DCIT 5(2), MUMBAI vs. JET AIRWAYS (I) LTD, MUMBAI

आयकर अपील�य अ�धकरण, “tstststs” खंडपीठ मुंबई INCOME TAX APPELLATE TRIBUNAL,MUMBAI - ‘J’ BENCH सव�ी राजे��, लेखा सद�य एवं iou iou iou �संह,�या�यक सद�य iou Before S/Sh. Rajendra, Accountant Member & Pawan Singh, Judicial Member आयकर अपील सं/.ITA No.6596/Mum/2014,�नधा�रण वष�/Assessment Year-2003-04 Jet Airways (India) Ltd. DCIT-5(2) बनाम Siroya Centre, Sahar Airport Aayakar Bhavan, Road, Andheri (E), Mumbai-400020 Vs. Mumbai-400099. PAN: AAACJ0920H (अपीलाथ� /Appellant) (��यथ� / Respondent) आयकर अपील सं/.ITA No.6597/Mum/2014,�नधा�रण वष�/Assessment Year-2007-08 DCIT-5(2) Jet Airways (India) Ltd. बनाम Aayakar Bhavan, Siroya Centre, Sahar Airport Mumbai-400020 Road, Andheri (E), Vs. Mumbai-400099. PAN: AAACJ0920H (अपीलाथ� /Appellant) (��यथ� / Respondent) राज�व ओर से / Revenue by : Ms Anu Krishna Aggarwal with Alok Johri (DR) �नधा�रती क� ओर से/ Assessee by : Shri Vijaya Mehta (AR) सुनवाई क� तार�ख / Date of Hearing : 05-01-2017 घोषणा क� तार�ख / Date of Pronouncement : 01-02-2017 आयकर अ�ध�नयम, 1961 क� धारा 254(1) के अ�तग�त आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) Per Pawan Singh, J.M. �या�यक सद�य iou iou iou �संह के अनुसार: iou 1. These two appeals by assessee u/s 253 of the Income Tax Act (the Act) are directed against the separate orders of even day of ld. CIT(A)-9, Mumbai dated 28.08.2014 for Assessment Years (AYs) 2003-04 & 2007-08. 2. In ITA No. 6896/Mum/2014, the assessee has raised the following grounds of appeal:

Ground No. 1: On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the penalty levied under section 271(1)(c) of the Act by the learned A.O. of Rs.50,23,693/- in respect of disallowance of payment of bonus to ex- employees amounting to Rs.1,67,45,643/- under section 43B of the Act . Ground No. 2: On the facts and circumstances of the case and in law, the Hon'ble CIT(A) erred in upholding the penalty levied under section 271(1)(c) of the Act by the learned A.O. of Rs.10,880/- in respect of the addition made on account of sale of scrap not considered as income amounting to Rs.36,267/-. 3. Brief facts related with the grounds of appeal before us are that for the assessment u/s 143(3) of the Act for AY 2003-04 was completed on 10.03.2006. Subsequently, the

2 ITA Nos. 6596& 6597/M/2014 Jet Airways (India) Ltd. assessment was re-opened by issuing notice u/s 148 on 31.03.2010 and the assessment u/s 143(3) r.w.s. 147 was completed on 24.12.2010. The case of was re-opened on the basis of special Auditor’s Report wherein it was pointed out that the assessee had issued cheque to Ex-employees to avoid the disallowance u/s 43B just before filing of return of income. The Assessing Officer (AO) in re-assessment proceedings made the disallowance u/s 43B of Rs. 1,69,00,000/- and addition on sale of scrap of Rs. 36,267/-. No appeal was filed in respect of addition on account of sale of scrap. On appeal before ld CIT(A) the disallowance u/s 43B. The ld CIT(A) sustained the disallowance u/s 43B of Rs. 1,67,45,647/- holding that assessee submitted the evidence in respect of bonus payment to its employee of Rs. 1,54,357/-. No further appeal was filed by assessee before the Tribunal. The AO issued notice u/s 274 rws 271(1)(c ) dated 25.11.2013 for levy of penalty. The assessee contested the penalty notice and contended that there is no concealment of income or furnishing of inaccurate particulars of income. The assessee made full disclosure of fact and there was a reasonable cause/belief for provision of section 43B of the Act. The contention of assessee was not accepted by AO and levied the penalty of Rs. 50,34,753/- vide order dated 29.11.2013. The AO levied the penalty holding that the assessee failed to prove its claim and the additions have became final in the quantum proceeding. The penalty was levied for furnishing of inaccurate particulars of income. On appeal before the ld. CIT(A), the penalty was confirmed. Further, aggrieved by the order of ld. CIT(A), the assessee filed this appeal before us. 4. We have heard the ld. Authorized Representative (AR) of the assessee and the ld. Departmental Representative (DR) for the Revenue and perused the material available on record. The Ld. AR of the assessee argued that the year involved in the appeal is Financial Year (FY) 2002-03 of which these transactions pertain. The assessee filed return of income on the basis of Audit Report which has been given by Auditors of the Company after due verification, the copy of relevant documents/annexure to the Tax Audit Report (TAR) has been brought on record which clearly suggest the liability on account of bonus payable to employee on the first date of previous year was Rs. 1,88,51,280/- out of this amount the assessee has made the payment of Rs. 1,69,83,113/-. The said amount was claimed in the return of income u/s 43B which has been duly certified by the Auditors. Thus, the claim of the assessee was based on report of Chartered Accountant (C.A.) in the form of Tax Audit Report. The ld. AR of the assessee fairly argued that the assessee was not able to furnish the complete evidence in respect of above claim during the course of assessment proceeding which resulted into disallowance. As due to the passage of time

3 ITA Nos. 6596& 6597/M/2014 Jet Airways (India) Ltd. coupled with change of accounting Software used by the assessee. Initially, the return was scrutinized by AO and assessment order u/s 143(3) was passed on 10.03.2006 without any addition or disallowance. Thereafter, the assessment was re-opened on 31.03.2010 and re- assessment order u/s 143(3) rws147 was passed on 24.12.2010. After passage of more than eight years, the assessee was not in a position to produce the complete evidence in support of their claim. The claim was made in a transparent manner duly supported by report of independent C.A. The difficulty in the form of change in accounting software has neither been disproved or nor disbelieved. The ld. AR of the assessee further argued that the claim of assessee remained unproved and the same has not been disproved or found to be false and thus the case is not a fit case for levy of penalty. The penalty levied for alleged furnishing of inaccurate particulars of income. Explanation 1 attached with section 271(1)(c) enlarges the scope of main section only in respect of ‘concealment of income’ and not for ‘ inaccurate particulars of income’. The ld. AR of the assessee further argued that assessee assessed the total loss of Rs. 473 Crore and assessee has no intention to make incorrect claim on account of Rs. 1.69 Crore when the amount is admittedly allowable and the issue was only the year of allowance and it is nobodies claim that amount has not been paid. The question falls for consideration is whether the amount has been paid during the year or not. The assessee does not get any advantage by claiming the deduction when it has suffered a huge loss in the year under consideration as well as in subsequent years. The deduction u/s 43B was not a unique feature for the year under consideration and the same was claimed in other years on the basis of actual payment and the same has been allowed u/s 143(3). So far as the penalty on addition on account of sale of scrap is concerned. It was argued that the income remained to be offered due to mistake in passing proper Journal Entry. The assessee was following the accounting system wherein receipt on account of sale of scrap is created to the account of purchasing party initially and thereafter it was transferred to the income account by debiting parties account and due to mistake Journal Entry remained to be passed. When this amount was pointed out, the assessee accepted the same and not filed any appeal before the ld. CIT(A) and it was due to oversight and there was no intention for furnishing of inaccurate particular. 5. On the other hand, ld. DR for the Revenue supported the order of authorities below. It was argued that the case was opened on the basis of special Auditor’s Report wherein it was pointed that assessee has issued cheques to Ex-employees to avoid the disallowance u/s 43B of the Act which is before filing of return and claimed the deduction u/s 43B of the Act. On appeal before the ld. CIT(A) the disallowance of Rs.1,67,45,647/- u/s 43B was

4 ITA Nos. 6596& 6597/M/2014 Jet Airways (India) Ltd. confirmed. No appeal for addition on account of sale of scrap was filed. The disallowance and the addition became final. It was argued that if the special Audit have not pointed out, the addition/disallowance have been cropped in the assessment order would not have surfaced. The contention of the assessee made full and true disclosure is unfounded and baseless. 6. We have considered the rival contention of the parties and perused the order of authorities below. The AO while levying the penalty concluded that on receipt of the result of the special audit u/s 142A, the assessment was finalized wherein substantial addition on account of disallowance u/s 43B and addition on account of sale of scrap was made. On the said disallowance and addition, the penalty proceeding was initiated. No appeal was filed by assessee against the addition of sale on scrap. The substantial amount of the disallowance u/s 43B was sustained by ld. CIT(A). The AO levied the penalty @ 100% of the amount of tax sought to be evaded for furnishing inaccurate particular of income and works out a penalty of Rs. 50,34,573/-. The ld. CIT(A) dismissed the appeal of the assessee holding that on identical facts, he had dismissed the appeal of assessee, against the penalty order for AY 2006-07. The ld CIT(A) has not examined the facts of the appeal placed before him for the penalty vis-a-vis the disallowance for year under consideration (AY 2003-04) independently. We have noticed that the assessee filed the further appeal before the Tribunal, against the order of ld CIT(A) for sustaining the penalty for AY 2006-07. The Tribunal allowed the appeal of assessee vide order dated 16.12.2015 in ITA No.3200/M/2014. Though, the ld AR for the assessee not relied on the order of Tribunal on penalty appeal for AY 2006-07. For, comparision of the grounds for levying the penalty, we perused the order of Tribunal in deleting the penalty for AY 2006- 07. On perusal of the order of Tribunal, we find that fact of AY 2006-07, except for the sale of scrape, all remaining grounds are altogether different. For AY 2006-07 the penalty was levied on account of various disallowance/addition, consisting of disallowance on account of non-deduction of TDS, disallowance of interest paid for delayed TDS and interest on excess refund, excess provision for frequent flyer programmes, double expenses claimed during the year under Aircraft Fuel Expenses, expenses incurred on purchase of SAP Software, disallowance u/s 40(a)(ia) for non-deduction of TDS and disallowance of bonus paid to employees u/s 43G of the Act. As the facts of the year under considering are altogether are different, the ld. CIT(A) has not considered the relevant fact and passed the order without consideration. Thus, the order passed by ld CIT (A) is perverse. In such circumstances, we deem it appropriate to restore the present appeal to the

5 ITA Nos. 6596& 6597/M/2014 Jet Airways (India) Ltd. file of ld. CIT (A) to decide the appeal afresh after considering the all facts independently, without being influence by the order of Tribunal for AY 2006-07 in ITA NO. 3200/Mum/2014 dated 16.12.2015. Needless to say that ld. CIT(A) shall grant a reasonable opportunity before passing the order in accordance with law, hence, the appeal of the assessee is allowed for statistical purpose. ITA No. 6597/Mum/2014 (appeal by Revenue) 7. In this appeal, the Revenue has challenged the correctness of order of ld. CIT(A)-9 dated 28.08.2014 deleting the penalty levied u/s 271(1)(c) of the Act. 8. Brief facts of the case are that the AO levied the penalty in respect of disallowance u/s 40(a)(ia) of Rs. 2,34,40,207/- , addition on account of bed debts of Rs. 1,20,79,015/- and addition on account of interest on delayed payment of TDS of Rs. 2,47,475/-. No appeal was filed on account of doubtful debts and non deduction of TDS. The other addition related to doubtful debts and disallowance u/s 40(a)(ia) were sustained by ld. CIT(A). Thus, on the addition of doubtful debts and disallowance u/s 40(a)(ia), the AO levied penalty @ 100% of the amount of tax sought to be evaded. The penalty was worked out at Rs.1,07,30,009/- On appeal before the ld. CIT(A), the penalty was deleted, thus aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us. 9. We have heard the ld. DR for the Revenue and ld. AR of the assessee and perused the material available on record. The ld. DR for the Revenue relied upon the order of authorities below and prayed to restore the order of AO by reversing the order passed by ld. CIT(A). On the other hand, ld. AR of the assessee argued that the penalty is not liveable on two additions which are in respect of normal provision of the Act. The income of the assessee is assessed under MAT provisions. The ld. AR of the assessee further argued that in respect of the addition on account of doubtful debts, the assessee accepted due to the fact that retrospective amendment was brought by Finance Act, 2009 whereas the return of income was filed on 30.10.2007 and the assessee cannot be saddled with penalty for not disallowing the certain amount debited in P&L Account out of bonafide belief that the same was allowable. This fact was brought on record by the assessee before the ld. CIT(A) and the assessee was finally assessed under the deeming provision of section 115JB. Accordingly, the ld. CIT(A) after appreciating the facts held that no penalty on the disallowance/addition under normal provision is liveable. The ld. AR further relied upon the decision of Hon’ble Delhi High Court in CIT Vs Nalva Sons Investment 327 ITR 543. With regard to the penalty on addition on account of doubtful debts, ld. ld. AR of the assessee supported the order of ld. CIT(A) and to buttress his

6 ITA Nos. 6596& 6597/M/2014 Jet Airways (India) Ltd. submission argued that this question was debatable at the time of filing of return of income and the amendment was brought with retrospective effect after filing of return of income. The assessee neither furnished inaccurate particular nor concealed any income as per the provisions of section 271(1)(c) of the Act. The ld. AR further relied upon the CBDT Circular No. 25 of 2015 dated 31.12.2015. 10. We have considered the rival contention of the parties and perused the material available on record. The AO levied the penalty in respect of disallowance u/s 40(a)(ia) of Rs. 2,34,40,207/- and provisions for doubtful debt of Rs. 1,20,79,015/- holding that the addition on disallowance u/s 40(a)(ia) was upheld by ld. CIT(A) in toto and the assessee has not filed any appeal in respect of doubtful debt and levied the penalty @ 100% of the taxed amount sought to be evaded on account of furnishing inaccurate particular. The ld. CIT(A) while considering the submission observed that income of the assessee was assessed under deeming provision of section 115JB of the Act and concluded that as per the decision of Hon’ble Delhi High Court in CIT vs. Nalva Sons Investments (supra), the penalty u/s 271(1)(c) is not leviable. The ld. CIT(A) further relied upon the decision of Mumbai Tribunal in Vasant Investment Corporation Vs. Department of Income-Tax in ITA No. 1146/Mum/2012 dated 05.06.2013 and deleted the penalty. We have seen that after the decision of Hon’ble Delhi High Court in M/s Nalva Sons Investments (supra), the CBDT issued Circular No. 25 of 2015 dated 31.12.2015, the relevant part of said circular is reproduced below: Subject: Penalty U/S 271(1)(c) wherein additions/disallowances made under normal provisions of the Income Tax Act, 1961 but tax levied under MAT provisions u/s 115JB/115JC, for cases prior to A.Y. 2016-17-reg.- Section 115JB of the Act is a special provision for levy of Minimum Alternate Tax on Companies, inserted by Finance Act 2000 with effect from 1-4-2001. 2. Under clause (iii) of sub-section (1) of section 271 of the Act, penalty for concealment of income or furnishing inaccurate particulars of income is determined based on the "amount of tax sought to be evaded" which has been defined inter-alia, as the difference between the tax due on the income assessed and the tax which would have been chargeable had such total income been reduced by the amount of concealed income or income in respect of which inaccurate particulars had been filed. 3. In this context, Hon'ble Delhi High Court in its judgment dated 26.8.2010 in ITA No.1420 of 2009 in the case of Na1wa Sons Investment Ltd. (available in NJRS as 2010- LL-0826-2), held that when the tax payable on income computed under normal procedure is less than the tax payable under the deeming provisions of Section 1l5JB of the Act, then penalty under section 271(1)(c) of the Act could not be imposed with reference to additions/disallowances made under normal provisions. The judgment has attained finality. 4. Subsequently, the provisions of Explanation 4 to sub-section (I) of section 271 of the Act have been substituted by Finance Act, 2015, which provide for the method of calculating the amount of tax sought to be evaded for situations even where the income determined under the general provisions is less than the income declared for the

7 ITA Nos. 6596& 6597/M/2014 Jet Airways (India) Ltd. purpose of MAT u/s 115JB of the Act. The substituted Explanation 4 is applicable prospectively w.e.f. 01.04.2016. 5. Accordingly, in view of the Delhi High Court judgment and substitution of Explanation 4 of section 271 of the Act with prospective effect, it is now a settled position that prior to 114/2016, where the income tax payable on the total income as computed under the normal provisions of the Act is less than the tax payable on the book profits u/s 115JB of the Act, then penalty under 271(1)(c) of the Act, is not attracted with reference to additions/disallowances made under normal provisions. It is further clarified that in cases prior to 1.4.2016, if any adjustment is made in the income computed for the purpose of MAT, then the levy of penalty u/s 271(l)(c) of the Act, will depend on the nature of adjustment. 6. The above settled position is to be followed in respect of section IISJC of the Act also. 7. Accordingly, the Board hereby directs that no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withdrawn/not pressed upon. This may be brought to the notice of all concerned. 11. Considering the decision of Hon’ble Delhi High Court in M/s. Nalva Sons Investments (supra), Mumbai Tribunal in Vasant Investment Corporation (supra) and CBDT Circular No. 25 of 2015, we do not find any illegality or infirmity in the order passed by ld. CIT (A). Hence, appeal filed by the Revenue is dismissed. 12. In the result, appeal of the assessee for AY 2003-04 being ITA No. 6896/Mum/2014 is allowed for statistical purpose and the appeal filed by the Revenue for AY 2007-08 being ITA No. 6597/Mum/2014 is dismissed. Order pronounced in the open court on 01st February 2017. आदेश क� घोषणा खुले �यायालय म� �दनांक 1 Qjवर�,2017 को क� गई । Sd/- Sd/- (राजे�� / RAJENDRA (iou iou iou �संह / PAWAN SINGH)) iou लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य / JUDICIAL MEMBER मुंबई/Mumbai,�दनांक/Date: 01.02.2017 SK आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. Assessee /अपीलाथ� 2. Respondent /��यथ� 3.The concerned CIT(A)/संब�ध अपील�य आयकर आयु�त, 4.The concerned CIT /संब�ध आयकर आयु�त 5. DR “E” Bench, ITAT, Mumbai /�वभागीय ��त�न�ध b खंडपीठ,आ.अ.�याया.मुंबई 6. Guard File/गाड� फाईल स�या�पत �/TrCopy// आदेशानुसार/ BY ORDER, उप/सहायक पंजीकार Dy./Asst. Registrar आयकर अपील�य अ�धकरण, मुंबई /ITAT, Mumbai