DCIT, New Delhi V. M/s. Forza Medi India (P) Ltd., New Delhi

ITA 4403/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0547 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-12-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 01-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Assessee Lawyers: P D MITTAL
• Keywords: Bonafide belief; Bonafide mistake

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH B DELHI ] BEFORE SHRI A. D. JAIN, JM AND SHRI K. D. RANJ AN, AM I. T. A. NO. 4403 (DEL) OF 2010 ASSESSMENT YEAR : 2006-07. DY. COMMISSIONER OF INCOME-TAX, M/S. FORZA MEDI INDIA (PVT.) LTD., C I R C L E : 11 (1), VS. A5, MALCHA MARG, DIPLOMATIC ENCLAVE, N E W D E L H I. CHANAKYA PURI, N E W D E L H I. P A N / G I R NO. AAA CF 4557 G. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI P. D. MITTAL, C. A.; DEPARTMENT BY : MS. Y. KAKKAR, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE REVENUE FOR ASSESSMENT YEAR 200 6-07 ARISES OUT OF ORDER OF THE LD. CIT (APPEALS)-XIII, NEW DELHI. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE ARE REPRODUCED AS UNDER :- ' 1. THE ORDER OF THE LD. CIT (APPEALS) IS WRO NG, PERVERSE, ILLEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET ASIDE; 2. ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT (APPEALS) HAS ERRED IN DELETING THE PENALTY UNDER S ECTION 271(1)(C) OF THE I. T. ACT OF RS.4,20,672/- ON ACCOUNT OF EXCESS CLAIM OF DEPR ECIATION UNDER SECTION 40(A)(IA) OF THE ACT. 2 I. T. A. NO. 4403 (DEL) OF 2010 3. THE ONLY ISSUE RAISED IN THE REVENUES APPEAL RE LATES TO PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO AS THE ACT]. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE CLAIMED A DED UCTION OF RS.20,79,475/- IN COMPUTATION OF INCOME ON ACCOUNT OF RENT OF BUILDING AND PROFESSIO NAL CHARGES. ON A QUERY IT WAS SUBMITTED THAT TAX DEDUCTED AT SOURCE ON RENTAL INCOME WAS NOT DEP OSITED DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR 2005-06 AND THE SAME WAS DEPOSITED IN ASSESSMENT YEAR 2006-07. IT WAS ALSO SUBMITTED THAT PROVISIONS OF SECTION 40(A)(IA) OF T HE ACT WERE APPLICABLE TO RENTAL INCOME WITH EFFECT FROM 1/04/2006. THE AO OBSERVED THAT THE TAX AUDIT REPORT FOR AY 2005-06 STATED THAT THE PAYMENTS MADE TOWARDS RENT OF BUILDING AND PROF ESSIONAL CHARGES AMOUNTING TO RS.10,33,725.49 AND RS.8,29,436.89 RESPECTIVELY, ON WHICH TDS AMOUNTING TO RS.1,58,160/- AND RS.42,716/- WAS DEPOSITED AFTER STIPULATED DATE DUE FOR SUCH PAYMENT. FROM THESE FACTS THE AO CAME TO THE CONCLUSION THAT AMOUNT OF RS.8,29,436/- DISALLOWED IN AY 2005-06 WAS REQUIRED TO BE ALLOWED ON PAYMENT BASIS IN THE CURRENT YEAR. T HEREFORE, THE ASSESSEE HAD MADE A CLAIM OF DEDUCTION TO THE EXTENT OF RS.12,50,039/- (20,79,47 5- 8,29,436) IN EXCESS. HE ACCORDINGLY ADDED THE AMOUNT OF RS.12,50,039/- AND INITIATED PE NALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 4. THE ASSESSING OFFICER IMPOSED PENALTY UNDER SECT ION 271(1)(C) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICUL ARS TO THE EXTENT OF RS.12,50,039/-. ON APPEAL IT WAS SUBMITTED THAT TAX DEDUCTED AT SOURCE WAS DE POSITED LATE AND ADDITION HAS BEEN MADE ON ACCOUNT OF OPERATION OF SECTION 40(A)(IA). THERE W AS NOTHING ON RECORD TO SHOW THAT THE ASSESSEE HAD CONCEALED INCOME OR FURNISHED INACCURATE PART ICULARS OF SUCH INCOME. ALL THE FACTS WITH REGARD TO DISALLOWANCE MADE WAS VERY MUCH AVAILABLE ON RECORD. IT WAS ALSO SUBMITTED THAT THE STATUTORY AUDITORS HAVE MADE THE REMARKS IN THE TAX AUDIT REPORT FOR AY 2005-06 WITHOUT TAKING INTO CONSIDERATION THAT THE RENT EXPENSES HAVE BEEN INCLUDED IN THE PROVISIONS OF SECTION 40(A)(IA) WITH EFFECT FROM 1/04/2006 BY TAXATION LAWS (AMENDM ENT) ACT, 2006. THE MISTAKE ON THE PART OF THE STATUTORY AUDITORS APPEARS TO BE BONAFIDE AN D AS A RESULT OF OUT OF SIGHT. IT WAS ALSO SUBMITTED THAT THE BONAFIDE BELIEF HAS ARISEN ON AC COUNT OF ERROR COMMITTED BY STATUTORY AUDITORS OF THE COMPANY WHILE ISSUING TAX AUDIT REPORT FOR A Y 2005-06. IN FACT THE STATUTORY AUDITORS, M/S. S. N. DHAWAN & CO. HAVE OBSERVED THAT THE RENT OF THE BUILDING AND THE PROFESSIONAL 3 I. T. A. NO. 4403 (DEL) OF 2010 CHARGES WILL NOT BE ALLOWED DUE TO DELAYED PAYMENT OF TDS IN REPLYING TO ITEM NO. 17-F OF THE FORM NO. 3-CD PREPARED FOR AY 2005-06 DATED 29/10/2 005. SUBSEQUENTLY, IT WAS NOTICED THAT THE DISALLOWANCE OF RENT OF BUILDING ON ACCOUNT OF DELAYED PAYMENT OF TDS HAS COME INTO OPERATION WITH EFFECT FROM 1/04/2006 RELEVANT TO AY 2006-07 AND NOT AY 2005-06. FURTHER THERE WAS NOTHING TO SHOW THAT THE ASSESSEE HAD CON CEALED THE PARTICULARS OF INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME. T HE FACTS OF THE PRESENT CASE THUS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS P. LTD. 322 ITR 158 (SC). 5. THE LD. CIT (APPEALS) AFTER CONSIDERING THE FACT S DELETED THE PENALTY BY OBSERVING AS UNDER :- IT IS, HOWEVER, OBSERVED FROM THE FACTS AS RE FERRED TO ABOVE THAT THE CLAIM OF DEDUCTION OF RS.20,79,374/- UNDER SECTION 40(A)(IA) OF THE ACT WAS MADE BY THE APPELLANT IN AY 2006-07 UNDER THE BONAFIDE BELIEF T HAT THE SAID DEDUCTION WAS NOT ALLOWABLE FOR AY 2005-06. THIS BONAFIDE BELIEF HAD ARISEN ON ACCOUNT OF ERROR COMMITTED BY THE STATUTORY AUDITORS OF THE COMPANY WHILE ISSUING THE TAX AUDIT REPORT FOR AY 2005-06, A COPY OF WHICH HAS BEEN FIL ED DURING THE APPELLATE PROCEEDINGS AND IS ON RECORD. IT IS THIS ERROR OF THE STATUTOTY AUDITORS WHICH LEAD TO THE CLAIM OF DEDUCTION OF RS.20,79,475/- BY THE ASSESSEE IN HIS RETURN OF INCOME FOR AY 2006-07. THAT AS THE ERROR WAS APPARENT THE REFORE, CONSEQUENT TO THE DISALLOWANCE OF RS.12,50,039/- FROM THE TOTAL CLAIM OF RS.20,79,475/-, THE APPELLANT DID NOT FILE AN APPEAL AGAINST THE SAID A SSESSMENT ORDER. THE ASSESSEE HAS ALSO RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS P. LTD. 322 ITR 158 (SC). THUS, IT IS NOT A CASE WHICH CAN BE SAID TO BE STRICTLY COVERED BY THE PROVISION S OF SECTION 271(1)(C) AND FROM THE EXPLANATION GIVEN BY THE ASSESSEE IT IS OBSERVE D THAT THE BONAFIDE ERROR HAPPENED IN THE RETURN BECAUSE OF TAX AUDIT REPORT OF THE STATUTORY AUDITORS, WHO IN ANY CASE ARE SUPPOSED TO BE MORE CONVERSANT WITH THE INCOME-TAX PROVISIONS. RESPECTFULLY FOLLOWING THE OBSERVATIONS OF HONBLE SUPREME COURT IN THE CASE OF 4 I. T. A. NO. 4403 (DEL) OF 2010 CIT VS. RELIANCE PETRO PRODUCTS P. LTD. 322 ITR 158 AND APPLYING IT TO THE FACTS OF THE APPELLANTS CASE, THE PENALTY IMPOSED IS DEL ETED. 6. BEFORE US THE LD. SR. DR SUBMITTED THAT THE ASSE SSEE HAD MADE EXCESS CLAIM OF DEDUCTION IN THE YEAR UNDER CONSIDERATION. NO APPEAL WAS FIL ED BY THE ASSESSEE AGAINST QUANTUM ADDITION. IT HAS BEEN SUBMITTED THAT THE EXPLANATION OFFERED BY THE ASSESSEE SHOULD BE BONAFIDE AND NOT A FANTASTIC EXPLANATION. MISTAKE OF AUDITORS IS NOT A CRITERIA. THE LD. CIT (APPEALS) HAS PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS P. LTD. (SUPRA) WHICH IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. SHE PLACED RELIANCE ON THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SRI VALLIAPPA TEXTILES 294 ITR 322 (KAR.) FOR THE PROPOSITION THA T TAX DEDUCTION OR EXEMPTION SHOULD BE FOR BONAFIDE REASON AND NOT FOR THOSE WHO MAKE FALSE DE CLARATION FOR THE PURPOSE OF BENEFIT IN TERMS OF STATUTE. THE PROVISIONS OF SECTION 271(1)(C) HA D TO BE STRICTLY APPLIED IN THE LARGER INTEREST OF DISCIPLINE IN FILING CORRECT RETURNS OF INCOME BY T HE ASSESSEE. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS BONAFIDE MISTAKE ON THE PART OF THE ASSESSEE AS THE STATUTORY AUDITORS HAVE GIVEN NOTE IN ASSESSMENT YE AR 2005-06 THAT PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE TO RENTALS. THE ASSESSEE HAS NOT F URNISHED ANY INACCURATE PARTICULARS OF INCOME. THEREFORE, THE LD. CIT (A) HAS RIGHTLY DELETED THE PENALTY. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE THAT THE ASSESSEE HAD NOT CLAIMED DEDU CTION ON ACCOUNT OF RENT PAID IN AY 2005-06 ON THE GROUND THAT TDS WAS DEPOSITED LATE AND IN A Y 2006-07. THE COUNSEL FOR THE ASSESSEE WERE UNDER THE BELIEF THAT PROVISIONS OF SECTION 40 (A)(IA) WERE APPLICABLE FOR AY 2006-07. THE ASSESSEE HAD NOT CONCEALED ANY INCOME NOR HAS FURNI SHED ANY INACCURATE PARTICULARS OF INCOME. IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS P. L TD. (SUPRA) HONBLE SUPREME COURT HAS HELD THAT MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAM OUNT TO FURNISHING INACCURATE PARTICULARS OF HIS INCOME. IN AY 2006-07 THE ASSESSEE CLAIMED DED UCTION ON THE ADVICE OF HIS CHARTERED ACCOUNTANT THAT DEDUCTION OF RS 20,79,475 WAS NOT A LLOWABLE AS THE TDS WAS DEPOSITED LATE. THE ASSESSING OFFICER ALLOWED DEDUCTION OF RS 8,29,436/ - AS PROVISIONS OF SECTION 40(A)(IA) WERE APPLICABLE IN AY. 2005-06 IN RESPECT OF PROFESSIONA L INCOME. BUT IN RESPECT OF RENTAL INCOME THE 5 I. T. A. NO. 4403 (DEL) OF 2010 PROVISIONS OF SECTION 40(A)(IA) CAME INTO OPERATION W.E.F. 2006. HENCE AMOUNT OF RS 12,50,039/- WAS ALLOWABLE AS DEDUCTION IN AY. 2005-05. THUS MIS TAKE WAS COMMITTED ON THE ADVICE HIS CHARTERD ACCOUNTANT WHICH LED TO MAKING OF CLAIM IN AY 2006-07, THE YEAR IN WHICH TDS WAS DEPOSITED THEREFORE, IT IS A CASE OF BONAFIDE BEL IEF THAT THE ASSESSEE WAS ELIGIBLE FOR DEDUCTION IN RESPECT OF RENTAL PAYMENTS IN AY 2006-07 ON THE BASIS OF PAYMENT OF TDS WHICH WAS DISALLOWED BY THE ASSESSEE IN AY 2005-06. THEREFOR E, THE LD. CIT (A) WAS JUSTIFIED IN CANCELLING THE PENALTY IMPOSED UNDER SECTION 271(1)(C) OF THE ACT RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS P. LTD. (SUPRA). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 04 TH FEBRUARY, 2011. SD/- SD/- [ A. D. JAIN ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 04 TH FEBRUARY, 2011. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.