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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY, JM & SHRI RAJESH KUMAR, AM
अऩीराथी की ओय से/Appellant by : Shri Dhanesh Bafna and Ms.Anusha Singh प्रत्मथी की ओय से/ Respondent by : Shri Rajesh Ojha सुनवाई की तायीख / Date of Hearing : 21.4.2016 घोषणा की तायीख /Date of Pronouncement : 25.5.2016 आदेश / O R D E R
PER RAJESH KUMAR, AM :
This is an appeal filed by the assessee against the order dated 7.8.2014 passed by the ld.CIT(A)-4, Mumbai and it relates to the assessment year 2007-08.
The only issue raised in all the grounds of appeal is against the confirmation of penalty of Rs.10,41,995/- levied u/s 271 (1) (c) of the Income Tax Act, 1961 (the Act) for disallowance of provisions for discount of Rs.30,95,650/- as made by the AO.
Brief facts of the case are that the assessee filed its return of income on 30.10.2007 declaring total income at Rs.9,77,20,121/-. During the course of scrutiny assessment proceedings, the AO observed that the assessee had debited a sum of Rs.30,95,650/- as provisions for discount in Pune division account which were of contingent in nature. While disallowing the said amount, the AO after recording satisfaction initiated penalty proceedings u/s 271(1)( c ) of the Act. The AO after considering the explanation and submissions of the assessee as made vide its letter dated 18.3.2013 in response to the show cause notice issued, which is reproduced in the appellate order, levied the minimum penalty at the rate of 100% of the tax sought to be evaded at Rs.10,41,995/- by holding that the assessee had filed inaccurate particulars of income. The ld. CIT(A) also confirmed the action of the AO on the ground that the assessee filed inaccurate claim to evade true and correct tax liability. The observations and findings of the ld.CIT(A) have been incorporated at para 4 of the appeal order. While confirming the action of the AO, the ld. CIT(A) considered submissions and case law as relied on by the assessee such as CIT vs. Reliance Petroproducts (Supreme Court). (2010)322 ITR 158 (SC) and UOI v. Dharamendra Textile Processors 306 ITR 277(SC).
The ld. AR vehemently submitted before us that the additions as was made and confirmed by the ld. CIT(A) in quantum proceedings were tax neutral and therefore the allegation of the AO that the assessee has filed inaccurate particulars of income were wrong and contrary to the facts of the case. The counsel of the assessee submitted that the assessee was in the business of providing travel related services and it was a regular practice debiting provisions for discount being following by the assessee since many years and had been accepted by the department in earlier as well as in subsequent years. The ld. Counsel submitted that the assessee being in the travel business and other related services and had entered into various memorandum of understanding with the various customers to give certain discount if the payment were made by the said customers in time in the ordinary course of business. The modus operandi for creating provisions was that the assessee used to create provisions for discount to be passed on and given to the customers if the payment due from them were received in time and where the payments were delayed such a provisions for discount were used to be reversed and offered to tax either in the same year or in the subsequent year. During the assessment year 2007-08, the assessee had created provision of discount amounting to Rs.30,95,650/-. Out of which Rs.8,00,331/- was passed on to the customers who made the payment within the stipulated time as per the terms of memorandum and the balance was reversed and offered to tax in the assessment year 2008-09. The ld. Counsel reiterated the submissions as made before the AO and the ld. CIT(A) that the practice was being followed which was being accepted by the department in the earlier as well as in the subsequent years. The ld. Counsel also submitted that the method of providing for discount and paying the discounts out of the provisions so created to those making the payment within time and reversing that part of the provisions which was not passed to the customers due to late payment and offering to tax was regular one. Therefore whole system and mechanism was devised in such as manner that there was no evasion of tax or concealment of the income on the part of the assessee. In support of his argument, the ld. Counsel for the assessee heavily placed reliance on the decision of Hon’ble Gujarat High Court in the case of CIT V/s J H Parabia (Transport (P) Ltd reported in (2006) 284 ITR 361 (Guj) and the decision of the Agra Bench of the Tribunal in the case of Addl.CIT V/s Kisan Sahkari Chini Mills Ltd reported in (2012) 20 taxmann.com 769 (Agra). The ld. Counsel also filed details showing that the said provision for discount were accepted in the assessment years 2004-05, 2005-06, 2006-07, 2008-09 and 2009-10 and only disputed during the current year i.e. assessment year 2007-08. The ld.Counsel while defending his argument submitted that since the practice was being accepted by the department right from the inception and was continued in the years subsequent and thus, the assessee was under the bonafide belief that the same were allowable in the current year as were being allowed in preceding and succeeding years. The ld. Counsel also drew our attention to the appeal order passed under section 250 (6) of the Act in respect of assessment year 2008-09 by the ld. CIT(A) in which, while drawing our attention to page No.6 para 9, an additional ground was taken qua the provisions for discount of Rs.30,95,650/- disallowed in assessment year 2007-08 as contingent in nature and praying that it should be allowed as deductible expenses in the assessment year 2008-09. The FAA at page 7 in para 3.3 of the appeal order reproduced the assessee’s submissions which reads as “the assessee submitted that the assessee had created the provisions of Rs.30,95,650/- out of which the discount of Rs.8,23,376/- was passed on to the customer and Rs.22,33,724/- was reversed and offered to tax in the assessment year 2008-09 & in para 3.5 at page 7 of the said order, the assessee submitted that a sum of Rs.8,23,376/- was passed on to the customer in AY 2008-09 and should be allowed as deductible expenses and remaining amount of Rs.22,33,724 which has been reversed in assessment year 2008-09 and offered to tax suo motu should not be taxed in assessment year 2008-09 as the same has already been taxed in the assessment year 2007-08. In para 12 at page 7 of the appeal order for AY 2008-09, the ld. CIT(A) observed that if a provision for discount was not allowed in the year of creation then reversal of the same in subsequent years could not be taxed. Therefore, AO is directed to verify the amount which have been reversed out of this provision and reduce the same from taxable income if it is included in the taxable income because the assessee had no time to revise the return of income by the time CIT(A) decided the issue. Similarly, the assessee has claimed to have made certain payments out of the provisions which are naturally charged to the provision account and not to the profit and loss account, whereas the provision had not been allowed, therefore, to the extent such discounts have been allowed by the assessee to the customers, allow the same as expenditure relating to the year under consideration because the provisions has already been disallowed in the earlier year, whereas undisputedly such discount allowed to customers is an allowable expenditure. Lastly, the ld.AR submitted that in view of these facts and circumstances and also in view of the ratio laid down in the decisions referred and relied upon, the penalty imposed by the AO and confirmed by the ld.CIT(A) was wrong and therefore the order of ld.CIT(A) be set aside and the penalty imposed by the AO be deleted.
The ld.DR, per contra, submitted before us that the penalty levied u/s 271(1)(c) by the AO and as confirmed by the ld. CIT(A) deserved to be upheld as the assessee had filed inaccurate particulars of income by creating the provisions for discount of contingent nature.
We have heard the rival parties at length and perused the relevant material placed on record including the case laws relied upon by the parties as well as the orders of authorities below. We find that the assessee, being in the travel related business, has been regularly following the practice of accounting and creating provisions for discount on the basis of total of receivables /book debts so that the discount could be passed on those customers who makes the payment in time. Thus, the assessee used to charge discount passed on to the customers to the “provision for discount” so created and used to reverse that part of the provisions for discount which was not given or passed on the customers due to late payment by the customers. The said practice of the assessee was being accepted by the department right from the assessment year 2004-05 till assessment year 2009-10 except the assessment year 2007-08 which is under appeal before us. In the present case, we notice that a sum of Rs.30,95,650/- was created as provision for discount in the current year out of Rs.8,23,376/- was passed on to the customers in the subsequent assessment year 2008-09 and the balance of Rs.22,33,724/- was reversed and offered to tax in the same year. We also find merit in the submissions of the assessee that since the said practice was followed and being accepted by the department and also being tax neutral, the assessee under the bonafide belief that the provision for discount was allowable expenses. From the order of the First Appellate Authority for the subsequent year i.e. AY 2008-09, we find that the assessee had taken additional ground vide para 9 at page 6 of the appellate order passed under section 250(6) praying before the First Appellate Authority to allow the provision for discount of Rs.30,95,650/- disallowed in the assessment year 2007-08 for being contingent in nature. Para 3.3 at page 7 of the said order reveals that the assessee had created provisions for Rs.30,95,650/- and out of which Rs.8,23,376/- was passed on to the customers and remaining amount of Rs.22,33,724/- was reversed and offered to tax in assessment year 2008-09. In para 3.5 of the said order, the assessee submitted that in case, the provision for discount is held to be contingent in nature in assessment year 2007-08, actual discount of Rs.8,23,376/- passed on to the customers in assessment year 2008-09 should be allowed as expenditure in assessment year 2008-09 and further balance of Rs.22,33,724/- which was suo motu reversed by the assessee in assessment year 2008-09 should not be taxed in assessment year 2008- 09 as it has been already taxed in assessment year 2007-08. From para 12 at page 7 of the said order, we find that the ld. CIT(A) allowed the appeal of the assessee by directing the AO not to tax the provision in the subsequent year which was not allowed in the earlier years. For the sake of convenience we reproduce para 12 of the said order : “12. I have considered the facts of the case and submissions of the assessee. It is but natural that if a provision is not allowed then reversal of the same in subsequent years cannot be taxed. Therefore, A.O is directed to verify the amount which have been reversed out of this provision and reduce the same from taxable income if it is included in the taxable income because the assessee had no time to revise the return of income by the time CIT(A) decided, the issue. Similarly assessee has claimed to have made certain payments out of the provisions which are naturally charged to the provision account and not to the profit and loss account, whereas, the provision had not been allowed, therefore, to the extent such discounts have been allowed by the assessee to the customers, allow the same as expenditure relating to the year under consideration because the provision has already been disallowed in the earlier year, whereas, undisputedly such discount allowed to customers is an allowable expenditure, In result, the ground of appeal is treated as allowed”
Further the case of the assessee is fortified and strengthened by the decision of Hon’ble Gujarat High in the case of J H Parabia (Transport (P) Ltd(supra), wherein it has been held as under : “The Tribunal found as a matter of fact that the assessee had been consistently adopting the same method of accounting, i.e. , of not including the work-in-progress for the purpose of arriving at the taxable income since the inception of the company. It had further been found by the Tribunal that this method of accounting had been accepted by the Department. It had further been recorded by the Tribunal that in these circumstances, in the case of the assessee, a limited company, there would be either nil or negligible tax effect when one considered the fact that an item of work-in-progress which was not shown in year number one was reflected as income in any one of the subsequent years when the amount was actually received and, hence, the Department could not allege that the assessee had adopted a systematic device for postponing a part of the tax liability. The Tribunal further went on to record that, in fact there was no allegation on this count made by the Department and even if the same was taken into consideration, there was no evidence to substantiate such allegation. The Tribunal concluded by holding that the assessee adopted a particular system of accounting for four assessment years, including the year under consideration, and for three preceding assessment years the said system had been accepted by the Department; but when the Department sought to take a different stand in the fourth year, the assessee gracefully submitted a revised return offering the item for taxation and accepted the assessment made. Thus, it was concluded by the Tribunal that exigibility of penalty under section 271(1)(c) would depend upon the facts and circumstances of the case, and after considering the totality of the facts and circumstances, the assessee could not be charged with concealment of income or with furnishing inaccurate particulars thereof. In the light of the facts found by the Tribunal, and in the absence of any evidence to show that such findings were incorrect in any manner whatsoever, it was not possible to accept the contention raised on behalf of the Revenue. It was not possible to state that the method of accounting adopted by the assessee was such that it did not reflect the position correctly considering the fact that for three years the same had been accepted by the Department. Once this was the position, the bona fides of the assessee could not be doubted, and the Tribunal was justified in holding that the assessee was entitled to hold a bona fide belief that the uncertified work-in- progress was not liable to be treated as a taxable item so as to be visited with penalty for concealment thereof. “
In the case of Kisan Sahkari Chini Mills Ltd (supra), the Tribunal has held as under : “The penalty proceedings under section 271(1)(c ) can be initiated only if the Assessing Officer or the first appellate authority is satisfied in the course of any proceedings under the Act that any person has concealed the particulars of his income or has furnished inaccurate particulars of such income. The expression used in clause (c ) is 'has concealed the particulars of his income' or 'furnished inaccurate particulars of such income'. Therefore, in both cases of concealment and inaccuracy the phrase 'particulars of income' are used. As regards concealment, the expression in clause (c) is 'has concealed the particulars of his income' and not 'has concealed his income'. The expressions 'has concealed the particulars of income' and 'has furnished inaccurate particulars of income' have not been defined either in section 271(1)(c) or elsewhere in the Act. One thing is certain that these two circumstances are not identical in detail although they may lead to the same effect, namely, keeping off a certain portion of income. The former is direct and the latter may be indirect in its execution. [Para 5] The word 'conceal' is derived from the latin concelare which implies concelare to hide. Webster in his New International Dictionary equates its meaning 'to hide or withdraw from observation, to cover or keep from sight; to prevent the discovery of; to withhold knowledge of'. The offence of concealment is, thus, a direct attempt to hide an item of income or a portion thereof from the knowledge of the income tax authorities. There is strict liability on the assessee for concealment or for giving inaccurate particulars while filing the return. The penalty under that provision is a civil liability. Wilful concealment is not an essential ingredient for attracting civil liability. It is obvious that the penal provisions would operate when there is concealment of particulars of income or a failure of duty to disclose fully and truly particulars of income, imposed under the Act and the rules thereunder. The duty is enjoined upon a person to make a correct and complete disclosure of his income and it is only when he fails in his duty by not disclosing his income or part thereof, he conceals the particulars of his income. The duty is enjoined upon him to make a complete disclosure of his income as well as a correct disclosure. Therefore, if the disclosure made of the particulars of income is incorrect, then also he commits breach of his duty. Such defaults entail the penal consequences contemplated by section 271(1)(c)( iii). There cannot be a straight jacket formula for detection of these defaults of concealment or of furnishing inaccurate particulars of income and indeed concealment of particulars of income and inaccurate particulars of income may at times overlap. It depends upon the facts of the each case. In the assessment proceedings, the ITO while ascertaining the total income chargeable to tax would be in a position to detect the specific or definite particulars of income concealed or of which false particulars are furnished. Where in the constituents of income returned, such specific or definite particulars of income are detected as concealed, then even in the total income figure to that extent they reflect, it would amount to concealment to that extent. In the same way where specific and definite particulars of income are detected as inaccurate, then such figure will also make the total income inaccurate in particulars to the extent it does not include such income. In other words, the Assessing Officer cannot invoke provision of section 271(1)(c ) on the basis of routine and general presumptions. Whether it be a case of only concealment or of only inaccuracy or both, the particulars of income so vitiated would be specific and definite and be known in the assessment proceedings by the ITO, who, on being satisfied about each concealment or inaccuracy of particulars of income, would be in a position to initiate the penalty proceedings on one or both of the grounds of default as may have been specifically and directly detected. [Para 5.1] In addition to main provisions of concealment 'has concealed the particulars of his income' or 'has furnished inaccurate particulars of such income' are deemed to represent the income in respect of which particulars have been concealed. The deemed concealment is provided in Explanations. Often a question arise whether in cases where additions or disallowances are made by the ITO, the penal provisions of section 271(1)(c ) would attract.Explanation 1 takes care of this situation. [Para 5.2] A conspectus of the Explanation makes it clear that the statute visualized the assessment proceedings and penalty proceedings to be wholly distinct and independent of each other. In essence, the Explanation is a rule of evidence. Presumptions which are rebuttable in nature are available to be drawn. The initial burden of discharging the onus of rebuttal is on the assessee. The rationale behind this view is that the basic facts are within the special knowledge of the assessee. Section 106 of the Indian Evidence Act, 1872, gives statutory recognition to this universally accepted rule of evidence. There is no discretion conferred on the Assessing Officer as to whether he can invoke the Explanation or not. Explanation 1 comes into operation when, in respect of any facts material to the computation of total income of any person, there is failure to offer an explanation or an explanation is offered which is found to be false by the Assessing Officer or the first appellate authority, or an explanation is offered which is not substantiated. In such a case, the amount added or disallowed in computing the total income is deemed to represent the income in respect of which particulars have been concealed. As per the provision ofExplanation 1, the onus to establish that the explanation offered was bona fide and facts relating to the same and material to the computation of his income have been disclosed by him will be on the person charged with concealment. The explanation of the assessee for the purpose of avoidance of penalty must be an acceptable explanation; it should not be a fantastic or fanciful one. As indicated above, the consequence follows as a matter of law. The burden is on the assessee. If he fails to discharge that burden, the presumption that he had concealed the income or furnished inaccurate particulars thereof is available to be drawn. [Para 5.3 Part A of the Explanation to section 271(1)(c) provides that if assessee fails to offer an explanation or offers an explanation which is found by the Assessing Officer or the Commissioner (Appeals) to be false. This Explanation can, therefore, be applied only where the assessee has either not offered any explanation or where he has offered any explanation, the same found to be false by the Assessing Officer. In other words, where the assessee offers some explanation, it is only the proving by the Assessing Officer of the explanation to be false, that part A of the Explanation may be attracted, mere non-acceptance of explanation offered by the assessee cannot form a basis for the satisfaction of ITO to the effect that the assessee has concealed particulars of his income, he must have some definite evidence to refuse the assessee's claim or evidence or explanation. [Para 5.4] The essence of part B of the Explanation is that the person must provide an explanation which is bona fide and he should substantiate that explanation by some evidence with him. If he fails to do so, his explanation may be treated as untenable. But when the assessee is able to offer reasonable explanation based on some evidence, the ITO cannot invoke Part B of the Explanation, unless he has given finding based on some contradictory evidence to disapprove that explanation offered by the assessee which the assessee is not able to substantiate and fails to prove that such explanation is bona fide and that all the facts relating to the same and material to the computation of his total income have been disclosed by him. [Para 5.5] In the instant case, the assessee has furnished all relevant particulars of its income. The assessee has disclosed the complete facts in the books of account and return of income though it may not have correctly taken this amount for the purpose of computation of total income in accordance with law. It is duty of the Assessing Officer to compute total income in accordance with law on the basis of particulars filed by the assessee. Under these circumstances, it cannot be said that the assessee has furnished inaccurate particulars of income. Apart from this fact, there is no finding of the Assessing Officer that the explanation furnished by the assessee was found false. The explanation furnished by the assessee is a bona fide explanation in the sense that the Assessing Officer himself did not disallow such amount in earlier years as well as in subsequent years under these circumstances, bona fide explanation of the assessee cannot be doubted. When the explanation of the assessee was bona fide, penalty under section 271(1)(c) is not leviable in accordance withExplanation 1 to section 271(1)(c). Therefore, this is not a fit case where penalty under section 271(1)(c ) is leviable.
Therefore, penalty levied by the Assessing Officer has been rightly cancelled by the Commissioner (Appeals). [Para 5.8]”
After taking into consideration the facts of the case and weighing in the light of the ratio laid down in the above said decisions, we are of the opinion that the penalty imposed u/s 271(1)( c ) and as sustained by the ld.CIT(A) is wrong and against the provision of law. We, therefore, set aside the order of the ld.CIT(A) and direct the AO to delete the penalty of Rs. 10,41,995/-.
In the result, the appeal of the assessee is allowed.