MOTT MACDONALA CONSULTANTS (INDIA) P L;TD, MUMBAI V. DCIT CIR 2(2), MUMBAI

ITA 3838/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55623 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 12-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Keywords: Double taxation relief; Bad and doubtful debts; Bonafide mistake

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI B.R. MITTAL (JUDICIAL MEMBER) AND SHRI R.K. PANDA (ACCOUNTANT MEMBER) ITA NO. 3838/MUM/2010 ASSESSMENT YEAR-2003-04 M/S. MOTT MACDONALD CONSULTANTS (INDIA) PVT. LTD., KHANNA CONSTRUCTION HOUSE, 44A R.G. THADANI MARG, WORLI,MUMBAI-400 018 PAN-AABCM 0834G VS. THE DCIT, CIRCLE 2(2), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI HIRO RAI RESPONDENT BY: SHRI G.P. TRIVEDI DATE OF HEARING :17.10.2011 DATE OF PRONOUNCEMENT: 19.10.2011 O R D E R PER B.R. MITTAL, JM : THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2003-04 AGAINST ORDER OF LD. CIT(A) DT.19 TH MARCH, 2010 CONFIRMING LEVY OF PENALTY OF RS. 8,55,251/- U/S. 271(1)(C) OF THE I.T. ACT. 2. THE RELEVANT FACTS GIVING RISE TO THIS APPEAL AR E THAT ASSESSEE FILED RETURN OF INCOME DECLARING LOSS OF RS. 2,01,13,366/ -. THE ASSESSING OFFICER COMPLETED ASSESSMENT DETERMINING INCOME AT A LOSS O F RS. 1,76,64,075/-. DURING THE COURSE OF ASSESSMENT PROCEEDING, AO OBSE RVED THAT ASSESSEE DEBITED RS. 13,60,822/- TOWARDS PROVISION FOR DOUBT FUL DEBTS AND ADVANCES TO THE PROFIT & LOSS ACCOUNT. THE AO STATED THAT WHEN ASSESSEE WAS ASKED TO EXPLAIN WHY PROVISION SHOULD NOT BE DISALLOWED AND ADDED TO TOTAL INCOME BEING AN UNASCERTAINED LIABILITY, ASSESSEE VIDE ITS LETTER DT. 11.10.2005 STATED THAT PROVISION OF DOUBTFUL DEBTS WAS NOT DISALLOWED IN THE COMPUTATION OF INCOME THROUGH OVERSIGHT, WHICH MAY BE TREATED AS D ISALLOWED. FURTHER AO ITA NO. 3838/M/10 2 OBSERVED THAT ASSESSEE PAID A SUM OF RS. 19,60,452/ - AS INTEREST ON ECB TO M/S. MOTT MACDONALD INTERNATIONAL LTD. U.K. THE AO OBSERVED THAT ASSESSEE HAD NOT PAID TDS ON SUCH INTEREST. WHEN ASSESSEE W AS ASKED AS TO WHY INTEREST PAID RS. 19,60,452/- SHOULD NOT BE DISALLO WED U/S. 40(A)(I) OF THE ACT, ASSESSEE REPLIED AS UNDER: AS REGARDS TAX DEDUCTED AT SOURCE ON INTEREST PAID TO MOTT MACDONALD INTERNATIONAL LTD. , WE HAVE TO INFORM YOU THAT THE RATE OF TDS IS 15% AS PER ARTICLE 12 OF DTAA AND THEREFORE THE TOTAL TAX REQUIRED TO BE DEDUCTED AS RS. 2,94,066/-. OUT OF THIS AMOUNT, A SUM OF RS. 1,14,109/- PAID IN TIME. THE BALANCE AMOUNT PAID LATE IS RS. 1,44,959/- EVEN THOUGH THE PAYMENT MADE WAS OF RS. 2,81,780/- WHICH WAS IN EXCESS. THIS IS ON INTEREST OF RS. 9, 66,393/- @ 15%. THEREFORE, THIS AMOUNT OF INTEREST OF RS. 9,66,393/ - MAY BE DISALLOWED IN THE ASSESSMENT YEAR AND BE ALLOWED IN A.Y. 2004- 05 ON PAYMENT OF TD BASIS. THE AO DISALLOWED INTEREST OF RS.9,66,393/- U/S. 40 (A)(I) OF THE I.T. ACT. 3. IN VIEW OF ABOVE ADDITIONS MADE BY AO, THE AO INI TIATED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 4. IT IS OBSERVED THAT ASSESSEE CONTENDED BEFORE AO THAT THERE WERE NO CONCEALMENT OF ANY INCOME NOR ASSESSEE HAD SUBMITTE D INACCURATE PARTICULARS. THE DISALLOWANCES ARE DUE TO GENUINE MISTAKE WHILE PREPARING COMPUTATION OF INCOME. IT WAS ALSO CONTENDED THAT PROVISIONS OF DOUBTFUL DEBTS LATER BECAME BAD DEBTS. IT WAS ALSO CONTENDE D THAT ASSESSEE DEDUCTED MORE TDS THAN REQUIRED FROM PAYMENT OF INTEREST TO NON-RESIDENT BUT DUE TO NON AVAILABILITY OF FUNDS BECAUSE OF CONTINUOUS LOS SES, PAYMENTS WERE MADE LATE AND HENCE AMOUNT OF INTEREST WAS DISALLOWED IN THE ASSESSMENT YEAR UNDER CONSIDERATION BUT ALLOWED IN SUBSEQUENT YEAR IN WHICH TAX WAS ACTUALLY PAID. THE ASSESSEE ALSO CONTENDED THAT THERE WAS B ONAFIDE MISTAKE IN CLAIMING ABOVE DEDUCTIONS WHILE COMPUTING INCOME. 5. THE AO DID NOT ACCEPT THE ABOVE EXPLANATION OF A SSESSEE. AO STATED THAT HE IS SATISFIED THAT ASSESSEE FILED INACCURATE PARTICULARS OF INCOME IN VIEW ITA NO. 3838/M/10 3 OF EXPLANATION 1 TO SEC. 271(1)(C) OF THE ACT. ACC ORDINGLY, AO COMPUTED MINIMUM PENALTY OF RS. 8,55,251/- BEING 100% OF TAX SOUGHT TO BE EVADED. BEING AGGRIEVED ASSESSEE FILED APPEAL BEFORE FIRST APPELLATE AUTHORITY. 6. ON BEHALF OF ASSESSEE, ASSESSEE MADE SIMILAR SUB MISSIONS AS MADE BEFORE AO. HOWEVER, LD. CIT(A) CONFIRMED THE ACTIO N OF AO TO LEVY PENALTY. HE OBSERVED THAT ASSESSEE ADMITTED THE INCORRECT CL AIM OF DEDUCTION ONLY ON BEING DETECTED BY AO. IT WAS NOT A VOLUNTARY ACT O N HIS PART. HENCE ASSESSEE IS IN FURTHER APPEAL BEFORE TRIBUNAL. 7. DURING THE COURSE OF HEARING, LD. AR SUBMITTED T HAT AUTHORITIES BELOW HAVE CONFIRMED LEVY OF PENALTY ONLY BECAUSE ASSESSE E DID NOT CONTEST QUANTUM ADDITIONS MADE BY AO. HE SUBMITTED THAT AS SESSEE COMMITTED GENUINE MISTAKE AT THE TIME OF FILING OF RETURN. H E FURTHER SUBMITTED THAT ASSESSEE PAID TDS IN SUBSEQUENT ASSESSMENT YEAR BUT DID NOT CLAIM DEDUCTION AS SAME WERE CLAIMED IN ASSESSMENT YEAR U NDER CONSIDERATION. HE SUBMITTED THAT ONLY AT THE TIME OF MAKING ASSESSMEN T, ASSESSEE CLAIMED TDS DEDUCTION AS THE SAME WAS NOT ALLOWED IN THE ASSESS MENT YEAR UNDER CONSIDERATION. HE SUBMITTED THAT ASSESSEE HAD FURN ISHED ALL THE DETAILS IN RESPECT OF PROVISION FOR DOUBTFUL DEBTS AND ADVANCE S AND REFERRED AT PAGE-2 OF THE PAPER BOOK R.W. PAGE-1 WHERE COPY OF PROFIT & LOSS ACCOUNT ALONGWITH SCHEDULES AND ALSO REFERRED ASSESSMENT ORDER OF SUB SEQUENT ASSESSMENT YEAR 2004-05 PLACED AT PAGE 3 & 4 OF THE PAPER BOOK. TH E LD. AR SUBMITTED THAT WHEN THERE IS INADVERTENT MISTAKE, LEVY OF PENALTY IS NOT JUSTIFIED. TO SUBSTANTIATE HIS SUBMISSION, HE FILED FOLLOWING LIS T OF CASES: I) CIT VS ASK ENTERPRISES 230 ITR 48 (BOMBAY HIGH COU RT) II) MAHADESWARA MOVIES VS CIT 144 ITR 127 (KARNATAKA H IGH COURT) III) CIT VS ROSE LOCK FACTORY 204 ITR 753 (ALL. HIGH C OURT) IV) CIT VS SKYLINE AUTO PRODUCTS PVT. LTD. 271 ITR 335 (M.P. HIGH COURT) ITA NO. 3838/M/10 4 V) CIT VS JAGJIT ENGINEERING WORKS PVT. LTD. 275 ITR 239 (PUNJAB & HARYANA HIGH COURT) VI) CIT VS SIDHARTHA ENTERPRISES 184 TAXMAN 460 (PUNJAB & HARYANA HIGH COURT VII) BTX CHEMICAL (P) LTD. VS CIT 288 ITR 196 (GUJARAT H IGH COURT) VIII) CIT VS NELLAI TRADING AUTOMOBILE AGENCY 288 ITR 557 (MADRAS HIGH COURT) IX) UDAYAN MUKHERJEE VS CIT 291 ITR 318(CALCUTTA HIGH COURT) X) CIT VS ICON CONTROLS (P) LTD. 207 CTR 592 (DELHI HI GH COURT) HE SUBMITTED THAT PENALTY MAY BE DELETED. 8. ON THE OTHER HAND LD. DEPARTMENTAL REPRESENTATIV E SUPPORTED THE ORDERS OF AUTHORITIES BELOW. HE SUBMITTED THAT DIS ALLOWANCES ARE MADE FOLLOWING THE STATUTORY PROVISIONS OF THE ACT AND T HE CLAIM MADE BY ASSESSEE IN THE COMPUTATION OF INCOME WAS NOT STATUTORILY CO RRECT AND THEREFORE THE SAME COULD NOT BE SAID TO BE AN INADVERTENT MISTAKE . THE LD. DR RELYING ON THE DECISION IN THE CASE OF DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION PVT. LTD. 191 TAXMAN 179 (DEL) AND SU BMITTED THAT IF ASSESSEES CLAIM IS WITHOUT ANY BASIS AND IS NOT IN ACCORDANCE WITH LAW, IT COULD NOT BE SAID THAT CLAIM OF ASSESSEE WAS BONAFI DE. HE SUBMITTED THAT ORDER OF LD. CIT(A) BE CONFIRMED BY REJECTING THE A PPEAL FILED BY ASSESSEE. 9. WE HAVE CAREFULLY CONSIDERED THE FACTS OF THE CA SE AND THE ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO PERUSED AND CONSID ERED THE CASES CITED BY BOTH REPRESENTATIVES OF THE PARTIES (SUPRA). WE OB SERVE THAT ASSESSEE MADE CLAIM OF RS. 13,60,822/- WHICH IS STATED AS PROVIS ION FOR DOUBTFUL DEBTS AND ADVANCES. WE AGREE WITH LD. DR THAT SAID CLAIM CO ULD NOT BE ALLOWED STATUTORILY AS THE LIABILITY HAD NOT CRYSTALLIZED. IT WAS PROVISIONAL. HOWEVER, WE OBSERVE THAT WHEN ATTENTION OF ASSESSEE WAS DRAW N BY AO TO ABOVE FACT, ASSESSEE ADMITTED THAT THE SAID CLAIM WAS NOT ALLOW ABLE AND WAS INADVERTENTLY CLAIMED. THEREFORE, SAID AMOUNT OF R S. 13,60,822/- WAS DISALLOWED. CONSIDERING THE FACTS ON RECORD, WE AR E OF THE CONSIDERED VIEW ITA NO. 3838/M/10 5 THAT SUBMISSION OF ASSESSEE THAT THERE WAS AN INADV ERTENT MISTAKE AND THE CLAIM WAS MADE BONAFIDE, HAS MERITS IN THE ABSENCE OF ANY MATERIAL ON RECORD TO THE CONTRARY. HENCE WE ARE INCLINED TO AGREE WI TH THE CONTENTION OF ASSESSEE THAT CLAIM WAS MADE BY ASSESSEE BONAFIDE A ND THEREFORE LEVY OF PENALTY IN RESPECT OF ADDITION OF RS. 13,60,822/- I S NOT JUSTIFIED. 10. NOW COMING TO THE ADDITION OF RS. 9,66,393/- TO WARDS INTEREST ON WHICH TDS WAS PAID IN SUBSEQUENT YEARS, WE OBSERVE THAT ASSESSEE WAS REQUIRED TO DEDUCT TDS @ 15% AS PER ARTICLE 12 OF D TAA AND THEREFORE TOTAL TAX REQUIRED TO BE DEDUCTED AT RS. 2,94,066/-. THE ASSESSEE PAID ON TIME A SUM OF RS. 1,14,199/-. IN RESPECT OF BALANCE AMOU NT OF TDS TO BE PAID, THE ASSESSEE STATED THAT IT DEDUCTED TDS BUT DUE TO NON -AVAILABILITY OF FUNDS BECAUSE OF CONTINUOUS LOSSES, PAYMENTS WERE MADE LA TE. HOWEVER, IT IS A FACT THAT ASSESSEE PAID BALANCE AMOUNT OF TDS IN SU BSEQUENT YEAR. THEREFORE, IT IS NOT A CASE THAT ASSESSEE WAS NOT A WARE OF THE PROVISIONS OF THE ACT THAT ASSESSEE WAS REQUIRED TO DEDUCT TDS IN RESPECT OF PAYMENT MADE TO A NON RESIDENT AND TO DEPOSIT THE SAME ON T IME TO ENABLE IT TO CLAIM DEDUCTION OF THE AMOUNT PAID TO NON RESIDENT. 11. WE OBSERVE THAT ASSESSEE DEDUCTED TDS FROM PAYM ENT OF INTEREST PAID TO NON-RESIDENT BUT DID NOT PAY THE SAME ON THE GRO UND THAT ASSESSEE WAS INCURRING CONTINUOUS LOSSES AND THERE WAS CRUNCH OF FUNDS. THEREFORE, ASSESSEE WAS AWARE THAT IT HAD NOT PAID TDS AS PER PROVISIONS OF THE ACT BUT CHOOSE TO CLAIM DEDUCTION OF AMOUNT PAID WHICH IS U NDISPUTEDLY CONTRARY TO PROVISIONS OF SEC. 40(A)(I) OF THE ACT WITHIN THE K NOWLEDGE OF ASSESSEE. IN VIEW OF ABOVE, WE ARE OF THE CONSIDERED VIEW THAT T HE CONTENTION OF ASSESSEE THAT THERE WAS A BONAFIDE MISTAKE INADVERTENTLY IN CLAIMING THE SAID DEDUCTION OF INTEREST PAID TO NON RESIDENT HAS NO M ERIT. THE CASES CITED BY LD. AR (SUPRA) ARE CASES WHEREIN THERE WAS A FINDIN G THAT THERE WAS AN INADVERTENT MISTAKE AND CLAIM WAS MADE BONAFIDELY B Y ASSESSEE IN INCLUDING THE PARTICULAR ITEM OF CLOSING STOCK AND/OR CLAIMIN G AMOUNT IN PROFIT AND LOSS ACCOUNT ETC, WHICH IS NOT THE CASE OF ASSESSEE HERE IN. IT IS NOT A CASE WHERE ASSESSEE HAS MADE CLAIM INADVERTENTLY BUT ASSESSEE MADE CLAIM KNOWING THAT ITA NO. 3838/M/10 6 IT IS CONTRARY TO PROVISIONS OF THE ACT. THEREFORE , THE CASES CITED BY LD. AR ARE NOT RELEVANT TO THE CASE OF ASSESSEE IN RESPECT OF AMOUNT OF RS. 9,66,393/- WHICH WAS ADDED BY AO WHILE COMPLETING T HE ASSESSMENT SINCE CLAIM OF ASSESSEE IS NOT BONAFIDE IN FILING RETURN OF INCOME. 12. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, WH EN AO POINTED OUT ABOVE FACTS TO ASSESSEE, THE ASSESSEE ADMITTED THE DISALLOWANCE TO BE MADE. WE ARE OF THE CONSIDERED VIEW THAT EXPLANATION GIVE N BY ASSESSEE THAT ASSESSEE DID NOT CLAIM TDS NEXT YEAR WHILE FILING T HE RETURN AND IT ONLY MADE CLAIM OF TDS DURING THE COURSE OF ASSESSMENT PROCEE DINGS OF NEXT ASSESSMENT YEAR IS NOT RELEVANT AND CANNOT GET BENE FIT AS IN THE ASSESSMENT YEAR UNDER CONSIDERATION, CLAIM OF ASSESSEE WAS ADM ITTEDLY WRONG. SINCE, ON THE BASIS OF THE FACTS, THE CLAIM OF ASSESSEE WAS I NCORRECT TO ITS KNOWLEDGE, WE ARE OF THE CONSIDERED VIEW THAT ASSESSEE CANNOT ESCAPE PENALTY U/S. 271(1)(C) OF THE ACT ON ACCOUNT OF FURNISHING OF WR ONG PARTICULARS OF INCOME IN RESPECT OF AMOUNT OF RS. 9,66,393/-. HENCE WE A CCEPT CONTENTION OF LD. DR IN RESPECT OF LEVY OF PENALTY OF RS. 9,66,393/- AND AS CONFIRMED BY LD. CIT(A). ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CI T(A) TO THE EXTENT OF LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT @ 100% OF TAX SOUGHT TO BE EVADED ON AN AMOUNT OF RS. 9,66,393/-. IN VIEW OF ABOVE GROU ND OF APPEAL TAKEN BY ASSESSEE IS ALLOWED IN PART. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED ON THIS 19 TH DAY OF OCTOBER, 2011 SD/- SD/- ( R.K. PANDA) (B.R. MITTAL ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 19 TH OCTOBER, 2011 RJ ITA NO. 3838/M/10 7 COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR B BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 3838/M/10 8 - DATE INITIALS 1. DRAFT DICTATED ON: 17.10.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 17.10.2011 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. ORDER PRONOUNCED ON: SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: SR. PS/PS 9. DATE ON WHICH FILE GOES TO AR 10. DATE OF DISPATCH OF ORDER: