M.S.M. REFILL MANUFACTURERS, MUMBAI V. ITO WD 18(3)(3), MUMBAI

ITA 6898/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70886 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 14-02-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRAVIN N SHAH; MITESH P SHAH
• Keywords: Business income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, A.M. AND SHRI AMIT SHUKL A, J.M. ./ I.T.A. NO. 6898/MUM/2011 ( / ASSESSMENT YEAR: 2007-08) M.S.M. REFILL MANUFACTURERS A/6, CRYSTAL COLONY NO.1, S.A. MARG, MAHIM (W), MUMBAI-400 016 / VS. I.T.O. WARD 18(3)(3), C.G.O. BLDG., M. K. ROAD, MUMBAI-400 020 ' ./ # ./PAN/GIR NO. AAAFS 6516 M ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' / APPELLANT BY : SHRI PRAVIN N. SHAH & SHRI MITESH P. SHAH %&'$ ( ' / RESPONDENT BY : SHRI O. P. SINGH )* + ( , / DATE OF HEARING : 01.08.2013 -./ ( , / DATE OF PRONOUNCEMENT : 30.08.2013 / 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)-29, MUMBAI (CIT(A) FOR SH ORT) DATED 26.07.2011, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING THE LEVY OF PENALTY U/S.271(1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSES SMENT YEAR (A.Y.) 2007-08. 2 ITA NO.6898/MUM/2011 (A.Y. 2007-08) M.S.M. REFILL MANUFACTURERS VS. ITO 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E RETURNED ITS INCOME FOR THE YEAR AT RS.2,58,068/-, CLAIMING REMUNERATION TO WORKING PAR TNERS AT RS.2,16,000/-, AS UNDER: (AMT IN RS.) A) BUSINESS INCOME (-) 74,563 B) INCOME FROM HOUSE PROPERTY 5,48,632 4,74,069 LESS : REMUNERATIONS TO PARTNERS (-) 2,16,000 2,58,069 _______________________________________}_ _______________________________________}_ THE SAID CLAIM WAS FOUND NOT ACCEPTABLE BY THE REVE NUE INASMUCH AS THE ASSESSEE HAD INCLUDED THE AMOUNT ASSESSABLE U/S.22, I.E., UNDER THE HEAD INCOME FROM HOUSE PROPERTY, IN COMPUTING THE DEDUCTION IN RESPECT OF REMUNERATI ON TO WORKING PARTNERS, CLAIM QUA WHICH FALLS U/S.37(1) OF THE ACT. THE SAME STOOD, A CCORDINGLY, DISALLOWED, ASSESSING THE ASSESSEES INCOME AT RS.5,06,098/-, AND PENALTY PRO CEEDINGS IN ITS RESPECT INITIATED. IN THE PENALTY PROCEEDINGS, WHILE THE ASSESSEE RELIED ON EXPLANATION (3) TO SECTION 40(B) IN SUPPORT OF ITS CLAIM, THE SAME STOOD NOT ACCEPTED A S THE ASSESSEE HAD DELIBERATELY CLAIMED THE EXPENDITURE ON REMUNERATION TO WORKING PARTNERS , SO THAT THERE WAS A WILLFUL ATTEMPT ON THE PART OF THE ASSESSEE TO DEFLATE AND, THUS, C ONCEAL ITS INCOME. THE SAME STOOD CONFIRMED IN APPEAL BY THE LD. CIT(A), RELYING ON T HE DECISION IN THE CASE OF UNION OF INDIA VS. DHARMENDRA TEXTILE PROCESSORS [2008] 306 ITR 277 (SC) , SO THAT MENS REA OR WILLFUL CONCEALMENT IS NOT AN ESSENTIAL INGREDIENT OF PENALTY AND, FURTHER, THAT MERE DISCLOSURE WOULD NOT SAVE PENALTY, AND THAT THE FIN DINGS IN THE ASSESSMENT PROCEEDINGS CONSTITUTE GOOD EVIDENCE FOR CONCEALMENT, RELYING O N THE DECISIONS IN THE CASE OF CIT VS. VIDYAGAURI NATVERLAL [1999] 238 ITR 91 (GUJ.) AND CIT VS. SOMNATH OIL MILLS [1995] 214 ITR 32 (GUJ.) RESPECTIVELY. HOWEVER, AS THE ASS ESSEE WAS ENTITLED TO A CLAIM FOR RS.50,000/- TOWARD REMUNERATION TO WORKING PARTNERS EVEN U/S.40(B), I.E., IN CASE OF A LOSS, HE REDUCED THE PENALTY, LEVIED AT 100% OF THE TAX SOUGHT TO BE EVADED, AS TO BE WITH REFERENCE TO AN AMOUNT OF RS.1,66,000/-. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 AS REGARDS THE LAW IN THE MATTER, THE SAME IS T RITE AND WELL-SETTLED, AND THE ASSESSEE HAS TO FURNISH AN EXPLANATION TOWARDS ITS CLAIM, DU LY SUBSTANTIATING IT AS WELL AS 3 ITA NO.6898/MUM/2011 (A.Y. 2007-08) M.S.M. REFILL MANUFACTURERS VS. ITO ESTABLISHING IT BONA FIDES , SO THAT IN ITS ABSENCE, IT WOULD BE DEEMED TO HAV E CONCEALED OR FURNISHED INACCURATE PARTICULARS OF INCOME. THE CAS E LAW RELIED UPON BY THE FIRST APPELLATE AUTHORITY ARE ON THE POINT, REPRESENTING THE LEGAL POSITION IN THE MATTER. 3.2 IT WOULD BE AT THIS STAGE RELEVANT TO ADVERT TO THE FACTS OF THE CASE. THE ASSESSEE FIRM CREDITED A SUM OF RS.8,24,500/- TO ITS PROFIT AND LOSS ACCOUNT, AS ALSO THE INTEREST AND DIVIDEND INCOME AT RS.93,746/- AND RS.20,000/- RESP ECTIVELY. WHILE IT EXCLUDED THE LATTER TWO AMOUNTS, AGGREGATING TO RS.1.14 LACS, ASSESSABL E AS INCOME FROM OTHER SOURCES, IN THE COMPUTATION OF THE REMUNERATION EXIGIBLE U/S. 40(B) OF THE ACT, THE RENT INCOME, ADMITTEDLY ASSESSABLE AS INCOME FROM HOUSE PROPERTY , WAS NOT. EXCLUDING THE SAME WOULD HAVE LED TO A NEGATIVE BOOK PROFIT. IN THE VI EW OF THE REVENUE, THE SAID INCLUSION OF RENTAL INCOME WAS DELIBERATE, SO AS TO INFLATE T HE CLAIM OF REMUNERATION TO WORKING PARTNERS. THE PRIMARY FACTS ARE ADMITTED AND UNDISP UTED. THE ASSESSEE, HOWEVER, RELIES ON INTERPRETATION OF EXPLANATION 3 TO SECTION 40(B), WHICH PROVISION READS AS UNDER: AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTI ONS 30 TO [38], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION, - ( A ) IN THE CASE OF ANY ASSESSEE ( B ) IN THE CASE OF ANY FIRM ASSESSABLE AS SUCH, (I) .. (II) . (III) . (IV) . (V) . EXPLANATION 1 EXPLANATION 2 EXPLANATION 3 - FOR THE PURPOSES OF THIS CLAUSE, 'BOOK-PROFIT' MEAN S THE NET PROFIT, AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR, COMPUTED IN THE MANNER LAID DOWN IN CHAPTER I V-D AS INCREASED BY THE AGGREGATE AMOUNT OF THE REMUNERATION PAID OR PA YABLE TO ALL THE PARTNERS OF THE FIRM IF SUCH AMOUNT HAS BEEN DEDUCTED WHILE COMPUTING THE NET PROFIT. 4 ITA NO.6898/MUM/2011 (A.Y. 2007-08) M.S.M. REFILL MANUFACTURERS VS. ITO ON THE BASIS THEREOF, IT IS CLAIMED THAT THE RENT INCOME STOOD RIGHTLY INCLUDED IN THE COMPUTATION OF BOOK PROFIT, WITH REFERENCE TO WHI CH THE QUANTUM OF REMUNERATION TO THE WORKING PARTNERS IS TO BE ALLOWED. THE LD. AR, TOWA RD THE SAME, PLACED RELIANCE ON A NUMBER OF DECISIONS, AS IN THE CASE OF MD. SERAJUDDIN & BROS VS. CIT [2012] 210 TAXMAN 84 (CAL); SURESH A. SHROFF VS. JT. CIT [2013] 35 TAXMAN.COM 103 (GUJ.) AND CIT VS. J. J. INDUSTRIES [2013] 35 TAXMAN.COM 103 (GUJ), TO THE EFFECT THAT AS NO PARTICULAR METHOD OF ACCOUNTING HAS BEEN PRESCRIBED FOR ASCERTAINING THE NET PROFIT, THE SAME COULD INCLUDE, APART FROM INCOME ASSESSABLE U/S.28, I.E., AS BUSIN ESS INCOME, INCOME ASSESSABLE UNDER THE OTHER HEADS OF INCOME AS WELL. 3.3 IN OUR VIEW, THE SAME CANNOT BE SAID TO BE A SE TTLED MATTER. IN FACT, THE SAME GIVES RISE TO CERTAIN FUNDAMENTAL ISSUES, AS OBSERVED BY THE TRIBUNAL IN THE CASE OF MEHTA EXPORTS V. ADDL. CIT (IN ITA NO. 7321/MUM/2010 DATED 28/8/2013), AS UND ER: 9. WE MAY, HOWEVER, MENTION THAT THE SAID ISS UE, I.E., THE INCLUSION OF THE INCOME ASSESSED AS INCOME FROM OTH ER SOURCES IN RECKONING THE QUANTUM OF REMUNERATION ALLOWABLE TO THE WORKIN G PARTNERS, DEDUCTIBLE U/S.37(1) OF THE ACT, IS NOT A CLEAR OR A SETTLED I SSUE. IN FACT, IT RAISES SEVERAL FUNDAMENTAL ISSUES, VIZ., AS TO HOW THE EXPENDITURE ALLOWABLE IN THE COMPUTATION OF THE INCOME ASSESSABLE UNDER ONE HEAD OF INCOME COULD POSSIBLY BE BASED ON THE INCOME ASSESSED UNDER ANOT HER HEAD OF INCOME. PUT DIFFERENTLY, HOW INCOME ASSESSED UNDER ONE HEAD , VIZ. INCOME FROM OTHER SOURCES, COULD POSSIBLY FORM THE BASIS FOR A LLOWANCE OF EXPENDITURE IN COMPUTING THE INCOME UNDER ANOTHER HEAD, I.E., PROFITS AND GAINS FROM BUSINESS AND PROFESSION. TWO, WITHOUT PREJUDICE, U NDER WHICH HEAD OF INCOME OR PROVISION OF LAW WOULD THE EXPENDITURE AT TRIBUTABLE TO THE INCOME ASSESSED UNDER THE OTHER HEAD, AS INCOME FRO M OTHER SOURCES IN THE INSTANT CASE, BE ALLOWED. THIS IS AS ONLY THE EXPEN DITURE EXIGIBLE TO BE SET OFF AGAINST THE INCOME ASSESSABLE UNDER THAT HEAD, AS SECTION 56, BEING SPECIFICALLY PROVIDED FOR, AS U/S.57, COULD BE ALLO WED THERE-AGAINST. SO HOWEVER, IT HAS TO BE BORNE IN MIND THAT THESE A RE PENALTY PROCEEDINGS. THE SAID EXPLANATION DOES GIVE RISE TO A PLAUSIBLE INTERPRET ATION; RATHER, ONE THAT HAS PREVAILED WITH EVEN THE HIGHER APPELLATE AUTHORITIES. UNDER THE CI RCUMSTANCES, THEREFORE, THE MATTER WOULD CERTAINLY QUALIFY TO BE A DEBATABLE ONE, SAVI NG PENALTY. WE, ACCORDINGLY, DIRECT THE DELETION OF THE IMPUGNED PENALTY. WE DECIDE ACCORDI NGLY. 5 ITA NO.6898/MUM/2011 (A.Y. 2007-08) M.S.M. REFILL MANUFACTURERS VS. ITO 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. 0/ 1 )2 30 ( * 4 ( 56 ORDER PRONOUNCED IN THE OPEN COURT ON AUGUST 30, 20 13 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 7+ MUMBAI; 8) DATED : 30.08.2013 *.)../R ROSHANI , SR. PS ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. <*= > %)?2 , , ?2/ , 7+ / DR, ITAT, MUMBAI 6. > @3 A + / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , 7+ / ITAT, MUMBAI