JET AIRWAYS (INDIA) LTD,NEW DELHI vs. DCIT RG 5(2), MUMBAI

In this appeal, assessee is aggrieved for levying of penalty u/s 271(1)(c) in respect of various disallowance / addition made during the course of assessment.

Rival contention have been heard and perused. The appeal is delayed by 21 days. After going through the reasons for delay in filing the appeal, we are satisfied that there is a reasonable cause for delay. Therefore, in the substantial interest of justice, the delay is condoned and the appeal is held on merits.

At the outset, it was contended by the Ld. AR that AO has not applied his mind while making addition as well as levying the penalty u/s 271(1)(c). He contended that the A.O. had failed to examine claim/issue individually to come to a conclusion as to whether there was furnishing of inaccurate particulars in each of the issues involved. The same is evident from the penalty order wherein the A.O. has reproduced the reasons which led him to appoint a special auditor u/s 142(2A) of the Act and the findings have been given by him in a summary manner based on which he was of the view that the assessee had furnished inaccurate particulars of income. In view of the same, it was prayed by ld. AR that the order passed by the A.O. u/s 271(1)(c) of the Act needs to be cancelled since the said order reflects non application of mind on the part of the Ld. A.O.

Contention of Ld. DR was that in case of the assessee for the relevant year under consideration, the A.O. had directed to get the accounts of the assessee audited u/s 142(2A) of the Act and the additions / disallowances on which penalty has been levied were on account of the findings of the Special Auditor and in absence of the same, the so called errors / mistakes would not have been detected. Further, the assessee had failed to discharge its obligation to prove its bonafide. Accordingly, Explanation 1 to section 271(1)(c) of the Act was applicable since there was deliberate concealment of income on part of the assessee. Reliance was placed on the following decisions: i) Survidhi Financial Services Ltd vs ACIT [I.T.Appeal No. 9772 of 2013] ii) MAK Data (P.) Ltd vs CIT [Civil Appeal No. 9772 of 2013] ii) K P Madhusudhanan vs CIT [Civil Appeal No. 6465 of 2000] iii) CIT vs Zoom Communications (P.) Ltd [IT Appeal No. 7 of 2010]

The assessee had to file a revised return of income based on the findings of the Special Auditor.

It was further submitted by Ld. DR that the assessee is a public limited company and having huge workforce, the kind of errors reported by the Special Auditor are not justifiable and cannot be considered as bonafide errors.

The assessee has SAP software which is the latest accounting software in the market. Inspite of this, there are several errors made by the appellant which just proves the careless and intentional filing of inaccurate return of income.

In reply to the DR contention, Ld. AR argued that the assessee is a huge organisation. Being a huge organization does not mean that the assessee is not prone to errors. The assessee has a very professional management. The assessee has a huge workforce. There was no intention to avoid tax. On perusal of the errors made by the assessee, it can be stated that there cannot be any malafide intention of any employee of the assessee or there cannot be malafide intention of the assessee to avoid tax.

In support of its contention, Ld. AR invited our attention to the facts that assessee has filed return of its income: a) As per normal provisions of the Act: Rs. 3,73,02,86,268. b) Under section 115JB of the Act: Rs. 7,11,83,59,394. In the scrutiny assessment the income was assessed. As per normal provisions of the Act: Rs. 4,31,70,38,492. a) Under section 115JB of the Act: Rs. 7,73,97,13,679. 11. It was also contention of Ld. AR that Explanation 1 to section 271(1)(c) of the Act is applicable in case of concealment of income only and does not apply where penalty is levied on account of furnishing of inaccurate particulars of income as in the case of the assessee. Reliance in placed on the decision of the Honble Bench of Indore ITAT in the case of Nepa Ltd vs DCIT (167 TTJ 124). Also the decisions relied upon by the DR pertain to the levy of penalty as per Explanation 1 to section 271(1)(c) of the Act and are also distinguishable on facts and reliance on these decisions is misplaced.

In reply to the decision relied on by Id. DR, it was submitted by Id. AR that the ITAT Delhi Bench in the case of Survidhi Financial Services Ltd vs ACIT [40 SOT 454] held that the assessee had derived double benefit once by claiming dividend income as exempt and secondly, by adjusting the loss incurred on same units ignoring the provisions of section 94(7) of the Act. In the instant case, in most of the issues the assessee has suffered a double addition for the year and in none of the issues under consideration the assessee has claimed any double benefit.

In respect of decision of Hon'ble Supreme Court in case of Makdata Pvt. Ltd relied on by Ld. OR we found that, in this case, a survey had been conducted more in case of sister concern of the assessee and certain documents such as share application forms, blank share transfer deeds, etc had been impounded. The assessee was aware of the same and in the Return of income filed subsequent to the survey did not offer the income pertaining to, the impounded documents. The income was offered during assessment proceedings on being question by the assessing officer. Penalty was levied for concealment of income since it was evident that the assessee had no intention to declare its true income. The facts of this case are completely different from the facts of the case under consideration and in the assessment order there has been no such finding by the A.O. Further, in the case of the assessee, the time limit of filing the revised return of income had already lapsed when the said errors came to the knowledge of the assessee, therefore, assessee could not file revised return.

In case of judgment of Hon'ble Supreme Court of India relied on by Ld. DR in the case of K P Madhusudhanan vs CIT [Civil Appeal No. 6465 of 2000], we found that in this case, assessee had not recorded certain entries in respect of loans taken and the assessee could not provide any evidence to explain as to why these entries were not recorded in the books. Accordingly, penalty u/s 271 (1 Hc) of the Act was levied for concealment of income. In the instant case, there is no finding by the A.O. that entries have not been recorded in the books which nave resulted in concealment of income for the relevant year under consideration.

The decision of Delhi High Court in case of Zoom Communication (P.) Ltd. relied on by Ld OR, we find that in this case, penalty u/s 271 (1 )(c) of the Act had been levied on certain claim which were not tenable in law and the assessee had failed to prove that the claim was bonafide. Further, the Court has specifically held that for levying penalty one needs to consider that facts and circumstances in which a claim is made coupled with as to whether the explanation offered in support thereof is bonafide or not. In the instant case, the assessee has offered explanation as regards the claims and such explanation has not found to be false or not being bonafide by the A.O. warranting levy of penalty u/s 271 (1)(c) of the Act.

We have considered rival contentions and deliberated on the judicial pronouncements referred by ld. AR and DR before us in the context of factual matrix of instant case. In the instant case, we found that the accounting happens across various locations and by several employees. In such circumstances, the possibility of some human error in accounting and compilation of data for return of income cannot be ruled out. The fact the A.O. was of the view that the accounting system of the assessee was complex by itself shows that the possibility of human errors cannot be ruled out. Also, the Act provides for section 154 in the Act which shows that the possibility of human error in the Department is considered as a given.

We regard to merit of penalty for disallowance on account of non- deduction of TDS, it was contended by the Ld. AR that the courts have held that the disallowance cannot be made where there is a short deduction of TDS. Reliance is placed on the decision of the Hon‟ble Kolkata ITAT in the case of DCIT v. S.K. Tekriwal (ITA No. 1135/Kol/2010). The said decision was also upheld by the Hon‟ble Kolkata High Court and reported in 361 ITR 432. Accordingly, the claim of the assessee being bonafide does not warrant levy of penalty u/s 271(1)(c) of the Act.

On the other hand, contention of Ld. DR was that the tax auditor should have specified in the tax audit report that there was a short deduction of TDS of Rs.85,01,806/-. Further, as per the provisions of the Act, the assessee could have claimed the deduction of the said amount in the year in which the payment would have been done.

We have considered rival contentions and deliberated on the judicial pronouncement laid down in the case of Shri S.K. Tekriwal (supra), wherein Hon‟ble High Court has held that the disallowance cannot be made where there is short deduction of TDS. In respect of Short deduction of TDS of Rs.85,01,806/-, we found that assessee was under a bonafide belief that provisions of section 40(a)(ia) of the Act were not attracted in case of short deducted of TDS and the same was clearly reflected in Annexure 7 of the Tax Audit report submitted to the A.O. during the course of the assessment proceedings and a copy of which was also submitted during the course of hearing before us. Thus, it is clear that there was a full disclosure by assessee in the tax audit report and assessee was under bonafide belief that provisions of section 40(a)(ia) is not attaracted. Accordingly, in view of the decision of the Kolkata High Court in case reported at 361 ITR 432, we do not found any justification for levy of penalty for the disallowance so made. Accordingly, AO is directed to delete the penalty.

AO has also levied penalty in respect of disallowance of Interest paid for delayed TDS payment (2,80,049/-) and interest on excess refund (1,63,627/-)

Contention of Ld. AR was that interest expenditure was actually incurred and merely because it was not allowed u/s 40(ii), the same cannot be subject to penalty u/s 271(1)(c). We found that the assessee was of bonafide belief that the said expenditure was allowable since what is to be disallowed is the amount of tax as per the provisions of section 40(u) of the Act and any interest there on where the tax pertains to the income of the assessee. In this case, the assessee has paid interest on delayed TDS payment which is tax on somebody's income. Similarly, interest on refund recovered by Income Tax Department should be set off against income on account of interest on refund and there is no furnishing of inaccurate particulars of income in this regard. Accordingly, the claim of the assessee being bonafide does not warrant levy of penalty u/s 271(1)(c) of the Act. AO is directed to delete the penalty.

The assessee is also aggrieved for levy of penalty of excess provision of frequent flyer programme.

Contention of Ld. AR was that due to accounting error, the assessee has claimed provision for frequent flyer, being a bonafide calculation error does not warrant any levy of penalty. It was argued by the Ld. DR that the assessee had claimed reduced provision for frequent flyer programme is unacceptable since every year is a different year.

We have considered rival contentions and found that an arithmetical error had occurred due to double counting of the provision for F.Y. 2002-

This is a bonafide calculation error and does not warrant any levy of penalty. We found that due to this, in the next year the assessee has claimed reduced provision (Rs. 3.59 cr) as against current year‟s claim of Rs. 9.27 cr. The assessee has not made any fresh claim in the next year and thus there is double addition to that extent. Para 17.1 and para 17.2 at pages 64-66 of the assessment order, the A.O. has reflected the calculation error committed by the assessee as pointed out by the special auditor and it is also fact that the said error had been accepted by the assessee which shows assessee‟s bonafide. In this regard, reliance is placed on the decision of the Hon‟ble Supreme Court of India in the case of Price Waterhouse Coopers (P.) Ltd. v. CIT [(2012) 348 ITR 306] where the assessee had made a bonafide mistake, the Supreme Court had deleted the penalty levied u/s.271(1)(c) of the Act since the assessee had committed a bonafide error.

In the instant case before us the fact that assessee had claimed reduced provision in the subsequent year, itself indicate that there was bonafide arithmetical error, which do not attract penalty in view of decision of Supreme Court in the case of Price Waterhouse Coopers (P.) Ltd. (supra). Accordingly, AO is directed to delete the penalty imposed with respect of excess provision for frequent flyer programme. It is pertinent to mention here that for this addition assessee agreed before the AO itself and did not file any appeal on this ground before the CIT(A).

AO has also levied penalty in respect of excess depreciation claim on car. From the record, we found that during the year assessee has sold the car, however sale proceeds were not reduced from Gross Block of Fixed Assets. Thus, depreciation was claimed on the gross block. Contention of Ld. AR was that the assessee inadvertently deduct the sale proceeds of car from the gross block in the next year. Thus, assessee has suffered double deduction for year under consideration. This being bonafide error, no penalty u/s 271(1)(c) of the act should be levied.

We have considered rival contentions, in the interest of justice, we restore this matter back to the file of AO for verifying that in the subsequent year, the assessee has suo-moto reduced its gross block by the amount of sale proceeds of car. If the AO found that assessee has suo-moto reduced its gross block in the next year, then considered the fact of bonafide error, the AO should delete the penalty. We direct accordingly.

The AO has also levied penalty in respect of sale proceeds of scrap which was not shown as income. Therefore, AO has made an addition and also levied penalty u/s 271(1)(c).

We have considered rival contention and found that due to oversight the assessee has not offered the said income to tax during the year under consideration. However, as per contention of Ld. AR, the consideration. As per Ld. AR, it is a bonafide error. No penalty should be levied, in view of decision of Hon‟ble Supreme Court in the case of Price Waterhouse Cooperation (P) Ltd. (supra).

We have considered rival contentions, however, it is not verifiable from the record whether the assessee has offered this income in the subsequent year so as to term the same as bonafide error. In the interest of justice, this ground is also restored back to the file of AO with a direction to verify the fact that assessee has offered this income in the subsequent year. If the AO finds that the assessee has offered this income in the subsequent year, considering the fact that it was due to oversight and bonafide error, AO should delete the penalty. On the other hand, if the AO finds that this income was not offered in the subsequent year then, confirm the penalty so imposed u/s 271(1)(c). We direct accordingly.

The AO has also levied penalty in respect of double expenses claimed during the year under head “Aircraft Fuel Expenses”. Contention of Ld. DR was that assessee has intentionally claimed double deduction for the custom duty paid on aircraft fuel and if there was no special audit, this mistake could not be find out. Accordingly, AO has correctly levied penalty.

We have considered rival contentions and carefully gone through the records and found that due to oversight the assessee had claimed deduction twice for custom duty paid on aircraft fuel. The assessee did not have any intention to create an artificial liability in the name of the Custom Department. From the record we find that during A.Y. 2007-08 the assessee had reversed the said double entry and had offered the same to tax. This being a bonafide error no penalty u/s 271(1)(c) of the Act ought to be levied. Accordingly, AO is directed to delete the penalty so imposed.

The AO has also levied penalty in respect of expenses incurred on purchase of SAP (Software). It was contended by Ld. DR that expenditure so incurred was capital in nature, whereas, assessee has claimed it as revenue expenditure. Therefore, AO has correctly levied the penalty.

We have considered rival contentions and found from record that the assessee had claimed the expenses incurred on purchase of SAP software as revenue expenditure during the year under consideration due to oversight. During A.Y. 2007-08 the assessee realised that since the said SAP software was not fully operational during A.Y. 2006-07 and the same being capital in nature, the assessee reduced the said expenses from „Repairs and Maintenance Software Account‟. The said amount was capitalised and accordingly depreciation on the same was claimed. It is also clear from the record that full particulars with regard to purchase of SAP (Software) was filed before the AO in the return of income itself. The Hon‟ble Bombay High Court in the case of CIT vs Raychem RPG Ltd (346 ITR 138) has held that the inaccurate particulars of income. In a case where two opinions are possible, penalty u/s 271(1) (c) of the Act cannot be imposed. Various courts have consistently held that where two views are possible, difference of opinion between the Assessing Officer and the assessee, by itself, cannot expose the latter to penalty u/s 271(1)(c) of the Act. Accordingly, AO has directed to delete the penalty so imposed.

The addition made by way of disallowance u/s. 40(a)(ia) for non- deduction of TDS, was also subjected to penalty by the AO. It was contended by the Ld. AR that only due to non-deduction of TDS, the corresponding disallowance cannot result into concealment of income/furnishing of inaccurate particulars of income warranting levy of penalty u/s 271(1)(c) of the Act. Reliance was placed on the following decisions:  ACIT v. M/s. Seaways Shipping Ltd. (ITA No. 80/H/2011)  DCIT 5(1) v. Roop Singh Bagga (ITA No. 44/Ind/2013)  DCIT v. M/s. L.G. Chaudhary (ITA No. 228/Ahd/2010). The said decision was also upheld by Honble Gujarat High Court (ITA No. 536 of 2012)

On the other hand, it was contended by the Ld. Dr. that assessee has not pressed the said grounds in the appellate proceedings before the CIT(A), itself indicate that assesse has furnished wrong particulars attracting penalty u/s 271(1)(c) of the act. Further, the DR submitted that the assessee should have realized the non-receipt of certificate u/s 197 of the Act from Air India Ltd before filing the return of income. This reflects the malafide intention of the assessee.

We have considered rival contention and found from record that out of total non-deduction of Rs. 10.43 crores, an amount of Rs. 8.81 crores was in respect of payments made to Air India Ltd who normally obtains no deduction certificate from Income-tax Department due to having huge carried forward losses. The default of the assessee can be linked with failure of Air India Ltd to obtain no deduction certificate. There is no loss to the Revenue as it could not be imagined that Air India Ltd, a Government of India undertaking would not have included the receipt in its income or paid tax on its income. Further, it is pertinent to note that as per the provisions of section 40(a)(ia) of the Act, an assessee shall not be deemed to be in default u/s 201 of the Act in case the recipient would have paid tax and no disallowance u/s 40(a)(ia) of the Act would be attracted. In various decisions, it has been held that the said proviso has been held to be retrospective in nature. In this case, it could be assumed that Air India Ltd being a government company would have paid taxes, if any, as may be required as per the provisions of the Act. This also shows that in such a case, no penalty should have been levied. We have also deliberated on the judicial pronouncement cited by Ld. AR and DR to the facts of the instant case and found that it is not a fit case for levying of penalty u/s 271(1)(c). Accordingly, AO is directed to delete the penalty imposed with respect to disallowance made u/s. 40(a)(ia) for non- deduction of TDS.

During the course of assessment AO has also levy penalty u/s 271(1)(c) for the disallowance of bonus paid to employees u/s.43G of the Act.

We have considered the facts of the case and found that Bonus cheques were issued by assessee on 31.10.2006 and 09.11.2006. Therefore, the ROI filed on 30.11.2006 cannot be said to be incorrect or false. Further, the said amount was not reported as disallowable under S. 43B of the Act by the Tax Auditor. The subsequent event of non-realisation of cheques by ex-employees would not make ROI to be untrue. The cheques were issued to several ex-employees, most of them were trainees and cheques were of small amount which remained to be reversed. In this case there is no furnishing of inaccurate particulars of income by the assessee warranting levy of penalty u/s 271(1)(c) of the Act. Accordingly, AO is directed to delete the penalty so levied.

AO has also levy penalty with respect to the addition on account of difference in creditors balance u/s. 41(1) of the Act.

We have considered rival contention and found that during course of scrutiny assessment, the AO has made an addition u/s 41(1). The addition is due to non-reconciliation of balance with third parties ledger account.

Merely, on the plea that the ledger of the third party showed a different balance, it cannot be presumed that assessee‟s accounts were incorrect or false unless the AO brings any positive materials on record to this effect. Thus, this does not establish any concealment / furnishing of inaccurate particulars of income as the A.O. has not brought any positive material on record to substantiate that accounts of assessee was incorrect. Accordingly, AO is directed to delete the penalty.

In the result, the appeal of the assessee is allowed in part, in terms indicated hereinabove. Order pronounced in the open court on this 16/12/2015. (SANDEEP GOSAIN) (R.C.SHARMA) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER भुंफई Mumbai; ददनांक Dated 16/12/2015 प्र.कु.मभ/pkm, नन.स/ PS आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अऩीराथी / The Appellant 1. प्रत्मथी / The Respondent. 2. आमकय आमुक्त(अऩीर) / The CIT(A), Mumbai. 3. आमकय आमुक्त / CIT 4. ववबागीम प्रनतननधध, आमकय अऩीरीम अधधकयण, भुंफई / DR, ITAT, Mumbai 5. गार्ा पाईर / Guard file. 6. सत्मावऩत प्रनत ////