CHEMICALS & FERRO ALLOYS P. LTD, MUMBAI V. ACIT 1(1), MUMBAI

ITA 8600/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9138 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-12-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 10-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V KRISHNAMOORTHY
• Assessee Lawyers: MAHESH C MATHUR
• Keywords: Business expenditure
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI . . , . . ! , ' #$ % BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLAI YA, AM ./I.T.A. NO. 8600/MUM/2010 ( & & & & / ASSESSMENT YEAR :2003-04 M/S. CHEMICALS & FERRO ALLOYS PVT. LTD., LIBERTY BUILDING, SIR VITHALDAS THACKERSEY MARG, NEW MARINE LINES, MUMBAI-400 020 / VS. THE ACIT 1(1), AAYAKAR BHAVAN, MUMBAI-400 020 $' ' ./ () ./PAN/GIR NO. : AAACC 4508N ( '* /APPELLANT ) .. ( +,'* / RESPONDENT ) '* - / APPELLANT BY: SHRI MAHESH C. MATHUR +,'* . - / RESPONDENT BY : SHRI V. KRISHNAMOORTHY . /0' / DATE OF HEARING : 11.12.2012 12& . /0' / DATE OF PRONOUNCEMENT : 14.12.2010 #3 / O R D E R PER N.K. BILLAIYA, AM: WITH THIS APPEAL THE ASSESSEE HAS CHALLENGED THE CO RRECTNESS OF THE ORDER OF THE LD. CIT(A)-1, MUMBAI DT.6.7.2010 PERT AINING TO A.Y. 2003- 04. 2. THE SOLE GRIEVANCE OF THE ASSESSEE IS THAT THE L D. CIT(A) ERRED IN UPHOLDING THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT AT RS. 1,21,375/-. ITA NO. 8600/M/2010 2 3. THE ROOTS FOR THE LEVY OF PENALTY LIE IN THE ASS ESSMENT ORDER DT. 28.10.2005 PASSED U/S. 143(3) OF THE ACT. DURING T HE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS DEBITED AN EXPENSE OF RS. 3,30,000/- ON ACCOUNT OF PAYMENT MADE TO MR. M. JETHWANI FOR LOOKING AFTER THE COMPANYS INTERES T IN THE UNIVERSAL FERRO & ALLIED CHEMICALS LTD. THE ASSESSEE WAS ASK ED TO JUSTIFY THE CLAIM OF THIS EXPENSE. THE AO WAS NOT CONVINCED WI TH THE REPLY OF THE ASSESSEE ON THE GROUND THAT ANY EXPENSE INCURRED FO R THE MAINTENANCE OR GUARDING THE INVESTMENT IS NOT THE BUSINESS EXPEND ITURE AND ACCORDINGLY ADDED BACK A SUM OF RS. 3,30,000/- TO THE RETURNED INCOME AND COMPLETED THE ASSESSMENT. 4. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. C IT(A) BUT WITHOUT ANY SUCCESS. THE MATTER WENT UP TO THE TRIBUNAL. THE TRIBUNAL IN ITA NO. 5168/MUM/2006 WHILE CONFIRMING THE ORDER OF THE LD. CIT(A) HELD AS UNDER: WE HAVE HEARD BOTH THE SIDES, PERUSED THE RECORDS AND THE MATERIALS AVAILABLE ON RECORD. THE ISSUE INVOLVED I N THIS APPEAL IS WHETHER THE EXPENDITURE INCURRED FOR THE PURPOSE OF THE BUSINESS OF THE SUBSIDIARY COMPANY OR FOR THE PURPOSE OF THE BU SINESS OF THE ASSESSEE COMPANY. IT IS CLEAR FROM THE ORDER OF THE AC AS WELL AS THE CIT(A) THAT THE ASSESSEE COMPANY IS A HOLDING C OMPANY OF UNIVERSAL FERRO AND ALLIED CHEMICALS LTD. AND THE S UM OF RS.3,30,000/- WAS PAID TO MR.JETHWANI FOR LOOKING A FTER THE COMPANYS INTEREST IN UNIVERSAL FERRO AND ALLIED CH EMICALS LTD. THE LD AC) HAS HELD THAT EXPENSES INCURRED WAS LARG ELY IN THE NATURE OF GUARDING THE INVESTMENT THE SAME BEING NO T THE BUSINESS OF THE ASSESSEE. THEREFORE, THE EXPENDITURE INCURRE D IS NOT ALLOWABLE AS BUSINESS EXPENDITURE AND THE SUM OF RS .3,30,000/- ADDED BACK TO THE INCOME OF THE ASSESSEE. ON APPEAL BY THE ASSESSEE, THE LD CIT(A) CONFIRMED THE ORDER OF THE AC BY HOLDING THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IS NO T FOR ITS BUSINESS PURPOSE. ONLY FOR THE BUSINESS OF SUBSIDIARY COMPAN Y. FROM THE ABOVE FACTS, WE FIND THAT THE ASSESSEE COMPANY IS A HOLDING ITA NO. 8600/M/2010 3 COMPANY OF M/S.UNIVERSAL FERRO & ALLIED CHEMICALS L TD. THE PAYMENT OF RS.3,30,000/- PAID TO MR.JETHWANI FOR LO OKING AFTER THE INTEREST OF THE SUBSIDIARY COMPANY, THE LD CIT(A) R IGHTLY HELD THAT THE PAYMENT OF RS.3,30,000/- PAID TO MR.JETHWANI NO T FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. THEREFORE, AFTER CAREFUL CONSIDERATION OF FACTS AND CIRCUMSTANCES OF THE CAS E AND THE ABOVE FINDING, WE UPHOLD THE ORDER OF THE CIT(A). 5. WITH THIS FACTUAL BACKGROUND, THE AO PROPOSED TO LEVY PENALTY U/S. 271(1)(C) OF THE ACT ON THE DISALLOWANCE OF EXPENDI TURE OF RS. 3,30,000/- BEING PROFESSIONAL FEES PAID TO MR. M. JETHWANI. S TATUTORY NOTICES WERE ISSUED AND SERVED UPON THE ASSESSEE BY WHICH THE AS SESSEE WAS ASKED WHY PENALTY SHOULD NOT BE LEVIED ON THE ADDITION OF RS. 3,30,000/-. IN RESPONSE TO WHICH, THE ASSESSEE FILED A DETAILED RE PLY DT. 17.3.2008 AND EXPLAINED THAT NEITHER THERE IS ANY CONCEALMENT OF PARTICULARS OF INCOME NOR THERE IS FURNISHING INACCURATE PARTICULARS OF I NCOME. THE ASSESSEE ALSO SUBMITTED THAT THERE WAS NO MENS REA IN CLAIMING SA ID EXPENDITURE AND PRAYED THAT NO PENALTY SHOULD BE LEVIED. 6. THE AO REJECTED THE SUBMISSIONS MADE BY THE ASSE SSEE. THE AO WAS OF THE OPINION THAT ANY EXPENSE INCURRED FOR TH E MAINTENANCE OR GUARDING THE INVESTMENT IS NOT A BUSINESS EXPENDITU RE AND EVEN KNOWING THIS, YET THE ASSESSEE CLAIMED THE SUM OF RS. 3,30, 000/- AS ITS BUSINESS EXPENDITURE WHICH AMOUNTED TO CLAIMING A FALSE EXPE NSE RESULTING INTO FILING OF INACCURATE PARTICULARS. AFTER DISCUSSING VARIOUS JUDICIAL DECISIONS , THE AO WENT ON TO LEVY PENALTY U/S. 271 (1)(C) OF THE ACT AT RS. 1,21,275/- BEING 100% OF TAX SOUGHT TO BE EVADE D. 7. THE ASSESSEE AGITATED THIS MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. THE LD. CIT(A) RELIED UPON THE FINDIN GS OF HIS PREDECESSOR ITA NO. 8600/M/2010 4 IN QUANTUM APPEAL. THE LD. CIT(A) ALSO RELIED UPON THE DECISION OF THE TRIBUNAL IN QUANTUM APPEAL. AFTER CONSIDERING THE FACTS AND THE SUBMISSION AND THE DECISIONS IN THE QUANTUM APPEAL, THE LD. CIT(A) CAME TO THE CONCLUSION THAT THE SERVICES OF MR. M. JETHWANI TO WHOM PROFESSIONAL FEES OF RS. 3,30,000/- HAS BEEN PAID W AS NOWHERE FOR THE PURPOSE OF BUSINESS OF THE APPELLANT COMPANY, HENCE THE EXPENDITURE DEBITED ON ACCOUNT OF PROFESSIONAL FEES AGAINST THE INCOME OF THE APPELLANT COMPANY WAS WRONGLY CLAIMED BY THE APPELL ANT COMPANY. THEREAFTER, THE LD. CIT(A) AGREED WITH THE FINDINGS OF THE AO THAT THE EXPENDITURE CLAIMED AMOUNTS TO FILING OF AN INACCUR ATE PARTICULARS OF ITS INCOME AND CONFIRMED THE PENALTY SO LEVIED AT RS. 1 ,21,275/-. 8 AGGRIEVED WITH THIS FINDINGS OF THE LD. CIT(A), T HE ASSESSEE IS BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE REITER ATED THE FACTS AS THEY WERE AT THE TIME OF ASSESSMENT PROCEEDINGS AND SUBM ITTED THAT THIS IS A CASE OF DISALLOWANCE OF EXPENDITURE WHICH IN THE OP INION OF THE ASSESSEE WAS AN ALLOWABLE EXPENDITURE BEING INCURRED FOR THE PURPOSE OF BUSINESS WHICH OPINION HAS NOT BEEN ACCEPTED BY THE REVENUE AUTHORITIES IN QUANTUM PROCEEDINGS. MERELY ON THE BASIS OF THE AD DITION, IT CANNOT BE SAID THAT THE ASSESSEE HAS FILED INACCURATE PARTICU LARS OF ITS INCOME LIABLE FOR PENALTY U/S. 271(1)(C) OF THE ACT. 9. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE FINDINGS OF THE LOWER AUTHORITIES. 10. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. WE HAVE ALSO THE BENEFIT OF THE ITA NO. 8600/M/2010 5 DECISION OF THE TRIBUNAL IN ITA NO. 5168/M/06 IN QU ANTUM PROCEEDINGS. THE UNDISPUTED FACT IS THAT THE GENUINENESS OF THE PAYMENT HAS NOT BEEN QUESTIONED BY THE REVENUE AUTHORITIES. IT HAS BEEN ACCEPTED IN THE QUANTUM PROCEEDINGS THAT THE PAYMENT WAS ACTUALLY M ADE TO MR. M. JETHWANI , ONLY BECAUSE THE SAID EXPENDITURE WAS N OT ALLOWED AS BUSINESS EXPENDITURE BY THE REVENUE AUTHORITIES WOULD NOT AM OUNT TO FILING OF INACCURATE PARTICULARS OF INCOME. THE HONBLE SUPR EME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS 322 ITR 158 HAS L AID DOWN THE RATIO THAT BY ANY STRETCH OF IMAGINATION, MAKING AN INCORRECT CLAIM IN LAW CANNOT TANTAMOUNT TO FURNISHING INACCURATE PARTICUL ARS. THE HONBLE JURISDICTIONAL HIGH COURT OF BOMBAY IN ITA NO. 389 9 OF 2010 IN THE CASE OF CIT VS ADITYA BIRLA NOVA LTD HAS HELD AS UN DER: WE DO NOT AGREE, AS THE ASSESSEE HAD SHED ALL THE D ETAILS OF ITS EXPENDITURE AS WELL AS INCOME IN ITS RETURN, WH ICH DETAILS, IN THEMSELVES, WERE NOT FOUND TO BE INACCURATE NOR COU LD BE VIEWED AS THE CONCEALMENT OF INCOME ON ITS PART. IT WAS UP TO THE AUTHORITIES TO ACCEPT ITS CLAIM IN THE RETURN OR NOT. MERELY BE CAUSE THE ASSESSEE HAD CLAIMED THE EXPENDITURE, WHICH CLAIM W AS NOT ACCEPTED OR WAS NOT ACCEPTABLE TO THE REVENUE, THAT BY ITSELF WOULD NOT, IN OUR OPINION, ATTRACT THE PENALTY UNDER SECT ION 271(1) C). IF WE ACCEPT THE CONTENTION OF THE REVENUE THEN IN CAS E OF EVERY RETURN WHERE THE CLAIM MADE IS NOT ACCEPTED BY THE ASSESSING OFFICER FOR ANY REASON. THE ASSESSEE WILL INVITE PE NALTY UNDER SECTION 271(1)(C). THAT IS CLEARLY NOT THE INTENDME NT OF THE LEGISLATURE. 11. CONSIDERING THE FACTS OF THE PRESENT CASE, IN T HE LIGHT OF THE ABOVE JUDICIAL PRONOUNCEMENT OF THE HONBLE SUPERIOR COUR TS , WE FIND THAT THE RATIO LAID DOWN BY THE HONBLE SUPERIOR COURTS SQU ARELY APPLY ON THE FACTS OF THE PRESENT CASE. THEREFORE, WE DO NOT FI ND ANY MERIT IN THE ORDER OF THE LD. CIT(A). THE FINDING OF THE CIT(A) ARE R EVERSED. THE AO IS ITA NO. 8600/M/2010 6 DIRECTED TO DELETE THE PENALTY LEVIED U/S. 271(1)( C) OF THE ACT AT RS. 1,21,375/-. 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 4 /5 4/ . 6 $7/ . (/ 8 ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DECEMBER, 2012 . #3 . 2& ' 6 9#5 14.12.2012 2 . : SD/- SD/- (B.R.MITTAL) (N.K. BILLAIYA) #$ /JUDICIAL MEMBER ' #$ / ACCOUNTANT MEMBER MUMBAI; 9# DATED 14.12.2012 . . ./ RJ , SR. PS #3 #3 #3 #3 . .. . +/ +/ +/ +/ ;&/ ;&/ ;&/ ;&/ / COPY OF THE ORDER FORWARDED TO : 1. '* / THE APPELLANT 2. +,'* / THE RESPONDENT. 3. < ( ) / THE CIT(A)- 4. < / CIT 5. =: +/ , , / DR, ITAT, MUMBAI 6. :> ? / GUARD FILE. #3 #3 #3 #3 / BY ORDER, ,/ +/ //TRUE COPY// @ @@ @ / 8 8 8 8 ( ( ( ( (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI