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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DLEHI
Before: SHRI G.D. AGRAWAL & SHRI K. NARASIMHA CHARY
Aggrieved by the order dated 22.6.2016 in Appeal No.332/15-16 of Commissioner of Income-tax (Appeals)-I, New Delhi {for short “CIT(A)}, assessee preferred this appeal.
Assessee, M/s Apexx Texpro Pvt. Ltd., is a private limited company deriving its income from manufacturing and export of readymade garments and job work.
2 For the Asstt. Year 2012-13, they have filed their return of income on 20.9.2012 declaring a total loss of Rs.99,32,310/- under the normal provisions of the Income-tax Act, 1961 (“the Act”) and a book loss of Rs.98,38,802/- u/s 115JB of the Act. However, subsequent to the issuance of notice u/s 143(2) and 142(1) of the Act on 23.9.2013 and 8.5.2014 respectively, the assessee realized the mistake that crept in the return of income and filed a revised computation for disallowing the following amounts:
S.No. Nature of Disallowance Amount (Rs.) 44,59,006.70 Loss on sale of fixed assets debited to Profit & Loss 1. Account 3,93,060.62 Fixed Assets balance w/off debited to Profit & Loss 2. Account 3. Provision for Doubtful Debts 10,78,636.85 Total: 59,30,704.17 However, learned AO rejected the same stating that there is no provision under the Act to make any amendment in the return of income at the stage of assessment and proceeded to make an addition of Rs.59,31,550/- in respect of the above expenses. Simultaneously, learned AO imitated proceedings u/s 271(1)(c) of the Act and concluded them by way of order dated 28.9.2015 with the levy of penalty of Rs.18,32,850/- while rejecting the contention of the assessee that the non disallowance of the above expenses was purely inadvertent and due to clerical mistake occasioned by the reduction of manpower forced due to persistent losses. Appeal preferred to the learned CIT(A) was also dismissed by way of impugned order by observing that the assessee is a habitual offender and such claims have been made by them in respect of Asstt. Year 2013-14, which was 3 revised only after the scrutiny notice along with the questionnaire, was issued by the AO for the Asstt. Year 2013-14. Hence, the assessee preferred this appeal before us stating that mere disallowance of any expenditure in the facts and circumstances involved in this case does not amount to concealment of income or furnishing of inaccurate particulars thereof and the authorities below failed to appreciate the fact that the assessee, suo moto, without any query raised by the learned AO filed the revised computation during the assessment proceedings vide letter dated 5.12.2014 duly disallowing the aforesaid expenses, as such, no deliberate attempt to claim the inadmissible expense as deduction could be attributed to the assessee. Further, according to the assessee, the authorities below failed to notice that the assessee company has been make huge losses in its business operations with a carried forward loss of Rs.4.69 crores upto 31.3.2012 due to which in order to sustain, assessee curtailed business operations by reducing the manpower and since no qualified person was available with the assessee, the mistake had occurred.
Learned AR brought to our notice by way of balance sheet for the year ending 31.3.2012 to demonstrate that the employee expenses in respect of the reporting period of 2011-12 was only Rs.3,96,213/- whereas it was Rs.74,52,694/- in respect of the reporting period of 2010-11, which clearly establishes that there is a considerable reduction in the manpower. He also showed the loss for the period at Rs.98,67,695/-.
4 4. In so far as the contention of the authorities below that there was no voluntary disclosure of the defect inasmuch as the re-computation was filed only after the notice u/s 143(2) and 142(1) of the Act were issued is concerned, it is the submission on behalf of the assessee that the expenses in question do not fall under Chapter VIA of the Act, therefore, no query was raised in respect of those by the learned AO when the notices were issued. The query issued does not relate to any of the expenses. It, therefore, makes the things clear that though the notice was issued u/s 143(2) of the Act, it provided only an occasion for the assessee to realize the mistake not only in respect of this year but also in respect of subsequent year, as such, even though query does not pertain to these particular expenses, the assessee filed the revised computation bringing the fact to the law.
It is further submitted by the learned AR that the return of income was prepared by the assessee company considering the audit report u/s 44AB of the Act and in clause 17(a) thereof under the head “Expenditure of capital nature”, the auditors’ have mentioned as ‘nil’. This reference to the tax audit report is made to corroborate their submission that want of trained and skilled staff coupled with the contents of the tax audit report lead them to allow the mistake to occur which they sought to rectify by way of revised computation.
The learned DR while placing reliance on the decision reported in CIT vs NG Technologies (2015) 57 taxmann.COM 389 (DEL) submitted that since the 5 assessee did not file revised return voluntarily but had filed the same after the learned AO confronted the assessee and was asked to explain the claim of loss in question in the Profit & Loss account, the authorities below are duty bound to levy the penalty, as such, the same cannot be disturbed.
We have perused the material placed in the light of submissions on either side. In so far as the persistent loss pleaded by the assessee is concerned, absolutely, it is not controverted by the Revenue. It is submitted on behalf of the assessee that it is not a matter of loss for a particular year but now the company has reached the stage of closure and during the relevant assessment year as is evidenced by the financials of the assessee, the financial stringencies forced the assessee to reduce the work force and by that time itself, the company was running into loss of Rs.99 lacs. By 31.3.2012, total accumulated loss are to the tune of Rs.4.69 crores. It is also not in dispute that the three items in respect of which the addition is made, namely, loss on sale of fixed assets, fixed assets written off and provisions for doubtful debts do not fall under Chapter VIA of the Act and it leads no amount of support to the contention of the assessee that no query was raised for all the items. It, therefore, stands established that the assessee company had been suffering persistent losses and it is not an attempt to reduce the profit or tax.
Reliance is placed on the decisions reported in (i) Baker Circle India P. Ltd. vs DCIT (ITA NO.5112/Del/2012 (ITAT Del); (ii) CIT vs Societex (2012) 259 CTR 325
6 (Del); (iii) B.L. International vs ACIT, (ITA No.1590/Del/2014)(ITAT Delhi); (iv) CIT vs. Somany Evergreen Knits Ltd. (2013) 352 ITR 592 (Bom); (v) Price Waterhouse Coopers P. Ltd. vs CIT (2012) 348 ITR 306 (SC); and (vi) CIT vs. Sania Mirza (2013)
259 CTR 386 (AP HC) in support of the principle that it is possible that the assesse could make even silly mistakes and in the absence of any misrepresentation of facts, the penalty cannot be sustained.
In this matter, we are convinced with the fact that though the notice u/s 143(2) and 142(1) was issued, in so far as the declaration of non allowability of these expenditures are concerned, such items were not covered under the query and to that extent, a revised computation filed by the assessee is voluntary.
Further, undoubtedly, the assesseee is incurring persistent losses and there is considerable reduction in the manpower. Further, the tax audit report vide Clause 17(a) thereof says that the auditors’ reported the expenses of capital nature as ‘nil’. Mere issuance of notice u/s 143(2) does not ipso facto make the declaration of the assessee as non voluntary. We are convinced to believe that the mistake in this matter is the result of the assessee but does not amount to the concealment or furnishing of inaccurate particulars thereof. With this view of the mater, we hold that the penalty u/s 271(1)(c) cannot be sustained. Learned AO is directed to delete the same.
In the result, appeal of the assessee is allowed.
7 Order pronounced in the open court on this the 23rd day of April, 2018.