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Income Tax Appellate Tribunal, “A ”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD, JM
आदेश / O R D E R PER R.C.SHARMA (A.M):
These are the cross appeals filed by Revenue and assessee against the order of CIT(A)-2, Mumbai dated 30/10/2013 for A.Y.2002-03 to
2 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., 2004-05 in the matter of imposition of penalty u/s.271(1)(c) of the I.T Act, 1961. 2. The following common grounds have been taken by the Revenue:-
2.1 "On the facts and in the circumstances of the case and in law the Ld. CIT (A) erred in cancelling the penalty u/s 271(1)(c) of the I. T. Act levied on prior period expenses claimed by wrongly relying on the decision of Hon'ble Supreme Court in the case of CIT Vs Reliance Petro Products Ltd. 322 ITR 158, which decision is based upon particular facts of the case", 2.2 "On the facts and in the circumstances of the case and in law the Ld. CIT (A) erred in cancelling the penalty u/s 271(1)(c) of the I. T. Act levied on prior period expenses on arguments of the issue being debatable whereas in the facts of the case, no details whatsoever were filed either in assessment proceedings or in penalty proceedings taking the issue beyond the preview of being debatable".
The following common grounds have been taken by the assessee:- Being aggrieved by the order of the Commissioner of Income Tax Appeals 2 this Appeal petition is being submitted on the following grounds, which it is prayed may be considered without prejudice to one another. 3) The Learned Commissioner of Income Tax Appeals-2 erred in confirming the penalty levied by the learned Assessing Officer as regards the unproved payments of commission of Rs. 12,38,372/-to M/s. Purvico 4) Your Appellant craves, leave to add, alter, amend or delete any of the grounds of this appeal at the time of hearing or at any other time as the circumstances of this appeal may require.
Common grievance of Revenue in all the three years relates to deleting penalty with respect to belated payment of employee’s and employer’s contribution to PF, prior period expenses and refund of sales tax. 5. Rival contentions have been heard and record perused.
3 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., 6. Since there are common grounds of appeal with regard to the levy of penalties u/s 271(l)(c) of the Income-tax Act involved in all the three assessment years, all the three appeals are disposed of by this common order. The issues which have been considered by the A.O. as representing concealment of income, in the years under appeal, are as per overleaf: No. Description A.Yr. 2002-03 A.Yr. 2003-04 A.Yr. 2004-05 •] Belated Employees' Rs.7,07,462/- Rs.6,56,764 contribution to PF 2 Belated Payment of Rs.7,98,262/- Rs.7,85,494/- employers’' contribution to PF 3 Prior period expenses Rs.97,05,065/- Rs.91,25,360/- 4 Refund on Sales Tax Rs. 11, 47,606/- 5 Commission paid to M/s Rs.12,38,372/- Rs. 10,3 1,822/- Purvico
In the penalty orders, A.O. has held that the additions/disallowances made on all the above issues were in the nature of concealment of income and therefore, penalties u/s 271(1)© of the Act have been levied. 8. By the impugned order CIT(A) deleted the penalty after observing as under:- “The facts of the case, the stand taken by the A.O. in the assessment order and the contentions of the appellant company during the appellate proceedings as well as the written submissions made are carefully considered. The issues which have been considered by the A.O. for the purpose of imposing concealment penalty are as under: /. Belated Employees' contribution to PF
4 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., 2. Belated Employers' contribution to PF 3. Prior period expenses 4. Refund on sales tax 5- Commission paid to MJs Pwrvico. 8. The disallowances made on account of belated contributions to PF, be it employees' contribution or employers' contribution, are issues which are akin to mistakes apparent from records. These details are clearly disclosed in the Tax Audit Report so as to enable the A.O, to take corrective action, if necessary. In any case, not allowing a deduction which is otherwise allowable, only on account of certain technical defaults, such as belated remittance to the Government account does not amount to concealment of income or furnishing inaccurate particulars of income. The decision of the Hon'ble Supreme Court in the case of C1T -vs- Alom Extrusions Ltd. [319 1TR 306] makes it clear that the employees' contribution to PF, remitted on or before the due of filing of return of income, is an allowable deduction. Subsequent judicial decisions had extended the same logic to the belated remittance of employers' contribution of PF as well. Such a legal position makes it abundantly clear that such defaults, if any, cannot be interpreted as concealment of income or furnishing inaccurate particulars of income. 9. Similarly, prior period expenses are also clearly identified and disclosed in the Tax Audit Report and any disallowances thereof are based on such information. Any disallowances are made on this count do not amount to concealment of income, unless it is established by the A.O. that such an expenditure was not incurred or the appellant has made certain wrong claims thereof. In this case, A.O. has not brought any material on record to establish that there is element of concealment or furnishing of inaccurate particulars of income. Further, issues such as the allowability of prior period expenses are debatable in nature. Having regard to these aspects of the issue, it is hereby held that the claims of prior period expenditure do not amount to furnishing inaccurate particulars of income. 10. As regards the refund of sales tax. which is also taken into account for levying concealment penalty, it is submitted by the appellant that the only dispute is whether the said receipt has to be assessed under the head, 'other sources"' or under the head, 'business'. While the appellant has treated the receipt as a trading
5 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., receipt, which is assessable under the business, on the other hand, the A.O. has held that the said receipt is assessable under the head, 'other sources'. However, it is not the case of A.O. that the refund of sales tax and the interest thereof were not accounted for by the appellant in its books of accounts. On the other hand, the stand taken by the appellant on this issue appears to be bonafide in nature. In all the above three issues, i.e. belated contributions to PF, prior period expenditure and sales tax refund, the appellant has disclosed all the material facts that are required to frame assessment orders. Further, the requisite information pertaining to these issues, appears to be reflected in the Tax Audit Reports of the relevant years. The claims made in returns of income are based on verifiable data and are bonaflde in nature. There is no failure on the part of the appellant to satisfactorily explain and substantiate these claims and therefore, levy of concealment penalty on these issues is not justified. The decision of the Hon'ble Supreme Court in the case of CIT -vs- Reliance Petroproducts Ltd. [322 ITR 158] is applicable to all the three issues. The ratio of the decision is as under: "A glance at the provisions of section 271(l)(c) of the Income-tax Act, 1961, suggests that in order to be covered by it, there has to be concealment of the particulars of the income of the assessee. Secondly, the assessee must have furnished inaccurate particulars of his income. The meaning of the word "particulars'1 used in section 27l(l)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the. assesses to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making an incorrect claim tantamount to furnishing inaccurate particulars. There can be no dispute that everything would depend upon the return filed by the assessee, because that is the only document where the assessee can furnish the particulars of his income. When such particulars are found to be inaccurate, the liability would arise. To attract penalty, the details supplied in the return must not be accurate, not exact or correct, not according to the truth or erroneous. * Where there is no finding that any details supplied by the assessee in its return re found to be incorrect or erroneous or false there is no question of inviting the penalty under section 271(l)(c). A mere making of a claim, which is not sustainable in law, by itself, will not amount to furnishing inaccurate particulars regarding ihe income of the assessee. Such a claim made in the return cannot amount to furnishing inaccurate particulars. "
I I. In view of the foregoing penalties levied u/s 271(l)(c) of the Act, in respect of the above three issues, namely (i) Belated contribution
6 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., to PF, (ii) Prior period expenditure and (iii) Sales tax refund are hereby deleted.”
Against the above order of CIT(A), Revenue is in further appeal before us. 10. We have considered rival contentions and found that assessee is a sick company declared by Board of Industrial for Financial Reconstruction. The assets to the extent of about 99% of the company got wiped out on account of said accumulated loss. We also found that CIT(A) has deleted the penalty after observing that full particulars of income was filed by the assessee in the return income and there was no concealment of income. With respect to the belated payment of employee’s and employer’s contribution, the CIT(A) relied on the decision of Hon’ble Supreme Court in the case of Alom Extrusions Ltd. [319 1TR 306] wherein it was held that employee’s contribution to PF remitted on or before due date of filing of return of income is an allowable deduction. Subsequent judicial decisions have extended the same logic to the belated remittances and employer’s contribution to PF as well. Accordingly, it was held that belated payment of contribution is concealment of income or furnishing inaccurate particulars of income. Similarly with respect to the prior period of expenses, the CIT(A) observed that these expenses were duly identified and disclosed in the tax audit report. Mere disallowance on the part of such expenses do not amount to concealment of income unless it is established by the AO that such an expenditure was not incurred or
7 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., that assessee had made certain wrong claims. We further found that issues such as the allowability of prior period expenses are debatable in nature with regard to refund of sales tax, the CIT(A) found that assessee has treated receipt as trading receipt, which is accessible under the business, on the other hand AO has held that said receipt is assessable under the head, ‘other sources’. Accordingly it was not the case of the AO that refund of sales tax was not accounted for by the assessee in its books of accounts. The income was duly accounted for as Revenue receipt. Accordingly, it was held that there was no concealment of income only on the ground of sales tax refund as trade receipts, which has been assessed by the AO under the head ‘income from other sources’. Reliance was placed on the following judicial pronouncements. Sr. No. Description Citation 1 C1T--VS- Alom Extrusions Lid. 319 ITR 306 2 Price Water Coopers Pvt. Ltd. -vs- C1T 348 ITR 306 3 ShivLalTak-vs-CIT 251 ITR 37 3 4 National Textiles -vs- CIT 249 H'R 125 5 ITO -vs- Roborant Investments P. Lid. 7 SOT 181 6 Kotak Mahindra Old Mutual Life \ 15 SOT 722 Insurance Co. Ltd. —vs- ITO 7 ACIT--vs- ShivKadar 15 SOT 57 8 CIT -vs- Ram Commercial Enterprises 246 ITR 568 Ltd. 9 IT. Ashok Paid -vs- CIT 292 ITR 11 10 M/s Climate Systems India -vs-ACFT 200-7- T1OL-134-ITAT-DEL
8 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd.,
11 Mimosa Investments Co. P. Lid. -vs- ITO 6 ITR 789 12 CIT -vs- Reliance Peiroproducis P. Ltd. 322 ITR 158 13 CIT -vs- Punjabhai Shah 67 ITR 337 14 SMT Gunwamibhai Raiilal -vs- CIT 1 46 ITR 140 15 CIT -vs- MD Warasar Hussain 171 ITR 405 16. CIT -vs- Ajaib Singh & Co. 253 ITR 630
Considering the findings recorded by CIT(A) vis-a-vis- judicial pronouncements relied on, we do not find any reason to interfere in the order of CIT(A) for deleting the penalty levied with respect to belated payment of employer’s and employee’s contribution, prior period expenses and refund of sales tax. 12. In the result, appeals of Revenue are dismissed. 13. In the appeal filed by the assessee, assessee is aggrieved for upholding the levy of penalty with regard to disallowance of commission paid to M/s.Purvico. 14. It was contended by learned AR that M/s. Purvico was sub-agent of assessee company for selling the materials / goods of Reliance Industries Ltd., to HLL. M/s. Purvico has provided the services to the assessee company and thereafter raised debit note on the assessee company which were filed before the AO. Respective credit note issued by the assessee was also filed before the AO. The details of services so rendered and the tax effect there on at Rs.73,113/- was also filed before the AO.
9 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., As per learned AR since assessee was having huge carry forward loss, disallowance was not challenged before the CIT(A). As per learned AR, mere disallowance of expenditure does not amount to concealment of particulars of income, accordingly penalty was not allowable. 15. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that during the year under consideration, assessee has paid commission to M/s. Purvico. However, no supporting evidence was furnished before the lower authorities to the effect that services in question were rendered and the payment of commission was justified. The CIT(A) has also confirmed penalty after observing as under:- 12. The last issue on which concealment penalty has been levied by the A.O. is the payment of commission to M/s Purvico amounting to Rs. 12,38,372/- and Rs. 1 0,31,822''- for the A. Yrs. 2002-03 and 2003-04 respectively. It is stated in the penalty orders that the issue of payment of commission to M/s Purvico was examined during the assessment proceedings for the A. Yr. 2001-02, wherein it was established beyond doubt that the said recipient of commission has not provided any services to the appellant. A stand was taken that the transaction with M/s Purvico was a financial transaction and the appellant had introduced colourable devices to reduce the taxable income. It is also stated by the A.O. that the appellant failed to furnish documentary evidences of the services rendered and also failed to substantiate the claims of the deductions. It is further stated that even during the appellate proceedings, the appellant failed to substantiate its claim and consequently, the disallowances on this issue were confirmed by the first appellate authority. 4 13. It is seen from the written submissions filed during the present appellate proceedings, pertaining to concealment penalties, that the appellant has not submitted any evidences to support its contentions that the services in question were rendered and the payments of commission were justified. Since the concealment penalty proceedings are independent proceedings and since the appellant had been given adequate opportunities of being heard during the
10 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., current appeal proceedings, the onus was on the appellant to substantiate the issues of the claims of commission payments to M/s Purvico. It is seen that the appellant has not made any attempt to whatsoever to challenge the conclusions arrived at by the A.O. in the penalty orders. As referred to earlier, the additions made on account of commission payments were confirmed by the first appellate authority, which made it all the more necessary for the appellant submit any evidences which are in its favour and against the findings given by the A.O. and first appellate authority. There is a clear failure on the pan of the appellant to establish that the alleged commission payments were made for the purpose of business. Further, no evidences have been submitted to establish that the payments made were commensurate with the value of alleged services rendered by M/s Purvico. In the facts and circumstances of the case, it is hereby held that the appellant has furnished inaccurate particulars of income. Further, the appellant has failed to substantiate the explanations in this regard. Having regard to this set of facts, it is hereby held that levy of concealment penalties on this issue are fully justified. The following judicial decisions are in support of these findings: 1) Union of India -vs- Dharmendra Textile Processors [306 ITR 0277 (SC) (2008)].
___The Explanations appended w section 271(1)(c) of the Income-tax Act, 1961, indicate the element of strict liability- on the assesses for concealment or for giving inaccurate particulars while filing the return. The object behind the enactment of section 271(l)(c) read with the Explanations indicates that the section has been enacted to provide for a remedy for loss of revenue. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability as is the case in the matter of prosecution under section 276C. " 2) Sharma Alloys (I) Ltd. -vs- ITO (OSD) [357 ITR 0379 (Mad)] "Mere submitting of a claim which is incorrect in law would not amount to giving inaccurate particulars of the income of ike assessee but the claim made by the assessee needs to be bonafide. If the claim besides being incorrect in law is mala fide, Explanation 1 10 section 271(1)(c) of the Income-tax Act, 1961,would come into play and work to the disadvantage of the assessee. " 3) CIT -vs- Mahavir Mirror Industries P. Ltd. [353 ITR 0553 (2013) (Mad)] "Owing the previous year 1999-2000 relevant for the assessment year 2000- 01, the assessee made purchases from various proprietary concerns of CTS and his associates. CTS in his sworn statement stated that he had not made any sale of goods or supplied any materials to the assessee and that he had supplied only the bills. In view of the statement made by CTS and in view of the claim of the assessee that the purchases and sales were quantitatively
11 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., verifiable, the books of account maintained by the assessee were rejected and assessment was completed on the basis of difference in the gross profit ratio between that shown by the assessee and the rate prevailing in the market. Penally was also levied. On similar facts, penalty was levied for the assessment year 2001-02. The penalties were deleted by the commissioner (Appeals) and this was confirmed by 'he Tribunal. On appeal to the High Court Held, allowing the appeal, ihai the seller in his s\vorn statement had stated that he had not made any sales and had given only bills to the assessee, and the assessee had not chosen to even cross-examine the seller. The Tribunal as well as the appellate authority- had not controverted or distinguished this fact by relying on any statement or material documents produjced on the side of the assessee. The levy of penalty was valid. " 4) CIT —vs- Balaramakrishna Engineering Contractors Corporation [356 ITR 0524 (AP)] "Under section 271(l)(c)(iii) of the Income-tax Act, 1961, read with Explanation 4, if an assessee has concealed the particulars of his income or furnished inaccurale particulars of such income, in addition to tax payable by him, a sum which shall not be less than and which shall not be more than three times ''the amount of tax sought to be evaded" by reason of such concealment shall be levied and collected as penalty. Even if a loss return is filed, if the amount of concealment has the effect of reducing the loss in the return or converting such loss into income, section 27l(l)(c) is attracted. A taxing statute has to be strictly interpreted by giving a plain meaning to the clear and unambiguous language used by the Legislature. When Explanation 4(a) clearly speaks of the return of loss and also deals with the effect of concealment of such return of loss either decreasing loss or converting loss into income, penalty "" under section 27l(l)(c) would be attracted and can be levied even in a case where the assessed income is a loss. Even during the period between April 1, 1976, and April 1, 2003, the position was that the penalty was leviable even in a case where addition of concealed income reduces the returned loss. CIT ~vs-Gold Coin Health Food P. Lid. [2008] 304 ITR 308 (SC) applied. " 13.1. In view of the above findings, penalty levied u/s 27I(l)(c) of the Act of the issue of commission payments to M/s Purvico, in respect of The A.Yrs 2002-03 and 2003-04 are hereby confirmed. 16. Detailed finding so recorded by lower authorities have not been controverted by learned AR by bringing any positive material on record, accordingly, we do not find any reason to interfere in the order of CIT(A) confirming the penalty with respect to payment of commission to M/s.
12 ITA No.1169/Mum/2014 and other appeals M/s. Kesar Petroproducts Ltd., Purvico amounting to Rs. 12,38,372/- and Rs. 10,3 1,822/- for the A.Y.2002-03 and 2003-04 respectively. 17. In the result, both the appeals of the Revenue and assessee are dismissed. Order pronounced in the open court on this 28/08/2018 Sd/- Sd/- (RAVISH SOOD) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 28/08/2018 Karuna Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai Initial Date 1. Draft dictated on 13/08/2018 Sr.PS 2. Draft placed before author Sr.PS 3. Draft proposed & placed before JM/AM the second member 4. Draft discussed/approved by JM/AM Second Member. 5. Approved Draft comes to the Sr.PS/P Sr.PS/PS S 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order. 11. Dictation Pad is enclosed Yes