BRISTLECONE INDIA LIMITED, MUMBAI V. ACIT CIR 2(1), MUMBAI

ITA 6511/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92259 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 06-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AKHILENDRA P YADAV
• Assessee Lawyers: H P MAHAJANI
• Keywords: Business income; Bonafide belief
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI N.K . BILLAIYA, A CCOUNTANT M EMBER / I .T.A. NO . 6511/MUM/2013 ( / ASSESSMENT YEAR : 2008 - 09 M/S. BRISTLECONE INDIA LTD., 2 ND FLOOR, TECHNIPLEX COMPLEX - 1, OFF. VEER SAVARKAR FLYOVER, GOREGAON (W), MUMBAI - 400 062 / VS. THE ACIT, CIR 2(1), AAYAKAR BHAVAN, MUMBAI - 400 020 ./ ./ PAN/GIR NO. : AAACM 5186E ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY: SHRI H.P. MAHAJANI / RESPONDENT BY : SHRI AKHILENDRA P. YADAV / DATE OF HEARING : 30 . 0 3 .2015 / DATE OF PRONOUNCEMENT : 10 .0 4 .2015 / O R D E R PER N.K. BILLAIYA, AM: WITH THIS APPEAL, THE ASSESSEE HAS CHALLENGED THE CORRECTNESS OF THE ORDER OF THE LD. CIT(A) - 4, MUMBAI DT.18.9.2013 PERTAINING TO ASSESSMENT YEAR 2008 - 09. 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE PENALTY U/S. 271(1)(C) OF THE ACT AMOUNTING TO RS. 71 ITA. NO. 6511/M/2013 2 LAKHS. THE ASSESSEE IS FURTHER AGGRIEVED BY THE FACT THAT THE LD. CIT(A) CONFIRMED THE PENALTY ON THE CLAIM OF DEDUCTION U/S. 10A OVERLOOKING THE FACT THAT ORDERS OF ASSESSMENT FOR ASSESSMENT YEAR 2006 - 07 AND 2007 - 08 WERE PASSED AFTER THE RETURN FOR ASSESSMENT YEA R 2008 - 09 WAS FINALIZED. 3. THE ROOTS FOR THE LEVY OF PENALTY U/S. 271(1))(C) OF THE ACT LIE IN THE ASSESSMENT ORDER DT. 21.12.2011 MADE U/S. 143(3) OF THE ACT. WHILE SCRUTINIZING THE RETURN OF INCOME, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS RENDERING SOFTWARE SERVICES FROM THREE DIFFERENT UNITS OUT OF WHICH ONE OF THE UNIT WAS ELIGIBLE FOR DEDUCTION U/S. 10A OF THE ACT. THE AO FURTHER OBSERVED THAT THE TOTAL SALES AND SERVICES FOR THE YEAR UNDER CONSIDERATION WERE AT RS. 93.06 CRORES AND TH E NET PROFIT HAS BEEN REPORTED AT RS. 82.15 LAKHS AS COMPARED TO RS. 6.47 CRORES IN THE LAST YEAR. TO EXAMINE THE CORRECTNESS OF CLAIM OF EXEMPTION/DEDUCTION U/S. 10A, THE ASSESSEE WAS ASKED TO FILE DETAILS OF VARIOUS UNITS, THE DATE OF INCORPORATION, LOC ATION, MANPOWER EMPLOYED IN EACH UNIT AND NATURE AND DETAILS OF ACTIVITIES CARRIED OUT BY EACH UNIT. THE ASSESSEE WAS ALSO ASKED TO FURNISH SEPARATE PROFIT & LOSS ACCOUNT FOR EACH OF THE UNIT AND ALSO OF CORPORATE OFFICE INDICATING THE EXPENSES BOTH DIRE CT AND INDIRECT ATTRIBUTABLE TO SUCH UNITS AND THE BASIS OF APPORTIONMENT OF INDIRECT EXPENSES . THE ASSESSEE FILED A DETAILED REPLY VIDE LETTER DT. 12.12.2011 AS UNDER: IN THE RETURN OF INCOME THEY HAVE CLAIMED DEDUCTION FOR RS. 3,38,72,690/ - BEING THE PROFITS DERIVED FROM THE ELIGIBLE 10A UNIT AT BANGALORE. THIS AMOUNT WAS DETERMINED BY US ON THE BASIS OF OUR PERCEPTION OF PROFITS DERIVED FROM THE SAID UNIT, WHICH AMONG OTHERS, INCLUDED BONAFIDE BELIEF THAT THE WORD, DELIVERED WOULD KEEP OUTDO THE AMBIT OF SUCH DETER MINATION NOT ONLY INCOME BUT ALSO EXPENDITURE WHICH DID NOT HAVE DIRECT AND CLOSE PROXIMITY ITA. NO. 6511/M/2013 3 WITH THE ELIGIBLE UNIT. SECTION 10A UNFORTUNATELY DOES NOT PROVIDE ANY GUIDANCE IN THE MATTER. HOWEVER, THE BASIS OF COMPUTING THE PROFITS WAS EXPLAINED BY WAY OF NOTE TO THE COMPUTATION OF 10A PROFITS. DURING THE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2007 - 08, THE AO HAD CHOSEN TO MODIFY THE BASIS FOR ARRIVING AT SUCH PROFITS. IN THE APPEAL THERE AGAINST THE CIT(A) HAD MADE FURTHER MODIFI CATIONS THERETO. THE COMPANY IS IN APPEAL TO THE TRIBUNAL THERE AGAINST. AS A PRACTICAL MEASURE AND IN ORDER TO AVOID PROTRACTED LITIGATION ON A LARGELY FACTUAL MATTER INVOLVING A SUBSTANTIAL DEGREE OF ESTIMATION, IT WAS FELT THAT IT WOULD BE IN THE INT ERESTS OF THE COMPANY TO ACCEPT THE METHODOLOGY OF ESTIMATING PROFITS WHICH FOUND FAVOUR WITH THE CIT(A). ACCORDINGLY, IN ASSESSMENT YEAR 2007 - 08 WE FILED REVISED CLAIM IN WHICH THE AMOUNT OF DEDUCTION U/S. 10A WAS REWORKED WHEREBY WE HAD ALLOCATED COMMO N EXPENSES INCURRED AT LOCATIONS OTHER THAN BANGALORE ON PARTICULAR BASIS. 4. THE ALLOCATION OF EXPENDITURE WAS ACCEPTED BY THE AO EXCEPT FOR TWO EXPENSES NAMELY (1) SOFTWARE PURCHASE EXPENSES AND (2) INTEREST EXPENSES. THE AO WAS OF THE OPINION THAT TH E ASSESSEE HAS ALLOCATED ONLY RS. 16,73,989/ - OUT OF TOTAL SOFTWARE PURCHASE EXPENSES OF RS. 1,19,24,949/ - TO STP UNIT. SIMILARLY, OUT OF TOTAL BANK INTEREST EXPENSES OF RS. 1,13,16,836/ - , ONLY RS. 1,59,295/ - IS ALLOCATED TO STP UNIT. ACCORDING TO AO, TH E ASSESSEE HAS DISTRIBUTED THESE EXPENSES TO DIFFERENT UNITS IN A VERY SKEWED MANNER. 4.1. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM. THE ASSESSEE DID NOT REPLY TO THIS QUERY RAISED BY THE AO. THE AO FORMED A BELIEF THAT THE ASSESSEE HAS DELIBERATELY DECREASE D EXPENSES OF STP UNIT AND INCREASED EXPENSES OF NON - STP UNIT. THE AO PROCEEDED BY ALLOCATING THE EXPENSES ON THE BASIS OF TURNOVER AND COMPUTED THE REVISED ALLOCATION THEREBY COMPUTING THE DEDUCTION U/S. 10A AT RS. 1,29,84,577/ - AND ALSO INITIAT ED PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. ITA. NO. 6511/M/2013 4 4.2. DURING THE COURSE OF THE PENAL PROCEEDINGS, THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY PENALTY U/S. 271(1)(C) SHOULD NOT BE IMPOSED FOR CONCEALING THE INCOME BY FILING INACCURATE PARTICULARS OF I NCOME. THE ASSESSEE RESPONDED VIDE LETTER DT. 25.1.2012 CLAIMING THAT THERE IS NO CONCEALMENT AND NO INACCURATE PARTICULARS WERE FILED. THE ASSESSEE FURTHER SUBMITTED THAT ALLOCATION OF EXPENSES IS INHERENTLY A CONTENTIOUS ISSUE ON WHICH MORE THAN ONE VIEW IS POSSIBLE. THE SUBMISSIONS MADE BY THE ASSESSEE WERE NOT ACCEPTED BY THE AO FOR THE REASON THAT THE ISSUE OF ALLOCATION OF EXPENSES BETWEEN STP UNIT AND NON STP UNIT WERE ALSO DEALT IN EARLIER ASSESSMENT YEARS I.E. A.YRS. 2006 - 07 AND 2007 - 08 . T HE SAME ISSUE IS ALSO PRESENT IN THE YEAR UNDER CONSIDERATION. ACCORDING TO THE AO, THE ISSUE OF ALLOCATION OF COMMON EXPENSE IS COMING FROM PAST TWO YEARS I.E. RIGHT FROM THE YEAR IN WHICH DEDUCTION U/S. 10A HAS BEEN CLAIMED. THE RE - ALLOCATION MADE IN T HE ASSESSMENT YEAR 2006 - 07 HAVE BEEN CONFIRMED BY THE TRIBUNAL ALSO. 4.3. DRAWING SUPPORT FROM THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ZOOM COMMUNICATION (P) LTD 327 IYTR 510, HONBLE SUPREME COURT IN THE CASE OF K.P. MADHUSUDHAN VS CIT 251 ITR 99 AND HONBLE SUPREME COURT IN THE CASE OF DHARMENDRA TEXTILE PROCESSORS & OTHERS 295 ITR 244 THE AO PROCEEDED BY IMPOSING PENALTY U/S. 271(1)(C) OF THE ACT AT RS. 71 LAKHS. 5. AGGRIEVED BY THIS, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD . CIT(A) AND REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORIT Y . AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS, THE LD. CIT(A) OBSERVED THAT IT IS NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAS FURNISHED INACCURATE PARTICULARS OF INCOME KNOWING FULLY WELL THAT IN THE EAFRLIER YEARS FOR A.YRS 2006 - 07 AND 2007 - 08, THE CLAIM OF EXCESSIVE ITA. NO. 6511/M/2013 5 DEDUCTION U/S. 10A HAD BEEN REJECTED BY THE DEPARTMENT. THE ASSESSEE WAS CLEARLY TOLD TO ALLOCATE THE COMMON EXPENSES BETWEEN STP UNIT AND THE NON STP UNIT ON THE BASIS OF TURNOVER, YET THE ASSESSEE CONTINUED ITS FURNISHING OF INACCURATE PARTICULARS OF INCOME BY CLAIMING EXCESSIVE DEDUCTION U/S. 10A OF THE ACT. THE LD. CIT(A) FURTHER OBSERVED THAT ONLY A SMALL PERCENTAGE OF THE INCOME TAX RETURNS ARE PICKED UP FOR SCRUTINY THE AO. IF THE ASSESSES MAKE A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW BUT IS ALSO UNSUBSTANTIATED AND THE EXPLANATION FURNISHED BY THE ASSESSEE FOR MAKING SUCH A CLAIM IS NOT SATISFACTORY, IT WOULD BE DIFFICULT TO SAY THAT THEY WOULD STILL NOT BE LIABLE TO PENALTY U/S. 271(1)(C) OF THE ACT . AFTER CONSIDERING CERTAIN JUDICIAL DECISIONS DISCUSSED IN HIS APPELLATE ORDER, THE LD. CIT(A) CONFIRMED THE LEVY OF PENALTY. 6. AGGRIEVED BY THIS, THE ASSESSEE IS BEFORE US. 7. THE LD. COUNSEL FOR THE A SSESSEE VEHEMENTLY SUBMITTED THAT THE BASIS FOR THE ALLOCATION OF EXPENSES BETWEEN ELIGIBLE AND NON ELIGIBLE UNIT IS ALWAYS A DEBATABLE ISSUE AND THEREFORE SUBJECT TO MORE THAN ONE POSSIBLE VIEW. THE LD. COUNSEL FURTHER STATED THAT THERE IS NO QUESTION OF FURNISHING OF INACCURATE PARTICULARS INASMUCH AS ALL THE EXPENSES HAVE BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT. THE DISPUTE IS ONLY IN RESPECT OF THE ALLOCATION OF EXPENSES WHICH CANNOT TANTAMOUNT TO CONCEALMENT OF INCOME OR FURNISHING INACCURATE PAR TICULARS OF INCOME. IN SUPPORT OF HIS SUBMISSION, THE LD. COUNSEL RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158, BOMBAY HIGH COURT IN THE CASE OF ADITYA BIRLA NOVA LTD IN ITA NO. 3899/20 10, TRIBUNAL MUMBAI BENCH IN THE CASE OF DUSHYANT DEVELOPMENT CORPN. IN ITA NO. 2285/M/2011, HONBLE BOMBAY HIGH COURT IN THE CASE OF MANSUKH DEYING & PRINTING MILLS IN ITA NO. 1113 ITA. NO. 6511/M/2013 6 OF 2008, HONBLE BOMBAY HIGH COURT IN THE CASE OF NALIN P. SHAH (HUF) IN ITA NOS. 49, 50 & 51 OF 2013, ITAT DELHI BENCH IN THE CASE OF POYSHA GOYAL IN ITA NO. 1721/DEL/2013, HONBLE BOMBAY HIGH COURT IN THE CASE OF LARSEN & TOUBRO IN ITA NO. 424, 425, 483/2012, HONBLE DELHI HIGH COURT IN THE CASE OF DHARAMPAL PREMCHAND LTD I N ITA 912/2010, ITAT DELHI BENCH IN THE CASE OF SUPER CASETTES INDUSTRIES LTD IN ITA NOS. 4421,4422 & 4423/DEL/2012, ITAT MUMBAI BENCH IN THE CASE OF OASIS SECURITIES LTD. 37 SOT 63, HONBLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF SANGRUR VANASPATI M ILLS LTD. 303 ITR 53, KARNATAKA HIGH COURT IN THE CASE OF OSCAR UDYOG LTD IN ITA NO. 311/2013 AND THE HIGH COURT OF BOMBAY IN THE CASE OF ZANDU PHARMACEUTICAL WORKS LTD. IN ITA NO. 8 OF 2007. 8. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 9. HAVING HEARD THE RIVAL SUBMISSIONS, WE HAVE CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO GIVEN A THOUGHTFUL CONSIDERATION TO THE JUDICIAL DECISIONS RELIED UPON BY THE ASSESSEE. 9.1. L ET US FIRST SEE THE CONDUCT OF THE ASSESSEE. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME AT RS. NIL. THE RETURN WAS FILED ON 29.9.2008 , PRIOR TO THIS RETURN FOR A.Y. 2006 - 07 AND 2007 - 08 WERE ALSO SUBJECT TO SCRUTINY ASSESSMENT AND DURI NG THE COURSE OF THE SCRUTINY ASSESSMENT OF THESE TWO ASSESSMENT YEARS, THE ALLOCATION OF EXPENSES BETWEEN THE STP UNIT AND THE NON STP UNIT WAS THE CONTENTIOUS ISSUE. THUS, IT CAN BE SAFELY CONCLUDED THAT WHEN THE ASSESSEE HAS FILED THE RETURN FOR THE YE AR UNDER CONSIDERATION, IT WAS WELL AWARE OF THE VIEW TAKEN BY THE DEPARTMENT IN EARLIER ASSESSMENT YEARS , I N SO FAR AS THE ITA. NO. 6511/M/2013 7 ALLOCATION OF EXPENSES IS CONCERNED, YET THE ASSESSEE DID NOT ALLOCATE THE EXPENSES IN THE MANNER IN WHICH THEY WERE ALLOCATED IN TH E EARLIER ASSESSMENT YEARS BY THE AO. 9.2. THE CLAIM OF THE ASSESSEE THAT IT RECEIVED THE APPELLATE ORDER FOR A.Y. 2006 - 07 AFTER FILING THE RETURN IS NOT ACCEPTABLE FOR THE SIMPLE REASON THAT THE ASSESSEE WAS WELL AWARE OF THE CONTENTIOUS ISSUE OF EARLIE R ASSESSMENT YEAR JUST BECAUSE THE AO DID NOT LEVY PENALTY IN EARLIER ASSESSMENT YEAR DOES NOT EXONERATE THE ASSESSEE FROM THE LEVY OF PENALTY FOR THE YEAR UNDER CONSIDERATION. 9.3. THIS IS THE THIRD YEAR OF ALLOCATION OF EXPENSES THEREFORE IT CANNOT BE SAID THAT THE ASSESSEE WAS NOT AWARE OF THE ALLOCATION OF EXPENSES, THE BASIS OF WHICH WAS TAKEN AS TURNOVER OF THE RESPECTIVE UNIT. TAKING THE LIBERTY FOR THE THIRD TIME ON THE SAME SET OF FACTS IS NOTHING BUT FILING OF INACCURATE PARTICULARS BY CONCEAL MENT OF INCOME BY INCREASING THE EXPENSES OF NON STP UNIT VIS - - VIS STP UNITS. IT IS A COMMON PRACTICE OF ALLOCATING EXPENSES BETWEEN ALL THE UNITS ON A REASONABLE BASIS. IT IS ALSO A COMMON PRACTICE BY THE ASSESSEE S TO INFLATE THE EXPENSES OF TAXABLE UN ITS BY REDUCING THE EXPENSES OF EXEMPT UNIT BECAUSE THERE IS NO POINT IN CLAIMING EXPENSES IN RESPECT OF UNITS WHOSE INCOME IS EXEMPT FROM TAX. 9.4. IN THE CASE UNDER CONSIDERATION ALSO, WE FIND THAT THE ASSESSEE HAS DELIBERATELY INFLATED THE EXPENSES OF TAXABLE UNITS KEEPING IN MIND THAT THIS ISSUE WAS NOT ACCEPTED IN EARLIER ASSESSMENT YEARS YET THE ASSESSEE TOOK A CHANCE BECAUSE IT WAS WELL AWARE THAT HARDLY 2 - 3% OF THE RETURNS ARE SELECTED FOR SCRUTINY ASSESSMENT , WHICH MEANS THAT SUCH PERSONS CAN MAKE IRREGULAR AND EXCESSIVE CLAIM OF THE NATURE OF THE CASE IN HAND AND WOULD GET AWAY WITHOUT PAYING THE TAX LEGALLY PAYABLE BY THEM , IF THEIR ITA. NO. 6511/M/2013 8 CASES ARE NOT PICKED UP FOR SCRUTINY , THEREBY DISCRIMINATING WITH THE GOOD TAXPAYERS AND LAW A BIDING TAX PAYERS. SUCH INEQUITY TAKES AWAY DETERRENT E FFECT FROM THE PENAL PROVISIONS WHICH HAVE BEEN ENACTED IN THE ACT. 9.5. THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (SUPRA) HAS HELD THAT EVERYTHING WOULD DEPEND UPON THE RETURN FILED BECAUSE THAT IS THE ONLY DOCUMENT , WHERE THE APPELLANT CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUCH PARTICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY OF PENALTY U/S. 271(1)(C) WOULD ARISE. IN THE INSTANT CASE, THE ASSESSEE HAS REPEATEDLY CLAIMED THE SKEW ED ALLOCATION OF COMMON EXPENSES BETWEEN THE STP UNIT AND THE NON STP UNIT SO AS TO ARTIFICIALLY INFLATE THE CLAIM OF DEDUCTION U/S. 10A OF THE ACT. 9.6. THIS CONDUCT OF THE ASSESSEE IS SUFFICIENT TO DISTINGUISH THE FACTS OF THE CASE IN HAND WITH THE FA CTS OF THE DECISIONS RELIED UPON BY THE ASSESSEE AND QUOTED ELSEWHERE IN THIS ORDER. 9.7. CONSIDERING THE FACTS IN TOTALITY, IN THE LIGHT OF THE CONDUCT OF THE ASSESSEE, WE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). 10. IN THE RESULT, T HE APPEAL FILED BY THE ASSESSEE IS DISMISSED. OR DER PRONOUNCED IN THE OPEN COURT ON 10 TH APRIL , 2015 SD/ - SD/ - ( JOGINDER SINGH ) (N.K. BILLAIYA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED : 10 TH APRIL , 2015 . . ./ RJ , SR. PS ITA. NO. 6511/M/2013 9 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI