THE ITO, WARD-2(1)(3),, BARODA vs. SUPER HOSPITALITY SERVICES PVT. LTD.,, BARODA

None appeared on behalf of the assessee nor any application seeking adjournment was filed before us. We have noted that despite several opportunities granted to the assessee, the assessee has either remained unrepresented on several occasions or sought adjournments. Considering the same, it was considered fit to proceed with adjudicating the appeals ex-parte.

We shall first be dealing with the appeal of the Revenue in Assessment Year 2006-07. The grounds raised by the Revenue are as under:-

The facts relating to the case, as emanate from the orders of the authorities below, is that the assessee is engaged in the business of catering and hospitality/house keeping service etc. For the impugned assessment year return of income was filed by the assessee declaring Nil income. Thereafter reassessment proceedings, under Section 147 of the Act , were initiated on the assessee on the basis of information received from the Office of the Commissioner, Central Excise, Customs and Service Tax, Baroda-1 that the assessee had provided services and received an amount of Rs.5,10,61,886/- during the year. The assessee denied having received any such amount and asserted that no business had been carried out in the impugned year, since it was the first year of coming into existence. The Assessing Officer, however, was not convinced with the explanation of the assessee and accordingly he held that the sum reflected undisclosed sales of the assessee. Applying an N.P. rate of 25% thereon, he calculated the income earned from the same at Rs.1,38,07,344/- and added the same to the income of the assessee. The Assessing Officer also made addition of Rs.30,29,240/- on account of unpaid Service Tax liability. Accordingly the total income of the assessee was assessed at Rs.1,68,36,584/- as against Nil returned by the assessee.

Before the Ld. CIT(A) the assessee reiterated its contentions and furnished additional evidences in support. The assessee pleaded that the said income did not relate to it since it had come into existence in the impugned year only and had not commenced any business. That in fact it related to the proprietary concern of the Director of the assessee Company, Shri Keshav Alwa, which went by the same name as the assessee Company. Additional evidences in support of the contention was filed before the Ld. CIT(A). The Ld CIT(A), after perusing the same, found merit in the contention of the assessee and deleted both the additions so made holding as under :-

We have gone through the order of the Ld. CIT(A) and do not find any infirmity in the same. The acceptance of the explanation of the assessee that the turnover did not belong to it but to the proprietary concern of the Director of the assessee Company Shri Keshav Alwa, going by the same name as the assessee Company, we find is based on appreciation of several evidences which were there before the Ld. CIT(A).

There were evidences before the Ld.CIT(A) demonstrating that the assessee company came into existence only in the later part of the year and could have commenced its activities of providing services only from the subsequent year onwards when it was registered with the Central Excise and Customs, Baroda, thus ruling out the possibility of any activity being carried out in the impugned year by the assessee company. The aforesaid facts were established by the Memorandum of Association and Article of Association of the assessee Company showing the date of formation of the Company as 19.12.2005 i.e. during later part of the impugned year and the Service Tax registration of the assessee company, from the Central Excise and Customs, Baroda, being found to be obtained in the subsequent year i.e. 15.05.2006.

There were evidences with the Ld.CIT(A) establishing existence of the proprietorship & 526 Ahd 2015 A.Ys. 2006-07 & 2010-11 Page 7 of 12 Concern of the director of the assessee company, Sh.Keshav Alwa, going by the same name as the assessee company , by way of several notices issued in its name by the Central Excise and Customs and Service Tax Department in 2006 and 2007 for non filing of annual yearly returns and for shortfall of service tax.

Further the Ld. CIT(A) noted that the notice issued in the name of the assessee company by the Central Excise and Customs and Service Tax Department dt.20/11/2009 , which was the basis of reopening the case and making the impugned additions was also issued to Mr. Keshav Alwa, director of the assessee company and proprietor of the concern going by the same name as the assessee. He also noted from the same that the amount of service tax stated to be paid therein by the assessee company, was actually paid in the proprietorship concern. Copies of Form No.36, reflecting the said payment in the proprietorship concern, were filed before and perused by the Ld.CIT(A). Also the proprietor, Sh Keshav Alwa, had confirmed on oath to the Ld.CIT(A) the fact that the turnover of Rs.5.55 crores, mentioned in the notice issued to the assessee company, pertained to his concern and stood reflected in the books also.

On the basis of the aforestated facts, the Ld. CIT(A) concluded that there was no suppression of sale on the part of the assessee Company and that it actually related to the proprietorship concern and accordingly directed that the issue of addition on account of suppressed sales alongwith that of unpaid service tax liability be examined in the case of the proprietorship concern.

None of the findings of fact by the Ld. CIT(A) have been controverted by the Ld. Departmental Representative before us. In view of the same, we see no reason to interfere in the order of the Ld. CIT(A) deleting the addition made of profits from suppressed of sales ,amounting to Rs.1,38,07,344/- and that on account of unpaid service tax liability u/s 43B of the Act of Rs.30,29,240/-

Grounds raised by the Revenue are therefore dismissed.

In effect appeal of the Revenue is dismissed.

The grounds raised by the assessee are as under :-

As transpires from the orders of authorities below, penalty u/s 271(1)(c) of the Act, for concealing/furnishing inaccurate particulars of income, has been levied on account of addition made to the income of the assessee u/s 43B of the Act of unpaid Service Tax and VAT liability of Rs.89,29,352 and Rs,7,34,181/- respectively. The assessee, it has been noted in the order of the Ld. CIT(A), did not file any appeal in quantum proceedings against these additions. The Ld. CIT(A) upheld the penalty stating that it was a fit case for levy of penalty since the assessee appeared to have deliberately not added the said amounts to its income despite their disclosure made in the tax audit report and no plausible reason given for not adding back the same. The relevant findings of the Ld. CIT(A) at para 4.3 of his order are as under :- & 526 Ahd 2015 A.Ys. 2006-07 & 2010-11 Page 9 of 12 4.3. I have considered the facts of the case, the AO's observations and submissions made by the AR of the appellant. The appellant's claim before the AO as well as during the course of the appellate proceedings is that there was no concealment of facts as the amount of service tax and VAT payable as on the last day of the financial year was disclosed. In the Tax Audit Report; based upon which the AO has made the disallowance. It has been further submitted that the disallowance made in the current year will be allowed in the subsequent year as per the provisions of section 43B and therefore, there was no evasion of tax. In this regard, the appellant has placed reliance upon the decisions of Hon'bIe Supreme Court in the case of Price Waterhouse Coopers Pvt. Ltd. (supra and decision of ITAT, Ahmedabad Bench in the case of Volga Airtechnic Ltd. (supra). But, on analysis of these decisions, it is seen that the facts of the present appeal are not identical to these cases. In the case of Price Waterhouse Coopers Pvt. Ltd., the Hon’ble Supreme Court had enquired into the reasons leading to non disallowance of amounts disallowable as per section 43B of the Act in the return of income filed by the assessee. On the basis of the explanation filed by the assessee in respect of such query, it was held by the Hon'ble Supreme Court that giving the clear facts of that case, the imposing of penalty on the assessee was not justified as the assessee had committed an inadvertent and bonafide error and had not intended to or attempted to either conceal its income or furnish inaccurate particulars. In the case of Volga Airtechnic Ltd., the assessee which was a "Sick Industrial Company" registered under BIFR, had carried forward losses and the taxable profits determined after making the additions and brought forward losses were nil. The assessee was not liable to pay any tax on the income determined by the AO. The disallowance had been made on account of 43B and 40A(7) of the Act. Under such circumstances, the ITAT held that penalty u/s 271(1)(c) was not leviable in this case. 4.3.1 In the present appeal, neither before the AO nor during the current appellate proceedings, the appellant has explained the circumstances and reasons due to which the amounts disallowable u/s 43B of the Act were not added back while filing the return of income. The appellant had declared total income of Rs.50,84,700/- in its return of income and hence, the amounts disallowable u/s 43B of the Act would have been increased the tax liability of the appellant. It is also seen that the date of Tax Audit Report was 4th September, 2010, whereas, the return of income has been filed on 15.10.2010. The Tax Audit Report has reported non payment of service tax and VAT till the date of preparation of Audit Report only. Hence, the appellant was bound to determine at the time of filing of return of income as to whether these liabilities has been paid before that date or not and accordingly make disallowance u/s 43B of the Act. But the appellant failed to do so. Moreover, a scrutiny of records shows that similar action has been committed by the appellant in the return of income for AY 2011-12 also, due to which additions of Rs.90,25,697/- consisting of service tax of Rs.79,91,928/-, professional tax of Rs.1,08,130/- and VAT of Rs.9,25,639/- has been made u/s 43B of the Act in the order u/s 143(3) passed on 27.03.2014 for this assessment year. Under these circumstances, the ratio laid down by the Hon'ble Supreme Court of India in the case of Price Waterhouse Coopers Pvt. Ltd. (supra) is not applicable to the present appeal. Rather the ratios laid down in the decisions in the cases of & 526 Ahd 2015 A.Ys. 2006-07 & 2010-11 Page 10 of 12 Gujarat State Financial Services Ltd. 039 SOT 570 (AHD) and Zoom Communication (P) Ltd., 191 Taxman 179 (Del), involving imposition of penalty u/s 271(1)(c) on account of claim made of legally unjustifiable deduction regarding which no debate or controversy was involved, are applicable. Hence, the penalty levied by the AO is upheld.”

We have gone through the orders of the authorities below and have heard the Ld. DR who has supported the order of the Ld.CIT(A).

It is a fact on record the both the unpaid liabilities had been reflected in the respective columns of the tax audit report. In fact the AO had picked them up from the tax audit report itself for making addition in quantum proceedings, which fact finds mention in the assessment order. Further on going through the assessment order ,which is reproduced at para 4.1 of the CIT(A)’s order in the impugned penalty proceedings ,we find that the assessee had stated that the outstanding demand related to a contested liability the appeal against which was pending at higher level. The assessee had stated that the liability had been fixed on the assessee by the Service tax department holding that it was not entitled to 50% abatement on tea and snacks, which the assessee was contesting in appeal. The assessee clearly had a bonafide explanation for not adding the unpaid tax liabilities to its income since it was contesting the very levy of the same before the concerned department. It may be a fit case of making addition of the unpaid liabilities to the income of the assessee. But as far as the levy of penalty is concerned the explanation for not adding back the unpaid liabilities to its income cannot be outrightly rejected as not being bonafide.

What emerges therefore is that all particulars relating to income were disclosed by the assessee, as is evident, in the tax audit report itself reflecting the impugned unpaid tax liabilities. Further Explanation 1 to section 271(1)(c) of the Act deems concealment of income when ,with respect to a fact material to the computation of income, the explanation of the assessee is either false or not bonafide and unsubstantiated. In the present case, we find, the explanation of the assessee for not adding back the unpaid liabilities to its income as bonafide, since they were stated to be contested with the concerned departments.

Considering the above facts and circumstances we are of the view therefore that the assessee cannot be said to have concealed/furnished any particulars of income so as to attract the levy of penalty u/s 271(1)(c) of the Act. & 526 Ahd 2015 A.Ys. 2006-07 & 2010-11 Page 11 of 12 21. In view of the same, we delete the penalty so levied amounting to Rs.32,82,000/-.

In the result, appeal of the assessee is allowed.