DCIT, Mohali V. M/s Punjab Tool Room, Mohali

ITA 673/CHANDI/2011

• Counselvise Citation: 67321514 RSA 2011
• Duration Of Justice: 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-03-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 10-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: JASPAL SHARMA
• Keywords: Date of conversion; Wrong claim
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NOS.672 & 673 /CHD/2011 (ASSESSMENT YEAR: 2004-05 & 2005-06) THE D.C.I.T., VS. M/S PUNJAB TOOL ROOM, CIRCLE-6(1), D-30, INDUSTRIAL AREA, PHASE-1, MOHALI. MOHALI. PAN: AAHFP0982B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI N.K.SAINI, DR RESPONDENT BY : SHRI JASPAL SHARMA DATE OF HEARING : 22.03.2012 DATE OF PRONOUNCEMENT : 28.03.2012 O R D E R PER SUSHMA CHOWLA, J.M, : THESE TWO APPEALS FILED BY THE ASSESSEE ARE AGAINST THE CONSOLIDATED ORDER OF THE COMMISSIONER OF INCOME-TA X (APPEALS), CHANDIGARH DATED 25.03.2011 RELATING TO ASSESSMENT YEARS 2004-05 AND 2005-06 AGAINST THE PENALTY LEVIED U/S 271(1)(C) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. COMMON GROUNDS OF APPEAL HAVE BEEN RAISED BY THE REVENUE WHICH READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE PENALTY IMPOSED U/S 271(1)(C) ON ACCOUNT OF FURNISHING INACCURATE PARTICULARS OF INCOME BY 2 CLAIMING SET OFF OF BUSINESS LOSSES OF PROPRIETARY BUSINESS WITH THE PROFITS OF THE PARTNERSHIP CONCERN. 3. BOTH THE APPEALS RELATING TO THE SAME ASSESSEES WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORD ER FOR THE SAKE OF CONVENIENCE. HOWEVER, REFERENCE IS BEING MADE TO T HE FACTS IN ITA NO.672/CHD/2011 FOR ADJUDICATING THE ISSUE RAISED I N BOTH THE APPEALS. 4. THE ISSUE RAISED IN THE PRESENT ALLOWED IS AGAIN ST THE DELETION OF PENALTY IMPOSED U/S 271(1)(C) OF THE ACT. 5. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS PARTNERSHIP CONCERN WHICH CAME INTO EXISTENCE ON 11.3.2004. TH E ASSESSEE FIRM DURING THE YEAR UNDER CONSIDERATION HAD DECLARED TH E LOSS OF RS.9,45,165/- AFTER SETTING OFF BROUGHT FORWARD LOS SES OF RS.9,47,868/- PERTAINING TO PROPRIETARY CONCERN UPTO 10.3.2004. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DID NOT SET OFF OF THE AFORESAID BROUGHT FORWARD LOSSES PERTAINING TO THE PROPRIETARY CONCER N. IN THE PENALTY PROCEEDINGS INITIATED U/S 271(1)(C) OF THE ACT, THE REPLY OF THE ASSESSEE WAS THAT THE MAIN REASON FOR WRONG CLAIM WAS ATTRIB UTED TO IGNORANCE OF INCOME TAX LAW AND NEGLIGENCE ON THE PART OF THE CO UNSEL. THE ASSESSING OFFICER REJECTING THE PLEA OF THE ASSESSE E HELD IT TO HAVE FURNISHED INACCURATE PARTICULARS OF INCOME TO THE T UNE OF RS.9,47,868/- AND LEVIED PENALTY OF RS.3,40,046/- U/S 271(1)(C) O F THE ACT. 6. THE CIT (APPEALS) NOTED THAT IN THE NOTES ON ACC OUNTS THE AUDITOR IN THE AUDIT REPORT HAD CLARIFIED THAT AS THE NEW F IRM HAD TAKEN OVER THE BUSINESS ALONGWITH ALL ASSETS AND LIABILITIES OF TH E SAID PROPRIETARY CONCERN, THE LOSS INCURRED IN THE PROPRIETARY CONCE RN UPTO 10.3.2004 WERE BEING TAKEN OVER BY THE PARTNERSHIP FIRM AND B EING CARRIED FORWARD IN THE INCOME-TAX RETURN OF THE PARTNERSHIP FIRM. FURTHER DURING THE 3 ASSESSMENT PROCEEDINGS THE AUTHORIZED CHARTERED ACC OUNTANT FURNISHED REPLY DATED 11.12.2007 AND ALSO REITERATED THAT THE RE WAS NO CHANGE IN THE WORKING AT PUNJAB TOOL ROOM BY ADDITION OF THE PARTNER. THE LOSSES HAD TO BE CARRIED FORWARD AND ADJUSTED. THE CIT (A PPEALS) IN VIEW OF THE ABOVESAID FACTS AND CIRCUMSTANCES, ADVICE OF TH E LEARNED COUNSEL FOR THE ASSESSEE AND ALSO WRITTEN SUBMISSION FURNISHED IN THE APPELLATE PROCEEDINGS OBSERVED THAT IN MY VIEW, THIS IS A VERY CLEAR CASE WHERE THE APPELLANT GUIDED BY 3 COUNSELS WAS IN FACT MISGUIDE D BY ALL THE THREE. EACH ONE OF THEM VEHEMENTLY ARGUING FOR AN ISSUE WH ICH IS TOTALLY CONTRADICTORY TO THE PROVISIONS OF THE ACT, AN ISSU E WHICH IS NOT EVEN DEBATABLE, AN ISSUE WHICH NEVER HAD ANY AMBIGUITY W HATSOEVER . THE CIT (APPEALS) THUS HELD THAT THE ASSESSEE COULD NOT BE PENALIZED WHERE THE MISTAKE/OMISSION TO DECLARE CORRECT INCOME OF THE A SSESSEE HAD BEEN COMMITTED BY THE COUNSEL OF THE ASSESSEE. RELIANCE WAS PLACED ON THE SERIES OF DECISIONS IN THIS REGARD AND PENALTY LEVI ED U/S 271(1)(C) OF THE ACT WAS DELETED. 7. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THA T THE ASSESSEE HAD MADE A WRONG CLAIM IN VIEW OF THE PROVISIONS OF SEC TION 72 OF THE ACT. THE AFORESAID ADJUSTMENT OF BROUGHT FORWARD LOSSES OF THE PROPRIETARY CONCERN WAS NOT ALLOWED IN THE HANDS OF THE PARTNER SHIP FIRM AND SUCH A CLAIM TANTAMOUNTS TO FURNISHING OF INACCURATE PARTI CULARS OF INCOME MAKING THE ASSESSEE LIABLE TO LEVY OF PENALTY U/S 2 71(1)(C) OF THE ACT. 8. THE LEARNED A.R. FOR THE ASSESSEE PLACED RELIANC E ON THE ORDER OF THE CIT (APPEALS). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE FIRM WAS CONSTITUTED ON 11.3.2004. THE BU SINESS WAS BEING CARRIED ON IN PARTNERSHIP UPTO 10.3.2004 AND THEREA FTER THE SAID BUSINESS 4 WAS TAKEN OVER BY NEWLY CONSTITUTED FIRM ALONGWITH ALL THE ASSETS AND LIABILITIES W.E.F.11.3.2004. THE ASSESSEE WHILE FI LING THE RETURN OF INCOME HAD ADJUSTED THE BROUGHT FORWARD LOSSES OF T HE PROPRIETARY CONCERN AGAINST THE INCOME OF THE PARTNERSHIP CONCE RN FOR THE CAPTIONED ASSESSMENT YEARS. THE ASSESSING OFFICER FOUND THE ABOVE SAID CLAIM OF THE ASSESSEE IN ADJUSTING THE BROUGHT FORWARD LOSSE S OF PROPRIETARY CONCERN AGAINST PROFITS OF PARTNERSHIP FIRM AS NOT ALLOWABLE UNDER THE PROVISIONS OF ACT AND HENCE THE SAME WAS DISMISSED. THE ISSUE ARISING IN THE PRESENT APPEAL IS UNDER THE AFORESAID FACTS AND CIRCUMSTANCES WHETHER BY MAKING THE AFORESAID CLAIM OF ADJUSTMENT OF LOSSES OF PROPRIETARY CONCERN WITH THE PROFITS OF NEWLY FORME D PARTNERSHIP CONCERN CAN BE SAID TO MAKE THE ASSESSEE EXIGIBLE TO LEVY O F PENALTY U/S 271(1)(C) OF THE ACT FOR FURNISHING INACCURATE PARTICULARS OF INCOME. 10. IN ORDER TO ADJUDICATE THE ISSUE CERTAIN FACTS NEED TO BE CONSIDERED I.E. ACCOUNTS OF THE ASSESSEE IN THE YEAR UNDER CON SIDERATION WERE AUDITED AND THE AUDITOR IN ITS NOTES ON ACCOUNT ANNEXED WIT H THE AUDIT REPORT HAD STATED THAT THE NEW FIRM TOOK OVER THE BUSINESS ALONG WITH ALL ASSETS & LIABILITIES OF THE SAID PROPRIETARY CONCERN. THE LOSSES INCURRED IN THE PROPRIETARY UPTO THE DATE OF CONVERSION (10.3.04) A RE BEING TAKEN OVER BY THE PARTNERSHIP FIRM AND ARE BEING CARRIED FORWARD IN THE INCOME TAX RETURN OF THE SAID PARTNERSHIP FIRM. IN MY VIEW, T HIS MAKES IT AMPLY CLEAR THAT THERE WAS A PROBLEM WITH THE UNDERSTAND ING OF THE ISSUE VIS-- VIS PROVISIONS OF THE INCOME TAX ACT, 1961 ON THE P ART OF THE C.A. AUDITING THE ACCOUNTS AND REPRESENTING THE APPELLAN T. THE SAID AUDIT REPORT WAS GIVEN BY SHRI PARDEEP SAINI OF M/S PARDE EP SAINI & ASSOCIATES. DURING THE ASSESSMENT PROCEEDINGS THE A SSESSEE WAS REPRESENTED BY CHARTERED ACCOUNTANT SHRI PANKAJ GU PTA AND IN THE REPLY DATED 11.12.2007 REPRODUCED UNDER PARA 6 AT PAGE 9 OF THE APPELLATE 5 ORDER AFTER NARRATING THE FACTS OF THE CASE I.E. TH E TAKE OVER OF BUSINESS OF THE PROPRIETARY CONCERN BY THE PARTNERSHIP CONCE RN, IT WAS POINTED OUT THAT IN VIEW OF ABOVE FACTS, IT IS CLEAR THAT THERE IS N O CHANGE IN THE WORKING OF M/S PUNJAB TOOL ROOM AS WAS TILL 10.03.2 004 AND AS OF NOW, EXCEPT AN ADDITION OF SH.PARBODH KUMAR AGNIHOTRI . THE CONTENTION OF THE CHARTERED ACCOUNTANT WAS THAT THE LOSS MAY BE A LLOWED TO BE CARRIED FORWARD IN THE HANDS OF THE FIRM. FURTHER DURING T HE APPELLATE PROCEEDINGS THE ASSESSEE WAS REPRESENTED BY A THIRD COUNSEL SHRI M.P.AGGARWAL, ADVOCATE AND REPLY DURING THE APPELLA TE PROCEEDINGS IS REPRODUCED UNDER PARA 9 AT PAGE 11 OF THE APPELLATE ORDER IN WHICH THE ABOVE SAID STAND WAS REITERATED. THE ASSESSEE WAS AN ENGINEERING GRADUATE AND HAD ENGAGED THE SERVICES OF PROFESSION ALS IN RESPECT OF ITS INCOME-TAX MATTERS AND EACH OF THE THREE DIFFERENT PROFESSIONALS HAD ADVISED THAT THE ASSESSEE WAS ENTITLED TO THE BENEF IT OF SET OFF OF BROUGHT FORWARD LOSSES OF PROPRIETARY CONCERN AGAINST THE P ROFITS OF THE PARTNERSHIP CONCERN. IN THE AFORESAID FACTS AND CI RCUMSTANCES, THE DETAILS FURNISHED IN THE RETURN OF INCOME BY THE AS SESSEE COULD NOT BE CALLED INACCURATE AS IT WAS ACTING IN COMPLIANCE TO THE DIRECTIONS OF HIS COUNSEL. THE SAID CLAIM MADE BY THE ASSESSEE WAS I N A BONAFIDE MANNER ON THE BASIS OF THE ADVICE GIVEN BY HIS COUNSEL AND DENIAL OF DEDUCTION IN SAID CIRCUMSTANCES COULD NOT MAKE THE ASSESSEE E XIGIBLE TO PENALTY U/S 271(1)(C) OF THE ACT HOLDING THE ASSESSEE TO HAVE F URNISHED INACCURATE PARTICULARS OF INCOME. WE FIND SUPPORT FROM THE RA TIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. S.D. RICE MILLS [275 ITR 206 (P&H)] AND CIT VS. DEE P TOOLS PVT. LTD. [274 ITR 603 (P&H)]. 6 11. FURTHER THE CASE MADE OUT BY THE REVENUE WAS TH AT THE ASSESSEE HAD MADE A WRONG CLAIM. WE FIND THAT THE HON'BLE SUPRE ME COURT IN CIT VS. RELIANCE PETROPRODUCTS PVT. LTD. [322 ITR 158 (SC)] HAD HELD THAT A MERE MAKING OF A CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY ITSELF, WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN C ANNOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS . THE HON'BLE APEX COURT HELD AS UNDER: 9. WE ARE NOT CONCERNED IN THE PRESENT CASE WITH TH E MENS REA. HOWEVER, WE HAVE TO ONLY SEE AS TO WHETHER IN THIS CASE, AS A MATTER OF FACT, THE ASSESSEE HAS GIVEN INACCURATE PARTICULARS. IN WEBSTERS DICTIONARY, TH E WORD 'INACCURATE' HAS BEEN DEFINED AS : 'NOT ACCURATE, NOT EXACT OR CORRECT; NOT ACCORDING TO TRUTH; ERRONEOUS; AS AN INACCURATE STATEMENT, COPY OR TRANSCRIPT.' WE HAVE ALREADY SEEN THE MEANING OF THE WORD 'PARTICULARS' IN THE EARLIER PART OF THIS JUDGMENT. READING THE WORDS IN CONJUNCTION, THEY MUST MEAN THE DETAIL S SUPPLIED IN THE RETURN, WHICH ARE NOT ACCURATE, NOT EXACT OR CORRECT, NOT ACCORDING TO TRUTH OR ERRONEOUS. WE MUST HASTEN TO ADD HERE THAT IN THIS CASE, THERE IS NO F INDING THAT ANY DETAILS SUPPLIED BY THE ASSESSEE IN ITS RE TURN WERE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. S UCH NOT BEING THE CASE, THERE WOULD BE NO QUESTION OF INVIT ING THE PENALTY UNDER SECTION 271(1)(C) OF THE ACT. A MERE MAKING OF THE CLAIM, WHICH IS NOT SUSTAINABLE IN LAW, BY I TSELF, WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH CLAIM MADE IN THE RETURN CANNOT AMOUNT TO THE INACCURATE PARTICULARS. 10. IT WAS TRIED TO BE SUGGESTED THAT SECTION 14A OF T HE ACT SPECIFICALLY EXCLUDED THE DEDUCTIONS IN RESPECT OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IT WAS FURTHER POINTED OUT THAT THE DIVIDENDS FROM THE SHARES DID NOT FORM THE PART OF THE TOTAL INCOME. I T WAS, THEREFORE, REITERATED BEFORE US THAT THE ASSESSING OFFICER HAD CORRECTLY REACHED THE CONCLUSION THAT SINCE THE ASSESSEE HAD CLAIMED EXCESSIVE DEDUCTIONS KNOWING T HAT THEY ARE INCORRECT; IT AMOUNTED TO CONCEALMENT OF I NCOME. IT WAS TRIED TO BE ARGUED THAT THE FALSEHOOD IN ACC OUNTS CAN TAKE EITHER OF THE TWO FORMS; (I) AN ITEM OF RE CEIPT MAY BE SUPPRESSED FRAUDULENTLY; (II) AN ITEM OF EXPENDI TURE MAY BE FALSELY (OR IN AN EXAGGERATED AMOUNT) CLAIME D, AND BOTH TYPES ATTEMPT TO REDUCE THE TAXABLE INCOME AND , 7 THEREFORE, BOTH TYPES AMOUNT TO CONCEALMENT OF PART ICULARS OF ONES INCOME AS WELL AS FURNISHING OF INACCURATE PARTICULARS OF INCOME. WE DO NOT AGREE, AS THE ASSE SSEE HAD FURNISHED ALL THE DETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WHICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COULD BE VIEWED AS T HE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NO T. MERELY BECAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, W HICH CLAIM WAS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECTION 271(1)(C). IF WE ACCEPT T HE CONTENTION OF THE REVENUE THEN IN CASE OF EVERY RET URN WHERE THE CLAIM MADE IS NOT ACCEPTED BY ASSESSING O FFICER FOR ANY REASON, THE ASSESSEE WILL INVITE PENALTY UN DER SECTION 271(1)(C). THAT IS CLEARLY NOT THE INTENDME NT OF THE LEGISLATURE. 12. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. SHAHABAD CO-OP. SUGAR MILLS LTD.[322 ITR 73(P & H)]. HAVE HE LD MAKING OF WRONG CLAIM IS NOT AT PAR WITH CONCEALMENT OR GIVIN G OF INACCURATE INFORMATION, WHICH MAY CALL FOR LEVY OF PENALTY UND ER SECTION 271(1)(C) OF THE ACT. 13. FOLLOWING THE AFORESAID PRINCIPLES LAID DOWN BY THE HON'BLE SUPREME COURT IN CIT VS. RELIANCE PETROPRODUCTS PVT . LTD. (SUPRA) AND THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT VS. SHAHABAD CO-OP. SUGAR MILLS LTD. (SUPRA) AND IN THE FACTS OF THE PR ESENT CASE, WE HOLD THAT THE ASSESSEE CANNOT BE HELD TO HAVE FURNISHED INACCURATE PARTICULARS OF INCOME, MAKING IT EXIGIBLE TO LEVY OF PENALTY U/ S 271(1)(C) OF THE ACT. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO DEL ETE THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 14. THE FACTS AND THE ISSUES ARISING IN ITA NO.673/ CHD/2011 ARE SIMILAR TO THE FACTS AND ISSUES IN ITA NO.672/CHD/2 011. OUR DECISION IN ITA NO.672/CHD/2011 SHALL APPLY MUTATIS MUTANDIS TO ITA 8 NO.673/CHD/2011. THE GROUNDS OF APPEAL RAISED BY T HE ASSESSEE ARE ALLOWED. 15. IN THE RESULT, BOTH THE APPEALS RELATING TO ASS ESSMENT YEARS 2004-05 & 2005-06 FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH DAY OF MARCH, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH MARCH, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH