MAHALAXMI TOURISM DEVELOPMENT CO. P. LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 4494/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55009 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 09-08-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 29-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: SAMPAT L SAWANT DIR ECTOR
• Keywords: Unexplained cash credit; Business expenditure; Opportunity of being heard; Wrong claim
• Section: 68; 37; 143(3); 142(1); 115JB; 133(6); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE S/SHRI D.K.AGARWAL (JM) AND RAJENDRA SINGH(A .M ) ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) M/S MAHALAXMI TOURISM DEVELOPMENT CO.PVT.LTD., 102, KALPANA, 12 TH ROAD, KHAR (W), MUMBAI-400052 PAN:AACCM6371K ASSISTANT COMMISSIONER OF INCOME TAX, 9(2), MUMBAI. APPELLANT V/S RESPONDENT DATE OF HEARING : 9.8.2011 DATE OF PRONOUNCEMENT : APPELLANT BY : SHRI SAMPAT L.SAWANT, DIR ECTOR RESPONDENT BY : SHRI A.K.NAYAK, D.R. O R D E R PER D.K.AGARWAL (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 6.4.2009 PASSED BY THE LEAR NED COMMISSIONER OF INCOME TAX (A) FOR THE ASSESSMENT YEAR 2005-06. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AS SESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TOURISM & TOU RISM DEVELOPMENT AND RUNNING BUSSES ON HIRE BASIS FOR V ARIOUS ENTITIES INCLUDING GOVERNMENT DEPARTMENTS. DURI NG THE YEAR UNDER CONSIDERATION, THE INCOME WAS MAINLY COM PRISED ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 2 FROM BUSES LET ON HIRE TO PUNE MUNICIPAL TRANSPORT AND HOTEL RECEIPTS. THE RETURN OF INCOME WAS FILED S HOWING TOTAL LOSS OF RS.26,28,253/- BUT THE TAX PAYABLE WAS WO RKED OUT ON BOOK PROFIT OF RS.6,31,808/- UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961(IN SHORT THE ACT). THE AO AFT ER PROCESSING THE RETURN UNDER SECTION 143(1) OF THE A CT ISSUED NOTICES UNDER SECTIONS 143(2) AND 142(1) ALONG WIT H THE QUESTIONNAIRE WHEREIN THE ASSESSEE WAS ASKED TO FIL E DETAILS OF INCOME AND EXPENSES CLAIMED. THE AO AFTER CONSI DERING THE SAME, HOWEVER, COMPLETED THE ASSESSMENT AT AN I NCOME OF RS.2,85,629/- INCLUDING THE DISALLOWANCE UNDER SECTION 41(1) RS.14,47,045/-, PENALTY OF RS.6,05,750/-, UN EXPLAINED CASH CREDIT UNDER SECTION 68 AND RS.5,00,000/-, VI DE ORDER DATED 30.11.2007 PASSED UNDER SECTION 143(3) OF TH E ACT. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX ( A) PARTLY ALLOWED THE APPEAL. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (A), THE ASSESSEE IS IN APPEAL BEFORE US. 4. GROUND NO.1 IS AGAINST THE SUSTENANCE OF ADDITIO N OF RS.14,47,045/- MADE BY THE AO UNDER SECTION 41(1) O F THE ACT. ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 3 5. BRIEF FACTS OF THE ABOVE ISSUE ARE THAT ON EXAMI NATION OF BALANCE SHEET FILED ALONG WITH THE RETURN OF INC OME, THE AO NOTED THAT THE ASSESSEE HAS SHOWN SUNDRY CREDI TORS OF RS.41,35,553/- FOR THE YEAR UNDER CONSIDERATION. ON THE BASIS OF THE DETAILS FILED, THE AO ISSUED NOTICE UNDER SE CTION 133(6) OF THE ACT TO M/S ANTONY GARAGE PVT.LTD. (OUTSTANDI NG AMOUNT-RS.14,47,045/-) AND M/S BAFNA MOTORS (MUMBA I) PVT.LTD.(OUTSTANDING AMOUNT-RS.21,76,302/-). M/S AN TONY GARAGES PVT.LTD. IN ITS REPLY HAS FILED A COPY OF LEDGER ACCOUNT OF M/S MAHALAXMI TOURISM DEVELOPMENT CO.P VT.LTD. IN ITS BOOKS FOR THE FINANCIAL YEAR 2004-05 WHICH S HOWS THAT THERE IS NO SUM PAYABLE BY THE ASSESSEE TO M/S ANTONY GARAGES PVT.LTD. ACCORDINGLY, THE ASSESSEE WAS ASK ED TO SHOW CAUSE AS TO WHY THE AMOUNT OF RS.14,47,045/- SHOWN AS PAYABLE TO M/S ANTONY GARAGES PVT LTD SHOULD NO T BE ADDED BACK UNDER SECTION 41(1) OF THE ACT. IN REP LY, THE DIRECTOR OF THE ASSESSEE-COMPANY AGREED THAT THERE WAS NO AMOUNT PAYABLE BY ITS COMPANY TO M/S ANTONY GARAG ES PVT.LTD. ACCORDINGLY, THE AO DISALLOWED RS.14,47, 045/- UNDER SECTION 41(1) OF THE ACT. ON APPEAL, THE LE ARNED COMMISSIONER OF THE INCOME TAX (A) OBSERVED THAT FR OM THE APPELLANTS EXPLANATION ITSELF IT IS CLEAR THAT A WRONG CLAIM WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT WHICH WAS RECTIFIED IN THE FOLLOWING YEAR, HENCE, HE CONFIRME D THE DISALLOWANCE MADE BY THE AO. ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 4 6. AT THE TIME OF HEARING, SHRI SAMPAT L.SAWANT, D IRECTOR OF THE ASSESSEE-COMPANY VIDE HIS WRITTEN SUBMISSION S SUBMITTED THAT IN THE YEAR 2005-06 THE AMOUNT HAS BEEN SHOWN AS OUTSTANDING FOR THE DAMAGES CAUSED TO ALL THE 25 BUSES WHILE IN TRANSIT FROM PATALGANA IN RAIGAD D ISTRICT. LATER, THE SAID AMOUNT HAS BEEN DELETED AND DECLARE D NIL IN THE ASSESSMENT YEAR 2006-07. THEREFORE, NO PENALTY IS LEVIABLE. 7. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS THE ORDER OF THE AO AND THE LEARNED COMMISSIONER OF INCOME T AX (A). 8. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE RI VAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE ARE OF THE VIEW THAT SINCE THE ASSESSEE HAS ADMITTED TH AT IT WAS AN ERROR BY CLAIMING THE SAME AS AMOUNT PAYABLE TO THE PARTY WHICH WAS RECTIFIED IN THE FOLLOWING YEAR AND IN TH E ABSENCE OF ANY MATERIAL TO SHOW OTHERWISE, WE ARE OF THE V IEW THAT THE LEARNED COMMISSIONER OF INCOME TAX (A) WAS JUS TIFIED IN UPHOLDING THE ADDITION MADE BY THE AO AND ACCORDI NGLY, THE GROUND TAKEN BY THE ASSESSEE IS REJECTED. 9. GROUND NO.2 IS AGAINST THE SUSTENANCE OF DISALL OWANCE OF PENALTY OF RS.6,05,750/-. ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 5 10 BRIEF FACTS OF THE ABOVE ISSUE ARE THAT IT WAS O BSERVED BY THE AO THAT IN THE BALANCE SHEET UNDER THE HEAD SUNDRY DEBTORS THE ASSESSEE HAS SHOWN AN AMOUNT OF RS.6,05,750/- AS AMOUNT RECEIVABLE FROM PUNE MUNICI PAL TRANSPORT ON ACCOUNT OF PENALTY LEVIED. THE ASS ESSEE ENTERED INTO AN AGREEMENT WITH THE PUNE MUNICIPAL T RANSPORT UNDERTAKING FOR PROVIDING THEM WITH 25 PASSENGER BUSES ON HIRE BASIS FOR A PERIOD OF FIVE YEARS. THE PUNE MU NICIPAL TRANSPORT UNDERTAKING, WHICH IS A PUBLIC UNDERTAKI NG GOVERNED BY THE STATE GOVERNMENT, FOR DEFAULT ON TH E PART OF THE ASSESSEE HAS LEVIED THE SAID PENALTY OF RS.6,0 5,750/-. ACCORDING TO THE AO AS PER THE PROVISIONS OF THE ACT ANY AMOUNT/EXPENSE BEING PENAL IN NATURE ON ACCOUNT OF ANY PENALTY LEVIED BY ANY GOVERNMENT AUTHORITY IS NOT A VALID DEDUCTION. THEREFORE, THE ASSESSEE HAS ERRED IN DE DUCTING THE AMOUNT OF RS.6,05,750/- BEING THE PENALTY LEVI ED FROM THE TOTAL RECEIPTS ON ACCOUNT OF HIRE CHARGES FRO M PUNE MUNICIPAL TRANSPORT UNDERTAKING AND ACCORDINGLY, TH E AO DISALLOWED THE AMOUNT OF RS.6,05,750/- AND ADDED T O THE INCOME OF THE ASSESSEE. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (A) OBSERVED THAT THE AP PELLANT HAS HIMSELF ADMITTED THAT THE PUNE MUNICIPAL TRANS PORT UNDERTAKING HAS LEVIED PENALTY ARBITRARILY WITHOU T FOLLOWING THE PROCEDURE LAID DOWN IN THE SAID AGREEMENT AND THE ASSESSEE COMPANY IS ENTITLED FOR REFUND OF PENALTY, HELD THAT ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 6 NO DEDUCTION IS ALLOWABLE ON ACCOUNT OF PENALTY AND ACCORDINGLY CONFIRMED THE ADDITION MADE BY THE AO. 11. AT THE TIME OF HEARING, IN THE WRITTEN SUBMISSI ONS, IT WAS SUBMITTED THAT PUNE MUNICIPAL TRANSPORT IS NOT A GOVERNMENT ORGANIZATION OR SEMI GOVERNMENT ORGANIZA TION, THEREFORE, IT DOES NOT FALL UNDER THE PURVIEW OF PE NAL ACTION AS PER I.T.ACT. AS PER THE PROVISIONS OF I.T.ACT, THE DEDUCTION MADE FROM THE BILLS IS NOT PENAL IN NATUR E AS SUCH IT IS AN ALLOWABLE DEDUCTION. THE PUNE MUNICIPAL TR ANSPORT LEVIED PENALTY ARBITRARILY WITHOUT FOLLOWING THE PR OCEDURE LAID DOWN IN THE SAID AGREEMENT AND THE ASSESSEE COMPANY IS ENTITLED FOR REFUND OF PENALTY AND THEREFORE, THE SAID DEDUCTION CLAIMED BY THE APPELLANT IS A VALID DEDUC TION. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS ALREADY LODGED THE CLAIM OF REFUND OF PENALTY BASE D ON THE AWARD OF THE ARBITRATOR AND THE SAID MATTER IS PE NDING BEFORE THE HONBLE DISTRICT COURT, PUNE. IT WAS, THEREFORE, SUBMITTED THAT THE DISALLOWANCE MADE BY THE AO BE D ELETED. 12. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS TH E ORDER OF THE AO AND THE LEARNED COMMISSIONER OF INCOME TAX (A). 13. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 7 THAT THE FACTS ARE NOT IN DISPUTE INASMUCH AS THE ASSESSEE HAS SHOWN THE AMOUNT OF RS.6,05,750/- UNDER THE HE AD SUNDRY DEBTORS BEING AMOUNT RECEIVABLE FROM PUNE MU NICIPAL TRANSPORT ON ACCOUNT OF PENALTY LEVIED. THE CLAIM OF THE ASSESSEE IS THAT SINCE THE MATTER IS PENDING BEFORE THE DISTRICT JUDGE, PUNE THE ASSESSEE IS NOT LIABLE TO PAY ANY PENALTY, THEREFORE, NO ADDITION IS CALLED FOR. PER CONTRA, THE CLAIM OF THE REVENUE IS SINCE IT IS A PENALTY, HEN CE THE SAME IS NOT ALLOWABLE. HOWEVER, IT IS SETTLED LAW THAT PENALTY FOR INFRINGEMENT OF LAW WILL NOT BE DEDUCTIBLE, WHILE EVEN IF IT IS SO DESCRIBED, IT MAY WELL BE DEDUCTIBLE, IF IT IS M ERELY COMPENSATORY. 14. RECENTLY, THE CO-ORDINATE BENCH OF THE TRIBUNAL IN DCIT V/S SHRI BHARAT C.GANDHI IN ITA NO.4270/MUM/2 009 (AY-2006-07) ORDER DATED 30.3.2011 ON THE ISSUE THA T THE SETTLEMENT FEES PAID BY THE ASSESSEE UNDER THE MOT OR VEHICLE ACT DISALLOWED BY THE AO ON THE PRETEXT T HAT IT WAS THE PENALTY NOT ALLOWABLE UNDER SECTION 37(1) OF THE ACT, WHILE OBSERVING THAT THE SIMILAR ISSUE HAS BEEN EL ABORATELY DISCUSSED BY THE ITAT IN THE CASE OF CHADHA & CHAD HA CO. ITA NO.6140/MUM/2009 DATED 17.9.2010., RELIED UPON BY THE ASSESSEE HELD THAT SINCE ASSESSEE IS ENGAGED IN TRANSPORTING OF OVER DIMENSIONAL CAPACITIES IN ITS TRANSPORT BUSINESS, IT IS NECESSARY BUSINESS EXPENSE WHOLLY F OR THE ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 8 PURPOSES OF BUSINESS. THEREFORE, THE SAME IS ALLO WABLE UNDER SECTION 37(1) OF THE ACT. 15. SINCE IN THE CASE BEFORE US, THE PENALTY WAS LE VIED NOT FOR INFRINGEMENT OF ANY LAW BUT IT WAS CHARGED BY T HE PUNE MUNICIPAL TRANSPORT UNDERTAKING TO PREVENT THE OPER ATOR FROM NOT PROVIDING BUSES ON ROUTES. THEREFORE, TH ERE IS NO INFRINGEMENT OF LAW. SINCE, THE ASSESSEE HAS SHOW N THE INCOME OF THE BUSES INCLUDING THE ROUTE WHICH WAS NOT TO BE OPERATED BY THE ASSESSEE, WE ARE OF THE VIEW THAT THE AMOUNT CHARGED BY PUNE MUNICIPAL TRANSPORT UNDERTA KING IS NOT A PENALTY BUT IN THE NATURE OF COMPENSATORY AL LOWABLE AS A BUSINESS EXPENDITURE UNDER SECTION 37 (1) OF THE ACT AND ACCORDINGLY THE ADDITION OF RS.6,05,750/- MADE BY THE AO AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (A) IS DELETED. THE GROUND TAKEN BY THE ASSESSEE IS , THEREFORE, ALLOWED. 16. GROUND NO.3 IS AGAINST THE SUSTENANCE OF ADDIT ION OF RS.5 LAKH MADE UNDER SECTION 68 OF THE ACT. 17. THE AO OBSERVED THAT THE ASSESSEE COMPANY HAS PURCHASED CHASIS FROM M/S BAFANA MOTORS (MUMBAI) PV T. LTD., AND HAS ACCORDINGLY PAID RS.5 LAKH IN CASH. THE ASSESSEE COMPANY WAS ASKED TO FURNISH THE COMPLETE DETAILS REGARDING THE SOURCES OF PAYMENT OF RS.5 L AKH PAID ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 9 TO M/S BAFANA MOTORS (MUMBAI) PVT. LTD., IN CASH. THE ASSESSEE COMPANY DID NOT FURNISH ANY EXPLANATION TO SHOW THE SOURCES THEREOF. HENCE THE AO TREATED RS.5 LAKH AS UNEXPLAINED CASH CREDIT WITHIN THE MEANING OF SECT ION 68 OF THE ACT AND ADDED BACK TO THE TOTAL INCOME OF THE A SSESSEE. ON APPEAL, IT WAS STATED BY THE ASSESSEE THAT THE ASSESSEE COMPANY HAS NO CHOICE THEN TO PROVIDE RS.5 LAKH TO M/S BAFANA MOTORS (MUMBAI) PVT. LTD. AS THE DELIVERY OF BUSES WAS TO BE GIVEN WITHIN 60 DAYS AS PER THE CONTRA CT. THE AMOUNT WAS ARRANGED FROM FEW RELATIVES OF THE ASSES SEE COMPANY AND MAINLY FROM PERSONS WHO ARE FARMERS IN SATARA DISTRICT. THE LEARNED COMMISSIONER OF INCOME TAX ( A) AFTER CONSIDERING THE ASSESSEES SUBMISSIONS IN THE ABSEN CE OF ANY CONFIRMATION, CONFIRMED THE ADDITION MADE BY TH E AO. 18. AT THE TIME OF HEARING, IN THE WRITTEN SUBMISSI ONS, THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS SUBMIT TED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (A) AND SUBMITTED THAT THE ADDITION MADE BY THE AO BE DELET ED. 19. ON THE OTHER HAND, THE LEARNED D.R. SUPPORTS TH E ORDER O THE AO AND THE LEARNED COMMISSIONER OF INCOME TAX (A). 20. HAVING CAREFULLY HEARD THE SUBMISSIONS OF THE R IVAL PARTIES AND PERUSING THE MATERIAL AVAILABLE ON REC ORD WE FIND THAT THERE IS NO DISPUTE THAT BEFORE THE AO, THE A SSESSEE ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 10 HAS FILED NO EXPLANATION. HOWEVER, BEFORE THE LEAR NED COMMISSIONER OF INCOME TAX (A), IT WAS SUBMITTED BY THE ASSESSEE THAT THE AMOUNT WAS ARRANGED FROM FEW REL ATIVES OF THE ASSESSEE MAINLY FROM FARMERS IN SATARA DISTRICT . THE LEARNED COMMISSIONER OF INCOME TAX (A), IN THE ABSE NCE OF ANY CONFIRMATION FROM THE PARTIES, CONFIRMED THE A DDITION MADE BY THE AO. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT THE ASSESSEE WAS ASKED TO FILE CONFIRMATION BY THE LEARNED COMMISSIONER OF INCOME TAX (A) BUT THE ASSESSEE HA S FAILED TO FILE THE SAME, WE ARE OF THE VIEW, THAT IN THE INTERESTS OF JUSTICE THE MATTER SHOULD GO BACK TO THE FILE OF TH E AO AND ACCORDINGLY, WE SET ASIDE THE ORDERS PASSED BY THE REVENUE AUTHORITIES ON THIS ACCOUNT AND SEND BACK THE MATTE R TO THE FILE OF THE AO TO DECIDE THE SAME AFRESH AND IN TH E LIGHT OF OUR OBSERVATIONS HEREINABOVE, AND ACCORDING TO LAW AFTER PROVIDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND TAKEN BY THE ASSESSEE IS, THE REFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 21. GROUNDS NO.4 AND 5 ARE GENERAL IN NATURE AND THEREFORE THE SAME ARE REJECTED. 22. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.4494/MUM/2009 (ASSESSMENT YEAR: 2005-06) 11 ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH AUGUST, 2011. SD SD (RAJENDRA SINGH) (D.K .AGARWAL) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 24TH AUGUST, 2011 SRL: COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH 6. GUARD FILE. BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI