M/S. MITUTOYO SOUTH ASIA PVT. LTD.,NEW DELHI vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘E’, NEW DELHI

BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER

ITA No.6051/Del./2016 Assessment Year: 2008-09

M/s. Mitutoyo South Asia Vs. DCIT, Pvt. Ltd., Circle-6(1), C-122, Okhla Industrial New Delhi Area, Phase-I, ] New Delhi PAN :AAACM6682R (Appellant) (Respondent)

Appellant by Shri Vinod K. Nagpal, CA Shri Balram Sharma, CA Respondent by Ms. Rakhi Vimal, Sr.DR Date of hearing 15.01.2020 Date of pronouncement 27.02.2020

ORDER PER O.P. KANT, AM:

This appeal by the assessee is directed against order dated 29/09/2016 passed by the Ld. CIT(Appeals)-20, New Delhi, in [short ‘the Ld. CIT(A)’] for assessment year 2008-09, in relation to penalty under section 271(1)(c) of the Income-tax Act, 1961 (in short ‘the Act’). The grounds raised in the appeal are reproduced as under: 1. That the order of learned CIT Appeals -20 is against law & facts of the case. 2. That all the addition of Rs. 5,61,200/ was controversial & there were possibility of having two opinions on the matter hence there

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could not be penalty on the same and the expenses was allowed in respective subsequent years. 3. That other two additions were (totaling to Rs 1,87,804/-) clerical mistakes. 4. That assessee from the time of start of its accounting year has already been subject to regular scrutiny & transfer pricing checking hence the case relied upon by the learned AO & learned CIT (particularly Zoom Communication) is not strictly applicable in the case. 5. The penalty confirmed by learned CIT is against is against law & facts. 2. Briefly facts of the case are as under: (i) The assessment under section 147/143(3) of the Act was completed on 31/03/2008 at assessed income of ₹ 24,41,88,630/- as against income of ₹ 24,09,12,462/- after making following additions: Rs.25,27,167/- 1. Addition on account of disallowance u/s 14A Disallowance u/s 94(7) Rs. 1,20,304/- 2. 3. Disallowance of prepaid expenses Rs. 5,61,200/- 4. Disallowance of excess expenses Rs. 67,500/- claimed

(ii) Before the Ld. CIT(A), the assessee challenged addition under section 14A of the Act, which was deleted by the Ld. CIT(A) in his order dated 18/02/2013. The assessee had not challenged the other three additions mentioned above before the Ld. CIT(A). (iii) The learned Assessing Officer after providing opportunity of being heard to the assessee, levied penalty under section 271(1)(c) of the Act for default of furnishing inaccurate particulars of its income, in respect of the three additions.

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(iv) The Ld. CIT(A) upheld the said penalty levied by the Assessing Officer relying on the decision of the Hon’ble Delhi High Court in the case of CIT Vs Zoom Communication Private Limited, 372 ITR 510 and decision of the Hon’ble Delhi High Court in the case of Mak Data Ltd. ( 31 Taxmann.com 448) .

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(a) Any person buys or acquires any securities or unit within a period of 3 months prior to the record date;

(b) such persons sells or transfer (i) such securities within a period of 3 months after such date; or (ii) such unit within a period of 9 months after such date; (iii) the dividend or income on such securities or unit received or receivable by such person

Then, the loss, if any, arising to him on account of such purchase and sale of securities or unit, to the extent such loss does not exceed the amount of dividend or income received or receivable on such securities or unit, shall be ignored for the purpose of computing of its income chargeable to tax."

From the above, it is apparent that appellant on the one hand has claimed income of Rs. 73,11,218/- as exempt but on the other hand booked loss on such sale for set off against the income of sale on motor car. As per assessment order specific query no. 43 of the questionnaire dated 28.09.2011 was made by the Assessing Officer regarding details of loss on sale of shares and after that appellant has submitted the following during the course of assessment proceedings and surrendered the amount for Taxation.]

"The working of loss as per provisions of section 94(7) is enclosed Enclosure no. "10". Because of an oversight we have adjusted this loss against the short capital gains on sale of motorcars, actually this loss was not allowable as per provisions of section 94(7). We offer tax on this amount of short term capital los wrongly adjusted against refund due to the assessee for this year".

The details of Enclosure 10 as under:

Short term loss from HDFC fixed Maturity (Inst.) – Rs.1,20,304/- Short term gain on sale of car- Rs.5,02,222/- Net disclosed short term capital gain Rs.3,81,918/-

But during the course of penalty proceedings appellant has filed the written submission dated 20.04.2012 that this amount of income of Rs. 1,20,304/- u/s 94(7) was surrendered voluntarily and was offered for taxation. The stand of the appellant is contradictory as on the one hand it is claimed that the surrender was made voluntarily and on the other hand it is accepted that it is offered for taxation on specific query made by Assessing Officer. During the course of appellate^ proceedings also the appellant has accepted this fact that

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this surrender was made after making specific query by the Assessing Officer.

The other amount on which penalty was imposed by Assessing Officer was the addition made by the Assessing Officer on the ground that appellant has made incorrect claim of Rs. 5,61,200/- on account of Corporate Entrance Fee for 5 years and after making a specific query by the Assessing Officer on this issue appellant has surrendered this amount which is disallowable as per the mercantile system of accounting followed by the appellant. During the penalty proceedings before Assessing Officer, appellant vide letter dated 20.04.2012 has claimed that this was due to an oversight and clerical mistake. During the appellate proceedings, the appellant has explained that two views were possible on account of entry fee expense in view of the decision of Gujarat High Court in the case of Gujarat State Export Corporation Ltd. 209 ITR 49 wherein it was held that entry fee is a revenue expenditure and allowable in the year of payment. The reply of the appellant was considered, however, it is found that before the Assessing Officer in the penalty proceedings appellant vide letter dated 20.04.2016 has conceded that this mistake was a clerical mistake before Assessing Officer and due to oversight this was wrongly claimed. However, before me during the course of appellate proceedings the appellant has changed its stand and relied on the above mentioned decision of Hon’ble Gujarat High Court and explained that appellant was perfectly correct in claiming full amount of entry fee as an expense in the year of payment. However, it did not press for the same as there could have been a dispute on the matter with the department. This clearly shows the conduct of the appellant and the change of stand that even by accepting the addition and claiming it as clerical mistake before Assessing Officer later on during the appellate proceedings appellant has changed its stand and claimed that this was an allowable expenditure rightly claimed by the appellant. The reliance in the case the Hon'ble Gujarat High court is highly misplaced as in this very case Hon’ble Gujarat High Court has held that payment of entrance fee to a sport club is revenue expenditure and not capital expenditure as held by the tribunal. In the instance case of the appellant the Assessing Officer himself has treated the payment of entry fee as revenue expenditure as claimed by the appellant and there is no dispute on this issue. The only dispute is in relation to the claim of the amount of expenditure as the appellant has paid this fee for 5 years in one time and full amount has been claimed in one year which cannot be allowed as deduction in one year as appellant has maintained mercantile system of accounting. Hence, expenditure of Rs. 112240/- was allowed and remaining amount of Rs. 561200/- was disallowed by Assessing Officer and also accepted by the appellant. Hence, there is no merit in the

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submission of the appellant that penalty imposed by the Assessing Officer should be deleted.

Assessing Officer has also imposed penalty on the addition of Rs. 67,000/- on the ground that Assessing Officer has mentioned in the assessment order that during the course of assessment proceedings no specific query was made on account of fee and subscription and after making such claim the appellant has surrendered the amount of Rs. 67,500/- and claimed that due to an oversight the entry was wrongly calculated in voucher no. 6 & 7 During the course of penalty proceedings also appellant has mentioned that this wrong claim was made due to clerical mistake vide letter dated 20.04.2012. However, Before me during the course of appellate proceedings the appellant has changed the stand and claimed that the appellant has corrected the calculation mistake on his own accord which was observed by the appellant & CA while checking the account of fee and subscription before submitting the same before Ld. Assessing Officer during the course of assessment proceedings. Plea of the appellant was considered and found not acceptable as when specific query was made to the appellant to produce the details of fee and subscription account, this mistake was corrected and clearly this was not a bonafide correction on its own accord as claimed by the appellant. Hence, there is no merit in the submission of the appellant that the Act was suo-motu.

The reliance by the appellant in the case of CIT vs. Reliance PetroProducts (SC) is not applicable on the facts of the case as in this case on Hon'ble Supreme Court has held that " It was an admitted position in the instant case that no information given in the return was found to be incorrect or inaccurate. It was not as if any statement made or any details supplied was found to be factually incorrect. Hence, at least, prima facie, the assessee could not be held guilty offunishing inaccurate particulars". In the instant case of the appellant has the addition made by the Assessing Officer was surrendered and there is no dispute on the addition made by Assessing Officer on legal grounds. Besides, this the case of Hon'ble Delhi High Court of Karan Raghav Exports Pvt. Ltd. also is not favorable to the appellant where Hon'ble Delhi High Court has held that when the legal provisions are debatable, penalty should not be imposed. Further in this case the assessee has made a note in the computation of income filed in the Return of income that on the basis of legal advice it had claimed depreciation. Hence, there was no concealment of facts. Whereas, in the case of the appellant there is no such debatable issue and wrong claim was made in the return of income which appellant has accepted and surrendered for taxation after specific query was made by Assessing Officer during the course of assessment proceedings. Further the Reliance of the appellant on the case of Somani Evergree Knits Ltd. (BOM) is also

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not applicable as in this case assessee itself has pointed out mistake to the Assessing Officer which was found by Hon'ble tribunal as bonafide and inadvertent which is not the case of the appellant.

The Assessing Officer has relied in his order on the jurisdictional Delhi High Court decision in the case of CIT vs. Zoom Communications Pvt. Ltd. (327 ITR 510) where Hon'ble Delhi High Court has held the following:

"The court cannot overlook the fact that only a small percentage of the income tax returns are picked up for scrutiny. If the assessee makes a claim which is not only incorrect in law but is also wholly without any basis and the explanation furnished by him for making such a claim is not found to be bona fide, it would be difficult to say that he would still not be liable to penalty under section 271(l)(c] of the Act. If we take the view that a claim which is wholly untenable in law and has absolutely no foundation on which it would be made, the assessee would not be liable to imposition of penalty, even if he was not acting bona fide while making a claim of this nature, that would give a license to unscrupulous assesses to make wholly untenable and unsustainable claims without there being any basis for making them, in the hope that their return would not be picked up for scrutiny and they would be assessed on the basis of self assessment under section 143(1) of the Income-tax Act, 1961 and even if their case is selected for scrutiny, the can get away merely by paying the tax, which in any case, was payable by them. The consequence would be that the persons who make claims of this nature, actuated by a malafide intention to evade tax otherwise payable by them would get away without paying the tax legally payable by them, if their cases are. not picked up for scrutiny. This would take away the deterrent effect, which these penalty provisions in the Act have at of the company"

Hence, it is apparent that the observations of the Hon’ble High Court in the above mentioned case is squarely applicable where the appellant was guided by a good team of auditors and has failed to point out who has erred in making such wrong claim in the return of income before Assessing Officer during assessment and penalty proceedings and before me during appellate proceedings.

The decision of the case of Zoom Communications is again reiterated by Hon'ble' Delhi High Court in the case of Escort Finance Ltd. (328 ITR 044).

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Besides this in this very case the appellant has accepted the addition and surrendered the amount once a specific query was made by the Assessing Officer. The ratio of judgment of Hon’ble Delhi High Court in the case of Mak Data Ltd. (31 Taxmann.com 448) is fully applicable in the case of the appellant where Hon’ble’ High Court has held as under-

There was absolutely no explanation from the assessee in respect of the amount surrendered. When the Assessing Officer called upon the assessee to produce the evidence as to the nature and source of the amount received as share capital, the creditworthiness of the applicants and the genuineness of the transactions, the assessee simply folded up and surrendered a sum. The assessee merely stated that with a view to avoid litigation and buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the Income tax department, it surrendered the income under the head 'income from other sources'.

In the absence of any explanation in respect of the surrendered income, the first part of clause (A) of Explanation to section 271(1) (c) is attracted.

This Decision of Hon'ble' Delhi High Court has been confirmed by Hon'ble' Supreme Court in the case of Mak Data Ltd(38 Taxmann.com 448) where Hon’ble Supreme Court held as under-

The Assessing Officer, shall not be carried away by the plea of the assessee like 'voluntary disclosure', 'buy peace', 'avoid litigation', 'amicable settlement', etc. to explain away its conduct.

The question is whether the assessee has offered any explanation for concealment of particulars of income or furnishing inaccurate particulars of income. Explanation to section 271(1) raises a presumption of concealment, when a difference is noticed by the Assessing Officer, between reported and assessed income. The burden is then on the assessee to show otherwise, by cogent and reliable evidence.

When the initial onus placed by the explanation, has been discharged by him, the onus shifts on the revenue to show that the amount in question constituted the income and not otherwise. [Para 7]

Assessee has only stated that he had surrendered the additional sum with a view to avoid litigation, buy peace and to channelize the energy and resources towards productive work and to make amicable settlement with the income tax department.

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Statute does not recognize those types of defences under the Explanation 1 to section 271(l)(c). It is trite law that the voluntary disclosure does not release the assessee from the mischief of penal proceedings under section 271(l)(c). The law does not provide that when an assessee makes a voluntary disclosure of his concealed income, he has to be absolved from penalty. [Para 7]

Further, Hon'ble' 1TAT Delhi Bench has also given similar view in the case of NG Technologies Ltd. (57 taxmann.com 389) and held that Where against basic principle of; accountancy, assessee claimed capital loss on sale of fixed assets in profit and loss account and had not revised return voluntarily, penalty for concealment of income was justified Hon’ble' ITAT in para 20 has held as under-

"Therefore, it is clear to us that the assessee had not filed revised return voluntarily but had filed the revised return after the Assessing Officer confronted the assessee and they were asked to explain how and why the loss on account of sale of fixed assets was claimed in the profit and loss account. The said loss, capital in nature and could not have been claimed in the profit and loss account".

The case of NG Technologies Ltd. is further relied upon by Hon'ble' ITAT Delhi Bench in the case of Tera Construction Pvt. Ltd. (61 taxmann.com 317)

It is relevant to point out that Hon'ble' ITAT has confirmed the penalty order even in the case where revised return has been filed by the assessees whereas in the case of the appellant no revised return was filed and the amount was surrendered at the time of assessment proceedings. after specific query made by the Assessing Officer.

Hence, 1 find no infirmity in the penalty order of Assessing Officer and penalty imposed by the Assessing Officer is confirmed.

{5}. In the result, the appeal is dismissed.”

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claimed such short term capital loss of ₹ 1,20,304/- and adjusted the same against short-term capital gain on sale of the motor cars. When the Assessing Officer pointed out this error to the assessee, the assessee agreed to the said amount for tax. The contention of the assessee that this was a bonafide error on the part of the assessee, whereas contention of the Revenue is that had this error not pointed out of by the Assessing Officer, this would have remained unnoticed and the assessee would have taken benefit of the error. It is evident that in the return of income, the assessee claimed short term capital loss of ₹ 1,20,304/-, which was not allowed in terms of section 94(7) of the Act. This is also a matter of fact that this error came to light only when the Assessing Officer asked for justification of the claim of certain capital loss in view of the clear provisions of section 94(7) of the Act. In our opinion, there is no doubt that in the return of income particulars filed by the assessee in respect of short-term capital loss, which has been adjusted against the short-term capital gain, are inaccurate. 6.1 The second disallowances in respect of the excess claim of expenses of ₹ 67,500/- and prepaid expenses of ₹ 5,61,200/-. During the course of the assessment proceeding, the Assessing Officer from the details of the Fee and subscription account found the two incorrect and excess claim of ₹ 27,000/- and Rs. 40,500/-, totalling to ₹ 67,500. On being pointed out, the assessee admitted that in voucher entry reference No. 6 dated 31/12/2007, the amount of fees and subscription was wrongly calculated at ₹ 63,000/- instead of Rs.36,000/- and similarly in voucher entry reference No. 7, dated 31/12/2007, the amount of

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fee and subscription was wrongly calculated at ₹ 57,375/- instead of ₹ 16,875/-. 6.2 Similarly, the Assessing Officer observed one-time payment of ₹ 6,73,440/- on 30/05/2007 to M/s. Jaypee Greens for corporate entrance fee for five years from June, 2007 to May, 2012. The prepaid amount of ₹ 5,61,200/- was not allowable as per the Mercantile system of accounting followed by the assessee. The assessee admitted that it has wrongly claimed deduction of the whole of the amount of ₹ 6,73,440/- instead of ₹ 1,12,240/- pertaining to the year under consideration. 6.3 The contention of the assessee in all the three cases is that, the error was unintentional and was due to calculation error, and tax thereon has been offered voluntarily for taxation. The contention of the Revenue is that, had the mistake not pointed out by the Assessing Officer, the assessee would have taken the benefit. In our opinion, obviously the assessee has filed inaccurate particulars of income in the return of income filed, though later on assessee has accepted its mistake. The Assessing Officer cannot absolve the assessee for filing inaccurate particulars in the return of income and pardon him, if the assessee except the mistake and pay the tax on the same. This action of the assessee cannot be said to be voluntary. Further, the learned Counsel could not substantiate before us as how two opinion exists on the issue of prepaid expenses of corporate entrance fee of ₹ 5,61,200/- disallowed by the learned Assessing Officer. 6.4 The Ld. CIT(A) has relied on the decision of the Hon’ble Delhi High Court in the case of Mak Data Ltd. (supra), wherein it is

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held that the statute does not recognize defences on account of ‘voluntary disclosure’, ‘buy peace’, ‘avoid litigation’, amicable settlement etc. to explain away of its conduct under the Explanation -1 to Section 271(1)(c) of the Act. The Hon’ble High Court has further held that it is trite law that the voluntary disclosure does not release the assessee from the mischief of the penal proceedings under section 271(1)(c) of the Act and the law does not provide that when assessee makes voluntary disclosure of his concealed income, he has to be absolved from the penalty. 6.5 The Ld. CIT(A) has also supported his finding with the order of the Tribunal in the case of NG Technologies Ltd.(supra) also. 6.6 In our opinion, the Ld. CIT(A) has followed the binding precedents on the issue in dispute and thus, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, we uphold the same. The grounds of the appeal of the assessee are accordingly dismissed. 7. In the result, the appeal of the assessee is dismissed. Order pronounced in the open court on 27th February, 2020.

Sd/- Sd/- (BHAVNESH SAINI) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER

Dated: 27th February, 2020. RK/-(D.T.D.S.) Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi