DWARKADAS COTTON CO. P. LTD, MUMBAI V. DCIT CIR 3(1), MUMBAI

ITA 4890/MUM/2010

• Counselvise Citation: 489019914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 11-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C G K NAIR
• Keywords: Business expenditure; Wrong claim
• Section: 271(1)(c)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'D' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 4890/MUM/2010 (ASSESSMENT YEAR: 2004-05) M/S. DWARKADAS COTTON CO. P. LTD. DCIT, CIRCLE 3(1) C/O. SHANKARLAL JAIN & ASSOCIATES MUMBAI 12 ENGINEER BUILDING, 256 PRINCESS VS. STREET, MUMBAI 400002 PAN - AAACD 2144 H APPELLANT RESPONDENT APPELLANT BY: SHRI S.L. JAIN RESPONDENT BY: SHRI C.G.K. NAIR DATE OF HEARING: 23.08.2011 DATE OF PRONOUNCEMENT: 30.08.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- VII, MUMBAI DATED 22.03.2010 CONFIRMING THE PENALTY OF ` 4,87,270/- LEVIED UNDER SECTION 271(1)(C). 2. THE ISSUE IN THE APPEAL AS RAISED IN 4 GROUNDS BY T HE ASSESSEE IS WITH REFERENCE TO THE PENALTY IMPOSED FOR CLAIMING TRAIN ING EXPENSES AS STAFF EXPENSES. THE FACTS OF THE CASE ARE THAT THE ASSESS EE COMPANY CLAIMED STAFF TRAINING EXPENSES TO THE EXTENT OF ` 13,31,439/- INCURRED FOR SENDING MR. MAYANK SEKHARIA, SON OF THE DIRECTOR FOR HIGHER STU DIES AT UNIVERSITY OF ILLINOIS IN U.S.A. IN THE COURSE OF ASSESSMENT PROC EEDINGS ASSESSEE FILED NECESSARY BOARD RESOLUTION, NATURE OF THE EXPENSES AND SUBMITTED THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINES S AND IS ALLOWABLE EXPENSE AS PER THE DECISION OF THE HON'BLE BOMBAY H IGH COURT IN THE CASE OF SAKAL PAPERS PVT. LTD. VS. CIT 114 ITR 256. THE A.O ., HOWEVER, NOTICED THAT THE ONLY REASON FOR SENDING HIM FOR HIGHER STUDIES IS BECAUSE HE IS THE SON OF THE DIRECTOR AND HAS NO BUSINESS CONNECTION WITH REFERENCE TO THE ITA NO. 4890/MUM/2010 M/S. DWARKADAS COTTON CO. P. LTD. 2 SPENDING OF EXPENDITURE AND BUSINESS OF ASSESSEE AN D DISALLOWED THE SAME FOLLOWING THE DECISION OF THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS. HINDUSTAN HOSIERY INDUSTRIES 209 ITR 383. HE AL SO RELIED ON OTHER DECISIONS IN DISALLOWING THE EXPENSES. HE INITIATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) FOR CLAIMING THE EXPENDITUR E FOR THE PURPOSE OF BUSINESS, WHICH WAS INCURRED ON TRAINING OF THE SON OF ONE OF THE DIRECTORS. THE CIT(A) HAS CONFIRMED THE ADDITIONS AND ASSESSEE DID NOT PREFER ANY APPEAL TO THE ITAT. THE A.O. FINALISED THE PROCEEDI NGS UNDER SECTION 271(1)(C) AFTER OBTAINING THE EXPLANATION OF THE AS SESSEE HOLDING THAT THE ONUS IS ON THE ASSESSEE TO PROVE THE GENUINENESS OF THE EXPENSES OR JUSTIFICATION OF CLAIM MADE IN THE RETURN OF INCOME . AS ASSESSEE HAS FAILED TO DO SO, HE HELD THAT NON-FURNISHING OF EVIDENCE AND JUSTIFICATION OF THE EXPENDITURE CLAIMED IN THE RETURN OF INCOME AMOUNT TO FURNISHING OF INACCURATE PARTICULARS. HE FURTHER HELD THAT IT IS CLEAR THAT ENOUGH MATERIAL WAS BROUGHT ON RECORD TO PROVE THAT ASSESSEE MADE A CONSCIOUS ATTEMPT TO EVADE TAX BY FURNISHING INACCURATE PARTICULARS OF I NCOME. ACCORDINGLY HE LEVIED PENALTY OF ` 4,87,270/-. BEFORE THE CIT(A), ASSESSEE SUBMITTED T HAT THE EXPENSES WERE CLAIMED AS BUSINESS EXPENDITURE FOLLO WING VARIOUS CASE LAWS IN FAVOUR OF THE ASSESSEE ON THE SAME FACTS AND ALS O FURTHER THAT IF THE EXPLANATION WAS NOT ACCEPTED PENALTY CANNOT BE LEVI ED FOR FILING INACCURATE PARTICULARS OF INCOME AS THERE IS NO CASE OF FURNIS HING OF INACCURATE PARTICULARS. THE CIT(A), HOWEVER, CONFIRMED THE PEN ALTY ON THE REASON THAT THE CLAIM OF FOREIGN TRAVEL EXPENSES INCURRED UNDER THE HEAD STAFF TRAINING IS TOTALLY INACCURATE AND MR. MAYANK SEKHSARIA WAS NOT EMPLOYED WITH ASSESSEE COMPANY AND HAVING A COURSE IN ELECTRICAL ENGINEERING HAS NOTHING TO DO WITH THE COTTON TRADING BUSINESS OF THE ASSES SEE AND EVEN AFTER HIS RETURN HE DID NOT WORK FOR THE COMPANY. IN THIS BAC KGROUND HE HELD THAT THE CLAIM OF THE ASSESSEE WAS FRAUDULENT CLAIM AND PENA LTY LEVIED FOR FURNISHING OF INACCURATE PARTICULARS IS, THEREFORE, CONFIRMED. HE ALSO HELD THAT IN VIEW OF EXPLANATION 1 TO SECTION 271(1)(C) THE EXPLANATION GIVEN BY ASSESSEE WAS FOUND TO BE FALSE AND, THEREFORE, THE PENALTY WAS C ONFIRMED. 3. THE LEARNED A.R. SUBMITTED THAT ASSESSEE MADE A CLA IM OF STAFF TRAINING EXPENSES AND ALL THE DETAILS WERE FURNISHE D BEFORE THE A.O., HENCE ITA NO. 4890/MUM/2010 M/S. DWARKADAS COTTON CO. P. LTD. 3 THERE IS NO QUESTION OF FURNISHING INACCURATE PARTI CULARS AS WAS CONSIDERED BY THE A.O. AND THE CIT(A). IT WAS HIS SUBMISSION T HAT JUST BECAUSE THE CLAIM MADE BY ASSESSEE WAS NOT ACCEPTED IT DOES NOT CALL FOR PENALTY UNDER SECTION 271(1)(C) AND RELIED ON THE PRINCIPLES ESTA BLISHED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. REPORTED AT 322 ITR 158. EVEN ON MERITS IT WAS SUBMITTED THAT H E BEING A QUALIFIED PERSON THE COMPANY THOUGHT IT FIT TO SEND HIM FOR H IGHER STUDIES AND THERE IS NO INTENTION TO EVADE TAX AS ASSESSEE WAS ALREAD Y A HIGH INCOME TAX PAYER AND IS INVOLVED IN TRADING OF VARIOUS ITEMS. 4. THE LEARNED D.R., HOWEVER, SUBMITTED THAT ASSESSEE MADE A FALSE CLAIM BY FURNISHING THE DETAILS AFTER SPONSORING FO REIGN COURSE WHEN HE IS NOT EMPLOYEE OF THE COMPANY AND ON HIS RETURN HE IS NOT EMPLOYED WITH THE COMPANY. THEREFORE, IT WAS AN ATTEMPT IN ORDER TO C LAIM BOGUS EXPENDITURE AS BUSINESS DEDUCTION, HENCE, PENALTY WAS WARRANTED . 5. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FACTS ON RECORD. AS FAR AS THE CLAIM OF EXPENDITURE IS CONCERNED ASSESSEE D ID INCUR THE EXPENDITURE ON SENDING THE SON OF ONE OF THE DIRECTORS AND CLAI MED EXPENDITURE IN COMPANYS BOOKS OF ACCOUNT. SINCE THE EXPENSE WAS N OT JUSTIFIED AS FOR THE PURPOSE OF BUSINESS, THE SAME WAS DISALLOWED IN THE ASSESSMENT PROCEEDINGS AND ASSESSEE DID NOT PREFER FURTHER APP EAL CONTESTING THE ISSUE. HOWEVER, THE ISSUE IS WHETHER SUCH CLAIM WILL ATTRA CT PENALTY UNDER SECTION 271(1)(C). IT IS NOT THE CASE OF THE A.O. THAT ASSE SSEE CONCEALED THE PARTICULARS OF INCOME. IT IS THE CASE OF THE A.O. T HAT ASSESSEE FURNISHED INACCURATE PARTICULARS. THE HON'BLE SUPREME COURT I N THE CASE OF RELIANCE PETROPRODUCTS LTD (SUPRA) HAS CONSIDERED THE ISSUE OF FURNISHING INACCURATE PARTICULARS AND HELD AS UNDER: - A GLANCE AT THE PROVISIONS OF SECTION 271(1)(C) OF THE INCOME-TAX ACT, 1961, SUGGESTS THAT IN ORDER TO BE COVERED BY IT, T HERE HAS TO BE CONCEALMENT OF THE PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY, THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICU LARS OF HIS INCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTI ON 271(1)(C) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURATE, THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PARTICULARS. IN ORD ER TO EXPOSE THE ASSESSEE TO PENALTY, UNLESS THE CASE IS STRICTLY CO VERED BY THE PROVISION, ITA NO. 4890/MUM/2010 M/S. DWARKADAS COTTON CO. P. LTD. 4 THE PENALTY PROVISION CANNOT BE INVOKED. BY NO STRE TCH OF IMAGINATION CAN MAKING AN INCORRECT CLAIM TANTAMOUNT TO FURNISH ING INACCURATE PARTICULARS. THERE CAN BE NO DISPUTE THAT EVERYTHIN G WOULD DEPEND UPON THE RETURN FILED BY THE ASSESSEE, BECAUSE THAT IS T HE ONLY DOCUMENT WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF H IS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILI TY WOULD ARISE. THE ATTRACT PENALTY, THE DETAILS SUPPLIED IN THE RETURN MUST NOT BE ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIE D BY THE ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS O R FALSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1)(C). A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF , WILL NO AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDING THE INC OME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FU RNISHING INACCURATE PARTICULARS. 6. JUST BECAUSE A CLAIM WAS MADE, WHICH IS NOT ALLOWED BY THE A.O., IT DOES NOT FALL WITHIN THE DEFINITION OF FURNISHING O F INACCURATE PARTICULARS. THEREFORE, EVEN THOUGH THE ASSESSEE DID MAKE A CLAI M FOR EXPENDITURE TOWARDS FOREIGN TRAINING WHICH ULTIMATELY MAY NOT B E HELD TO BE FOR THE PURPOSE OF BUSINESS, IT DOES NOT ATTRACT PENALTY PR OCEEDINGS AS IT IS NOT A CASE OF FURNISHING OF INACCURATE PARTICULARS. REFER RING TO EXPLANATION I TO SECTION 271(1)(C), IT IS THE EXPLANATION OF THE ASS ESSEE THAT THEY BONAFIDELY CLAIMED THE EXPENDITURE AS BUSINESS EXPENDITURE AND IN SUPPORT RELIED ON THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE SAKAAL PAPER P. LTD. VS. CIT 114 ITR 256 AND CIT VS. KOHNOOR PAPER PRODUCTS 226 ITR 220 (MP). EVEN THOUGH THESE CASE LAWS ARE APPLICABLE TO THE PARTICULAR SET OF FACTS OF THOSE CASES, WE ARE OF THE OPINION THAT AS SESSEE DID HAVE A BONAFIDE FEELING THAT THE EXPENSE WAS FOR THE PURPOSE OF BUS INESS. IT IS ALL TOGETHER DIFFERENT POINT THAT ULTIMATELY THE EXPENSE WAS NOT ALLOWED BUT IN OUR VIEW THE FACTS OF THE CASE DOES NOT LEAD TO LEVY OF PENA LTY UNDER SECTION 271(1)(C). 7. ON THE ISSUE OF CLAIM OF EXPENDITURE ON SPONSORING DIRECTORS CHILDREN FOR HIGHER STUDIES, THERE IS A FAVOURABLE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SAKAAL PAPERS P. LTD(SUPRA). A ND AN ADVERSE DECISION IN THE CASE OF HINDUSTAN HOSIERY INDUSTRIES( SUPRA) RE LIED UPON BY THE A.O. THEREFORE, THERE WERE ALWAYS TWO OPINIONS POSSIBLE WHETHER THE EXPENSE IS FOR THE PURPOSE OF BUSINESS OR NOT. THEREFORE ON TH IS REASON ALSO WE ARE OF ITA NO. 4890/MUM/2010 M/S. DWARKADAS COTTON CO. P. LTD. 5 THE OPINION THAT PENALTY IS NOT WARRANTED. ACCORDIN GLY, THE PENALTY LEVIED UNDER SECTION 271(1)(C) IS HEREBY CANCELLED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 30 TH AUGUST 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) VII, MUMBAI 4. THE CIT III, MUMBAI CITY 5. THE DR, D BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI N.P.