MANGALAM SHIPPING & LOGISTICS (INDIA) P.LTD,MUMBAI vs. ADDL CIT CIR 2(2), MUMBAI

These appeals have been preferred by the assessee against two separate orders passed by the Ld. CIT(Appeals)-5, Mumbai, on 29/11/2013, for the Asst. years 2006-07 & 2007-08. Since both the appeals pertain to the same assessee for different assessment years and issues involved are common in both the appeals, the same were clubbed and heard together and are being disposed of by this common order for the sake of convenience.

2. Brief facts of the case pertaining to the assessment year 2006-07 are that the assessee being a domestic company engaged in the business of freight forwarding, plying trailers on hire and financing, filed its return of income for the A.Y. 2006-07 on 29/11/2006 declaring total income of Rs. 1,45,70,277/-. However, the A.O. made certain disallowance and accordingly determined the total income of the assessee at Rs. 1,62,18,606/- u/s 143 (3) of the Income Tax Act, 1961 (in short ‘the Act’). The quantum appeal filed by the assessee against the assessment order was dismissed by the first appellate authority. Penalty proceedings u/s 271 (1)(c) were also initiated accordingly for furnishing inaccurate particulars of the income. In response to the notice issued u/s 274 r.w.s. 271(1)(c) to show cause as to why penalty should not be levied, the assessee company submitted a written reply inter-alia alleging that there was no concealment in respect of brokerage and interest disallowed. After hearing the assessee the A.O levied the penalty of Rs. 3,43,500/- on the ground that the appellant has concealed particulars of income in respect of addition of Rs. 11,45,000/- made on account of disallowance of brokerage paid to three HUF’s and addition of Rs. 1,61,838/- made on account disallowance of interest paid to Raj Kumar Maroo HUF.

3. The penalty order was further challenged by the assessee before the CIT(A) who upheld the findings of the AO and confirmed the penalty levied by the A.O. Against the impugned order passed by the Ld. CIT(A), assessee is in appeal before the Tribunal. The assessee has raised the following grounds of appeal.

1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in levying penalty, u/s 271(1)(c) of the Income-tax Act, 1961 of Rs. 3,43,500 on the ground that the Appellant concealed particulars of income in respect of addition of Rs. 11,45,000 made to returned income on account of disallowance of brokerage paid to three HUF’s.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in levying penalty, u/s 271(1)(c) of the Income-tax Act, 1961 of Rs. 48,551 On the ground that the appellant concealed particulars of income in respect of addition of Rs. 1,61,838 made to the returned income on account disallowance of interest paid to Raj Kumar Maroo (HUF).

3. In any event, without prejudice, on the facts and in the circumstances of the case, the CIT(A) was not justified in levying penalty on Rs. 1,61,638 out of Rs. 3,81,083- as that was the amount paid to Kamal Nath Maroo in his personal capacity (which had not been disallowed in the assessment)- and should instead have calculated the penalty on an amount of Rs. 11,510 out of Rs. 27,137 which was paid to the HUF. Reliefs claimed in appeal 1. Deletion of penalty levied u/s 271(1)(c) of Rs. 3,43,500 in respect of addition of Rs. 11,45,000 on account of disallowance of brokerage paid to three HUF’s. 2. Deletion of penalty levied u/s. 271(1)(c) of Rs. 48,551 in respect of addition of Rs. 1,61,838 on account of disallowance of interest paid. 3. Without prejudice, restricting the penalty in respect of item 2 above to Rs. 11,510.

4. The Ld. Counsel for the assessee submitted that although in quantum appeal the ITAT has confirmed the disallowance of Rs. 11,45,000/- made on account of brokerage paid to the HUFs, however, since quantum appeal and the penalty appeal are two different and independent proceedings, the confirmation of disallowance does not ipso facto make the assessee liable for penalty. The assessee has neither concealed any income nor furnished any inaccurate particulars. The Ld. Counsel further submitted that it is not necessary to have written agreement for brokerage. Similar payments in earlier years have been allowed by the department. On the other hand the Ld. Departmental Representative submitted that since the Ld. CIT(A) has passed the present order after taking into consideration the contention of the assessee, there is no scope to interfere with the impugned order. The Ld. Counsel relied upon the ratio laid down by the Hon,ble Supreme Court in Commissioner of Income Tax vs Reliance Petro products P Ltd. [2010] 322 ITR 158, Price waterhouse coopers Pvt. Ltd. vs CIT [2012] 348 ITR 306 and decision rendered by the ITAT Mumbai in Industrial Development Bank of India Ltd. vs DCIT(2010) 42 SOT325 and Walter Saldhana vs DCIT (2011)44 SOT 26 in support of his arguments.

The assessee has relied on the judgment passed by the Hon’ble Supreme court of India in Commissioner of Income Tax vs. Reliance Petro products P Ltd. (supra), in which it has been held that merely because the assessee claimed deduction of interest expenditure which has not been accepted by the revenue, penalty u/s 271 (1)(c) of the Act is not attracted. Similarly, mere making of the claim, which is not sustainable in law by itself, will not amount to furnishing inaccurate particulars regarding the income of the assessee. But the nature of claim made by the assessee in the present case is different from the claim made by the assessee in case relied upon. As per the settled law, the findings given in the assessment proceedings would be relevant and admissible material in penalty proceedings but such findings may not always justify penalty because the considerations that arise in penalty proceedings are different from that arise from assessment proceedings. Mere fact, that certain amounts claimed by the assessee had been disallowed and treated as income, does not necessarily lead to the conclusion that the assessee has furnished inaccurate particulars of his income. The Tribunal has confirmed the disallowance because the assessee has failed to produce any documentary evidence to establish the transaction. Although the ITAT has confirmed the disallowance of expenditure claimed by the assessee, still it cannot be held conclusively, in the light of the submissions made by the assessee, that the expenditure in question was not at all incurred by the assessee. In our considered view, this is not a fit case for imposing penalty u/s 271(1)(c) of the Act. We, therefore, delete the penalty of Rs. 3,43,500/-imposed on the assessee.

14. After carefully considering the rival contentions, we find that insofar as the amount of loan given and the amount of brokerage paid in the earlier years have not been disputed in those years that is they have been accepted, then interest paid and payable on such amount cannot be disallowed in this year. Once the payment on account of brokerage paid to the said HUF have been accepted to be genuine in the earlier years rather there is no dispute to the fact that the amount belonging to the HUF was lying with the assessee company, then in our opinion, interest paid on such amount cannot be disallowed. Here, it is not the case where the brokerage of this year has been treated as loan. Accordingly, we hold that the disallowance of interest of Rs. 1,61,638, is uncalled for and the order of the learned Commissioner (Appeals) confirming the said disallowance is set aside. Ground no.2, is allowed.

In view of the fact that the co-ordinate bench has set aside the disallowance made by the A.O. and confirmed by the CIT(A), we delete the penalty of Rs. 48,551/- imposed on the ground that the assessee has concealed particulars of income in respect of addition of Rs. 1,61,838/- made to the income of the assessee on account disallowance of interest paid to Raj Kumar Maroo HUF. Hence, we allow this ground of the appeal of the appellant/assessee, however, assessee shall bear the cost of litigation.

ITA No. 7612/Mum/2013 A.Y. 2007-08