SHREE GANESH PAHARMACEUTICALS, v. DCIT RG 17(2),

ITA 148/MUM/2009 | 2003-2004
Pronouncement Date: 28-01-2011 | Result: Allowed

Appeal Details

RSA Number 14819914 RSA 2009
Bench Mumbai
Appeal Number ITA 148/MUM/2009
Duration Of Justice 2 year(s) 20 day(s)
Appellant SHREE GANESH PAHARMACEUTICALS,
Respondent DCIT RG 17(2),
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted E
Tribunal Order Date 28-01-2011
Date Of Final Hearing 06-01-2011
Next Hearing Date 06-01-2011
Assessment Year 2003-2004
Appeal Filed On 07-01-2009
Judgment Text
1 ITA NOS. 145 TO 148/MUM/2009 I II IN THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL N THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH MUMBAI BENCH E EE E MUMBAI MUMBAI MUMBAI MUMBAI BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI R R R R K PANDA AM K PANDA AM K PANDA AM K PANDA AM & SMT ASHA VIJAYARAGHAVAN JM & SMT ASHA VIJAYARAGHAVAN JM & SMT ASHA VIJAYARAGHAVAN JM & SMT ASHA VIJAYARAGHAVAN JM ITA NO ITA NO ITA NO ITA NOS SS S. . . . 145 TO 148/MUM/2009 145 TO 148/MUM/2009 145 TO 148/MUM/2009 145 TO 148/MUM/2009 (ASST YEARS 1999-00 2000-01 2002-03 & 03-04 ) SHREE GANESH PHARMACEUTICALS 542/1/10 BHUTA NIWAS DR A B ROAD MUMBAI 19 VS THE DY COMMR OF INCOME TAX RANGE 17(2) MUMBAI (APPELLANT) (RESPONDENT) PAN PAN PAN PAN AACFS189A AACFS189A AACFS189A AACFS189A ASSESSEE BY: SHRI RAJIV KHANDELWAL REVENUE BY: SHRI D SONGATE O OO O R RR R D DD D E EE E R RR R PER PER PER PER R RR R K PANDA K PANDA K PANDA K PANDA: :: : THE ABOVE FOUR APPEALS FILED BY THE ASSESSEE ARE D IRECTED AGAINST THE SEPARATE ORDERS DATED 3.10.2008 OF THE CIT(A)-XVII MUMBAI RELATING TO ASSESSMENT YEARS 1999-00 2000-01 2002-03 AND 2003 -04 RESPECTIVELY. SINCE IDENTICAL GROUNDS ARE INVOLVED IN ALL THESE APPEALS ; THEREFORE FOR THE SAKE OF CONVENIENCE THESE WERE HEARD TOGETHER AND ARE BEIN G DISPOSED OF BY THIS COMMON ORDER. 2 THE ABOVE APPEALS WERE EARLIER DISMISSED BY THE T RIBUNAL FOR NON PROSECUTION. SUBSEQUENTLY THE TRIBUNAL VIDE ORDER DATED 4.6.2010 RECALLED THE ORDER. THEREFORE THIS IS A RECALLED MATTER. 3 IN ALL THESE FOUR APPEALS THE ASSESSEE HAS CHALL ENGED THE ORDER OF THE CIT(A) IN CONFIRMING THE LEVY OF PENALTY U/S 271(1) ( C) OF THE ACT THE DETAILS OF WHICH ARE AS UNDER: 2 ITA NOS. 145 TO 148/MUM/2009 I) ASSESSMENT YEAR 1999-00 ` 2 56 616/- II) ASSESSMENT YEAR 2000-01 ` 1 29 472/- III)ASSESSMENT YEAR 2002-03 ` 8 79 951/- IV) ASSESSMENT YEAR 2003-04 ` 1 78 402/- 4 WE FIRST TAKE UP THE APPEAL FOR THE ASSESSMENT YE AR 2002-03 VIDE ITA NO. 147/MUM/2009. 5 THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASS ESSEE HAD CLAIMED DEDUCTION U/S 80HHC TO THE TUNE OF ` 36 72 403/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT WHILE COMPUTING DEDUCTION U/S 80HHC THE ASSESSEE HAD CONSIDERED AL L THE INDIRECT EXPENSES IN THE P&L ACCOUNT FOR LOCAL TRADING INSTEAD OF PROFIT AND LOSS ACCOUNT FOR EXPORT BUSINESS SINCE THE ASSESSEE FIRM IS HAVING BOTH LO CAL AS WELL AS EXPORT SALES OF PHARMACEUTICALS PRODUCTS. THE ASSESSEE IS RUNNING THE OFFICE FROM COMMON ADDRESS OF 542-1/10 BHUTA NIWAS DR A B ROAD MATUN GA (E) MUMBAI. THE ASSESSEE HAS NO OTHER BRANCH OFFICE OR FACTORY OR G O-DOWN. THEREFORE ACCORDING TO THE ASSESSING OFFICER IT IS CLEAR THAT THE ASSE SSEE IS RUNNING A SINGLE INDIVISIBLE BUSINESS OF TRADING IN PHARMACEUTICALS PRODUCTS. 5.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE F ILED SEPARATE PROFIT AND LOSS ACCOUNTS FOR LOCAL AND EXPORT BUSINESS. IN TH E P&L ACCOUNT THE ASSESSEE HAS DEBITED ONLY DIRECT EXPENSES LIKE BANK CHARGES CLEARING AND FREIGHT INTEREST PAID TO BANKS. THUS THE INDIRECT EXPENSES WERE COM PLETELY ELIMINATED WHILE COMPUTING THE DEDUCTION U/S 80HHC. SINCE THE ASSE SSEE WAS NOT ABLE TO BI- FURCATE THE INDIRECT EXPENSES DUE TO PRACTICAL DIFF ICULTY THE ASSESSING OFFICER ADOPTED THE RATIO OF EXPORT TURNOVER TO THE TOTAL T URNOVER FOR ALLOCATING VARIOUS 3 ITA NOS. 145 TO 148/MUM/2009 EXPENSES. SINCE THE ASSESSEE HAS TAKEN ALL THE IND IRECT EXPENSES IN THE P&L ACCOUNT FOR LOCAL TRADING ONLY INSTEAD OF BOTH LOC AL AND EXPORT TRADE THE ASSESSING OFFICER RECALCULATED THE DEDUCTION U/S 80 HHC AFTER ALLOCATION OF SUCH EXPENSE IN THE RATIO OF EXPORT TURNOVER TO THE TOTA L TURNOVER. 5.2 THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) WHO DISMISSED THE APPEAL OF THE ASSESSEE. SUBSEQUENTLY THE ASSESSIN G OFFICER INITIATED PENALTY PROCEEDINGS U/S 271(1)(C) FOR WRONG CLAIM OF DEDUC TION MADE BY THE ASSESSEE RESORTING TO NON-ALLOCATION OF INDIRECT EXPENSES TO EXPORT BUSINESS SO AS TO INFLATE THE EXPORT PROFIT AND CLAIM HIGHER DEDUCTION U/S 80 HHC. REJECTING THE EXPLANATION GIVEN BY THE ASSESSEE THE ASSESSING OF FICER HELD THAT THE ASSESSEE HAS SUBMITTED INACCURATE PARTICULARS OF INCOME WITH IN THE MEANING OF EXPLANATION-1 TO SEC 271(1)( C) OF THE ACT. HE AC CORDINGLY LEVIED MINIMUM PENALTY OF ` 8 79 951/- U/S 271(1)(C) OF THE I T ACT BEING 100 % OF THE TAX SOUGHT TO BE EVADED. 6 BEFORE THE CIT(A) IT WAS SUBMITTED THAT SEPARATE DETAILS FOR LOCAL TRADING AND EXPORT TRADING HAVE BEEN MAINTAINED BY THE ASSESSEE. THE CLAIM OF DEDUCTION U/S 80HHC WAS MADE ON THE BASIS OF PROFIT DECLARED BY THE EXPORT DIVISION. IT WAS ARGUED THAT THE DEDUCTION WAS BAS ED ON THE ACCEPTED SYSTEM OF ACCOUNTING AND THE ASSESSEE HAS MADE FULL DISCLOSUR E AND NOT CONCEALED ANY PARTICULARS OF INCOME FROM THE REVENUE AUTHORITY. IT WAS ARGUED THAT THE DISALLOWANCE ON ACCOUNT OF LEGAL ISSUE WILL NOT EN ABLE THE ASSESSING OFFICER TO IMPOSE PENALTY. REFERRING TO THE DECISION IN THE CA SE OF CIT VS ANWAR ALI REPORTED IN 76 ITR 696 AND CIT VS KHODE ESWARAN & SONS REPOR TED IN 83 ITR 369 IT WAS 4 ITA NOS. 145 TO 148/MUM/2009 SUBMITTED THAT MERELY BECAUSE EXPLANATION OFFERED IN RESPECT OF GIVEN ITEMS IS REJECTED THE SAME DOES NOT AMOUNT TO CONCEALMENT O F INCOME. VARIOUS OTHER DECISIONS WERE ALSO CITED BEFORE THE CIT(A). 6.1 HOWEVER THE CIT(A) WAS NOT CONVINCED WITH THE EXPLANATION GIVEN BY THE ASSESSEE. HE NOTED THAT THE ASSESSEE HAS DELIBE RATELY FURNISHED PARTICULARS OF INCOME WHICH WERE NOT ACCURATE IN THE SENSE THA T INDIRECT EXPENSES RELATABLE TO EXPORT ACTIVITIES HAVE NOT BEEN ALLOCATED AGAINS T EXPORT INCOME. THIS HAS LEAD TO EXCESS DEDUCTION U/S 80HHC WHICH WAS NOT PE RMISSIBLE TO THE ASSESSEE. THE PRACTICE HAS BEEN FOLLOWED WITHOUT AUTHORITY OF LAW AND THERE IS NO AMBIGUITY OR TWO OPINIONS REGARDING THE FACT THAT E XPENSES RELATED TO PARTICULAR INCOME HAS TO BE PROPERLY ALLOCATED. DISTINGUISHIN G THE VARIOUS DECISIONS RELIED UPON BY THE ASSESSEE AND HOLDING THAT THE TRIBUNAL HAS ALSO DISMISSED THE APPEAL OF THE ASSESSEE THE CIT(A) CAME TO THE CON CLUSION THAT THE ASSESSEE HAS CLAIMED EXCESS DEDUCTION U/S 80HHC DELIBERATELY FO R WHICH LEVY OF PENALTY U/S 271(1)(C) HAS RIGHTLY BEEN IMPOSED BY THE ASSESSIN G OFFICER. HE ACCORDINGLY CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 7 AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSE SSEE IS IN APPAL BEFORE US. 8 THE LD COUNSEL FOR THE ASSESSEE SUBMITTED THAT TH E ASSESSEE HAS NEITHER CONCEALED THE PARTICULARS OF INCOME NOR FURNISHED I NACCURATE PARTICULARS OF INCOME AND ALL THE FACTS WERE ON THE RECORDS OF THE ASSESSING OFFICER. HE 5 ITA NOS. 145 TO 148/MUM/2009 SUBMITTED THAT THE ASSESSEE HAS CLAIMED DEDUCTION O N THE BASIS OF ADVICE OF THE TAX CONSULTANT WHO HAS GIVEN THE AUDIT REPORT U/S 80HHC. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE HONBLE SUPREME CO URT IN THE CASE OF T ASHOK PAI REPORTED IN 292 ITR 11 (SC). RELYING ON THE DEC ISION OF THE TRIBUNAL IN THE CASE OF ACIT VS CLASSIC DIAMONDS VIDE ITA NO.7313/ BOM/92 HE SUBMITTED THAT DEDUCTION U/S 80HHC IS BUSINESSWISE AND NOT ASSESS EE WISE. THUS THERE IS A DECISION IN FAVOUR OF THE ASSESSEE BY THE COORDINAT E BENCH OF THE TRIBUNAL. THEREFORE THE ISSUE OF DEDUCTION U/S 80HHC ON ACCO UNT OF TWO SEPARATE BUSINESSES FOR WHICH TWO SEPARATE SETS OF ACCOUNTS SEPARATE BANK ACCOUNTS SEPARATE BANK LOAN FACILITY AND SEPARATE STAFF ARE MAINTAINED BECOMES A DATABLE ISSUE AND THE EXPLANATION OF THE ASSESSEE CLAIMING THE DEDUCTION IS BONAFIDE. HE SUBMITTED THAT TWO BUSINESSES AS PE R THE ASSESSEE ARE DISTINCT AND SEPARATE WHEREAS ACCORDING TO THE ASSESSING OFF ICER TWO BUSINESSES ARE INDIVISIBLE BUSINESS. REFERRING TO A SERIES OF DEC ISIONS INCLUDING THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS PVT LTD REPORTED IN 322 ITR 158(SC) HE SUBMITTED THAT A ME RE MAKING A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT T O FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING OF INACCURATE PA RTICULARS. HE ACCORDINGLY SUBMITTED THAT ALTHOUGH THE ADDITION HAS BEEN SUSTA INED BY THE TRIBUNAL; BUT THE FACTS OF THE CASE DO NOT WARRANT LEVY OF PENALTY U/ S 271(1)(C) OF THE ACT IN VIEW OF THE VARIOUS DECISIONS. 8.1 THE LD DR ON THE OTHER HAND WHILE SUPPORTING THE ORDERS OF THE AUTHORITIES BELOW SUBMITTED THAT THE ASSESSEE BY NO T DEBITING THE INDIRECT EXPENSES TO THE EXPORT BUSINESS HAS TRIED TO INFLAT E THE PROFIT OF THE EXPORT 6 ITA NOS. 145 TO 148/MUM/2009 DIVISION AND REDUCED THE PROFIT OF THE LOCAL TRADIN G DIVISION THEREBY MAKING HIGHER CLAIM OF DEDUCTION OF THE EXPORT DIVISION AN D PAYING LESS TAX ON LOCAL SALES DIVISION. THUS THE ASSESSEE HAS DELIBERATELY FURNI SHED INACCURATE PARTICULARS AND CONCEALED PARTICULARS OF INCOME. EVEN THE CLAIM OF THE ASSESSEE WAS TURNED DOWN BY THE TRIBUNAL; THEREFORE THIS IS A FIT CASE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. THEREFORE THE ORDER OF THE CIT(A) SHO ULD BE UPHELD. RELIANCE WAS PLACED ON VARIOUS DECISIONS WHICH ARE MENTIONED IN THE ORDER OF THE CIT(A). 9 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE PARTIES PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED UPON BY BOTH THE PARTIES. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE FIRM IS HAVING BOTH LOCAL AS WELL AS EXPORT SALES OF PHARMACEUTICALS PR ODUCTS. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS FILED SEP ARATE P&L ACCOUNTS FOR LOCAL AND EXPORT BUSINESS. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAD CONSIDERED ALL THE INDIRECT EXPENSES IN THE P&L ACC OUNT FOR LOCAL TRADING ONLY INSTEAD OF P&L ACCOUNT FOR EXPORT BUSINESS. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSING OFFICER WHILE COMPUTING THE DEDU CTION U/S 80HHC ADOPTED THE METHOD OF ALLOCATING VARIOUS EXPENSES IN THE RATIO OF EXPORT TURNOVER TO THE TOTAL TURNOVER. THERE IS ALSO NO DISPUTE TO THE FACT THA T THE ACTION OF THE ASSESSING OFFICER IN RE-COMPUTING THE DEDUCTION U/S 80HCC HAS BEEN UPHELD BY THE CIT(A) AND THE ITAT. NOW THE QUESTION THAT ARISES AS TO WHETHER UNDER THE FACTS AND CIRCUMSTANCES THIS IS A FIT CASE FOR LEVY OF PENAL TY U/S 271(1)(C)OR NOT. 9.1 IT IS THE SUBMISSION OF THE LD COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS MAINTAINING TWO SETS OF ACCOUNTS SEPARATE BANK ACC OUNTS SEPARATE BANK LOAN 7 ITA NOS. 145 TO 148/MUM/2009 FACILITY AND SEPARATE STAFF FOR THE EXPORT DIVISION AND LOCAL BUSINESS DIVISION. FURTHER IT IS THE SUBMISSION OF THE LD COUNSEL OF THE ASSESSEE THAT IN VIEW OF THE DECISION OF THE TRIBUNAL IN THE CASE OF CLASSIC DIA MONDS (SUPRA) THE DEDUCTION U/S 80HHC IS BUSINESSWISE AND NOT ASSESSEE WISE AND THEREFORE THE ISSUE IS DEBATABLE. 9.2 WE FIND MERIT IN THE SUBMISSIONS OF THE LD COU NSEL FOR THE ASSESSEE THAT THE ISSUE OF CLAIM U/S 80HHC WHICH WAS ON THE BAS IS OF CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT IS BONAFIDE CLAIM AND THEREF ORE DOES NOT WARRANT LEVY OF PENALTY U/S 271(1)(C) OF THE ACT. IN THE INSTANT CA SE THE ASSESSEE HAS CLAIMED DEDUCTION U/S 80HHC ON THE BASIS OF ADVICE GIVEN BY THE TAX CONSULTANT WHICH WAS DULY CERTIFIED BY THE CHARTERED ACCOUNTANT. FUR THER FULL PARTICULARS WERE MADE AVAILABLE TO THE ASSESSING OFFICER. MERELY BEC AUSE DISALLOWANCE HAS BEEN SUSTAINED BY THE TRIBUNAL THE SAME IN OUR OPINION DOES NOT WARRANT LEVY OF PENALTY U/S 271(1)(C) OF THE I T ACT. 9.3 WE FIND THE HONBLE SUPREME COURT IN THE CASE O F RELIANCE PETROPRODUCTS PVT LTD (SUPRA) HAS HELD THAT A MERE MAKING A CLA IM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING INACCU RATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE. SUCH A CLAIM MADE IN THE R ETURN CANNOT AMOUNT TO FURNISHING INACCURATE PARTICULARS. SINCE THE ASSE SSEE IN THE INSTANT CASE HAS MADE A CLAIM ON THE BASIS OF CERTIFICATE ISSUED BY THE CHARTERED ACCOUNTANT AND SINCE THE ISSUE WAS DEBATABLE IN VIEW OF ONE DECIS ION OF THE TRIBUNAL WHICH WAS IN FAVOUR OF THE ASSESSEE THAT DEDUCTION U/S 80HHC IS BUSINESS WISE AND NOT ASSESSEE WISE AND IN VIEW OF THE DECISION OF THE H ONBLE SUPREME COURT IN THE CASE OF RELIANCE PETROPRODUCTS P LTD (SUPRA) THAT A MERE MAKING A CLAIM WHICH 8 ITA NOS. 145 TO 148/MUM/2009 IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUN T TO FURNISHING INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE AN D THAT SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHING INACCURATE P ARTICULARS THEREFORE WE ARE OF THE CONSIDERED OPINION THAT THIS IS NOT A FIT CA SE FOR LEVY OF PENALTY U/S 271(1)(C) OF THE I T ACT 1961. ACCORDINGLY WE SE T ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO CANCEL THE PENA LTY. ITA NOS. 145 146 & 148/MUM/2009 ITA NOS. 145 146 & 148/MUM/2009 ITA NOS. 145 146 & 148/MUM/2009 ITA NOS. 145 146 & 148/MUM/2009(AYS 1999-00 2000- 01 & 03-04 ) 10 SINCE THE GROUNDS INVOLVED IN THESE APPEALS ARE IDENTICAL TO THE GROUND IN ITA NO. 147/MUM/2009; THEREFORE FOLLOWING THE SAME RATIO PENALTY IN THESE APPEALS ARE ALSO CANCELLED. 11 IN THE RESULT THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON THE 28 TH DAY OF JAN 2011. SD/- SD/- ( (( ( SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN SMT ASHA VIJAYARAGHAVAN ) )) ) JUDICIAL MEMBER ( (( ( R K PANDA R K PANDA R K PANDA R K PANDA ) )) ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 28 TH JAN 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR ITAT MUMBAI