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Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Jason P. Boaz & Shri Sandeep Gosain
This appeal by the assessee is directed against the order of the CIT(A)- 4, Mumbai dated 23.07.2013 for A.Y. 2002-03 upholding the levy of penalty of `9,66,239/- under section 271(1)(c) of the Income Tax Act, 1961 (in short 'the Act') by the Assessing Officer (AO) for A.Y. 2002-03.
2. Order on condonation of delay in filing the appeal for A.Y. 2002-03 2.1 The impugned order of the learned CIT(A)-4, Mumbai passed on 23.07.2013 for A.Y. 2002-03 was admittedly received by the petitioner on 06.08.2013. In these circumstances this appeal before the Tribunal ought to have been filed on or before 05.10.2013, but was filed only on 13.12.2013, thereby leading to a delay of 69 days. In this regard, the petitioner has filed a petition dated 20.12.2013 for condonation of the said delay, accompanied by an affidavit of even date sworn to by the petitioner. According to the learned A.R. for the petitioner, after receipt of the impugned order, the same was forwarded to their tax consultants for advice, but due to inadvertent oversight by them, the appeal could not be M/s. Forbes & Company Ltd. filed. On noticing this mistake, the appeal was immediately prepared and filed on 13.12.2013. It is submitted that the delay of 69 days in filing the appeal was caused due to inadvertent oversight by the tax consultants and the mistake being not intentional but a bonafide mistake of oversight, it is prayed that a liberal approach be taken and the delay be condoned and the appeal be disposed on merits as the assessee has a good case on merits. In support of this proposition, the learned A.R., inter alia, placed reliance on the following judicial pronouncements: - (i) Collector, Land Acquisition vs. MST Katiji and Others (167 ITR 471) (SC). (ii) CIT vs. West Bengal Infrastructure Development Finance Corporation Ltd. (C.A. NO. 10462 of 2010) (SC) (iii) Radha Krishna Rai vs. Allahabad Bank & Others (2009) SCC 733 (iv) Improvement Trust, Ludhiana vs. Ujagar Singh & Others (C.A. No. 2395 of 2008 (SC) 2.2.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited. Admittedly, there has been a delay of 69 days in filing this appeal before the Tribunal in respect of the impugned order dated 23.07.2013 of the learned CIT(A) for A.Y. 2002-03 confirming the levy of penalty of `9,66,239/- under section 271(1)(c) of the Act. According to the petitioner, the said delay that had occurred due to the oversight by the assessee’s tax consultants, was neither deliberate nor intentional but was on account of a bonafide mistake, which constituted reasonable cause for the petitioner to have filed the appeal belatedly. 2.2.2 The Hon'ble Apex Court in the case of Collector, Land Acquisition (167 ITR 471) (SC), while laying down the principles for considering the matter of condonation of delay in filing appeals, has stated that substantial justice should prevail over technical considerations. The Hon'ble Court also explained that ‘every days delay must be explained’ does not mean that a pedantic approach should be taken and the doctrine must be applied in a natural, common sense and pragmatic manner. Considering the aforesaid principles and the facts and circumstances of the case, we M/s. Forbes & Company Ltd. are of the opinion that if the said delay of 69 days in filing this appeal is condoned there shall be no loss to Revenue as only legitimate taxes payable by the petitioner to Revenue in accordance with law will be collected. Moreover, it is hard to believe that the petitioner on whom penalty of `9,66,237/- has been levied under section 271(1)(c) of the Act would wantonly file the appeal belatedly, thereby jeopardising its cause. In this view of the matter, we are of the opinion that this is a fit case for condoning the delay of 69 days in filing this appeal and accordingly condone the same in the interest of justice and equity. The appeal for A.Y. 2002-03 is accordingly admitted for consideration and adjudication.
The facts of the case, briefly, are as under: - 3.1 The assessee, a company engaged in the business of, inter alia, manufacturing of yarn, engineering goods and shipping, filed its return of income for A.Y. 2002-03 on 31.10.2002 declaring taxable income of `32,47,744/- on account of long term capital gains (LTCG) and loss from business. A revised return was filed on 16.12.2002 in which the total income of `32,47,744/- was from LTCG, but the business loss was increased by `8,36,91,997/- being provisions for diminution in investments no longer required written back which was stated to be inadvertently omitted to be excluded from the total income. The case was taken up for scrutiny and the assessment was concluded under section 143(3) of the Act vide order dated 03.02.2005 wherein the income of the assessee was determined at `32,74,774/- under the normal provisions and ‘book profits’ under section 115JB of the Act was computed at (-)`4,87,49,500/-. The AO also allowed carry forward of business losses to the extent of `6,38,72,710/- . Penalty proceedings under section 271(1)(c) of the Act were simultaneously initiated in respect of disallowances made in the order of assessment, i.e. under section 14A of the Act, non-compete fee of `6,41,600/-, income from bad debts recovered amounting to `12,94,498/-, disallowance towards PF/ESIC of `6,852/- and donation of `1,859/-. The AO levied penalty of `9,66,239/- under section 271(1)(c) of the 3.2 Act in the case on hand for A.Y. 2002-03 vide order dated 30.03.2009 in respect of the following items: - M/s. Forbes & Company Ltd. ` 7,61,476/- (i) Disallowance under section 14A (ii) Disallowance of bad debts recovered `12,94,498/- ` 1,859/- (iii) Disallowance of donation ` 6,41,600/- (iv) Non-compete fee ` 6,852/- (v) PF & ESIC due paid beyond the due date of those Acts 3.3 Aggrieved by the order dated 30.03.2009 levying penalty of `9,66,239/- under section 271(1)(c) of the Act for A.Y. 2002-03, the assessee preferred an appeal before the CIT(A)-4, Mumbai who dismissed the assessee’s appeal vide the impugned order dated 23.07.2013. 4.1 Aggrieved by the order of the CIT(A)-4, Mumbai dated 23.07.2013 for A.Y. 2002-03, the assessee has preferred this appeal raising the following grounds: - “
Levy of Penalty under section 271(1)(c) of the Income Tax Act, 1961 ('the Act') of `9,66,239.
1. On the facts and in the circumstances of the case and in law, the learned CIT(A) has erred in confirming the levy of penalty under section 271(1)(c) of the Act, 1961 (‘the Act’) with respect to the following disallowances” Particulars Amount (Rs.) Disallowance of interest on borrowings 7,61,476 Disallowance of non-compete fees to ex-directors 6,41,600 Income from bad debts recovery 12,94,498 Disallowance of delay in employee’s payment 6,852 towards PF and ESIC Disallowance of donation 1,859
The learned CIT(A) erred in confirming the penalty inter alia on the grounds that the Appellant had furnished inaccurate particulars of income leading to concealment of income in respect id disallowance of Appellant’s various claims made by the AO.
3. The learned CIT(A) failed to appreciate and ought to have held that: a) The Appellant has given complete disclosure in the Return of income and/or in the accompanying documents/audited accounts. b) Mere confirmation of the additions is not, by itself, a valid ground for levy of penalty 4. The appellant prays that the penalty levied under section 271(1)(c) of the Act in respect of the addition/disallowance should be deleted.
M/s. Forbes & Company Ltd. We shall consider the grounds raised together and deal with each item in respect of which penalty under section 271(1)(c) of the Act has been levied in seriatim. 4.2 According to the learned A.R. for the assessee, in the grounds raised, the assessee contends that the impugned order of the learned CIT(A) upholding the levy of penalty under section 271(1)(c) of the Act is erroneous since the assessee has given complete disclosure of all facts in the return of income for A.Y. 2002-03 and accompany financial statements and that merely because addition have been confirmed by itself should not necessarily result in the levy of penalty for furnishing of inaccurate particulars of income leading to concealment of income.
5. Penalty on disallowance of `7,61,476/- under section 14A of the Act 5.1 In this regard the learned A.R. for the assessee submitted that in the order of assessment, the AO made a disallowance of `2,44,22,750/- under section 14A of the Act in respect of expenditure incurred on interest on borrowings relatable to the earning of exempted income. On appeal, the learned CIT(A) restricted the said disallowance to `7,61,476/-, which was upheld by the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2002-03 in its order in dated 12.06.2013. According to the learned A.R. for the assessee, the assessee had sufficient own funds (i.e. from share capital and reserves) of `191.91 crores from out of which the investments of `82.26 crores could be said to have been made. The learned A.R. submits that full disclosure of facts has been made by the assessee as the details of investments, own funds and borrowed funds were available in the Balance Sheet and therefore there is no concealment or furnishing of inaccurate particulars and therefore levy of penalty under section 271(1)(c) of the Act was not called for. The learned A.R. for the assessee drew the attention of the Bench to the order of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2000-01 wherein the Tribunal in its order in ITA No. 6910/Mum/2006 dated 13.10.2008 has deleted penalty levied under section 14A of the Act. It is contended that in view of the aforesaid decision on the Coordinate M/s. Forbes & Company Ltd. Bench of this Tribunal and, inter alia, the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 340) (Bom), the penalty levied under section 271(1)(c) on the disallowance under section 14A of the Act be deleted. 5.2 Per contra, the learned D.R. supported the orders of the authorities below on this issue. 5.3.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the issue of levy of penalty under section 271(1)(c) of the Act on disallowance of interest on borrowed funds was considered by a Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2000-01 and in its order in dated 13.10.2008, the Bench deleted the said penalty holding as under at para 3 thereof: - “3. We have heard rival submissions and considered them carefully. After considering the submissions and perusing the material on record, we find that the arguments advanced by the ld AR mentioned above are correct. There were no provisions on the statute on the date of filing the return, therefore, the assessee, as in past, claimed expenditure on account of interest. The provisions of section 14A came on statute in 2001, through with retrospective effect. Therefore, it cannot be held that the assessee had concealed any particulars of income by claiming higher interest expenditure. We have further seen that the AO made a disallowance of Rs.56 lacs and the CIT(A) restricted the same to Rs.30 lacs or odd and on re-examination of the case on the directions of the Tribunal, the disallowances were confirmed only of `7.61 lacs. Therefore, the issue is highly debatable one and it cannot be said that the assessee has concealed any particulars of income or has furnished inaccurate particulars of income. In view of the above facts and circumstances, we hold that on the facts of the present case the levy of penalty was not justified, therefore, the same is cancelled.” In the case on hand also, the facts being identical; i.e. the AO made a disallowance of `2,44,22,750/- which the learned CIT(A) restricted to `7,61,476/- in the period under consideration. Following the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2000- 01 (supra), we also are of the view that the issue of the disallowance under section 14A of the Act is a highly debatable one and it cannot be said that M/s. Forbes & Company Ltd. the assessee has concealed any particulars of income. In the light of the above facts and circumstances of the case, we hold that the levy of penalty under section 271(1)(c) of the Act on this issue was not justified and cancel the same. Consequently, the assessee’s appeal on this issue is allowed.
Penalty on disallowance of non-compete fee paid to ex-Directors : `6,41,000/- 6.1.1 In the course of assessment proceedings, the AO on observing that the assessee has debited an amount of `2,60,495/- in the miscellaneous expenses of the Engineering Division and an amount of `3,81,105/- in the miscellaneous expenses of the Forbes Division, queried the assessee in this regard and it was submitted that these expenses totalling to `6,41,600/- were non-compete fees paid to ex-Directors. The AO observing that in the earlier years also, non-compete fees were disallowed as they were held to be capital in nature and this was upheld by the CIT(A) on appeal, disallowed the same in this year also. On appeal the same was upheld by the learned CIT(A), following the decision of the Coordinate Bench of this Tribunal in the assessee’s own case for A.Y. 2000-01, wherein payment of fees to ex-Directors disallowed was upheld by the Bench. Penalty under section 271(1)(c) of the Act was levied thereon, which was sustained by the CIT(A) on appeal. 6.1.2 The learned A.R. for the assessee submitted that there was no concealment of income or furnishing of inaccurate particulars by the assessee as the facts and details of payment of non-compete fee paid to ex- Directors was fully disclosed as part of the miscellaneous expenses claimed/submissions made in assessment proceedings vide letter dated 23.09.2004 and Schedule-11 in notes to account 7(a). Merely because the contentions of the assessee are not accepted, penalty under section 271(1)(c) of the Act cannot be levied, merely because it has been held against it in quantum proceedings, particularly when all facts and details in this regard were before the authorities below. It is contended that no penalty could be levied under section 271(1)(c) of the Act on this issue as the question of allowability of non-compete fee paid to ex-Directors, whether revenue or capital is a debatable issue. According to the learned A.R. for the assessee even after the decision of the Special Bench of the M/s. Forbes & Company Ltd. ITAT Delhi in the case of Tecumseh India (P.) Ltd. (127 ITD 1) (Del), certain subsequent decisions have held that non-compete fee is revenue in nature like, CIT vs. Eicher Ltd. (2008) 302 ITR 249 (Del), etc. It was prayed that merely because the assessee’s contentions and claims are not accepted, penalty cannot be levied. In support of this proposition, the learned A.R., inter alia, placed reliance on the decision of the Hon'ble Apex Court in CIT vs. Reliance Petroproducts Ltd. (2010) 322 ITR 158 (SC). 6.2 Per contra, the learned D.R. supported the impugned order of the learned CIT(A). 6.3.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record, including the judicial pronouncements cited. On an appreciation of the facts on record, it is seen that the assessee made acclaim of expenditure of payment of non-compete fees to ex-Directors amounting to `6,41,000/- under the head Miscellaneous Expenses. Admittedly, details of the same claim were before the AO in assessment proceedings as per the assessee’s letter dated 23.09.2004 (copy placed at pages 58 to 67 of assessee’s paper book) and similar details were also disclosed at Note 7(a) in Annual Accounts regarding post retirement payments to ex-Directors. After considering the facts on record and the judicial pronouncements cited, we are of the considered view that merely because the assessee’s claim for the said expenditure as revenue was turned down in quantum appeal proceedings; that by itself would not be ground enough to reach the conclusion that the particulars furnished/disclosed by the assessee were false, dishonest or inaccurate or that income was concealed. In this factual and legal matrix of the case, we are of the view that penalty under section 271(1)(c) of the Act was not exigible in the case on hand on the issue of the assessee’s claim regarding non-compete fee paid to ex-Directors amounting to `6,41,000/- and cancel the penalty levied thereon. Consequently the ground raised
by the assessee this issue is cancelled.
7. Penalty on income from bad debts recovered : `12,94,498/- 7.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. On an appreciation of the M/s. Forbes & Company Ltd. facts on record, it is seen that the recovery of bad debts amounting to `12,94,498/- in the year under consideration pertained to bad debts written off by the assessee in the period relevant to A.Y. 2000-01. According to the submissions of the learned A.R., admittedly this amount of recovery of bad debts was excluded from the computation of income and not offered to tax, for the reason that the AO had disallowed the assessee’s claim for write off of bad debts in the A.Y. 2000-01. Admittedly the same issue has been held in favour of the assessee by the learned CIT(A). We observe that in quantum proceedings the assessee has accepted that the aforesaid recovery of bad debts written off of `12,94,498/- are to be taxed in the year under consideration and did not file any further appeal to the Tribunal. According to the learned AR since all the details were on record before the authorities below, penalty under section 271(1)(c) of the Act was not leviable on this issue. 7.2 In our view, once the assessee had claimed write off of bad debts in its books of accounts in any year, the correct treatment, as per the provisions of section 36 of the Act, was to have offered the recovery of bad debts written off for tax in the year of recovery. The assessee, in the case on hand, in clear violation of the aforesaid provisions of section 36 of the Act, did not comply with them knowingly and in violation thereof proceeded to not offer to tax the recovery of bad debts earlier written off by it to the extent of `12,94,948/-. The reason put forward by the assessee for its action; that since bad debts claimed in this regard had been disallowed by the AO, therefore the assessee had not offered the recovery thereof for tax, in our considered view, is not acceptable as the aforesaid action of the assessee, in not offering the recovery of bad debts to tax, is not in conformity with the mandate of the provisions of section 36 of the Act. It is not the case of the assessee that a legal claim made was disallowed, which is a debatable issue. In respect of recovery on bad debts written off by the assessee, the position in law is clear and unambiguous; the assessee has to offer the same to tax in the year in which the recovery is made. Since the assessee has failed to do, in violation of the mandated provisions of law, we are of the view that action of the authorities below in levying M/s. Forbes & Company Ltd. penalty under section 271(1)(c) of the Act, in respect of the assessee’s not offering the recovery of bad debts written off amounting to `12,94,498/- in the facts and circumstances of the case is in order and we uphold and confirm the same. The assessee’s appeal on this issue is dismissed.
Penalty on disallowance of employees contribution to PF/ESIC for delayed payment : `6,852/- 8.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. The facts on the record indicate that the assessee has not pressed this issue before the Coordinate Bench of this Tribunal in quantum proceedings. According to the learned A.R. for the assessee the payments of employees contribution to PF/ESIC were made belatedly, but these payments were made before the due date for filing the return of income for the relevant A.Y. 2002-03 and the details of delay of PF and ESIC payments were disclosed in Annexure 6 to tax audit report and to the AO vide letter dated 23.09.2004. It was submitted that the deduction of PF/ESIC is allowable as a deduction to the assessee in the light of, inter alia, the decisions of the Hon'ble Bombay High Court in the cases of: - (i) CIT vs. HOCL (366 ITR 1) (Bom) (ii) CIT vs. Ghatge Patil Transports Ltd. (368 ITR 749) (Bom) 8.2 The authorities below have not disputed the averments of the assessee that the PF/ESIC amounting to `6,852/- was paid to the government before the due date for filing the return of income under section 139(1) of the Act. The disallowance and consequent levy of penalty by authorities below was for the assessee’s making the said payment of PF/ESIC dues beyond the due dates as per the PF Act and ESIC Act respectively. We find that the decisions of the Hon'ble Bombay High Court in CIT vs. HOCL (supra) and CIT vs. Ghatage Patil Transport Ltd. (supra) have held that employees contribution to PF/ESIC are covered under the amendment to section 43B of the Act with retrospective effect. In the case on hand, the employees contribution to PF/ESCI of `6,852/- having been admittedly paid before the due date for filing its return under section