P & O NEDLLOYD LOGISTICS INDIA P.LTD ( NOW MERGED WITH APM TERMINALS INDIA P.LTD),MUMBAI vs. DCIT 4(3), MUMBAI

PER AMARJIT SINGH, JM:

This is an appeal against the order dated 18.12.20134 passed by the learned Commissioner of Income Tax(Appeals) - 8, Mumbai [hereinafter referred to as the “learned CIT(A)”], Mumbai for the Assessment Year: 2006-07

assessment year 2006-07 wherein the penalty to the tune of Rs.25,20,760/- levied by the Assessing Officer was upheld.

However, the penalty were initiated on account of disallowance of expenses claimed u/s.40A(2)(b) of the Act and double claim expenses and disallowance of legal and professional fees u/s. 40(a)(ia) of the Act.

2 Assessment Year: 2006-07

Finding of the Assessing Officer is hereby reproduced as under:-

3 Assessment Year: 2006-07

By going through above mentioned finding recorded by the Assessing Officer it is apparent on record that the assessee has to pay service charges of Rs.2,21,54,570/- to PONIPL (holding company. The company has also debited separately Rent Rs.16,53,170/-, Telephone Rs.6,97,000/-, Courier & Postage Rs.2,93,990/-, Printing & Stationery Rs.63,067/- and general expenses of Rs,2,78,184/-. All these charges were paid based on a debit note received from holding company PONIPL. The assessee company was submitted evidence in support of his claim in excess of expenses. The Assessing Officer disallowed the 25% of the claim to the tune of Rs.62,84,995/-. The learned CIT(A) has also confirmed the disallowance & 25% of service charges. The explanation of the assessee is that the assessee has disclosed the service charges paid to its parent company in its profit and loss account and also submitted the details in the assessment proceedings. Therefore, in the said circumstances there is no concealment of income in this case is furnishing inaccurate particulars to evade the tax and also place reliance upon the law settled in Commissioner of Income Tax Vs. Indo Saudi Services (Travel) (Pvt.)Ltd. by High Court of Bombay. It is specifically held that:

“We have heard the learned advocates appearing for both sides. We have also perused the order passed by the Tribunal dated 21st October 1999 which is impugned by the Revenue in the present appeals. We find that the following

4 Assessment Year: 2006-07

facts were established before the Tribunal and the same have been accepted by the Revenue even before us. (i) That the assessee apart from paying handling charges @ 9 ½ per cent to its sister concern, have paid handling charges at the same rate to other agents viz., M/s. A.K.Travels, M/s. Om Travels and M/s. Jet Age Travels. (ii) For asst. Yrs 1986-87 and 1987-88 the assessee had paid the handling charges @ 10 percent to the sister concern of the assessee and such charges paid were considered to be reasonable by the appellant. (iii) For asst. Yrs. 1989-90 and 1990-91 the assessee had reduced the payment of handling charges to 9 ½ per cent to its sister concern. The AO has considered the payment of commission to the sister concern in the asst. Yr. 1989-90 and allowed the claim after due scrutiny. For asst. Yr. 1990-91 also the claim of the assessee @ 9 ½ per cent has been allowed thought the same has not been dealt with by the AP specifically in the order. (iv) For asst. Yrs. 19936-94 and 1994-95 the assessment has been made by the AO under s. 143(3) and handling charges paid to the sister concern @ 9.5% per cent have been considered to be reasonable and allowed. (iv) The sister concern of the assessee M/s. Middle East International is also assessed to tax and income assessed for the asst. Yr 1991-92 is Rs.9,38,510/- and for asst. Yr. 1992-93 is Rs.14,65,880 and the said assessment order have been placed on record. (v) Under the CBDT Circular No. 6-P, dt. 6th July, 1968 it is stated that no 5 Assessment Year: 2006-07

disallowance is to be made under s. 40A(2) in respect of the payments made to the relatives and sister concerns where there is no attempt to evade the tax.”

The facts and circumstances of the present case are quite similar. In the instant case the expenses have been disallowed which has been claimed u/s. 40A(2)(b) therefore in view of the finding of the above mentioned case we are of the view that the disallowance made by the Assessing Officer u/s. 40A(2)(b) will not amount to furnishing inaccurate particulars of his income. These levy of penalty by the Assessing Officer u/s. 271(1)(c) of the Act was not justified. Therefore, we are of the view that this ground is not proper to levy the penalty hence we delete the penalty on this ground.

So far as the ground no. 2 is concerned, the same is in connection with the double claim expenses. The assessee in his Profit and Loss Account debited under Administrative expenses, telephone expenses of Rs.6,97,000/-, printing & stationery of Rs.63,067/-, rent Rs.36,48,011/- and under the head of Postage and Courier Rs.2,93,990/-. These expenses have already been included in the service charges and again debited under separate head. Observing double claim the disallowance is restricted to the extent 75%, as 25% has already been considered under the common expenses. No doubt learned CIT(A) confirmed the said order but it is required to be seen whether disallowance made by the Assessing Officer falls

6 Assessment Year: 2006-07

within the purview of 271(1)(c) of the Act. By going through the order in question nothing new material came on record, however on seeing the record the claim of assessee was disallowed and disallowance of claim is not required to be considered as the case of the concealment of income or furnishing inaccurate particulars to evade the tax. This ground is not justifiable to levy the penalty u/s. 271(1)(c) of Act.

Now coming to the third ground which the Assessing Officer levied the penalty. The assessee paid the legal and professional fees to the tune of Rs.1,45,536/-. No TDS was deducted therefore the said claim was rejected and the said amount of Rs.1,45,536/- was added to the income of assessee u/s. 40a(ia) of the Act. In view of the above said facts and circumstances the case of the assessee has fully covered by the order of the Income Tax Appellate Tribunal Mumbai bench in case Ramkrishna Shetty Vs. Assistant Commissioner Of Income Tax in ITA No.7142/M/2011 & 4735/M/2013. Accordingly, it is not a ground to levy the penalty. In view of the above said facts and circumstances we are of the view that the order of learned CIT(A) is wrong against law and fact and is hereby ordered to be set aside and we delete the penalty.

7 Assessment Year: 2006-07

In the result, appeal of the Assessee is Allowed.

आदेश क" ""त"ल"प अ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ" / The Appellant