ADDL CIT SP RG 35, MUMBAI V. SURINDRA ENGINEERING CO. LTD, MUMBAI

ITA 7060/MUM/2010

• Counselvise Citation: 706019914 RSA 2010
• Duration Of Justice: 3 year(s) 8 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-07-2014
• Assessment Year: 1998-1999
• Appeal Filed On: 12-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CAP PRADEEP SHOURYA ARYA

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI BEFORE HONBLE S/SHRI H.L. KARWA, PRESIDENT AND B. R.BASKARAN (AM) . . , . . , ./I.T.A. NO.7060/MUM/2010 ( / ASSESSMENT YEAR : 1998-99) DY. COMMISSIONER OF INCOME TAX- 8(3), ROOM NO.217, AAYAKAR BHAVAN, M K ROAD, MUMBAI-400020 / VS. SURINDRA ENGINEERING CO.LTD. SURINDRA HOUSE, SAFAID POOL, M V ROAD, ANDHERI (E), MUMBAI-400072 ( ! / APPELLANT) .. ( '# ! / RESPONDENT) ./ $% ./PAN/GIR NO. : AAACSO765M ! & / APPELLANT BY : CAP.PRADEEP SHOURYA ARYA '# ! ' & /RESPONDENT BY : NONE ( ' ) * / DATE OF HEARING : 9.7.2014 +, ' ) * /DATE OF PRONOUNCEMENT : 9.7.2014 / O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 23.7.2010 PASSED BY LD. CIT(A)-18, MUMBAI AND IT RE LATES TO THE ASSESSMENT YEAR 1998-99. 2. REVENUE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) IN DELETING THE PENALTY OF RS.1,91,80,000/- LEVIED BY AO U/S 271(1) ( C ) OF THE INCOME TAX ACT, 1961 (THE ACT). NONE APPEARED ON BEHALF OF THE ASS ESSEE. HENCE, WE PROCEED TO DISPOSE OF THE APPEAL EX-PARTE, WITHOUT THE PRES ENCE OF THE ASSESSEE. I.T.A. NO.7060/MUM/2010 2 3. FACTS RELATING TO THE ISSUE HAVE BEEN NARRATED S UCCINCTLY BY LD CIT(A) AS UNDER:- 4. THE FACTS OF THE CASE ARE AS UNDER : A) THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFAC TURE AND SUPPLY OF MS PIPES WHICH ARE USED IN THE TRANSPORTATION OF WA TER AND PETROLEUM PRODUCTS. B) IT ENTERED INTO AN AGREEMENT WITH ONE OF ITS GRO UP CONCERN NAMELY M/S. MUKUT PIPES LTD. (HEREINAFTER REFERRED AS (MPL) W.E .F.01.07.1997. THE PERIOD OF AGREEMENT IS FROM 01.07.1997 TO 30.06.1998. AS PER AGREEMENT M/ S. SURINDRA ENGG. CO. LTD.(SECO) WOULD PURCHASED 90% OF THE PRO DUCTION CAPACITY OF MPL I.E.18000 MT DURING THE PERIOD OF AGREEMENT. C) THE AGREEMENT ALSO PROVIDES FOR THE CONTINGENCY THAT IN CASE SICO FAILS TO UTILIZE/PURCHASE 18000 MT WITHIN THE PERIOD OF O NE YEAR, GRACE PERIOD OF 6 MONTHS IS ALLOWED I.E. SECO SHOULD PURCHASE 18000 M T BEFORE DECEMBER 1998. D) THE AGREEMENT ALSO PROVIDES FURTHER PENAL PROVI SIONS, IF THE SECO FAILS TO UTILIZE 90% PRODUCTION CAPACITY OF MPL. E) M/S. SECO HAS TO PAY PENAL DAMAGES @ RS.5750/ - PER METRIC TON TO MPL ON THE SHORT FALL. F) THE AGREEMENT FURTHER PROVIDES THAT PURCHASES C AN BE PLACED IN A STAGGERED INSTALLMENT ON MPL AND IF THERE IS ANY SH ORT FALL IN ANY OR THE MONTHS SUCH SHORT FALL CAN BE MADE UP IN THE SUBSEQUENT MO NTHS, UPTO THE END OF THE GRACE PERIOD DECEMBER 2008. G) THE SHORT FALL IF ANY SHOULD BE WORKED OUT AT T HE END OF THE GRACE PERIOD AND THE PENAL DAMAGES HAS TO BE PAID TO MPL @ RS.5 750/- PER METRIC TON. H) DURING THE PERIOD RELEVANT FOR AY 1998C99, THE ASSESSEE PURCHASED 3959 MT OF PIPES MANUFACTURED BY MPL S AGAINST 18000MT OVER A PERIOD FROM 1.7.1997 TO 30.6.1998 I.E. FOR A PERIOD FOR 12 MONT HS. THE ASSESSEE PROPORTIONATELY REDUCED THIS TARGETS FOR 9 MONTHS A ND COMPUTED THE SHORT FALL AS UNDER : TOTAL PURCHASES THAT SHOULD HAVE BEEN MADE FROM THE ASSESSEE FOR 12 MONTHS 18000MT PURCHASE THAT SHOULD HAVE BEEN MADE FOR 9 MONTHS -13500 MT LESS : ACTUAL PURCHASES MADE DURING PREVIOUS YEAR -3959 MT SHORT FALL 9141 MT COMPENSATION TO BE PAID TO MPL @ RS.5750MT = 5.48 C R. ACCORDINGLY, THE ASSESSEE DEBITED THIS AMOUNT IN AY 1998-99. I.T.A. NO.7060/MUM/2010 3 (I) THE AO DID NOT ALLOW RS.5.48 CR. ON THE GROUND THAT THE LIABILITY IS PURELY A CONTINGENT LIABILITY AND ALSO ON THE GROUND THAT THE ASSESSEE HAD TIME UP TO 31.12.1998, THE EXACT SHORT FALL AND THE AMOUNT OF COMPENSATION CAN BE COMPUTED ONLY AFTER 31.12.1998, ACCORDINGLY HE DISA LLOWED RS.5.48 CRORES. J) IN THE MEAN TIME DUE TO DISPUTE B ETWEEN THE ASSESSEE AND MPL AN ARBITRATOR WAS APPOINTED, WHO PASSED AN AWARD DATE D 1.3.1999 WHEREIN THE DAMAGES WERE DETERMINED AT RS.2600 PER METRIC TON AND THE SHORT FALL WAS COMPUTED AT 11876 METRIC TON WHICH WORKED OUT TO R S.3,08,77,600/-. THIS WAS AGAIN MUTUALLY AGREED TO BE ROUNDED OFF TO RS.3 CRO RES. K) SUBSEQUENT TO THE ARBITRATION AWARD THE ASSESSEE HAD OFFERED BALANCE AMOUNT OF RS.2,48 CRORES (5.48 CRORES 3 CORES) AS INCOME FOR THE AY 1999- 2000. L) THE CIT(A) IN THE ORDER DATED 29.3.2005 HAD COMP UTED THE SHORT FALL AS UNDER: PERIOD OF AGREEMENT IS 1.7.1997 TO 31.12.1998 18 MONTHS PRODUCTION THAT SHOULD HAVE BEEN LIFTED PER MONTH -10 MONTHS PRODUCTION THAT SHOULD HAVE BEEN LIFTED DURING PREV IOUS YEAR FROM 1.7.1997 TO 31.3.1998 -9000 MT THE ACTUAL PRODUCTION LIFTED BY THE ASSESSEE - 3959 M T SHORT FALL -5041 MT COMPENSATION PAID AS PER ARBITRATOR AWARD 5041 X 2526 - 12733566 LIABILITY TO BE ALLOWED FOR AY 1998-99- 1,27,33,566 BALANCE LIABILITY FOR 1998-99 -1,72,66,434 M) THE HONBLE ITAT VIDE ITS ORDER DATED 30.5.2008 DID NOT AGREE WITH THE OPINION OF THE CIT(A) IN PROPORTIONATELY ALLOWING THE LIABILITY OVER A PERIOD OF 2 YEARS. THE HONBLE TRIBUNAL HELD THAT THE EXACT QUANTUM OF SHORT FALL WOULD HAVE KNOWN ONLY AFTER DECEMBER 2008 IN VIEW OF THE FACT THAT THE AGREEMENT PROVIDES THAT THE ASSESSEE COULD HAVE BEEN LIFTED A NY SHORTFALL IN THE EARLIER MONTHS BEFORE THE GRACE PERIOD UP TO DECEMBER 2008. THE HONBLE TRIBUNAL HELD THAT THE DAMAGES OF RS.3 CRORES CAN BE ALLOWED ONLY IN AY 1999-2000. N) IN SUMMARY THE ENTIRE CLAIM OF RS.5.48 CRORES WA S DISALLOWED FOR AY 1998-1999 INSTEAD, AN AMOUNT OF RS.3 CRORES WAS ALL OWED FOR AY 1999-2000. (O) THE AO LEVIED PENALTY U/S 271(1)(C) ON THE GRO UND THAT THE DISALLOWANCE OF RS.5.48 CRORES WAS CONFIRMED BY THE APPELLATE A UTHORITIES, THUS THE ASSESSEE CLAIMED EXCESS DEDUCTION/THE CLAIM OF DEDUCTION WAS DELIBERATELY PREPONED BY THE ASSESSEE. THE AO ALSO HELD THAT THE ASSESSEE D ID NOT FURNISH ANY SATISFACTORY REASON FOR MAKING EXCESSIVE AND UNTENA BLE CLAIM IN AY 1998-99. ACCORDINGLY, PENALTY OF RS.1,91,80,000/- WAS LEVIE D WHICH IS SUBJECT MATTER OF THE APPEAL. I.T.A. NO.7060/MUM/2010 4 4. THE ASSESSEE CHALLENGED THE ORDER OF THE AO B EFORE THE FIRST APPELLATE AUTHORITY AND THE FIRST APPELLATE AUTHORITY DELETE D THE PENALTY BY RELYING ON THE DECISION RENDERED BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S RELIANCE PETRO PRODUCTS PVT LTD (322 ITR 156). AGGRIEVED B Y THE DECISION OF LD. CIT(A), THE REVENUE HAS FILED THIS APPEAL BEFORE US. 5. WE HEARD LD. DR AND ALSO PERUSED THE RECORD. WE NOTICE THAT THE IMPUGNED ADDITION CAME TO BE SUSTAINED IN THE INSTA NT YEAR, SINCE THE TRIBUNAL HAS TAKEN A VIEW THAT THE IMPUGNED LIABILITY IS ALL OWABLE IN THE SUCCEEDING YEAR, MEANING THEREBY, THERE IS NO DISPUTE WITH REGARD TO THE AMOUNT OF DEDUCTION CLAIMED BY THE ASSESSEE TOWARDS THE LIABILITY AND T HE DISPUTE WAS RELATED TO THE YEAR, IN WHICH IT WAS ALLOWABLE. WE NOTICE THAT TH E LD. CIT(A) HAS APPRECIATED THIS FACT CORRECTLY AND ACCORDINGLY HE DELETED THE PENALTY WITH THE FOLLOWING OBSERVING MADE IN PARA 6 OF ITS ORDER : 6. THE INFORMATION ON RECORD IS CAREFULLY CONSIDER ED. THE CRUX OF THE ISSUE, IS THE APPELLANT CLAIMED PROVISIONS FOR LIABILITY O F RS.5.48 CRORES. THE AO TREATED THE SAME AS CONTINGENT LIABILITY AND DISALLOWED THE CLAIM. THE CIT(A) OPINED THAT IT WAS NOT A CONTINGENT LIABILITY AND COMP UTED THE SHORT FALL FOR THE AYS 1998-99 & 1999-2000 PROPORTIONATELY. THE HONBLE TRIBUNAL OPINED THAT THE LIABILITY IS CRYSTALLIZED ONLY AT THE END OF THE A GREEMENT PERIOD INCLUDING, THE GRACE PERIOD I.E. DECEMBER, 1998, ACCORDINGLY THE HONBLE TRIBUNAL ALLOWED RELIEF OF RS.3 CRORES FOR AY 1999-2000. THE SUM A ND SUBSTANCE OF ALL THE CHRONOLOGICAL EVENTS IS, THERE IS NO DISPUTE REGARD ING THE ISSUE WHETHER THE COMPENSATION/LIABILITY WAS TO BE ALLOWED OR NOT. T HE DISPUTE WAS ONLY REGARDING, THE YEAR IN WHICH SUCH CLAIM WAS TO BE ALLOWED. THE CIT(A) APPORTIONED THE LIABILITY IN TWO YEARS I.E. 1998-99 AND 1999-2000 WHEREAS THE TRIBUNAL HAD CONCLUDED THAT IT IS ALLOWABLE ONLY IN ONE YEAR 19 99-2000. SINCE ALL THE PARTICULARS WERE FURNISHED IN THE VARIOUS DOCUMENTS SUBMITTED DURING THE COURSE OF ASSESSMENT PROCEEDING IN RETURN OF INCOME/TAX AU DIT REPORT/AGREEMENT BETWEEN THE APPELLANT AND MPL, THERE IS NO QUESTION OF CONCEALMENT OR FURNISHING OF INACCURATE PARTICULARS WHICH ATTRACT THE PENALTY PROVISIONS U/S 271(1)( C ). IT WAS HELD IN THE CASE OF VIP INDUS TRIES (2009) 30 SOT 254 (MUM) THAT, WHERE THE ASSESSEE GENUINELY MAKES CLAI M AND ALL THE NECESSARY FACTS RELATING TO THE SAME ARE PLACED ON RECORD, I T DOES NOT AMOUNT TO CONCEALMENT, EVEN IF THE CLAIM IS REJECTED . IF PE NALTY IS IMPOSED UNDER SUCH CIRCUMSTANCES ALSO, THEN PROBABLY THERE WILL REMAIN NO COURSE OPEN TO THE ASSESSEE TO GENUINELY CLAIM THE DEDUCTION WHICH IN ASSESSEES OPINION IS I.T.A. NO.7060/MUM/2010 5 ADMISSIBLE. SIMILAR VIEW WAS HELD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V/S RELIANCE PETRO PRODUCT PVT LTD. 322 ITR 158 6. THE FOREGOING OBSERVATIONS MADE BY LD CIT(A) WOU LD SHOW THAT THE ASSESSING OFFICER HAD DISALLOWED THE CLAIM TREATING THE SAME AS CONTINGENT LIABILITY. ULTIMATELY, IT WAS HELD AS LIABILITY PA YABLE BY THE ASSESSE, I.E., IT WAS NOT CONSIDERED AS CONTINGENT LIABILITY. HENCE, THE PRI MARY CRITERION FOR MAKING THE IMPUGNED ADDITION HAS BEEN NEGATED BY THE APPELLATE AUTHORITIES. THEN THE NEXT QUESTION THAT AROSE WAS ABOUT THE YEAR OF ALLOWABIL ITY, TO WHICH THE TRIBUNAL HAS EXPRESSED THAT THE SAME IS ALLOWABLE IN THE SUCCEED ING YEAR. IT CAN BE SEEN THAT THE SAID QUESTION WAS DEBATABLE ONE AND THE VIEW TA KEN BY THE ASSESSE, LD CIT(A) AND THE TRIBUNAL WERE TOTALLY DIFFERENT TO E ACH OTHER. HENCE, IN OUR VIEW, THE IMPUGNED DISALLOWANCE CAME TO BE SUSTAINED ONLY DUE TO THE DIFFERENCE IN THE OPINION BETWEEN THE ASSESSE AND TAX AUTHORITIES ABOUT THE YEAR OF ALLOWABILITY, WHICH IN OUR VIEW WOULD NOT GIVE RISE ANY PENALTY U/S 271(1)(C) OF THE ACT. AS POINTED OUT BY LD CIT(A), WE ARE ALSO OF THE VIEW THAT THE ASSESSEE HAS NOT CONCEALED ANY PARTICULARS OF INCOME OR FURN ISHED ANY INACCURATE PARTICULARS OF INCOME. IN OUR VIEW, THE LD. CIT(A ) HAS APPRECIATED THE LEGAL POSITION CORRECTLY AND ACCORDINGLY DELETED THE PENA LTY. HENCE, WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT O N 9TH JULY, 2014 . +, ( - ./ 0 1 9TH JULY, 2014 , ' 2 3 SD SD ( . . / H.L. KARWA) ( . . , / B.R. BASKARAN ) / PRESIDENT / ACCOUNTANT MEMBER I.T.A. NO.7060/MUM/2010 6 . ( MUMBAI: 9TH JULY,2014. . . ./ SRL , SR. PS ! ' / COPY OF THE ORDER FORWARDED TO : 1. ! / THE APPELLANT 2. '# ! / THE RESPONDENT. 3. ( 5) ( ) / THE CIT(A)- CONCERNED 4. ( 5) / CIT CONCERNED 5. 67 2 ')8 , * 8 , . ( / DR, ITAT, MUMBAI CONCERNED 6. 2 9 : / GUARD FILE. ; ( / BY ORDER, TRUE COPY < $ (ASSTT. REGISTRAR) * 8 , . ( /ITAT, MUMBAI