SATYAJEET MOVIES PVT LTD., MUMBAI V. ITO 8(3)(1), MUMBAI

ITA 6306/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75680 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 13-02-2014
• Assessment Year: 2005-2006
• Appeal Filed On: 13-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: K K LALKAKA IZRFKHZ DH LS
• Keywords: Principle of natural justice; Corroborative evidences

Judgement Text

- 1 - VK;DJ VIHYH; VF/KDJ.K BZ U;K;IHB EQACBZ ESAA IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUM BAI JH JH JH JH CH CHCH CH- -- - VKJ VKJVKJ VKJ- -- - CK CKCK CKLDJ.K LDJ.K LDJ.K LDJ.K] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA ] YS[KK LNL; ,OA JH VFER 'KQDYK JH VFER 'KQDYK JH VFER 'KQDYK JH VFER 'KQDYK] U;KF;D ] U;KF;D ] U;KF;D ] U;KF;D LNL; DS LE{K LNL; DS LE{K LNL; DS LE{K LNL; DS LE{K BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER. VK;DJ VIHY LA[;K /ITA NO.6306/MUM/2011 FU/KKZJ.K O'KZ @ ASSESSMENT YEAR 2005-06. SATYAJEET MOVIES PVT LTD. C/F K. K. LALKAKA & CO. 507, CHURCHGATE CHAMBERS, NEW MARINE LINES, CHURCHGATE 400 020. CUKE@ VS. ASST. COMMISSIONER OF INCOME TAX (11) (1) AAYAKAR BHAVAN, 4 TH FLOOR, NEW MARINE LINES, MUMBAI 400 020. PAN:- AAFCS3378R VIHYKFKHZ @ APPELLANT IZR;FKHZ @ RESPONDENT VIHYKFKHZ DH VKSJ LS @ ASSESSEE BY SHRI K.K.LALKAKA IZR;FKHZ DH VKSJ LS @ REVENUE BY SHRI ASHOK SURI VKNS'K VKNS'K VKNS'K VKNS'K @ @@ @ ORDER PER AMIT SHUKLA, JM THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAI NST THE ORDER DATED 10.08.2011 PASSED BY CIT(APPEALS)-3, MU MBAI, IN RELATION TO THE PENALTY PROCEEDINGS U/S 271(1)(C) F OR THE ASSESSMENT YEAR 2005-06. THE ASSESSEE IN THIS APPEAL HAS RAISE D FOLLOWING GROUNDS TO CHALLENGE THE IMPUGNED ORDER:- LQUOKBZ DH RKJH[K @ DATE OF HEARING 13 - 0 2 - 2014 ?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT 21 - 0 2 - 2014 - 2 - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(APPEALS) HAS FAILED TO APPRECIATE THAT SHOW CAUSE NOTICE UNDER SECTION 271(1)(C) IS A STATUTORY CONDITION PRECEDEN T TO THE IMPOSITION OF PENALTY AND, THEREFORE, THE PENALTY PROCEEDINGS ARE BAD IN LAW SINCE NOTICE UNDER SECTION 271(1)(C) HAS NOT BEEN PROPERLY SERVED ON T HE APPELLANT WITHIN THE PRESCRIBED PERIOD AND, THEREFORE, THE SAID NOTICE I S AGAINST THE PRINCIPLE OF NATURAL JUSTICE AND CONSEQUENTLY INVALID IN LAW. 2. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( APPEALS) HAS ERRED IN CONFIRMING THE LEVY OF PENALTY ON ADDITIONS MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES OF RS. 9,83,145/-, NON-DEDUCTION OF TDS OF PROFESSIONAL FEES RS. 25,05,138/- AND PRELIMINARY EXPENSES OF RS. 8,905/- IT IS, THEREFORE, RESPECTFULLY SUBMITTED THAT PENAL TY CONFIRMED ON A SUM OF RS. 34,97,188/- IS UNTENABLE ON THE FACTS OF THE OF THE CASE AND IS UNJUSTIFIABLE IN LAW AND, THEREFORE, NEEDS TO BE DELETED. 2. IN THIS CASE PENALTY HAS BEEN LEVIED ON FOLLOWIN G DISALLOWANCES AGGREGATING TO RS.34,97,188/-:- (I) ADHOC DISALLOWANCE OF EXPENSES DEBITED IN THE PROFI T & LOSSS ACCOUNT OF RS. 9,83,145/- (II) DISALLOWANCE U/S 40(A)(IA) ON ACCOUNT OF NON DEDUCT ION OF TDS ON PROFESSIONAL AND TECHNICAL FEES AND PUBLICIT Y EXPENSES OF RS. 25,05,138/- (III) DISALLOWANCE OF PRELIMINARY EXPENSES U/S 35D OF RS . 8,905/- 3. BRIEF FACTS QUA, THE AFORESAID DISALLOWANCES ON WHICH PENALTY HAS BEEN LEVIED ARE THAT, ASSESSEE IS ENGAGED IN TH E BUSINESS OF FILM MAKING AND IN PROFIT & LOSS ACCOUNT, THE ASSESSEE H AS CLAIMED A SUM OF RS. 22,05,138/- AS TECHNICAL AND PROFESSIONAL EX PENSES AND RS. 3,00,000/- AS PUBLICITY EXPENSES. THE AO NOTED THAT ON THESE PAYMENTS, THE ASSESSEE HAS NOT DEDUCTED TDS AS REQU IRED AND ACCORDINGLY HE MADE DISALLOWANCE U/S. 40(A)(IA). HE FURTHER NOTICED - 3 - THAT ASSESSEE HAS CLAIMED VARIOUS FILM PRODUCTION E XPENSES AND ADMINISTRATIVE EXPENSES WHICH WERE NOT OPEN TO FULL VERIFICATION, ACCORDINGLY HE MADE ADHOC DISALLOWANCE @ OF 20%, AG GREGATING TO RS.9,83,145/-. FURTHER THE AO NOTED THAT ASSESSEE HAS CLAIMED PRELIMINARY EXPENSES WRITTEN OFF OF RS. 9,700/- U/ S 35D. AS PER THE PROVISIONS OF SECTION 35D, TOTAL ALLOWABILITY IS RE STRICTED TO 2.5% OF THE CAPITAL EMPLOYED AND IN THE ASSESSEES CASE THE CAPITAL EMPLOYED WAS RS. 1,50,000/- ONLY. THUS HE RESTRICTED THE CLA IM OF EXPENSES AT RS. 3,750/- WHICH IS ALLOWABLE FOR THE PERIOD OF 5 YEARS. THUS EXCESS CLAIM OF RS. 8,950/- WAS DISALLOWED. 4. IN THE FIRST APPEAL, IT APPEARS THAT ALL THESE D ISALLOWANCES WERE NOT PRESSED BEFORE THE LD. CIT(A) BY THE ASSESSEE. 5. THE AO AFTER INVOKING THE PROVISIONS OF EXPLANAT ION 1 TO SECTION 271(1)(C), LEVIED THE PENALTY ON THESE DISALLOWANC ES. EVEN THE LD. CIT(A) TOO HAS CONFIRMED THE LEVY OF PENALTY ON THE AFORESAID DISALLOWANCE, FIRSTLY ON THE GROUND THAT ASSESSEE H AS FAILED TO DISCHARGE ITS ONUS DURING THE COURSE OF ASSESSMENT PROCEEDINGS AS WELL AS DURING THE COURSE OF PENALTY PROCEEDINGS; SECONDLY THE ASSESSEE HAS FAILED TO COMPLY WITH THE STATUTORY RE QUIREMENTS OF DEDUCTING TDS ON THE PAYMENTS WHICH HAS BEEN CLAIME D AS EXPENSES; AND LASTLY THE ASSESSEES CLAIM WAS NOT LEGALLY SUS TAINABLE IN LAW. - 4 - 6. BEFORE US, THE LD. COUNSEL SHRI K.K. LALKAKA FIR ST ADDRESSING US ON MERITS, SUBMITTED THAT, SO FAR AS LEVY OF PENALTY O N ADHOC DISALLOWANCE ON ACCOUNT OF EXPENSES OF RS. 9,83,145/- IS CONCERN ED, NO PENALTY CAN BE LEVIED, AS IT IS NEITHER FURNISHING OF INACCURAT E PARTICULARS OF INCOME NOR ANY CONCEALMENT OF INCOME, FOR THE REASON THAT ASSESSEES BOOKS OF ACCOUNTS WERE DULY AUDITED AND NO SUCH DISCREPAN CY HAS BEEN FOUND BY THE AO. AS REGARDS THE DISALLOWANCE U/S 40 (A)(IA) ON ACCOUNT OF NON DEDUCTION OF TDS ON PAYMENT OF TECHNICAL AND PROFESSIONAL FEES AND PUBLICITY EXPENSES FOR SUMS AGGREGATING TO RS. 25,05,138/-, HE SUBMITTED THAT THE GENUINENESS OF THESE EXPENSES AND QUANTUM OF PAYMENTS HAS NOT BEEN DOUBTED. THE DISALLOWANCE HAS BEEN MADE ONLY ON ACCOUNT OF TECHNICAL DEFAULT OF NON DEDUCTI ON OF TDS, FOR WHICH THERE IS A SEPARATE PROVISION FOR LEVY OF INT EREST AND PENALTY UNDER THE ACT. REGARDING THE PRELIMINARY EXPENSES A LSO, HE SUBMITTED THAT THE ENTIRE INFORMATION WERE FURNISHED WITH REG ARD TO THE CLAIM OF PRELIMINARY EXPENSES, THEREFORE, IT CANNOT BE HELD THAT INACCURATE PARTICULARS HAVE BEEN FURNISHED BY THE ASSESSEE. 7. LD. DR ON THE OTHER HAND STRONGLY RELIED UPON TH E OBSERVATION AND FINDING OF LD. CIT(A) AND SUBMITTED THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE COULD NOT FURN ISH THE RELEVANT DETAILS AND, THEREFORE, THE PENALTY HAS RIGHTLY BEE N CONFIRMED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTI ES AND ALSO CAREFULLY PERUSED THE MATERIALS PLACED ON RECORD. S O FAR AS LEVY OF - 5 - PENALTY ON DISALLOWANCE OF RS. 9,83,145/- IS CONCE RNED, IT IS SEEN THAT THE AO HAS MADE ADHOC DISALLOWANCE AT THE RATE OF 2 0% OF THE VARIOUS EXPENSES WITHOUT POINTING OUT ANY SPECIFIC EXPENSES BEING IN THE NATURE OF NON BUSINESS PURPOSE OR FOR PERSONAL USE. IF THE ACCOUNTS HAVE BEEN AUDITED, THEN THE NORMAL PRESUMPTION IS T HAT THE EXPENSES ARE VERIFIABLE VIS-A-VIS THE DOCUMENTS MAINTAINED B Y THE ASSESSEE. EVEN THOUGH DISALLOWANCES HAVE BEEN MADE IN THE QUA NTUM PROCEEDINGS, DUE TO NON VERIFIABILITY OF EXPENSES T HROUGH CORROBORATIVE EVIDENCES AND THE SAME HAS NOT BEEN C HALLENGED, HOWEVER THIS DOES NOT LEAD TO ANY INFERENCE THAT AS SESSEE IS LIABLE FOR LEVY OF PENALTY FOR EITHER FURNISHING OF ANY INACCU RATE PARTICULARS OR FOR CONCEALMENT OF PARTICULARS OF INCOME. THE DISALLOWA NCE IS PURELY BASED ON ADHOC BASIS, DEHORS ANY ADVERSE MATERIAL O N RECORD, THEREFORE, NO PENALTY IS WARRANTED U/S 271(1)(C) ON ADHOC DISALLOWANCE OF THE EXPENSES CLAIMED BY THE ASSESS EE IN THE PROFIT & LOSS ACCOUNT. 9. AS REGARDS THE DISALLOWANCE U/S 40(A)(IA), ON AC COUNT OF PAYMENT OF TECHNICAL AND PROFESSIONAL FEES AND PUBL ICITY EXPENSES, IT IS SEEN FROM THE RECORD THAT THE AO HAS MADE THE DI SALLOWANCE ON THE GROUND THAT TDS HAS NOT BEEN DEDUCTED ON SUCH PAYMENTS. THE GENUINENESS AND THE QUANTUM OF PAYMENT HAVE NOT BEE N DISPUTED AT ALL. THE DISALLWOANCE HAS BEEN MADE MERELY ON ACCOU NT OF TECHNICAL DEFAULT OF NON DEDUCTION OF TDS. UNDER THE INCOME T AX ACT, FAILURE TO DEDUCT TDS, ENTAILS LEVY OF INTEREST AND PENALTY UN DER DIFFERENT - 6 - PROVISIONS OF THE ACT AND CERTAINLY NOT U/S 271(1)( C), WHICH CAN BE LEVIED ONLY IF THE ASSESSEE HAS CONCEALED PARTICULA RS OF HIS INCOME OR HAS FURNISHED INACCURATE PARTICULARS OF INCOME. IN THIS CASE ASSESSEE HAS NEITHER FURNISHED ANY INACCURATE PARTICULARS OF INCOME NOR HAS CONCEALED ANY PARTICULARS OF INCOME BECAUSE ALL THE DETAILS OF EXPENSES, GENUINENESS OF THE PAYMENT AND QUANTUM HA S BEEN ACCEPTED. ONCE THE PAYMENTS MADE TO PROFESSIONAL AN D TECHNICAL PERSONS HAVE NOT BEEN DOUBTED AND ON THE BASIS OF S UCH PAYMENTS THE ASSESSEE HAS DEBITED THE SAID AMOUNT IN THE P&L ACCOUNT, IT CANNOT BE HELD THAT ASSESSEE IS LIABLE FOR PENALTY WITHIN THE AMBIT OF SECTION 271(1)(C). THUS LEVY OF PENALTY ON THE DISA LLOWANCES MADE BY VIRTURE OF SECTION 40(A)(IA) CANNOT BE SUSTAINED. A CCORDINGLY WE HOLD THAT PENALTY LEVIED ON SUCH DISALLOWANCES SHOULD BE DELETED. 10. LASTLY, WITH REGARD TO DISALLOWANCE OF CLAIM OF DEDUCTION U/S 35D, IT IS SEEN THAT ASSESSEE HAS FURNISHED THE NEC ESSARY INFORMATION WITH REGARD TO CLAIM OF SUCH EXPENSES, IN THE AUDIT ED STATEMENT OF ACCOUNT DULY DISCLOSED IN THE RETURN. EVEN IF THE E NTIRE CLAIM OF THE ASSESSEE HAS NOT BEEN FOUND TO BE SUSTAINABLE, THEN ALSO IT CANNOT BE HELD THAT ASSESSEE HAS FURNISHED INACCURATE PARTICU LARS OF INCOME. TO ATTRACT THE PROVISIONS OF SECTION 271(1)(C), THE AS SESSEE MUST BE HELD TO HAVE CONCEALED THE MATERIAL PARTICULARS OR TO HA VE FURNISHED INACCURATE PARTICULARS. IF CERTAIN CLAIM MADE BY AS SESSEE IS FOUND NOT SUSTAINABLE BUT HAS DISCLOSED ALL THE MATERIAL FACT S, THEN IT CANNOT BE HELD THAT ASSESSEE IS GUILTY OF FURNISHING OF INACC URATE PARTICULARS SO AS - 7 - TO ATTRACT THE PENAL PROVISIONS OF SECTION 271(1)(C ). HENCE ON THIS DISALLWOANCE ALSO NO PENALTY IS WARRANTED. 11. ACCORDINGLY PENALTY LEVIED U/S 271(1)(C) ON AFO RESAID DISALLOWANCES ARE CANCELLED AND THE ORDER OF LD. CI T(A) IS SET ASIDE. THE GROUND NO. 2 AS RAISED BY THE ASSESSEE STANDS A LLOWED. 12. SINCE WE HAVE ALREADY DELETED THE PENALTY ON ME RITS, THE LEGAL ISSUE AS RAISED IN GROUND NO. 1 IS NOT BEING ADJUDI CATED AS THE SAME HAS BECOME PURELY ACADEMIC. 13. IN THE RESULT APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON 21/02/2014 SD/- SD/- (B.R. BASKARAN) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 21 /02/2014 SKS SR. P.S COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, E BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI