ASS CIT 8(3)(2), MUMBAI V. WIRE AND WIRLESS TISAI SATELLITE LTD, MUMBAI

ITA 9/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6989 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M V RAJGURU
• Assessee Lawyers: MITESH J THAKKAR
• Keywords: Non-deduction of tax
• Section: 143(3)

Judgement Text

1 ITA 09/MUM/2016 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G, MUMBAI BEFORE SHRI JOGINDER SINGH(JUDICIAL MEMBER) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.09/MUM/2016 (ASSESSMENT YEAR: 2011-12) ACIT-8(3)(2), MUMBAI VS M/S WIRE AND WIRELESS TIS AI SATELLITE LTD, 4 TH FLOOR, MADHU INDUSTRIAL ESTATE, P. BUDHKAR MARG, WORLI, MUMBAI-13 PAN : AAACW7197D APPELLANT RESPONDENT APPELLANT BY SHRI M.V. RAJGURU RESPONDENT BY SHRI MITESH J THAKKAR DATE OF HEARING 26-04-2018 DATE OF PRONOUNCEMENT 13-06-2018 O R D E R PER G MANJUNATHA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST THE ORDER OF THE CIT(A)-14, MUMBAI DATED 23-10-2015 AND IT PERTAINS TO AY 2011-12. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- (I) THE LEARNED CIT(A) HAS ERRED ON FACTS AND IN LAW IN CANCELLING THE PENALTY LEVIED BY A O OF RS 1,79,93,261/-/-, UN DER SECTION 271(L)(C) R.W. EXPLANATION 1A OF THE INCOME TAX ACT, WITHOUT PROPERLY APPRECIATING THE FACTUAL AND LEGAL MATRIX AS CLEARL Y BROUGHT OUT BY THE ASSESSING OFFICER. (II) THE LEARNED CIT(A) ERRED IN CANCELLING PE NALTY LEVIED U/S 271(L)(C) R.W. EXPLANATION 1A OF THE ACT ON THE DIS ALLOWANCE U/S 40(A)(IA) OF THE ACT, WITHOUT APPRECIATING THAT THE IMPUGNED PENALTY IMPOSED WAS ON ACCOUNT OF DEFAULT HI DEDUCTION OF T AX AT SOURCE ON MANAGEMENT FEES PAID AND THAT THE ASSESSEE HAD FILE D INACCURATE 2 ITA 09/MUM/2016 PARTICULARS WHICH HAD THE EFFECT OF REDUCING ITS TA X LIABILITY. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF CABLE NETWORK SERVICES, FILED ITS RETURN OF INCOME FOR AY 2011-12 ON 29-09-2011 DECLARING TOTAL LOSS OF RS.2,44,43,963. THE ASSESSMENT HAS BEEN COMPLETED U/S 143(3) ON 19- 02-2014 DETERMINING THE TOTAL INCOME AT RS.2,97,24, 120 WHEREIN ADDITION HAS BEEN MADE TOWARDS MANAGEMENT FEES PAID U/S 40(A)(IA) FOR FAILURE TO DEDUCT TAX U/S 194J OF THE ACT AND ALSO NON RECONCILIATION OF AIR MISMATCH AMOUNTING TO RS.1,63,366. 3. SUBSEQUENTLY, THE AO INITIATED PENALTY PROCEEDIN GS U/S 271(1)(C) AND ISSUED SHOW CAUSE NOTICE U/S 274 R.W.S. 271(1)( C) AND CALLED UPON THE ASSESSEE TO EXPLAIN AS TO PENALTY SHALL NOT BE LEVIED FOR FURNISHING INACCURATE PARTICULARS OF INCOME IN RESPECT OF DISA LLOWANCE U/S 40(A)(IA) TOWARDS MANAGEMENT FEES PAID FOR FAILURE TO DEDUCT TAX AT SOURCE U/S 194J AS THE SAME HAS BEEN REPORTED BY THE TAX AUDIT OR IN HIS TAX AUDIT REPORT COLUMN 17 OF FORM 3CD AND ALSO THE ASSESSEE HAS FILED NECESSARY PARTICULARS ABOUT THE PAYMENT IN THE RETU RN OF INCOME FILED U/S 139(1). THE ASSESSEE FURTHER SUBMITTED THAT MERE D ISALLOWANCE OF CERTAIN EXPENSES WOULD NOT LEAD TO AN INFERENCE THA T THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME WHICH CO MES WITHIN THE DEEMING PROVISIONS OF EXPLANATION (1A) OF SECTION 2 71(1)(C). THE 3 ITA 09/MUM/2016 ASSESSEE FURTHER SUBMITTED THAT THE MOMENT THE AO H AS POINTED OUT THE LAPSES IN COMPLIANCE WITH TDS PROVISIONS ON THE BAS IS OF TAX AUDIT REPORT, THE ASSESSEE HAS ACCEPTED SUCH LAPSES AND S AID THAT ALTHOUGH IT HAS ACCEPTED THE REPORT OF THE TAX AUDITOR BY OMISS ION, THE SAME HAS NOT BEEN ADDED BACK IN THE STATEMENT OF TOTAL INCOME WH ICH CANNOT BE CONSIDERED AS DELIBERATE ATTEMPT TO FURNISH INACCUR ATE PARTICULARS OF INCOME SO AS TO EVADE PAYMENT OF TAXES. THE AO, AF TER CONSIDERING SUBMISSIONS OF THE ASSESSEE OBSERVED THAT AS PER EX PLANATION (1A) OF SECTION 271(1)(C), ANY PERSON, WHO FAILED TO OFFER VALID EXPLANATION, THE AMOUNT ADDED DIRECTLY ON INDIRECTLY TO THE TOTAL IN COME OF AN ASSESSEE IS DEEMED TO REPRESENT THE INCOME OF WHICH PARTICULARS OF INCOME IS CONCEALED BY THE ASSESSEE. SINCE THE ASSESSEE HAS NOT OFFERED ANY VALID EXPLANATION FOR THE PENALTY VALID EXPLANATION FOR THE DEFAULT, THE AO OPINED THAT THE ASSESSEE HAS DELIBERATELY CONCEALED PARTICULARS OF INCOME BY FURNISHING INACCURATE PARTICULARS OF INCO ME BY FURNISHING INACCURATE PARTICULARS WITH AN INTENTION TO EVADE T AX LIABILITY AND HENCE IT IS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) AND ACCORDINGLY LEVIED PENALTY OF RS.1,79,93,261 WHICH IS 100% OF TAX SOUG HT TO BE EVADED. 4. AGGRIEVED BY THE PENALTY ORDER, THE ASSESSEE PRE FERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE AO. THE ASSESSEE FURTH ER SUBMITTED THAT 4 ITA 09/MUM/2016 NON FILING OF ANY EXPLANATION OR NON FILING OF APPE AL AGAINST ADDITION MADE BY THE AO DOES NOT MEAN THAT THE ASSESSEE IS G UILTY OF EITHER FURNISHING INACCURATE PARTICULARS OF INCOME OR CONC EALED PARTICULAR OF INCOME WITH AN INTENTION TO EVADE PAYMENT OF TAXES. THE ASSESSEE FURTHER SUBMITTED THAT THE AO HAS FAILED TO APPRECI ATE THE FACT THAT THE TAX AUDIT REPORT WAS FILED ALONG WITH THE RETURN AN D THT IT UNEQUIVOCALLY STATED THAT THE MANAGEMENT FEES AND PROVISION FOR P AYMENT OF GRATUITY WAS NOT ALLOWABLE U/S 40(A)(IA) AND 40A(7) OF THE A CT RESPECTIVELY INDICATE THAT THE ASSESSEE HAS MADE A COMPUTATION E RROR IN ITS RETURN OF INCOME. THEREFORE, NO ADVERSE INFERENCE CAN BE DRA WN AGAINST THE ASSESSEE MERELY FOR THE REASON THAT THERE IS AN ADD ITION TO THE RETURNED INCOME WHICH ATTRACTS DEEMING PROVISION OF EXPLANAT ION (1A) TO SECTION 271(1)(C) OF THE ACT. IN THIS REGARD RELIED UPON T HE DECISION OF HONBLE SUPREME COURT IN THE CASE OF PRICEWATER COOPER PVT LTD VS CIT 348 ITR 306 (SC). THE LD.CIT(A), AFTER CONSIDERING RELEVAN T SUBMISSIONS OF THE ASSESSEE AND ALSO BY FOLLOWING THE DECISION OF ITAT , MUMBAI BENCH E IN THE CASE OF SATYAJEET MOVIES PVT LTD VS ACIT IN ITA NO.6036/MUM/2011 DATED 21-02-2014 HELD THAT NO PENA LTY CAN BE LEVIED U/S 271(1)(C) IF THE ASSESSEE HAS FILED NECESSARY D ETAILS ALONGWITH RETURN OF INCOME IN RESPECT OF DISALLOWANCE MADE U/S 40(A) (IA). THE CIT(A) FURTHER OBSERVED THT ONCE GENUINENESS OF THE EXPENS ES AND QUANTUM OF 5 ITA 09/MUM/2016 PAYMENT HAVE NOT BEEN DOUBTED AND DISALLOWANCE HAS BEEN MADE ON THE GROUND OF TECHNICAL OR VENIAL BREACH, FOR NON D EDUCTION OF TAX AT SOURCE, WOULD NOT AUTOMATICALLY LEADS TO IMPOSITION OF PENALTY U/S 271(1)(C); THEREFORE, OPINED THAT NO PENALTY CAN BE LEVIED FOR ADDITION OF RS.5 CRORES MADE U/S 40(A)(IA) OF THE ACT FOR FAILU RE TO DEDUCT TDS. HOWEVER, CONFIRMED PENALTY LEVIED BY THE AO IN RESP ECT OF DISALLOWANCE IN RESPECT OF ADDITION MADE TOWARDS NON RE-CONCILIA TION OF AIR MISMATCH AND ADDITION TOWARDS GRATUITY PROVISION U/S 40A(7) OF THE ACT. THE RELEVANT PORTION OF THE ORDER OF THE CIT(A) IS EXTR ACTED BELOW:- 3.1 DURING THE APPELLATE PROCEEDINGS, LHC LD.AR SU BMITTED THAT AS REGARDS PENALTY IMPOSED AGAINST THE ADDITIONS MADE U/S.40(A)(IA) OF THE ACT, THE SAME IS NOT LEVIABLE IN VIEW OF (HE JUDGEMENT OF HON'BLE ITAT 'R* BENCH, MUMBAI IN THE CASE OF SATYAJEET MOVIES PVT. LTD. VS. ACIT, ITA NO.6306/MU M/2011, AY.2005-06 DATED 21/02/2014 AND ALSO ENCLOSED A COPY OF THE JUDGEMEN T. I HAVE GONE THROUGH THE SAME. IT IS NOTED THAT THE HON'BLE ITAT, MUMBAI, AGAINST THE ADDITIONS MADE U/S.40(A)(IA) OF THE ACT, OBSERVED THAT THE GENUINENESS OF THESE EXP ENSES AND QUANTUM OF PAYMENT HAVE NOT BEEN DOUBTED AND DISALLOWANCE HAS BEEN MAD E ONLY ON THE TECHNICAL DEFAULT ON NON-DEDUCTION OF TDS FOR WHICH THERE IS SEPARATE PROVISIONS FOR LEVY OF INTEREST AND PENALTY, UNDER THE ACT. PENALTY U/S.271(L)(C) C AN BE LEVIED ONLY, IF THE ASSESSEE HAS CONCEALED PARTICULARS OF INCOME OR FURNISHED IN ACCURATE PARTICULARS OF INCOME. ONCE SUCH PAYMENT HAVE NOT BEEN DOUBTED, SUCH PENAL TY CANNOT BE LEVIED U/S.271(L)(C) OF THE ACT. THE FACT OF THIS CASE IS IDENTICAL IN WHICH THE QUANTUM OF THE PAYMENT OR THE 'T GENUINENESS OF THE PAYMENT HAVE N OT BEEN DOUBTED AND ADDITION HAS BEEN MADE ON TECHNICAL DEFAULT OF TDS, THEREFORE IN THE LIGHT OF THE DECISION GIVEN BY THE HON'BLE ITAT (SUPRA), THE PENALTY LEVIED AGAINS T THE ADDITION OF RS.5.4 CRORES U/S.40(A)(IA) OF THE ACT, IS CANCELLED. 3.2 DURING THE APPELLATE PROCEEDINGS, THE LD.A R, HAS SUBMITTED THAT LENIENT VIEW CAN BE TAKEN AGAINST THE ADDITION MADE ON ACC OUNT OF DISCREPANCIES IN THE AIR STATEMENT, HOWEVER, NO RECONCILIATION STATE MENT COULD BE FILED, EVEN DURING THE PROCEEDINGS, THEREFORE THE CONTENTION OF THE LD.AR IS NOT ACCEPTABLE AND PENALTY AGAINST THIS ADDITION IS CONFIRMED AS EVIDE NTLY THERE IS AN INSTANCE OF FILING INACCURATE PARTICULARS OF INCOME RESULTING INTO CON CEALMENT OF INCOME. SIMILARLY, NO SUBMISSION IS MADE REGARDING THE ADDITIONS MADE ON ACCOUNT OF 40(A)(7) OF THE ACT. AS PER THE COPY OF THE ASSESSMENT ORDER FILED DURIN G THE COURSE OF APPELLATE PROCEEDINGS, IT IS NOTED THAT THE AUDITOR HAS NOTED THAT THE PAYMENT OF GRATUITY AMOUNTING TO RS.3715/- IS NOT ALLOWABLE U/S.40(A)(7) OF THE ACT. HOWEVER, DESPITE THIS, THE ASSESSEE HAS NOT ADDED BACK THIS AMOUNT IN THE COMPUTATION OF INCOME. IN VIEW OF THE 6 ITA 09/MUM/2016 FACTS OF THE CASE, I AM OF THE OPINION, THAT PENALT Y U/S.27 1( L)(C) OF THE ACT IS LEVIABLE AGAINST THE ADDITIONS MADE U/S.40(A)(7) OF THE ACT. ALSO AND IT IS HEREBY CONFIRMED. 5. THE LD.DR SUBMITTED THAT THE LD.CIT(A) WAS ERRED IN DELETING PENALTY LEVIED U/S 271(1)(C) R.W.S. EXPLANATION (1A ) OF THE ACT WITHOUT PROPERLY APPRECIATING THE FACT BROUGHT OUT BY THE A O THAT THE ASSESSEE HAS FAILED TO OFFER ANY EXPLANATION FOR NOT ADDING DISALLOWANCE OF MANAGEMENT FEES QUANTIFIED BY THE AUDITOR IN HIS TA X AUDIT REPORT U/S 40(A)(IA) OF THE ACT EVEN THOUGH SUCH PAYMENT IS NO T ACTUALLY DEDUCTIBLE. THE LD.DR FURTHER SUBMITTED THAT THE ACT ON THE PAR T OF THE ASSESSEE NOT TO TAKE COGNIZANCE OF THE AUDITORS COMMENTS DESERV ES TO BE PENALISED FOR THE REASON THAT IF SCRUTINY PROCEEDINGS ARE NOT TAKEN PLACE, THE SAME WOULD HAVE REMAINED DISTANT MYSTERY AND THE REVENUE WOULD NOT HAVE DETECTED THE VIOLATION. THEREFORE, THE AO HAS RIGH TLY LEVIED PENALTY U/S 271(1)(C) FOR ADDITION TOWARDS DISALLOWANCE OF EXPE NSES U/S 40(A)(A) AND HIS ORDER SHOULD BE UPHELD. 6. THE LD.AR FOR THE ASSESSEE, ON THE OTHER HAND, S UBMITTED THAT NO PENALTY CAN BE LEVIED U/S 271(1)(C) FOR A TECHNICAL OR VENIAL BREACH OF NON DEDUCTION OF TAX AT SOURCE WHEN ASSESSEE HAS FURNIS HED COMPLETE DETAILS OF PAYMENT IN RETURN OF INCOME AND ALSO THE AUDITOR HAS QUALIFIED SUCH DISALLOWANCE IN HIS TAX AUDIT REPORT. AT THE BEST, THE MISTAKE COMMITTED BY THE ASSESSEE CAN BE CONSIDERED AS A HU MAN ERROR FOR 7 ITA 09/MUM/2016 WHICH RIGORS OF PROVISIONS OF SECTION 271(1)(C) CAN NOT BE INVOKED. THE CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS HAS RIGHTLY DELETED PENALTY LEVIED U/S 271(1)(C) AND HIS ORDER SHOULD B E UPHELD. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. THE FACTUAL MATRIX OF THE CASE WHICH LE AD TO LEVY OF PENALTY U/S 271(1)(C) ARE THAT DURING THE FINANCIAL YEAR RE LEVANT TO AY 2011-12, THE ASSESSEE HAS PAID MANAGEMENT FEES TO WIRE AND W IRELESS INDIA LTD AND M/S TISAI SATELLITE SERVICES AMOUNTING TO RS.5. 4 CRORES WITHOUT DEDUCTION OF TAX AT SOURCE U/S 194J OF THE INCOME-T AX ACT, 1961. THE TAX AUDITOR HAS QUANTIFIED DEFAULTS IN DEDUCTION OF TDS U/S 194J AND ISSUED A QUALIFIED REPORT BY STATING THAT MANAGEMENT FEES PAID WITHOUT DEDUCTION OF TAX AT SOURCE IS NOT DEDUCTIBLE U/S 40 (A)(IA) OF THE ACT. THE AO LEVIED PENALTY U/S 271(1)(C) ON THE GROUND THAT THE ASSESSEE HAS NOT OFFERED ANY VALID EXPLANATION FOR THE DEFAULT COMMI TTED IN COMPLIANCE OF TDS PROVISIONS. THE AO FURTHER OBSERVED THAT AS PE R EXPLANATION (1A) OF SECTION 271(1)(C) ANY PERSON, WHO FAILS TO OFFER VA LID EXPLANATION IN RESPECT OF ANY ADDITION, THE AMOUNT ADDED DIRECTLY OR INDIRECTLY TO THE TOTAL INCOME OF AN ASSESSEE IS DEEMED TO REPRESENT THE INCOME OF WHICH PARTICULARS OF INCOME IS CONCEALED BY THE ASSESSEE. IT IS THE CONTENTION OF THE ASSESSEE THAT IT HAS NEITHER CONCEALED PARTI CULARS OF INCOME NOR FURNISHED INACCURATE PARTICULARS OF INCOME WHICH IS EVIDENT FROM THE FACTS 8 ITA 09/MUM/2016 GATHERED BY THE AO IN HIS ORDER THAT THE TAX AUDITO R HAS REPORTED NON DEDUCTION OF TDS ON MANAGEMENT FEES AND THE TAX AUD ITOR HAS MENTIONED IN HIS TAX AUDIT REPORT ABOUT INADMISSIBI LITY OF PAYMENT MADE FOR FAILURE TO DEDUCT TDS. THE ASSESSEE CONTENDED THAT THE ASSESSEE IS NOT GUILTY OF FURNISHING OF INACCURATE PARTICULARS OF INCOME WITH AN ATTEMPT TO DELIBERATELY CONCEALING PARTICULARS OF INCOME. 8. HAVING HEARD BOTH THE SIDES, WE FIND MERIT IN TH E ARGUMENT OF THE ASSESSEE FOR THE REASON THAT MERE DISALLOWANCE OF C ERTAIN EXPENSES DURING ASSESSMENT PROCEEDINGS DOES NOT ATTRACT PENA LTY PROVISIONS U/S 271(1)(C) IF SUCH DISALLOWANCE IS MADE FOR TECHNICA L OF VENIAL BREACH OF TDS PROVISIONS. THE HONBLE SUPREME COURT IN THE C ASE OF PRICEWATER COOPER PVT LTD VS CIT (SUPRA) HELD THAT PENALTY FOR CONCEALMENT CANNOT BE LEVIED IN CASE OF BONA FIDE / INADVERTENT / HUMA N ERROR. THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS L.G. CHOUD HARI (2013) 33 TAXMAN.COM HELD THAT WHERE THE EXPENDITURE IS DISAL LOWED DUE TO FAILURE TO DEDUCT TDS OR LATE DEPOSIT OF TDS, NO PENALTY IS LEVIABLE U/S 271(1)(C) ON THE GROUND THAT DISALLOWANCE SHALL, AT THE MOST, A TECHNICAL DEFAULT, THERE BEING NOTHING TO INDICATE ANY CONCEALMENT OF INCOME. THE CO- ORDINATE BENCH OF ITAT, MUMBAI BENCH E IN THE CAS E OF SATYAJEET MOVIES PVT LTD (SUPRA) HELD THAT NO PENALTY CAN BE LEVIED U/S 271(1)(C) FOR ANY ADDITION MADE U/S 40(A)(IA) FOR FAILURE TO DEDUCT TDS, ONCE SUCH 9 ITA 09/MUM/2016 PAYMENT HAS NOT BEEN DOUBTED. AT THE BEST, THE DEF AULT COMMITTED BY THE ASSESSEE CAN BE TERMED IT AS TECHNICAL OR VENIA L BREACH FOR WHICH RIGORS OF PENALTY PROVISIONS CANNOT BE INVOKED. TH E LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMISSIONS, HAS RIGHTLY DELET ED PENALTY LEVIED BY THE AO IN RESPECT OF ADDITION MADE U/S 40(A)(IA) OF THE ACT. THE REVENUE FAILED TO BRING ON RECORD ANY CONTRARY DECISION TO COUNTER THE FINDINGS OF FACTS RECORDED BY THE LD.CIT(A). HENCE, WE ARE INC LINED TO UPHOLD THE FINDINGS OF CIT(A) AND DISMISS APPEAL FILED BY THE REVENUE. 9. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH JUNE, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DT : 13 TH JUNE, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI