SILVER SHIELD ENERGY P .LTD,MUMBAI vs. ITO 2(3)-2, MUMBAI

This appeal by the assessee is directed against the order of the CIT(Appeals)-6, Mumbai dated 22/11/2011 confirming the levy of penalty of Rs.1,18,573/- under section 271(1)(c) of the Income Tax Act, 1961 (in short ‘the Act’) for assessment year 2007-08.

(Assessment Year : 2007-08) 2.1 The assessee, a company engaged in the business of design and supply of lighting products, filed its return of income for assessment year 2007-08 on 31/03/2008 declaring total income of Rs.880/-. The return was processed u/s. 143(3) of the Act and the case was subsequently selected for scrutiny. In the course of assessment proceedings, the Assessing Officer observed that the assessee had claimed expenditure of Rs.3,52,271/- on account of foreign travel against business income in respect of the trip of two directors, Shri Satish Kapoor and Shri Saroj Shroff to Bangkok. In this regard the assessee furnished explanations on the foreign trips undertaken alongwith details of air travel and amounts expended for boarding and lodging. The explanations furnished by the assessee were rejected by the Assessing Officer. As the assessee was not able to furnish evidences with regard to an amount of Rs.2,71,400/- spent on boarding and lodging and the Assessing Officer was of the view that the assessee had failed to prove that the expenditure claimed was incurred wholly and exclusively for the purpose of the assessee’s business as was required under section 37 of the Act, the entire amount of Rs.3,52,271/- was disallowed. The assessment was accordingly concluded under section 143(3) of the Act vide order dated 24/12/2009. Penalty proceedings under section 271(1)(c) of the Act were simultaneously initiated in this regard. The assessee preferred appeals challenging the aforesaid addition/disallowance of foreign travel expenses of Rs.3,52,271/- before both the CIT(A)-6 and subsequently before the Tribunal. Both the assessee’s appeals were dismissed by orders dated 06/04/2010 of the Ld. CIT(A) and by the Tribunal’s order in dated 18/05/2012.

(Assessment Year : 2007-08) 2.2 In the meanwhile, the Assessing Officer took up penalty proceedings under section 271(1)(c) of the Act in respect of the disallowance of foreign travel expenses amounting to Rs.3,52,271/- for assessment year 2007-08. After considering the explanation put forth by the assessee and rejecting them, the Assessing Officer vide order dated 23/6/2010 proceeded to levy penalty of Rs.1,18,573/- under section 27(1)(c) of the Act @ 100% of the tax on income sought to be evaded. On appeal by the assessee, the Ld. CIT(A) dismissed the assessee’s appeal vide order dated 18/11/2011. The Ld. CIT(A) upheld the levy of penalty of Rs.1,18,573/- under section 271(1)(c) of the Act on the grounds that (i) the assessee failed to produce evidence of foreign exchange obtained amounting to Rs.2,71,400/- from Kanji Forex P. Ltd. And (ii) that the assessee failed to establish that the expenditure incurred on foreign travel was for the purposes of the assessee’s business.

3.1 Aggrieved by the order of the CIT(A)-6, Mumbai confirming the levy of penalty of Rs.1,18,573/- u/s.271(1)(c) of the Act vide order dated 22/11/2011 for assessment year 2007-08, the assessee has raised the following grounds:-

“On the facts and in the circumstances of the case, the Ld. Commissioner of Income- tax (Appeals)-6, was not justified in confirming the penalty of Rs.1,18,573/-(being 100% of tax sought to be evaded) levied u/s. 271(1)9c) on addition of foreign travel expenses of Rs.3,52,271/-.” 3.2.1 The Ld. Representative for the assessee at the outset submitted that the amount of foreign travel expenditure amounting to Rs. 3,52,271/- were clearly reflected in the profit and loss account filed alongwith the return of income for assessment year 2006-07. It was submitted that in the course of assessment proceedings, the assessee

(Assessment Year : 2007-08) furnished the detailed explanation and breakup of the foreign business trips undertaken by the two Directors Shri Satish Kapoor and Shri Saroj Shroff alongwith details of air tickets, dates of travel; business meetings held with different parties etc. It was submitted that the fact that the aforesaid expenditure was incurred on foreign travel was never doubted, even by the Addl. CIT, Range 2(3), who on the application u/s. 144A of the Act, directed the Assessing Officer to consider the claim of the assessee to the extent of documentary evidences furnished. In this regard, the Ld. Representative for the assessee further submits that the Assessing Officer, on examination of details filed, observed that the assessee was not able to furnish evidences only with regard to the amount of Rs.2,71,400/- for purchase of foreign exchange from Kanji Forex P. Ltd. Spent on boarding and lodging of the two directors, but disallowed the entire expenditure of Rs.3,52,271/- including Rs.76,571/- spent on air tickets and Visa charges.

3.2.2. According to the Ld. Representative for the assessee, similar expenses on foreign travel were incurred by the assessee year on year and the fact that these were incurred for business purposes was never doubted. It is submitted that in immediately preceding assessment year 2005-06, disallowance of the same was made only to the extent where documentary evidences to support expenditure claimed would not be furnished and an adhoc disallowance of 15% was made on the reasoning that in such type of expenditure, the personal element could not be ruled out. The Ld. Representative for the assessee submits that in the facts and circumstances of the case, as laid out above, penalty u/s.271(1)(c) ought not to have been levied since there was no (Assessment Year : 2007-08) concealment of income or furnishing of inaccurate particulars since details of foreign travel expenditure were clearly mentioned in the assessee’s profit and loss account accompanying the return of income for assessment year 2007-08. In this regard it is contended that a mere making of a claim that is not sustainable in law, by itself, would not amount to concealment of income or furnishing of inaccurate particulars and, therefore, would not justify the levy of penalty under section 271(1)(c) of the Act. In support of the assessee’s averments that the penalty levied u/s. 271(1)(c) of the Act is not sustainable, the Ld. Representative for the assessee placed reliance on the decision of the Hon’ble Apex Court in the case of Reliance Petroproducts P. Ltd. (2010) 322ITR 158(SC) submitting that the facts of the cited case (supra) are similar to those of the assessee in the case on hand.

3.3 Per contra, the Ld. Departmental Representative for the Revenue supported the orders of the authorities below in levying and confirming the levy of penalty u/s.271(1)(c) of the Act in the case on hand.

3.4.1 We have heard the rival contentions and perused and carefully considered the material on record. The facts that emanate from the record are that the assessee company is engaged in the business of design and supply of lighting products. In the year under consideration it incurred foreign travel expenditure of Rs.3,52,271/-. On examination thereof it was found that the foreign trips were undertaken by two Directors of the assessee company i.e. Shri Satish Kapoor and Shri Saroj Shroff to Bangkok; one from 11/10/2006 to 15/10/2006 and the other from 27/2/2007 to 4/3/2007. It was submitted that these trips were undertaken to meet their regular suppliers i.e. M/s. Green Light

(Assessment Year : 2007-08) Products and M/s. Davis Lighting and others like C&P Lighting, BE-LIT, etc. for various proposed projects that the assessee was involved in.

3.4.2 From the material on record, admittedly, it is seen that the assessee furnished the details/break-up of foreign travel expenditure incurred on the aforesaid trips of the Directors to Bangkok. The authorities below have never doubted that the said expenditure claimed on foreign travel was not incurred. The case of the Assessing Officer was that since the assessee failed to produce evidence to establish that the foreign travel expenditure claimed was incurred wholly and exclusively for the purpose of the assessee’s business; the same were not allowable.

3.4.3 Admittedly, the details and explanations in respect of the foreign travel incurred were duly furnished by the assessee and the expenditure claimed was also reflected in the profit and loss account of the assessee accompanying the return of income for assessment year 2006-07. It is seen from the order of assessment for this assessment year 2006-07 that the only difference between the returned income and the assessed income, before set off of brought forward losses, represented the disallowance of foreign travel expenditure, the details of which were discernible from the details supplied by the assessee in the financial statements accompanying its return of income for assessment year 2006-07. In these circumstances it is neither the case of the Assessing Officer that the details furnished by the assessee were inaccurate, erroneous or false nor that the explanations and details furnished by the assessee was not bonafide or that all facts relating to the same and the computation of its income were not disclosed by it.

(Assessment Year : 2007-08) The details furnished by the assessee pertaining to the issue of foreign travel expenses in its accounts and return of income, therefore, could neither be found to be inaccurate nor viewed as concealment of income.

3.4.4 The case of the authorities below was that the assessee failed to produce evidence to establish that the foreign travel expenditure was incurred wholly and exclusively for its business purposes. In this context, the following observations of the Hon’ble Apex Court in the case of Reliance Petroproducts Pvt. Ltd.(supra) are relevant and are extracted hereunder:-

“............ it was upto the authorities to accept the claim in the return or not. Merely because the assessee had claimed the expenditure, which claim was not accepted or was not acceptable by revenue, that by itself would not in our opinion, attract penalty u/s.271(1)(c) . If we accept this contention of Revenue, then in case of every return where the claim made is not accepted by the Assessing Officer for any reason, the assessee will invite penalty u/s. 271(1)(c). That is clearly not the intendment of the legislature.........” 3.4.5 In our view, the facts of the case on hand are similar to the circumstances and fall in the same category as the cited case(supra). There is no finding by the authorities below that the details furnished by the assessee were found to be incorrect or erroneous or false. In these factual circumstances, there would be no question of imposing penalty u/s. 271(1)(c) of the Act. A mere claim made in the return of income which is not acceptable by itself, will not amount to furnishing of inaccurate particulars or concealment of income. In this view of the matter, we are of the considered opinion that the foreign travelling expenses incurred, claimed by the assessee and disallowed by the Assessing Officer in the case on hand cannot be said to be attract the provisions of section 271(1)(c) of the Act to justify and sustain the levy

(Assessment Year : 2007-08) of penalty thereunder. We, therefore, cancel the penalty of Rs.1,18,573/- levied by the Assessing Officer u/s. 271(1) (c) of the Act for assessment year 2006-07 in the case on hand. It is accordingly ordered.

Order pronounced in the open court on 13/01/2016