NON PAYMENT OF SELF ASSESSMENT TAX, THE ASSESSEE COMPANY WAS TREATED AS THE ASSESSEE IN DEFAULT AND ACCORDINGLY THE NOTICE WAS ISSUED CALLING FOR THE EXPLANATION OF THE ASSESSEE FOR IMPOSING PENALTY U/S 221 OF THE I.T.ACT. THE A SSESSEE FILED EXPLANATION BEFORE THE AO STATING AS UNDER : I) AT THE TIME OF REGISTRATION OF THE ASSESSEE COMPANY WITH STPI, THE EXISTING RULES PROMOTED TOTAL TAX HOLIDAY INCLUDING MAT FOR THE SOFTWARE EXPORTS MADE BY THE COMPANY WITH WHICH CONVERTIBLE F OREIGN EXCHANGE WAS EARNED . II) HOWEVER I N VIEW OF THE CHANGES IN THE POLICY OF THE GOVERNMENT , MAT BECAME APPLICABLE TO SOFTWARE COMPANIES SITUATED IN IT S EZ W . E . F. AY 2O12 - L3 WHICH DEALT A BIG BLOW. III) RECESSION IN THE TRADE AND ALSO UNREA LISA BIIITY OF RECEIVABLES HAVE HINDERED THE PAYMENT OF MAT . 3 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM 2.1. THE ASSESSING OFFICER HAS CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND HAVING NOT BEEN CONVINCED WITH THE EXPLANATION OF THE ASSESSEE, IMPO SED THE PENALTY OF RS.10,00,000/ - VIDE ORDER DATED 28.03.2014. 3. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER HOLDING THAT THE ASSESSING OFFICER IS JUSTIFIED IN LEVYING OF PENALTY OF RS.10,00,000/ - . FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARA N O.5 OF THE LD.CIT(A) ORDER WHICH READS AS UNDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE ASSESSEE. I HAVE ALSO GONE THROUGH THE PAPER BOOK FILED DURING THE APPEAL HEARING AND OTHER DOCUMENTS ON RECORD. THE MAIN CONTENTIONS OF THE ASSESSEE ARE THAT I T HAD OFFERED BOOK PROFIT (MAT LIABILITY THEREON) VOLUNTARILY AND THAT THE CHANGING STATUTORY PROVISIONS FROM THE ASST . YR. 2012 - 13, IN RESPECT OF MAT LIABILITY FOR SEZ UNITS, ARE NEW TO THEM. IT FURTHER CONTENDED THAT IT HAD MADE SUBSTANTIAL INVESTMENTS IN FIXED ASSETS (TO THE TUNE OF RS.41.48 CRO R ES) AND THAT IT HAD PAID SUBSTANTIAL AMOUNT OF TAX BY ITS GROUP COMPANIES. HOWEVER, THESE CONTENTIONS DO NOT HOLD MUCH WAY IN VIEW OF THE FACTS OF THE CASE. T HE ASSESSEE IS A COMPANY CARRYING ON SOFTWARE DEVELOPMENT BUSINESS, ASSISTED BY PROFESSIONALS FOR COMPLYING WITH LEGAL OBLIGATIONS. FURTHER, THE ASSESSING OFFICER IN HIS OR DER U/S.140A(3) R,W.S. 221(1) OF THE INCOME TAX ACT DATED 28.3.2014 NOTED THE COMMENTS OF THE AUDITORS IN THE AUDIT REPORT FOR THE YEAR ENDING ON 31.3.2012, THE RELEVANT PORTION OF THE AUDITOR'S COMMENTS ARE EXTRACTED BELOW : '( IV ) IN OUR OPINION AND ACCORDING TO THE INFORMATION AND EXPLANATIONS GIVEN TO US, THERE IS AN ADEQUATE INTERNAL CONTROL SYSTEM COMMENSURATE WITH THE SIZE OF THE COMPANY AND THE NATURE OF ITS BUSINESS, FOR THE PURCHASE OF INVENTORY AND FIXED ASSETS AND WITH REGARD TO THE SALE OF GOODS AND SERVICES. 4 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM DURING THE COURSE OF OUR AUDIT, WE HAVE NOT OBSERVED ANY CONTINUING FAILURE TO CORRECT MAJOR WEAKNESSES IN THE INTERNAL CONTROL SYSTEM. (X) THE COMPANY DOES NOT HAVE ANY ACCUMULATED LOSSES AS PER THE BALANCE SHEET AS AT THE END OF THE FINANCIAL YEAR. THE COMPANY HAS NOT INCURRED CASH L OSSES DURING THE FINANCI AL YEAR COVERED BY OUR AUDIT AND THE IMMEDIATELY PRECEDING FINANC I A L YEAR. (XI ) IN OUR OPINION AND ACCORDING TO THE I NFORMATION AND EXPLANATIONS GIVEN TO US , THE COMP A NY HAS NO T DEFAU L TED IN REPAYMENT OF DUES TO A FINANCIAL INSTITUTION, BANK OR DEBENTURE HOLDERS' 4. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT PRIOR TO THE ASSESSME NT YEAR 2012 - 13, THE ASSESSEE WAS ENJOYING TAX EXEMPTIONS AND THERE WAS NO TAX LIABILITY ON THE ASSESSE E AND THE INCOME WAS EXEMPT . W .E.F. ASSESS MENT YEAR 2012 - 13, THE A CT HAS BEEN AMENDED INTRODUC ING MAT FOR STPI UNITS ALSO, HENCE , IT HAS SLIPPED FROM THE ATTENTION OF THE ASSESSEE . APART FROM THE ABOVE, THE ASSESSEE COMPANY HAS MADE HUGE INVESTMENTS FOR FIXED ASSETS TO THE TUNE OF RS.41.48 CRORES AND MADE SUBSTANTIAL PAYMENT OF TAXES IN GROUP CONCERNS WHICH DEPLETED THE RESOURCES. AFTER DISCHARGING ITS OBLIGATIONS, THE BALANCE RESOURCES AVAILABLE WER E BARELY SUFFICIENT TO MEET THE DAY TO DAY REQUIREMENTS OF THE BUSINESS. THE LD.AR FURTHER STATED THAT DUE TO RECESSION IN THE TRADE, T HE ASSESSEE COULD NOT RECOVER THE DUE S. THE LD.AR FURTHER SUBMITTED THAT THERE WAS NO INTENTION TO THE ASSESSEE TO DEFAUL T THE ADVANCE TAX AND THE SELF ASSESSMENT TAX AND IT WAS ONLY DUE 5 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM TO FINANCIAL CONSTRAINTS THE ASSESSEE COULD NOT PAY THE TAX. THE LD.AR FURTHER SUBMITTED THAT AS ON THE DATE OF IMPOSING PENALTY THERE WAS NO LIABILITY OF SELF ASSESSMENT TAX AND THE ENTIRE TAX WAS PAID. FURTHER, LD.AR RELIED ON THE ORDER S OF THE HONBLE ANDHRA PRADESH HIGH COURTS DECISION IN THE CASE OF ADDL.CIT VS. SARVARAYA TEXTILES LTD . [ 137 ITR 0369 ] AND THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN THE CASE OF TH E DCIT V S. VIVIMED LABS LTD IN ITA NO. 121/HYD/2014 DATED 13 .0 5 . 2016 FOR THE ASSESSMENT YEAR 2010 - 11 AND ARGUED THAT IF THE ASSESSEE CAN DEMONSTRATE THE REASONABLE CAUSE, THE PEN ALTY WOULD NOT ATTRACT . ON THE OTHER HAND THE LD.DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL PLACED ON RECORD. THE ASSESSEE IS A SOFTWARE COMPANY AND TILL 2011 - 12 THE COMPANY ENJOYED THE TAX EXEMPTION BEN E F ITS. F ROM THE ASSESSMENT YEAR 2012 - 13 ONWARDS, THE ASSESS EE IS LIABLE FOR MAT TAX WHICH IS MADE KNOWN TO THE PUBLIC BY FINANCE ACT, 2011 ITSELF. AS PER THE INCOME TAX ACT THE ASSESSE E HAS TO ESTIMATE THE TAX PAYABLE DURING THE RELEVANT F INANCIAL YEAR AND H AS TO PAY THE ADVANCE TAX IN THE MONTHS OF JUNE, 6 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM SEPTEMBER, DECEMBER AND MARCH. THE ASSESSE E HAS TO PAY MINIMUM 90% OF THE TAX IN THE FORM OF ADVANCE TAXES AND THE BALANCE AMOUNT ALONG WITH THE RETURN WHICH IS CALLED SELF ASSESSMENT TAX . IN THE ASSESSEES CASE THE ASSES S EE DEFAULTED ALL THE INSTALLMENTS OF ADVANCE TAX AND ALSO THE SELF ASSESSMENT TAX. THE ASSESSE E DID NOT EXPLAIN WHY THE ADVANCES TAXES WERE NOT PAID DURING THE FINANCIAL YEAR. THE ASSESSING OFFICER HAD ISSUED THE SHOW CAUS E NOTICE ON 13 . 01 . 2013 THEN ONLY THE ASSESS E E HAD PAID THE TAXES DUE IN INSTALLMENTS. THIS ATTITUDE OF THE ASSESSEE ESTABLISHED THAT THE INTENTION OF THE ASSESSEE IS NON COMPLIANCE TO STATUTORY REQUIREMENTS. THE ASSESSEE IS A SOFTWARE COMPANY SUBJECT TO AUDIT UNDER THE C OMPANIES A CT AND THE I NCOME T AX A CT AND A SSISTED BY THE PROFESSIONALS, THEREFORE, PLEAD ING IGNORANCE OR FOR NON PAYMEN T OF ADVANCE AND SELF ASSESSMENT TAX IS UNACCEPTABLE. HAVING PLANNED FOR HUGE INVESTMENTS IN FIXED ASSETS THE ASSESS E E ALSO SHOULD HAVE PLANNED FOR PAYMENT OF TAXES PROMPTLY. THE ASSESSEE MUST DETERMINE THE TAX AND PAY PERIODICALLY AS PER THE DUE DATES O F PAYMENT OF ADVANCE TAX. SINCE THE ASSESSEE ENJOYED THE BENEFITS FOR NUMBER OF YEARS , MORE RESPONSIBILITY IS PLACED ON THE ASSESSEE , WHEN THE GOVERNMENT HAS INTRODUCED THE AMENDMENT FOR PAYMENT OF TAXES UNDER 7 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM THE MAT . IT IS OBLIGATION ON THE PART OF EVERY CITIZEN TO PLAN FOR TAXES. MAKING HUGE INVESTMENT IN FIXED ASSETS CANNOT BE A REASON FOR NON PAYMENT OF SELF - ASSESSMENT TAX. THE COMPANY IS EARNING THE SUBSTANTIAL PROFITS AND THERE W ERE NO CASH LOSSES. ON VERIFICATION OF BALANCE SHEET FILED BY THE ASSESSEE, IT IS SEEN THAT THE COMPANY IS HAVING 15.02 CRORES OF CURRENT ASSETS, OUT OF WH ICH SH ORT TERM ADVANCES/LOANS ACCOUNTS FOR 8 .00 CRORES. THE COMPANY IS HAVING SUFFICIENT CURRENT ASSETS TO MAKE THE PAY MENT OF SELF ASSESSMENT TAX. T HE COMPANYS REVENUE ACCOUNT S FOR 58.89 CRORES AND OTHER INCOME WAS 5.63 CRORES AND NET PROFIT OF THE COMPANY WAS RS.9.05 CRORES. THE ABOVE FINANCIAL INFORMATION CLEARLY ESTABLISH THAT THE COMPANY IS NOT FACING ANY FINANCIAL HARDSHIP FOR PAYMENT OF THE SELF ASSESSMENT TAX OF RS.2.07 CRORES. THE COMPANY HAS NOT ONLY DEFAULTED THE ADVANCE TAX BUT ALSO DEFAU LTED THE SELF ASSESSMENT TAX . THEREFORE, WE DO NOT FIND ANY REASON FOR NON PAYMENT OF SELF ASSESSMENT TA X BY THE ASSESSEE. LD.AR RELIED ON THE ORDERS OF THE HONBLE AP HIGH COURT IN THE CASE OF CIT VS. SARVARAYA TEXTILES LTD (SUPRA) , WHICH IS CLEARLY DIST INGUISHABLE . THE HONBLE HIGH COURT HELD THAT LEVY OF PENALTY IS NOT JUSTIFIED IF THERE IS RE ASONABLE CAUSE. SIMILAR VIEW WAS EXPRESSED BY THE COOR DINATE BENCH 8 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM OF ITAT , HYDERABAD, IN THE CASE OF DCIT VS. VIVIMED LABS LTD (SUPRA) RELIED UPON BY THE ASSESSEE . IN THE ASSESSEES CASE, THERE IS NO PAUCITY OF FUNDS AND THERE IS NO FINANCIAL HARDSHIP AS PER THE FINANCIAL STA TEMENT SUBMITTED BEFORE US . THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AN D THE SAME IS UPHELD. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. T HE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 8 TH SEP 20 17 . SD/ - SD/ - ( . ) ( . . ) (V. DURGA RAO) ( D.S. SUNDER SINGH ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER /VISAKHAPATNAM /DATED : 08 . 0 9 .2017 L. RAMA, SPS 9 ITA NO. 353 /VIZ/201 5 MAHATI SOFTWARE PVT. LTD. , VISAKHAPATNAM / COPY OF THE ORDER FORWARDED TO: - 1. / THE APPELLANT MAHATI SOFTWARE PVT. LTD., D.NO.10 - 27 - 14/A, SIVAM, KAILASH METTA, WALTAIR, VISAKHAPATNAM 2 . / THE RESPONDENT DY.COMMISSIONER OF INCOME TAX, CIRCLE - 3(1) , VISAKHAPATNAM 3 . THE CHIEF COMMISSIONER OF INCOME - TAX - 1, VISAKHAPATNAM 4 . ( ) / THE CIT (A) - 1, VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM