Zarina Mohammed Naim Khan, Hyd, Hyderabad V. ITO, Ward-4(4), Hyd, Hyderabad

ITA 742/HYD/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6014 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 18-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K J RAO
• Keywords: Difference of opinion
• Section: 37(1); 11

Judgement Text

ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S.RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.742/HYD/2016 (ASSESSMENT YEAR: 2008-09) MRS. ZARINA MOHAMMED NAIM KHAN HYDERABAD 500048 PAN: AFBPK 7957 E VS INCOME TAX OFFICER WARD 4(4) HYDERABAD FOR ASSESSEE : SHRI MOHD. AFZAL FOR REVENUE : SHRI K.J. RAO, DR O R D E R PER SMT. P. MADHAVI DEVI, J.M. THIS IS ASSESSEES APPEAL FOR THE A.Y 2008-09 AGAINS T THE ORDER OF THE CIT (A)-I, HYDERABAD, DATED, 9.2. 2016 CONFIRMING THE ADDITIONS MADE BY THE AO. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), IS AGAINST THE LAW, WEIGHT OF EVIDENCE AND PROBABILITIES OF CASE. 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4, 09, 161/- INCURRED TOWARDS REPAIRS OF THE CAR BY M/ S MAQBOOL MOTORS, INSPITE OF CONFIRMING THE TRANSACTION BY THE PROPRIETOR OF M/S MAQBOOL MOTORS BEFORE THE ASSESSING OFFICER. 3. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE DISALLOWANCE OF RS.55,000/-WHICH IS INCURRED AS OVERHEAD CHARGES DURING THE COURSE OF SALE OF CAR. DATE OF HEARING : 26.10.2016 DATE OF PRONOUNCEMENT : 18.11.2016 ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 2 OF 7 4. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE DISALLOWANCE OF RS.6 LAKHS, MADE BY THE ASSESSING OFFICER ON AN ERRONEOUS ASSUMPTION THAT THE ASSESSEE PAID PENALTY FOR INFRINGEMENT OF LAW, WHEREAS, THE AMOUNT WAS PAID AS FINE FOR NOT FOLLOWING THE PROCEDURE LAID DOWN, FOR BRINGING THE CAR FROM DUBAI. 5. THE LEARNED COMMISSIONER ERRED IN CONFIRMING THE DISALLOWANCE OF PAYMENT OF COMMISSION OF RS.3 LAKHS TO THE PERSONS WHO HAVE FACILITATED THE SALE OF CAR, INSPITE OF PRODUCING THE CONFIRMATION LETTER S FROM SUCH PERSONS. 6. THE APPELLANT CRAVES LEAVE TO ADD TO, AMEND OR MODIFY THE ABOVE GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL, IF IT IS CONSIDERED NECESSARY. 2. AT THE TIME OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT PRESSIN G GROUNDS 2 & 3 OF THE APPEAL. THEY ARE ACCORDINGLY REJECTED AS N OT PRESSED. AS GROUNDS NO.1 & 6 ARE GENERAL IN NATURE, THEY NEED N O ADJUDICATION. 3. AS REGARDS GROUND NO.4, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS NOT PRESSIN G THE DISALLOWANCE OF RS.1.00 LAKH WHICH IS PAID AS PENAL TY U/S 112(A) OF THE CUSTOMS ACT, 1962. 4. AS REGARDS THE BALANCE ADDITION OF RS.5,00,000/- , BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE, AN INDIVID UAL, FILED HER RETURN OF INCOME FOR THE A.Y 2008-09 ON 26.11.2008 D ECLARING TOTAL INCOME OF RS.3,94,730. THE RETURN OF INCOME W AS PROCESSED U/S 143(1) OF THE ACT ON 7.9.2009. SUBSEQUENTLY, IN FORMATION REGARDING THE TRANSACTION OF THE ASSESSEE IN IMPORT ING AND SALE OF ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 3 OF 7 TOYOTA LAND CRUISER CAR FORWARDED BY THE DDIT(INV.) , UNIT-VIII(1) MUMBAI, WAS RECEIVED BY THE AO. THEREFORE, THE CASE WAS TAKEN UP FOR SCRUTINY AND A NOTICE U/S 143(2) OF THE ACT WAS SERVED ON THE ASSESSEE ON 25.9.2009. IN RESPONSE TO THE SAME, THE ASSESSEE, APPEARED THROUGH SHRI MOHD. AFZAL, ADVOCATE AND FUR NISHED THE INFORMATION CALLED FOR. ON PERUSAL OF THE SAME, THE AO NOTICED THAT THE ASSESSEE HAD IMPORTED A NEW TOYOTA CAR FRO M DUBAI AND THE CUSTOMS AUTHORITY CONFISCATED THE VEHICLE AS TH E IMPORT IS NOT AUTHORIZED. AFTER LEVYING A PENALTY OF RS.1.00 LAKH S U/S 112(A) OF THE CUSTOMS ACT, 1962, THE CUSTOMS AUTHORITIES HAVE GIVEN AN OPTION TO THE ASSESSEE TO REDEEM THE VEHICLE U/S 11 1(D) OF THE CUSTOMS ACT, ON PAYMENT OF A FINE OF RS.5,00,000/-. THE ASSESSEE, THEREAFTER, SOLD THE VEHICLE TO M/S NAVAY UGA ENGINEERING COMPANY FOR AN AMOUNT OF RS.61,02,720. THE COMPANY HAD PAID A SUM OF RS.28,02,720 DIRECTLY TO THE CUSTOMS AUTHORITY AND ISSUED A CHEQUE TO THE ASSESSEE FOR T HE BALANCE AMOUNT OF RS.33.00 LAKHS. THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED AN EXPENDITURE OF RS.57,07,995 INCLUDING TH E COST OF CAR AND ARRIVED AT A NET PROFIT OF RS.3,94,725. 5. THE AO OBSERVED THAT THE ASSESSEE HAD SHOWN THE COST OF CAR AT RS.24,49,575, WHICH INCLUDES A SUM OF RS. 4,09,167 AS INCURRED TOWARDS REPAIR OF THE VEHICLE WHEN IT IS B ROUGHT TO HYDERABAD. THE AO DISALLOWED THE CLAIM OF REPAIR HO LDING THE CLAIM TO BE WITHOUT ANY BASIS. FURTHER, THE AO OBSER VED THAT THE COST OF THE VEHICLE AS SHOWN IN THE BILLS AND VOUCH ERS ISSUED BY GK MOTORS, DUBAI IS 1,50,000 DIRHAMS AS ON THE DATE OF PURCHASE I.E. 20.02.2007 AND AS PER THE EXCHANGE RA TE PREVAILING ON THAT DATE, IT WORKED OUT TO RS.18,02,550 AS AGAI NST THE SUM OF RS.20,40,408 WORKED OUT BY THE ASSESSEE. THEREFORE, HE HELD THAT THE DIFFERENCE I.E RS.2,37,858 IS TO BE BROUGHT TO TAX. THEREAFTER, ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 4 OF 7 HE ALSO OBSERVED THAT THE SUM OF RS.28,02,720 PAID BY M/S. NAVAYUGA ENGINEERING COMPANY DIRECTLY TO THE CUSTOM S AUTHORITIES, INCLUDES THE AMOUNT OF RS.6.00 LAKHS R EPRESENTING FINE/PENALTY FOR INFRINGEMENT OF LAW. THEREFORE, HE DISALLOWED THE SAME. FURTHER, THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.3.00 LAKHS TOWARDS SELLING COMMISSION AND IN SUPPORT OF THE SAID CLAIM, THE ASSESSEE FURNISHED CONFIRMATION LETTERS FROM 3 PERSONS FOR RS.1.00 LAKHS EACH. AO CALLED FOR COMMENTS FROM M/S. NAVAYUGA ENGG. COMPANY, WHICH HAD CATEGORICALLY STA TED THAT THEY HAD APPROACHED THE PARTY DIRECTLY AND FINALIZE D THE TRANSACTION. THEREFORE, THE AO OBSERVED THAT THIS C LAIM OF THE ASSESSEE IS AN AFTERTHOUGHT WITH AN INTENTION TO RE DUCE THE TAX LIABILITY. HE, THEREFORE, DISALLOWED THE CLAIM OF C OMMISSION OF RS.3.00 LAKHS AND BROUGHT THE SAME TO TAX. AGGRIEVE D, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO CONFIRMED THE ORDER OF THE AO AND THE ASSESSEE IS IN SECOND APPEA L BEFORE US. 6. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED T HAT THE AMOUNT PAID BY M/S. NAVAYUGA ENGINEERING COMPAN Y TO THE CUSTOMS AUTHORITIES INCLUDED THE SUM OF RS.6.00 LAK HS PAID U/S 112(A) AND ALSO U/S 111(D) OF THE CUSTOMS ACT, 1962 . HE SUBMITTED THAT OUT OF THE SAID AMOUNT, ONLY RS.1.00 LAKHS REPRESENTS PENALTY AND THE SUM OF RS.5.00 LAKHS IS THE AMOUNT PAID BY THE ASSESSEE FOR REDEMPTION OF THE VEHICLE AND THEREFORE, IT CANNOT BE CONSIDERED AS FINE/PENALTY. HE SUBMITTED THAT THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISIONS OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. N. M. PARTHSARATHI REPORTED IN (1995) 212 ITR 105 (MAD.) AND ALSO THE HON'BLE DELHI HIGH COURT IN THE CASE OF M/S USHA MI CRO PROCESS CONTROLS VS. CIT IN ITA NO.101/2000 DATED 5 TH AUGUST, 2013. COPIES OF THE ABOVE ORDERS ARE ALSO FILED BEFORE US . ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 5 OF 7 7. THE LEARNED DR, HOWEVER, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 8. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT THE HON'BLE MADRAS HIGH COU RT IN THE CASE CITED SUPRA HAS CONSIDERED THE ISSUE AT LENGTH AND HAS HELD AS UNDER: 22. COMING TO THE FACTS OF THE CASE ON HAND, THE GO ODS BELONGING TO THE ASSESSEE HAD BEEN CONFISCATED UNDE R SECTION 111(D) OF THE CUSTOMS ACT, 1962, READ WITH SECTION 3 OF T HE IMPORTS AND EXPORTS (CONTROL) ACT, 1947. HOWEVER, UNDER SECTION 125 OF THE CUSTOMS ACT, 1962, AN OPTION HAD BEEN GIVEN TO THE OWNER-ASSESSEE TO PAY, IN LIEU OF SUCH CONFISCATION, A FINE OF RS. 1,84,000 WHICH HAD BEEN REDUCED ON AP PEAL TO RS. 84,000 AND THE GOODS HAD BEEN CLEARED EXERCISING TH E OPTION. IF THE SEIZED GOODS, WITHOUT THE EXERCISE OF OPTION, H AD BEEN CONFISCATED ONCE AND FOR ALL, IT GOES WITHOUT SAYIN G THAT THE PROPERTY IN THE GOODS SHALL VEST IN THE GOVERNMENT, IN THE SENSE OF THE GOVERNMENT BECOMING THE ABSOLUTE OWNER THERE OF. THE FINE AMOUNT, WHATEVER BE ITS QUANTIFICATION, THAT I S TO SAY, WHETHER IT IS EQUIVALENT TO OR BELOW THE VALUE OF T HE GOODS SEIZED, CANNOT AT ALL, IN SUCH A SITUATION, BE STAT ED TO BE PENAL IN NATURE, NOTWITHSTANDING ITS NOMENCLATURE, BUT IT IS REPARATORY OR COMPENSATORY IN NATURE. ONCE IT IS COMPENSATORY IN NATURE, ITS GOES WITHOUT SAYING THAT THE AUTHORITY HAS TO A LLOW DEDUCTION UNDER SECTION 37(1) OF THE INCOME-TAX ACT AS LAID DOWN BY THE APEX COURT IN THE TWO LATEST DECISIONS AFORECITED. FURTHER, THE EXPENSES INCURRED BY WAY OF PAYMENT OF FEES TO ADVOCATES IN DEFENDING PENALTY PROCEEDINGS MUST ALS O BE CONSTRUED AS AN ALLOWABLE DEDUCTION. WE, THEREFORE, ANSWER QUESTIONS NOS. 1 AND 4 IN THE AFFIRMATIVE AND AGAIN ST THE REVENUE. 9. FURTHER, THE HON'BLE DELHI HIGH COURT ALSO IN THE ABOVE CITED CASE HAS HELD AS UNDER: 10. IN THE PRESENT CASE, THIS COURT NOTICES THAT ORIGINALLY, THE PENALTY WHICH THE APPELLANT HAD BEEN DIRECTED TO PAY WAS DELETED BY THE CEGAT. WHAT REMAINED WAS THE CONFISCATION; THE APPELLANT WAS GIVEN THE CHOICE OF REDEEMING THE GOODS BY DEPOSITING REDEMPTION FINE AS IS EVIDENT FROM COMBINED READING OF PARAGRAPH NOS.18 AND 19 OF CEGAT ORDER. THE TRIBUNAL WENT SO FAR AS TO ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 6 OF 7 SAY THAT VALUATION OF GOODS IN QUESTION WAS ON THE BASIS OF DIFFERENCE OF OPINION. NEVERTHELESS, THAT BEING THE RATIONALE FOR DELETION OF PENALTY, THE TRIBUNAL FELT THAT THE ORDER OF CONFISCATION DID NOT REQUIRE TO BE UPSET, INSTEAD REDEMPTION FINE WAS REDUCED TO RS.4,00,000. ON A PROPER APPLICATION OF THE RULING IN M/S. PRAKASH COTTON MILLS PVT. LTDS CASE (SUPRA), THIS COURT IS OF THE OPINION THAT THE AMOUNT OF REDEMPTION FINE IN THE PRESENT CASE WAS COMPENSATORY AND THEREFORE, FELL OUTSIDE THE MISCHIEF OF EXPLANATION OF SECTION 37(1) OF THE INCOME TAX ACT. 10. THUS, IT CAN BE SEEN THAT THE HON'BLE HIGH COUR TS HAVE HELD THAT THE AMOUNT PAID BY THE ASSESSEE TOWARDS R EDEMPTION OF THE VEHICLE IS COMPENSATORY IN NATURE AND CANNOT BE CONSIDERED AS FINE AND FELL OUTSIDE THE MISCHIEF OF EXPLANATIO N OF SECTION 37(1) OF THE I.T. ACT. FURTHER, WE ALSO FIND FROM THE COP Y OF THE ORDER OF THE COMMISSIONER OF CUSTOMS DATED 30.04.2007 THAT A N OPTION U/S 111(D) OF THE CUSTOMS ACT WAS GIVEN TO THE ASSE SSEE TO REDEEM THE VEHICLE ON PAYMENT OF FINE OF RS.5.00 LA KHS. ANOTHER SUM OF RS.1.00 LAKHS HAS BEEN IMPOSED AS PENALTY U/ S 112(A) OF THE CUSTOMS ACT. THUS, THE ABOVE DECISIONS ARE CLEA RLY APPLICABLE TO THE FACTS OF THE CASE BEFORE US AND THE ASSESSEE GETS RELIEF TO THE TUNE OF RS.5.00 LAKHS. THIS GROUND IS PARTLY AL LOWED. 11. AS REGARDS GROUND NO.6 AGAINST THE DISALLOWANCE OF COMMISSION PAYMENT TO 3 DIFFERENT PARTIES, FOR FACI LITATING THE SALE OF THE CAR, THE ASSESSEE HAS FILED THE COPIES OF TH E CONFIRMATION LETTERS FROM THOSE 3 PARTIES. HOWEVER, AS SEEN FROM THE ASSESSMENT ORDER, THE ASSESSEE HERSELF HAS STATED T HAT SHE HAS SOLD THE CAR THROUGH HER BROTHER-IN-LAW AND DID NOT PAY ANY COMMISSION TO HIM. THIS FACT IS ALSO CORROBORATED B Y THE STATEMENT OF M/S. NAVAYUGA ENGG. COMPANY WHEREIN TH EY HAVE CONFIRMED THAT THEY HAVE DIRECTLY APPROACHED THE PA RTY AND ITA NO 742 OF 2016 ZARINA MOHD NAIM KHAN HYDERABAD PAGE 7 OF 7 FINALIZED THE TRANSACTION. THEREFORE, INITIALLY THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THERE WERE NO PERSONS BETWEE N THE ASSESSEE AND THE PURCHASERS TO FACILITATE THE SALE OF THE CAR. IT IS ONLY THEREAFTER THAT THE ASSESSEE HAS CLAIMED TO HA VE PAID COMMISSION TO 3 DIFFERENT PERSONS. THE FACT THAT TH E ASSESSEE HAS CLAIMED TO HAVE SOLD THE CAR THROUGH 3 DIFFERENT PE RSONS IS ITSELF UNBELIEVABLE. THEREFORE, WE SEE NO REASON TO INTERF ERE WITH THE ORDER OF THE CIT (A) ON THIS ISSUE. GROUND NO.6 OF THE APPEAL IS REJECTED. 12. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH NOVEMBER, 2016. SD/- SD/- (S.RIFAUR RAHMAN) ACCOUNTANT MEMBER (P. MADHAVI DEVI) JUDICIAL MEMBER HYDERABAD, DATED 18 TH NOVEMBER, 2016. VINODAN/SPS COPY TO: 1 SHRI MOHD. AFZAL, ADVOCATE, 11-5-465 SHERSONS RE SIDENCY, FLAT NO.402, CRIMINAL COURT ROAD, RED HILLS, HYDERABAD 5 00004 2 INCOME TAX OFFICER WARD 4(4) HYDERABAD 3 CIT (A)-1 HYDERABAD 4 PR.CIT 1 HYDERABAD 5 THE DR, ITAT HYDERABAD 6 GUARD FILE BY ORDER