SAGARIKA ACOUSTRONICS P. LTD, MUMBAI V. ITO WD 10(3)(4), MUMBAI

ITA 7699/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71191 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 06-08-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 09-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C N VAZE; ACHALA VAIDYA
• Keywords: Business income; Opportunity of being heard; Revenue expenditure
• Section: 143(3)

Judgement Text

E IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI .. , !' # # # # $, % !' & BEFORE SHRI P.M. JAGTAP, AM AND SHRI SANJAY GARG, J M ' ./ I.T.A. NO. 7699 /MUM/2010 ( %)$ #*$ %)$ #*$ %)$ #*$ %)$ #*$ / / / / ASSESSMENT YEAR : 2003-04) SAGARIKA ACOUSTRONICS PVT. LTD., 22, MOUNT VIEW, BEHIND CENTRAL BANK, SION TROMBEY ROAD, MANKHURD, MUMBAI 400 088. ) ) ) ) / VS. INCOME TAX OFFICER WARD 10(3)(4), AAYAKAR BHAVAN, 4 TH FLOOR, MUMBAI 400 020. '+ ./ PAN : AAECS5158C ( +, / // / APPELLANT ) .. ( -.+, / RESPONDENT ) +, / 0 / APPELLANT BY : SHRI C.N. VAZE & SMT. ACHALA VAIDYA -.+, / 0 / RESPONDENT BY : SHRI JAVED AKHTAR )# / / // / DATE OF HEARING : 06-08-2013 12* / / DATE OF PRONOUNCEMENT : 18-09-2013 '!3 / O R D E R PER P.M. JAGTAP, A.M . : .. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LD. CIT(A) 22, MUMBAI DTD. 31-8-2010 WHEREBY HE CONFI RMED THE PENALTY OF RS. 19,80,255/- IMPOSED BY THE A.O. U/S 271(1)(C) OF TH E INCOME TAX ACT, 1961 (THE ACT). ITA 7699/MUM/2010 2 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY W HICH IS ENGAGED IN THE BUSINESS OF REPLICATION OF COMPACT DISCS AND DUPLIC ATION OF CASSETTES AS PER THE REQUIREMENT OF MUSIC COMPANIES. A SURVEY U/S 1 33A OF THE INCOME TAX ACT WAS CARRIED OUT IN THE CASE OF THE ASSESSEE ON 10-2-2003. DURING THE COURSE OF SURVEY, CERTAIN DISCREPANCIES WERE FOUND IN THE STOCK MAINTAINED BY THE ASSESSEE AND IN HIS STATEMENT RECORDED DURING T HE COURSE OF SURVEY, SHRI AJIT BAM, DIRECTOR OF THE ASSESSEE COMPANY ACCEPTED THE EXCESS STOCK OF RS. 1.39 LACS BEING 1% OF THE TOTAL STOCK OF RS. 1.39 C RORES AND AGREED TO OFFER THE ADDITIONAL INCOME TO THAT EXTENT. THE SAID DECLARAT ION, HOWEVER, WAS SUBSEQUENTLY RETRACTED BY SHRI AJIT BAM AND IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER CONSIDERATION ON 28-11-2003 DECLARIN G LOSS OF RS. 2,71,45,943/-, THE ADDITIONAL INCOME ON ACCOUNT OF EXCESS STOCK OF RS. 1.39 LACS WAS NOT OFFERED BY THE ASSESSEE. IN THE ASSES SMENT COMPLETED U/S 143(3) OF THE ACT VIDE AN ORDER DATED 31-3-2006, THE A.O. MADE THE ADDITION OF RS. 1.39 LACS TO THE TOTAL INCOME OF THE ASSESSEE ON AC COUNT OF EXCESS STOCK. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A. O. ALSO FOUND THAT THE EXPENSES OF RS. 1,44,17,491/- CLAIMED BY THE ASSESS EE ON ACCOUNT OF PRODUCTION OF ALBUMS, ADVERTISEMENT AND PUBLICITY W ERE PARTLY DEFERRED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. IN THE COMPUTATI ON OF TOTAL INCOME, THE ASSESSEE HAD ADDED BACK THE SAID EXPENSES ONLY TO T HE EXTENT OF RS. 40,26,496/- WHEREAS THE SAME, AS PER THE A.O., WERE REQUIRED TO BE ADDED BACK TO THE TUNE OF RS. 92,75,944/-. HE, THEREFORE , ADDED BACK THE DIFFERENCE OF RS. 52,49,448/- ON ACCOUNT OF THESE EXPENSES TO THE INCOME OF THE ASSESSEE. ACCORDINGLY TOTAL ADDITION OF RS. 53,88, 448/- WAS MADE BY THE A.O.TO THE TOTAL INCOME OF THE ASSESSEE IN THE ASSE SSMENT COMPLETED U/S 143(3) OF THE ACT VIDE AN ORDER DATED 31-3-2006. 3. THE ADDITION OF RS. 53,88,448/- MADE BY THE A.O . TO THE TOTAL INCOME OF THE ASSESSEE WAS CONFIRMED BY THE LD. CIT(A) DISMIS SING THE APPEAL FILED BY THE ASSESSEE IN THE QUANTUM PROCEEDINGS. CONSEQUEN TLY, A NOTICE WAS ISSUED ITA 7699/MUM/2010 3 BY THE A.O. REQUIRING THE ASSESSEE TO SHOW CAUSE AS TO WHY PENALTY U/S 271(1)(C) OF THE ACT SHOULD NOT BE IMPOSED IN RESPE CT OF ADDITION OF RS. 53,88,448/- MADE TO ITS TOTAL INCOME. THE ASSESSEE, HOWEVER, NEITHER APPEARED BEFORE THE A.O. NOR FILED ANY WRITTEN SUBM ISSION AND KEEPING IN VIEW THIS FAILURE OF THE ASSESSEE TO OFFER ANY EXPLANATI ON IN REPLY TO THE SHOW CAUSE NOTICE, PENALTY OF RS. 19,80,255/- WAS IMPOSED BY T HE A.O. BEING 100% OF THE TAX SOUGHT TO BE EVADED ON THE ADDITION OF RS. 52,8 8,448/- MADE TO THE TOTAL INCOME OF THE ASSESSEE. 4. THE PENALTY IMPOSED BY THE A.O. U/S 271(1)(C) O F THE ACT WAS CHALLENGED BY THE ASSESSEE IN AN APPEAL FILED BEFORE THE LD. C IT(A) AND IT WAS SUBMITTED ON BEHALF OF THE ASSESSEE BEFORE HIM THAT THE ADDIT ION ON ACCOUNT OF DIFFERENCE IN STOCK HAVING BEEN MADE ON AGREED BASIS, THERE WA S NO CASE FOR IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT. THIS EXPLANAT ION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LD. CIT(A) ON THE GROUND TH AT THE INCOME ON ACCOUNT OF EXCESS STOCK HAD NOT BEEN OFFERED BY THE ASSESSE E IN THE RETURN OF INCOME. AS REGARDS THE ADDITION OF RS. 52,49,448/- MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES CLAIMED ON PRODUCTION OF ALBUMS, ADVERT ISEMENT AND PUBLICITY, THE ASSESSEE FILED RECONCILIATION EXPLAINING THE DI FFERENCE IN THE QUANTUM OF RELEVANT EXPENSES ADDED BACK. AS THE SAID RECONCIL IATION WAS NOT SUPPORTED BY THE RELEVANT DOCUMENTS, THE LD. CIT(A) DID NOT A CCEPT THE SAME AND CONFIRMED THE PENALTY IMPOSED BY THE A.O. U/S 271(1 )(C) OF THE ACT. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE HAS PR EFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS RAISED BEFORE US VARIOUS CONTENTIONS IN SUPPORT OF THE ASSESSEES CASE AND HAS ALSO FILED A WRITTEN SUBMISSION SUMMARIZING THE SAI D CONTENTIONS AS UNDER:- ITA 7699/MUM/2010 4 1. THE APPELLANT COMPANY WAS ENGAGED IN THE MANUFA CTURING OF PRE- RECORDED CASSETTES, CDS. ETC. DUE TO RAMPANT PIRACY , IN THE MARKET, IT INCURRED HUGE LOSSES AND WENT INTO BIFR. IT HAS NO BUSINESS WHATSOEVER SINCE 1 .4.2009. 2. THE PRESENT APPEAL IS AGAINST PENALTY U/S 271(1) (C) ARISING OUT OF TREATMENT OF DEFERRED REVENUE EXPENDITURE IN THE PR OFIT AND LOSS ACCOUNT AND IN THE STATEMENT OF INCOME. 3. IT IS PERTINENT TO NOTE THAT DESPITE THE INCORRE CT TREATMENT GIVEN BY THE APPELLANT COMPANY, THERE WAS NO EFFECT ON TH E TAXABLE INCOME AND HENCE TAX SOUGHT TO BE EVADED WAS NIL. THERE WA S A COMPENSATING ERROR WHICH IS TAX- NEUTRAL. 4. THE A.O HAS ERRED IN MAKING ADDITION DUE TO MISI NTERPRETATION. THE SAME WAS NOT CONTESTED IN VIEW OF HUGE LOSSES A ND AS THE COMPANY IS UNDER BIFR. 5. IT IS WORTH NOTING THAT THE GENUINENESS OF THE E XPENDITURE IS NOT QUESTIONED OR DOUBTED BY THE LOWER AUTHORITIES. THE DISALLOWANCE IS BECAUSE OF MISINTERPRETATION OF FIGURES. 6. DURING THE YEAR, THE APPELLANT COMPANY INCURRED EXPENSES TOWARDS ALBUMS, ADVERTISEMENT AND PUBLICITY TO THE TUNE OF RS. 1,44,17,491/-. AS PER GENERAL PRACTICE, APPELLANT C OMPANY DEFERS THE PART OF THE EXPENSES AND DEBITS ONLY PART OF THE EX PENSES IN THE PROFIT AND LOSS ACCOUNT. THE OPENING BALANCE OF DEFERRED R EVENUE EXPENDITURE AS ON 01.04.2002 WAS RS. 87,34,368/-. ACCORDINGLY, THE AMOUNT OF RS. 92,75,491/- WAS DEBITED IN THE PROFIT AND LOSS ACCO UNT, THE BREAKUP OF WHICH WAS AS FOLLOWS: PARTICULARS AMOUNT(RS) OUT OF OPENING BALANCE 29,11,456/- OUT OF CURRENT YEARS EXPENDITURE 63,64,497/- TOTAL AMOUNT DEBITED TO P/L A/C 92,75,944 7. DURING THE YEAR, THE APPELLANT COMPANY DECIDED T O CLAIM ENTIRE EXPENDITURE FOR THE YEAR ALONG WITH PART OF THE EXP ENDITURE BROUGHT FORWARD FROM THE EARLIER YEAR. 8. HOWEVER, WHILE CLAIMING THE EXPENDITURE THE APPE LLANT COMPANY COMMITTED A MISTAKE. THE TAXABLE INCOME DID NOT CHA NGE DESPITE THE INCORRECT TREATMENT WHICH CAN BE SEEN FROM THE TABL E BELOW. 9. THE FOLLOWING TABLE HAS BEEN PREPARED ON THE ASS UMPTION THAT THERE ARE NO OTHER ADDITIONS OR DISALLOWANCES TO UN DERSTAND THE THINGS CLEARLY. PENALTY WAS INVOKED MAINLY IN RESPECT OF THIS DISALLOWANCE. ITA 7699/MUM/2010 5 PARTICULARS INCORRECT TREATMENT GIVEN BY THE APPELLANT COMPANY AMOUNT(RS) CORRECT TREATMENT WHICH SHOULD HAVE BEEN GIVEN AMOUNT (RS) INCORRECT TREATMENT GIVEN BY THE ASSESSING OFFICER AMOUNT (RS) NET LOSS AS PER PROFIT AND LOSS ACCOUNT (2,13,61,580) (2,13,61,580) (2,13,61,580) ADD: DISALLOWABLES 40,26,496* 63,64,497 * 92,75,944 LESS: EXPENSES CLAIMED 1,20,79,489 * 1,44,17,491 * 1,44,17,491 = RESULTANT LOSS (2,94,14,573) (2,94,14,574) (2,65, 03,127) * 63,64,497 * 1,44,17,491 (-) 40,26,496 (-) 1,20,79,489 .. . 23,38,001 23,38,002 .. .. COMPENSATING ERROR OF RS. 23,38,001/- 10. THE AC, AT THE TIME OF ASSESSMENT, NOTICED THAT THE AMOUNT OF ONLY RS. 40,26,496/- WAS ADDED TO NET LOSS AND RS. 92,75,944/- WAS DEBITED TO PROFIT AND LOSS ACCOUNT BY THE APPELLANT COMPANY. HENCE, HE MADE ADDITION OF RS. 52,49,448/-. HE ALSO LEVIED TH E PENALTY ON THE SAID ADDITION. 11. THE APPELLANTS CONTENTION IS THAT EVEN THOUGH THERE WAS AN ERROR ON THE PART OF THE APPELLANT COMPANY IN CLAIM ING THE EXPENSES, THE SAME WAS OF COMPENSATING NATURE. THE RESULTANT LOSS WOULD HAVE BEEN THE SAME AT RS. 2,94,14,574/- EVEN THOUGH THE CORRECT TREATMENT WOULD HAVE BEEN GIVEN. 12. THE A.O ONLY SAW THE FIGURE OF RS. 40,26,496/- WHILE HE OVERLOOKED THE FIGURE OF RS. 1,20,79,489/- WHICH WAS IN FACT U NDER-CLAIMED. 13. THE ULTIMATE EFFECT OF ACS ACTION ON THE RESUL TANT LOSS WAS RS 29 11 44 - RS. 2,94,14574 RS. 2,65,03,127) WHICH WA S ALSO NOT JUSTIFIED AS THE SAID AMOUNT CLAIMED WAS OTHERWISE ALLOWABLE AS THE PART OF BROUGHT FORWARD BALANCE OF EARLIER YEAR AND THERE WAS NO DISPUTE ABOUT THE SAID AMOUNT. 14. THE SAME WAS NOT CONTESTED IN VIEW OF HUGE LOSS ES AND THE COMPANY WAS UNDER BIFR. IN THE LIGHT OF THE FOREGOING, THE PENALTY MAY PLEA SE BE DELETED. ITA 7699/MUM/2010 6 15. RE. ADDITION OF RS. 1,39,000/- IN STOCKS, IT WA S A MINOR CLERICAL ERROR. TOTAL SALES RS. 19.43 CR INVENTORY RS. 2.55 CR. 6. AFTER CONSIDERING THE SUBMISSIONS MADE BY THE LD . COUNSEL FOR THE ASSESSEE AND HEARING THE ARGUMENTS OF THE LD. D.R., WE FIND THAT THE VARIOUS CONTENTIONS NOW RAISED BY THE LD. COUNSEL FOR THE A SSESSEE WERE NOT PUT FORTH ON BEHALF OF THE ASSESSEE EITHER BEFORE THE A.O. OR BEFORE THE LD. CIT(A). AS A MATTER OF FACT, NO EXPLANATION WHATSOEVER WAS OFFER ED ON BEHALF OF THE ASSESSEE IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUE D BY THE A.O. DURING THE COURSE OF PENALTY PROCEEDINGS. A PERUSAL OF THE IM PUGNED ORDER OF THE LD. CIT(A) ALSO SHOWS THAT A VERY BRIEF SUBMISSION WAS MADE ON BEHALF OF THE ASSESSEE BEFORE HIM AND THE VARIOUS CONTENTIONS NOW RAISED BEFORE THE TRIBUNAL WERE NOT ADVANCED BEFORE THE LD. CIT(A). MOREOVER, IN THE SUBMISSIONS MADE BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE HAS POINTED OUT CERTAIN CALCULATION MISTAKES AFFECTING THE QUANTUM OF ADDITION MADE TO THE TOTAL INCOME OF THE ASSESSEE IN RESPECT OF WHICH TH E IMPUGNED PENALTY HAS IMPOSED U/S 271(1)(C) OF THE ACT AND THESE ASPECTS HAVING A DIRECT BEARING ON THE QUANTUM OF PENALTY, IN OUR OPINION, REQUIRE VER IFICATION. KEEPING IN VIEW THIS POSITION EMERGING FROM RECORD AND HAVING REGAR D TO THE FACT THAT IT IS A CASE OF IMPOSITION OF PENALTY U/S 271(1)(C) OF THE ACT, WE CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE, TO RESTORE T HE MATTER TO THE FILE OF THE A.O. TO DECIDE THE SAME AFRESH AFTER EXAMINING/VERI FYING THE VARIOUS CONTENTIONS OF THE ASSESSEE. ACCORDINGLY, WE SET A SIDE THE IMPUGNED ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO THE FILE O F THE A.O. FOR DECIDING THE SAME AFRESH AFTER ALLOWING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ITA 7699/MUM/2010 7 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 4 5 %)$4 / 6/ 789 : '# ; / <= ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH SEPTEMBER, 2013. . '!3 / 12* >!)5 18-09-2013 2 / SD/- SD/- (SANJAY GARG) (P.M. JAGTAP ) % !' JUDICIAL MEMBER !' / ACCOUNTANT MEMBER MUMBAI ; >!) DATED 18-09-2013 #.%). ./ RK , SR. PS '!3 / -%:? @?* '!3 / -%:? @?* '!3 / -%:? @?* '!3 / -%:? @?*/ COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. ' 'A () / THE CIT(A)- 22, MUMBAI 4. ' 'A / CIT 10, MUMBAI 5. ?#D -%%), ' , / DR, ITAT, MUMBAI E BENCH 6. E$ F / GUARD FILE. '!3) '!3) '!3) '!3) / BY ORDER, .? -% //TRUE COPY// 7 7 7 7/ // / < < < < ( DY./ASSTT. REGISTRAR) ' ' ' ' , , , , / ITAT, MUMBAI