Pankaj Bajaj, Kanpur V. The Asstt. Commissioner of Income Tax-3, Kanpur

ITA 501/LKW/2011

• Counselvise Citation: 50123714 RSA 2011
• Duration Of Justice: 3 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-07-2014
• Assessment Year: misc
• Appeal Filed On: 23-08-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SWARN SINGH
• Keywords: Business income; Bonafide belief; Competent authority
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B , LUCKNOW BEFORE SHRI S UNIL KUMAR YADAV , JUDICIAL MEMBER AND SHRI. A. K. GARODIA , ACCOUNTANT MEMBER ITA NO. 501/LKW/2011 ASSESSMENT YEAR: 2004 - 05 PANKAJ BAJAJ 23, GOVT. INDUSTRIAL ESTATE KALPI R OAD, KANPUR V. ASSTT. CIT - 3, KANUR PAN: ACSPB7466M (APP ELL ANT) (RESPONDENT) APP ELL ANT BY: SHRI. SWARN SINGH, FCA RESPONDENT BY: SHRI. AMIT NIGAM, D.R. DATE OF HEARING: 22 0 7 2014 DATE OF PRONOUNCEMENT: 10 0 9 2014 O R D E R PER SUNIL KUMAR YADA V: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY OF RS.98,000/ - LEVIED UNDER SECTION 271(1)(C) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT'). 2 . HAVING HEARD THE RIVAL SUBMISSIONS A ND FROM A CAREFUL PERUSAL OF RECORD, WE FIND THAT THE PENALTY WAS LEVIED ON ACCOUNT OF ADDITIONS MADE WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC OF THE ACT. 3 . BEFORE THE LD. CIT(A), ASSESSEE HAS FURNISHED DETAILED EXPLANATIONS WITH REGARD TO THE DISCR EPANCIES NOTICED IN THE COMPUTATION OF DEDUCTION UNDER SECTION 80HHC OF THE ACT AND FOR THE SAKE OF REFERENCE, WE EXTRACT THE SAME AS UNDER: - PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 2 - : DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSES WAS ASKED TO FURNISH A DETAILED CHART CONTAINING DATE OF IN VOICE, AMOUNT IN RS. AT THE TIME OF RAISING INVOICE, DATE OF REALIZATION AND THE AMOUNT REALIZED IN RS. ON EXAMINING THIS CHART IT WAS GATHERED THAT DURING THE YEAR THE ASSESSEE HAD RAISED BILL NO. 16, 18 & 70 FOR A TOTAL AMOUNT OF RS.28,00,000/ - . OUT OF T HIS, AMOUNT, ONLY RS.15,.44,773/ - WAS REALIZED WITHIN THE STATUTORY PERIOD ALLOWED. THUS THE UNREALIZED PAYMENT WITHIN THE DUE TIME REMAINED AT RS.12,55,227/ - . THEREFORE, AS PER SUB SECTION (2)(A) TO SECTION 80HHC THE DEDUCTION CLAIMED ON THIS AMOUNT OF RS .12,55,227/ - IS BEING DISALLOWED. FOR EURO 29161 (RS. 18,00,000/ - ) SHOWING EXCHANGE RATE OF RS.61.73 WHEREAS THE RATE AS ON THE DATE OF RAISING INVOICE WAS 55.92. THUS THE SALE VALUE COMES TO RS.16,30,684/ - . ACCORDINGLY THE SALE HAS BEEN EXCESS SHOWN AT RS .1,69,316/ - . THE ASSESSEE HAS EXPLAINED THAT THIS WAS AN ERROR ON THE PART OF THE ACCOUNTANT AND ON 19.04.2005, THE PARTIES ACCOUNT HAS BEEN CREDITED BY DEBITING EXCHANGE FLUCTUATION ACCOUNT. ACCORDINGLY, THE DEDUCTION U/S 80HHC WILL STAND REVISED. A DETAI LED EXAMINATION OF THE EEFC ACCOUNT OF THE ASSESSEE REVEALED THAT THE GAIN OR PROFIT ACCRUED TO THE ASSESSEE DUE TO EXCHANGE RATE DIFFERENCE ON ACCOUNT OF MONEY KEPT IN EEFC ACCOUNT WITH STATE BANK OF PATIALA, NAVEEN MARKET KANPUR WAS NOT REFLECTED EITHER IN THE BALANCE SHEET NOR IN THE PROFIT AND LOSS ACCOUNT. TO ASCERTAIN THE IN THIS ACCOUNT A CURRENCY WISE CHART WAS PREPARED WHICH REVEALED AS UNDER: GAIN IN EURO ACCOUNT RS.(+) 197272 GAIN IN USD ACCOUNT RS.(+) 6662 LOSS IN GBP ACCOUNT RS. ( - ) 448 08 PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 3 - : TOTAL RS.(+) 159126 ACCORDINGLY, THE PROFIT IN EEFC ACCOUNT AMOUNTING TO RS. 1,59,126/ - IS BEING ADDED TO THE INCOME OF THE ASSESSEE. THIS AMOUNT CANNOT BE TREATED AS BUSINESS INCOME QUALIFYING FOR DEDUCTION U/S 80 HHC OF THE INCOME TAX ACT, 1961 AND HAS TO BE TREATED AS 'INCOME FROM OTHER SOURCES' AS PER EXPLANATION (BAA) TO SUB SECTION (4B) TO SECTION 80HHC. REGARDING THE RECEIPT OF RS.1,59,126/ - IT IS OBSERVED THAT THE SAID FOREIGN CURRENCY GAIN HAS OCCURRED TO THE ASSESSEE ON ACCOUNT OF PARKIN G OF THE FUND IN EEFC ACCOUNT. IN OTHER WORDS, THE ASSESSES, HAS ALREADY ACCOUNTED FOR THE SALE PROCEEDS ON ACCOUNT OF EXPORTS AND THE SAID FUND WAS KEPT BY THE ASSESSEE IN THE SAID ACCOUNT AS PER RBI GUIDELINES. IT COULD NOT BE SAID THAT THE ASSESSEE HAS RECEIVED SALE PROCEEDS. THEREFORE, THE SALE PROCEEDS HAD ALREADY BEEN CRYSTALLIZED AND PARKING OF THE FUND IN THE SAID ACCOUNT NAMELY EEFC ACCOUNT IS THE SURPLUS FUND KEPT BY THE ASSESSEE AND ANY VARIATION IN THE SAID FUND IS NOT ON ACCOUNT OF EXPORT PROCE EDS BUT IN THE NATURE OF INTEREST ON THE SURPLUS FUND. THEREFORE IT COULD NOT BE SAID THAT THE SAID GAIN TO THE ASSESSEE HAS A DIRECT AND PROXIMATE SOURCE ON ACCOUNT OF EXPORT SALES BUT IT IS A GAIN TOWARDS PARKING SURPLUS FUND IN THE SAID ACCOUNT. THEREFO RE, IT HAS NO RELATION WITH THE EXPORT SALES. THIS INCOME IS TO BE ASSESSED UNDER THE HEAD 'OTHER SOURCES'. THE ABOVE ISSUE IS ALSO SQUARELY COVERED BY THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF K. RAVINDRANATHAN NAIR VS. DY. C.I.T. (ASS ESSMENT) AND OTHERS 262 ITR 669....' 01 THE APPELLANT IS AN EXPORTER OF LEATHER SADDLERY GOODS AND HAS OPENED EEFC ACCOUNT WITH STATE BANK OF PATIALA, NAVEEN MARKET KANPUR. 02 SOME EXPORT SALE PROCEEDS ARE CREDITED IN DOLLAR OR EURO CURRENCY, GBP IN THE A FORESAID EEFC ACCOUNT. THE IMPORT PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 4 - : PURCHASE OBLIGATIONS ARE ALSO MADE OUT OF CREDIT BALANCE IN EEFC ACCOUNT AND OUTSTANDING BALANCE IN THE SAID ACCOUNT IS NOT CONVERTED INTO INDIAN CURRENCY TO THE EXTENT PERMISSIBLE UNDER FEMA AND FOREIGN CURRENCY REGULATIO N OF RESERVE BANK OF INDIA. 03 AT THE TIME OF EXPORT SALE, A NOTIONAL ENTRY IS PASSED IN THE BOOKS OF ACCOUNT AT THE PREVALENT FOREIGN CURRENCY RATE AND SIMILARLY AT THE TIME OF PURCHASE A SIMILAR ENTRY IS PASSED AT THE PREVALENT FOREIGN CURRENCY RATE FOR ACCOUNTING FOR PURCHASE OF IMPORTED MATERIAL. 04 SINCE EEFC ACCOUNT IS NOT CONVERTED INTO INDIAN CURRENCY ON ANY DATE, THEREFORE, THE BALANCE IN THE SAID ACCOUNT AS ON 31ST MARCH IS CONVERTED INTO RUPEE VALUE ON 31ST MARCH AND SHOWN IN THE BALANCE SHEE T. 05 DURING THE YEAR DUE TO VARIOUS SALE BILLS, BILL NO. 16, 18 AND 70 AGGREGATING TO RS.28,00,000/ - WERE NOT REALIZED UPTO 31 ST MARCH, 2004. FURTHER, AMOUNT OF BILL NO.70 AMOUNTING TO RS.12,55,227/ - WAS NOT REALIZED UP TO 30.09.2004, HENCE THE APPELLANT APPLIED FOR EXTENSION WITH THE COMPETENT AUTHORITY PRESCRIBED UNDER EXPLANATION TO SUB SECTION (2) OF SECTION 80HHC OF THE INCOME TAX ACT 1961 AND A COPY OF THE SAID LETTER FOR GRANT OF EXTENSION IS ATTACHED MARKED AS ANNEXURE - 1. 06 THE COMPETENT AUTHOR ITY VIDE LETTER DATED 19.09.2004 (ANNEXURE - 1) ALLOWED EXTENSION TIME BY 12 MONTHS. 07 THE APPELLANT FILED RETURN OF ITS INCOME ON 01.11.2004 BY WHICH TIME HE WAS UNDER BONAFIDE BELIEF THAT THE SOME EXPERT SALE PROCEEDS OF BILL NO. 70 WOULD BE REALIZED IN TIME AND THE SAME SHALL BE ELIGIBLE FOR DEDUCTION U/S 80HHC OF THE ACT 1961. 08 THE LD. A.O. FAILED TO CONSIDER AND APPRECIATE INTER ALIA THAT EEFC ACCOUNT IS PERMITTED UNDER LAW TO AVOID UNNECESSARY BANK CHARGES AND CONVERSION CHARGES PAYABLE BY THE EXPO RTERS PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 5 - : ON RECEIPT OF FOREIGN EXCHANGE OWING TO THEIR OBLIGATION TO MAKE PAYMENT OF IMPORTED INPUTS IN FOREIGN CURRENCY. THEREFORE, AT NO POINT OF TIME THESE EEFC ACCOUNT ARE REQUIRED TO BE CONVERTED INTO INDIAN RUPEE EXCEPT FOR WORKING OUT NOTIONAL GAIN OR LOSS IN ACCORDANCE WITH AS - 11 PRESCRIBED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA FOR ASCERTAINING NOTIONAL LOSS OR GAIN ARISING DUE TO FLUCTUATION IN THE RATE OF FOREIGN EXCHANGE IN COMPRISING TO INDIAN RUPEES. IN THE LIGHT OF ABOVE FACTS AND TH E OBSERVATIONS OF THE LD. A.O. BOTH IN THE ASSESSMENT ORDER AS WELL AS PENALTY ORDER, THE PENALTY LEVIED IS NOT SUSTAINABLE FOR THE REASONS GIVEN HERE IN BELOW: 09 HAS FURNISHED FOR FURNISHING INACCURATE PARTICULARS IN RESPECT OF INCOME AND MAKING A FALS E CLAIM FOR DEDUCTION U/S 80HHC (YOUR HONOUR MAY KINDLY REFER TO PARA 4 ON PAGE 2 OF THE PENALTY ORDER). 10 AS EXPLAINED HERE IN ABOVE AT THE TIME OF FILING OF RETURN, THE APPELLANT HAD APPLIED FOR EXTENSION OF TIME FOR UNREALIZED EXPORT SALE PROCEEDS, THEREFORE, ON THE DATE OF FILING OF RETURN, IT IS INCORRECT TO HOLD THAT THE APPELLANT FURNISHED INACCURATE PARTICULARS OF HIS INCOME OR IN RESPECT OF DEDUCTION ADMISSIBLE UNDER SECTION 80HHC OF THE INCOME TAX, 1961. 11 SIMILARLY THE NOTIONAL PROFIT WORKE D OUT BY THE LD. A.O. IN RESPECT OF FOREIGN EXCHANGE CURRENCY RECEIVED BY THE APPELLANT AND LYING IN EEFC ACCOUNT IN ANTICIPATION OF OBLIGATION FOR MAKING PAYMENT TOWARDS PURCHASE OF IMPORTED INPUTS, ALSO DOES NOT AMOUNT TO FURNISHING OF INACCURATE PARTICU LARS OF INCOME. 12 THE LD. A.O. HAS FAILED TO SUBSTANTIATE ANY MALAFIDE, DELIBERATE OR WILLFUL DEFAULT EITHER IN DISCLOSING BALANCE IN EEFC ACCOUNT OR IN RESPECT OF DEDUCTION CLAIMED U/S 80HHC OF THE INCOME TAX ACT 1961. PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 6 - : YOUR HONOUR WILL KINDLY APPRECIATE THAT FURNISHING OF INACCURATE PARTICULARS OF INCOME IS TO BE SEEN ON THE DATE OF FILING OF RETURN AND NOT IN THE LIGHT OF EVENTS OCCURRING AFTER THE SAID DATE. YOUR HUMBLE APPELLANT HAS DEMONSTRATED WITH THE HELP OF NECESSARY EXPLANATION THAT HE DID NOT F URNISH ANY INACCURATE PARTICULARS WITH RESPECT TO THE INCOME. RELIANCE IS PLACED ON THE FOLLOWING DECISION: C.I.T. VS.. PHI SEEDS INDIA LTD. (2002) 159 TAXMAN 9 (DEL) THE HON'BLE HIGH COURT HELD THAT - '... EVEN IF A RETURN OF INCOME IS FOUND TO BE INCOR RECT AND THE ASSESSMENT THAT IS EVENTUALLY FRAMED BY THE ASSESSING OFFICER IS FOR A LARGER INCOME, PENALTY PROCEEDINGS ARE NOT AN INEXORABLE OR INEVITABLE CONSEQUENCE. IT IS THAT SECTION 271(1)(C) IS ATTRACTED ONLY IN THOSE INSTANCES WHERE THE ASSESSEE HAS CONCEALED THE PARTICULARS OF HIS INCOME, OR HAS FURNISHED INACCURATE PARTICULARS OF SUCH INCOME WITH AN INTENT TO MISLEAD THE REVENUE INTO ACCEPTING ITS RETURN FOR AN INCOME OFFERED FOR TAXATION WHICH IS LESS THAN THE INCOME ACTUALLY EXIGIBLE TO TAX.. I N VIEW OF THE SUBMISSIONS MADE HERE ABOVE YOUR HONOUR MAY BE PLEASED TO DELETE THE PENALTY LEVIED UNDER SECTION 271(1)(C) OF THE INCOME - TAX ACT, 1961. 4 . THE EXPLANATIONS FURNISHED BY THE ASSESSEE WERE NOT PROPERLY DEALT WITH BY THE LD. CIT(A) AND THE LD. C IT(A) CONFIRMED THE PENALTY. WE, HOWEVER, HAVE CAREFULLY EXAMINED THE EXPLANATIONS FURNISHED BY THE ASSESSEE AS WELL AS THE ORDER OF THE LD. CIT(A) CONFIRMING THE PENALTY AND WE FIND THAT THE ASSESSEE HAS FURNISHED COMPLETE DETAILS BEFORE THE ASSESSING OF FICER. SINCE THE ASSESSEE HAS NOT CONCEALED ANY FACTS AND ALL THE CALCULATIONS WERE AVAILABLE WITH THE ASSESSING OFFICER, IT IS NOT A FIT CASE FOR LEVY OF PENALTY FOR DIFFERENCE IN COMPUTATION OF DEDUCTION UNDER SECTION PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ ) : - 7 - : 80HHC OF THE ACT. WE, THEREFORE, F IND NO MERIT IN THE PENALTY AND ACCORDINGLY WE DELETE THE SAME. 5 . IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENT I ONED ON THE CAPTION PAGE. SD/ - SD/ - [ A. K. GARODIA ] [ S UNIL KUMAR Y ADAV ] AC COUNTANT MEMBER JUDICIAL MEMBER DATED: 10 TH SEPTEMBER , 2014 JJ: 0209 COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT 5 . DR ASSISTANT REGISTRAR PRINT TO PDF WITHOUT THIS MESSAGE BY PURCHASING NOVAPDF ( HTTP://WWW.NOVAPDF.COM/ )