ACIT CIR 12(3), MUMBAI V. STELMET MARKETING, MUMBAI

ITA 6168/MUM/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 3762 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 25-02-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 09-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A RAMACHANDRAN
• Assessee Lawyers: M V CHOKSI
• Keywords: Difference of opinion; Tax effect
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO. 6168 /MUM/2012 ( / ASSESSMENT YEAR : 2006-07) A.C.I.T. CIRCLE 12(3), R. NO. 137, IST FLOOR, AAYAKAR BHAWAN, MUMBAI 400 020. / V. M/S STELMET MARKETING, 219, MAKER CHAMBER, V, NARIMAN POINT, MUMBAI 400 021 ./ PAN : AAEFS8102K ( / APPELLANT ) .. ( / RESPONDENT ) REVENUE BY SHRI A. RAMACHANDRAN ASSESSEE BY : SHRI M.V. CHOKSI / DATE OF HEARING : 25-2-2016 / DATE OF PRONOUNCEMENT : 11-5-2016 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE REVENUE, BEING ITA NO. 6 168/MUM/2012, IS DIRECTED AGAINST THE ORDER DATED 27.7.2012 PASSED B Y LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 23, MUMBAI (HEREINAFTER CA LLED THE CIT(A) ), FOR THE ASSESSMENT YEAR 2006-07, THE APPELLATE PROCEEDINGS BEFORE THE CIT(A) ARISING FROM THE PENALTY ORDER DATED 28-03-2011 PASSED BY T HE LEARNED ASSESSING OFFICER (HEREINAFTER CALLED THE AO) U/S 271(1)(C) OF THE INCOME TAX ACT,1961(HEREINAFTER CALLED THE ACT). ITA 6168/MUM/2012 2 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE IN THE MEMO OF APPEAL FILED WITH THE INCOME TAX APPELLATE TRIBUNAL, MUMBA I (HEREINAFTER CALLED THE TRIBUNAL) READS AS UNDER 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS RIGHT IN HOLDING THAT THE ORD ER PASSED BY THE AO U/S.271(1)(C ) OF THE I.T. ACT, 1961 IS INCORRECT, WI THOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD FILED INACCURATE PARTICULARS DURING THE ASSESSMENT PROCEEDINGS.' 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THE FACT THAT THE A.O IN A DETAILED ORDER HAS CATEGORICALLY BROUGHT OUT THE FACT THA T INCOME HAS ACCRUED TO THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR ITSELF AND ASSESSEE HAD FAILED TO DECLARE THE SAME. THIS CLEARL Y AMOUNTS TO WILLFUL CONCEALMENT OF INCOME AND HENCE, PENALTY LEVIED BY TH E A.O IS GOOD IN LAW. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE A.O SHOUL D BE RESTORED AND ORDER OF THE CIT(A) SHOULD BE SET ASIDE. ' 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM . THE ASSESSEE FIRM IS IN AN INDENTING BUSINESS OF STEEL PRODUCTS ON BEHALF OF THE FOREIGN SUPPLIERS FOR THE SUPPLIES MADE BY THE FOREIGN PRIN CIPALS DIRECTLY TO INDIAN BUYERS LIKE L & T, BHEL, ESSAR STEEL ETC. FOR THEIR POWER PROJECTS. THE ASSESSEE FIRM GETS COMMISSION INCOME FROM THE FOREI GN PRINCIPALS. 4. THE RETURN OF INCOME WAS FILED BY THE ASSESSEE FIRM WITH THE REVENUE DECLARING TOTAL INCOME OF RS. 70,46,095/- ON 13 TH OCTOBER, 2006 AND ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 W AS COMPLETED BY THE AO ON 26 TH DECEMBER, 2008 U/S. 143(3) OF THE ACT ASSESSING T HE INCOME AT RS. 2,32,43,125/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S 143 (3) READ WITH SECTION 143(2) OF THE ACT, THE A.O. OBSERVED FROM THE BALAN CE SHEET THAT THE ASSESSEE FIRM IS SHOWING ADVANCE FROM SUPPLIERS OF RS. 1.62 CRORES. THESE ADVANCES ITA 6168/MUM/2012 3 WERE COMMISSION PAYMENTS FOR INDENTING SERVICES PRO VIDED BY THE ASSESSEE FIRM TO THE FOREIGN CLIENTS. ON PERUSAL OF THE AGEN CY AGREEMENTS SIGNED WITH THE FOREIGN CLIENTS , IT WAS OBSERVED BY THE AO THA T THE COMMISSION WILL BECOME DUE AND PAYABLE AFTER THE CLIENTS RECEIVES T HE FULL SALE PRICE FOR THE PRODUCTS SOLD BY IT TO THE CUSTOMERS IN THE TERRITO RY. AS THE COMMISSION PAYMENTS WERE ALREADY RECEIVED BY THE ASSESSEE FIRM , IT WAS CONCLUDED BY THE A.O. THAT THE ASSESSEE FIRM HAS COMPLETED ITS ASSIG NMENTS AS PER AGENCY AGREEMENTS AND THE INCOME HAS ALREADY ACCRUED TO T HE ASSESSEE FIRM. TO PROVE THAT THE COMMISSION PAYMENT RECEIVED BY THE A SSESSEE FIRM FROM FOREIGN PRINCIPALS IS NO LONGER A LIABILITY BUT ALREADY ACC RUED TO THE ASSESSEE FIRM AS INCOME, THE A.O. CRITICALLY EXAMINED THE AGREEMENT WITH FOREIGN PRINCIPAL NAMELY ASCOMETAL FRANCE AND PROVED THAT THE COMMISS ION INCOME HAS ALREADY ACCRUED TO THE ASSESSEE FIRM. THE ANALYSIS OF THE AGREEMENT BY THE AO OF THE AFORE-STATED AGREEMENT IS REPRODUCED BELO W:- THE AGENCY AGREEMENT SIGNED BY THE ASSESSEE FIRM W ITH ASCOMETAL FRANCE CAN BE ANALYSED IN DETAIL TO PROVE THAT THE CONTENTION OF THE ASSESSEE IS WRONG. THE ASSESSEE IS SHOWING AN ADVA NCE COMMISSION RECEIPT FROM ASCOMETAL FRANCE OF RS.43,01,925/-. TH E AGREEMENT BETWEEN THE PARTIES WAS 09.10.2000. THE TERMS OF AG REEMENT ARE AS FOLLOWS: A) THE ASSESSEE FIRM SHALL EXERT ITS BEST ENDEAVORS TO PROCURE ORDERS FOR THE SALE OF THE PRODUCTS IN THE TERRITOR Y. ASCOMETAL SHALL SEND TO ASSESSEE ITS QUOTATIONS AGAINST THE E NQUIRIES TRANSMITTED BY ASSESSEE FIRM AND THE QUOTATION SHAL L INCLUDE THE TERMS AND CONDITIONS ON WHICH ORDER SHOULD BE PROCU RED BY ASSESSEE FROM THE CUSTOMERS IN THE TERRITORY. B) THE ASSESSEE FIRM SHALL PROCURE ORDERS FROM CUST OMERS IN THE TERRITORY IN RESPECT OF THE PRODUCTS AT THE PRICES MENTIONED IN ASCOMETAL QUOTATIONS AND UPON THE TERMS AND CONDITI ON PREVIOUSLY MENTIONED BY ASCOMETAL IN ITS QUOTATIONS . C) ON RECEIPT OF SUCH ORDERS, ASSESSEE FIRM SHALL P ROMPTLY TRANSMIT THE ORDERS PROCURED BY IT TO ASCOMETAL IN FRANCE. ITA 6168/MUM/2012 4 D) UPON RECEIPT OF THE ORDERS TRANSMITTED TO THEM B Y ASSESSEE FIRM AS PROVIDED IN CLAUSE (C) ABOVE, ASCOMETAL IS ENTITLED TO ACCEPT OR REFUSE ORDERS IN FRANCE AND SHALL INTIMAT E ITS DECISION TO ASSESSEE FIRM, UNLESS THE ORDER IS PLACED WITHIN THE VALIDITY PERIOD ON THE TERMS AND CONDITIONS OF THE OFFER MAD E BY ASCOMETAL. E) IT IS HEREBY EXPRESSLY AGREED AND DECLARED THAT ASSESSEE FIRM HAS NO AUTHORITY TO ACCEPT OR REJECT ANY ORDERS FRO M CUSTOMERS IN THE TERRITORY, THE RIGHT TO ACCEPT OR REJECT SUCH O RDERS COMING EXCLUSIVELY FROM ASCOMETAL AND ASSESSEE FIRM HAS NO AUTHORITY TO ENTER INTO ANY CONTRACT FOR OR ON BEHALF OF ASCOMET AL, UNLESS OTHERWISE AUTHORISED BY ASCOMETAL IN WRITING TO DO SO ON ITS BEHALF. COMMISSION: A) A COMMISSION WILL BECOME DUE AND PAYABLE AFTER A SCOMETAL HAS RECEIVED THE FULL SALE PRICE FOR THE PRODUCTS S OLD BY IT TO THE CUSTOMERS IN THE TERRITORY. B) A COMMISSION IS 3% (THREE PERCENT) CALCULATED ON THE FOB PRICES, SHALL BE PAID BY ASCOMETAL TO ASSESSEE FIRM FOR ALL ORDERS FROM THE TERRITORY WHICH HAVE BEEN RECEIVED EITHER DIRECTLY OR THROUGH ASSESSEE FIRM, UNLESS THE CUSTOMER IN INDIA PREFERS TO DEDUCT THIS COMMISSION FROM THE INVOICE VALUE AND P AY IT DIRECTLY TO ASSESSEE FIRM. THIS COMMISSION AMOUNT CAN BE INC REASED OR DECREASED BY INITIAL AGREEMENT AND IN EXCEPTIONAL C ASES WHERE THE CUSTOMER PREFERS A CLAIM ON USE FOR THE REJECTION O F GOODS SUPPLIED BY US ON ACCOUNT OF QUALITY ON QUANTITY AN D ACCEPTED BY US THE AMOUNT OF COMMISSION ALREADY PAID BY US WILL BE RECOVERED FROM ASSESSEE FIRM.' THUS IT IS EVIDENT FROM THE ABOVE AGREEMENT THAT TH E COMMISSION IS PAID TO THE ASSESSEE FIRM ONLY WHEN I T HAS DONE ITS JOB OF PROCURING THE ORDERS AND THE COMPANY ASCOMET AL FRANCE HAS RECEIVED THE FULL SALE PRICE FOR THE PRODUCTS S OLD BY IT TO THE CUSTOMERS IN THE TERRITORY. THE ONLY GROUND ON WHIC H THE ASSESSEE HAS BASED HIS CONTENTION IS THE CLAUSE IN THE AGENCY AGREEMENT WHICH SAYS THAT- 'THE COMMISSION AMOUNT C AN BE INCREASED OR DECREASED BY INITIAL AGREEMENT AND IN EXCEPTIONAL CASES WHERE THE CUSTOMER PREFERS A CLAIM THE AMOUNT OF COMMISSION ALREADY PAID WILL BE RECOVERED'. BUT THI S CONTENTION OF THE ASSESSEE IS COMPLETELY AGAINST THE PRINCIPLES O F ACCOUNTING. ITA 6168/MUM/2012 5 SINCE THE INCOME HAS ALREADY ACCRUED TO THE ASSESSE E IT SHOULD HAVE ACCOUNTED FOR THE SAME. JUST BECAUSE THERE IS A SCOPE OF AN INCREASE OR DECREASE IN THE TOTAL COMMISSION RECEIP TS ON THE BASIS OF SOMETHING UNKNOWN, THE INCOME THAT HAS ALREADY A CCRUED TO THE ASSESSEE CANNOT BE CARRIED DOWN AS ADVANCE AND NOT OFFERED TO TAX IN THE YEAR IN WHICH IT HAS ACCRUED. THE ASSESSEE FIRM HAD ENTERED INTO SIMILAR AGREEMEN TS WITH THE FOLLOWING THREE FOREIGN PARTIES AND RECEIVED COMMISSION INCOM E AS UNDER: M/S ASCO FORGE FRANCE RS.3,67,229/- M/S CRUESOT FORGE FRANCE RS.85,0L,052/- M/S INDUSTEEL CRUESOT FRANCE RS.43,0L,925/- THUS , THE ASSESSEE FIRM RECEIVED TOTAL OF RS. 1,61 ,97,030/- AS COMMISSION INCOME FROM THE FOUR FOREIGN PRINCIPALS AND UNDER A LL THE FOUR AGREEMENTS, THE COMMISSION INCOME WILL BECOME DUE AND PAYABLE A FTER THE AFORE-STATED FOREIGN CONCERN HAVE RECEIVED THE FULL SALE PRICE F OR THE PRODUCTS SOLD TO THE INDIAN CUSTOMERS. THUS, THE ADVANCE RECEIVED FROM THE SUPPLIERS OF RS. 1,61,97,030/- WAS TREATED BY THE A.O. AS BUSINESS I NCOME OF THE ASSESSEE FIRM AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE FIRM VIDE ASSESSMENT ORDER DATED 26.12.2008 PASSED U/S 143(3) OF THE ACT KEEPI NG IN VIEW THE CONCEPT OF ACCRUAL OF INCOME AND AS THE INCOME HAS ACCRUED TO THE ASSESSEE FIRM THE SAME WAS BROUGHT TO TAX AS PER SECTION 5 OF THE AC T . CONSEQUENTLY, THE PENALTY PROCEEDINGS WERE INITIATE D U/S 271(1)(C) OF THE ACT AGAINST THE ASSESSEE FIRM FOR CONCEALMENT OF INCOME BY THE ASSESSEE FIRM. IN THE QUANTUM PROCEEDINGS, THE CIT(A) UPHELD THE A DVANCE COMMISSION INCOME RECEIPT OF RS.1,61,97,030/- AS ACCRUED INCOM E FOR THE IMPUGNED ASSESSMENT YEAR UNDER THE ACT AS THE ASSESSEE FIRM IS FOLLOWING MERCANTILE ITA 6168/MUM/2012 6 SYSTEM OF ACCOUNTING VIDE ORDERS DATED 01-02-2010.T HE ASSESSEE FIRM DID NOT FILED ANY APPEAL WITH THE TRIBUNAL AGAINST THE ORDE RS DATED 01-02-2010 OF THE CIT(A) WITH RESPECT TO QUANTUM ADDITIONS AND THE SA ME ATTAINED FINALITY. THE ASSESSEE FIRM IN THE PENALTY PROCEEDINGS INITI ATED U/S 271(1)(C) OF THE ACT SUBMITTED THAT THE ASSESSEE FIRM HAS NOT CONCEALED ANY INCOME WITH DELIBERATE INTENTION TO DEPRIVE THE REVENUE OF ITS LEGITIMATE TAXES. THE CONTENTIONS OF THE ASSESSEE FIRM WERE REJECTED BY THE A.O. ON THE GROUND THAT THE ASSESSEE FIRM HAS NOT PROVED THAT THE AMOU NT SHOWN IN THE BALANCE SHEET IS ONLY AN ADVANCE RECEIPT. AS PER THE AGENC Y AGREEMENT SIGNED BY THE ASSESSEE FIRM, THE COMMISSION INCOME WILL BECOME DU E AND PAYABLE TO THE ASSESSEE FIRM AFTER THE FOREIGN CLIENTS RECEIVED FU LL SALE PRICE OF THE PRODUCTS SOLD TO ITS CUSTOMERS IN THE TERRITORY AND IT CANNO T BE CLAIMED BY THE ASSESSEE FIRM THAT THERE IS UNFULFILLED CONTRACTS TO SHOW TH E ACCRUED RECEIPT AS ADVANCE. THE AO HELD THAT IT IS CLEARLY ESTABLISHED THAT THE COMMISSION INCOME HAS ACCRUED TO THE ASSESSEE FIRM DURING THE YEAR AND ASSESSABLE TO TAX IN THE YEAR UNDER CONSIDERATION U/S 5 OF THE AC T, AS THE ASSESSEE FIRM FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. IT WAS ALS O NOTED BY THE A.O. THAT THE ASSESSEE FIRM HAS NOT FILED ANY APPEAL WITH THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) IN THE QUANTUM ASSESSMENT WHICH MEANS THAT THE ASSESSEE FIRM HAS ACCEPTED THE ADDITIONS MADE BY THE REVENUE. TH E AO RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F UOI V. DHARMENDRA TEXTILE PROCESSORS, 306 ITR 277 (SC) AND HELD THAT ASSESSEE FIRM HAS DELIBERATELY FAILED TO DISCLOSE THE CORRECT AND TRU E PARTICULARS OF ITS INCOME AND THEREBY TRIED TO POSTPONE THE TAXABILITY OF THE CORRECT INCOME. THE AO THEREBY HELD THAT THE ASSESSEE FIRM HAS FILED INACC URATE PARTICULARS OF INCOME AND HENCE CONCEALED THE INCOME. THE PENALTY OF RS. 54,51,920/- WAS LEVIED BY THE AO ON THE ASSESSEE FIRM U/S 271(1)(C) OF THE ACT READ WITH EXPLANATION 1 , VIDE PENALTY ORDERS DATED 28-03-2011. ITA 6168/MUM/2012 7 5. AGGRIEVED BY THE PENALTY ORDERS DATED 28-03-2011 PASSED U/S. 271(1)(C) OF THE ACT, THE ASSESSEE FIRM FILED FIRST APPEAL WITH THE CIT(A). 6. BEFORE THE CIT(A), THE ASSESSEE FIRM SUBMITTED T HAT THE ASSESSEE FIRM HAS NOT CONCEALED ANY INCOME OR FURNISHED ANY INACCURAT E PARTICULARS OF INCOME. THE INCOME HAS ALREADY BEEN DISCLOSED ALBEIT IN THE NEXT YEAR AND DUE TAXES PAID TO THE REVENUE. IT WAS ALSO SUBMITTED BY THE ASSESSEE FIRM THAT THERE IS A MISTAKE IN THE CALCULATION OF CONCEALED INCOME AS INCOME WAS NOT ADJUSTED AS PER THE CIT(A) ORDER IN QUANTUM ASSESSMENT, WHIL E COMPUTING THE PENALTY IMPOSABLE. IT WAS SUBMITTED THAT THE ASSESSEE FIRM HAS OFFERED THE SAID AMOUNT AS ADVANCE IN THE YEAR UNDER REFERENCE AND T REATED THE SAME AS COMMISSION INCOME AS INCOME IN THE SUBSEQUENT YEAR AND DUE TAXES HAVE BEEN PAID TO THE REVENUE ALBEIT IN THE NEXT YEAR. THE YEAR-WISE BREAK UP OF THE ADVANCE COMMISSION INCOME AND THE YEAR IN WHICH IT WAS OFFERED FOR TAXATION BY THE ASSESSEE FIRM WAS ALSO FURNISHED. T HE ASSESSEE FIRM SUBMITTED THAT THE CIT(A) IN QUANTUM PROCEEDINGS DI RECTED THAT ADVANCE COMMISSION OF RS. 66,91,188/- PERTAINING TO THE AS SESSMENT YEAR 2005-06 RECOGNIZED DURING THE YEAR BE ALLOWED AS DEDUCTION FROM THE INCOME. THE ASSESSEE FIRM SUBMITTED THAT THE A.O. HAS NOT CONSI DERED THIS ASPECT AND AFTER GIVING EFFECT TO THE CIT(A)S ORDER IN QUANTU M PROCEEDINGS, THE DIFFERENCE IN INCOME WAS RS. 95,05,842/- INSTEAD OF RS. 1,61,9 7,030/- CONSIDERED BY THE A.O. AND THIS IS A MISTAKE IN THE COMPUTATION. THE ASSESSEE FIRM SUBMITTED THAT THE SIMILAR ADDITIONS WERE MADE IN T HE SUBSEQUENT YEAR I.E. ASSESSMENT YEAR 2007-08 BUT NO PENALTY HAS BEEN LEV IED BY THE REVENUE. THE PENALTY PROCEEDINGS WERE DROPPED BY THE A.O. VI DE ORDER DATED 15.3.2012. THE METHOD OF ACCOUNTING WAS FOLLOWED C ONSISTENTLY ON BONA FIDE BELIEF AND THE SAME IS NOT EXIGIBLE TO PENALTY. FU LL AND COMPLETE INFORMATION HAS BEEN PROVIDED TO THE REVENUE DURING THE COURSE OF ENQUIRY DURING ASSESSMENT PROCEEDINGS U/S 143(3) READ WITH SECTION 143(2) OF THE ACT. THE ITA 6168/MUM/2012 8 MATERIAL FACTS HAVE BEEN DISCLOSED IN A FAIR AND OP EN MANNER BEFORE THE REVENUE TO JUDGE THE CASE. THE ASSESSEE FIRM RELIE D ON THE DECISION IN THE CASE OF ITO V. VEENA ESTATES P. LTD., 81 ITD 401 AN D ALSO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF BILAHARI INVES TMENT PVT. LTD. V. CIT [2008] 299 ITR 1 (SC) AND CIT V. REALEST BUILDERS & SERVICES LTD. [2008] 170 TAXMAN 218 (SC). THE ASSESSEE FIRM SUBMITTED THAT THE COMMISSION INCOME WHICH IS SUBJECT OF DISPUTE HAD BEEN DECLARED AS IN COME IN THE ASSESSMENT YEAR 2007-08 BEFORE DETECTION BY THE A.O. AND DUE T AXES PAID TO THE REVENUE. MERE REJECTION OF THE CLAIM FOR ALLOWING METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BONA-FIDE DOES NOT MEAN THAT THE ASSESSEE FIRM HAS CONCEALED THE INCOME OR FURNISHED INACCURATE PARTICULARS. THE CLA IM WAS BASED ON BONA FIDE BELIEF AND ALLOWED IN THE PAST. THE ASSESSEE FIRM SUBMITTED THAT THE A.O. HAS TAKEN AN INTERPRETATION WHICH IS DIFFERENT FROM THE INTERPRETATION TAKEN BY THE ASSESSEE FIRM WHICH DOES NOT MAKE THE ASSESSEE FIRM LIABLE FOR PENALTY U/S 271(1)(C) OF THE ACT. ALL THE DETAILS RELATING TO THE TRANSACTIONS WERE DULY FURNISHED BY THE ASSESSEE FIRM BEFORE THE A.O. , IT WAS EXPLAINED BY THE ASSESSEE FIRM BEFORE THE A.O. AS WELL AS BEFORE THE CIT(A) THE RATIONALE BEHIND THE METHOD OF ACCOUNTING THAT COMMISSION INCOME ONL Y TO THE EXTENT OF COMPLETED SERVICES WHERE THERE IS NO CLAIM BY THE B UYERS AGAINST THE FOREIGN PRINCIPALS, GETS VESTED IN THE ASSESSEE FIRM AND A CCRUES AS INCOME OF THE ASSESSEE FIRM . IN CASE OF REJECTION OF THE GOODS B Y THE INDIAN BUYERS OF THE FOREIGN PRINCIPALS, THE COMMISSION PAID TO THE ASSE SSEE FIRM IS RECOVERABLE BY THE FOREIGN PRINCIPALS AS PER AGENCY AGREEMENT. FU LL AND PROPER DISCLOSURE OF THE METHOD OF ACCOUNTING HAD BEEN MADE BY THE ASSES SEE FIRM BEFORE THE REVENUE AUTHORITIES. THE ASSESSEE FIRM SUBMITTED T HAT THE FINDINGS IN THE ASSESSMENT PROCEEDINGS ARE RELEVANT BUT ARE NOT CON CLUSIVE TO ESTABLISH CONCEALMENT OF INCOME IN PENALTY PROCEEDINGS AND TH E ASSESSEE FIRM CANNOT BE ASKED TO PROVE THE NEGATIVE. THE ASSESSEE FIRM SUBMITTED THAT NO PENALTY IS LEVIABLE WHEN THERE ARE TWO VIEWS POSSIBLE. THE ASSESSEE FIRM IS FOLLOWING THE SAME METHOD OF ACCOUNTING SINCE THE ASSESSMENT YEAR 2005-06 BASED ITA 6168/MUM/2012 9 UPON SEVERAL JUDICIAL DECISIONS. WHILE REJECTING T HE METHOD OF ACCOUNTING, IF THERE ARE TWO VIEWS POSSIBLE AND THE QUESTION ARISE S OF FASTENING OF PENAL LIABILITY, BENEFIT OF DOUBT SHOULD BE GIVEN TO THE ASSESSEE AND NO PENALTY IS LEVIABLE. THE CIT(A) CONSIDERED THE SUBMISSION OF THE ASSESSE E FIRM AND THE ORDERS OF THE A.O. . THE CIT(A) OBSERVED THAT THE A.O. HAD TO TALLY RELIED UPON THE FINDINGS GIVEN IN THE ASSESSMENT ORDER IN QUANTUM P ROCEEDINGS WHILE PASSING THE PENALTY ORDER U/S. 271(1)(C) OF THE ACT AND HAS NOT BROUGHT ON RECORD ANY MATERIAL TO JUSTIFY THAT THERE WERE CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE. THE QUANTUM ADDITION DOES NOT AUTOMATICALLY LEAD TO THE CONCEALMENT OF INCOME MAKING IT EXIGIBLE TO PENALTY U/S 271(1)(C) OF THE ACT. THE ADDITIONS HAV E BEEN MADE DUE TO DIFFERENCE IN OPINION AND PERCEPTION ON THE SAME IS SUE. THE ASSESSEE FIRM HAD DISCLOSED THE RECEIPTS AS ADVANCE IN THE YEAR A ND TREATED THEM AS INCOME IN THE SUBSEQUENT YEAR. METHOD OF ACCOUNTING IS CO NSISTENTLY FOLLOWED BY THE ASSESSEE FIRM. THE ASSESSEE FIRM HAS SUBMITTED BON A FIDE EXPLANATIONS AS TO THE METHOD OF ACCOUNTING. THE CIT(A) HELD THAT PEN ALTY CANNOT BE LEVIED ON MERE REJECTION OF AN EXPLANATION FURNISHED BY THE A SSESSEE FIRM. THE A.O. WHILE FRAMING THE PENALTY ORDER FAILED TO ESTABLISH THAT THE EXPLANATION GIVEN BY THE ASSESSEE FIRM WAS NOT BONA FIDE. THE MERE F ACT THAT THE ASSESSEE FIRM HAS NOT FILED APPEAL WITH THE TRIBUNAL AGAINST THE ORDERS OF THE CIT(A) IN QUANTUM PROCEEDINGS WILL NOT RENDER THE PROVISIONS OF SECTION 271(1)(C) OF THE ACT APPLICABLE TO THE CASE. IN VIEW OF THE ABOVE O BSERVATION, THE CIT(A) CANCELLED THE PENALTY OF RS.54,51,920/- LEVIED BY T HE AO U/S 271(1)(C) OF THE ACT VIDE ORDERS DATED 27.07.2012. 7.AGGRIEVED BY THE ORDERS DATED 27.07.2012 OF THE CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. ITA 6168/MUM/2012 10 8. THE LD. D.R. SUBMITTED THAT THE PENALTY OF RS. 5 4,51,920/- WAS RIGHTLY LEVIED BY THE A.O. U/S 271(1)(C) OF THE ACT. THE A SSESSEE FIRM HAS SHOWN COMMISSION INCOME OF RS. 1.62 CRORES AS ADVANCE IN THE BALANCE SHEET. THE LD. D.R. RELIED UPON THE DECISION OF HONBLE SUPREM E COURT IN THE CASE OF UOI V. DHARMENDRA TEXTILES PROCESSORS, (2008) 306 ITR 2 77 (SC) AND THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAK DATA PR IVATE LIMITED V. CIT (2013) 38 TAXMANN.COM 448(SC) AND THE DECISIONS OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. ESCORTS FINANCE LIMITED (2009) 328 ITR 44(DEL HC) AND CIT V. ZOOM COMMUNICATION PRIVATE LIMITED (2010 ) 191 TAXMAN 179(DELHI).THUS, THE LD. DR SUBMITTED THAT THERE IS A STRICT LIABILITY FOR FURNISHING OF INACCURATE PARTICULARS OF INCOME OR C ONCEALMENT OF INCOME AND HENCE THE ASSESSEE FIRM WAS RIGHTLY SUBJECTED TO TH E PENALTY U/S. 271(1)(C) OF THE ACT BY THE AO . THE LD DR RELIED UPON THE ORDER S OF THE AO AND SUBMITTED THAT THE CIT(A) ERRED IN DELETING PENALTY. 9. THE LD. COUNSEL FOR THE ASSESSEE FIRM REITERATED ITS SUBMISSIONS AS WERE MADE BEFORE THE AUTHORITIES BELOW . THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE FIRM HAS RECEIVED ADVANCES FROM THE CLIENT S AMOUNTING TO RS. 1.62 CRORES WHICH WILL ACCRUE TO THE ASSESSEE FIRM WHEN THE SAID FOREIGN PRINCIPALS RECEIVE THE PAYMENTS FOR PRODUCTS SUPPLIED TO INDIA N BUYERS, AS PER AGENCY AGREEMENT OF THE ASSESSEE FIRM WITH THE FOREIGN CLI ENTS.. THE ASSESSEE FIRM IS CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTIN G. INCOME HAS BEEN BROUGHT TO TAX IN THE NEXT ASSESSMENT YEAR AND HENC E THE TAX EFFECT IS REVENUE NEUTRAL AND THERE IS NO LOSS TO THE REVENUE. THE R EVENUE HAS INITIATED PENALTY PROCEEDINGS FOR THE ASSESSMENT YEAR 2007-08 WHICH WAS DROPPED BY THE A.O.. NO PENALTY HAS BEEN LEVIED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 AND ONLY IN THE ASSESSMENT YEAR 2006-07, TH E PENALTY IS LEVIED BY THE REVENUE. HE RELIED UPON THE ORDER OF THE CIT(A ). ITA 6168/MUM/2012 11 10. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND AL SO PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING CASE LAWS RELIED UPON BY RIVAL PARTIES. WE HAVE OBSERVED THAT THE ASSESSEE FIRM IS IN AN INDENTING BUSINESS OF STEEL PRODUCTS ON BEHALF OF THE FOREIGN SUPPLIERS FOR SUPPLIES BY THE FOREIGN PRINCIPALS MADE DIRECTLY TO INDIAN BUYERS LIKE L & T, BHEL, ESSAR S TEEL ETC. FOR THEIR POWER PROJECTS. THE ASSESSEE FIRM GETS COMMISSION INCOME FROM THE FOREIGN PRINCIPALS AS PER AGENCY AGREEMENT. WE HAVE OBSERV ED THAT THE ASSESSEE FIRM HAS ADVANCES FROM SUPPLIERS OF RS. 1.62 CRORES IN I TS BALANCE SHEET AS AT THE END OF THE PREVIOUS YEAR WITH RESPECT TO COMMISSION RECEIVED FROM FOREIGN PRINCIPALS. AS PER THE AO , THESE ADVANCES WERE CO MMISSION PAYMENTS FOR INDENTING SERVICES PROVIDED BY THE ASSESSEE FIRM TO THE CLIENTS. ON PERUSAL OF THE AGENCY AGREEMENTS SIGNED WITH THE CLIENTS, IT W AS OBSERVED BY THE AO THAT THE COMMISSION WILL BECOME DUE AND PAYABLE AFTER TH E CLIENTS RECEIVES THE FULL SALE PRICE FOR THE PRODUCTS SOLD BY IT TO THE CUSTO MERS IN THE TERRITORY. AS THE COMMISSION PAYMENTS WERE ALREADY RECEIVED BY THE AS SESSEE FIRM , IT WAS CONCLUDED BY THE A.O. THAT THE ASSESSEE FIRM HAS CO MPLETED ITS ASSIGNMENTS AS PER AGENCY AGREEMENTS AND THE INCOME HAS ALREAD Y ACCRUED TO THE ASSESSEE FIRM. THE AFORE-STATED COMMISSION INCOME W AS THUS BROUGHT TO TAX IN THE HANDS OF THE ASSESSEE FIRM FOR THE IMPUGNED ASSESSMENT YEAR 2006-07 BY THE AO IN QUANTUM ASSESSMENT PROCEEDINGS WHICH W AS CONFIRMED BY THE CIT(A). THE ASSESSEE FIRM DID NOT FILE FURTHER APPE AL WITH THE TRIBUNAL AGAINST THE ORDER OF THE CIT(A) IN QUANTUM THEREBY THE SAID ADDITIONS IN QUANTUM PROCEEDINGS REACHED FINALITY. THE ASSESSEE FIRM HAD CONTENDED THAT AS PER AGENCY AGREEMENT WITH THESE FOREIGN PRINCIPALS THE COMMISSION INCOME WILL ACCRUE AND VESTS IN THE ASSESSEE FIRM ONLY AFTER TH E FOREIGN PRINCIPALS HAVE RECEIVED THEIR FULL PAYMENT FROM INDIAN BUYER AND A NY REJECTION OR DEDUCTION IN THE PAYMENTS MADE BY THE INDIAN BUYERS TO THE AS SESSEES FOREIGN PRINCIPALS PAYMENTS WILL WARRANT DEDUCTION/REDUCTIO N IN THE COMMISSION INCOME OF THE ASSESSEE FIRM AS PER AGENCY AGREEMENT S . IT IS THE CONTENTION OF THE ASSESSEE FIRM THAT THE SAID COMMISSION INCOME O F RS.1.62 CRORES HAVE NOT ITA 6168/MUM/2012 12 ACCRUED IN FAVOUR OF THE ASSESSEE FIRM AS PER AGENC Y AGREEMENT. THUS, IT IS CONTENDED BY THE ASSESSEE FIRM THAT AS PER METHOD O F ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE FIRM, THE SAID COMMISSION INCOME OF RS.1.62 CRORES IS SHOWN AS ADVANCE FROM SUPPLIERS IN THIS YEAR WHI LE THE SAME WAS DULY OFFERED TO TAXATION IN THE RETURN OF INCOME FILED F OR IMMEDIATELY SUCCEEDING ASSESSMENT YEAR VOLUNTARILY BY THE ASSESSEE FIRM. T HUS, IT WAS CONTENDED THAT THE TAX EFFECT IS REVENUE NEUTRAL AND THERE IS NO L OSS OF TAXES TO REVENUE. IT WAS SUBMITTED BY THE ASSESSEE FIRM THERE HAS NOT BE EN ANY CONCEALMENT OF INCOME OR FURNISHING OF ANY INACCURATE PARTICULARS OF INCOME BY THE ASSESSEE FIRM. THE INCOME HAS ALREADY BEEN DISCLOSED ALBEIT IN THE NEXT YEAR AND DUE TAXES PAID TO REVENUE. IT IS THE CONTENTION OF THE ASSESSEE FIRM THAT THE METHOD OF ACCOUNTING AS SET OUT ABOVE IS REGULARLY FOLLOWED WITH BONA-FIDE INTENTIONS AND THERE IS NO MALA-FIDE ON THE PART OF THE ASSESSEE TO CONCEAL INCOME OR FURNISH IN-ACCURATE PARTICULARS OF INCOME OR POSTPONE THE LIABILITY FOR TAXATION. THE METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY T HE ASSESSEE FIRM HAS NOT FOUND FAVOUR WITH THE REVENUE WHICH IN OUR CONSIDER ED VIEW KEEPING IN VIEW THE FACTUAL MATRIX AS SET OUT ABOVE DOES NOT CALL F OR PENALTY U/S 271(1)(C) OF THE ACT AS NO PARTICULARS OF INCOME ARE CONCEALED N OR THERE IS ANY FURNISHING OF IN-ACCURATE PARTICULARS OF INCOME BEFORE THE REV ENUE. THE ASSESSEE FIRM HAS IN AN OPEN AND TRANSPARENT MANNER DISCLOSED ALL INFORMATION CONNECTED WITH THE EARNING OF THE SAID COMMISSION INCOME. NO PENALTY HAS BEEN LEVIED BY THE REVENUE FOR THE ASSESSMENT YEAR 2005-06 AND 2007-08 WHILE THE SAME METHOD OF ACCOUNTING WAS CONSISTENTLY FOLLOWED BY T HE ASSESSEE FIRM. IN FACT FOR THE ASSESSMENT YEAR 2007-08, THE PENALTY PROCEE DINGS WERE INITIATED BY THE REVENUE ON THE SIMILAR GROUND BUT WAS LATER DRO PPED BY THE AO VIDE ORDERS DATED 15-03-2012 WHICH ARE PLACED IN PAPER B OOK PAGE 1. IN OUR CONSIDERED VIEW, NO PENALTY IS LEVIABLE IN THE INST ANT CASE KEEPING IN VIEW PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AS SET OUT ABOVE, AS THERE IS NO ITA 6168/MUM/2012 13 DELIBERATE ATTEMPT OR POSITIVE ACT ON THE PART OF T HE ASSESSEE FIRM TO CONCEAL INCOME OR FURNISH IN-ACCURATE PARTICULARS OF INCOME . THE BONA-FIDE CLAIM WAS MADE BY THE ASSESSEE FIRM BASED ON THE TERMS AND CO NDITION OF THE AGENCY AGREEMENT AND THE METHOD OF ACCOUNTING WAS CONSIST ENTLY FOLLOWED BASED ON THE BONA-FIDE BELIEF THAT THE COMMISSION INCOME WIL L BECOME DUE TO THE ASSESSEE FIRM AND RIGHT TO RECEIVE WILL BE VESTED I N FAVOUR OF THE ASSESSEE FIRM ONLY WHEN THE FOREIGN PRINCIPALS HAVE GOT THEIR PAY MENTS FROM INDIAN BUYERS FOR PRODUCTS SUPPLIED BY THE FOREIGN PRINCIPALS TO THE INDIAN BUYERS AND ANY DEDUCTIONS BY THE INDIAN BUYERS IN THE PAYMENTS DUE TO THE FOREIGN PRINCIPALS WILL LEAD SIMULTANEOUSLY DEDUCTION IN TH E COMMISSION INCOME OF THE ASSESSEE FIRM AS PER TERMS OF AGENCY AGREEMENT, BUT THE SAID EXPLANATION DID NOT FOUND FAVOUR WITH THE REVENUE AS IN THEIR V IEW , THE COMMISSION HAS ALREADY ACCRUED TO THE ASSESSEE IN TERMS OF PROVISI ONS OF THE ACT AND THE SAME IS EXIGIBLE TO TAX . THUS, THE ASSESSEE CAME OUT WI TH AN BONA-FIDE EXPLANATION FOR SUBSTANTIATING THE CLAIM MADE BY IT IN THE RET URN OF INCOME FILED WITH THE REVENUE WHICH WAS NOT ACCEPTED BY THE REVENUE BUT I T DID NOT MADE THE ASSESSEE FIRM LIABLE FOR PENALTY U/S 271(1)(C) OF T HE ACT. THERE IS A DIFFERENCE OF OPINION BETWEEN THE ASSESSEE FIRM AND A.O. AND T HE CLAIM OF THE ASSESSEE FIRM WAS NOT ACCEPTED BY THE A.O. MERE NON-ACCEPTA NCE OF THE BONA-FIDE CLAIM OF THE TAX-PAYER BY THE REVENUE DOES NOT CAL L FOR IMPOSITION OF PENALTY WITHIN THE AMBIT OF PROVISIONS OF SECTION 271(1)(C) OF THE ACT , MORE-SO THE ASSESSEE FIRM CAME FORWARD WITH A BONA-FIDE EXPLAN ATION TO SUBSTANTIATE ITS CLAIM AND HENCE THE CASE OF THE ASSESSEE IS NOT HIT BY EXPLANATION 1 TO SECTION 271(1)(C) OF THE ACT. WE HAVE OBSERVED THAT THE CIT(A) HAS PASSED A WELL REASONED AND DETAILED ORDER AND WE DO NOT FIND ANY INFIRMITY IN THE ORDERS OF THE CIT(A). HENCE, IN OUR CONSIDERED VIE W PENALTY OF RS. 54,51,920/- LEVIED BY THE A.O. IS NOT SUSTAINABLE I N LAW. THE CASE LAWS RELIED UPON BY THE REVENUE IS CLEARLY DISTINGUISHABLE AS N O ATTEMPT IS MADE BY THE ASSESSEE FIRM TO DEFRAUD THE REVENUE OR EVADE TAXES BY CONCEALING INCOME OR FURNISHING OF IN-ACCURATE PARTICULARS OF INCOME, TH E TAX EFFECT IS REVENUE ITA 6168/MUM/2012 14 NEUTRAL AS THE REVENUE HAS GOT ALL DUE TAXES ALBEIT IN THE IMMEDIATELY SUCCEEDING ASSESSMENT YEAR . THE DECISION OF HONBL E SUPREME COURT IN THE CASE OF CIT V. RELIANCE PETROPRODUCTS PRIVATE LIMI TED(2010) 189 TAXMAN 322 (SC) IS CLEARLY APPLICABLE TO THE FACTS OF THE INST ANT CASE. ACCORDINGLY, WE CONFIRM THE ORDERS OF THE CIT(A) DELETING THE PENAL TY OF RS. 54,51,920/- LEVIED BY THE A.O. U/S 271(1)(C) OF THE ACT.WE ORDER ACCOR DINGLY. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA N0. 6168/MUM/2012 FOR THE ASSESSMENT YEAR 2006-07 IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY , 2016. # $% &' 11-05-2016 ( ) SD/- SD/- (SAKTIJIT DEY) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 11-05-2016 [ .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI E BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI