GOLD ROCK WORLD TRADE LTD, MUMBAI V. ITO WD 3(1)(4), MUMBAI

ITA 5394/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0941 (ITAT-MUMBAI)
• Duration Of Justice: 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 22-07-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 25-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN KUMAR
• Assessee Lawyers: SUNIL MEHTA
• Section: 80HHC

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI PRAMOD KUMAR (AM) AND SMT. ASHA VIJAYA RAGHAVAN (JM) ITA NO. 5394/MUM/2009 ASSESSMENT YEAR- 2002-03 M/S. GOLD ROCK WORLD TRADE LTD., 714, RAHEJA CHAMBERS, 213, NARIMAN POINT, MUMBAI-400 021 PAN-AAACG 1286B VS. THE ITO, WARD 3(1)(4), AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SUNIL MEHTA RESPONDENT BY: SHRI SHRAVAN KUMAR O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER DATED 16.7.2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2002-03. 2. THE APPEAL IS AGAINST THE CONFIRMATION BY THE LD . CIT(A) OF LEVY OF PENALTY OF RS.6,54,047/- UNDER SEC.271 (1) (C ). THIS PENA LTY HAS ARISEN ON ACCOUNT OF THE DISALLOWANCE OF RS.17,67,696/- OUT OF THE DEDUC TION CLAIMED BY THE ASSESSEE OF RS.65,39,025/- AS COMMISSION PAYABLE TO THE FORE IGN PARTIES TOWARDS COMMISSION ON SALES. IN THE ORDER OF ASSESSMENT TH E ASSESSING OFFICER HAS DISALLOWED THIS AMOUNT OBSERVING AS UNDER: IT IS SEEN FROM THE RECORD THAT ASSESSEE COMPANY H AD PAID A SUM OF RS.65,39,025/- TO FOREIGN PARTIES TOWARDS COMMISSION ON SALES. THE ASSESSEE COMPANY WAS ASKED TO FURNISH T HE BREAK UP OF THE SAID EXPENDITURE. IT WAS SEEN FROM THE SUBMISS IONS MADE BY THE ASSESSEE THAT COMMISSION IS ACCOUNTED FOR BY IT ON DEL CEDRE BASIS. BASED ON THIS METHOD THE COMMISSION ACCRUES TO THE PARTIES IN THE YEAR IN WHICH THE ASSESSEE RECEIVES THE SALE S CONSIDERATION. FURTHER WORKING OF THE COMMISSIONS WAS CALLED FOR F ROM THE ASSESSEE WHERE PARTY-WISE, AGENT-WISE AND REALIZATI ON-WISE DETAILS ITA NO. 5394/M/09 2 WERE REQUIRED TO BE FURNISHED. A PERUSAL OF THESE DETAILS SHOWS THAT COMMISSION AMOUNTING TO RS.17,67,696/- OUT OF THE TOTAL COMMISSION PAID OF RS.65,39,025/- DID NOT PERTAIN T O THE RELEVANT PREVIOUS YEAR. THE ASSESSEE WAS HENCE ASKED TO SHO W CAUSE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AND ADDED TO ITS TOTAL INCOME. SHRI ALOK MUKHERJEE IN THE STATEMENT RECOR DED U/S.131 STATED AS UNDER: THIS WAS A MISTAKE WHICH WAS COMMITTED BY OUR ACCO UNTANT WHO DID NOT BRING TO OUR NOTICE THAT THE EXPENSE RE LATE TO THE PREVIOUS YEAR AND TO BE DISCLOSED SEPARATELY. THE MISTAKE HAS COME TO OUR NOTICE ONLY AT A TIME WHEN YOU DESIRED THE INFORMATION IN A PARTICULAR FORMAT OF B ILL-WISE COMMISSION. TILL THAT TIME, I WAS NOT AWARE OF SUC H COMMISSION HAS BEEN DEBITED TO PROFIT AND LOSS ACCO UNT WITHOUT PROPER DISCLOSURE. IT MAY BE NOTED THAT TH ERE WAS NO INTENTION TO CONCEAL AN INCOME ON OUR PART SINCE , IT WOULD HAVE BEEN ALLOWED AS AN EXPENSE OF EARLIER YEAR IN BOOKS IN EARLIER YEAR. IT MAY BE NOTED TAX-WISE IT HAS NOT MADE ANY DIFFERENCE EITHER BOOKED IN THIS YEAR OR EARLIER YE ARS. SINCE BASED ON THE INTERPRETATION OF SECTION 80HHC, THE C OMPANY HAS NO LIABILITY TO TAX FOR ANY OF THESE YEARS AFTE R MAKING DEDUCTION U/S. 80HHC, WHICH WAS SUPPORTED BY A CHAR TERED ACCOUNTANTS CERTIFICATE IN FORM 10CCA. FROM THE ABOVE, IT IS CLEAR THAT ASSESSEE COMPANY H AD DEBITED EXCESS EXPENDITURE OF RS.17,67,696/- ON ACCOUNT OF COMMISSION IN THE PROFIT AND LOSS ACCOUNT. THIS DISCREPANCY HAS COME TO LIGHT ONLY AFTER THE EXAMINATION OF THE BOOKS AND BY FURTHER VERIFICATIO N OF DETAILS OBTAINED FROM THE ASSESSEE. THE FACTS REGARDING EXCESS EXPE NDITURE HAS BEEN ACCEPTED BY THE ASSESSEE WHEN CONFRONTED. THEREFOR E, PENALTY PROCEEDINGS U/S.271(1)(C ) IS INITIATED FOR FILING INACCURATE PARTICULARS OF INCOME. AS THE EXPENDITURE ON ACCOUNT OF COMMISSION PERTAIN ING TO EARLIER YEARS IS NOT AN ALLOWABLE EXPENSE, THE AMOUNT OF RS.17,67,69 6/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE 3. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN WHY PENAL TY CANNOT BE LEVIED ON THIS ADDITION, THE ASSESSEE SUBMITTED AS UNDER VIDE THEIR LETTER DT.22.1.08. WITH REGARD TO DISALLOWANCE OF THE COMMISSION EXPE NSE TO THE EXTENT OF RS.17,67,696/- IS CONCERNED, WE WISH TO S TATE THAT ASSESSEE ITA NO. 5394/M/09 3 HAVING VOLUNTARILY OFFERED THE SAID AMOUNT AS A DIS ALLOWANCE ON THE GROUNDS THAT IT IS A PRIOR PERIOD EXPENSE AND ALSO EXPLAINED YOUR HONOUR THAT THERE CANNOT BE ANY INTENTION OF EVADING THE T AX BASED ON THE INTERPRETATIONS OF THE PROVISIONS OF SECTION 80HHC PREVALENT AT THE TIME OF FILING RETURN OF INCOME. AT RELEVANT POINT OF TIME IN BOTH THE YEARS THERE WAS NO TAX LIABILITY. IN SUCH SITUATION, ANY CHANG E IN SCENARIO ARISING AS A RESULT OF INTERPRETATION OF LAW TO ALLEGE CONCEALME NT ON THE PART OF ASSESSEE IS TOTALLY UNFAIR WHEN IT HAS BEEN EXPRESS LY ADMITTED BY THE ASSESSEE IN COURSE OF ASSESSMENT. IN THIS REGARD W E DRAW YOUR ATTENTION TO THE GUJARAT HIGH COURT DECISION IN CASE OF CIT V S. UNION ELECTRIC CORPORATION, 281 ITR 226, ACCORDING TO WHICH IT WAS HELD THAT WHEN ASSESSEE HIMSELF HAS ADMITTED AND ITS BONAFIDE ARE NOT IN DISPUTE, THERE CANNOT BE ANY LEVY OF THE PENALTY. IN THIS CASE, B ASED ON THE FACTS AND CIRCUMSTANCES AND INTERPRETATIONS OF SECTION 80HHC AVAILABLE AT A TIME OF FILING OF RETURN OF INCOME NO CASE CAN BE MADE OUT AGAINST THE ASSESSEE TO FURNISH INACCURATE PARTICULARS WITH VIEW TO EVADE T AXES WHEN IT HAS NO TAX ADVANTAGE IN THIS MATTER. SINCE IN EARLIER YEARS A S WELL AS IN THE CURRENT YEAR AS PER THE RETURN OF INCOME FILED BY THE APPEL LANT, THERE WAS NO TAX LIABILITY BASED ON THE INTERPRETATION OF PROVISIONS OF SECTION 80HHC. FURTHER, IT WAS NOT THE CASE WHERE EXPENSES WERE HE LD TO BE BOGUS. IT ONLY PERTAINS TO PRIOR PERIOD AND EXCESS DISALLOWABLE. YOUR HONOUR WOULD APPRECIATE THAT ON TECHNICAL GROUNDS D ISALLOWANCE HAS BEEN MADE AND TAX HAS BEEN COLLECTED ON OTHERWISE ALLOWA BLE EXPENSES. TO COLLECT PENALTY ON SUCH ALLOWANCE WOULD BE GREAT IN JUSTICE TO THE ASSESSEE. 4. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANA TION OF THE ASSESSEE AND LEVIED THE MINIMUM PENALTY OF RS.6,54,047/-. ON AP PEAL, THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE CLAIM OF EXCES S OF DEDUCTION DID NOT AFFECT THE TAXABILITY BECAUSE OF THE RELIEF CLAIMED UNDER 80HHC AND RESULTANT TAXABLE INCOME HAVE BECOME NIL. THE CIT(A) FOLLOWING THE D ECISION OF SUPREME COURT IN THE CASE OF UOI VS. DHARMENDRA TEXTILES 306 ITR 27 7 UPHELD THE LEVY OF PENALTY. 5. AGGRIEVED THE ASSESSEE IS ON APPEAL BEFORE US. 6. FROM THE FACTS FURNISHED IT WOULD APPEAR THAT TH E ASSESSEE IS PAYING COMMISSION TO FOREIGN PARTIES ON THE BASIS OF THE S ALES. THEY ARE ACCOUNTING THE ITA NO. 5394/M/09 4 SAME ON THE DEL CREDRE BASIS I.E. THE COMMISSION AC CRUES TO THE PARTIES IN THE YEAR IN WHICH THE ASSESSEE RECEIVES THE SALE CONSID ERATION. WHEN THE ASSESSING OFFICER CALLED FOR THE PARTICULARS OF THE COMMISSIO N CLAIMED AS DEDUCTION DURING THE YEAR, THE ASSESSEE FOUND THAT COMMISSION AMOUNT ING TO RS.17,67,696/- PERTAINS TO AN EARLIER YEAR. THEY SUBMITTED THAT T HIS AMOUNT HAS BEEN MISTAKENLY CLAIMED DURING THE YEAR. THE LOWER AUTH ORITIES HAVE NOT REBUTTED THE CLAIM THAT THE COMMISSION PAYABLE BY THE ASSESSEE O F RS.17,67,696/-, IF NOT ALLOWABLE IN THIS YEAR IS ALLOWABLE IN THE PREVIOUS YEAR. THIS BEING SO, THE CLAIM OF THIS AMOUNT BY THE ASSESSEE THIS YEAR APPEARS TO BE DUE TO MISTAKE ON THE PART OF THE ASSESSEE. THE ASSESSEE, WHEN THE ASSES SING OFFICER POINTED OUT THE MISTAKE, HAD READILY ACCEPTED FOR THE ADDITION. TH E ASSESSEE HAD GIVEN ALL THE PARTICULARS OF THE COMMISSION PAID AND HAD INADVERT ENTLY CLAIMED ADDITIONAL AMOUNT THAN ENTITLED TO. PENALTY HAS BEEN LEVIED ON LY ON THE GROUND THAT THE ASSESSEE HAS FURNISHED WRONG PARTICULARS. THE SUPRE ME COURT IN THE CASE OF RELIANCE PETRO PRODUCCTS LTD (322 ITR 158 ) HAS HELD THAT IN ORDER TO ATTRACT THE PROVISIONS OF SEC 271(1)(C) THERE MUST BE CONCE ALMENT OF PARTICULARS AND THE ASSESSEE SHOULD HAVE FURNISHED INACCURATE PARTICULA RS OF HIS INCOME. TO ATTRACT PENALTY THE PARTICULARS FURNISHED IN THE RETURN MUS T NOT BE ACCURATE, NOT EXACT OR CORRECT. MERE MAKING OF A CLAIM WHICH IS NOT SUSTAI NABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REGARDI NG THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AM OUNT TO FURNISHING INACCURATE PARTICULARS. 7. IN THE INSTANT CASE THE PARTICULARS GIVEN IN THE RETURN REGARDING THE PAYMENT OF COMMISSION OF RS.65,39,025/- IS NOT ERRO NEOUS. THERE IS NO FINDING THAT THE ENTIRE AMOUNT HAS NOT BEEN PAID BY THE ASS ESSEE AS COMMISSION OR THAT THE AMOUNT OF DISALLOWED OF RS.17,67,696/- IF NOT A LLOWABLE IN THIS YEAR IS ALLOWABLE IN THE EARLIER YEAR. THE CLAIM MAD BY THE ASSESSEE FOR DEDUCTION OF THE ENTIRE AMOUNT BY ITSELF CANNOT BE CONSIDERED AS FUR NISHING OF INACCURATE PARTICULARS. APPLYING THE RATIO OF THE SUPREME COU RT, IN THE ABOVE CASE, WE HOLD ITA NO. 5394/M/09 5 THAT THE CLAIM OF ADDITIONAL COMMISSION OF RS.17,67 ,696/- WAS AN INADVERTENT MISTAKE AND THERE WAS NO FURNISHING OF INACCURATE P ARTICULARS IN THE RETURN. HENCE THE ADDITION MADE IN THE ASSESSMENT DOES NOT WARRANT LEVY OF PENALTY. IN THE CIRCUMSTANCES, WE DELETE THE PENALTY OF RS.6,56 ,046/- LEVIED UNDER SEC.271(1)(C ) AND ALLOW THE ASSESSEES APPEAL ON T HIS ISSUE. 8. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JULY, 2010 SD/- SD/- (PRAMOD KUMAR ) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH JULY, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 5394/M/09 6 DATE INITIALS 1 DRAFT DICTATED ON: 26.7.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 2 6 . 7 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______