MINHAZ DOST MERCHANT, MUMBAI V. ITO WD 5(2), MUMBAI

ITA 5848/MUM/2010

• Counselvise Citation: 584819914 RSA 2010
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 21-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O A MAO
• Keywords: Wrong claim; Difference of opinion; Commercial expediency
• Section: 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B , MUMBAI BEFORE SHIRI D. MANMOHAN, VP AND SHRI RAJENDRA SING , AM ITA NO. : 5848/MUM/2010 ASSESSMENT YEAR : 2006-07 MR. MINHAZ DOST MERCHANT 1002, SAMUDRA SETU, SAHER AGIAR LANE, 51-D BHULABHAI DESAI ROAD, MUMBAI-400 028 PAN NO: AAEPM 6510 D VS. INCOME TAX OFFICER - 5(2) AAYKAR BHAVAN, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JAYESH DADIA RESPONDENT BY : SHRI O.A. MAO DATE OF HEARING : 15 .11.2011 DATE OF PRONOUNCEMENT : 18.11.2011 ORDER PER RAJENDRA SINGH (AM) : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 21.06.2010 OF THE LD. CIT(A)-9 FOR THE ASSESSMENT Y EAR 2006-07. THE ONLY DISPUTE IS REGARDING LEVY OF PENALTY U/S. 271( 1)(C) OF THE ACT. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF COMPENSATION OF `. 10,00,000/- WHILE COMPUTING THE INCOME FROM BUSINESS AND PROFESSION. IT WAS EXPLAINED THAT, THE COMPENSATION HAD BEEN PAID TO M/S. SIDBI ON BEHALF OF THE M/S. MERCHANT MEDIA LIMITED (MML), OF WHICH THE ASS ESSEE WAS THE ITA NO : 5848/MUM/2010 MR. M INHAZ DOST MERCHANT 2 PROMOTER. THE AO, HOWEVER, ASKED THE ASSESSEE AS TO WHY THE CLAIM SHOULD NOT BE CONSIDERED AS OF PERSONAL NATURE AND NOT RELATING TO BUSINESS ACTIVITY. THE ASSESSEE, THEREAFTER, AGRE ED FOR ADDITION OF SAID AMOUNT TO THE TOTAL INCOME. THE AO, THEREFORE, DISA LLOWED THE CLAIM AS PERSONAL IN NATURE AND ALSO INITIATED PENALTY PROCE EDINGS FOR FURNISHING INACCURATE PARTICULARS OF INCOME. DURING THE PENALT Y PROCEEDINGS, THE ASSESSEE SUBMITTED THAT THE ISSUE REGARDING THE ALL OWABILITY OF COMPENSATION WAS DEBATABLE AND, THEREFORE, THE SAME DID NOT AMOUNT TO FURNISHING INCURRENT PARTICULARS OF INCOME. THE AO, HOWEVER, DID NOT ACCEPT THE EXPLANATION. IT WAS OBSERVED BY HIM, THA T THE ASSESSEE HAD AGREED TO THE ADDITION OF THE AMOUNT TO THE TOTAL I NCOME ONLY ON BEING POINTED OUT BY THE AO AND, THEREFORE, IT WAS NOT VO LUNTARY DECLARATION. HE, THEREFORE, HELD THAT THE ASSESSEE HAD FILED INA CCURATE PARTICULARS OF INCOME AND, ACCORDINGLY, LEVIED PENALTY AT THE RATE OF 100% ON TAX THAT SOUGHT TO BE EVADED AMOUNTING TO `. 3,36,600/-. 2.1 THE ASSESSEE DISPUTED THE DECISION OF THE AO AN D SUBMITTED BEFORE CIT(A) THAT THE ASSESSEE ALONG WITH SMT. BAKUL RAJN I PATEL WAS THE PROMOTER OF M/S. MML. THERE WAS AGREEMENT WITH M/S. MML AND M/S.SIDBI VENTURE CAPITAL LIMITED (M/S. SVCL) FOR I NFUSING CAPITAL INTO M/S.MML AND, ACCORDINGLY, M/S. SIDBI HAD INVESTED I NTO 22 LAKHS SHARES OF M/S. MML. AS PER THE AGREEMENT, M/S.MML W AS TO COME OUT WITH AN IPO WITHIN 36 MONTHS FROM THE DATE OF SUBSC RIPTION AND IN CASE OF DEFAULT M/S. SIDBI HAD RIGHT TO SELL THE SHARES TO ANY THIRD PARTY WITH THE PROMOTERS HAVING FIRST RATE OF REFUSAL. M/S.MML COULD NOT COME WITH THE IPO WITHIN 36 MONTHS AND, ACCORDINGLY, SVCL WAN TED TO SALE THE SHARES. AS PER THE AGREEMENT, SVCL WAS TO SELL 20 L AKHS SHARES TO A NEW INVESTOR FOR `. 1.60 CRORE. THE NEW INVESTOR, HOWEVER, COULD BRING ONLY `. 1.50 CRORE AND THE SHORTFALL HAD TO BE MADE UP BY T HE ASSESSEE. THE ASSESSEE SUBMITTED THAT, SINCE HE WAS PROFESSIONAL WRITER, IT WAS IN ITA NO : 5848/MUM/2010 MR. M INHAZ DOST MERCHANT 3 PROFESSIONAL INTEREST TO MAKE UP THE SHORTFALL AND, ACCORDINGLY, THE SAME WAS CLAIMED AS DEDUCTION WHILE COMPUTING THE TOTAL INCOME. THE SAME WAS, HOWEVER, DISALLOWED AND PENALTY HAD BEEN LEVIE D, WHICH WAS NOT JUSTIFIED. THE ASSESSEE HAD ALSO TAKEN OPINION DATE D 24.07.2006 FROM THE CHARTERED ACCOUNTANT, IN WHICH IT WAS MENTIONED THA T UNDER THE AGREEMENT M/S.MML OR ITS PROMOTER WHO ARE LIABLE TO PAY COMPENSATION TO M/S. SIDBI ON FAILURE TO COMPLY WITH CERTAIN CON DITIONS. THE PAYMENT MADE BY THE ASSESSEE WAS IN HIS PROFESSIONAL INTERE ST, AS IT WOULD HAVE EFFECTED HIS REPUTATION BADLY AND, THEREFORE, CA OP INED THAT THERE WAS NEXUS BETWEEN THE COMPENSATION PAID AND EARNING OF PROFESSIONAL FEES. THE ASSESSEE ALSO RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. (322 ITR 1 58) IN WHICH IT WAS HELD THAT, MAKING WRONG CLAIM DID NOT AMOUNT TO FUR NISHING INACCURATE PARTICULARS OF INCOME. THE LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTIONS RAISED. IT WAS OBSERVED BY HIM THAT THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. (SUPRA) WAS DISTINGUISHABLE. IN THIS CASE, THE CLAI M OF THE ASSESSEE WAS NOT BONAFIED AND, THEREFORE, CIT(A) HELD THAT THE A O WAS JUSTIFIED IN LEVYING PENALTY FOR FURNISHING INACCURATE PARTICULA RS OF INCOME AND, ACCORDINGLY, CONFIRMED THE ORDER OF THE AO AGGRIEVE D BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 3. BEFORE US, THE LD. AR FOR THE ASSESSEE REITERATE D THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES AND HEAVILY RELIE D ON THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF RELIANCE P ETRO PRODUCTS LTD (SUPRA). IT WAS ALSO SUBMITTED THAT THE COMPENSATIO N PAID WAS LINKED TO HIS PROFESSIONAL REPUTATION AND, THEREFORE, WAS ALL OWABLE AS DEDUCTION ON COMMERCIAL EXPEDIENCY. IN ANY CASE, IT WAS POINTED OUT THAT THE ALLOWABILITY OF CLAIM WAS DEBATABLE AND, THEREFORE, IN SUCH A CASE NO PENALTY COULD BE LEVIED. HE REFERRED TO THE OPINION DATED 24.07.2006 OF ITA NO : 5848/MUM/2010 MR. M INHAZ DOST MERCHANT 4 THE CA PLACED AT PAGE NO.4 OF THE PAPER BOOK, IN WH ICH IT WAS MENTIONED THAT THE CLAIM COULD BE ALLOWED AS HAVING NEXUS WIT H PROFESSIONAL INCOME. THIS OPINION WAS AVAILABLE BEFORE THE LOWER AUTHORITIES, BUT THE SAME HAD NOT BEEN CONSIDERED. IT WAS ACCORDINGLY, U RGED THAT THE PENALTY LEVIED SHOULD BE DELETED. THE LD. DR ON THE OTHER H AND, SUPPORTED THE ORDERS OF AUTHORITIES BELOW AND PLACED RELIANCE ON THE FINDINGS GIVEN IN THEIR ORDERS. 4. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE R IVAL CONTENTIONS CAREFULLY. THE DISPUTE IS REGARDING THE LEVY OF PEN ALTY ON ACCOUNT OF ADDITION OF `. 10,00,000/- TO THE TOTAL INCOME MADE BY THE AO, WHI CH HAD BEEN CLAIMED BY THE ASSESSEE AS COMPENSATION. THE A MOUNT HAD BEEN PAID TO M/S. SIDBI BY THE ASSESSEE, FOR NON COMPLIA NCE OF TERMS AND CONDITIONS OF THE AGREEMENT FOR INFUSING EQUITY CAP ITAL IN M/S. MML, OF WHICH THE ASSESSEE WAS THE ONE OF THE PROMOTERS. TH E ASSESSEE CLAIMED IT AS A DEDUCTION WHILE COMPUTING THE PROFESSIONAL INC OME, WHICH HAD BEEN DISALLOWED BY THE AO BY TREATING THE SAME AS PERSON AL EXPENDITURE. UNDER THE PROVISIONS OF SECTIONS 271(1)(C) OF THE A CT, THE PENALTY CAN BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INC OME OR FOR CONCEALING PARTICULARS OF INCOME. IN THIS CASE, THE AO IN PARA 5 OF THE ASSESSMENT ORDER CLEARLY MENTIONED THAT THE ASSESSEE HAD FURNI SHED INACCURATE PARTICULARS OF INCOME AND, ACCORDINGLY, INITIATED T HE PENALTY PROCEEDINGS U/S.271(1)(C) OF THE I.T. ACT. IT HAS BEEN HELD BY HON'BLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS LTD. (SUPRA) THAT MAKING A WRONG CLAIM DOES NOT AMOUNT TO FURNISHING INACCURATE PART ICULARS OF INCOME. IN THIS CASE, ALSO THE CLAIM HAS BEEN DISALLOWED BY TH E AO AS WRONGLY MADE AND, THEREFORE, THE SAME DOES NOT AMOUNT TO FURNISH ING OF INACCURATE PARTICULARS OF INCOME. THE CLAIM MADE BY THE ASSESS EE HAS NOT BEEN FOUND FALSE, BUT IT HAS BEEN ONLY TREATED AS PERSON AL EXPENDITURE NOT RELATING TO PROFESSIONAL INCOME. THEREFORE, IN OU R VIEW, FOLLOWING THE ITA NO : 5848/MUM/2010 MR. M INHAZ DOST MERCHANT 5 JUDGEMENT OF HON'BLE SUPREME COURT IN THE CASE OF R ELIANCE PETRO PRODUCTS LTD.(SUPRA), PENALTY CANNOT BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INCOME. THE AO IN THIS CASE HAD INIT IATED AND LEVIED PENALTY FOR FURNISHING INACCURATE PARTICULARS OF IN COME AND THE LD. CIT(A) HAS ALSO UPHELD THE SAME FOR FURNISHING INAC CURATE PARTICULARS OF INCOME AND, THEREFORE, THE ORDER LEVYING PENALTY CA NNOT BE UPHELD. MOREOVER, IN THIS CASE, THERE IS ALSO POSSIBILITY O F DIFFERENCE OF OPINION REGARDING THE ALLOWABILITY OF CLAIM OF DEDUCTION IN CASE OF THE ASSESSEE. A PERUSAL OF THE SUBSCRIPTION AGREEMENT, A COPY OF WH ICH HAS BEEN PLACED ON RECORD SHOWS THAT THE PURPOSE OF INFUSING CAPITA L IN MML WAS TO TRANSFORM PRINT MEDIA BUSINESS INTO INTEGRATED MEDI A COMPANY ENCOMPASSING PRINT MEDIA, TELEVISION, INTERNET AND EVENTS. THUS THE INFUSING CAPITAL OF THE COMPANY WAS LINKED TO THE P ROFESSIONAL ACTIVITY OF THE ASSESSSEE, WHO WAS A PROFESSIONAL WRITER. THERE FORE, THE COMPENSATION PAID BY THE ASSESSEE TO MAKE UP THE SH ORTFALL IN THE SUBSCRIPTION OF THE EQUITY CAPITAL CAN BE CONSIDERE D IN CASE OF THE ASSESSEE ON COMMERCIAL EXPEDIENCY. THE CHARTERED AC COUNTANT HAD ALSO GIVEN OPINION IN FAVOUR OF ALLOWABILITY OF THE CLAI M IN CASE OF THE ASSESSEE. HOWEVER, THERE COULD ALSO BE DIFFERENCE OF OPINION. THEREFORE, THE ALLOWABILITY OF CLAIM CAN BE SAID TO BE DEBATABLE O NE AND IN SUCH A CASE LEVY OF PENALTY WITH RESPECT TO DISALLOWANCE OF CLA IM WILL NOT BE JUSTIFIED. CONSIDERING THE ENTIRETY OF FACTS AND CIRCUMSTANCES , PENALTY LEVIED CANNOT BE UPHELD. WE, THEREFORE, SET ASIDE THE ORDE R OF CIT(A) AND CANCEL THE PENALTY. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 18 TH DAY OF NOVEMBER, 2011. SD/ - - SD/ - ( D. MANMOHAN ) ( RAJENDRA SINGH ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT: 18/11/2011 ITA NO : 5848/MUM/2010 MR. M INHAZ DOST MERCHANT 6 COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, A - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI ROSHANI