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Income Tax Appellate Tribunal, MUMBAI BENCHES “G”, MUMBAI
Before: Shri Saktijit Dey, JM & Shri Rajesh Kumar, AM
O R D E R Per Saktijit Dey, Judicial Member
The aforesaid appeal has been filed by the department challenging the order dated 30.07.2016, passed by learned Commissioner of Income Tax (Appeals)-16, in short CIT(A), Mumbai, deleting the penalty imposed u/s. 271(1)(c) of the Act amounting to ` 19,01,651/- for the assessment year 2012-13.
Briefly, facts are the assessee - a company, is engaged in the business of dealing in mobile phones, telecommunication instruments and accessories. For the assessment year under dispute, the assessee filed its return of income on 29.09.2012, declaring ‘nil’ income after adjusting brought forward losses of earlier years. During the assessment proceedings, the Assessing Officer on verifying the Future Mobile & Accessories Ltd.
financial statements of the assessee found that a deduction of ` 43,36,290/- has been claimed as advertisement expenses. After calling for the details of such expenditure, he found that out of the total advertisement expenditure claimed by the assessee, an amount of ` 17,83,183/- was a provision made for expenditure on which the assessee has not deducted tax at source. Being of the view that the provision made by the assessee is contingent in nature, he held that such amount cannot be allowed as deduction. Accordingly, he added back the amount of ` 17,83,183/- to the income of the assessee. Further, the Assessing Officer found that the assessee has claimed an expenditure of ` 2,52,70,663/- on account of rent.
After examining the details furnished by the assessee the Assessing Officer found that out of total rent expenses, an amount of ` 43,71,029/- was a provision made of such expenditure on which the assessee has not deducted tax at source. Holding that the provision made is contingent in nature the Assessing Officer disallowed the said amount from the expenditure claimed by the assessee and added it back to the total income. On the basis of such additions made, the Assessing Officer initiated proceedings for imposition of penalty u/s. 271(1)(c) of the Act, alleging furnishing of inaccurate particulars and concealment of income. In response to the show cause notice issued u/s. 274 r w s 271(1)(c) of the Act, though the assessee furnished an explanation ascertaining therein there is neither furnishing of inaccurate particulars of income nor concealment of income while claiming deduction of the disputed amount, however, the AO rejecting the explanation of the assessee proceeded to impose penalty u/s. 271(1)(c) of the Act amounting to ` 19,01,651/- on the ground that the assessee has furnished inaccurate particulars of income. Being aggrieved
Future Mobile & Accessories Ltd. of the imposition of penalty, as aforesaid, assessee preferred appeal before the CIT(A).
The learned CIT(A) after considering the submissions of the assessee, though was conscious of the fact that the assessee has accepted the additions made by the Assessing Officer however, he was of the opinion that penalty proceedings u/s. 271(1)(c) of the Act, being independent and separate from assessment proceedings, merely because the additions made by the Assessing Officer have become final, it will not automatically lead to imposition of penalty. The learned CIT(A) observed that in the course of assessment proceedings, the assessee has submitted all relevant information/details in respect of the expenditure claimed and has also explained the reason for claiming deduction of such expenditure. He found that all information relating to such expenditure were available in the financial statements enclosed with the return of income. He observed, the assessee claimed certain expenditure which was not accepted by the Assessing Officer. However, merely because the Assessing Officer did not agree with the claim of the assessee that by itself, would not lead to imposition of penalty. Relying upon the decision of Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Private Ltd. 322 ITR 158 (SC), the learned CIT(A) observed, when the information furnished by the assessee was not incorrect or inaccurate, penalty cannot be imposed u/s. 271(1)(c) of the Act on the allegation of furnishing of inaccurate particulars of income.
Accordingly, he deleted the penalty imposed.
The learned DR relying upon the observations of the Assessing Officer in the penalty order submitted, the assessee being conscious of the fact that the Future Mobile & Accessories Ltd.
expenditure in relation to which deductions were claimed are in the nature of provisions still claimed them as deduction. He submitted, when the expenditure has not crystallized and was not ascertainable, the claim of the assessee was totally wrong. More so, when it has not even deducted tax at source on such payments.
The learned DR submitted, since, the assessee was aware of the fact that the expenditure claimed was not allowable, he accepted additions made by the Assessing Officer. Thus, he submitted, the assessee having furnished inaccurate particulars of income, the Assessing Officer has correctly imposed penalty u/s. 271(1)(c) of the Act.
The learned AR supporting the order of the CIT(A) submitted, though the amounts claimed as deduction were shown as provisions however, such expenditure have crystallized during the year and are ascertainable. He submitted, the fact that the assessee has furnished correct particulars of income is evident from the audit report where the auditors have certified the accounts of the assessee to be correct.
He submitted, even the Assessing Officer has not found any defect or deficiency in the accounts of the assessee. He submitted the assessee is still showing the disputed amount as a liability. Explaining the reason for accepting the additions made by the Assessing Officer, the learned AR submitted, since the assessee was incurring huge losses and such accumulated losses have exceeded the paid up capital, the assessee did not find it prudent to contest the addition as it had no impact on the taxes payable by the assessee, which is evident from the fact that even after addition made by the Assessing Officer, the income was determined at ‘nil’ after set off of brought forward losses. He submitted, for the very same reason the allegation of the department of furnishing of inaccurate particulars of income
Future Mobile & Accessories Ltd. will not stand to reason because the assessee would not have derived any benefit, since it was incurring huge losses for which the assessee ultimately had to close down its business activity. The learned AR submitted in the aforesaid circumstances, learned CIT(A) was justified in deleting the penalty imposed.
We have considered rival submissions and perused the material on record.
Undisputedly, the disallowance made by the Assessing Officer out of advertisement and rent expenses, were shown as provision in the accounts of the assessee.
However, it is the claim of the assessee that though they have been shown as provision, the expenditure has crystallized and are ascertained liabilities. It is the case of the assessee that due to incurring of huge losses which has accumulated over the years and has exceeded paid up capital, the assessee was not in a position to make payment of such amount and is still showing them as liability. Aforesaid contention of the assessee appears to be correct, considering the fact that while completing the assessment, the Assessing Officer himself has determined the income at ‘nil’ after allowing set off of brought forward losses. Therefore, there cannot be any reason for the assessee to deliberately claim the expenditure even knowing that it is not allowable. That being the case, the allegation of the department that the assessee has furnished inaccurate particulars of income is not borne out from the record. More so, when the assessee has furnished full particulars of the expenditure claimed and its accounts are audited. Notably, the auditors have also not pointed out that the disputed amount being in the nature of provisions are not allowable. Merely, because the assessee has accepted the addition would not automatically lead to the conclusion that it has furnished inaccurate particulars of income. Moreover, the contention of the assessee that Future Mobile & Accessories Ltd. considering the huge losses the assessee would not have derived any benefit by wrongly claiming such expenditure stands to reason. In any case of the matter, the assessee has claimed certain amount as deduction and has also furnished full particulars of such claim. In the course of assessment proceedings, the Assessing Officer holding a different view has disallowed the expenditure. However, the disallowance of expenditure by the Assessing Officer ipso facto will not lead to the conclusion that the assessee has furnished inaccurate particulars of income and concealed its income as held by the Hon’ble Supreme Court in the case of CIT vs. Reliance Petroproducts Private Ltd. (supra). In view of the aforesaid, we do not find any infirmity in the order of the CIT(A) in deleting the penalty imposed.
Accordingly, we uphold the same by dismissing the grounds raised by the department.
In the result, the Department’s appeal is dismissed.
Order pronounced in the open court on this day of 9th May 2018.