STOCK TRADERS PRIVATE LIMITED,,MUMBAI vs. ACIT-2(3)(2), MUMBAI

In this case, assessment order for the relevant assessment year u/s 143 (3) of the Act determining the total income of the assessee at Rs. 3,48,94,340/-. Assessment Years: 1995-96 and 1996-97 The assessee challenged the assessment order before the Ld.CIT (A). The Ld.CIT (A) set aside the assessment order to the AO with the direction to examine the additional evidence brought on record by the assessee and to determine the issues afresh. Accordingly, the AO completed the assessment u/s 143 (3) confirming the income determined in original assessment after making addition of Rs. 45,09,637/- after making disallowance of professional fees paid to Preroy AG (PAG) with whom the assessee entered into agreement in January, 1995 for availing services and Rs. 9,33,988/- on account of disallowance of foreign travel expenses claimed. The AO initiated penalty proceedings on the basis of the said additions. In the first appeal, the Ld. CIT (A) confirmed the penalty in respect of addition made on account of disallowance of professional fees paid to PAG and deleted the penalty in respect of disallowance of expenses on foreign travel. Still aggrieved, the assessee is in appeal before the Tribunal.

The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds:-

At the outset, the Ld. counsel for the assessee submitted that this issue is covered in favour of the assessee by the order of the ITAT in the assessee’s own case for the assessment year 2003-04. The Ld. counsel further submitted that the ITAT has deleted the penalty imposed u/s 271 (1) (c) of the Act initiated on the basis of the similar addition made by the AO and the confirmed by the Ld. CIT (A) and the ITAT. The Ld. counsel further submitted that since this issue is covered in favour of the assessee by the order of the ITAT, the penalty imposed in the present case is not sustainable.

On the other hand, the Ld. Departmental Representative (DR) fairly admitted that in the assessee’s own case the ITAT has deleted the penalty levied Assessment Years: 1995-96 and 1996-97 on the similar addition. However, the Ld. DR supported the order passed by the Ld. CIT (A). 6. We have gone through the relevant material on record including the order passed by the coordinate Bench in assessee’s own case, for the AY 2003-04 dated 15.02.2019. As pointed out by the Ld. counsel for the assessee, the coordinate Bench has deleted the penalty levied u/s 271 (1) (c) of the Act on the basis of similar addition on legal ground as well as on merits. The observations of the coordinate Bench reads as under:-

Even otherwise also, the penalty imposed under section 271(1)(c) of the Act is unsustainable. As discussed earlier, out of the four disallowances made by the Assessing Officer in the assessment order on the basis of which penalty under section 271(1)(c) of the Act was imposed, disallowances relating to business service centre and telephone expenses have been set aside by the Tribunal to the Assessing Officer for denovo adjudication. That being the case, penalty imposed under section 271(1)(c) of the Act on the aforesaid two additions would not survive. As regards disallowance of professional fees paid to PAG, it is evident that such disallowance was sustained by the Tribunal relying upon its own decision for the preceding assessment years. However, it is worth mentioning that in the assessment order passed in case of PAG for the impugned assessment year, the Assessing Officer has not only assessed the payment received by it from the assessee but has also observed that PAG has rendered technical service to the assessee. Therefore, merely because the deduction claimed by the assessee on account of fees paid to PAG was disallowed on certain reasonings, it cannot be said that the assessee has either furnished inaccurate particulars of income or concealed its income. More so, when the fact of payment made to PAG has not been disputed. in the aforesaid view of the matter, imposition of penalty under section 271(1)(c) of the Act in respect of disallowance arising from payment of professional fees to PAG would not survive. It is also relevant to observe, though, similar disallowance was made in the assessment years 1997–98 to 2001–02 and was sustained by the Tribunal, however, the Assessing Officer has never initiated penalty proceedings under section 271(1)(c) of the Act on such disallowances which gives credence to the fact that while claiming such expenditure, the assessee has neither concealed its income nor furnished inaccurate particulars of income. As regards penalty imposed on the disallowance of foreign travel expenditure, there is no dispute that such expenditure was incurred towards the foreign travel of the wife of director. Though, it may be a fact that in assessee’s own case, the Tribunal has sustained the disallowance by holding that the expenditure incurred is not for the purpose of Assessment Years: 1995-96 and 1996-97 business, however, in case of Alfa Laval India Ltd. (supra), the Hon'ble Jurisdictional High Court has held such expenditure to be for the purpose of business, hence, allowable for deduction. Thus, as could be seen, there are divergent views on this issue. That being the case, the assessee cannot be alleged of furnishing inaccurate particulars of income or concealing its income while claiming such deduction. In view of the aforesaid, we delete the penalty under section 271(1)(c) of the Act for the impugned assessment year.”

Since, the coordinate Bench has decided the identical issue in favour of the assessee in assessee’s own case for the AY 2003-04 aforesaid and since there is no change of facts in the present case, we do not find any reason to take a different view other than the one already taken by the coordinate Bench in the assessee’s own case for the AY 2003-04. Hence, respectfully following the decision of the coordinate Bench rendered in the assessee’s own case discussed above, we allow the sole ground of appeal