S.R. EXPORTS P. LTD, MUMBAI V. ITO WD-8 (3)(2), MUMBAI

ITA 4953/MUM/2008

• Counselvise Citation: 495319914 RSA 2008
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 17-08-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 06-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: VIMAL G JAIN
• Section: 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E : MUMBAI BEFORE SHRI N.V. VASUDEVAN, (JUDICIAL MEMBER) AND SHRI RAJENDRA SINGH,(ACCOUNTANT MEMBER) ITA NO.4953/MUM/2008 ASSESSMENT YEAR : 2004-05 S.R. EXPORTS PVT. LTD. 1, SEA SHELL, N. DUTTA ROAD, FOUR BUNGLOWS, ANDHERI (W) MUMBAI-400 053. ..( APPELLANT ) P.A. NO. (AAGCS 0443 Q) VS. INCOME TAX OFFICER WARD 8(3)(2) MUMBAI. ..( RESPONDENT ) APPELLANT BY : SHRI VIMAL G. JAIN RESPONDENT BY : SHRI G. P. TRIVEDI DATE OF HEARING : 17.8.2011 DATE OF PRONOUNCEMENT : 24 TH AUGUST, 2011 O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 6.5.2008 OF CIT(A) FOR THE ASSESSMENT YEAR 2004-0 5. THE ONLY DISPUTE RAISED BY THE ASSESSEE IN THIS APPEAL IS REGARDING LEVY OF PENALTY UNDER SECTION 271(1)(C). 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE A O DURING THE ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD SHOWN CR EDIT LIABILITY OF RS.12.00 LACS IN THE BALANCE SHEET. THE A SSESSEE EXPLAINED ITA NO.4953/M/08 A.Y:04-05 2 THAT A SUM OF RS.12.00 LACS WAS RECEIVED AS ADVANCE IN 200 1-02 FROM M/S. PENTAMEDIA GRAPHICS LTD. FOR DEVELOPMENT OF ANIM ATION SOFTWARE BUT DUE TO SOME DIFFICULTY, THE ANIMATION SOFTWARE COUL D BE DEVELOPED ONLY IN THE 2005-06 AND DELIVERED TO THE PARTY. TH E ASSESSEE FILED COPY OF LETTER DATED 4.5.2005 OF M/S. PENTAMEDIA GRAP HICS LTD. CONFIRMING RECEIPT OF ANIMATION SOFTWARE. HOWEVER SUBSE QUENTLY IN RESPONSE TO INFORMATION SOUGHT UNDER SECTION 133(6) OF T HE ACT, M/S. PENTAMEDIA GRAPHICS LTD. DENIED THE LIABILITY OF RS.1 2.00 LACS AS WELL AS RECEIPT OF ANY ANIMATION SOFTWARE. ON BEING CONFRON TED, THE ASSESSEE REITERATED THAT THE PAYMENT OF RS.12.00 LACS HAD BEEN RECEIVED FROM M/S. PENTAMEDIA GRAPHICS LTD. BUT SINCE T HEY HAD DENIED EXISTENCE OF LIABILITY, ASSESSEE HAD NO OPTION EXCE PT TO OFFER THE INCOME IN ASSESSMENT YEAR 2004-05. THE AO THEREFORE ASSE SSED THE INCOME OF RS.12.00 LACS UNDER SECTION 41(1) AND ALSO INITI ATED PENALTY PROCEEDINGS UNDER SECTION 271(1)(C). IN RESPONSE TO PENALT Y NOTICE, THE ASSESSEE SUBMITTED THAT THE AMOUNT HAD BEEN OFFERED AS INCOME TO AVOID NECESSARY LITIGATION AND TO BUY PEACE AND IN S UCH CASES NO PENALTY SHOULD BE LEVIED. THE AO HOWEVER OBSERVED TH AT THE EXPLANATION WAS GENERAL IN NATURE AND NOT SUPPORTED B Y ANY EVIDENCE. HE, THEREFORE, LEVIED PENALTY @ 100% OF TAX SOUGHT TO BE EVADED AMOUNTING TO RS.4,30,500/-. ITA NO.4953/M/08 A.Y:04-05 3 2.1 THE ASSESSEE DISPUTED THE DECISION OF THE AO AND APPE ALED BEFORE CIT(A) THAT THE VERY FACT THAT THE AMOUNT WAS ASSESSED UNDER SECTION 41(1) SHOWS THAT THE DEPARTMENT ACCEPTED CLAIM THA T THE ASSESSEE HAD RECEIVED THE AMOUNT IN EARLIER YEAR. THERE WAS, THEREFORE, NO CONCEALMENT OF INCOME. THE ASSESSEE HAD ALR EADY BEEN PENALIZED BY ASKING TO PAY HUGE INTEREST ON THE TAX A ND, THEREFORE, NO PENALTY SHOULD BE LEVIED. THE CIT(A) HOWEVER OBSERV ED THAT THE EXPLANATION OF THE ASSESSEE THAT IT OFFERED INCOME ONLY BECAUSE THE OTHER PARTY DENIED THE TRANSACTION WAS NOT CONVINCING. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE INITIALLY SAID THAT THE DEVEL OPMENT OF SOFTWARE WAS PENDING AND LATER SAID THAT THE SOFTWARE H AD BEEN SUPPLIED WHICH WAS UNBELIEVABLE AS SOFTWARE COULD NOT B E DEVELOPED AND DELIVERED WITHIN A FEW DAYS . FURTHER, EVEN IF T HE PARTY M/S. PENTAMEDIA GRAPHICS LTD. WAS DENYING THE TRANSACTION BECA USE OF SOME ULTERIOR MOTIVE, THE ASSESSEE COULD HAVE PRODUCED IND EPENDENT EVIDENCE REGARDING DELIVERY OF SOFTWARE WHICH HAD NOT BEEN DONE. HE, THEREFORE, DID NOT CONSIDER THE EXPLANATION OF THE A SSESSEE AS BONAFIDE AND ACCORDINGLY CONFIRMED THE PENALTY LEVIED BY AO AGG RIEVED BY WHICH, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US THE LD. AR FOR THE ASSESSEE SUBMITTED THAT IN THE ASSESSMENT YEAR 2001-02 THE ASSESSEE HAD RECEIVED A SUM OF R S.21 ITA NO.4953/M/08 A.Y:04-05 4 LACS BY DEMAND DRAFTS CONSISTING OF RS.9.00 LACS TOWARDS CON SULTANCY FEE AND RS.12.00 LACS TOWARDS DEVELOPMENT OF SOFTWARE. THE AMOUNT REMAINED OUTSTANDING IN THE BOOKS AS SOFTWARE COULD BE D EVELOPED AND DELIVERED ONLY IN ASSESSMENT YEAR 2005-06 AS PER RECEIPT DATED 4.5.2005 ISSUED BY PARTY. BEFORE THE AO, THE PARTY D ENIED THE TRANSACTION MADE, MAY BE, BECAUSE THEY HAD NOT ACCOUNTED THE SAME. TO AVOID LITIGATION AND TO BUY PEACE OF MIND, THE ASSE SSEE AGREED FOR ASSESSMENT OF INCOME. THERE WAS NO MATERIAL FOR THE AO TO ASSESS THE INCOME UNDER SECTION 41(1). THE ASSESSEE HAD AGREED TO T HE ADDITION, ONLY TO AVOID LITIGATION AND, THEREFORE, NO PENALTY SHOULD BE LEVIED AS THE ASSESSEE HAD CO-OPERATED IN THE MATTER AND RAISED NO LITIGATION. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THE RESPECT IVE YEARS. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE MATTE R CAREFULLY. THE DISPUTE IS REGARDING LEVY OF PENALTY IN RELATION TO ADDITION OF RS. 12.00 LACS TO THE TOTAL INCOME WHICH WAS ACCEPTED BY THE ASSESSEE. THE ASSESSEE HAD RECEIVED THE SAID AMOUNT IN ASSESSMENT YEAR 2001-02 AS ADVANCE FROM M/S. PENTAMEDIA GR APHICS LTD. FOR DEVELOPMENT OF SOFTWARE. THE AMOUNT WAS DUL Y SHOWN IN BALANCE SHEET IN 2001-02 AND REMAINED PENDING ABOUT W HICH THERE IS NO DISPUTE. THE ASSESSEE SUBMITTED BEFORE AO THAT THE SO FTWARE COULD ITA NO.4953/M/08 A.Y:04-05 5 BE SUPPLIED ONLY DURING 2005-06 VIDE RECEIPT DATED 4 .5.2005 OF THE SAID PARTY. HOWEVER, THE SAID PARTY DENIED THE TRANSACT ION. THEREFORE, THE ASSESSEE TO AVOID LITIGATION OFFERED THE SAID AMOUN T AS INCOME. NOW THE ISSUE IS WHETHER ON THE FACTS OF THE CASE, LEVY OF PENALTY FOR CONCEALMENT OF INCOME WOULD BE JUSTIFIED. IN OUR VIEW THE ADDITION OF RS.12.00 LACS IN ASSESSMENT YEAR 2004-05 HAS NOT BEEN CORRECT LY MADE. THE ADDITION UNDER THE SAID SECTION COULD NOT B E MADE ONLY WHEN THE LIABILITY HAD BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOME IN THE EARLIER YEAR AND HAD CEASED TO EXIST. IN THIS CASE, THE AMOUNT WAS ONLY AN ADVANCE AND THUS, WAS NOT CLAIMED AS DEDUCTION NOR SHOWN AS INCOME IN THE RELEVANT YEAR. THEREFORE, A DDITION UNDER SECTION 41(1) IS NOT JUSTIFIED. THERE IS ALSO NO EVIDENC E THAT THE ASSESSEE SUPPLIED SOFTWARE IN THIS YEAR SO THAT THE AMOUNT COULD BE ADJUSTED AGAINST SUPPLY MADE AND ASSESSED AS INCOME. IN FACT PARTY HAD DENIED SUCH A SUPPLY OF SOFTWARE. THEREFORE, THE AD DITION OF RS.12.00 LACS IN ASSESSMENT YEAR 2004-05 IS LEGALLY NOT TE NABLE. THE PROPER COURSE OF ACTION FOR THE AO ON THE FACTS OF THE CA SE WAS TO RE- OPEN THE ASSESSMENT FOR ASSESSMENT YEAR 2001-02 WHEN THE LI ABILITY WAS SHOWN WHICH WAS DENIED BY THE PARTY, WHICH HAS NOT B EEN DONE. THEREFORE, WHEN THE ADDITION ITSELF IS NOT LEGALLY JU STIFIED, LEVY OF PENALTY WILL NOT BE PROPER ONLY ON THE GROUND THAT THE ASSESSEE OFFERED INCOME AND DID NOT RAISE ANY LITIGATION. IN CASE ASSESSEE HAD RAISED ITA NO.4953/M/08 A.Y:04-05 6 LITIGATION IT WOULD HAVE BEEN DIFFICULT FOR THE REVE NUE TO DEFEND THE ADDITION MADE IN ASSESSMENT YEAR 2001-02 UNDER SECTION 41(1) AND IN ALL PROBABILITY THE SAME WOULD HAVE BEEN DELETED. IT IS A SETTLED LEGAL POSITION THAT PENALTY PROCEEDINGS ARE DIFFERENT FROM A SSESSMENT PROCEEDINGS AND THE FINDING GIVEN IN THE ASSESSMENT THOUG H IT MAY CONSTITUTE GOOD EVIDENCE, THE SAME IS NOT CONCLUSIVE IN PEN ALTY PROCEEDINGS IN WHICH THE ASSESSEE CAN STILL SHOW THAT THERE W AS NO CONCEALMENT OF INCOME. IN THIS CASE, AS WE HAVE MENTIONED EARLIER, THE ADDITION ITSELF IS NOT LEGALLY JUSTIFIED. THEREFO RE, IN OUR VIEW, IT WILL NOT BE APPROPRIATE TO LEVY PENALTY. WE ACCORDINGLY SE T ASIDE THE ORDER OF CIT(A) AND DELETE THE PENALTY LEVIED. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24.8.2011. SD/- SD/- (N.V. VASUDEVAN) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 24.8.2011. JV. 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.