ACIT, New Delhi V. M/s. Telecom Network Solution Pvt. Ltd., New Delhi

ITA 684/DEL/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3735 (ITAT-DELHI)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 10-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 15-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANJAY J OSHI
• Keywords: Bonafide belief; Onus to prove
• Section: 27

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H: NEW DELHI BEFORE SHRI C.L.SETHI, JM & SHRI B.C. MEENA, AM I.T. A. NO.684/DEL OF 2010 ASSESSMENT YEAR: 2006-07 ACIT, CIRCLE 16(1), VS TELECOM NETWORK SOLUTION P. LTD., NEW DELHI. B-313, ASHOK NAGAR, NEW DELHI. APPELLANT RESPONDENT APPELLANT BY: SHRI ANSHUMAN PATTNAIK, SR. DR RESPONDENT BY: S/SHRI RAJESH MALHOTRA & SANJAY J OSHI ORDER PER C.L. SETHI, JM: THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 14 .12.2009 PASSED BY THE LEARNED CIT(A) IN DELETING THE PENALTY LEVIED U /S 271(1)(D) OF THE INCOME-TAX ACT, 1961 (THE ACT) BY THE AO FOR ASSESS MENT YEAR 2006-07. 2. IN THE COURSE OF MAKING ASSESSMENT OF FRINGE BEN EFIT U/S 115WE(3) DATED 22.12.2008, THE AO MADE THE ADDITION OF RS.9, 06,286/- ON ACCOUNT OF DETERMINATION OF VALUE OF FBT ON CONVEYANCE, TOUR A ND TRAVEL. THE ASSESSEE FILED RETURN DETERMINING THE VALUE AT 5%. AFTER EX AMINING THE DETAILS, THE AO HAS TAKEN A VIEW THAT VALUE OF FBT IS TO BE TAKE N AT 5% IN SO FAR AS THE VALUE OF FBT OF RS.30,06,792/- IS CONCERNED, BUT TH E VALUE IN RESPECT OF THE BALANCE AMOUNT OF RS.60,41,910/- IS TO BE TAKEN AT 20% AS AGAINST 5% SHOWN 2 BY THE ASSESSEE. THE AO WAS OF THE VIEW THAT THE A SSESSEE HAS SUBMITTED INCORRECT/INACCURATE PARTICULARS OF FRINGE BENEFIT VALUE, AND, THEREFORE, HE INITIATED PENALTY PROCEEDINGS U/S 271(1)(D) OF THE ACT. 3. IN THE COURSE OF PENALTY PROCEEDINGS, THE ASSESS EE SUBMITTED ITS SUBMISSIONS VIDE LETTER DATED 17.6.2010 AND 22.1.20 09. THE SUBMISSIONS OF THE ASSESSEE WERE CONSIDERED BY THE AO. THE AO WAS OF THE VIEW THAT THE ASSESSEE DID NOT MAKE ANY ATTEMPT TO BIFURCATE THE EXPENSES PERTAINING TO CONSTRUCTION AND NON-CONSTRUCTION BUSINESS ACTIVITI ES. THESE EXPENSES WERE BOOKED UNDER THE HEAD CONVEYANCE, TOUR AND TRAVEL (INCLUDING FOREIGN TRAVEL). THE AO STATED THAT IN THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSEE WAS CONFRONTED ABOUT THE FACT THAT ASSESSE E HAS NOT DISCLOSED THE VALUE OF FRINGE BENEFITS CORRECTLY IN RESPECT OF EX PENSES INCURRED DURING NON CONSTRUCTION BUSINESS ACTIVITY WHERE THE RATE OF 20 % IS PRESCRIBED. THE AO, THEREFORE, STATED THAT IT WAS NOT A SUO MOTO SURREN DER OR DECLARATION MADE BY THE ASSESSEE. THE AO, THEREFORE, LEVIED PENALTY EQU AL TO THE AMOUNT OF 100% OF THE TAX SOUGHT TO BE EVADED ON THE VALUE OF FBT. 4. ON AN APPEAL, THE CIT(A) DELETED THE PENALTY BY OBSERVING AS UNDER: 6. 1 HAVE GONE THROUGH THE PENALTY ORDER AND THE WRITTEN SUBMISSIONS FILED BY THE AR. 7.1 THE AR STATED THAT THE BUSINESS OF THE ASSESSEE COMPANY CONSISTS OF THE FOLLOWING FOUR 3 DIVISIONS/ACTIVITIES: A) NETWORK DIVISION (TECHNICAL SUPPORT SERVICES FOR TELECOM INFRASTRUCTURE) B) INFRA (CIVIL CONSTRUCTION) DIVISION C) POWER MANUFACTURING DIVISION D) TELECOM TRAINING DIVISION 7.2 THE MAIN CONTENTION OF THE AR IS THAT UNDER THE BONAFIDE BELIEF AND AS PER THE ADVICE OF THE TAX CONSULTANT, THE COMPANY RETURNED THE VALUE OF FRINGE BENEFITS AND THERE WAS NO SUPPRESSION OF FACTS AND FURNISHED BONAFIDE EXPLANATION FOR DOING SO. 7.3 THE AR FURTHER STATED THAT THE ADDITION WAS AGREED UPON TO AVOID FURTHER LITIGATION AND HENCE PENALTY CANNOT BE LEVIED. 8.1 IT HAS BEEN HELD THAT THERE CANNOT BE A STRAITJACKET FORMULA FOR DETECTION OF DEFAULTS OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THERE COULD BE OVERLAPPING BETWEEN CONCEALMENT AND FURNISHING OF INACCURATE PARTICULARS. IT DEPENDS ON THE FACTS OF EACH CASE. 8.2 THE STATUTE HAS RECOGNIZED THAT ASSESSMENT PROCEEDINGS AND PENALTY PROCEEDINGS ARE DISTINCT AND INDEPENDENT OF EACH OTHER. PART (A) OF THE EXPLANATION TO SECTION 271(1) IS APPLICABLE WHERE THE ASSESSEE HAS NOT OFFERED ANY EXPLANATION OR THE EXPLANATION OFFERED IS FOUND TO BE FALSE BY THE ASSESSING OFFICER- IT CANNOT BE APPLIED MERELY BECAUSE THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTED BY THE ASSESSING OFFICER. THE ASSESSING OFFICER MUST HAVE SOME DEFINITE EVIDENCES TO REFUTE THE ASSESSEES CLAIM OR EVIDENCE OR EXPLANATION. 4 CLAUSE (B) OF THE EXPLANATION TO SECTION 27 1(1) CASTS RESPONSIBILITY ON THE ASSESSEE TO PROVE THAT THE EXPLANATION GIVEN IS BONA TIDE AND MUST SUBSTANTIATE THAT EXPLANATION BY MEANS OF SOME EVIDENCES. WHEN THE ASSESSEE HAS OFFERED AN EXPLANATION BASED ON SOME EVIDENCES, THE ASSESSING OFFICER CANNOT INVOKE PART (B) OF THE EXPLANATION UNLESS HE HAS GIVEN A FINDING BASED ON SOME CONTRADICTORY EVIDENCE TO DISPROVE THE EXPLANATION OFFERED BY THE ASSESSEE. 9. IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. VS. DCIT (2009) 31 SOT 153 (PUNE) THE HONBLE ITAT, AFTER CONSIDERING THE CASE LAW ON THE SUBJECT HAS OBSERVED BROADLY AS UNDER: BY NO STRETCH OF LOGIC OR RATIONALE IT CAN BE SAID THAT IMPOSITION OF PENALTY UNDER SECTION 271(1 )(C) HAS A CAUSE AND EFFECT RELATIONSHIP WITH ADDITION BEING MADE TO RETURNED INCOME PER SE JUST BECAUSE PENALTY UNDER SECTION 271(1)(C) IS A CIVIL LIABILITY IT MUST MEAN PENALTY CAN AUTOMATICALLY BE LEVIED ON BASIS OF ANY ADDITION TO INCOME, IS NOT CORRECT EVEN EXPLANATION 1 TO SECTION 271(L)(C) RAISES A REBUTTABLE PRESUMPTION AND SHIFTS ONUS ON ASSESSEE TO ESTABLISH BONA FIDES OF CLAIM JUDGEMENT IN THE CASE OF UOI V. DHARMENDRA TEXTILE PROCESSOR 5 DOES NOT MAKE A RADICAL CHANGE IN SCHEME OF SECTION 271(L)(C) BUT IT RE- EMPHASIZES PARADIGM SHIFT ON BURDEN OF PROOF AS BROUGHT ABOUT BY EXPLANATION TO SECTION 271(1)(C) ADMISSION OR REJECTION OF A CLAIM IS A SUBJECTIVE EXERCISE; WHETHER A CLAIM IS ACCEPTED OR REJECTED HAS NOTHING TO DO WITH FURNISHING OF INACCURATE PARTICULARS OF INCOME . RAISING A LEGAL CLAIM, EVEN IF IT IS ULTIMATELY FOUND TO BE LEGALLY UNACCEPTABLE, CANNOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS OF INCOME 10. THE CASE OF THE ASSESSEE HAS BEEN EXAMINED AGAINST THE ABOVE LEGAL BACKDROP. THE MAIN CONTENTION OF THE AR IS THAT THERE WAS NO SUPPRESSION OF FACTS AND EXPLAINED THE CIRCUMSTANCES UNDER WHICH THE VALUE OF FRINGE BENEFIT WAS RETURNED FOR TAX PURPOSE. THE FBT PROVISIONS ARE NEWLY INTRODUCED. MOREOVER THERE IS NO SUPPRESSION OF FACTS. THERE WAS GENUINE REASON FOR COMMITTING AN ERROR WHILE RETURNING THE VALUE OF FRINGE BENEFITS. 11. NO POSITIVE MATERIAL WAS BROUGHT ON RECORD TO PROVE THAT THE ASSESSEE HAS INFLATED EXPENDITURE OR DEFLATED RECEIPTS. THE ADDITIONS WERE MADE ON THE FACTS MADE AVAILABLE IN THE COURSE OF ASSESSMENT PROCEEDINGS. THE ASSESSEE FURNISHED AN EXPLANATION WHICH IS A BONAFIDE ONE WITH SUFFICIENT REASONS. THE EXPLANATION WAS NEITHER FOUND FALSE NOR UNREASONABLE BY THE AO. 6 12. AFTER GOING THROUGH THE FACTS OF THE CASE AND THE CASE LAWS CITED BY THE AR AND THE PROPOSITIONS LAID DOWN BY THE HONBLE ITAT IN THE CASE OF KANBAY SOFTWARE INDIA (P) LTD. VS. DCIT (SUPRA) THERE IS NO CASE FOR LEVY OF PENALTY IN RESPECT OF THE ADDITIONS TAKEN INTO CONSIDERATION FOR LEVY OF PENALTY. 13. IN VIEW OF THE FACTS BROUGHT ON RECORD AND THE LEGAL POSITION CITED, THERE IS NO CASE OF LEVY OF PENALTY. THE PENALTY LEVIED IS HEREBY CANCELLED. 5. HENCE, THE DEPARTMENT IS IN APPEAL. 6. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIAL ON RECORD. 7. IT IS NOT IN DISPUTE THAT THE BUSINESS OF THE AS SESSEE COMPANY CONSISTS OF THE FOUR DIVISIONS/ACTIVITIES, SUCH AS, NETWORK DIVISION, CIVIL CONSTRUCTION DIVISION, POWER MANUFACTURING DIVISION AND TELECOM TRAINING DIVISION. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAS FILED VOLUNTARILY THE FRINGE BENEFIT RETURN ON 29.11.2006 DECLARING THE VALUE OF FRINGE BENEFIT AT RS.58,31,322/-. THE TOTAL AMOUNT OF BENEFIT GIVEN BY THE ASSESSEE ON ACCOUNT OF CONVEYANCE, TOUR AND TRAVEL INCLUDING FOREIGN TRAVEL IS NOT IN DISPUTE. THE DISPUTE WAS ONLY WITH REGAR D TO WHETHER THE AMOUNT OF FRINGE BENEFIT SHOULD BE BIFURCATED INTO TWO GROUPS I.E. CONSTRUCTION 7 ACTIVITIES AND NON-CONSTRUCTION ACTIVITIES. THE RA TE OF FRINGE BENEFIT IS 5% IN RESPECT OF CONSTRUCTION BUSINESS THOUGH THE RATE IN A BUSINESS OTHER THAN CONSTRUCTION BUSINESS IS 20%. IT IS ALSO NOT IN DIS PUTE THAT BY FILING THE FRINGE BENEFIT TAX RETURN, THE ASSESSEE HAS NOT SEGREGATED THE EXPENSES INTO THE AFORESAID TWO CATEGORIES. THE ASSESEES CASE BEFOR E THE AO WAS THAT THE ASSESSEE HAS FILED THE FRINGE BENEFIT TAX RETURN AS PER ADVISE OF THE TAX CONSULTANT. HE FURTHER SUBMITTED THAT THIS WAS THE FIRST YEAR WHERE THE FRINGE BENEFIT TAX WAS INTRODUCED BY THE LEGISLATURE AND T HE QUESTION OF MAKING DISTINCTION BETWEEN CONSTRUCTION ACTIVITY AND NON C ONSTRUCTION ACTIVITY WAS VERY DIFFICULT IN THE LIGHT OF VARIOUS ACTIVITIES O F BUSINESS UNDERTAKEN BY THE ASSESSEE. BOTH THE CIVIL CONSTRUCTION OR NON CONST RUCTION ACTIVITIES ARE FOUND TO BE INTER-RELATED OR INTER-MINGLED HAVING REGARD TO THE VARIOUS WORKS EXECUTED BY THE ASSESSEE AS EXPLAINED BEFORE THE AO AS WELL AS BEFORE CIT(A). THE ASSESSEES EXPLANATION THAT ASSESSEE H AS FURNISHED THE FBT RETURN UNDER A BONAFIDE BELIEF AFTER TAKING DUE ADV ISE FROM THE TAX CONSULTANT. THE ASSESSEE HAD OBTAINED TAX AUDIT REP ORT U/S 44AB. THE ASSESSEE HAS ALSO OBTAINED AN AUDIT REPORT WITH REG ARD TO THE DETERMINATION OF THE VALUE OF FBT AND THE RETURN HAS BEEN FILED BY T HE ASSESSEE IN THE LIGHT OF THE AUDIT REPORT GIVEN BY THE AUDITOR. THEREFORE, IT IS NOT A CASE WHERE ASSESSEE HAS MALAFIDELY OR DISHONESTLY SUPPRESSED THE VALUE OF FRINGE BENEFIT 8 EXPENSES. THE EXPLANATION OF THE ASSESSEE THAT ASSE SSEE HAS FILED THE FBT RETURN UNDER BONAFIDE BELIEF AFTER TAKING AUDIT REP ORT FROM THE AUDITORS AND ADVISE FROM THE TAX CONSULTANT CANNOT BE SAID TO BE A FALSE EXPLANATION PARTICULARLY IN VIEW OF THE FACT THAT THIS IS THE F IRST YEAR WHERE THE FRINGE BENEFIT TAX WAS INTRODUCED BY THE LEGISLATURE. THE CIT(A) HAS APPRECIATED THE PROVISIONS OF LAW AS WELL AS THE FACTS OF THE P RESENT CASE AND HAS RIGHTLY COME TO A CONCLUSION THAT THIS IS NOT A FIT CASE WH ERE PENALTY CAN BE LEVIED. WE, THEREFORE, UPHELD THE ORDER OF CIT(A) IN DELETI NG THE PENALTY LEVIED BY THE AO U/S 2711)(D) OF THE ACT. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. 7. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT O N 18 TH JUNE, 2010. (B.C. MEENA) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18 TH JUNE, 2010 VIJAY COPY TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A)-XIX, NEW DELHI 5. DR ASSISTANT REGISTRAR