Income Tax Appellate Tribunal - Mumbai
Urmila & Co.Ltd, Mumbai vs Asst Cit Cen Cir 24 & 26, Mumbai on 17 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "J" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
IT (SS) A. 01/Mum/2015
(A.Y: Block Period of P.Y. 1989 -90 to 1998-90
And broken period of 01.04.1999 to 02.12.1999 )
M/s Urmila & CO. Ltd. Asst. Commissioner of Income Tax,
Mackinon Mackensie Bldg 4 Central Circle-24 & 26, Mumbai
Vs.
Shoorji Vallbhdas Marg, ballard (jurisdiction changed to ACIT
Estate,Mumbai-400001 1(3) (2), Mumbai),
PAN No.AAAC41651J
Appellant .. Respondent
Assessee by .. Shri. Hariom TUlsyan, AR
Revenue by .. Shri. T.A. Khan, DR
Date of hearing .. 16-01-2017
Date of pronouncement .. 17-02-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the assessee is arising out of the order of CIT (A)-51, Mumbai in appeal No. CIT (A)-51/IT-168/2013-14 dated 02-01-2015. The Assessment was framed by DCIT Central Circle 24 & 26, Mumbai for the Block Period of previous Year 1989-90 to 1998-90 and broken period of 01.04.1999 to 02.12.1999 vide order dated 28-12-2001 u/s 158BC of the Income Tax Act, 1961 (hereinafter 'the Act').
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the levy of penalty u/s 158 BFA (2) of the Act amounting to Rs. 17,33,821/-. The assessee has raised jurisdictional issue that penalty is not legally tenable as the expenses were not covered in the definition of undisclosed income prior to the amendment of undisclosed income in section 158B(b) of the Act by the Finance Act 2002, retrospective from 1st July 1995. For this assessee has raised following grounds: -
"1. On the facts and in the circumstances of the case and in law, the Ld. C.I.T.(A) erred in confirming the penalty of Rs. 17,33,821/- u/s M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 158BFA (2) of the Income Tax Act, 1961 levied by the Assessing Officer as the same is not legally tenable in as much as the addition confirmed by the Hon'ble ITAT relate to the expenses and expenses were not covered by the definition of 'undisclosed income' for levying penalty in the relevant years under consideration.
2. The Ld. CIT (A) has erred in confirming the penalty considering the additions upheld by Hon'ble ITAT in the nature of expenses covered in the definition of 'undisclosed income' in the light of retrospective amendment without considering the fact that the said amendment was not applicable in the case of the appellant."
3. Briefly stated facts are that a search and seizure action under section 132 of the Act was conducted on 02-12-1999 on ABC Group of concerns and the assessee Urmila & Co. Ltd was one of the concern covered under search. The assessee company is engaged in the business of providing projects services i.e. clearance and Inland transport of project materials and equipment from the port to the site by road, river and sea throughout India. During the course of search, large volumes of documents were found and seized from the premises of the assessee. During the course of search, a statement of Shri Arun Kapoor CEO of the assessee company was recorded under section 132(4) of the Act wherein he admitted to having obtained bogus bills to the tune of Rs. 50,00,000/- on 06-12-1999. Finally, Shri Arun Kapoor recorded his statement dated 23-05-2000 wherein undisclosed income was modified to the extent of Rs.16,58,238/-. The assessee claimed that the following amounts of bills represents genuine transaction: -
Sl No. Party Name Amount (Rs.)
1. M/s Central Tyres 5,37,350/-
2. M/s Indian Freightways 7,45,167/-
3. M/s Nilesh Transport 6,00,000/-
Total 18,82,517/-
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Further, the assessee also claimed that the following expenses were incurred for the business purposes out of cash generated from the accommodation bills :-
Sl No. Account Amount (Rs.)
1. Dahej Jetty 5,22,000/-
2. Cuddalore Jetty 8,00,000/-
3. Commission Paid 2,07,182/-
Total 15,29,182/-
Finally, the assessee computed the modified undisclosed income of Rs.16,58,238/ as under: -
Aggregate value of bills in respect of 8 parties stated as bogus bills in 50,69,937/- statement under section 132(4) of the Income-tax Act, 1961 (-) Aggregate value of three items of expenditure as per para 5 which are 18,82,517/- genuine (-) Expenses incurred for business purposes out of the income generated 15,29,182/-
from accommodation bills Balance (Rs.) 16,58,238/-
4. The AO while completing block assessment has not accepted the genuineness of Bills to the tune of Rs.18,82,517/- and disallowed the claim of expenditure of Rs.
8,00,000/- and Rs.5,22,000/- representing the cash payment to fisherman at Cuddalore Jetty and Dahej Jetty respectively, on the ground that this is not allowable expenditure. Further, the expenditure of Rs. 2,07,182/- was also disallowed because it was not claimed in the books of account. The CIT(A) deleted the addition of bills considering the same as genuine amounting to Rs.18,82,570/- pertaining to the three items. The CIT(A) confirmed the disallowance of expenses of Rs. 8,00,000/- and Rs. 5.22 lakhs on the ground that the same was not claimed in the books of account. CIT(A) also allowed deduction for commission in respect of assessee's claim of Rs. 2,07,182/-. The Revenue as well as assessee contested the order of CIT(A) before ITAT and ITAT reversed the relief granted by CIT(A) in relation to accommodation bills of Rs. 18,82,570/- and also confirmed the disallowance of expenditure claimed Page 3 of 11 M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 by assessee of commission paid for procurement of bogus bills amounting to Rs.2,07,182/-. However, the disallowance of expenditure of Rs.8,00,000/- and Rs.5.22 lakhs in respect of payment to local fishermen at Cuddalore Jetty and Dahej Jetty respectively, was held allowable after verification of certain facts by the AO. The AO while going through the order of the ITAT for giving appeal effect, has allowed relief of Rs.5.22 lakhs but not considered the relief granted by Tribunal of sum of Rs. 8,00,000/-. The AO levied the penalty on the addition of disallowance expenses confirmed by the order of ITAT on the followings: -
"Particulars Amount
1. Addition of alleged bogus/accommodation bills 18,82,517/-
2. Disallowance of expenses claimed for amount utilized for business purposes out of cash generated from the accommodation bills. 8,00,000/-
3. Disallowance of expenses on account of commission for obtaining bogus accommodation bills 2,07,182/ Total 28,89,699/-
5. At the outset, the learned Counsel for the assessee argued on the amount of Rs.8,00,000/- being disallowance of expenses for an amount utilized for the purpose of business out of cash generated from accommodation bills was already allowed by the Tribunal and relevant observations of the Tribunal in Para 8 and 8.1 read as under:
-
"We have heard the parties, and perused the material on record. 8.1 The payments were definitely not contractual; the fishermen having no vested or secured right in the coastal line, so as to permit the assessee to build a temporary jetty thereat. At the same time, the commercial expediency of the payments is manifest inasmuch as the cooperation of the local fishermen had necessarily to be secured if the Jetty had to be constructed. It is not necessary that a payment to be allowable u/s.37(1) has necessarily to be contractual, and neither do we consider it as opposed to public policy, which could be so said only if the construction of the jetty Page 4 of 11 M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 was either prohibited by law or if the required permission for the same had not been obtained. The Revenue has not brought out any such case. In the case of Maddi Venkataraman & Co. (P.) Ltd. (supra), the expenditure/loss was that incurred by the assessee in acting in contravention of the provisions of the Foreign Exchange (Regulation) Act. In Ghatkopar Estate & Finance Corp. (P.) Ltd. (supra), the issue involved was the deductibility of the interest payable under the Act on the delayed payment of taxes there-under. The two cases are, thus, distinguishable on facts. The machineries were required to be transported partly by road and partly by barge, so that for the purpose of the latter a Ro-Ro jetty had to be erected. It was enquired from the ld. AR during hearing if the assessee had claimed the expenditure on the construction of the jetty in its regular books of account, to which he could not furnish any definite reply. The same would undeniably establish the commercial purpose for which the jetty was constructed. Also, in our view, there is no question of the assessee not claiming the expenditure on its construction; the same forming part of the direct cost of the transportation contract with M/s. Nagarjuna Fertilisers & Chemicals Ltd. As such, subject to the assessee demonstrating the building up of the jetty on the basis of the expenditure on its construction per its regular books of account and/or other relevant records, so that the impugned expenditure of Rs.8 lakhs gets established as being paid for the said purpose, the assessee is eligible for deduction in its respect. We decide accordingly, disposing, thus, the Revenue's ground no. 2."
From the above Para the learned Counsel for the assessee stated that when a Tribunal has given a specific finding regarding allowance of this expenditure, the penalty u/s 158BFA(2) cannot be levied on the above disallowance.
6. As regards to levy of penalty in relation to addition of bogus / accommodation bills of Rs. 18,82,517/- and consequential disallowance of expenditure of commission paid for obtaining these bogus / accommodation bills amounting to Rs.2,07,182/-, the learned Counsel for the assessee argued that the addition was made solely on the basis of statement of CEO of the assessee and the AO nowhere pointed out any Page 5 of 11 M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 incrementing material found during the course of search, based on which these additions were made. The AO has placed complete reliance on the statement of CEO, which was subsequently retracted vide affidavit dated 23-05-2000 and CEO claimed his affidavit that his bills are genuine. But the AO did not accept retraction of the assessee on the ground that it was an afterthought. The AO could not controvert the claim of genuineness of the bills and even no opportunity was provided to the assessee to rebut the so-called evidenced collected by the department i.e. except the admission of the CEO.
7. On legal aspect the learned Counsel for the assessee argued that the provisions of section 158B(b) of the Act which was amended by the Finance Act, 2002 with retrospective effect from 01-07-1995 by inserting the last phrase "or in expense, deduction or allowance claimed under this Act which is found to be false". The relevant provision after amendment reads as under: -
"Undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purpose of this Act, or any expense, deduction or allowance claimed under this Act which is found to be false"
8. The learned Counsel for the assessee stated that no doubt this provision is inserted by the Finance Act 2002 with retrospective effect from 01-07-1995 u/s 158B(b) of the Act and block return in response to notice u/s 158BC of the Act was filed on 07-06-2000 for the relevant block period. According to us, it is therefore clear that when the block return was filed on 07-06-2000, the definition of undisclosed income did not include in item pertaining to expenses, deduction or allowance which is found to be false. He explained that use of all the terms in the highlighted expression is very important as inserted by Finance Act 2002 although with retrospective effect from 01-07-1995. The amount in accommodation bills is Page 6 of 11 M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 covered by the term deduction and the amount of money paid for procuring accommodation bill is an expense. According to the learned Counsel, this item got included in the definition of undisclosed income only by the Finance Act 2002 although amendment was made with retrospective effect from 1st July 1995 but on the day assessee filed its return of income as on 07-06-2000, the amended provision inserting these terms for making disallowance i.e. "or any expense, deduction or allowance claimed under this Act which is found to be false" did not exist. According to the learned Counsel, this amended provision could not apply to this case.
9. On legal aspect, after hearing the parties we have gone through the decision of the Hon'ble Bombay High Court in the case of CIT vs. Essar Teleholding Ltd. in Tax Appeal No. 438/2012 judgment dated 07-08-2014, after considering the decision of the Hon'ble Supreme Court in the case of Star India (P.) Ltd. v. CCE[2006] 280 ITR 321 has interpreted the retrospectivity as under:-
".......18. In the case of Star India (P.) Ltd. v. CCE[2006] 280 ITR 321 the Hon'ble Supreme Court held that the service of "broadcasting"
was made a taxable service with effect from July 16, 2001, by the Finance Act, 2001. The appellant disputed its liability to make any payment for service tax on the ground that it did not broadcast. The Commissioner, however, held against the appellant. The matter was carried before the Commissioner of Income Tax (Appeals) and during pendency of appeal the Finance Act, 2001 was amended by the Finance Act, 2002. The effect of amendment, inter alia, was to make an agent, such as the appellant, before the Supreme Court, liable to pay service tax as broadcaster.
19. The Supreme Court noted that the Appellants' appeal pending before the Commissioner was rejected by him on the basis of this amendment. The tribunal also maintained this order and that part of the order passed by the Commissioner was not challenged in appeal. However, the appellant was aggrieved by the fact that the tribunal held it liable to pay interest on the amount which it was required to pay by reason of the 2002 amendment. The assessee contended that once the amendment was Page 7 of 11 M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 brought in, pending the appeal, there was no question of applying section 234B or any analogus provision and payment of interest. It is in that regard that the Hon'ble Supreme Court held as under :
"7. In any event, it is clear from the language of the validation clause, as quoted by us earlier, that the liability was extended not by way of clarification but by way of amendment to the Finance Act with retrospective effect. It is well established that while it is permissible for the Legislature to retrospectively legislate, such, retrospectivity is normally not permissible to create an offence retrospectively. There were clearly judgments, decrees or orders of courts and Tribunals or other authorities, which required to be neutralised by the validation clause. We can only assume that the judgments, decree or orders, etc., had, in fact, held that persons situate like the appellants were not liable as service providers. This is also clear from the Explanation to the valuation section which says that no act or acts on the part of any person shall be punishable as an offence which would not have been so punishable if the section had not come into force.
8. The liability to pay interest would only arise on default and is really in the nature of a quasi-punishment. Such liability although created retrospectively could not entail the punishment of payment of interest with retrospective effect."
20. The Supreme Court held that the liability to pay interest would only arise on default and is really in the nature of a quasi punishment. The liability to tax although credited retrospectively could not entail the punishment of payment of interest with retrospective effect. It is this principle which has been laid down which is followed by the Calcutta High Court. It is that principle relied upon by the Calcutta High Court which has been applied by the Tribunal to the facts and circumstances of the present case. We do not think that the assessee before us can be called upon to pay interest in terms of section 234B, once the explanation was introduced or brought in with retrospective effect but by Finance Page 8 of 11 M/s Urmila & CO. Ltd.
IT (SS) A-01/Mum/2015 Act, 2008. Then, there was no liability to pay interest in terms of this provision. That was because the assessee cannot be termed as defaulter in payment of advance tax. The advance tax computation on the basis of the unamended (sic) provision therefore could not have been entertained."
10. Similarly, even Hon'ble Calcutta High Court in the case of Emami Ltd. vs. CIT (2011) 337 ITR 470(Cal), has taken similar view wherein it is held that the last date of the relevant financial year was 31-03-2001, and on that day, admittedly, the assessee had no liability to pay any amount of advance tax in accordance with the law then prevailing. The amended provisions of section 115JB having come into force with effect from 01-04-2001, the assessee could not be held a default with respect to payment of advance tax. On the last date of the financial year proceeding the relevant assessment year, as the book profits of the assessee in accordance with the then provision of law were nil, there was no advance tax payable within the last day of the financial year preceding the relevant Assessment Year as provided in sections 207 and 208 or within the dates indicated in section 211. Interest could not be levied under sections 234B and 234C.
11. In the present case also in sub-section 158B(b) of the Act, the last phrase inserted by the Finance Act 2002 with retrospective effect from 01-07-1995, "or any expense, deduction or allowance claimed under this Act which is found to be false", whereas the block return was filed by the assessee only on 07-06-2000 when the definition of undisclosed income did not include any item pertaining to expense, deduction or allowance which is found to be false. These items got included in the undisclosed income only by the Finance Act 2002 though retrospective from 01-07- 1995, but on the day the assessee filed its return of income the amended provision did not exist. According to us the amended provision will not apply to the present case.
12. In the similar circumstances Mumbai Tribunal in the case of (TM) M/s Super Metal Industries vs. DCIT (2009) 317 ITR (AT) 161 (Mum), which is on the point of penalty under section 158BFA(2) of the Act, has considered the amendment and the relevant portion of the order reads as under:-
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IT (SS) A-01/Mum/2015 "Sec. 158B(b), which defines undisclosed income", was subjected to change by insertion of the words "or any expense, deduction or allowance claimed under this Act which is found to be false" with retrospective effect from 1 st July,1995 by the Finance Act, 2002, after the wordings "for the purpose of this Act". The learned JM rightly noted that "the words underlined (italicised in print) by us were included y Finance Act 2002 which shows that at the time when the return was filed, the disallowance of expenses was not within the ambit of the expression undisclosed income:. So at the time of filing the return, assessee was not obliged to declare the same in its return particularly when no material or evidence was found relating to such expenses in the course of search carried out at the business premises of the group concerns."
Similarly, in the present case before us also at the time of filing of block return by the assessee, the assessee was not obliged to declare the expenses in the return particularly when no material or evidences was found relating to these expenses (except the statement of the CEO which was retracted) in the course of search on the business premises of the assessee. This decision of Mumbai Tribunal was affirmed by the Hon'ble Bombay High Court in income tax appeal no. 478 of 2014 in the case of CIT vs. Smt. Karajgi Vanita Nagesh dated 25-10-2016. In the given facts and circumstances of the present case and the judicial precedence cited (supra), we reverse the orders of the lower authorities and the penalty levied under section 158BFA(2) of the Act on this jurisdictional issue.
13. In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 17-02-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 17-02-2017
Sudip Sarkar /Sr.PS
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Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai
6. Guard file.
BY ORDER,
//True Copy//
Assistant Registrar
ITAT, MUMBAI
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