RAJKIRAN ENTERPRISES, MUMBAI V. ITO 19(1)-2, MUMBAI

ITA 6318/MUM/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 0975 (ITAT-MUMBAI)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 20-07-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 07-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Assessee Lawyers: SANJAY R PARIKH
• Keywords: Wrong claim
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D, MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI R.K. PANDA. ACCOUNTANT MEMBER I.T.A. NO. 6318/MUM/2009 ASSESSMENT YEAR : 2005-06 M/S. RAJKIRAN ENTERPRISES 9/B, 583 RAMANAGR, 3 RD ROAD, KHAR (W), MUMBAI-52 PAN:AAEFR2602K VS. I.T.O. 19(1)-2 PIRAMAL CHAMBERS, MUMBAI-400 012 APPELLANT RESPONDENT ASSESSEE BY : SHRI SANJAY R. PARIKH RESPONDENT BY : SHRI JITENDRA YADAV ORDER DATE OF HEARING: 20.07.2010 DATE OF ORDER: 29.07.2010 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DATED 30 TH OCTOBER, 2009 OF THE CIT(A)-30, MUMBAI RELATING TO ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IN ITS GROUNDS OF APPEAL HAS CHALLENGE D THE ORDER OF THE CIT(A) IN CONFIRMING THE PENALTY OF RS .79,359 LEVIED BY THE ASSESSING OFFICER U/S. 271(1)(C) OF THE INCO ME-TAX ACT, 1961 (THE ACT). 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER IN THE ORDER PASSED U/S. 143(3) OF THE ACT HAD DISALLO WED AN AMOUNT OF RS.2,16,872 ON ACCOUNT OF DISALLOWANCE OF REMUNERATION TO PARTNERS WHO ACCORDING TO HIM WERE NON- PARTNERS. SUBSEQUENTLY THE ASSESSING OFFICER INITI ATED THE PENALTY PROCEEDINGS. THE ASSESSING OFFICER NOTED T HAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSIN ESS OF CIVIL CONSTRUCTION FOR CIVIL CONSTRUCTION, REPAIRS AND PA INTING JOB. I.T.A. NO. 6318/MUM/2009 M/S. RAJKIRAN ENTERPRISES ==================== 2 THE FIRM WAS CONSTITUTED BY THE PARTNERSHIP DEED DA TED 1 ST JUNE, 2008 AND CONSISTED OF THREE PARTNERS VIZ., SH RI GOPAL SHARMA, SHRI RAJESH SHARMA AND SHRI KIRAN SHARMA. VIDE PARTNERSHIP DEED DATED 16 TH MARCH, 2005 TWO NEW PARTNERS VIZ., MRS. PRITI RAJESH SHARMA AND MRS. DIMPLE KIRAN SHAR MA WERE ADMITTED. ALTHOUGH THE NEW PARTNERS WERE ADMITTED IN THE FIRM AT THE FAG END OF THE YEAR, REMUNERATION OF RS.1,08 ,430 HAS BEEN PAID TO EACH OF THEM AND WAS CLAIMED AS EXPEND ITURE. ACCORDING TO THE ASSESSING OFFICER THE PROVISIONS O F SECTION 40(B)(I) AND 40(B)(III) OF THE ACT PROHIBITS PAYMEN T OF REMUNERATION TO NON-WORKING PARTNERS FOR ANY PERIOD FALLING PRIOR TO THE DATE OF SUCH PARTNERSHIP DEED. FURTH ER THE EXPENDITURE CLAIMED BY THE ASSESSEE FIRM ON ACCOUNT OF REMUNERATION PAID TO PERSONS WHO ARE NOT PARTNERS F OR THE WHOLE YEAR BUT FOR A MINISCULE PERIOD OF 15 DAYS IS NOT IN CONFORMITY WITH THE INCOME-TAX ACT. SINCE THE ASS ESSEE FAILED TO BRING ON RECORD ANY EVIDENCE TO SHOW THAT THESE TWO PARTNERS HAVE ACTUALLY WORKED FOR THE FIRM FROM 1.4.2004 AND SINCE THE ASSESSEE HAD PAID REMUNERATION TO THE PARTNERS FOR THE PERIOD COMMENCING ON 1 ST APRIL, 2004 WHEN THEY WERE NOT ADMITTED AS PARTNERS IN THE FIRM, THE ASSESSING OFFICER HELD TH AT THE ASSESSEE HAD DELIBERATELY DEFIED THE LAW BY FURNISH ING INACCURATE PARTICULARS OF INCOME. REJECTING THE SU BMISSIONS OF THE ASSESSEE AND RELYING ON A COUPLE OF DECISIONS, THE ASSESSING OFFICER LEVIED THE PENALTY OF RS.79,359 BEING 100% OF TAX SOUGHT TO BE EVADED U/S. 271(1)(C) OF THE ACT. 4. IN APPEAL, THE LEARNED CIT(A) UPHELD THE PENALTY LE VIED BY THE ASSESSING OFFICER. WHILE DOING SO HE RELIED ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF M/S. DH ARMENDRA TEXTILE PROCESSORS REPORTED IN 306 ITR 277 ACCORDIN G TO WHICH MENS REA IS NOT TO BE PROVED AND THE BONAFIDES OF THE ASSES SEE ARE NOT REQUIRED TO BE PROVED OR DISPROVED. PENALT Y BEING A CIVIL I.T.A. NO. 6318/MUM/2009 M/S. RAJKIRAN ENTERPRISES ==================== 3 LIABILITY WILL BE ATTRACTED WHERE PENAL PROVISIONS REQUIRE THE SAME TO BE IMPOSED. AGGRIEVED WITH SUCH ORDER OF T HE CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 5. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRING TO T HE COPY OF THE PARTNERSHIP DEED PLACED AT PAPER BOOK PAGES 24 TO 28 SUBMITTED THAT THE PARTNERSHIP DEED IS DATED 16 TH MARCH, 2005, IN WHICH THE TWO PARTNERS VIZ., SMT. PRITI RAJESH S HARMA AND SMT. DIMPLE KIRAN SHARMA WERE ADMITTED AS NEW PARTN ERS. HOWEVER, REFERRING TO CLAUSE 3 OF THE SAID DEED HE SUBMITTED THAT THE BUSINESS OF THE NEW PARTNERSHIP SHALL BE D EEMED TO HAVE COMMENCED FROM 1 ST DAY OF APRIL, 2004. THEREFORE, ON THE ADVICE OF THE AUDITORS OF THE ASSESSEE FIRM THE ASS ESSEE HAS PAID REMUNERATION TO THE TWO NEW PARTNERS FROM THE BEGIN NING OF THE YEAR. HE SUBMITTED THAT ASSUMING BUT NOT ADMITTING , IF NO REMUNERATION WOULD HAVE BEEN PAID TO THE NEW PARTNE RS, THE REMUNERATION TO THE OTHER PARTNERS WOULD HAVE GONE UP AND THE TAX LIABILITY OF THE FIRM WOULD HAVE REMAINED THE S AME. REFERRING TO THE ORDER PASSED U/S. 143(3) OF THE AC T FOR A.Y. 2006-07, A COPY OF WHICH IS PLACED AT PAPER BOOK PA GES 47 TO 53, HE SUBMITTED THAT THE ASSESSING OFFICER IN THE SUBSEQUENT ASSESSMENT YEAR HAS ALLOWED THE CLAIM OF REMUNERATI ON TO THE TWO LADY PARTNERS WHO ARE WORKING PARTNERS. REFERR ING TO THE LETTER DATED 25.1.2008 ADDRESSED TO THE ASSESSING O FFICER, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 37, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE NATURE AND PERFORMANCE OF DUTIES BY THE SAID PARTNERS WAS EXPL AINED TO THE ASSESSING OFFICER. IT WAS FURTHER SUBMITTED THAT T HIS BEING A TECHNICAL ISSUE, THERE IS NO CONCEALMENT OF INCOME FOR WHICH PENALTY CAN BE LEVIED. REFERRING TO THE WRITTEN SU BMISSIONS MADE BEFORE THE CIT(A) ON 26 TH OCTOBER, 2006 AND A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 38 TO 41, THE L EARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAD ACTED I.T.A. NO. 6318/MUM/2009 M/S. RAJKIRAN ENTERPRISES ==================== 4 BONAFIDE ON A GENUINE BELIEF THAT THE CHANGE IN PAR TNERSHIP CAN BE MADE EFFECTIVE FROM THE DATE SO MENTIONED IN THE PARTNERSHIP DEED. HE SUBMITTED THAT THE ACCOUNTS WERE AUDITED U/S. 44AB OF THE ACT AND THERE WERE NO ADVERSE REMARKS BY THE AUDITORS IN THEIR REPORT. REFERRING TO CLAUSE NO. 7B OF FORM 3 CD, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGE 6, HE SUBMITTED THAT ALTHOUGH THERE WAS A CHANGE IN THE PARTNERSHIP DEED , THE AUDITOR WHO HIMSELF IS A WITNESS TO THE PARTNERSHIP DEED, HAS MENTIONED THAT THERE IS NO CHANGE IN THE PARTNERSHI P DEED. HE SUBMITTED THAT DUE TO WRONG ADVICE OF THE AUDITORS FOR CLAIMING THE FULL REMUNERATION FOR THE WHOLE OF THE YEAR IN CASE OF THE TWO NEW PARTNERS, THERE WAS ADDITION IN THE ASSESSMENT PROCEEDINGS AND FOR WHICH THE ASSESSEE HAD TO SUFFER. THE ASSE SSEE SUBSEQUENTLY HAS CHANGED THE AUDITORS. REFERRING T O VARIOUS DECISIONS, HE SUBMITTED THAT THE ASSESSEE SHOULD NO T BE PENALISED FOR THE WRONG ADVICE OF THE AUDITORS WHO ARE OTHERWISE TECHNICALLY QUALIFIED. REFERRING TO THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS PVT. LTD. (322 ITR 158), HE SUBMITTED THAT MERELY B ECAUSE THE CLAIM MADE BY THE ASSESSEE HAD BEEN DENIED PENALTY CANNOT BE LEVIED FOR SUCH DISALLOWANCE. 6. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED THE OR DER OF THE CIT(A). HE SUBMITTED THAT MERELY BLAMING TH E AUDITORS FOR THE WRONG ADVICE IS NOT SUFFICIENT FOR ESCAPING THE PENAL PROVISIONS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFI CER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE AS SESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS CASE DECISIONS REL IED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE. THERE IS NO DISP UTE TO THE FACT THAT TWO NEW PARTNERS VIZ., MRS. PRITI RAJESH SHARM A AND MRS. DIMPLE KIRAN SHARMA WERE ADMITTED AS PARTNERS AS PE R I.T.A. NO. 6318/MUM/2009 M/S. RAJKIRAN ENTERPRISES ==================== 5 PARTNERSHIP DEED DATED 16 TH MARCH, 2005. THERE IS ALSO NO DISPUTE TO THE FACT THAT AS PER CLAUSE 3 OF THE SAI D PARTNERSHIP DEED THE BUSINESS OF THE NEW PARTNERSHIP SHALL BE D EEMED TO HAVE COMMENCED FROM THE 1 ST DAY OF APRIL, 2004. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS PAID R EMUNERATION TO THE TWO LADY PARTNERS FROM THE BEGINNING OF THE YEAR. ACCORDING TO THE ASSESSING OFFICER SINCE THE PARTNE RSHIP DEED WAS MADE ON 16 TH MARCH, 2005 AND THE TWO NEW PARTNERS WERE ONLY PARTNERS FOR A PERIOD OF 15 DAYS, THEREFORE, B Y PAYING REMUNERATION FOR THE FULL YEAR THE ASSESSEE HAS MAD E A WRONG CLAIM OF REMUNERATION. THE ASSESSING OFFICER ACCOR DINGLY LEVIED THE PENALTY OF RS.79,359 FOR EXCESS CLAIM OF REMUNE RATION OF RS.2,08,860. WE FIND THE CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE PRO CESSORS (SUPRA). IT IS NOT IN DISPUTE THAT FULL FACTS WERE FURNISHED BEFORE THE ASSESSING OFFICER. IN OUR OPINION, UNDER THE FA CTS AND CIRCUMSTANCES OF THE CASE BY CLAIMING REMUNERATION FOR THE WHOLE YEAR WHEN THE PARTNERSHIP DEED WAS ENTERED ON 16 TH MARCH, 2005 BUT EFFECTIVE FROM1ST APRIL, 2004, REMU NERATION PAID TO THE NEW PARTNERS FOR THE WHOLE YEAR MAY BE DISALLOWED U/S 40(B)(I) AND 40(B)(III) OF THE ACT. HOWEVER, T HE SAME, IN OUR OPINION, IS NOT SUFFICIENT FOR ATTRACTING PENALTY U /S. 271(1)(C) OF THE ACT. 8. WE FIND THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS LTD. (SUPRA) AFTER CONSIDERI NG THE DECISION IN THE CASE OF DHARMENDRA TEXTILE PROCESSO RS (SUPRA) HAS HELD THAT MERE MAKING OF THE CLAIM, WHICH IS NO T SUSTAINABLE IN LAW BY ITSELF, WILL NOT AMOUNT TO FU RNISH INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. IT HAS BEEN FURTHER HELD THAT BY NO STRETCH OF IMAGINA TION CAN MAKING OF AN INCORRECT CLAIM IN LAW TANTAMOUNT TO F URNISHING OF I.T.A. NO. 6318/MUM/2009 M/S. RAJKIRAN ENTERPRISES ==================== 6 INACCURATE PARTICULARS. SINCE IN THE INSTANT CASE THE ASSESSEE HAS MADE A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF, WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME SO AS TO ATTRACT LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT IN VIEW OF THE DECISION OF THE HONBLE SUPREME COURT CITED ABO VE. WE, THEREFORE, SET ASIDE THE ORDER OF THE CIT(A) AND DI RECT THE ASSESSING OFFICER TO CANCEL THE PENALTY LEVIED U/S. 271(1)(C) OF THE ACT. THE GROUND RAISED BY THE ASSESSEE IS ACCO RDINGLY ALLOWED. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 29 TH JULY, 2010 SD/- (D. MANMOHAN) VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATE 29 TH JULY, 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-30, MUMBAI 4. THE CIT, CITY-19, MUMBAI 5. THE DR D BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES, MUMBAI TPRAO