SHRENIK M SHAH, MUMBAI V. DCIT 15(1), MUMBAI

ITA 4886/MUM/2012

• Counselvise Citation: 488619914 RSA 2012
• Duration Of Justice: 1 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 27-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C SRINIVAS REDDY
• Keywords: Business expenditure; Bonafide belief
• Section: 37(1); 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH E, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO. 4886/MUM/2012 ASSESSMENT YEAR : 2007-08 SHRENIK M. SHAH 13 SANGHVI BHAVAN 3 RD AGIARY LANE, ZAVERI BAZAR, MUMBAI-400 003 PAN:AAHPS 4374 C VS. DCIT 15(1) MUMBAI-400 012. (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI C SRINIVAS REDDY DATE OF HEARING : 11/09 /2013 DATE OF PRONOUNCEMENT : 17 / 0 9 /2013 O R D E R PER B. RAMAKOTAIAH, AM: THIS IS AN ASSESSEE APPEAL AGAINST THE ORDER OF THE LD.CIT(A) -26 MUMBAI DT.07.06.2012 CONFIRMING THE PENALTY U/S. 27 1(1)(C) OF RS.81,488/- LEVIED BY AO ON DISALLOWANCES MADE IN T HE ASSESSMENT. 2. BRIEF FACTS OF THIS CASE ARE THAT AT THE TIME O F ASSESSMENT U/S 143(3), THE AO MADE TWO ADDITIONS OF RS.1,50,000/- AND RS.92,092/- BY DISALLOWING THE CLUB MEMBERSHIP FEE AND TRAVELLING EXPENSES INCURRED ON TOUR OF A FOREIGN NATIONAL RESPECTIVELY. WHILE MAKI NG THE DISALLOWANCE OF RS. 1.5 LAKHS ON MEMBERSHIP OF A CLUB NSCI, IT WAS OBSERVED BY THE AO THAT IT IS A PURE PERSONAL EXPENSE OF THE ASSESSEE WHICH DOES NOT HAVE ANY BUSINESS CONNECTION AT ALL. AS REGARDS THE DISA LLOWANCE OF TRAVELLING EXPENSES ON STAY AND TRAVELLING OF ONE SHRI. J. JOH N, IT WAS HELD BY THE ITA NO.4886/M/12 A.Y.07-08 2 AO THAT NO BUSINESS CONNECTION WITH SHRI JOHN HAS B EEN PROVED INSPITE OF VARIOUS OPPORTUNITIES GIVEN TO THE ASSESSEE. HOW EVER, VERBALLY IT WAS ARGUED THAT SHRI JOHN IS A HIGH OFFICER IN SOME FOR EIGN COMPANY AND HE WAS GUEST WHOM THE ASSESSEE HAS TAKEN TO BARODA FOR BUSINESS DEALING. AO HELD THAT THIS IS ALSO A PURE PERSONAL EXPENSE O F THE ASSESSEE INCURRED OVER SHRI J JOHN. ACCORDINGLY, PENALTY PRO CEEDINGS WERE INITIATED AS IN VIEW OF THE AO, BY MAKING WRONG CLA IM OF PERSONAL EXPENDITURE AS BUSINESS EXPENSES, THE APPELLANT HAS MADE HIMSELF LIABLE FOR PENALTY U/S 271(1)(C). IN THE PENALTY PROCEEDIN GS, THE ASSESSEE REITERATED HIS EARLIER CONTENTION THAT BOTH THE EXP ENSES CLAIMED HAVE BUSINESS CONNECTION, BUT THE AO DID NOT ACCEPT THE EXPLANATION. IT IS OBSERVED BY THE AO THAT BY WAY OF FURNISHING INACCU RATE PARTICULARS I.E. CLAIM OF BUSINESS EXPENSES WHICH IN FACT, IS A PERS ONAL EXPENSE, THE ASSESSEE IS LIABLE FOR LEVY OF PENALTY U/S 271(1)(C ) R.W. EXPLANATION I(A) OF SECTION 271(1)(C). ACCORDINGLY, HE HAS LEVIED 100% PENALTY OF THE TAX SOUGHT TO BE EVADED. 3. BEFORE LD. CIT(A) ASSESSEE MADE DETAILED SUBMIS SIONS AS UNDER:- (I) WHETHER DISALLOWANCE OF EXPENSES CLEARLY DISC LOSED IN THE ACCOUNTS AMOUNTS TO CONCEALMENT OR FILING OF INACCU RATE PARTICULARS ? A MERE DISALLOWANCE OF EXPENSES IN THE ASSESSMENT P ROCEEDINGS DOES NOT AMOUNT TO CONCEALMENT OR FILING OF INACCUR ATE PARTICULARS. IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT DIS PUTED THAT THE EXPENSES HAS NOT BEEN INCURRED. THE ASSESSING OFFIC ER HAS DISALLOWED THE EXPENSES ON THE GROUND THAT THE EXPE NSES INCURRED ARE IN THE PERSONAL NATURE AND NOT IN THE NATURE OF BUSINESS EXPENSES. SURELY, SUCH INTERPRETATION CANNOT LEAD T O IMPOSITION OF PENALTY OR CONCEALMENT. (II) AMOUNT NOT HIDDEN IN THE ACCOUNTS BOTH THESE AMOUNTS WERE CLEARLY STATED IN THE ACCOU NTS FILED BEFORE THE ASSESSING OFFICER. MOREOVER, THE DETAILS CALLED FOR WERE ALSO SUBMITTED. THE ASSESSING OFFICER DID NOT FIND THE D ETAILS OR PARTICULARS WRONG OR INCORRECT. AFTER GOING THROUGH THE DETAILS, THE ASSESSING OFFICER HAS COME TO A CONCLUSION THAT EXP ENSES ARE OF ITA NO.4886/M/12 A.Y.07-08 3 PERSONAL NATURE. THEREFORE, THERE IS NO CONCEALMENT NOR FILING OF ANY INACCURATE PARTICULARS ON PART OF THE ASSESSEE. (III) BONAFIDE BELIEF IT IS A SETTLED LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. (195 ITR 682 ) THAT CLUB MEMBERSHIP FEE IS ALLOWABLE EXPENSES UNDER SECTION 37(1) OF THE ACT AND IT IS NOT IN THE NATURE OF CAPITAL NOR IN THE N ATURE OF PERSONAL EXPENSES. THE ASSESSEE SHOULD HAVE CLAIMED ENTIRE R S.6,00,000 AS EXPENSES AND IF HE WOULD HAVE CONTESTED IN APPEAL, AT THE APPELLATE STAGE THE SAME WOULD HAVE BEEN ALLOWED TO HIM IN VI EW OF THE JURISDICTIONAL HIGH COURT DECISION. IN THE PRESENT CASE THE ASSESSEE HAS CLAIMED A PART OF THE EXPENDITURE AND DEFERRED THE BALANCE. THEREFORE, TH E ASSESSEE CLAIM OF RS.1,50,000 IS FAR FAR REASONABLE FROM THE REVEN UE POINT OF VIEW. MOREOVER, THE CLAIM IS ALLOWABLE IN VIEW OF THE BOM BAY HIGH COURT DECISION. THEREFORE, THE DISALLOWANCE OF SUCH CLAIM WHICH HAS NOT BEEN PERSUADED BY THE ASSESSEE IN THE APPELLATE PRO CEEDINGS, CANNOT AMOUNT TO CONCEALMENT OR FILING OF INACCURAT E PARTICULARS. SIMILARLY EXPENSES INCURRED ON MR. JOHN, A FOREIGN CITIZEN, WHO VISITED INDIA IN RELATION TO BUSINESS CONNECTION, F OR WHICH ALL THE RELEVANT DOCUMENTS WERE PRODUCED BEFORE THE ASSESSI NG OFFICER, CANNOT LEAD TO A CONCLUSION THAT EXPENSES ARE BOGUS AND CLAIMED ONLY WITH A PURPOSE TO DEFRAUD THE REVENUE. BOTH TH ESE EXPENSES WERE CLAIMED UNDER A BONAFIDE BELIEF. (IV) DECISION OF SUPREME COURT IN THE CASE OF RELIA NCE PETROPRODUCTS PVT. LTD. THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE P ETROPRODUCTS PVT. LTD. (322 ITR 158) HAS CLEARLY LAID DOWN THE R ULE THAT ANY EXPENSES WHICH ARE CLAIMED IN THE RETURN AND NOT AL LOWED BY THE ASSESSING OFFICER CANNOT LEAD TO A CONCLUSION THAT THERE IS CONCEALMENT OR FILING OF INACCURATE PARTICULARS ON THE PARTY OF THE ASSESSEE. (V) DECISION OF PUNE TRIBUNAL IN THE CASE OF KANBAY SOFTWARE INDIA PVT. LTD. 31 SOT 153 THE HONBLE PUNE TRIBUNAL HAS DISCUSSED THE APPLICA BILITY OF SECTION 271(1)(C) OF THE ACT, IN A SITUATION WHERE A CLAIM OF DEDUCTION IS DISALLOWED IN THE ASSESSMENT. HERE ALSO, THE PUNE T RIBUNAL HAS HELD THAT WHERE A CLAIM IS ACCEPTED OR REJECTED HAS NOTH ING TO DO WITH FILING OF INACCURATE PARTICULARS OF INCOME. RAISING A LEGAL CLAIM, EVEN ITA NO.4886/M/12 A.Y.07-08 4 IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACCEPTABL E, CANNOT AMOUNT TO FILING OF INACCURATE PARTICULARS OF INCOME. THE HON BLE TRIBUNAL HAS FURTHER HELD THAT CONCEALMENT OF AN INCOME BY AN AS SESSEE, IMPLIES THAT PERSON CONCEALING INCOME IS HIDING, COVERING U P OR CAMOUFLAGE AN INCOME SOMETHING WHICH ESSENTIALLY REQUIRE A CON CISE EFFORTS. IN THE PRESENT CASE THE ASSESSEE COMPANY HAS ACTED IN A TRANSPARENT AND STRAIGHTFORWARD MANNER. THE PROFIT & LOSS ACCOU NT CLEARLY DISCLOSE THE CLAIM OF RS.1,50,000 AND RS.92,092. AS SUCH, THERE CANNOT BE ANY CONCEALMENT OF ANY INCOME IN SUCH A S ITUATION. FILING OF INACCURATE INFORMATION RELATES TO FILING OF FACT UALLY INCORRECT DETAILS. IN THE PRESENT CASE DETAILS OF RS.1,50,000 AND RS.92,092 SUBMITTED DURING THE COURSE OF ASSESSMENT WAS NOT F OUND INCORRECT AT ALL. THE CLAIM HAS BEEN DISALLOWED NOT ON THE GR OUND THAT DETAILS FURNISHED BY THE ASSESSEE WAS NOT CORRECT BUT IT WA S DISALLOWED ON OTHER REASONS. THEREFORE, THE LEGAL CLAIM EVEN IF I T IS ULTIMATELY FOUND TO BE UNACCEPTABLE, CANNOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS. THE TRIBUNAL HAS ALSO DISCUSSED IN DET AIL THE DEEMING FICTION OF EXPLANATION (1) TO SECTION 271(1) (C) AN D THEN COME TO A CONCLUSION THAT UNDER SECTION 271 (1)(C) A LEGAL CL AIM MADE IN THE RETURN AND WHICH WAS DISALLOWED DURING THE COURSE O F ASSESSMENT, CANNOT AMOUNT TO FILING OF INACCURATE PARTICULARS (VI) VIP INDUSTRY LTD. (30 SOT 254)(MUM) YOUR HONOURS ATTENTION IS ALSO INVITED TO THE DECI SION OF THE MUMBAI TRIBUNAL IN THE CASE OF VIP INDUSTRIES LTD. (30 SOT 254) WHERE THE HONBLE TRIBUNAL HAS HELD THAT WHERE AS ASSESSEE GE NUINELY CLAIM A DEDUCTION AFTER DISCLOSING NECESSARY FACTS, THERE I S NO CONCEALMENT EVEN IF THE CLAIM IS REJECTED. (VII.) SSP LTD - 328 ITR 643 PUNJAB & HARYANA HIGH COURT IN THIS CASE THE HONBLE HIGH COURT HAS EVEN HELD T HAT MERE AN ERRONEOUS CLAIM IN ABSENCE OF ANY CONCEALMENT OR FI LING OF INACCURATE PARTICULARS, CANNOT BE A GROUND FOR LEVYING PENALTY . IN THE PRESENT CASE THE CLAIM IS NOT EVEN ERRONEOUS. (VIII) CIT VS DEKSHA HOLIDAYS LTD. (186 TAXMAN 18 3(DELHI) HERE ALSO THE HONBLE DELHI HIGH COURT HAS VERY CAT EGORICALLY HELD THAT ANY DEDUCTION CLAIMED BY AN ASSESSEE WHICH HAS NOT BEEN FOUND BY THE ASSESSING OFFICER AS BOGUS OR FALSE AN D THE ASSESSEE HAS DISCLOSED ALL THE FACTS, A MERE DISALLOWANCE OF SUCH EXPENSE WOULD NOT HAVE JUSTIFIED FOR LEVY OF PENALTY. ITA NO.4886/M/12 A.Y.07-08 5 (IX) STRIDES ARCOLAB LTD. - 40 SOT 398(MUM) HERE ALSO THE HONBLE MUMBAI TRIBUNAL HAS HELD THAT MERELY BECAUSE THE ASSESSEE HAS MADE A CLAIM WHICH HAS NOT BEEN ACCEPTED BY THE ASSESSING OFFICER, IT WOULD NOT AMO UNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME BY AN ASSESSEE SO AS TO JUSTIFY LEVY OF PENALTY. KINDLY NOTE THAT THE BOMBAY TRIBUN AL HAS CONSIDERED THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE OF RELIANCE PETROPRODUCTS PVT LTD. (322 ITR 158) ( SC) AND HAS ALSO HELD THAT LAW IS NOW SETTLED IN VIEW OF THE SUPREME COURT DECISION THAT MERELY DISALLOWANCE OF A CLAIM CANNOT LEAD TO IMPOSITION OF PENALTY ON THE GROUND THAT THERE IS FILING OF INACC URATE PARTICULARS. (X) ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE. IT IS A SETTLED LAW THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE SEPARATE AND INDEPENDENT OF EACH OT HER. THEREFORE, THE PENALTY IS NOT AUTOMATIC. IN OTHER WORDS, EVERY DISALLOWANCE CANNOT BE A SUBJECT MATTER OF PENALTY EVEN IF THE D ISALLOWANCE IS CONFIRMED BY THE HIGHER AUTHORITIES. IN ALL THE ABO VE CASES AND THERE ARE UMPTEEN NUMBER OF MORE CASES, THE ADDITIONS EVE N CONFIRMED BY THE HIGHER AUTHORITIES BUT PENALTY LEVIED BY THE AS SESSING OFFICER, DO NOT FIND FAVOUR OF THE APPELLATE AUTHORITIES. THERE FORE, MERE DISALLOWANCE MADE IN THE ASSESSMENT PROCEEDINGS AND WHICH IS CONFIRMED BY THE CIT(A), CANNOT BE A SOLE CRITERIA FOR LEVYING PENALTY IN THE PRESENT CASE. (3) CONCLUSION IN VIEW OF THE AFORESAID, YOUR HONOUR IS, THEREFORE REQUESTED TO KINDLY HOLD THAT THERE IS NO CONCEALMENT NOR FILING OF ANY INACCURATE PARTICULARS ON PART OF THE ASSESSEE AND ACCORDINGLY DIRECT THE ASSESSING OFFICER TO DELETE THE PENALTY LEVIED. 4. LD.CIT(A) CONFIRMED THE PENALTY ON THE REASON TH AT THE ASSESSEE ACCEPTED THE DISALLOWANCE OF CLUB MEMBERSHIP IN A.Y . 2005-06 AND THAT TANTAMOUNT TO FURNISHING OF INACCURATE PARTICULARS. FURTHER WITH REFERENCE TO DISALLOWANCE OF FOREIGN TRAVEL EXPENDI TURE CLAIMED, HE UPHELD THE VIEW OF THE AO THAT THIS IS PERSONAL EXPENDITU RE AND SO, PENALTY IN WARRANTED. ITA NO.4886/M/12 A.Y.07-08 6 5. WHEN THE CASE IS TAKEN UP FOR HEARING, NONE APPE ARED ON BEHALF OF ASSESSEE. HENCE, THE CASE IS HEARD EX PARTE APPELLA NT. LD. DR MADE SUBMISSIONS. 6. AFTER CONSIDERING THE FACT OF THE CASE, WE ARE O F THE OPINION THAT PENALTY U/S 271(1)(C) IS NOT WARRANTED. WITH REFERE NCE TO THE CLUB MEMBERSHIP FEE, ASSESSEE PAID AN AMOUNT OF RS. 6 LA KHS AS MEMBERSHIP FEE. ON THE BASIS OF DECISION OF JURISDICTIONAL HIG H COURT IN THE CASE OF OTIS ELEVATOR CO. (INDIA) LTD. (195 ITR 682) ASSESS EE CLAIMED THE DEDUCTION AT 1/4 TH OF THE AMOUNT AT RS.1,50,000/- OVER A PERIOD OF 4 YEARS. IN THE ASSESSMENT YEAR 2005-06 IT WAS DISALL OWED. BY THAT TIME ASSESSEE ALREADY HAS FILED RETURN FOR ASSESSMENT YE AR 2007-08. THEREFORE, THERE IS A BONA FIDE BELIEF THAT THE CLA IM IS ALLOWABLE U/S 37(1). FURTHER, ASSESSEE IS IN THE BUSINESS OF IMPORT OF S TEEL. AS PART OF THAT IT SEEMS, HE SPENT AN AMOUNT OF RS.92,092/- AS SALES P ROMOTION AND TRANSPORT EXPENDITURE ON MR. JOHN AND CLAIMED AS BU SINESS EXPENDITURE. AO TREATED IT AS PERSONAL EXPENDITURE. JUST BECAME A CLAIM WAS MADE AND AO MADE DISALLOWANCE, THE SAME MAY NOT LEAD TO LEVY OF PENALTY U/S. 271(1)(C). THERE IS BONA FIDE BELIEF IN MAKING THE CLAIMS. THE PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF M/S. RELIANCE PETROPRODUCTS PVT. LTD. (322 ITR 158) DO APPLY TO THIS CASE. MERE DISALLOWANCE OF CLAIMS MADE DOES NOT LEAD TO LEVY O F PENALTY FOR FURNISHING INACCURATE PARTICULARS. THEREFORE, WE CA NCEL THE PENALTY. 7. IN THE RESULT, ASSESSEE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2013. SD/- SD/- (SANJAY GARG ) JUDICIAL MEMBER (B. RAMAKOTAIAH ) ACCOUNTANT MEMBER MUMBAI, DATED: 17/09/2013. JV. ITA NO.4886/M/12 A.Y.07-08 7 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.