EDROOS SYED MOHAMMED ZAKIR,MUMBAI vs. DCIT 13(3), MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the orders,dated 03.02.14 of CIT(A)-24,Mumbai the assessee has filed the appeals for the above mentioned two Assessment Years(AY.s.)raising the identical grounds of appeal wherein he has challenged the penalty levied u/s. 271(1)(c) of the Act. 2.Assessee,an individual filed his return of income on 29.9.2005 declaring income of Rs.3.50 lacs.The Assessing Officer(AO) completed the assessment u/s. 143(3) of the Act,on 27.12.2007, determining the income of the assessee at Rs.88.17 lacs. During the assessment proceedings,the AO found that the assessee had made commission payment of Rs.56.30 lacs to certain parties,that he had not deducted tax at source while making the commission payments.He held that the assessee had contravened the provisions of section 194H of the Act, that the sum of Rs.47,41,615/- paid as commission was to be disallowed u/s.40 (a)(ia) of the Act.He further disallowed Rs.8.88 lacs for contravention of Sec.194H of the Act. The AO observed that assessee had made payment of Rs.5.23 lacs that were of personal nature. He held that same was not allowable as expenditure as it was not incurred wholly or exclusively for the purpose of the business.The AO initiated penalty u/s. 271(1)(c) r.w. Expalanation-1 of the Act for furnishing inaccurate particulars of income.Vide his order dt.29.3.2012,the AO imposed a penalty of Rs.18.65 lacs for the year under consideration. Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA).After considering the submission of the assessee,assessment order and the penalty order,he upheld the order of the AO. In the meanwhile the assessee preferred an appeal before the FAA against the quantum additions, who deleted the additions made by the AO.An appeal before the Tribunal was filed by the AO (ITA No.3659/Mum/2009).Vide its order,dt.8.7.2000,the Tribunal reversed the order of the FAA. The assessee challenged the order of the Tribunal before the Hon’ble High Court and the Hon’ble Court (Income tax Appeal No.2657 of 2011 dated 19.03.2012) admitted following substantial questions of law with regard to the quantum additions: “a) Whether in the facts and circumstances of the case and in law, the Tribunal was right in upholding that Rs.56,30,173/- amounts to commission paid to the other liaison officers and, ITA /3705 & 3706/M/14,AY.05-06 & 06-07 –Edroos Syed therefore, the same is allowable under section 194H read with Section 40(a)(ia) of the Income tax Act,1961. b) Whether in the facts and circumstances of the case and in law, the Tribunal was justified in holding that the payment of Rs.56,30,173/- to the other liaison officers was not a diversion of income at source, but it is an application of income and thereby upholding disallowance of Rs.56,30,173/-.” 3.During the course of hearing before us,the Authorised Representative (AR) contended that while deciding the appeal for 2008-09 the Tribunal had decided the issue of non deduction of TDS and disallowance made u/s. 40(a) (ia) of the Act in favour of the assessee, that the Hon'ble Jurisdictional High Court had admitted substantial question of law with regard to the same issue, that on admission of substantial question of law by the Hon’ble High Court the issue had become debatable,that the penalty was not leviable for non deduction of TDS and contravention of provisions of section 194H of the Act.He relied upon the case of Nayan Builders and Developers(368 ITR 722)of the Hon'ble Jurisdictional High Court. Departmental Representative (DR) supported the order of the FAA.

4.We have heard the rival submissions and perused the material before us.We find that the AO had made additions on account of contraventions of section 194H and not incurring expenditure wholly and exclusively for business purposes,that he levied penalty for furnishing inaccurate particulars for income in contravention of section 194H only,that the quantum additions made by AO were deleted by FAA but were confirmed by the Tribunal, that the Hon’ble High Court had admitted substantial question of law with regard to non deduction of tax, that in the subsequent year the Tribunal had (ITA/81/Mum/2012-AY08-09 dt.4.2.15)decided the issue of non deduction of tax and application of provisions of section 40(a)(ia) in favour of the assessee.We find that in the case of Nayan Builders and Developers the Hon'ble Bombay High Court has held that once a substantial question of law was admitted against the order of the Tribunal by the High Court the issue becomes debatable.It was further held that in such cases concealment penalty, penalty for filing inaccurate particulars should not be imposed invoking the provisions of section 271(1)(c) of the Act.In the case under consideration,as stated earlier the Hon'ble Bombay High Court has admitted substantial question of law for the quantum additions.Therefore,we hold that no penalty can be imposed u/s.271(1)(c) of the Act for the year under appeal in light of decision of Nayan Builders and Developers.Effective Ground of appeal is decided in favour of the assessee. 5.The facts and circumstances of the case for the year are identical to the facts of the earlier AY., except that the amount of penalty is Rs.23.64 lacs for the year whereas in the earlier year the AO had imposed penalty of Rs.81.65 lacs. Following our order for earlier AY, the effective Ground of appeal is decided in favour of the assessee. As a result,appeals filed by the Assessee for both the AY.s. stand allowed फलतः िनधा�रती �ारा दोन� िन.व.के िलए दािखल क� गई अपील� मंजूर क� जाती है. Order pronounced in the open court on 1st January, 2016. आदेश क� घोषणा खुले �यायालय म� �दनांक 01 जनवरी, 2016 को क� गई । Sd/- Sd/- (संदीप गोसांई /Sandeep Gosain) (राजे�! / RAJENDRA) �याियक सद�य / JUDICIAL MEMBER लेखा लेखा सद�य सद�य / ACCOUNTANT MEMBER लेखा लेखा सद�य सद�य मुंबई/Mumbai,�दनांक/Date: 01.01.2016

2. ITA /3705 & 3706/M/14,AY.05-06 & 06-07 –Edroos Syed