DEORA TRADING CO., MUMBAI V. ITO 20(2)(1), MUMBAI

ITA 6709/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8562 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 03-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 05-10-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Keywords: Unexplained cash credit
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH D MUMBAI BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO. 6709/MUM/2011 ASSESSMENT YEAR- 2005-06 M/S. DEORA TRADING CO., A-69, MIDC, CHAKALA MAROL INDUSTRIAL ESTATE, ANDHERI(E), MUMBAI-400 093 PAN-AABFD 4909N VS. THE ITO 20(2)(1), PIRAMAL CHAMBERS, MUMBAI-400 012 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI BHUPENDRA SHAH RESPONDENT BY: SHRI A.B. KOLI DATE OF HEARING :03.10.2012 DATE OF PRONOUNCEMENT:10.10.2012 O R D E R PER N.K. BILLAIYA, AM: WITH THIS APPEAL THE ASSESSEE HAS QUESTIONED THE CO RRECTNESS OF THE ORDER OF LD. CIT(A)-31, MUMBAI DT. 3.8.2011 PERTAIN ING TO ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF TH E LD. CIT(A) CONFIRMING PENALTY LEVIED U/S. 271(1)(C) OF THE ACT ON ACCOUNT OF UNEXPLAINED CASH CREDIT AMOUNTING TO RS. 3,60,000/- AND ON DISALLOWANCE ON ACCOUNT OF NON DEDUCTION OF TAX U/S. 40(A)(IA) OF THE ACT TO THE T UNE OF RS. 63,16,567/-. 3. THE ROOTS FOR THE LEVY OF PENALTY LIE IN THE ASS ESSMENT ORDER DT. 27.12.2007 MADE U/S. 143(3) OF THE ACT. FOR THE YE AR UNDER CONSIDERATION, THE RETURNED INCOME OF THE ASSESSEE AT RS. 38,940/- WAS ASSESSED AT RS.70,57,580/-. AFTER MAKING ADDITIONS U/S. 68, DI SALLOWANCE U/S. 40(A)(IA) OF THE ACT AND CERTAIN OTHER ADDITIONS WERE ALSO MADE . THE ASSESSMENT SO ITA NO. 6709/M/2011 2 MADE WENT UPTO ITAT AND AFTER THE DECISION OF THE ITAT IN ITA NO. 3487/M/09, FOLLOWING ADDITIONS STAYED CONFIRMED. I) CAR HIRE CHARGES RS. 1,20,000/- II) DISALLOWANCE U/S. 40(A)(IA) WEAVING CHARGES RS.60,14,842/- 4. THE ISSUE RELATING TO PROCESSING CHARGES AT RS. 1,19,282/- AND SERVICE CHARGES AT RS. 1,82,443/- WERE RESTORED BACK TO THE FILES OF THE AO BY THE ITAT IN ITA NO. 3487 (SUPRA). 5. THE PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE AC T WERE INITIATED BY THE AO ON THE ADDITIONS MADE BY HIM IN THE ASSESSMENT O RDER. THE ASSESSEE WAS GIVEN AN OPPORTUNITY TO EXPLAIN WHY PENALTY SHOULD NOT BE LEVIED U/S. 271(1)(C) OF THE ACT. HOWEVER, THE ASSESSEE DID NOT RESPOND TO THE SAID SHOW CAUSE NOTICE WHICH LEFT THE AO WITH NO CHOICE BUT TO GO AHEAD WITH THE PENAL PROCEEDINGS. THE AO OBSERVED THAT THE ASSESSEE HAS NOTHING TO SAY WITH REGARD TO THE PENALTY PROCEEDINGS. CONSIDERING THE FACTS OF THE ASSESSMENT, THE AO WENT ON TO LEVY PENALTY AT RS. 24,28,873/-. 6. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 7. AGGRIEVED BY THIS FINDING OF LD. CIT(A), THE ASS ESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ADD ITIONS/DISALLOWANCES HAVE BEEN MADE WHICH CANNOT BE SAID TO BE FILING OF INAC CURATE PARTICULARS OR CONCEALMENT OF INCOME. THE DISALLOWANCES HAVE BEEN MADE U/S. 40(A)(IA) FOR NON DEDUCTION OF TAX WHICH CANNOT BE A GROUND FOR T HE LEVY OF PENALTY. FOR THIS PROPOSITION, THE LD. COUNSEL RELIED UPON THE D ECISION OF ITAT HYDERABAD A BENCH IN ITA NO. 80/H/2011 WHEREIN THE CO ORDIN ATE BENCH HAS HELD THAT IN OUR OPINION, THE MISTAKE COMMITTED BY THE ASSES SEE WAS COMPENSATED BY DISALLOWING THE EXPENDITURE. FURTHER, THE REVENUE CANNOT PENALIZE THE ASSESSEE BY LEVYING PENALTY U/S. 271(1)(C) OF THE A CT. IN ORDER TO LEVY PENALTY ITA NO. 6709/M/2011 3 U/S. 271(1)(C) OF THE ACT, THERE HAS TO BE CONCEALM ENT OF PARTICULARS OF INCOME OF THE ASSESSEE OR THE ASSESSEE MUST HAVE F URNISHED INACCURATE PARTICULARS OF ITS INCOME. THE ASSESSEE ALSO RELI ED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANC E PETRO PRODUCTS (P) LTD 322 ITR 158 AND PRICE WATERHOUSE COOPERS (P) LTD. 25 TAXMAN.COM 4900(SC). THE LD. COUNSEL CONCLUDED THAT A MERE DI SALLOWANCE OF EXPENDITURE CANNOT IPSO FACTO BE LIABLE FOR THE LEV Y OF PENALTY U/S. 271(1)(C) OF THE ACT. 8. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBM ITTED THAT THE ASSESSEE HAS NOT ONLY FAILED TO DEDUCT TAX BUT ALSO AT THE SAME TIME HAVE CLAIMED SUCH EXPENSES IN ITS PROFIT AND LOSS ACCOUN T KNOWING FULLY WELL THAT HE HAS VIOLATED THE PROVISIONS OF SEC. 40(A)(IA) AND S HOULD HAVE SUO MOTU DISALLOWED THE EXPENSES SO CLAIMED , IN THE COMPUT ATION OF INCOME ITSELF. THE LD. DR RELIED ON THE FINDINGS OF LOWER AUTHORIT IES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND THE PAPER BOOK SUBMITTED BY THE ASS ESSEE. WE HAVE ALSO GONE THROUGH THE CASE LAWS RELIED UPON BY THE LD. C OUNSEL. WE ALSO HAVE THE BENEFIT OF THE ASSESSMENT ORDER AND THE ORDER OF TH E TRIBUNAL IN ITA NO. 3487 (SUPRA). AFTER CAREFULLY CONSIDERING THE ORDER OF THE TRIBUNAL, WE FIND THAT THE ISSUE RELATING TO THE DISALLOWANCE OF PROCESSING CH ARGES AT RS. 1,19,282/- AND SERVICES CHARGES AMOUNTING TO RS. 1,83,443/- HAVE B EEN RESTORED BACK TO THE FILES OF THE AO. THEREFORE, ON THIS FACT OF THE MA TTER PENALTY CANNOT BE LEVIED TO THIS EXTENT AT PRESENT. THE ADDITIONS WHICH STA ND CONFIRMED ARE AS UNDER: A) DISALLOWANCE U/S. 40(A)(IA) ON CAR HIRE CHARGES RS. 1,20,000/- B) WEAVING CHARGES RS.60,14,842/- ITA NO. 6709/M/2011 4 10. IT IS THE CONTENTION OF THE ASSESSEE THAT THE DI SALLOWANCES HAVE BEEN MADE ONLY BECAUSE THE ASSESSEE HAS VIOLATED THE PRO VISIONS OF SEC. 40(A)(IA). THEREFORE, THIS CANNOT BE THE SOLE GROUND FOR THE L EVY OF PENALTY U/S. 271(1)(C) OF THE ACT. IN THE CASE OF PRICE WATERHOU SE COOPERS (P) LTD (SUPRA) RELIED UPON BY THE ASSESSEE, WE FIND THAT IN THAT CASE, THE AUDITORS HAVE QUALIFIED THE REPORT. THE SAID REPORT WAS FILED ALO NGWITH THE RETURN OF INCOME AND THE SAID REPORT UNEQUIVOCALLY STATED THE PROVIS ION FOR PAYMENT WAS NOT ALLOWABLE U/S 40A[7] OF THE ACT INDICATES THAT THE ASSESSEE MADE A COMPUTATION ERROR IN ITS RETURN OF INCOME ON THAT NOTE THE HONBLE SUPREME COURT HAS HELD THAT SUCH MISTAKE CAN ONLY BE TERMED AS HUMAN ERROR OR A SILLY MISTAKE AND WENT ON TO HOLD THAT ON THE PECULIAR FA CTS OF THE CASE , IMPOSITION OF PENALTY ON ASSESSEE IS NOT JUSTIFIED . HOWEVER, IN THE PRESENT CASE ALTHOUGH THE BOOKS OF ACCOUNTS WERE SUBJECTED TO AUDIT, AT N O PLACE THE AUDITORS HAVE QUALIFIED THEIR REPORT SO FAR AS VIOLATION OF PROVI SIONS OF SEC. 40(A)(IA) IS CONCERNED . A PERUSAL OF THE ASSESSMENT ORDER SHOW S THAT WHEN THE ASSESSEE WAS CONFRONTED WITH THESE PAYMENTS ON WHICH NO TDS WAS MADE , THE SOLE CONTENTION OF THE ASSESSEE WAS THAT WEAVING CHARGES HAVE BEEN PAID TO THE TUNE OF RS. 57,82,726/- TO M/S. SANTOGEN SILK MILLS LTD. WHICH IS A SICK UNIT AND THEREFORE NO TDS WAS MADE. THE SAME PLEA WAS T AKEN BEFORE THE LD. CIT(A) AND ALSO BEFORE THE ITAT WHICH HAVE BEEN R EJECTED BY THE APPELLATE AUTHORITIES. ALL THESE FACTS GO TO SHOW THAT THE AS SESSEE HAS NO INTENTION TO DISCLOSE ALL THE MATERIAL FACTS AT THE TIME OF THE ASSESSMENT PROCEEDINGS. 11. THE ASSESSEE HAS ALSO RELIED UPON THE RATIO LA ID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS (SUPRA) WHEREIN WHILE DECIDING THE ISSUE, THE HONBLE SUPREME COURT HAS M ADE A VERY CATEGORICAL OBSERVATION THAT THERE CAN BE NO DISPUTE THAT EVER YTHING WOULD DEPEND UPON THE RETURN FILED BECAUSE THAT IS THE ONLY DOCUMENT, WHERE THE ASSESSEE CAN FURNISH THE PARTICULARS OF ITS INCOME WHEN SUCH PAR TICULARS ARE FOUND TO BE INACCURATE, THE LIABILITY WOULD ARISE. IN THE PRESE NT CASE AS THE ASSESSEE HAS NOT SHOWN CORRECT PARTICULARS IN ITS RETURN OF INCO ME, THE OBSERVATIONS OF THE ITA NO. 6709/M/2011 5 HONBLE SUPREME COURT MENTIONED HEREINABOVE SQUAREL Y APPLY ON THE FACTS OF THIS CASE. 12. IN THE CASE OF RELIANCE PETROPRODUCTS P. LTD. [2 010] 322 ITR 158 (SC), THE ADDITION MADE BY THE ASSESSING OFFICER IN RESPE CT OF THE INTEREST CLAIMED AS A DEDUCTION UNDER SECTION 36(1)(III) OF THE ACT WAS DELETED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) THOUGH IT WAS LATER RESTORED, BY THE TRIBUNAL, TO THE ASSESSING OFFICER. THE APPEAL FILE D BY THE ASSESSEE AGAINST THE ORDER OF THE TRIBUNAL WAS ADMITTED BY THE HIGH COURT. IT WAS, IN THESE CIRCUMSTANCES, THAT THE TRIBUNAL CAME TO THE CONCLU SION THAT THE ASSESSEE HAD NEITHER CONCEALED THE INCOME NOR FILED INACCURA TE PARTICULARS THEREOF. IN RECORDING THIS FINDING, THE TRIBUNAL FELT THAT IF T WO VIEWS OF THE CLAIM OF THE ASSESSEE WERE POSSIBLE, THE EXPLANATION OFFERED BY IT COULD NOT BE SAID TO BE FALSE. THIS, HOWEVER, IS NOT THE FACTUAL POSITION IN THE CASE BE FORE US. THE FACTS OF THE PRESENT CASE THUS ARE CLEARLY DISTINGU ISHABLE. 13. IT WOULD NOT BE OUT OF PLACE TO DISCUSS THE OB SERVATIONS MADE BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS ZOOM COMMUNICATION PVT. LTD. 327 ITR 510. IT IS TRUE THAT MERE SUBMITTING A CLAIM WHICH IS INCORRECT IN LAW WOULD NOT AMOUNT TO GIVING INACCURATE PARTICULARS OF THE INCOME OF THE ASSESSEE, BUT IT CANNOT BE DISPUTED THAT THE CLAIM MADE BY THE ASSESSEE NEEDS TO BE BONA FIDE. IF THE CLAIM BESID ES BEING INCORRECT IN LAW IS MALA FIDE, EXPLANATION 1 TO SECTION 271(1)(C ) WOULD COME INTO PLAY AND WORK TO THE DISADVANTAGE OF THE ASSESSEE. THE COURT CANNOT OVERLOOK THE FACT THAT ONLY A SM ALL PERCENTAGE OF THE INCOME-TAX RETURNS ARE PICKED UP FOR SCRUTINY. IF THE ASSESSEE MAKES A CLAIM WHICH IS NOT ONLY INCORRECT IN LAW B UT IS ALSO WHOLLY WITHOUT ANY BASIS AND THE EXPLANATION FURNISHED BY HIM FOR MAKING SUCH A CLAIM IS NOT FOUND TO BE BONA FIDE, IT WOUL D BE DIFFICULT TO SAY ITA NO. 6709/M/2011 6 THAT HE WOULD STILL NOT BE LIABLE TO PENALTY UNDER SECTION 271(1)(C) OF THE ACT. IF WE TAKE THE VIEW THAT A CLAIM WHICH IS WHOLLY UNTENABLE IN LAW AND HAS ABSOLUTELY NO FOUNDATION ON WHICH IT C OULD BE MADE, THE ASSESSEE WOULD NOT BE LIABLE TO IMPOSITION OF PENA LTY, EVEN IF HE WAS NOT ACTING BONA FIDE WHILE MAKING A CLAIM OF THIS NATURE, THAT WOULD GIVE A LICENCE TO UNSCRUPULOUS ASSESSEES TO MAKE WH OLLY UNTENABLE AND UNSUSTAINABLE CLAIMS WITHOUT THERE BEING ANY BA SIS FOR MAKING THEM, IN THE HOPE THAT THEIR RETURN WOULD NOT BEPIC KED UP FOR SCRUTINY AND THEY WOULD BE ASSESSED ON THE BASIS OF SELF-ASS ESSMENT UNDER SECTION 143(1) OF THE ACT AND EVEN IF THEIR CASE I S SELECTED FOR SCRUTINY, THEY CAN GET AWAY MERELY BY PAYING THE TAX, WHICH IN ANY CASE, WAS PAYABLE BY THEM. THE CONSEQUENCE WOULD BE THAT THE PERSONS WHO MAKE CLAIMS OF THIS NATURE, ACTUATED BY A MALA FID E INTENTION TO EVADE TAX OTHERWISE PAYABLE BY THEM WOULD GET AWAY WITHO UT PAYING THE TAX LEGALLY PAYABLE BY THEM, IF THEIR CASES ARE NOT PIC KED UP FOR SCRUTINY. THIS WOULD TAKE AWAY THE DETERRENT EFFECT, WHICH TH ESE PENALTY PROVISIONS IN THE ACT HAVE. IN THIS DECISION, WE FIND THAT THE HIGH COURT HAS CONSIDERED AND DISTINGUISHED THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO PRODUCTS (SUPRA). 14. LET US ALSO SEE THE CONDUCT OF THE ASSESSEE WHE N THE AO GAVE A REASONABLE OPPORTUNITY TO THE ASSESSEE TO EXPLAIN T HE CASE DURING THE COURSE OF THE PENAL PROCEEDINGS, THE ASSESSEE DID NOT FIND IT FIT TO ATTEND THE PROCEEDINGS AND FILE A DETAILED REPLY. WHEN THE MA TTER WAS TAKEN BEFORE THE LD. CIT(A) AGAINST THE PENALTY ORDER, THE ASSESSEE DID NOT FILE ANY REASONABLE EXPLANATION TO PROVE THAT ITS ACT WAS BONAFIDE. WH EN THE MATTER WAS ARGUED BEFORE THE ITAT IN QUANTUM APPEAL, THE ASSESSEE HAS SIMPLY REITERATED THAT WEAVING CHARGES HAVE BEEN PAID TO A COMPANY WHICH I S UNDER BIFR WITHOUT BRINING ANY TANGIBLE COGENT MATERIAL ON RECORD TO J USTIFY ITS NON DEDUCTION OF TAX ON PAYMENT OF WEAVING CHARGES. ITA NO. 6709/M/2011 7 15. THE COUNSEL FURTHER RELIED UPON THE DECISION OF THE COORDINATE BENCH OF HYDERABAD IN ITA NO.80/H/2011. WE HAVE GONE THROUG H THE SAID ORDER OF THE TRIBUNAL AND FIND THAT IN THAT CASE ASSESSEE HA S DEDUCTED TAX AT SOURCE BUT NOT PAID BEFORE THE DUE DATE AND FURTHER THE AS SESSEE OUGHT TO HAVE DEDUCTED TAX ON PAYMENT OF EQUIPMENT HIRE CHARGES A S PER AMENDED PROVISIONS OF SEC 194I AND NOT 194C .THE PENALTY WAS LEVIED BECAUSE THE ASSESSEE HAS REMITTED THE TDS AFTER THE DUE DATES T HEREFORE THE PAYMENTS WERE DISALLOWED U/S 40A[I][A] . HOWEVER, IN THE PRE SENT CASE THE ASSESSEE HAS NOT EVEN DEDUCTED TAX AT SOURCE AND CLAIMED THE PAY MENTS AS EXPENDITURE IN ITS PROFIT AND LOSS ACCOUNT , THUS FACTS ARE CLEARL Y DISTINGUISHABLE . 16. THE LD. COUNSEL ALSO RELIED UPON THE DECISION O F THE COORDINATE BENCH OF AHMEDABAD IN ITA NO.1041 / AHD / 2010 .WE HAVE CARE FULLY PERUSED THE SAID ORDER AND FIND THAT IN THAT CASE CERTAIN PAYMENTS W ERE MADE TO NON RESIDENTS ON WHICH THERE WAS NO LIABILITY OF DEDUCTING TAX AT SOURCE AND ALSO PAYMENTS MADE AS LEGAL FEES WERE LIABLE FOR TDS FROM AY 2006 -07 WHICH WAS THE FIRST YEAR OF THE LIABILITY AND THEREFORE THE ASSESSEE CO ULD NOT DEDUCT THE TAX , AND PAYMENT OF COMMISSIONS IN EARLIER YEARS THE ASSESSE E CLAIMED THE EXPENDITURES IN THE YEAR OF TDS . THUS IT CAN BE SE EN THAT THE FACTS OF THE PRESENT CASE ARE DISTINGUISHABLE FROM THE FACTS OF ITA 1041 [ SUPRA ]. 17. AFTER CONSIDERING ALL THE FACTS IN TOTALITY, RI GHT FROM THE ASSESSMENT STAGE TO THE APPELLATE STAGE IN QUANTUM APPEAL, WE FIND THAT THE ASSESSEE HAS NOT DISCHARGED ITS ONUS PROPERLY. W E FIND THAT THE ASSESSEE BEFORE US DID NOT EXPLAIN EITHER TO THE INCOME-TAX AUTHORITIES OR TO THE INCOME-TAX APPELLATE TRIBUNAL AS TO IN WHAT CIRCUMSTANCES AND ON ACCOUNT OF WHOSE MISTAKE, THE AMOUNTS CLAIMED AS DEDUCTIONS IN THIS CASE WERE NOT ADDED, WHILE COMPUTING THE INCOME OF THE ASSESSEE. IN THE ABSENCE OF ANY DE TAILS FROM THE ASSESSEE, WE FAIL TO APPRECIATE HOW SUCH DEDUCTIONS COULD HAV E BEEN CLAIMED WHILE COMPUTING THE INCOME OF THE ASSESSEE AND HOW IT COU LD ALSO HAVE ESCAPED THE ATTENTION OF THE AUDITORS OF THE COMPANY. DRAW ING SUPPORT FROM THE ITA NO. 6709/M/2011 8 DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF ZOOM COMMUNICATION (SUPRA), WE HAVE NO HESITATION TO HOLD THAT THE ASS ESSEE HAS FILED INACCURATE PARTICULARS BY CLAIMING EXPENSES WHICH WERE NOT ALL OWABLE BY VIRTUE OF SEC. 40(A)(IA) OF THE ACT. THE ASSESSEE HAS ALSO FAILED IN GIVING ANY REASONABLE EXPLANATION TO SUBSTANTIATE ITS CLAIM . WE THEREFOR E DIRECT THE AO TO RESTRICT THE PENALTY ON DISALLOWANCES MADE IN RESPECT OF WEA VING CHARGES. THIS IS SUBJECT TO THE OUTCOME OF THE MATTER RESTORED BY IT AT BACK TO THE FILES OF AO IN ITA NO. 3487 (SUPRA). 18. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 10 TH DAY OF OCTOBER, 2012 SD/- SD/- (D. MANMOHAN) (N.K. BILLAIYA ) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DATED 10 TH OCTOBER, 2012 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR D BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI