M/s Veerabhadrappa Sangappa & Company , Bellary V. The Assistant Commissioner of Income Tax Circle-1 , Bellary

SA 89/BANG/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6200 (ITAT-BANGALORE)
• Duration Of Justice: 2 month(s) 16 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 01-05-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 14-02-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: CHYTANYA K K
• Keywords: Business expenditure; Rectification of order; Question of law; TDS
• Section: 271(1)(c); 37(1); 37; 12

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN , ACCOUNTANT MEMBER SP NOS.88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 [IN SP NOS.88 & 89/BANG/2019] ASSESSMENT YEAR S : 2011 - 12 & 2012 - 13 M/S. VEERABHADRAPPA SANGAPPA & CO., MINE OWNERS, NO.2/138, VESCO HOUSE, BELLARY ROAD, SANDUR (POST), BELLARY 583 119. PAN: AACFV 4029J VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1, BELLARY 583 101. APPELLANT R ESPONDENT APP ELLANT BY : SHRI CHYTANYA K.K., ADVOCATE RESPONDENT BY : DR. P.V. PRADEEP KUMAR, ADDL.CIT(DR)(ITAT), BENGALU RU. DATE OF HEARING : 01 .0 4 .201 9 DATE OF PRONOUNCEMENT : 24 . 0 4 .201 9 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT ITA NOS. 267 & 268/BANG/2019 ARE APPEALS BY THE ASSESSEE AGAINST TWO ORDERS BOTH DATED 27.12.2018 OF THE CIT (APPEALS), KALABURAGI RELATING TO ASSESSMENT YEARS 2011-12 AND 2012-13. 2. IN BOTH THE AFORESAID APPEALS, THE ASSESSEE HA S CHALLENGED THE ORDER OF CIT(APPEALS) WHEREBY THE CIT(APPEALS) CONF IRMED THE ORDER OF AO SP NOS. 88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 AND 18 & 19/BANG/2019 PAGE 2 OF 7 IMPOSING PENALTY ON THE ASSESSEE U/S. 271(1)(C) OF THE INCOME-TAX ACT, 1961 [THE ACT]. 3. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN TH E BUSINESS OF EXTRACTION AND SALE OF IRON ORE. FOR THE AY 2011-1 2, THE ASSESSEE CLAIMED DEDUCTION OF A SUM OF RS.10,82,84,400 UNDER THE HEA D CORPORATE SOCIAL RESPONSIBILITY[CSR] -FLOOD RELIEF. THE AFORESAI D SUM WAS INCURRED BY THE ASSESSEE PURSUANT TO A MEMORANDUM OF UNDERSTANDING (MOU) DATED 01.12.2019 ENTERED INTO BY THE ASSESSEE WITH GOVERN MENT OF KARNATAKA (GOK). AS PER THE MOU, THE ASSESSEE AGREED TO CONS TRUCT 760 AASARE HOUSES AT CHICKBELLARY VILLAGE AND 550 AASARE HOUSE S AT SREEDHARGADDA VILLAGE OF BELLARY SIRUGUPPA TALUK FOR THE FLOOD AF FECTED. THE AFORESAID EXPENDITURE WAS CLAIMED AS DEDUCTION U/S. 37(1) OF THE ACT. 4. ACCORDING TO THE AO, THE AMOUNT CANNOT BE ALLOWE D AS A DEDUCTION AS A BUSINESS EXPENDITURE, AS IT WAS NOT RELATED TO ASSESSEES NATURE OF BUSINESS AND IT WAS ONLY INCURRED FOR RELIEF ON OCC URRENCE OF NATURAL CALAMITY IN THE DISTRICT. IT IS NOT IN DISPUTE THA T THE ASSESSEES MINES ARE LOCATED AT SANDUR WHICH IS CLOSE TO THE FLOOD AFFEC TED AREA. 5. THE AO ALSO FOUND THAT THE ASSESSEE HAD PAID THE FOLLOWING SUM WHICH WAS CLAIMED AS DEDUCTION U/S. 37(1) OF THE AC T:- SL. NO. DESCRIPTION AMOUNT OF EXPENDITURE 1. PENALTY PAID ON RECTIFICATION ORDER PASSED BY TH E COMMERCIAL TAX DEPARTMENT 83,431 2. PENALTY PAID TO FOREST DEPARTMENT 4050375 1000000 3502000 8,552,375 SP NOS. 88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 AND 18 & 19/BANG/2019 PAGE 3 OF 7 TOTALLY EXPENDITURE INCURRED AS PENALTY 8,635,806 6. THE CLAIM FOR DEDUCTION WAS DISALLOWED BY THE AO ON THE GROUND THAT THE EXPENDITURE IN QUESTION WAS PENAL IN NATUR E AND THEREFORE NOT ALLOWABLE AS A DEDUCTION U/S. 37(1) OF THE ACT R.W. EXPLANATION THERETO. THE AFORESAID SUM WAS ALSO ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 7. IN RESPECT OF TWO ADDITIONS MADE IN THE COURSE O F ASSESSMENT PROCEEDINGS, THE AO INITIATED PENALTY PROCEEDINGS U /S. 271(1)(C) OF THE ACT AND IMPOSED PENALTY HOLDING THAT THE ASSESSEE WAS G UILTY OF FURNISHING INACCURATE PARTICULARS OF INCOME. 8. ON APPEAL, THE CIT(APPEALS) CONFIRMED THE ORDER OF AO. 9. THE FACTS FOR THE AY 2012-13 ARE IDENTICAL, EXCE PT FOR CHANGE IN THE QUANTUM OF DEDUCTION CLAIMED ON ACCOUNT OF CORPORAT E SOCIAL RESPONSIBILITY (CSR)-FLOOR RELIEF WHICH WAS A SUM OF RS.4,56,84,33 9 WHICH WAS EXPENDITURE INCURRED IN CONSTRUCTION OF HOUSES AS A CORPORATE SOCIAL RESPONSIBILITY AND ANOTHER ADDITION ON ACCOUNT OF E XPENDITURE WHICH WAS PENAL IN NATURE AND NOT ALLOWABLE U/S. 37(1) EXPLAN ATION. THE DETAILS OF THE SAME ARE AS FOLLOWS: SL. NO. DESCRIPTION OF EXPENDITURE AMOUNT OF EXPENDITURE 1. INTEREST ON TCS 11,709 2. INTEREST ON TDS 42,792 3. PENALTY PAID U/S. 72(2) OF THE KVAT ACT, 2003 FO R THE PERIOD 2006 - 07 87,344 4. PENALTY PAID U/S. 72(2) OF THE KVAT ACT, 2003 FOR 47,305 SP NOS. 88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 AND 18 & 19/BANG/2019 PAGE 4 OF 7 THE PERIOD 2007 - 08 5. PENALTY PAID U/S. 72(2) OF THE KVAT ACT, 2003 FO R THE PERIOD 2009-09 41,516 6. PENALTY PAID U/S. 72(2) OF THE KVAT ACT, 2003 FO R THE PERIOD 2009 - 10 49,572 TOTAL EXPENDITURE INCURRED AS PENALTY 280,238 IN RESPECT OF THE AFORESAID TWO ADDITIONS IN THE CO URSE OF ASSESSMENT PROCEEDINGS, PENALTY WAS IMPOSED ON THE ASSESSEE U/ S. 271(1)(C) OF THE ACT, WHICH WAS CONFIRMED BY THE CIT(APPEALS) FOR AY 2012-13. 10. WHEN THESE APPEALS WERE TAKEN UP FOR HEARING, T HE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT THE ADDITIO NS MADE IN THE AFORESAID ASSESSMENT YEARS WERE ALL CONFIRMED BY THE ITAT IN THE QUANTUM PROCEEDINGS. THE ASSESSEE FILED AN APPEAL BEFORE T HE HONBLE HIGH COURT AGAINST THE ORDERS OF TRIBUNAL IN THE QUANTUM PROCE EDINGS IN ITA NO.10030 TO 10031/2017. THE HONBLE HIGH COURT OF KARNATAKA BY ITS ORDER DATED 22.01.2018 WAS PLEASED TO ADMIT THE APPEAL OF THE A SSESSEE HOLDING THAT THE FOLLOWING SUBSTANTIAL QUESTION OF LAW AROSE FOR CONSIDERATION FROM THE ORDER OF TRIBUNAL IN THE QUANTUM PROCEEDINGS FOR TH E AYS 2011-12 AND 2012-13:- SSJ 86JMCJ: ITA NOS.100030-1 00031/2017 22.01.2018 ORDER HEARD. APPEALS ARE ADMITTED TO CONSIDER THE FOLLOWING SUBS TANTIAL QUESTIONS OF LAW. SP NOS. 88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 AND 18 & 19/BANG/2019 PAGE 5 OF 7 1) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E. THE TRIBUNAL IS JUSTIFIED IN LAW IN DISALLOWING RS. 10,82,84,400 /- AND RS.4,56,84,339/- REPRESENTING EXPENDITURE IN PROVID ING HOUSES TO SHELTERLESS IN THE AREA OF MINING OPERATION OF THE APPELLANT, IN PURSUANCE TO MOU WITH GOVERNMENT OF . KARNATAKA DURING THE AYS 2011-2012 AND 2012-2013 RESPECTIVELY? 2) WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE TRIBUNAL IS JUSTIFIED IN LAW IN DISALLOWING COMPENSATION OF RS.85,52,375/- PAID BY THE APPELLANT TO THE FOREST DEPARTMENT TOWARDS DAMAGES CAUSED TO THE FOREST BY INVOKING EX PLANATION 1 TO SECTION 37 OF THE 1T ACT FOR THE AY 2011-2012? 11. . THE LD. COUNSEL FOR THE ASSESSEE THEREAFTER DREW OUR ATTENTION TO THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN THE CASE OF CIT V. M/S. ANKITA ELECTRONICS PVT. LTD., ITA NO.297/2014, JUDGMENT DATED 03.03.2015 WHEREIN THE HONBLE HIGH COURT TOOK THE VIEW THAT WHEN THE ADDITIONS MADE IN THE QUANTUM PROCEEDINGS BASED ON WHICH THE PENALTY IS IMPOSED, IS SUBJECT MATTER OF CHALLENGE BEFORE THE HONBLE HIGH COURT AND THE HONBLE HIGH COURT HAS ADMITTED SUBSTANTIAL QUE STION OF LAW ON THE ADDITIONS WHICH ARE SUBJECT-MATTER OF IMPOSITION OF PENALTY, THEN THAT CIRCUMSTANCE WOULD ALONE BE SUFFICIENT TO HOLD THAT THE CLAIM MADE BY THE ASSESSEE WHICH WAS REJECTED BY THE REVENUE AUTHORIT IES WERE DEBATABLE AND CONSEQUENTLY NO PENALTY COULD BE IMPOSED U/S. 2 71(1)(C) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE RATIO OF THE AFORESAID RULE, IF APPLIED TO THE FACTS OF THE PRESENT CASE C AN ONLY LEAD TO A CONCLUSION THAT THE PENALTY IMPOSED HAS TO BE CANCELLED. SP NOS. 88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 AND 18 & 19/BANG/2019 PAGE 6 OF 7 12. THE LD. DR, ON THE OTHER HAND, RELIED ON THE DE CISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PR. CIT V. RASIKLAL M. PARIKH, ITA NO.169/2017, JUDGMENT DATED 19.03.2019, WHERE A CONTRARY VIEW ON THE SAME ISSUE HAS BEEN TAKEN BY THE HONBLE BOMBAY HIG H COURT, FOLLOWING THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF CIT V. DHARAMSHI B. SHAH , 366 ITR 140 (GUJ). THE VIEW TAKEN IN THE AFORESA ID DECISIONS WAS THAT PENALTY CANNOT BE DELETED ON THE SOLE GROUND THAT THE ADDITIONS IN RESPECT OF WHICH PENALTY WAS IMPOSED G AVE RISE TO SUBSTANTIAL QUESTION OF LAW AND ADMITTED FOR CONSIDERATION BY T HE HIGH COURT. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS ALS O DECISIONS CITED BY THE LD. COUNSEL FOR THE ASSESSEE AND THE LEARNED DR . WE ARE OF THE VIEW THAT THE DECISION OF THE HONBLE HIGH COURT OF KARN ATAKA IS BINDING ON THIS TRIBUNAL AS THE SAID HIGH COURT IS THE JURISDICTION AL HIGH COURT. THEREFORE, FOLLOWING THE RATIO LAID DOWN BY THE HONBLE HIGH C OURT OF KARNATAKA, WE HOLD THAT PENALTY CANNOT BE IMPOSED ON THE ASSESSEE IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE AS THE ADDITIONS MADE IN THE QUANTUM PROCEEDINGS BASED ON WHICH THE PENALTY WAS IMPOSED, IS SUBJECT MATTER OF CHALLENGE BEFORE THE HONBLE HIGH COURT AND THE HON BLE HIGH COURT HAS ADMITTED SUBSTANTIAL QUESTION OF LAW ON THE ADDITIO NS WHICH ARE SUBJECT- MATTER OF IMPOSITION OF PENALTY. WE THEREFORE DIRE CT THAT THE PENALTY IMPOSED IN BOTH THE ASSESSMENT YEARS BE CANCELLED A ND BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. 14. SINCE THE APPEALS HAVE BEEN DECIDED ON THE PREL IMINARY ISSUE, THE OTHER GROUNDS RAISED ON MERITS ON THE IMPOSITION OF PENALTY AND OTHER SP NOS. 88 & 89/BANG/2019 & ITA NOS. 267 & 268/BANG/2019 AND 18 & 19/BANG/2019 PAGE 7 OF 7 TECHNICAL GROUNDS WITH REGARD TO DEFECTIVE SHOW CAU SE NOTICE ISSUED U/S. 274 OF THE ACT ARE NOT TAKEN UP FOR CONSIDERATION. 15. SINCE THE APPEALS OF THE ASSESSEE ARE ALLOWED, THE STAY PETITIONS FILED BY THE ASSESSEE BECOME INFRUCTUOUS AND ACCORD INGLY THE SAME ARE DISMISSED AS INFRUCTUOUS. 16. IN THE RESULT, THE APPEALS BY THE ASSESSEE ARE ALLOWED, WHILE STAY PETITIONS ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF APRIL, 2019. SD/- SD/- ( B.R. BASKARAN ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 24 TH APRIL, 2019. / D ESAI S MURTHY / COPY TO: 1 . APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.