UNIVERSAL MUSIC INDIA P. LTD, MUMBAI V. ITO RG 7(3)(3), MUMBAI

ITA 8450/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83923 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2014
• Appeal Filed By: Assessee
• Bench Allotted: H
• Next Hearing Date: 13-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 13-12-2011
• Court: TRIBUNAL
• Assessee Lawyers: CIRCUMSTANCES OF CASE
• Keywords: Depreciation; Wrong claim; Unabsorbed depreciation; Bonafide mistake
• Section: 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUMBAI JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; JH FOT; IKY JKO] U;KF;D LNL; ,OA ,OA ,OA ,OA JH MH D:.KKDJ JKO] YS[KK LNL; JH MH D:.KKDJ JKO] YS[KK LNL; JH MH D:.KKDJ JKO] YS[KK LNL; JH MH D:.KKDJ JKO] YS[KK LNL; DS LE{K DS LE{K DS LE{K DS LE{K BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI D.KARUNAKARA RAO, ACCOUNTANT MEMBER ITA NO.8450/MUM/2011 ASSESSMENT YEAR: - 2007-08 UNIVERSAL MUSIC INDIA PVT. LTD. 4 TH FLOOR, SAMIR COMPLEX, ST. ADNREWS ROAD, BANDRA (W), MUMBAI - 400 050. VS.` INCOME TAX OFFICER 7(3)(3), COMMISSIONER OF INCOME TAX (APPEALS) -13, MUMBAI. PAN: AAACP1985C APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20.07.2011 OF CIT(A) ARISING FROM THE PENALTY ORDER PASSED U/S 2 71(1)(C) OF THE INCOME TAX ACT FOR THE A.Y. 2007-08. THE ASSESSEE HAS RAISED TH E SOLITARY GROUND AS UNDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 13 [CIT(A)] ERRED IN CONFIRMING PENALTY U/S 271(1)(C) OF THE INCOME TAX ACT, 1961, (THE ACT) OF RS. 31,94,040/- ON THE GROUND THAT THE APPELLANT HAS FU RNISHED INACCURATE PARTICULARS OF INCOME WHICH WERE NOT BONAFIDE AND THE REBY CONCEALED THE INCOME. 2. IN THE ASSESSMENT COMPLETED U/S 143(3), THE ASSES SING OFFICER ADDED A SUM OF RS. 94,89,134/- TO THE TOTAL INCOME OF THE ASSES SEE ON ACCOUNT OF ADVANCE TAX ASSESSEE BY SHRI MURALIDHAR REVENUE BY SHRI N. PADMANABHAN DATE OF HEARING 13-10-2014 DATE OF PRONOUNCEMENT 21.10.2014 UNIVERSAL MUSIC INDIA PVT. LTD 2 | P A G E WRITTEN OFF DEBITED TO THE P&L ACCOUNT. THE ASSESSEE DID NOT DISPUTE THE ADDITION OF THE SAID AMOUNT AS IT WAS NOT DISALLOWED BY THE AS SESSEE ITSELF IN THE COMPUTATION OF INCOME DUE TO OVERSIGHT AND BONAFIDE M ISTAKE. THE ASSESSING OFFICER INITIATED THE PENALTY PROCEEDINGS U/S 271(1) (C) IN RESPECT OF THE DISALLOWANCE OF THE SAID AMOUNT OF RS. 94,89,134/- AN D LEVIED PENALTY OF RS. 31,94,040/-/- VIDE ORDER DATED 28.06.2010. 3. THE ASSESSEE CHALLENGED THE ACTION OF ASSESSING O FFICER BEFORE CIT(A) BUT COULD NOT SUCCEED AS THE CIT(A) HAS UPHELD THE LEVY OF PENALTY ON THE GROUND THAT THE ASSESSEE HAS MADE A FALSE CLAIM IN THE RETURN OF INCOME AND IT WAS NOT A BONAFIDE MISTAKE BUT THE ASSESSEE HAS CONCEALED ITS I NCOME. 4. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF TH E ASSESSEE HAS REFERRED THE ASSESSMENT ORDER AND SUBMITTED THAT THE ASSESSEE HAS FILED THE RETURN OF INCOME DECLARING A TOTAL LOSS OF RS. 1,26,84,671/-. HE HAS ALSO REFERRED THE COMPUTATION OF INCOME AND SUBMITTED THAT THE ASSESS EE ITSELF HAS DISALLOWED A NUMBER OF ITEMS WHICH WERE NOT ALLOWABLE AS PER THE TAX AUDIT REPORT AND FURTHER UNABSORBED DEPRECIATION BROUGHT FORWARD AND CARRY FORWA RD LOSSES UNDER THE INCOME TAX ACT ARE TO THE TUNE OF RS. 1,427,292,335 /-. THEREFORE, THERE WAS NO DELIBERATE OR DISHONEST ACT ON THE PART OF THE ASSES SEE FOR NOT MAKING THE DISALLOWANCE OF SAID AMOUNT OF RS. 94,89,134/- ON AC COUNT OF ADVANCE TAX WRITTEN OFF AS EVEN AFTER THE DISALLOWANCE OF THE SAID AMOUN T, THE TOTAL INCOME OF THE ASSESSEE WOULD BE NIL AND IT WOULD NOT ALTER THE TAX LIABILITY OF THE ASSESSEE AT ALL. THE LD. AUTHORIZED REPRESENTATIVE HAS THEN REFERRED THE TAX AUDIT REPORT AND SUBMITTED THAT THE AUDITOR HAS MADE VARIOUS DISALLOWANC ES AS SET OUT IN THE TAX AUDIT REPORT BUT THE AUDITOR HAS MISTAKENLY MISSED OU T A PARTICULAR ITEM OF ADVANCE TAX WRITTEN OFF IN THE AUDIT REPORT. THE ASS ESSEE HAS ACCORDINGLY DISALLOWED ALL THE EXPENSES WHICH WERE POINTED OUT IN THE TAX AUDIT REPORT TO BE DISALLOWED AND, THEREFORE, IT WAS ONLY A BONAFIDE AND I NADVERTENT MISTAKE THAT THE UNIVERSAL MUSIC INDIA PVT. LTD 3 | P A G E ASSESSEE COULD NOT DISALLOW THE SAID AMOUNT OF ADVANCE TAX WRITTEN OFF. THUS THE LD. AUTHORIZED REPRESENTATIVE HAS SUBMITTED THAT THER E WAS NO QUESTION OF CONCEALMENT OF PARTICULARS OF INCOME OR FURNISHING INACCURATE PARTICULARS OF INCOME ON THE PART OF THE ASSESSEE WHEN THE ASSESSE E HAS COMPUTED THE TOTAL INCOME AS PER THE TAX AUDIT REPORT. IT WAS ONLY A B ONAFIDE AND INADVERTENT ERROR ON THE PART OF THE ASSESSEE WHILE FILING THE RETURN OF INCOME. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE FOLLOWING DECISION S:- (I) PRICE WATERHOSUE COOPERS PVT. LTD. (2012) 348 ITR 30 6 (SC) (II) BENEETTEE COLEMAN [2013] 259 CTR 383 (BOMBAY) HC (III) SOCIETEX (ITA NO. 4600/DEL/2010 5. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE BONAFIDE MISTAKE IS NOT AN EXPLANATION FOR CONCEALMENT OF PARTICULARS O F INCOME OR FURNISHING OF INACCURATE PARTICULARS OF INCOME. THE EXPLANATION TO SECTION 271(1)(C) RAISES THE PRESUMPTION OF CONCEALMENT IF A DIFFERENCE IS NOTICE D BY THE ASSESSING OFFICER BETWEEN THE REPORTED AND ASSESSED INCOME. MENS REA IS NOT RELEVANT FOR THE PURPOSE OF LEVY OF PENALTY U/S 271(1)(C). IT IS NOT A BONAFIDE CLAIM, THE ADVANCE TAX WRITTEN OFF TO THE PROFIT & LOSS ACCOUNT AS THE RE IS NO POSSIBILITY OF TWO VIEWS BUT THE CLAIM OF THE ASSESSEE IS ABSOLUTELY WRONG A ND FALSE, THEREFORE, WHEN THE ASSESSEE HAS MADE A FALSE CLAIM THEN THERE CANNOT BE ANY EXPLANATION OF BONAFIDE MISTAKE. HE HAS RELIED UPON THE DECISION OF HON'BLE S UPREME COURT IN THE CASE OF MAK DATA (P) LTD. VS. CIT (358 ITR 593) AS WELL AS THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. ESCORTS FINANCE LTD. (183 TAXMAN 453). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND RELE VANT MATERIAL ON RECORD. IN THE COMPUTATION OF INCOME, THE ASSESSEE ITSELF H AS MADE VARIOUS DISALLOWANCES WHICH ARE NOT ALLOWABLE CLAIMS. WE REFER THE COMPUT ATION OF INCOME BY THE ASSESSEE AS UNDER:- UNIVERSAL MUSIC INDIA PVT. LTD 4 | P A G E UNIVERSAL MUSIC INDIA PVT. LTD 5 | P A G E 7. IT IS CLEAR FROM THE WORKING OF INCOME AS COMPU TED BY THE ASSESSEE THAT DISALLOWANCE ON ACCOUNT OF FBT DEBITED AS WELL AS U/S 40(A)(I) AND 40(A)(IA) UNDER SERIAL NO. 6, 8, 12, 13 14, 15 & 16. THESE DI SALLOWANCE HAS BEEN MADE IN COMPUTATION OF INCOME AS SUGGESTED BY THE TAX AUDITOR S IN THE TAX AUDIT REPORT. WE FIND THAT IN THE TAX AUDIT REPORT THERE WAS NO DIS ALLOWANCE EITHER SUGGESTED OR SET OUT BY THE AUDITORS IN RESPECT OF ADVANCE TAX W RITTEN OFF OF RS. 94,89,134/-. THERE IS NO DISPUTE THAT THE ASSESSEE HAS RETURNED LOSS OF RS. 11,754,483/- PRIOR TO SET OFF THE BROUGHT FORWARD LOSS AND UNABSORBED DEP RECIATION WHICH AMOUNTING TO RS. 1,427,292,335/-. THEREFORE, FOR TH E YEAR UNDER CONSIDERATION, THE NON DISALLOWANCE OF ADVANCE TAX WRITTEN OFF MAK ES NO CHANGE IN THE TAX LIABILITY OF THE ASSESSEE DUE TO THE HUGE AMOUNT OF UNABSORBED DEPRECIATION OR BROUGHT FORWARD LOSSES. THOUGH IT IS NOT RELEVANT FO R THE PURPOSE OF CONSIDERING THE QUESTION OF CONCEALMENT OF INCOME OR FURNISHING THE INACCURATE PARTICULARS OF INCOME IN TERMS OF SECTION 271(1)(C) YET THESE FACT S AND CIRCUMSTANCES ARE RELEVANT TO CONSIDER THE BONAFIDE INADVERTENT MISTAKE ON THE PART OF THE ASSESSEE. WHEN THE COMPUTATION OF INCOME IS BASED ON TAX AUDIT REPORT AND THE ASSESSEE HAS DISALLOWED ALL OTHER ITEMS WHICH ARE NOT ALLOWABL E UNDER THE PROVISIONS OF INCOME TAX ACT THEN MISSING OUT A SINGLE ITEM WHICH WAS ALSO LEFT OUT BY THE TAX AUDITORS IN THE TAX AUDIT REPORT SUBSTANTIATED THE EX PLANATION OF THE ASSESSEE THAT IT WAS DUE TO BONAFIDE AND INADVERTENT MISTAKE, THE AS SESSEE COULD NOT DISALLOW THE ADVANCE TAX WRITTEN OFF ITEM DEBITED TO THE P&L AC COUNT. THERE IS NO QUARREL ON THE POINT THAT IF THE ASSESSEE MAKES A FALSE CLA IM THEN IT WOULD NOT BE BONA FIDE EXPLANATION THAT THE CLAIM WAS MADE DUE TO INADVERTEN CE BONAFIDE MISTAKE. HOWEVER IN THE CASE IN HAND, THE CLAIM OF THE ASSES SEE IS NOT FALSE AS THERE IS NO DISPUTE ABOUT THE ADVANCE TAX PAYMENT BUT THE SAID PA YMENT OF TAX IS NOT ALLOWABLE UNDER THE PROVISIONS OF INCOME TAX ACT, T HEREFORE, THE ASSESSEES CLAIM IS A WRONG CLAIM AND NOT A FALSE CLAIM. THE HON'BLE SUPREME COURT IN THE CASE OF UNIVERSAL MUSIC INDIA PVT. LTD 6 | P A G E PRICE WATERHOSUE COOPERS PVT. LTD. (SUPRA) WHILE DEALING WITH AN IDENTICAL SITATION HELD IN PARA 18 TO AS UNDER:- THE FACT THAT THE TAX AUDIT REPORT WAS FILED ALONG WITH THE RETURN AND THAT IT UNEQUIVOCALLY STATED THAT THE PROVISION FOR PAYMENT WAS NOT ALLOWABLE U/S. 40A(7) OF THE ACT, INDICATED THAT THE ASSESSEE MADE A COMPUTATION ERROR IN ITS RETURN OF INCOME. APART FROM THE FACT THAT THE ASSE SSEE DID NOT NOTICE THE ERROR, IT WAS NOT NOTICED EVEN BY THE ASSESSING OFF ICER WHO FRAMED THE ASSESSMENT ORDER. IN THAT SENSE, EVEN THE ASSESSING OFFICER HAD MADE A MISTAKE IN OVERLOOKING THE CONTENTS OF THE TAX AUDI T REPORT. CONTENTS OF THE TAX AUDIT REPORT SUGGESTED THAT THE RE IS NO QUESTION OF THE ASSESSEE CONCEALING ITS INCOME. THERE WAS ALSO NO Q UESTION OF THE ASSESSEE FURNISHING ANY INACCURATE PARTICULARS. IN THE OPINI ON OF THE SUPREME COURT THROUGH A BONA FIDE AND INADVERTENT ERROR, THE ASSE SSEE WHILE SUBMITTING ITS RETURN, FAILED TO ADD THE PROVISION FOR GRATUITY TO ITS TOTAL INCOME. THIS COULD ONLY BE DESCRIBED AS A HUMAN ERROR, WHICH EVERYONE IS PRONE TO MAKE. THE CALIBRE AND EXPERTISE OF THE ASSESSEE HAD LITTLE OR NOTHING TO DO WITH THE INADVERTENT ERROR. THAT THE ASSESSEE SHOULD HAVE BE EN CAREFUL CANNOT BE DOUBTED, BUT THE ABSENCE OF DUE CARE, IN A CASE SUC H AS THE PRESENT ONE, DID NOT MEAN THAT THE ASSESSEE WAS GUILTY OF EITHER FUR NISHING INACCURATE PARTICULARS OR HAD ATTEMPTED TO CONCEAL ITS INCOME. WE ARE OF THE OPINION, GIVEN THE PECULIAR FACTS IF THIS CASE, THAT THE IMPOSITION OF PENALTY ON THE ASSESSEE IS NOT JUSTIFIED. WE ARE SATISFIED THAT THE ASSESSEE HAD COMMITTED AN INADVERTENT AND BONA FIDE ERROR AN D HAD NOT INTENDED TO OR ATTEMPTED TO EITHER CONCEAL ITS INCOME OR FURNISH I NACCURATE PARTICULARS 8. SIMILARLY, HON'BLE JURISDICTIONAL HIGH COURT INCURR ED IN THE CASE OF CIT VS. BENEETTEE COLEMAN (SUPRA) HAS OBSERVED IN PARA 2 AS UNDER:- SO FAR AS QUESTION (I) IS CONCERNED, THE RESPONDE NT- ASSESSEE HAS CLAIMED DEDUCTION OF INTEREST ON TAX FREE BONDS OF RS.5,60, 11,644/-. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE 'ASSESSEE WAS AS KED TO GIVE DETAILS OF INTEREST ON TAX FREE BONDS. WHILE PREPARING THE SAI D DETAILS, IT WAS NOTICED THAT 6% GOVERNMENT OF INDIA CAPITAL INDEX BONDS PURCHASE D DURING THE YEAR HAD INADVERTENTLY BEEN CATEGORIZED AS TAX FREE BONDS AN D, THEREFORE, INTEREST OF RS.75,00,000/- EARNED ON SUCH BONDS HAD ALSO INADVE RTENTLY ESCAPED TAX. THE ASSESSING OFFICER LEVIED PENALTY UNDER SECTION 271( 1)(C) OF THE INCOME TAX ACT, 1961 (THE ACT). THE CIT(A) UPHELD THE ORDER OF THE ASSESSING OFFICER. ON FURTHER APPEAL, THE TRIBUNAL IN THE IMPUGNED ORDER RECORDS A FINDING OF FACT THAT BY INADVERTENT MISTAKE INTEREST @ 6% ON THE GO VERNMENT OF INDIA CAPITAL UNIVERSAL MUSIC INDIA PVT. LTD 7 | P A G E INDEX BONDS WAS SHOWN AS TAX FREE BONDS. THE TRIBUN AL CONCLUDED THAT THERE WAS NO DESIRE ON THE PART OF THE RESPONDENT-ASSESSE E TO HIDE OR CONCEAL THE INCOME SO AS TO, AVOID PAYMENT OF TAX ON INTEREST F ROM THE BONDS. IN THAT VIEW OF THE MATTER, THE TRIBUNAL DELETED THE PENALT Y IMPOSED UPON THE RESPONDENT-ASSESSEE UNDER SECTION 271(1)(C) OF THE ACT. IN VIEW OF THE FACT THAT THE DECISION OF THE TRIBUNAL IS BASED ON FINDI NG OF FACT THAT THERE WAS AN ON THE PART OF THE ASSESSEE IN INCLUDING THE INTERE ST RECEIVED OF 6% ON THE GOVERNMENT OF INDIA CAPITAL INDEX BONDS AS INTEREST RECEIVED ON TAX FREE BONDS. IT IS -NOT CONTENDED BY THE REVENUE THAT ABO VE FINDING OF FACT BY THE TRIBUNAL IS PERVERSE. IN THESE CIRCUMSTANCES, WE SE E NO REASON TO ENTERTAIN THE PROPOSED QUESTION (I). 9. THEREFORE, IN VIEW OF THE DECISION OF HON'BLE SU PREME COURT AS WELL AS THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT THE B ONA FIDE INADVERTENT MISTAKE IS ACCEPTED AS REASONABLE AND BONA FIDE EXPLANATION FO R THE PURPOSE OF SECTION 271(1)(C) AND IN TERMS OF EXPLANATION 1(B) TO SECTI ON 271(1). IN VIEW OF THE ABOVE DISCUSSION AS WELL AS FACT AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE CASE OF THE ASSESSEE FALLS UNDER THE BONAFIDE AND I NADVERTENT MISTAKE AND, THEREFORE, THE EXPLANATION OF THE ASSESSEE IS A BON A FIDE EXPLANATION IN TERMS OF EXPLANATION 1(B) OF SECTION 271(1). ACCORDINGLY, THE PENALTY LEVIED U/S 271(1)(C) IS NOT SUSTAINABLE, HENCE DELETED. 10.. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT TODAY I.E 21 -1 0-2014 SD/- SD/- ( D. KARUNAKARA RAO ) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 21-10 -2014 SKS SR. P.S,