SANGHVI SWISS REFILLS PVT.LTD., THANE v. THE ASST.C.I.T.-8(3), MUMBAI

ITA 6540/MUM/2008 | misc
Pronouncement Date: 14-05-2010 | Result: Dismissed

Appeal Details

RSA Number 654019914 RSA 2008
Assessee PAN AACCS8696R
Bench Mumbai
Appeal Number ITA 6540/MUM/2008
Duration Of Justice 1 year(s) 6 month(s) 3 day(s)
Appellant SANGHVI SWISS REFILLS PVT.LTD., THANE
Respondent THE ASST.C.I.T.-8(3), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 14-05-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 14-05-2010
Assessment Year misc
Appeal Filed On 11-11-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI R.V. EASWAR SR. VICE PRESIDENT & SHRI R.K.PANDA AM I.T.A. NO. 6659/MUM/2008 (ASSESSMENT YEAR 1987-88) I.T.A. NO. 6540/MUM/2008 (ASSESSMENT YEAR 1989-90) M/S. SANGHVI SWISS REFILLS PVT. LTD. A-3 MIRA MIDC P.O. MIRA DIST. THANE-401 104 MAHARASHTRA PAN: AACCS8696R VS. ACIT-8(3) MUMBAI APPELLANT RESPONDENT APPELLANT BY : SHRI ARUN SATHE SHRI VISHWAS MEHENDALE RESPONDENT BY : SHRI NAVEEN GUPTA ORDER DATE OF HEARING: 30.04.2010 DATE OF ORDER: 14.05.2010 PER R.K.PANDA AM THE ABOVE TWO APPEALS FILED BY THE ASSESSEE ARE DI RECTED AGAINST THE SEPARATE ORDERS DATED 19 TH AUGUST 2008 AND 16 TH FEBRUARY 2008 OF THE CIT(A)- XXIX MUMBAI RELATING TO ASSESSMENT YEARS 1987-88 A ND 1989-90 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. I.T.A. NO. 6659/MUM/2008 (A.Y. 1987-88): 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON. COMMISSIONER OF INCOME-TAX (APPEALS)-XXIX MUM BAI ERRED IN CONFIRMING THE PENALTY U/S. 271(1)(C) OF T HE ACT. ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 2 II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON. COMMISSIONER OF INCOME-TAX (APPEALS)-XXIX MUM BAI ERRED IN CONFIRMING THE PENALTY IN RESPECT OF THE D ISALLOWANCE OF RS.2 00 000/- BY HOLDING THAT THE SAID EXPENDITU RE WAS NOT GENUINE. III. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE HON. COMMISSIONER OF INCOME-TAX (APPEALS)-XXIX MUM BAI ERRED IN CONFIRMING THE PENALTY IN RESPECT OF THE A DDITION TO THE CLOSING STOCK OF RS.3 56 235/- BY HOLDING THAT THE APPELLANTS HAD FURNISHED INACCURATE PARTICULARS OF THEIR INCOME. 3. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSMEN T IN THE INSTANT CASE WAS COMPLETED U/S. 143(3) OF THE INCOME-TAX ACT 1961 ( THE ACT) AT AN INCOME OF RS.48 01 968 AS AGAINST THE RETURNED INCOME OF RS.3 88 550 BY MAKING THE FOLLOWING ADDITIONS APART FROM THE OTHER ADJUSTMENT S ON ACCOUNT OF DEPRECIATION/INVESTMENT ALLOWANCE ETC.: 1. SUPPRESSED PRODUCTION RS.13 42 736 2. DELIVERY CHALLANS RS. 7 46 841 3. SERVICE CHARGES RS. 3 10 000 4. SCRAP RS. 4 72 125 5. BONUS PAYMENT RS. 93 000 4. THE ASSESSEE GOT PART RELIEF BEFORE THE CIT(A) AND ON FURTHER APPEAL BY THE ASSESSEE AS WELL AS THE REVENUE THE TRIBUNAL VIDE ORDER DATED 30.11.2006 SUSTAINED THE FOLLOWING ADDITIONS: 1. SERVICE CHARGES RS. 2 00 000 2. SCRAP RS. 3 56 235 5. SUBSEQUENTLY THE ASSESSING OFFICER INITIATED PENAL TY PROCEEDINGS U/S. 271(1)(C) OF THE ACT ON THE ABOVE ADDITIONS. 6. AS REGARDS SERVICE CHARGES THE ASSESSING OFFICER NO TED THAT AS AGAINST TOTAL PAYMENT OF RS.3 70 000 TO M/S. PRIMCO PVT. LT D. (PPL) AN AMOUNT OF RS.60 000 ONLY WAS ALLOWED AND AN AMOUNT OF RS.3 10 000 WAS DISALLOWED. THE TRIBUNAL FINALLY SUSTAINED ADDITION OF RS.2 00 000 OUT OF THE SAME THE ASSESSING OFFICER NOTED THAT THE PAYMENT WAS CLAIMED TO HAVE BEEN MADE TOWARDS INSPECTION TESTING AND REPLACING OF GOODS TO M/S. PPL. THE ADDITION WAS MADE ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 3 ON THE GROUND THAT THE ASSESSEE DID NOT PRODUCE ANY JUSTIFICATION FOR CLAIMING SUCH EXPENDITURE NOR ANY DOCUMENTARY EVIDENCE OR MI NUTES OF MEETING ETC. WERE PRODUCED. 7. THE ASSESSING OFFICER SIMILARLY NOTED THAT OUT OF T HE TOTAL ADDITION OF RS.4 72 125 ON ACCOUNT OF SCRAP AN AMOUNT OF RS.3 5 6 235 HAS BEEN SUSTAINED BY THE TRIBUNAL. THE ASSESSING OFFICER GAVE AN OPPORT UNITY TO THE ASSESSEE TO EXPLAIN AS TO WHY PENALTY U/S. 271(1)(C) OF THE ACT SHOULD NOT BE LEVIED. IN ABSENCE OF ANY RESPONSE FROM THE ASSESSEE EITHER BY ATTENDING IN PERSON OR BY FILING ANY WRITTEN SUBMISSIONS THE ASSESSING OFFIC ER HELD THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS CAST ON IT. HE ACCORDINGLY L EVIED PENALTY OF RS.3 33 740 BEING THE MINIMUM PENALTY U/S. 271(1)(C) OF THE ACT . 8. BEFORE CIT(A) THE ASSESSEE MADE A DETAILED WRITTEN SUBMISSION AND RELIED ON CERTAIN CASE DECISIONS. IT WAS SUBMITTED THAT T HE ASSESSEE AND OTHER GROUP CONCERNS WERE THE TENANTS OF THE FACTORY PREMISES A T 18 SUBHYAS ROAD VILE PARLE (EAST) MUMBAI WHICH WAS OWNED BY THEIR SISTER CONC ERN M/S. PPL. SINCE THE SAID SISTER CONCERN HAS SHIFTED ITS FACTORY TO ANOT HER FACTORY PREMISES OUTSIDE MUMBAI AND SINCE THEIR STAFF/WORKERS WERE IDLE THE ASSESSEE AND THE OTHER SISTER CONCERNS USED TO TAKE THE HELP OF THESE WORKERS. A CCORDINGLY THE ASSESSEE HAD ACCOUNTED FOR VARIOUS CHARGES TO M/S. PPL TOWARDS T HE WORK DONE BY THEM FOR THE ASSESSEE. THE MAIN REASON FOR THE DISALLOWANCE GETTING CONFIRMED WAS BECAUSE THE ACCOUNTING ENTRY FOR THE AMOUNT PAYABLE WAS PASSED ON THE LAST DAY OF THE FINANCIAL YEAR AND THE SAID SISTER CONCERN W AS A LOSS MAKING UNIT. IT WAS SUBMITTED THAT SINCE THERE IS NO DISPUTE REGARDING THE EMPLOYMENT OF THE WORKERS THEREFORE MERELY BECAUSE THE SISTER CONCE RN WAS A LOSS MAKING UNIT IT CANNOT BE SAID THAT THE ASSESSEE HAD DIVERTED ITS P ROFIT TO THE SAID SISTER CONCERN. IT WAS ALSO SUBMITTED THAT NON FURNISHING OF DETAIL S TO THE SATISFACTION OF THE ASSESSING OFFICER MAY CALL FOR ADDITION BUT IT CANN OT BE A GROUND FOR LEVY OF PENALTY. 9. AS REGARDS ADDITION OF SCRAP AND CLOSING STOCK IT WAS SUBMITTED THAT THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE METHOD OF VALUING THE CLOSING STOCK ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 4 OF SCRAP AT NIL VALUE AND WAS CONSISTENTLY ACCOUNTE D FOR THE SAME ON SALE BASIS. THERE WAS ALSO ADEQUATE DISCLOSURE IN THE AUDITORS REPORT ON THIS POINT. THIS METHOD OF ACCOUNTING HAS NEVER BEEN DISTURBED BY AN Y OF THE ASSESSING OFFICER TILL A.Y. 1985-86. EVEN WHILE DECIDING THE ASSESSE ES APPEAL FOR AND UP TO A.Y. 1984-85 THE HONBLE MUMBAI HIGH COURT ALSO ACKNOWL EDGED THE SAID METHOD OF ACCOUNTING CONSISTENTLY FOLLOWED BY THE ASSESSEE FO R ALL THE PAST YEARS. HOWEVER THE ASSESSING OFFICER DISTURBED THE METHOD OF ACCOU NTING FOR THE FIRST TIME ON ACCOUNT OF SCRAP FOR THE A.Y. 1986-87 WHICH WAS SUB SEQUENTLY FOLLOWED BY SUCCESSIVE ASSESSING OFFICERS. IT WAS SUBMITTED TH AT THE QUANTIFICATION OF THE SCRAP HAS BEEN ACCEPTED BY THE ASSESSEE ON THE BASI S OF THE CHARTERED ENGINEERS CERTIFICATE WHICH WAS ALSO UPHELD BY THE ITAT. ACC ORDINGLY IT WAS SUBMITTED THAT THERE IS NO SUPPRESSION OF THE FACTS AT ANY STAGE A S THERE IS PROPER DISCLOSURE IN THE ACCOUNT ABOUT THE METHOD BEING FOLLOWED BY THE ASSESSEE. THEREFORE NO PENALTY SHOULD BE LEVIED ON ACCOUNT OF ADDITION OF SCRAP. IT WAS SUBMITTED THAT ALL THE FACTS WERE FURNISHED BEFORE THE ASSESSING O FFICER THERE WAS NO CONCEALMENT OF INCOME AND NO INACCURATE PARTICULARS OF INCOME WERE FURNISHED. IT WAS ACCORDINGLY SUBMITTED THAT THE PENALTY SHOUL D BE CANCELLED. 10. HOWEVER VARIOUS ARGUMENTS ADVANCED BY THE ASSESSEE COULD NOT CONVINCE THE CIT(A) WHO UPHELD THE PENALTY LEVIED BY THE ASS ESSING OFFICER. WHILE DOING SO HE NOTED THAT THE ASSESSING OFFICER HAS LEVIED T HE PENALTY ON THE BASIS OF THE ADDITIONS FINALLY SUSTAINED BY THE ITAT. VARIOUS D ECISIONS RELIED ON BY THE ASSESSEE ARE NOT APPLICABLE TO THE FACTS OF THE PRE SENT CASE. THE ASSESSING OFFICER IN THE INSTANT CASE HAS PROVED THAT THE ASSESSEE HA D CONCEALED ITS PARTICULARS OF INCOME AND FURNISHED INACCURATE PARTICULARS OF INCO ME BY DIVERTING A PART OF ITS INCOME TO THE LOSS MAKING SISTER CONCERN AND UNDER VALUED THE CLOSING STOCK TO REDUCE ITS TAX LIABILITY. 11. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE ASSESS EE IS IN APPEAL BEFORE US. 12. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS MADE BEFORE THE CIT(A). REFERRING TO THE AUDITORS REPORT FOR THE YEAR ENDING 30 TH ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 5 JUNE 1987 PLACED AT PAPER BOOK PAGE 26 HE DREW T HE ATTENTION OF THE BENCH TO CLAUSE NO. 3 OF THE SAID AUDIT REPORT AND SUBMITTED THAT THE AUDITORS IN THE SAID REPORT HAVE MENTIONED THAT AS PER PAST PRACTICE THE COMPANY HAS ACCOUNTED FOR SCRAP GENERATED ON DISPOSAL BASIS. REFERRING TO TH E AUDITORS REPORT FOR VARIOUS YEARS HE SUBMITTED THAT THE ASSESSEE IS CONSISTENT LY FOLLOWING THE METHOD OF SALE OF SCRAP ON RECEIPT BASIS. REFERRING TO THE ORDER OF THE TRIBUNAL WHERE THE AMOUNT OF RS.3 56 235 SUSTAINED BY THE CIT(A) HAS B EEN UPHELD HE SUBMITTED THAT THE TRIBUNAL HAS SIMPLY UPHELD THE ORDER OF TH E CIT(A) WHO HAD FOLLOWED THE ORDERS OF HIS PREDECESSORS FOR THE EARLIER ASSESSME NT YEARS AND THERE IS NO DISCUSSION. SINCE THE ASSESSEE IS CONSISTENTLY FOL LOWING A PARTICULAR METHOD OF ACCOUNTING FOR SALE OF SCRAP AND SINCE FULL PARTICU LARS WERE AVAILABLE BEFORE THE ASSESSING OFFICER IN THE SHAPE OF AUDITORS REPORT THEREFORE MERELY BECAUSE ADDITION HAS BEEN SUSTAINED WILL NOT ATTRACT THE PR OVISIONS OF SECTION 271(1)(C) OF THE ACT. 13. AS REGARDS THE ADDITION OF RS. 2 LAKHS ON ACCOUNT O F DISALLOWANCE OF SERVICE CHARGES HE SUBMITTED THAT OUT OF RS.3 10 0 00 CLAIMED BY THE ASSESSEE AN AMOUNT OF RS. 2 LAKHS ON ESTIMATE BASIS HAS BEEN SU STAINED. REFERRING TO PAGE 34 OF THE PAPER BOOK CONTAINING THE ORDER OF THE TRIBU NAL FOR A.Y. 1986-87 HE SUBMITTED THAT SIMILAR ADDITION MADE BY THE ASSESSI NG OFFICER WAS DELETED BY THE CIT(A) AND ON FURTHER APPEAL THE TRIBUNAL DISMISSE D THE APPEAL BY THE REVENUE ON THIS ISSUE. THEREFORE MERELY BECAUSE ADDITION OF RS. 2 LAKHS ON ACCOUNT OF SERVICES CHARGES PAID TO THE SISTER CONCERN HAS BEE N SUSTAINED BY THE TRIBUNAL FOR NON PRODUCTION OF SUFFICIENT DETAILS THE SAME WILL NOT ATTRACT THE PROVISIONS OF PENALTY. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF RELIANCE PETRO CHEMICALS REPORTED IN 322 ITR 158 H E SUBMITTED THAT MERELY BECAUSE SOME DISALLOWANCES WERE SUSTAINED NO PENALT Y CAN BE LEVIED. REFERRING TO THE DECISION OF THE AHMEDABAD BENCH OF THE TRIBU NAL IN THE CASE OF PANCHRATNA HOTELS PVT. LTD. VS. DCIT REPORTED IN 47 TTJ 282 H E SUBMITTED THAT WHEN THE AUDITORS REPORT FILED WITH RETURN MAKING A SPECIFIC MENTION ABOUT THE EXCESS OF LUXURY TAX COLLECTED OVER LUXURY TAX PAID IT WAS HE LD THAT THERE WAS NO CONCEALMENT NOTWITHSTANDING THE FACT THAT BALANCE L UXURY TAX MAY BE INCOME OF ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 6 THE ASSESSEE. HE ACCORDINGLY SUBMITTED HAT THE PEN ALTY LEVIED BY THE ASSESSING OFFICER AND UPHELD BY THE CIT(A) SHOULD BE DELETED. 14. THE LEARNED DR ON THE OTHER HAND STRONGLY RELIED ON THE ORDER OF THE CIT(A). AS REGARDS THE SALE OF SCRAP HE SUBMITTED THAT IT IS TRUE THAT THE AUDITORS WERE REPORTING ABOUT SCRAP ON DISPOSAL BASIS. HOWE VER IT IS ALSO A FACT THAT NO SUCH RECORDS OF SCRAP WERE MAINTAINED BY THE ASSESS EE. EVEN WHEN THE ASSESSING OFFICER VISITED THE FACTORY PREMISES THE ASSESSEE TRIED TO MISLEAD THE ASSESSING OFFICER AND NEVER GAVE THE DETAILS AS TO HOW MUCH SCRAP WAS GENERATED. THEREFORE THE CONDUCT OF THE ASSESSEE IS NOT BONAFIDE. AS REGARDS THE AMOUNT PAID TO M/S. PPL TOWARDS SERVICE CHARGES HE SUBMITTED THAT THE CIT(A) HAD GIVEN A FINDING THAT THE PAYMENT WAS MADE ONLY TO REDUCE THE TAXABLE INCOME AND THE EXPENDITURE IS NOT GENUINE HE SUBM ITTED THAT THERE WAS TOTAL MISREPRESENTATION OF FACTS. THE ASSESSEE HAS NO EV IDENCE TOWARDS SERVICES CHARGES CLAIMED. FURTHER THE PRACTICE OF ISSUING THE DEBIT NOTE AT THE END OF THE YEAR TO THE SISTER CONCERN RAISES DOUBT IN THE MIND . 15. THE LEARNED COUNSEL FOR THE ASSESSEE IN HIS REJOIND ER SUBMITTED THAT GENERATION OF SCRAP IS A MATTER OF ESTIMATION. HE SUBMITTED THAT THERE IS NO EVIDENCE IN THE HANDS OF THE REVENUE THAT THE ASSES SEE HAS SOLD MORE SCRAP OVER AND ABOVE WHAT HAS BEEN DISCLOSED IN THE ACCOUNTS. 16. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONS IDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT T HAT AN AMOUNT OF RS. 2 LAKHS OUT OF THE TOTAL SERVICE CHARGES CLAIMED AT RS.3 70 000 HAS BEEN SUSTAINED BY THE ITAT. SIMILARLY AN AMOUNT OF RS.3 56 235 HAS BEEN SUSTAINED BY THE TRIBUNAL ON ACCOUNT OF SCRAP. WE FIND THE PENALTY HAS BEEN LEV IED ON ACCOUNT OF THE ABOVE TWO ADDITIONS. IT IS THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE IS CONSISTENTLY FOLLOWING THE METHOD O F ACCOUNTING FOR SCRAP ON SALE BASIS AND THIS FACT IS DULY NOTED BY THE AUDITORS I N THE AUDITORS REPORT. SIMILARLY THE SERVICE CHARGES PAID TO M/S. PPL WAS DISALLOWED MERELY ON THE GROUND THAT ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 7 PAYMENTS WERE MADE TO THE LOSS MAKING SISTER CONCER N BY PASSING JOURNAL ENTRIES AT THE END OF THE FINANCIAL YEAR AND THERE WAS NO D OCUMENTARY EVIDENCE TO PROVE THE GENUINENESS OF THE TRANSACTIONS. WE FIND THE A UDITORS HAVE MENTIONED IN THE AUDITORS REPORT FOR DIFFERENT YEARS THAT THE ASSESS EE COMPANY HAS ACCOUNTED FOR SCRAP GENERATED ON DISPOSAL BASIS AND CLOSING STOCK THERETO AT THE END OF THE YEAR HAS NOT BEEN ACCOUNTED FOR (PAGE 30 OF THE PAPER BO OK). WE FURTHER FIND MERIT IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSES SEE THAT THERE IS NO EVIDENCE WITH THE DEPARTMENT THAT THE ASSESSEE HAD RECEIVED MORE THAN WHAT HAS BEEN STATED BY THE ASSESSEE IN ITS ACCOUNTS. IN OUR OPI NION NON PRODUCTION OF DETAILS ON ACCOUNT OF GENERATION OF SCRAP ETC. MAY INVITE ADDITION OF THE SAME BUT THE SAME IS NOT SUFFICIENT FOR VISITING THE PROVISIONS OF PENALTY U/S. 271(1)(C) OF THE ACT ESPECIALLY WHEN THE DEPARTMENT HAS NO EVIDENCE WHATSOEVER THAT THE ASSESSEE HAS RECEIVED MORE AMOUNT THAN WHAT IS DISC LOSED BY IT. 17. SIMILARLY AS REGARDS PAYMENT OF SERVICE CHARGES TO THE SISTER CONCERN WE FIND THE ADDITION MADE BY THE ASSESSING OFFICER WAS PARTLY SUSTAINED BY THE ITAT FOR NON SUBMISSION OF FULL DETAILS. HOWEVER NON S UBMISSION OF DETAILS MAY ATTRACT DISALLOWANCE/ADDITION BUT THE SAME IN OUR OPINION WILL NOT ATTRACT THE LEVY OF PENALTY U/S. 271(1)(C) OF THE ACT ESPECIALL Y WHEN SIMILAR ADDITION MADE BY THE ASSESSING OFFICER WAS DELETED BY THE CIT(A) IN THE A.Y. 1986-87 AND ON FURTHER APPEAL THE GROUND RAISED BY THE REVENUE WAS DISMISSED BY THE TRIBUNAL. IN THIS VIEW OF THE MATTER WE ARE OF THE CONSIDERE D OPINION THAT PENALTY U/S. 271(1)(C) OF THE ACT SHOULD NOT BE LEVIED ON ACCOUN T OF ESTIMATED DISALLOWANCE OF RS. 2 LAKHS ON ACCOUNT OF SERVICE CHARGES AND RS.3 56 235 ON ACCOUNT OF SCRAP FOR THE IMPUGNED ASSESSMENT YEAR. THE GROUNDS RAISED B Y THE ASSESSEE ARE ACCORDINGLY ALLOWED. I.T.A. NO. 6540/MUM/08 (A.Y. 1989-90): 18. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE HON. COMMISSIONER OF INCOME TAX APPEALS-XXIX MUMBA I ERRED IN CONFIRMING THE PENALTY U/S. 271(1)(C) OF THE ACT. ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 8 II. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE HON. COMMISSIONER OF INCOME TAX APPEALS-XXIX MUMBA I ERRED IN DETERMINING THE INCOME SOUGHT TO BE EVADED AT RS.10 81 483/- AND CONFIRMING THE PENALTY THEREON. 19. AFTER HEARING BOTH THE SIDES WE FIND ASSESSMENT U/ S. 143(3) OF THE ACT WAS COMPLETED ON A TOTAL INCOME OF RS.4 75 22 389 A S AGAINST LOSS OF RS.48 78 726. VARIOUS ADDITIONS WERE MADE BY THE A SSESSING OFFICER AND THE MATTER WENT UP TO THE TRIBUNAL WHERE THE ADDITIONS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF SERVICES CHARGES OF RS.10 81 486 OUT OF RS.12 94 486 PAID TO M/S. PPL WAS UPHELD. THE ASSESSING OFFICER THEREAF TER INITIATED PENALTY PROCEEDINGS. DUE TO NON APPEARANCE OF THE ASSESSEE OR FILING OF ANY WRITTEN SUBMISSION BY THE ASSESSEE THE ASSESSING OFFICER L EVIED THE PENALTY U/S. 271(1)(C) OF THE ACT ON THIS ADDITION WHICH WAS UPH ELD BY THE CIT(A). 20. THE LEARNED COUNSEL FOR THE ASSESSEE DREW THE ATTEN TION OF THE BENCH TO THE ORDER OF THE CIT(A) FOR A.Y. 1989-90 A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 14-22. REFERRING TO PARA 23 OF THE ORDER OF THE COMMISSIONER (APPEALS) HE SUBMITTED THAT THE CIT(A) HAS DISCUSSED THE ISSU E BEING SERVICE CHARGES PAID TO M/S. PPL AMOUNTING TO RS.10 81 486. REFERRING T O PARA 26 OF THE SAID ORDER HE SUBMITTED THAT THE CIT(A) HAS GIVEN A FINDING THAT IT IS COMMON IN THE SISTER CONCERNS TO RAISE DEBIT AND CREDIT NOTE AT THE END OF THE YEAR FOR THE AMOUNTS PAYABLE AND RECEIVABLE. HE DELETED THE ADDITION ON THE GROUND THAT THERE IS NO MATERIAL TO SHOW THAT LABOUR OF M/S. PPL WAS NOT UT ILISED AND SINCE THE TOTAL EXPENDITURE ON LABOUR APPEARS TO BE REASONABLE CONS IDERING THE TOTAL TURNOVER. REFERRING TO PARA 9 OF THE PENALTY ORDER HE SUBMIT TED THAT THE ASSESSING OFFICER LEVIED THE PENALTY ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE THE EVIDENCE IN SUPPORT OF THE CLAIM. REFERRING TO THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. RELIANCE PETRO PRODUCTS (P) LTD. REPORTED IN 322 ITR 158 HE SUBMITTED THAT MERELY BECAUSE THE CLAIM OF THE ASSE SSEE HAS BEEN DENIED PENALTY U/S. 271(1)(C) CANNOT BE LEVIED. 21. THE LEARNED DR ON THE OTHER HAND DREW THE ATTENTI ON OF THE BENCH TO PARA 9 OF THE ASSESSMENT ORDER AND SUBMITTED THAT T HE ASSESSING OFFICER HAS ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 9 GIVEN A FINDING THAT THE ASSESSEE OVER AND ABOVE TH E CLAIM OF SALARY AND WAGES HAS CLAIMED ADDITIONAL EXPENSES BY WAY OF SERVICE C HARGES TO THE SISTER CONCERN. THEREFORE A DEBIT NOTE AT THE CLOSE OF THE YEAR HA S BEEN RAISED. REFERRING TO THE SAID ORDER HE SUBMITTED THAT A SEARCH WAS CONDUCTE D IN THE ASSESSEES GROUP CONCERNS AT BHAVNAGAR DURING SEPTEMBER/DECEMBER 19 88 AND VARIOUS INCRIMINATING MATERIALS WERE FOUND ACCORDING TO WHI CH AT THE CLOSE OF THE YEAR A COMPANY SHOWING HEAVY PROFIT OBTAINS A DEBIT NOTE F OR SOME EXPENSES SUCH AS REPAIRS TO PLANT AND MACHINERY TECHNICAL SERVICES MOULDING CHARGES PACKING CHARGES ETC UNDER THE HEAD SERVICE CHARGES FROM A SISTER CONCERN WHO IS HAVING SUBSTANTIAL BROUGHT FORWARD LOSS/UNABSORBED DEPRECI ATION/INVESTMENT ALLOWANCE IN THE YEAR. SUCH ENTRY IS PASSED THROUG H JOURNAL AT THE CLOSE OF THE YEAR IN LUMP SUM AMOUNT WITHOUT ANY BASIS WITHOUT ANY VOUCHER AND WITHOUT GIVING ANY BREAK UP. HE SUBMITTED THAT IN THE INST ANT CASE THE ASSESSING OFFICER HAS GIVEN A FINDING THAT M/S. PPL HAS FILED NIL R ETURN OF INCOME FOR THE YEAR AND HAS CLAIMED SUBSTANTIAL CARRY FORWARD UNABSORBED DE PRECIATION/INVESTMENT ALLOWANCE. HENCE THE ASSESSEE HAS CHOSEN TO CLAIM THIS EXPENDITURE UNDER SALARY AND WAGES PAYABLE TO M/S. PPL. HE ACCORDINGLY SUBM ITTED THAT THE ASSESSEE HAS DELIBERATELY TRIED TO REDUCE ITS TAXABLE INCOME BY CLAIMING THE SERVICE CHARGES. THERE IS ABSOLUTELY NO EVIDENCE OF RENDERING SERVIC E TO THE SISTER CONCERN FOR WHICH THE TRIBUNAL HAS REVERSED THE ORDER OF THE CI T(A) AND RESTORED THE ASSESSING OFFICERS ORDER ON THIS ISSUE. FURTHER T HE SISTER CONCERN HAS DECLARED THAT INCOME AS TECHNICAL ASSISTANCE WHEREAS THE ASS ESSEE HAS CLAIMED IT AS SERVICE CHARGES. HE ACCORDINGLY SUBMITTED THAT IT IS A FIT CASE FOR LEVY OF PENALTY. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. THERE IS NO DISPU TE TO THE FACT THAT THE ASSESSEE HAS CLAIMED PAYMENT OF SERVICE CHARGES OF RS.12 91 486 OUT OF WHICH AN AMOUNT OF RS.10 81 486 WAS DISALLOWED BY THE ASSESSING OFF ICER AS UNPROVED EXPENDITURE. WE FIND THE CIT(A) DELETED THE ADDITI ON MADE BY THE ASSESSING OFFICER AND ON FURTHER APPEAL BY THE REVENUE THE T RIBUNAL REVERSED THE ORDER OF THE CIT(A) AND RESTORED THE ORDER OF THE ASSESSING OFFICER BY HOLDING AS UNDER: ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 10 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH TH E PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US AND ALSO THE APPLICABLE LEGAL PROVISIONS. ADMITTEDLY DURING THE COURSE OF SEARC H DOCUMENTARY EVIDENCES IN THE FORM OF CORRESPONDENCES BETWEEN AS SESSEES GROUP CONCERNS WERE FOUND WHICH SHOWS THAT THE ASSESSEE W AS INDULGED IN MANIPULATING PRACTICES TO REDUCE ITS PROFITS. IT I S FURTHER OBSERVED THAT THE LEARNED CIT(A) HAS DELETED THE ADDITION MERELY RELY ING ON THE FINAL COMPARATIVE FIGURES GIVEN BY THE ASSESSEE WITHOUT C ONSIDERING THE FACT OF INPUT/OUTPUT RATIOS QUANTUM OF PRODUCTION PRICE O F THE FINISHED PRODUCTS ETC. WE FURTHER FIND THAT PAGE 17 OF THE PAPER BOO K ON RECORD IN CONNECTION WITH ITA NO. 7538/B/96 IN ASSESSEES OTH ER APPEALS FOR A.Y. 1989-90 THE SERVICE CHARGES PAID TO M/S. PRIMCO PVT . LTD. COMPRISE OF A PAYMENT OF RS.10 38 792/- TOWARDS PROVISION OF TECH NICAL ASSISTANCE TO M/S. SANGHVI REFILLS P. LTD. AND A SUM OF RS.43 694 /- FOR THE USE OF TELEPHONE AND ELECTRICITY. THE DETAILS ON THE FACT OF IT CANNOT BE SAID TO HAVE BEEN MADE TOWARDS LABOUR AND WAGES AS CLAIMED BY THE ASSESSEE COMPANY. THE FACTS OF THIS CASE OF THE YEAR UNDER CONSIDERATION ARE DIFFERENT FROM THE FACT OF THE CASE OF A.Y. 1986-8 7 DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE THEREFORE DECISION OF T HE TRIBUNAL IS NOT BINDING ON US. IN THIS VIEW OF THE MATTER AND ON THE BASIS OF MATERIAL PLACED ON RECORD WE ARE OF THE OPINION THAT THE PAYMENTS MAD E BY THE ASSESSEE COMPANY CANNOT BE SAID TO HAVE BEEN INCURRED ONLY A ND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE AND ACCORDI NGLY WE REVERSE THE FINDINGS OF THE LEARNED CIT(A) IN THIS REGARD AND R ESTORE THE ORDER OF ASSESSING OFFICER. THUS THIS GROUND OF THE REVENU E IS ACCEPTED. 23. WE FIND DURING THE YEAR UNDER CONSIDERATION A SEARC H HAD TAKEN PLACE IN THE BUSINESS PREMISES OF THE GROUP CONCERNS DURING WHICH VARIOUS INCRIMINATING DOCUMENTS WERE FOUND AND THE ASSESSING OFFICER HAS GIVEN A FINDING THAT THE PROFIT MAKING GROUP CONCERNS USED TO OBTAIN DEBIT N OTES AT THE END OF THE YEAR FROM THE SISTER CONCERNS HAVING BROUGHT FORWARD BUS INESS LOSS/UNABSORBED DEPRECIATION/INVESTMENT ALLOWANCE. FURTHER THE TRI BUNAL ALSO HAS GIVEN A FINDING THAT THE SERVICE CHARGES PAID TO M/S. PPL C ONSISTS OF PAYMENT OF RS.10 38 792 TOWARDS PROVISION OF TECHNICAL ASSISTA NCE TO M/S. SANGHVI REFILLS PVT. LTD. AND A SUM OF RS.43 694 FOR THE USE OF TEL EPHONE AND ELECTRICITY WHEREAS WE FIND THE ASSESSEE COMPANY IN ITS BOOKS OF ACCOUN T HAS SHOWN THE SAME AS SERVICE CHARGES. SINCE IT REMAINS UNPROVED AS TO T HE EXACT NATURE OF SERVICES RENDERED BY THE SISTER CONCERN TO THE ASSESSEE AND SINCE SOME INCRIMINATING DOCUMENTS WERE FOUND DURING THE COURSE OF SEARCH WH ICH SHOW THAT THE ASSESSEE WAS INDULGING IN MANIPULATING PRACTICES TO REDUCE I TS PROFIT THEREFORE WE ARE OF THE CONSIDERED OPINION THAT BY CLAIMING SUCH SERVIC ES CHARGES WHICH AGAIN IS MUCH HIGHER DURING THE YEAR AS COMPARED TO RS.2 15 000 IN THE IMMEDIATELY ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 11 PRECEDING ASSESSMENT YEAR THE ASSESSEE HAS CLAIMED SUCH HUGE NON-GENUINE EXPENDITURE IN THE SHAPE OF SERVICE CHARGES TO A LO SS MAKING SISTER CONCERN ONLY TO REDUCE ITS TAXABLE INCOME. THEREFORE THE PROVI SIONS OF SECTION 271(1)(C) ARE CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT CASE . 24. AS REGARDS THE DECISION RELIED ON BY THE LEARNED CO UNSEL FOR THE ASSESSEE IN THE CASE OF RELIANCE PETRO PRODUCTS (P) LTD. (SU PRA) WE FIND THE SAME IS DISTINGUISHABLE AND NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. IN THE SAID CASE THE HONBLE SUPREME COURT DELETED THE PENALTY ON THE GROUND THAT THERE WAS NO FINDING THAT ANY DETAILS SUPPLIED BY THE ASS ESSEE IN ITS RETURN ARE FOUND TO BE INCORRECT OR ERRONEOUS OR FALSE. ACCORDINGLY IT WAS HELD THAT A MERE MAKING OF A CLAIM WHICH IS NOT SUSTAINABLE IN LAW BY ITSELF WILL NOT AMOUNT TO FURNISHING OF INACCURATE PARTICULARS REGARDING THE INCOME OF THE ASSESSEE AND THEREFORE SUCH A CLAIM MADE IN THE RETURN CANNOT AMOUNT TO FURNISHIN G OF INACCURATE PARTICULARS. HOWEVER IN THE INSTANT CASE A FINDING HAS BEEN GI VEN BY THE ASSESSING OFFICER THAT THE GROUP CONCERNS ARE INDULGING IN MANIPULATI VE PRACTICE OF ISSUING DEBIT NOTES/CREDIT NOTES TO TRANSFER PROFITS TO LOSS MAKI NG CONCERNS TO REDUCE THE TAXABLE INCOME. THE FINDING OF THE ASSESSING OFFIC ER HAS BEEN UPHELD BY THE TRIBUNAL. NOTHING WAS BROUGHT TO OUR NOTICE THAT T HE SISTER CONCERN IN FACT HAS DONE SOME SERVICE TO THE ASSESSEE SO AS TO JUSTIFY THE CLAIM. THEREFORE THE DECISION OF THE HONBLE SUPREME COURT IN OUR OPINI ON WILL NOT BE APPLICABLE TO THE FACTS OF THE PRESENT CASE. 25. IN THIS VIEW OF THE MATTER WE UPHOLD THE PENALTY U /S. 271(1)(C) CONFIRMED BY THE CIT(A). THIS GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY DISMISSED. 26. IN THE RESULT I.T.A. NO. 6659/MUM/2008 IS ALLOWED WHEREAS I.T.A. NO. 6540/MUM/2008 IS DISMISSED. PRONOUNCED ON 14 TH MAY 2010 SD/- (R.V. EASWAR) SR. VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI DATED 14 TH MAY 2010 ITA NOS. 6659 & 6540/MUM/2008 M/S. SANGHVI SWISS REFILLS PVT. LTD. ========================== 12 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-XXIX MUMBAI 4. THE CIT-8 MUMBAI 5. THE DR E BENCH. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI TPRAO