Surrel Enterprise Pvt.Ltd., Mehsana V. The ACIT.,Mehsana Circle, Mehsana

ITA 3876/AHD/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1825 (ITAT-AHMEDABAD)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-12-2009
• Assessment Year: 2002-2003
• Appeal Filed On: 17-10-2007
• Court: TRIBUNAL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD B BENCH (BEFORE DR.O.K. NARAYANAN, VICE-PRESIDENT AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER) ITA NO.3876 AND 3877/AHD/2007 [ASSTT.YEAR: 2002-2003 AND 2003-2004] SURREL ENTERPRISE PVT. LTD. 513, NATIONAL HIGHWAY ROAD VILLAGE CHHATRAL TAL. & DIST. KALOL, MEHSANA. VS. ACIT, MEHSANA CIRCLE MEHSANA. ASSESSEE BY : SHRI TUSHAR P. HEMANI REVENUE BY : SMT. NEETA SHAH DATE OF ORDER RESERVED : 16-12-2009 O R D E R PER DR.O.K. NARAYANAN, VICE-PRESIDENT : THESE APPEALS ARE FILED BY THE ASSESSEE. THE RELEVANT AS SESSMENT YEARS ARE 2002-2003 AND 2003-2004. THESE APPEALS ARISE OUT O F THE ORDERS IMPOSING PENALTY UNDER SECTION 271(1)(C) OF THE INC OME TAX ACT, 1961. THEY ARE DIRECTED AGAINST THE ORDERS OF THE CIT(A)-XXI, AHMEDABAD PASSED ON 24-8-2007. 2. THE PENALTY LEVIED FOR THE ASSESSMENT YEAR 2002- 2003 IS RS.2,25,000/- AND FOR THE ASSESSMENT YEAR 2003-2004 IS RS.2,77,600/-. THE RATE OF PENALTY LEVIED FOR BOTH THE ASSESSMENT YEARS IS 100% OF THE AMOUNT OF TAX SOUGHT TO BE EVA DED. PAGE - 2 ITA NO.3876 AND 3877/AHD/2007 -2- 3. IN BOTH THESE CASES, THE ASSESSEE HAD PROVIDED F OR BONUS COMMITMENT IN ITS ACCOUNTS. THE SAID BONUS LIABILI TY WAS DEBITED IN THE PROFIT AND LOSS ACCOUNT, BY VIRTUE OF WHICH, TH E TAXABLE INCOME WAS WORKED OUT AFTER CLAIMING DEDUCTION FOR THE SAI D BONUS LIABILITY. IN THE COURSE OF ASSESSMENT, IT WAS NOTICED THAT TH E PROVISION MADE WAS NOT ACTUALLY PAID TO THE EMPLOYEES AS REQUIRED UNDER THE PROVISIONS OF LAW CONTAINED IN SECTION 43B. ACCORD INGLY, THE SAID LIABILITY WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS UNDER APPEAL. PURSUANT T O THE ADDITIONS MADE, THE AO FURTHER CAME TO A CONCLUSION THAT THE DEDUCTION OF BONUS LIABILITY MADE BY THE ASSESSEE IN THE COMPUTA TION OF INCOME WAS NOT BASED ON ANY BONA FIDE COMPUTATION AND IN FACT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS RESULTING IN C ONCEALMENT OF INCOME. IT IS ON THE ABOVE REASONING THAT THE PENA LTIES WERE IMPOSED FOR BOTH THE ASSESSMENT YEARS. 4. IN THE FIRST APPEAL, THE CIT(A) HELD THE VIEW TH AT THE ASSESSEE WAS IN THE HABIT OF CLAIMING WRONG DEDUCTION WHICH WAS REPEATED FOR THE IMPUGNED ASSESSMENT YEAR AS WELL. HIS FINDING IS THAT THE ASSESSEE APPEARS TO BE A REGULAR DEFAULTER DESPITE THE FACT THAT EVERY YEAR HIS CLAIM IS BEING DISALLOWED UNDER SECTION 43 B. THE ASSESSEE DOES NOT STOP CLAIMING WRONG DEDUCTION. IT IS ON T HE BASIS OF THE ALLEGATION OF THE ABOVE MENS REA IN THE CONDUCT OF THE ASSESSEE THAT THE CIT(A) HAS CONFIRMED THE PENALTIES IN THESE CAS ES. PAGE - 3 ITA NO.3876 AND 3877/AHD/2007 -3- 5. WE HAVE HEARD BOTH THE SIDES IN DETAIL. THRUST GIVEN BY THE CIT(A) ON THE MENS REA REFLECTED IN THE CONDUCT OF THE ASSESSEE DOES NOT SURVIVE WITH USUAL FORCE, SINCE THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF UNION OF INDIA & OTHER S VS. DHARMENDRA TEXTILES PROCESSORS & ORS., 306 ITR 277. THE SUPREME COURT HAS HELD IN THE SAID CASE THAT WILLFUL CONCEA LMENT IS NOT ESSENTIAL FOR ATTRACTING CIVIL LIABILITY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. THE OTHER SIDE OF THE COIN I S THAT PENALTY CANNOT BE IMPOSED ON AN ASSESSEE ONLY ON THE GROUND OF MENS REA . IT IS ESSENTIAL ON THE PART OF THE REVENUE AUTHORITIES AS WELL, TO ESTABLISH THAT THERE WAS FURNISHING OF INACCURATE P ARTICULARS OF INCOME AND/OR CONCEALMENT OF INCOME. THEREFORE, AP ART FROM EXAMINING THE DOCTRINE OF MENS REA , IT IS VERY ESSENTIAL TO APPRECIATE THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THIS CASE, EVEN THOUGH THE ASSESSEE HAS CLAIMED DEDUCTION OF BONUS IN VIOLATION OF SECTION 43B, THE ASSESSEE HAS PAID THE BONUS AMOUNT SUBSEQUENTLY IN THE ENSUING ASSESSMENT YEAR, WHICH IN TURN SHOWS TH AT THE CLAIM/COMPUTATION WAS NOT MISLEADING OR MALICIOUS. IN VIEW OF THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE, THE LIABILITY TO PAY THE BONUS HAS BEEN ACCRUED AND THEREFORE IT WAS NEC ESSARY FOR THE ASSESSEE TO PROVIDE IN ITS ACCOUNT THE CORRESPONDIN G AMOUNT TO SATISFY THE SAID LIABILITY OF EXPENDITURE. THEREFO RE, TREATING THE SAID EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT WHICH IS A COMPILATION FROM THE LEDGER ACCOUNTS OF THE ASSESSEE IS A LEGIT IMATE ACCOUNTING TREATMENT. THE ASSESSEE CANNOT BE HELD TO BE GONE WRONG ON THAT POINT. NOW THE DEVIATION STARTS FROM THE COMPUTATI ON OF INCOME PAGE - 4 ITA NO.3876 AND 3877/AHD/2007 -4- MADE BY THE ASSESSEE FOR THE PURPOSE OF FILING RETU RN OF INCOME. WHEN THE PROFIT AND LOSS ACCOUNT HAS BEEN PREPARED IN ACCORDANCE WITH THE ACCOUNTING PRACTICE FOLLOWED BY THE ASSESS EE, THERE CANNOT BE A CASE AGAINST THE ASSESSEE THAT INACCURATE PART ICULARS HAVE BEEN FILED BY THE ASSESSEE. THE GRAVITY OF THE MISTAKE IS TO BE CONFINED TO THE COMPUTATION OF TAXABLE INCOME. 6. THE INCURRING OF THE EXPENDITURE AND NON-DEDUCTI BILITY OF CERTAIN EXPENDITURE IN THE LIGHT OF SECTION 43B ARE OF MATTERS WHICH REQUIRE ADJUSTMENTS, ASSESSMENT AFTER ASSESSMENT. O NLY FOR THE REASON THAT THE ASSESSEE HAS CLAIMED THE EXPENDITUR E ON THE BASIS OF THE ACCOUNTS DOES NOT MEAN THAT THE AO WOULD STRAIG HT AWAY ALLOW THAT DEDUCTION. THE PRESENT CASES ARE TESTIMONY TO THE ABOVE. THE AO HAS HIMSELF NOTICED THAT THE CLAIM OF DEDUCTION WAS NOT PROPER AS PAYMENTS WERE NOT MADE. THE DETAILS REGARDING T HE LIABILITY TOWARDS BONUS AS PER THE ACCOUNTS OF THE ASSESSEE A ND THE CLAIM OF DEDUCTION ON THE BASIS OF PAYMENT ARE ALL DISCERNIB LE IF ONE EXAMINES A BLOCK OF ASSESSMENT YEARS. WHEN THIS TREATMENT O F SECTION 43B IS RECURRING A FEATURE IN ASSESSMENTS, IT IS NECESSARY TO EXAMINE A BLOCK OF ASSESSMENT YEARS TO UNDERSTAND WHETHER THE ASSES SEE HAS MADE ANY ATTEMPT TO CONCEAL ITS INCOME OR NOT. ON THE B ASIS OF JUST AN INDIVIDUAL ASSESSMENT YEAR, IF ONE ATTEMPTS TO MAKE OUT A CASE OF CONCEALMENT, WITHOUT CONSIDERING THE ACTUAL PAYMENT S MADE IN THE SUBSEQUENT YEARS, SUCH ATTEMPT WOULD BE ALWAYS PREM ATURE. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF THE CA SE, WE FIND THAT THE CIRCUMSTANCES AS ASSUMED BY THE ASSESSING AUTHO RITY, ARE NOT RIPE PAGE - 5 ITA NO.3876 AND 3877/AHD/2007 -5- ENOUGH TO LEVY PENALTY ON THE ASSESSEE UNDER SECTIO N 271(1)(C) OF THE ACT. RELIANCE PLACED BY THE CIT(A) ON THE CONC EPT OF MENS REA AGAINST THE ASSESSEE IS ALSO UNTENABLE IN VIEW OF T HE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEX TILE. 7. THEREFORE, IN THE LIGHT OF THE FACTUAL CIRCUMSTA NCES AND LEGAL FEATURES EXPLAINED ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THESE PENALTIES ARE NOT JUSTIFIED. ACCORDINGLY, PENALTIE S ARE DELETED. 8. IN RESULT, THESE APPEALS FILED BY THE ASSESSEE A RE ALLOWED. ORDER PRONOUNCED ON FRIDAY THIS 18 TH DAY OF DECEMBER, 2009. SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (DR.O.K. NARAYANAN) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 18-12-2009 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER /DR, ITAT, AHMEDABAD