GARRON TRADING COMPANY PRIVATE LIMITED ,MUMBAI vs. INCOME TAX OFFICER-8(1)(4), MUMBAI

1. The CIT (Appeals) ought to have deleted the entire amount of penalty imposed at Rs.3,26,850/- u/s 271(1)(c) whereas retained the penalty at Rs 34,219/- on the addition of Rs. 1,01,662/- when the appellant had proved that it was a bonafide error in calculation of interest income on refund of income tax.

Brief facts of the case are that the assessee filed its return of income for relevant Assessment Year on 27.09.2011 declaring total income at Rs. 16,77,194/-. The return of income was selected for scrutiny and assessment was completed under section 143(3) on 29.10.2013. The Assessing Officer while passing the assessment order besides the other addition and disallowances, made the addition on account of excess interest of Rs 1,01,662/-. The Assessing Officer made addition holding that assessee received refund of Rs. 18,21,969/- pertaining to Assessment Year 2008-09 which consist of interest of Rs. 2,37,648/-. The assessee declared interest of Rs. 1,35,986/- in the computation of income. The Assessing Officer asked to explain why the entire interest of Rs. 2,37,648/- on refund should not be considered under the head “Income from Other Sources”. The assessee filed its reply and contended that there is a credit in respect of service charge of Rs. 1,35,986/- which has been wrongly taken to the credit on Profit & Loss Account instead of Interest Income provided in the refund. The assessee Mum 2017-Garron Trading Company Pvt. Ltd. offered the remaining (excess) of interest of Rs. 1,01,662/- for taxation. The Assessing Officer after added the interest of Rs. 1,01,662/- to the income of the assessee and initiated the penalty. No appeal was filed by the assessee against such addition of interest income. Show-cause notice under section 274 r.w.s. 271(1)(c) dated 18.11.2013 was served upon the assessee. The assessee filed its reply. In the reply, the assessee explained that during the assessment, the assessee vide their letter dated 05.09.2013 submitted that in the audited Profit & Loss Account, there was a credit appearing in respect of service charge of Rs. 1,35,986/-. It was explained that the service charge was nothing but Interest Income provided on the refund for Assessment Year 2008-09. It was further explained that error which crepted in connection with the head of income nomenclature as ‘service charge’ instead of ‘Interest Income’. The actual receipt of income (Interest Income under section 244A) as computation Form was amounting to Rs. 2,37,648/-. During the assessment, the excess interest offered for assessment purpose and was charged to tax. A revised computation was also furnished. The assessee further stated that they have offered/disclosed the income, the penalty should not be initiated as there is no concealment of income or filing inaccurate particulars as it was a short provision of income. The reply of assessee was not accepted by Assessing Officer. The Assessing Officer levied the penalty @ 100% of tax sought to be evaded. Mum 2017-Garron Trading Company Pvt. Ltd.

On appeal before the ld. CIT(A), the action of Assessing Officer qua penalty on interest income was upheld. Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.

We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that interest on refund of income tax was provided at Rs. 1,35,986/- and was included under the head “Service Charge” instead of “Interest Income” in the books of account. The interest earned on refund was Rs. 2,37,648/-. The assessee inadvertently and by error accounted Interest Income short by Rs. 1,01,662/-. The error was accepted during the assessment. The assessee furnished fresh computation of income and offered the short of interest income of Rs. 1,01,662/-. The assessee offered the said short of Rs. 1,01,662/- for assessment. The Assessing Officer accepted the offer of the assessee. The said amount was taxed by Assessing Officer. The ld. AR of the assessee further submits that the penalty is not justified as the assessee has not deliberately concealed any income nor furnished inaccurate particulars.

In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Supreme Court in CIT vs. Reliance Petroproducts Pvt. Ltd. [322 ITR 158 (SC)], Price Water House Cooper Pvt. Ltd. vs. CIT (2012)

On the other hand, the ld. Departmental Representative (DR) for the revenue relied upon the order of lower authorities. The ld. DR supported that the assessee has intentionally and deliberately concealed the income of Interest Income. The assessee offered only when it was detected by the Assessing Officer during the assessment. In support of his submission, the ld. AR of the assessee relied upon the decision of Hon’ble Delhi High Court in Zoom Communication Pvt. Ltd. (327 ITR 510), Supreme Court in MAK Data Pvt. Ltd. (358 ITR 593 SC) 8. We have considered the rival submissions of the parties and have gone through the orders of authorities below. There is no dispute that while filing the return of income, the assessee has offered Interest Income of Rs. 1,35,986/-. During the assessment, the Assessing Officer noted that assessee received refund of Rs. 18,21,969/- pertaining to Assessment Year 2008-09 5 Mum 2017-Garron Trading Company Pvt. Ltd. which included the interest of Rs. 2,37,648/-. Though the assessee declared/offered Interest Income of Rs. 1,35,986/- only. When assessee was confronted with the fact, the assessee admitted its mistake and offered the remaining excess interest of Rs. 1,01,662/- for taxation. The Assessing Officer initiated the penalty under section 271(1)(c). In reply the show-cause notice, the assessee vide its reply dated 05.09.2013 stated that there was credit appearing in respect of service charges of Rs. 1,35,986/-. It was explained that the service charges were nothing but an Interest Income provided on the refund for Assessment Year 2008-09, the assessee pleaded that error was crept in connection with the head of nomenclature as service charge instead of Interest Income. The assessee conceded that actual Interest Income under section 244A as per the computation Form was Rs. 2,37,648/-.

Before us, the ld. AR of the assessee vehemently submitted that assessee has not deliberately concealed the income nor furnished any inaccurate 6 Mum 2017-Garron Trading Company Pvt. Ltd. particulars thereof. It was only an inadvertent and bonafide error in passing entry without looking at the requisite documents. The assessee has accepted the mistake during the assessment and offered the Interest Income for taxation. Besides that the ld. AR also vehemently submitted that MAT credit for earlier year was available during the year. Therefore, it cannot be held that the assessee has intention to evade the tax. Considering the reply of assessee and explanation offered by assessee in reply to show-cause notice under section 274 r.w.s. 271(1)(c) dated 18.11.2013, we find that assessee has shown a reasonable cause within the scope of section 273B. Considering the facts and the reply of the assessee and the stand taken throughout the proceeding there was no deliberate act of the assessee. The assessee has accepted its bonafide mistake during the assessment itself and filed revised computation, which was accepted by the assessing officer. Moreover, there was no tax evasion. Therefore, in our view on the facts of the present case, the penalty under section 271(1)(c) is not justifiable. Similar view was taken by coordinate bench of this Tribunal in Richa Dubey (supra). The fact of the case law on which ld. DR relied are not applicable on the facts of the present case.

In MAC Data Pvt. Ltd. (supra), the assessing officer during the course of the assessment proceedings, it was noticed that certain documents comprising of share application forms, bank statements, memorandum of association of companies, affidavits, copies of Income-tax returns and assessment orders 7 ITA No. 5936 Mum 2017-Garron Trading Company Pvt. Ltd. and blank share transfer deeds duly signed had been impounded in the course of survey proceedings conducted in the case of (a sister concern of the assessee). On show cause notice, the Assessing Officer sought specific information regarding the documents pertaining to share applications found in the course of survey, particularly, bank transfer deeds signed by persons, who had applied for the shares. In reply, the assessee made an offer to surrender a sum of Rs. 40.74 lakhs with a view to avoid litigation and buy peace and to make an amicable settlement of the dispute. Thus, the facts of MAK Data (supra) are entirely on different facts.

In Zoom Communication Pvt. Ltd. (supra), the Hon’ble Delhi High Court held that the accounts of the assessee were mandatorily subjected to audit. It was not the case of the assessee that it was advised that the amount of income-tax paid by it could be claimed as a revenue expenditure. It was also not the case of the assessee that deduction of income-tax paid by it was a debatable issue. In fact, in view of the specific provisions contained in section 40(ii), no such advice could be given by an auditor or other tax expert. No such advice had been claimed by the assessee even with respect to the amount claimed as deduction on account of certain equipment having become useless and having been written off. The Tribunal was entirely wrong in saying that section 32(1)(iii) applied to such a deduction. It was not the contention that claiming of such a deduction under section 32(1)(iii) was a debatable issue on which there were two opinions prevailing at the relevant 8 Mum 2017-Garron Trading Company Pvt. Ltd. time. In fact, the assessee did not claim, either before the Assessing Officer or before the Commissioner (Appeals), that such a deduction was permissible under section 32(1)(iii). No such contention on behalf of the assessee was found noted in the order of the Tribunal. Thus, it was the Tribunal which took the view that section 32(1)(iii ) could be attracted to the deduction claimed by the assessee. It was also not the case of the assessee that it was under a bona fide belief that those two amounts could be claimed as revenue expenditures.

Therefore, in our humble view, the ratio of the decisions relied by ld. DR is not applicable on the facts of the present case. Hence, the gerunds of appeal raised by the assessee are allowed.

In the result, appeal of assessee is allowed.