ABJAL ALI SHA,MUMBAI vs. ASST CIT 19(3), MUMBAI

The facts relating to the issue are set out in brief. The assessee is engaged in the business of interior decoration, furniture manufacture and air tickets booking. He filed his return of income declaring a total income of Rs.61,18,560/-. The AO noticed from the Balance Sheet of the assessee that a sum of Rs.35,37,287/- was shown as outstanding Service tax liability. It was noticed that the assessee did not make any disallowance u/s 43B of the Act. Further the assessee had also declared Long term capital loss on sale of a flat. Hence the AO called for relevant details in respect of both the issues cited above. The assessee submitted that, out of outstanding sales tax liability of 2 Mr. Abjal Ali Sha Rs.35,39,043/-, a sum of Rs.23,46,621/- has been paid before the due date for filing return of income and accordingly the balance amount disallowable u/s 43B was worked out at Rs.11,92,422/-. With regard to the Long term capital loss, the assessee admitted that the “sale consideration” was wrongly adopted while working out Long term capital gains, i.e., the cost of another flat owned by the assessee was adopted by inadvertence instead of adopting the sale consideration as per the conveyance deed. Accordingly the assessee filed a revised computation of income increasing the total income to Rs.98,38,330/-. The AO completed the assessment by accepting the revised workings.

Subsequently the AO initiated penalty proceedings u/s 271(1)(c) of the Act. Before the AO submitted that the service tax liability arises on “receipt basis”, i.e., it shall become payable only upon receipt of bill amount from the concerned debtor. The assessee submitted that he was under bonafide belief that the disallowance u/s 43B of the Act may not be required to be made, if the concerned bill amount was not received. The assessee submitted that the disallowance is required to be made only at an amount of Rs.1,84,117/-, if the above said principle is followed. With regard to the mistake committed in adopting wrong amount as “Sales consideration”, the assessee submitted that he owned two flats and the accountant has, by inadvertence, adopted the Cost value of another flat as the sale consideration. Accordingly it was pleaded that the benefit of Explanation 1 be given to the assessee. The AO was not convinced with the explanations of the assessee and accordingly levied a penalty of Rs.10.00 lakhs u/s 271(1)(c) of the Act.

Before Ld CIT(A), the assessee did not appear and hence the Ld CIT(A) confirmed the penalty by upholding the view taken by the AO.

The Ld A.R submitted that the assessee was holding bonafide belief with regard to the disallowance of service tax liability u/s 43B of the Act and the mistake was committed by inadvertence with regard to the computation of long term capital loss. He submitted that the assessee has otherwise recorded actual sales consideration in the books of accounts. He submitted that the assessee has furnished the revised computation of income by correcting the mistakes before the finalization of assessment. On the contrary, the Ld D.R submitted that the issue may be set aside to the file of the Ld CIT(A), since the Ld CIT(A) has passed an ex-parte order. The Ld D.R further submitted that the assessee has come out with correct figure of total income only after receipt of notice from the AO.

We have heard the rival contentions and perused the record. Since the Ld CIT(A) has also decided the issues on merits, we are of the view that we may dispose of this appeal after hearing the parties. Hence we reject the plea of the Ld D.R to set aside the matter to the file of the Ld CIT(A). A perusal of Capital account of the assessee as appearing in his proprietary concern named M/s Afjal Furnitures, which is placed at page 7 of the paper book, would show that the assessee has shown the “Profit on sale of Flat” at Rs.27,60,663/-, meaning thereby, the assessee has recorded actual sales consideration of flat in his books of account. Thus, there is merit in the submission of the assessee that the sale consideration was adopted wrongly by inadvertence, while computing the total income. Thus, we notice that the mistake has occurred only in the Statement of Computation of Total income and there is no concealment of particulars or furnishing of inaccurate particulars in the books of accounts maintained by the assessee. With regard to the non-disallowance of Service tax payable amount as required u/s 43B of the Act, the assessee has submitted that he has paid a sum of Rs.23,46,621/- before the due date for filing return of income. The 4 Mr. Abjal Ali Sha assessee has further submitted that the assessee has accounted the service tax liability as per ‘mercantile system of accounting’, where as the payment is required to be made on “cash basis” upon collection of billed amount from the debtors as per the Service tax Act. Accordingly, it was submitted that the assessee was under bonafide belief that there is no requirement to make any disallowance u/s 43B of the Act, since the liability has not arisen as per the Service Tax Act.

We are of the view that the explanation of the assessee with regard to Service tax liability is also bonafide one. Thus, we notice that the explanations furnished by the assessee have not been found to be false. Even though the AO has taken the view that the assessee has corrected these mistakes upon receipt of notice only, yet we are of the view that the Explanation 1 to sec. 271(1)(c) of the Act would come to the help of the assessee, since the assessee has furnished explanations which were not found to be false and further the assessee has also furnished all the relevant details to the AO. The assessee has otherwise recorded all the details in his books of account without concealing anything. Accordingly, we are of the view that there is no justification on the part of the Ld CIT(A) in confirming the penalty levied by the AO.

In view of the above, we set aside the order passed by Ld CIT(A) and direct the AO to delete the penalty levied u/s 271(1)(c) of the Act for the year under consideration.