The DCIT, Circle-4,, Ahmedabad v. Mastek Limited,, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND D. C. AGRAWAL AM) ITA NO.1118/AHD/2007 A. Y: 2001-02 THE D. C. I. T CIRCLE-4 NAVJIVAN TRUST BUILDING OFF ASHRAM ROAD AHMEDABAD VS MASTEK LIMITED 804-805 PRESIDENT HOUSE OPP. C. N. VIDYALAYA NR.AMBAWADI CIRCLE AMBAWADI AHMEDABAD PA NO. AAACM 9908Q (APPELLANT) (RESPONDENT) APPELLANT BY SHRI M. C. PANDIT DR RESPONDENT BY SHRI S. N. SOPARKAR AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-VII AHMEDA BAD DATED 26 TH DECEMBER 2006 FOR ASSESSMENT YEAR 2001-02 CHALLENG ING THE CANCELLATION OF PENALTY LEVIED U/S 271 (1) ( C ) OF THE INCOME TAX ACT 1961 ON THE FOLLOWING GROUND: 1. THE LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF THE CASE IN CANCELING THE PENALTY OF RS.11 62 573/-LEVIED U/ S 271 (1) (C) OF THE I. T. ACT 1961 IN RESPECT OF VARIOUS AD DITIONS CONFIRMED IGNORING THE FACT THAT THE ASSESSEE COMPA NY HAD FURNISHED INACCURATE PARTICULARS OF INCOME BY CLAIM ING (I) EXCESS DEDUCTION U/S 10A OF RS.20 54 000/-- (II) P ROVISION FOR BAD DEBTS WHICH WAS NOT ACTUALLY WRITTEN OFF AMOUNT ING TO RS.6 44 500/- (III) LOSS OF ASSETS SCRAPPED RS.41 000/- AND (IV) NON DEDUCTION AGAINST THE EXEMPT INCOME U/S. 1 4A OF RS.2 00 000/-. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL ON RECORD. ITA NO.1118/AHD/2007 MASTEK LIMITED 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. NIL. THE RE TURN WAS ACCOMPANIED BY THE AUDITED PROFIT & LOSS ACCOUNT BALANCE SHEET AND AUDITORS REPORT IN THE PRESCRIBED FORM AND OTHER SUPPORTING STATEME NTS OF ACCOUNT. THE SAID RETURN WAS SELECTED FOR SCRUTINY ASSESSMENT AN D ORDER U/S 143(3) OF THE IT ACT WAS PASSED ON 30 TH MARCH 2004 BY COMPUTING TOTAL INCOME AT RS.9 18 23 790/-. ON APPEAL THE LEARNED CIT(A) VID E ORDER DATED 12 TH DECEMBER 2004 CONFIRMED THE FOLLOWING DISALLOWANCES : 1 EXEMPTION U/S 10A RS.20 54 000/- 2 BAD DEBTS RS.6 44 500/- 3 LOSS ON ASSETS SCRAPPED RS.41 000/- 4 DISALLOWANCE U/S 14A RS.2 00 000/- TOTAL RS.29 39 500/- ON THE BASIS OF THE ABOVE ADDITIONS THE AO VIDE SE PARATE ORDER IMPOSED PENALTY U/S 271(1) ( C ) OF THE IT ACT. THE PENALTY WAS CHALLENGED BEFORE THE LEARNED CIT(A). IT WAS SUBMITTED BEFORE THE LEA RNED CIT(A) AS REGARDS ADDITION OF RS.2 00 000/- ON ACCOUNT OF DISALLOWANC E U/S 14A OF THE ACT THAT THE ASSESSEE EARNED DIVIDEND INCOME FROM FOREI GN SUBSIDIARY COMPANIES AND DIVIDEND INCOME FROM MUTUAL FUNDS. TH E DIVIDEND INCOME WAS EXEMPT U/S 10 OF THE IT ACT. THE AO AFTE R CONSIDERING VARIOUS FACTS DISALLOWED EXPENDITURE OF RS.34 05 20 0/- U/S 14A OF THE IT ACT. THE AMOUNT OF DISALLOWANCE HAS BEEN RESTRICTED TO RS.2 00 000/- BY THE LEARNED CIT(A). IT WAS THEREFORE SUBMITTED THA T THE DISALLOWANCE WAS UPHELD TO RS.2 00 000/- ON ESTIMATE BASIS AND THERE IS NO FINDING THAT THE ASSESSEE HAS EITHER MADE A BOGUS CLAIM OR FURNI SHED INACCURATE PARTICULARS. IT WAS ALSO EXPLAINED THAT SINCE THE D ISALLOWANCE IS MADE ONLY ON ESTIMATE BASIS SO IT IS NOT A CASE OF FURNI SHING INACCURATE PARTICULARS OR CONCEALMENT OF ANY INCOME. THE LEARN ED CIT(A) ACCEPTED ITA NO.1118/AHD/2007 MASTEK LIMITED 3 THE EXPLANATION OF THE ASSESSEE THAT DISALLOWANCE O F RS.2 00 000/- WILL NOT AMOUNT TO CONCEALMENT OR FURNISHING OF INACCURA TE PARTICULARS OF INCOME. IT WAS FURTHER EXPLAINED ON ACCOUNT OF DISA LLOWANCE OF RS.41 000/- OF LOSS ON ACCOUNT OF ASSETS SCRAPPED T HAT THE ASSESSEE DISCLOSED THE LOSS IN SCHEDULE 13 TO THE PROFIT & L OSS ACCOUNT UNDER THE HEAD OTHER EXPENSES. SINCE ALL THE PARTICULARS WERE DISCLOSED IN THE RETURN OF INCOME THEREFORE MERE DISALLOWANCE WOUL D NOT AMOUNT CONCEALMENT OF PARTICULARS OF INCOME OR FILING INAC CURATE PARTICULARS. AS REGARDS PROVISIONS OF BAD DEBTS IT WAS STATED THAT THE AO DISALLOWED RS.17 34 000/- BUT THE LEARNED CIT(A) UPHELD THE AD DITION TO RS.6 44 500/- ONLY. IT WAS THEREFORE SUBMITTED TH AT THE ASSESSEE DISCLOSED ALL THE FACTS IN THE RETURN OF INCOME AND ADDITION HAS BEEN SUBSTANTIALLY DELETED BY THE LEARNED CIT(A) ON MERI T. THEREFORE THE DISALLOWANCE PAR-SE WOULD NOT AUTOMATICALLY PROVE C ONCEALMENT OF INCOME OR FILING INACCURATE PARTICULARS OF INCOME. AS REGARDS DISALLOWANCE U/S 10A OF THE IT ACT IT WAS EXPLAINE D THAT THE AO FOUND THAT THE ASSESSEE HAS TREATED RS.4 54 33 000/- BEIN G DIVIDEND INTEREST EXCHANGE FLUCTUATION ETC. AS BUSINESS INCOME OF THE UNIT IN RESPECT OF WHICH DEDUCTION IN RESPECT OF SECTION 10A OF THE IT ACT HAS BEEN CLAIMED. THE AO HELD THAT THE SAME CANNOT BE TREATED AS BUSI NESS INCOME. THEREFORE DEDUCTION CANNOT BE ALLOWED U/S 10A OF T HE IT ACT IN RESPECT OF THE ABOVE ITEMS. THE LEARNED CIT(A) UPHELD THE D ISALLOWANCE TO RS.20 54 000/- AND MADE THE ADDITION ACCORDINGLY. I T WAS THEREFORE SUBMITTED THAT SUBSTANTIAL ADDITION HAS BEEN DELETE D. THE ASSESSEE DISCLOSED ALL THE FACTS ON THIS ISSUE ALSO AND THE ASSESSEE MADE BONA FIDE CLAIM FOR EXEMPTION U/S 10A OF THE IT ACT. THEREFOR E PENALTY IS CLEARLY UNJUSTIFIED. THE LEARNED CIT(A) CONSIDERING THE EXP LANATION OF THE ASSESSEE CANCELLED THE PENALTY U/S 271 (1) ( C ) OF THE IT ACT. HIS FINDINGS IN PARA 10.1 TO 11 ARE REPRODUCED AS UNDER: ITA NO.1118/AHD/2007 MASTEK LIMITED 4 10. I HAVE CONSIDERED THE ABOVE SUBMISSION. THE RE ASON FOR DISALLOWANCE HAS BEEN DISCUSSED BY THE AO IN HIS OR DER. THE LD. CIT(A) IN HIS ORDER HAS CONFIRMED THE DISALLOW ANCE OF RS.20.54 LACS TO THE EXTENT THAT THE SAME HAS BEEN TREATED AS INCOME NOT ELIGIBLE FOR DEDUCTION U/S 10A. IT IS A FACT THAT THE APPELLANT HAS DISCLOSED OTHER INCOME OF RS.454.33 L ACS IN ITS UNIT WISE INCOME FILED ALONG WITH THE ANNUAL ACCOUN TS. IT IS NOT THE CASE OF THE AO THAT THE APPELLANT HAS MADE A FA LSE CLAIM OR SUPPRESSED FACTS RELATING TO THE ABOVE CLAIM. TH E DISALLOWANCE HAS BEEN MADE ON A QUESTION OF INTERPR ETATION OF LAW THAT IS WHETHER CONSUMPTION TAX WRITTEN BACK CA N BE TREATED AS BUSINESS INCOME FOR THE PURPOSE OF DEDUC TION U/S 10A. NO DOUBT THE ABOVE AMOUNT HAS BEEN SHOWN AS I NCOME. ONLY FOR THE PURPOSE OF SECTION 10A THE AO HAS A D IFFERENT VIEW FROM THAT OF THE APPELLANT. MOREOVER THE CLAI M OF DEDUCTION U/S 10A IS SUPPORTED BY A CERTIFICATE FRO M THE CA IN FORM NO.10 CCAC. WHEN THE CLAIM IS COMPUTED IN THE CERTIFICATE IS DISALLOWED IT CANNOT BE SAID THAT TH E ASSESSEE HAS MADE A FALSE CLAIM OR CONCEALED PARTICULARS OF INCOME. IT HAS BEEN HELD IN THE FOLLOWING CASES THAT DISALLOWA NCE OF A CLAIM OF DEDUCTION WILL NOT AMOUNT TO CONCEALMENT: (I) CIT VS S. D. RICE MILLS 192 CTR 24 (P & H) (II) CIT VS DEEP TOOLS (P) LTD. 274 ITR 603 (P & H) (III) CJIT VS KIRAN SYNTEX (P) LTD. TAX APPEAL NO.430- 432(GUJARAT) (IV) IMPULSE INDIA (P) LTD. VS ITO 40 ITD 36 (DELHI) (V) KANISKA TRADING VS ACIT 63 TTJ 348. THEREFORE IN APPELLANTS CASE THE DISALLOWANCE OF RS.20.54 LAKHS WILL NOT AMOUNT TO CONCEALMENT OF IN COME. 10.2 ON CONSIDERATION OF THE ABOVE FACTS OF THE CAS E AND DECISIONS CITED ABOVE I HOLD THAT THE DISALLOWANCE OF RS.29 39 500/- WHICH HAS BEEN UPHELD BY THE LD. CIT (A) WILL NOT AMOUNT TO CONCEALMENT OF INCOME. THEREFORE NO PENALTY U/S 271 (1) ( C ) CAN BE LEVIED ON THE SAME. 11. IN VIEW OF THE ABOVE THE PENALTY ORDER PASSED BY THE AO U/S 271 (1) ( C) IS HEREBY CANCELLED AND THE APP EAL IS ALLOWED. ITA NO.1118/AHD/2007 MASTEK LIMITED 5 4. THE LEARNED DR RELIED UPON THE ORDER OF THE AO A ND SUBMITTED THAT THE LEARNED CIT(A) SHOULD NOT HAVE CANCELLED THE PE NALTY WHEN PART OF THE ADDITIONS HAVE BEEN MAINTAINED BY THE LEARNED C IT(A) ON MERIT. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THAT THE ADDITIONS ABOVE WERE NOT SUBJECT TO APPEAL BEFORE T HE TRIBUNAL. HE HAS FILED COPY OF THE ORDER OF THE TRIBUNAL ON QUANTUM IN THE CASE OF THE ASSESSEE DATED 21-11-2008 WHICH REVEALED THAT THE I SSUE OF DISALLOWANCE OF RS.2 00 000/- U/S 14A OF THE IT ACT HAS BEEN RES TORED TO THE FILE OF THE AO FOR RE-COMPUTING THE DISALLOWANCE IN THE LIGHT O F THE PROVISIONS OF SUB SECTION (2) AND (3) OF SECTION 14A OF THE IT ACT. H E HAS THEREFORE SUBMITTED THAT ON MERE DISALLOWANCE OF EXPENDITURE PENALTY WOULD NOT BE IMPOSED AND RELIED UPON THE RECENT DECISION OF T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETRO PRODUCTS PVT. LTD. 322 ITR 158 (SC). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND THE MA TERIAL AVAILABLE ON RECORD.IT IS ADMITTED FACT THAT ASSESS EE DISCLOSED ALL THE PARTICULARS OF THE ABOVE DISALLOWANCES IN THE RETURN OF INCOME. THE AO MADE PART OF THE DISALLOWANCES OUT OF THE ABOVE EXPENDITURE WHIC H HAS BEEN SUBSTANTIALLY REDUCED BY THE LEARNED CIT(A). IT WOU LD THEREFORE SHOW THAT THE ASSESSEE DISCLOSED ALL THE RELEVANT FACTS AND MATERIALS IN THE RETURN OF INCOME AS WELL AS BEFORE THE AUTHORITIES BELOW ON MERIT. IT IS NOT A CASE OF THE AO THAT THE ASSESSEE HAS MADE FALSE C LAIM OR SUPPRESSED THE FACTS RELATING TO THE ABOVE CLAIMS OF THE EXPEN DITURE. THE DISALLOWANCES HAVE BEEN MADE ON THE QUESTION OF INT ERPRETATION OF LAW AS TO WHETHER THE ASSESSEE WOULD BE ENTITLED FOR DEDUC TION AND WHETHER THE INCOME OF THE ASSESSEE FALSE UNDER THE CATEGORY OF BUSINESS INCOME. SINCE THE ASSESSEE DISCLOSED ALL THE FACTS BEFORE T HE AUTHORITIES BELOW AT PROPER LEVEL THE PART DISALLOWANCES OF THE EXPENDI TURE WOULD NOT PAR-SE LEAD TO AN INFERENCE THAT THE ASSESSEE CONCEALED TH E PARTICULARS OF ITA NO.1118/AHD/2007 MASTEK LIMITED 6 INCOME OR FILED INACCURATE PARTICULARS OF INCOME. O N DISALLOWANCE OF THE EXPENDITURE IMPOSITION OF PENALTY IS NOT AUTOMATIC. 6. THE HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE PETROPRODUCTS PVT. LTD. 322 ITR 158 (SC) HELD THAT A GLANCE AT THE PROVISIONS OF SECTION 271(1) (C ) OF THE INCOME-TAX ACT 1961 SUGGEST THAT IN ORDER TO BE COVERED BY IT THERE HAS TO BE CONCEALMENT OF PARTICULARS OF THE INCOME OF THE ASSESSEE. SECONDLY THE ASSESSEE MUST HAVE FURNISHED INACCURATE PARTICULARS OF HIS I NCOME. THE MEANING OF THE WORD PARTICULARS USED IN SECTION 2 71(1) ( C ) WOULD EMBRACE THE DETAILS OF THE CLAIM MADE. WHERE NO INF ORMATION GIVEN IN THE RETURN IS FOUND TO BE INCORRECT OR INACCURAT E THE ASSESSEE CANNOT BE HELD GUILTY OF FURNISHING INACCURATE PART ICULARS. IN ORDER TO EXPOSE THE ASSESSEE TO PENALTY UNLESS THE CASE IS STRICTLY COVERED BY THE PROVISION THE PENALTY PROVISION CAN NOT BE INVOKED. BY NO STRETCH OF IMAGINATION CAN MAKING AN INCORREC T CLAIM TANTAMOUNT TO FURNISHING INACCURATE PARTICULARS. TH ERE CAN BE NO DISPUTE THAT EVERYTHING WOULD DEPEND UPON THE RETUR N FILED BY THE ASSESSEE BECAUSE THAT IS THE ONLY DOCUMENT WHERE T HE ASSESSEE CAN FURNISH THE PARTICULARS OF HIS INCOME. WHEN SUC H PARTICULARS ARE FOUND TO BE INACCURATE THE LIABILITY WOULD ARI SE. TO ATTRACT PENALTY THE DETAILS SUPPLIED IN THE RETURN MUST NO T BE ACCURATE NOT EXACT OR CORRECT NOT ACCORDING TO THE TRUTH OR ERRONEOUS. WHERE THERE IS NO FINDING THAT ANY DETAILS SUPPLIED BY TH E ASSESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FA LSE THERE IS NO QUESTION OF INVITING THE PENALTY UNDER SECTION 271( 1) ( C ). A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCURATE PARTICULARS REG ARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RE TURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. DECISI ON OF THE GUJARAT HIGH COURT AFFIRMED. ITA NO.1118/AHD/2007 MASTEK LIMITED 7 7. THE HONBLE PUNJAB AND HARYANA HIGH COURT IN THE CASES OF CIT VS DHILLON RICE MILLS [2002] 256 ITR 447 (P. & H.) AND IN THE CASE OF HARIGOPAL SINGH VS CIT [2002] 258 ITR 85 (PH) HELD THAT NO PENALTY FOR CONCEALMENT LEVIABLE WHERE INCOME ASSESSED IS A MAT ER OF ESTIMATE. HONBLE SUPREME COURT IN THE CASE OF M/S. RAJASTHA N SPINNING & WEAVING MILLS 2009 PIOL 63 SC HELD THAT ON EVERY DEMAND PENALTY IS NOT AUTOMATIC. 8. CONSIDERING THE FACTS OF THE CASE AS NOTED ABOVE IN THE LIGHT OF THE ABOVE DECISIONS AND IN THE LIGHT OF THE FINDINGS OF THE LEARNED CIT(A) IT IS CLEAR THAT ADDITIONS HAVE BEEN SUSTAINED PARTLY BY DISALLOWING THE EXPENDITURE ON INTERPRETATION OF THE PROVISIONS OF LAW AND EVEN THE DISALLOWANCE OF RS.2 00 000/- U/S 14A HAS BEEN RES TORED TO THE FILE OF THE AO FOR RE-CONSIDERATION. THEREFORE IT IS NOT A FIT CASE FOR LEVY OF PENALTY. THE AO HAS NOT BROUGHT ANY MATERIAL ON REC ORD TO PROVE THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF IN COME OR CONCEALED PARTICULARS OF INCOME. WE ACCORDINGLY DO NOT FIND A NY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LEARNED CIT(A). WE ACCORDINGLY CONFIRM HIS FINDINGS AND DISMISS THE APPEAL OF THE REVENUE. 9. AS A RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-04-2010. SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 16- 04-2010 LAKSHMIKANT/- ITA NO.1118/AHD/2007 MASTEK LIMITED 8 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR ITAT AHMEDABAD