HIREN M SHAH, MUMBAI V. ASST CIT 17(2), MUMBAI

ITA 6671/MUM/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100839 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2004-2005
• Appeal Filed On: 14-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: PRADIP N KAPASI
• Keywords: Wrong claim
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES H MUMBAI BEFORE SHRI G.S.PANNU, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.6671/MUM/2013( ASSESSMENT YEAR 2004-05) ITA NO.6672/MUM/2013( ASSESSMENT YEAR 2006-07) SHRI HIREN M. SHAH, 371, SUKH NIWAS, 1 ST FLOOR, BHANDARKAR ROAD, MATUNGA (E), MUMBAI 400 019 VS. THE ACIT 17 (2), PIRAMAL CHAMBERS, MUMBA. PAN/GIR NO. : A A VPS 0624G ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY SHRI PRADIP N. KAPASI RESPONDENT BY SHRI JEETENDRA KUMAR DATE OF HEARING : 20/05/2015 DATE OF PRONOUNCEMENT : 14/08/2015 O R D E R PER G.S.PANNU, A.M: THE CAPTIONED ARE TWO APPEALS PREFERRED BY THE ASSESSEE AGAINST A COMMON ORDER OF CIT(A) -29, MUMBAI DATED 27/08/2011 , WHICH IN TURN ARISES FROM RESPECTIVE ORDERS PASSED BY AO IMPOSING PENALT Y UNDER SECTION 271(1)(C) OF THE INCOME TAX ACT, 1961(THE ACT) DATED 29/03/20 11 AND DATED 30/03/2011 FOR ASSESSMENT YEARS 2004-05 AND 2006-0 7 RESPECTIVELY. 2. IN BOTH APPEALS, THE SOLITARY ISSUE RELATES TO THE PENALTY IMPOSED BY THE AO UNDER SECTION 271(1)(C) OF THE ACT AMOUNTING TO RS 3,50,528/- FOR A.Y 2004-05 AND RS. 1,22,400/- FOR ASSESSMENT YEAR 2006 -07. SINCE THE FACTS AND ITA NO.6671& 6672/MUM/2013 ASSESSMENT YEAR 2004-05& 2006-07 2 CIRCUMSTANCES LEADING TO THE IMPOSITION OF PENALTY ARE IDENTICAL IN BOTH THE APPEALS, THE APPEAL FOR ASSESSMENT YEAR 2004-05 IS TAKEN AS LEAD CASE. 3. IN THIS CONTEXT, THE BRIEF FACTS ARE THAT THE AP PELLANT IS AN INDIVIDUAL, WHO IS, INTER-ALIA, DERIVING INCOME FROM THE BUSINESS O F EXPORT OF STAINLESS STEEL UTENSILS IN THE NAME OF HIS PROPRIETARY CONCERN, M/S. CHERRY INTERNATIONAL. IN THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2004-05, THE AO NOTICED THAT THE ASSESSEE HAD CLAIMED DEDUCTION FO R A SUM OF RS.10,60,000/- TOWARDS EXPORT COMMISSION. ON BEING ASKED TO EXPLA IN, IT WAS CONTENDED THAT THE SAME WAS PAID TO ONE SHRI SANDEEP P. SHAH, ON A CCOUNT OF RENDERING SERVICES IN CONNECTION WITH GOODS EXPORTED BY THE A SSESSEE. THE RELEVANT DISCUSSION IN THE ASSESSMENT ORDER PASSED UNDER SEC TION 143(3) DATED 19/6/2006, REVEALS THAT THE AO ISSUED SUMMONS UNDER SECTION 131 OF THE ACT TO SHRI SANDEEP P. SHAH AND RECORDED HIS STATEMENT. THE RELEVANT EXTRACTS OF THE DEPOSITION MADE BY SHRI SANDEEP P. SHAH HAVE BE EN REPRODUCED BY THE AO IN THE ASSESSMENT ORDER. NOTABLY, THE SAID PERSON APPEARED BEFORE THE AO AND EXPLAINED THAT HE HAD EARNED COMMISSION INCO ME FROM THE ASSESSEE FOR OBTAINING EXPORT ORDERS FOR STAINLESS STEEL PRODUC TS. SO HOWEVER, AS PER THE AO THE SAID PERSON COULD NOT SUBSTANTIATE, ON THE B ASIS OF ANY DOCUMENTARY EVIDENCE, THAT HE HAD RENDERED SERVICES SO AS TO J USTIFY EARNING OF COMMISSION INCOME FROM THE ASSESSEE. ACCORDINGLY, THE EXPENDI TURE WAS DISALLOWED. SUBSEQUENTLY, THE AO HAS HELD THE ASSESSEE GUILTY O F FURNISHING INACCURATE PARTICULARS OF INCOME QUA AFORESAID DISALLOWANCE, W ITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. THE SAID ACTION OF THE AO H AS SINCE BEEN AFFIRMED BY CIT(A) ALSO. NOT BEING SATISFIED WITH THE ORDER OF CIT(A) ON THIS ASPECT, ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US, LD. REPRESENTATIVE FOR THE ASSESSEE C ONTENDED THAT THERE WAS NO JUSTIFICATION FOR THE LEVY OF SUCH PENALTY UNDE R SECTION 271(1)(C) OF THE ACT BECAUSE ASSESSEE HAD MADE ADEQUATE DISCLOSURE AND A LL THE MATERIAL NECESSARY ITA NO.6671& 6672/MUM/2013 ASSESSMENT YEAR 2004-05& 2006-07 3 FOR THE ASSESSMENT WAS DISCLOSED. THE LD. REPRESE NTATIVE FOR THE ASSESSEE, FURTHER, POINTED OUT THAT SIMILAR PAYMENTS MADE TO THE SAID PERSON IN THE EARLIER YEARS STOOD ALLOWED AND THAT THOUGH THE ADD ITION IN THE QUANTUM PROCEEDINGS HAS BEEN SUSTAINED, BUT THERE WAS NO JU STIFICATION FOR THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT, AS THER E WAS NEITHER CONCEALMENT OF INCOME NOR FURNISHING OF INACCURATE PARTICULARS OF SUCH INCOME. 5. ON THE OTHER HAND, LD. DR HAS JUSTIFIED THE ORDE R OF CIT(A) SUSTAINING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON T HE GROUND THAT THE ASSESSMENT PROCEEDINGS CLEARLY ESTABLISHED THAT ASS ESSEES CLAIM OF PAYMENT OF COMMISSION WAS NOT GENUINE, AND, THEREFORE, PE NALTY WAS RIGHTLY IMPOSED FOR SUCH A DISALLOWANCE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. IN THE PRESENT CASE, ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF ST AINLESS STEEL UTENSILS. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS ACCOMPAN IED BY AUDITED BALANCE SHEET, PROFIT AND LOSS ACCOUNT AS WELL AS THE PRESC RIBED TAX AUDIT REPORT. THE ASSESSING OFFICER HAD NOTICED THAT UNDER THE HEAD SELLING AND DISTRIBUTION EXPENSES, ASSESSEE HAD CLAIMED AN EXPENDITURE OF RS.10,60,000/- ON ACCOUNT OF EXPORT COMMISSION. THE ASSESSEE SOUGHT TO JUSTI FY THE ALLOWABILITY OF THE EXPENDITURE ON THE GROUND IT WAS PAID TO SHRI SAND EEP P. SHAH FOR THE SERVICES RENDERED IN CONNECTION WITH EXPORT OF GOODS AND THA T THE ENTIRE PAYMENT WAS MADE BY ACCOUNT PAYEE CHEQUES. IT WAS ALSO THE CAS E OF THE ASSESSEE THAT TAX HAS BEEN DULY DEDUCTED AT SOURCE ON SUCH EXPENDITU RE. HOWEVER, THE AO WAS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE AND HE ALSO EXAMINED THE RECIPIENT OF COMMISSION I.E. SHRI SANDEEP P. SHAH. THE DEPOS ITION MADE BY SHRI SANDEEP P. SHAH WAS ALSO NOT FOUND SATISFACTORY BY THE AO THOUGH THE SAID PERSON CONFIRMED HAVING RECEIVED COMMISSION FROM TH E ASSESSEE. THE RELEVANT DISCUSSION IN THE ASSESSMENT ORDER REVEALS THAT THE AO WAS NOT SATISFIED WITH THE SERVICES RENDERED BY THE SAID PERSON AS HE COUL D NOT PRODUCE THE REQUIRED ITA NO.6671& 6672/MUM/2013 ASSESSMENT YEAR 2004-05& 2006-07 4 DETAILS. THIS HAS FORMED THE BASIS FOR THE AO TO L EVY PENALTY UNDER SECTION 271(1)(C) OF THE ACT ON THE GROUND THAT ASSESSEE HA S FURNISHED INACCURATE PARTICULARS OF INCOME QUA THE COMMISSION PAYMENT WI THIN THE MEANING OF SECTION 271(1)(C) OF THE ACT. 8. IN OUR CONSIDERED OPINION, ENTIRE CONSPECTUS O F FACTS EMERGING FROM RECORD DOES ESTABLISH THAT THE ASSESSEE FAILED TO S UBSTANTIATE THE CLAIM OF EXPENDITURE ON ACCOUNT OF COMMISSION PAYMENT. SO H OWEVER, IN ORDER TO HOLD THE ASSESSEE GUILTY OF FURNISHING INACCURATE PARTI CULARS WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT, IT IS IMPERATIVE TO D EMONSTRATE THAT ASSESSEE IS FOUND TO HAVE MADE AN ERRONEOUS OR A FALSE CLAIM. CLEARLY, FAILURE TO SUBSTANTIATE A CLAIM CANNOT BE EQUATED TO A CASE OF MAKING OF A FALSE OR AN ERRONEOUS CLAIM. IN FACT, THE MERE MAKING OF A CL AIM, WHICH IS NOT FOUND SUSTAINABLE BY THE ASSESSING OFFICER DOES NOT IP SO FACTO JUSTIFY FURNISHING OF INACCURATE PARTICULARS OF INCOME WITHIN THE MEANING OF SECTION 271(1)(C) OF THE ACT, AS HELD BY THE HONBLE SUPREME COURT IN THE C ASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD., 322 ITR 58(SC). IN THE PRESEN T CASE, OSTENSIBLY, THE PAYMENT OF COMMISSION EXPENDITURE HAS BEEN MADE B Y CHEQUES AND THE REQUISITE TAX HAS ALSO BEEN DEDUCTED AT SOURCE. TH E RECIPIENT HAS ALSO CONFIRMED RECEIVING OF COMMISSION PAYMENT FROM THE ASSESSEE. THE ASSERTION OF THE APPELLANT ASSESSEE THAT SIMILAR PAYMENTS MADE IN THE PAST HAVE BEEN ALLOWED, IS ALSO NOT DISPUTED BY THE REVENUE. THE AFORESAID FEATURES OF THE CLAIM DO NOT ESTABLISH THAT THE CLAIM MADE IN THE R ETURN OF INCOME WAS NOT A BONAFIDE CLAIM. WHILE THERE MAY BE JUSTIFIABLE REA SONS FOR DISALLOWING THE CLAIM OF EXPENDITURE, SO HOWEVER, THAT BY ITSELF CA NNOT BE A GROUND FOR LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IT IS A WELL SETTLED PROPOSITION THAT THE ASSESSMENT PROCEEDINGS AND THE PENALTY PROCEEDI NGS ARE INDEPENDENT PROCEEDINGS AND THE FINDING IN THE ASSESSMENT PROCE EDINGS ARE NOT CONCLUSIVE SO AS TO GOVERN THE PENALTY PROCEEDINGS, THOUGH SUC H FINDINGS IN THE ITA NO.6671& 6672/MUM/2013 ASSESSMENT YEAR 2004-05& 2006-07 5 ASSESSMENT PROCEEDINGS MAY BE A RELEVANT CRITERIA. NOTABLY, IN THE PRESENT CASE, THE ENTIRE CASE SET-UP BY THE ASSESSING OFFIC ER TO LEVY PENALTY IS BASED ON THE DISALLOWANCE EFFECTED DURING THE ASSESSMENT PRO CEEDINGS, WHERE THE ONLY FAILURE OF THE ASSESSEE WAS NON-SUBSTANTIATION OF T HE CLAIM FOR EXPENDITURE. IN OUR VIEW, MERELY BECAUSE THE EXPENDITURE ON ACCOUN T OF COMMISSION PAYMENT HAS BEEN FOUND TO BE UNSUBSTANTIATED AND DISALLOWED IN ASSESSMENT PROCEEDINGS, THE SAME IPSO FACTO DOES NOT JUSTIFY L EVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT. 8.1 THEREFORE, WE SET ASIDE THE ORDER OF CIT(A) AN D DIRECT THE AO TO DELETE THE PENALTY OF RS.3,24,360/- IMPOSED UNDER SECTION 271(1)(C) OF THE ACT FOR ASSESSMENT YEAR 2004-05. 8.2 SINCE THE FACTS AND CIRCUMSTANCES ARE SIMILAR IN A.Y 2006-07, OUR DECISION IN THE APPEAL FOR A.Y 2004-05 SHALL APPLY MUTATIS MUTANDIS APPLY IN THE APPEAL FOR A.Y 2006-07 ALSO. THUS, FOR A.Y 20 06-07 ALSO, THE ORDER OF CIT(A) IS SET-ASIDE AND THE AO IS DIRECTED TO DELET E THE PENALTY OF RS.1,24,400/- IMPOSED UNDER SECTION 271(1)(C) OF THE ACT. 9. IN THE RESULT, BOTH THE CAPTIONED APPEALS OF TH E ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/08/2015 SD/- SD/- SANJAY GARG ) ( G.S.PANNU ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED 14/08/2015 ITA NO.6671& 6672/MUM/2013 ASSESSMENT YEAR 2004-05& 2006-07 6 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./ASST T. REGISTRAR) ITAT, MUMBAI VM , SR. PS