OASIS INFRASTRUCTURE P.LTD,MUMBAI vs. ACIT 10(2), MUMBAI

This is an appeal filed by the assessee against the order dated 13.6.2014 passed by the ld.CIT(A)-22 Mumbai and it relates to the assessment year 2009-10.

The only ground raised by the assessee is against the confirmation of penalty by the CIT(A) to the extent of 100% of the tax sought to be evaded as against the 200% levied by the AO in respect of disallowance of AIR discrepancy and foreign travelling expenses.

The facts in brief are that the AO framed the assessment u/s 143(3) of the Act vide order dated 30.11.2011 assessing the income of the assessee at Rs.3,35,57030/- as against the returned income of Rs.3,27,12,510/- by the assessee by adding Rs.79,680/- on the basis of AIR information which is related to short offering of hire income to this extent, disallowance of foreign travelling expenses of Rs. 6,45,182/- also initiating the penalty proceedings u/s 274 r.w.s.271(1) (c ) read with explanation 1 thereto. The ld AO ultimately imposed a penalty on the disallowance of foreign travel expenses of Rs. 6,45,182/- at Rs. 4,97,806/- being equal to 200% of the tax sought to be evaded after rejecting the submissions of the assessee which has been incorporated in para 3 of the penalty order. The order was thereafter rectified u/s 154 of the Act revising the penalty imposed to Rs. 4,38,568/-.The assessee did not challenge the quantum additions before the First Appellate Authority(FAA) and the assessment attained finality.

The aggrieved assessee preferred an appeal before the FAA which was also dismissed by the ld. CIT(A) by rejecting the contentions and submissions of the assessee as incorporated in para 2.3 of the appeal order by observing and holding as under:-

The ld AR reiterated his submissions as made before the authorities below and argued that the expenses as disallowed by the AO were incurred out of genuine business needs as the directors of the assessee undertook foreign tour to explore the new cranes available in the international market which were disallowed and penalty proceedings were initiated by the AO by invoking the explanation 1 to section 271(1)( c ) of the Act despite the fact that the all evidences qua the foreign travel such as bill and receipt of the travel agency, board resolution sanctioning the foreign trip of the directors were produced before the AO. The ld AR argued that the explanation 1 to sec 271(1)( c ) wrongly invoked as the assessee has offered and given full explanation qua claiming those foreign travel expenses which was not found by the AO to be false and the assessee believed the same to be bonafide. Alternatively the ld counsel submitted that even if for a moment if the expenses are incurred to be not in connection with the business of the assessee even then these would incurred out of business exigencies were fully allowable if supported by the Board resolution as it will impact the business manic for a moment if the expenses are incurred to be not in connection with the business of the assessee but incurred out of business exigencies were fully allowable if supported by the Board resolution as it will impact the business maneuvering in much efficient manner and even on that ground the penalty was not leviable. The ld counsel submitted that the provisions of section 271(1)( c) of the Act could be invoked if the assessee has concealed the particulars of income or furnished inaccurate particulars of income which was not so in the present case as the assessee did not conceal its income and nor furnished inaccurate particulars as all the particulars qua the foreign expenses were disclosed in the return of income. The counsel of the assessee argued that mere making a claim which is not sustainable in law by itself will not amount to furnishing in accurate particulars of income and thus the claim of the assessee qua foreign expenses which was not acceptable to revenue would not be liable for any penalty u/s 271(1) ( c ) of the Act. In defence of his arguments the ld counsel relied on a series of decisions namely CIT Vs Reliance Petro Products (P) Ltd (2010) 322 ITR 158(SC), Hogkong & Shanghai Banking Corporation Ltd Vs DDIT Int. Tax (2012) 16 ITR 275(Bom) and ITO Vs Chemeform (2012) 51 SOT 27 (Kol). The ld AR of the assessee further relied on the decisions of tribunal in the case of M/S Vistar Construction Pvt Ltd Vs DCIT (ITA No.5149/Del/2011) dated 19.10.2012 and DCIT Vs Control & Switchgears Ltd (ITA No1981/Del/2013) dated 4.3.2015 in which the coordinate benches of the Tribunal deleted the penalty levied u/s 271(1) ( c ) of the Act for disallowance of foreign travel expenses. Finally the ld AR prayed for deletion of the penalty as the assessee is fully covered by the various decisions referred and relied. The ld DR,on the other hand, relied on the order of CIT(A).

We have considered the rivals submissions and perused the relevant materials on records carefully including the orders of authorities below. The AO has imposed penalty of Rs. 4,97,806/- on the disallowance of foreign travel expenses of Rs. 6,45,142/- of two directors which was subsequently reduced to Rs.4,38,568/- by passing order u/s 154 of the Act. In appeal before CITT(A), the penalty was reduced to Rs. 2,19,284/- being 100% of the tax sought to be evaded. The facts are that the assessee incurred expenses for the traveling of two directors who happen to be spouse of each other by rejecting the arguments of the AR that the said expenses were incurred for business purposes and exigencies in order to carry out survey the new cranes in the foreign market. Now the issue before us is whether the disallowance of expenses incurred for foreign travelling of directors are liable for penalty u/s 271(1)(c)of the Act. The AO treated the same as non-business expenses whereas the assessee claims the said to be business expenses. It is a case where the AO was not satisfied with the evidences produced by the assessee but claim of the assessee was not proved wrong or false. The mere disallowance of expenses under such circumstances is not sufficient to levy penalty. It is also clear from the facts before us that the assessee has also fully discussed the particulars of the claim in its return of income. In our opinion this is not a case of filing inaccurate particular of income as the assessee claimed the same to be business expenses under bonafide belief and the issue of admissibility is debatable one. Even the claim by the assessee which is not sustainable in law does not amount to furnishing of inaccurate particulars of income as has been held in the case of CIT Vs Reliance Petro Products (P) Ltd (supra). The hon'ble Supreme Court has held that mere making a claim of expenses which is not sustainable in law does not mean that the assessee furnished inaccurate particulars of income. Mere fact that the assessee claimed an expenses in the return of income which was not accepted or was not acceptable to the revenue by itself would not attract penalty u/s 271(1)(c) and if the claim of revenue is accepted then in every case where a claim is not accepted by the revenue for any reasons, the assessee will be subjected to penalty u/s 271(1)(c) of the Act. In the following cases, the tribunal considered and followed the decision of the Hon‟ble Apex Court in the case of CIT Vs Reliance Petro Products Ltd (Supra) and held that penalty is not leviable where foreign travelling of directors were disallowed. In the case of M/S Vistar Construction Pvt Ltd Vs DCIT , the tribunal held as under:- “7. We have carefully considered the submissions and perused the records. We find that disallowance in this case has been made to the extent of 50% of expenditure incurred on foreign travel expenses. The basis of making disallowance in this regard is that two directors and their wives who were also directors visited foreign countries which was not fully for business purposes. Assessee‟s submissions in this regard is note worthy that both the wives, who were also Directors of the company were receiving considerable salary which was accepted year after year. Hence, the visits cannot be said to be for non-business purposes. It has further been noted that disallowance in this regard in the preceding year was only 20% and on that addition penalty was not imposed, even the penalty notice has been issued by the Assessing Officer. In this background, we have to see whether the penalty proceedings u/s. 271(1)(c) is sustainable or not. We find that section 271(1)(c) of the Act postulates imposition of penalty for furnishing of inaccurate particulars and concealment of income. In this case disallowance has been made only on estimate basis. In the preceding year this disallowance was only 20% and no penalty was imposed. In our opinion, on the facts and circumstances of the case the conduct of the assessee cannot be said to be contumacious so as to warrant levy of penalty u/s. 271(1)(c).

In this regard, we place reliance from the Apex Court decision rendered by a larger Bench comprising of three of their Lordships in the case of Hindustan Steel vs. State of Orissa in 83 ITR 26 wherein it was held that “An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceedings, and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act, or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by the statute.”

We would also like to refer to the Hon‟ble Apex Court decision in the case of CIT vs. Reliance Petro Products Ltd. in Civil Appeal No. 2463 of 2010. In this case vide order dated 17.3.2010 it has been held that the law laid down in the Dilip Sheroff case 291 ITR 519 (SC) as to the meaning of word „concealment‟ and „inaccurate‟ continues to be a good law because what was overruled in the Dharmender Textile case was only that part in Dilip Sheroff case where it was held that mensrea was a essential requirement of penalty u/s 271(1)(c). The Hon‟ble Apex Court also observed that if the contention of the revenue is accepted then in case of every return where the claim is not accepted by the Assessing Officer for any reason, the assessee will invite the penalty u/s 271(1)(c). This is clearly not the intendment of legislature.

In the background of the aforesaid discussions and precedents, we set aside the orders of the authorities below and delete the levy of penalty.”

In both the foregoing decisions the Co-ordinate Benches of the Tribunal held that if the assessee has claimed the expenses of foreign travelling of both the directors who are husband and wife is a debatable issue and penalty u/s 271(1)(c) of the Act can not be imposed. Thus we find that the facts of the assessee are similar to the facts of the case discussed above wherein the tribunal held disallowance of foreign travel expenses as debatable issue. In the present case before us we are of the considered view that the assessee has fully disclosed the particulars of