MITSUBA SYSTEMS (INDIA) P.LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 672/MUM/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 78921 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 24-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: N M KAPADIA
• Keywords: Business expenditure; Reasonable cause; Wrong claim; Commercial expediency
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI . . , , BEFORE SHRI I. P. BANSAL, JM AND SHRI SANJAY ARORA , AM ./ I.T.A. NO. 672/MUM/2013 ( / ASSESSMENT YEAR: 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. 34H, LAXMI INDUSTRIAL ESTATE, NEW LINK ROAD, ANDHERI (W), MUMBAI-400 058 / VS. DY. CIT 8(2), AAYKAR BHAVAN, M. K. ROAD, MUMBAI-400 020 ./ ./PAN/GIR NO. AACCM 7047 G ( /APPELLANT ) : ( !' / RESPONDENT ) # $ / APPELLANT BY : SHRI N. M. KAPADIA !' # $ / RESPONDENT BY : SHRI ARVIND KUMAR % &'( # )* / DATE OF HEARING : 15.04.2014 +,- # )* / DATE OF PRONOUNCEMENT : 30.05.2014 . / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-17, MUMBAI (CIT(A) FOR SH ORT) DATED 14.11.2012, CONFIRMING THE LEVY OF PENALTY U/S. 271(1)(C) OF THE INCOME TA X ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2009-10 VIDE ORDER DATED 05.01.2012. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE MAINTAINABILITY IN LAW OF THE LEVY OF PENALTY U/S.271(1)(C) IN THE FACTS AND CIRCUMSTA NCES OF THE CASE. 2 ITA NO. 672/MUM/2013 (A.Y. 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. VS. DY. CIT 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E, A COMPANY IN THE BUSINESS OF MANUFACTURING AND SUPPLY OF AUTOMATIC POWDER COATIN G SYSTEMS, WAS DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED TO HAVE CLAIMED INT EREST LEVIED AND PAID U/SS.234A, 234B AND 234C, AT RS.10,51,834/- IN AGGREGATE, AS F INANCIAL EXPENSE PER ITS RETURN OF INCOME (ROI) FOR THE YEAR. THE ASSESSEE, ON BEING C ALLED UPON TO JUSTIFY THE SAID CLAIM, AGREED TO THE DISALLOWANCE. IN THE PENALTY PROCEEDI NGS, INITIATED AT THE CONCLUSION OF THE ASSESSMENT ON 26.09.2011, THE ASSESSEES EXPLANATIO N WAS OF IGNORANCE IN-AS-MUCH AS THE ASSESSEE WAS MANAGED BY TECHNOCRATS WHICH HAD ASSIG NED THIS WORK TO A FIRM OF CHARTERED ACCOUNTANTS. IN FACT, THEY HAD COMMITTED AN ERROR BY NOT REFLECTING THE SAID SUM IN FORM 3CD IN REPLY TO Q. NO. 17(F), SEEKING D ISCLOSURE OF THE AMOUNT DISALLOWABLE U/S.40(A), RESULTING IN A CONSEQUENTIAL ERROR IN TH E ROI. THE SAME WAS FOUND NOT SATISFACTORY IN-AS-MUCH AS THE FIRM OF CAS WAS A R EPUTED FIRM, SO THAT THE CLAIM COULD NOT BE CONSIDERED TO BE A RESULT OF A BONA FIDE MISTAKE. PENALTY WAS LEVIED RELYING ON THE DECISIONS IN THE CASE OF UNION OF INDIA V. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC) AND CIT VS. ZOOM COMMUNICATION (P.) LTD. [2010] 327 ITR 510 (DEL.), AND CONFIRMED IN APPEAL FOR THE SAME REASON, DISTINGUIS HING THE DECISION BY THE APEX COURT IN THE CASE OF PRICE WATERHOUSE COOPERS (P.) LTD. VS. CIT [2012] 348 ITR 306 (SC). AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4. BEFORE US, WHILE THE LD. AUTHORIZED REPRESENTATI VE (AR) WOULD REITERATE THE ASSESSEES CASE, I.E., AS BEFORE THE AUTHORITIES BE LOW, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD RELY ON THEIR ORDERS. 5. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 5.1 WE MAY FIRSTLY EXAMINE THE ASSESSEES CASE FROM THE STAND POINT OF ITS EXPLANATION. THIS IS AS THE PROPOSITION THAT A PLAUSIBLE EXPLANA TION SAVES PENALTY IS TRITE LAW. THE SAME, HOWEVER, WOULD REQUIRE BEING SUBSTANTIATED AND, BES IDES, COUPLED WITH A CASE OF IT BEING BONA FIDE . TOWARD THIS, THE LD. AR, ADDUCING A COPY OF THE A SSESSEES AUDITED ACCOUNTS FOR THE RELEVANT YEAR, WOULD ADVERT TO THE ANSWER TO TH E SPECIFIC QUESTION # 17 (VIDE CLAUSE (F)) OF THE TAX AUDIT REPORT (IN FORM 3 CD), WHICH STATES THE DISALLOWANCE U/S. 40(A) AS 3 ITA NO. 672/MUM/2013 (A.Y. 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. VS. DY. CIT NIL. THE ERROR HAD THUS OCCURRED AT THE END OF TH E COMPANYS AUDITOR, WHICH FOUND MANIFESTATION IN THE ROI. THE SAID ARGUMENT, ALSO ADOPTED BEFORE THE REVENUE, FAILS ON SCRUTINY. THIS IS AS SECTION 40(A)(II) SPEAKS OF NO N-DEDUCTIBILITY OF RATES AND TAXES ON OR BASED ON PROFITS AND GAINS OF BUSINESS OR PROFESSIO N. THERE HAS THUS OCCURRED NO MISTAKE IN THE AUDIT REPORT AND, ACCORDINGLY, BY THE AUDITO RS, WHO ARE INDEPENDENT PROFESSIONALS, IN THE CONDUCT OF AUDIT AND REPORTING ON ITS BASIS. FURTHER, RELIANCE STOOD ALSO PLACED BEFORE US ON TH E GUIDANCE NOTE TO THE REVISED SCHEDULE VI TO THE COMPANIES ACT, 1956, WHICH ADVOC ATES CLASSIFICATION OF THE INTEREST EXPENSE ON THE SHORT FALL IN THE PAYMENT OF THE ADV ANCE INCOME TAX AS A FINANCIAL COST. WE FIND IT AS OF NO MOMENT. THIS IS AS FIRSTLY IT IS A NEW EXPLANATION, NOT BEFORE THE AUTHORITIES BELOW AND, THUS, NOT CONSIDERED BY THEM . THE SAME IS THUS NOT ADMISSIBLE. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISI ON BY THE APEX COURT IN MAK DATA (P.) LTD. VS. CIT [2013] 358 ITR 593 (SC). SECONDLY, THE SAME IS EVEN OTHERWISE DEFEATIVE OF THE ASSESSEES CASE IN-AS-MUCH AS IT ONLY SHOWS THA T THE REFLECTION OF THE INTEREST PAID U/SS. 234A, 234B AND 234C AS AN INTEREST EXPENSE OF THE B USINESS WAS A DELIBERATE, WELL CONSIDERED ACTION. AT THIS STAGE, IT MAY BE RELEVAN T TO CLARIFY THAT IT IS THE COMPANY WHICH IS BY LAW OBLIGED TO PREPARE ITS ACCOUNTS AND, FURT HER, FOR THE PREPARATION AND PRESENTATION OF ITS FINAL ACCOUNTS. THE TASK OF THE AUDITOR IS O NLY TO AUDIT THE SAME, SEEKING EXPLANATIONS AND EVIDENCES, AND REPORT HIS FINDINGS IN THE FORM OF AN AUDIT REPORT, DULY DEFINED BY LAW, BOTH UNDER THE COMPANIES ACT AND TH E ACT. IN FACT, THE SEPARATE DISCLOSURE OF SUCH INTEREST COST, AS ENJOINED BY TH E SAID GUIDANCE NOTE, WOULD IMPACT THE WORKING OF THE BOOK PROFIT U/S.115JB, TOWARD WHIC H NO ADJUSTMENT HAS BEEN MADE IN ASSESSMENT. 5.2 CONTINUING FURTHER, THE ERROR HAS IN FACT OCCUR RED FOR AND ON BEHALF OF THE ASSESSEE- COMPANY IN PREPARING THE RETURN, AND TOWARD WHICH T HE LAW DOES NOT AUTHORIZE ASSIGNMENT TO ANY INDEPENDENT PROFESSIONALS, AS AN AUDITOR IN THE CASE OF FINANCIAL STATEMENTS, WHO WOULD THUS ALSO APPROPRIATE UPON HI MSELF ANY PENAL ACTION ARISING OUT OF MISREPORTING. THE DISALLOWANCE OF THE IMPUGNED INTE REST IS NOT U/S. 40(A), AS BEING 4 ITA NO. 672/MUM/2013 (A.Y. 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. VS. DY. CIT CONTENDED, BUT U/S.36(1)(III) IN-AS-MUCH AS THE SAM E IS NOT INCURRED FOR ANY BUSINESS PURPOSE. THE TAX UNDER THE ACT AS WELL AS THE INTER EST ON THE SHORT FALL IN ITS PAYMENT IS PAID BY THE ASSESSEE NOT IN HIS CAPACITY AS A TRADE R, BUT AS A TAXABLE ENTITY UNDER THE ACT, LEVYING TAX ON INCOME OR PROFITS FROM ANY ACTIVITY, INCLUDING FROM BUSINESS OR PROFESSION. THE SAME, THUS, DOES NOT QUALIFY TO BE AN OUTGOING OF THE BUSINESS, WHICH HAS TO BE ADJUDGED IN THE LIGHT OF THE ACCEPTED COMMERCIAL PR ACTICES AND TRADING PRINCIPLES. THE SAME CANNOT BY ANY STRETCH OF IMAGINATION BE CONSID ERED AS INCIDENTAL TO TRADE OR JUSTIFIED BY COMMERCIAL EXPEDIENCY. THE MATTER IS IN FACT NO LONGER RES INTEGRA , AND TOWARD WHICH WE MAY REFER TO THE DECISIONS IN THE CASE OF BHARAT COMMERCE AND INDUSTRIES LTD VS. CIT [1998] 230 ITR 733 (SC), RENDERED FOLLOWING INTER ALIA PADMAVATI JAIKRISHNA (SMT.) VS. ADDL. CIT [1987] 166 ITR 176 (SC). 5.3 WE, NEXT, CONSIDER THE ASSESSEES CASE FROM THE STAND POINT THAT THERE HAS, IN MAKING THE IMPUGNED CLAIM OF INTEREST U/SS. 234A, 2 34B AND 234C OF THE ACT, OCCURRED A MISTAKE, ALBEIT BONA FIDE , SO THAT THE SAME WOULD NOT ATTRACT PENALTY U/S.27 1(1)(C). TOWARD THIS, WE FIRSTLY OBSERVE THAT A MISTAKE IS ITSELF AN ADMISSION OF A WRONG CLAIM AND, THUS, OF AN INABILITY TO EXPLAIN THE SAME, SO THAT THERE IS BY DEFINITION CONCEALMENT AND/OR FURNISHING INACCURATE PARTICULARS OF INCOME. THE SAME THUS WOULD NOT STAND TO BE EXCLUDED UNDER EXPLANATION 1(B), IF NOT, ALSO UNDER EXPLANATION 1(A). HOWEVER, IT NEEDS TO BE REALIZED THAT THE SAID EXPLANATIONS, INTER ALIA , ONLY ENUNCIATE RULES OF EVIDENCE. THERE IS, THUS, NO QUESTION OF BEING ABLE TO MEET O R SATISFY THE SAID RULES WHERE THERE HAS INDEED OCCURRED A HONEST OR A BONA FIDE MISTAKE. IN FACT, THE WORDS HONEST AND BONA FIDE ARE SUPERFLUOUS IN-AS-MUCH AS THESE ATTRIBUTES AR E IMPLICIT IN THE VERY NOTION OF A MISTAKE A CONJUNCTION OF THE WORDS MIS AND T AKE. COULD, ONE MAY ASK, A MISTAKE BE DELIBERATE, AND YET QUALIFY TO BE A MISTAKE? T HE SAME WOULD NO LONGER ENTITLE IT TO BE SO DESCRIBED. IT IS FOR THIS REASON THAT THE HONBL E COURTS OF LAW, AS ALSO THE TRIBUNAL HAVE, WHERE CONVINCED THAT A MISTAKE HAS OCCURRED, DISQUA LIFYING THE ASSESSEES CASE UNDER EXPLANATION 1(B), DEEMING CONCEALMENT OR FURNISHING INACCURATE PARTICULARS OF INCOME, YET RULED AGAINST THE LEVY OF PENALTY U/S.271(1)(C) , WHICH PENALIZES THE SAME. THIS IS PART 5 ITA NO. 672/MUM/2013 (A.Y. 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. VS. DY. CIT OF SETTLED LAW, HAVING RECENTLY FOUND ENDORSEMENT B Y THE APEX COURT IN PRICE WATERHOUSE COOPERS (P.) LTD. (SUPRA), WITH IN FACT THE ASSESSEE ALSO RELYING ON DECISIONS BY THE HONBLE HIGH COURTS TOWARD THE SAME, VIZ. PANDIT GOVIND PRASAD MISHRA VS. CIT 1999] 238 ITR 338 (ALLAHABAD); CIT VS SIDHARTHA ENTERPRISES [2010] 322 ITR 80 (P & H). THIS CAN BE THUS SAID TO BE A JUDICIAL RESPONSE TO THE PROPOSITION THAT REASONABLE CAUSE SAVES PENALTY, WHICH PROVISION, MANDATED BY LAW (SECTION 273B) EXCLUDES PENALTY U/S.271(1)(C). THE BASIS OF THE SAID DECISIONS IS T HAT A MISTAKE CANNOT BE SAID TO BE DELIBERATE, WHICH IS A SINE QUA NON OF PENALTY; THE ASSESSEE THEREBY SEEKING TO EVADE TAX. HOWEVER, WE MAY HASTEN TO ADD THAT THE LINE OF DIST INCTION BETWEEN GROSS NEGLIGENCE OR AN UNFOUNDED STATEMENT ON ONE HAND, AND MISTAKE ON THE OTHER, IS VERY THIN, WITH THE LAW, PER THE RULES OF EVIDENCE, DEEMING CONCEALMENT AND/OR FURNISHING OF INACCURATE PARTICULARS OF INCOME IN THE FORMER CASE, IMPLYING DELIBERATENESS. IT NEEDS TO BE BORNE IN MIND, AS EXPLAINED BY THE HONBLE COURT IN ZOOM COMMUNICATION (P.) LTD. (SUPRA), THAT BUT FOR THE ASSESSEES CASE BEING SELECTED FOR SCRU TINY, THE DEFAULT WOULD NOT BE DETECTED AND, FURTHER, THAT ONLY A MEAGER FRACTION OF THE RE TURNS ARE SELECTED FOR BEING SUBJECT TO THE VERIFICATION PROCEDURE. AS SUCH, IT IS ONLY WHERE T HE ADJUDICATING AUTHORITY IS, ON A CONSPECTUS OF THE FACTS AND CIRCUMSTANCES OF THE CA SE, INCLUDING CONDUCT, CONVINCED AS TO THE ASSESSEES BONA FIDES , THAT AN INFERENCE OF A MISTAKE IS DRAWN. EXAMINING THE FACTS OF THE CASE IN THIS RESPECT, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEES ACTION IN CLAIMING THE IMPUGNED INTE REST CANNOT BE SAID TO BE A MISTAKE. THE SAID INTEREST STOOD PAID UNDER THE PROVISIONS O F THE INCOME-TAX, I.E., A STATUTE PROVIDING FOR LEVY OF TAX ON INCOME, ON DEFAULT IN COMPLYING WITH ITS PROVISION, SO THAT IT WOULD, FROM THE BUSINESS STAND POINT, ASSUME THE SA ME CHARACTER AS THAT OF TAX UNDER THE ACT. THE ASSESSEE IS WELL CONSCIOUS THEREOF, BUT YE T CHOOSES TO REPRESENT IT AS A BUSINESS EXPENDITURE FOR THE YEAR IN ITS ACCOUNTS. WHAT, ONE MAY ASK, IS THE BUSINESS PURPOSE OF THE EXPENDITURE ? THE SAME IS CLEARLY A MISREPRESENTATION. A SEPARA TE DISCLOSURE WOULD IN ANY CASE BE NECESSITATED, WHICH WOULD BE SO ALSO FOR TH E REASON THAT THE INTEREST WOULD RELATE, IF ONLY IN PART, TO A PRECEDING YEAR, ASSESSMENT FO R WHICH WOULD HAVE BEEN FINALIZED DURING THE CURRENT YEAR; INTEREST BEING COMPENSATOR Y AND, AS SUCH, RELATING TO THE PERIOD OF 6 ITA NO. 672/MUM/2013 (A.Y. 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. VS. DY. CIT THE DEFAULT. AGAIN, EVEN SO, THE COMPANYS AUDITORS AND ITS TAX COUNSEL IS THE SAME AND, THUS, AWARE OF THE BOOKING OF THE IMPUGNED INTEREST AS A FINANCE COST FOR THE YEAR. AS SUCH, THE CLAIM THAT IT IS THE BOOKING OF THE SAID INTEREST IN ACCOUNTS THAT LED TO THE WRONG CLAIM IN THE RETURN, IS NOT CORRECT. FURTHER ON, TH E ASSESSEES STAND IN RESPECT OF ITS DISALLOWANCE U/S.14A WAS THAT NO EXPENDITURE, INCLU DING ON INTEREST, STANDS INCURRED. HOW COULD THAT BE ? IF THE INTEREST GETS INCLUDED AS AN ORGANIZATIONA L EXPENSE BY MISTAKE, THE SAME WOULD ALSO LIKEWISE STAND TO BE INCLUDED IN WORKING THE DISALLOWANCE U/S.14A. WE ALSO DO NOT FIND ANY JUSTIFICATION BY T HE ASSESSEE FOR THE EXCLUSION OF INTEREST ON THE GROUND THAT THE SAME DOES NOT FINANCE, EITHE R IN WHOLE OR IN PART, THE INVESTMENTS YIELDING INCOME NOT FORMING PART OF THE TOTAL INCOM E. WE ARE, ACCORDINGLY, UNABLE TO AGREE WITH THE ASSESSEES PLEA OF A MISTAKE, THE ON US TO ESTABLISH WHICH, FORMING ONLY A PART OF ITS EXPLANATION, IS ONLY ON THE ASSESSEE. I N FACT, BY ITS VERY NATURE, AN INFERENCE AS TO IT SHOULD ORDINARILY FLOW FROM AND AGREE WITH TH E FACTS AND CIRCUMSTANCES OF THE CASE. AS SUCH, THOUGH WE ARE IN AGREEMENT WITH THE ASSESS EES PLEADING IN PRINCIPLE, FIND IT INAPPLICABLE IN THE FACTS OF THE CASE. WE, ACCORDIN GLY, CONFIRM THE LEVY OF PENALTY IN RESPECT OF THE IMPUGNED CLAIM. WE DECIDE ACCORDINGL Y. 6. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. /-)0 &12/) # / # ) 34 ORDER PRONOUNCED IN THE OPEN COURT ON MAY 30, 2014 SD/- SD/- (I. P. BANSAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER % ( MUMBAI; 5& DATED : 30.05.2014 '.&../ ROSHANI , SR. PS FIT FOR PUBLICATION IN ITD SD/- SD/- (JM) (AM) 7 ITA NO. 672/MUM/2013 (A.Y. 2009-10) MITSUBA SYSTEMS (INDIA) PVT. LTD. VS. DY. CIT ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. !' / THE RESPONDENT 3. % 6) ( ) / THE CIT(A) 4. % 6) / CIT - CONCERNED 5. 9':; !)&<1 , * <1- , % ( / DR, ITAT, MUMBAI 6. ;=2 >( / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , % ( / ITAT, MUMBAI