M/S. BIOCHEM PHARMACEUTICALS PVT.LTD., MUMBAI V. I.T.O.RANGE4(1)-3, MUMBAI

ITA 6038/MUM/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1445 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-06-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 06-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S RAWAL
• Keywords: Bonafide belief; Wrong claim; TDS; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES, B, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) BIOCHEM PHARMACEUTICALS PVT LTD., A AIDUN BUILDING, DHOBI TALAV, MUMBAI-400002 PAN: AAACB4383N .APPELLANT V/S INCOME TAX OFFICER RANGE 4(1)(3), R NO.637A, AAYAKAR BHAVAN, 5 TH FL, M K ROAD., MUMBAI-400020 RESPONDENT APPELLANT BY : SHRI K GOPAL RESPONDENT BY : SHRI R S RAWAL O R D E R PER VIJAY PAL RAO,JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 23.7.2008 OF CIT(A)-IV, MUMBAI ARISING FROM THE PENALTY ORDER PASSED UNDER SECTION 271(1)(C ) OF TH E ACT FOR THE ASSESSMENT YEAR 2003-04. 2 THE ONLY ISSUE ARISES FOR OUR CONSIDERATION AND ADJUDICATION WHETHER IN THE FACTS AND CIRCUMSTANCE S OF THE ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 2 CASE, THE CIT(A) IS JUSTIFIED IN CONFIRMING THE P ENALTY OF RS.3,79,220/- LEVIED U/S 271(1)( C ) OF THE ACT ON ACCOUNT OF DISALLOWANCE OF MEDICAL EXPENSES FOR MANAGING DIR ECTOR OF THE COMPANY AND REVERSAL OF EXCESS INTEREST OF RS. 14,085/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO DISALLOWED A SUM OF RS.10,17,800/- CLAIMED BY THE ASSESSEE AS EXPENDITURE FOR BYE PASS SURGERY OF SHRI JAS HWANTLAL S SHAH, MANAGING DIRECTOR OF THE ASSESSEE COMPANY TR EATING THE SAME AS PERSONAL EXPENDITURE. APART FROM THE SAID DISALLOWANCE A DIFFERENCE OF RS.14085/- BETWEEN TH E REAL INTEREST RECEIVED AS PER THE TDS CERTIFICATE AND TH E AMOUNT DECLARED BY THE ASSESSEE WAS ALSO ADDED BY THE AO. THE CIT(A) CONFIRMED THE ACTION OF THE AO. THE ASSESSE E DID NOT CHALLENGE THE ORDER OF THE CIT(A). SUBSEQUENTLY, THE PENALTY PROCEEDINGS U/S 271(1)( C ) WERE INITIATED AND THE PENALTY OF RS.3,79,220/- WAS IMPOSED VIDE ORDER DATED 27.3.200 7. 3. BEFORE US, THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS DULY EXPLAINED AND PRODUCED ALL THE DETAILS OF THE EXPENDITURES INCURRED ON BYE PASS SURGERY OF ITS MANAGING DIRECTOR. HE HAS REFERRE D SCHEDULE- 9 REGARDING ADMINISTRATION AND GENERAL EXPENSES AN D POINTED OUT THAT THE MEDICAL EXPENSES FOR THE DIRECTOR HA S BEEN DULY EXPLAINED AND DISCLOSED BY THE ASSESSEE. HE HAS F URTHER ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 3 SUBMITTED THAT WHEN THE ASSESSEE HAS EXPLAINED AND DISCLOSED ALL THE RELEVANT FACTS REGARDING THE SAI D EXPENDITURE AT THE TIME OF FILING OF THE RETURN OF INCOME, THE SAME CANNOT BE TREATED AS CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. 4. THE LEARNED AR HAS FURTHER CONTENDED THAT THE ME DICAL EXPENDITURE WAS SPREAD OVER TO TWO YEARS AND THE EX PENDITURE INCURRED DURING THE EARLIER YEAR WAS ALLOWED BY THE REVENUE WHILE PASSING THE SCRUTINY ASSESSMENT ORDER DATED 29.12.2003 FOR THE ASSESSMENT YEAR 2002-03. THEREFO RE, THE ASSESSEE HAD A BONAFIDE BELIEF TO CLAIM THE SAID EX PENDITURE FOR THE CURRENT YEAR AND THE SAME DOES NOT AMOUNT TO CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. 5. AS REGARDS THE ADDITION IN RESPECT OF INTEREST OF RS.14085/- IS CONCERNED, THE LEARNED AR OF THE ASSE SSEE HAS SUBMITTED THAT THE ASSESSEE HAS DULY EXPLAINED AS TO HOW THE DIFFERENCE BETWEEN THE TDS CERTIFICATE AND THE ACT UAL INTEREST RECEIVED BY THE ASSESSEE ARISEN. HE HAS SUBMITTED THAT THE ASSESSEE HAS EXPLAINED VIDE ITS LETTER DATED 25.07 .2005 ALONG WITH A COPY OF LEDGER ACCOUNT THAT THE INTEREST REC EIVED FROM OPTIMATE FINVEST PVT LTD RS. 14085/- WAS WRONGLY C REDITED ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 4 TWICE IN THE FINANCIAL YEAR 2001-02 RELEVANT TO T HE ASSESSMENT YEAR 2002-03, ONCE AT THE TIME OF RECEI PT OF INTEREST AMOUNT AND THEN AGAIN AT THE END OF THE YE AR WHILE DEBITING THE TDS ACCOUNT. ACCORDINGLY, THE ASSESS EE HAS MADE THE REVERSION ENTRY OF EXCESS INTEREST OF S.14 085/-. THE LEARNED AR HAS SUBMITTED THAT THE ASSESSEE HAS PROD UCED ALL THE DETAILS AND RELEVANT RECORD ALONG WITH THE ACCO UNTS AND PARTICULARLY THE LEDGER ACCOUNT TO EXPLAIN THE SAI D DIFFERENCE. HE HAS PLACED RELIANCE ON THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF CIT V/S RELIANCE PETR OPRODUCTS PVT.LTD REPORTED IN 322 ITR 158(SC) AND THE DECI SION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MEHBOOB PR ODUCTIONS PVT.LTD V/S CIT REPORTED IN 106 ITR 758. 6. ON THE OTHER HAND, THE LEARNED DR HAS SUBMITTED THAT THE DIRECTOR OF THE ASSESSEE-COMPANY SHRI JASHWANTL AL S SHAH IS GETTING A SALARY OF RS.8000/- PER MONTH FO R HIS SERVICES RENDERED TO THE ASSESSEE-COMPANY. HE IS A LSO A PARTNER IN THE DATA ENTRY SERVICES PROVIDING TO TH E PARTNERSHIP FIRM M/S BIOCHEM PHARMACEUTICALS INDUST RIES. HE HAS POINTED OUT FROM THE IMPUGNED ORDER OF THE CIT( A) THAT SHRI JASHWANTLAL S SHAH IS ALSO HAVING SHARE OF PR OFIT AMOUNTING TO RS.2.04 CRORES FROM M/S BIOCHEM PHARMACEUTICALS INDUSTRIES AND RS.13.69 LACS FROM HIS OWN ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 5 BUSINESS OF TRADING. THEREFORE, WHEN HE WAS CAP AB LE AND HAVING GOOD FINANCIAL POSITION TO INCUR THE MEDICAL EXPENSES THEN THE PERSONAL EXPENDITURE INCURRED BY THE ASSES SEE- COMPANY CANNOT BE ALLOWED. THE LEARNED DR HAS FUR THER SUBMITTED THAT WHEN THE DIRECTOR OF THE ASSESSEE-C OMPANY WAS HAVING SUFFICIENT FUNDS AND CAPABLE OF GETTING THE TREATMENT ON HIS OWN THEN THE DECISION RELIED UPON BY THE ASSESSEE IN THE CASE OF MEHBOOB PRODUCTIONS PVT.LT D V/S CIT (SUPRA) IS NOT APPLICABLE IN THE FACTS AND CIRCUMST ANCES OF THE PRESENT CASE. HE HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND R ELEVANT RECORD. WE FIND FROM THE RECORD THAT THE ASSESSEE HAS INCURRED MEDICAL EXPENDITURE TOWARDS BYE PASS SURGE RY OF MANAGING DIRECTOR OF THE COMPANY AND IT HAD DISCLOS ED IN RETURN OF INCOME UNDER THE SEPARATE HEAD AND THEREF ORE, THIS IS NOT A CASE OF NOT DISCLOSING OF BASIC AND PRIMARY F ACTS REGARDING THE SAID CLAIM OF THE ASSESSEE. ONCE TH E ASSESSEE HAS EXPLAINED THE PRIMARY FACTS OF ITS CLAIM OF EXP ENDITURE THEN THOUGH THE SAID CLAIM IS NOT ALLOWABLE UNDER T HE PROVISIONS OF LAW, IT DOES NOT AMOUNT TO CONCEALMEN T OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCO ME. MOREOVER, WHEN THE PART OF THE EXPENDITURE INCURRED DURING ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 6 EARLIER ASSESSMENT YEARS AND THE CLAIM OF THE ASSES SEE WAS ALLOWED IN THE SCRUTINY ASSESSMENT FOR THE ASSESSME NT YEAR 2002-03 THEN THE ASSESSEE HAD MORE THAN SUFFICIENT REASON FOR ITS BONAFIDE BELIEF THAT THE EXPENDITURE INCURR ED ON THE BYE PASS SURGERY OF ITS DIRECTORS IS AN ALLOWABLE EXPEN DITURES. APART FROM THIS, IN THE CASE OF MEHBOOB PRODUCTION S PVT.LTD V/S CIT (SUPRA), THE JURISDICTIONAL HIGH COURT HELD THAT THE EXPENDITURE INCURRED ON THE MEDICAL TREATMENT OF TH E DIRECTOR ARE ALLOWABLE THEN THE CLAIM THOUGH MAY NOT BE SUST AINABLE UNDER LAW BUT THE SAME CANNOT BE SAID TO BE A BOGUS CLAIM. THEREFORE, WE ARE OF THE VIEW, THAT THE CLAIM OF TH E ASSESSEE REGARDING THE MEDICAL EXPENSES INCURRED ON THE TREA TMENT OF MANAGING DIRECTOR IS A BONAFIDE CLAIM AND DOES NOT AMOUNT TO CONCEALMENT OF INCOME ONCE ALL RELEVANT FACTS AND PARTICULARS OF INCOME ARE DISCLOSED BY THE ASSESSEE. 8. AS REGARDS THE REVERSAL OF EXCESS INTEREST OF RS .14085/- DUE TO DOUBLE ENTRY IN THE FINANCIAL YEAR 2001-02 I S CONCERNED, WHEN THE ASSESSEE HAS EXPLAINED THE REASONS FOR THE DIFFERENCE BETWEEN THE INTEREST INCOME RECEIVED BY THE ASSESSEE AND TDS CERTIFICATE THEN THE SAME CANNOT BE TREATED AS CONCEALMENT OF INCOME AND FURNISHING OF INACCURATE PARTICULARS OF INCOME. THEREFORE, WE DELETE THE PE NALTY LEVIED BY THE AO ON THIS ACCOUNT. ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 7 9. THEREFORE, THE EXPLANATION OF THE ASSESSEE IN OU R VIEW IS NOT ONLY MERITORIOUS BUT ALSO BASED ON BONAFIDE BE LIEF. THUS, THE ASSESSEE CANNOT BE HELD GUILTY FOR CONCEALMENT OF INCOME AND FURNISHING INACCURATE PARTICULARS OF INCOME. TH E HONBLE APEX COURT IN THE CASE OF CIT V/S RELIANCE PETROPRO DUCTS PVT LTD VIDE PARAGRAPHS 11 TO 14 HELD AS UNDER : 11. WE HAVE ALREADY SEEN THE MEANING OF THE WORD PARTICULARS IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION, THEY MUST MEANS THE DETAI LS SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO F INDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS R ETURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE, SUCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF I NVITING THE PENALTY UNDER SECTION 271(1)(C ) OF THE ACT. A MERE MAKING OF THE CLAIM WHICH IS NOT SUSTAINABLE IN LAW , BY ITSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PA RTICULARS REGARDING THE INCOME OF HE ASSESSEE. SUCH CLAIM MAD E IN THE RET5URN CANNOT AMOUNT TO THE INACCURATE PARTICU LARS. 12. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A O F THE ACT SPECIFICALLY EXCLUDED THE DEDUCTION IN RESP ECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATIO N TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVID ENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOM E. IT WAS, THEREFORE REITERATED BEFORE US THAT THE ASSESS ING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT S INCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING T HAT THEY ARE INCORRECT, IT AMOUNTED TO CONCEALMENT OF I NCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN AC COUNTS CAN TAKE EITHER OF THE TWO FORMS ; (I) AN ITEM OF R ECEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDITURE MAY BE FALSELY (OR IN AN EXAGGERATED AM OUNT ) CLAIMED AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABL E INCOME AND, THEREFORE, BOTH TYPES AMOUNT TO CONCEAL MENT OF PARTICULARS OF ONES INCOME AS WELL AS FURNISHIN G OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSESSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPEN DITURE AS WELL AS INCOME IN IS RETURN, WHICH DETAILS, IN THEMSELVES WE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PA RTS. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WH ICH ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 8 CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTA BLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPIN ION, ATTRACT THE PENALTY UNDER SECTION 271(1)( C ). IF W E ACCEPT THE CONTENTION OF THE REVENUE THEN IN CASE OF EVER Y RETURN WHERE THE CLAIM MAD IS NOT ACCEPTED BY THE AO FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UNDER SECTION 271(1)( C ). THAT IS CLEARLY NOT THE INTENDMENT OF THE LEGISLATURE. 13. IN THIS BEHALF THE OBSERVATIONS OF THIS COURT M ADE IN SREE KRISHNA ELECTRICIANS V/S STATE OF TAMIL NAD U (2009) 23 VST 249 AS REGARDS THE PENALTY ARE APPOSI TE. IN THE AFOREMENTIONED DECISION WHICH PERTAINED TO T HE PENALTY PROCEEDINGS UNDER THE TAMIL NADU GENERAL SALES TAX ACT, THE COURT HAD FOUND THAT THE AUTHORI TIES BELOW HAD FOUND THAT THERE WERE SOME INCORRECT STATEMENTS MADE IN THE RETURN . HOWEVER, THE SAID TRANSACTIONS WERE REFLECTED IN THE ACCOUNTS OF THE ASSESSEE. THIS COURT, THEREFORE, OBSERVED (PAGE 251 ): SO FAR AS THE QUESTION OF PENALTY IS CONCERNED THE ITEMS WHICH WERE NOT INCLUDED IN THE TURNOVER WERE FOUND INCORPORATED IN THE APPELLANTS ACCOUNT BOOKS. WHERE CERTAIN ITEMS WHICH ARE NOT INCLUDED IN THE TURNOVER ARE DISCLOSED IN THE DEALERS OWN ACCOUNT BOOKS AND THE ASSESSING AUTHORITIES INCLUDES THESE ITEMS IN THE DEALERS TURNOVER DISALLOWING THE EXEMPTION, PENALTY CANNOT BE IMPOSED. THE PENALTY LEVIED STANDS SET ASIDE 14. THE SITUATION IN THE PRESENT CASE IS STILL BET TER AS NO FAULT HAS BEEN FOUND WITH THE PARTICULARS SUBMITTED BY THE ASSESSEE IN ITS RETURN. 10. FROM THE DECISION OF THE HONBLE SUPREME COURT (SUPRA), IT IS CLEAR THAT WHEN THE INFORMATION AND DETAILS G IVEN BY THE ASSESSEE IS NOT FOUND TO BE INCORRECT OR INACCURATE , THE ASSESSEE CANNOT BE HELD OF GUILTY OF FURNISHING INA CCURATE PARTICULARS AND RESULTING LEVY OF PENALTY. RESPECT FULLY FOLLOWING THE DECISION OF THE DECISION OF THE SUPRE ME COURT ITA NO. 6038/MUM/2008 (ASSESSMENT YEAR: 2003-04) 9 (SUPRA), THE PENALTY LEVIED BY THE AO AND CONFIRMED BY THE CIT(A) IS NOT JUSTIFIED. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE SAME. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOW ED. PRONOUNCED IN THE OPEN COURT 18.06.2010 SD SD (P.M.JAGTAP) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMB ER MUMBAI, DATED 18TH JUNE 2010 SRL:4610 COPY TO: 1. BIOCHEM PHARMACEUTICALS PVT LTD., A AIDUN BUILDING, DHOBI TALAV, MUMBAI-400002 2. INCOME TAX OFFICER RANGE 4(1)(3), R NO.637A, AAYAKAR BHAVAN, 5 TH FL, M K ROAD., MUMBAI-400020 RESPONDENT 3. CIT CITY4, MUMBAI. 4.ADD CIT 4(1), MUMBAI 5 CIT(A)-IV, MUMBAI. 6. DR B BENCH BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI