ITO, New Delhi v. M/s. Magic Software Pvt. Ltd., Noida

ITA 1438/DEL/2010 | 2004-2005
Pronouncement Date: 06-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 143820114 RSA 2010
Assessee PAN AACCM8579M
Bench Delhi
Appeal Number ITA 1438/DEL/2010
Duration Of Justice 8 month(s) 1 day(s)
Appellant ITO, New Delhi
Respondent M/s. Magic Software Pvt. Ltd., Noida
Appeal Type Income Tax Appeal
Pronouncement Date 06-12-2010
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted E
Tribunal Order Date 06-12-2010
Date Of Final Hearing 06-12-2010
Next Hearing Date 06-12-2010
Assessment Year 2004-2005
Appeal Filed On 05-04-2010
Judgment Text
ITA NO. 1438/DEL/2010 A.Y. 2004-05 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 1438/DEL/2010 A.Y. : 2004-05 INCOME TAX OFFICER WARD 6(1) NEW DELHI ROOM NO. 418-A C.R. BUILDING NEW DELHI VS. M/S MAGIC SOFTWARE PVT. LTD. 9 TH FLOOR TECH BOULEVAR PLOT NO. 6 SECTOR-127 NOIDA (PAN/GIR NO. : AACCM8579M) (APPELLANT ) (RESPONDENT ) ASSEESSEE BY : SH. H.P. AGGARWAL CA DEPARTMENT BY : SH. R.P. SINGH SR. D.R. ORDER PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE OR DER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 4.1.2010 PE RTAINING TO ASSESSMENT YEAR 2004-05. 2. THE ISSUE RAISED IS THAT LD. COMMISSIONER OF INCOME TA X (APPEALS) ERRED IN DELETING THE PENALTY OF ` 20 10 900/- LEVI ED BY THE ASSESSING OFFICER U/S. 271(1)(C) OF THE IT ACT. 3. IN THIS CASE DURING THE ASSESSMENT CERTAIN ADDITIONS WE RE MADE. UPON APPEAL TO THE LD. COMMISSIONER OF INCOME TAX (APPEALS) LD. COMMISSIONER OF INCOME TAX (APPEALS) GRANTED THE SUBSTANTIAL RELIEF . WHEN THE MATTER TRAVELLED TO THE ITAT PART OF THE ORDER OF THE LD. COMMISSIONER OF INCOME ITA NO. 1438/DEL/2010 A.Y. 2004-05 2 TAX (APPEALS) WAS CONFIRMED AND ONE MATTER WAS REMAND ED TO THE FILE OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). THE F ACTUAL POSITION IN A NUTSHELL IS CAPTURED AS UNDER:- S.NO. PARTICULARS ON WHICH ADDITION HAS BEEN MADE AMOUNT (IN `) BEFORE ASSESSING OFFICER C.I.T.(A) ITAT ORDER 1 SOFTWARE EXPENSES INCURRED BY THE ASSESSEE 92 750/ - ADDITION IN THE ORDER CONFIRMED THE ADDITION NO APPEAL FILED BEFORE ITAT 2 LOSSES BOOKED ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATION 5 51 578/ - ADDITION IN THE ORDER DELETED THE ADDITION CONFIRMED THE ORDER OF C.I.T.(A) 3 INTEREST ON LOANS GRANTED BY THE ASSESSEE TO ITS DIRECTORS 17 46 330/ - ADDITION IN THE ORDER RELIEF OF ` 13 76 262/- GRANTED BY THE C.I.T.(A) MATTER REMANDED TO THE FILE OF C.I.T.(A) FOR FRESH ADJUDICATION 4 UNSECURED LOANS OBTAINED BY THE ASSESSEE DURING THE YEAR 45 94 525/ - ADDITION MADE BY THE ASSESSING OFFICER UNDER SECTION 68 DELETED THE ADDITION CONFIRMED THE ORDER OF C.I.T.(A) 3.1 ASSESSING OFFICER LEVIED PENALTY ON ALL THE ABOVE ADDITIONS. 4. LD. COMMISSIONER OF INCOME TAX (APPEALS) UPON ASSESSEE S APPEAL DELETED THE MAJOR PART OF THE PENALTY AS UNDER:- (I) SOFTWARE EXPENSES INCURRED BY THE ASSESSEE. (II) LOSSES ON ACCOUNT OF FOREIGN EXCHANGE FLUCTUATIO N. ITA NO. 1438/DEL/2010 A.Y. 2004-05 3 (III) PENALTY ON ADDITION OF ` 13 76 262/- ON INTER EST ON LOANS GRANTED TO THE DIRECTORS WAS DELETED AND PENALTY ON THE BALAN CE AMOUNT OF ` 3 70 068/- WAS CONFIRMED. (IV) UNSECURED LOANS OBTAINED BY THE ASSESSEE. 5. AGAINST THIS ORDER REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE REC ORDS. AS REGARDS THE SOFTWARE EXPENSES INCURRED BY THE ASSESSEE AMOUNTING T O ` 92 750/- WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ADJUDICATED THE PENALTY IN THIS REGARD AS UNDER:- GROUND NO. 2 RELATES TO LEVY OF PENALTY IN RESPECT O F AN ADDITION OF ` 92 750/- MADE IN RESPECT OF SOFTWARE EXPENSES. I N THE WRITTEN SUBMISSIONS THE A.R. HAS CONTENDED THAT THE EXP ENSES ARE ON ACCOUNT OF ANNUAL SUBSCRIPTION FOR RENEWAL OF MICROSOFT LICENSES. THESE EXPENSES ARE RECURRING IN NATURE AND A RE INCURRED EACH YEAR FOR RENEWAL OF THE SUBSCRIPTION. THE APPELLANT HAS NOT CLAIMED THE DISALLOWED PART OF EXPENSE EVEN IN THE NEXT YEAR AS IT WAS THE CONSISTENT POLICY OF THE COMPANY TO CLAIM AS EXPENSES AS AND WHEN INCURRED. THE LD. A.R. HAS STATED THAT GENUINENESS OF THE EXPENSE WAS NOT DOUBTED BY THE LD. ASSESSING OFFICER. THE ONLY QUESTION WAS TO DECIDE THE YEAR IN WHICH SUCH EXPENSES WAS ALLOWABLE. I HAVE PERUSED THE ORDER IMPOSING PENALTY U/S 271(1)(C ) OF THE ACT. I FIND THAT THE REASONS RECORDED BY THE ASSESSI NG OFFICER FOR IMPOSING THE PENALTY IS SIMPLY THE FACT THAT THE A MOUNT DID NOT PERTAIN TO THE RELEVANT PREVIOUS YEAR AND THAT T HE A.R. HAD AGREED TO THE DISALLOWANCE. KEEPING THE ARGUMENTS AND SUBMISSIONS OF THE LD. A.R. AND THE FACT IN THE PENALTY ORDER IN VIEW I AM OF THE OPINION ITA NO. 1438/DEL/2010 A.Y. 2004-05 4 THAT THERE HAS NOT BEEN ANY CONSCIOUS OR DELIBERATE E FFORT ON PART OF THE APPELLANT TO CONCEAL ITS INCOME IN RESPEC T OF SOFTWARE EXPENSES CLAIMED BY IT. IN FACT THERE IS NO CONCEAL MENT OF INCOME WITH THE INTENT OF EVASION OF TAXES IF THE ISS UE IS EXAMINED IN ITS TOTALITY. THE IMPOSING OF PENALTY O N THIS ACCOUNT IS THEREFORE DIRECTED TO BE DELETED. 7. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE REC ORDS. WE FIND THAT AMOUNT INVOLVED PERTAINING TO SUBSCRIPTION FOR RENEWAL OF MICROSOFT LICENCES. TOTAL AMOUNT INCURRED WAS ` 110240/- OUT O F WHICH ` 92 750/- WAS FOUND TO BE ATTRIBUTABLE TO THE NEXT YEAR. HENCE THE AMOUNT WAS DISALLOWED. WE FIND THAT DISALLOWANCE OF THIS AMOUN T CANNOT LEAD TO LEVY OF PENALTY U/S 271(1)(C). SECTION 271(1)(C) POSTULATES L EVY OF PENALTY FOR CONCEALMENT OF INCOME OR FURNISHING OF INACCURATE P ARTICULARS. ASSESSEE HAS FURNISHED ALL THE PARTICULARS AND FROM THERE ONLY ASSESSI NG OFFICER COULD FIND OUT THAT CERTAIN PART OF ITS PERTAINS TO THE SUBSEQUENT YEAR. MOREOVER THIS POLICY HAS BEEN FOLLOWED BY THE ASSESSEE IN EARLIER PER IOD ALSO WHERE IT WAS NOT DISTURBED. UNDER THE CIRCUMSTANCES IN OUR CONSIDE RED OPINION THERE IS NO INFIRMITY IN THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) OF DELETING THE PENALTY IN THIS REGARD. 8. IN SUPPORT OF OUR ABOVE ADJUDICATION WE PLACE RE LIANCE UPON THE DECISION OF THE LATEST HONBLE APEX COURT DECISION IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS LTD. WHEREIN IT HAS BEEN IN TER-ALIA HELD THAT THE LAW LAID DOWN IN THE DILIP SHEROFF CASE 291 ITR 519 (SC) AS TO THE MEANING OF WORD CONCEALMENT AND INACCURATE CONTINUES TO BE A GOOD LAW BECAUSE WHAT WAS OVERRULED IN THE DHARMENDER TEXTILE CASE WA S ONLY THAT PART IN DILIP SHEROFF CASE WHERE IT WAS HELD THAT MENSREA WAS A ESSENTIAL REQUIREMENT OF PENALTY U/S 271(1)(C). THE HONBLE A PEX COURT ALSO OBSERVED THAT IF THE CONTENTION OF THE REVENUE IS ACCEPTED T HEN IN CASE OF EVERY RETURN WHERE THE CLAIM IS NOT ACCEPTED BY THE AO FOR ANY RE ASON THE ASSESSEE WILL ITA NO. 1438/DEL/2010 A.Y. 2004-05 5 INVITE THE PENALTY U/S 271(1)(C). THIS IS CLEARLY NO T THE INTENDMENT OF LEGISLATURE. 9. IN THIS REGARD WE ALSO PLACE RELIANCE FROM THE APEX COURT DECISION RENDERED BY A LARGER BENCH COMPRISING OF THREE OF T HEIR LORDSHIPS IN THE CASE OF HINDUSTAN STEEL VS. STATE OF ORISSA IN 83 ITR 2 6 WHEREIN IT WAS HELD THAT AN ORDER IMPOSING PENALTY FOR FAILURE TO CARRY OUT A STATUTORY OBLIGATION IS THE RESULT OF A QUASI-CRIMINAL PROCEEDINGS AND PENA LTY WILL NOT ORDINARILY BE IMPOSED UNLESS THE PARTY OBLIGED EITHER ACTED DELIB ERATELY IN DEFIANCE OF LAW OR WAS GUILTY OF CONDUCT CONTUMACIOUS OR DISHONEST OR ACTED IN CONSCIOUS DISREGARD OF ITS OBLIGATION. PENALTY WILL NO T ALSO BE IMPOSED MERELY BECAUSE IT IS LAWFUL TO DO SO. WHETHER PENALTY SHOULD BE IMPOSED FOR FAILURE TO PERFORM A STATUTORY OBLIGATION IS A MATTER OF DISCR ETION OF THE AUTHORITY TO BE EXERCISED JUDICIALLY AND ON A CONSIDERATION OF AL L THE RELEVANT CIRCUMSTANCES. EVEN IF A MINIMUM PENALTY IS PRESCRIBED THE AUTHORITY COMPETENT TO IMPOSE THE PENALTY WILL BE JUSTIFIED IN REFUSING TO IMPOSE PENALTY WHEN THERE IS A TECHNICAL OR VENIAL BREACH OF THE PROVISIONS OF THE ACT OR WHERE THE BREACH FLOWS FROM A BONAFIDE BELIE F THAT THE OFFENDER IS NOT LIABLE TO ACT IN THE MANNER PRESCRIBED BY THE STATUTE . 10. AS REGARDS THE OTHER ADDITIONS PERTAINING TO LOSSES B OOKED ON ACCOUNT OF FOREIGN EXCHANGE OF ` 5 51 578/- AND UNSECURED LOANS OBTAINED BY THE ASSESSEE DURING THE YEAR AMOUNTING TO ` 45 94 525/-. W E FIND THAT THESE ADDITIONS WERE DELETED BY THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) AND HIS ORDER WAS UPHELD BY THE ITAT IN ITA NO. 3451/DEL/ 2009 FOR A.Y. 2004-05 VIDE ORDER DATED 14.5.2010. HENCE PENALTY U/S 27 1(1)(C) IN THIS REGARD ALSO DOES NOT SURVIVE. 10.1 HOWEVER AS REGARDS THE INTEREST ON LOAN GRANTED BY THE ASSESSEE TO ITS DIRECTOR AMOUNTING TO ` 17 46 330/-. LD. COMMISSIO NER OF INCOME TAX (APPEALS) HAS GRANTED RELIEF OF ` 13 76 262/-. TH E ISSUE WAS REMANDED BY THE TRIBUNAL TO THE FILES OF THE LD. COMMISSIONER OF I NCOME TAX (APPEALS) TO ITA NO. 1438/DEL/2010 A.Y. 2004-05 6 BE DECIDED AFRESH IN ACCORDANCE WITH LAW. SINCE THE ISSUE HAS BEEN REMITTED TO THE FILES OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) IN OUR CONSIDERED OPINION ADJUDICATION OF PENALTY AT OUR L EVEL IS NOT POSSIBLE WITHOUT ADJUDICATION OF THE SAME ON MERITS BY THE LD . COMMISSIONER OF INCOME TAX (APPEALS) PURSUANT TO THE REMAND BY THE IT AT. ACCORDINGLY WE REMIT THE ISSUE ON PENALTY ON THIS ASPECT TO THE FILES OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) TO CONSIDER THE SAME AFTER AD JUDICATING THE ISSUE ON MERITS REMANDED BY THE TRIBUNAL TO THE FILES OF THE L D. COMMISSIONER OF INCOME TAX (APPEALS). NEEDLESS TO ADD THAT THE ASSESSEE SHOULD BE GIVEN ADEQUATE OPPORTUNITY OF BEING HEARD. 11. IN THE RESULT THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 06/12/2010 UP ON CONCLUSION OF HEARING. SD/- SD/- [R.P. TOLANI ] [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATE 06/12/2010 SRB COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES